<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1996 .
----------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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Commission file number 1-11900
Integrated Security Systems, Inc.
(Exact name of small business issuer as specified in its charter)
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DELAWARE 75-2422983
(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
8200 SPRINGWOOD, SUITE 230, IRVING, TEXAS 75063
(Address of principal executive offices) (Zip Code)
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(214) 444-8280
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of April 23, 1996, 4,639,693 shares of Registrant's common stock were
outstanding.
Page 1 of 78
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Integrated Security Systems, Inc. Consolidated Financial Statements:
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Page
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Balance Sheets 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Financial Statements 6
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Page 2 of 78
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INTEGRATED SECURITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS
Current assets:
Cash $ 775,897 $ 209,655
Accounts receivable, net of allowance for doubtful
accounts of $49,254 and $54,558, respectively 1,337,755 1,761,701
Inventories 963,436 854,888
Restricted cash 62,410 157,851
Other current assets 115,196 38,221
Net assets from discontinued operations 24,671 76,807
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Total current assets 3,279,365 3,099,123
Property and equipment, net 1,035,326 1,068,123
Intangible assets, net 287,356 136,116
Capitalized software development costs 738,739 787,816
Deferred income taxes 205,384 205,384
Other assets 55,332 10,943
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Total assets $ 5,601,502 $ 5,307,505
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 908,358 $ 1,484,152
Accrued liabilities 761,975 1,044,450
Notes payable 1,112,929 950,947
Notes payable to related parties 241,626 4,000
Current portion of long-term debt 85,540 96,451
Net liabilities of discontinued operations 117,386 332,866
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Total current liabilities 3,227,814 3,912,866
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Long-term debt 205,051 213,899
Stockholders' equity:
Preferred stock, $.01 par value, 750,000 shares
authorized, 45,165 and 34,165, respectively, shares
issued and outstanding 452 342
Common stock, $.01 par value, 11,000,000 shares
authorized, 4,674,738 and 3,730,738, respectively,
shares issued and 4,624,738 and 3,680,738,
respectively, shares outstanding 46,747 37,307
Additional paid-in-capital 8,355,886 7,191,575
Accumulated deficit (6,115,698) (5,929,734)
Treasury stock (118,750) (118,750)
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Total stockholders' equity 2,168,637 1,180,740
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Total liabilities and stockholders' equity $ 5,601,502 $ 5,307,505
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The accompanying notes are an integral part of the consolidated financial
statements.
Page 3 of 78
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INTEGRATED SECURITY SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
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1996 1995
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Sales $ 1,809,059 $ 1,388,235
Cost of sales 1,155,881 801,767
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Gross margin 653,178 586,468
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Operating expenses:
Selling, general and administrative 782,395 752,181
Research and product development 2,389 5,828
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784,784 758,009
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Loss from operations (131,606) (171,541)
Other income (expense):
Interest income 2,317 12,044
Interest expense (108,464) (105,556)
Other 6,000 (32)
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Loss from continuing
operations before income tax (231,753) (265,085)
Income tax benefit 23,000 --
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Loss from continuing operations (208,753) (265,085)
Discontinued operations:
Loss from discontinued operations -- (252,392)
Gain on disposal of discontinued operations 22,789 --
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Gain (loss) from discontinued operations 22,789 (252,392)
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Net loss $ (185,964) $ (517,477)
============== ==============
Weighted average common and common
equivalent shares outstanding 5,401,848 3,919,705
============== ==============
Net loss per share:
Continuing operations (.03) (.07)
Discontinued operations (.00) (.06)
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Total (.03) (.13)
============== ==============
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The accompanying notes are an integral part of the consolidated financial
statements.
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INTEGRATED SECURITY SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
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1996 1995
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Cash flows from operating activities:
Net loss from operations $ (185,964) $ (517,477)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation 47,078 38,448
Amortization 114,495 102,118
Bad debt expense (5,304) 6,000
Non-cash expenses (263,586) (15,872)
Provision for inventory reserve 5,566 9,000
Restricted cash 95,441 (4,170)
Net change in assets and liabilities from
discontinued operations (113,015) 457,837
Changes in operating assets and liabilities:
Accounts receivable 429,250 240,465
Inventories (96,043) (62,796)
Other assets 3,296 (84,627)
Accounts payable (308,708) (74,369)
Accrued liabilities (320,911) 80,163
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Net cash provided (used) by operating activities (598,405) 174,720
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Cash flows from investing activities:
Sale (purchase) of property and equipment (19,402) (13,337)
Intangible assets (66,178) --
Capitalized software costs -- (68,358)
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Net cash used by investing activities (85,580) (81,695)
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Cash flows from financing activities:
Issuance of preferred stock, net 190,000 --
Issuance of common stock, net 760,000 --
Payments on line of credit -- (89,595)
Payments on notes payable and long-term debt (34,773) (8,747)
Proceeds from notes payable and long-term debt 335,000 8,000
Other -- (1,946)
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Net cash provided (used) by financing activities 1,250,227 (92,288)
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Increase in cash 566,242 737
Cash at beginning of period 209,655 10,523
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Cash at end of period $ 775,897 $ 11,260
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5 of 78
<PAGE> 6
INTEGRATED SECURITY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTERS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. The accompanying financial
statements include the accounts of Integrated Security Systems, Inc. ("ISSI")
and all of its subsidiaries (collectively, the "Company"), with all significant
intercompany accounts and transactions eliminated. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's 1995 Annual Report on Form 10-KSB filed March 14, 1996.
NOTE 2 - RECLASSIFICATION
Certain reclassification of prior year amounts have been made to conform to
the current period presentation.
NOTE 3 - FINANCING
On January 24, 1996, the Company converted related party accounts payable
into notes payable to related parties of $13,080. On March 31, 1996, $5,000 of
this note was paid, with the remainder plus interest at a rate of prime plus 2%
per annum due on August 1, 1996.
On February 8, 1996, the Company borrowed $85,000 from a principal
stockholder. Attached to this note is a warrant to purchase 13,201 shares of
the Company's common stock at a price of $1.176 per share. This note is
non-interest bearing and payable upon demand of the holder.
On March 1, 1996, the Company converted related party accounts payable into
notes payable to related parties of $48,546. These notes are due on September
1, 1996 and March 1, 1997 and bear interest at 10.53% per annum.
On March 6, 1996, the Company announced the retention of Bathgate McColley
Capital Group LLC as its investment banker. Bathgate McColley Capital Group
LLC will provide ISSI with a full range of investment banking services,
including capital formation and merger and acquisition support, and will assist
ISSI in enhancing and expanding the public market for its common stock and
warrants.
On March 11, 1996, the Company received short term advances totaling
$250,000 from affiliated and unaffiliated investors. These advances are due
six months from origination and pay interest at 8% per annum. $150,000 of these
advances are personally guaranteed by Gerald K. Beckmann, ISSI's Chief Executive
Officer. These advances are convertible into $20 Series C preferred stock
convertible to 30 common shares and a warrant to purchase 15 shares of the
Company's common stock at a price of $1 per share. These warrants expire five
years from the date of issue.
Page 6 of 78
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On March 27, 1996, the Company sold 10,000 Units, with each Unit consisting
of one share of $20 Series A convertible preferred stock and warrants to
purchase eight shares of the Company's common stock at a price of $1 per share,
to outside investors for $190,000 in cash, net of offering expenses. The
warrants expire on March 31, 2001.
On March 28, 1996, the Company sold 800,000 shares of common stock and
320,000 warrants to purchase common stock to an institutional investor for
$760,000 in cash, net of offering expenses. The warrants have an exercise
price of $1 per share and expire on March 31, 2001.
NOTE 4 - LITIGATION SETTLEMENT
On February 6, 1996, the Company and Philip R. Thomas, a principal
stockholder, reached a settlement in a lawsuit filed in the U.S. District Court
of Dallas County, Texas entitled Charles W. Martin, Jr. v. Integrated Security
Systems, Inc., Automatic Access Controls, Inc. and Philip R. Thomas (Case No.
94-06750). According to the terms of the settlement, (i) the Company agreed to
pay Mr. Martin $175,000 cash over the next year, (ii) the Company released
contractual restrictions on 99,000 shares of the Company's common stock held by
Martin prior to the settlement, and (iii) Philip R. Thomas agreed to transfer
85,000 shares of the Company's common stock owned by him to Martin.
NOTE 5 - ACQUISITION OF TRI-COASTAL SYSTEMS, INC.
On September 18, 1995, the Company purchased substantially all of the
assets and liabilities of Tri-Coastal Systems, Inc. ("TCSI") by issuing 21,000
shares of the Company's common stock with an aggregate market value of $55,125.
This transaction was accounted for as a purchase with the excess of the
purchase price over the fair market value of the net assets purchased of
$125,201 recorded as goodwill. On March 31, 1996, the Company issued 45,000
additional shares of common stock with an aggregate market value of $101,250
and paid $66,178 in cash to the former owners of TCSI in exchange for the
surrender by the former owners of a right granted to them at the time of the
purchase of TCSI in September 1995, to demand that the original purchase be
reversed under certain circumstances. Goodwill in the amount of $162,155 was
recorded as a result of these transactions. Through March 31, 1996, $5,273 of
amortization expense has been recorded.
NOTE 6 - SUBSEQUENT EVENTS
On April 10, 1996, the Company repaid a loan of $85,000 from a principal
stockholder. Related party accounts receivables of $48,127 were offset as part
of the transaction, resulting in a net cash payment of $36,873.
On April 25, 1996, the Company closed on a $900,000 term loan facility with
a lending institution. The loan is due in eleven monthly payments of $12,000
beginning June 1, 1996, and one payment sufficient to pay the balance.
Interest on the loan is floating at the lending institution's Base Lending Rate
minus 1%, which is currently 10% APR. The loan is secured by all real estate
and equipment at B&B Electromatic, Inc. and guaranteed by Gerald K. Beckmann,
ISSI's Chief Executive Officer, with certain of his personal assets pledged as
collateral. Approximately $450,000 of the proceeds of this loan were used to
repay existing mortgages and notes payable at B&B, and the remaining proceeds
were used to repay a portion of ISSI notes payable due April 29, 1996.
During the quarter ended December 31, 1995, the Company secured an
extension of the due dates of certain outstanding loans. These loans are in
the principal amount of $789,000 and are secured by certain of the Company's
accounts receivable, equipment and inventory. These loans were extended until
April 29, 1996 in exchange for warrants to purchase the Company's common stock
and an increase in the interest rate from 14% to 16% per annum. On April 29,
1996, $680,000 of the aforementioned loans were paid along with accrued
interest. The remaining $109,000 in principal balance was converted by the
holder into 5,453 Units consisting of one share of $20 Series A convertible
preferred stock and warrants to purchase eight shares of the Company's common
stock at a price of $1 per share through March 31, 2001.
Page 7 of 78
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Integrated Security Systems, Inc. ("ISSI") designs, develops, manufactures,
sells and services commercial and industrial security and traffic control
products including warning gates, crash barriers, lane changers, navigational
and airport lighting, and electronically-controlled security gates. The
Company also develops and markets "intelligent" or programmable security
systems that integrate multiple security devices and subsystems for
governmental, commercial and industrial facilities. Applications for these
systems include perimeter security for airports, access control for commercial
office buildings, and video surveillance for warehouses.
The Company was incorporated on December 19, 1991. Effective as of January
1, 1992, the Company acquired B&B Electromatic, Inc. ("B&B") in a transaction
which was accounted for similar to a pooling of interests. B&B designs,
manufactures and distributes commercial and industrial security products, and
traffic control barriers and lighting for the road and bridge industry. B&B
has been in operation since 1925.
On March 16, 1993, the Company organized Innovative Security Technologies,
Inc. ("IST"), which is a retail seller of security products and
microprocessor-based systems to large customers. On August 23, 1993, the
Company announced the development of its PC-based security network, the
Intelli-Site(R), that integrates multiple security functions into a centralized
management system for single and/or multiple site locations. IST is
responsible for the sales and marketing of this product.
On September 18, 1995, the Company purchased substantially all of the
assets and liabilities of Tri-Coastal Systems, Inc. ("TCSI") by issuing 21,000
shares of the Company's common stock with an aggregate market value of $55,125.
This transaction was accounted for as a purchase. On March 31, 1996, the
Company issued 45,000 additional shares of common stock with an aggregate
market value of $101,250 and paid $66,178 in cash to the former owners of TCSI
in exchange for the surrender by the former owners of a right granted to them
at the time of the purchase of TCSI in September 1995, to demand that the
original purchase be reversed under certain circumstances. TCSI sells and
installs security and safety systems to end users.
During the second quarter of 1995, the Company discontinued the operations
of Automatic Access Controls, Inc. ("AAC"), a distributor of commercial and
industrial security products, and merged certain functions of AAC with two
other existing subsidiaries (B&B and IST). This merger was implemented during
the second and third quarters of 1995. The results of operations for AAC are
reflected on the consolidated financial statements as discontinued operations
for all periods reported.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Sales. The Company's sales increased by 30.3% from $1,388,235 in the first
quarter of 1995 to $1,809,059 in the first quarter of 1996. This increase is
primarily attributable to the inclusion of TCSI revenue in the quarter ended
March 31, 1996, with no equivalent revenue last year. B&B accounted for 87% of
the first quarter 1995 revenues versus 73% of the first quarter 1996 revenues.
Cost of Sales and Gross Profit. Gross profit as a percent of sales
decreased to 36.1% from 42.2% for the first quarters of 1996 and 1995,
respectively. This decrease was primarily due to inclusion of TCSI results in
the quarter ended March 31, 1996, which generally has lower gross margins than
B&B, the other material operating subsidiary. Historically, gross margins have
averaged 43% and 25% for B&B and TCSI, respectively. The Company also began
amortizing software development costs related to the Intelli-Site software,
which amounted to $31,845.
Page 8 of 78
<PAGE> 9
Selling, General and Administrative. Selling, general and administrative
expenses increased during the first three months of 1996 compared to the same
period in 1995 by approximately $30,000. The increase is attributable to
increased marketing and personnel expenses.
Interest Income.Interest income for the first three months of 1996
decreased to $2,317 from $12,044 in the first quarter of 1995. During the
first quarter of 1995, the Company earned interest on a $350,000 certificate of
deposit placed with a bank as collateral to secure a line of credit. On April
11, 1995, the certificate of deposit and accumulated interest were released
when the line of credit was repaid in its entirety.
Interest Expense.The increase of $2,908 in interest expense during the
first three months of 1996, compared to the same period in 1995, is
attributable to increased interest rates and amortization of warrant costs
pertaining to extensions of certain short term notes.
Income Taxes. The Company recorded an income tax benefit of $23,000 during
the first quarter of 1996, due to the reversal of state income tax estimates.
Discontinued Operations. The discontinued operations reflect the
operations of AAC. AAC's operations were discontinued in the second quarter of
1995. During the first quarter of 1996, the Company recorded a gain on
disposal of discontinued operations in the amount of $22,789 related to the
settlement of liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position increased by $566,242 during the first quarter
of 1996. The Company used $598,405 for operations during this period as
compared with $174,720 generated from operations during the same period last
year. This was primarily attributable to the payment of certain 1995 accounts
payable and accrued liabilities, for which extended payment terms were
negotiated. These uses of cash were partially offset by increased collections
of accounts receivable, either directly or through a factoring agreement.
Discontinued operations used $113,015 of cash during the first three months of
1996 compared to providing $457,837 in the same 1995 period. During the first
three months of 1996, the Company generated $1,250,227 from financing
activities. Payments of $34,773 were made on notes payable and long-term debt.
The Company borrowed $85,000 from a principal stockholder and received short
term advances totaling $250,000 from affiliated and unaffiliated investors.
The Company also received $950,000 through the sale of common and preferred
stock, warrants and convertible debt, net of related expenses.
On March 11, 1996, the Company received short term advances totaling
$250,000 from affiliated and unaffiliated investors. These advances are due
six months from origination and pay interest at 8% per annum. $150,000 of these
advances are personally guaranteed by Gerald K. Beckmann, ISSI's Chief
Executive Officer. These advances are convertible into $20 Series C preferred
stock convertible to 30 common shares and a warrant to purchase 15 shares of the
Company's common stock at a price of $1 per share. These warrants expire five
years from the date of issue.
On March 27, the Company sold 10,000 Units, with each Unit consisting of
one share of $20 Series A convertible preferred stock and warrants to purchase
eight shares of the Company's common stock at a price of $1 per share until
March 31, 2001, to outside investors for $190,000 in cash, net of offering
expenses. On March 28, 1996, the Company sold 800,000 shares of common stock
and 320,000 warrants to purchase common stock to an institutional investor for
$760,000 in cash, net of offering expenses. The warrants have an exercise
price of $1 per share and expire on March 31, 2001. The Company used the
proceeds of these sales to make payments on short-term notes payable and past
due trade debt.
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<PAGE> 10
On April 25, 1996, the Company closed on a $900,000 term loan facility with
a lending institution. The loan is due in eleven monthly payments of $12,000
beginning June 1, 1996, and one payment sufficient to pay the balance.
Interest on the loan is floating at the lending institution's Base Lending Rate
minus 1%, which is currently 10% APR. The loan is secured by all real estate
and equipment at B&B and guaranteed by Gerald K. Beckmann, ISSI's Chief
Executive Officer, with certain of his personal assets pledged as collateral.
Approximately $450,000 of the proceeds of this loan were used to repay existing
mortgages and notes payable at B&B, and the remaining proceeds were used to
repay a portion of ISSI notes payable due April 29, 1996.
The Company raised $2,100,000 through equity placements and new or
refinanced debt during the first four months of 1996. However, the Company
will likely be required to raise additional cash through debt and/or equity
placements, or other arrangements, in order to fund operations as presently
structured and/or to acquire other businesses during the next year. The exact
amount, type and timing of such funding activities, and their impact on current
shareholder interests, cannot be determined at this time.
SEASONALITY
Because the Company sells products which are used primarily in outdoor
construction, which is affected by weather, the Company's sales have
historically been greater during the third and fourth quarters of the year than
during the first two quarters. Consequently, the Company's sales during the
two quarters ending in March and June of each year are generally not expected
to reach the levels of the two quarters ending in September and December of
each year. The Company expects that this seasonal fluctuation will continue.
Page 10 of 78
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBIT INDEX.
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10.55 Corporate Consulting Agreement dated March 3, 1996, by and between the Company
and Bathgate McColley Capital Group LLC for consulting services.
10.56 Form of Promissory Notes dated March 11, 1996.
10.57 Engagement letter dated March 26, 1996, from Bathgate McColley Capital Group LLC
to the Company proposing private placement offering.
10.58 Form of Subscription Agreement for Series A Convertible Preferred Stock executed
on March 27, 1996.
10.59 Subscription Agreement for Common Stock executed March 28, 1996.
10.60 Form of Warrant Agreement for purchase of common stock executed March 29, 1996.
10.61 Placement Agent Agreement dated April 16, 1996, by and between the Company and
Bathgate McColley Capital Group LLC confirming private placement offering.
10.62 Form of Amendment to Promissory Notes dated April 22, 1996.
REPORTS OF FORM 8-K.
Filed January 5, 1996 Preliminary unaudited December 31,1995 financial results.
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<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Integrated Security Systems, Inc.
---------------------------------
(Registrant)
Date: May 15, 1996 /s/ GERALD K. BECKMANN
------------------- ----------------------------------
Gerald K. Beckmann
Director, Chairman of the Board,
President and Chief Executive
Officer
Page 12 of 78
<PAGE> 13
EXHIBIT INDEX
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10.55 Corporate Consulting Agreement dated March 3, 1996, by and between the Company
and Bathgate McColley Capital Group LLC for consulting services.
10.56 Form of Promissory Notes dated March 11, 1996.
10.57 Engagement letter dated March 26, 1996, from Bathgate McColley Capital Group LLC
to the Company proposing private placement offering.
10.58 Form of Subscription Agreement for Series A Convertible Preferred Stock executed
on March 27, 1996.
10.59 Subscription Agreement for Common Stock executed March 28, 1996.
10.60 Form of Warrant Agreement for purchase of common stock executed March 29, 1996.
10.61 Placement Agent Agreement dated April 16, 1996, by and between the Company and
Bathgate McColley Capital Group LLC confirming private placement offering.
10.62 Form of Amendment to Promissory Notes dated April 22, 1996.
27 Financial Data Schedule
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<PAGE> 1
EXHIBIT 10.55
CORPORATE CONSULTING AGREEMENT
This Agreement is effective as of the 3rd day of March, 1996, by and
between Integrated Security Systems, Inc. (the "Company") and Bathgate
McColley Capital Group LLC (the "Consultant").
WHEREAS, Company is seeking advice as to various business matters, and
WHEREAS, Company desires to engage Consultant to advise it with regard
to such matters, and
WHEREAS, Company and Consultant desire to enter into this Agreement
upon the terms and conditions thereof,
NOW THEREFORE, upon the consideration of the mutual promises and
agreements contained herein, the parties agree as follows:
AGREEMENT
1. Engagement of Consultant. The Company hereby engages
Consultant and Consultant hereby agrees to render services to the Company as
set forth below.
2. Services. During the term of this Agreement, Consultant shall
provide advice to, and consult with, the Company concerning business and
financial planning, corporate organization and structure, financial matters in
connection with the operation of the business of the Company and its
subsidiaries, enhancement of the depth and breadth of the market for the
Company's securities, strategic planning, identification and review of merger
and acquisition possibilities, Company's relations with its securities holders,
preparation and distribution of periodic reports, merger and acquisitions
services described hereinafter in Section 6, and shall periodically provide to
the Company analysis of the Company's financial statements ("Consulting
Services"). Said advice and consultation shall be provided to the Company in
such form, manner and place as the Company reasonably requests.
Consultant shall not by this Agreement be prevented or barred from
rendering services of the same or similar nature, as herein described, or
services of any nature whatsoever for, or on behalf of, persons, firms, or
corporations other than Company. The Company, following the completion of a
private offering of the Company's securities by the Consultant in the amount of
at least $250,000 gross proceeds ("Private Offering"), shall not engage any
other person to provide the services being provided by the Consultant pursuant
to and during the term of this Agreement. The Private Offering is described in
a letter agreement between the parties dated March 1, 1996 and any and all
subsequent amendments thereto.
1
<PAGE> 2
3. Extent of Consulting Services Provided. Consultant shall be
available to provide Consulting Services for up to twenty (20) hours per month
during the term of this Agreement. Consultant may, but shall not be required
to, devote such additional time to the Company as may be requested by Company.
The person or persons who shall provide the Consulting Services shall be
designated by Consultant.
4. Term. The term of this Agreement shall be a twenty-four (24)
month period commencing on the date of this Agreement.
5. Compensation. As compensation for the Consulting Services,
Company shall pay to Consultant a fee of eighty-four thousand dollars
($84,000). Of this total fee, $36,000 shall be payable upon execution of this
Agreement and is contingent on the closing of an institutional placement of a
least $900,000 in equity and/or debt securities by the Company and the
remaining $48,000 is contingent on the completion of the Private Offering,
whereupon the $48,000 shall be paid over the term of the Agreement in equal
quarterly payments, payable at the beginning of each quarter. The first $6,000
payment shall be due at the initial closing of the Private Offering and the
balance of the payments is due on the 1st day of each quarter thereafter.
Additionally, Company shall issue, upon the occurrence of the following
described events, a Warrant to the Consultant in a form prepared by counsel for
Consultant entitling Consultant to purchase 200,000 shares of the Company's
common stock for $1.00 per share at any time during the five (5) year period
commencing one (1) year following the date of this Agreement. The Warrant
shall be issued for (i) 100,000 shares upon the closing of the institutional
placement of a least $900,900 described above and separately for (ii) 100,000
shares upon the completion of the Private Offering. The Warrant will contain
customary anti-dilution provisions, customary piggy-back registration
provisions and the right of the holder of the Warrant to exchange the Warrant
in a cashless exercise for a lesser number of shares of common stock based on
the market price of the Company's common stock. The Warrant shall be issued
promptly following execution of this Agreement. The Company shall reimburse
the Consultant for all reasonable out-of-pocket travel expenses incurred on
behalf of the Company within thirty (30) days of submission of a statement of
said expenses by the Consultant.
6. Merger and Acquisition. If the Company contemplates the
purchase of substantially all the assets form another entity, a merger,
acquisition, joint venture, or significant investment by the Company (defined
for purposes hereof to include any subsidiary) in another entity, the Company
will engage Consultant to assist it in negotiating, structuring and evaluating
the transaction and will pay a fee to Consultant for its services calculated as
follows:
5% of the value of the transaction to the Company up to and including
$1,000,000;
4% of the value of the transaction to the Company greater than
$1,000,000 and up to and including $2,000,000;
3% of the value of the transaction to the Company greater than
$2,000,000 and up to and including $3,000,000;
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2% of the value of the transaction to the Company greater than
$3,000,000 and up to and including $4,000,000; and
1% of the value of the transaction to the Company in excess of
$4,000,000.
Value of the transaction (consideration) is defined as:
A. The total proceeds and other consideration (including
cash, securities or installments) issued by the Company in connection with an
acquisition of, or merger with, another company, excluding any debt assumed by
the Company in the transaction.
B. If a portion of such consideration includes
contingent payments (whether or not related to future earning or operations),
aggregate consideration will be paid as the Company or its shareholders issue
or receive payment, but not in advance of receiving same.
C. In the event that the aggregate consideration for the
transaction consists in whole or in part of securities, for the purpose of
calculating the amount of aggregate consideration, the value of such securities
will be the average bid of closing prices for five consecutive days preceding
the consummation of the transaction or, in the absence of public trading market
thereof, the fair market value thereof as the Company and the Consultant agree
on the day preceding the consummation of the transaction.
7. Disclaimer of Responsibility for Acts of Company. The
obligations of the Consultant described in the this Agreement consist solely of
Consulting Services to Company. In no event shall Consultant be required by
this Agreement to act as the agent of Company or otherwise to represent or make
decisions for Company. The Consultant shall not be required to engage in
activities in any jurisdiction for which registration as a securities
broker-dealer is required prior to the Consultant obtaining such registration.
All final decisions with respect to acts of Company or its affiliates, whether
or not made pursuant to or in reliance on information or advice furnished by
Consultant hereunder, shall be those of Company or such affiliates and
Consultant shall under no circumstances be liable for any expense incurred or
loss suffered by Company as a consequence of such decisions.
8. Indemnification. The Company shall indemnify and hold the
Consultant and each manager, member, employee, representative, agent, surety,
guarantor, and each person who controls the Consultant within the meaning of
Section 15 of the Act, harmless against any and all liabilities, claims and
lawsuits, including any and all awards and/or judgments to which they may
become subject under any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including awards
and/or judgments) arise out of or are in connection with this Agreement and the
service provided thereby, except when the Consultant has been proven to be at
fault due to fraud or negligence. The Company shall also indemnify and hold
the Consultant and other indemnified person harmless against any and all costs
and expenses, including reasonable counsel fees, incurred or relating to the
foregoing.
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The Consultant and other indemnified persons shall give the Company
prompt notice of any such liability, claim or lawsuit which it contends is the
subject matter of the Company's indemnification and the Company thereupon shall
be granted the right to take any and all necessary and proper action, at its
sole cost and expense, with respect to such liability, claim or lawsuit,
including the right to settle, compromise and dispose of such liability, claim
or lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
The Consultant shall indemnify and hold the Company and each officer,
director, employee representative, agent, surety, guarantor, and each person
who control the Company within the meaning of Section 15 of the Act, harmless
against any and all liabilities, claims, and lawsuits, including any and all
awards and/or judgments to which they may become subject under any other
federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including awards and/or judgments) arise out
of or are based upon this Agreement and the services provided thereby, except
when the Company has been proven to be at fault due to fraud or negligence. In
addition, the Consultant shall also indemnify and hold the Company harmless
against any and all costs and expenses, including reasonable counsel fees,
incurred or relating to the foregoing.
The Company and the indemnified persons shall give the Consultant
prompt notice of any such liability, claim or lawsuit which it contends is the
subject matter of the Consultant's indemnification and the consultant thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole costs and expense, with respect to such liability claim or lawsuit,
including the right to settle, compromise and dispose of such liability, claim
or lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
9. Confidentiality Agreement. The Company and Consultant
mutually agree that neither party will divulge or convey to others any
information, knowledge, data or property relating to the other party's business
in any way unless authorized by the other party in writing. This includes, but
is not limited to, information, knowledge, data or property concerning any
process, apparatus or product manufactured, used, developed, investigated or
considered by the Company or Consultant and also specifically includes all
confidential and/or proprietary information of any other company revealed by
the Company or Consultant in confidence.
All memoranda, notes, records, papers or other documents (and all
copies thereof), relating to the Company or Consultant's business and all
property associated therewith in any way obtained by the other party from the
first party shall remain the property of the other party and shall be delivered
by the first party to the other party at any time on the other party's request.
This includes, but is not limited to, such documents and property concerning
any process, apparatus or product manufactured, used, developed, investigated
or considered by respective party.
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Notwithstanding anything to the contrary herein, the Company and
Consultant shall have no obligation to preserve the confidentiality of any
information, data or property of the other party which:
a. was previously known (as evidenced by written records) if such
information was known free of any obligation to keep it
confidential; or
b. is or becomes publicly available by other than unauthorized
disclosure; or
c. is received from a third party whose disclosure does not
violate any confidentiality obligation; or
d. is developed or discovered independently; or
e. is disclosed to third parties without restriction by the party
to whose business the information relates.
Each party acknowledges that monetary damages are not an adequate
remedy for any breach of this confidentiality agreement that may occur by
reason of the unique proprietary nature of the information, data or property
furnished to the other party, and each party agrees that the confidentiality
agreement may be enforced through injunctive or other equitable relief, in
addition to an action for damages, in the event of its breach.
10. Amendment. No amendment to this Agreement shall be valid
unless such amendment is in writing and is signed by authorized representatives
of all the parties to this Agreement.
11. Waiver. Any of the terms and conditions of this Agreement may
be waived at any time and from time to time in writing by the party entitled to
the benefit thereof, but a waiver in one instance shall not be deemed to
constitute a waiver in any other instance. A failure to enforce any provision
of this Agreement shall not operate as a waiver or this provision or of any
other provision hereof.
12. Severability. In the event that any provision of this
Agreement shall be held to be invalid, illegal or unenforceable in any
circumstances, the remaining provisions shall nevertheless remain in full force
and effect and shall be construed as if the unenforceable portion or portions
were deleted.
13. Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns. Any attempt by either party to assign any rights, duties or
obligations which may arise under this Agreement without the prior written
consent of the other party shall be void.
14. Governing Law. The validity interpretation and construction
of this Agreement and each part thereof will be governed by the laws of the
State of Colorado.
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15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
16. Arbitration. The parties agree that all controversies which
may arise between them concerning any transaction, the construction,
performance or breach of this Agreement shall be determined by arbitration in
accordance with the rules of the National Association of Securities Dealers,
Inc. This shall enure to the benefit of and be binding on the Company, its
officers, directors, registered representatives, agents, independent
contractors, employees, controlling persons and be binding on the Consultant,
its representatives, agents, independent contractors, employees, sureties and
any person acting on its behalf in relation to acting subject to this
Agreement. Any award rendered in arbitration may be enforced in any court of
competent jurisdiction.
COMPANY:
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ Gerald K. Beckmann
-----------------------------------
Gerald K. Beckmann, President and
Chief Executive Officer
CONSULTANT:
BATHGATE MCCOLLEY CAPITAL GROUP LLC
By: /s/ Eugene C. McColley
-----------------------------------
Eugene C. McColley, Manager
6
<PAGE> 1
EXHIBIT 10.56
$__________ March 11, 1996
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Integrated Security Systems,
Inc., a Delaware corporation (hereinafter called "Maker"), by this promissory
note (hereinafter called this "Note"), promises unconditionally to pay to the
order of ___________________, whose address is ________________________________
(hereinafter called "Lender"), on the Maturity Date (as hereinafter defined),
or sooner as hereafter provided, the principal sum of
____________________________________), or so much thereof as may from time to
time remain unpaid hereunder, and to pay interest on the principal sum
remaining unpaid hereunder from time to time from the date hereof until said
principal sum shall have been paid in full.
I. INTEREST; INSTALLMENTS OF PRINCIPAL AND INTEREST; PAYMENT OF
PRINCIPAL; WARRANTS.
(a) Subject to subsection (c) below, from and after the date
hereof and through and until the payment in full of the outstanding principal
sum hereof, interest shall be computed and shall accrue on the outstanding
principal balance hereof at a fixed rate of interest equal to eight percent
(8%) per annum (the "Interest Rate").
(b) Maker shall pay Lender the principal sum six months from the
date of this Note. Accrued and unpaid interest payable hereunder shall be
payable on the same date as the principal sum is due. Interest shall be
calculated on the basis of actual calendar days elapsed and a 365-day year.
(c) From and after the occurrence of an Event of Default (as
hereinafter defined), any overdue principal sum and (to the extent permitted by
law) interest and other consideration due hereon or hereunder shall bear
interest, from the date the same became due and payable, at an annual rate
which is (5) percentage points above the Interest Rate, which interest shall
continue to accrue and (to the extent permitted by law) shall continue to
compound continuously until the obligations of Maker in respect to the payment
thereof shall have been discharged (whether before or after judgment).
(d) The Lender shall receive from the Maker one (1) common stock
purchase warrant ("Warrant(s)") for every ten dollars ($10.00) of principal sum
represented by this Note. Each Warrant will entitle the Lender to purchase one
share of the Maker's common stock at an exercise price of $1.00 per share
during the five (5) year period following the date of the Warrants issued. The
Warrants shall contain customary antidilution provisions, piggyback
registration rights and a cashless exercise option. The Warrants will be
issued on the due date of this Note and will be in form and content acceptable
to the Lender.
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II. MAKER'S COVENANTS.
Unless and until the indebtedness evidenced by this Note is paid in
full, Maker hereby covenants and agrees with Lender that Maker shall materially
comply with all of the terms and provisions of this Note.
III. EVENTS OF DEFAULT.
The occurrence of any one or more of the events set forth below in
subsections (a) through (c) of this Article III shall constitute an event of
default ("Event of Default") under this Note. Upon the occurrence and during
the continuance of an Event of Default, Lender may declare the entire unpaid
principal sun hereof, together with interest and other consideration, if any,
accrued hereon, immediately due and payable (if not previously due and payable)
by giving Maker written notice of the occurrence of such Event of Default and
such acceleration of principal, interest and other consideration by Lender (the
"Lender's Notice"), and may exercise any and all remedies available to it under
this Note or otherwise available at law or in equity in accordance with and
subject to the limitations, if any, set forth below in subsections (a) through
(c) of this Article III. Lender's failure to exercise such option shall not
constitute a waiver of the right to exercise the same at any other time.
The occurrence of any one or more of the following events shall
constitute an Event of Default under this Note:
(a) The failure of Maker to pay the principal sum, interest or
other consideration when due under this Note, unless such failure to pay the
principal sum, interest or other consideration is cured within forty (40)
calendar days; provided, however, that such cure period shall not apply to any
interest due under subsection (c) of Article I hereof.
(b) The failure of Maker to perform and satisfy any other
covenant, term, or provision of this Note, unless such failure is cured within
thirty (30) calendar days after written notice of such failure from Lender to
Maker. In the event that such default is of such nature that it cannot be
completely remedied within a thirty (30) day period, Maker shall not be
considered in default if Maker begins correcting the claimed default within the
thirty (30) day period, and thereafter proceeds with reasonable diligence and
in good faith to effect the remedy as soon as is practicable.
(c) Maker or its operating subsidiary B&B Electromatic, Inc. shall
suspend or discontinue its business, or shall make an assignment for the
benefit of creditors or a composition with creditors, or shall be unable or
admit in writing its inability to pay its debts as they mature, or shall file a
petition in bankruptcy, or shall become insolvent (howsoever such insolvency
may be evidenced), or shall be adjudicated insolvent or bankrupt, or shall
petition or apply to any tribunal for the appointment of any receiver,
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liquidator or trustee of or for it or for any substantial part of its property
or assets, or shall commence any proceedings under any bankruptcy,
reorganization, arrangement, readjustment of debt, receivership, dissolution or
liquidation of law or statute of any jurisdiction, whether now or hereafter in
effect, or there shall be commenced against Maker or any operating subsidiary
of Maker any such proceeding which shall remain undismissed for a period of
sixty (60) calendar days or more, or any order, judgment or decree approving
the petition in any such proceeding shall be entered, or shall by any act or
failure to act indicate its consent to, approval of or acquiescence in, any
such proceeding or in the appointment of any receiver, liquidator or trustee of
or for it or any substantial part of its property or assets, or shall suffer
any such appointment to continue undischarged or unstayed for a period of sixty
(60) calendar days or more, or shall take any action for the purpose of
affecting any of the foregoing; in which event Lender may immediately exercise
any and all remedies available to it under this Note or otherwise available at
law or in equity.
IV. GENERAL TERMS.
Maker shall pay the principal sum, interest and other consideration
under, and in accordance with the terms of, this Note free and clear of and
without deduction for any and all present and future taxes, levies, imposts,
deductions, charges, withholdings, offsets and any and all liabilities with
respect thereto.
Maker shall pay any stamp taxes or any fees imposed by any
governmental authority with respect to the execution, assignment or discharge
of this Note.
Maker may prepay, without premium or penalty, all or any portion of
the outstanding principal sum hereof upon at least three (3) business days' (as
hereinafter defined) prior written notice by Maker to Lender stating the
proposed date and the principal amount of such proposed prepayment, and the
amount of the prepayment specified in such notice shall be due and payable by
Maker on the date specified therein, together with accrued interest to the date
of such prepayment on the principal amount prepaid. Any prepayment shall not
reduce the Warrants due Lender under subsection (d) of Article I hereof.
All payments of principal, interest and other consideration payable on
or in respect of this Note of this Note or the indebtedness evidenced hereby
shall be made to Lender at the address set forth in paragraph 1 of this Note,
in lawfully money of the United States of America, in funds immediately
available to Lender as Lender may from time to time direct.
Should the indebtedness evidenced by this Note or any part thereof be
collected by action at law, or in bankruptcy, receivership or other court
proceedings, or should this Note be placed in the hands of attorneys for
collection after default, Maker agrees to pay, upon demand by Lender, in
addition to the principal sum and interest and other
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consideration, if any, due and payable hereon, court costs and reasonable
attorneys' fees and other reasonable collection charges, unless prohibited by
law.
All makers, sureties, guarantors and endorsers hereof, by executing or
endorsing this Note or by entering into or executing any agreement to pay any
of the indebtedness evidenced hereby, (i) consent and agree to be bound by the
provisions of this Note and promise, absolutely and unconditionally, to pay the
principal sum and interest on this Note as herein provided, (ii) waive (to the
fullest extent allowed by law) all requirements of diligence in collection,
presentment, notice of non-payment, protest, notice of protest, suit and all
other conditions precedent in connection with the collection and enforcement of
this Note or any security for this Note or any guarantee of the indebtedness
evidenced hereby, (iii) waive the right to require Lender to proceed against
any other person or to pursue any other remedy before proceeding against such
makers, sureties, guarantors or endorsers, or any of them, and, except as
otherwise required by law, waive the right to require Lender to proceed against
any collateral securing this Note before proceeding against such makers,
sureties, guarantors or endorsers, or any of them, and (iv) agree that no
renewal or extension of this Note (including a renewal or extension in which
this Note is surrendered), no change in the rate of interest payable hereon, no
release, surrender or substitution of security for, or guarantee of, this Note
or the indebtedness evidenced hereby, no modification or waiver of the terms of
any instrument securing this Note, no delay in the enforcement of payment of
this Note or any security for, or guarantee of, this Note or the indebtedness
evidenced hereby, no modification or waiver of the terms of any instrument
securing this Note, no delay in the enforcement of payment of this Note or any
security for, or guarantee of, this Note or the indebtedness evidenced hereby,
and no delay or omission in exercising any right or power under this Note or
any security for, or guarantee of, this Note or the indebtedness evidenced
hereby, shall affect the liability hereon of such makers, sureties, guarantors
or endorsers, or any of them.
None of the provisions hereof, and none of Lender's rights or remedies
hereunder on account of any past or future defaults, shall be deemed to have
been waived by Lender's acceptance of any past due amount or by any indulgence
granted by Lender to any maker, surety, guarantor or endorser hereof. This
Note shall be the joint and several obligation of all such makers, sureties,
guarantors and endorsers, and shall be binding upon them and their successors
and assigns.
All agreements between Maker and Lender contained herein are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of this Note, or otherwise, shall the amount
paid or agreed to be paid to Lender for the use, forbearance or detention of
the principal sum evidenced by this Note exceed the maximum permissible under
applicable law, the benefit of which may be asserted by Maker as a defense, and
if, from any circumstance whatsoever, fulfillment of any provision of this
Note, at any time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, or if from any
circumstances Lender should ever receive as interest under this Note
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<PAGE> 5
such an excessive amount, then, ipso facto, the amount which would be excessive
interest shall be applied to the reduction of the principal balance as
evidenced by this Note and not to the payment of interest. This provision
shall control every other provision of all agreements relating hereto between
Maker and Lender.
As used herein, the term "Lender" shall mean, in addition to the
initial payee hereof, each person from time to time who is an endorsee of this
Note or the bearer, if this Note is at the time payable to bearer. Lender may
assign, grant, sell, convey, mortgage, pledge, or hypothecate any of its rights
under this Note without first obtaining the express written consent of Maker.
This Note shall be interpreted, construed and applied in accordance
with the laws of the State of Colorado, regardless of (i) where such instrument
is executed or delivered, (ii) where any payment or other performance required
by such instrument is made or required to be made, (iii) where any breach of
any provision of any such instrument occurs or any cause of action otherwise
accrues, (iv) where any action, or other proceeding is instituted or pending,
(v) the nationality, citizenship, domicile principal place of business,
jurisdiction of organization or domestication of any party, (vi) whether the
laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction
other than the State of Colorado, or (vii) any combination of the foregoing.
The terms and provisions of this Note are imposed solely and
exclusively for the benefit of Maker and Lender and their respective successors
and permitted assigns, and no other person, under any circumstances, shall be
deemed to be a beneficiary of such terms and provisions or shall have the
standing to enforce such terms and provisions, and any or all such terms and
provisions, and any or all such terms and provisions may be freely waived in
whole or in part by Maker or Lender, as applicable, at any time in Maker's or
Lender's sole discretion, as applicable.
WITNESS the execution hereof as of the day and date above first
written.
Integrated Security Systems Inc.,
a Delaware corporation
By:
-----------------------------------
James W. Casey
Vice President and Chief Financial
Officer
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PERSONAL GUARANTEE
Gerald K. Beckmann ("Beckmann") residing at 1017 Diamond Boulevard,
Southlake, Texas, 76092, hereby personally guarantees the obligations of Maker
and the payment of the principal sum, interest and other consideration due to
Lender pursuant to the terms of this Note. As collateral security for such
guarantee and for the prompt and complete payment of the principal sum,
interest and other consideration due to Lender, Beckmann hereby grants, sells,
assigns, conveys, mortgages, pledges, hypothecates and transfers to lender a
security interest in, and Beckmann's right, title and interest in 50,000 shares
of preferred stock of Maker owned free and clear by Beckmann. Beckmann agrees
to keep said shares free of any encumbrance for the duration of said loans and
agrees to provide to Caribou Capital, on behalf of Lender, a fully negotiable
certificate for said shares and authorizes the sale of said shares if the Note
is not paid when due. Beckmann shall continue to be obligated as a guarantor
to the extent the proceeds from the sales of said shares is insufficient to
satisfy fully the obligations of the Maker under the terms of the Note.
Beckmann shall take all actions that may be necessary to permit sale of said
shares.
This guarantee shall become null and void upon full payment of all
principal sum, interest and other consideration due to Lender or the conversion
of the Note to other securities of the Maker.
-----------------------------------
Gerald K. Beckmann
STATE OF _________________ )
ss.
COUNTY OF ________________ )
On this _____ day of ____________________, 1996, before me, the
undersigned, a Notary Public in and for the State of _________________________,
personally appeared Gerald K. Beckmann, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is
subscribed to this instrument, and acknowledged that he executed it.
WITNESS my hand and official seal.
-----------------------------------
( S E A L ) Notary Public
My commission expires:_____________
6
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EXHIBIT 10.57
March 26, 1996
(Amendment to and Restatement of March 1, 1996 Letter)
Board of Directors
Integrated Security Systems, Inc.
8200 Springwood Drive, Suite 230
Irving, TX 75063
Re: Proposed Private Placement Pursuant to Registration Exemptions
Under the Securities Act of 1933
Gentlemen:
We are pleased to submit this letter with respect to a proposed
private offering (the "Offering") by Integrated Security Systems, Inc. (the
"Company"), a Delaware corporation, of up to 25,000 Units ("Unit" or "Units").
Each Unit shall be comprised of one (1) share of $20.00 convertible preferred
stock ("Preferred Stock") and eight (8) common stock purchase warrants
("Warrants"). The offering price will be $20.00 per Unit. The minimum
purchase will be 1,000 Units ($20,000), except a lesser amount may be sold with
the consent of the Company and Placement Agent. The Units will be offered on a
"best efforts" basis. Each share of Preferred Stock may be converted into
twenty (20) shares of the Company's common stock ("Common Stock"). The
Preferred Stock may be converted at the option of the Company if (i) the
closing bid price of the Company's public traded common stock is at least $2.00
for no less than 20 of the preceding 30 trading days, and (ii) the shares of
common stock that are to be received upon conversion of the Preferred Stock is
registered or otherwise qualified for sale under applicable federal and state
securities laws. Each Warrant will entitle the holder to purchase one share of
Common Stock at an exercise price of $1.00 during the five (5) year period from
the earlier of the sale of all the Units or the termination of the Offering.
The Company agrees to file a registration statement with respect to its common
stock issuable upon conversion of the Preferred Stock and upon exercise of the
Warrants to permit the public sale thereof pursuant to applicable federal and
state laws. The registration statement shall be foiled no later than six (6)
months following the earlier of the sale of all the Units or the termination of
the Offering an the Company will use its best efforts to cause such
registration statement to be declared effective by all applicable federal and
state regulatory authorities. This letter is intended to set forth certain
conditions and assumptions upon which Bathgate McColley Capital Group LLC (the
"Placement Agent") would be willing to act a s the Placement Agent for the
Offering.
This letter contains amendment to the terms of the March 1, 1996
letter executed by the parties with respect to the Offering and otherwise is
merely a restatement of the March 1, 1996 letter.
Except for the provisions of paragraphs 3, 5, 6, 10, 14 and 15 hereof
which are immediately binding on the parties hereto, it is understood that this
letter is merely a statement of intent and, while the parties hereto agree in
principle to the contents hereof and to proceed promptly and in good faith to
negotiate the terms of the Offering contemplated herein, any legal obligations
between the parties hereto shall be only pursuant to the terms and conditions
set forth in an executed agreement (the "Placement Agent Agreement") in
connection with the Offering. Accordingly, except as set forth in the
preceding sentence, this letter does not constitute a binding agreement nor
does it constitute an agreement to enter into an agreement, and each party
acknowledges that the Offering proposed herein may never be completed.
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Further, each party agrees to take all reasonable steps necessary to protect
its interests should the Offering not be completed or completed on terms other
than those contemplated herein. Among other things, the Offering may not be
completed if the Placement Agent is dissatisfied, in its sole discretion, with
progress being made in the development and implementation of the Company's
business plan, the market price of the Company's Common Stock or the financial
condition of the Company.
1. PRIVATE PLACEMENT MEMORANDUM. The Units will be offered and
sold pursuant to exemptions from registration under the Securities Act of 1933,
as amended (the "Act") and the Rules and Regulations promulgated thereunder,
pursuant to a Private Placement Memorandum (the "Placement Memorandum") in a
form satisfactory to the Placement Agent. The Company will engage the services
of recognized securities legal counsel satisfactory to the Placement Agent in
the preparation of the Placement Memorandum. All historical year end financial
statements contained in the Placement Memorandum, as amended from time to time,
will be in form and content satisfactory to the Placement Agent and legal
counsel for the Placement (the "Placement Agent's Counsel"), and will have been
prepared and reported on by independent certified public accountants
satisfactory to the Placement Agent.
2. OFFERING. The Placement Agent proposes to offer on behalf of
the Company, subject to the terms and conditions of the Placement Agent
Agreement and prevailing market conditions, up to 25,000 Units. The Placement
Agent shall be entitled to a commission in the amount of ten percent (10%) of
the total proceeds from the sale of the Units, except that the commission shall
be five percent (5%) on any sales directed in writing to the Placement Agent by
the Company.
3. EXPENSES. The Company shall bear all costs and expenses
incident to the issuance, offer, sale and delivery of the Units, including all
expenses and fees incident to the preparation of the Placement Memorandum, the
cost and legal counsel fees of the Company's counsel of qualification or
obtaining exemptions therefrom under state securities laws, the fees and
disbursements of legal counsel and accountants for the Company, the cost of
preparing and printing the Placement Memoranda, the Company's costs of all
meetings with prospective investors and selected dealers, the cost of printing
as many Placement Memoranda as the Placement Agent may deem necessary, and all
expenses incurred in connection with communications by the Company with
prospective investors, the expenses of delivery of the Placement Memoranda to
the Placement Agent and selected dealers, and any other expenses customarily
paid by an issuer. Except as otherwise provided in this letter, the Placement
Agent agrees to pay all fees and expenses of any legal counsel whom it may
employ to represent it separately in connection with or on account of the
proposed Offering by the Company and agrees to pay any mailing, telephone,
travel and clerical costs and all other office costs incurred or to be incurred
by the Placement Agent or by its representatives in connection with the
Offering.
4. CAPITALIZATION. The capitalization of the Company, as
represented by issued and outstanding shares and shares underlying options and
warrants are limited to the amounts set forth in Attachment A hereto.
5. INDEMNIFICATION. The Company shall indemnify and hold the
Placement Agent and each manager, member, employee, representative, agent,
surety, guarantor, and each person who controls the Placement Agent within the
meaning of Section 15 of the Act, harmless against any and all liabilities,
claims and lawsuits, including any and all awards and/or judgments to which
they may become subject and the Act, as amended, or any other federal or state
statute, at common law or otherwise, insofar as said liabilities, claims and
lawsuits (including awards and/or judgments) arise out of or are in connection
with this letter and the Placement Memorandum, except when the Placement Agent
has been proven to be at fault due to fraud or negligence. The foregoing shall
be in addition to the indemnification and contribution provisions set forth in
the Placement Agent Agreement. The Company shall also indemnify and
2
<PAGE> 3
hold the Placement Agent and other indemnified person harmless against any and
all costs and expenses, including reasonable counsel fees, incurred or relating
to the foregoing.
The Placement Agent and other indemnified persons shall give the
Company prompt notice of any such liability, claim or lawsuit which it contends
is the subject matter of the Company's indemnification and the Company
thereupon shall be granted the right to take any and all necessary and proper
action, at its sole cost and expense, with respect to such liability, claim or
lawsuit, including the right to settle, compromise and dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
The Placement Agent shall indemnify and hold the Company and each
officer, director, employee, representative, agent, surety, guarantor, and each
person who controls the Company within the meaning of Section 15 of the Act,
harmless against any and all liabilities, claims and lawsuits, including any
and all awards and/or judgments to which they may become subject under the Act,
as amended, or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including awards and/or
judgments) arise out of or are based upon any statement or omission from the
Placement Memorandum and related exhibits if such statement or omission was
made in reliance upon information peculiarly within its knowledge and
furnished in writing to the Company by the Placement Agent on its behalf
specifically for use in connection with the preparation of the Placement
Memorandum, except when the Company has been proven to be at fault due to fraud
or negligence. The foregoing shall be in addition to the indemnification and
contribution provisions set forth in the Placement Agent Agreement. In
addition, the Placement Agent shall also indemnify and hold the Company
harmless against any and all costs and expenses, including reasonable counsel
fees, incurred or relating to the foregoing.
The Company and other indemnified persons shall give the Placement
Agent prompt notice of any such liability, claim or lawsuit which it contends
is the subject matter of the Placement Agent's indemnification and the
Placement Agent thereupon shall be granted the right to take any and all
necessary and proper action, at its sole cost and expense, with respect to such
liability, claim or lawsuit, including the right to settle, compromise and
dispose of such liability, claim or lawsuit, excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or authorities.
6. DUE DILIGENCE INVESTIGATION. The Company shall supply and
deliver to the Placement Agent and the Placement Agent's Counsel at their
respective offices, all documents and other information required to enable them
to make such investigation of the Company an its past and present business as
they shall desire and shall make available to them such persons as they deem
reasonably necessary or appropriate in order to verify or substantiate any
document or other information regarding the Company.
It is expressly understood and agreed that the Placement Agent and
Placement Agent's Counsel will be undertaking a thorough review of all of the
Company's past and present business activities, including contractual
commitments and operational practices, and background verifications of persons
affiliated with the Company. In the event that these do not meet with the
approval of the Placement Agent, the Placement Agent may elect not to proceed
with the Offering.
7. BLUE-SKY LAWS. It is understood and agreed by the Company and
the Placement Agent that it shall be a condition of the Offering that the sale
of the Units be registered or otherwise qualified or exempt from the
registration for offer and sale in those states as may be reasonably requested
by the Placement Agent. Copies of all applications for the registration,
qualification or exemption from qualification or registration of the Units and
related documents will be filed by the Company's Counsel with the various
states and shall be supplied to the Placement Agent's Counsel, concurrently
with their transmission to the various states.
3
<PAGE> 4
The expense of such filings, including legal fees of Company's Counsel, shall
be promptly paid by the Company.
8. PLACEMENT AGENT'S WARRANTS. On the earlier of the completion
of or the termination of the Offering, the Company will sell to the Placement
Agent for a purchase price of $50.00, warrants to purchase that number of Units
("Placement Agent's Warrants") equal to fifteen percent (15%) of the number of
Units sold in the Offering at an exercise price of $20.00 per Unit. The
Placement Agent's Warrants may be issued of the securities underlying the Units
at the request of the Placement Agent. However, should the issuance of these
Placement Agent's Warrants result in total potential outstanding common shares
in excess of the number authorized, which is presently 11,000,000, the issuance
of said Placement Agent's Warrants will at all times be limited to the maximum
number issuable within the total authorized share limitation. Further, should
the Placement Agent's Warrants issued be limited as a result of this authorized
share limitation, the Company will undertake, within 180 days of the earlier of
the completion of or the termination of the Offering, to request shareholder
approval for additional authorized shares in an amount which would allow the
balance of the Placement Agent's Warrants to be issued and will continue to use
its best efforts to obtain such approval until all the Placement Agent Warrants
can be issued.
Each Unit underlying the Placement Agent's Warrants will be identical
to the Units sold in the Offering. Additionally, the Placement Agent's
Warrants shall contain customary anti-dilution provisions, a one-time demand
registration provision, customary piggyback registration rights, cashless
exercise provisions and shall otherwise be in form and substance satisfactory
to the Placement Agent. The Placement Agents Warrants will be exercisable
during the five (5) year period commencing on the date the Offering is
completed or terminated, whichever date is earlier. The Placement Agent's
Warrants and securities underlying them shall be included in the registration
statement referenced in the initial paragraph of this letter.
9. NON-ACCOUNTABLE EXPENSE ALLOWANCE. The Company shall
reimburse the Placement Agent for its expenses on a non-accountable,
non-refundable basis. The total non-accountable expense allowance shall be an
amount equal to three percent (3%) of the gross proceeds derived from the
Offering.
10. CORPORATE CONSULTING AGREEMENT. The Company will engage the
services of the Placement Agent pursuant to the terms of a corporate consulting
agreement as mutually agreed to by the parties. At the time of the signing of
the corporate consulting agreement, the Company will deliver warrants to
purchase up to 200,000 shares of the Company's common stock to the Placement
Agent. Each Warrant will entitle the holder to purchase one share of common
stock at an exercise price of $1.00 during the five (5) year period commencing
one (1) year from the date of the consulting agreement. The term of the
corporate consulting agreement shall be for a period of twenty-four (24) months
and the total fee payable to the Placement Agent shall be $84,000. The
corporate consulting agreement shall provide for additional compensation in
accordance with the Lehman Formula for all merger and acquisition services
provided by the Placement Agent to the Company.
11. EXCHANGE OF PROMISSORY NOTES. The Placement Agent has
previously assisted the Company in raising $250,000 through the sale of
promissory notes of the Company. The sale of the promissory notes is separate
from the Offering. To the extent that the holders exchange the promissory
notes for preferred stock and/or other securities of the Company, the Company
agrees to pay the Placement Agent, as additional commission, eight percent (8%)
of the face amount of such promissory notes exchanged in connection with such
transactions. Such exchanges, if any, shall be separate and apart from the
Units being sold in the Offering and shall not affect any of the terms of the
Offering.
12. SELECTION OF PRINTER. Any financial printing company utilized
for the printing of the Placement Memorandum shall be reasonably acceptable to
the Placement Agent.
4
<PAGE> 5
Further, the form, size, style and quality of the Placement Memorandum shall be
determine by the Placement Agent.
13. CONFLICT WITH LAW. It is understood that if any provision of
this letter conflicts with the Act, the Rules and Regulations, the blue-sky
laws of any state in which the Offering is to be qualified, the NASD, or any
other governmental authority, either state or federal, possessing jurisdiction
over the offer, sale and issuance of the Units, the Company shall meet with the
Placement Agent and amend this letter to alleviate the conflict.
14. NO SIMULTANEOUS NEGOTIATIONS. Pending completion of the
financing contemplated herein, the Company agrees that it will not negotiate
with any other placement agent or other person relating to a possible private
offering of its securities.
15. LAWS AND JURISDICTION TO GOVERN. This letter shall be
construed and enforced in accordance with the laws of the State of Colorado and
the parties agree to submit themselves to the jurisdiction of the courts of the
State of Colorado which shall be the sole tribunal in which any parties may
institute and maintain a legal proceeding against the other party arising from
any dispute as to this letter. In the event any party initiates a legal
proceeding in a jurisdiction other than in the courts of the State of Colorado,
the other party may assert as complete defense and as a basis for dismissal of
such legal proceeding that the legal proceeding was not initiated and
maintained in the courts of the State of Colorado in accordance with the
provisions of this paragraph.
16. CONSTRUCTION OF LETTER. This letter summarizes the intentions
of the Placement Agent and the Company regarding the proposed Offering of the
Company and confirms that the Placement Agent is granted the right to proceed
with the Offering as described above. Should any provision or portion of any
provision of this letter be invalid for any reason, the validity of the
remaining provisions or of the other portion of the provision in question shall
not be affected thereby.
If the foregoing is acceptable to you, please sign and return two
copies of this letter to the Placement Agent. Upon receipt of the executed
copies of this letter, the Placement Agent shall instruct the Placement Agent's
Counsel to begin work on the due diligence investigation and to review the
Placement Memorandum and other documents and materials prepared by the Company
and its counsel in connection with the proposed Offering.
Sincerely,
BATHGATE MCCOLLEY CAPITAL GROUP LLC
By: /s/ Eugene C. McColley
-----------------------------------
Eugene C. McColley, Manager
UNDERSTOOD AND ACCEPTED this 26th day of March, 1996.
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ Gerald K. Beckmann
-----------------------------------
Gerald K. Beckmann, President
5
<PAGE> 6
ATTACHMENT A
ISSI Capitalization
as of March 1, 1996
<TABLE>
<S> <C>
Issued:
Common stock issued and outstanding 3,829,693 Shares
Issuable Upon Conversion or Exercise:
Convertible preferred: 34,168 shares issued and
Outstanding convertible into 29.85 shares of Common
Stock issuable upon conversion 1,019,929 Shares
Stock Options:
Non-qualified options awarded
with average exercise price of $2.27 420,905 Shares
Incentive stock options awarded
with an average exercise price of $1.97 367,333 Shares
Warrants:
Preferred Stock @ $.67 exercise price 136,668 Shares
Bridge Loan
IPO @ $1.00 exercise price 123,000 Shares
1994 @ $1.06 exercise price 196,800 Shares
IPO Warrants @ $6.75 exercise price 1,667,500 Shares
The Equity Group @ $1.00 exercise price 80,000 Shares
Initial Bridge Extension @ $.01 exercise price 58,457 Shares
MRI Note @ $.75 exercise price 10,000 Shares
PRT Note @ $1.17 exercise price 13,200 Shares
Feb. Bridge Extension @ $.01 exercise price 14,610 Shares
Mar. Bridge Extension @ $.01 exercise price 14,610 Shares
----------------
Total Issued 7,952,705 Shares
</TABLE>
6
<PAGE> 1
EXHIBIT 10.58
INTEGRATED SECURITY SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
Name: ________________________
Number: ________________________
1
<PAGE> 2
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN FILED OR REGISTERED WITH OR
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF ANY OF THE OFFERING
MATERIALS. NO STATE SECURITIES LAW ADMINISTRATOR HAS PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR THE ADEQUACY OF THE OFFERING
MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IT IS INTENDED THAT THE SECURITIES OFFERED HEREBY WILL BE MADE AVAILABLE ONLY
TO ACCREDITED INVESTORS, AS DEFINED IN REGULATION D PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES
OFFERED HEREBY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, FOR
NONPUBLIC OFFERINGS. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS
TO WHICH THE OFFERING WILL BE MADE AND RESTRICTS SUBSEQUENT TRANSFERS OF THE
SECURITIES.
INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE FAMILIAR WITH AND
UNDERSTAND THE TERMS OF THIS OFFERING, AND THAT THEY OR THEIR SUBSCRIBER
REPRESENTATIVES HAVE SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT THEY ARE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THIS
INVESTMENT.
NO SECURITIES MAY BE RESOLD OR OTHERWISE DISPOSED OF BY AN INVESTOR UNLESS IN
THE OPINION OF COUNSEL FOR OR SATISFACTORY TO THE COMPANY, REGISTRATION UNDER
THE APPLICABLE FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED, OR THERE IS
COMPLIANCE WITH SUCH REGISTRATION REQUIREMENTS.
THE OFFEREE, BY ACCEPTING DELIVERY OF THE OFFERING MATERIALS, AGREES TO RETURN
THE OFFERING MATERIALS AND ALL ACCOMPANYING OR RELATED DOCUMENTS TO THE COMPANY
UPON REQUEST IF THE OFFEREE DOES NOT AGREE TO PURCHASE ANY OF THE SECURITIES
OFFERED HEREBY.
THE OFFERING MATERIALS ARE SUBMITTED IN CONNECTION WITH THE PRIVATE PLACEMENT
OF THE SECURITIES AND DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. IN
ADDITION, THE OFFERING MATERIALS CONSTITUTE AN OFFER ONLY IF A NAME AND
IDENTIFICATION NUMBER APPEAR IN THE APPROPRIATE SPACES PROVIDED ON THE COVER
PAGE OF THIS DOCUMENT AND CONSTITUTE AN OFFER ONLY TO THE PERSON WHOSE NAME
APPEARS THEREON. ANY REPRODUCTION OR DISTRIBUTION OF THE OFFERING MATERIALS IN
WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF THEIR CONTENTS, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY, IS PROHIBITED. ANY PERSON ACTING CONTRARY TO
THE FOREGOING RESTRICTIONS MAY PLACE HIMSELF AND THE COMPANY IN VIOLATION OF
FEDERAL AND/OR STATE SECURITIES LAWS.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES ACT.
THESE PREFERRED SHARES DO NOT ENTITLE THE HOLDER TO ANY VOTING RIGHTS.
2
<PAGE> 3
This is a limited offering by Integrated Security Systems, Inc., a
Delaware corporation (the "Company") of Units (hereinafter defined) consisting
of Convertible Preferred Stock (the "Preferred Stock") and Common Stock
Purchase Warrants (the "Warrants") (collectively, "Units"), all as more
detailed in the Private Placement Memorandum dated March 15, 1996. This
offering is hereinafter referred to as the "Offering" and this Subscription
Agreement is referred to as the "Agreement."
Subject to the terms and conditions contained in this Agreement, the
undersigned (the "Subscriber") hereby (i) subscribes for the Units in the
amount indicated on page 5 of this Agreement and (ii) pays the amount indicated
on page 5 of this Agreement either in cash or accepts the securities in payment
of the amount indicated on page 5 which is owed to Subscriber by Company.
In its sole discretion, the Company may accept or reject this
Agreement in whole or in part. If the Agreement is not accepted, then the
funds deposited with the Escrow Agent will be refunded to the Subscriber
without interest or the amount owed to Subscriber by Company will remain owing.
1. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS
The Subscriber acknowledges that the Company is offering the Units in
reliance upon the representations, warranties and other information set forth
by the Subscriber. The Subscriber undertakes to notify the Company immediately
of any changes in any of the representations, warranties and other information
contained herein.
1.1 Sophistication. The Subscriber represents that he has such
knowledge and experience in financial and business matters that he is capable
of evaluating the merits and risks of acquiring the Units and of making an
informed investment decision with respect thereto. The undersigned is a person
who is able to bear the economic risk of his investment in the Units and has
adequate means of providing for his current needs and possible personal
contingencies with no need for liquidity of this investment. In making this
statement, consideration has been given to whether the undersigned could afford
to hold his investment in the Company for an indefinite period of time and
whether, at this time, he could afford a complete loss of his investment.
1.2 Access to Information About the Company. The Subscriber
acknowledges that he has been given information about the Company as follows:
(a) the Company's Form 10-KSB for the year ended December
31, 1995;
(b) the Private Placement Memorandum dated March 5, 1996.
Subscriber has had an opportunity to verify the accuracy of such information
and to ask questions of the Company's representatives and is satisfied. The
Subscriber represents that he has not relied on any other information.
3
<PAGE> 4
1.3 Investment Representation. The Subscriber acknowledges that
the sale or resale of the securities has not been registered under the
Securities Act of 1933 or any other blue sky law. The Subscriber represents
that he is acquiring the securities hereunder for investment purposes for his
own account and not with a view to reselling or otherwise distributing such
securities in violation of any federal or state securities laws and understands
and agrees that the securities to be issued hereunder are restricted on
transfer and must be held for an indefinite period unless (i) they are
registered under the Securities Act of 1933, as amended, (the "Act") or (ii) an
exemption from registration is available, and the Company has received an
opinion of counsel, in form and substance satisfactory to it, to such effect.
There can be no assurance that the Company will continue to make available to
the public at any time in the future information necessary to enable security
holders to make routine sales of securities pursuant to Rule 144 under the Act.
1.4 Owner of Units. The Company may deem and treat the
undersigned as the holder and owner of the Units, including the Preferred Stock
and the Warrants subscribed for hereunder (notwithstanding any notations of
ownership or writing made in the certificate representing the Preferred Stock
or Warrants by anyone other than the Company) for all purposes and shall not be
affected by any notice to the contrary until the presentation to the Company of
such certificate for transfer pursuant to an effective registration statement
under the Act or pursuant to an opinion of counsel satisfactory to the Company
that such registration is unnecessary.
1.5 Accredited Investor. The undersigned meets one of the
following criteria as an "accredited investor" (PLEASE CHECK ONE):
[ ] (a) The undersigned is a director or executive officer of
the Company;
[ ] (b) The undersigned is a natural person whose individual
net worth, or joint net with that person's spouse, at
the time of purchase exceeds $1,000,000;
[ ] (c) The undersigned is a natural person who had an
individual income in excess of $200,000 in each of
the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of
those years and who reasonably expects the same
income level in the current year;
[ ] (d) The undersigned is an entity, and all of the equity
owners of such entity meet the qualifications of
either (a), (b) or (c) above or (e) below; or
[ ] (e) The undersigned is a domestic bank, whether acting in
its individual or fiduciary capacity; a domestic
insurance company; an investment company registered
under the Investment Company Act of 1940 (the "1940
Act"), or business development company as defined in
the 1940 Act; a Small Business Investment Company
licensed by the United States Small Business
Administration; an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, if the investment decision is
made by a plan fiduciary which is either a bank,
savings and loan association, insurance company, or
registered investment
4
<PAGE> 5
advisory, or if the employee benefit plan has total
assets in excess of $5,000,000, or if a self-directed
plan, with investment decisions made solely by
persons that meet the qualifications of (a), (b), (c)
or (d) above; a private business development company
as defined in Section 202(a)(22) of the Investment
Advisors Act of 1940; an entity described in Section
501(c)(3) of the Internal Revenue Code, not formed
for the purpose of acquiring the securities offered,
with total assets in excess of $5,000,000.
1.6 Authority. The Subscriber represents that he has full legal
power and authority to enter into this Agreement and to purchase the Units.
1.7 No Regulatory Review. The Subscriber acknowledges that the
Units are being sold pursuant to exemption from the registration requirements
of the state indicated as the Subscriber's state of residence, that no
securities commission or regulatory authority has approved, passed upon or
endorsed the merits of this Offering, nor is it intended that any such agency
will do so. Any representation to the contrary is unlawful.
1.8 State Residence Status. Subscriber represents that he is a
resident and domiciliary (not a temporary or transient resident) of the state
and country set forth below, has no present intention to become a resident of
any other jurisdiction, and all communications, written or oral, concerning the
Units have been directed to the Subscriber in, and received by him in, such
jurisdiction.
1.9 Decision to Invest. In making his decision to subscribe for
the Units the Subscriber has relied solely upon the information supplied by the
Company and upon independent investigations made by him or his legal counsel or
investment advisor.
1.10 Irrevocable Agreement. The Subscriber hereby acknowledges and
agrees, except as provided by the law of the jurisdiction in which he resides,
that this Agreement is irrevocable and will survive the death or disability of
the undersigned; provided, however, that neither party shall have any
obligations unless and until the Agreement is executed by the Company.
2. OTHER
The Subscriber acknowledges that this Offering is made by the Company
and that the Company reserves the right to accept or reject any subscription in
whole or in part.
3. SUBSCRIPTION
<TABLE>
<S> <C>
3.1 For cash herewith tendered $__________
3.2 For forgiveness of amounts owed to Subscriber by Company $__________
Total Subscription: $
==========
</TABLE>
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned has executed this Agreement on
this __________ day of ____________________, 1996.
______________________________________
Signature of Subscriber
______________________________________
Name of Subscriber
(Please print)
Social Security Number: ______________
By: _________________________________
(if a Corporation, Trust,
Partnership or other entity)
Name: __________________________
Title: __________________________
Tax ID Number: __________________
Address:
______________________________________
______________________________________
______________________________________
SUBSCRIPTION ACCEPTED
for $_________________ in Units
on this ___ day of ______________, 1996.
INTEGRATED SECURITY SYSTEMS, INC.
By: ____________________________________
Title:______________________________
6
<PAGE> 1
EXHIBIT 10.59
INTEGRATED SECURITY SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
Seabeach & Co. fbo:
Name: Minnesota State Board of Investments
------------------------------------
Number: 013
------------------------------------
1
<PAGE> 2
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN FILED OR REGISTERED WITH OR
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF ANY OF THE OFFERING
MATERIALS. NO STATE SECURITIES LAW ADMINISTRATOR HAS PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR THE ADEQUACY OF THE OFFERING
MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IT IS INTENDED THAT THE SECURITIES OFFERED HEREBY WILL BE MADE AVAILABLE ONLY
TO ACCREDITED INVESTORS, AS DEFINED IN REGULATION D PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES
OFFERED HEREBY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, FOR
NONPUBLIC OFFERINGS. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS
TO WHICH THE OFFERING WILL BE MADE AND RESTRICTS SUBSEQUENT TRANSFERS OF THE
SECURITIES.
INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE FAMILIAR WITH AND
UNDERSTAND THE TERMS OF THIS OFFERING, AND THAT THEY OR THEIR SUBSCRIBER
REPRESENTATIVES HAVE SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT THEY ARE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THIS
INVESTMENT.
NO SECURITIES MAY BE RESOLD OR OTHERWISE DISPOSED OF BY AN INVESTOR UNLESS IN
THE OPINION OF COUNSEL FOR OR SATISFACTORY TO THE COMPANY, REGISTRATION UNDER
THE APPLICABLE FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED, OR THERE IS
COMPLIANCE WITH SUCH REGISTRATION REQUIREMENTS.
THE OFFEREE, BY ACCEPTING DELIVERY OF THE OFFERING MATERIALS, AGREES TO RETURN
THE OFFERING MATERIALS AND ALL ACCOMPANYING OR RELATED DOCUMENTS TO THE COMPANY
UPON REQUEST IF THE OFFEREE DOES NOT AGREE TO PURCHASE ANY OF THE SECURITIES
OFFERED HEREBY.
THE OFFERING MATERIALS ARE SUBMITTED IN CONNECTION WITH THE PRIVATE PLACEMENT
OF THE SECURITIES AND DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. IN
ADDITION, THE OFFERING MATERIALS CONSTITUTE AN OFFER ONLY IF A NAME AND
IDENTIFICATION NUMBER APPEAR IN THE APPROPRIATE SPACES PROVIDED ON THE COVER
PAGE OF THIS DOCUMENT AND CONSTITUTE AN OFFER ONLY TO THE PERSON WHOSE NAME
APPEARS THEREON. ANY REPRODUCTION OR DISTRIBUTION OF THE OFFERING MATERIALS IN
WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF THEIR CONTENTS, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY, IS PROHIBITED. ANY PERSON ACTING CONTRARY TO
THE FOREGOING RESTRICTIONS MAY PLACE HIMSELF AND THE COMPANY IN VIOLATION OF
FEDERAL AND/OR STATE SECURITIES LAWS.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES ACT.
THESE PREFERRED SHARES DO NOT ENTITLE THE HOLDER TO ANY VOTING RIGHTS.
2
<PAGE> 3
This is a limited offering by Integrated Security Systems, Inc., a
Delaware corporation (the "Company") of shares of its Common Stock, par value
$.01 per share (the "Common Stock") and Common Stock Purchase Warrants (the
"Warrants") (collectively, the "Securities"), all as more detailed in the
Private Placement Memorandum dated March 5, 1996. This offering is hereinafter
referred to as the "Offering" and this Subscription Agreement is referred to as
the "Agreement."
Subject to the terms and conditions contained in this Agreement, the
undersigned (the "Subscriber") hereby (i) subscribes for the Securities in the
amount indicated on page 5 of this Agreement and (ii) pays the amount indicated
on page 5 of this Agreement either in cash or accepts the securities in payment
of the amount indicated on page 5 which is owed to Subscriber by Company.
In its sole discretion, the Company may accept or reject this
Agreement in whole or in part. If the Agreement is not accepted, then the
funds deposited with the Escrow Agent will be refunded to the Subscriber
without interest or the amount owed to Subscriber by Company will remain owing.
1. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS
The Subscriber acknowledges that the Company is offering the
Securities in reliance upon the representations, warranties and other
information set forth by the Subscriber. The Subscriber undertakes to notify
the Company immediately of any changes in any of the representations,
warranties and other information contained herein.
1.1 Sophistication. The Subscriber represents that he has such
knowledge and experience in financial and business matters that he is capable
of evaluating the merits and risks of acquiring the Securities and of making an
informed investment decision with respect thereto. The undersigned is a person
who is able to bear the economic risk of his investment in the Securities and
has adequate means of providing for his current needs and possible personal
contingencies with no need for liquidity of this investment. In making this
statement, consideration has been given to whether the undersigned could afford
to hold his investment in the Company for an indefinite period of time and
whether, at this time, he could afford a complete loss of his investment.
1.2 Access to Information About the Company. The Subscriber
acknowledges that he has been given information about the Company as follows:
(a) the Company's Form 10-KSB for the year ended December
31, 1995;
(b) the Private Placement Memorandum dated March 5, 1996.
Subscriber has had an opportunity to verify the accuracy of such information
and to ask questions of the Company's representatives and is satisfied. The
Subscriber represents that he has not relied on any other information.
3
<PAGE> 4
1.3 Investment Representation. The Subscriber acknowledges that
the sale or resale of the Securities has not been registered under the
Securities Act of 1933 or any other blue sky law. The Subscriber represents
that he is acquiring the Securities hereunder for investment purposes for his
own account and not with a view to reselling or otherwise distributing such
securities in violation of any federal or state securities laws and understands
and agrees that the securities to be issued hereunder are restricted on
transfer and must be held for an indefinite period unless (i) they are
registered under the Securities Act of 1933, as amended, (the "Act") or (ii) an
exemption from registration is available, and the Company has received an
opinion of counsel, in form and substance satisfactory to it, to such effect.
There can be no assurance that the Company will make available to the public at
any time in the future information necessary to enable security holders to make
routine sales of securities pursuant to Rule 144 under the Act.
1.4 Owner of Securities. The Company may deem and treat the
undersigned as the holder and owner of the shares of Securities subscribed for
hereunder (notwithstanding any notations of ownership or writing made in the
certificate representing the Securities by anyone other than the Company) for
all purposes and shall not be affected by any notice to the contrary until the
presentation to the Company of such certificate for transfer pursuant to an
effective registration statement under the Act or pursuant to an opinion of
counsel satisfactory to the Company that such registration is unnecessary.
1.5 Accredited Investor. The undersigned meets one of the
following criteria as an "accredited investor" (PLEASE CHECK ONE):
[ ] (a) The undersigned is a director or executive officer of
the Company;
[ ] (b) The undersigned is a natural person whose individual
net worth, or joint net with that person's spouse, at the time of
purchase exceeds $1,000,000;
[ ] (c) The undersigned is a natural person who had an
individual income in excess of $200,000 in each of the two most recent
years or joint income with that person's spouse in excess of $300,000
in each of those years and who reasonably expects the same income
level in the current year;
[ ] (d) The undersigned is an entity, and all of the equity
owners of such entity meet the qualifications of either (a), (b) or
(c) above or (e) below; or
[ X ] (e) The undersigned is a domestic bank, whether acting in
its individual or fiduciary capacity; a domestic insurance company;
an investment company registered under the Investment Company Act of
1940 (the "1940 Act"), or business development company as defined in
the 1940 Act; a Small Business Investment Company licensed by the
United States Small Business Administration; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan
fiduciary which is either a bank, savings and loan association,
insurance company, or registered investment advisory, or if the
employee benefit plan has total assets in excess of $5,000,000, or if
a self-directed plan, with investment decisions made solely by persons
that meet the qualifications of (a), (b), (c) or
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<PAGE> 5
(d) above; a private business development company as defined in
Section 202(a)(22) of the Investment Advisors Act of 1940; an entity
described in Section 501(c)(3) of the Internal Revenue Code, not
formed for the purpose of acquiring the securities offered, with total
assets in excess of $5,000,000, nor formed for the specific purpose of
acquiring the securities offered, whose purchase is directed by a
sophisticated person.
1.6 Authority. The Subscriber represents that he has full legal
power and authority to enter into this Agreement and to purchase the
Securities.
1.7 No State Review. The Subscriber acknowledges that the
Securities is being sold pursuant to exemption from the registration
requirements of the state indicated as the Subscriber's state of residence,
that no securities commission or regulatory authority has approved, passed upon
or endorsed the merits of this Offering, nor is it intended that any such
agency will do so. Any representation to the contrary is unlawful.
1.8 State Residence Status. Subscriber represents that he is a
resident and domiciliary (not a temporary or transient resident) of the state
and country set forth below, has no present intention to become a resident of
any other jurisdiction, and all communications, written or oral, concerning the
Securities have been directed to the Subscriber in, and received by him in,
such jurisdiction.
1.9 Decision to Invest. In making his decision to subscribe for
the Securities the Subscriber has relied solely upon the information supplied
by the Company and upon independent investigations made by him or his legal
counsel or investment advisor.
1.10 Irrevocable Agreement. The Subscriber hereby acknowledges and
agrees, except as provided by the law of the jurisdiction in which he resides,
that this Agreement is irrevocable and will survive the death or disability of
the undersigned; provided, however, that neither party shall have any
obligations unless and until the Agreement is executed by the Company.
2. OTHER
The Subscriber acknowledges that this Offering is made by the Company
and that the Company reserves the right to accept or reject any subscription in
whole or in part.
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<PAGE> 6
3. SUBSCRIPTION
<TABLE>
<S> <C>
3.1 Number of shares of Common Stock
subscribed for 800,000
3.2 Number of Warrants subscribed for 320,000
3.2 For cash herewith tendered $800,000
3.3 For forgiveness of amounts owed to Subscriber
by Company $0
Total Subscription: $800,000
</TABLE>
* * * * *
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned has executed this Agreement on
this 28th day of March, 1996.
Seabeach & Co. fbo:
Minnesota State Board of Investments
-------------------------------------------
Name of Subscriber
(Please print)
-------------------------------------------
Social Security Number: n/a
-------------
By: /s/ Richard Sinise
---------------------------------------
(if a Corporation, Trust,
Partnership or other entity)
Name: Richard Sinise
------------------------------------
Title: Vice President - KCM
-----------------------------------
Tax ID Number: 04-2792767
---------------------------
Address:
10829 Olive Boulevard
-------------------------------------------
St. Louis, MO 63141-7739
-------------------------------------------
-------------------------------------------
SUBSCRIPTION ACCEPTED
for $800,000 for 800,000 shares of Common Stock and 320,000 Warrants
on this 8th day of April, 1996.
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ Gerald K. Beckmann
----------------------------------------------------
Title: President and CEO
--------------------------------------------
7
<PAGE> 1
EXHIBIT 10.60
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m., Dallas, Texas time, on March 31, 2001.
WARRANT TO PURCHASE COMMON STOCK OF
INTEGRATED SECURITY SYSTEMS, INC.
FOR VALUE RECEIVED, INTEGRATED SECURITY SYSTEMS, INC. (the "Company")
a Delaware corporation, hereby certifies that _______________________________,
or his permitted assigns, is entitled to purchase from the Company, at any time
or from time to time commencing April 1, 1996, and prior to 5:00 p.m., Dallas,
Texas time, on March 31, 2001, a total of ___ ___________________ fully paid
and non-assessable shares of the Common Stock, par value $.01 per share, of the
Company for the Per Share Warrant Price of $1.00. (Hereinafter, (i) said
Common stock, together with any other equity securities which may be issued by
the Company with respect thereto or in substitution therefor, is referred to as
the "Common Stock," (ii) the shares of the Common Stock purchasable hereunder
are referred to as the "Warrant Shares," (iii) the aggregate purchase price
payable hereunder for the Warrant Shares is referred to as the "Aggregate
Warrant Price," (iv) the price payable hereunder for each of the Warrant Shares
is referred to as the "Per Share Warrant Price," (v) this Warrant, and all
warrants hereafter issued in exchange or substitution for this Warrant are
referred to as the "Warrant" and (vi) the holder of this Warrant is referred to
as the "Holder.") The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of
Warrant Shares shall be adjusted by dividing the Aggregate Warrant Price by the
Per Share Warrant Price in effect immediately after such adjustment.
1. Exercise of Warrant. This Warrant may be exercised, in whole
at any time or in part from time to time, commencing April 1, 1996, and prior
to 5:00 p.m., Dallas, Texas time, on March 31, 2001, by the Holder of this
Warrant by the surrender of this Warrant (with the subscription form at the end
hereof duly executed) at the address set forth in Subsection 10(a) hereof,
together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part. Payment for
Warrant Shares shall be made by certified or official bank check
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<PAGE> 2
payable to the order of the Company. If this Warrant is exercised in part,
this Warrant must be exercised for a minimum of 100 shares of the Common Stock,
and the Holder is entitled to receive a new Warrant covering the number of
Warrant Shares in respect of which this Warrant has not been exercised and
setting forth the proportionate part of the Aggregate Warrant Price applicable
to such Warrant Shares. Upon such surrender of this Warrant, the Company will
(a) issue a certificate or certificates in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, cash equal to
the fair value of such fractional share (determined in such reasonable manner
as the Board of Directors of the Company shall determine), and (b) deliver the
proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of this Warrant.
No Warrant granted herein shall be exercisable after 5:00 p.m.,
Dallas, Texas time on March 31, 2001.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock as
from time to time shall be receivable upon the exercise of this Warrant.
3. Anti-Dilution Provisions.
(a) If, at any time or from time to time after the date
of this Warrant, the Company shall distribute to the holders of the Common
Stock (i) securities, other than shares of the Common Stock, or (ii) property,
other than cash, without payment therefor, with respect to the Common Stock,
then, and in each such case, the Holder, upon the exercise of this Warrant,
shall be entitled to receive the securities and properties which the Holder
would hold on the date of such exercise if, on the date of this Warrant, the
Holder had been the holder of record of the number of shares of the Common
Stock subscribed for upon such exercise and, during the period from the date of
this Warrant to and including the date of such exercise, had retained such
shares and the securities and properties receivable by the Holder during such
period. Notice of each such distribution shall be forthwith mailed to the
Holder.
(b) In case the Company shall thereafter (i) pay a
dividend or make a distribution on its capital stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Per Share Warrant Price in effect
immediately prior to such action shall be adjusted so
2
<PAGE> 3
that if the Holder surrendered this Warrant for exercise immediately thereafter
the Holder would be entitled to receive the number of shares of Common Stock or
other capital stock of the Company which he would have owned immediately
following such action had such Warrant been exercised immediately prior
thereto. An adjustment made pursuant to this subsection (b) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(c) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to another
entity of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), the Holder shall be obligated to convert
this Warrant into the kind and amount of securities, cash or other property
which he would have owned or have been entitled to receive immediately after
such consolidation, merger, statutory exchange, sale or conveyance had such
Warrant been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance and in any such
case, if necessary, appropriate adjustment shall be made in the application of
the provisions set forth in this Section 3 with respect to the rights and
interests thereafter of the Holder to the end that the provisions set forth in
this Section 3 shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of this Warrant. The above
provisions of this subsection (c) shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyance. Notice of
any such consolidation, merger, statutory exchange, sale or conveyance and of
said provisions so proposed to be made, shall be mailed to the Holder not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(d) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the
Holder of this Warrant in accordance with this Section 3, the Company shall
promptly prepare a certificate of an officer of the Company, setting forth the
Per Share Warrant Price and the number of Warrant Shares after such adjustment
or modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause a copy of such
certificate to be mailed to the Holder.
(e) If the Board of Directors of the Company shall
declare any dividend or other distribution in cash with respect to the Common
Stock, the Company shall mail notice thereof to the Holder not less than 15
days prior to the record date
3
<PAGE> 4
fixed for determining shareholders entitled to participate in such dividend or
other distribution.
4. Fully Paid Stock; Taxes. The Company agrees that the shares
of the Common Stock represented by each and every certificate for Warrant
Shares delivered on the exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and non-assessable, and
not subject to preemptive rights, and the Company will take all such actions as
may be necessary to assure that the par value or stated value, if any, per
share of the Common Stock is at all times equal to or less than the then per
Share Warrant Price. The Company further covenants and agrees that it will
pay, when due and payable, any and all Federal and state stamp or similar taxes
that may be payable in respect of the issue of any Warrant Share of certificate
therefor.
5. Transfer.
(a) Securities Laws. This Warrant has not been
registered under the Securities Act of 1933, as amended (the "Securities Act")
or under any state securities laws and unless so registered may not be
transferred, sold pledged, hypothecated or otherwise disposed of unless an
exemption from such registration is available. In the event Holder desires to
transfer this Warrant, the Holder must give the Company prior written notice of
such proposed transfer including the name and address of the proposed
transferee. Such transfer may be made only (i) upon receipt by the Company of
an opinion of counsel to the Company or other counsel to the Holder, which
other counsel is reasonably satisfactory to the Company to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended, or the rules and regulations
promulgated under either such act; or (ii) if the Warrant has been registered
under the Securities Act and there is in effect a current prospectus meeting
the requirements of Subsection 10(a) of the Securities Act, which is being or
will be delivered to the purchaser or transferee at or prior to the time of
delivery of the certificates evidencing the Warrant to be sold or transferred.
(b) Conditions to Transfer. Prior to any proposed
transfer referred to in subparagraph (a) above, and as a condition thereto, if
such transfer is not made pursuant to an effective registration statement under
the Securities Act, the Holder will, if requested by the Company, deliver to
the Company (i) an investment covenant signed by the proposed transferee, (ii)
an agreement by such transferee to the impression of the restrictive investment
legend set forth herein on the certificate or certificates representing the
securities acquired by such transferee, (iii) an agreement by such transferee
that the Company may place a "stop transfer order" with its transfer agent or
registrar, and (iv) an agreement by the transferee to indemnify the Company to
the same extent as set forth in the next succeeding paragraph.
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<PAGE> 5
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 5, and the
Holder hereby agrees to indemnify and hold harmless the Company, its
representatives and each officer and director thereof from and against any and
all loss, damage or liability (including all attorneys' fees and costs incurred
in enforcing this indemnity provision) due to or arising out of (a) the
inaccuracy of any representation or the breach of any warranty of the Holder
contained in, or any other breach of this Warrant, (b) any transfer of any of
the Warrant or the Warrant Shares in violation of the Securities Act, the
Securities Exchange Act of 1934, as amended, or the rules and regulations
promulgated under either of such acts, (c) any transfer of the Warrant or any
of the Warrant Shares not in accordance with this Warrant or (d) any untrue
statement or omission to state any material fact in connection with the
investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Subject to the restrictions contained
herein, this Warrant and the Warrant Shares issued may be transferred by the
Holder in whole or in part at any time or from time to time. Upon surrender of
this Warrant to the Company or at the office of its stock transfer agent, if
any, with assignment documentation duly executed and funds sufficient to pay
any transfer tax, and upon compliance with the foregoing provisions, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment, and this Warrant shall
promptly be canceled. Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. The Company shall
instruct its transfer agent to enter stop transfer orders with respect to the
shares of Common Stock issuable upon exercise of the Warrants, and all
certificates representing Warrant Shares shall bear on the face thereof
substantially the following legend:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
6. Registration Rights. Within 6 months of issue, the Company
will file, and use its best efforts to have declared effective, one
registration statement pursuant to the Securities Act registering resales of
the Warrant Shares. This registration right is
5
<PAGE> 6
subject to any and all registration rights granted and outstanding as of the
date hereof. Such resales need not be underwritten. No such registration
shall be required if all of the Warrant Shares may be sold pursuant to Rule
144.
At least 30 days prior to the filing of such registration statement,
the Company will notify the registered holder of the Warrant by first class
mail at the last known address as it shall appear on the stock transfer books
of the Company (or the Warrant Shares, if the Warrant has been exercised) of
the Company's intention to file, and the registered holder shall have 15 days
from the date the notice was mailed to the Holder to notify the Company in
writing stating what portion of the Warrant Shares such holder desires to have
covered by such registration statement. Any notice which is mailed in the
manner herein provided shall be conclusively presumed to have been duly given
when mailed whether or not the Holder receives the notice. If the registered
holder fails to so notify the Company, then the Company shall have no further
obligation to register such shares. Any registered holder of the Warrant (or
the Warrant Shares, if the Warrant has been exercised) shall cooperate with the
Company in the registration of the shares, and shall deliver such agreements as
are customary or appropriate to facilitate the registration of such shares,
including, but not limited to, the execution of an underwriting agreement with
the underwriters, if any, selected by the Company.
If requested by the Company and an underwriter of Common Stock of the
Company, a Holder shall not sell or otherwise transfer or dispose of any Common
Stock or Warrant of the Company held by such Holder (other than those included
in the registration) during the 180-day period following the effective date of
a registration statement of the Company filed under the Securities Act.
7. Expenses. For purposes of this Section 7, "Registration
Expenses" shall mean any and all expenses, except Selling Expenses as defined
below, incurred by the Company in complying with this warrant, including
without limitation, (a) all Securities and Exchange Commission and stock
exchange or National Association of Securities Dealers registration and filing
fees, (b) all fees and expenses of complying with securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the registered securities), (c) all
printing, messenger and delivery expenses, (d) the fees and disbursements of
counsel for the Company and of its independent public accountants, including
the expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance and (e) any reasonable fees and
expenses of any special experts retained in connection with the registration,
but excluding underwriting discounts and commissions and transfer taxes, if
any. "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth in the definition of Registration
Expenses, all reasonable fees and disbursements of one counsel for Holders, as
chosen by a simple majority of such Holders.
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<PAGE> 7
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Warrant shall be
borne by the Company. All Selling Expenses relating to securities registered
on behalf of Holders in any registration, qualification or compliance pursuant
to this Warrant shall be borne by the Holders pro rata based on the number of
shares to be registered.
8. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
10. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 8200 Springwood Drive, Suite 230,
Irving, Texas 75063, or such other address as the Company has designated in
writing to the Holder, or
(b) the Holder at ______________________________________
__________________________ or such other address as the Holder has designated
in writing to the Company.
11. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Texas.
7
<PAGE> 8
IN WITNESS WHEREOF, INTEGRATED SECURITY SYSTEMS, INC., has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Secretary this ______ day of __________________
1996.
INTEGRATED SECURITY SYSTEMS, INC.
By:
-----------------------------------
Gerald K. Beckmann
President
ATTEST:
- - -------------------------
[Corporate Seal]
8
<PAGE> 9
SUBSCRIPTION
The undersigned, _________________________________ pursuant to the
provisions of the foregoing Warrant agrees to subscribe for the purchase of
__________ shares of the Common Stock of INTEGRATED SECURITY SYSTEMS, INC.
covered by said Warrant, and makes payment therefor in full at the price per
share provided by said Warrant.
Dated: Signature
--------------- ----------------------------
Address
----------------------------
ASSIGNMENT
FOR VALUE RECEIVED, __________________________ hereby sells, assigns
and transfers unto __________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
______________________, an attorney, to transfer said Warrant on the books of
INTEGRATED SECURITY SYSTEMS, INC.
Dated: Signature
--------------- ----------------------------
Address
----------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, __________________________ hereby sells, assigns
and transfers unto ____________________________ the right to purchase
____________ shares of the Common Stock of INTEGRATED SECURITY SYSTEMS, INC. by
the foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced hereby, and does irrevocably constitute and appoint
____________________________, an attorney, to transfer that part of said
Warrant on the books of INTEGRATED SECURITY SYSTEMS, INC.
Dated: Signature
--------------- ----------------------------
Address
----------------------------
9
<PAGE> 1
EXHIBIT 10.61
PLACEMENT AGENT AGREEMENT
Bathgate McColley Capital Group LLC
5350 South Roslyn Street, Suite 380
Englewood, CO 80111
Gentlemen:
Integrated Security Systems, Inc. (the "Company"), hereby confirms its
agreement with you (the "Placement Agent") as follows:
SECTION 1
Description of Securities
The Company proposes to offer and sell to qualified investors up to
25,000 units of the Company's securities on terms as set forth herein (the
"Offering").
Each unit ("Unit" or, if used in the plural, "Units") shall consist of
one (1) share ("Share" or, if used in the plural, "Shares") of the Company's
$20.00 convertible preferred stock ("Preferred Stock") and eight (8) common
stock purchase warrants ("Warrant" or, if used in the plurals, "Warrants").
The Units will be offered on a "best efforts" basis and the offering price
shall be $20.00 per Unit. Each share of Preferred Stock may be converted into
twenty shares of the Company's common stock ("Common Stock"). The Preferred
Stock may be converted at the option of the Company if (i) the closing bid
price of the Company's public traded common stock is at least $2.00 for no less
than 20 of the preceding 30 trading days, and (ii) the shares of common stock
that are to be received upon conversion of the Preferred Stock is registered or
otherwise qualified for sale under applicable federal and state securities
laws. Each Warrant will entitle the Holder to purchase one share of Common
Stock at an exercise price (the "Exercise Price") of $1.00 per share
exercisable any time prior to March 31, 2001. The Company agrees to file a
registration statement with respect to its common stock issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants to permit
the public sale thereof pursuant to applicable federal and state laws. The
registration statement shall be filed no later than six (6) months following
the earlier of the sale of all the Units or the termination of the Offering and
the Company will use its best efforts to cause such registration statement to
be declared effective by all applicable federal and state regulatory
authorities. As used in this Agreement, the term "Memorandum" refers to a
Private Placement Memorandum dated April 9, 1996, including all exhibits
thereto. The Units, Preferred Stock, Common Stock and Warrants shall be as
further described in the Memorandum and shall be sold on the terms and
conditions as described herein and in the Memorandum.
SECTION 2
Representations and Warranties of the Company
In order to induce the Placement Agent to enter into this Agreement,
the Company hereby represents and warrants to and agrees with the Placement
Agent as follows:
2.01. Private Placement Memorandum. The Memorandum with respect to
the Units, copies of which have heretofore been delivered by the Company to the
Placement Agent, has been carefully prepared by the Company in conformity with
Regulation D ("Regulation D") or other applicable exemptions from the
registration requirements promulgated pursuant to the Securities Act of 1933,
as amended (the "Act"), and with comparable provisions of the securities laws
of those states as may be reasonably requested by the Placement Agent. The
Memorandum does not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, the Company does not make any
representations or warranties as to information contained in or omitted from
the Memorandum in reliance upon written information furnished on behalf of
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the Placement Agent specifically for use therein. Any additional written
information authorized by the Company to be provided to prospective purchasers
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
2.02 Financial Statements. Auditors, acceptable to the Placement
Agent, have reviewed the audited financial statements contained in the Form
10-KSB attached as an exhibit to the Memorandum, are independent certificate
public accountants. The Financial statements of the Company, together with
related Schedules and Notes as set forth in the Memorandum, present fairly the
financial position and the results of operations of the Company at the
represented dates and for the represented periods to which they apply; such
financial statements have been prepared in accordance with generally accepted
accounting principles which have been consistently applied throughout the
periods concerned except as otherwise stated therein.
2.03 No Material Adverse Change. Except as may be reflected in or
contemplated by the Memorandum, subsequent to the dates as of which information
is given in the Memorandum, and during the Offering, (i) there shall not be any
material adverse change in the business, properties, options to lease, leases,
financial condition, management, or otherwise of the Company or in the
Company's business taken as a whole, (ii) there shall not have been material
transaction entered into by the Company other than transactions in the ordinary
course of business; (iii) the Company shall not have incurred any material
obligations, contingent or otherwise, which are not disclosed in the
Memorandum; (iv) there shall not have been nor will there be any change in the
capital stock or adverse change in the short-term or long-term debt (except
current payments) of the Company; and (v) the Company has not and will not have
paid or declared any dividends or other distributions.
2.04. No Defaults. The Company is not in default in the performance
of any material obligation, agreement or condition contained in any debenture,
not or other evidence of indebtedness or any indenture or loan agreement of the
Company, other than as set forth in the Memorandum or previously disclosed to
the Placement Agent. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated, and compliance with the
terms of this Agreement will not conflict with or result in a breach of any of
the terms, conditions or provisions of, or constitute a default under, the
articles of incorporation or bylaws of the Company, or any note, indenture,
mortgage, deed of trust, or other agreement or instrument to which the Company,
or any note, indenture, mortgage, deed of trust, or other agreement or
instrument to which the Company is a party or by which it or any of its
property is bound, or any existing law, order, rule, regulation, writ,
injunction, or decree or any government, governmental instrumentality, agency
or body, arbitrator, tribunal or court, domestic or foreign, having
jurisdiction over the Company or its property. The consent, approval,
authorization, or order of any court or governmental instrumentality, agency or
body is not required for the consummation of the transactions herein
contemplated except such as may be required under the Act or under the
securities laws of any state or jurisdiction.
2.05. Organization and Standing. The Company is, and at all times
that Units are being sold pursuant to this Agreement will be, duly organized
and validly existing in good standing as a corporation under the laws of its
state of incorporation and with full power and authority to own its property
and conduct its business, present and proposed, as described in the Memorandum;
the Company has full power and authority to enter into this Agreement and to
issue the securities comprising the Units and comprising compensation to the
Placement Agent, and the Company is duly qualified and in good standing as a
foreign corporation in all jurisdictions in which the character of the property
owned or leased or the nature of the business transacted by it makes such
qualification necessary. The Company has paid all fees required by the
Jurisdiction of organization and any jurisdiction in which it is qualified as a
foreign corporation.
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2.06. Capitalization. During the Offering, the capitalization of
the Company shall consist of a total of no more than 11,000,000 shares of
Common Stock of the Company issued and outstanding or subject to issuance upon
the exercise of outstanding options, warrants or purchase rights or upon the
conversion of outstanding convertible securities.
2.07. Legality of Units. The Units and the securities comprising
the Units have been duly and validly authorized and, when issued or sold and
delivered against payment therefor as provided in this Agreement, will be
validly issued, fully paid and nonassessable. The securities comprising the
Units will conform in all material respects to all statements with regard
thereto in the Memorandum. A sufficient number of shares of Common Stock of
the Company has been reserved for issuance upon conversion of the Preferred
Stock and exercise of the Warrants sold in this Offering.
2.08. Prior Sales. No securities of the Company have been sold by
the Company or by, or on behalf of, or for the benefit of, any person or
persons controlling, controlled by, or under common control with the Company at
any time prior to the date hereof, except as set out in the Memorandum. No
prior securities sales by the Company or any affiliate are required to be
integrated with the proposed sale of the Units such that the availability of
regulation D or any other claimed exemption from the registration requirements
of the Act would be made unavailable to the offer and sale of the Units.
2.09. Litigation. There is and during the Offering there will be no
action, suit proceeding before any court or governmental agency, authority or
body pending or to the knowledge of the Company threatened which might result
in judgments against the Company, or its officers, directors, employees or
agents which the Company is obligated to indemnify, not adequately covered by
insurance and which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company or would materially affect the properties or assets of the Company.
2.10. Finder. No person has acted as a finder in connection with
the transactions contemplated herein, and the Company will indemnify the
Placement Agent with respect to any claim for finder's fees in connection
herewith. The Company further represents that it has no management or
financial consulting or advisory agreement with anyone except as set forth in
the Memorandum. The Company additionally represents that no officer, director,
or 5% or greater shareholder of the company is, directly or indirectly,
associated with a National Association of Securities Dealers, Inc. member
broker-dealer, other than such persons as the Company has advised the Placement
Agent in writing are so associated.
2.11. Contracts. Each contract to which the Company is a party and
to which reference is made in the Memorandum or previously disclosed to the
Placement Agent has been duly and validly executed, is in full force and effect
in all material respects in accordance with their respective terms, and none of
such contracts has been assigned by the Company; and the Company knows of no
present situation or condition or fact which would prevent compliance with the
terms of such contracts, as amended to date. Except for amendments or
modifications of such contracts in the ordinary course of business, the Company
has no intention of exercising any right which it may have to cancel any of its
obligations under any of such contracts, and has no knowledge that any other
party to any of such contracts has any intention not to render full performance
under such contracts.
2.12. Tax Returns. The Company has filed all federal, state and
municipal tax returns which are required to be filed, and has paid all taxes
shown on such returns and on all assessments received by it to the extent such
taxes have become due. All other taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to cover any
such unpaid taxes, including all federal and state withholding and FICA
payments.
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2.13. Property. Except as otherwise set forth in the Memorandum,
the Company has good title, free and clear of all liens, encumbrances and
defects, except liens for current taxes not due and payable, to all property
and assets which are described in the Memorandum as being owned by the Company,
subject only to such exceptions as are not material and do not adversely affect
the present or prospective business of the Company. All of the claims, options
to lease, leases and subleases material to the business of the Company under
which the Company holds or uses any real or personal property, including those
described or referred to in the Memorandum, are in full force and effect, and
the Company is not in default in respect of any of the terms or provisions of
any such claims, options to lease, leases or subleases, and no claim of any
sort has been asserted by anyone adverse to the Company's rights under any such
claims, options to lease, leases or subleases or affecting or questioning the
Company's rights to the continued possession of the claims, optioned, leased or
subleased property covered by such claim, options to leas, lease or sublease.
2.14. Authority. The execution and delivery by the Company of this
Agreement has been duly authorized, and this Agreement is the valid, binding
and legally enforceable obligation of the Company.
2.15. Use of Proceeds. the Company will apply the proceeds from the
sale of the Units to the purposes set forth in the Memorandum. the Company
shall ensure proper application and stewardship of such proceeds.
2.16. No Limitations on Payment of Dividends. Except as otherwise
set forth in the Memorandum, there are no limitations, either contractual or
otherwise, nor will the Company enter into any agreement with any other party,
which prevents or limits the Company's ability to declare or pay dividends on
its Common Stock.
SECTION 3
Issue, Sale and Delivery of the Units
3.01. Placement Agent Appointment. The Company hereby appoints the
Placement Agent as its exclusive agent until May 15, 1996, which period may be
extended for additional periods of up to sixty (60) days in the aggregate, by
mutual consent of the Company and the Placement Agent (the "Sales Termination
Date"), to solicit purchasers for up to 25,000 Units on a "best efforts" basis;
and the Placement Agent, on the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth,
accepts such appointment and agrees to use its best efforts to find purchasers
for the Units at the price of $20.00 per Unit, provided that the Company
reserves the right to reject in good faith any prospective investor
("Investor") and no commission shall be payable to the Placement Agent in
respect of any proposed sale to any rejected Investor. No other person will be
or has been authorized to solicit purchasers for the Units, except those
persons selected by the Placement Agent. Each Investor must subscribe for at
least 1,000 Units ($20,000), and must certify to the Company that he is an
"Accredited Investor" as defined in Rule 501(a) of Regulation D or otherwise
satisfies all requirements mutually imposed by the Company and Placement Agent.
Notwithstanding the above, the Company and the Placement Agent may mutually
agree to accept a subscription for fewer than 1,000 Units.
3.02. Subscription Agreement. Each Investor desiring to purchase
Units will be required to complete and execute a Subscription Agreement and, if
applicable, all other offering documents. The Placement Agent shall have the
right to review such documents for each Investor and to reject the tender of
any Investor which it deems not acceptable. All documents concerning any
Investor the Placement Agent has not rejected will be promptly forwarded to the
Company at the address set forth below. The Company, upon receipt of the
documents, will determine within three (3) business days whether it wishes to
accept the Subscription Agreement. Payment for the Units subscribed for in the
Subscription Agreements which have been accepted by the Company may be utilized
by the Company.
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<PAGE> 5
3.03 Allocation of Subscription. Payment for the Units for which a
subscription is rejected shall not be negotiated by the Company and shall be
returned to the Investor by noon of the day following the rejection. If
subscriptions are received for more than 25,000 Units, the Company may accept
one subscription over another and/or allocate available Units among subscribers
as it deems appropriate.
3.04. Compensation of Placement Agent. In consideration for the
Placement Agent's execution of this Agreement, and for the performance of its
obligations hereunder, the Company agrees to pay the Placement Agent a
commission of ten percent (10%) of the gross proceeds received from the sale of
the Units ($2.00 per Unit). Any commissions payable to the Placement Agent
under this paragraph shall be payable by the Company within two (2) days of the
acceptance by the Company of a subscription. Notwithstanding the foregoing,
the commission shall be five percent (5%) on any sale of Units directed in
writing to the Placement Agent by the Company.
The Placement Agent has previously assisted the Company in raising
$250,000 through the sale of promissory notes of the Company. The sale of the
promissory notes is separate from the Offering. To the extent that the holders
exchange the promissory notes for preferred stock and/or other securities of
the Company, the Company agrees to pay the Placement Agent, as additional
commission, eight percent (8%) of the face amount of such promissory notes
exchanged in connection with such transactions. Such exchanges, if any, shall
be separate and apart from the Units being sold in the Offering and shall not
affect any of the terms of the Offering.
3.05. Delivery of Units. As soon as practicable after the sale of
the Units, the Company shall deliver by mail to each Investor a certificate for
the securities underlying the Units that have been purchased and which contains
a legend conforming to the requirements of Rule 502(d)(3) under the Act.
3.06. Non-Accountable Expense Allowance. The Placement Agent shall
receive a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds of this Offering ($0.60 per Unit) payable at the same time as
commissions are payable to the Placement Agent as provided above in Section
3.04.
3.07. Obligations of Placement Agent. The Company agrees that the
obligations of the Placement Agent under this Agreement: (i) shall not
preclude the Placement Agent from contemporaneously participating in the
offering or underwriting of securities of other issuers; (ii) shall not impose
any obligation on the Placement Agent to require its registered representatives
to offer or to sell the Units, (iii) shall require the Placement Agent to make
an effort to find purchasers for the Units only to the extent the Placement
Agent is motivated to do so by the compensation and other provisions of this
Agreement, (iv) shall not otherwise limit or prevent the Placement Agent from
carrying on its customary business as a securities broker-dealer, and (v) shall
not require the Placement Agent to engage in any conduct which is violative of
any law or industry standard of conduct applicable to the Placement Agent.
3.09. Representations and Warranties. The parties hereto each
represent that as of each sale of the Units the representations and warranties
herein contained and the statements contained in all the certificates
heretofore or simultaneously delivered by any party to another, pursuant to
this Agreement, shall in all material respects be true and correct.
3.10. Form D. The Placement Agent agrees that it will timely supply
the Company from time to time with all information required from the Placement
Agent for the completion of Form D to be filed with the Securities and Exchange
Commission and such additional information as the Company may reasonably
request to be supplied to the securities authorities of such states in which
the Units have been qualified for sale or are exempt from qualification or
registration. A copy of all such filings shall be delivered to the Placement
Agent and counsel for the Placement Agent promptly prior to their being filed.
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SECTION 4
Offering of the Units on Behalf of the Company
4.01. Agent. In offering the Units for sale, the Placement Agent
shall offer the Units solely as an agent for the Company, and such offer shall
be made upon the terms and subject to the conditions set forth herein and in
the Memorandum. The Placement Agent shall commence making such offers as an
agent for the Company as soon after the date of the Memorandum (the "Offering
Date") as it in its sole discretion may deem advisable; provided, however, that
if the Placement Agent does not commence such offering within ten (10) business
days after the Offering Date, it shall promptly advise the Company.
4.02. Selected Dealers. The Placement Agent may offer and sell the
Units for the account of the Company through registered broker-dealers selected
by it ("Selected Dealers") and pursuant to a form of Selected Dealer Agreement
between the Placement Agent and the Selected Dealers, pursuant to which the
Placement Agent may allow such concession (out of its commissions) as it may
determine. such Agreement shall provide that the Selected Dealers are acting
as agents of the Company. On such sale or allotment by the Placement Agent of
any of the Units to Selected Dealers, the Placement Agent shall require the
Selected Dealer selling any such Units to agree to offer and sell the same on
the terms and conditions of offering set forth in the Memorandum and in this
Agreement.
SECTION 5
Memorandum
5.01. Delivery and Form of Memorandum. The Company will procure, at
its expense, as many copies of the Memorandum as the Placement Agent may
reasonably require for the purposes contemplated by this Agreement and shall
deliver said copies of the Memorandum within four (4) business days after
execution of this Agreement at addresses, and in the quantity at each address,
as specified by the Placement Agent. Each Memorandum shall be of a size and
format as determined by the Placement Agent and shall be suitable for mailing
and other distribution.
5.02. Amendment of Memorandum. If during the offering any event
occurs or any event known to the Company relating to or affecting the Company
shall occur as a result of which the Memorandum as then amended or supplemented
would include an untrue statement of a material fact, or omits to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time after the commencement of the Offering to amend or supplement the
Memorandum to comply with the Act, the Company will immediately notify the
Placement Agent thereof and the Company will prepare such further amendment to
the Memorandum or supplemental or amended Memorandum or Memoranda as may be
required and furnish and deliver to the Placement Agent, all at the cost of the
Company, a reasonable number of copies of the supplemental or amended
Memorandum which as so amended or supplemented will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the Memorandum not misleading in the light of the circumstances
existing at the time it is delivered.
5.03. Use of Memorandum. The Company authorizes the Placement Agent
and the Selected Dealers, if any, in connection with the offer and sale of the
Units and all dealers to whom any of the Units may be sold by the Placement
Agent or by any Selected Dealer, to use the Memorandum as from time to time
amended or supplemented, in connection with the offering and sale of the Units
and in accordance with the provisions of the Act, the Rules and Regulations
thereunder and applicable state securities laws.
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SECTION 6
Covenants of the Company
The Company covenants and agrees with the Placement Agent that:
6.01. Notification of Changes. After the date hereof, the Company
will not at any time, whether before or after the date of the Memorandum, make
any amendment or supplement to the Memorandum of which amendment or supplement
the Placement Agent shall not have previously been advised and a coy of which
shall not have previously been furnished to the Placement Agent a reasonable
time period prior to the proposed date of such amendment or supplement, or
which the Placement Agent or counsel for the Placement Agent shall have
reasonably objected to in writing solely on the grounds that it is not in
compliance with the Act or the Rules and Regulations or with other federal or
state laws.
6.02. Proceeding. The Company will promptly advise the Placement
Agent, and will confirm such advice in writing, upon the happening of any event
which, in the judgment of the Company, makes any material statement in the
Memorandum untrue or which requires the making of any changes in the Memorandum
in order to make the statements therein not misleading, and upon the refusal of
any state securities administrator or similar official to qualify, or the
suspension of the qualification of the Units for offering or sale in any
jurisdiction where the Units are not exempt from qualification or registration,
or of the institution of any proceedings for the suspension of any exemption or
for any other purposes. The Company will use every reasonable effort to
prevent any such refusal to qualify or any such suspension and to obtain as
soon as possible the lifting of any such order, the reversal of any such
refusal, and the termination of any such suspension.
6.03. Blue Sky Memorandum. As a condition of closing, the Company
will qualify the Units, or such part thereof as requested by the Placement
Agent, for offer and sale and will take whatever action necessary in connection
with filing or maintaining any appropriate exemption from such qualification or
registration under the applicable laws of those states as may be selected by
the Placement Agent and agreed to by the Company, and continue such
qualifications and exemption in effect so long as required for the purposes of
the offer and sale of the Units. The Company will cause a Blue Sky Memorandum
to be prepared by counsel to the Company to be delivered to the Placement Agent
prior to commencement of the Offering and thereafter as frequently as any
changes occur therein. The Blue Sky Memorandum shall set forth those states or
jurisdictions wherein the Units have been registered or otherwise qualified for
sale or shall specify the exemption from registration that may be relied on for
the offer and sale of the Units. The Blue Sky Memorandum will be promptly
amended as necessary. The Company agrees that the Placement Agent and Selected
Dealers, if any, may rely on the Blue Sky Memorandum in connection with the
offer and sale of the Units.
6.04. Agreement to Provide Information. The Company, at its own
expense, will prepare and give and will continue to give such financial
statements and other information to and as may be required by the Commission or
the governmental authorities of states in which the Units may be qualified or
exempt from qualification or registration.
6.05. Costs of Offering. The Company will pay, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization and issuance of the Units, any taxes incident to the initial sale
of the Units hereunder, the fees and expenses of the Company's counsel and
accountants, the costs and expenses incident to the preparation and printing of
the Memorandum and any amendments or supplements thereto, the cost of preparing
and printing all exhibits to the Memorandum, the Blue Sky Memorandum, the cost
of furnishing to the Placement Agent copies of the Memorandum as herein
provided, and the cost of any filing with the Commission or pursuant to state
securities laws, including all filing fees.
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6.06. Use of Proceeds. The Company will apply the proceeds from the
sale of the Units to the purposes set forth in the Memorandum.
6.07. Due Diligence. Prior to and during the Offering, the Company
will cooperate with the Placement Agent in such investigation as the Placement
Agent may make or cause to be made of the properties, business, management and
operations of the Company in connection with the offering of the Units, and the
Company will make available to the Placement Agent in connection therewith such
information in its possession as the Placement Agent may reasonably request.
6.08. Documentation. Prior to and during the Offering, the Company
will deliver to the Placement Agent true and correct copies of the articles and
bylaws of the Company and of the minutes of all meetings of the directors and
shareholders of the Company held since inception; true and correct copies of
all material contracts to which the Company is a party; and such other
documents and information as is reasonably requested by the Placement Agent.
To the extent such documents had previously been provided, only amendment or
updates need be furnished.
6.09. Management Cooperation. The Company shall provide the
Placement Agent, at any time, an opportunity to meet with and question
management of the Company and authorize management of the Company to speak at
such meetings as the Placement Agent reasonably requests.
6.10. Periodic Reports. The Company will provide to the Placement
Agent for not less than three (3) years following completion of the Offering,
quarterly and annual financial statements, copies of all correspondence to
shareholders and copies of all press releases or news items concerning the
Company.
6.11. Compliance with Conditions Precedent. The Company will use
all reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Placement Agent specified in this
Agreement.
6.12. Reports. The Company agrees to file with the Commission, and
states where required, all reports on Form D in accordance with the provisions
of Regulation D promulgated under the Act and to promptly provide copies of
such reports to the Placement Agent and its counsel.
SECTION 7
Indemnification
7.01. Indemnification by Company. The Company shall indemnify
and hold the Placement Agent and each manager, member, employee,
representative, agent, surety, guarantor, and each person who controls the
Placement Agent within the meaning of Section 15 of the Act, harmless against
any and all liabilities, claims and lawsuits, including any and all awards
and/or judgments to which they may become subject under the Act, as amended, or
any other federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including awards and/or judgments) arise out
of or are in connection with this Agreement and the Memorandum and related
exhibits, except when the Placement Agent has been proven to be at fault due to
fraud or negligence. The Company shall also indemnify and hold the Placement
Agent and other indemnified person harmless against any and all costs and
expenses, including reasonable counsel fees, incurred or relating to the
foregoing.
7.02. Notification to Company. The Placement Agent and other
indemnified persons shall give the Company prompt notice of any such liability,
claim or lawsuit which it contends is the subject matter of the Company's
indemnification and the Company thereupon shall be granted the right to take
any and all necessary and proper action, at its sole cost and expense, with
respect to such liability, claim or lawsuit, including the right to settle,
compromise and dispose of such liability, claim or lawsuit, excepting therefrom
any and all proceedings or hearings before any regulatory bodies and/or
authorities.
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7.03. Indemnification by Placement Agent. The Placement Agent shall
indemnify and hold the Company and each officer, director, employee,
representative, agent, surety, guarantor, and each person who controls the
Company within the meaning of Section 15 of the Act, harmless against any and
all liabilities, claims and lawsuits, including any and all awards and/or
judgments to which they may become subject under the Act, as amended, or any
other federal or sate statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including awards and/or judgments) arise out
of or are based upon any statement or omission from the Memorandum and related
exhibits if such statement or omission was made in reliance upon information
peculiarly within its knowledge and furnished in writing to the Company by the
Placement Agent on its behalf specifically for use in connection with the
preparation of the Memorandum, except when the Company has been proven to be at
fault due to fraud or negligence. In addition, the Placement Agent shall also
indemnify and hold the Company harmless against any and all costs and expenses,
including reasonable counsel fees, incurred or relating to the foregoing.
7.04. Notification to Placement Agent. The Company and other
indemnified persons shall give the Placement Agent prompt notice of any such
liability, claim or lawsuit which it contends is the subject matter of the
Placement Agent's indemnification and the Placement Agent thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim or lawsuit, including
the right to settle, compromise and dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
7.05. Indemnification of Selected Dealers. The Company agrees to
indemnify Selected Dealers, if any, and its agents, officers, director,
representatives, guarantors and sureties on substantially the same terms and
conditions as it indemnifies the Placement Agent and Indemnified Persons
pursuant to Section 7.01 provided that each such Selected Dealer agrees in
writing with the Placement Agent to indemnify the Company and its agents,
officers, directors, representatives, guarantors and sureties on substantially
the same term sand conditions as the Placement Agent indemnifies the Company in
Section 7.03. The Company hereby authorizes the Placement Agent to enter into
agreements with Selected Dealers providing for such indemnity by the Company.
7.06. Contribution. If the indemnification provided for in Sections
7.01, 7.03 and 7.05 is unavailable to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under either such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities: (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Placement Agent or
Selected Dealer on the other from the offering and sale of the Units, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the Placement Agent or Selected Dealer on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Placement Agent or Selected Dealer on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bears to the total commissions
received by the Placement Agent or Selected Dealer, as in the case set forth in
the Memorandum. The relative fault of the Company and of the Placement Agent
or Selected Dealer shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company or by the Placement Agent or Selected Dealer and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
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The Company and the Placement Agent agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, the
Placement Agent shall not be required to contribute any amount in excess of the
amount by which the total price at which the Units sold by it and distributed
exceeds the amount of any damages which such Placement Agent otherwise has been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution hereunder from any person who was not guilty of such fraudulent
misrepresentation.
7.07. Limitation of Legal Expenses. Notwithstanding anything herein
to the contrary, the indemnification for legal expenses included in Section
7.01, 7.03 and 7.05 shall be limited to the legal expenses of one law firm,
except in the event of a bona fide conflict of interest, in which event such
legal expenses shall be limited to the legal expenses of two law firms.
SECTION 8
Effectiveness of Agreement
8.01. This Agreement shall become effective upon execution by all
parties
hereto.
SECTION 9
Conditions of the Placement Agent's Obligations
The Placement Agent's obligations to act as agent of the Company
hereunder shall be subject to the accuracy of the representations and
warranties on the part of the Company herein contained, to the performance by
the Company of all its agreements herein contained, to the fulfillment of or
compliance by the Company with all covenants and conditions hereof, and to the
following additional conditions:
9.01. No Material Changes. Except as contemplated herein or as set
forth in the Memorandum, during the period subsequent to the date of the last
balance sheet included in the Memorandum the Company: (a) shall have conducted
its business in the usual and ordinary manner as the same was being conducted
on the date of the last balance sheet included in the Memorandum, and (b)
except in the ordinary course of its business, the Company shall not have
incurred any material liabilities, claims or obligations (direct or contingent)
or disposed of any material portion of its assets, or entered into any material
transaction or suffered or experienced any materially adverse change in its
condition, financial or otherwise. The capital stock and surplus accounts, if
any, of the Company shall be substantially the same as at the date of the
latest balance sheet included in the Memorandum, without considering the
proceeds from the sale of the Units, other than as may be set forth in the
Memorandum and as previously disclosed to the Placement Agent, and except as
the surplus reflects the result of continued losses from operations consistent
with prior periods.
9.02. Authorization. The authorization for the issuance of the
securities comprising the Units and the use of the Memorandum and all corporate
proceedings and other legal matters incident thereto and to this Agreement
shall be reasonably satisfactory in all respects to counsel to the Placement
Agent.
9.03. Opinion. The Company shall have furnished to the Placement
Agent the opinion, dated as of the date of this Agreement and as of the
termination date of the Offering and addressed to the Memorandum, the Company's
certificate of incorporation, bylaws, and relevant corporate proceedings and
contracts, and examination of such statutes they deem necessary and such other
investigation by such counsel as they deem necessary to express such opinion.
10
<PAGE> 11
(a) The Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the state of incorporation, and has the corporate power and
authority to own its properties and to carry on its business as described in
the Memorandum.
(b) The Company and each subsidiary is duly qualified and
in good standing as a foreign corporation authorized to do business in all
jurisdiction in which the character of the properties owned or held under lease
or the nature of the business conducted requires such qualification and in
which the failure to qualify would have a materially adverse effect on the
business of the Company or respective subsidiary.
(c) On the basis of a review of the contents of the
Memorandum and related matters, and based upon the advice of the Company, but
without independent verification by such counsel of the accuracy, completeness
or fairness of the statements contained in the Memorandum or any amendments to
supplements thereto, and without expressing any opinion as to the financial
statements or other financial data contained herein: (i) nothing has come to
such counsel's attention which leads them to believe that the Memorandum, as
amended or supplemented thereto made by the Company prior to completion of the
Offering, do not comply as to form in all material respects with the
requirements of applicable laws; (ii) nothing has come to their attention which
leads them to believe that the Memorandum, as amended or supplemented by any
such amendments or supplements thereto, contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make statements therein; (iii) they do not know of any contract
or other document required to be described in or filed as an exhibit to the
Memorandum which is not so described in or filed as an exhibit to the
Memorandum which is not so described or filed; and (iv) to the best of their
knowledge, no order suspending the Offering has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated by any
applicable regulatory authority.
(d) The authorized and outstanding capital stock of the
Company is as set forth in the Memorandum; the Units, Preferred Stock, Common
Stock, Warrants and Placement Agent's Warrants conform in all material respects
to the statements concerning them in the Memorandum; the outstanding preferred
and common stock of the Company contain no preemptive rights; the Units,
Preferred Stock, Common Stock, Warrants and Placement Agent's Warrants have
been, and the shares of Common Stock issuable upon exercise of the Warrants and
Placement Agent's Warrants, will be, duly and validly authorized and, upon
issuance thereof and payment therefore in accordance with this Agreement,
validly issued, fully paid and nonassessable, and will not be subject to the
preemptive rights of any shareholder of the Company.
(e) The Warrants and Placement Agent's Warrants have been
duly and validly authorized and, when accepted and delivered by the Company,
are valid and binding obligations of the Company, enforceable in accordance
with their respective terms.
(f) A sufficient number of shares of Common Stock have
been duly reserved for issuance upon conversion of the Preferred Stock and upon
the exercise of the Warrants and the Placement Agent's Warrants.
(g) The issuance and sale of the Units and the Placement
Agent's Warrants, the consummation of the transactions herein contemplated, and
the compliance with the terms of this Agreement will not conflict with or
result in a breach of incorporation or bylaws of the Company; nor, to their
knowledge, will they conflict with or result in a breach of any of the terms,
conditions, or provisions of any note, indenture, mortgage, deed of trust, or
other agreement or instrument to which the Company is a party or by which the
Company or any of its property is bound; or any existing law (provided this
paragraph shall not relate to federal or state securities laws), order, rule,
regulation, writ, injunction, or decree known to such counsel of any
government, governmental instrumentality, agency, body, arbitration tribunal,
or court, domestic or foreign, having jurisdiction over the Company or its
property.
11
<PAGE> 12
(h) This Agreement has been duly authorized and executed
by the Company and is valid and binding agreement of the Company.
As to all factual matters, including without limitation the issuance of stock
and warrant certificates and receipt of payment therefor, the states in which
the Company transacts business, and the adoption of resolutions reflected by
the Company's minute book, such counsel may rely on the certificate of an
appropriate officer of the Company. Counsel's opinion as to the validity and
enforceability of any such contract or agreement may be limited by bankruptcy
or other laws relating to or affecting creditors' rights generally and by
equitable principles.
9.04. Officers' Certificate. The Company shall furnish to the
Placement Agent a certificate signed by the President and Chief Financial
Officer of the Company, dated as of the date of this Agreement and as of the
termination date of the Offering, to the effect that:
(a) The representations and warranties of the Company in
the Agreement are true and correct in all material respects at and as of the
date of this certificate, and the Company has complied in all material respects
with all the agreements and has satisfied in all material respects all the
conditions on its part to be performed or satisfied at or prior to the date of
the certificate.
(b) The respective signers have each carefully examined
the Memorandum and any amendments and supplements thereto, and to the best of
their knowledge and belief and in reliance on legal counsel and independent
auditors, the Memorandum and any amendments and supplements thereto contain all
statements required to be stated therein, and all statements contained therein
are true and correct, and Memorandum nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and, during the Offering, the Memorandum will be amended or
supplemented to include all information necessary to be included in the
Memorandum so that it does not inaccurate or misleading.
(c) No order prohibiting the offer or sale of the Units
has been issued and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission or any applicable state.
(d) Except as set forth in the Memorandum, since the
respective dates of the periods for which information is given in the
Memorandum and prior to the date of the certificate, (i) there has not been any
materially adverse change, financial or otherwise, in the affairs or condition
of the Company, and (ii) the Company has not incurred any material liabilities,
direct or contingent, or entered into any material transactions, otherwise than
in the ordinary course of business.
(e) Subsequent to the date of the Memorandum, no
dividends or distribution whatever have been declared and/or paid on or with
respect to the Common Stock of the Company.
9.05. State Qualification or Exemption. The Company shall use its
best efforts to register or qualify the Units or secure any exemption from
registration or qualification in those states reasonably requested pursuant to
Section 2.01, and such qualification or exemption shall be in effect and not
subject to any stop order proceeding during the period in which the Units are
being offered and sold.
9.06. Satisfactory Form of Documents. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Placement Agent, whose
approval shall not be unreasonably withheld.
12
<PAGE> 13
9.07. Adverse Events. Between the date hereof and the termination
of the Offering, the Company shall not have sustained any loss on account of
fire, explosion, flood, accident, calamity or any other cause, of such
character as materially adversely affects its business or property considered
as an entity, whether or not such loss is covered by insurance.
9.08. Litigation. Between the dates hereof and the termination of
the Offering, there shall be no litigation instituted or threatened against the
Company and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially adversely affect
the business, franchises, licenses, operations or financial condition or income
of the Company.
9.09. Certificates. Any certificate signed by an officer of the
Company and delivered to the Placement Agent shall be deemed a representation
and warranty by the Company to the Placement Agent as to the statements made
therein.
SECTION 10
Termination
10.01. Failure to Comply with Agreement. This Agreement (i) may be
terminated by either party hereto by notice to other party in the event that
such party shall have defaulted, failed or been unable to comply with any
terms, conditions or provisions of this Agreement required by the Company or
the Placement Agent to be performed, complied with or fulfilled by it within
the respective times herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
non-defaulting party in writing or the defaulting party cures such default
within three (3) days of receiving notice thereof; (ii) upon the sale of 25,000
Units; or (iii) upon the expiration of the period set forth in Section 3.01.
10.02. Government Restrictions. This Agreement may be terminated by
either party by notice to the other party at any time if, in the judgment of
either party, payment for and delivery of the Units are rendered impracticable
or inadvisable because: (i) additional material governmental restrictions not
in force and effect on the date hereof shall have been imposed upon trading in
securities generally, or minimum or maximum prices shall have been generally
established on the Boston Stock Exchange, NASDAQ Small Cap Market or trading in
securities generally on such Exchange, Market, or Commission shall have been
suspended, or a general moratorium shall have been established by federal or
state authorities; or (ii) a war or other national calamity shall have
occurred; or (iii) the condition of any matter affecting the Company or any
other circumstance is such that it would be undesirable, impracticable or
inadvisable in the judgment of the Placement Agent to proceed with this
Agreement or with the sale of the Units. Any termination under this Section
10.02 prior to the sale of at least 12,500 Units by the Agreement dated March
3, 1996 between the parties as to any compensation not previously paid pursuant
to the term of said Agreement.
10.03. Liability on Termination. Any termination of this Agreement
pursuant to this Section 10 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages on the part of any party thereto); except that the Company and the
Placement Agent shall be obligated to pay, respectively, (i) all losses,
claims, damages or liabilities, joint or several, under Section 7.01 in the
case of the Company, Section 7.03 in the case of the Placement Agent and
Section 7.06 as to all parties and (ii) all compensation due the Placement
Agent in connection with the sale of the units.
13
<PAGE> 14
SECTION 11
Placement Agent's Representations and Warranties
The Placement Agent represents and warrants to and agrees with the
Company that:
11.01. Registration. The Placement Agent is registered as a
broker-dealer with the Securities and Exchange Commission, and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD").
The Placement Agent is registered or otherwise qualified to sell the Units in
each state in which the Placement Agent sells such Units or is exempt from such
registration or qualification.
11.02. Ability to Act as Agent. There is not now pending or, to the
knowledge of the Placement Agent, threatened against the Placement Agent any
action or proceeding of which the Placement Agent has been advised, either in
any court of competent jurisdiction, before the NASD, the Securities and
Exchange Commission or any state securities commission concerning the Placement
Agent's activities as a broker or dealer, nor has the Placement Agent been
named as a "cause" in any action or proceeding, any of which may be expected to
have a material adverse effect upon the Placement Agent's ability to act as
agent to the Company as contemplated herein.
11.03. Terminate Agreement. In the event any action or proceeding of
the type referred to in Section 11.02 above (except for actions referred to in
the Memorandum) shall be instituted or, to the knowledge of the Placement
Agent, threatened against the Placement Agent at any time prior to the
effective date hereunder, or in the event there shall be filed or against the
Placement Agent in any court pursuant to any federal, state, local or municipal
statute, a petition in bankruptcy or insolvency or for reorganization or for
the appointment of a receiver or trustee of its assets or if the Placement
Agent makes an assignment for the benefit of creditors, the Company shall have
the right on ten (10) days' written notice to the Placement Agent to terminate
this Agreement without any liability to the Placement Agent except for
compensation due for the sale of any Units preceding such termination.
SECTION 12
Placement Agent's Warrants
12.01. Warrants. The Company shall sell to the Placement Agent, for
a total of $50.00, warrants to purchase that number of Units ("Placement
Agent's Warrants") equal to 15% of the Units sold in the Offering. Each
Placement Agent's Warrant will entitle the holder to purchase one (1) Unit
(which Unit shall be identical to the Units offered hereunder) of the Company,
exercisable at $20.000 per Unit. The Placement Agent's Warrants will be
exercisable any time prior to March 31, 2001; and if the Placement Agent's
Warrants are not exercised during this term, they shall, by their terms,
automatically expire. The Placement Agent's Warrants shall be issued within
three (3) days of the completion or termination of the Offering. The Company
shall set aside and at all times have available a sufficient number of shares
of its Preferred Stock to be issued upon the exercise of the Placement Agent's
Warrants and the warrants comprising part of the Units shall set aside and at
all times have available a sufficient number of shares of its Common Stock upon
conversion of the Preferred Stock and exercise of the warrants comprising the
Units underlying the Placement Agent Warrants. At the option of the Placement
Agent, the Placement Agent's Warrants shall be represented by a separate
warrant for each security comprising the Units.
Notwithstanding the above, of the issuance of these Placement Agent's
Warrants result in total potential outstanding common stock of the Company in
excess of the number of shares authorized, which is presently 11,000,000, the
issuance of said Placement Agent's Warrants will at all times be limited to the
maximum number of shares issuable within the total authorized share limitation.
If the Placement Agent's Warrants are limited as a result of this authorized
share limitation, the Company will undertake, within 180 days of the earlier of
the completion of or the termination of the Offering, to request shareholder
approval for additional authorized shares of common stock in an amount which
would allow the balance of the Placement Agents Warrants to be
14
<PAGE> 15
issued and the Company will continue to use its best efforts to obtain approval
until all the Placement Agent's Warrants can be issued.
12.02. Registration Rights. The Company agrees to file a
registration statement with respect to its common stock issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants to permit
the public sale thereof pursuant to applicable federal and state laws. The
registration statement shall be filed no later than six (6) months following
the earlier of the sale of all Units or the termination of the Offering and the
Company will use its best efforts to cause such registration statement to be
declared effective by all applicable federal and state regulatory authorities.
Additionally, the Company understands and agrees that if, at any time during
the seven-year period following completion or termination of the Offering, it
should file a Registration Statement with the Commission pursuant to the Act,
for a public offering of securities, either for the account of the Company or
for the account of any other person, the Company at its own expense, will offer
to holders of Placement Agent's Warrants or securities previously issued upon
the exercise thereof, the opportunity to register or qualify for public
offering the Placement Agent's Warrants and securities underlying the Placement
Agent's Warrants. This paragraph is not applicable to a Registration Statement
filed with the Securities and Exchange Commission on Forms S-4 or S-8 or any
other inappropriate forms; nor does it apply to the public offering.
In addition to the rights above provided, the Company will cooperate
with the then holder(s) of the Placement Agent's Warrants and securities issued
upon the exercise of the Placement Agent's Warrants, no more often than once-in
any twelve (12) month period, in preparing and signing any Registration
Statement other than the Registration Statement discussed above, required in
order to sell or transfer the aforesaid Placement Agent's Warrants and
underlying and shall supply all information required therefore, but such
additional Registration Statement shall be at the then holder(s) cost and
expense. The Company shall not be required to file the above-described
registration statements if all of the securities to be registered thereby may
be sold pursuant to Rule 144 under the Act or any successor rule.
SECTION 13
Notice
Except as otherwise expressly provided in the Agreement:
13.01. Notice to Company. Whenever notice is required by the
provisions of this Agreement to be given to the Company, such notice shall be
in writing addressed to the Company as provided below:
Integrated Security Systems, Inc.
Attn: Gerald K. Beckmann, President
8200 Springwood Drive, Suite 230
Irving, TX 75063
with a copy to:
Haynes and Boone, LLP
David H. Oden, Esq.
901 Main Street, Suite 3100
Dallas, TX 75202-3789
15
<PAGE> 16
13.02. Notice to Placement Agent. Whenever notice is required by the
provisions of this Agreement to be given to the Placement Agent, such notice
shall be in writing addressed to the Placement Agent as follows:
Bathgate McColley Capital Group LLC
Attn: Eugene C. McColley, Manager
5350 South Roslyn Street, Suite 380
Englewood, CO 80111
with a copy to:
Krys Boyle Golz Reich Freedman & Scott, P.C.
Attn: Harold M. Golz, Esq.
600 17th Street, Suite 2700S
Denver, CO 80202
SECTION 14
Miscellaneous
14.01. Benefits. This Agreement is made solely for the benefit of
the Placement Agent, the Company, their respective agents, officers, directors,
managers, members, representatives, guarantors, sureties and any controlling
person referred to in Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successor" or the term "successors and assigns" as used in this
Agreement shall not include any purchasers, as such, of any of the Units.
14.02. Survival. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company or
the Company's officers, as set forth in or made pursuant to this Agreement and
the indemnity agreements of the Company and the Placement Agent contained in
Section 7 hereof shall survive and remain in full force and effect, regardless
of (i) any investigation made by or on behalf of the Company or the Placement
Agent or any affiliated persons thereof or any controlling person of the
Company or of the Placement Agent, (ii) delivery of or payment for the Units
and (iii) the completion or termination of this Offering, and any successor of
the Company, the Placement Agent and Selected Dealers, or any controlling
person, or other person, or other person indemnified by Section 7, as the case
may be, shall be entitled to the benefits hereof.
14.03. Governing Law. The validity, interpretation and construction
of this Agreement and of each part hereof will be governed by the laws of the
State of Colorado. The parties agree that any dispute which arises between
them relating to this Agreement or otherwise shall be submitted for resolution
in conformity with the Securities Arbitration Rules of the American Arbitration
Association. The parties agree that the situs of an arbitration hearing before
the arbitrators shall be held in a mutually agreeable situs.
14.04. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will constitute an original.
16
<PAGE> 17
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Company.
Very truly yours,
INTEGRATED SECURITY SYSTEMS, INC.
4/16/96 By: /s/ Gerald K. Beckmann
- - ---------- -----------------------------------
Date Gerald K. Beckmann, President
Address for Notices:
Integrated Security Systems, Inc.
8200 Springwood Drive, Suite 230
Irving, TX 75063
We hereby confirm as of the date hereof that the above letter sets
forth the Agreement between the Company and us.
BATHGATE MCCOLLEY CAPITAL GROUP LLC
4/16/96 By: /s/ Eugene C. McColley
- - ---------- -----------------------------------
Date Eugene C. McColley, Manager
17
<PAGE> 1
EXHIBIT 10.62
April 22, 1996
Subject: Amendment to Integrated Security Systems, Inc.
("ISSI") Promissory Note dated March 11, 1996
Principal Amount: $____________
1) Article I(d) of the above-referenced promissory note calls for warrants
to be issued to the Noteholder. However, it has been agreed that the
Note could be converted into Series C $20 Convertible Preferred Stock,
which has warrants attached. Therefore, the Noteholder will receive
warrants only under the preferred shares being converted, and Article
I(d) and any references thereof is deleted.
2) Gerald K. Beckmann executed a personal guarantee of 50,000 shares. As
verbally agreed, and as evidenced by the Convertible Preferred Stock
Certificate forwarded to Bathgate McColley Capital Group LLC on March 11,
1996, Mr. Beckmann guarantees 5,025 preferred shares, which equates to
150,000 shares of common stock.
Please confirm your understanding and acceptance of the above amendments by
signing below.
Yours truly,
Len Brittelli, Acting Controller
For: James W. Casey
Vice President and Chief Financial Officer
/tll
CONFIRMATION:
______________________________
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<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 775,897
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<RECEIVABLES> 1,337,755
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<CURRENT-ASSETS> 3,279,365
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0
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<TOTAL-LIABILITY-AND-EQUITY> 5,601,502
<SALES> 1,809,059
<TOTAL-REVENUES> 1,809,059
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<INCOME-PRETAX> (231,753)
<INCOME-TAX> 23,000
<INCOME-CONTINUING> (208,753)
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