<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 29, 1998
----------------
Optical Security Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-17531 84-1094032
- --------------------------------------------------------------------------------
(State of other (Commission File No.) (IRS Employer
jurisdiction of Identification No)
Incorporation)
535 16th Street, Suite 920, Denver, Colorado 80202
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's Telephone number, including area code (303) 534-4500
----------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On May 29, 1998, Optical Security Group, Inc. (the "Registrant"),
through its wholly-owned subsidiary, OpSec Advantage, Inc., a Colorado
corporation ("OpSec Advantage"), completed the purchase of substantially all of
the assets of Advantage Technology, Inc. ("Advantage"), a Pennsylvania
corporation. The acquisition was effective as of May 1, 1998.
Advantage is engaged in the business of manufacturing security products
used primarily for government document applications, such as driver's licenses,
passports, ID cards, and for tamper-evident labels. Its principal asset is
Advantage (TM), a patented and proprietary optically variable security coating
that protects against counterfeiting, alteration and/or tampering. Advantage's
offices are located in Lancaster, Pennsylvania.
The Registrant intends to continue the business of Advantage; although,
the Registrant may combine some or all of the facilities located in Lancaster,
Pennsylvania with its facilities in Parkton, Maryland.
The purchase price for Advantage's assets was as follows:
1. $2,000,000, by delivery of OpSec Advantage's non-negotiable
promissory note ("Note") due June 30, 1998. The Registrant intends to use part
of the proceeds of its Offering, as defined in Item 9, to pay off the Note.
2. 300,000 shares of the Registrant's unregistered common stock, par
value $.005 per share ("Common Stock"). Such shares were issued pursuant to a
claim of exemption from registration under the Securities Act of 1933, as
amended (the "Act"). The representative closing bid for the Common Stock as
reported on The Nasdaq Stock Market(SM) on May 29, 1998, was $5.375 per share.
3. The assumption by OpSec Advantage of approximately $500,000 of
Advantage's liabilities.
The purchase price is subject to certain post-closing adjustments. Additionally,
upon OpSec Advantage achieving certain performance goals, Advantage will receive
additional shares of Common Stock.
The description contained herein of the acquisition is qualified in its
entirety by reference to the Asset Purchase Agreement by and between Advantage
and OpSec Advantage, dated May 29, 1998, as amended by the First Amendment to
Asset Purchase Agreement, copies of which are attached hereto as Exhibit 2.4.1
and 2.4.2.
2
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Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
As of the date hereof it is impractical for the Registrant to provide
the financial statements required by this Item 7(a). As permitted by Item
7(a)(4) of Form 8-K, such information will be filed by amendment not later than
August 14, 1998.
(b) Pro forma financial information.
As of the date hereof it is impractical for the Registrant to provide
the pro forma financial information required by this Item 7(b). As permitted by
Item 7(b) of Form 8-K such information will be filed by amendment not later than
August 14, 1998.
(c) Exhibits.
2.4.1 -- Asset Purchase Agreement by and between Filed
Advantage Technology, Incorporated, and Herewith
OpSec Advantage, Inc.
2.4.2 -- First Amendment to Asset Purchase Agreement Filed
by and between Advantage Technology, Herewith
Incorporated, and OpSec Advantage, Inc.
4.1 -- Form of 8% Senior Subordinated Convertible Filed
Debenture due May 31, 2005 Herewith
Item 9. Sales of Equity Securities Pursuant to Regulation S
The Registrant is offering, on a "best efforts" basis, to selected,
qualified purchasers in the United States and to purchasers who are not "U.S.
Persons," as defined in Rule 902 of Regulation S under the Act outside the
United States (the "Offering") up to $2,500,000 aggregate principal amount of
its 8% Senior Subordinated Convertible Debentures (the "Debentures") and 416,667
shares of its Common Stock (the Common Stock, together with the Debentures,
collectively, the "Securities"). The Registrant may, with the agreement of its
placement agent, Value Investing Partners, Inc., increase the amounts of
Debentures and Common Stock sold in the Offering.
On May 29, 1998, and June 15, 1998, the Registrant sold an aggregate of
$2,780,000 of the Offering. Of that amount, $1,520,000 was from the sale of
Debentures and $1,260,000 was from the sale of 210,000 shares of Common Stock.
$1,150,000 of Debentures and all of Common Stock were sold to non-U.S. Persons.
3
<PAGE>
The Registrant anticipates that it will have an additional closing or
closings of the Offering; however, no specific closing dates have been set. The
Registrant anticipates that the last closing of the Offering will occur on or
before July 1, 1998.
Generally, Value Investing Partners, Inc. will receive a 7% placement
fee for Securities sold in the Offering, plus a non-accountable expense
allowance equal to 1% of the aggregate gross proceeds of the Offering and
warrants to purchase Common Stock at an exercise price of $7.20 per share. Value
Investing Partners, Inc. will receive a reduced placement fee and reduced number
of warrants on sales, if any, to certain purchasers introduced by the Registrant
and the Registrant's officers, directors, and affiliates.
Offers and sales to non-U.S. persons were made pursuant to a claim of
exemption under Regulation S, Rule 903, of the Act. Offers and sales to
accredited investors and institutional buyers were made pursuant to a claim of
exemption under Regulation D, Rule 506, of the Act or alternatively Section 4(2)
of the Act. The offers and sales did not involve any public offering. The
Registrant did not use any general advertisement or solicitation in connection
with the offer or sale of the Securities. The Registrant also relied on written
representation of the purchasers concerning their status as an accredited
investor, institutional buyer, or non-U.S. person and their investment intent as
the basis for claiming such exemptions.
The Debentures are convertible into shares of Common Stock commencing
from the date of issuance, at a conversion price of $6.50 per share, subject to
certain anti-dilution adjustments. After June 1, 1999, the Registrant can redeem
the Debentures at the redemption prices set forth in the Debentures, together
with accrued interest. Before June 1, 1999, the Registrant may redeem the
Debentures if the closing price of the Common Stock exceeds 150% of the
conversion price then in effect for a period of 20 trading days in any period of
30 trading days. (The description of the Debentures is qualified in its entirety
by reference to the form of Debenture attached to this Form 8-K as Exhibit 4.1.)
In 1996, the Registrant made other sales of equity securities without
registering the securities pursuant to a claim of exemption under Regulation S
of the Act. Item 9 of the Registrant's Form 8-K filed with the Securities and
Exchange Commission on April 11, 1996, is incorporated herein by reference.
4
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OPTICAL SECURITY GROUP, INC.
Date: June 15, 1998 By: /s/ Richard H. Bard
------------------------------
Richard H. Bard, CEO
Date: June 15, 1998 By: /s/ Gerald A. Melfi
------------------------------
Gerald A. Melfi
Principal Financial Officer
5
<PAGE>
EXHIBIT INDEX
-------------
2.4.1 -- Asset Purchase Agreement by and between
Advantage Technology, Incorporated, and
OpSec Advantage, Inc.
2.4.2 -- First Amendment to Asset Purchase Agreement
by and between Advantage Technology,
Incorporated, and OpSec Advantage, Inc.
4.1 -- Form of 8% Senior Subordinated Convertible
Debenture due May 31, 2005
<PAGE>
EXHIBIT 2.4.1
ASSET PURCHASE AGREEMENT
by and between
ADVANTAGE TECHNOLOGY, INC.
as Seller
and
OPSEC ADVANTAGE, INC.
as Buyer
and
MICHAEL F. BRENNAN and JOSEPH G. LYALL,
as Shareholders
Effective May 1, 1998
<PAGE>
TABLE OF CONTENTS
1. PURCHASE PRICE AND TERMS............................................ 1
------------------------
1.1 Cash Payment............................................... 1
------------
1.2 Audit; Cash Price Adjustment............................... 1
----------------------------
1.3 Initial Stock Payment...................................... 2
---------------------
1.4 Contingent Stock Payment................................... 2
------------------------
1.5 Stock Adjustments.......................................... 2
-----------------
2. PURCHASE AND SALE OF ASSETS......................................... 3
---------------------------
2.1 Transferred Assets......................................... 3
------------------
2.2 Excluded Assets and Obligations............................ 5
-------------------------------
3. LIABILITIES......................................................... 5
-----------
3.1 Accounts Payable........................................... 5
----------------
3.2 Obligations under Assigned Contracts....................... 5
------------------------------------
3.3 Funded Debt................................................ 6
-----------
3.4 Employment Matters......................................... 6
------------------
3.5 Other Accruals............................................. 6
--------------
4. GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER AND THE
--------------------------------------------------------
SHAREHOLDERS........................................................ 6
------------
4.1 Organization; Standing..................................... 6
----------------------
4.2 Authority; Binding Obligation.............................. 6
-----------------------------
4.3 No Violation............................................... 6
------------
4.4 Licenses and Permits....................................... 7
--------------------
4.5 Financial Statements....................................... 7
--------------------
4.6 Records.................................................... 7
-------
4.7 Absence of Certain Changes................................. 7
--------------------------
4.8 Title to and Condition of the Assets....................... 8
------------------------------------
4.9 Customers and Suppliers.................................... 8
-----------------------
4.10 Employees - Consultants.................................... 8
-----------------------
4.11 Litigation................................................. 9
----------
4.12 Contracts.................................................. 9
---------
4.13 No Bankruptcy.............................................. 9
-------------
4.14 Tax Returns................................................ 9
-----------
4.15 Environmental Liability.................................... 9
-----------------------
4.16 Compliance With Zoning/Planning/Safety Regulations........ 10
--------------------------------------------------
4.17 Employment and Employment Practices....................... 10
-----------------------------------
4.18 Receivables............................................... 10
-----------
4.19 Inventory and Supplies.................................... 10
----------------------
4.20 Intellectual Property..................................... 10
---------------------
4.21 Insurance................................................. 11
---------
4.22 Employee Benefit Plans.................................... 11
----------------------
4.23 Warranty Claims........................................... 11
---------------
4.24 Computer Programs......................................... 12
-----------------
4.25 No Finder's Fee........................................... 12
---------------
4.26 Full Disclosure........................................... 12
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5. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS WITH
------------------------------------------------------------------
RESPECT TO THE ACQUISITION OF THE SHARES........................... 12
-----------------------------------------
5.1 Sophistication; Investment Intent......................... 12
---------------------------------
5.2 Availability of Public Documents.......................... 12
--------------------------------
5.3 Unregistered Shares....................................... 13
-------------------
5.4 Restrictive Legend........................................ 13
------------------
5.5 Opportunity to Discuss Terms.............................. 13
----------------------------
6. REPRESENTATIONS AND WARRANTIES OF BUYER............................ 13
---------------------------------------
6.1 Good Standing; Organization............................... 13
---------------------------
6.2 Authority; Binding Obligation............................. 13
-----------------------------
6.3 Governmental Consents..................................... 14
---------------------
6.4 No Finder's Fee........................................... 14
---------------
6.5 OpSec SEC Documents and Financial Statements.............. 14
--------------------------------------------
7. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE........................ 15
-------------------------------------------
7.1 Representations and Warranties True....................... 15
-----------------------------------
7.2 Covenants and Agreements Performed........................ 15
----------------------------------
7.3 Financing................................................. 15
---------
7.4 Approval of Counsel to Buyer.............................. 16
----------------------------
7.5 Due Diligence............................................. 16
-------------
7.6 Employment Agreements..................................... 16
---------------------
7.7 Asset Information......................................... 16
-----------------
7.8 Audited Financials........................................ 16
------------------
7.9 Legal Proceedings......................................... 16
-----------------
7.10 Consents.................................................. 16
--------
8. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE....................... 16
--------------------------------------------
8.1 Representations and Warranties True....................... 16
-----------------------------------
8.2 Covenants and Agreements Performed........................ 17
----------------------------------
8.3 Approval of Counsel to Seller............................. 17
-----------------------------
8.4 Employment Agreements...................................... 17
---------------------
8.5 Legal Proceedings......................................... 17
-----------------
8.6 Consents.................................................. 17
--------
8.7 Buyer Financing .......................................... 17
----------------
9. RISK OF LOSS....................................................... 17
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10. PRICE ALLOCATION................................................... 17
----------------
11. TAX REPORTING...................................................... 17
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12. PRORATION.......................................................... 17
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13. CLOSING............................................................ 18
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13.1 General................................................... 18
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13.2 Closing Transactions...................................... 18
--------------------
14. EXPENSES OF SALE................................................... 19
----------------
15. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION....................... 19
--------------------------------------------
15.1 Survival.................................................. 19
--------
ii
<PAGE>
15.2 Indemnification by Seller and the Shareholders............ 19
----------------------------------------------
15.3 Indemnification by Buyer.................................. 20
------------------------
15.4 Limitation on Indemnification............................. 20
-----------------------------
16. ADDITIONAL AGREEMENTS AND COVENANTS................................ 20
-----------------------------------
16.1 Access to Information..................................... 20
---------------------
16.2 Conduct of Business of Seller............................. 21
-----------------------------
16.3 Confidentiality........................................... 21
---------------
16.4 Acquisition Proposals..................................... 21
---------------------
16.5 Third Party Consents...................................... 22
--------------------
16.6 Reasonable Best Efforts................................... 22
-----------------------
16.7 Covenant Not to Compete................................... 22
-----------------------
16.8 Amendment of Schedules.................................... 22
----------------------
17. MISCELLANEOUS.......................................................... 23
-------------
17.1 Notices................................................... 23
-------
17.2 Governing Law............................................. 24
-------------
17.3 Succession................................................ 24
----------
17.4 Entireties................................................ 24
----------
17.5 Severability.............................................. 24
------------
17.6 Cooperation............................................... 24
-----------
17.7 Paragraph Headings........................................ 24
------------------
17.8 Press Releases and Public Announcements................... 25
---------------------------------------
17.9 Personal Jurisdiction..................................... 25
---------------------
17.10 Counterparts; Facsimile Signatures.......................... 25
----------------------------------
17.11 Remedies - Attorneys' Fees.................................. 25
--------------------------
17.12 Time........................................................ 25
----
Exhibits
A. Registration Rights Agreement
B. Financial Statements
C. General Assignment/Bill of Sale
D. Opinion of Buyer's Counsel
E. Opinion of Seller's Counsel
F. Non-Competition and Confidentiality Agreement
Schedules
1.5 Stock Adjustments/Seller's Projections
2.1.1 Tangible Personal Property
2.1.2 Inventory
2.1.3 Accounts Receivable
2.1.4 Computer Programs
2.1.5 Contracts and Agreements
2.1.7 Goodwill
2.1.8 Copyrights and Similar Property
2.1.9 Insurance Policies
2.2 Excluded Assets
3.1 Accounts Payable
3.2 Obligations Under Assigned Contracts
4.4 Licenses and Permits
iii
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4.8 Title to and Condition of the Assets
4.9 Customers and Suppliers
4.10 Employees - Consultants
4.11 Litigation
4.12 Contracts
4.14 Unfiled Tax Returns
4.15 Environmental Liability
4.18 Receivables
4.20 Intellectual Property
4.21 Insurance
4.22 Employee Benefit Plans
4.23 Warranty Claims
6.5.3 OpSec Liabilities
6.5.4 Certain Changes or Events
10 Price Allocation
iv
<PAGE>
This Asset Purchase Agreement (the "Agreement") is made and entered this 29th
day of May, 1998, effective as of the opening of business May 1, 1998 (the
"Effective Date"), by and between ADVANTAGE TECHNOLOGY, INC., a Pennsylvania
corporation ("Seller"), OPSEC ADVANTAGE, INC., a Colorado corporation ("Buyer"),
and MICHAEL F. BRENNAN and JOSEPH G. LYALL (the "Shareholders").
R E C I T A L S
---------------
A. Seller is a corporation engaged in the business of manufacturing security
laminates and other security products incorporating its proprietary non-
holographic diffraction coatings (the "Business").
B. Buyer is a wholly-owned subsidiary of Optical Security Industries, Inc., a
Colorado corporation which is a wholly-owned subsidiary of Optical Security
Group, Inc., a Colorado corporation ("OpSec").
C. Shareholders are the sole shareholders of the Seller.
D. Seller wishes to sell to Buyer and Buyer wishes to purchase from Seller,
substantially all of the assets of Seller used in the Business under the terms
and subject to the conditions of this Agreement.
NOW THEREFORE, in consideration of the Recitals, the mutual promises,
covenants, agreements, representations, and warranties contained in this
Agreement, and the monetary consideration described below, the receipt and
sufficiency of which are acknowledged, the parties, intending to be bound, agree
as follows:
1. PURCHASE PRICE AND TERMS. Buyer shall purchase the Assets, as defined
------------------------
in Section 2 below, for the following consideration with the adjustments
specified below:
1.1 Cash Payment. $2,000,000.00 in cash, certified funds, wire
------------
transfer or other immediately available funds, delivered to Seller at Closing,
as defined in Section 13.
1.2 Audit; Cash Price Adjustment. On or before ninety (90) days after
----------------------------
Closing, the accounting firm of Simon Lever & Company shall deliver to the Buyer
the results of an unqualified audit of the Business, its income, Assets and
Assumed Liabilities as of the year ended December 31, 1997 (the "Post-Closing
Audit"). The results of the Post-Closing Audit shall be compared to the 1997
Financial Statements provided pursuant to Section 4.5 below. If the difference
between the value of the Assets minus the Assumed Liabilities on the 1997
Financial Statements exceeds by more than $100,000.00 the difference between the
Assets minus the Assumed Liabilities on the Post-Closing Audit (the "Cash Price
Adjustment"), the Seller and/or the Shareholders shall refund the Cash Price
Adjustment in cash or other good funds to the Buyer within ten (10) days of a
written demand.
1.3 Initial Stock Payment. A number of shares (the "Initial Shares")
---------------------
of common stock, par value $.005 per share, of OpSec (the "Common Stock"),
delivered to Seller at Closing equal to the lesser of (a) 300,000 Initial
Shares, or (b) a number of Initial Shares which, when multiplied by the
arithmetic average of the market bid price for the Common Stock for the twenty
(20) trading days ending the day before Closing reported on the NASDAQ Stock
MarketSM on the Closing Date equals $2,000,000, excluding fractional shares,
provided, however, that notwithstanding the reported market bid prices, the
number of Initial Shares shall not be less than 200,000 shares of Common Stock.
The Initial Shares shall be subject to a registration rights agreement
substantially in the form specified by EXHIBIT A attached hereto and
incorporated herein by this reference (the "Registration Rights Agreement").
1.4 Contingent Stock Payment. As soon as practical after reviewing
------------------------
the audited financial results of Buyer solely related to the Business for the
period from Closing through March 31, 1999, the Buyer shall deliver to Seller
additional shares of Common Stock (the "Contingent Shares") at the rate of 1,000
shares of Common Stock for each $10,000 of net profits from operations related
solely to the Business, in excess of
1
<PAGE>
$500,000 before taxes, on an annualized basis, and prepared in accordance with
generally accepted accounting principles consistently applied. Buyer shall keep
separate internal accounting records for the Business which will be reviewed for
accuracy and consistency by the Buyer's independent certified public
accountants. Buyer may satisfy all of its obligations under this Section 1.4 by
remitting to Seller 50,000 Shares at any time prior to receiving Buyer's audited
financial results solely related to the Business for the period ending March 31,
1999. The Contingent Shares will be subject to the Registration Rights
Agreement.
1.5 Stock Adjustments. The Stock Payments shall be subject to the
-----------------
following adjustments:
1.5.1 Initial Shares Value. If on March 31, 1999, (the
--------------------
"Adjustment Date") the fair market value, as defined below, of the Initial
Shares then held by the Seller and/or the Shareholders is less than $2,000,000
if all such Initial Shares are so held, or a pro-rata portion thereof if not all
such Initial Shares are so held, the Buyer will deliver to Seller an additional
number of shares of Common Stock (the "Adjustment Shares"), the fair market
value of which shall be equal to the difference between the fair market value of
the Initial Shares on the Adjustment Date and $2,000,000, or the applicable pro-
rata portion thereof. Notwithstanding the above, the number of Adjustment Shares
shall not exceed 200,000 shares of Common Stock, provided, however, that the
Adjustment Shares shall be increased to a maximum of 250,000 shares if Buyer's
income before taxes for the period from Closing through March 31, 1999, related
solely to the Business is at least $400,000.00. Buyer's net income before taxes
shall be determined in accordance with generally accepted accounting principles
consistent with the methodology employed in the projections for Seller's 1998
calendar year and provided by Seller to Buyer which are attached hereto as
Schedule 1.5. For purposes of this section, the fair market value of the Common
Stock shall be the arithmetic average of the market bid prices for the Common
Stock as reported on The NASDAQ Stock MarketSM or such other United States over-
the-counter market or exchange on which the Common Stock is then reported, for
the 30 trading days immediately prior to the Adjustment Date. The Adjustment
Shares, if any, shall be subject to the Registration Rights Agreement.
Notwithstanding the foregoing, Buyer shall not be obligated to deliver any
Adjustment Shares in respect of any Initial Shares which, on or before the
Adjustment Date (a) have been sold by Seller or the Shareholders for cash, (b)
have become freely tradeable without restriction, if, on the date they became
freely tradeable, their value measured on such date is at least $2,000,000.00 or
the applicable pro-rata portion thereof, or (c) have been exchanged by Seller or
the Shareholders for other freely tradeable securities, if, on the date of the
exchange, such other freely tradeable securities have a value, measured on the
date of the exchange, of at least $2,000,000.00 or the applicable pro-rata
portion thereof.
1.5.2 Income Adjustment. If the income before taxes for the
-----------------
Business ("Net Income") for the 1997 calendar year as reflected on the Post
Closing Audit is materially less than the Net Income set forth in the 1997
Financial Statements provided pursuant to Section 4.5, the Seller and the
Shareholders shall return to the Buyer a pro-rata number of the Initial Shares
based upon the ratio of the Net Income reflected on the Post Closing Audit that
differs by more than 15% from the Net Income reflected on the 1997 Financial
Statements delivered pursuant to Section 4.5 below. For purposes of making the
adjustment required by this paragraph, Net Income shall be calculated consistent
with the method used in determining the Cash Price Adjustment provided for in
Section 1.2 without giving effect to any of the adjustments causing a Cash Price
Adjustment, it being acknowledged and agreed that the parties intend that any
effects the calculation of the Cash Price Adjustment may have upon the Net
Income shall be disregarded and not be double counted against the Seller.
1.5.3 Timing of Contingent Stock Payment and Adjustments. The
--------------------------------------------------
number of Contingent Shares referred to in Section 1.4 and all of the Stock
Adjustments described in Sections 1.5.1 and 1.5.2 shall be calculated on and as
of the dates specified in such Sections. Nevertheless, the transfer of Common
Stock required by Sections 1.4, 1.5.1 and 1.5.2, if any, may be deferred to a
date selected by Buyer which shall be on or before June 15, 1999, (the
"Adjustment Settlement Date"), or such later date necessitated by audit delays
not within Buyer's reasonable control. On the Adjustment Settlement Date all
required transfers shall be cumulated and/or offset against each other as the
case may be.
2. PURCHASE AND SALE OF ASSETS
---------------------------
2
<PAGE>
2.1 Transferred Assets. On the terms and subject to the conditions set
------------------
forth in this Agreement, at the Closing, as defined below, Seller shall sell,
assign, transfer, and deliver to Buyer, and Buyer shall purchase from Seller all
of the right, title, and interest of Seller in and to all of the assets (the
"Assets") of Seller, including but not limited to the following, subject to the
exclusions set forth in Section 2.2:
2.1.1 Tangible Personal Property. All tangible personal
--------------------------
property including, without limitation, furniture, fixtures, motor
vehicles, equipment, machinery, product displays, advertising materials,
merchandise, tools, supplies and computer hardware, software and related
equipment, specifically described in Schedule 2.1.1.
2.1.2 Inventory. All inventories of raw materials, supplies,
---------
parts, work-in-progress, and finished goods of Seller, as described on
Schedule 2.1.2, all as the same exists on the date of Closing.
2.1.3 Accounts Receivable. All of Seller's accounts
-------------------
receivable as described on Schedule 2.1.3, all as the same exist on
the date of Closing.
2.1.4 Computer Programs. Seller's rights in and to all
-----------------
computer programs and systems owned by Seller, in which Seller has any
rights or which are used in the Business, including data bases and their
contents, operating specifications, magnetic tapes, discs, cards,
records, files and documentation, and sets of statements or
instructions, which may be used directly or indirectly in or with a
computer in order to bring about a certain result (the "Computer
Programs"). All such Computer Programs are described on Schedule 2.1.4.
2.1.5 Contracts and Agreements. Seller's rights under
------------------------
all open purchase and sales orders, contracts, agreements,
understandings, leases, and licenses relating to the operation of the
Business, including, but not limited to, maintenance and service
agreements for equipment and agreements to maintain and update Seller's
computer hardware and software, license and support agreements, leases
for any premises locations (and any related security deposits). All such
contracts and agreements are described on Schedule 2.1.5.
2.1.6 Rights in Name. All of Seller's ownership,
--------------
possession, and rights in and to the names "Advantage Technology" and
"Reflectolon" and any variations thereof.
2.1.7 Goodwill. The goodwill of the Business and the
--------
right to use of all telephone lines, telephone numbers, facsimile
numbers, and e-mail addresses used in connection with the Business. All
such items are described on Schedule 2.1.7.
2.1.8 Copyrights and Similar Property. Seller's
-------------------------------
ownership of or rights under copyrights, licenses, trade names,
trademarks, name registrations, patents, and other intangible assets,
including pending applications for same, all of which are specifically
described in Schedule 2.1.8.
2.1.9 Insurance Policies. To the fullest extent assignable,
------------------
Seller's insurance policies covering the Business, Seller's employees,
and the Assets, as described in Schedule 2.1.9.
2.1.10 Books and Records. Originals or true copies of
-----------------
all books, records, books of account, ledgers and other documents and
information relating to the Business, including, without limitation,
accounting books and records, tax records, sales literature, customer
and supplier lists, orders, project data, quotations and bids, credit
files, correspondence, commission records, catalogues and product
information of every kind.
2.1.11 Actions Regarding Seller's Assets. All choses in
---------------------------------
action and causes of action, claims and rights of recovery or setoff of
every kind or character arising out of or attributable to any of the
3
<PAGE>
Assets on or prior to the Closing Date, including deposits, prepaid
insurance and similar rights, irrespective of the date on which any such
cause of action, claim or right may arise or accrue.
2.1.12 Other Assets or Rights. Any other tangible personal
----------------------
property located at Seller's places of business as of the Closing Date
and reasonably necessary for the operation of the Business.
2.2 Excluded Assets and Obligations. The Assets and Assumed
-------------------------------
Liabilities shall not include the items of property and obligations listed
in Schedule 2.2 (collectively, the "Excluded Assets" and "Excluded
Obligations" respectively) and all choses in action and causes of action,
claims and rights of recovery or setoff of every kind or character arising
out of or attributable to any of the Excluded Assets on or prior to the
Closing Date, irrespective of the date on which any such cause of action,
claim or right may arise or accrue.
3. LIABILITIES. Except for the Assumed Liabilities, as defined below,
-----------
Buyer is not assuming or undertaking any liability of Seller. Seller shall
indemnify and hold Buyer harmless from any claims, demands, costs or liabilities
(including attorneys' fees and disbursements) relating to any liability of
Seller other than the Assumed Liabilities. Buyer assumes and agrees to pay,
perform and discharge only the following liabilities of Seller (the "Assumed
Liabilities"), when and if due, and shall hold Seller harmless therefrom:
3.1 Accounts Payable. Seller's trade accounts payable listed in
----------------
Schedule 3.1.
3.2 Obligations under Assigned Contracts. Seller's obligations arising
------------------------------------
and to be performed after the Closing under the contracts listed in
Schedule 3.2 (the "Assigned Contracts").
3.3 Funded Debt. All obligations of Seller for borrowed money as
-----------
reflected on the Financial Statements.
3.4 Employment Matters. All obligations for employee compensation and
------------------
benefits, including without limitation, accrued vacation, sick leave,
personal leave, pension or other retirement plan contributions and the
like, as reflected on, and property reserved for in, the Financial
Statements.
3.5 Other Accruals. All accrued but unpaid obligations of the Seller
--------------
as reflected on, and property reserved for in, the Financial Statements.
4. GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS.
---------------------------------------------------------------------
The Seller and the Shareholders jointly, severally and individually represent
and warrant to Buyer as follows:
4.1 Organization; Standing. Seller is a corporation duly organized
----------------------
and in good standing under the laws of the Commonwealth of Pennsylvania and
(a) has all requisite corporate power and authority to carry on the
Business as now conducted, (b) has all governmental and other
authorizations, licenses, or permits necessary to carry on the Business as
now conducted, (c) has no subsidiaries or affiliates and owns no security
or similar interests in any corporation or other entity, (d) has delivered
to Buyer complete and correct copies of its corporate charter and Bylaws as
currently in effect, and (e) that it and its agents executing this
Agreement have corporate and legal authority to enter into and consummate
the transaction contemplated by this Agreement. Shareholders are the sole
shareholders of the Seller.
4.2 Authority; Binding Obligation. Seller has taken all necessary
-----------------------------
corporate action to authorize the execution and performance of this
Agreement by Seller. This Agreement, and each document executed by Seller
in connection herewith, constitute the valid and binding obligations of
Seller, enforceable in accordance with its terms, subject only to
applicable bankruptcy, insolvency, and other laws affecting the rights of
creditors generally, and the discretion of the courts in granting equitable
remedies.
4
<PAGE>
4.3 No Violation. The execution, delivery, and performance of this
------------
Agreement and the consummation of the transactions contemplated hereby by Seller
will not conflict with or result in a breach of any provision of or default
under, or give rise to any right of termination, cancellation or acceleration
under the terms of, as the case may be, (a) Seller's corporate charter or
Bylaws; (b) any mortgage, lien, lease, note, agreement, contract, commitment,
license, permit or other instrument to which Seller is a party, or by which any
of its Assets is bound, (c) any law, rule or regulation, or (d) any judgment,
order, writ, injunction or decree of any court, administrative agency or
governmental body, domestic or foreign, nor is Seller aware of any violation of
the above.
4.4 Licenses and Permits. Seller has the licenses, permits, and
--------------------
authorizations shown on Schedule 4.4 and all governmental licenses, permits, and
authorizations (federal, state, and local) necessary to conduct the Business,
including all state authorizations to transact business as a foreign
corporation, and such licenses or permits are in full force and effect, no
violations are or have been recorded in respect of any of such licenses or
permits, and no proceeding is pending or threatened looking toward the
revocation or limitation of any of such licenses or permits and Seller has
complied with the antitrust laws as they relate to the purchase, distribution,
and sale of its products and services, and with all other laws, rules,
regulations and orders applicable to the Business.
4.5 Financial Statements. Seller has delivered to Buyer accurate and
--------------------
complete copies of Seller's unaudited balance sheet as of December 31, 1997, and
the related unaudited statements of income, stockholders' equity and cash flows
for the year then ended, and the notes and schedules thereto, (the "1997
Financial Statements") and Seller's unaudited balance sheet as of March 31, 1998
(the "Latest Balance Sheet"), and the related unaudited statements of income,
stockholders' equity and cash flows for the three-month period then ended (the
Unaudited Financial Statements"), certified by Seller's chief financial officer,
(collectively the "Financial Statements"), copies of which are attached hereto
as EXHIBIT B. The Financial Statements (a) represent actual bona fide
transactions (b) have been prepared from the books and records of Seller in
conformity with generally accepted accounting principles in the United States,
and (c) accurately, completely, and fairly present, in all material respects,
the financial position of Seller as of the respective dates thereof and the
results of operations and cash flows for the periods then ended, subject to
normal year-end adjustments, which will not be material in the aggregate. The
statements of income included in the Financial Statements do not contain any
items of special or nonrecurring income or any other income not earned in the
ordinary course of business except as expressly specified therein, and include
all adjustments, which consist only of normal recurring accruals, necessary for
such fair presentation. All financial projections, forecasts, and other forward
looking information provided by Seller to Buyer were, as of their respective
dates, prepared in good faith and on the basis that Seller believed to be
reasonable.
4.6 Records. All accounts, books, ledgers, financial and other
-------
records of any kind ("Records") of Seller have been fully, properly, and
accurately maintained, to a standard appropriate for such Records, are in the
possession of Seller; do not contain or reflect any material inaccuracies or
discrepancies; and provide a fair and accurate representation of the Business.
4.7 Absence of Certain Changes. Since the date of the Latest Balance
--------------------------
Sheet there has not been (a) any sale, purchase, transfer, or distribution of
any material asset, or any other transaction, except in the regular course of
business, (b) any increase in the compensation payable or to become payable by
Seller to any of its officers, employees, or agents or any bonus payment or
arrangement made to or with any officers, employees, or agents, (c) any
mortgage, pledge, or other voluntary encumbrance of any asset of Seller, (d) any
cancellation of debt or waiver or release of any right or claim of Seller,
except in the ordinary course of business, (e) any labor dispute, or any event
or condition of any character, materially and adversely affecting the Business
or prospects for the Business. To the best of Seller's knowledge after
investigation and diligent inquiry, since December 31, 1997, there has not been
(i) any material adverse change in Seller's financial condition, Assets, Assumed
Liabilities or prospects for the Business, (ii) any obligation or liability
incurred by
5
<PAGE>
Seller except in the ordinary course of business, or (iii) any damage,
destruction or loss, whether or not covered by insurance, materially affecting
Seller's financial condition, Assets, or business prospects. To the best of
Seller's knowledge after investigation and diligent inquiry, Seller has
disclosed to Buyer all other events or conditions of any character that has or
might have a material adverse effect on its condition, Business, Assets, or
prospects. From the date of this Agreement until and through Closing, Seller
will carry on the Business and activities diligently and in substantially the
same manner as it has previously, with no material changes.
4.8 Title to and Condition of the Assets. Seller has good and
------------------------------------
marketable title to all of its Assets being sold under this Agreement, all free
and clear of all liens, pledges, charges, interests, encumbrances or title
retention agreements of any kind or nature, except as set forth in Schedule 4.8.
Except as set forth in Schedule 4.8, the properties owned, leased or used by
Seller, are (a) in the case of tangible assets and properties, in good operating
condition and repair (ordinary wear and tear excepted) and have been maintained
in accordance with industry practice, and (b) suitable for the purposes used,
and adequate for the normal operation of the Business as presently conducted.
Seller does not have any existing or contingent liabilities in respect of any
properties previously occupied by it or in which it owned or held any interest,
including, without limitation, leasehold premises assigned or otherwise disposed
of.
4.9 Customers and Suppliers. Schedule 4.9 contains a true and complete
-----------------------
list of Seller's customers and suppliers for Seller's fiscal year ended December
31, 1997. To the best of Seller's knowledge, except as disclosed in Schedule
4.9, no customer and no such supplier has given Seller any indication of its
desire to cancel or otherwise terminate or materially alter its relationship
with Seller. Seller will use all reasonable efforts to preserve the present
relationship with suppliers, customers, and others having business relationships
with Seller prior to Closing.
4.10 Employees - Consultants. Attached as Schedule 4.10 is a true and
-----------------------
complete list of Seller's current employees and consultants, including their
names, addresses, telephone numbers, job descriptions, and compensation
arrangements. Any employees employed, or consultants retained, pursuant to a
written contract, covered by any collective bargaining agreement or who are
members of any labor union or are represented by any collective bargaining agent
are identified on Schedule 4.10 and copies of the current contracts or
bargaining agreements have been furnished to Buyer. Except as set forth in
Schedule 4.10, to the best of Seller's knowledge, no employee or consultant has
given notice or other indication to Seller of the desire or intent to terminate
employment or consultation with Seller.
4.11 Litigation. Except as set forth on Schedule 4.11, there is no:
----------
(a) action, suit, claim, proceeding, or investigation pending of which Seller
has received notice, or threatened against or affecting Seller or any of the
Assets to be transferred, or before any governmental department, commission,
board, bureau, agency, or instrumentality, domestic or foreign, or (b)
governmental investigation or inquiry pending or threatened against or affecting
Seller, and to the best of Seller's knowledge, there is no basis for any of the
foregoing. Except as set forth on Schedule 4.11, each of the claims, actions,
suits, proceedings, and investigations listed on Schedule 4.11 has been reported
to the proper insurance carrier in accordance with the applicable insurance
policy, if any, and as necessary to insure coverage thereof and has been
accepted for coverage by the applicable insurer.
4.12 Contracts. Schedule 4.12 contains a list of every material
agreement, contract, lease, commitment, note, arrangement, or understanding (the
"Contracts") to which Seller is a party or by which Seller or any of the Assets
is bound. Each Contract is valid, in full force and effect, enforceable in
accordance with its terms, and fully assignable to Buyer. Seller is not aware of
any event that would give rise to a breach or default under any of the
Contracts. There is no outstanding notice of default, breach, cancellation, or
termination in connection with any of the Contracts, and no other party has
asserted any claims arising out of or in connection with the Contracts. Correct
and complete copies of the Contracts have been furnished to Buyer.
4.13 No Bankruptcy. Seller has not filed for any form of relief under
-------------
the United States Bankruptcy Code or analogous state laws, is not insolvent, and
has not made a general assignment or
6
<PAGE>
composition with respect to creditors. No order, execution, or other process has
been levied against Seller in any action taken to repossess goods in any
material amount. No steps have been taken for the appointment of a receiver of
any part of Seller's property.
4.14 Tax Returns. Except as set forth on Schedule 4.14, Seller has
-----------
filed all tax returns and reports, each of which is accurate, required to be
filed by it with all taxing authorities to which it is subject and paid or
provided for all taxes shown to be due on such returns or otherwise. Seller has
no knowledge of any deficiency or additional tax or charge proposed to be
assessed against it or its Assets. Seller has not executed any agreements for
extension of time for the assessment or payment of any tax, nor is Seller aware
of any action, pending or contemplated, by any taxing authority to collect any
outstanding taxes due.
4.15 Environmental Liability. Seller has no responsibility for the
-----------------------
use, discharge, clean-up, abatement or other responsibility under any applicable
federal, state, or local environmental protection statute or regulation. Except
as set forth on Schedule 4.15, Seller does not use and has never used or stored
hazardous or environmentally regulated substances in the conduct of the
Business.
4.16 Compliance With Zoning/Planning/Safety Regulations. The use of
--------------------------------------------------
all of the properties in or on which Seller conducts the Business, and all
machinery and equipment therein and the conduct of any business therein complies
in all respects with all applicable zoning, planning, and safety statutes,
regulations and rules.
4.17 Employment and Employment Practices. Seller is in full
-----------------------------------
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment and is not engaged in any prohibited unfair
labor practice. There is no labor strike, dispute, slowdown, or work stoppage
actually pending or threatened against or involving Seller, nor has Seller
experienced any work stoppage or any other labor dispute during the last three
years.
4.18 Receivables. Except as set forth on Schedule 4.18, all accounts
-----------
receivable being transferred to Buyer have arisen in the ordinary course of
business, represent valid obligations to Seller, and, subject only to
consistently recorded reserves or provisions for bad or doubtful debts, have
been collected or are presently collectible in the aggregate recorded amounts
thereof in accordance with their terms.
4.19 Inventory and Supplies. Seller's inventory and supplies to be
----------------------
transferred to Buyer are in usable or saleable condition in the ordinary course
of business, subject only to reserves for obsolescence reflected on the Latest
Balance Sheet or in Seller's other books and records.
4.20 Intellectual Property. Except as set forth on Schedule 4.20,
---------------------
Seller has no patents, patent rights, patent applications, licenses of
intellectual property as licensee, trademarks, trademark rights, trade names,
trade name rights, service mark rights, copyrights, unpatented discoveries,
processes, or inventions or similar rights (collectively the "Intellectual
Property"), nor requires any such rights in order to conduct the Business.
Unless otherwise indicated on Schedule 4.20, Seller owns the entire right,
title, and interest in and to the Intellectual Property and technology used in
the Business (including, without limitation, the exclusive right to use and
license same) and each item constituting part of the Intellectual Property which
is owned by Seller, has been, to the extent indicated on Schedule 4.20, duly
registered with, filed in or issued by the trademark or patent office or such
other governmental entity, domestic or foreign, as are indicated on Schedule
4.20, and such registrations, filings and issuances remain in full force and
effect. Except as stated on Schedule 4.20, there are no pending or threatened
proceedings or litigation or other adverse claims affecting or with respect to
the Intellectual Property. Seller's rights to its proprietary software is free
and clear of any claims of any employees, consultants, or outside programmers.
Schedule 4.20 lists all notices of or claims currently pending or received by
Seller during the past two years that claim infringement, contributory
infringement, inducement to infringe, misappropriation or breach by Seller of
any domestic or foreign patent, patent application, patent, software or know-how
license, trade name, trademark, copyright, service mark, trademark registration
or application, service mark registration or application, copyright registration
or application, trade secret or other confidential
7
<PAGE>
proprietary information. Except as disclosed on Schedule 4.20, to the best of
Seller's knowledge after due investigation and inquiry, Seller is not
infringing, or otherwise acting adversely to, the right of any person under or
in respect to any patent, license, trademark, trade name, service mark,
copyright, or similar intangible right.
4.21 Insurance. Seller's properties and Business are and continuously
---------
have been insured by licensed insurers. Seller will cooperate, to the extent
possible, to assure that the insurance coverage provided by such insurance
policies will not in any respect be affected by, and will not terminate or lapse
merely by reason of, the execution and delivery of this Agreement or the
consummation of the transactions described herein. All such policies, including
the amounts and terms of coverage and an indication of whether they are
assignable, are set forth on Schedule 4.21. Copies of such policies have been
furnished to Buyer.
4.22 Employee Benefit Plans. Except as listed on Schedule 4.22,
----------------------
Seller has not adopted any retirement, profit sharing, deferred compensation,
stock option, bonus, group or individual medical, dental, health, life
insurance, survival benefit, or similar plan or arrangement covering all or any
of its employees. Copies of such plans, identified on Schedule 4.22, have been
furnished to Buyer. Each of the arrangements set forth on Schedule 4.22 is
referred to as an "Employee Benefit Plan." Each Employee Benefit Plan is and has
been maintained and operated in compliance in all material respects with the
terms of the respective plans and with the requirements imposed by applicable
law. Except as set forth on Schedule 4.22, there is no pending or threatened
legal action, proceeding, or investigation, other than routine claims for
benefits, concerning any Employee Benefit Plan or any fiduciary or service
provider and to the best of Seller's knowledge, there is no basis for any such
legal action or proceeding. Except as set forth on Schedule 4.22, there is no
liability, contingent or otherwise, for any Employee Benefit Plan other than
insurance premiums satisfied in due course. Each Employee Benefit Plan for which
a separate fund is or is required to be maintained, has been fully funded as
required by the terms of the Plan as of the end of the most recently completed
plan year. The execution of this Agreement and the consummation of the
transactions contemplated will not result in (a) any payment (whether severance
pay or otherwise) becoming due from any Employee Benefit Plan, or result in the
vesting, acceleration of payment, or increases in the amount of benefit, or (b)
the employees, officers, and/or directors of Buyer, as the owner of the Business
of Seller, becoming eligible to receive benefits under such Employee Benefit
Plans pursuant to the terms of such Plans or under applicable law.
4.23 Warranty Claims. There are no unresolved claims or claims
---------------
asserted or threatened by Seller's customers for breach of express or implied
warranty, misrepresentation, or any other claims based on a defect in or failure
of services or products sold or leased by Seller.
4.24 Computer Programs. To the best knowledge of the Seller and the
-----------------
Shareholders, based upon diligent investigation and inquiry, all computer or
computer related hardware or software transferred as part of the Assets (the
"Computer System") is millennium compliant. For purposes of this section
"millennium compliant" means that the Computer System (a) allows for the input
of all dates in a four-digit format; (b) provides date output in a four-digit
format; (c) accommodates same-century and multi-century date related formulas
and calculations (including leap year calculations); (d) function accurately and
without interruption before, during, and after January 1, 2000, and (e) responds
to two-digit date input in a way that resolves any ambiguity as to century.
4.25 No Finder's Fee. No finder, broker, agent, or other intermediary
---------------
has acted for or on behalf of Seller in connection with the negotiation or
consummation of the transactions contemplated hereby.
4.26 Full Disclosure. Seller has provided Buyer with full access to
---------------
all Assets, books, accounts, records, and documents of or relating to Seller,
the Business and Assets. No representation or warranty of Seller contained in
this Agreement contains any untrue statement of a material fact or omits any
material fact necessary to make the statements contained herein or therein not
false or misleading. There is no fact known to Seller that materially or
adversely affects or in the future may materially or adversely affect the
Business, Assets to be transferred, or operations of Seller that has not been
set forth in this Agreement.
8
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS WITH
------------------------------------------------------------------
RESPECT TO THE ACQUISITION OF THE SHARES. In connection with the Seller's
- ----------------------------------------
acquisition of the Initial Shares, Contingent Shares, if any, and Adjustment
Shares, if any (collectively, the "Shares"), the Seller and the Shareholders
jointly, severally and individually represent and warrant as follows:
5.1 Sophistication; Investment Intent. Seller possesses the
---------------------------------
experience and sophistication as an investor which are adequate for the
evaluation of the merits and risks of the investment in the Shares. Seller
has determined that the acquisition of the Shares is appropriate for
Seller. Seller is acquiring the Shares for its own account, for investment,
and not as a distributor of securities.
5.2 Availability of Public Documents. Seller acknowledges that
--------------------------------
OpSec has made available to Seller copies of OpSec's annual report on Form
10-KSB for the year ended March 31, 1997, quarterly reports on Form 10-QSB
for the quarters ended June 30, 1997, September 30, 1997, and December 31,
1997, any current reports on Form 8-K filed to date, and press releases
from 1997 to date (collectively, the "Public Documents"). Except as set
forth in the Public Documents, no representations, assurances, or
warranties have been made to the Seller, by OpSec or the Buyer, or by any
of their officers, directors, agents, employees, or affiliates, nor anyone
else on their behalf, concerning, among other things, future profitability
of OpSec or the Buyer, or the tax consequences of the Seller's ownership of
the Shares, and in acquiring the Shares, the Buyer is not relying upon any
information, other than that contained in the Public Documents, and the
results of its own independent investigation.
5.3 Unregistered Shares. Seller is aware that the Shares have not
-------------------
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws or regulations in reliance
upon exemptions under the Securities Act and under exemptions under state
law. The Seller understands that it may not sell the Shares unless they are
registered or if an exemption from registration under the Securities Act,
such as by reason of Rule 144 thereunder, and any applicable state
securities laws or regulations, is available; the availability of which
must be established to the satisfaction of OpSec.
5.4 Restrictive Legend. Seller agrees that a legend may be placed
------------------
on any certificate or certificates evidencing the Shares, stating the
Shares have not been registered under the Securities Act and setting forth
or referring to the restrictions on transfers on sales thereof; and the
Company may place stop transfer instructions against the Shares and the
certificates evidencing the Shares to restrict their transfer, except as
prescribed by the Securities Act.
5.5 Opportunity to Discuss Terms. Seller and the Shareholders have
----------------------------
been provided the opportunity to discuss the terms and conditions of the
Shares and the business of the Buyer and OpSec with members of the Buyer's
and OpSec's management and to review all relevant financial information,
books, records, and other information concerning the Buyer, OpSec, and the
Shares, including the Public Documents, such that the Seller and the
Shareholders are familiar with the business, finances, and general
prospects for the future of the Buyer and OpSec which they may consider
significant for the purposes of making an investment in the Shares.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
---------------------------------------
as follows:
6.1 Good Standing; Organization. Buyer is a corporation duly
---------------------------
organized, validly existing, and in good standing under the laws of the
state of Colorado, and has the power and authority to execute and perform
this Agreement. Buyer is a wholly-owned subsidiary of OpSec, a corporation
duly organized, validly existing and in good standing under the laws of the
state of Colorado.
6.2 Authority; Binding Obligation. Buyer has, by all necessary
-----------------------------
corporate actions, duly authorized the execution and performance of this
Agreement. This Agreement and each document executed by Buyer in connection
herewith constitute the valid and binding obligation of Buyer, enforceable
in accordance
9
<PAGE>
with its terms, subject to applicable bankruptcy, insolvency and other laws
affecting the rights of creditors generally, and the discretion of the
courts in granting equitable remedies. Upon satisfaction of the Conditions
Precedent to Buyer's Performance described in Section 7, Buyer's execution
of this Agreement will not conflict with, result in a breach of any
provision of, or default under any contractual or other obligation to which
Buyer is a party or by which Buyer is bound, and will not conflict with any
provision of Buyer's Articles of Incorporation or Bylaws.
6.3 Governmental Consents. No consent, approval or authorization
---------------------
of, or registration, designation, or filing with any governmental
authority, federal or other, on the part of Buyer, is required in
connection with the acquisition of the Assets and the consummation of the
transactions contemplated by this Agreement.
6.4 No Finder's Fee. Except for Donaldson, Lufkin & Jenrette
---------------
Securities Corporation, for whose fees, if any, Buyer shall be responsible,
no finder, broker, agent or other intermediary has acted for or on behalf
of Buyer in connection with the negotiation or consummation of the
transactions contemplated hereby.
6.5 OpSec SEC Documents and Financial Statements.
--------------------------------------------
6.5.1 OpSec has timely filed all required reports, schedules,
forms, statements and other documents with the Securities and
Exchange Commission ("SEC") since registering a class of its
securities under the Securities Exchange Act of 1934 ("Exchange Act")
(the "OpSec SEC Documents"). As of their respective dates (or, with
respect to any amendment to the OpSec SEC Documents, as of the date
of the filing of such amendment), the OpSec SEC Documents complied
with the requirements of the Securities Act of 1933 (the "Securities
Act") or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such
OpSec SEC Documents, and none of the OpSec SEC Documents as of such
dates contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
6.5.2 The consolidated financial statements of OpSec included
in the OpSec SEC documents comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except as may be indicated in the notes thereto
or, in the case of unaudited interim financial statements, as
permitted by Rule 10-01 of Regulation S-X) and fairly present, in all
material respects, the consolidated financial position of OpSec and
its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations, changes in shareholders'
equity and consolidated cash flows for the periods then ended
(subject, in the case of unaudited financial statements, to normal
recurring adjustments, none of which is material).
6.5.3 Except as disclosed in Schedule 6.5.3, neither OpSec nor
any of its subsidiaries has any absolute, accrued, contingent or
other liabilities or obligations due or to become due, and there are
no claims or causes of action (including but not limited to those
relating to any OpSec benefit plan that have been or, to the
knowledge of OpSec and the Buyer , may be asserted against OpSec or
any of its subsidiaries, except (i) as and to the extent reflected or
reserved against on the balance sheet included in OpSec's Annual
Report on Form 10-K for the year ended March 31, 1997 (the "OpSec
Base Balance Sheet"), or included in the notes to the OpSec Base
Balance Sheet, (ii) for normal and recurring liabilities incurred
since March 31, 1997, in the ordinary course of business consistent
with past practice, and (iii) for such other liabilities and
obligations that are not in the aggregate reasonably likely to have a
material adverse effect on OpSec's financial position or results of
operations as reported.
6.5.4 Absence of Certain Changes or Events. Except as
------------------------------------
disclosed in the Schedule 6.5.4, since the date of the OpSec Base
Balance Sheet, OpSec and its subsidiaries have conducted their
business only in the ordinary course, and there has not been (i) any
change which has had or which would have a material adverse effect on
OpSec's financial position or results of operations as reported, (ii)
any declaration, setting aside or
10
<PAGE>
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of OpSec's outstanding capital stock (other
than regular quarterly cash dividends in accordance with OpSec's present
dividend policy), or (iii) any split, combination or reclassification of
any of its outstanding capital stock or any issuance of the authorization
of any issuance of any other securities in respect of, in lieu of, or in
substitution for shares of, its outstanding capital stock.
7. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. The obligation of Buyer
-------------------------------------------
to close this Agreement is subject to the satisfaction of the following
conditions at or before Closing except to the extent waived in writing by Buyer
at Closing:
7.1 Representations and Warranties True. Except as otherwise
-----------------------------------
permitted by this Agreement, all representations and warranties of Seller
contained herein shall be correct on and as of the Closing Date as though
made at that time.
7.2 Covenants and Agreements Performed. Seller shall perform or cause
----------------------------------
to be performed, satisfy, and comply with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by
it on or before Closing.
7.3 Financing. Buyer shall have obtained sufficient capital or
---------
financing on terms and conditions satisfactory to Buyer in its sole and
absolute discretion on or before May 30, 1998. Buyer shall use its best
efforts to complete its capital raising or financing by such date, but, in
the event completion is delayed by circumstances not reasonably within
Buyer's control, this date may be extended to June 15, 1998. If Buyer has
not obtained sufficient capital or financing by such date, this Agreement
shall be deemed terminated unless Seller and the Shareholders shall have
agreed in writing to a further extension.
7.4 Approval of Counsel to Buyer. All legal matters in connection
----------------------------
with the consummation of the transactions contemplated hereby and all
agreements, instruments, and documents delivered in connection therewith
shall be reasonably satisfactory in form and substance to Lohf, Shaiman &
Jacobs, P.C., legal counsel to Buyer.
7.5 Due Diligence. The due diligence review to be conducted by Buyer
-------------
prior to the Closing with respect to Seller, and the representations,
warranties, covenants, and agreements made by Seller in this Agreement,
shall have been completed and the results thereof shall be reasonably
satisfactory to Buyer and its counsel. The representations and warranties
of Seller shall remain binding and enforceable, notwithstanding Buyer's
satisfaction with its due diligence review, and shall be unaffected by any
information actually or allegedly discovered, or able to be discovered,
during such review.
7.6 Employment Agreements. Key management employees of Seller shall
---------------------
have entered into employment agreements with Buyer on terms satisfactory to
the parties in their sole and absolute discretion.
7.7 Asset Information. Seller shall have delivered to Buyer detailed
-----------------
information about the Assets, including, cost, description, book value,
market value, location, age, condition, and such other information
reasonably requested by Buyer.
7.8 Audited Financials. Buyer shall have received written
------------------
confirmation from Seller's independent auditors that the books and records
of Seller can be audited for the calendar years ending December 31, 1996,
1997 and the four-month period ending April 30, 1998, and that such audits
will be delivered to the Buyer on or before ninety (90) days after Closing.
7.9 Legal Proceedings. No proceeding shall, on the Closing Date, be
-----------------
pending or threatened seeking to restrain, prohibit, or obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
11
<PAGE>
7.10 Consents. Buyer shall have obtained all necessary approvals from
--------
its directors, shareholders, lenders, and state, municipal, and other
governmental authorities.
8. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. The obligation of Seller
--------------------------------------------
to close this Agreement is subject to the satisfaction of the following
conditions at or before Closing except to the extent waived in writing by Seller
at Closing:
8.1 Representations and Warranties True. Except as otherwise
-----------------------------------
permitted by this Agreement, all representations and warranties of Buyer
contained herein shall be correct on and as of the Closing Date as though
made at that time.
8.2 Covenants and Agreements Performed. Buyer shall perform or cause
----------------------------------
to be performed, satisfy, and comply with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by
it on or before Closing.
8.3 Approval of Counsel to Seller. All legal matters in connection
-----------------------------
with the consummation of the transactions contemplated hereby and all
agreements, instruments, and documents delivered in connection therewith
shall be reasonably satisfactory in form and substance to Reed Smith Shaw &
McClay LLP, legal counsel to Seller.
8.4 Employment Agreements. Key management employees of Seller shall
---------------------
have entered into employment agreements with Buyer on terms satisfactory to
the parties in their sole and absolute discretion.
8.5 Legal Proceedings. No proceeding shall, on the Closing Date, be
-----------------
pending or threatened seeking to restrain, prohibit, or obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
8.6 Consents. Seller shall have obtained all necessary approvals from
--------
its directors, shareholders, lenders, and state, municipal, and other
governmental authorities.
8.7 Buyer Financing. Buyer shall have obtained the capital or
---------------
financing required by Section 7.3.
9. RISK OF LOSS. Seller shall assume all risk of loss, destruction,
------------
damage or other casualty up to the date and time of Closing, other than normal
wear and tear and use in the normal course of business. If the loss, destruction
or damage due to fire or other casualty up to the date and time of Closing is
not of such nature as to curtail or interrupt the business, as determined by
Buyer, the purchase price shall be adjusted to reflect such loss, destruction or
damage and shall be subject to the further agreement of the parties, if any, as
of the date and time of Closing.
10. PRICE ALLOCATION. For purposes of this Agreement, and as required by
----------------
the Internal Revenue Code of 1986, as amended, the purchase price shall be
allocated to the Assets in accordance with the fair market value of the Assets
to be purchased. The price allocation shall be in the form of the allocation
set forth on Schedule 10 attached hereto.
11. TAX REPORTING. The parties agree that they each will report all
-------------
aspects of this sale for Internal Revenue Service, state and local sales and use
tax purposes in strict accordance with the allocation provided for in Section
10. Seller shall pay any and all sales and/or use taxes assessed or assessable
as a result of this Agreement.
12. PRORATION. To the extent not reflected and reserved for in the
---------
Financial Statements, personal property taxes and the like shall be prorated as
of the effective date of Closing.
13. CLOSING.
-------
12
<PAGE>
13.1 General. Closing of the transfer of Seller's Assets and Buyer's
-------
assumption of the Assumed Liabilities shall take place at the offices of Lohf,
Shaiman & Jacobs, P.C., 950 South Cherry Street, Suite 900, Denver, Colorado
80246, or such other place as the parties determine, on or before May 31, 1998,
unless automatically extended for the financing contingency provided for in
Section 7.3, effective and the Effective Date, unless extended by written
agreement of the parties (the "Closing"; the date of such Closing, the "Closing
Date"). All actions taken at Closing shall be considered to be taken
simultaneously and no document, agreement or instrument shall be considered to
be delivered until all items which are to be delivered have been delivered.
13.2 Closing Transactions. At Closing, the following will occur:
--------------------
13.2.1 Seller and Buyer will execute a general assignment and
bill of sale substantially in the form attached as EXHIBIT C hereto,
whereby Seller conveys, transfers, assigns and delivers the Assets and
Assigned Contracts to Buyer.
13.2.2 Seller will deliver assignments of its premises leases,
together with any and all required landlord consents or waivers to each
such assignment and estoppel certificates from each landlord in form
and substance satisfactory to Buyer.
13.2.3 Seller will execute and/or deliver to Buyer such other
deeds, bills of sale, assignments, endorsements, and other instruments
of transfer in the form and substance satisfactory to Buyer as shall be
necessary to vest in Buyer title to the Assets.
13.2.4 Seller will deliver to Buyer a certified copy of the
resolutions adopted by its board of directors and shareholders
authorizing the execution and performance of this Agreement.
13.2.5 Seller and the Shareholders will execute and deliver a
certificate that all of their warranties and representations are true,
correct and enforceable as of the Effective Date and as of Closing.
13.2.6 Buyer will deliver to Seller, an opinion of Buyer's
legal counsel, substantially in the form attached as EXHIBIT D.
13.2.7 Seller and Buyer will execute and deliver the non-
competition and confidentiality agreement required by Section 16.
13.2.8 Buyer will pay the purchase price to the extent due at
Closing as provided in Section 1.
13.2.9 Buyer will execute and deliver to Seller the
Registration Rights Agreement.
13.2.10 Seller will deliver to Buyer, an opinion of Seller's
legal counsel, substantially in the form attached as EXHIBIT E.
13.2.11 The parties will execute and deliver such other
documents as may reasonably be required to carry out the intent of the
transaction contemplated by this Agreement.
14. EXPENSES OF SALE. Buyer and Seller shall each be responsible for their
----------------
own legal and accounting fees and other expenses incident to the Closing of this
transaction.
15. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
--------------------------------------------
13
<PAGE>
15.1 Survival. The representations and warranties of the parties
--------
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto, shall survive the Closing, regardless of any
investigation made by or on behalf of any party.
15.2 Indemnification by Seller and the Shareholders. Seller and the
----------------------------------------------
Shareholders jointly, severally and individually, shall defend, indemnify, and
hold harmless Buyer, OpSec, each director, officer, employee, or agent of Buyer,
or OpSec, their subsidiaries, and each affiliate thereof, and their respective
heirs, legal representatives, successors, and assigns (collectively, the "Buyer
Group"), from and against payment of any claim made by any creditor or other
person or entity (except for a claim for payment of the Assumed Liabilities), or
otherwise arising, in connection with (a) the Business prior to the Closing, (b)
the assertion by any third party of any claim relating to the Assets arising or
incurred prior to the Closing, and (c) any and all loss connected with any
breach of Seller's representations, warranties or obligations hereunder
(including claims made under any applicable bulk sales laws). In the event of
claim by any creditor or other person or entity subject to this section, Buyer
shall provide Seller and the Shareholders with written notice of such claim in
the manner set forth in paragraph 18.1 below, within ten days of Buyer's or
OpSec's receipt of the claim. Thereafter, Seller and the Shareholders shall have
a period of five days within which to notify Buyer and OpSec, in the manner
provided for in paragraph 17.1, that they desire to intercede on Buyer's and
OpSec's behalf and defend the claim at their sole cost (including without
limitation, payment of any damages awarded or agreed to, interest, penalties,
court costs, and attorneys' fees). If Seller and the Shareholders fail to so
notify Buyer and OpSec and to defend the claim, Buyer and OpSec may defend such
claim at their cost and maintain an action against Seller to recover all
damages, interest, penalties, court costs, and attorneys' fees incurred.
15.3 Indemnification by Buyer. Buyer shall defend, indemnify, and hold
------------------------
harmless Seller, each director, officer, employee, or agent of Seller, its
subsidiaries, and each affiliate thereof, and their respective heirs, legal
representatives, successors, and assigns, from and against payment of any claim
made by any creditor or other person or entity, or otherwise arising, in
connection with (a) Buyer's operation of the Business on or after the Closing,
(b) the assertion by any third party of any claim relating to the Assets arising
or incurred on or after the Closing, and (c) any and all loss connected with any
breach of Buyer's representations, warranties or obligations hereunder. In the
event of claim by any creditor or other person or entity subject to this
section, Seller shall provide Buyer with written notice of such claim in the
manner set forth in paragraph 17.1 below, within ten days of its receipt of the
claim. Thereafter, Buyer shall have a period of five days within which to notify
Seller in the manner provided for in paragraph 17.1 that it desires to intercede
on Seller's behalf and defend the claim at its sole cost (including without
limitation, payment of any damages awarded or agreed to, interest, penalties,
court costs, and attorneys' fees). If Buyer fails to notify Seller and to defend
the claim, Seller may defend such claim at its cost and maintain an action
against Buyer to recover all damages, interest, penalties, court costs, and
attorneys' fees incurred.
15.4 Limitation on Indemnification. No payment shall be required to be
-----------------------------
made by Seller pursuant to Section 15.2, unless, and only to the extent that,
the amount of damages suffered by the Buyer and/or its parent companies in
connection with such claims, together with all claims asserted therewith or
previously asserted under Section 15.2, exceeds $25,000.00 in the aggregate.
16. ADDITIONAL AGREEMENTS AND COVENANTS.
-----------------------------------
16.1 Access to Information. Between the Effective Date hereof and the
---------------------
Closing, Seller shall conduct the Business on behalf and for the account and
benefit of Buyer. Seller (i) shall give Buyer and its authorized representatives
reasonable access to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, of the Seller; (ii) shall permit Buyer
and its authorized representatives to make such inspections as they may
reasonably require; and (iii) shall cause the Seller's officers to furnish Buyer
and its authorized representatives with such financial and operating data and
other information with respect to
14
<PAGE>
the Seller and the Business as Buyer may from time to time reasonably request;
provided, however, that neither any investigation conducted by Buyer pursuant to
this section nor the results thereof shall affect any representation or warranty
of Seller contained in this Agreement or in any agreement, instrument, or
document delivered pursuant hereto or in connection herewith (the "Ancillary
Documents") or Buyer's ability to rely thereon; and provided further that Seller
shall have the right to have a representative present at all times of any such
inspections, interviews, and examinations conducted at or on the offices or
other facilities or properties of the Seller or its affiliates or
representatives.
16.2 Conduct of Business of Seller. During the period from the
-----------------------------
Effective Date of this Agreement to the Closing Date, or the date, if any, on
which this Agreement is earlier terminated, Seller shall conduct the Business on
behalf and for the account and benefit of Buyer, and only according to its
ordinary and usual course. Seller shall use its best efforts to preserve intact
its business organization, keep available the services of its officers,
employees, and consultants, and to maintain satisfactory relationships with
licensors, suppliers, distributors, lessees, customers, and others having
business relationships with it. Except as may be first approved by Buyer, or as
is otherwise permitted or required by this Agreement, Seller will refrain from
making any pension, retirement or insurance payment or arrangement, and from
agreeing to pay any bonus to accrue after the Effective Date to or with any such
persons except those that may have already been accrued; and (c) refrain from
entering into any contract or commitment, or buy or sell inventory or equipment,
except in the ordinary course of business. During the period from the date of
this Agreement to the Closing Date, Buyer and Seller shall confer on a regular
and frequent basis to report material operational matters and to report the
general status of ongoing operations. Seller shall notify Buyer of any
unexpected emergency. Seller shall not change the normal course of the Business
or the operation of its properties without the prior consent of the Buyer.
Seller shall notify Buyer promptly of any governmental complaints,
investigations, or hearings (or communications indicating that the same may be
contemplated), adjudicatory proceedings, budget meetings, or submissions
involving any material property of Seller, keep Buyer fully informed of and
allow Buyer to participate in such events, and provide Buyer's representatives
prompt access to all materials prepared in connection therewith.
16.3 Confidentiality. Between the date hereof and the Closing, each
---------------
party shall hold in confidence all information obtained in the course of such
party's investigation and due diligence review in connection with this
Agreement, on the terms and subject to the conditions contained in the letter of
intent dated April 7, 1998.
16.4 Acquisition Proposals. From and after the date of this Agreement
---------------------
until the earlier of the Closing or the termination of this Agreement, neither
the Seller nor any affiliate, director, officer, employee, or representative of
Seller shall, directly or indirectly, (i) solicit, initiate, or knowingly
encourage any Acquisition Proposal (as hereinafter defined) or (ii) engage in
discussions or negotiations with, or disclose any nonpublic information relating
to the Seller or the Business to, any person that is considering making or has
made an Acquisition Proposal. Seller shall immediately cease and cause to be
terminated any existing activities, discussions, or negotiations with any
persons conducted heretofore with respect to any Acquisition Proposal and shall
promptly request each such person who has previously entered into a
confidentiality agreement in connection with an Acquisition Proposal to return
to Seller all confidential information previously furnished to such person by or
on behalf of Seller. If Seller shall hereafter receive any Acquisition Proposal,
Seller shall immediately communicate the terms of such proposal to Buyer. The
term "Acquisition Proposal", as used in this Section 16.3 means any offer or
proposal for or any indication of interest in, a merger or other business
combination involving the Seller or the acquisition of any equity interest in,
or substantial portion of the assets of, the Seller other than the transactions
contemplated by this Agreement.
16.5 Third Party Consents. Seller shall use its reasonable best
--------------------
efforts to obtain all consents, approvals, orders, authorizations, and waivers
of, and to effect all declarations, filings, and registrations with all third
parties (including all governmental entities) that are necessary, required, or
deemed by Buyer to be desirable to enable Seller to transfer the Assets to Buyer
as contemplated hereby. All costs and expenses of
15
<PAGE>
obtaining or effecting any and all of the consents, approvals, orders,
authorizations, waivers, declarations, filings, and registrations referred to in
this Section 16.4 shall be borne by Seller.
16.6 Reasonable Best Efforts. Each party agrees that it will not
-----------------------
voluntarily undertake any course of action inconsistent with the provisions or
intent of this Agreement and will use its reasonable best efforts to take, or
cause to be taken all action and to do, or cause to be done, all things
reasonably necessary, proper, or advisable under applicable law to consummate
the transactions contemplated by this Agreement, including, without limitation,
(i) cooperation in determining whether any consents, approvals, orders,
authorizations, waivers, declarations, filings, or registrations of or with any
governmental entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (ii) reasonable best
efforts to defend, and cooperation in defending, all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby; (iii) reasonable best efforts to cause to be lifted or
rescinded any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby;
and (iv) the execution of any additional instruments necessary to consummate the
transactions contemplated hereby. Seller shall cooperate with and assist Buyer
and its authorized representatives in order to provide an efficient and orderly
transfer of the Assets and to avoid any undue interruption in the activities and
operations of the Business following the Closing.
16.7 Covenant Not to Compete. At Closing, Seller and the Shareholders
-----------------------
will execute and deliver to Buyer a non-competition and confidentiality
agreement substantially in the form attached as EXHIBIT F (the "Non-competition
and Confidentiality Agreement").
16.8 Amendment of Schedules. Each party agrees that, with respect to
----------------------
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Schedules. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Section 7.1 and 8.1 have been
fulfilled, the Schedules hereby shall be deemed to include only that information
contained therein on the date of this Agreement and shall be deemed to exclude
all information contained in any supplement or amendment thereto; provided,
however, that if the Closing shall occur, then all matters disclosed pursuant to
any such supplement or amendment at or prior to the Closing shall be waived and
no party shall be entitled to make a claim thereon pursuant to the terms of this
Agreement.
17. MISCELLANEOUS.
-------------
17.1 Notices. Any notices provided or required under the terms of this
-------
Agreement shall be effective immediately when provided by verified facsimile
transmission or personal delivery, or five days after being sent by first class
mail or recognized courier, and addressed as follows:
If to Seller,
Advantage Technology, Inc.
Attention: Michael F. Brennan, President
1809 Olde Homestead Lane
P.O. Box 10155
Lancaster, Pennsylvania 17606-0155
Facsimile: (717) 293-4117
with a copy to,
Michael L. Hund, Esq.
Reed Smith Shaw & McClay LLP
16
<PAGE>
Ninth Floor
213 Market Street
Harrisburg, Pennsylvania 17101-2132
Facsimile: (717) 236-3777
If to the Shareholders:
Michael L. Brennan
676 Patriot Lane
Lancaster, PA 17601
Facsimile: (717) 293-4117
Joseph G. Lyall
1512 Hillcrest Road
Lancaster, PA 17603
Facsimile: (717) 293-4117
If to Buyer,
OpSec Advantage, Inc.
Attention: Mark Turnage, President
535 16th Street, Suite 920
Denver, Colorado 80202
Facsimile: (303) 534-1010
with a copy to
Charles H. Jacobs
Lohf, Shaiman & Jacobs, P.C.
950 South Cherry Street, Suite 900
Denver, Colorado 80246
Fax: (303) 753-9997
17.2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO WITHOUT REFERENCE TO ANY
CONFLICTS OF LAW PROVISION THAT WOULD REQUIRE APPICATION OF THE LAW OF ANY OTHER
JURISDICTION. VENUE FOR ANY PROCEEDING BROUGHT TO ENFORCE THE TERMS OF THIS
AGREEMENT SHALL BE PROPER IN THE CITY AND COUNTY OF DENVER, STATE OF COLORADO.
17.3 Succession. This Agreement shall be binding upon and shall enure
----------
to the benefit of the parties, their successors, assigns and legal
representatives.
17.4 Entireties. This Agreement constitutes the entire agreement
----------
between the parties. No modification of this Agreement shall be binding unless
in writing and signed by both parties, and recorded by a notary if necessary.
17.5 Severability. If any provision of this Agreement is found to be
------------
illegal, or unenforceable for any reason whatsoever, this Agreement shall be
interpreted and construed without reference to such provision, and the balance
of this Agreement shall remain in full force and effect.
17
<PAGE>
17.6 Cooperation. The parties agree to execute such additional
-----------
documents and take such actions as may be required to effectuate the purposes of
this Agreement.
17.7 Paragraph Headings. The paragraph headings are inserted in this
------------------
Agreement for convenience only and are not intended to affect the terms of this
Agreement.
17.8 Press Releases and Public Announcements. No party shall issue any
---------------------------------------
press release nor make any public announcements relating to the subject matter
of this Agreement prior to the Closing without the prior written approval of
Buyer.
17.9 Personal Jurisdiction. Seller hereby irrevocably submits to the
---------------------
jurisdiction of the courts of the state of Colorado and the federal courts of
the United States of America located in the state of Colorado, in respect to the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and hereby waives and agrees not to
assert as a defense in any action, suit, or proceeding, for the interpretation
or enforcement hereof, or of any such document, that it is not subject thereto
or such action, suit, or proceeding not be brought or is not maintainable in
said courts, or that the venue thereof may not be appropriate or that this
Agreement or any such documents may not be enforced in or by said court.
17.10 Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in counterparts, each of which shall be deemed an original and which
together shall constitute a single instrument. This Agreement and each document
related hereto may be executed and delivered by telecopier or other facsimile
transmission all with the same force and effect as if the same was a fully
executed and delivered original manual counterpart.
17.11 Remedies - Attorneys' Fees. If any party obtains or engages an
--------------------------
attorney or attorneys for the purpose of enforcing its rights under the terms of
this Agreement for negotiation, litigation, arbitration, or other alternative
dispute resolution procedure, the prevailing party shall be entitled to recover
their or its attorneys' fees, costs, and disbursements in addition to any other
relief sought or awarded.
17.12 Time. Time is of the essence of this Agreement.
----
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
SELLER:
ADVANTAGE TECHNOLOGY, INC.
By: /s/ Michael F. Brennan
----------------------------
Michael F. Brennan, President
BUYER:
OPSEC ADVANTAGE, INC.
18
<PAGE>
By: /s/ Mark Turnage
----------------------------
Mark Turnage, Vice President
THE SHAREHOLDERS:
/s/ Michael F. Brennan
----------------------------
Michael F. Brennan
/s/ Joseph G. Lyall
----------------------------
Joseph G. Lyall
Optical Security Group, Inc., hereby acknowledges, confirms, adopts and affirms
all of Buyer's representations and warranties set forth in the foregoing
Agreement as if it made such representations and warranties itself.
OPTICAL SECURITY GROUP, INC.
By: /s/ Mark Turnage
----------------------------
Mark Turnage, President
19
<PAGE>
EXHIBIT 2.4.2
FIRST AMENDMENT
TO
ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement is made and entered this 29th
day of May, 1998, effective May 1, 1998, by and between ADVANTAGE TECHNOLOGY,
INC., a Pennsylvania corporation ("Seller"), OPSEC ADVANTAGE, INC., a Colorado
corporation ("Buyer"), and MICHAEL F. BRENNAN AND JOSEPH F. LYALL (the
"Shareholders").
RECITALS
--------
.A. The parties have executed an Asset Purchase Agreement effective May 1,
1998 (the "Agreement") pursuant to which Seller is selling and Buyer is buying
certain assets of Seller, and Buyer is assuming certain liabilities of Seller.
.B. The parties wish to amend the Agreement under the terms of this First
Amendment.
THEREFORE, in consideration of the recitals, the mutual promises, agreements,
representations, and closing of the Agreement, the parties agree as follows:
..1. Paragraph 1.1 Cash Payment, set forth in the Agreement, is deleted and
------------
replaced with the following:
1.1 Cash Payment. $2,000,000.00 to be paid in accordance with a non-
------------
negotiable promissory note delivered by Buyer to Seller at Closing (the
"Promissory Note") in the form prescribed by FIRST AMENDMENT EXHIBIT A
attached hereto and incorporated herein by reference.
..2. Paragraph 13.2 Closing Transactions, of the Agreement is modified to
--------------------
add the following:
13.2.12 Buyer shall execute and deliver the Promissory Note to Seller.
..3. In all other respects, the Agreement shall remain unmodified and in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment effective as
of the date stated above.
SELLER:
ADVANTAGE TECHNOLOGY, INC.
By: /s/ Michael F. Brennan
------------------------------------
Michael F. Brennan, President
BUYER:
OPSEC ADVANTAGE, INC.
By: /s/ Mark T. Turnage
------------------------------------
Mark T. Turnage, Vice President
THE SHAREHOLDERS:
/s/ Michael F. Brennan
---------------------------------------
Michael F. Brennan
/s/ Joseph G. Lyall
---------------------------------------
Joseph G. Lyall
2
<PAGE>
EXHIBIT 4.1
OPTICAL SECURITY GROUP, INC.
8% Senior Subordinated Convertible Debenture Due 2005
Issued May , 1998
--
<PAGE>
THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE
REGISTRATION PROVISIONS OF SAID ACT HAVE BEEN COMPLIED WITH OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL (OR OF OTHER COUNSEL ACCEPTABLE
TO THE COMPANY AND ITS COUNSEL) THAT SUCH REGISTRATION IS NOT REQUIRED.
-------------------------
OPTICAL SECURITY GROUP, INC.
8% Senior Subordinated Convertible Debenture Due 2005
$ May , 1998
-------- --
OPTICAL SECURITY GROUP, INC., a Colorado corporation (the "Company"), for
value received, hereby promises to pay to the order of _______________, or
registered assigns (the "Holder") the principal sum of _________________Dollars
($_______) on May 31, 2005, in lawful monies of the United States of America,
and to pay interest thereon from the date hereof at the rate of Eight (8%)
Percent per annum, payable quarterly on the last day of May, August, November
and February of each year, commencing August 31, 1998, until payment of said
principal sum has been made or duly provided for in full, both principal and
interest payable at the office of the Company in the City and County of Denver,
State of Colorado, or at such other location as the Holder and the Company may
agree in writing.
This Debenture is issued pursuant to and is entitled to the benefits of a
Purchase Agreement, dated as of May __, 1998 (the "Purchase Agreement"), between
the Company and ___________. Pursuant to the Purchase Agreement and similar
Purchase Agreements between the Company and the other Holders, the Company has
issued 8% Senior Subordinated Convertible Debentures due 2005 (the "Debentures")
in the aggregate principal amount of up to Two Million Five Hundred Thousand
($2,500,000) Dollars and shares of the Company's Common Stock, with the Company
having the right to increase the principal amount of Debentures being sold
pursuant to the Purchase Agreements. This Debenture is one of the series of such
Debentures issued pursuant to the Purchase Agreements. A copy of the Purchase
Agreement is on file at the office of the Company at its address as specified in
Section 10.03 hereof, and will be furnished to the Holder upon written request.
The Company further covenants and agrees that so long as any portion of this
Debenture remains outstanding and unpaid either as to the principal hereof or
the interest hereon, it will comply with the applicable provisions of the
Purchase Agreement and with the provisions of this Debenture.
<PAGE>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
1.01. Definitions
-----------
"Affiliate" means any person directly or indirectly controlling or
---------
controlled by or under direct or indirect common control with the Company.
"Board of Directors" means the Board of Directors of the Company or any
------------------
duly authorized committee of that Board.
"Board Resolution" means a copy of a resolution certified by the Secretary
----------------
or Assistant Secretary of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification
and delivered to the Holder.
"Capitalized Leases" means, with respect to any person, all obligations of
------------------
such person under any agreement to lease, or lease of, any real or personal
property that are required to be capitalized for financial reporting purposes in
accordance with generally accepted accounting principles and the amount of
Indebtedness shall be the capitalized amount of such obligations determined in
accordance with such principles.
"Capital Stock" means any class of capital stock of the Company as it
-------------
exists on the date of this Debenture or as it may be constituted from time to
time and warrants, options and similar rights to acquire any such capital stock.
"Company" means the party named as such in this Debenture unless and until
-------
a successor replaces it in accordance with this Debenture and thereafter means
the successor.
"Consolidated Net Income" means, for any period, the aggregate of the Net
-----------------------
Income of the Company and its Subsidiaries (if any) for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles, provided that (i) the Net Income of any person which is not a
Subsidiary or is accounted for by the Company by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid to the Company or a Subsidiary, and (ii) the Net Income of any person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded. "Net Income" of any person shall mean the
net income (loss) of such person, determined in accordance with generally
accepted accounting principles; excluding, however, from the determination of
Net
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<PAGE>
Income any gain (but not loss) realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to leaseback transactions)
of any real property or equipment of such person which is not sold or otherwise
disposed of in the ordinary course of business, or of any capital stock of the
Company or a Subsidiary owned by such person. Should the Company not have a
Subsidiary during any measuring period, the Net Income for such period shall be
determined on a separate company basis.
"Consolidated Net Worth" means the consolidated equity of the common
----------------------
stockholders of the Company and its consolidated Subsidiaries, as determined in
accordance with generally accepted accounting principles, after excluding from
the assets of the Company the following: (i) patents, copyrights, trademarks,
trade names, non-compete agreements, franchises and other similar intangibles;
(ii) goodwill; and (iii) any surplus resulting from any write-up of assets
subsequent to March 31, 1998.
"Default" means any event which is, or after notice, or passage of time or
-------
both would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect on
------------
the date of execution of this Debenture and as may thereafter be amended.
"Holder" means the person in whose name this Debenture is issued, and
------
"Holders" means the persons who are then the record owners of all outstanding
-------
Debentures.
"Indebtedness" means, without duplication, with respect to any person, as
------------
of any date, the principal of and any premium or interest on (i) all
indebtedness of such person for borrowed money (including all indebtedness
evidenced by notes, bonds, debentures or other securities sold by such person
for money) or in respect of letters of credit issued for its own account, (ii)
all indebtedness incurred by such person in the acquisition (whether by way of
purchase, merger, consolidation or otherwise and whether by such person or
another person) of any business, real property or other assets (except assets
acquired in the ordinary course of the conduct of the acquiror's usual
business), (iii) all Capitalized Leases, (iv) guarantees by such person of
indebtedness described in clauses (i), (ii) or (iii) above, and (e) renewals,
extensions, refundings, deferrals, restructurings, amendments and modifications
of any such indebtedness, obligation or guarantee.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
-------
President, any Vice President, the Treasurer, the Chief Financial Officer or the
Secretary of the Company.
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<PAGE>
"Officers' Certificate" means a certificate signed by two Officers or by an
---------------------
Officer (other than the Secretary) and an Assistant Secretary of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
acceptable to the Holder. The counsel may be an employee of or counsel to the
Company.
"Parent" with respect to a person, means any corporation, partnership,
------
joint venture or other business entity which owns, directly or through one or
more Subsidiaries, shares of stock or other interests having general voting
power under ordinary circumstances to elect a majority of the board of
directors, managers, trustees or other governing body of such person.
"person" means any individual, corporation, partnership, joint venture,
------
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"principal" of a debt security means the principal of the security plus the
---------
premium, if any, on the security.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as in effect on the date
--------------
of execution of this Debenture and as may thereafter be amended.
"Subsidiary" means any person of which at the time of determination made
----------
under this Debenture at least a majority of capital stock having ordinary voting
power for the election of directors or other governing body of such person is
owned by the Company directly or through one or more Subsidiaries.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
-----------
other than any day on which securities are not traded on the exchange or in the
Nasdaq market system which is the principal United States market for the Common
Stock of the Company, as determined by the Board of Directors of the Company.
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<PAGE>
1.02. Other Definitions.
-----------------
Defined
Term in Section
---- ----------
"Bankruptcy Law" .............................. 8.01
"Common Stock" ................................ 7.01
"Conversion Price ............................. 7.01
"Custodian" ................................... 8.01
"Debenture or "Debentures" .................... Recitals
"Disqualified Stock" .......................... 5.05
"Equity Interest" ............................. 5.05
"Event of Default" ............................ 8.01
"Lenticular Business" ......................... 5.05
"Offering Price" .............................. 7.04
"Quoted Price" ................................ 7.08
"Restricted Payments" ......................... 5.05
"Senior Indebtedness" ......................... 2.01
"Treasury Securities" ......................... 3.01
ARTICLE TWO
SUBORDINATION
2.01. Senior Indebtedness. As used in this Debenture, the term "Senior
-------------------
Indebtedness" shall mean the principal of and premium, if any, and interest on
(i) Indebtedness of the Company, or any of its Subsidiaries, whether secured or
unsecured, regardless of whether incurred on, before or after the date hereof,
issued, assumed or incurred for money borrowed from or guaranteed to banks,
trust companies, insurance companies, investment companies or other similar
institutional lenders, in each case evidenced by notes, debentures or similar
written obligations whether or not issued under the provisions of an indenture
or similar instrument; (ii) any Indebtedness of the Company, or any of its
Subsidiaries, which is secured by liens on assets used in the ordinary course of
business by the Company or any Subsidiary and the value of the collateral is at
least fifty (50%) percent of the then outstanding principal amount of such
Indebtedness, and (iii) any or all renewals, extensions or modifications of any
Indebtedness described in clauses (i) or (ii) above, unless by the terms of the
instrument creating or evidencing such Indebtedness or such renewal, extension
or modification, it is provided that such Indebtedness as so modified or amended
or renewed or extended is not superior in right of payment to this Debenture.
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<PAGE>
2.02. Subordination. Anything in this Debenture to the contrary
-------------
notwithstanding, the Company covenants and agrees, and the Holder by acceptance
hereof (whether upon original issue or upon transfer or exchange) covenants and
agrees, expressly for the benefit of the present and future holders of Senior
Indebtedness, that the payment of principal and interest on this Debenture shall
be subordinated and subject in right of payment, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all Senior Indebtedness.
2.03. No Payments in Event of Certain Defaults.
----------------------------------------
(a) Upon any terminating liquidation of assets of the Company or its
Subsidiaries, or upon the occurrence of any dissolution, winding up,
liquidation, whether or not in bankruptcy, insolvency or receivership
proceedings, the Company shall not make any payment on account of principal or
interest on this Debenture unless full payment of amounts then due for
principal, sinking fund, premium (if any) and interest on the Senior
Indebtedness has been made or duly provided for in accordance with the terms of
such Senior Indebtedness. The Company shall not make any payment on account of
principal or interest on this Debenture if, at any time of such payment or
immediately after giving effect thereto, there shall exist under any Senior
Indebtedness, or under any agreement pursuant to which Senior Indebtedness is
issued, any default which shall have continued uncured for such period of grace
(or such period after notice), if any, as may be specified in such Senior
Indebtedness or such agreement as to entitle the holder or holders of such
Senior Indebtedness, or any trustee therefor, to declare the principal of such
Senior Indebtedness, if not already due and payable, to be due and payable.
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<PAGE>
(b) If, notwithstanding the foregoing, the Company shall make any
payment on account of principal or interest on this Debenture, whether in cash,
property or securities, (other than upon conversion pursuant to Article Seven)
which is prohibited by any of the provisions of Subsection (a) above, and
written notice thereof shall have been given to the Holder by any holder or
holders of Senior Indebtedness or by any trustee therefor or representative
thereof or by the Company, then unless and until full payment of amounts then
due for principal, sinking fund, premium (if any) and interest on the Senior
Indebtedness has been made or duly provided for in accordance with the terms of
such Senior Indebtedness, or unless and until such default shall have been cured
or waived or shall have ceased to exist, as the case may be, such payment shall
be held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Indebtedness (to each such holder on the basis of the
respective amount of Senior Indebtedness held by such holder) or by their
representative or representatives or the trustee or the trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in accordance with the terms of
such Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
(c) The Holder shall be entitled to assume that no such event which
would give rise to subordination under this Section 2.03 has occurred unless the
Company or any holder or holders of Senior Indebtedness or any trustee therefor
shall have given written notice thereof to the Holder or the Holder has
otherwise received notice of such event.
2.04. Subrogation. In the event cash, securities or other property
-----------
otherwise payable or deliverable to the Holder shall have been applied pursuant
to Section 2.03 hereof to the discharge of Senior Indebtedness, then, and in
such event, the Holder (i) shall be entitled to receive from the holders of
Senior Indebtedness then outstanding any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount sufficient to
discharge all Senior Indebtedness, and (ii) shall be subrogated to any rights of
any holders of Senior Indebtedness to receive any further payments or
distributions then applicable to Senior Indebtedness until this Debenture shall
have been paid in full. No such payments or distributions received by the
Holder, by reason of such subrogation, of cash, securities or other property
which otherwise would be paid or distributed to the holders of Senior
Indebtedness shall, as between the Company and its creditors other than the
holders of Senior Indebtedness, on the one hand,
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<PAGE>
and the Holder, on the other hand, be deemed to be a payment by the Company on
account of the Debenture.
2.05. Rights of Holder.
----------------
(a) It is understood that the provisions of this Article Two are, and
are intended to be, solely for the purpose of defining the relative rights of
the Holder on the one hand and the holders of the Senior Indebtedness of the
Company on the other hand. Nothing contained in this Article Two or elsewhere in
this Debenture shall or is intended to impair, as between the Company, its
creditors other than the holders of the Senior Indebtedness, and the Holder of
this Debenture, the unconditional and absolute obligation of the Company to pay
the Holder the principal of and interest on this Debenture as and when the same
shall become due and payable in accordance with its terms or affect the relative
rights of the Holder of this Debenture and the creditors of the Company, other
than the holders of such Senior Indebtedness; nor shall anything herein prevent
the Holder of this Debenture from exercising all remedies otherwise permitted by
applicable law upon default under the Debenture, subject to the rights, if any,
of the holders of Senior Indebtedness in respect to cash, property or securities
of the Company received upon the exercise of any such remedy. The subordination
herein provided applies to payments or distributions by the Company only and
shall not affect the right of the Holder to collect and retain payment from any
co-obligor, guarantor or surety. Nothing contained in this Article Two shall
prevent the Company from making payment of the principal of or interest on this
Debenture, except under the conditions described in Section 2.02 hereof.
(b) The failure of the Company to make a payment of interest or
principal of this Debenture by reason of any provision in this Article Two shall
not be construed as preventing the occurrence of an Event of Default under
Article Eight.
2.06. Ranking of Securities. The indebtedness evidenced by this Debenture
---------------------
and the other Debentures shall rank pari passu with each other and rank senior
to all Indebtedness evidenced by securities, notes or debentures of the Company
issued by the Company after the date of the Purchase Agreement, or any other
evidence of Indebtedness of the Company, except as expressly provided for in
this Article Two, and the Capital Stock of the Company, including any rights or
warrants entitling holders thereof to subscribe for or purchase shares of
Capital Stock of the Company or any securities convertible into or exchangeable
for shares of Capital Stock of the Company issued by the Company after the date
of the Purchase Agreement.
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<PAGE>
ARTICLE THREE
SINKING FUND
------------
3.01. Sinking Fund Payments. As and for a sinking fund for the retirement
---------------------
of the Debentures, the Company will, until all Debentures are paid or payment
thereof provided for, deposit in accordance with this Article, beginning on July
1, 2002 and on July 1 in each year thereafter to and including July 1, 2004, an
amount in cash sufficient to redeem on such date fixed for redemption 33 1/3% of
the aggregate principal amount of the issued Debentures annually at a sinking
fund redemption price equal to the principal amount of the Debentures to be
redeemed plus accrued and unpaid interest to the date hereinbefore set forth for
redemption through operation of the sinking fund, sufficient to retire 100% of
the issued Debentures prior to maturity. The cash amount of any sinking fund
payment is subject to reduction as provided in Section 3.02. Each sinking fund
payment shall be applied to the redemption of Debentures on such July 1 as
herein provided. In the event the Company desires to satisfy a sinking fund
payment with Debentures pursuant to Section 3.02 hereof, but the aggregate
principal amount of such Debentures then held by the Company or its Subsidiaries
(the "Treasury Securities") is less than the amount required for such sinking
fund payment, the Company may redeem, at a price equal to the principal amount
of the Debentures plus accrued interest to the date fixed for redemption
Debentures in a principal amount equal to the difference between (I) the
required principal payment and (II) the principal amount of Treasury Securities.
3.02. Satisfaction of Sinking Fund Payments. The Company may apply as a
-------------------------------------
credit Debentures (i) which have been surrendered for conversion by the Holders
pursuant to Article Seven, (ii) which have been redeemed at the election of the
Company pursuant to Article Four, or (iii) which have been theretofore acquired
by the Company otherwise than by redemption in satisfaction of all or any part
of any sinking fund payment required to be made pursuant to Section 3.01 hereof,
provided that such Debentures have not been previously so credited. Each such
Debenture shall be received and credited for such purpose at the sinking fund
redemption price set forth in Section 3.01 hereof for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly.
3.03. Redemption of Debentures for Sinking Fund. On or before July 1, in
-----------------------------------------
each year commencing in 2002 and ending in 2004, the Company will deliver to the
Holder an Officers' Certificate specifying the amount of the next ensuing
sinking fund payment pursuant to Section 3.01 hereof, the portion thereof, if
any, which is to be satisfied by payment of cash and
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<PAGE>
the portion thereof, if any, which is to be satisfied by delivering and
crediting Debentures pursuant to Section 3.02 hereof.
3.04. Selection of Debentures. The Company shall select the Debentures to
-----------------------
be redeemed upon the next ensuing sinking fund payment date following the
procedure specified in Section 4.03 hereof and cause notice of the redemption
thereof to be given in the name of and at the expense of the Company upon not
less than twenty (20) days' written notice mailed to the Holder at the Holder's
registered address. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Article Four
hereof.
ARTICLE FOUR
REDEMPTION
----------
4.01. Regular Redemption. The Company may redeem the Debentures at any
------------------
time, as a whole or from time to time in part, commencing June 1, 1999, at a
redemption price (expressed in percentages of the principal amount) set forth
below, plus accrued and unpaid interest to the redemption date (and subject to
the right of the Holder to receive the interest payable on the applicable
interest payment date that is on or prior to the redemption date), except
Debentures redeemed specifically for a sinking fund payment shall be redeemed at
par, plus accrued and unpaid interest. If redeemed during the periods indicated
below, the applicable redemption percentage would be:
From Through Percentage
---- ------- ----------
July 1, 1999 May 31, 2000 109.0%
July 1, 2000 May 31, 2001 107.2%
July 1, 2001 May 31, 2002 105.4%
July 1, 2002 May 31, 2003 103.6%
July 1, 2003 May 31, 2004 101.8%
July 1, 2004 May 31, 2005 100.0%
4.02. Price Redemption. In the event the Quoted Price of the Company's
----------------
Common Stock is equal to or greater than 150% of the then Conversion Price, for
any twenty (20) Trading Days in any period of thirty (30) consecutive Trading
Days, the Company may redeem the Debenture at any time within fifteen (15) days
after the close of the foregoing period, as a whole or in part, at a redemption
price (expressed in percentages of principal amount) equal to the lower of (i)
106% of the principal amount or (ii) the then redemption percentage pursuant to
Section 4.01 hereof.
4.03. Selection of Debentures to be Redeemed. If less than all the
--------------------------------------
outstanding Debentures are to be redeemed, the
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<PAGE>
particular Debentures to be redeemed shall be selected by the Company, from the
Debentures not previously called for redemption by a method that complies with
the requirements of any exchange or automated quotation system on which the
Common Stock is listed and that the Company deems fair and appropriate. The
Company shall make the selection not more than thirty (30) days and not less
than twenty (20) days before the redemption date. Debentures in denominations of
$1,000 may only be redeemed in whole. The Company may select for redemption
portions (equal to $1,000 or any integral multiple thereof) of the principal of
Debentures that have denominations larger than $1,000. This Section also shall
apply to other Articles of this Debenture which provide for redemption.
4.04. Notice of Redemption. At least twenty (20) days but not more than
--------------------
thirty (30) days before a redemption date, the Company shall mail a notice of
redemption by first-class mail to the Holder. The notice shall identify the
Debentures to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price (determined in accordance with the
applicable provision of this Debenture);
(3) the Conversion Price;
(4) that Debentures called for redemption may be converted at any
time before the close of business on the fifth Trading Day prior
to the redemption date;
(5) that Debentures called for redemption must be surrendered to the
Company to collect the redemption price;
(6) that interest on Debentures called for redemption ceases to
accrue on and after the redemption date; and
(7) if the Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after
the redemption date, upon surrender of such Debenture, a new
Debenture in principal amount equal to the unredeemed portion
will be issued.
4.05. Effect of Notice of Redemption. Once notice of redemption is mailed,
------------------------------
Debentures called for redemption become due and payable on the redemption date
and at the redemption price.
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<PAGE>
Upon surrender to the Company, such Debentures shall be paid at the redemption
price, plus accrued interest to the redemption date.
ARTICLE FIVE
COVENANTS
---------
5.01. Payment of Securities. The Company shall pay the principal of and
---------------------
interest on this Debenture and the other Debentures on the dates and in the
manner provided in on this Debenture and the other Debentures, subject to the
subordination provisions of Article Two hereof.
5.02. SEC Reports. Within twenty (20) days after the Company files with the
-----------
SEC copies of its annual reports, quarterly reports and other information,
documents and reports (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) which it is required to file with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act, the Company shall
deliver a complete copy of the same to the Holder. The Company shall timely
comply with its reporting and filing obligations under the applicable federal
securities laws. In lieu of delivering the quarterly report in the form filed by
the Company with the SEC, the Company may deliver to the Holder such quarterly
report as it is then furnishing to its stockholders.
5.03. Compliance Certificate.
----------------------
(a) The Company shall deliver to the Holder within 105 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Debenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his knowledge the Company has kept, observed, performed and fulfilled each and
every covenant contained in this Debenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Events of Default shall have occurred, describing all such
Defaults or Events of Default of which he may have knowledge) and that to the
best of his knowledge no event has occurred and remains in existence by reason
of which payments on account of principal of or interest, if any, on the
Securities are prohibited.
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<PAGE>
(b) The Company shall deliver to the Holder forthwith upon becoming
aware of (i) any Default, Event of Default or default in the performance of any
covenant, agreement or condition in this Debenture or (ii) any event or default
under any other mortgage, indenture or instrument an Officers' Certificate
specifying such Default, Event of Default or default.
5.04. Dividend and Payment Restrictions Affecting Subsidiaries. The Company
--------------------------------------------------------
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction on the ability of any Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits, owned by the Company
or any of its Subsidiaries or pay any Indebtedness owed to the Company or any of
its Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries, or (iii) transfer any of its properties or assets to the Company
or any of its Subsidiaries, except for such encumbrances or restrictions in
existence on the date of the Purchase Agreement, including any renewal,
refunding or refinancing thereof, and encumbrances or restrictions existing
under or by reason of (A) this Debenture, (B) applicable law, (C) any instrument
governing Indebtedness or capital stock of a person acquired by the Company, or
any of its Subsidiaries, in existence at the time of such acquisition (but not
in connection with such acquisition), including any renewals, refundings or
refinancing thereof, provided, that, the restrictions contained in such
renewals, refundings or refinancing are no more restrictive than those contained
in such instrument at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or to the properties or assets of
any person, other than the person, or the property or assets of the person, so
acquired by the Company or its Subsidiaries, (D) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, or (E) with respect to clause (iii)
above, purchase money obligations for property acquired in the ordinary course
of business.
5.05. Restriction on Payment of Dividends and Stock Repurchases. The
---------------------------------------------------------
Company may not, directly or indirectly, (i) declare or pay any dividend on, or
make any distribution to its stockholders of, any shares of its Capital Stock of
any class (other than (A) dividends or distributions payable in shares of
Capital Stock of the Company, (B) dividends on the Series B Preferred Stock
outstanding as of April 30, 1998 or (C) distribution or other disposition of
interests in a corporation formed to conduct or conducting the lenticular
business that is being discontinued by the Company (the "Lenticular Business"),
provided, however, that solely in connection with the
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<PAGE>
distribution or other disposition of the Lenticular Business the Company
has not advanced, loaned, contributed to capital and/or purchased equity
securities of such corporation in an aggregate amount exceeding $500,000),
or (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interest of the Company, any Subsidiary or other Affiliate (other
than (A) purchase any such Equity Interests owned by the Company or any
Subsidiary or (B) redemption of the Series B Preferred Stock of the Company
outstanding as of April 30, 1998), or (iii) permit any Subsidiary to
declare or pay any dividend on, or make any contribution to its
stockholders of, any shares of its capital stock, except to the Company or
any Subsidiary (other than dividends or distributions payable in Equity
Interests of it or the Company), or (iv) permit any Subsidiary to purchase,
redeem or otherwise acquire or retire for value any Equity Interests of
such Subsidiary, the Company or any Affiliate of either of them (other than
any such Equity Interests owned by the Company or any Subsidiary) (such
restricted dividends, distributions, purchases, redemptions or other
acquisitions or retirements being collectively referred to as "Restricted
Payments") if at the time of such Restricted Payment:
(a) a Default or an Event of Default shall have occurred and be
continuing, or shall occur as a consequence thereof; or
(b) if upon giving effect to such Restricted Payment the aggregate
amount expended for all such Restricted Payments subsequent to the date
of execution of this Indenture shall exceed the sum of:
(1) twenty-five (25%) percent of the aggregate Consolidated Net
Income of the Company accrued during fiscal quarters ending subsequent to
June 30, 1998; plus
(2) the aggregate net proceeds, including cash and the fair
market value of property other than cash (as determined in good faith by
the Board of Directors as evidenced by a Board Resolution), received by
the Company from the issue or sale (other than to a Subsidiary)
subsequent to the date of the Purchase Agreement of Capital Stock of the
Company (other than Capital Stock subject to redemption as provided in
this Debenture prior to the maturity of the Debentures (collectively
"Disqualified Stock")) or of warrants to purchase such Capital Stock
(other than warrants to purchase such Disqualified Stock) other than in
connection with the conversion of any Indebtedness; plus
(3) the aggregate net proceeds received by the Company
subsequent to the date of execution of this
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<PAGE>
Debenture from the issue or sale (other than to a Subsidiary) or any debt
securities or Disqualified Stock of the Company, if, at such time, such
debt securities or Disqualified Stock, as the case may be, have been
converted into Capital Stock of the Company other than Disqualified
Stock; plus
(4) $350,000.
For purposes of any calculation pursuant to the preceding sentence which is
required to be made within sixty (60) days after the declaration of a dividend
by the Company or any Subsidiary, such dividend shall be deemed to be paid at
the date of declaration, and the subsequent payment of such dividend during such
60-day period shall not be treated as an additional Restricted Payment.
Notwithstanding the foregoing, the provisions of this Section 5.05 will not
prevent (i) the payment of any dividend within sixty (60) days after the date of
declaration where the payment complied with the foregoing provisions on the date
of declaration; or (ii) the retirement of any shares of the Company's Capital
Stock by exchange for, or out of the proceeds of the substantially concurrent
sale (other than to a Subsidiary) of, other shares of its Capital Stock (other
than any Disqualified Stock), and neither such retirement nor the proceeds of
any such sale or exchange shall be included in any computation made under this
Section 5.05.
The Company shall give the Holder at least twenty (20) days prior notice of
any proposed distribution of the Company's Lenticular Business or rights to
acquire interests therein, describing the nature of the proposed distribution or
rights, the record and payment dates for such distribution or rights, and the
ability of the Holder to participate therein. In lieu of the form of notice
specified in the preceding sentence, the Company may send to the Holder a copy
of the notice it is sending the holders of its Common Stock regarding such
distribution or rights.
"Equity Interest" means Capital Stock or warrants, options or other rights
to acquire Capital Stock.
5.06. Restriction on Transfer With Affiliates. The Company will not, nor
---------------------------------------
permit any Subsidiary to, directly or indirectly, (i) enter into or permit to
exist any transaction, including, without limitation, the purchase, sale, lease
or exchange of any property, or the rendering of any service, with any Affiliate
of the Company or any officer or director of the Company or any Affiliate of
such officer or director, on terms that are less favorable to the Company or
such Subsidiary, as the
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<PAGE>
case may be, than those which might be obtained at the time of such transaction
from persons who are not Affiliates, (ii) loan or advance any funds to any
Affiliate, any officer or director of the Company or an Affiliate of such
officer or director if the aggregate amount of principal and interest
outstanding at any time on all such loans exceeds $50,000 as to any one person
or $300,000 as to all persons in the aggregate, or (iii) purchase securities of
any Affiliate or an entity controlled by any Affiliate. The restrictions in this
Section 5.06 shall not apply to intercompany advances or bona fide transactions
with or between Subsidiaries and/or the Company to the extent otherwise
permitted in this Debenture.
5.07. Incurrence of Indebtedness. The Company will not, nor permit any of
--------------------------
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or become liable with respect to, contingently or otherwise, or extend
the maturity of, any Indebtedness except for: (i) the Debentures and other
obligations under this Debenture; (ii) Indebtedness of the Company outstanding
as of March 31, 1998; (iii) Senior Indebtedness; (iv) Capitalized Lease
obligations, letters of credit to finance trade payables, in each case to the
extent incurred in the ordinary course of business of the Company and its
Subsidiaries; (v) Indebtedness of the Company or a Subsidiary of the Company
secured by liens on assets used in the ordinary course of business by the
Company or any Subsidiary and of which the value of the collateral is equal to
at least 50% of the outstanding principal amount of such Indebtedness; (vi)
Indebtedness which is expressly junior in right of payment to the Debentures;
(vii) intercompany Indebtedness by and between the Company and any of its
wholly-owned subsidiaries; (viii) Indebtedness of an entity which either becomes
a Subsidiary after the date of the Purchase Agreement or the assets of which
become a division of the Company or another Subsidiary upon the acquisition of
such entity or its assets by the Company or another Subsidiary, whether by
merger, share exchange, asset acquisition or otherwise, and which Indebtedness
was existing at the time of acquisition thereof by the Company or another
Subsidiary, provided that such Indebtedness was in existence prior to the
contemplation of such acquisition; and (ix) any amendment, removal, extension or
refunding of such Indebtedness.
5.08. Plan of Liquidation.
-------------------
(a) The Board of Directors or the stockholders of the Company may not
adopt any plan of liquidation (other than a plan of liquidation incident to a
permitted merger, consolidation, sale of assets or other transaction described
in Article Six or the sale or other disposition of the Company's lenticular
business) which provides for, contemplates or the effectuation of which is
preceded by, (i) the sale, lease, conveyance or other
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disposition of all or substantially all of the assets of the Company otherwise
than substantially as an entirety (Article Six of this Debenture being the
Article which governs any such sale, lease, conveyance or other disposition
substantially as an entirety) and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and of
the remaining assets of the Company to the holders of Capital Stock of the
Company, unless the Company shall have made provision for the satisfaction of
the Company's obligations hereunder and the other Debentures as to the payment
of principal and interest, in the amounts and in the manner set forth below, (A)
immediately following the adoption of such plan or (B) not less than five
Trading Days prior to the making of any such liquidating distributions,
whichever occurs first. The Company shall be deemed to make provision for such
payment only if the Company irrevocably deposits in escrow, at a national
commercial bank or trust company acceptable to Holders of a majority in
principal amount of the Debentures then outstanding, U.S. Government obligations
or similar instruments sufficient to pay in full the redemption price that would
be payable under Section 4.01 hereof, plus interest accrued and to accrue on the
Debentures to the anticipated closing date of the liquidating event. No such
liquidating distributions may be made by the Company unless five (5) Trading
Days have elapsed from the making of such provision for payment of the
Debentures and the Company shall have certified to the Holder by an Officers'
Certificate that the provisions of this Section 5.08 have been complied with.
(b) In order to have money available on the applicable redemption date
specified above to pay principal and interest on the Debentures, and on each
principal or interest payment date, if any, occurring prior to such payment date
to pay principal and interest on the Debentures, the U.S. Government obligations
or similar instruments shall be payable as to principal or interest on or before
such redemption date or principal or interest payment date in such amounts as
will provide the necessary money.
5.09. Continued Existence. Subject to Article Six, the Company will do
-------------------
or cause to be done all things necessary to preserve and keep in full force and
effect its existence as a corporation.
5.10. Maintenance of Properties, Etc.
------------------------------
(a) The Company shall, and shall cause each of its Subsidiaries to,
maintain in good working order and condition and make all necessary repairs,
renewals, replacements, additions, betterments and improvements thereto to all
of their material properties and assets then currently used in their respective
operations.
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(b) The Company shall, and shall cause each of its Subsidiaries to,
maintain with financially sound and reputable insurers such insurance as may be
required by law and such other insurance, to such extent and against such
hazards and liabilities, as is customarily maintained by companies similarly
situated.
(c) The Company shall, and shall cause each of its Subsidiaries to,
keep true books of records and accounts in which full and correct entries will
be made of all its business transactions, in accordance with sound business
practices, and reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with generally accepted accounting
principles.
(d) The Company shall, and shall cause each of its Subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, non-compliance with which would materially adversely
affect the business, prospects, earnings, properties, assets or condition,
financial or otherwise, of the Company and its Subsidiaries taken as a whole.
5.11. Payment of Taxes and Other Claims. The Company shall pay or discharge
---------------------------------
or cause to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon it or
upon its income, profits or property, and (ii) all lawful claims for labor,
materials and supplies which, is unpaid, might by law become a lien upon its
property; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings.
ARTICLE SIX
SUCCESSOR CORPORATION
---------------------
6.01. When Company May Merge, Etc.
----------------------------
(a) The Company shall not consolidate with or merge into, or
transfer all or substantially all of its assets, in one or more related
transactions, to, any person unless:
(1) the Company shall be the surviving entity, or the person formed
by or surviving any consolidation or merger (if other than the Company), or to
which such sale, conveyance or lease shall have been made, is a corporation
organized and existing under the laws of the United States or a State thereof or
the District of Columbia;
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(2) the corporation formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
conveyance or lease shall have been made, assumes by a supplemental debenture
all the obligations of the Company under this Debenture and the other
Debentures, except that it need not assume the obligations of the Company as to
conversion of the Debentures if the Company or another person enters into a
supplemental debenture obligating it to deliver the securities, cash or other
assets deliverable upon conversion of the Debentures;
(3) immediately after giving effect to such transaction no
Default or Event of Default shall have occurred and be continuing; and
(4) the corporation formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
conveyance or lease shall have been made, shall have a net worth immediately
after the consolidation, merger or transfer of assets not less than the
Consolidated Net Worth of the Company immediately prior to such consolidation,
merger or transfer of assets.
(b) The Company shall deliver to the Holder prior to the proposed
transaction an Officers' Certificate to the foregoing effect and an Opinion of
Counsel only as to clauses (1) and (2) above stating that the proposed
transaction and such supplemental debenture comply with this Debenture.
(c) The surviving, transferee or lessee corporation shall be the
successor Company, but the predecessor Company in the case of a transfer or
lease shall not be released from the obligation to pay the principal of and
interest on the Securities.
ARTICLE SEVEN
CONVERSION RIGHTS
-----------------
7.01. Conversion Right.
----------------
(a) The Holder of this Debenture shall have the right from and after
the date hereof until this Debenture is paid in full to convert all or any
portion of the principal of this Debenture into shares of Common Stock, at the
price of $6.50 per share (the "Conversion Price"), subject to adjustment as
provided for in this Debenture. In the event the Company fails to comply timely
and fully with its obligations under Section 4 of the Purchase Agreement, the
Conversion Price then in effect shall be
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reduced by twenty (20%) percent [but in no event less than $6.00 per share].
(b) To convert the Debenture, the Holder must (i) complete and sign the
Conversion Notice in the form of Exhibit A annexed hereto and (ii) surrender the
Debenture to the Company. The Holder may convert a portion of the Debenture if
the portion is $1,000 or an integral multiple of $1,000. Upon partial exercise
hereof, the Company shall issue and deliver to the Holder a certificate for the
proper number of shares of Common Stock for the portion converted and a new
Debenture containing the same date and provisions of this Debenture for the
remaining principal balance.
(c) The "Conversion Date" is the date this Debenture, or any portion
thereof, is surrendered for conversion pursuant to the preceding sentence. All
shares of Common Stock issued upon conversion shall be deemed issued as of the
Conversion Date. The term "Common Stock" shall mean the class of stock which, at
the date of execution of this Debenture, is designated Common Stock, $.005 par
value, of the Company and stock of any class or classes into which such Common
Stock or any such other class may thereafter be changed or reclassified.
7.02. Company to Provide Stock. The Company shall reserve out of its
------------------------
authorized but unissued Common Stock enough shares of Common Stock to permit the
conversion of all outstanding Debentures. All shares of Common Stock which may
be issued upon conversion of the Securities shall be fully paid and non-
assessable. The Company shall endeavor to comply with all securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of
the Debentures, shall endeavor to list such shares on each national securities
exchange or Nasdaq system on which the Common Stock is listed, and shall fulfill
its obligations under the registration rights provisions set forth in the
Purchase Agreement.
7.03. Adjustment for Change in Capital Stock. If the Company:
--------------------------------------
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
(4) makes a distribution on its Common Stock in shares of its Capital
Stock other than Common Stock; or
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(5) issues by reclassification of its Common Stock any shares of its
Capital Stock;
then the conversion privilege and the Conversion Price in effect immediately
prior to such action shall be adjusted so that the Holder of this Debenture
converted may receive the number of shares of Common Stock of the Company which
he would have owned immediately following such action if he had converted this
Debenture immediately prior to such action. The adjustment shall become
effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification. No adjustment shall be made under
this Section 7.03 upon a distribution by the Company of its Lenticular Business
pursuant to Section 5.05 hereof.
7.04. Adjustment for Rights Issue.
---------------------------
(a) If the Company distributes any rights or warrants to all holders of
its Common Stock entitling them for a period expiring within sixty (60) days
after the record date mentioned below to subscribe for or purchase shares of
Common Stock at a price per share less than the current market price per share
on that record date, then the conversion privilege and the conversion price in
effect immediately prior to such action shall be adjusted (i) proportionately by
the difference between the then current market price and the offering price (the
"Offering Price") per share of the additional shares if such Offering Price is
greater than the then Conversion Price or (ii) to equal the Offering Price if
such Offering Price is less than the then Conversion Price.
(b) The adjustment shall be made successively whenever any such rights
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights or
warrants.
7.05. Adjustment for Other Distributions.
----------------------------------
(a) If the Company distributes to all holders of its Common Stock any
of its assets or debt securities or any rights or warrants to purchase debt
securities, assets or other securities of the Company (other than in connection
with the disposition of its Lenticular Business in accordance with Section 5.05
hereof), the Conversion Price shall be adjusted in accordance with the formula:
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<PAGE>
M - F
-----
C'= C x M
where:
C' = the adjusted Conversion Price.
C = the current Conversion Price.
M = the current Quoted Price per share of
Common Stock on the record date mentioned below.
F = the fair market value on the record date of the
assets, securities, rights or warrants applicable
to one share of Common Stock. The Board of
Directors shall determine the fair market value.
(b) The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
(c) This Section does not apply to cash dividends or cash distributions
paid out of consolidated current or retained earnings as shown on the books of
the Company. Also, this Section does not apply to rights or warrants referred to
in Section 7.03 hereof.
7.06. Adjustments for Common Stock Issue.
----------------------------------
(a) If the Company issues shares of Common Stock for a consideration
per share less than the current market price per share on the date the Company
fixes the Offering Price of such additional shares, then the conversion
privilege and the Conversion Price in effect immediately prior to such action
shall be adjusted (i) proportionately by the difference between the then current
market price and the Offering Price per share of the additional shares if such
Offering Price is greater than the then Conversion Price or (ii) to equal the
Offering Price if such Offering Price is less than the then Conversion Price.
(b) The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
(c) This Section 7.06 does not apply to (i) any of the transactions
described in Sections 7.03, 7.04 and 7.05 hereof (ii) the conversion of the
Debentures, or the conversion or exchange of other securities convertible or
exchangeable for Common Stock, (iii) Common Stock issued to the Company's
employees under either (A) option or other employee benefit plans existing as of
April 30, 1998 or (B) bona fide employee benefit plans adopted by the Board of
Directors and approved by
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the holders of Common Stock when required by law, if such Common Stock would
otherwise be covered by this Section (but only to the extent that the aggregate
number of shares excluded hereby and issued under a plan adopted after April 30,
1998 shall not exceed five (5%) percent of the Common Stock outstanding at the
time of the adoption of each such plan, exclusive of antidilution adjustments
thereunder), (iv) Common Stock upon the exercise of rights or warrants issued to
the holders of Common Stock, (v) Common Stock issued to stockholders of any
person which merges into or is otherwise acquired by the Company (whether by
share exchange, asset acquisition or similar transaction) in proportion to their
stock holdings of such person immediately prior to such merger, upon such
merger, (vi) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting, or (vii) Common Stock issued upon the exercise of
options or warrants issued by the Company prior to the date of this Debenture.
7.07. Adjustment for Convertible Securities Issue.
-------------------------------------------
(a) If the Company issues any securities convertible into or
exchangeable for Common Stock (other than securities issued in transactions
described in Sections 7.03, 7.04 and 7.05 hereof or the Debentures) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities less than the current market price per share on the
date of issuance of such securities, then the conversion privilege and the
Conversion Price in effect immediately prior to such action shall be adjusted
(i) proportionately by the difference between the then current market price and
the Offering Price if such Offering Price is greater than the then Conversion
Price or (ii) to equal the Offering Price if such Offering Price is less than
the then Conversion Price.
(b) The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
(c) This Section does not apply to (i) convertible securities issued to
stockholders of any person which merges into the Company, or with a Subsidiary
of the Company, in proportion to their stock holdings of such person immediately
prior to such merger, upon such merger or (ii) convertible securities issued in
a bona fide public offering pursuant to a firm commitment underwriting.
7.08. Current Market Price. In Sections 7.03, 7.04, 7.05, 7.06 and 7.07
--------------------
hereof, the current market price per share of Common Stock on any date is the
average of the Quoted Prices of the Common Stock for thirty (30) consecutive
Trading Days commencing forty-five (45) Trading Days before the date in
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question. The "Quoted Price" is the closing bid price for the Common Stock as
reported on the Nasdaq SmallCap Market or such national securities exchange or
other Nasdaq system which is the principal market for the Common Stock. In the
absence of one or more such quotations, the Company shall determine the current
market price on the basis of such quotations as it considers appropriate.
7.09. Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to Sections 7.05 and 7.06 hereof, the following
shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that
in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors (irrespective of the accounting treatment thereof),
whose determination shall be conclusive, and described in a Board
Resolution; and
(iii)in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received
therefor shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon
the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses
(i)) and (ii) of this Section).
7.10. When Adjustment May be Deferred. No adjustment in the Conversion
-------------------------------
Price need be made unless the adjustment would require an increase or decrease
of at least $0.10 (ten cents) in the Conversion Price. Any adjustments that are
not made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be. No adjustment
need be made for a change in the par value or no par value of the Common Stock.
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7.11. Notice of Adjustment. Whenever the Conversion Price is adjusted, the
--------------------
Company shall promptly mail to the Holder a notice of the adjustment, which
notice shall include a certificate from the Company's Treasurer of Chief
Accounting Officer briefly stating the facts requiring the adjustment and the
manner of computing it. The certificate shall be conclusive evidence that the
adjustment is correct.
7.12. Voluntary Reduction. The Company from time to time may reduce the
-------------------
Conversion Price of the Debentures by any amount for any period of time if the
period is at least twenty (20) days and if the reduction is irrevocable during
the period, provided, that in no event may the Conversion Price be less than the
par value of a share of Common Stock. Whenever the Conversion Price is reduced,
the Company shall mail to Holder a notice of the reduction at least ten (10)
days before the date the reduced Conversion Price takes effect. The notice shall
state the reduced Conversion Price and the period it will be in effect. A
reduction of the Conversion Price does not change or adjust the Conversion Price
otherwise in effect for purposes of Sections 7.03, 7.04, 7.05, 7.06 and 7.07
hereof.
7.13. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any conversion hereunder, but in lieu of such
fractional shares, the Company shall make a cash payment therefor upon the basis
of the Conversion Price then in effect.
7.14. Interest. Any accrued interest on the principal amount of the portion
--------
of this Debenture being converted on the Conversion Date shall, at the election
of the Holder, be paid in cash or in shares of Common Stock at the then
Conversion Price.
ARTICLE EIGHT
DEFAULTS AND REMEDIES
---------------------
8.01. Events of Default. An "Event of Default" occurs if:
-----------------
(1) the Company defaults in the payment of interest on this Debenture
when the same becomes due and payable and the Default continues for a period of
five (5) days after the Company first receives notice of non-payment of
interest, whether or not such payment is prohibited by Article Two;
(2) the Company defaults in the payment of principal and premium, if
any, of this Debenture when the same becomes due and payable at maturity, upon
acceleration, redemption or
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otherwise, whether or not such payment is prohibited by Article Two;
(3) the Company fails to comply with or perform any of its covenants or
agreements in, or provisions of, this Debenture and the default continues for
the period of twenty (20) days after the Company receives notice of such
default;
(4) an Event of Default shall have occurred under any of the other
Debentures and be continuing;
(5) the Company or a Subsidiary defaults under any bond, note or other
evidence of indebtedness for money borrowed by the Company or a Subsidiary or
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness for money borrowed
by the Company or any Subsidiary (or the payment of which is guaranteed by the
Company or a Subsidiary), whether such indebtedness or guarantee now exists or
shall be created hereafter, which default shall constitute a failure to pay any
portion of interest or principal when due after any applicable grace period or
if the effect of such event of default is to cause or permit the acceleration of
such indebtedness prior to its expressed maturity, and such event of default
results in an acceleration of a principal amount of such indebtedness without
such indebtedness having been discharged or such acceleration having been
rescinded or annulled or stayed (for purposes of this clause (5) the
acceleration shall be deemed stayed for a period of thirty (30) calendar days if
within five (5) Trading Days after such default the Company commences a judicial
proceeding seeking a stay, and such stay shall remain in effect until the
earlier of (A) the denial thereof or (B) the completion of such thirty (30) days
period, provided should the stay be granted within such thirty (30) day period,
the stay will remain in effect in accordance with its terms), provided, that the
aggregate indebtedness in default under this clause (5) is in excess of
$100,000;
(6) a final judgment or final judgments for the payment of money are
entered by a court of competent jurisdiction against the Company or any
Subsidiary which remains unpaid or unstayed and undischarged for a period
(during which execution shall not be effectively stayed) of thirty (30) days
after the date on which the right to appeal has expired, provided, that, the
aggregate of all such judgments exceeds $100,000;
(7) the Company or any Subsidiary pursuant to or within the meaning of
any Bankruptcy Law:
(A) commences a voluntary case,
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(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) generally is unable to pay its debts as the same become
due;
(8) a court of competent jurisdiction enters an order Or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Subsidiary in an
involuntary case,
(B) appoints a Custodian of the Company or any Subsidiary or
for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Subsidiary,
and the order or decree remains unstayed and in effect for 60 days; and
(9) in the event that the Company's reporting obligations pursuant to
Section 13 or 15(d) of the Exchange Act are suspended or terminated.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal
or State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
8.02. Acceleration. If an Event of Default (other than an Event of Default
------------
specified in Section 8.01(7) and (8)) occurs and is continuing, the Holder may
declare to be due and payable immediately the outstanding principal amount of
this Debenture plus accrued interest to the date of acceleration. Upon such
declaration such principal and interest shall be due and payable immediately. If
any Event of Default specified in Section 8.01(7) hereof occurs, all such
principal of and interest on this Debenture shall ipso facto become and be due
---- -----
and payable immediately without any declaration, notice or other act on the part
of the Holder. The Company waives presentation, protest or further demand or
notice of any kind in connection with any such acceleration.
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8.03. Enforcement of Remedies.
-----------------------
(a) In case any one or more of the Events of Default specified in
Section 8.01 shall have occurred and be continuing, the Holder may proceed to
protect and enforce his rights either by suit in equity or by action at law,
whether for the specific performance of any covenant or provision contained in
the Purchase Agreement or this Debenture, or proceed to enforce payment of this
Debenture or to enforce any other legal or equitable right of the Holder.
(b) If the Holder has instituted any proceeding to enforce any right or
remedy under this Debenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Holder, then
and in every such case the Company and the Holder shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Holder shall continue as though no such proceeding had been instituted. No
remedy is exclusive of any other remedy. All remedies are cumulative to the
extent permitted by law.
(c) The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Debenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Holder, but will suffer and permit the execution of
every such power as though no such law had been enacted.
8.04. Amendments and Waivers. No course of dealing between the Company and
----------------------
the Holder and no delay on the part of the Holder in exercising any rights under
this Debenture shall operate as a waiver of the rights of the Holder. Except as
provided in Section 10.02(b) hereof, no covenant or other provision of this
Debenture nor any default or Event of Default in connection therewith may be
waived otherwise than by a written instrument signed by the Holder so waiving
such covenant or other provision or default or Event of Default, and neither may
any changes in or additions to this Debenture be made, and nor may compliance
with any term, covenant, condition or provision set forth in this Debenture or
the Purchase Agreement be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively), or any default or Event of
Default and the consequences thereof be waived, except by a consent or consents
in writing signed by the Holder.
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8.05. Cost and Expense of Collection. The Company covenants and agrees that
------------------------------
if default be made in any payment or prepayment of principal of, or interest on,
this Debenture, it will, to the extent permitted under applicable law, pay to
the Holder such further amount as shall be sufficient to cover the cost of
expense of collection, including reasonable compensation to the attorneys of the
Holder, for all services rendered in that connection, which shall be pro rata
with such payments to the Holders of the other Debentures.
ARTICLE NINE
TRANSFER; REPLACEMENT
---------------------
9.01. Transfer and Exchange. Subject to the requirements of the Securities
---------------------
Act, where the Debenture, together with a duly completed and exercised
Assignment Form in the form of Exhibit B annexed hereto, is presented to the
Company with a request to register a transfer, the Company shall register the
transfer as requested. Where the Debenture is presented to the Company with a
request to exchange it for an equal principal amount in other denominations, the
Company shall make the exchange as requested if the same requirements are met.
Any exchange or transfer shall be without charge to the Holder.
9.02. Replacement Securities. If the Debenture is mutilated and is
----------------------
surrendered to the Company or if the Holder claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a replacement
Debenture dated the date of the lost, destroyed or wrongfully taken Debenture,
if, in the case of a lost, destroyed or wrongfully taken Debenture, the Holder
furnishes to the Company evidence satisfactory to it, in its discretion, of the
ownership of and the destruction, loss or theft of the Debenture and shall
furnish to the Company an indemnity bond sufficient in the judgment of the Board
of Directors of the Company to protect it for any loss which it may suffer if
the Debenture is replaced. Every replacement Debenture is an additional
obligation of the Company.
9.03. List of Holders. At the request of the Holder, the Company shall
---------------
furnish to the Holder a list of the Holders of the other Debentures, including
the outstanding principal amounts thereof and their addresses as shown on the
records of the Company.
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ARTICLE TEN
MISCELLANEOUS
-------------
10.01. Benefits. This Debenture shall be binding upon the Company and its
--------
successors and assigns, and shall inure to the benefit of the Holder and his
successors, assigns, heirs and administrators.
10.02. Amendments.
----------
(a) Subject to the Holder's rights of waiver herein and in subsection
(b) below, this Debenture may be amended, modified or terminated only by a
writing executed by the Holder and the Company. In the event the Company
modifies, supplements or amends any of the other Debentures in any way which may
make such other Debenture more favorable to the Holder thereof than the
comparable provisions in this Debenture, such modification, supplement or
amendment shall be automatically incorporated herein, and the Company shall give
the Holder prompt notice thereof. Any failure of the Company to give such
notice, or any defect therein, shall not however, in any way impair the
incorporation herein of such modification, supplement or amendment.
(b) The Holders of a majority in principal amount of the Debentures
then outstanding may waive compliance in a particular instance by the Company or
modify, supplement or amend any provision of this Debenture and the other
Debentures then outstanding, provided that without the consent of the Holder of
this Debenture no waiver, modification, supplement or amendment of the
Debentures may with respect to this Debenture or the Holder:
(i) reduce the rate of or change the time for payment of interest
on this Debenture;
(ii) reduce the principal of or change the fixed maturity of this
Debenture;
(iii) make this Debenture payable in money other than stated
herein;
(iv) make any change in Section 8.04;
(v) make any change in the Conversion Price other than provided
for in Article Seven or otherwise adversely affects the right to convert this
Debenture;
(vi) make any change in Article Two that adversely affects the
rights of the Holder;
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<PAGE>
(vii) waive as to the Holder a default in the payment of the
principal of, or interest on this Debenture or any Default under Article Eight;
or
(viii) make any change in the foregoing waiver, modification,
supplement or amendment provisions.
10.03. Notices.
-------
(a) All notices and other communications provided for herein or with
reference to this Debenture shall be deemed to have been sufficiently given or
served for all purposes if in writing and sent by certified or registered mail,
postage and charges prepaid, by hand or by overnight express courier guaranteed
next day delivery to the following addresses:
if to the Company, at:
Optical Security Group, Inc.
535 16th Street, Suite 920
Denver, Colorado 80202
Attn: Richard H. Bard,
Chief Executive Officer
or at any other address designated by the Company in writing to the Holder; and
if to the Holder to the last address as set forth on the records of the
Company.
(b) All notices and other communications to be given hereunder shall be
deemed to have been duly received: at the time delivered by hand, if delivered
by hand; the next Trading Day after delivery to the express courier; or three
Trading Days after being deposited in the mail in the United States, postage
prepaid.
10.04. Governing Law. This Debenture shall be deemed to be a contract made
-------------
under, and to be construed in accordance with, the laws of the State of
Colorado, without giving effect to the principles of conflicts of law.
10.05. Section Headings. The descriptive section headings herein have been
----------------
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
10.06. Entire Agreement;. This Debenture sets forth the entire agreement
----------------
between the Holder and the Company as to the subject matter herein, and
supersedes any other documents, including but not limited to the Purchase
Agreement, as to the
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<PAGE>
subject matter herein to the extent of any inconsistency. Subject to the
Holder's rights of waiver herein, this Debenture may be amended, modified or
terminated only by a writing executed by the Holder or the Company. In the event
the Company modifies or amends any of the other Debentures in any way which may
make such other Debenture more favorable to the Holder thereof than the
provisions in this Debenture, such modification or amendment shall be
automatically incorporated herein, and the Company shall give the Holder prompt
notice thereof.
10.07. Severability. If any provision of this Debenture shall be held
------------
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
in its corporate name by its President or a Vice President, under its corporate
seal, attested by its Secretary or an Assistant Secretary, and dated the day and
year first above written.
OPTICAL SECURITY GROUP , INC.
By
--------------------------------
(Corporate Seal)
ATTEST:
- ---------------------------
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<PAGE>
EXHIBIT A
CONVERSION NOTICE
To convert this Debenture into Common Stock of Optical Security
Group, Inc., check the box below:
[ ]
To convert only part of this Debenture, state the principal amount
to be converted:
$
------------------
If you want the stock certificate made out in another person's name, fill in the
form below:
(Insert other person's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type other person's name, address and zip code).
Date: _____________ Your Signature:
-------------------------------------------
(Sign exactly as your name appears on the first page of this Debenture).
Signature Guarantee:*
-----------------------------------------------------------
- ----------------------
* Needed only if the stock certificate is to be registered in a name other
than that of the Holder.
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<PAGE>
EXHIBIT B
ASSIGNMENT FORM
If you, the Holder, want to assign this Debenture, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Debenture to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Debenture on the books of Optical Security Group, Inc.
The agent may substitute another to act for him.
Date: _____________ Your Signature:
-----------------------------------
(Sign exactly as your name appears on the first page of this Debenture).
Signature Guarantee:**
- --------------------------------------------
- -------------------------
* Needed only if the Debenture is to be registered in a name other than that of
the Holder.
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<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
1.01 Definitions ..................................................... -2-
1.02 Other Definitions ............................................... -5-
ARTICLE TWO
SUBORDINATION
-------------
2.01 Senior Indebtedness ............................................. -5-
2.02 Subordination ................................................... -6-
2.03 No Payments in Event of Certain Defaults ........................ -6-
2.04 Subrogation ..................................................... -7-
2.05 Rights of Holder ................................................ -8-
2.06 Ranking of Securities ........................................... -8-
ARTICLE THREE
SINKING FUND
------------
3.01 Sinking Fund Payments ........................................... -9-
3.02 Satisfaction of Sinking Fund Payments ........................... -9-
3.03 Redemption of Debentures for Sinking Fund ....................... -9-
3.04 Selection of Debentures ........................................ -10-
ARTICLE FOUR
REDEMPTION
----------
4.01 Regular Redemption ............................................. -10-
4.02 Price Redemption ............................................... -10-
4.03 Selection of Debentures to be Redeemed ......................... -10-
4.04 Notice of Redemption ........................................... -11-
4.05 Effect of Notice of Redemption ................................. -11-
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<PAGE>
ARTICLE FIVE
COVENANTS
---------
5.01 Payment of Securities .......................................... -12-
5.02 SEC Reports .................................................... -12-
5.03 Compliance Certificate ......................................... -12-
5.04 Dividend and Payment Restrictions Affecting Subsidiaries ....... -13-
5.05 Restriction on Payment of Dividends and Stock Repurchases ...... -13-
5.06 Restriction on Transfer With Affiliates ........................ -15-
5.07 Incurrence of Indebtedness ..................................... -16-
5.08 Plan of Liquidation ............................................ -16-
5.09 Continued Existence ............................................ -17-
5.10 Maintenance of Properties, Etc ................................. -17-
5.11 Payment of Taxes and Other Claims .............................. -18-
ARTICLE SIX
SUCCESSOR CORPORATION
---------------------
6.01 When Company May Merge, Etc .................................... -18-
ARTICLE SEVEN
CONVERSION RIGHTS
-----------------
7.01 Conversion Right ............................................... -19-
7.02 Company to Provide Stock ....................................... -20-
7.03 Adjustment for Change in Capital Stock ......................... -20-
7.04 Adjustment for Rights Issue .................................... -21-
7.05 Adjustment for Other Distributions. ............................ -21-
7.06 Adjustments for Common Stock Issue ............................. -22-
7.07 Adjustment for Convertible Securities Issue .................... -23-
7.08 Current Market Price ........................................... -23-
7.09 Consideration Received ......................................... -24-
7.10 When Adjustment May be Deferred ................................ -24-
7.11 Notice of Adjustment ........................................... -25-
7.12 Voluntary Reduction ............................................ -25-
7.13 Fractional Shares .............................................. -25-
7.14 Interest ....................................................... -25-
-ii-
<PAGE>
ARTICLE EIGHT
DEFAULTS AND REMEDIES
---------------------
8.01 Events of Default .............................................. -25-
8.02 Acceleration ................................................... -27-
8.03 Enforcement of Remedies ........................................ -28-
8.04 Amendments and Waivers ......................................... -28-
8.05 Cost and Expense of Collection ................................. -29-
ARTICLE NINE
TRANSFER; REPLACEMENT
---------------------
9.01 Transfer and Exchange .......................................... -29-
9.02 Replacement Securities ......................................... -29-
9.03 List of Holders ................................................ -29-
ARTICLE TEN
MISCELLANEOUS
-------------
10.01 Benefits ....................................................... -30-
10.02 Amendments .................................. .................. -30-
10.03 Notices ........................................................ -31-
10.04 Governing Law .................................................. -31-
10.05 Section Headings ............................................... -31-
10.06 Entire Agreement ............................................... -31-
10.07 Severability ................................................... -32-
-iii-
