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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
DUALSTAR TECHNOLOGIES CORPORATION
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(Name of Issuer)
Common Stock, $.01 Par Value
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(Title of Class of Securities)
263572 10 9
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(CUSIP Number)
Hillel Cohn, Esq.
Graham & James, LLP
801 South Figueroa Street, 14th Floor
Los Angeles, California 90017
(213) 689-5165
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
November 25, 1998
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(Date of Event which Required Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
NOTE: Schedules filed in paper format shall include a signed original and
five copies of this schedule, including all exhibits. See Section
240.13d-7(b) for other parties to whom copies are to be sent.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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CUSIP No. 263572 10 9 13D
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(1) Name of Reporting Person. S.S. or I.R.S. Identification No. of Above
Person
Technology Investors Group, LLC, 13-14020365
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(2) Check the Appropriate Box if a Member (a) / /
of a Group (See Instructions) (b) /X/
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(3) SEC Use Only
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(4) Sources of Funds (See Instructions)
AF (see Item #3 below)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) X
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(6) Citizenship or Place of Organization
Delaware
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Number of Shares (7) Sole Voting Power
Beneficially Owned 1,791,000
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
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(9) Sole Dispositive Power
1,791,000
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(10) Shared Dispositive Power
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,791,000
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(12) Check if the Aggregate Amount in Row (11) Excluded Certain Shares
(See Instructions)
X
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(13) Percent of Class Represented by Amount in Row (11)
16.6%
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(14) Type of Reporting Person (See Instructions)
OO (Delaware limited liability company)
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CUSIP No. 263572 10 9 13D
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- -------------------------------------------------------------------------------
(1) Name of Reporting Person. S.S. or I.R.S. Identification No. of Above
Person
Brad C. Singer ###-##-####
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(2) Check the Appropriate Box if a Member (a) / /
of a Group (See Instructions) (b) /X/
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(3) SEC Use Only
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(4) Sources of Funds (See Instructions)
AF (see Item #3 below)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) X
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(6) Citizenship or Place of Organization
United States
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Number of Shares (7) Sole Voting Power
Beneficially Owned
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
1,791,000
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(9) Sole Dispositive Power
--------------------------------------------------
(10) Shared Dispositive Power
1,791,000
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,791,000
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(12) Check if the Aggregate Amount in Row (11) Excluded Certain Shares
(See Instructions)
X
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(13) Percent of Class Represented by Amount in Row (11)
16.6%
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(14) Type of Reporting Person (See Instructions)
IN
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3
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CUSIP No. 263572 10 9 13D
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(1) Name of Reporting Person. S.S. or I.R.S. Identification No. of Above
Person
Frieda R. Tydings
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(2) Check the Appropriate Box if a Member (a) / /
of a Group (See Instructions) (b) /X/
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(3) SEC Use Only
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(4) Sources of Funds (See Instructions)
AF (see Item #3 below)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) X
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(6) Citizenship or Place of Organization
United States
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Number of Shares (7) Sole Voting Power
Beneficially Owned
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
1,791,000
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(9) Sole Dispositive Power
--------------------------------------------------
(10) Shared Dispositive Power
1,791,000
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,791,000
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(12) Check if the Aggregate Amount in Row (11) Excluded Certain Shares
(See Instructions)
X
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(13) Percent of Class Represented by Amount in Row (11)
16.6%
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(14) Type of Reporting Person (See Instructions)
IN
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4
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CUSIP No. 263572 10 9 13D
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(1) Name of Reporting Person. S.S. or I.R.S. Identification No. of Above
Person
Lloyd I. Miller, III, ###-##-####
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(2) Check the Appropriate Box if a Member (a) / /
of a Group (See Instructions) (b) /X/
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(3) SEC Use Only
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(4) Sources of Funds (See Instructions)
PF, AF (see Item #3 below)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
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(6) Citizenship or Place of Organization
United States
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Number of Shares (7) Sole Voting Power
Beneficially Owned
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
1,791,000
--------------------------------------------------
(9) Sole Dispositive Power
--------------------------------------------------
(10) Shared Dispositive Power
1,791,000
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,791,000
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(12) Check if the Aggregate Amount in Row (11) Excluded Certain Shares
(See Instructions)
X
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(13) Percent of Class Represented by Amount in Row (11)
16.6%
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(14) Type of Reporting Person (See Instructions)
IN
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5
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ORIGINAL REPORT ON SCHEDULE 13D
ITEM 1. SECURITY AND ISSUER
This 13D Statement relates to the Common Stock, $.01 Par Value of Dualstar
Technologies Corporation (the "Shares"), a Delaware corporation (the "Issuer").
The Issuer's principal executive offices are located at 11-30 47th Avenue, Long
Island City, New York 11101. As of the date hereof, the Reporting Persons,
Technology Investors Group, LLC, a Delaware limited liability company ("TIG")
and its three members, do not own any Shares. On November 25, 1998, TIG
purchased from Issuer a Non-Negotiable, Non-Transferable, Subordinated,
Convertible Note in the principal amount of $2,500,000 (the "Note"). Under the
terms of the Note, TIG has the right, as of the date of such Note, to convert
such Note into 1,791,000 shares of the Issuer's Shares, subject to the terms and
conditions set forth in the Note.
Item 2. IDENTITY AND BACKGROUND.
(a) -- (c) This statement is being filed by TIG and its three members.
TIG's principal business is buying, holding, selling and trading various
investments, and its principal place of business and offices are located at
25 Coligni Avenue, New Rochelle, New York, 10801. The purchase of the Note
is TIG's first investment. The three members of TIG are: Brad C. Singer
("Singer"), Frieda R. Tydings ("Tydings") and Lloyd I. Miller, III
("Miller"). Singer is the Manager of TIG, and it has no other officers or
managers. The three members of TIG share in the management of TIG (see Item
5(b)). Singer's principal employment is as Vice President of Mars
Associates, Inc. and Normel Construction Corporation a Joint Venture, a New
York General Partnership ("Mars-Normel") located at 25 Coligni Avenue, New
Rochelle, N.Y. 10801. Mars-Normel is a construction company. Tydings is a
homemaker, whose residence is 17 Applewood Drive, Hopewell, N.J. 08525.
Miller's principal occupation is providing investment advisory services; his
principal business address is 4550 Gordon Drive, Naples, Florida 33940.
Singer and Tydings have direct or indirect economic interests in Romulus
Holdings, Inc., a Delaware corporation ("Romulus") and Mars-Normel, each of
which may be deemed to be an "affiliate" of TIG (the "Affiliated Entities").
Romulus is a corporation involved in the buying, holding, selling and trading of
various investments and its principal place of business is located at 20 Rock
Ridge Circle, New Rochelle, N.Y. 10804. Romulus is the source of funds (via a
loan) advanced by Singer and Tydings to TIG.
(d) -- (e) During the last five years, neither TIG nor any of its three
members (i) have been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) has been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or
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is subject to a judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
In November of 1992, Romulus and Normel Construction Corporation, a New
York corporation ("Normel") that is a partner in Mars-Normel, and Gary
Singer, Steven Singer, Karen Singer, and Norma Brandes, each of whom is or
was during the last five years an officer, director or stockholder of one or
more of the Affiliated Entities, were named as defendants in a lawsuit filed
by the Securities and Exchange Commission ("SEC") in the United States
District Court for the Southern District of New York. Gary Singer and Steven
Singer also have acted, and will continue to act as, unpaid advisors to TIG
in connection with its investment in Issuer. In the lawsuit, the SEC
alleged that Gary Singer and Steven Singer violated or aided and abetted
violations of certain provisions of the Securities Exchange Act of 1934, as
amended and related rules thereto (the "Exchange Act"), certain provisions of
the Investment Advisers Act and related rules thereto (the "Advisers Act"),
and certain provisions of the Investment Company Act and related rules
thereto. Romulus, Normel, Karen Singer and Norma Brandes were not accused of
any wrongdoing, but were named as relief defendants because profits from
certain transactions at issue in the lawsuit were allegedly received in
brokerage accounts in their names.
Without admitting or denying any wrongdoing, Steven Singer, Karen
Singer, Norma Brandes, Romulus and Normel settled the matter by agreeing to a
final judgment in August of 1995. Pursuant to such final judgment, Steven
Singer is permanently enjoined and restrained from violating Section 10(b) of
the Exchange Act, Rule 10b-5 and Rule 13b2-1 promulgated thereunder and
Section 204 of the Advisers Act. Gary Singer settled the matter by agreeing
to a final judgment in February of 1997. Pursuant to such final judgment,
Gary Singer is permanently enjoined and restrained from violating Section
10(b) of the Exchange Act, Rule 10b-5, Rule 13b2-1 and Rule 13b2-2
promulgated thereunder, Section 204 of the Advisers Act and Rules
204-1(b)(1), (2) and (3) promulgated thereunder and pursuant to Section
21(d)(2) of the Exchange Act, from acting as an officer or director of any
issuer that has a class of securities registered pursuant to Section 12 of
the Exchange Act or that is required to file reports pursuant to Section
15(d) of the Exchange Act.
In November of 1992 in a separate action, Gary Singer was charged with
and subsequently convicted of violations of law in connection with the
transactions covered by the SEC action.
(f) TIG is a Delaware limited liability company; all of its members are
citizens of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The source of $1,250,000.00 of the $2,500,000 used by TIG to purchase the
Note was a capital contribution from Lloyd I. Miller, III, of which $625,000
was from
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Miller's personal funds and $625,000.00 was provided by Milfam I, L.P., a
Georgia limited partnership established pursuant to the Partnership
Agreement, dated December 11, 1996 (the "Partnership Agreement"). Milfam I,
L.P. owns a 50% participation interest in Miller's interest in TIG. Miller
is the manager of Milfam LLC, an Ohio limited liability company established
pursuant to the Operating Agreement, dated December 10, 1996 and pursuant to
which Miller controls the acts and decisions of Milfam LLC. Milfam LLC is
the managing general partner of Milfam I, L.P. Pursuant to the Partnership
Agreement, Milfam LLC controls the acts and decisions of Milfam I, L.P. All
of the Shares Miller is deemed to beneficially own as manager of the managing
general partner of Milfam I, L.P. were purchased with money contributed to
Milfam I, L.P. by its limited partners, or money generated and held by Milfam
I, L.P. The Reporting Persons intend to admit Milfam I, L.P. as a member of
TIG in the near future.
The source of the remaining $1,250,000 used by TIG to purchase the Note was a
capital contribution to TIG, consisting of $625,000 each from Singer and
Tydings. The source of the capital contribution from Singer and Tydings was
in each case an interest bearing loan from Romulus, payable on demand. The
terms of these two loans have not been reduced to writing.
Item 4. PURPOSE OF THE TRANSACTION.
TIG acquired the Note for investment purposes and any Shares acquired
upon the conversion of the Note will be acquired for investment purposes.
Section 5 of the Note gives TIG the right at its option to convert the Note
into 1,791,000 Shares, or 16.6% of the Shares that would be outstanding upon
conversion as of the date of the Note, at the initial conversion price of
$1.40 per Share. The number of Shares to be issued upon conversion of the
Note is subject to periodic adjustment in the event that the Issuer makes a
stock split or dividend or takes certain other actions, all as set forth in
the Note. Section 6 of the Note provides the Issuer with the right to force a
full or partial conversion of the Note under the circumstances and conditions
set forth therein. The terms of the Note, which is attached hereto as
Exhibit 99.1, are incorporated herein by reference in their entirety.
From time to time, subject to the continuing evaluation of the factors
discussed herein, each of TIG and/or its members may acquire additional
Shares in the open market or in privately negotiated transactions, or
otherwise increase its ownership of Shares. Upon conversion of the Note into
Shares, TIG may, subject to (i) the registration of such Shares under
applicable securities laws or the availability of an exemption from
registration under such laws and (ii) those restrictions on the sale of
Shares set forth in the Stockholders Agreement (as defined in Item #6 below)
sell all or a portion of its Shares in the open market or in privately
negotiated transactions. Any actions TIG and/or its members might undertake
will be dependent upon their review of numerous factors, including, among
other things, the availability of Shares for purchase and the price levels of
such Shares; general market and economic conditions; ongoing evaluation of
the Company's assets and operations; the relative attractiveness of
alternative business and investment opportunities; the actions of the
management and
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the Board of Directors of the Company; and other future developments.
Although the foregoing reflects the present intention of TIG and its members
with respect to the Company, it is subject to change at any time. Except as
set forth above, TIG and its members have no present plans or intentions
which would result in or relate to any of the transactions described in
subparagraphs (a) through (j) of Item 4 of Schedule 13D.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of the date hereof, neither TIG nor any of its members own any
Shares. However, under the terms of the Note, TIG has the right to convert such
Note into 1,791,000 Shares, subject to the terms and conditions set forth in the
Note. Based on Issuer's Schedule 14A, dated October 27, 1998, the Issuer had
9,000,000 Shares outstanding as of the close of business on October 26, 1998,
and accordingly, upon conversion of the Note the 1,791,000 Shares that would be
issued to TIG would represent 16.6% of the outstanding Shares of the Issuer as
of October 26, 1998.
As of the date hereof, Romulus beneficially owns 56,600 Shares,
constituting .63% of the Issuer's outstanding Shares; Adine Brandes, a
stockholder of Romulus and sister of Tydings, beneficially owns 25,800 Shares,
constituting .29% of the issued and outstanding Shares; and Norma Brandes,
mother of Tydings and whose spouse is an officer of Romulus, beneficially owns
8,000 shares of Shares, constituting .09% of the Issuer's outstanding shares.
Additionally, the Gary and Karen Singer Children's Trust (the "Trust"), of which
Steven Singer is the Trustee, owns 5,000 Shares, as of the date hereof. None of
the Shares owned by Romulus, Adine Brandes, Norma Brandes and the Trust were
acquired within the last 60 days.
(b) TIG has the sole power to vote, or direct the vote, and to dispose or
direct the disposition of, all Shares reported as beneficially owned by it. It
is understood that any decision to vote, or dispose of the Shares is shared by
TIG's members and subject to the consent of the majority of the members based on
their economic interest (Miller controlling 50% of TIG and Singer and Tydings
each controlling 25% of TIG). Romulus, Adine Brandes, Norma Brandes and the
Trust each have the sole power to vote, or direct the vote, and dispose, or
direct the disposition, of all Shares reported as beneficially owned by each of
them.
(c) Neither TIG nor any of its members has affected any transactions
in the Shares in the past sixty days.
(d) No person, other than TIG is known to TIG to have the right to
receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, the Shares beneficially owned by TIG.
(e) Not applicable
Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
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Concurrently with the execution and delivery of the Note by Issuer, the
Issuer and TIG entered into that certain Note Purchase Agreement (the "Note
Purchase Agreement"), and Registration Rights Agreement, and Issuer entered into
that certain Stockholder's Agreement with TIG and three individual stockholders
of the Issuer, Gregory Cuneo, Ronald Fregara and Steven J. Yager (the
"Stockholders Agreement"), all dated as of November 25, 1998. The terms of the
Note, the Note Purchase Agreement, the Stockholders Agreement and the
Registration Rights Agreement are attached hereto as Exhibits 99.2 through 99.4,
respectively, and are incorporated herein by reference in their entirety.
Sections 5 of the Note Purchase Agreement contains certain covenants which
restrict the ability of the Issuer to take certain actions so long as the Note
remains outstanding. Section 6 of the Note Purchase Agreement contains certain
restrictions on the activities of both Issuer and TIG so long as the Note
remains outstanding, and in addition requires that Issuer and TIG maintain the
confidentiality of any material confidential information disclosed by either
party to the other, which obligation survives the termination of the Note
Purchase Agreement.
Section 1 of the Stockholders Agreement provides TIG with the right,
commencing with the 1999 Annual Meeting of Stockholders, to designate a
person "reasonably acceptable" (as defined in Section 1 of the Stockholders
Agreement) to the other Stockholders (as defined in the Stockholders
Agreement) for election to the Issuer's Board of Directors. Under certain
circumstances specified in Section 1 of the Stockholders Agreement, TIG would
have the right to designate an additional "reasonably acceptable" nominee to
the Issuer's Board of Directors. Section 2 of the Stockholders Agreement
provides that each Stockholder will vote his or its shares of Shares in favor
of the nominees of the other Stockholders.
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
99.1 Convertible Note in the Principal Amount of $2,500,000, dated November
25, 1998, made by DualStar Technologies Corporation in favor of
Technologies Investors Group, LLC.
99.2 Note Purchase Agreement, dated November 25, 1998, by and between
Technology Investors Group, LLC and DualStar Technologies Corporation.
99.3 Stockholders Agreement, dated November 25, 1998, by and among DualStar
Technologies Corporation, Technology Investors Group, LLC, Gregory
Cuneo, Ronald Fregara and Steven J. Yager.
99.4 Registration Rights Agreement, dated November 25, 1998, by and among
DualStar Technologies Corporation, Technology Investors Group, LLC,
Gregory Cuneo, Ronald Fregara and Steven J. Yager.
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99.5 Joint Filing Agreement, dated December 4, 1998, by and among
Technology Investors Group, LLC, Brad C. Singer, Frieda R. Tydings and
Lloyd I. Miller, III.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief , I
certify that the information set forth in this statement is true, complete and
correct.
December 4th, 1998 TECHNOLOGY INVESTORS GROUP, LLC
By /s/ Brad C. Singer
---------------------------------
Name: Brad C. Singer
Title: Manager
/s/ Brad C. Singer
-----------------------------------
Brad C. Singer, individually
/s/ Frieda R. Tydings
-----------------------------------
Frieda R. Tydings, individually
/s/ Lloyd I. Miller, III
-----------------------------------
Lloyd I. Miller, III, individually
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EXHIBIT INDEX
99.1 Convertible Note in the Principal Amount of $2,500,000, dated November 25,
1998, made by DualStar Technologies Corporation in favor of Technologies
Investors Group, LLC.
99.2 Note Purchase Agreement, dated November 25, 1998, by and between Technology
Investors Group, LLC and DualStar Technologies Corporation.
99.3 Stockholders Agreement, dated November 25, 1998, by and among DualStar
Technologies Corporation, Technology Investors Group, LLC, Gregory Cuneo,
Ronald Fregara and Steven J. Yager.
99.4 Registration Rights Agreement, dated November 25, 1998, by and among
DualStar Technologies Corporation, Technology Investors Group, LLC, Gregory
Cuneo, Ronald Fregara and Steven J. Yager.
99.5 Joint Filing Agreement, dated December 4, 1998, by and among Technology
Investors Group, LLC, Brad C. Singer, Frieda R. Tydings and Lloyd I.
Miller, III.
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NON - NEGOTIABLE, NON - TRANSFERABLE
SUBORDINATED, CONVERTIBLE PROMISSORY NOTE
$2,500,000 November 25, 1998
FOR VALUE RECEIVED, DUALSTAR TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Company") promises to pay to TECHNOLOGY INVESTORS GROUP, LLC,
a Delaware Limited Liability Company ("Holder" or "TIG"), at 25 Coligni Avenue,
New Rochelle, N.Y. 10801 or at such other place as the Holder may in writing
designate, the principal sum of Two and One-Half Million Dollars ($2,500,000)
with interest (computed on the basis of a 360 day year and the actual number of
days elapsed) at the rate of 7.5% per annum on the balance of the principal from
time to time remaining unpaid, all on the terms and conditions set forth herein
(the "Note" or "Convertible Note"). This Note will be subordinated to the
payment of principal and interest on the debt (the "Senior Debt") of the Company
to any bank, commercial lender or other financial institution (an "Institutional
Lender") incurred subsequent to the date hereof (the "Original Issue Date"),
provided however, that the Company will not incur any Senior Debt that (i)
prevents the exercise or modifies the terms of Holder's conversion rights
hereunder or (ii) by its terms prevents the Company from paying principal and
interest in cash hereunder, except to the extent that the Company has committed
a default on such Senior Debt that permits the Institutional Lender to
accelerate the payment of such debt.
1. MATURITY, INTEREST AND AMORTIZATION. Unless accelerated pursuant to the
terms of this Note or converted to shares of common stock of the Company (the
"Common Stock") as provided for in Sections 5 and 6 below, the unpaid principal
balance of this Note together with all unpaid interest accrued thereon shall be
due and payable on May 25, 2001 (the "Term). Interest on the Note shall be
payable semi-annually in arrears in cash or (prior to the final stated maturity
or any accelerated maturity of the Note) in kind, at the option of the Company,
on each May 25th and November 25th with the first payment to be made on May 25,
1999. In the event that the Company elects not to make any semi-annual interest
payment in cash at the time it is due, the principal amount of this Convertible
Note will be increased by the amount of such payment, and interest will accrue
from the due date onwards on the increased principal amount of the Note (the
principal amount of the Convertible Note in effect from time to time plus all
accrued and unpaid interest thereon is hereinafter referred to as the
"Convertible Note Amount"). If the Company shall elect to pay any semi-annual
interest payment to become due hereon in kind rather than in cash, it shall give
written notice thereof to Holder not more than 10 nor less than five New York
City business days in advance of the due date of such interest payment, which
notice shall set forth the revised principal amount of the Convertible Note.
Other than the payment of interest in kind, principal and interest are payable
in lawful money of the United States. All payments received by Holder under
this Note shall be credited first to any charges or other expenses for which
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Holder is entitled to payment hereunder, next to accrued but unpaid interest,
and third to unpaid principal. The Company shall not have the right to prepay
any portion of the outstanding principal of this Convertible Note.
2. EVENT OF DEFAULT/REMEDIES.
(a) Any of the following events shall constitute an Event of Default:
(i) (A) any failure to pay when due (whether at stated maturity, by
reason of acceleration of the maturity hereof or otherwise) any principal hereof
or (subject to the Company's right to pay interest hereon in kind prior to the
original stated maturity date, or any accelerated maturity date, of this Note)
any interest hereon, or (B) any breach by the Company of any of its other
obligations or covenants under this Note, provided that Borrower shall have 48
hours from the date of receipt of notice to cure a failure to pay money due
hereunder and ten (10) days from the date of receipt of any notice of its
failure to perform any of its other obligations or covenants under this Note not
involving the payment of money to Holder within which to cure said failure (in
which event it shall not be an Event of Default, provided further that if such
breach is not capable of a cure, an Event of Default will be deemed to have
occurred immediately without the necessity of notice to the Company; or
(ii) the Company (A) becomes insolvent or admits in writing its
inability to pay its debts as they mature, (B) makes any assignment for the
benefit of creditors, or (C) applies for or consents to the appointment of a
receiver or trustee for the Company or for a substantial part of the Company's
property or business, or a receiver or trustee otherwise is appointed and is not
discharged within sixty (60) days after such appointment (for purposes of this
subsection, the Company shall be deemed "insolvent" if, as of the Company's most
recent balance sheet, the sum of its debts exceed the sum of its assets, at a
fair valuation, or it is unable to pay its debts as they come due); or
(iii) any bankruptcy, insolvency, reorganization or liquidation
proceeding or other proceeding for relief under any bankruptcy law or any law
for the relief of debtors is instituted by or against the Company, and if
against the Company, such proceeding is not vacated within sixty (60) days; or
(iv) any money judgment, lien, writ or warrant of attachment, or
similar process is entered or filed against the Company or any of the assets of
the Company and remains unvacated, unbonded, unstayed, undismissed or
undischarged for a period of thirty (30) days or in any event later than five
(5) days before the date of any proposed sale thereunder, provided that a lien
(singly or, if more than one, cumulatively) of less than $250,000 arising in
the normal course of the Company's business, even if it remains unbonded,
unstayed or undismissed for thirty (30) days, shall not be deemed an Event of
Default if the Company has been advised by counsel and thus believes in good
faith that it has a valid defense to the claim giving rise to such lien and
promptly so advises Holder in writing and timely contests such claim; or
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(v) the Company (A) defaults on or breaches in any material respect
any contract with or obligation when due to a third party which default or
breach could reasonably be expected, singly or in the aggregate, to have a
material adverse affect on the Company's business or finances or (B) defaults in
the performance of any material obligation to a third party or Holder incurred
for money borrowed, including without limitation, the Company's obligations to
Holder under that certain Secured Promissory Note, as amended by that certain
amendment of even date hereof (the "Term Note"), in the principal amount of
$1,000,000; or
(vi) the Common Stock is delisted from the NASDAQ National Market
System ("NASDAQ"), unless such delisting occurs in connection with the Common
Stock being traded on either the American Stock Exchange or the New York Stock
Exchange; or
(vii) any representation made in the Note Purchase Agreement, of even
date, by and between Holder and the Company, proves materially false, or if of
a continuing nature, becomes materially false (unless made as of a specified
date).
b. REMEDIES. Upon the occurrence and during the continuance of an
Event of Default described in subsections 2(a)(ii) or 2(a)(iii) above, all
indebtedness under this Note and the Term Note shall automatically be
immediately due and payable. In addition, Holder, at its option, and without
notice to the Company (other than such notice as is required by law), may take
one or more of the actions described below. Upon the occurrence and during the
continuance of any other Event of Default, Holder at its option and, unless
otherwise specified below, upon no less than one business day's written notice
to the Company (or such other notice as is required by law), may do any one or
more of the following:
(i) declare all indebtedness under this Convertible Note and the Term
Note immediately due and payable and credit any sums received thereafter to such
indebtedness in whatever priority it shall elect; provided, however, that such
application of sums so received shall not serve to waive or cure any default
existing under this Note nor to invalidate any notice of default or any act done
pursuant to such notice and shall not prejudice any rights of Holder; and
(ii) exercise any or all rights provided or permitted by law or granted
pursuant to this Convertible Note, the Term Note or that certain Security
Agreement, dated July 24, 1998, by and between the Company and TIG (the
"Security Agreement"), in such order and in such manner as Holder may, in its
sole judgment, determine, including without limitation its right to convert this
Note to Common Stock pursuant to Section 5 hereof; provided that, upon
conversion in accordance with the terms hereof, Holder shall not have or
exercise any other rights or remedies hereunder, other than with respect to
claims relating to the calculation or payment of interest or costs and expenses
of collection pursuant to Section 11 hereof, that have arisen up to the time of
or in connection with conversion.
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3. DEFAULT RATE. Any amounts not paid when due shall thereafter bear interest
at a rate per annum equal to the 7.5% interest rate set forth above, plus five
percent (5%). If such default rate would but for this sentence, exceed the
maximum lawful rate, the effective interest rate under this Note shall be the
maximum lawful rate, and any amount received by Holder in excess of such rate
shall be applied to principal and then to fees and expenses, or, if no such
amounts are owing, returned to the Company.
4. WAIVER. Upon an Event of Default, the Company hereby waives any right of
offset it may now or hereafter have against Holder, and the Company hereby also
waives diligence, presentment, protest and demand, notice of protest, dishonor
and nonpayment of this Note and expressly agrees that, without in any way
affecting the liability of the Company hereunder, Holder may in its sole
discretion extend any maturity date or the time for payment of any installment
due hereunder, accept security, release any party liable hereunder and release
any security hereafter securing this Note. The Company further waives, to the
full extent permitted by law, the right to plead any and all statutes of
limitations as a defense to any demand on this Note, or on any deed of trust,
security agreement, lease assignment, guaranty or other agreement hereafter
securing this Note.
5. CONVERSION RIGHTS OF HOLDER. The Holder shall have the following right to
convert the Convertible Note into shares of Common Stock:
(a) OPTIONAL CONVERSIONS. Subject to and in compliance with the
provisions of this Section 5, during or at the conclusion of the Term, the
Convertible Note may, at the option of the Holder, be converted at any time into
fully-paid and nonassessable shares of Common Stock. The number of shares of
Common Stock to which the Holder shall be entitled to at any time upon
conversion of the Note (the "Issuable Shares") shall be based on the Applicable
Conversion Rate (as defined in Section 5(b)) then in effect and shall be subject
to the Conversion Cap (defined in Section 5(d) below). The Holder's right to
convert the Note shall apply with respect to the entire Convertible Note Amount
(but not less than the entire Convertible Note Amount).
(b) APPLICABLE CONVERSION RATE. The conversion rate in effect at any
time for the conversion of this Note into Common Stock (the "Applicable
Conversion Rate") shall be the quotient obtained by dividing the Convertible
Note Amount by the Conversion Price (as defined in Section 5(c) below) pursuant
to the procedure described in Section 5(d) below.
(c) CONVERSION PRICE. The initial Conversion Price for the
Convertible Note shall be $1.40 (the "Initial Conversion Price"), and thereafter
shall be subject to adjustment pursuant to Sections 5(g), 5(h) and 5(l) hereof.
The Conversion Price shall be equal to the Initial Conversion Price until the
first Reset Date (as defined in subsection 5(d)), and shall then be reset from
time to time as described in Section 5(d) hereof, and subject to adjustment from
time to time in accordance with this Section 5. All references to the Initial
Conversion Price or the Conversion Price herein shall mean the Initial
Conversion Price or the Conversion Price as most recently reset or adjusted.
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(d) RESET CONVERSION PRICE. The Applicable Conversion Rate shall be
subject to adjustment on the 180th day following the Original Issue Date and
every 90 days thereafter (each such day being a "Reset Date"), as set forth in
this subsection 5(d). The Conversion Price to be used in determining the
Applicable Conversion Rate, commencing with the first Reset Date and for each
subsequent Reset Date, shall be determined as follows: (i) if the average
closing price of the Common Stock quoted on NASDAQ (or such other exchange or
system on which the Common Stock is traded) on the 20 trading days immediately
preceding the Reset Date (the "Reset Conversion Price") is less than the Initial
Conversion Price, the Reset Conversion Price shall be used to determine the
Applicable Conversion Rate or (ii) if the Reset Conversion Price equals or
exceeds the Initial Conversion Price, then the Initial Conversion Price shall be
used to determine the Applicable Conversion Rate. Notwithstanding anything
herein to the contrary: (i) in the event that Holder exercises its conversion
right after a Common Stock split or dividend described in Section 5(g) or 5(h)
hereof and prior to the Reset Date next following such split or dividend, the
Conversion Price for such conversion shall be the Reset Conversion Price in
effect on the Reset Date that immediately preceded such conversion (or the
Initial Conversion Price, if no Reset Date has yet occurred), adjusted according
to the provisions of Section 5(g) or 5(h) hereof and (ii) the number of shares
of Common Stock issued upon the conversion of the Convertible Note shall in no
event exceed 19.9% of the Company's outstanding shares on the Original Issue
Date (1,791,000 shares), except to the extent that such figure is adjusted
pursuant to Section 5(g) or 5(h) hereof (the "Conversion Cap").
(e) CONVERSION DEFICIT. If as of the Conversion Notification Date (as
defined in Section 5(f) hereof), the product of the Issuable Shares times the
Conversion Price, is less than the Convertible Note Amount, the difference shall
be payable within five business days of such notification by the Company to
Holder in the form of cash or a term loan (at the election of the Company),
secured by Company assets having a fair market value, net of any encumbrances on
such assets, equal to at least one hundred and fifty percent (150%) of the
principal amount of such term loan, with a maturity not in excess of one year
and bearing an interest rate equal to the lesser of 12.5% or the maximum rate
permitted by law.
(f) MECHANICS OF CONVERSION. If Holder desires to convert the Note
into shares of Common Stock pursuant to this Section 5, it shall surrender the
original Note at the office of the Company and shall give written notice to the
Company at such office that Holder elects to convert the same. Such notice
shall state the name in which said holder wishes the certificate or certificates
for shares of Common Stock to be issued, provided that the only parties that may
be named in such certificate are TIG or any successor-in-interest of TIG created
through a change in the legal form of TIG, its state of formation or
incorporation or similar modification not affecting the beneficial ownership of
TIG. Thereupon, the Company shall within 15 days issue and deliver at such
office to Holder a certificate or certificates for the number of shares of
Common Stock to which it is entitled. Such conversion shall be deemed to have
been made at the close of business on the date written notice of Holder's desire
to convert is received by the Company (the "Conversion Notification Date").
The party named in such certificate shall be treated for all purposes as the
record holder of such shares of
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Common Stock from and after the Conversion Notification Date.
(g) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Cap in effect
immediately before that subdivision shall be proportionately increased and the
Initial Conversion Price and the then existing Reset Conversion Price (if a
Reset Date has occurred) proportionately decreased. If the Company shall at
any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Cap in effect immediately before the combination shall be
proportionately decreased and the then existing Initial Conversion Price and the
then existing Reset Conversion Price (if a Reset Date has occurred)
proportionately increased. Any adjustment under this Section 5(g) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(h) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes a
dividend or other distribution payable in additional shares of Common Stock, in
each such event: (A) the then existing Conversion Cap shall be increased as of
the time of such issuance by multiplying the Conversion Cap then in effect by a
fraction (the "Dividend Fraction") (1) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance plus the number of shares of Common Stock issuable in
payment of such dividend or distribution and (2) the denominator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance and (B) the then existing Initial Conversion Price
and the then existing Reset Conversion Price (if a Reset Date has occurred)
shall be decreased as of the time of such issuance by multiplying the Initial
Conversion Price by the reciprocal of the Dividend Fraction.
(i) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company
at any time or from time to time after the Original Issue Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision shall be made so
that the Holder of the Convertible Note shall receive upon conversion thereof,
in addition to the number of shares of Common Stock receivable thereupon, the
amount of other securities of the Company which it would have received had the
Convertible Note been converted into Common Stock on the date of such event and
had Holder thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by it as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 5 with respect to the rights of the Holder of the
Convertible Note or with respect to such other securities by their terms.
(j) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
Subject to the Conversion Cap, if at any time or from time to time after the
Original Issue Date, the Common Stock is changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a
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subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
Section 5), in any such event the Holder of the Convertible Note shall have
the right thereafter to convert such Note into the kind and amount of stock
and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the Common Stock into which
the Note could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
(k) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 5), as a part of such capital
reorganization, provision shall be made so that the Holder of the Convertible
Note shall thereafter be entitled to receive upon conversion of such Note the
number of shares of stock or other securities or property of the Company to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the Holder of the
Convertible Note after the capital reorganization to the end that the provisions
of this Section 5 (including adjustment of the Conversion Price then in effect
and the number of Issuable Shares) shall be applicable after that event and be
as nearly equivalent as practicable.
(l) SALE OF SHARES BELOW FAIR MARKET VALUE.
(1) If at any time or from time to time after the Original
Issue Date, the Company issues or sells, or is deemed by the express
provisions of this subsection (l) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a dividend
or other distribution on any class of stock as provided in Section 5(h)
above or a subdivision or combination of shares of Common Stock as
provided in Section 5(g) above, for an Effective Price (as defined in
subsection 5(l)(4) below) less than the "fair market value" (defined as
the greater of book or market value in accordance with the rules and
regulations of the NASDAQ National Market System) of such Additional
Shares of Common Stock, then and in each such case the then existing
Initial Conversion Price and Reset Conversion Price shall be reduced, as
of the opening of business on the date of such issue or sale, and for all
subsequent calculations under this Note to a price determined by
multiplying the Initial Conversion Price and the Reset Conversion Price
by a fraction (i) the numerator of which shall be (A) the number of
shares of Common Stock deemed outstanding (as defined in the following
sentence) immediately prior to such issue or sale, plus (B) the number of
shares of Common Stock which the "aggregate consideration received"
(computed in accordance with subsection 5(l)(2)) by the Company for the
total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price, and (ii) the denominator of which
shall be the number of
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shares of Common Stock deemed outstanding (as defined in the following
sentence) immediately prior to such issue or sale plus the total
Additional Shares of Common Stock so issued. For the purposes of the
preceding sentence, all outstanding shares of Common Stock and all
shares of Common Stock issuable upon conversion of the Convertible
Note that are outstanding as of the close of business on the day next
preceding the date of issue or sale of Additional Shares of Common
Stock shall be deemed outstanding.
(2) For the purpose of making any adjustment required under
this Section 5(l), the "aggregate consideration received" by the Company
for any issue or sale of Additional Shares of Common Stock shall (A) to
the extent it consists of cash, be computed at the net amount of cash
received by the Company after deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company
in connection with such issue or sale but without deduction of any
expenses payable by the Company, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property
as determined in good faith by the Board of Directors, and (C) if
Additional Shares of Common Stock, Convertible Securities (as herein
defined) or rights or options to purchase either Additional Shares of
Common Stock or Convertible Securities are issued or sold together with
other stock or securities or other assets of the Company for a
consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith
by the Board of Directors to be allocable to such Additional Shares of
Common Stock, Convertible Securities or rights or options.
(3) For the purpose of the adjustment required under this
Section 5(l), if the Company issues or sells any rights or options for
the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities
being herein referred to as "Convertible Securities") and if the
Effective Price of such Additional Shares of Common Stock is less than
the fair market value of such Additional Shares of Common Stock, in each
case the Company shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the maximum
number of Additional Shares of Common Stock issuable upon exercise or
conversion thereof and to have received as consideration for the issuance
of such shares an amount equal to the total amount of the consideration,
if any, received by the Company for the issuance of such rights or
options or Convertible Securities, plus, in the case of such rights or
options, the minimum amounts of consideration, if any, payable to the
Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any,
payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if, in the case of Convertible Securities, the
minimum amounts of such consideration cannot be ascertained but are a
function of antidilution or similar protective clauses, the Company shall
be deemed to have received the minimum amounts of consideration without
reference to such clauses; provided further that if the minimum amount of
consideration payable to
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the Company upon the exercise or conversion of rights, options or
Convertible Securities is reduced over time or on the occurrence or
nonoccurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced;
provided further that if the minimum amount of consideration payable
to the Company upon the exercise or conversion of such rights, options
or Convertible Securities is subsequently increased, the Effective
Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upo the exercise or conversion
of such rights, options or Convertible Securities. No further
adjustment of the Conversion Price, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on
the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the
conversion privilege represented by any such Convertible Securities
shall expire without having been exercised, the Conversion Price as
adjusted upon the issuance of such rights, options or Convertible
Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the
only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by
the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such rights
or options, whether or not exercised, plus the consideration received
for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Company
(other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible
Securities, provided that such readjustment shall not apply to shares
that have previously been converted.
(4) "Additional Shares of Common Stock" for purposes hereof
shall mean all shares of Common Stock issued by the Company, whether or
not subsequently reacquired or retired by the Company, other than (A)
shares of Common Stack issued upon conversion of the Convertible Note and
(B) up to three million five hundred thousand (3,500,000) shares of
Common Stock, and/or options, warrants or other Common Stock purchase
rights, including stock appreciation rights, issued after the Original
Issue Date under the Company's 1994 Stock Option Plan, including the
proposed amendment thereof (the "1994 Stock Option Plan Shares"), to
employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary, net of repurchases and option expirations
(provided that shares issued pursuant to the exercise of options or
warrants issued after the Original Issue Date shall not be included in
such number if such shares were included at the time the option or
warrant was issued). Notwithstanding anything above to the contrary, any
1994 Stock Option Plan Shares (i) sold to eligible participants in such
Plan after the Original Issue Date at less than their fair market value
or (ii) purchased after the Original Issue Date
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upon the exercise of option awards that provide for an exercise price
less than the fair market value of the Common Stock on the date of
award, shall be deemed Additional Shares of Common Stock for purposes
of this Section 5(l). The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 5(l),
into the aggregate consideration received, or deemed to have been
received by the Company for such issue under this Section 5(l), for
such Additional Shares of Common Stock.
(m) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price, the Conversion Cap or the Applicable
Conversion Rate, the Company, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to the Holder at the Holder's address as
shown in the Company's books. The certificate shall set forth such adjustment
or readjustment, showing in reasonable detail the facts upon which such
adjustment or readjustment is based and the computation thereof.
(n) NOTICES OF RECORD DATE. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any transfer of all or substantially all the assets of the Company to any other
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Company, the Company shall mail to the Holder of the Convertible Note at
least five (5) business days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
6. CONVERSION RIGHTS OF THE COMPANY
(a) MANDATORY CONVERSION. The Company may upon notice of such action
to Holder require Holder to convert the Note into shares of Common Stock
("Mandatory Conversion") at the then Applicable Conversion Rate if, at anytime
after the 181st day following the Original Issue Date, the closing price of the
Common Stock on NASDAQ or such other exchange or system on which the Common
Stock is traded, for twenty (20) consecutive trading days, is $3.00 or more per
share, with such price to be adjusted in the event of Common Stock splits,
combinations dividends or distributions in the same manner as provided in
Sections 5(g) and 5(h) for the Conversion Cap.
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(b) PARTIAL CONVERSION/REDEMPTION. At the end of the Term, the
Company shall pay the Convertible Note, at the Convertible Note Amount, in cash;
provided, however, that at the option of the Company, in lieu of paying to
Holder the entire Convertible Note Amount, the Company shall have the right,
upon written notice of such action to Holder within two business days prior to
the end of the Term, to force the conversion of 25% of the outstanding balance
of the Convertible Note Amount into Common Stock at a price equal to the lower
of $1.40 or the Conversion Price, subject to the Conversion Cap and the
procedure described in this Section 6(b) (the "Mandatory Partial Conversion
Right"). The number of shares of Common Stock to be issued in such conversion
will be determined by the following method: one-quarter of the Convertible Note
Amount (at maturity), will be divided by the lower of $1.40 or the Conversion
Price in effect on such date, and multiplied by 1.2. By way of example,
assuming that at the end of the Term one-quarter of the Convertible Note Amount
was equal to $750,000, and the Conversion Price was $1.00 per share, the
Company, upon exercising its Mandatory Partial Conversion Right, would issue
900,000 shares (1.2 x 750,000).
7. OTHER CONVERSION PROVISIONS.
(a) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Note. If the conversion would result
in the issuance of any fractional share, the Corporation shall, in lieu of
issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (determined as provided in
subsection 5(l)(1)) on the date of conversion.
(b) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Convertible Note, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of the Convertible Note. If
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of the Convertible Note, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(c) NOTICES. Any notice required by the provisions of this
Convertible Note shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when sent by confirmed
telex or facsimile, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) two (2) days
after deposit with a nationally recognized overnight courier, with written
verification of receipt. All notices shall be addressed to Holder at the
address set forth herein or at such subsequent address as Holder shall provide
to the Company in writing.
(d) PAYMENT OF TAXES. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect
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to the issue or delivery of shares of Common Stock upon conversion of the
Convertible Note.
(e) NO DILUTION OR IMPAIRMENT. The Company shall not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the Holder against dilution or other
impairment.
8. COVENANTS. The approval of the Holder is required before the Company may
take those actions set forth in Section 5 (the "Covenants") of that certain Note
Purchase Agreement, dated the date hereof, by and between the Holder and the
Company . Such Covenants are incorporated herein by reference as if set forth
in full below and shall remain in effect so long as this Note remains
outstanding. No reference in Section 5 hereof to actions that the Company may
take shall be deemed in any way to prejudice or limit Holder's rights to enforce
the Covenants. The Company acknowledges that the Covenants are a material
inducement to Holder's willingness to purchase the Convertible Note, and that
Holder would not be willing to purchase the Note in the absence of the
Covenants. Accordingly, except to the extent that the Covenants expressly
limit Holder's discretion, the Company acknowledges that Holder shall be free to
enforce the Covenants in its absolute discretion or to condition its consent as
it sees fit.
9. LEGAL FEES. The Company agrees to pay all Holder's reasonable costs and
expenses, including without limitation reasonable attorneys' fees actually
incurred by Holder in connection with the enforcement of any obligation of the
Company under this Note.
10. GOVERNING LAW. This Note shall be governed by and construed in accordance
with the laws of the State of New York.
11. SEVERABILITY. Should any provision or portion of this Note be held
unenforceable or invalid for any reason, the remaining provisions and portions
of this Note shall be unaffected by such holding.
DUALSTAR TECHNOLOGIES CORPORATION
By: /s/ E. M. Tangel
---------------------------------
Its: Chairman
---------------------------------
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NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT ("Agreement") dated November 25, 1998
between DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation having its
principal office at 11-30 47th Avenue, Long Island City, New York 11101 (the
"Corporation"); and TECHNOLOGY INVESTORS GROUP, LLC, a Delaware limited
liability company having its address at 25 Coligni Avenue, New Rochelle, New
York 10801 ("TIG").
1. SALE AND PURCHASE OF CONVERTIBLE NOTE. At the Closing (as
hereinafter set forth), the Corporation shall sell and deliver to TIG, and TIG
shall purchase, the Corporation's Subordinated Convertible Note (the "Note") in
the principal amount of $2,500,000 at a purchase price of $2,500,000 (the
"Purchase Price"). The Note shall be in the form attached hereto as EXHIBIT A.
2. CLOSING. The Closing of the sale and purchase of the Note shall
take place at 10:00 a.m. on November 25, 1998 at the offices of Gould & Wilkie,
One Chase Manhattan Plaza, New York, New York 10005. At the Closing, (a) the
Corporation shall deliver to TIG the Note; (b) TIG shall deliver to the
Corporation the Purchase Price by bank wire in immediately available funds; (c)
the Corporation and TIG shall deliver to each other an executed copy of a
stockholders agreement in the form attached hereto as EXHIBIT B (the
"Stockholders Agreement"); (d) the Corporation and TIG shall deliver to each
other an executed copy of a registration rights agreement in the form attached
hereto as EXHIBIT C (the "Registration Rights Agreement"); and (e) the
Corporation and certain stockholders of the Corporation, and TIG and its members
shall deliver to each other an executed copy of a letter agreement regarding
restrictions on the sale or purchase of the stock of the Corporation in the form
attached hereto as EXHIBIT D. All deliveries and payments at the Closing shall
be made simultaneously.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TIG. TIG
represents, warrants, covenants, and agrees as follows:
3.1 TIG is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Delaware. This
Agreement has been duly authorized, executed and delivered by TIG and is the
legal, valid and binding obligation of TIG enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy and other
laws of general application relating to creditor's rights or general principles
of equity.
3.2 TIG is an "Accredited Investor" within the meaning of Rule 501(a),
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
and, together with its financial advisors, if any, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks involved in the investment in the Note, and the shares of
Common Stock of the Corporation issuable upon conversion thereof (the "Shares").
<PAGE>
3.3 TIG has received and reviewed, and is familiar with, the terms and
conditions of this Agreement, and TIG confirms that all documents, records and
books pertaining to the investment in the Corporation and requested by it,
including but not limited to the Corporation's Quarterly Report on Form 10-Q for
the three months ended September 30, 1998; the Annual Report on Form 10-K, for
the fiscal year ended June 30, 1998; the Quarterly Report on Form 10-Q for the
nine months ended March 31, 1998; the Quarterly Report on Form 10-Q for the six
months ended December 31, 1997; the Quarterly Report on Form 10-Q for the three
months ended September 30, 1997; and the Notice of Meeting and Proxy Statement
relating to the 1998 Annual Meeting of Stockholders and all similar filings
(including any and all amendments thereto) made by the Corporation since January
1, 1996 (the "Filings"), have been made available or delivered to TIG.
3.4 TIG has had an opportunity to ask of the Corporation, or a
person or persons acting on its behalf, any and all relevant questions of and
received answers from the Corporation which TIG considers to be responsive to
such questions, and has received copies of all documents requested by TIG, in
connection with any aspect of the Corporation and the terms and conditions of
this investment. TIG acknowledges that it has made its own investigation
concerning the business and affairs of the Corporation.
3.5 The Note purchased by TIG, including the Shares, are being
acquired solely for TIG's own account for investment and are not being
purchased with a view to or for the resale, distribution, transfer,
fractionalization or other disposition thereof, and TIG has no present plans
to enter into any such contract, undertaking, agreement or arrangement with
respect thereto.
3.6 TIG acknowledges and is aware of the following:
(i) the Note is non-negotiable and non-transferable, and there will be
substantial restrictions on the transferability of any Shares.
(ii) the Note will be subordinated to the rights of any bank,
commercial lender, or other financial institution of the Corporation lending
money to the Corporation as set forth in the Note.
(iii) no representation, guarantee or warranty has been made to TIG by
the Corporation, its officers, directors, agents, or employees or any other
person, expressly or by implication, as to the profitability of the Corporation
or with respect to the Note or the Shares, except for those representations and
warranties set forth herein and in that certain Security Agreement between TIG
and the Corporation, dated July 24, 1998.
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<PAGE>
3.7 TIG further acknowledges that:
(i) it has been advised that the Note being purchased hereunder and
any Shares subsequently issued upon conversion of the Note, have not been and
will not be registered under the Securities Act in reliance upon an exemption
from registration provided in Section 4(2) of the Securities Act and Regulation
D thereunder.
(ii) the Note and the Shares may not be sold, pledged, assigned or
otherwise transferred by TIG in absence of registration under the Securities Act
or exemption from registration. In particular, TIG is aware that the Note and
the Shares will be "restricted securities", as such term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), and that they may not be sold
pursuant to Rule 144 until the conditions thereof are met.
(iii) the following legend shall be placed on the Note and any
certificate(s) evidencing the Shares:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGIS-
TRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR (2) THE CORPORATION RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO THE CORPORATION, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN
THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE
STATE SECURITIES LAWS.
(iv) the following legend shall be placed on any certificate(s)
evidencing the Shares:
THE SALE, PLEDGE OR TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A STOCKHOLDERS AGREEMENT DATED NOVEMBER __, 1998
AMONG THE CORPORATION AND CERTAIN STOCKHOLDERS
OF THE CORPORATION.
(v) the Corporation may place a stop transfer order on its transfer
books against the Shares.
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<PAGE>
3.8 TIG is making the foregoing representations and warranties with
the intent that they may be relied upon by the Corporation in determining the
suitability of the sale of the Note to TIG for purposes of federal and state
securities laws.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE CORPORATION.
The Corporation represents, warrants, covenants, and agrees as follows:
4.1. EXISTENCE AND CORPORATE AUTHORITY. The Corporation is a
corporation duly organized and validly existing under the laws of the State of
Delaware. The Corporation has the corporate power and authority to make, sign,
deliver and perform its obligations hereunder, and this Agreement has been
authorized and approved by all required action of the Corporation. This
Agreement has been duly executed and delivered by the Corporation and is a
legal, valid and binding obligation of the Corporation, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy and other laws of general application relating to creditors' rights
or general principles of equity.
4.2. CERTIFICATE OF INCORPORATION; BY-LAWS. Attached hereto as
EXHIBITS E-1 and E-2, respectively, are true and correct copies of the
Certificate of Incorporation and By-Laws of the Corporation as amended to date.
4.3. CAPITAL STOCK. The Corporation has an authorized capitalization
consisting of 25,000,000 shares of common stock, $.01 par value, of which
9,000,000 shares are issued and outstanding. All such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable.
The Shares issued upon conversion of the Note will be duly authorized, validly
issued, fully paid and non-assessable shares. No options, warrants or other
rights to purchase common stock of the Corporation granted to employees,
officers or directors, or consultants or advisors to the Corporation or any
subsidiary thereof, pursuant to the 1994 Stock Option Plan, have an exercise
price that is less than fair market value of the Corporation's common stock on
the date of grant, and no shares of such common stock of the Corporation sold to
eligible participants under the 1994 Plan have been sold for less than fair
market value.
4.4. GOVERNMENTAL AUTHORIZATIONS. To the best of the Corporation's
knowledge, after reasonable investigation, no authorization, approval, or other
action by, and no notice to or filing with, any governmental or regulatory body
(except the Securities and Exchange Commission and the Nasdaq Stock Market) is
required for the execution, delivery or performance of this Agreement by the
Corporation.
4.5. NO CONFLICTS OR DEFAULTS. To the best of the Corporation's
knowledge, after reasonable investigation, the execution by the Corporation of
this Agreement will not violate or create a default under any material agreement
to which it is a party.
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4.6. COMPLIANCE WITH LAWS. To the best of the Corporation's knowledge,
after reasonable investigation, the execution, delivery and performance of this
Agreement by the Corporation do not materially violate any law or any order of
any court, governmental authority or arbitrator.
4.7. SECURITIES LAWS. The Filings do not, as of the date made, contain
any untrue statement of a material fact or omit to state a material fact,
pursuant to the requirements of such Filings under the Securities Act and the
Securities Exchange Act of 1934, as amended, necessary in order to make the
statement made, in light of the circumstances under which they were made, not
misleading. Except for certain demand registration rights granted at the time
of the initial public offering of the Corporation dated February 13, 1995, the
Corporation has granted no other demand registration rights.
4.8 FINANCIAL INFORMATION. The financial information contained in the
Filings are complete, accurate and correct in all material respects, at the
respective dates thereof.
5. COVENANTS OF THE CORPORATION. So long as the principal amount of
the Note remains outstanding, without the consent of TIG:
(i) The Corporation will not alter, amend or modify in any respect the
rights, preferences or privileges of the Note.
(ii) The Corporation will not incur any indebtedness for consideration
other than cash or incur in excess of an aggregate of $5,000,000 of additional
indebtedness outstanding at any time beyond indebtedness shown or reflected on
the Corporation's balance sheet at June 30, 1998 and the principal amount of the
Note. (For the purposes hereof, "indebtedness" shall not include accounts
payable to trade creditors created or assumed in the ordinary course of business
in connection with obtaining materials or services or amounts owed to employees
of the Corporation in the ordinary course of business.)
(iii) Except as set forth in the Corporation's Annual Report on Form
10-K for the fiscal year ended June 30, 1998 and the Notice of Meeting and Proxy
Statement relating to the 1998 Annual Meeting of Stockholders, the Corporation
is not currently engaged in and shall not enter into any transaction with a
related party, whether or not reportable pursuant to Regulation S-K promulgated
by the Securities and Exchange Commission; provided that, TIG shall not
unreasonably withhold or delay its consent to any such transaction.
(iv) The Corporation shall not sell, transfer or otherwise dispose of
intellectual property of the Corporation for consideration received in excess of
$500,000, singly or in the aggregate; provided that, TIG shall not unreasonably
withhold or delay its consent to any such disposition. (For the purposes hereof,
"intellectual property" means rights in any patent, copyright, trademark, trade
dress and trade name, including any such rights related to applications in the
online, interactive or multimedia environments.)
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<PAGE>
(v) The Corporation shall not sell, transfer or otherwise dispose of
any assets of the Corporation, other than in the ordinary course of business, if
such disposition, together with any and all other such dispositions after the
Closing, constitute more than $2,000,000 of the Corporation's assets (i) as
shown or reflected in the Corporation's most recent balance sheet, or (ii)
valued at fair market value at the time of disposition, whichever is greater.
(vi) The Corporation will not issue options to purchase stock of the
Corporation or restricted stock to directors, officers, or employees of the
Corporation in consideration of services rendered, except for grants or awards
pursuant to the 1994 Stock Option Plan as proposed to be amended at the 1998
Annual Meeting of Shareholders. The Corporation will provide a copy to TIG of
any proposed amendments to the 1994 Plan prior to disclosure of such amendments
to the Corporation's shareholders.
(vii) The Corporation will not make any distribution of stock or stock
rights of the Corporation to shareholders, if made at the election of any of the
shareholders of the Corporation and such distribution would result in taxable
income to TIG pursuant to Section 305 of the Internal Revenue Code, as amended.
(viii) The Corporation will not redeem or repurchase any of the
outstanding Common Stock of the Corporation, except as provided in the Note and
the Stockholders Agreement.
(ix) The Corporation will not merge or consolidate with, or acquire the
stock or assets of, any other entity, or otherwise effect a reorganization of
the Corporation, in which (in any such transaction) the outstanding Common Stock
of the Corporation is issued; provided that, the foregoing shall not apply to
any merger, consolidation or reorganization among any of the Corporation's
subsidiaries or between the Corporation and any subsidiary, unless such consent
is required pursuant to another subparagraph of this Section 5.
(x) The Corporation will not expand the size of the Board of Directors
to more than eight directors.
6. COVENANTS OF THE PARTIES.
6.1 RESTRICTIONS. TIG and the Corporation shall not, and will not
cause or induce any of their Affiliates to, directly or indirectly during the
twenty (20) trading days immediately preceding each Reset Date (as such term is
defined in the Note), sell, or enter an order to sell, assign, transfer, pledge,
encumber, or purchase or enter orders to buy for the Common Stock of the
Corporation. For purposes of this Agreement, an "Affiliate" of, or person
affiliated with a specified person is a person that (i) directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person specified; or (ii) is related by blood or
marriage, and any entity in which such person and/or other Affiliates own, in
the aggregate, ten percent (10%) or more of the voting power or equity interest
in such entity.
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<PAGE>
6.2 BOARD REPRESENTATION. Within 90 days after the Closing, the
Corporation shall cause to be held a special meeting of the Board of Directors
for the purpose of (i) increasing the total number of directors to eight (8)
directors, and (ii) filling the newly created directorship resulting from such
increase, pursuant to the By-Laws of the corporation. TIG shall have the right
to designate, and the Corporation will use its best efforts to cause the
election of, a person reasonably acceptable to the Board of Directors to fill
such newly created directorship, to hold office until the next annual meeting of
Stockholders and until his successor, if any, is elected and qualified.
6.3 CONFIDENTIALITY. Except to the extent required by law, each party
to this Agreement will not disclose to any third party any material confidential
information concerning the other party. The obligations of the parties
hereunder shall not apply to any confidential information of the other party
which was in the public domain at the time it was disclosed, or to confidential
information which subsequently enters the public domain, other than due to a
breach of this Agreement by either party. This obligation will survive
termination of this Agreement.
7. MISCELLANEOUS.
7.1. AMENDMENT. This Agreement, the Exhibits and Schedule hereto may
not be amended except by an instrument in writing signed by or on behalf of each
of the parties hereto.
7.2. WAIVER. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party.
7.3. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York.
7.4. CAPTIONS. The Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
7.5. PUBLICITY. The parties hereto agree to use good faith efforts to
coordinate any disclosure relating to, connected with, or arising out of this
Agreement or the matters contained herein. Each party will provide a copy to or
inform the other party of any press release or the making of a public statement
prior to publication of any such press release or the making of any such public
statement.
7.6. NOTICES. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight courier
or facsimile transmission (in each case with evidence of receipt), addressed to
the Corporation at its principal office and to TIG at the address first set
forth above. Any party may change such address by like notice. If sent by
courier, such notice shall be deemed to have been given as of the next business
day after it was deposited with the courier service and if sent by facsimile
such notice shall be deemed to have been given when transmitted.
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<PAGE>
7.7. PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
7.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
7.9. ENTIRE AGREEMENT. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
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<PAGE>
IN WITNESS WHEREOF, each of the Corporation and TIG has caused
this Agreement to be executed by its officer thereunto duly authorized, all as
of the day and year first above written.
TECHNOLOGY INVESTORS
GROUP, LLC DUALSTAR TECHNOLOGIES CORPORATION
By: /s/ Brad C. Singer By: /s/ Eleven M. Tangel
------------------------- --------------------------
Name: Brad C. Singer Name: Elven M. Tangel
Title: Manager Title: Chairman
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<PAGE>
EXHIBIT A
SUBORDINATED CONVERTIBLE NOTE
SEE ATTACHED.
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<PAGE>
NON - NEGOTIABLE, NON - TRANSFERABLE
SUBORDINATED, CONVERTIBLE PROMISSORY NOTE
$2,500,000 November 25, 1998
FOR VALUE RECEIVED, DUALSTAR TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Company") promises to pay to TECHNOLOGY INVESTORS GROUP, LLC,
a Delaware Limited Liability Company ("Holder" or "TIG"), at 25 Coligni Avenue,
New Rochelle, N.Y. 10801 or at such other place as the Holder may in writing
designate, the principal sum of Two and One-Half Million Dollars ($2,500,000)
with interest (computed on the basis of a 360 day year and the actual number of
days elapsed) at the rate of 7.5% per annum on the balance of the principal from
time to time remaining unpaid, all on the terms and conditions set forth herein
(the "Note" or "Convertible Note"). This Note will be subordinated to the
payment of principal and interest on the debt (the "Senior Debt") of the Company
to any bank, commercial lender or other financial institution (an "Institutional
Lender") incurred subsequent to the date hereof (the "Original Issue Date"),
provided however, that the Company will not incur any Senior Debt that (i)
prevents the exercise or modifies the terms of Holder's conversion rights
hereunder or (ii) by its terms prevents the Company from paying principal and
interest in cash hereunder, except to the extent that the Company has committed
a default on such Senior Debt that permits the Institutional Lender to
accelerate the payment of such debt.
1. MATURITY, INTEREST AND AMORTIZATION. Unless accelerated pursuant to the
terms of this Note or converted to shares of common stock of the Company (the
"Common Stock") as provided for in Sections 5 and 6 below, the unpaid principal
balance of this Note together with all unpaid interest accrued thereon shall be
due and payable on May 25, 2001 (the "Term). Interest on the Note shall be
payable semi-annually in arrears in cash or (prior to the final stated maturity
or any accelerated maturity of the Note) in kind, at the option of the Company,
on each May 25th and November 25th with the first payment to be made on May 25,
1999. In the event that the Company elects not to make any semi-annual interest
payment in cash at the time it is due, the principal amount of this Convertible
Note will be increased by the amount of such payment, and interest will accrue
from the due date onwards on the increased principal amount of the Note (the
principal amount of the Convertible Note in effect from time to time plus all
accrued and unpaid interest thereon is hereinafter referred to as the
"Convertible Note Amount"). If the Company shall elect to pay any semi-annual
interest payment to become due hereon in kind rather than in cash, it shall give
written notice thereof to Holder not more than 10 nor less than five New York
City business days in advance of the due date of such interest payment, which
notice shall set forth the revised principal amount of the Convertible Note.
Other than the payment of interest in kind, principal and interest are payable
in lawful money of the United States. All payments received by Holder under
this Note shall be credited first to any charges or other expenses for which
<PAGE>
Holder is entitled to payment hereunder, next to accrued but unpaid interest,
and third to unpaid principal. The Company shall not have the right to prepay
any portion of the outstanding principal of this Convertible Note.
2. EVENT OF DEFAULT/REMEDIES.
(a) Any of the following events shall constitute an Event of Default:
(i) (A) any failure to pay when due (whether at stated maturity, by
reason of acceleration of the maturity hereof or otherwise) any principal hereof
or (subject to the Company's right to pay interest hereon in kind prior to the
original stated maturity date, or any accelerated maturity date, of this Note)
any interest hereon, or (B) any breach by the Company of any of its other
obligations or covenants under this Note, provided that Borrower shall have 48
hours from the date of receipt of notice to cure a failure to pay money due
hereunder and ten (10) days from the date of receipt of any notice of its
failure to perform any of its other obligations or covenants under this Note not
involving the payment of money to Holder within which to cure said failure (in
which event it shall not be an Event of Default, provided further that if such
breach is not capable of a cure, an Event of Default will be deemed to have
occurred immediately without the necessity of notice to the Company; or
(ii) the Company (A) becomes insolvent or admits in writing its
inability to pay its debts as they mature, (B) makes any assignment for the
benefit of creditors, or (C) applies for or consents to the appointment of a
receiver or trustee for the Company or for a substantial part of the Company's
property or business, or a receiver or trustee otherwise is appointed and is not
discharged within sixty (60) days after such appointment (for purposes of this
subsection, the Company shall be deemed "insolvent" if, as of the Company's most
recent balance sheet, the sum of its debts exceed the sum of its assets, at a
fair valuation, or it is unable to pay its debts as they come due); or
(iii) any bankruptcy, insolvency, reorganization or liquidation
proceeding or other proceeding for relief under any bankruptcy law or any law
for the relief of debtors is instituted by or against the Company, and if
against the Company, such proceeding is not vacated within sixty (60) days; or
(iv) any money judgment, lien, writ or warrant of attachment, or
similar process is entered or filed against the Company or any of the assets of
the Company and remains unvacated, unbonded, unstayed, undismissed or
undischarged for a period of thirty (30) days or in any event later than five
(5) days before the date of any proposed sale thereunder, provided that a lien
(singly or, if more than one, cumulatively) of less than $250,000 arising in
the normal course of the Company's business, even if it remains unbonded,
unstayed or undismissed for thirty (30) days, shall not be deemed an Event of
Default if the Company has been advised by counsel and thus believes in good
faith that it has a valid defense to the claim giving rise to such lien and
promptly so advises Holder in writing and timely contests such claim; or
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(v) the Company (A) defaults on or breaches in any material respect
any contract with or obligation when due to a third party which default or
breach could reasonably be expected, singly or in the aggregate, to have a
material adverse affect on the Company's business or finances or (B) defaults in
the performance of any material obligation to a third party or Holder incurred
for money borrowed, including without limitation, the Company's obligations to
Holder under that certain Secured Promissory Note, as amended by that certain
amendment of even date hereof (the "Term Note"), in the principal amount of
$1,000,000; or
(vi) the Common Stock is delisted from the NASDAQ National Market
System ("NASDAQ"), unless such delisting occurs in connection with the Common
Stock being traded on either the American Stock Exchange or the New York Stock
Exchange; or
(vii) any representation made in the Note Purchase Agreement, of even
date, by and between Holder and the Company, proves materially false, or if of
a continuing nature, becomes materially false (unless made as of a specified
date).
b. REMEDIES. Upon the occurrence and during the continuance of an
Event of Default described in subsections 2(a)(ii) or 2(a)(iii) above, all
indebtedness under this Note and the Term Note shall automatically be
immediately due and payable. In addition, Holder, at its option, and without
notice to the Company (other than such notice as is required by law), may take
one or more of the actions described below. Upon the occurrence and during the
continuance of any other Event of Default, Holder at its option and, unless
otherwise specified below, upon no less than one business day's written notice
to the Company (or such other notice as is required by law), may do any one or
more of the following:
(i) declare all indebtedness under this Convertible Note and the Term
Note immediately due and payable and credit any sums received thereafter to such
indebtedness in whatever priority it shall elect; provided, however, that such
application of sums so received shall not serve to waive or cure any default
existing under this Note nor to invalidate any notice of default or any act done
pursuant to such notice and shall not prejudice any rights of Holder; and
(ii) exercise any or all rights provided or permitted by law or granted
pursuant to this Convertible Note, the Term Note or that certain Security
Agreement, dated July 24, 1998, by and between the Company and TIG (the
"Security Agreement"), in such order and in such manner as Holder may, in its
sole judgment, determine, including without limitation its right to convert this
Note to Common Stock pursuant to Section 5 hereof; provided that, upon
conversion in accordance with the terms hereof, Holder shall not have or
exercise any other rights or remedies hereunder, other than with respect to
claims relating to the calculation or payment of interest or costs and expenses
of collection pursuant to Section 11 hereof, that have arisen up to the time of
or in connection with conversion.
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3. DEFAULT RATE. Any amounts not paid when due shall thereafter bear interest
at a rate per annum equal to the 7.5% interest rate set forth above, plus five
percent (5%). If such default rate would but for this sentence, exceed the
maximum lawful rate, the effective interest rate under this Note shall be the
maximum lawful rate, and any amount received by Holder in excess of such rate
shall be applied to principal and then to fees and expenses, or, if no such
amounts are owing, returned to the Company.
4. WAIVER. Upon an Event of Default, the Company hereby waives any right of
offset it may now or hereafter have against Holder, and the Company hereby also
waives diligence, presentment, protest and demand, notice of protest, dishonor
and nonpayment of this Note and expressly agrees that, without in any way
affecting the liability of the Company hereunder, Holder may in its sole
discretion extend any maturity date or the time for payment of any installment
due hereunder, accept security, release any party liable hereunder and release
any security hereafter securing this Note. The Company further waives, to the
full extent permitted by law, the right to plead any and all statutes of
limitations as a defense to any demand on this Note, or on any deed of trust,
security agreement, lease assignment, guaranty or other agreement hereafter
securing this Note.
5. CONVERSION RIGHTS OF HOLDER. The Holder shall have the following right to
convert the Convertible Note into shares of Common Stock:
(a) OPTIONAL CONVERSIONS. Subject to and in compliance with the
provisions of this Section 5, during or at the conclusion of the Term, the
Convertible Note may, at the option of the Holder, be converted at any time into
fully-paid and nonassessable shares of Common Stock. The number of shares of
Common Stock to which the Holder shall be entitled to at any time upon
conversion of the Note (the "Issuable Shares") shall be based on the Applicable
Conversion Rate (as defined in Section 5(b)) then in effect and shall be subject
to the Conversion Cap (defined in Section 5(d) below). The Holder's right to
convert the Note shall apply with respect to the entire Convertible Note Amount
(but not less than the entire Convertible Note Amount).
(b) APPLICABLE CONVERSION RATE. The conversion rate in effect at any
time for the conversion of this Note into Common Stock (the "Applicable
Conversion Rate") shall be the quotient obtained by dividing the Convertible
Note Amount by the Conversion Price (as defined in Section 5(c) below) pursuant
to the procedure described in Section 5(d) below.
(c) CONVERSION PRICE. The initial Conversion Price for the
Convertible Note shall be $1.40 (the "Initial Conversion Price"), and thereafter
shall be subject to adjustment pursuant to Sections 5(g), 5(h) and 5(l) hereof.
The Conversion Price shall be equal to the Initial Conversion Price until the
first Reset Date (as defined in subsection 5(d)), and shall then be reset from
time to time as described in Section 5(d) hereof, and subject to adjustment from
time to time in accordance with this Section 5. All references to the Initial
Conversion Price or the Conversion Price herein shall mean the Initial
Conversion Price or the Conversion Price as most recently reset or adjusted.
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(d) RESET CONVERSION PRICE. The Applicable Conversion Rate shall be
subject to adjustment on the 180th day following the Original Issue Date and
every 90 days thereafter (each such day being a "Reset Date"), as set forth in
this subsection 5(d). The Conversion Price to be used in determining the
Applicable Conversion Rate, commencing with the first Reset Date and for each
subsequent Reset Date, shall be determined as follows: (i) if the average
closing price of the Common Stock quoted on NASDAQ (or such other exchange or
system on which the Common Stock is traded) on the 20 trading days immediately
preceding the Reset Date (the "Reset Conversion Price") is less than the Initial
Conversion Price, the Reset Conversion Price shall be used to determine the
Applicable Conversion Rate or (ii) if the Reset Conversion Price equals or
exceeds the Initial Conversion Price, then the Initial Conversion Price shall be
used to determine the Applicable Conversion Rate. Notwithstanding anything
herein to the contrary: (i) in the event that Holder exercises its conversion
right after a Common Stock split or dividend described in Section 5(g) or 5(h)
hereof and prior to the Reset Date next following such split or dividend, the
Conversion Price for such conversion shall be the Reset Conversion Price in
effect on the Reset Date that immediately preceded such conversion (or the
Initial Conversion Price, if no Reset Date has yet occurred), adjusted according
to the provisions of Section 5(g) or 5(h) hereof and (ii) the number of shares
of Common Stock issued upon the conversion of the Convertible Note shall in no
event exceed 19.9% of the Company's outstanding shares on the Original Issue
Date (1,791,000 shares), except to the extent that such figure is adjusted
pursuant to Section 5(g) or 5(h) hereof (the "Conversion Cap").
(e) CONVERSION DEFICIT. If as of the Conversion Notification Date (as
defined in Section 5(f) hereof), the product of the Issuable Shares times the
Conversion Price, is less than the Convertible Note Amount, the difference shall
be payable within five business days of such notification by the Company to
Holder in the form of cash or a term loan (at the election of the Company),
secured by Company assets having a fair market value, net of any encumbrances on
such assets, equal to at least one hundred and fifty percent (150%) of the
principal amount of such term loan, with a maturity not in excess of one year
and bearing an interest rate equal to the lesser of 12.5% or the maximum rate
permitted by law.
(f) MECHANICS OF CONVERSION. If Holder desires to convert the Note
into shares of Common Stock pursuant to this Section 5, it shall surrender the
original Note at the office of the Company and shall give written notice to the
Company at such office that Holder elects to convert the same. Such notice
shall state the name in which said holder wishes the certificate or certificates
for shares of Common Stock to be issued, provided that the only parties that may
be named in such certificate are TIG or any successor-in-interest of TIG created
through a change in the legal form of TIG, its state of formation or
incorporation or similar modification not affecting the beneficial ownership of
TIG. Thereupon, the Company shall within 15 days issue and deliver at such
office to Holder a certificate or certificates for the number of shares of
Common Stock to which it is entitled. Such conversion shall be deemed to have
been made at the close of business on the date written notice of Holder's desire
to convert is received by the Company (the "Conversion Notification Date").
The party named in such certificate shall be treated for all purposes as the
record holder of such shares of
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Common Stock from and after the Conversion Notification Date.
(g) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Cap in effect
immediately before that subdivision shall be proportionately increased and the
Initial Conversion Price and the then existing Reset Conversion Price (if a
Reset Date has occurred) proportionately decreased. If the Company shall at
any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Cap in effect immediately before the combination shall be
proportionately decreased and the then existing Initial Conversion Price and the
then existing Reset Conversion Price (if a Reset Date has occurred)
proportionately increased. Any adjustment under this Section 5(g) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(h) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes a
dividend or other distribution payable in additional shares of Common Stock, in
each such event: (A) the then existing Conversion Cap shall be increased as of
the time of such issuance by multiplying the Conversion Cap then in effect by a
fraction (the "Dividend Fraction") (1) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance plus the number of shares of Common Stock issuable in
payment of such dividend or distribution and (2) the denominator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance and (B) the then existing Initial Conversion Price
and the then existing Reset Conversion Price (if a Reset Date has occurred)
shall be decreased as of the time of such issuance by multiplying the Initial
Conversion Price by the reciprocal of the Dividend Fraction.
(i) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company
at any time or from time to time after the Original Issue Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision shall be made so
that the Holder of the Convertible Note shall receive upon conversion thereof,
in addition to the number of shares of Common Stock receivable thereupon, the
amount of other securities of the Company which it would have received had the
Convertible Note been converted into Common Stock on the date of such event and
had Holder thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by it as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 5 with respect to the rights of the Holder of the
Convertible Note or with respect to such other securities by their terms.
(j) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
Subject to the Conversion Cap, if at any time or from time to time after the
Original Issue Date, the Common Stock is changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a
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subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
Section 5), in any such event the Holder of the Convertible Note shall have
the right thereafter to convert such Note into the kind and amount of stock
and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the Common Stock into which
the Note could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
(k) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 5), as a part of such capital
reorganization, provision shall be made so that the Holder of the Convertible
Note shall thereafter be entitled to receive upon conversion of such Note the
number of shares of stock or other securities or property of the Company to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the Holder of the
Convertible Note after the capital reorganization to the end that the provisions
of this Section 5 (including adjustment of the Conversion Price then in effect
and the number of Issuable Shares) shall be applicable after that event and be
as nearly equivalent as practicable.
(l) SALE OF SHARES BELOW FAIR MARKET VALUE.
(1) If at any time or from time to time after the Original
Issue Date, the Company issues or sells, or is deemed by the express
provisions of this subsection (l) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a dividend
or other distribution on any class of stock as provided in Section 5(h)
above or a subdivision or combination of shares of Common Stock as
provided in Section 5(g) above, for an Effective Price (as defined in
subsection 5(l)(4) below) less than the "fair market value" (defined as
the greater of book or market value in accordance with the rules and
regulations of the NASDAQ National Market System) of such Additional
Shares of Common Stock, then and in each such case the then existing
Initial Conversion Price and Reset Conversion Price shall be reduced, as
of the opening of business on the date of such issue or sale, and for all
subsequent calculations under this Note to a price determined by
multiplying the Initial Conversion Price and the Reset Conversion Price
by a fraction (i) the numerator of which shall be (A) the number of
shares of Common Stock deemed outstanding (as defined in the following
sentence) immediately prior to such issue or sale, plus (B) the number of
shares of Common Stock which the "aggregate consideration received"
(computed in accordance with subsection 5(l)(2)) by the Company for the
total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price, and (ii) the denominator of which
shall be the number of
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shares of Common Stock deemed outstanding (as defined in the following
sentence) immediately prior to such issue or sale plus the total
Additional Shares of Common Stock so issued. For the purposes of the
preceding sentence, all outstanding shares of Common Stock and all
shares of Common Stock issuable upon conversion of the Convertible
Note that are outstanding as of the close of business on the day next
preceding the date of issue or sale of Additional Shares of Common
Stock shall be deemed outstanding.
(2) For the purpose of making any adjustment required under
this Section 5(l), the "aggregate consideration received" by the Company
for any issue or sale of Additional Shares of Common Stock shall (A) to
the extent it consists of cash, be computed at the net amount of cash
received by the Company after deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company
in connection with such issue or sale but without deduction of any
expenses payable by the Company, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property
as determined in good faith by the Board of Directors, and (C) if
Additional Shares of Common Stock, Convertible Securities (as herein
defined) or rights or options to purchase either Additional Shares of
Common Stock or Convertible Securities are issued or sold together with
other stock or securities or other assets of the Company for a
consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith
by the Board of Directors to be allocable to such Additional Shares of
Common Stock, Convertible Securities or rights or options.
(3) For the purpose of the adjustment required under this
Section 5(l), if the Company issues or sells any rights or options for
the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities
being herein referred to as "Convertible Securities") and if the
Effective Price of such Additional Shares of Common Stock is less than
the fair market value of such Additional Shares of Common Stock, in each
case the Company shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the maximum
number of Additional Shares of Common Stock issuable upon exercise or
conversion thereof and to have received as consideration for the issuance
of such shares an amount equal to the total amount of the consideration,
if any, received by the Company for the issuance of such rights or
options or Convertible Securities, plus, in the case of such rights or
options, the minimum amounts of consideration, if any, payable to the
Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any,
payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if, in the case of Convertible Securities, the
minimum amounts of such consideration cannot be ascertained but are a
function of antidilution or similar protective clauses, the Company shall
be deemed to have received the minimum amounts of consideration without
reference to such clauses; provided further that if the minimum amount of
consideration payable to
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the Company upon the exercise or conversion of rights, options or
Convertible Securities is reduced over time or on the occurrence or
nonoccurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced;
provided further that if the minimum amount of consideration payable
to the Company upon the exercise or conversion of such rights, options
or Convertible Securities is subsequently increased, the Effective
Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upo the exercise or conversion
of such rights, options or Convertible Securities. No further
adjustment of the Conversion Price, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on
the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the
conversion privilege represented by any such Convertible Securities
shall expire without having been exercised, the Conversion Price as
adjusted upon the issuance of such rights, options or Convertible
Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the
only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by
the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such rights
or options, whether or not exercised, plus the consideration received
for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Company
(other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible
Securities, provided that such readjustment shall not apply to shares
that have previously been converted.
(4) "Additional Shares of Common Stock" for purposes hereof
shall mean all shares of Common Stock issued by the Company, whether or
not subsequently reacquired or retired by the Company, other than (A)
shares of Common Stack issued upon conversion of the Convertible Note and
(B) up to three million five hundred thousand (3,500,000) shares of
Common Stock, and/or options, warrants or other Common Stock purchase
rights, including stock appreciation rights, issued after the Original
Issue Date under the Company's 1994 Stock Option Plan, including the
proposed amendment thereof (the "1994 Stock Option Plan Shares"), to
employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary, net of repurchases and option expirations
(provided that shares issued pursuant to the exercise of options or
warrants issued after the Original Issue Date shall not be included in
such number if such shares were included at the time the option or
warrant was issued). Notwithstanding anything above to the contrary, any
1994 Stock Option Plan Shares (i) sold to eligible participants in such
Plan after the Original Issue Date at less than their fair market value
or (ii) purchased after the Original Issue Date
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upon the exercise of option awards that provide for an exercise price
less than the fair market value of the Common Stock on the date of
award, shall be deemed Additional Shares of Common Stock for purposes
of this Section 5(l). The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 5(l),
into the aggregate consideration received, or deemed to have been
received by the Company for such issue under this Section 5(l), for
such Additional Shares of Common Stock.
(m) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price, the Conversion Cap or the Applicable
Conversion Rate, the Company, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to the Holder at the Holder's address as
shown in the Company's books. The certificate shall set forth such adjustment
or readjustment, showing in reasonable detail the facts upon which such
adjustment or readjustment is based and the computation thereof.
(n) NOTICES OF RECORD DATE. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any transfer of all or substantially all the assets of the Company to any other
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Company, the Company shall mail to the Holder of the Convertible Note at
least five (5) business days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
6. CONVERSION RIGHTS OF THE COMPANY
(a) MANDATORY CONVERSION. The Company may upon notice of such action
to Holder require Holder to convert the Note into shares of Common Stock
("Mandatory Conversion") at the then Applicable Conversion Rate if, at anytime
after the 181st day following the Original Issue Date, the closing price of the
Common Stock on NASDAQ or such other exchange or system on which the Common
Stock is traded, for twenty (20) consecutive trading days, is $3.00 or more per
share, with such price to be adjusted in the event of Common Stock splits,
combinations dividends or distributions in the same manner as provided in
Sections 5(g) and 5(h) for the Conversion Cap.
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(b) PARTIAL CONVERSION/REDEMPTION. At the end of the Term, the
Company shall pay the Convertible Note, at the Convertible Note Amount, in cash;
provided, however, that at the option of the Company, in lieu of paying to
Holder the entire Convertible Note Amount, the Company shall have the right,
upon written notice of such action to Holder within two business days prior to
the end of the Term, to force the conversion of 25% of the outstanding balance
of the Convertible Note Amount into Common Stock at a price equal to the lower
of $1.40 or the Conversion Price, subject to the Conversion Cap and the
procedure described in this Section 6(b) (the "Mandatory Partial Conversion
Right"). The number of shares of Common Stock to be issued in such conversion
will be determined by the following method: one-quarter of the Convertible Note
Amount (at maturity), will be divided by the lower of $1.40 or the Conversion
Price in effect on such date, and multiplied by 1.2. By way of example,
assuming that at the end of the Term one-quarter of the Convertible Note Amount
was equal to $750,000, and the Conversion Price was $1.00 per share, the
Company, upon exercising its Mandatory Partial Conversion Right, would issue
900,000 shares (1.2 x 750,000).
7. OTHER CONVERSION PROVISIONS.
(a) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Note. If the conversion would result
in the issuance of any fractional share, the Corporation shall, in lieu of
issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (determined as provided in
subsection 5(l)(1)) on the date of conversion.
(b) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Convertible Note, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of the Convertible Note. If
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of the Convertible Note, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(c) NOTICES. Any notice required by the provisions of this
Convertible Note shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when sent by confirmed
telex or facsimile, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) two (2) days
after deposit with a nationally recognized overnight courier, with written
verification of receipt. All notices shall be addressed to Holder at the
address set forth herein or at such subsequent address as Holder shall provide
to the Company in writing.
(d) PAYMENT OF TAXES. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect
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to the issue or delivery of shares of Common Stock upon conversion of the
Convertible Note.
(e) NO DILUTION OR IMPAIRMENT. The Company shall not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the Holder against dilution or other
impairment.
8. COVENANTS. The approval of the Holder is required before the Company may
take those actions set forth in Section 5 (the "Covenants") of that certain Note
Purchase Agreement, dated the date hereof, by and between the Holder and the
Company . Such Covenants are incorporated herein by reference as if set forth
in full below and shall remain in effect so long as this Note remains
outstanding. No reference in Section 5 hereof to actions that the Company may
take shall be deemed in any way to prejudice or limit Holder's rights to enforce
the Covenants. The Company acknowledges that the Covenants are a material
inducement to Holder's willingness to purchase the Convertible Note, and that
Holder would not be willing to purchase the Note in the absence of the
Covenants. Accordingly, except to the extent that the Covenants expressly
limit Holder's discretion, the Company acknowledges that Holder shall be free to
enforce the Covenants in its absolute discretion or to condition its consent as
it sees fit.
9. LEGAL FEES. The Company agrees to pay all Holder's reasonable costs and
expenses, including without limitation reasonable attorneys' fees actually
incurred by Holder in connection with the enforcement of any obligation of the
Company under this Note.
10. GOVERNING LAW. This Note shall be governed by and construed in accordance
with the laws of the State of New York.
11. SEVERABILITY. Should any provision or portion of this Note be held
unenforceable or invalid for any reason, the remaining provisions and portions
of this Note shall be unaffected by such holding.
DUALSTAR TECHNOLOGIES CORPORATION
By:
---------------------------------
Its:
---------------------------------
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By:
---------------------------------
Its:
---------------------------------
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EXHIBIT B
STOCKHOLDERS AGREEMENT
SEE ATTACHED.
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STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (the "Agreement") made the ____ day of November,
1998, by and among DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), and the persons or entities listed on SCHEDULE A annexed to
this Agreement (such persons or entities are hereinafter referred to
individually as a "Stockholder" or collectively as the "Stockholders", unless
otherwise individually named).
WHEREAS, the Stockholders are stockholders, or may hereafter become
stockholders upon conversion of outstanding securities, of the Corporation, and
the Stockholders desire to make certain arrangements among them and with the
Corporation.
NOW, THEREFORE, in consideration of the foregoing premise and the
covenants and agreements contained herein, the parties agree as follows:
1. NOMINATION OF DIRECTORS. Commencing for the 1999 Annual Meeting
of Stockholders of the Corporation, each Stockholder shall recommend to the
Board of Directors of the Corporation the nomination of, for election as a
Director of the Corporation, (i) one (1) person designated by each of Gregory
Cuneo, Ronald Fregara, and Stephen Yager, (ii) two (2) persons designated by
Gregory Cuneo, Ronald Fregara, and Stephen Yager, collectively, and (iii) one
(1) person designated by Technology Investors Group, LLC (collectively, the
"Initial Nominees"), PROVIDED, HOWEVER, that the Initial Nominee of Technology
Investors Group, LLC and any nominee of the other Stockholders other than the
Directors of the Corporation elected at the 1998 Annual Meeting of Stockholders
must be reasonably acceptable to the other parties (for the purposes hereof, an
Initial Nominee shall not be "reasonably acceptable" if disclosure with respect
to such Initial Nominee would be required pursuant to Item 401(f) of Regulation
S-K of the Securities and Exchange Commission (the "Commission")). In the event
the Corporation reports a net loss from operations in the fiscal year ending
June 30, 1999, each Stockholder shall recommend to the Board of Directors of the
Corporation the nomination of, for election as a Director of the Corporation,
one (1) additional person (the "Additional Nominee") designated by Technology
Investors Group, LLC ("TIG"). The Additional Nominee also must be reasonably
acceptable to the other parties. The Initial Nominees and the Additional
Nominee shall be referred to collectively hereinafter as the "Nominee(s)". For
purposes of this Section 1, "net loss from operations" shall be calculated using
income from continuing operations based on the audited financial statements, as
audited by the Corporation's independent auditors (and, for this purpose, as
adjusted by excluding amortization, depreciation, and the cumulative effect of
accounting changes).
2. VOTING. Each Stockholder will vote, or direct the voting of, all
of the shares of stock of the Corporation ("Stock") as to which such Stockholder
now or hereafter has voting power (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) at all meetings of
stockholders for the election of Directors, or shall express or direct the
expression of consent to any such action of stockholders taken without a
meeting, for the election as a Director
<PAGE>
of each Nominee. If a Nominee shall not be nominated by the Board of
Directors or stand for election or shall cease to act for any reason as a
Director, the person or persons who designated such Nominee shall have the
exclusive right to recommend to the Board of Directors the nomination of a
successor to such Nominee.
3. RESTRICTIONS ON TRANSFER OF STOCK.
3.1. Without the prior written consent in his or its discretion of each
party to this Agreement (other than the Corporation), no Stockholder shall sell,
assign, transfer, pledge, encumber or in any way dispose of any Stock owned by
such Stockholder on the date of this Agreement, or issued to any Stockholder
upon conversion of the Subordinated Convertible Note (the "Note") sold by the
Corporation to TIG on the date of this Agreement (current ownership is set
forth on SCHEDULE A attached hereto), nor shall any such Stock be transferable
on the books of the Corporation or its transfer agent for the Stock (except for
a transfer permitted by Section 3.2 below).
3.2. Notwithstanding anything to the contrary provided herein, an
individual Stockholder may at any time during his lifetime transfer all or part
of his Stock to his spouse, children or grandchildren or to a trust for their
benefit, or upon his death any of such Stock may be transferred to his spouse,
children or grandchildren or to a trust for their benefit by bequest or
otherwise under his will or pursuant to the laws of descent and distribution;
provided that, any transferee of Stock pursuant to the above shall agree in
writing, as a condition of transfer, to hold such Stock subject to the terms of
this Agreement as if such transferee were a party to this Agreement as a
Stockholder.
3.3. Nothing contained in this Agreement shall affect any other
restrictions pursuant to federal or state securities law on transfer of any
Stock issued upon conversion.
4. TERM. This Agreement shall terminate on the earlier of: (i)
thirty (30) months from the date of this Agreement, or (ii) such date following
conversion of the Note that the voting power of TIG amounts to less than five
percent (5%) of the then outstanding shares of stock of the Corporation entitled
to vote for election of Directors. Subject to the foregoing, Sections 1 and 2
will not apply to TIG in any fiscal year immediately following two (2)
consecutive fiscal years in which the Corporation incurs a net loss from
operations (as defined in Section 1 above); PROVIDED, HOWEVER, that this
Agreement will apply again to TIG in any fiscal year following any fiscal year
in which the Corporation has a profit.
5. MISCELLANEOUS.
5.1. AMENDMENT. This Agreement and the Schedule hereto may not be
amended except by an instrument in writing signed by or on behalf of each of the
parties hereto.
5.2. WAIVER. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party.
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5.3. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York.
5.4. CAPTIONS. The Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
5.5. PUBLICITY. None of the parties hereto shall issue any press
release or make any other public statement, in each case relating to or
connected with or arising out of this Agreement or the matters contained herein,
without obtaining the prior approval of the other parties to the contents and
the manner of presentation and publication thereof, except such reports or other
notices that the party issuing or making same has been advised by counsel are
required pursuant to applicable law or regulation.
5.6. NOTICE. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight courier
or facsimile transmission (in each case with evidence of receipt), addressed to
the Corporation at its principal office and to TIG, and the Stockholders,
respectively, at the addresses set forth on SCHEDULE A hereto. Any party may
change such address by like notice. If sent by courier, such notice shall be
deemed to have been given as of the next business day after it was deposited
with the courier service and if sent by facsimile such notice shall be deemed to
have been given when transmitted.
5.7. PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
5.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
5.9. ENTIRE AGREEMENT. This Agreement, including the Schedule referred
to herein, which forms a part hereof, contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
3
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this
Agreement on the date first set forth above.
TECHNOLOGY INVESTORS DUALSTAR TECHNOLOGIES CORPORATION
GROUP, LLC
By: By:
---------------------- -------------------------------
Name: Name: Elven M. Tangel
Title: Title: Chairman
----------------------------------
Gregory Cuneo, individually
----------------------------------
Ronald Fregara, individually
----------------------------------
Stephen J. Yager, individually
4
<PAGE>
SCHEDULE A
----------
NAMES, ADDRESSES AND
STOCK OWNERSHIP OF THE CORPORATION
<TABLE>
<CAPTION>
Name and Address Common Stock Ownership
- ---------------- ----------------------
<S> <C>
DualStar Technologies Corporation N/A
11-47 47th Avenue
Long Island City, New York 11101
Fax No. 718-340-6659
Gregory Cuneo 435,000
4823 Bay Parkway
Brooklyn, NY 11230
Ronald Fregara 435,000
246 Westend Avenue
Massapequa, NY 11758
Stephen J. Yager 435,000
65 Jefferson Avenue
Kearney, NJ 07032
Technology Investors Group LLC N/A
25 Coligni Avenue
New Rochelle, New York 10801
</TABLE>
5
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
SEE ATTACHED.
12
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated November ____,
1998 among DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation having its
principal office at 11-30 47th Avenue, Long Island City, New York 11101 (the
"Corporation"); the stockholders of the Corporation set forth on SCHEDULE 1
hereto (the "Stockholders"); and TECHNOLOGY INVESTORS GROUP, LLC, a Delaware
limited liability company ("TIG").
WHEREAS, in connection with a Note Purchase Agreement dated the date
hereof (the "Note Purchase Agreement"), the Corporation has agreed to sell its
Subordinated Convertible Note to TIG (the "Note");
WHEREAS, the Corporation has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Act");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements contained herein, the parties agree as follows:
1. REGISTRATION RIGHTS.
1.1. PIGGYBACK REGISTRATION RIGHTS.
1.1.1. RIGHT TO PIGGYBACK. If the Corporation proposes to
register any shares of its common stock (or securities convertible into or
exchangeable or exercisable for common stock) (the "Common Stock") under the Act
(a "Proposed Registration") and the registration form to be used may be used for
the registration of the Registrable Securities as defined in Section 1.5.6 below
(a "Piggyback Registration"), the Corporation will give prompt written notice to
all holders of Registrable Securities of its intention to effect such a
registration and will, subject to Section 1.1.2 below, include in such Piggyback
Registration all Registrable Securities with respect to which the Corporation
has received written requests for inclusion therein within fifteen (15) days
after receipt of the Corporation's notice; provided that, the maximum number of
Registrable Securities that may be registered by TIG pursuant to any such
Piggyback Registration (the "TIG Maximum") shall not exceed the percentage of
TIG's total Registrable Securities equal to the percentage that the total number
of shares offered by the Corporation in the Proposed Registration bears to the
total number of issued and outstanding shares of the Corporation. In the case
of an underwritten offering, Registrable Securities with respect to which such
request for registration has been received will be registered by the Corporation
pursuant to this Section 1 on the same terms and subject to the same conditions
applicable to the stock to be sold by the Corporation or by other persons
selling under such Proposed Registration. Holders of Registrable Securities
will be entitled to include shares pursuant to this Section 1.1.1 in (A) demand
registrations of any shareholder of the Corporation, or (B) registrations of the
Corporation, other than a registration statement on Form S-4 or S-8.
<PAGE>
1.1.2. PRIORITY ON PIGGYBACK REGISTRATIONS. If the managing
underwriter or underwriters advise the Corporation in writing that in its or
their opinion (with respect to which opinion, the Company shall act in good
faith), (i) the number of securities proposed to be sold in a Proposed
Registration exceeds the number which can be sold in such offering, the
Corporation will include in such registration the number of securities which, in
the opinion of such underwriter or underwriters, can be sold as follows: (A)
first, the shares of Common Stock the Corporation proposes to sell, (B) second,
the shares of Common Stock requested to be included in such registration
pursuant to a demand registration right, if any, (C) third, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of Registrable Securities to be included therein, and (D) fourth, other
shares of Common Stock requested to be included in such registration, or (ii) it
is inadvisable to include any Registrable Securities in such a Proposed
Registration, then no Registrable Securities shall be included in any such
registration.
1.1.3 REGISTRATION ON REQUEST. If, pursuant to Section 1.1.2
above, the TIG Maximum is reduced by more than twenty-five percent (25%),
thereafter, TIG shall have the right to require the Corporation upon its written
request to effect the registration of any remaining Registrable Securities owned
by TIG ("Demand Registration"); provided that, (i) the Corporation shall not be
obligated to effect more than one Demand Registration; (ii) the Corporation
shall be entitled to postpone for a reasonable period (but not exceeding 135
days) the filing of any registration statement otherwise required to be filed
pursuant to this Section 1.1.3 if the Corporation determines, in its sole
discretion, that such registration or offering pursuant thereto could interfere
with any financing, acquisition, corporate reorganization, or other material
transaction or event involving the Corporation, or would require premature
disclosure thereof; and (iii) the Corporation shall not be required to file any
such registration statement at any time when the Corporation would be required
to undergo an interim audit or to prepare financial statements other than the
regular quarterly or annual statements in order to comply with the requirements
of such registration statement with respect to financial information.
1.1.4. SELECTION OF UNDERWRITERS. If any Proposed Registration is
an underwritten offering, the Corporation will select a managing underwriter or
underwriters to administer the offering.
1.2. REGISTRATION PROCEDURES. With respect to any Piggyback
Registration or Demand Registration, the Corporation will, subject to Sections
1.1.2 and 1.1.3, as expeditiously as practicable:
1.2.1. prepare and file with the Commission a Registration
Statement which includes the Registrable Securities and use its best efforts to
cause such Registration Statement to become effective;
1.2.2. prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration
2
<PAGE>
Statement effective for a period of not less than three (3) months (or such
shorter period which will terminate when all Registrable Securities covered
by such Registration Statement have been sold or withdrawn, but not prior to
the expiration of the forty-day period referred to in Section 4(3) of the Act
and Rule 174 thereunder, if applicable); cause the Prospectus to be
supplemented by any required Prospectus supplement; and cause such supplement
to be filed pursuant to Rule 424 under the Act;
1.2.3. furnish to any person holding Registrable Securities
included in such Registration Statement and the underwriter or underwriters, if
any, without charge, at least one copy of the Registration Statement and any
post-effective amendment thereto, upon request, and such number of conformed
copies thereof and such number of copies of the Prospectus (including the
preliminary Prospectus) and any amendments or supplements thereto, and any
document incorporated by reference therein, as such person or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Securities being sold by such person, (it being understood that the Corporation
consents to the use of the Prospectus and any amendment or supplement thereto by
each person holding Registrable Securities covered by the Registration Statement
and the underwriter or underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto);
1.2.4. notify each person holding Registrable Securities included
in such Registration Statement, at any time when a Prospectus relating thereto
is required to be delivered under the Act, when the Corporation becomes aware of
the happening of any event as a result of which the Prospectus included in such
Registration Statement (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein not misleading and, as promptly as practicable thereafter, prepare and
file with the Commission and furnish a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
1.2.5. make generally available to its security holders an
earnings statement satisfying the provisions of Section 11(a) of the Act no
later than ninety (90) days after the end of the twelve-month period beginning
with the first month of the Corporation's first fiscal quarter commencing after
the effective date of the Registration Statement, which statement shall cover
said twelve-month period; and
1.2.6. use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement.
Each holder of Registrable Securities, upon receipt of any notice from
the Corporation of the happening of any event of the kind described in Section
1.2.4, will forthwith discontinue disposition of the Registrable Securities
until such holder's receipt of the copies of the
3
<PAGE>
supplemented or amended Prospectus contemplated by Section 1.2.4 or until it
is advised in writing (the "Advice") by the Corporation that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Corporation, such holder will, or will request the
managing underwriter or underwriters, if any, to deliver to the Corporation
(at the Corporation's expense) all copies, other than permanent file copies
then in such holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Corporation shall give any such notice, the time periods mentioned in Section
1.2.2 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 1.2.4 or the Advice.
1.3. RESTRICTIONS ON PUBLIC SALE. Each person holding Registrable
Securities included in a Registration Statement, if requested by the managing
underwriter or underwriters of any underwritten Proposed Registration, agrees
not to effect any public sale or distribution of Registrable Securities under
the Act during the five (5) business days prior to and during the sixty-day
period beginning on the effective date of such Proposed Registration (except as
part of such Proposed Registration) (or such earlier time as all the shares of
Common Stock included in such Registration Statement have been disposed of
pursuant thereto).
1.4. REGISTRATION EXPENSES. All of the costs and expenses of each
registration hereunder will be borne by the Corporation, including the fees and
expenses of counsel and accountants for the Corporation, and all other costs and
expenses of the Corporation incident to the preparation, printing and filing
under the Act of the Registration Statement (and all amendments and supplements
thereto) and furnishing copies thereof and of the Prospectus included therein,
and the costs and expenses incurred by the Corporation in connection with the
qualification of the Registrable Securities under the state securities or
"blue-sky" laws of various jurisdictions; provided that, the Corporation shall
not bear costs and expenses of any holders of Registrable Securities, including,
but not limited to, underwriters' commissions, brokerage fees, transfer taxes,
transaction fees, or the fees and expenses of any counsel, accountants or other
representatives retained by any holder.
1.5. INDEMNIFICATION.
1.5.1. INDEMNIFICATION BY THE CORPORATION. The Corporation agrees
to indemnify, to the full extent permitted by law, each holder of Registrable
Securities, its officers and directors and each person who controls such holder
(within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act), against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or preliminary Prospectus or any omission
or alleged omission to state therein a material fact necessary to make the
statements therein (in the case of the Prospectus or any preliminary Prospectus,
in light of the circumstances under which they were made) not
4
<PAGE>
misleading, except insofar as the same are caused by or contained in any
information with respect to such holder furnished in writing to the
Corporation by or on behalf of such holder for use therein or by such
holder's failure to deliver a copy of the Registration Statement or
Prospectus or any amendments or supplements thereto after the Corporation has
furnished such holder with a sufficient number of copies of the same.
1.5.2. INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any Registration Statement in which a holder of Registrable
Securities is participating, each such holder will furnish to the Corporation in
writing such information and affidavits with respect to such holder as the
Corporation reasonably requests for use in connection with any Registration
Statement or Prospectus and agrees to indemnify, to the full extent permitted by
law, the Corporation, its directors and officers and each person who controls
the Corporation (within the meaning of either Section 15 of the Act or Section
20 of the Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of a material
fact or any omission or alleged omission to state a material fact necessary to
make the statements in the Registration Statement or Prospectus or preliminary
Prospectus (in the case of the Prospectus or any preliminary Prospectus, in
light of the circumstances under which they were made) not misleading, to the
extent that such untrue statement or omission is contained in any information or
affidavit with respect to such holder so furnished in writing by or on behalf of
such holder for inclusion in any Prospectus or Registration Statement. The
Corporation shall be entitled to receive indemnification from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information with respect to such persons so furnished in writing by
such persons specifically for inclusion in any Prospectus or Registration
Statement.
1.5.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (ii) unless in the indemnifying party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of the indemnifying party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay fees and expenses of such
additional counsel or counsels.
5
<PAGE>
1.5.4. CONTRIBUTION. If for any reason the indemnification
provided for in Sections 1.5.2 and 1.5.3, respectively, is unavailable to an
indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable consideration. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue and alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 1.5.3, any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 1.5.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
1.5.5. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of
Registrable Securities may participate in any underwritten registration
hereunder unless such holder (i) agrees to sell its Registrable Securities on
the basis provided in any underwriting arrangements, and (ii) completes and
executes all questionnaires, powers of attorney, underwriting agreements and
other documents customarily required under the terms of such underwriting
arrangements.
1.5.6. DEFINITIONS. "Registrable Securities" means the shares of
DualStar Technologies Corporation Common Stock held by the Stockholders or
issued upon conversion of the Note and held by TIG, only so long as any share of
Common Stock continues to be a "Restricted Security." A share shall be deemed
to be a Restricted Security (i) until such share has been effectively registered
under the Act, or (ii) unless such share may be sold pursuant to Rule 144(k) (or
any similar provision then in force) under the Act.
1.5.7. AMENDMENTS AND WAIVERS. Nothing contained herein shall
alter, modify or affect anything contained in the Stockholders Agreement dated
the date hereof. The provisions of this Section 1, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers of or
consents to departures from the provisions hereof may not be given unless the
Corporation has obtained the written consent of entities or individuals holding
more than fifty percent (50%) of the outstanding Registrable Securities.
6
<PAGE>
1.5.8. TERMINATION. This Section 1 shall continue in full force
and effect until none of the shares are Registrable Securities; PROVIDED,
HOWEVER, that the rights set forth in this Section 1 shall only inure to the
benefit of the Stockholders and TIG.
2. MISCELLANEOUS.
2.1. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York.
2.2. CAPTIONS. The Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
2.3. PUBLICITY. None of the parties hereto shall issue any press
release or make any other public statement, in each case relating to or
connected with or arising out of this Agreement or the matters contained herein,
without obtaining the prior approval of the other parties to the contents and
the manner of presentation and publication thereof, except such reports or other
notices that the party issuing or making same has been advised by counsel are
required pursuant to applicable law or regulation.
2.4. NOTICES. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight courier
or facsimile transmission (in each case with evidence of receipt), addressed to
the Corporation at its principal office first set forth above, and to the
Stockholders and TIG, respectively, at the addresses set forth on SCHEDULE 1
hereto. Any party may change such address by like notice. If sent by courier,
such notice shall be deemed to have been given as of the next business day after
it was deposited with the courier service and if sent by facsimile such notice
shall be deemed to have been given when transmitted.
2.5. PARTIES IN INTEREST. Subject to Sections 1.5.7 and 1.5.8 above,
this Agreement shall not be assignable or transferable by any of the parties.
2.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
2.7. ENTIRE AGREEMENT. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
7
<PAGE>
IN WITNESS WHEREOF, each of the Corporation and TIG has caused this
Agreement to be executed by its officer thereunto duly authorized, and each of
the Stockholders has executed this Agreement, all as of the day and year first
above written.
TECHNOLOGY INVESTORS
GROUP, LLC DUALSTAR TECHNOLOGIES CORPORATION
By: By:
------------------------ ----------------------------
Name: Name: Elven M. Tangel
Title: Title: Chairman
-------------------------------
Gregory Cuneo
-------------------------------
Ronald Fregara
-------------------------------
Stephen J. Yager
8
<PAGE>
SCHEDULE 1
NAMES AND ADDRESSES
1. STOCKHOLDERS
Gregory Cuneo
4823 Bay Parkway
Brooklyn, NY 11230
Ronald Fregara
246 Westend Avenue
Massapequa, NY 11758
Stephen J. Yager
65 Jefferson Avenue
Kearney, NJ 07032
2. Technology Investors Group, LLC
25 Coligni Avenue
New Rochelle, New York 10801
9
<PAGE>
EXHIBIT D
LETTER AGREEMENT
SEE ATTACHED.
13
<PAGE>
November __, 1998
In connection with and in consideration of the sale and purchase of a
Subordinated Convertible Note dated the date hereof by DualStar Technologies
Corporation (the "Corporation") to Technology Investors Group, LLC ("TIG") (the
"Note"), the undersigned hereby agree that each of the undersigned shall not,
and will not cause or induce any of their Affiliates to, directly or indirectly,
during the twenty (20) trading days immediately preceding each Reset Date (as
such term is defined in the Note), sell, or enter an order to sell, assign,
transfer, pledge, encumber, or purchase, or enter orders to buy for, the Common
Stock of the Corporation.
For purposes of this letter agreement, an "Affiliate" of, or person or
entity affiliated with a specified person or entity is a person or entity that
(i) directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified, or (ii) is
related by blood or marriage, and any entity in which such person and/or other
Affiliates own, in the aggregate, ten percent (10%) or more of the voting power
or equity interest in such entity.
This letter agreement may be executed in two or more counterparts, all of
which taken together shall constitute one instrument.
TECHNOLOGY INVESTORS DUALSTAR TECHNOLOGIES CORPORATION
GROUP, LLC
By: By:
---------------------- -----------------------
Brad C. Singer Elven M. Tangel
Manager Chairman
MEMBERS of TIG STOCKHOLDERS of the CORPORATION
- ------------------------------ --------------------------------
Brad C. Singer Gregory Cuneo
- ------------------------------ --------------------------------
Frieda R. Tydings Ronald Fregara
- ------------------------------ --------------------------------
Lloyd I. Miller, III Stephen C. Yager
<PAGE>
EXHIBIT E-1
CERTIFICATE OF INCORPORATION
SEE ATTACHED.
14
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
DUALSTAR TECHNOLOGIES CORPORATION
-----------------
DualStar Technologies Corporation, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is DualStar Technologies Corporation and
the name under which the corporation was originally incorporated is the same.
The original Certificate of Incorporation was filed with the Secretary of
State of Delaware on June 17, 1994.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the Certificate of Incorporation of this
corporation by:
(a) amending Article FOURTH by deleting the restriction on
transferability of shares of the Corporation; and
(b) amending and restating Article NINTH in its entirety.
3. The text of the Certificate of Incorporation as amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
FIRST: The name of the corporation is
DUALSTAR TECHNOLOGIES CORPORATION
SECOND: The registered office of the corporation is to be located at
1209 Orange Street, County of New Castle, Wilmington, DE 19801. The name of
its registered agent at that address is The Corporation Trust Company.
THIRD: The purposes of the corporations are:
To furnish, perform and conduct services, undertakings, projects and
assignments of all kinds related to or useful in connection with corporation,
commercial, business, environmental,
<PAGE>
engineering, telecommunications, computers, software, real estate and medical
interests, aviation, management, consulting, insurance, investments,
mortgages, securities, mergers and acquisitions.
To create, purchase, finance, invest in, lend to, own, control, operate,
manage, engage in conduct or otherwise acquire, take any other interest in,
deal with, and dispose of corporations, businesses, joint ventures,
undertakings and projects of every description in the United States and any
other country; and to furnish services and assistance of all kinds to any on
behalf of other corporations, persons and entities, including managerial,
planning, advisory, financial, investment, technical, administrative,
consulting, marketing, promotional, distributive, research and reporting and
reporting services on a state, national and international scale.
The corporation shall have the power to do any and all acts and things
necessary or useful to its business and purposes, and shall have the general,
specific and incidental powers and privileges granted to it by statute,
including, but no limited to:
To enter into and perform contracts; to acquire and exploit patents,
trademarks, rights of all kinds and related and other interests; to acquire,
use, deal in and with, encumber and dispose of real and personal property
without limitation, including obligations and securities; to borrow and lend
money for its corporate purposes; to invest and reinvest its funds, and to
take, hold and deal with real and personal property as security for the
payment of funds loaned or invested or otherwise; to vary any investment or
employment of capital of the corporation from time to time; to create or
participate with other corporations and entities for the performance of all
undertakings as partner, joint venturer, or otherwise, and to share or
delegate control therewith or thereto.
To pay pensions and establish and carry out pension, profit sharing,
stock options, stock purchase, stock bonus, retirement, benefit, incentive,
or commission plans, trusts and provisions for any or all of the directors,
officers and employees of its subsidiaries; and to provide insurance for its
benefit on the life of any of its directors, officers or employees, or on the
life of any stockholder for the purpose of acquiring at his death shares of
its stock owned by such stockholder.
To invest in, merge or consolidate with any corporation in such manner as
may be permitted by law; to aid in any manner any corporation whose stocks,
bonds or other obligations are held or in any manner guaranteed by this
corporation or in which this corporation is in any way interested; to do any
other act or thing for the preservation, protection, improvement or
-2-
<PAGE>
enhancement of the value of any such stock, bonds or other securities and
while owner thereof to exercise all the rights, powers and privileges of
ownership and any voting powers thereon; and to guarantee the indebtedness of
others and the payment of dividends upon the stock the principal and/or
interests of any bonds or other securities, and the performance of any
contracts.
To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes, the attainment of any of the objects,
or the furtherance of any of the powers hereinbefore set forth either alone
or in association with other corporations, firms, partnerships or
individuals; to do every other act and thing incidental or appurtenant to,
growing out of, or connected with the aforesaid business or powers to the
extent permitted by the laws of Delaware under which this corporation is
organized, and to do all such acts and things, conduct business, have one or
more offices, and exercise its corporate powers in any and all places without
limitation.
FOURTH: 1) The total number of shares of common stock which this
corporation is authorized to issue is twenty-five million (25,000,000)
shares, $.01 par value.
2) The corporation is hereby empowered to issue from time to time its
authorized shares and securities, options, warrants, and other rights
convertible thereinto for such lawful consideration, whether money or
otherwise, as the Board of Directors shall determine. Any shares issued for
which the consideration so fixed has been paid or delivered shall be fully
paid stock and the holder of such shares shall not be liable for any further
call or assessment or any other payment thereon, provided that the actual
value of such consideration is not less than the par value of the shares so
issued.
3) The stockholders of the corporation do not have any preemptive or
preferential rights to subscribe to or purchase unissued shares of any class
of stock of the corporation whether such shares are now or hereafter
authorized, or any Treasury shares to be sold by the corporation.
FIFTH: The corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever, and they shall not
be personally liable for the payment of the corporation's debts except as
they may be liable by reason of their own conduct or acts.
SEVENTH: The following provisions are inserted for the management of the
business and the conduct of affairs of the corporation, and for further
definition, limitation and
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regulation of the powers of the corporation and of its directors and
stockholders.
1) The number of directors comprising the Board of Directors of the
corporation shall be such as from time to time shall be fixed by or in the
manner provided in the By-Laws, but shall not be less than one. Election of
directors need not be by ballot unless the By-Laws so provide.
2) The Board of Directors shall have the power, unless and to the extent
that the Board may from time to time by resolution relinquish or modify the
power, without the assent or vote of the shareholders to make, alter, amend,
change, add to or repeal the By-Laws of the corporation; to fix and vary the
amount of capital of the corporation to be reserved for any proper purpose;
to authorize and cause to be executed mortgages and liens upon all or any
part of the property of the corporation; to determine the use and disposition
of any surplus or net profits, and to fix the times for the declaration and
payment of dividends.
3) The Board of Directors in its discretion may submit any contract or
act for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering any
act or contract. Any contract or act that shall be approved or ratified by the
vote of the holders of a majority of the stock represented in person or by
proxy at such meeting and entitled to vote (provided that a lawful quorum of
stockholders be there represented in person or by proxy) shall be as valid
and as binding upon the corporation and its stockholders as though it had
been approved or ratified by every stockholder of the corporation, whether or
not the contract or act would otherwise be open to legal attack because of a
director's interest or for any other reason.
4) No contract or transaction between this corporation and one or more
of its directors or officers or between this corporation and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are directors or officers or have a
financial interest shall be void or voidable solely for this reason or solely
because the director or officer is present at or participates in the meeting
of the board or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such
purpose, if the contract or transaction is fair as to the corporation or if
the material facts relating thereto are disclosed to or are known by the
directors or shareholders, and are approved thereby pursuant to Section 44 of
Title 8 of the Delaware Code.
5) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the Board of Directors is hereby empowered to
exercise all such powers and to
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do all such acts and things as may be exercised or done by the corporation,
subject to the provisions of the statutes of Delaware, of this certificate,
and to any By-Laws from time to time made by the stockholders, and provided
that no By-Laws so made shall invalidate any prior act of the board which
would have been valid if such By-Laws had not been made.
EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same may be
amended and supplemented, indemnify and advance expenses to any and all
persons whom it shall have power to indemnify under said Section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said Section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit.
TENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as a consequence of such
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compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this corporation, as the
case may be, and also on this corporation.
ELEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation
in the manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
TWELFTH: The name and address of the incorporator is:
Stephen J. Drescher, Esq.
300 East 93rd Street, 21D
New York, NY 10128
THIRTEENTH: The name and address of each person who is to serve as a
director until the first annual meeting of stockholders or until his or their
successors are elected and qualified shall be as follows:
Stephen J. Drescher, Esq.
300 East 93rd Street, 21D
New York, NY 10128
This amended and Restated Certificate of Incorporation was duly approved
by the holders of all of the issued and outstanding stock entitled to vote in
accordance with Sections 245(b) and 242(b) of the General Corporation Law of
the State of Delaware. Said approval was made in the form of a consent in
writing, in lieu of a special meeting of stockholders, pursuant to Section
228(a) of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed under the seal of the corporation by its President and attested by
its Secretary this 1st day of August, 1994.
DUALSTAR TECHNOLOGIES CORPORATION
By: /s/ STEPHEN J. DRESCHER
------------------------------
President
Attest:
/s/ [ILLEGIBLE]
- ---------------------------
Secretary
<PAGE>
EXHIBIT E-2
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BY-LAWS OF THE CORPORATION
SEE ATTACHED.
15
<PAGE>
BY-LAWS
OF
DUALSTAR TECHNOLOGIES CORPORATION
(A DELAWARE CORPORATION)
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AS AMENDED EFFECTIVE AUGUST 30, 1995
----------
ARTICLE I
OFFICES
SECTION 1.01. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle, State of Delaware and the name of the registered agent
at such address is The Corporation Trust Company.
SECTION 1.02. OTHER OFFICES. The corporation may also have offices at
such other places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. GENERAL. All meetings of the stockholders shall be held
at such place either within or without the State of Delaware as the Board of
Directors shall determine prior to the mailing of the notice of such
meeting. Meetings of stockholders shall be presided over by the Chairman of
the Board, if any, or in the absence of the Chairman by the Vice Chairman of
the Board, if any, or in the absence of the Vice Chairman by the President,
or in the absence of the President by a Vice President, or in the absence of
the foregoing persons by a chairman designated by the Board of Directors, or
in the absence of such designated person by a chairman chosen at the meeting.
The Secretary shall act as secretary of the meeting, but in the absence of
the Secretary the chairman of the meeting may appoint any person to act as
secretary of the meeting.
SECTION 2.02. ANNUAL MEETING. An annual meeting of stockholders shall
be held either within or without the State of Delaware, at such time and
place as the Board of Directors may designate in the call or in a waiver of
notice thereof, on the second Wednesday in November in each year commencing
in 1995 for the purpose of electing directors and for the transaction of such
other business as may properly be brought before the meeting.
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SECTION 2.03. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be
called by the President or the Secretary at the request in writing of a
majority of the Board of Directors or of a holder or holders of not less than
fifty percent (50%) of shares of Common Stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Special meetings may not be called by any
other person or persons.
SECTION 2.04. NOTICE, PURPOSE AND ADJOURNMENT OF MEETINGS. Notice of
the time and place of meetings and the purpose or purposes thereof shall be
given by the Secretary or an Assistant Secretary by mail not less than ten
days (unless a longer period shall be required by statute) nor more than
sixty days before the meeting to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the mail, postage prepaid. Such notice shall be directed to
each stockholder at the stockholders' address as it appears on the stock
register of the Corporation unless the stockholder shall have filed with the
Secretary of the Corporation a written request that notices be mailed to some
other address, in which case it shall be mailed or transmitted to the address
designated in such request. Such further notice shall be given as may be
required by law. Except as otherwise expressly provided by statute, no
notice of a meeting of stockholders shall be required to be given to any
stockholder who shall, in person or by attorney thereunto authorized, waive
such notice in writing or by facsimile transmission, telegraph, cable or
radio either before or after such meeting. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of any regular or special meeting of the
stockholders need be specified in any written waiver of notice. Any meeting
of stockholders, annual or special, may adjourn from time to time to reconvene
at the same or some other place, and notice need not be given of any such
adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting the Corporation
may transact any business which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
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SECTION 2.05. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise provided
by statute, by the Certificate of Incorporation or by these By-Laws. If,
however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat present in person
or represented by proxy, consistent with Section 2.04, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. Shares of
its own stock belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the Corporation, shall
neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of any corporation to
vote stock, including but not limited to its own stock, held by it in a
fiduciary capacity.
SECTION 2.06. VOTING. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, at every meeting of the
stockholders each stockholder of the Corporation entitled to vote at such
meeting shall have one vote in person or by proxy for each share of stock
having voting rights held by such stockholder and registered in such
stockholder's name on the books of the Corporation at the record date fixed
or otherwise determined for such meeting. Any vote in respect of stock of
the Corporation may be given by the stockholder entitled thereto in person or
by such stockholder's proxy appointed by an instrument in writing subscribed
by such stockholder or by such stockholder's attorney thereunto authorized
and delivered to the Secretary of the meeting; provided, however, that no
proxy shall be voted on after three years from its date unless said proxy
provides for a longer period. A duly executed proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking
the proxy or another duly executed proxy bearing a later date with the
Secretary of the Corporation. Voting at meetings of stockholders need not be
by written ballot and need not be conducted by inspectors unless the holders
of a majority of the shares of all classes of stock entitled to vote thereon
present in person or by proxy at such meeting shall so determine. Except as
otherwise required by statute, the Certificate of Incorporation or these
By-Laws all matters coming before any meeting of the stockholders shall be
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decided by the vote of the holders of a majority of shares issued and
outstanding and entitled to vote.
SECTION 2.07. LIST OF STOCKHOLDERS. A complete list of the
stockholders entitled to vote at each meeting of stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder, shall be prepared by
the Secretary or other officer of the Corporation having charge of the stock
ledger. Such list shall be open to the examination of any stockholder for any
purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meetings either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where said meeting is
to be held, and the list shall be produced and kept at the time and place of
meeting during the whole time thereof, and shall be subject to the
inspection of any stockholder who may be present.
SECTION 2.08. INFORMAL ACTION. Any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.01. POWERS. The property and business of the Corporation shall
be managed by or under the direction of its Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by
these By-Laws directed or required to be exercised or done by the
stockholders.
SECTION 3.02. NUMBER. The number of directors which shall constitute
the whole Board shall not be less than one nor more than nine and shall be
such as shall be determined from time to time by resolution of the Board of
Directors. Directors need not be stockholders. Any director may resign
at any time by giving written notice to the Corporation; such resignation
shall take effect immediately upon receipt by the Corporation if no
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time is specified therein, or at such later time as such director may specify.
The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 3.03, and each director shall be elected to
serve until his or her successor shall have been elected.
SECTION 3.03. VACANCIES. If any vacancies occur in the Board of
Directors caused by death, resignation, retirement, disqualification or
removal from office of any directors or otherwise, or any new directorship is
created by any increase in the authorized number of directors, the directors
remaining in office, though less than a quorum, may, by the act of all such
remaining directors reduce the size of the Board as provided in Section 3.02
or choose a successor or successors, or fill the newly created directorship,
and the directors so chosen shall hold office until the next annual election
of directors and until their successors shall have been elected.
SECTION 3.04. MEETINGS. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman by the President, or in their absence by a chairman chosen at
the meeting. The Secretary, or in the Secretary's absence an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of
the Secretary or an Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting. Meetings of the Board of
Directors shall be held at such place within or without the State of
Delaware as may from time to time be fixed by resolution of the stockholders
or Board of Directors, or as may be specified in the notice of the meeting.
Regular meetings of the Board of Directors shall be held at such times and
places as may from time to time be fixed by resolution of the Board of
Directors, and special meetings shall be called by the Secretary pursuant to
order of the President or any director whenever in their judgment it may be
necessary, by facsimile transmission or by oral, telegraphic or written
notice duly served on or given to each director not less than one day before
such meeting. If mailed, such notice shall be deposited in the mail,
first-class postage prepaid, at least three days before the date of the
meeting. Each newly elected Board of Directors shall meet and organize at
the place of the meeting of the stockholders on the same date as the annual
meeting of the stockholders at which such Board of Directors was elected and
as soon as reasonably practicable after the adjournment of such annual meeting
of the stockholders, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided
a quorum shall be present. In the event such meeting is not so held, the
meeting may be held at such time and place as shall be specified in a notice
given as herein provided for special
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meetings of the Board of Directors. Notice need not be given of regular
meetings of the Board of Directors held at the time and place fixed by
resolution of the Board of Directors. Meetings may be held at any time
without notice if all the directors are present, or if at any time before or
after the meeting those not present waive notice of the meeting in writing.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of any regular or special
meeting of the directors or members of a committee of directors need be
specified in any written waiver of notice.
SECTION 3.05. QUORUM. At all meetings of the Board the presence of a
majority of the Board of Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business and the act of a majority
of the directors present at any meeting at which there is a quorum shall be
the act of the Board of Directors, except as may be otherwise specifically
required by statute or by the Certificate of Incorporation or these By-Laws.
If a quorum shall not be present at any meeting of directors, the directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
SECTION 3.06. COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation, which, to the extent provided in said resolution or
resolutions, shall have and may exercise the powers of the Board of Directors
in the management of the business and affairs of the Corporation, but no such
committee shall have power or authority in reference to amending the
Certificate of Incorporation of the Corporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, or amending these By-Laws; and, unless the
resolution expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of Directors. Unless
otherwise provided in the resolution of the Board of Directors designating a
committee, each committee shall have the power to adopt rules and
regulations for the calling and holding of meetings, and in the absence of
the adoption of such rules and regulations the provisions of these By-Laws
relating to the calling and holding of meetings of the Board of Directors
shall
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apply. Unless otherwise provided in the resolution of the Board of Directors
designating a committee, each committee may select a Chairman and a majority
of a committee shall constitute a quorum and the act of a majority of the
members present at a meeting at which there is a quorum shall be the act of
such committee. A committee shall keep minutes of its meetings. Subject to
the provisions of these By-Laws, the Board of Directors shall have the power
at any time to fill vacancies in, to change the membership of, or to
discharge any such committee. Subject to the provisions of these By-Laws the
Board may designate one or more directors as alternate members of any
committee, who may replace any present or disqualified member at any meeting of
the committee.
SECTION 3.07. REMOVAL OF DIRECTORS. At any special meeting of the
stockholders, duly called, as provided in these By-Laws, any director or
directors, by the affirmative vote of the holders of not less than a majority
of all shares of stock outstanding and entitled to vote for the election of
directors, may be removed from office either with or without cause and a
successor or their successors elected at such meeting; or the remaining
directors may, to the extent vacancies are not filled by such election, fill
any vacancy or vacancies created by such removal or reduce the number of
directors which shall constitute the whole Board.
SECTION 3.08. INFORMAL ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if a written consent thereto is signed by all
members of the Board or of the committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board of
Directors or the committee.
SECTION 3.09. MEETINGS VIA CONFERENCE TELEPHONE. Members of the Board
of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or a committee by means of
a conference telephone or similar communications equipment in which all
persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section shall constitute presence in person at
such meeting.
SECTION 3.10. COMPENSATION OF DIRECTORS. Directors who are not
salaried officers or salaried employees of the Corporation shall be entitled
to receive such fixed stipend for their services, and/or such fixed sum for
attendance at regular or special meetings, as may from time to time be
determined by resolution of the Board of Directors, and all directors shall
be entitled to reimbursement of their reasonable expenses of attendance at
each regular or special meeting of the Board. Like
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compensation may be allowed by the Board of Directors for attendance at
committee meetings. Nothing herein contained shall be construed to preclude
any director from serving the Corporation as a salaried officer or salaried
employee, or from rendering advice or services to the Corporation in any
other capacity, and receiving remuneration therefor.
ARTICLE IV
OFFICERS
SECTION 4.01. NUMBER. The officers of the Corporation shall be chosen
by the directors and may include a Chairman, a Vice Chairman, a President, one
or more Vice Presidents, a Secretary, a Treasurer, one or more Assistant
Secretaries and one or more Assistant Treasurers. Any number of offices may
be held by the same person.
SECTION 4.02. OTHER OFFICERS AND AGENTS. The Board may appoint such
other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board.
SECTION 4.03. CHAIRMAN. The Chairman of the Board of Directors, if one
be elected, shall preside at all meetings of the Board of Directors and he
shall have and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 4.04. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of stockholders if present
thereat and, in the absence or non-election of a Chairman of the Board of
Directors, at all meetings of the Board. He shall have general supervision,
direction and control of the business of the Corporation and, except as the
Board of Directors shall authorize the execution thereof in some other
manner, shall execute bonds, mortgages and other contracts in behalf of the
Corporation and cause the seal to be affixed to any instrument requiring it.
When so affixed, the seal shall be attested by the signature of the Secretary
or the Treasurer, or an Assistant Secretary or an Assistant Treasurer.
SECTION 4.05. VICE PRESIDENT. Each Vice President shall have such
powers and perform such duties as shall be assigned to him by the Board.
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SECTION 4.06. TREASURER. The Treasurer shall have custody of corporate
funds and securities and keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He shall deposit all
moneys and other valuables in the name and to the credit of the Corporation in
such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse funds of the Corporation as ordered by the
Board of Directors or the President, taking proper vouchers for such
disbursements. He shall render to the President and the Board at its regular
meetings, or whenever the Board may request it, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors he shall give the Corporation a bond
for the faithful discharge of his duties in such amount and with such surety
as the Board shall prescribe.
SECTION 4.07. SECRETARY. The Secretary shall give or cause to be given
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws. In case of this absence, refusal or
neglect to do so, the notice may be given by any person thereunto directed by
the President, the Board, or the stockholders, upon whose requisition the
meeting is called as provided in these By-Laws. He shall record all
proceedings of the meetings of the Corporation and its Board in a book to be
kept for that purpose, and shall perform such other duties as may be assigned
to him by the Board or the President. He shall have custody of the corporate
seal, affix it to all instruments requiring it when authorized by the Board
or the President, and attest the same.
SECTION 4.08. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and perform such duties as shall be assigned to them
respectively by the Board.
SECTION 4.09. TERM AND REMOVAL. The officers of the Corporation shall
hold office until their successors are duly elected. Any officer elected or
appointed by the Board of Directors may be removed at any time, with or
without cause, by the affirmative vote of a majority of the whole Board of
Directors. Any officer may resign at any time by giving written notice to
the Corporation; such resignation shall take effect immediately upon receipt
by the Corporation if no time is specified therein, or at such later time as
such officer may specify. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors.
SECTION 4.10. VOTING CORPORATION'S SECURITIES. Unless otherwise ordered
by the Board of Directors, the President shall
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have full power and authority on behalf of the Corporation to attend and to
act and to vote, in person or by proxy, at any meetings of security holders
of corporations in which the Corporation may hold securities, and at such
meeting shall possess and may exercise any and all rights and powers incident
to the ownership of such securities, and which as the owner thereof the
Corporation might have possessed and exercised if present. Such rights and
powers shall include the right to waive notice of meetings and to consent to
action taken without a meeting. The Board of Directors by resolution from
time to time may confer like powers upon any other person or persons.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 5.01. FORM. The interest of each stockholder shall be
evidenced by a certificate or certificates for shares of stock of the
Corporation in such form as the Board of Directors may from time to time
prescribe. The certificates of stock shall be signed by the President or a
Vice President and the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary and sealed with the seal of the Corporation, which
may be a facsimile, engraved or imprinted.
SECTION 5.02. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
may issue certificates for shares of stock to replace certificates alleged to
have been lost, stolen or destroyed. No certificates for shares of stock of
the Corporation shall be issued in place of any certificates alleged to have
been lost, stolen or destroyed except upon production of such evidence of the
loss, theft or destruction and upon indemnification of the Corporation and
its agents to such extent and in such manner as the Board of Directors from
time to time may prescribe.
SECTION 5.03. TRANSFERS. Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by the registered holder's attorney thereunto
authorized, and on surrender of the certificate or certificates for such
shares properly endorsed. The Board of Directors from time to time may make
such additional rules and regulations as it may deem expedient, not
inconsistent with these By-Laws, concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
Corporation.
SECTION 5.04. FIXING RECORD DATE. The Board of Directors, in order to
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any
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<PAGE>
adjournment thereof, may fix, in advance, a record date which shall not be
more than sixty nor less than ten days before the date or such meeting. The
Board of Directors may also, in order to determine the stockholders entitled
to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other
lawful action, fix, in advance, a record date not more than sixty days prior
to any of the above actions. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.
SECTION 5.05. HOLDER OF RECORD. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except
as otherwise provided by the laws of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.01. DIVIDENDS. Dividends upon the stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 6.02. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors from time to time may designate. Such
signing may be in facsimile if so authorized by the Board of Directors.
SECTION 6.03. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware."
Said seal may be used by
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<PAGE>
causing it or a facsimile thereof to be impressed or affixed or reproduced
or otherwise.
SECTION 6.04. FISCAL YEAR. The fiscal year of the Corporation shall be
as determined by the Board of Directors.
ARTICLE VII
AMENDMENTS
SECTION 7.01. AMENDMENTS. These By-Laws may be altered or repealed at
any regular or special meeting of the stockholders or at any regular or
special meeting of the Board of Directors at which a quorum is present or
represented, provided notice of the proposed alteration or repeal be
contained in the notice of any such special meeting.
* * *
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<PAGE>
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (the "Agreement") made the 25th day of November,
1998, by and among DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), and the persons or entities listed on SCHEDULE A annexed to
this Agreement (such persons or entities are hereinafter referred to
individually as a "Stockholder" or collectively as the "Stockholders", unless
otherwise individually named).
WHEREAS, the Stockholders are stockholders, or may hereafter become
stockholders upon conversion of outstanding securities, of the Corporation, and
the Stockholders desire to make certain arrangements among them and with the
Corporation.
NOW, THEREFORE, in consideration of the foregoing premise and the
covenants and agreements contained herein, the parties agree as follows:
1. NOMINATION OF DIRECTORS. Commencing for the 1999 Annual Meeting
of Stockholders of the Corporation, each Stockholder shall recommend to the
Board of Directors of the Corporation the nomination of, for election as a
Director of the Corporation, (i) one (1) person designated by each of Gregory
Cuneo, Ronald Fregara, and Stephen Yager, (ii) two (2) persons designated by
Gregory Cuneo, Ronald Fregara, and Stephen Yager, collectively, and (iii) one
(1) person designated by Technology Investors Group, LLC (collectively, the
"Initial Nominees"), PROVIDED, HOWEVER, that the Initial Nominee of Technology
Investors Group, LLC and any nominee of the other Stockholders other than the
Directors of the Corporation elected at the 1998 Annual Meeting of Stockholders
must be reasonably acceptable to the other parties (for the purposes hereof, an
Initial Nominee shall not be "reasonably acceptable" if disclosure with respect
to such Initial Nominee would be required pursuant to Item 401(f) of Regulation
S-K of the Securities and Exchange Commission (the "Commission")). In the event
the Corporation reports a net loss from operations in the fiscal year ending
June 30, 1999, each Stockholder shall recommend to the Board of Directors of the
Corporation the nomination of, for election as a Director of the Corporation,
one (1) additional person (the "Additional Nominee") designated by Technology
Investors Group, LLC ("TIG"). The Additional Nominee also must be reasonably
acceptable to the other parties. The Initial Nominees and the Additional
Nominee shall be referred to collectively hereinafter as the "Nominee(s)". For
purposes of this Section 1, "net loss from operations" shall be calculated using
income from continuing operations based on the audited financial statements, as
audited by the Corporation's independent auditors (and, for this purpose, as
adjusted by excluding amortization, depreciation, and the cumulative effect of
accounting changes).
2. VOTING. Each Stockholder will vote, or direct the voting of, all
of the shares of stock of the Corporation ("Stock") as to which such Stockholder
now or hereafter has voting power (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) at all meetings of
stockholders for the election of Directors, or shall express or direct the
expression of consent to any such action of stockholders taken without a
meeting, for the election as a Director
<PAGE>
of each Nominee. If a Nominee shall not be nominated by the Board of
Directors or stand for election or shall cease to act for any reason as a
Director, the person or persons who designated such Nominee shall have the
exclusive right to recommend to the Board of Directors the nomination of a
successor to such Nominee.
3. RESTRICTIONS ON TRANSFER OF STOCK.
3.1. Without the prior written consent in his or its discretion of each
party to this Agreement (other than the Corporation), no Stockholder shall sell,
assign, transfer, pledge, encumber or in any way dispose of any Stock owned by
such Stockholder on the date of this Agreement, or issued to any Stockholder
upon conversion of the Subordinated Convertible Note (the "Note") sold by the
Corporation to TIG on the date of this Agreement (current ownership is set
forth on SCHEDULE A attached hereto), nor shall any such Stock be transferable
on the books of the Corporation or its transfer agent for the Stock (except for
a transfer permitted by Section 3.2 below).
3.2. Notwithstanding anything to the contrary provided herein, an
individual Stockholder may at any time during his lifetime transfer all or part
of his Stock to his spouse, children or grandchildren or to a trust for their
benefit, or upon his death any of such Stock may be transferred to his spouse,
children or grandchildren or to a trust for their benefit by bequest or
otherwise under his will or pursuant to the laws of descent and distribution;
provided that, any transferee of Stock pursuant to the above shall agree in
writing, as a condition of transfer, to hold such Stock subject to the terms of
this Agreement as if such transferee were a party to this Agreement as a
Stockholder.
3.3. Nothing contained in this Agreement shall affect any other
restrictions pursuant to federal or state securities law on transfer of any
Stock issued upon conversion.
4. TERM. This Agreement shall terminate on the earlier of: (i)
thirty (30) months from the date of this Agreement, or (ii) such date following
conversion of the Note that the voting power of TIG amounts to less than five
percent (5%) of the then outstanding shares of stock of the Corporation entitled
to vote for election of Directors. Subject to the foregoing, Sections 1 and 2
will not apply to TIG in any fiscal year immediately following two (2)
consecutive fiscal years in which the Corporation incurs a net loss from
operations (as defined in Section 1 above); PROVIDED, HOWEVER, that this
Agreement will apply again to TIG in any fiscal year following any fiscal year
in which the Corporation has a profit.
5. MISCELLANEOUS.
5.1. AMENDMENT. This Agreement and the Schedule hereto may not be
amended except by an instrument in writing signed by or on behalf of each of the
parties hereto.
5.2. WAIVER. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party.
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5.3. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York.
5.4. CAPTIONS. The Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
5.5. PUBLICITY. None of the parties hereto shall issue any press
release or make any other public statement, in each case relating to or
connected with or arising out of this Agreement or the matters contained herein,
without obtaining the prior approval of the other parties to the contents and
the manner of presentation and publication thereof, except such reports or other
notices that the party issuing or making same has been advised by counsel are
required pursuant to applicable law or regulation.
5.6. NOTICE. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight courier
or facsimile transmission (in each case with evidence of receipt), addressed to
the Corporation at its principal office and to TIG, and the Stockholders,
respectively, at the addresses set forth on SCHEDULE A hereto. Any party may
change such address by like notice. If sent by courier, such notice shall be
deemed to have been given as of the next business day after it was deposited
with the courier service and if sent by facsimile such notice shall be deemed to
have been given when transmitted.
5.7. PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
5.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
5.9. ENTIRE AGREEMENT. This Agreement, including the Schedule referred
to herein, which forms a part hereof, contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this
Agreement on the date first set forth above.
TECHNOLOGY INVESTORS DUALSTAR TECHNOLOGIES CORPORATION
GROUP, LLC
By: /s/ Brad C. Singer By: /s/ Elven M. Tangel
---------------------- -------------------------------
Name: Brad C. Singer Name: Elven M. Tangel
Title: Manager Title: Chairman
/s/ Gregory Cuneo
----------------------------------
Gregory Cuneo, individually
/s/ Ronald Fregara
----------------------------------
Ronald Fregara, individually
/s/ Stephen J. Yager
----------------------------------
Stephen J. Yager, individually
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SCHEDULE A
----------
NAMES, ADDRESSES AND
STOCK OWNERSHIP OF THE CORPORATION
<TABLE>
<CAPTION>
Name and Address Common Stock Ownership
- ---------------- ----------------------
<S> <C>
DualStar Technologies Corporation N/A
11-47 47th Avenue
Long Island City, New York 11101
Fax No. 718-340-6659
Gregory Cuneo 435,000
4823 Bay Parkway
Brooklyn, NY 11230
Ronald Fregara 435,000
246 Westend Avenue
Massapequa, NY 11758
Stephen J. Yager 435,000
65 Jefferson Avenue
Kearney, NJ 07032
Technology Investors Group LLC N/A
25 Coligni Avenue
New Rochelle, New York 10801
</TABLE>
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated November 25,
1998 among DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation having its
principal office at 11-30 47th Avenue, Long Island City, New York 11101 (the
"Corporation"); the stockholders of the Corporation set forth on SCHEDULE 1
hereto (the "Stockholders"); and TECHNOLOGY INVESTORS GROUP, LLC, a Delaware
limited liability company ("TIG").
WHEREAS, in connection with a Note Purchase Agreement dated the date
hereof (the "Note Purchase Agreement"), the Corporation has agreed to sell its
Subordinated Convertible Note to TIG (the "Note");
WHEREAS, the Corporation has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Act");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements contained herein, the parties agree as follows:
1. REGISTRATION RIGHTS.
1.1. PIGGYBACK REGISTRATION RIGHTS.
1.1.1. RIGHT TO PIGGYBACK. If the Corporation proposes to
register any shares of its common stock (or securities convertible into or
exchangeable or exercisable for common stock) (the "Common Stock") under the Act
(a "Proposed Registration") and the registration form to be used may be used for
the registration of the Registrable Securities as defined in Section 1.5.6 below
(a "Piggyback Registration"), the Corporation will give prompt written notice to
all holders of Registrable Securities of its intention to effect such a
registration and will, subject to Section 1.1.2 below, include in such Piggyback
Registration all Registrable Securities with respect to which the Corporation
has received written requests for inclusion therein within fifteen (15) days
after receipt of the Corporation's notice; provided that, the maximum number of
Registrable Securities that may be registered by TIG pursuant to any such
Piggyback Registration (the "TIG Maximum") shall not exceed the percentage of
TIG's total Registrable Securities equal to the percentage that the total number
of shares offered by the Corporation in the Proposed Registration bears to the
total number of issued and outstanding shares of the Corporation. In the case
of an underwritten offering, Registrable Securities with respect to which such
request for registration has been received will be registered by the Corporation
pursuant to this Section 1 on the same terms and subject to the same conditions
applicable to the stock to be sold by the Corporation or by other persons
selling under such Proposed Registration. Holders of Registrable Securities
will be entitled to include shares pursuant to this Section 1.1.1 in (A) demand
registrations of any shareholder of the Corporation, or (B) registrations of the
Corporation, other than a registration statement on Form S-4 or S-8.
<PAGE>
1.1.2. PRIORITY ON PIGGYBACK REGISTRATIONS. If the managing
underwriter or underwriters advise the Corporation in writing that in its or
their opinion (with respect to which opinion, the Company shall act in good
faith), (i) the number of securities proposed to be sold in a Proposed
Registration exceeds the number which can be sold in such offering, the
Corporation will include in such registration the number of securities which, in
the opinion of such underwriter or underwriters, can be sold as follows: (A)
first, the shares of Common Stock the Corporation proposes to sell, (B) second,
the shares of Common Stock requested to be included in such registration
pursuant to a demand registration right, if any, (C) third, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of Registrable Securities to be included therein, and (D) fourth, other
shares of Common Stock requested to be included in such registration, or (ii) it
is inadvisable to include any Registrable Securities in such a Proposed
Registration, then no Registrable Securities shall be included in any such
registration.
1.1.3 REGISTRATION ON REQUEST. If, pursuant to Section 1.1.2
above, the TIG Maximum is reduced by more than twenty-five percent (25%),
thereafter, TIG shall have the right to require the Corporation upon its written
request to effect the registration of any remaining Registrable Securities owned
by TIG ("Demand Registration"); provided that, (i) the Corporation shall not be
obligated to effect more than one Demand Registration; (ii) the Corporation
shall be entitled to postpone for a reasonable period (but not exceeding 135
days) the filing of any registration statement otherwise required to be filed
pursuant to this Section 1.1.3 if the Corporation determines, in its sole
discretion, that such registration or offering pursuant thereto could interfere
with any financing, acquisition, corporate reorganization, or other material
transaction or event involving the Corporation, or would require premature
disclosure thereof; and (iii) the Corporation shall not be required to file any
such registration statement at any time when the Corporation would be required
to undergo an interim audit or to prepare financial statements other than the
regular quarterly or annual statements in order to comply with the requirements
of such registration statement with respect to financial information.
1.1.4. SELECTION OF UNDERWRITERS. If any Proposed Registration is
an underwritten offering, the Corporation will select a managing underwriter or
underwriters to administer the offering.
1.2. REGISTRATION PROCEDURES. With respect to any Piggyback
Registration or Demand Registration, the Corporation will, subject to Sections
1.1.2 and 1.1.3, as expeditiously as practicable:
1.2.1. prepare and file with the Commission a Registration
Statement which includes the Registrable Securities and use its best efforts to
cause such Registration Statement to become effective;
1.2.2. prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration
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<PAGE>
Statement effective for a period of not less than three (3) months (or such
shorter period which will terminate when all Registrable Securities covered
by such Registration Statement have been sold or withdrawn, but not prior to
the expiration of the forty-day period referred to in Section 4(3) of the Act
and Rule 174 thereunder, if applicable); cause the Prospectus to be
supplemented by any required Prospectus supplement; and cause such supplement
to be filed pursuant to Rule 424 under the Act;
1.2.3. furnish to any person holding Registrable Securities
included in such Registration Statement and the underwriter or underwriters, if
any, without charge, at least one copy of the Registration Statement and any
post-effective amendment thereto, upon request, and such number of conformed
copies thereof and such number of copies of the Prospectus (including the
preliminary Prospectus) and any amendments or supplements thereto, and any
document incorporated by reference therein, as such person or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Securities being sold by such person, (it being understood that the Corporation
consents to the use of the Prospectus and any amendment or supplement thereto by
each person holding Registrable Securities covered by the Registration Statement
and the underwriter or underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto);
1.2.4. notify each person holding Registrable Securities included
in such Registration Statement, at any time when a Prospectus relating thereto
is required to be delivered under the Act, when the Corporation becomes aware of
the happening of any event as a result of which the Prospectus included in such
Registration Statement (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein not misleading and, as promptly as practicable thereafter, prepare and
file with the Commission and furnish a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
1.2.5. make generally available to its security holders an
earnings statement satisfying the provisions of Section 11(a) of the Act no
later than ninety (90) days after the end of the twelve-month period beginning
with the first month of the Corporation's first fiscal quarter commencing after
the effective date of the Registration Statement, which statement shall cover
said twelve-month period; and
1.2.6. use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement.
Each holder of Registrable Securities, upon receipt of any notice from
the Corporation of the happening of any event of the kind described in Section
1.2.4, will forthwith discontinue disposition of the Registrable Securities
until such holder's receipt of the copies of the
3
<PAGE>
supplemented or amended Prospectus contemplated by Section 1.2.4 or until it
is advised in writing (the "Advice") by the Corporation that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Corporation, such holder will, or will request the
managing underwriter or underwriters, if any, to deliver to the Corporation
(at the Corporation's expense) all copies, other than permanent file copies
then in such holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Corporation shall give any such notice, the time periods mentioned in Section
1.2.2 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 1.2.4 or the Advice.
1.3. RESTRICTIONS ON PUBLIC SALE. Each person holding Registrable
Securities included in a Registration Statement, if requested by the managing
underwriter or underwriters of any underwritten Proposed Registration, agrees
not to effect any public sale or distribution of Registrable Securities under
the Act during the five (5) business days prior to and during the sixty-day
period beginning on the effective date of such Proposed Registration (except as
part of such Proposed Registration) (or such earlier time as all the shares of
Common Stock included in such Registration Statement have been disposed of
pursuant thereto).
1.4. REGISTRATION EXPENSES. All of the costs and expenses of each
registration hereunder will be borne by the Corporation, including the fees and
expenses of counsel and accountants for the Corporation, and all other costs and
expenses of the Corporation incident to the preparation, printing and filing
under the Act of the Registration Statement (and all amendments and supplements
thereto) and furnishing copies thereof and of the Prospectus included therein,
and the costs and expenses incurred by the Corporation in connection with the
qualification of the Registrable Securities under the state securities or
"blue-sky" laws of various jurisdictions; provided that, the Corporation shall
not bear costs and expenses of any holders of Registrable Securities, including,
but not limited to, underwriters' commissions, brokerage fees, transfer taxes,
transaction fees, or the fees and expenses of any counsel, accountants or other
representatives retained by any holder.
1.5. INDEMNIFICATION.
1.5.1. INDEMNIFICATION BY THE CORPORATION. The Corporation agrees
to indemnify, to the full extent permitted by law, each holder of Registrable
Securities, its officers and directors and each person who controls such holder
(within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act), against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or preliminary Prospectus or any omission
or alleged omission to state therein a material fact necessary to make the
statements therein (in the case of the Prospectus or any preliminary Prospectus,
in light of the circumstances under which they were made) not
4
<PAGE>
misleading, except insofar as the same are caused by or contained in any
information with respect to such holder furnished in writing to the
Corporation by or on behalf of such holder for use therein or by such
holder's failure to deliver a copy of the Registration Statement or
Prospectus or any amendments or supplements thereto after the Corporation has
furnished such holder with a sufficient number of copies of the same.
1.5.2. INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any Registration Statement in which a holder of Registrable
Securities is participating, each such holder will furnish to the Corporation in
writing such information and affidavits with respect to such holder as the
Corporation reasonably requests for use in connection with any Registration
Statement or Prospectus and agrees to indemnify, to the full extent permitted by
law, the Corporation, its directors and officers and each person who controls
the Corporation (within the meaning of either Section 15 of the Act or Section
20 of the Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of a material
fact or any omission or alleged omission to state a material fact necessary to
make the statements in the Registration Statement or Prospectus or preliminary
Prospectus (in the case of the Prospectus or any preliminary Prospectus, in
light of the circumstances under which they were made) not misleading, to the
extent that such untrue statement or omission is contained in any information or
affidavit with respect to such holder so furnished in writing by or on behalf of
such holder for inclusion in any Prospectus or Registration Statement. The
Corporation shall be entitled to receive indemnification from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information with respect to such persons so furnished in writing by
such persons specifically for inclusion in any Prospectus or Registration
Statement.
1.5.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (ii) unless in the indemnifying party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of the indemnifying party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay fees and expenses of such
additional counsel or counsels.
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<PAGE>
1.5.4. CONTRIBUTION. If for any reason the indemnification
provided for in Sections 1.5.2 and 1.5.3, respectively, is unavailable to an
indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable consideration. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue and alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 1.5.3, any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 1.5.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
1.5.5. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of
Registrable Securities may participate in any underwritten registration
hereunder unless such holder (i) agrees to sell its Registrable Securities on
the basis provided in any underwriting arrangements, and (ii) completes and
executes all questionnaires, powers of attorney, underwriting agreements and
other documents customarily required under the terms of such underwriting
arrangements.
1.5.6. DEFINITIONS. "Registrable Securities" means the shares of
DualStar Technologies Corporation Common Stock held by the Stockholders or
issued upon conversion of the Note and held by TIG, only so long as any share of
Common Stock continues to be a "Restricted Security." A share shall be deemed
to be a Restricted Security (i) until such share has been effectively registered
under the Act, or (ii) unless such share may be sold pursuant to Rule 144(k) (or
any similar provision then in force) under the Act.
1.5.7. AMENDMENTS AND WAIVERS. Nothing contained herein shall
alter, modify or affect anything contained in the Stockholders Agreement dated
the date hereof. The provisions of this Section 1, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers of or
consents to departures from the provisions hereof may not be given unless the
Corporation has obtained the written consent of entities or individuals holding
more than fifty percent (50%) of the outstanding Registrable Securities.
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1.5.8. TERMINATION. This Section 1 shall continue in full force
and effect until none of the shares are Registrable Securities; PROVIDED,
HOWEVER, that the rights set forth in this Section 1 shall only inure to the
benefit of the Stockholders and TIG.
2. MISCELLANEOUS.
2.1. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York.
2.2. CAPTIONS. The Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
2.3. PUBLICITY. None of the parties hereto shall issue any press
release or make any other public statement, in each case relating to or
connected with or arising out of this Agreement or the matters contained herein,
without obtaining the prior approval of the other parties to the contents and
the manner of presentation and publication thereof, except such reports or other
notices that the party issuing or making same has been advised by counsel are
required pursuant to applicable law or regulation.
2.4. NOTICES. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight courier
or facsimile transmission (in each case with evidence of receipt), addressed to
the Corporation at its principal office first set forth above, and to the
Stockholders and TIG, respectively, at the addresses set forth on SCHEDULE 1
hereto. Any party may change such address by like notice. If sent by courier,
such notice shall be deemed to have been given as of the next business day after
it was deposited with the courier service and if sent by facsimile such notice
shall be deemed to have been given when transmitted.
2.5. PARTIES IN INTEREST. Subject to Sections 1.5.7 and 1.5.8 above,
this Agreement shall not be assignable or transferable by any of the parties.
2.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
2.7. ENTIRE AGREEMENT. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
7
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IN WITNESS WHEREOF, each of the Corporation and TIG has caused this
Agreement to be executed by its officer thereunto duly authorized, and each of
the Stockholders has executed this Agreement, all as of the day and year first
above written.
TECHNOLOGY INVESTORS
GROUP, LLC DUALSTAR TECHNOLOGIES CORPORATION
By: /s/ Brad Singer By: /s/ Elven M. Tangel
------------------------ ----------------------------
Name: Brad Singer Name: Elven M. Tangel
Title: Manager Title: Chairman
/s/ Gregory Cuneo
-------------------------------
Gregory Cuneo
/s/ Ronald Fregara
-------------------------------
Ronald Fregara
/s/ Stephen J. Yager
-------------------------------
Stephen J. Yager
8
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SCHEDULE 1
NAMES AND ADDRESSES
1. STOCKHOLDERS
Gregory Cuneo
4823 Bay Parkway
Brooklyn, NY 11230
Ronald Fregara
246 Westend Avenue
Massapequa, NY 11758
Stephen J. Yager
65 Jefferson Avenue
Kearney, NJ 07032
2. Technology Investors Group, LLC
25 Coligni Avenue
New Rochelle, New York 10801
9
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JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) promulgated under the Securities
Exchange Act of 1934, as amended, the undersigned hereby agree to the joint
filing with all other Reporting Persons (as such term is defined in the Schedule
13D referred to below) on behalf of each of them of a statement on Schedule 13D
(including any and all amendments thereto) with respect to the common stock, par
value $.01 per share, of Dualstar Technologies Corporation, a Delaware
corporation, and that this Agreement will be included as an Exhibit to such
joint filing. The undersigned further agree that each party hereto is
responsible for timely filling of such statement on Schedule 13D and any
amendments thereto, and for the completeness and accuracy of the information
concerning such party contained therein; provided that no party is responsible
for the completeness or accuracy of the information concerning the other party,
unless such party knows or has reason to believe that such information is
inaccurate. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned hereby execute this Agreement as of
the 4th day of December, 1998.
TECHNOLOGY INVESTORS GROUP, LLC
By: /s/ Brad C. Singer
-------------------------
Name: Brad C. Singer
Title: Manager
/s/ Brad C. Singer
----------------------------------
Brad C. Singer, individually
/s/ Frieda R. Tydings
----------------------------------
Frieda R. Tydings, individually
/s/ Lloyd I. Miller
----------------------------------
Lloyd I. Miller, III, individually
