SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
SCHEDULE l3D
Under the Securities Exchange Act of 1934
DUALSTAR TECHNOLOGIES CORPORATION
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(Name of Issuer)
Common Stock, par value $.01 per share
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(Title of Class of Securities)
263572109
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(CUSIP Number)
with a copy to:
Stephen Feinberg Robert G. Minion, Esq.
450 Park Avenue Lowenstein Sandler PC
28th Floor 65 Livingston Avenue
New York, New York 10022 Roseland, New Jersey 07068
(212) 421-2600 (973) 597-2424
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(Name, Address and Telephone Number of Persons
Authorized to Receive Notices and Communications)
November 8, 2000
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule l3G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box. [ ]
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7(b) for
other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
Cusip No. 263572109
________________________________________________________________________________
1) Names of Reporting Persons/I.R.S. Identification Nos. of Above Persons
(entities only):
Stephen Feinberg
________________________________________________________________________________
2) Check the Appropriate Box if a Member of a Group (See Instructions):
(a) Not (b) Applicable
________________________________________________________________________________
3) SEC Use Only
________________________________________________________________________________
4) Source of Funds (See Instructions): WC
________________________________________________________________________________
5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e):
Not Applicable
________________________________________________________________________________
6) Citizenship or Place of Organization: United States
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Number of 7) Sole Voting Power: 3,125,000*
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Shares Beneficially 8) Shared Voting Power:
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Owned by 9) Sole Dispositive Power: 3,125,000*
Each Reporting ----------------------------------
Person With: 10) Shared Dispositive Power:
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________________________________________________________________________________
11) Aggregate Amount Beneficially Owned by Each Reporting Person: 3,125,000*
________________________________________________________________________________
12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions):
Not Applicable
________________________________________________________________________________
13) Percent of Class Represented by Amount in Row (11): 15.9%*
________________________________________________________________________________
14) Type of Reporting Person (See Instructions): IA
________________________________________________________________________________
*DSTR Warrant Co., LLC, a Delaware limited liability company ("DSTR"), is the
record holder of 3,125,000 Class E Common Stock Purchase Warrants (the
"Warrants") issued by DualStar Technologies Corporation (the "Company"). DSTR
may exercise the Warrants at any time after November 8, 2000 for up to 3,125,000
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"). Stephen Feinberg possesses sole voting and investment control over the
Warrants and, if exercised, the shares of Common Stock underlying such Warrants.
Thus, for purposes of Reg. ss.240.13d-3, Stephen Feinberg is deemed to
beneficially own 3,125,000 shares of Common Stock of the Company, or 15.9% of
those deemed issued and outstanding. See below for further information.
<PAGE>
Item 1. Security and Issuer.
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This statement relates to the common stock, par value $.01 per share
(the "Common Stock"), of DualStar Technologies Corporation (the "Company"),
whose principal executive offices are located at 11-30 47th Avenue, Long Island
City, New York 11101.
Item 2. Identity and Background.
-----------------------
The person filing this statement is Stephen Feinberg, whose business
address is 450 Park Avenue, 28th Floor, New York, New York 10022. Mr. Feinberg,
through one or more intermediate entities, serves as the investment manager for
each of Madeleine, L.L.C., a New York limited liability company ("Madeleine"),
and DSTR Warrant Co., LLC, a Delaware limited liability company ("DTSR"). Each
of DSTR and Madeleine is engaged in the investment in personal property of all
kinds, including but not limited to, capital stock, depository receipts,
investment companies, mutual funds, subscriptions, warrants, bonds, notes,
debentures, options and other securities of whatever kind and nature.
Mr. Feinberg has never been convicted in any criminal proceeding, nor
has he been a party to any civil proceeding commenced before a judicial or
administrative body of competent jurisdiction as a result of which he was or is
now 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. Mr. Feinberg is a
citizen of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
All funds used to purchase the Class E Common Stock Purchase Warrants
of the Company (the "Warrants") came directly from the assets of DSTR. Pursuant
to the terms of the Securities Purchase Agreement, dated November 8, 2000, by
and among the Company, Madeleine and DSTR (the "Securities Purchase Agreement"),
the amount of funds allocated by DSTR and the Company to the purchase of the
Warrants was $1,000.
Item 4. Purpose of Transaction.
----------------------
The acquisition of the securities referred to in Item 5 is for
investment purposes on behalf of DSTR, and, except as described in Item 6 below
with respect to the right of Madeleine and DSTR to elect directors of the
Company upon the occurrence of certain events of default, Stephen Feinberg has
no present plans or intentions which relate to or would result in any of the
transactions required to be described in Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
------------------------------------
Based upon information set forth on the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2000, as of September 15, 2000,
there were issued and outstanding 16,486,629 shares of Common Stock. DSTR is the
record holder of 3,125,000 Warrants, which may be exercised at any time for up
to an equal number of shares of the Common Stock, subject to reduction in
certain circumstances as described in Item 6 below. Stephen Feinberg possesses
the sole power to vote and direct the disposition of all such Warrants. Thus,
for the purposes of Reg. Section 240.13d-3, Stephen Feinberg is deemed to
beneficially own 3,125,000 shares of the Common Stock, or 15.9% of those deemed
issued and outstanding.
Other than the transactions described in this Schedule 13D, in the
past sixty (60) days, neither DSTR nor Stephen Feinberg (or any entity
controlled by him) have engaged in any transactions in the Common Stock, or any
securities convertible into, exchangeable for, or exercisable for, shares of the
Common Stock.
<PAGE>
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
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Pursuant to the Securities Purchase Agreement, among other things:
(i) Madeleine increased the principal amount of its existing loan
to the Company to $12,500,000 and the then existing promissory note from
the Company in favor of Madeleine was restated to reflect this principal
loan amount increase and to incorporate the other material terms relating
to the increased loan amount from Madeleine to the Company;
(ii) DSTR was issued the 3,125,000 Warrants;
(iii) the parties thereto agreed that, provided certain
conditions are satisfied, on December 1, 2000, (a) Madeline would increase
the principal amount of its loan to the Company to $20,000,000 and the
Company would again issue to Madeleine a replacement promissory note to
reflect this further loan amount increase and to incorporate the other
material terms of the further increased loan amount from Madeleine to the
Company and (b) DSTR would be issued an additional 1,875,000 Warrants (the
"Additional Warrants");
(iv) the Company delivered termination agreements with Blackacre
Capital Management, LLC ("Blackacre") and Cerberus Capital Management, L.P.
("Cerberus"), each of which are entities indirectly controlled by Stephen
Feinberg and which are affiliates of DSTR and Madeleine, which, among other
things, terminated certain previously existing securities purchase
agreements between such entities and the Company;
(v) the Company granted to DSTR certain antidilution protective
rights with respect to the issuance by the Company of any new shares of its
capital stock; and
(vi) upon the occurrence of certain events of default under the
promissory notes issued by the Company in favor of Madeleine, the Company
is required to immediately amend its by-laws to increase the number of
authorized directors by three (3) and that the vacancies created by such
increase may be filled by individuals designated by Madeleine and DSTR.
The Warrants, and the Additional Warrants, if issued, are further
governed by the terms of the Class E Warrant Agreement, dated November 8, 2000,
by and between the Company and DSTR (the "Warrant Agreement"). Pursuant to the
Warrant Agreement, among other things, if the Company prepays any portion (but
less than all) of the principal amount owed by it under the promissory notes
referred to above, then, upon such prepayment, the aggregate number of Warrants,
or Additional Warrants, as the case may be, which may be exercised shall be
reduced in proportion to the ratio of the prepayment amount to the aggregate
principal amount of the promissory notes outstanding at the time of such
prepayment by the Company; provided, however, that the Company must provide DSTR
with not less than thirty (30) days' notice of any such proposed prepayment. If
the Company pays all of the amounts due under the promissory notes in full, the
Warrants and Additional Warrants, as the case may be, will cease to be
exercisable. The Warrant Agreement also provides certain adjustment and
antidilution protection in favor of DSTR.
The Company, DSTR and certain other shareholders and/or members of
management of the Company are parties to a Stockholders' Agreement, dated as of
November 8, 2000, pursuant to which, among other things, the parties thereto
have entered into agreements with respect to (i) the voting of their securities
of the Company in certain circumstances and (ii) certain participation rights
and rights of first refusal with respect to the transfer or sale of securities
of the Company by them.
The Company, DSTR and another shareholder of the Company have entered
into a Registration Rights Agreement, dated as of November 8, 2000, granting to
DSTR and such other shareholder certain registration rights with respect to the
securities of the Company held, or which may in the future be held, by them.
<PAGE>
Item 7. Material to be Filed as Exhibits.
--------------------------------
1. Securities Purchase Agreement, dated November 8, 2000, by and
among, DualStar Technologies Corporation, DSTR Warrant Co., LLC and Madeleine,
L.L.C.
2. Class E Warrant Agreement, dated November 8, 2000, by and between
DualStar Technologies Corporation and DSTR Warrant Co., LLC.
3. Stockholders' Agreement, dated as of November 8, 2000, by and
among, DualStar Technologies Corporation, DSTR Warrant Co., LLC, Technology
Investor Group, Inc. and certain other parties named therein.
Signature
After reasonable inquiry and to the best of the undersigned's
knowledge and belief, the undersigned hereby certifies that the information set
forth in this statement is true, complete and correct.
November 17, 2000
/s/ Stephen Feinberg
------------------------------------
Stephen Feinberg, as the investment
manager for Madeleine, L.L.C. and
DSTR Warrant Co., LLC
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE
FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001).
<PAGE>
EXHIBIT 1
SECURITIES PURCHASE AGREEMENT
by and among
DualStar Technologies Corporation,
DSTR Warrant Co., LLC
and
Madeleine, L.L.C.
November 8, 2000
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of
November 8, 2000, by and among DualStar Technologies Corporation, a Delaware
corporation, located at One Park Avenue, New York, New York 10016 (the
"Company"), and Madeleine, L.L.C., a New York limited liability company located
at 450 Park Avenue, 28th Floor, New York, New York 10022 ("Madeleine") and DSTR
Warrant Co., LLC, a Delaware limited liability company located at 450 Park
Avenue, 28th Floor, New York, New York 10022 ("WarrantCo", and together with
Madeleine, the "Purchaser").
WHEREAS, the Company issued a Convertible Promissory Note, originally
issued on December 1, 1999, and amended and restated as of December 16, 1999,
and further amended and restated on March 1, 2000 and subsequently further
amended on May 25, 2000 (the "Original Note"), in favor of Madeleine for the
principal sum of seven million dollars ($7,000,000); and
WHEREAS, the Company and Madeleine wish to amend and restate the
Original Note in order to, among other things, to increase the principal amount
outstanding under the Original Note initially to twelve million five hundred
thousand dollars ($12,500,000) and then, upon the terms and subject to the
conditions contained herein, to twenty million dollars ($20,000,000);
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements contained herein, the parties agree as follows:
Article I
Issuance and Sale
1.1 Issuance and Sale of the First Restated Note and Class E Warrants.
At the First Closing (as defined below), the Company and Madeleine will amend
and restate the Original Note whereby the Company will issue, sell and deliver
to Madeleine (against surrender of the Original Note and payment of the amount
specified in 2.3(a)), and (a) Madeleine will purchase from the Company a twelve
million five hundred thousand dollar ($12,500,000) Note due September 30, 2007
(the "Maturity Date") with interest (computed on the basis of a 360 day year and
the actual number of days elapsed) from the date hereof, payable quarterly, at a
rate of 11.0% per annum on the balance of the principal from time to time
remaining unpaid (the "First Restated Note") in the form attached hereto as
Exhibit A and (b) WarrantCo will purchase from the Company Class E Warrants of
the Company (the "Warrants") pursuant to a Class E Warrant Agreement in the form
attached hereto as Exhibit B (the "Warrant Agreement") to purchase 3,125,000
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock"). The Warrants issued at the First Closing are hereinafter referred to as
the "Tranche 1 Warrants."
<PAGE>
1.2 Issuance and Sale of the Second Restated Note and Class E
Warrants. Upon the terms and subject to the conditions hereof, at the Subsequent
Closing (as defined below), the Company and Madeleine will amend and restate the
First Restated Note whereby the Company will issue, sell and deliver to
Madeleine (against surrender of the First Restated Note and payment in the
amount specified in Section 2.4), and (a) Madeleine will purchase from the
Company a twenty million dollar ($20,000,000) Note due September 30, 2007 (the
"Maturity Date") with interest (computed on the basis of a 360 day year and the
actual number of days elapsed) from the date hereof, payable quarterly, at a
rate of 11.0% per annum on the balance of the principal from time to time
remaining unpaid (the "Second Restated Note", and together with the First
Restated Note, the "Restated Notes") in the form attached hereto as Exhibit C
and (b) WarrantCo will purchase from the Company Warrants to purchase an
additional 1,875,000 shares of Common Stock (the shares of stock issuable upon
exercise of Warrants referred to in Section 1.1 or this Section 1.2, the
"Warrant Stock"). The Warrants issued at the Subsequent Closing are hereinafter
referred to as the "Tranche 2 Warrants".
Article II
The Closings
2.1 First Closing. The closing of the issuance and sale of the First
Restated Note and the related Warrants (the "Closing") shall be held at the
offices of Schulte Roth & Zabel LLP, 900 Third Avenue in New York, New York at
10:00 a.m., local time, on the date hereof (the "Closing Date").
2.2 Subsequent Closing. The closing of the issuance and sale of the
Second Restated Note and the related Warrants (the "Subsequent Closing", and
together with the Closing, the "Closings") shall be held at the offices of the
Company in New York, New York at 10:00 a.m., local time, on December 1, 2000, or
if earlier, on the third business day after which all conditions to closing,
identified in Article VI hereof have been satisfied or waived by the party
entitled to grant such waiver, or on such other date thereafter upon which the
Company and the Purchaser shall agree (the "Subsequent Closing Date", and
together with the First Closing Date, the "Closing Dates").
2.3 Payment and Delivery at the First Closing. At the First Closing,
(a) Madeleine shall pay to the Company an amount equal to twelve
million five hundred thousand dollars ($12,500,000) less the outstanding balance
due on the Original Note (including principal and interest) calculated as of the
date of Closing (the "Initial Purchase Price") by wire transfer of immediately
available funds pursuant to the Company's instructions;
(b) the Company shall execute and deliver to WarrantCo the
Warrant Agreement and the Tranche 1 Warrants, the consideration for which shall
be deemed to be $1,000.00 of the Initial Purchase Price;
(c) the Company, certain of its officers identified therein,
Technology Investors Group LLC ("TIG") and WarrantCo shall deliver to each other
an executed copy of a Stockholders' Agreement in the form attached hereto as
Exhibit D (the "Stockholders' Agreement");
(d) the Company, the officers of the Company identified therein
and WarrantCo shall deliver to each other an executed copy of a Registration
Rights Agreement in the form attached hereto as Exhibit E (the "Madeleine
Registration Rights Agreement");
<PAGE>
(e) [Intentionally omitted]
(f) the Company shall have paid up to $100,000 of legal fees and
other costs and expenses incurred by the Purchaser in connection with the
transactions contemplated by this Agreement, except for any litigation fees,
costs and expenses other than those contemplated by Section 5.1(e); and
(g) the Company shall have executed and delivered termination
agreements ("Termination Agreements") with Blackacre Capital Management, LLC
("Blackacre") and Cerberus Capital Management L.P. ("Cerberus"), in form and
substance satisfactory to Purchaser, terminating (x) the Securities Purchase
Agreement, dated March 28, 2000, between the Company, Blackacre and Cerberus and
(y) the Term Sheet dated June 14, 2000 relating to the Series B Convertible
Preferred Stock and the transactions contemplated by this Agreement.
2.4 Payment and Delivery at the Subsequent Closing. At the Subsequent
Closing, Madeleine shall pay to the Company an amount equal to twenty million
dollars ($20,000,000) less the outstanding balance due on the First Restated
Note (including principal and interest) calculated as of the date of the
Subsequent Closing (the "Subsequent Purchase Price") by wire transfer of
immediately available funds pursuant to the Company's instructions. Of such
amount, the consideration in respect of the Tranche 2 Warrants shall be deemed
to be $1,000.00. All deliveries and payments at the Closings shall be made
simultaneously.
Article III
Representations and Warranties of the Company
The Company represents and warrants to the Purchaser as of the date
hereof and as of the Subsequent Closing Date as follows:
3.1 Organization and Standing; Certificate of Incorporation and
Bylaws. The Company and each of its subsidiaries are duly organized and existing
under, and by virtue of, the laws of the state of their respective organization
are in good standing under such laws. The Company and each of its subsidiaries
have the requisite corporate power and authority to own and operate their
respective properties and assets, and to carry on their respective business as
now conducted and as proposed to be conducted. The Company and each of its
subsidiaries are qualified to do business as foreign corporations in each
jurisdiction in which such qualification is required, except to the extent that
the failure to so qualify would not have a Company Material Adverse Effect. A
"Company Material Adverse Effect" means that a material adverse effect, as
determined in the sole and absolute judgment of Purchaser, has or is likely to
occur on the assets, liabilities, condition (financial or otherwise), cash
flows, operating results, business or prospects of the Company and its
subsidiaries (taken as a whole), from that reflected in the June 30, 2000
financial statements of the Company. It is understood that, without limitation,
a Company Material Adverse Effect may occur (or be likely to occur) based, inter
alia, on the Company's failure to achieve results or targets satisfactory to
Purchaser in respect of revenues, expenses, profits, margins, maximum capital
requirements, subscriber units, number of buildings serviced or number of
installations. The Company has furnished the Purchaser with true, correct and
complete copies of its Restated Certificate of Incorporation and Bylaws, as
amended and restated to date, certified by the Delaware Secretary of State and
by the Secretary of the Company, respectively, and the corresponding
organizational documents and certifications for each of its subsidiaries.
<PAGE>
3.2 Corporate Power. The Company has all requisite corporate power and
authority to execute and deliver this Agreement the Stockholders' Agreement, the
Madeleine Registration Rights Agreement, the Termination Agreements, the First
Restated Note and the security documents set forth on Schedule 3.2(a) to which
it is a signatory and all documents executed in connection therewith, and to
issue and deliver the Warrant Stock issuable upon exercise of the Tranche 1
Warrants and to carry out and perform its obligations under the terms of this
Agreement, the Stockholders' Agreement, the Madeleine Registration Rights
Agreement, the Class E Warrant Agreement, the Termination Agreements, the First
Restated Note and the security documents set forth on Schedules 3.2(a) and
3.2(b) and all documents executed in connection therewith (together with, when
executed and delivered, the Second Restated Note and the Strategic Alliance
Agreement (as hereinafter defined), the "Transaction Documents). The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Company. Following receipt of the Stockholder Approval (as
defined in Section 5.1), and upon the filing of the Amendment to the Certificate
of Incorporation, the Company will have all requisite corporate power and
authority to issue and deliver the Second Restated Note and to issue and deliver
the Warrant Stock issuable upon exercise of the Tranche 2 Warrants.
3.3 Subsidiaries. Except as set forth in Schedule 3.3, the Company has
no subsidiaries or affiliated companies and does not otherwise own or control,
directly or indirectly, any equity interest in any corporation, association,
partnership or business entity, nor has the Company made any commitment or
subscribed for the purchase of any such equity interest. The Company owns all of
the outstanding voting securities and other equity interests, if any, and all
rights to acquire such securities, of those subsidiaries which are set forth in
Schedule 3.3 (the "subsidiaries"). Each subsidiary has all requisite corporate
power and authority to execute and deliver the Transaction Documents to which it
is a signatory. The execution and delivery of each Transaction Document to which
any subsidiary is a party, and the consummation of the transactions contemplated
thereby have been duly and validly authorized by, the Board of Directors of each
such Subsidiary.
3.4 Capitalization. (a) The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, of which 16,476,568 shares are
issued and outstanding as of the date hereof. Upon the filing of the Amendment
to the Certificate of Incorporation, the authorized capital stock of the Company
shall consist of 100,000,000 shares of Common Stock.
(b) The authorized capital stock of each of the subsidiaries of
the Company and the number of issued and outstanding shares of capital stock and
other equity interest, if any, including rights to acquire securities of such
subsidiaries are identified in Schedule 3.4.
(c) Except as set forth in Schedule 3.4, there are no options,
warrants or other rights outstanding to purchase or acquire, or any securities
convertible into or exchangeable for, nor has the Company or its subsidiaries
agreed to issue or reissue, other than pursuant to this Agreement, any of the
Company's authorized and unissued capital stock of the Company or its
subsidiaries. Except as set forth in Schedule 3.4 or as contemplated by this
Agreement, to the Company's best knowledge, there are no voting agreements
concerning any of the outstanding securities of the Company or its subsidiaries;
and except as set forth in Schedule 3.4, other than (i) as contemplated in the
Madeleine Registration Rights Agreement, (ii) as set forth in the Registration
Rights Agreement, dated November 25, 1998, as amended, by and between the
Company and certain holders of the Company's outstanding Common Stock and (iii)
as set forth in the Registration Rights Agreement, dated December 1, 1999, by
and between the Company and Madeleine, there are no agreements to register any
of the Company's securities. No person will be entitled to any preemptive rights
with respect to the Warrant Stock.
<PAGE>
3.5 Authorization. Except for the Stockholder Approval (in respect of
the Second Restated Note and the Tranche 2 Warrants only) and the filing of the
Amendment to the Certificate of Incorporation (in respect of the Second Restated
Note only), all corporate action on the part of the Company and its subsidiaries
necessary for the authorization, execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company or any subsidiary,
the authorization, sale, issuance and delivery of the Restated Notes and the
Warrant Stock, and the performance of all of the Company's and its subsidiaries'
respective obligations under this Agreement and the other Transaction Documents
have been taken. This Agreement and the other Transaction Documents have been
(or will be upon their delivery at the Subsequent Closing, as the case may be)
duly executed and delivered on behalf of the Company and its subsidiaries. This
Agreement and the other Transaction Documents constitute (or will constitute
upon their delivery at the Subsequent Closing, as the case may be) valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies. As of the date
hereof (i) the Warrant Stock is duly reserved for issuance upon exercise of the
Tranche 1 Warrants, and, when so issued, will be duly authorized, validly
issued, fully paid and non-assessable and (ii) the Warrant Stock, when so
issued, will be free of any liens or encumbrances, in all cases, subject to
restrictions on transfer pursuant to the Stockholders' Agreement, the Madeleine
Registration Rights Agreement and under state and/or federal securities laws.
Upon the filing of the Amendment to the Certificate of Incorporation: (i) the
Warrant Stock will be duly reserved for issuance upon exercise of the Tranche 2
Warrants, and, when so issued, will be duly authorized, validly issued, fully
paid and non-assessable and (ii) the Warrant Stock, when so issued, will be free
of any liens or encumbrances, in all cases, subject to restrictions on transfer
pursuant to the Stockholders' Agreement, the Madeleine Registration Rights
Agreement and under state and/or federal securities laws.
3.6 Compliance with Other Instruments. Neither the Company nor any of
its subsidiaries is in violation or default of any provision of its
organizational documents or of any mortgage, indenture, contract, agreement,
instrument, judgment or decree to which the Company or any of its subsidiaries
is a party or by which any of them is bound, except as would not individually or
in the aggregate have a Company Material Adverse Effect. The execution, delivery
and performance by the Company of this Agreement, the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, will not result in any violation of or conflict with the Company's
Restated Certificate of Incorporation or Bylaws, as amended and restated (or as
proposed to be amended by the Amendment to the Certificate of Incorporation), or
the organizational documents of any subsidiary and will not result in any
violation of or conflict with, or constitute a default under, any mortgage,
indenture, contract, agreement, instrument, judgment or decree to which the
Company or any of its subsidiaries is a party or by which any of them is bound
or in the creation of any mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of the Company or any of its subsidiaries, except as
would not individually or in the aggregate have a Company Material Adverse
Effect.
3.7 No Governmental or Third Party Consent. No consent, approval or
authorization of or registration, qualification, designation, declaration or
filing with, any governmental authority or any other person or entity on the
part of the Company or its subsidiaries is required in connection with the valid
execution and delivery of this Agreement or the other Transaction Documents,
except for (i) such filings as may be required in connection with the exemption
under the Securities Act of 1933, as amended (the "Securities Act"), or the
qualification (or the exemption from qualification, if available) under
applicable blue sky laws, which filings and qualifications, if required, will be
accomplished in a timely manner, (ii) the filing of the Proxy Statement
contemplated by Section 5.1 and (iii) the filing with the Secretary of State of
the State of Delaware of the Amendment to the Certificate of Incorporation.
3.8 Offering. Subject to the accuracy of the Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the
Restated Notes and the Warrants pursuant to this Agreement, constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act.
3.9 Brokers or Finders. Neither the Company nor any of its
subsidiaries has retained any investment banker, broker or finder in connection
with the transactions contemplated by this Agreement except for Chanin Capital
LLC, and there are no brokerage commissions, finder's fees or similar items of
compensation payable in connection therewith based on any arrangement or
agreement made by or on behalf of the Company.
<PAGE>
3.10 SEC Reports. The Company has filed with the Securities and
Exchange Commission (the "Commission") and provided to the Purchaser all forms,
reports and documents required to be filed by the Company since January 1, 1997
and prior to the date hereof (collectively, the "Company's Prior SEC Reports")
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated by the Commission thereunder (the "Exchange Act"), all
of which, when filed, complied in all material respects with all applicable
requirements of the Exchange Act. As of their respective dates, the Company's
Prior SEC Reports and all forms, reports and documents to be filed by the
Company after the date hereof and prior to the Subsequent Closing Date (the
"Company's Subsequent SEC Reports," and together with the Company's Prior SEC
Reports, the "Company's SEC Reports") did not contain and will not contain any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of the Company and its subsidiaries included in the
Company's SEC Reports incorporated by reference therein were prepared and will
be prepared in accordance with generally accepted accounting principles ("GAAP")
(subject, in the case of such unaudited financial statements, to the absence of
complete footnotes) applied on a consistent basis (except as indicated therein
or in the notes thereto) and fairly present in all material respects the
consolidated financial position of the Company and its subsidiaries at the dates
thereof and the results of its consolidated operations and cash flows for the
periods then ended (subject in the case of the unaudited interim financial
statements, to normal year-end audit adjustments, which shall not be material in
amount or nature).
3.11 Absence of Certain Developments. Except as set forth in Schedule
3.11, since June 30, 1999, there has been no change in the consolidated assets,
liabilities, condition (financial or otherwise), cash flows, operating results,
business or prospects of the Company and its subsidiaries from that reflected in
the Company's Prior SEC Reports that would have resulted in, individually or in
the aggregate, a Company Material Adverse Effect. Except as set forth in
Schedule 3.11, since June 30, 1999, neither the Company nor any of its
subsidiaries has (i) directly or indirectly declared or paid any dividend or
ordered or made any other distribution on account of any shares of any class of
its capital stock (other than by a wholly-owned subsidiary to the Company or to
another wholly-owned subsidiary), (ii) directly or indirectly redeemed,
purchased or otherwise acquired any such shares or agreed to do so or set aside
any sum or property for any such purpose, (iii) made any capital expenditures
exceeding $100,000 other than (x) prior to the date hereof, in the ordinary
course of business and (y) after the date hereof, as specifically approved by
the Purchaser or contemplated by the Business Plan (if and when adopted) or (iv)
incurred any Indebtedness exceeding $100,000.
3.12 Absence of Undisclosed Liabilities. Except as set forth in
Schedule 3.12, neither the Company nor any of its subsidiaries has any liability
or obligation, absolute or contingent, that is not reflected in the consolidated
financial statements included in the Company's SEC Reports filed prior to the
date hereof, other than obligations and liabilities which taken individually or
in the aggregate would not have a Company Material Adverse Effect.
3.13 Taxes. Except as set forth in Schedule 3.13, the Company and each
of its subsidiaries have filed all tax returns and reports required by law to be
filed (or have sought appropriate extensions therefor), and have paid, or
otherwise fully reserved for in accordance with GAAP, all taxes, assessments and
other governmental charges that are due and payable, except (x) for those
matters being contested in good faith and by appropriate proceedings by the
Company or the affected subsidiaries and for which adequate reserves have been
established in accordance with GAAP or (y) for those matters for which the
charges, accruals and reserves on the books of the Company and its subsidiaries
in respect of taxes are adequate, and the Company knows of no assessment for
additional taxes or any basis therefor.
3.14 Title to Properties; Liens and Encumbrances. Except as set forth
in Schedule 3.14, the Company and each of its subsidiaries have good title to
all of their respective properties and assets, both real and personal, tangible
and intangible, reflected on the balance sheet included in the consolidated
financial statements included in the Company's SEC Reports filed prior to the
date hereof or acquired after the date thereof (except inventory or other
personal property disposed of in the ordinary course of business subsequent to
the date thereof), and such properties and assets are not subject to any
mortgage, pledge, lien, security interest, encumbrance or charge other than (i)
liens for current taxes not yet due and payable, (ii) liens and encumbrances
that do not materially detract from the value of the property subject thereto or
materially impair the operations of the Company or any of its subsidiaries,
(iii) liens securing obligations reflected in such financial statements or (iv)
the current mortgage on the Company's building located at 11-30 47th Avenue,
Long Island City, New York. With respect to real property or assets it leases,
all such leases are in writing, the Company or the applicable subsidiary is in
compliance with such leases (except for such defaults or breaches that would not
have a Company Material Adverse Effect) and holds valid leasehold interests free
of any liens, claims or encumbrances except for those described in clauses (i)
through (iii) of the preceding sentence.
<PAGE>
3.15 Litigation, etc. Except as described on Schedule 3.15, there are
no actions, suits, proceedings or investigations (i) pending or, to the
Company's knowledge, threatened against the Company or any of its subsidiaries
or which otherwise involve the Company's or any of its subsidiaries' business or
operations, or (ii) to the Company's knowledge, pending or threatened against
any of the officers, directors or principal stockholders in their capacities as
officers, directors or stockholders of the Company or any of its subsidiaries,
except in each case where an adverse outcome would not individually or in the
aggregate have a Company Material Adverse Effect.
3.16 Employees, Pension and Benefit Plans.
(a) To the Company's knowledge, no employee of the Company or any
of its subsidiaries is in violation of any term of any employment contract or
any other contract or agreement between such employee and the Company or any of
its subsidiaries, and there is no strike or other labor dispute pending or, to
the knowledge of the Company, threatened, with respect to the Company or any of
its subsidiaries.
(b) Schedule 3.16(b) identifies each employment agreement and
each retirement, pension, savings, bonus, stock purchase, profit sharing, stock
option, deferred compensation, severance or termination pay, insurance, death,
medical, hospital, dental, vision care, drug, sick leave, disability, salary
continuation, vacation, incentive or other compensation plan or arrangement or
other employee benefit that the Company or any of its subsidiaries currently
maintains or to which any such entity currently contributes for the benefit of
any of its employees or former employees (or dependents or beneficiaries
thereof) (or as to which the Company, any subsidiary thereof or any person that,
together with the Company or such subsidiary, is treated as a single employer
under Section 414(b), (c), (m) or (o) of the Code (each such person, including
the Company or such subsidiary, a "Commonly Controlled Entity") may otherwise
have any liability), including, but not limited to, any pension plan (each a
"Pension Plan") as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and any welfare plan as defined in
Section 3(1) of ERISA (a "Welfare Plan"), whether funded, insured or
self-founded or whether written or oral (each of the foregoing contained in this
Section 3.16(b) (a "Plan").
(c) Each Plan has been administered in all material respects in
accordance with its terms. The Company, the subsidiaries thereof and all Plans
are in compliance in all material respects with the applicable provisions of
ERISA, the Code, all other applicable laws and each such Plan which is intended
to meet the requirements of a "qualified plan" under Section 401(a) of the Code
has been determined by the IRS to be a qualified plan (in form) by the issuance
of a favorable determination letter by the IRS. There is no pending or, to the
knowledge of the Company, threatened legal action, suit, investigation or claim
relating to the Plans (other than routine claims for benefits). Neither the
Company or any subsidiary thereof has engaged in a transaction in connection
with which such entity would be subject to either a civil penalty pursuant to
Section 502(i) or ERISA or tax pursuant to Section 4975 of the Code. All
contributions and other payments required to be made by the Company or any
subsidiary thereof to any Plan as of the Subsequent Closing Date, or with
respect to any period ending prior to the Subsequent Closing Date, have (or will
have) been made, on or prior to the Subsequent Closing Date.
(d) To the knowledge of the Company, there has not occurred, and
the transactions contemplated by this Agreement will not result in the
occurrence of, a "reportable event" within the meaning of Section 4043 of ERISA.
To the knowledge of the Company, neither the Company nor any Commonly Controlled
Entity has, within the five (5) year period preceding the Subsequent Closing
Date, entered into any transaction the principal purpose of which was to evade
liability to which the Company or any Commonly Controlled Entity would otherwise
be subject under Title IV of ERISA. The principal purpose of the Company
entering into the transactions contemplated by this Agreement is not to evade
liability to which the Company or any Commonly Controlled Entity would otherwise
be subject under Title IV of ERISA.
(e) Except as described on Schedule 3.16(e), no benefits under
any Plan set forth in Schedule 3.16(b) shall become accelerated as a result of
the transactions contemplated by this Agreement.
(f) Except as required under Section 4908B of the Code, neither
the Company or any subsidiary thereof has an obligation to provide
post-retirement health or life benefits.
<PAGE>
(g) WARN. Neither the Company nor any of its subsidiaries has
incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act or similar state laws which remains unpaid or unsatisfied.
(h) All management employees of the Company and its subsidiaries
have signed nondisclosure and confidentiality agreements and agreements
requiring all inventions to be the property of and assigned to the Company.
(i) To the knowledge of the Company, there is no contractual or
other restriction purporting to preclude or restrict any management employee of
the Company or any subsidiary, or any person to whom an offer of employment is
currently pending, from accepting or continuing employment with the Company or
any subsidiary.
3.17 Compliance With Law. The Company and its subsidiaries are
conducting and have conducted their respective businesses and operations in
compliance with all governmental rules and regulations applicable thereto,
including without limitation those relating to occupational safety,
environmental, health and employment practices, and are not in violation or
default in any respect under any statute, law, ordinance, rule, regulation,
judgment, order, decree, concession, grant, franchise, license or other
governmental authorization or approval applicable to it or any of its
properties, except in each case where an adverse outcome would not individually
or in the aggregate have a Company Material Adverse Effect.
3.18 Permits. The Company and its subsidiaries have all material
permits, licenses, orders and approvals of any federal, state, local or foreign
governmental or regulatory body (collectively, the "Permits") that are necessary
in the conduct of their respective businesses substantially in the manner as now
conducted and as proposed to be conducted in accordance with the Business Plan;
all such Permits are in full force and effect; no material violations have been
recorded in respect of any such Permits; and no proceeding is pending or, to the
knowledge of the Company, threatened to revoke or limit in any material respect
any such Permits.
3.19 Intellectual Property.
(a) Each of the Company or its subsidiaries owns, possesses or
has the right to use the specific Intellectual Property Rights (defined below)
described in Schedule 3.19(a) hereto and the Company reasonably believes that
the Company or its subsidiaries are able to develop, own, possess, license or
use such Intellectual Property Rights as are necessary or required for the
conduct of the Company's or its subsidiaries' businesses as currently conducted.
"Intellectual Property Rights" means all intellectual property rights of a
proprietary nature, including, without limitation, patents, patent applications,
patent rights, trademarks, trade names, service marks, copyrights, computer
programs, franchises, licenses, trade secrets, proprietary processes,
methodologies, know-how and formulae.
(b) Except as shown on Schedule 3.19(b), no royalties, license
fees or other compensation are payable by the Company or any of its subsidiaries
to any other person by reason of the ownership or use of any Intellectual
Property Rights.
(c) To the Company's knowledge, no product presently proposed to
be marketed, sold or licensed by the Company or any of its subsidiaries
violates, or will violate, any license or infringe any Intellectual Property
Rights of any other person. There is no pending or, to the Company's knowledge,
threatened claim or litigation against the Company or any of its subsidiaries
that any of said Intellectual Property Rights or that the operations of the
Company's or any of its subsidiaries' businesses conflict with the asserted
rights of any other person.
(d) To the Company's knowledge, except as set forth on Schedule
3.19(d), all licenses for the use of any System (defined below) permit the
Company or a third party to make all modifications, bypasses, de-bugging,
work-around, repairs, replacements, conversions or corrections necessary to
permit the components of each System to operate compatibly, in conformance with
their respective specifications and to be Year 2000 Compliant. To the Company's
knowledge, except as set forth on Schedule 3.19(d), no software contains any
"backdoor" or concealed access or any "software locks" or similar undocumented
devices which, upon the occurrence of a certain event, the passage of a certain
amount of time or the taking of any action (or failure to take any action) by or
on behalf of the Company, will cause any software or database to be destroyed,
erased, damaged, or otherwise rendered inoperable or inaccessible. To the
Company's knowledge, except as set forth on Schedule 3.19(d), no component of
any System is subject to the federal export control laws or regulations.
"System" means any combination of (a) software, including operating systems,
bridgeware, firmware, middleware or utilities, owned, developed licensed by or
to or used or sold by the Company, (b) hardware such as mainframes, midrange
computers, personal computers, notebooks, services, printers, modems, drives,
peripherals, or components thereof, (c) databases, including information
recorded, stored, transmitted and retrieved electronically, or (d) any embedded
control such as a microprocessors, microcontrollers, smart instrumentation or
other sensors, drives, monitors, robotic or other device containing
semiconductors, memory circuits, BIOSs, PROMs, or other microchips.
<PAGE>
(e) Except as set forth on Schedule 3.19(e), none of the
Company's or any of its subsidiaries' executive officers or, to the Company's
knowledge, employees has any claims whatsoever (whether direct, indirect or
contingent) of right, title or interest in or to any of the Company's or any of
its subsidiaries' Intellectual Property Rights; nor are any of such individuals
precluded by an agreement from engaging in any business which the Company or any
of its subsidiaries proposes to conduct as of the date hereof.
3.20 Disclosure. No written statement, memorandum, certificate,
schedule or other written information provided (or to be provided) to the
Purchaser or any of its representatives by or on behalf of the Company in
connection with the transactions contemplated hereby, when viewed together with
all other written statements and information provided to the Purchaser and its
representatives by or on behalf of the Company, including the SEC Reports, in
light of the circumstances under which they were made, (i) contains or will
contain any materially misleading statement or (ii) omits or will omit to state
any material fact necessary to make the statements therein not misleading.
3.21 Year 2000 Compliance. To the Company's knowledge, each System
that constitutes any part of, or is used in connection with, the use, operation
or enjoyment of any material tangible or intangible asset or real property of
the Company or any of its subsidiaries, is Year 2000 Compliant. The Company has
not received written notice that a System that is material to the business,
finances or operations of the Company or any of its subsidiaries receives data
from or communicates with any component or System external to itself (whether or
not such external component or System is the Company's, its subsidiaries; or any
third party's) that is not itself Year 2000 Compliant excepting the parts of the
external component or System within which noncompliance will have no effect on
the data or communications sent to the Company, or on the Systems of the
Company.
3.22 Labor Agreements and Actions. Except as set forth in Schedule
3.22 neither the Company nor any subsidiaries is bound by or subject to (and
none of its assets or properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any labor union,
and, to the Company's knowledge, no labor union has requested or has sought to
represent any of the employees, consultants, representatives or agents of the
Company or any of its subsidiaries. To the Company's knowledge, there is no
strike or other labor dispute involving the Company or any of its subsidiaries
pending or threatened that could have a Company Material Adverse Effect, nor is
the Company aware of any labor organization activity involving its or any of its
employees or consultants. The Company is not aware that any officer or key
employee or key consultant, or that any group of key employees or key
consultants, intends to terminate their employment or consulting relationship
with the Company or any of its subsidiaries, nor does the Company have a present
intention to terminate the employment or consulting relationship of any of the
foregoing. The employment of each officer and employee of the Company and its
subsidiaries is terminable at the will of the Company or such subsidiary, as
appropriate, and except as disclosed on Schedule 3.22, without any required
severance payment. The consulting relationship of each consultant of the Company
and its subsidiaries is terminable at the will of the Company or such
subsidiary, as appropriate, and except a disclosed on Schedule 3.22 without any
required severance payment. To the Company's knowledge, each of the Company and
its subsidiaries has complied in all material respects with Title VII of the
Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and
Medical Leave Act, and all other applicable state and federal equal employment
opportunity and other laws related to employment.
3.23 Agreements; Action
(a) Except for the transactions contemplated by the Transaction
Documents and as disclosed on Schedule 3.23, there are no material agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company or any of its subsidiaries, taken
as a whole, or the Company, individually, is a party or by which it is bound.
(b) All of the contracts, agreements, and instruments set forth
on Schedule 3.23 are evidenced by a writing (except where noted on Schedule
3.23), have been duly and validly executed by the Company or by the applicable
subsidiary, and are valid, binding and enforceable in accordance with their
respective terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (b) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (c) to the extent that indemnification provisions contained in any
such contracts, agreements and instruments may be limited by applicable federal
or state securities laws. The Company and each of its subsidiaries is in
compliance in all material respects with its obligations pursuant to the
contracts, agreements and instruments set forth on Schedule 3.23. Neither the
Company nor any of its subsidiaries has any knowledge of any breach or
anticipated breach by the other parties to any of the contracts, agreements and
instruments set forth on Schedule 3.23.
<PAGE>
3.24 Compliance with Market Requirements. Except as set forth in
Schedule 3.24, the Company is in compliance with all requirements of The Nasdaq
National Market and of any stock exchange or quotation system on which the
securities of the Company are publicly traded (each, a "SRO"). The Company has
not received any communication from any SRO with respect to (i) the delisting or
threatened delisting of any of the Company's securities that are publicly traded
on such SRO or (ii) any other sanction or disciplinary action taken or
threatened against the Company or any of its affiliates.
3.25 Related-Party Transactions. Except as disclosed on Schedule 3.25,
no employee, consultant, officer, or director of the Company or any of its
subsidiaries, or holder of five percent (5%) or more of any class of the stock
of the Company, or any member of the immediate family of any of any director or
officer (i) is indebted to the Company or any of its subsidiaries, nor is the
Company or any of its subsidiaries indebted (or committed to make loans or
extend or guarantee credit) to any of them; (ii) has any direct or indirect
ownership interest in (A) any firm or corporation with which the Company or any
of its subsidiaries is affiliated, (B) any firm or corporation with which the
Company or any of its subsidiaries has a business relationship, or (C) any firm
or corporation that competes with the Company or any of its subsidiaries (except
for ownership of not more than two percent (2%) of the outstanding voting
securities of a publicly-traded company that competes with the Company or any of
its subsidiaries). No employee, consultant, officer or director of the Company
or any of its subsidiaries or any member of the immediate family of any director
or officer is directly or indirectly interested in any material contract with
the Company or the subsidiaries. Except as disclosed on Schedule 3.24 or
pursuant to any employment agreement with the Company or any of its subsidiaries
listed on Schedule 3.23, neither the Company nor any of its subsidiaries is
obliged to pay, and does not intend to pay, any retention bonus or any other
bonus to any employee of or consultant to the Company or such subsidiary.
3.26 Environmental. Neither the Company nor any of its subsidiaries is
in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, except as would not individually
or in the aggregate have a Company Material Adverse Effect, and no material
expenditures are or will be required in order to comply with any such statute,
law or regulation.
3.27 Insurance. Schedule 3.27 hereto sets forth a true and complete
list of all insurance policies maintained by or for the benefit of the Company
or any of its subsidiaries, and all Directors and Officers insurance policies of
the Company and its subsidiaries, specifying the insurer, the amount of the
coverage (including applicable deductibles), the type of insurance, the policy
number, any pending claims thereunder as to which the Company or any of its
subsidiaries has received notice and which relate to the Company or any of its
subsidiaries and a summary of all claims made thereunder as to which the Company
or any of its subsidiaries has received notice and which relate to the Company
or any of its subsidiaries in the twelve (12) months immediately preceding the
date hereof. The insurance policies described on Schedule 3.27 are in full force
and effect in all material respects. Neither the Company nor any of its
subsidiaries has failed to give notice of any claim under any such policy in a
due and timely fashion except to the extent such failure has been remedied or
otherwise would not have a Company Material Adverse Effect. Neither the Company
nor any of its subsidiaries has received an effective notice of cancellation or
nonrenewal of any such policy binder. There has been no material inaccuracy in
any application for such policies, any failure to pay premiums when due except
to the extent such failure has been remedied or any other similar state of facts
that would form the basis for termination of any such insurance.
Article IV
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Company as follows:
4.1 Organization and Standing. Madeleine is a limited liability
company duly organized and existing under and by virtue of the laws of New York
and is in good standing under such laws and WarrantCo is a limited liability
company duly organized and existing under and by virtue of the laws of Delaware
and is in good standing under such laws.
4.2 Corporate Power. Each entity that constitutes the Purchaser has
all requisite legal power and authority to execute and deliver this Agreement
and to carry out and perform its obligations under the terms of this Agreement
and the other Transaction Documents to which it is a party.
<PAGE>
4.3 Authorization; No Conflict. All legal action on the part of the
Purchaser and its members necessary for the authorization, execution, delivery
and performance of this Agreement and the other Transaction Documents and the
performance of all of the Purchaser's obligations under this Agreement and the
other Transaction Documents to which it is a party has been taken. This
Agreement and the other Transaction Documents when executed and delivered by the
Purchaser, shall constitute the valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with their respective terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules governing specific performance, injunctive
relief or other equitable remedies. The execution and performance of the
transactions contemplated by this Agreement by the Purchaser and the compliance
with its respective provisions by the Purchaser will not (a) conflict with or
violate the organizational documents of the Purchaser or (b) require the
Purchaser any filing with, or any permit, authorization, consent or approval of
any agency, bureau, commission, court, authority, department, official,
political subdivision, tribunal or other instrumentality of any government (a
"Governmental Entity") so as to not have a material adverse effect on the
ability of the Purchaser to complete the transactions contemplated by this
Agreement.
4.4 Experience. Each entity for whom Purchaser is acting as nominee is
an accredited investor within the meaning of Regulation D promulgated under the
Securities Act and, by virtue of its experience in evaluating and investing in
private placement transactions of securities in companies similar to the
Company, it is capable of evaluating the merits and risks of its investment in
the Restated Notes, the Warrants and the Warrant Stock (collectively, the
"Securities") and has the capacity to protect its own interests.
4.5 Investment. Madeleine is acquiring the Restated Notes, and
WarrantCo is acquiring the Warrants, for investment purposes only and not with
the view to, or for resale in connection with, any distribution of any part
thereof in violation of the Securities Act. Madeleine and WarrantCo understand
that the Restated Notes and the Warrant Stock, respectively, have not been
registered under the Securities Act or applicable state and other securities
laws by reason of a specific exemption from the registration provisions of the
Securities Act and applicable state and other securities laws, the availability
of which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser acknowledges and is aware of the following:
(a) there will be substantial restrictions on the transferability
of the Securities arising under the applicable securities laws; and
(b) no representation, guarantee or warranty has been made to the
Purchaser by the Company, its officers, directors, agents, or employees or any
other person, expressly or by implication, as to the profitability of the
Company or the Securities, except for those representations and warranties set
forth in this Agreement and the other Transaction Documents.
4.6 Restricted Securities. The Purchaser will not sell or otherwise
transfer the Securities, without registration under the Securities Act or
applicable state securities laws or an exemption therefrom. The Securities have
not been registered under the Securities Act or under the securities laws of
certain states. The Purchaser is aware that an exemption from the registration
requirements of the Securities Act pursuant to Rule 144 promulgated thereunder
is not presently available; and, except as provided in the Madeleine
Registration Rights Agreement with respect to the Warrant Stock, the Company has
no obligation to register the Warrant Stock, or to make available an exemption
from the registration requirements pursuant to such Rule 144 or any successor
rule for resale of the Warrant Stock.
4.7 Risk Factors. The Purchaser recognizes that investment in the
Securities involves substantial risks, including loss of the entire amount of
such investment. Further, it has carefully read and considered the matters set
forth under the caption "Risk Factors" in the Company's Prior SEC Reports and
has taken full cognizance of and understands all of the risks related to the
purchase of Securities.
4.8 Legend. The Purchaser acknowledges that the Restated Notes and the
certificate(s) representing the Warrants and the Warrant Stock shall be stamped
or otherwise imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS, WHICH, IN
THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS
AVAILABLE."
The Company may place a stop transfer order on its transfer books
against the Restated Notes, the Warrants or the Warrant Stock to enforce the
foregoing restrictions. As soon as such restrictions are lifted, the Company
shall take all necessary steps to remove from the Restated Notes or any
certificate(s) evidencing the Warrants or the Warrant Stock, and shall remove
any stop transfer order on its transfer books pertaining to such restrictions
against the Restated Notes or the Warrants or the Warrant Stock.
<PAGE>
4.9 Access to Data. The Purchaser has had an opportunity to discuss
the Company's and its subsidiaries' business, management, financial affairs and
prospects with its management, the opportunity to review the Company's and its
subsidiaries' facilities and Company's SEC Reports and the opportunity to ask
questions of officers and directors of the Company. The Purchaser has carefully
considered and has, to the extent it believes such discussion necessary,
discussed with its professional legal, tax, accounting and financial advisors
the suitability of an investment in the Securities for its particular tax and
financial situation and has determined that the Securities are a suitable
investment for it. The Purchaser acknowledges that (i) it has had the right to
request copies of any documents, records, and books pertaining to this
investment and (ii) any such documents, records and books which it requested
have been made available for inspection by it, its attorney, accountant or
adviser(s).
4.10 Brokers or Finders. The Purchaser has not retained any investment
banker, broker or finder. The Purchaser will indemnify and hold the Company
harmless against any liability, settlement or expense arising out of, or in
connection with, any such claim.
4.11 Intent of Representations and Warranties. The Purchaser
acknowledges and represents to the Company that it is making the foregoing
representations and warranties with the intent that they may be relied upon by
the Company in determining the suitability of the sale of the Securities to the
Purchaser for purposes of the federal and state securities laws.
Article V
Covenants of the Company and the Purchaser
5.1 Stockholder Approval.
(a) The Company will take all action necessary in accordance with
and subject to applicable law and its Restated Certificate of Incorporation and
Bylaws, as amended and restated, to convene a meeting of its stockholders and
will use commercially reasonable efforts to solicit the approval of its
stockholders of the authorization and issuance of the Second Restated Note and
the Tranche 2 Warrants and the Warrant Stock issuable upon exercise thereof, the
Amendment to the Certificate of Incorporation and the other transactions
contemplated by the Subsequent Closing, to the extent required by the Delaware
General Corporation Law, the Company's Restated Certificate of Incorporation or
Bylaws and all applicable laws and regulations (the "Stockholder Approval").
(b) The Company's Board of Directors has recommended (and will
continue to recommend subject to its fiduciary duties under applicable law) the
Stockholder Approval by the Company's stockholders and the Company shall take
all reasonable, lawful action to solicit the Stockholder Approval. The Company's
Board of Directors may withdraw or modify its approval of the transactions
contemplated by the Subsequent Closing or recommendation of Stockholder Approval
if Chanin Capital LLC's Fairness Opinion (as defined in Section 6.1) shall not
have been obtained or been withdrawn.
(c) The Company agrees to prepare and file with the Commission a
proxy statement (the "Proxy Statement") seeking the Stockholder Approval as soon
as practicable after the date hereof. Each of the parties hereto agrees to
cooperate with the other, its counsel and its accountants, in the preparation
and filing of the Proxy Statement. The Purchaser agrees to furnish to the
Company all information concerning the Purchaser as may be reasonably requested
in connection with the foregoing. Prior to the filing of the Proxy Statement,
the Purchaser shall have had the opportunity to review and object to any
information relating to the transactions contemplated hereby or with respect to
the Purchaser. The Purchaser shall not be deemed to have approved any
information included in the Proxy Statement except for information provided to
the Company by the Purchaser for the purpose of inclusion in the Proxy
Statement. The Company shall comply with all applicable laws and regulations in
distributing the Proxy Statement to its stockholders.
(d) Each of the Purchaser and the Company agrees that none of the
information supplied or to be supplied by it for inclusion or incorporation by
reference in the Proxy Statement or any amendment or supplement thereto will, at
the date of mailing to stockholders and at the time of the Company's
stockholders' meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or any statement which, in light of the
circumstances under which such statement is made, will be false or misleading
with respect to any material fact, or which will omit to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier statement in the Proxy
Statement or any amendment or supplement thereto. Each of the Purchaser and the
Company further agrees that if it shall become aware of any information
furnished by it that would cause any of the statements in the Proxy Statement to
be false or misleading with respect to any material fact, or to omit to state
any material fact necessary to make the statements therein not false or
misleading, to promptly inform the other party thereof and to take the necessary
steps to correct the Proxy Statement.
<PAGE>
(e) The Company shall indemnify, defend and hold harmless, to the
fullest extent permitted by law, the Purchaser, its directors, officers, members
and agents and each other person, if any, who controls the Purchaser or for whom
Purchaser acts as nominee (collectively, the "Indemnified Persons"), against any
and all losses, claims, damages or liabilities, joint or several, and expenses
(including fees of counsel and any amounts paid in any settlement effected with
Company's consent, which consent shall not be unreasonably withheld) to which
such Indemnified Persons may become subject under the Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof), or expenses
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Proxy Statement or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, (ii) any violation by Company of any
federal or state rule or regulation applicable to Company and relating to action
required of or inaction by Company in connection with any such Proxy Statement,
or (iii) any breach or failure of observance or performance of any
representation, warranty, covenant, agreement or commitment made by the Company
under this Agreement or any of the other Transaction Documents or as a result of
any such representation, warranty, covenant, agreement or commitment being
untrue or incorrect in any respect. The Company will reimburse Indemnified
Persons for any reasonable legal or any other expenses reasonably incurred by
any of them in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding. Notwithstanding the foregoing, Company
shall not be liable to any Indemnified Person to the extent that any such loss,
claim, damage, liability (or action or proceeding, whether commenced or
threatened, in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
Company by or on behalf of any such Indemnified Person, for use in the
preparation of the Proxy Statement.
5.2 [Intentionally Omitted.]
5.3 Amendment to the Certificate of Incorporation. Upon receipt of the
Stockholder Approval and if the Fairness Opinion has been received and not
withdrawn, altered or amended in any material respect, the Company shall take,
or cause to be taken, all action necessary to file the Amendment to the
Certificate of Incorporation in accordance with the relevant provisions of the
General Corporation Law of the State of Delaware.
5.4 Reserve for the Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the exercise of the Tranche 1 Warrants and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the exercise
of the Tranche 1 Warrants from time to time outstanding or otherwise to comply
with the terms of this Agreement. Upon the filing of the Amendment to the
Certificate of Incorporation, the Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, for the
purpose of effecting the exercise of the Tranche 2 Warrants and otherwise
complying with the terms of this Agreement, such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the exercise of the
Tranche 2 Warrants from time to time outstanding or otherwise to comply with the
terms of this Agreement. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the exercise of the
Warrants or otherwise to comply with the terms of this Agreement, the Company
will forthwith take such corporate action as may be necessary to increase is
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes. The Company will use its reasonable efforts to
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon exercise of the Warrants.
5.5 Additional Affirmative Covenants. So long as any principal of or
interest on Restated Notes shall remain unpaid, the Company will, unless the
Purchaser shall otherwise consent in writing:
(a) Reporting Requirements. Furnish to the Purchaser:
(i) as soon as available and in any event within 45 days
after the end of each fiscal quarter of the Company and its
subsidiaries, consolidated and consolidating balance sheets,
consolidated and consolidating statements of operations and retained
earnings and consolidated and consolidating statements of cash flows
of the Company and its subsidiaries as at the end of such quarter, and
for the period commencing at the end of the immediately preceding
fiscal year of the Company and its subsidiaries (the "Fiscal Year")
and ending with the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding date or period of
the immediately preceding Fiscal Year, and, with respect to the
period(s) covered thereby, the Business Plan, all in reasonable detail
and certified by the Chief Executive Officer or Chief Financial
Officer of the Company as fairly presenting, in all material respects,
the consolidated financial position of the Company and its
subsidiaries as of the end of such quarter and the consolidated
results of operations and cash flows of the Company and its
subsidiaries for such quarter, in accordance with GAAP applied in a
manner consistent with that of the most recent audited financial
statements of the Company and its subsidiaries furnished to the
Purchaser, subject to normal year-end adjustments;
<PAGE>
(ii) as soon as available, and in any event within 90 days
after the end of each Fiscal Year consolidated and consolidating
balance sheets, consolidated statements of operations and retained
earnings and consolidated and consolidating statements of cash flows
of the Company and its subsidiaries as at the end of such Fiscal Year,
setting forth in comparative form the corresponding figures for the
immediately preceding Fiscal Year, all in reasonable detail and
prepared in accordance with GAAP, and accompanied by a report and an
unqualified opinion, prepared in accordance with generally accepted
auditing standards, of independent certified public accountants of
recognized standing selected by the Company and satisfactory to the
Purchaser (which opinion shall be without (A) a "going concern" or
like qualification or exception or (B) any qualification or exception
as to the scope of such audit);
(iii) as soon as available, and in any event within 25 days
of the end of each fiscal month of the Company and its subsidiaries
internally prepared consolidated and consolidating balance sheets,
consolidated and consolidating statements of operations and
consolidated and consolidating statements of cash flows for such
fiscal month of the Company and its subsidiaries for such fiscal month
and for the period from the beginning of such Fiscal Year to the end
of such fiscal month, setting forth in each case in comparable form
the figures in the corresponding period covered by the Business Plan,
all in reasonable detail and certified by the Chief Executive Officer
or Chief Financial Officer as fairly presenting, in all material
respects, the consolidated financial position of the Company and its
subsidiaries as of the end of such fiscal month and the consolidated
results of operations and cash flows of the Company and its
subsidiaries for such fiscal month, in accordance with GAAP applied in
a manner consistent with that of the most recent audited financial
statements furnished to the Purchaser, subject to normal year-end
adjustments;
(iv) simultaneously with the delivery of the financial
statements of the Purchaser required by clauses (i), (ii) and (iii) of
this Section 5.5(a), a certificate of the Chief Executive Officer or
Chief Financial Officer stating that such Chief Executive Officer or
Chief Financial Officer has reviewed the provisions of this Agreement
and the Transaction Documents and has made or caused to be made under
his or her supervision a review of the condition and operations of the
Company and its subsidiaries during the period covered by such
financial statements with a view to determining whether the Company
and its subsidiaries were in compliance with all of the provisions of
such Transaction Documents at the times such compliance is required by
the Transaction Documents, and that such review has not disclosed, and
such Chief Executive Officer or Chief Financial Officer has no
knowledge of, the existence during such period of an Event of Default
or Default or, if an Event of Default or Default existed, describing
the nature and period of existence thereof and the action which the
Company and its subsidiaries propose to take or have taken with
respect thereto;
(v) on or before April 1 of each year, a revised Business
Plan, including financial projections prepared on a monthly basis, in
form and substance satisfactory to the Purchaser in its sole and
absolute discretion, for the immediately succeeding Fiscal Year for
the Company and its subsidiaries and (B) on or before the 30th day
preceding the commencement of each fiscal quarter, financial
projections prepared on a monthly basis, in form and substance
satisfactory to the Purchaser in its sole and absolute discretion, for
each remaining quarterly period in such Fiscal Year, all such Business
Plans and financial projections to be reasonable, to be prepared on a
reasonable basis and in good faith, and to be based on assumptions
believed by the Company to be reasonable at the time made and from the
best information then available to the Company;
(vi) promptly after submission to any government authority,
all documents and information furnished to such government authority
in connection with any investigation of the Company or any of its
subsidiaries other than routine inquiries by such governmental
authority;
(vii) as soon as possible, and in any event within three
days after the occurrence of an Event of Default or Default or the
occurrence of any event or development that could have a Material
Adverse Effect, the written statement of the Chief Executive or Chief
Financial Officer setting forth the details of such Event of Default,
Default, other event or Material Adverse Effect and the action which
the Company and its subsidiaries propose to take with respect thereto;
(viii) (A) as soon as possible and in any event (1) within
10 days after the Company or a Commonly Controlled Entity thereof
knows or has reason to know that any Termination Event described in
clause (i) of the definition of Termination Event with respect to any
Employee Plan has occurred, (2) within 10 days after the Company or a
Commonly Controlled Entity thereof knows or has reason to know that
any other Termination Event with respect to any Plan has occurred, or
(3) within 10 days after the Company or a Commonly Controlled Entity
thereof knows or has reason to know that an accumulated funding
deficiency has been incurred or an application has been made to the
Secretary of the Treasury for a waiver or modification of the minimum
funding standard (including installment payments) or an extension of
any amortization period under Section 412 of the Code with respect to
a Plan, a statement of the Chief Executive Officer or Chief Financial
Officer setting forth the details of such occurrence and the action,
if any, which the Company or such Commonly Controlled Entity propose
to take with respect thereto, (B) promptly and in any event within
three days after receipt thereof by the Company or a Commonly
Controlled Entity thereof from the PBGC, copies of each notice
received by the Company or a Commonly Controlled Entity thereof of the
PBGC's intention to terminate any Plan or to have a trustee appointed
to administer any Plan, (C) promptly and in any event within 10 days
after the filing thereof with the Internal Revenue Service if
requested by the Purchaser, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to
each Plan, (D) promptly and in any event within 10 days after the
Company or a Commonly Controlled Entity thereof knows or has reason to
know that a required installment within the meaning of Section 412 of
the Code has not been made when due with respect to a Plan, (E)
promptly and in any event within three days after receipt thereof by
the Company or a Commonly Controlled Entity thereof from a sponsor of
a Multiemployer Plan or from the PBGC, a copy of each notice received
by the Company or a Commonly Controlled Entity thereof concerning the
imposition or amount of withdrawal liability under Section 4202 of
ERISA or indicating that such Multiemployer Plan may enter
reorganization status under Section 4241 of ERISA, and (F) promptly
and in any event within 10 days after the Company or a Commonly
Controlled Entity thereof send notice of a plant closing or mass
layoff (as defined in WARN) to employees, copies of each such notice
sent by the Company or a Commonly Controlled Entity thereof;
<PAGE>
(ix) promptly after the commencement thereof but in any
event not later than 5 days after service of process with respect
thereto on, or the obtaining of knowledge thereof by, the Company or
any subsidiary, notice of each action, suit or proceeding before any
court or other governmental authority or other regulatory body or any
arbitrator which, if adversely determined, could have a Material
Adverse Effect;
(x) as soon as possible and in any event within 10 days
after execution, receipt or delivery thereof, copies of any material
notices that the Company executes or receives from or sends to any
Person, counterparty to an agreement or governmental entity in
connection with Permits and those items listed on Schedule 3.23
thereon or those items that would be deemed Permits or items to be
listed on Schedule 3.23 if the representation and warranties in this
agreement had been given on the date the notice is received;
(xi) promptly after the sending or filing thereof, copies of
all statements, reports and other information the Company or any of
its subsidiaries sends to any holders of its securities or files with
the SEC or any national (domestic or foreign) securities exchange;
(xii) promptly upon receipt thereof, copies of all financial
reports (including, without limitation, management letters), if any,
submitted to the Company or any of its subsidiaries by its auditors in
connection with any annual or interim audit of the books thereof; and
(xiii) promptly upon request, such other information
concerning the condition or operations, financial or otherwise, of the
Company or any of its affiliates as the Purchaser may from time to
time may reasonably request.
(b) Compliance with Laws, Etc. Comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (including, without limitation, all environmental
laws), such compliance to include, without limitation, (i) paying before the
same become delinquent all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any of its properties, and
(ii) paying all lawful claims which if unpaid might become a mortgage, deed of
trust, pledge, lien (statutory or otherwise), security interest, charge or other
encumbrance or security or preferential arrangement of any nature, including,
without limitation, any conditional sale or title retention arrangement, any
capitalized lease and any assignment, deposit arrangement or financing lease
intended as, or having the effect of, security (a "Lien") or charge upon any of
its properties, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or Lien resulting
from the non-payment thereof and with respect to which adequate reserves have
been set aside for the payment thereof.
(c) Preservation of Existence, Etc. Maintain and preserve, and
cause each of its subsidiaries to maintain and preserve, its existence, rights
and privileges, and become or remain duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.
(d) Keeping of Records and Books of Account. Keep, and cause each
of its subsidiaries to keep, adequate records and books of account, with
complete entries made in accordance with GAAP.
(e) Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its subsidiaries to maintain and preserve, all of their properties
which are necessary or useful in the proper conduct of their business in good
working order and condition, ordinary wear and tear excepted, and comply, and
cause each of its subsidiaries to comply, at all times with the provisions of
all leases to which each of them is a party as lessee or under which each of
them occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.
(f) Maintenance of Insurance. Maintain, and cause each of its
subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to
their properties (including all real properties leased or owned by them) and
business, in such amounts and covering such risks as is required by any
governmental authority having jurisdiction with respect thereto or as is carried
generally in accordance with sound business practice by companies in similar
businesses similarly situated and in any event in amount, adequacy and scope
reasonably satisfactory to the Purchaser. All certificates of insurance are to
be delivered to the Purchaser and the policies are to be premium prepaid, with
the loss payable and additional insured endorsement in favor of Purchaser and
such other Persons as the Purchaser may designate for time to time, and shall
provide for not less than 30 days' prior written notice to the Purchaser of the
exercise of any right of cancellation. If the Company or any of its subsidiaries
fails to maintain such insurance, the Purchaser may arrange for such insurance,
but at the Company's expense and without any responsibility on the Purchaser's
part for obtaining the insurance, the solvency of the insurance companies, the
adequacy of the coverage, or the collection of claims. Upon the occurrence of an
Event of Default, the Purchaser shall have the sole right, in the name of the
<PAGE>
Purchaser and the Company and its subsidiaries, to file claims under any
insurance policies, to receive, receipt and give acquittance for any payments
that may be payable thereunder, and to execute any and all endorsements,
receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims under
any such insurance policies.
(g) Obtaining of Permits, Etc. Obtain, maintain and preserve, and
cause each of its subsidiaries to obtain, maintain and preserve, all permits,
licenses, authorizations, approvals, entitlements and accreditations which are
necessary or useful in the proper conduct of its business and become or remain,
and cause each of its subsidiaries to become or remain, duly qualified and in
good standing in each jurisdiction in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary.
(h) Further Assurances. Take such action and execute, acknowledge
and deliver, and cause each of its subsidiaries to take such action and execute,
acknowledge and deliver, at its sole cost and expense, such agreements,
instruments or other documents as the Purchaser may require from time to time in
order (i) to carry out more effectively the purposes of this Agreement and the
Transaction Documents, (ii) to subject to valid and perfected first priority
Liens any of the collateral or any other property of the Company and its
subsidiaries, (iii) to establish and maintain the validity and effectiveness of
any of the Transaction Documents and the validity, perfection and priority of
the Liens intended to be created thereby, and (iv) to better assure, convey,
grant, assign, transfer and confirm unto the Purchaser the rights now or
hereafter intended to be granted to the Purchaser under this Agreement or the
Transaction Documents.
(i) Change in Collateral; Collateral Records. (i) Give the
Purchaser not less than 30 days' prior written notice of any change in the
location of any Collateral, other than to locations set forth on Schedule 5.5(i)
and with respect to which the Purchaser has filed financing statements and
otherwise fully perfected its Liens thereon, (ii) advise the Purchaser promptly,
in sufficient detail, of any material adverse change relating to the type,
quantity or quality of the collateral or the Lien granted thereon and
(iii) execute and deliver, and cause each of its subsidiaries to execute and
deliver, to the Purchaser for the benefit of the Purchaser from time to time,
solely for the Purchaser's convenience in maintaining a record of collateral,
such written statements and schedules as the Purchaser may reasonably require,
designating, identifying or describing the collateral.
(j) Compliance with Business Plan. Operate its business, and
cause each of its subsidiaries to operate its business, in strict compliance
with the Business Plan, as such Business Plan shall have been modified from time
to time with the approval of the Purchaser in accordance with the provisions of
Section 5.5(a)(v).
5.6 Negative Covenants of the Company. From the date hereof until so
long as any principal of or interest on any Restated Notes shall remain unpaid,
the Company and its subsidiaries shall conduct their respective businesses in
the ordinary course of business, in a manner consistent with past practice, and,
to the extent consistent therewith, use reasonable efforts to maintain in all
material respects their business organizations and assets, shall not take any
action reasonably likely to have a Company Material Adverse Effect or that is
inconsistent with the Business Plan, and shall not, without the prior written
consent of the Purchaser:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its subsidiaries to create, incur, assume or suffer to exist any
Lien upon or with respect to any of its property, whether now owned or hereafter
acquired, to file or suffer to exist under the Uniform Commercial Code or any
similar law or statute of any jurisdiction, a financing statement (or the
equivalent thereof) that names the Company or any of its subsidiaries as debtor,
to sign or suffer to exist any security agreement authorizing any secured party
thereunder to file such financing statement (or the equivalent thereof), to sell
any of its property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable) with recourse to the Company or any of its subsidiaries
or assign or otherwise transfer, or permit any of its subsidiaries to assign or
otherwise transfer, any account or other right to receive income, other than
Permitted Liens.
(b) Indebtedness. Create, incur, assume, guarantee or suffer to
exist, or otherwise become or remain liable with respect to, or permit any of
its subsidiaries to create, incur, assume, guarantee or suffer to exist or
otherwise become or remain liable with respect to, any Indebtedness other than
Permitted Indebtedness.
(c) Fundamental Changes. Wind-up, liquidate or dissolve itself
(or permit or suffer any thereof) or merge, consolidate or amalgamate with any
Person, convey, sell, lease or sublease, transfer or otherwise dispose of,
whether in one transaction or a series of related transactions, all or any part
of its business, property or assets, whether now owned or hereafter acquired, or
(agree to do any of the foregoing) or purchase or otherwise acquire, whether in
one transaction or a series of related transactions, all or substantially all of
the assets of any Person (or any division thereof) (or agree to do any of the
foregoing), or permit any of its subsidiaries to do any of the foregoing; or
establish or acquire any subsidiary.
(d) Change in Nature of Business. Make, or permit any of its
subsidiaries to make, any change in the nature of its business from that
contemplated by the Business Plan.
(e) Loans, Advances, Investments, Etc. Make or commit or agree to
make any loan, advance guarantee of obligations, other extension of credit or
capital contributions to, or hold or invest in or commit or agree to hold or
invest in, or purchase or otherwise acquire or commit or agree to purchase or
otherwise acquire any shares of the capital stock, bonds, notes, debentures or
other securities of, or make or commit or agree to make any other investment in,
any other Person, or purchase or own any futures contract or otherwise become
liable for the purchase or sale of currency or other commodities at a future
date in the nature of a futures contract, or permit any of its subsidiaries to
do any of the foregoing, except for: (i) investments existing on the date
hereof, as set forth on Schedule 5.6(e) hereto, but not any increase in the
amount thereof as set forth in such Schedule or any other modification of the
terms thereof, (ii) investments in subsidiaries (other than Unrestricted
Subsidiaries, as defined in the Restated Notes), (iii) temporary loans and
advances by the Company to its subsidiaries (other than Unrestricted
Subsidiaries) and by such subsidiaries to the Company, made in the ordinary
course of business and not exceeding in the aggregate for all such Persons at
any one time outstanding $20,000, and (iv) Permitted Investments.
<PAGE>
(f) Capital Expenditures. Make or commit or agree to make, or
permit any of its subsidiaries to make or commit or agree to make, any capital
expenditure (by purchase or capitalized lease) except as approved by the
Purchaser, or in accordance with and in the time periods contemplated by its
Business Plan.
(g) Restricted Payments. (i) Declare or pay any dividend or other
distribution, direct or indirect, on account of any capital stock of the Company
or any of its subsidiaries, now or hereafter outstanding (other than dividends
and distributions by a wholly-owned subsidiaries of the Company to the Company
or another wholly-owned subsidiary, (ii) make any repurchase, redemption,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any capital stock of the Company
or any direct or indirect parent of the Company, now or hereafter outstanding,
(iii) make any payment to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights for the purchase or acquisition of shares of
any class of capital stock of the Company, now or hereafter outstanding, (iv)
return any of capital to any shareholders or other equity holders of the Company
or any of its subsidiaries, or make any other distribution of property, assets,
shares of capital stock, warrants, rights, options, obligations or securities
thereto as such or (v) except for the management and consulting fees specified
on Schedule 5.6(g) hereto, pay any management fees or any other fees or expenses
(including the reimbursement thereof by the Company or any of its subsidiaries)
pursuant to any management, consulting or other services agreement to any of the
shareholders or other equityholders of the Company or any of its subsidiaries or
other affiliates, or to any other subsidiaries or affiliates or the Company:
(h) Federal Reserve Regulations. Permit any Restated Note or the
proceeds of any Restated Note under this Agreement to be used for any purpose
that would cause such Restated Notes to be margin loans under the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System of
the United States.
(i) Transactions with Affiliates. Except for the management and
consulting fees specified on Schedule 5.6(g) hereto, enter into, renew, extend
or be a party to, or permit any of its subsidiaries to enter into, renew, extend
or be a party to any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease, transfer or exchange of property
or assets of any kind or the rendering of services of any kind) with any of its
affiliates, except in the ordinary course of business in a manner and to an
extent consistent with past practice and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no less favorable
to the Company or such subsidiary than would be obtainable in a comparable arm's
length transaction with a Person that is not an affiliate thereof.
(j) Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries. Create or otherwise cause, incur, assume, suffer or
permit to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any of its subsidiaries (i) to pay dividends or to
make any other distribution on any shares of capital stock of such subsidiary
owned by the Company or any of its subsidiaries, (ii) to pay or prepay or to
subordinate any Indebtedness owed to the Company or any of its subsidiaries,
(iii) to make loans or advances to the Company or any of its subsidiaries or
(iv) to transfer any of its property or assets to the Company or any of its
subsidiaries, or permit any of its subsidiaries to do any of the foregoing;
provided, however, that nothing in any of clauses (i) through (iv) of this
Section 5.6(j) shall prohibit or restrict:
(A) this Agreement and the transactions contemplated hereby;
(B) any agreements in effect on the date of this Agreement
and described on Schedule 5.6(j);
(C) any applicable law, rule or regulation (including,
without limitation, applicable currency control laws and applicable
state corporate statutes restricting the payment of dividends in
certain circumstances);
(D) in the case of clause (iv) any agreement setting forth
customary restrictions on the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract of
similar property or assets; or
(E) in the case of clause (iv) any holder of a Permitted
Lien from restricting on customary terms the transfer of any property
or assets subject thereto.
(k) Limitation on Issuance of Capital Stock.
(i) Issue or sell or enter into or amend or modify any
agreement or arrangement for the issuance and sale of any shares of
its capital stock, any securities convertible into or exchangeable for
its capital stock or any warrants, options or other rights for the
purchase or acquisition of any of its capital stock.
(ii) Permit any of its subsidiaries to issue or sell or
enter into or amend or modify any agreement or arrangement for the
issuance and sale of any shares of its capital stock, any securities
convertible into or exchangeable for its capital stock or any
warrants.
(l) Modifications of Indebtedness, Organizational Documents and
Certain Other Agreements; Etc. (i) Amend, modify or otherwise change (or permit
the amendment, modification or other change in any manner of) any of the
provisions of any Indebtedness of the Company or any of its subsidiaries or of
any instrument or agreement (including, without limitation, any purchase
agreement, indenture, loan agreement or security agreement) relating to any such
Indebtedness if such amendment, modification or change would shorten the final
maturity or average life to maturity of, or require any payment to be made
earlier than the date originally scheduled on, such Indebtedness, would increase
the interest rate applicable to such Indebtedness, or would change the
subordination provision, if any, of such Indebtedness, or would otherwise be
adverse to the issuer of such Indebtedness in any respect, (ii) except for the
Restated Notes, make any voluntary or optional payment, prepayment, redemption
or other acquisition for value of any Indebtedness of the Company or any of its
subsidiaries (including, without limitation, by way of depositing money or
securities with the trustee therefor before the date required for the purpose of
paying any portion of such Indebtedness when due), or refund, refinance, replace
or exchange any other Indebtedness for any such Indebtedness, or make any
prepayment, redemption or repurchase of any outstanding Indebtedness as a result
of any asset sale, change of control, issuance and sale of debt or equity
securities or similar event, or give any notice with respect to any of the
foregoing, or (iii) amend, modify or otherwise change its certificate of
incorporation or bylaws (or other similar organizational documents), including,
without limitation, by the filing or modification of any certificate of
designation, or any agreement or arrangement entered into by it, with respect to
any of its capital stock (including any shareholders' agreement), or enter into
any new agreement with respect to any of its capital stock.
<PAGE>
(m) Investment Company Act of 1940. Engage in any business, enter into
any transaction, use any securities or take any other action or permit any of
its subsidiaries to do any of the foregoing, that would cause it or any of its
subsidiaries to become subject to the registration requirements of the
Investment Company Act of 1940, as amended, by virtue of being an "investment
company" or a company "controlled" by an "investment company" not entitled to an
exemption within the meaning of such Act.
(n) Environmental. Permit the use, handling, generation, storage,
treatment, release or disposal of (a) any element, compound or chemical that is
defined, listed or otherwise classified as a contaminant, pollutant, toxic
pollutant, toxic or hazardous substances, extremely hazardous substance or
chemical, hazardous waste, special waste, or solid waste under environmental
laws; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d)
any substance exhibiting a hazardous waste characteristic, including but not
limited to, corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any raw materials, building
components, including but not limited to asbestos-containing materials and
manufactured products containing hazardous substances ("Hazardous Materials") at
any property owned or leased by the Company or any of its subsidiaries except in
compliance with environmental laws and so long as such use, handling,
generation, storage, treatment, release or disposal of Hazardous Materials does
not result in a Material Adverse Effect.
(o) Certain Agreements. Agree to any material amendment or other
material change to or material waiver of any of its rights under the Permits and
those items listed on Schedule 3.23 thereon without the prior written consent of
the Purchaser.
(p) Certain Distributions. The Company will not make any distribution
of stock or stock rights of the Company to stockholders, if made at the election
of any of the stockholders of the Company if such distribution would result in
taxable income to the Purchaser pursuant to Section 305 of the Internal Revenue
Code, as amended.
The Company shall give prompt notice to the Purchaser of any fact,
event or circumstance known to it that (i) is reasonably likely, individually or
together with other such matters, to result in any Company Material Adverse
Effect, or (ii) would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements hereunder.
Notwithstanding anything herein to the contrary, if the Company or its
subsidiaries wish to make any capital expenditures for which the prior written
consent of the Purchaser is required pursuant to Section 5.6(f) above or to
incur Indebtedness for which the prior written consent of the Purchaser is
required pursuant to Section 5.6(e) above, the Company shall deliver to the
Purchaser (i) all material information concerning such capital expenditure or
Indebtedness (including, without limitation, all material terms and conditions)
and (ii) a certificate executed on behalf of the Company stating that the
Company has delivered to the Purchaser all material information concerning such
capital expenditure or Indebtedness. Promptly following the reasonable request
of the Purchaser, the Company shall supply any additional information
(including, without limitation, due diligence materials) which is in its
possession or reasonably available to it. If the Purchaser does not approve of
such capital expenditure or Indebtedness in writing within five (5) business
days following receipt of the certificate stated above (or, if later, within
five (5) business days following receipt of additional information reasonably
requested by them), approval of such capital expenditure or Indebtedness will be
deemed to have been denied for purposes of this paragraph of Section 5.6.
[5.7 [Intentionally Omitted]]
5.8 Public Announcements. The Company and the Purchaser shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated hereby, shall provide
each other the opportunity to review and comment upon, any such press release or
public statement, and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law or
any listing agreement with any securities exchange on which the Company's
securities are listed.
5.9 Preemptive Rights. In the event that the Company proposes to issue
any capital stock or securities that are convertible into or exchangeable for
capital stock (a "New Issuance") to any person (other than as a result of (a)
the exercise of the Company's Class C and Class D Warrants, (b) the exercise of
stock options granted under the Company's 1994 Stock Option Plan, as amended
(including future increases to the numbers of options issued pursuant to the
Company's 1994 Stock Option Plan, which increases are approved by the Board of
Directors and WarrantCo), (c) the exercise of warrants issued to the former
stockholders of ParaComm, Inc., in connection with the Company's acquisition of
Paracomm on May 11, 2000, or (d) the stock and warrants issued to Casden
Properties Operating Partnership, L.P. in connection with that certain Master
Broadband Services and Exclusive Agency Agreement between DualStar
Communications Inc. (now known as OnTera, Inc.) and Casden Properties, Inc.),
the Company shall, prior to any such New Issuance, offer to WarrantCo the
opportunity to participate in such equity financing to the extent necessary to
maintain WarrantCo's Purchaser's ownership percentage in the Company (assuming
issuance of the Second Restated Note) whereupon WarrantCo shall have the right
to subscribe for its Pro Rata Share of the capital stock being issued at a price
and on other terms and conditions that are no less favorable to WarrantCo than
to any other purchasers of such capital stock. "Pro Rata Share" means the
product of (x) the number of shares of capital stock being issued in the New
Issuance and (y) a fraction, the numerator of which is the number of shares of
capital stock of the Company held by WarrantCo and its affiliates and the
denominator of which is the number of shares of capital stock of the Company.
For purposes of the immediately preceding sentence, the full exercise and
exercise of outstanding warrants and other rights, options, warrants or
convertible securities that are convertible into or exercisable for shares of
capital stock of the Company shall be assumed to be outstanding. Such a right
must be exercised by WarrantCo by written notice to the Company within 10
business days after notice of such New Issuance to WarrantCo by the Company. The
closing of any purchase of shares of capital stock by WarrantCo under this
Section 5.9 shall be held at the time and place provided for the closing of, and
on the same terms and conditions as, the New Issuance; provided, however, that,
the purchase price paid by WarrantCo for shares of capital stock purchased
pursuant to this Section 5.9 shall only be in cash or by surrender of all or a
portion of the principal amount of and accrued and unpaid interest on, the
Restated Notes, unless the Board of Directors determines otherwise in good
faith, regardless of the form of consideration paid by any other Persons ("Third
Party Investors") for shares of capital stock included in the New Issuance. In
the event that the consideration paid by a Third Party Investor in the New
Issuance is other than cash, the per share price shall be the Fair Market Value
of such consideration. "Fair Market Value" means the fair market value of such
consideration as determined in good faith by an independent, nationally
recognized investment banker, reasonably acceptable to WarrantCo and the
Company. Such a right shall expire on the date WarrantCo and its affiliates
ownership percentage in the Company shall be under 2.5% of the Common Stock of
the Company determined on a fully-diluted basis.
<PAGE>
5.10 Board of Directors. If any Event of Default (as defined in the
Restated Notes) has occurred and is continuing, Company shall immediately amend
its By-Laws to increase the number of authorized directors by three and
Purchaser shall have the right to fill such vacancies with three individuals
designated by Purchaser. Such directors shall continue in office until the later
of (x) the next annual meeting of the Company's stockholders at which directors
are elected and (y) no Event of Default shall have occurred and be continuing.
5.11 Access to Information; Confidentiality.
(a) The Company shall, and shall cause its subsidiaries to,
afford the officers, employees, auditors and other agents of the Purchaser, full
and free access at all reasonable times to its officers, employees, properties,
offices, plants and other facilities and to its contracts, commitments, books
and records, and shall furnish the Purchaser all such documents and such
financial, operating and other data and information regarding the Company and
its subsidiaries as the Purchaser, through its officers, employees or agents may
from time to time reasonably request in order to conduct such due diligence
review of the Company and its subsidiaries and their business, assets or
properties as the Purchaser shall determine to be necessary or appropriate.
Without limiting the foregoing, from time to time, at the request of the
Purchaser, the Company will cause the officers of the Company to keep the
officers of the Purchaser informed as to the affairs of such entities and to
arrange for meetings with the management of each such entity from time to time
upon the Purchaser's request.
(b) All documents and other materials furnished to the Purchaser
by the Company (directly or through their officers, representatives or agents)
including information contained in files and documents, and all data, summaries
and analyses, relating to the operation and financing of the Company shall be
deemed Confidential Information; provided, however, that Confidential
Information does not include any documents, information or data that (a) are or
become publicly available other than as a result of acts by the Purchaser, or
any agent or representative of or counsel to the Purchaser, in breach of this
Agreement; (b) are known to the Purchaser, or any agent or representative of or
counsel to the Purchaser, or are independently derived by the Purchaser, or any
agent or representative of or counsel to the Purchaser, without the aid,
application, or use of the Confidential Information; or (c) is disclosed to the
Purchaser, or any agent or representative of or counsel to the Purchaser, by a
third party not under a duty of confidentiality to the Company. the Purchaser
and its officers, directors, agents, attorneys and accountants shall treat the
Confidential Information as strictly confidential, and shall protect and
safeguard all of the Confidential Information against unauthorized use,
publication or disclosure. Other than to such of its officers, directors or
employees who require such Confidential Information for the purposes set forth
in this subsection and who are subject to this Agreement, the Purchaser will not
disclose Confidential Information to any third party, without having first
obtained the written agreement of such third party to be bound by the terms and
conditions of this Agreement. This obligation of confidentiality and non-use
shall not apply to Confidential Information to the extent (but only to the
extent) that (a) the Company gives its prior written consent, or (b) the
Purchaser is required, by subpoena or other legal process issued by a court or
governmental authority of competent jurisdiction, to disclose such information
(a "Disclosure Order"); provided, however, that the Purchaser shall (i) promptly
upon receipt of such Disclosure Order, furnish a copy thereof to the Company in
writing, of the circumstances surrounding such Disclosure Order; (ii) before
making any disclosure in response to such Disclosure Order, afford the Company
an opportunity to seek and cooperate with the Company in seeking, such
protective order as they may deem appropriate, and (iii) if disclosure of
Confidential Information is legally required, disclose (either directly or
through any agent, representative or counsel) only such documents, materials,
files, documents, data, summaries or analyses as counsel to the Purchaser shall
advise is required by the express requirements of such Disclosure Order.
5.12 [Intentionally Omitted]
5.13 Inspection Rights. So long as the Purchaser or any Purchaser
Transferees continues to hold at least a 10% interest in the Restated Notes
issued hereunder (or 10% of the aggregate amount of Warrant Stock issuable upon
exercise of the Warrants issued hereunder), the Company shall permit and cause
each of its subsidiaries (if any) to permit the Purchaser, and Purchaser
Transferees, and such Persons as they may designate at the Purchaser's expense,
upon not less than five (5) business days' prior notice to the Company to visit
and inspect during normal business hours and without material disruption to the
Company's business, any of the properties of the Company and its subsidiaries,
examine their books, discuss the affairs, finances and accounts of the Company
and its subsidiaries with their officers, employees and public accountants (and
the Company hereby authorizes said accountants to discuss with such Purchaser
and such designees such affairs, finances and accounts), and consult with and
advise the management of the Company and its subsidiaries as to their affairs,
finances and accounts, all at reasonable times and upon reasonable notice.
Article VI
Conditions to Closing
6.1 Conditions to Purchaser's Obligations. The obligations of the
Purchaser to consummate the transactions contemplated by this Agreement with
respect to the Second Restated Note and the Tranche 2 Warrants are subject to
the satisfaction of the following conditions prior to or at the Subsequent
Closing, unless waived by the Purchaser:
(a) The representations and warranties of the Company herein
contained shall be true and correct in all material respects as of the
Subsequent Closing as if made on and as of the Subsequent Closing Date;
(b) The Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement and the
other Transaction Documents to be performed in or complied with by the Company
on or prior to the Subsequent Closing Date;
(c) The Company shall have delivered to the Purchaser an
Officers' Certificate, dated the Subsequent Closing Date, to the foregoing
effect and stating that all conditions to the Purchaser's obligations hereunder
have been satisfied in all material respects;
(d) All approvals and authorizations of, filings and
registrations with, and notifications to, all governmental authorities required
for the consummation of the transactions contemplated by this Agreement and the
other Transaction Documents shall have been obtained or made and shall be in
full force and effect and all waiting periods required by law shall have expired
or been terminated;
(e) No governmental authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (either temporary,
preliminary or permanent) which is in effect and prohibits consummation of the
transactions contemplated by the Subsequent Closing;
(f) There shall not have been and be continuing any change that
has had or could reasonably be expected to have a Company Material Adverse
Effect between the date hereof and the Subsequent Closing as if made on the
Subsequent Closing Date;
(g) The Company shall have entered into a communications services
contract with a major telecommunications service provider previously identified
to Purchaser, which contract shall be in form and substance satisfactory to the
Purchaser (in its sole and absolute discretion), and such contract shall remain
in full force and effect, without any default thereunder;
<PAGE>
(h) All documents and instruments identified in Section 2.3 of
this Agreement shall have been executed and delivered by the parties thereto
(other than the Purchaser);
(i) The Stockholder Approval shall have been obtained;
(j) The Company shall have received confirmation of the proper
filing of the Amendment to the Certificate of Incorporation with the Secretary
of State of the State of Delaware;
(k) The Company and the Purchaser shall have agreed on a mutually
satisfactory business plan for the Company addressing such matters as, without
limitation, revenues, expenses, profits, margins, maximum capital requirements,
subscriber units, number of buildings serviced and number of installations (the
"Business Plan");
(l) All material contracts and leases reduced to writing except
as set forth in Schedule 3.23;
(m) Except as set forth in Schedule 3.24, the Company (i) shall
be and shall have been for the ninety (90) day period prior to closing in
compliance with The Nasdaq National Market Issuer Designation Requirement and
all applicable requirements of any other SRO, and (ii) shall not have received
any communication from The Nasdaq National Market or any SRO with respect to (a)
the delisting or threatened delisting of any of the Company's securities that
are publicly traded on The Nasdaq National Market or such SRO, or (b) any other
sanction or disciplinary action taken or threatened against the Company or any
of its affiliates;
(n) All of the issued and outstanding securities of each of the
subsidiaries of the Company shall be held by the Company free and clear of any
lien, pledge, security interest or any other encumbrance whatsoever, except for
any lien, pledge, security, interest or other encumbrance created by the
Transaction Documents or otherwise existing in favor of the Purchaser;
(o) The Company and each of its subsidiaries shall have filed all
tax returns and reports required by law to be filed, and shall have paid, or
otherwise fully reserved for in accordance with GAAP, all taxes, assessments and
other governmental charges that are due and payable except (x) for those matters
being contested in good faith and by appropriate proceedings by the Company or
the affected subsidiaries and for which adequate reserves have been established
in accordance with GAAP, (y) for those matters for which the charges, accruals
and reserves on the books of the Company and its subsidiaries in respect of
taxes are adequate or (z) where such failure to file, pay or reserve is not
material;
(p) The Company shall have paid, at the First Closing Date, up to
$100,000 of legal fees and other costs and expenses incurred by the Purchaser in
connection with the transactions contemplated by this Agreement in accordance
with Section 2.3(f) of this Agreement, except for any litigation fees, costs and
expenses other than those contemplated by Section 5.1(e);
(q) A favorable opinion shall have been delivered to the Company
by Chanin Capital LLC (or such other investment banker as is reasonably
acceptable to the Purchaser) to the effect that this Agreement and the
transactions contemplated hereby are fair to the Company and its shareholders,
from a financial point of view (the "Fairness Opinion"), and such Fairness
Opinion shall not have been withdrawn, altered or amended in any material
respect;
(r) There shall not have occurred any event or circumstance that
has, or could reasonably be expected to have, a Company Material Adverse Effect;
and
(s) The Company shall have executed and delivered to Blackacre an
agreement (the "Strategic Alliance Agreement") with Blackacre, pursuant to which
Blackacre provides access rights to buildings directly or indirectly controlled
by Blackacre, which agreement shall contain terms, and be in form and substance,
satisfactory to Blackacre.
6.2 Conditions to Company's Obligations. The obligations of the
Company to consummate the transactions contemplated by this Agreement with
respect to the Second Restated Note are subject to the satisfaction, prior to or
at the Subsequent Closing, of the following conditions, unless waived by the
Company:
(i) Madeleine shall have delivered to the Company the Subsequent
Purchase Price by wire transfer of immediately available funds pursuant to
the Company's instructions;
(ii) the Purchaser shall have performed and complied in all
material respects with all covenants and agreements required by this
Agreement to be performed or complied with by the Purchaser on or prior to
the Subsequent Closing Date;
(iii) the representations and warranties of the Purchaser herein
contained shall be true and correct in all material respects as of the
Subsequent Closing Date as if made on and as of the Subsequent Closing
Date;
(iv) the Stockholder Approval shall have been obtained;
(v) the Company shall have received confirmation of the proper
filing of the Amendment to the Certificate of Incorporation with the
Secretary of State of the State of Delaware;
(vi) all approvals and authorizations of, filings and
registrations with, and notifications to, all governmental authorities
required for the consummation of the transactions contemplated by the
Subsequent Closing shall have been obtained or made and shall be in full
force and effect and all waiting periods required by law shall have expired
or been terminated;
(vii) no governmental authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (either temporary,
preliminary or permanent) which is in effect and prohibits consummation of
the transactions contemplated by the Subsequent Closing;
(viii) the Fairness Opinion, once received, shall not have been
withdrawn, altered or amended in any material respect; and
(ix) all documents and instruments identified in Section 2.3 of
this Agreement shall have been executed and delivered by the parties
thereto (other than the Company).
<PAGE>
Article VII
Termination
7.1 Termination. This Agreement may be terminated at any time prior to
the Subsequent Closing:
(a) by mutual agreement of the Purchaser and the Company;
(b) by either the Purchaser or the Company if the Subsequent
Closing shall not have occurred on or before December 1, 2000;
(c) by the Purchaser if the Fairness Opinion, once received,
shall have been withdrawn or modified in any material respect, or if the
Company's board of directors shall have withdrawn its recommendation in favor of
Stockholder Approval; or
(d) by the Purchaser if the Company breaches any material
representation, warranty or agreement contained in this Agreement, to the extent
that such breach is not cured by the Company within fifteen (15) days after
written notice is delivered to the Company by the Purchaser or such breach is
not capable of being cured by the Company.
Article VIII
Miscellaneous
8.1 Governing Law. This agreement shall be governed in all respects by
the internal laws of the State of New York without regard to its conflicts of
laws provisions; provided however, that the General Corporation Law of the State
of Delaware shall apply to any matter relating to corporate governance of the
Company or the Warrant Stock.
8.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby.
8.3 Successors and Assigns. The Purchaser may assign and transfer its
rights and obligations under this Agreement to its affiliates (now existing or
arising in the future) or any affiliate thereof in compliance with applicable
laws. Except as otherwise provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, permitted assigns, heirs,
executors and administrators of the parties hereto.
8.4 Entire Agreement; Amendment. This Agreement, its attachments and
the other documents delivered pursuant hereto at the Closings constitute the
full and entire understanding and agreement between the parties and their
affiliates with regard to the subjects hereof and thereof. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written agreement of the
Company and the Purchaser.
8.5 Definitions. The terms defined or referenced in Annex A whenever
used herein, shall have the meanings set forth therein for purposes of this
Agreement (such definitions to be equally therein for purposes of this Agreement
(such definitions to be equally applicable to both the singular, plural,
masculine, feminine and neuter forms of the terms herein defined). Unless the
context otherwise requires, all references herein to dollars or "$" shall be to
United States dollars.
8.6 Notices. All notices and other communications required or
permitted hereunder to a party shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger including Federal Express or similar courier services, addressed to
such party at the address set forth in the introductory paragraph of this
Agreement, or at such other address as each party shall have last furnished to
the other in writing. Notices to each of the Purchasers shall be sent to:
Madeleine L.L.C., 450 Park Avenue, 28th Floor, New York, New York 10022, Attn:
Mr. Mark A. Neporent, with a copy to: Stuart D. Freedman, Esq., Schulte Roth &
Zabel LLP, 900 Third Avenue, New York, New York 10022. Each such notice or other
communication shall for all purposes of this Agreement be treated as effective
or having been given when delivered if delivered personally, the day after the
same has been deposited with an airborne courier service, or if sent by mail or
courier, at the earlier of its receipt or seventy-two (72) hours after the same
has been deposited with the United States Postal Service or addressed and mailed
as aforesaid.
8.7 Delays or Omissions. Except as expressly provided herein, no
failure on the part of any party to this Agreement to exercise, and no delay in
exercising, any right under this Agreement or any other Transaction Document
shall impair such right or operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement or any other Transaction
Document preclude any other or further exercise thereof or the exercise of any
other right. The rights of the Purchaser under this Agreement, the Restated
Notes or any other Transaction Documents against any party thereto are not
conditional or contingent on any attempt by the Purchaser to exercise any rights
under any other Transaction Document against such party or against any other
person. No waiver of any single breach or default shall be deemed a waiver of
any other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character in respect of any breach or
default under this Agreement or any other Transaction Document, or any waiver of
any provisions or conditions of this Agreement or any other Transaction
Document, must be in writing (signed by the party granting such waiver, permit,
consent or approval) and shall be effective only to the extent specifically set
forth in such writing. Without limiting the generality of the foregoing, the
Purchaser shall not be deemed to have waived any condition set forth in Section
6.1 unless the Purchaser expressly and specifically waives such condition in
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement or any other Transaction Document, shall
be cumulative and not alternative.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the party actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
8.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DUALSTAR TECHNOLOGIES CORPORATION,
a Delaware corporation
By:________________________________
Name:
Title:
MADELEINE, L.L.C.
By:
Name:
Title:
DSTR WARRANT CO., LLC
By: ______________________________
Name:
Title:
<PAGE>
Annex A
"Contingent Obligation" means, with respect to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, (i) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of a primary obligor, (ii) the obligation to make
take-or-pay or similar payments, if required, regardless of nonperformance by
any other party or parties to an agreement, (iii) any obligation of such Person,
whether or not contingent, (A) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (B) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (C) to
purchase property, assets, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (D) otherwise to assure or
hold harmless the holder of such primary obligation against loss in respect
thereof; provided, however, that the term "Contingent Obligation" shall not
include any products warranties extended in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation with respect to which
such Contingent Obligation is made (or, if less, the maximum amount of such
primary obligation for which such Person may be liable pursuant to the terms of
the instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability with respect thereto
(assuming such Person is required to perform thereunder), as determined by such
Person in good faith.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained (or was
maintained at any time during the six (6) calendar years preceding the date of
any borrowing hereunder) for employees of the Company or any of its ERISA
Affiliates.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
such Person is a member and which would be deemed to be a "controlled group"
within the meaning of Sections 414(b), (c), (m) and (o) of the Code.
<PAGE>
EXHIBIT 2
CLASS E WARRANT AGREEMENT
AGREEMENT, dated of November 8, 2000, by and between DUALSTAR
TECHNOLOGIES CORPORATION, a Delaware corporation (the "Company"), and DSTR
Warrant Co., LLC, a Delaware limited liability company ("WarrantCo").
WITNESSETH:
WHEREAS, in connection with its execution and delivery of that certain
Securities Purchase Agreement, dated as of November 8, 2000 (the "Securities
Purchase Agreement"), by and among the Company, WarrantCo and Madeleine, L.L.C.,
a New York limited liability company ("Madeleine") and the Company will issue to
WarrantCo (or its designees, which may be an entity owned or controlled by it)
Class E Warrants to purchase up to 5,000,000 shares of Common Stock, as defined
below (the "Warrants"), in accordance with the terms of this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the Warrant Certificate and the respective rights
and obligations thereunder of the Company and the holders of Warrant
Certificates, the parties hereto agree as follows:
SECTION 1. Definitions.
As used herein, the following terms shall have the following meanings,
unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of which
at November 8, 2000 consists of 25,000,000 authorized shares, par value $.01 per
share, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company (including, without limitations up to 75,000,000
additional authorized shares of Common Stock, the creation of which is
contemplated by the Securities Purchase Agreement); provided, however, that the
shares issuable upon exercise of the Warrants shall include (i) only shares of
such class designated in the Company's Restated Certificate of Incorporation as
Common Stock on the date of the original issue of the respective Warrants, or
(ii) in the case of any reclassification, change, consolidation, merger, sale,
or conveyance of the character referred to in Section 8(c) hereof, the stock,
securities, or property provided for in such Section, or (iii) in the case of
any reclassification or change in the outstanding shares of Common Stock
issuable upon exercise of the Warrants as a result of a subdivision or
combination or a change in par value, or from par value to no par value, or from
no par value to par value, such shares of Common Stock as so reclassified or
changed.
(b) "Exercise Date" shall mean, as to any Warrant, the date on which
the Company shall have received both (a) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder (as defined below) thereof or his attorney duly authorized in writing,
and (b) payment in cash by wire transfer of immediately available funds or by
official bank or certified check made payable to the Company, of an amount in
lawful money of the United States of America equal to the applicable Purchase
Price (as defined below).
(c) "First Restated Note" shall mean the note issued by the Company to
Madeleine pursuant to the Securities Purchase Agreement in the amount of twelve
million five hundred thousand dollars ($12,500,000) due September 30, 2007.
(d) "Market Price" of the Common Stock shall mean (i) the average
closing bid price for the twenty (20) consecutive trading days prior to the
measuring date, of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or (ii) the average last
reported sale price, for the twenty (20) consecutive trading days prior to the
measuring date, on the primary exchange on which the Common Stock is traded, if
the Common Stock is traded on a national securities exchange.
(e) "Material Adverse Change" shall mean any material adverse change
in the business, financial condition, results of operations or prospects of the
Company and its subsidiaries taken as a whole.
<PAGE>
(f) "Purchase Price" shall mean the purchase price per share of Common
Stock to be paid upon exercise of each Warrant in accordance with the terms
hereof, which purchase price shall initially be equal to $4.00, subject to
adjustment as provided herein.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Company
pursuant to Section 6.
(h) "Second Restated Note" shall mean the note issued by the Company
to Madeleine pursuant to the Securities Purchase Agreement in the amount of
twenty million dollars ($20,000,000) due September 30, 2007.
(i) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent of its Common Stock, or its authorized
successor, as such.
(j) "Warrant Certificates" shall mean the certificates representing
the Warrants to be issued hereunder.
(k) "Warrant Expiration Date" shall mean the earlier of (x) 5:00 P.M.
(New York Time) on December 30, 2007 or (y) the date on which the First Restated
Note or Second Restated Note, as applicable, is repaid in full. Upon notice to
all Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Upon the Company's execution and delivery of the Securities
Purchase Agreement, Warrant Certificates in respect of 3,125,000 Warrants shall
be executed by the Company and delivered to WarrantCo. Upon the occurrence of
the Subsequent Closing (as defined in the Securities Purchase Agreement),
Warrant Certificates in respect of additional 1,875,000 Warrants shall be
executed by the Company and delivered to WarrantCo.
(b) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase for the Purchase Price one share
of Common Stock upon the exercise thereof, in accordance with the terms hereof
subject to modification and adjustment as provided in Section 8 hereof.
(c) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing shares of Common Stock in an amount equal to the
number of shares issuable under the Warrants, subject to adjustment as described
herein, upon the exercise of Warrants in accordance with this Agreement.
(d) Notwithstanding any other provision herein to the contrary, to the
extent that the Company shall prepay any portion (but less than all) of the
principal amount owed by it under (and in accordance with) the First Restated
Note or the Second Restated Note, then upon such prepayment the aggregate number
of Warrants issuable hereunder shall be reduced by a number determined by
multiplying (i) the number of Warrants issuable upon exercise of the Warrants
immediately prior to such prepayment by (ii) a fraction of which the numerator
is the amount of such prepayment, and of which the denominator is the principal
amount outstanding immediately prior to such prepayment; provided, that if any
such partial prepayment shall occur and the holder(s) of the First Amended Noted
or the Second Amended Note (as the case may be) shall not have received at least
30 day's advance written notice thereof, the adjustment contemplated hereby
shall not take effect until 11:59 p.m. on the thirtieth (30th) day following the
date on which such holder(s) receive written notice of such prepayment.
<PAGE>
(e) From time to time, up to the Warrant Expiration Date, the Company
shall deliver Warrant Certificates in required whole number denominations to the
persons entitled thereto in connection with any transfer or exchange permitted
under this Agreement, provided that no Warrant Certificates shall be issued
except (i) those initially issued hereunder, (ii) those issued in connection
with the Subsequent Closing, (iii) those issued, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate, to evidence any unexercised
warrants held by the exercising Registered Holder, (iv) those issued upon any
transfer or exchange pursuant to Section 6; (v) those issued in replacement of
lost, stolen, destroyed, or mutilated Warrant Certificates pursuant to Section
7; and (vi) those issued at the option of the Company, in such form as may be
approved by its Board of Directors, to reflect any adjustment or change in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants therefor made pursuant to Section 2(d) or Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or which any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Warrants maybe
listed, or to conform to usage or to the requirements of Section 2(b). The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange, or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letters WE.
(b) Warrant Certificates shall be executed on behalf of the Company by
its President, or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal. In case any
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be an officer of the Company or to hold the particular office
referenced in the Warrant Certificate before the date of issuance and delivery
of the Warrant Certificates, such Warrant Certificates may nevertheless be
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the Company
or to hold such office.
SECTION 4. Exercise.
Each Warrant maybe exercised by the Registered Holder thereof at any
time, but not after the Warrant Expiration Date, upon the terms and subject to
the conditions set forth herein and in the applicable Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Warrant as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date, the
Company shall deposit the cash proceeds (if applicable) received from the
exercise of a Warrant. The Company, shall cause to be issued and delivered by
the Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
(plus a certificate for any remaining unexercised Warrants of the Registered
Holder).
SECTION 5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge), and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other share of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
The Company shall pay all documentary, stamp, or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Company the
amount of transfer taxes or charges incident thereto, if any.
<PAGE>
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class. Warrant Certificates to be exchanged shall be surrendered to the Company,
and upon satisfaction of the terms and provisions hereof, the Company shall
execute, issue, and deliver in exchange therefor the Warrant Certificate or
Certificates which the Registered Holder making the exchange shall be entitled
to receive.
(b) Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Company shall
issue and deliver to the transferee or transferees a new Warrant Certificate of
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) The Company may require payment by such holder of a sum sufficient
to cover any tax or other governmental charge that shall be imposed in
connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company may deem and treat the Registered Holder of any Warrant Certificate as
the absolute owner thereof and of each Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the duly authorized officer of the Company) for all purposes and
shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation.
Upon receipt by the Company of evidence satisfactory to it of the
ownership of and loss, theft, destruction, or mutilation of any Warrant
Certificate and (in case of loss, theft, or destruction ) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, the Company shall issue, execute and deliver to the
Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. SECTION 8. Adjustment of
Exercise Price and Number Shares of Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 8(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, (i) sell any shares of Common Stock for a consideration per share less
than the Market Price of the Common Stock on the date of the sale or (ii) issue
any shares of Common Stock as a stock dividend to the holders of Common Stock,
or (iii) subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision, or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to
issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
8(f) below) for the issuance of such additional shares would purchase at such
current Market Price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this Section 8,
the total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall (subject to the provisions, contained in Section 8(b) hereof) be
such number of shares (calculated to the nearest tenth) purchasable at the
Purchase Price in effect immediately prior to such adjustment multiplied by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment, and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment.
<PAGE>
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 8, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 9 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage, or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter by exercising such Warrant, to purchase the kind and number of shares
of stock or other securities or property (including cash) receivable upon such
reclassification, capital reorganization, or other change, consolidation,
merger, sale, or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, and the number of shares purchasable thereunder, and the number of shares
purchasable as were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company at its expense, will promptly prepare a certificate
signed by the President or a Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant after such adjustment,
and, if the Company shall have elected to adjust the number of Warrants, the
number of Warrants to which the registered holder of each Warrant shall then be
entitled and the adjustment in Purchase Price resulting therefrom, and (iii) a
statement of the facts, stated in reasonable detail, upon which such adjustment
is based and the computation thereof. The Company will promptly send such
statement by ordinary first class mail to each registered holder of Warrants at
its last known address. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective.
(f) For purposes of Section 8(a) and 8(b) hereof, the following
provisions (i) to (vi) shall also be applicable:
(i) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least one percent of
such price; provided that any adjustment which by reason of this subsection
(i) are not required to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an
increase or decrease of at least one percent in the Purchase Price then in
effect hereunder.
(ii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock, or any securities convertible into or
exchangeable for Common Stock without the payment of any further
consideration (such convertible or exchangeable securities being herein
called "Convertible Securities"), or (2) the issuance by the Company,
without the receipt by the Company of any consideration therefor, of any
rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or not such
rights, warrants, or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such rights,
warrants, or options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate consideration
payable to the Company upon the exercise of such rights, warrants, or
options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants, or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable upon
the conversion or exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants,
or options or upon the conversion or exchange of such Convertible
Securities issuable upon the exercise of such rights, warrants, or options)
is less than the Market Price of the Common Stock on the date of the
issuance or sale of such rights, warrants, or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such
rights, warrants, or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 8(a) and 8(b) hereof and shall be
deemed to have been sold for cash in an amount equal to such price per
share.
<PAGE>
(iii) In case of the sale by the Company of any Convertible
Securities, whether or not the right of conversion or exchange thereunder
is immediately exercisable, and the price per share for which Common Stock
is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by
the Company for the sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversation or exchange thereof,
by (y) the total maximum number of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than the
Market Price of the Common Stock on the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible Securities)
shall be deemed to be outstanding shares of Common Stock for purposes of
Sections 8(a) and 8(b) hereof and shall be deemed to have been sold for
cash in an amount equal to such price per share.
(iv) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection
(ii) or subsection (iii) above or any other securities of the Company
convertible, exchangeable, or exercisable for shares of Common Stock, for
any reason other than an event that would require adjustment to prevent
dilution, so that the consideration per share received by the Company after
such modification is less than the Market Price on the date prior to such
modification, the Purchase Price to be in effect after such modification
shall be determined by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding multiplied by the Market Price
on the date prior to the modification plus the number of shares of Common
Stock which the aggregate consideration receivable by the Company for the
securities affected by the modification would purchase at the Market Price
and of which the denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock to be
issued upon conversion, exchange, or exercise of the modified securities at
the modified rate. Such adjustment shall become effective as of the date
upon which such modification shall take effect.
(v) On the expiration of any such right, warrant, or option or
the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have been obtained
(a) had the adjustments made upon the issuance or sale of such rights,
warrants, options, or Convertible Securities been made upon the basis of
the issuance of only the number of shares of Common Stock theretofore
actually delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants, or options or upon the conversion or
exchange of such Convertible Securities and (b) had adjustments been made
on the basis of the Purchase Price as adjusted under clause (a) for all
transactions (which would have affected such adjusted Purchase Price) made
after the issuance or sale of such rights, warrants, options, or
Convertible Securities.
(vi) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be
deemed to be the sales price therefor after deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
(g) Notwithstanding any provision hereof to the contrary, no
adjustment to the Purchase Price of the Warrants or to the number of shares of
Common Stock purchasable upon the exercise of each Warrant will be made,
however,
(i) upon the sale or exercise of the Warrants or the issuance,
sale or exercise of the Class C Warrants of the Company; or
(ii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise in accordance with the terms of any rights or
warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, whether or not such rights,
warrants, or options were outstanding on the date of the original issuance
of the Warrants or were thereafter issued or sold, to the extent that
appropriate adjustments hereunder shall already have been made upon the
issuance or sale of such rights, warrants or options; or
(iii) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities in accordance with their terms,
whether or not any adjustment in the Purchase Price was made or required to
be made upon the issuance or sale of such Convertible Securities and
whether or not such Convertible Securities were outstanding on the date of
the original sale of the Warrants or were thereafter issued or sold, to the
extent that appropriate adjustments hereunder shall already have been made
upon the issuance or sale of such Convertible Securities; or
<PAGE>
(iv) upon the issuance of any Common Stock, warrants, options or
other securities convertible into Common Stock authorized by the
Corporation's Compensation Committee pursuant to a stock option or
restricted stock plan approved by the Company's stockholders; or
(v) upon the issuance of Common Stock, warrants, options or other
securities convertible into Common Stock issued or granted in exchange for,
or related to the Company obtaining, in a bona fide transaction, access
rights to provide telecommunications and related services (including video,
voice and data services) to any properties.
(h) As used in this Section 8 the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date hereof and shall also
include any capital stock of any class of the Company thereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution, or winding up of the
Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include only shares of such class designated in the Company's
Restated Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants or (i), in the case of any reclassification,
change, consolidation, merger, sale, or conveyance of the character referred to
in a Section 8(c) hereof, the stock, securities, or property provided for in
such section or (ii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 8, or as to the
amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board
of Directors of the Company.
(ii) To the extent that any consideration is received other than
cash, the fair market value thereof shall be determined in good faith by
the Board of Directors of the Company.
(iii) If and whenever the Company shall grant to the holders of
the Common Stock, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Common Stock or securities
convertible into or exchangeable for or carrying a right, warrant, or
option to purchase Common Stock, the Company shall concurrently therewith
grant to each Registered Holder of the Warrants then outstanding as of the
record date for such transaction, the rights, warrants, or options to which
each Registered Holder would have been entitled if, on the record date used
to determine the stockholders entitled to the rights, warrants, or options
being granted by the Company, the Registered Holder were the holder of
record of the number of whole shares of Common Stock then issuable upon
exercise of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called
for pursuant to this Section 8.
SECTION 9. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 8 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. In such event, the Company may at its option elect to round
up the number of shares to which the Registered Holder is entitled to the
nearest whole share or to pay cash in respect of fractional shares in accordance
with the following: With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Registered Holder an amount in
cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows: (i) If the Common Stock is listed on a
National Securities Exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the NASDAQ Quotation system, the current value
shall be the last reported sale price of the Common stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked price
for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau,
Inc. on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported,
the current value shall be an amount determined in such reasonable manner
as may be prescribed by the Board of Directors of the Company.
SECTION 10. Warrant Holders Not Deemed Stockholders.
No holder of Warrants shall, as such, be entitled to vote or to
receive dividends or be deemed the holder of Common Stock that may at any time
be issuable upon exercise of such Warrants for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the holder of Warrants, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, or conveyance
or otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Registered Holder shall have exercised such
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
SECTION 11. Rights of Action.
All rights of action with respect to this Agreement are vested in the
respective Registered Holders of the Warrants, and any Registered Holder of a
Warrant, without consent of the holder of any other Warrant, may, in his own
behalf and for his own benefit, enforce against the Company his right to
exercise his Warrants for the purchase of shares of Common Stock in the manner
provided in the Warrant Certificate and this Agreement.
<PAGE>
SECTION 12. Agreement of Warrant Holders.
Every holder of a Warrant, by his acceptance thereof, consents and
agrees with the Company and every other holder of a warrant that:
(a) The Warrants are transferable only on the registry books of the
Company by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Company, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Company in
its reasonable discretion, together with payment of any applicable transfer
taxes; and
(b) The Company may deem and treat the Record Holder of any Warrant
Certificate as the absolute, true, and lawful owner of the Warrants represented
thereby for all purposes, and the Company shall not be affected by any notice or
knowledge to the contrary, except as otherwise expressly provided in Section 7
hereof.
SECTION 13. Cancellation of Warrant Certificates.
If the Company shall purchase or acquire any Warrant or Warrants, the
Warrant Certificate or Warrant Certificates evidencing the same shall thereupon
be delivered to the Company and cancelled by it and retired. The Company shall
also cancel Common Stock following exercise of any or all of the Warrants
represented thereby or delivered to it for transfer, split up, combination, or
exchange.
SECTION 14. Modification of Agreement.
The Company may by supplemental agreement make any changes or
corrections in this Agreement (i) that it shall deem reasonably appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; or (ii) that they may deem necessary
or desirable and which shall not adversely affect the interests of the holders
of Warrant Certificates; provided, however, that this Agreement shall not
otherwise be modified, supplemented, or altered in any respect except with the
consent in writing of the Registered Holders of Warrant Certificates
representing more than fifty percent (50%) of the Warrants then outstanding; and
provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or
the acceleration of the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
SECTION 15. Notices.
All notices, requests, consents, and other communications hereunder
shall be writing and shall be deemed to have been made with delivered or mailed
first class registered or certified mail, postage prepaid as follows: if to the
Registered Holder of a Warrant Certificate, at the address of such holder as
shown on the registry books maintained by the Company; if to the Company, One
Park Avenue, New York, New York 10016, Attention Chairman.
SECTION 16. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without reference to principles of conflict
of laws.
SECTION 17. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company and their respective successors and assigns, and the holders from time
to time of Warrant Certificates. Nothing in this Agreement is intended or shall
be construed to confer upon any other person any right, remedy, or claim, in
equity or at law, or to impose upon any other person any duty, liability, or
obligation.
SECTION 18. Termination.
This Agreement shall terminate at the close of business on the Warrant
Expiration Date of all the Warrants or such earlier date upon which all Warrants
have been exercised, except that the provisions of Section 15 hereof shall
survive such termination.
<PAGE>
SECTION 19. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
DUALSTAR TECHNOLOGIES CORPORATION
By: _____________________________________
Its Authorized Officer
DSTR WARRANT CO., LLC
By: _____________________________________
Authorized Person
<PAGE>
[Form of Face of Class E Warrant Certificate]
WE - _________ ____________ Class E Warrants
VOID AFTER EXPIRATION DATE
CLASS E WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK
DUALSTAR TECHNOLOGIES CORPORATION
THIS CERTIFIES THAT FOR VALUED RECEIVED
or permitted assigns (the "Registered Holder") is the owner of the number of
Class E Common Stock Purchase Warrants ("Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.01 par value ("Common Stock"), of DUALSTAR TECHNOLOGIES CORPORATION, a
Delaware corporation (the "Company"), at any time between Initial Warrant
Exercise Date (as herein defined) and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the office of the
Company as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of the Purchase Price (as herein defined) in lawful money of the United
States of America (a) in cash or by official bank or certified check made
payable to DualStar Technologies Corporation, or (b) by offset against any
amounts outstanding under any Restated Note (as defined in the Securities
Purchase Agreement, dated November ___, 2000 by and among the Company, DSTR
Warrant Co., LLC and Madeleine, L.L.C.). This Warrant Certificate and each
Warrant represented hereby are issued pursuant to and are subject in all
respects to the terms and conditions set forth in the Class E Warrant Agreement
(the "Warrant Agreement"), dated November ___, 2000, executed and delivered by
the Company. In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
December 31, 2007.
"Purchase Price" shall mean the purchase price per share of Common
Stock to be paid upon exercise of each Warrant in accordance with the terms
hereof, which purchase price shall initially be $4.00.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is effective
or unless an exemption from such registration requirements is available. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the office of the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Registered Holder as the absolute owner hereof
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance wit the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
DUALSTAR TECHNOLOGIES CORPORATION
By: ___________________________________
Name:
Title:
Date: , 2000
[Seal]
<PAGE>
[Form of Reverse of Class E Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise _______ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
_______________________________________________________
(please insert taxpayer identification or other identifying number)
and be delivered to
___________________________________
___________________________________
___________________________________
___________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
___________________________________
___________________________________
___________________________________
___________________________________
(Address)
___________________________________
(Date)
___________________________________
(Taxpayer Identification Number)
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
_______________________________________________
(please insert taxpayer identification or other
identifying number)
___________________________________
___________________________________
___________________________________
___________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _____________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
______________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND
TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Definitions.................................................1
SECTION 2. Warrants and Issuance of Warrant Certificates...............2
SECTION 3. Form and Execution of Warrant Certificates..................3
SECTION 4. Exercise....................................................4
SECTION 5. Reservation of Shares; Listing; Payment of Taxes, etc.......4
SECTION 6. Exchange and Registration of Transfer.......................5
SECTION 7. Loss or Mutilation..........................................6
SECTION 8. Adjustment of Exercise Price and Number Shares
of Common Stock or Warrants.................................6
SECTION 9. Fractional Warrants and Fractional Shares..................11
SECTION 10. Warrant Holders Not Deemed Stockholders....................12
SECTION 11. Rights of Action...........................................12
SECTION 12. Agreement of Warrant Holders...............................12
SECTION 13. Cancellation of Warrant Certificates.......................13
SECTION 14. Modification of Agreement..................................13
SECTION 15. Notices....................................................13
SECTION 16. Governing Law..............................................13
SECTION 17. Binding Effect.............................................14
SECTION 18. Termination................................................14
SECTION 19. Counterparts...............................................14
<PAGE>
WE - 1 3,125,000 Class E Warrants
VOID AFTER EXPIRATION DATE
CLASS E WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK
DUALSTAR TECHNOLOGIES CORPORATION
THIS CERTIFIES THAT FOR VALUED RECEIVED DSTR Warrant Co., L.L.C., a
Delaware limited liability company or its permitted assigns (the "Registered
Holder") is the owner of the number of Class E Common Stock Purchase Warrants
("Warrants") specified above. Each Warrant initially entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Certificate and the Warrant Agreement (as hereinafter defined), one fully paid
and nonassessable share of Common Stock, $.01 par value ("Common Stock"), of
DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation (the "Company"), at
any time between Initial Warrant Exercise Date (as herein defined) and the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the office of the Company as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of the Purchase Price (as herein
defined) in lawful money of the United States of America (a) in cash or by
official bank or certified check made payable to DualStar Technologies
Corporation, or (b) by offset against any amounts outstanding under any Restated
Note (as defined in the Securities Purchase Agreement, dated November 8, 2000 by
and among the Company, DSTR Warrant Co., LLC and Madeleine, L.L.C.).
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Class E Warrant Agreement (the "Warrant Agreement"), dated
November 8, 2000, executed and delivered by the Company.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
December 31, 2007.
"Purchase Price" shall mean the purchase price per share of Common
Stock to be paid upon exercise of each Warrant in accordance with the terms
hereof, which purchase price shall initially be $4.00.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is effective
or unless an exemption from such registration requirements is available. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the office of the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Registered Holder as the absolute owner hereof
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance wit the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
DUALSTAR TECHNOLOGIES CORPORATION
By:_____________________________________
Name:
Title:
Date: , 2000
[Seal]
<PAGE>
EXHIBIT 3
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (the "Agreement") made as of the 8th day of
November, 2000 by and among Gregory Cuneo, Jared E. Abbruzzese, TechOne Capital
Group LLC, Jill Thoerle, George Parise, Peter Sach, Mary Deal, Vincent D'Onofrio
and Bruce Forsyth (collectively, "Company Management"), DSTR Warrant Co. LLC, a
Delaware limited liability company ("Investor"), TECHNOLOGY INVESTORS GROUP,
LLC, a Delaware limited liability company ("TIG") and such persons or entities,
each of which is listed from time to time on Schedule A hereto (the "Schedule A
Stockholders," and together with Company Management, Investor and TIG, the
parties hereto are hereinafter referred to individually as a "Party Stockholder"
or collectively as the "Party Stockholders," unless otherwise individually
named) and DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company").
WHEREAS, the Party Stockholders are holders of common stock, par value
$.01 per share (the "Company Common Stock"), of the Company ("Company Common
Stockholders"), or may hereafter become Company Common Stockholders upon
conversion or exercise of outstanding securities of the Company, and the Party
Stockholders desire to make certain arrangements among themselves and with the
Company.
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements contained herein, the parties agree as follows:
1. Voting Agreement.
(a) Investor Designees. If at any time (or from time to time) Investor
or any of its Affiliates is entitled to appoint any members of the Company's
Board of Directors pursuant to the terms of the Securities Purchase Agreement,
dated as of the date hereof, by and among Investor, Madeleine, L.L.C., a
Delaware limited liability company ("Madeleine") and the Company (the
"Securities Purchase Agreement"), each Party Stockholder will vote, or direct
the voting of, all of the shares of stock of the Company ("Stock") as to which
such Party Stockholder now has or at the time of the vote shall have voting
power (as defined in Rule 13d-3 under the Securities and Exchange Act of 1934,
as amended) at all meetings of stockholders of the Company 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 directors of
the person(s) designated by Investor in accordance with such Securities Purchase
Agreement.
2. Restrictions on Transfer of Stockholder Shares.
(a) Participation Rights. TIG and Investor are referred to herein as
the "Restricted Parties." At least 40 days prior to any Transfer of any Stock by
any Restricted Party (a "Selling Stockholder") in a private transaction, such
Selling Stockholder shall deliver a written notice (the "Sale Notice") to the
other Restricted Parties (all Persons receiving a Sale Notice, the "Potential
Participants"), specifying in reasonable detail the Stock to be transferred, the
identity of the prospective transferee(s) and the terms and conditions of the
Transfer. If the consideration to be paid in connection with such Transfer is
other than cash, the Selling Stockholder will provide the Potential Participants
with all material information in such Selling Stockholder's possession regarding
such non-cash consideration. The Potential Participants may elect to participate
in the contemplated Transfer by delivering written notice to the Selling
Stockholder within 30 days after delivery of the Sale Notice. Any Stock referred
to in a Sale Notice which is not transferred by the Selling Stockholder during
the 90-day period immediately following the date on which such Sale Notice has
been given to the Potential Participants (at a price and on terms no more
favorable to the Selling Stockholder than specified in the Sale Notice) will be
subject to the provisions of this Section 2(a) upon subsequent transfer. If any
Potential Participant has elected to participate in such Transfer, the Selling
Stockholder, and such Potential Participant shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
Stock equal to the product of (i) the quotient determined by dividing (1) the
number of Stock held by such person by (2) the aggregate number of Stock owned
by the Selling Stockholder and the Potential Participants participating in such
sale and (ii) the aggregate number of Stock to be sold in the contemplated
Transfer.
(b) First Refusal Rights. Subject to Section 2(c), no Restricted Party
shall Transfer any interest in such Stock in a private transaction except if
such Restricted Party receives a written bona fide offer by a third party to
purchase such Stock and such Restricted Party complies with the provisions of
this Section 2(b). At least 40 days prior to any Transfer of Stock, the
Restricted Party making such Transfer (the "Transferring Stockholder") shall
deliver a written notice (the "Transfer Notice") to the other Restricted Parties
(the "Other Stockholders"), specifying in reasonable detail the identity of the
prospective transferee(s), the number of shares to be transferred, and the terms
and conditions of the Transfer (including, without limitation, the form of
consideration) and enclosing a copy of the bona fide written offer. The Other
Stockholders may elect to purchase all of the Stock to be transferred (the
"Available Shares"), upon the same terms and conditions as those set forth in
the Transfer Notice, by giving written notice of such election to the
Transferring Stockholder (the "Response Notice") within 30 days after the
Transfer Notice has been given to the Other Stockholders except that the
consideration shall be payable as set forth below. If more than one Other
Stockholder elects to purchase the Available Shares, the Available Shares will
be allocated among such electing holders pro rata according to the number of
Stock owned or to be owned upon the conversion or exercise of outstanding
securities of the Company by each such electing Other Stockholder. If the Other
Stockholders do not elect to purchase, in the aggregate, all of the Stock
specified in the Transfer Notice, the right of first refusal specified in this
Section 2(b) may not be exercised, and then the Transferring Stockholder may
transfer all of the Stock specified in the Transfer Notice at a price and on
terms no more favorable to the transferee(s) thereof than specified in the
Transfer Notice during the 90-day period immediately following the date on which
the Transfer Notice has been given to the Other Stockholders. Any such Stock not
transferred within such 90-day period will be subject to the provisions of this
Section 2(b) upon subsequent transfer.
To the extent that the consideration to be paid by the third party
prospective transferee(s) in a private transaction subject to this Section 2(b)
consists of cash (whether payable at closing or in installments over time), the
Other Stockholders who elect to exercise their respective rights of first
refusal shall pay the Transferring Stockholder the same amount of cash
consideration per share of Stock, at closing and/or over time, as the case may
be. To the extent that such consideration includes non-cash consideration, such
non-cash consideration shall be valued as set forth in the following sentence,
and Other Stockholders who elect to exercise their rights of first refusal
shall, in lieu of delivering such non-cash consideration, pay the Transferring
Stockholder the fair market value of the relevant portion of such non-cash
consideration in cash (at the same times as the non-cash consideration would
have been payable by the prospective transferees, as specified in the Transfer
Notice). The fair market value of non-cash consideration shall be determined as
<PAGE>
follows: if the non-cash consideration consists of publicly-traded securities,
such securities shall be valued based on the average closing price of such
securities over the ten-day period prior to the closing of an Other
Stockholder's exercise of its right of first refusal; and if such non-cash
consideration consists of equity securities of a privately-held entity,
instruments of indebtedness or other obligations of any person, or other items,
the board of directors of the Company shall determine the value thereof based on
such matters as it may reasonably deem relevant, such as (without limitation)
the financial condition, prospects and credit-worthiness of the proposed issuer
or obligor, and the availability of a public market for the resale thereof, and
shall consult with an independent investment banking firm in connection with
such valuation to the extent that it deems necessary or if requested by the
Transferring Stockholder or any Other Stockholder. It is understood that,
notwithstanding anything else herein to the contrary, the Response Period shall
not expire until at least five business days after the Other Stockholders have
received notice of the valuation accorded to such any non-cash consideration.
(c) Permitted Transfers. The restrictions contained in this Section 2
shall not apply with respect to any Transfer of Stock by any Restricted Party
(i) among such Restricted Party's affiliates, (ii) to any Person to whom a
Restricted Party shall have assigned any rights to purchase Stock under the
Securities Purchase Agreement, to the extent contemplated thereby, if such
Restricted Party shall have completed the Closing in its own name for the
account of or on behalf of such Person, (iii) in connection with a public
offering pursuant to the terms of the Registration Rights Agreement dated as of
the date hereof between the Company and Investor, and (iv) in the case of sales
made in reliance upon Rule 144 under the Securities Act; provided that the
restrictions contained in this Section 2 shall continue to be applicable to the
Stock after any of the foregoing Transfers specified in clauses (i) or (ii); and
provided further that the transferees of such Stock specified in clauses (i) or
(ii) shall have agreed in writing to be bound by the provisions of this
Agreement which affect the Stock so transferred. All transferees permitted under
this Section 2(c) are collectively referred to herein as "Permitted
Transferees." Each Permitted Transferee shall be deemed a Party Stockholder for
purposes of this Agreement.
(d) Termination of Restrictions. The restrictions imposed on a
Restricted Party by this Section 2, and the rights accorded to any Restricted
Party pursuant to this Section 2, shall cease to apply to such Restricted Party
at such time as it beneficially owns Stock representing (or securities
convertible end to or exercisable for) less than two and one-half percent (2.5%)
of the Company's Common Stock outstanding on a fully diluted basis.
3. Miscellaneous.
(a) Amendment. This Agreement and the Schedules hereto may not be
amended except by an instrument in writing signed by or on behalf of each of the
parties hereto, provided, however, that an instrument in writing amending
Schedule A hereto to add a Party Stockholder as a result of a Transfer to a
Permitted Transferee need only be signed by the Company, the Restricted Parties
and the new Party Stockholder, if applicable.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) Notice. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight courier
and facsimile transmission (in each case with evidence of receipt), addressed to
the Company at its principal office and to the Party Stockholders at the
addresses set forth on Schedule A hereto. Any party may change such address by
like notice. Such notice shall be deemed to have been given as of the next
business day after it was deposited with the courier service.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
<PAGE>
(h) 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, including, without limitation, the
Stockholders' Agreement dated November 25, 1998 between the Company and the
parties listed on Schedule A thereto.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement on
the date first set forth above.
DUALSTAR TECHNOLOGIES CORPORATION
By:______________________________________
Gregory Cuneo
President and Chief Executive Officer
DSTR WARRANT CO., LLC
By: _____________________________________
Name:
Title:
TECHNOLOGY INVESTORS GROUP, LLC
By: _____________________________________
Name:
Title:
TECHONE CAPITAL GROUP LLC
By: _____________________________________
Name:
Title:
By: _____________________________________
Gregory Cuneo, individually
By: _____________________________________
Jared E. Abbruzzese, individually
<PAGE>
By: _____________________________________
Jill Thoerle, individually
By: _____________________________________
Bruce Forsyth, individually
By: _____________________________________
George Parise, individually
By: _____________________________________
Peter Sach, individually
By: _____________________________________
Mary Deal, individually
By: _____________________________________
Vincent D'Onofrio, individually
<PAGE>
SCHEDULE A
Names and Addresses of Party Stockholders
Technology Investors Group, LLC
Gregory Cuneo
c/o DualStar Technologies Corporation One Park
Avenue
New York, New York 10016
Fax No. 212-616-6254
Jared E. Abbruzzese
Jill Thoerle
Madeleine, L.L.C.
450 Park Avenue, 28th Floor
New York, New York 10022
Attn: Mark Neporent
Fax: (212) 758-5305
TechOne Capital Group LLC
George Parise
Peter Sach
Mary Deal
Vincent D'Onofrio
Bruce Forsyth
