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Exhibit
99.1
EXECUTION
COPY
SETTLEMENT AGREEMENT
AND GENERAL RELEASE
THIS SETTLEMENT AGREEMENT
AND GENERAL RELEASE (this “ Agreement ”) is
entered into this 13 th day
of September, 2007, by and among TRI-S SECURITY CORPORATION
, a Georgia corporation formerly known as Diversified Security
Corporation (the “ Company ”), PARAGON
SYSTEMS, INC ., an Alabama corporation and a wholly-owned
subsidiary of the Company (“ Paragon ”), and
RONALD G. FARRELL (“ Farrell ”), on the
one hand, and HAROLD BRIGHT , a resident of the State of
Tennessee (“ Bright ”), CHARLES KEATHLEY
, a resident of the State of Alabama (“ Keathley
”), ROBERT LUTHER , a resident of the State of Alabama
(“ Luther ”), and JOHN WILSON , a
resident of the State of Alabama (“ Wilson ”)
(collectively, the “ Selling Shareholders ”), on
the other hand.
WITNESSETH:
WHEREAS , the Company,
Paragon, Farrell and the Selling Shareholders are parties to that
certain Mediation Settlement Agreement, dated as of May 18,
2007 (the “ Mediation Settlement Agreement ”),
relating to the pending litigation and arbitration proceedings
among them, which proceedings are styled Tri-S Security
Corporation v. Keathley, et al. (N.D. Ga., Civ. A.
No. 1:06-CV-00450-TCB), Tri-S Security Corporation v.
Keathley, et al. (N.D. Ga., Civ. A.
No. 1:07-CV-00111-TCB), Luther and Keathley v. Paragon
Systems, Inc. and Tri-S Security Corp. (Circuit Court for
Madison County, AL, Civ. A. No. 05-2019-LWH), Paragon
Systems, Inc. v. Bright and Wilson and Bright and Wilson v. Paragon
Systems, Inc., Tri- S Security Corporation, and Ronald G.
Farrell (American Arbitration Association Case No. 30
16600815 06), and In the Matter of the Arbitration Before the
American Arbitration Association Between Paragon Systems, Inc. v.
Luther and Keathley (all of these proceedings, collectively,
the “ Litigation ”); and
WHEREAS , the Company,
Paragon, Farrell and the Selling Shareholders desire to complete
the transactions contemplated by the Mediation Settlement
Agreement;
NOW, THEREFORE , in
consideration of the mutual terms and conditions contained herein
and other valuable consideration, the receipt and adequacy of which
the parties hereto acknowledge, the parties hereto agree as
follows:
ARTICLE I
SETTLEMENT
Section 1.1
Settlement Payment . In connection with the execution
and delivery of this Agreement by the parties hereto, the Company
shall pay to the Selling Shareholders an aggregate amount of ONE
MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000) (the “
Settlement Payment ”), with the Settlement Payment to
be paid to the Selling Shareholders as follows: $112,500 to Bright,
$662,500 to Keathley, $312,500 to Luther and $112,500 to Wilson.
The Company shall pay the Settlement Payment by wire transfer of
immediately available funds pursuant to the instructions set forth
on Exhibit A attached hereto.
Section 1.2
Issuance of Common Stock . Immediately upon the
execution and delivery of this Agreement by the parties hereto, the
Company shall instruct its transfer agent, Registrar and Transfer
Company (the “ Transfer Agent ”), to
(i) issue to the Selling Shareholders an aggregate of 665,000
shares (the “ Common Shares ”) of the
Company’s common stock, par value $.001 per share (the
“ Common Stock ”), of which 65,000 of such
shares shall be issued to Bright, 362,306 of such shares shall be
issued to Keathley, 172,694 of such shares shall be issued to
Luther and 65,000 of such shares shall be issued to Wilson; and
(ii) deliver the certificates representing the Common Shares
on an expedited basis and, in any event, no later than three
(3) business days after the date hereof. In connection with
the Company’s instructions to the Transfer Agent as
contemplated by this Section 1.2, the Company shall provide
the Transfer Agent with each Selling Shareholder’s name,
address, social security number and address for delivery of
certificates as indicated on Exhibit B attached
hereto.
Section 1.3 Voting
Agreement . Simultaneously with the execution and delivery
of this Agreement by the parties hereto, the Company and each of
the Selling Shareholders shall execute and deliver the Voting
Agreement in the form attached hereto as Exhibit C (the
“ Voting Agreement ”).
Section 1.4
Cancellation of Series C Preferred Stock . Effective as
of the date hereof (i) all of the shares of the
Company’s Series C Redeemable Preferred Stock, par value
$1.00 per share (the “ Series C Preferred Stock
”), held by the Selling Shareholders are cancelled, void and
of no effect; and (ii) the Company no longer has any
obligation or liability to any Selling Shareholder in respect of
the Series C Preferred Stock, including, without limitation, the
obligation to pay any dividends in respect of the Series C
Preferred Stock or to redeem the Series C Preferred Stock.
Simultaneously with the execution and delivery of this Agreement by
the parties hereto, each of the Selling Shareholders shall deliver
to the Company all certificates representing the shares of Series C
Preferred Stock previously issued to such Selling
Shareholder.
Section 1.5
Issuance of Series D Preferred Stock . Immediately upon
the execution and delivery of this Agreement by the parties hereto,
the Company shall (i) file with the Secretary of State of the
State of Georgia (the “ Secretary of State ”)
the Articles of Amendment to the Company’s Amended and
Restated Articles of Incorporation attached hereto as Exhibit
D (the “ Articles of Amendment ”); and
(ii) immediately after such filing, issue to the Selling
Shareholders an aggregate of one hundred (100) shares of the
Company’s Series D Redeemable Preferred Stock, par value
$1.00 per share (the “ Series D Preferred Stock
”). The shares of Series D Preferred Stock to be issued as
contemplated by this Section 1.5 (x) shall have the
rights, preferences, qualifications and limitations set forth on
Schedule A to the Articles of Amendment and (y) shall
be allocated among the Selling Shareholders as follows: nine
(9) shares to Bright, fifty-five (55) shares to Keathley,
twenty-seven (27) shares to Luther and nine (9) shares to
Wilson. The Company shall deliver to the Selling Shareholders the
certificates representing the shares of Series D Preferred Stock to
be issued to the Selling Shareholders as contemplated by this
Section 1.5 no later than three (3) business days after
the date the Articles of Amendment are filed with the Secretary of
State.
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Section 1.6
Termination of Security Agreements .
(a) Effective as of the date
hereof (i) the Security Agreements (as hereinafter defined)
are terminated and are null and void and of no further force and
effect, and none of the parties thereto shall have any rights or
obligations thereunder; and (ii) each Selling Shareholder
releases and terminates all pledges, liens, charges, encumbrances
and security interests of every kind and nature granted by the
Company to such Selling Shareholder on or with respect to any
shares of capital stock of Paragon (the “ Paragon
Stock ”). Simultaneously with the execution and delivery
of this Agreement by the parties hereto, the Selling Shareholders
shall deliver to the Company all certificates representing the
Paragon Stock which have been pledged to, or otherwise are in the
possession or control of, the Selling Shareholders.
(b) For purposes of this
Agreement, “ Security Agreements ” shall mean,
collectively, (i) the Security Agreement dated
February 24, 2004, between the Company and Bright;
(ii) the Security Agreement dated February 24, 2004,
between the Company and Keathley; (iii) the Security Agreement
dated February 24, 2004, between the Company and Luther;
(iv) the Security Agreement dated February 24, 2004,
between the Company and Wilson; (v) the Pledge and Security
Agreement dated September 29, 2004, between the Company and
Keathley; (vi) the Pledge and Security Agreement dated
September 29, 2004, between the Company and Luther; and
(vii) any other agreement pursuant to which the Company
created, assigned, hypothecated, pledged or granted to any Selling
Shareholder a security interest in any Paragon Stock.
Section 1.7
Conditions to Effectiveness . Notwithstanding anything
herein to the contrary, this Agreement is conditional upon, and
shall not become effective unless and until, the obligations of
each of the parties hereto set forth in Sections 1.1 through 1.6
hereof have been satisfied in full. Each of the parties hereto
acknowledges that this Agreement has been drafted in an attempt to
settle the existing disputes among them with respect to the
Litigation and constitutes a settlement communication. In the event
that this Agreement does not become effective, each of the parties
hereto shall preserve all rights and remedies, and no waiver or
concession shall be inferred from any provision of this
Agreement.
ARTICLE II
MUTUAL RELEASES AND
CERTAIN COVENANTS
Section 2.1
Release of Claims by the Selling Shareholders . As a
material inducement for the Company, Paragon and Farrell to enter
into this Agreement, each of the Selling Shareholders, for himself
and on behalf of his heirs, beneficiaries, assigns, family members,
agents, representatives and any and all persons acting in concert
or participation with any of the foregoing (collectively, the
“ Selling Shareholder Parties ”), and for the
exchange of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, hereby absolutely,
unconditionally and irrevocably releases, waives, acquits,
withdraws, retracts and forever discharges any and all claims,
obligations, losses, demands, actions, causes of action, lawsuits,
arbitrations, debts and liabilities, of whatsoever kind and nature,
character and description, whether in law or equity, whether
sounding in tort, contract or under any other applicable law,
whether known or unknown, and whether anticipated or unanticipated,
which any of the Selling Shareholder Parties ever had, now has or
may ever have, directly or indirectly
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(collectively, the “ Claims
”), against the Company or Paragon or their respective
successors, assigns, directors, officers, employees, affiliates,
agents, representatives and any and all persons acting in concert
or participation with any of the foregoing, including, without
limitation, Farrell (collectively, the “ Company
Parties ”), by reason of any act, omission, matter, cause
or thing whatsoever, from the beginning of time to, and including,
the date of the execution of this Agreement, including, without
limitation, all Claims asserted in, arising out of or relating to
the Litigation, the Series C Preferred Stock, the Purchase
Agreement (as hereinafter defined), or the Security Agreements or
any of the transactions contemplated by any of the foregoing;
provided , however , that the release provided in
this Section 2.1 does not include a release of any Claims
arising out of or related to any breach, or the interpretation or
enforcement of, this Agreement or the Voting Agreement or any
breach or default with respect to the Series D Preferred Stock. For
purposes hereof, “ Purchase Agreement ” shall
mean that certain Stock Purchase Agreement, dated as of
February 23, 2004, among the Company and the Selling
Shareholders, as amended from time to time.
Section 2.2
Release of Claims by the Company, Paragon and Farrell .
As a material inducement for the Selling Shareholders to enter into
this Agreement, the Company, Paragon and Farrell, for themselves
and on behalf of the other Company Parties and for the exchange of
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, hereby absolutely, unconditionally
and irrevocably release, waive, acquit, withdraw, retract and
forever discharge any and all Claims against each Selling
Shareholder and his respective Selling Shareholder Parties by
reason of any act, omission, matter, cause or thing whatsoever,
from the beginning of time to, and including, the date of the
execution of this Agreement, including, without limitation, all
Claims asserted in, arising out of or relating to the Litigation,
the Series C Preferred Stock, the Purchase Agreement, the Security
Agreements or any of the transactions contemplated by any of the
foregoing; provided , however , that the release
provided in this Section 2.2 does not include a release of any
Claims arising out of or related to any breach, or the
interpretation or enforcement of, this Agreement (including,
without limitation, any breach of the representations made by the
Selling Shareholders pursuant to Section 3.3(c) hereof) or the
Voting Agreement or any breach or default with respect to the
Series D Preferred Stock.
Section 2.3
Dismissal of Litigation . As soon as practicable after
the date hereof and subject to the effectiveness of this Agreement
as contemplated by Section 1.7 hereof, the parties hereto
shall file such documents and other instruments with such courts,
the American Arbitration Association and any other venue as are
necessary to cause the Litigation to be dismissed or ended, as
applicable, with prejudice.
Section 2.4
Indemnification . The Company agrees to indemnify,
defend, and hold harmless the Selling Shareholders from and against
and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties, reasonable
attorneys’ fees and costs, that any of the Selling
Shareholders shall actually incur or suffer, which arise out of,
result from or relate to the litigation styled Unschuld v. Tri-S
Security Corp., et al. , No. 1:06-CV-02931-JEC (N.D. Ga.)
(the “Securities Litigation”); provided, however, that
(i) the Selling Shareholders are represented in all matters
relating to the Securities Litigation by counsel selected by the
Company, which counsel may be the Company’s counsel; and
(ii) if the Company’s counsel determines that
such
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representation of the Selling
Shareholders creates a conflict for the Company or is otherwise
inadvisable for the Company, then the Company shall select
alternative counsel for the Selling Shareholders.
Section 2.5
Compensation Arrangements . The Company agrees that,
during the one (1) year period after the date hereof, it will
not amend that certain Executive Employment Agreement between the
Company and Farrell, dated as of January 1, 2002, as amended
on January 10, 2007 (the “ Farrell Employment
Agreement ”), to increase or enhance the compensation or
benefits payable to him thereunder. The Company also agrees that,
if it issues any equity securities to Farrell during the period
from May 18, 2007 through May 17, 2008, then the Company
will issue to the Selling Shareholders an aggregate of ten percent
(10%) of the identical equity securities issued to Farrell,
with such issuance to the Selling Shareholders to be allocated
among them as follows: ten percent (10%) to Bright, fifty-four
percent (54%) to Keathley, twenty-six percent (26%) to
Luther and ten percent (10%) to Wilson.
Section 2.6
Additional Covenants .
(a) The consequences of the
foregoing provisions have been explained to the
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