STOCK PURCHASE AGREEMENT
Exhibit
10.40
This
Stock Purchase Agreement has been executed as of this 7th day of April, 2009, by
and among Xxxx Security International, Inc (“Buyer”), a Delaware corporation ;
CSSS, Inc., California corporation (“CSSS”); Xxxxx Xxxxx and Xxxxxxx
Xxxxx, collectively, Xxxxx Xxxxx and Xxxxxxx Xxxxx are referred to as
(the “Shareholders”).
RECITALS:
A. CSSS
is engaged in the business of providing residential and commercial security
systems alarm and video monitoring services through out the United States of
America (the “Business”).
B. Buyer
desires to acquire all of the outstanding securities, including, without
limitation, the issued common stock of CSSS. Shareholders own all of
the issued and outstanding securities of CSSS. Xxxxx Xxxxx owns 6,750
shares of CSSS common stock and Xxxxxxx Xxxxx owns 1,750 shares of CSSS common
stock. The total outstanding securities of CSSS are 8,500 shares of
common stock (“CSSS
Stock”).
D. At
the time the CSSS Stock is purchased by Buyer and sold by Shareholders, as set
forth in this Agreement (“Closing”), CSSS shall own all the assets, and
contractual rights historically used in connection with the Business and as
further set forth in this Agreement.
D. Buyer
is not willing to enter into this Agreement without the representations,
warranties and agreements of the Shareholders set forth in this
Agreement.
E. The
Shareholders and CSSS to induce Buyer to enter into this Agreement are willing
to make the representations, warranties and agreements set forth in this
Agreement.
IN
CONSIDERATION of the mutual covenants, agreements, representations and
warranties set forth herein, and in reliance thereon, intending to be legally
bound, the parties agree as follows:
SECTION
1. DEFINITIONS
The
capitalized and certain other terms used herein shall have the meanings ascribed
to them in Schedule I to this Agreement.
SECTION
2. THE PROPOSED TRANSACTION
2.01 Capital
Stock. Subject to the terms and conditions of this Agreement,
and in reliance on the representations, warranties and covenants contained
herein, at Closing and as of the Closing Date, the Shareholders will sell,
convey, assign, transfer and deliver to Buyer, and Buyer will purchase and
acquire, the CSSS Stock.
2.02 Assets To Be Owned by CSSS
at Closing. Subject to the terms and conditions of this
Agreement, and in reliance on the representations, warranties and covenants
contained herein, at Closing and as of the Closing Date, CSSS will have good and
marketable title to the following property, free and clear of all liens,
mortgages, security interests and claims of third parties, together will any
other property which is not listed but is used in the Business (“Purchased
Assets”):
(a) the
Customer Contracts, a complete and accurate list of which is set forth on Schedule
2.02(a);
(b) all
Accounts Receivable, including without limitation those generated by the advance
billing of customers for services not yet rendered by CSSS;
(c) Inventory;
(d) all
Equipment, a complete and accurate list of the major items of which is set forth
in Schedule
2.02(d);
(e) cash
and cash equivalents held as refundable deposits from customers or other third
parties which relate to the Business and all amounts billed and collected by
CSSS to its Customers on or prior to the Closing Date, for services to be
rendered by Buyer after the Closing Date;
(f) all
Intellectual Property, a complete and accurate complete and accurate list of
which is set forth in Schedule 2.02(f),
together with the goodwill associated therewith and symbolized thereby; and any
licenses relating to the Intellectual Property used in or useful to the
Business, whether to or from CSSS;
(g) all
Technical Information;
(h) all
Computer Software Assets, a complete and accurate list of which is set forth in
Schedule
2.02(h);
(i) all
Prepaid Expenses;
(j) all
Contracts and Leases, a complete and accurate list of which is set forth in
Schedule
2.02(j);
(k) all
Open Orders, a complete and accurate list of which is set forth in Schedule
2.02(k);
(l) all
Permits, a complete and accurate list of which is set forth in Schedule
2.02(l);
(m) all
Books and Records, including without limitation (i) all property and records
used or held for use in the Business, (ii) copies of personnel records of
employees who become Hired Employees after the Closing Date, (iii) all office
supplies and (iv) the right to receive and retain mail and other communications
relating to the Business;
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(n) all
certifications, ratings, listings and similar benefits from any product or
quality control certification organization and all systems and manuals related
thereto;
(o) all
memberships of CSSS relating to the Business in, and all rights as a member of,
the industry, trade, civic, social and other associations, organizations and
clubs listed in Schedule
2.02(o);
(p) all
other assets (including causes of action, rights of action, contract rights and
warranty and product liability claims against third parties, telephone numbers
and listings) relating to the Purchased Assets or the Business;
(q) Any
insurance policies maintained by CSSS with respect to the Business and any
prepaid insurance expenses;
(r) CSSS’s
franchise to be a corporation, its certificate of incorporation, bylaws, minute
books and other records having to do with the organization and capitalization of
CSSS;
(s) Any
claims and rights against third parties (including, without limitation,
insurance carriers);
(t)
All payments made by CSSS which constitute prepaid Taxes of the Business and all
claims for refunds of Taxes and other governmental charges to the extent such
refunds relate to periods ending on or prior to the Closing Date;
(u) All
Plans of CSSS and all payments made by CSSS which constitute prepaid expenses of
the Business relating to such Plans; and
(v) CSSS’s
depository and other accounts;
2.03 Consideration for the
Purchased Assets. Subject to the terms and conditions of this
Agreement, and in reliance on the representations, warranties and covenants
contained herein, in consideration of the sale, conveyance, assignment, transfer
and delivery of the CSSS Stock, and the obligations of the Shareholders under
Section 8 of this Agreement, Buyer agrees (a) subject to adjustment following
Closing pursuant to Section 2.05, to pay and deliver to CSSS on the Closing Date
the Purchase Price, as set forth in Section 2.04, and (b) to assume as of the
Closing Date the Assumed Liabilities, as set forth in Section 2.06.
2.04 Purchase
Price. Buyer shall pay the amount of $3,160,000 for the CSSS Stock,
as reduced and increased, as set forth in this Agreement (the “Purchase
Price”). The Purchase Price is subject to adjustment at and
following Closing pursuant to this Subsection 2.04 and Subsection 2.05
below.
(a)
The $3,160,000 Purchase Price
shall be adjusted as of the date of Closing by the Closing Date
Adjustments. The Closing Date Adjustments are the total sum of
the following amounts based on their balances as of the Closing Date: (i) the
Purchase Price shall be increased by the amount of cash in the bank accounts of
CSSS, not including cash held as deposits posted by third parties; (ii) the
Purchase Price shall be reduced by revenue collected by CSSS for services not
fully rendered by CSSS as of the Closing Date; (iii) the Purchase Price shall be
reduced by the accounts payable of CSSS, including accrued payroll; and (iv) the
Purchase Price shall be reduced by amounts necessary for CSSS to pay Secure
Global Solutions post Closing to complete the installation and training of the
monitoring software system Secure Global Solutions is currently installing for
CSSS, as further set forth in Schedule
2.04(a). The Closing Date Adjustments shall be estimated by
Buyer and Shareholders on the Closing Date. On the Closing Date,
Buyer and Shareholders shall execute a statement that details the amount of the
estimate of each of the Closing Date Adjustments (“Closing Date Adjustment
Statement”). Within sixty (60) days after the Closing Date, Buyer and
Shareholders shall cooperate with each other to verify the amounts of the
estimated Closing Date Adjustments based on all post closing
information. If based on the post Closing information, the Closing
Date Adjustment was to large or to small in amount, the Buyer or Shareholders,
as applicable will pay the other party the amount necessary to adjust the
Closing Date Adjustment to the correct amount. All payments of the
amount necessary to adjust the Closing Date Adjustment to the correct amount
shall be made within ninety (90) days after the Closing Date.
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(b)
As part of the Purchase Price for the CSSS Stock,
Shareholders shall receive the Accounts Receivables payments set forth in
Section 2.05.
(c) On
the Closing Date, the Purchaser will pay to the Shareholders the Purchase Price,
after the Closing Date Adjustments, less: (i) the RMR Holdback, as defined
below; (ii) the $500,000 AT&T Holdback, as defined below; (iii) the $500,000
General Holdback, as defined below; and (iv) the 100,000 Xxxxx Holdback, as
defined below. The Purchase Price less the RMR Holdback, the AT&T
Holdback, the General Holdback and the Xxxxx Holdback shall be paid in
immediately available funds (the “Initial
Payment”). The Initial Payment and all future payments shall
be paid and divided between the Shareholders as follows: (i) seventy
eight percent to Xxxxx Xxxxx and (ii) twenty two percent to Xxxxxxx
Xxxxx.
(i) $500,000
of the Purchase Price (“AT&T Holdback”) will be
paid to the Shareholders by Buyer upon either (a) the written release by
AT&T to CSSS from any and all liability CSSS has under AT&T Service
Order and Addendum to Comprehensive Service Order, between CSSS, Inc. and
AT&T Corp, AT&T MA Reference No. 109699, signed February 15, 2007 and
March 3, 2007, Contract ID 1148971(“AT&T Contract”) or (b) the
determination of Buyer, in its sole discretion, that CSSS has no liability or
obligations to AT&T under the AT&T Contract. Any and all
amount CSSS is obligated to pay to discharge its obligations under the AT&T
Contract, including defense costs, shall reduce the amount of the AT&T
Holdback to be paid to the Shareholders. The AT&T Holdback will
be paid to Shareholders on its due date along with accrued interest at the rate
of two percent per annum from the date of Closing.
(ii) $500,000
of the Purchase Price (“General
Holdback”) will be paid to the Shareholders by Buyer on the day that is
two years from the Closing Date, less any amount of damages or costs incurred or
suffered by Buyer, including attorney fees, from the Shareholders’
breach or default this Stock Purchase Agreement, including the failure to pay an
indemnity claim in accordance with Section 12 of this Stock Purchase Agreement,
or the falsity of any representation or warranty of Shareholders in this Stock
Purchase Agreement. The General Holdback will be paid to Shareholders
on its due date along with accrued interest at the rate of two percent per annum
from the date of Closing.
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(iv)
Six months from the Closing Date, Buyer will pay to Shareholders $100,000 of the
Purchase Price (“Xxxxx
Holdback”), if and only, if Xxxxx Xxxxx fully performed the Employment
Agreement, attached as Exhibit A to this Stock Purchase Agreement, through the
end of the Employment Agreement’s term. If Xxxxx Xxxxx failed to
fully perform the Employment Agreement, except due to death or physical
disability, through the end of its term, the Purchase Price shall be reduced by
an amount equal to $100,000 of the Purchase Price.
(v) On
the day that is thirteen months from the Closing Date, Buyer shall pay to Seller
ten percent of the Purchase Price, after the Closing Date Adjustments (“RMR Holdback”), less the Attrition Reduction, as
hereafter defined. The “Attrition Reduction” shall
equal 12 times the difference, if any, between (a) the Qualified RMR attributable to
the Customers Contracts of CSSS in existence on the Closing Date, less (b)
CSSS’s Qualified RMR, attributable Customer Contracts of CSSS in existence on
the Closing Date, for the month ended twelve months from the Closing
Date. If the Attrition Reduction is greater than the RMR Holdback,
there shall be no payment to Shareholders but Shareholders shall not be
obligated to refund any of the Purchase Price.
2.05 Accounts
Receivables.
(a) Buyer
shall pay to Shareholders the amount equal to ninety five (95%) of the accounts
receivable of CSSS in existence on the Closing Date for services fully rendered
on or before the Closing Date ( “Accounts Receivable”) and that are actually
paid to Buyer during the ninety days after the Closing Date (the “Account
Payment Period”). Buyer and Shareholders acknowledge that that the
Accounts Receivable do not include accounts receivable generated by CSSS from
the advance billing of customers for services that are to be rendered by CSSS
after Closing. The payments due under this Section 2.05(a) shall be
made by Buyer to the Shareholders for each month on or before twenty days after
the end of each month. The payment will be sent with a schedule
detailing the Accounts Receivable payments received by CSSS during the prior
month. No further payment will be due or owning with respect to the
Accounts Receivable regarding any payments of Accounts Receivable made on and
after the Account Payment Period.
(b)
If the Closing Date Adjustments as estimated on the Closing Date were less then
the actual Closing Date Adjustment as determined sixty days after the Closing,
Buyer may offset and credit against any amount owed to Shareholders under
Section 2.05(a) above, any amount Shareholders owe to Buyer under Section
2.04(a) as a result of the estimated Closing Date Adjustments being different
from the final Closing Date Adjustments.
2.06 Assumed
Liabilities. The Buyer acknowledges that CSSS at the Closing
Date will have liabilities and obligations relating to the Business, as set
forth in Subsections (a), (b), (c), (d) and (e) below and that Buyer will not
make any indemnification claim of Shareholders arising out of any of the
liabilities and obligations of CSSS, as set forth in Subsections (a), (b), (c),
(d) and (e) below:
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(a) the
Liabilities and Obligations arising pursuant to the Customer Contracts to the
extent such Liabilities and Obligations first arise and are related to periods
subsequent to the Closing (provided that such obligations do not arise as a
result of actions or omissions by CSSS on or prior to Closing); and
(b) the
obligation of CSSS to Xxxxx Xxxxx in the amount of Two Hundred Thousand
($200,000) which Buyer agrees to cause CSSS to pay at Closing; and
(c) the
Liabilities and Obligations arising pursuant to Open Orders, Contracts, and
Leases included within the Purchased Assets and set forth and identified in
Schedule 2.02(j), but not including any liability or obligation arising (i) from
any payment or payments which became due and owing prior to the Closing Date or
(ii) out of or in connection with any breach thereof occurring prior to the
Closing Date, or the occurrence of any event prior to the Closing Date which but
for the giving of notice or lapse of time or both would constitute a breach or
default; and
(d) the
accounts payable in the amounts as listed on the Closing Date Adjustment
Statement agreed to by Buyer and Shareholders at Closing, as set forth in
Subsection 2.04(a) of this Agreement; and
(e) Liabilities
or Obligations of CSSS arising out of any transactions first occurring, or
liabilities or obligations first incurred after the Closing Date relating to the
Purchased Assets or the Assumed Liabilities.
2.07 Indemnified
Liabilities. Notwithstanding anything to the contrary
contained in this Agreement, the Shareholders are indemnifying and holding Buyer
and CSSS harmless from and against, all of CSSS’s debts, liabilities and
obligations of any nature whatsoever (other than the Assumed Liabilities),
whether accrued, absolute or contingent, whether known or unknown, whether due
or to become due, including, without limitation, the following:
(a) the
Liabilities or Obligations of CSSS to the Shareholders, respecting dividends,
distributions in liquidation, redemptions of stock or other
payments;
(b) Liabilities
or Obligations of CSSS arising out of any transactions occurring, or liabilities
or obligations incurred, before the Closing Date, other than relating to Buyer’s
use or operation of the Purchased Assets or the Assumed Liabilities after the
Closing Date;
(c) Liabilities
or Obligations of CSSS arising out of those Contracts identified on Schedule
2.07(c).
(d) any
Liabilities or Obligations of CSSS under or arising out of this Stock Purchase
Agreement prior to but not after the Closing Date;
(e) Liabilities
or Obligations arising from events occurring prior to Closing against which CSSS
would have been covered by insurance (or indemnification) but for a claim by the
insurer (or the indemnitor) that the insured (or the indemnitee) had breached
its obligations under the policy of insurance (or the contract of indemnity) or
had committed fraud in the insurance application or in entering into the
indemnity agreement;
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(f) any
Liabilities or Obligations of the CSSS to the Shareholders other than the
$200,000 obligation to be paid to Xxxxx Xxxxx as set forth in Subsection 2.06(b)
above;
(g) any
Liabilities and Obligations of CSSS to indemnify its officers, directors,
employees or agents for actions or inactions prior to Closing;
(h) all
Taxes imposed on CSSS relating to any and all periods prior to
Closing;
(i) all
Liabilities and Obligations arising under or imposed pursuant to Environmental
Laws, whether or not attributable to actions or failures to act by CSSS, with
respect to the ownership of, operation of, or properties utilized in connection
with, the Business at any time prior to the Closing Date, or to any property
being transferred or leased to Buyer pursuant to this Agreement;
(j) all
Liabilities and Obligations for employee benefits of the Business incurred prior
to the Closing Date;
(k) all
other Liabilities or Obligations of CSSS arising out of its conduct of the
Business prior to the Closing Date, including without limitation, Product
Liabilities; liabilities or obligations related to the infringement by CSSS of
any intellectual property of another Person; and any Liabilities or Obligations
related to any lawsuit, cause of action, litigation or legal proceeding with
respect to any losses, occurrences or events occurring prior to the Closing
Date, whether commenced prior to or after the Closing Date, except for those
liabilities or obligations constituting a part of the Assumed
Liabilities.
(l) any
Plan or any Liabilities or Obligations of the CSSS or the Shareholders with
respect to any Plan; and
(m) all
Liabilities and Obligations with respect to indebtedness for borrowed money,
bank debt and any mortgage on any real property whether currently or previously
occupied or used in the Business, except for those Liabilities and Obligations
constituting a part of the Assumed Liabilities.
2.08 Allocation of
Consideration. Shareholders and Buyer agree that the Purchase
Price shall be allocated ninety five percent to the CSSS Stock and
five percent to the Non-Competition covenants contained in Section 8 of this
Stock Purchase Agreement.
SECTION
3. CLOSING
The
Closing of the transactions contemplated by this Agreement shall take place at
10:00 a.m. at the offices of the Business at 000 Xxxx Xxxxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxxxx, on the later of (a) April 30, 2009 and (b) the fifth business day
following the date when all of the conditions to the Closing specified in
Sections 9 and 10 have been satisfied or waived, or such other date as the
parties may mutually agree to in writing.
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SECTION
4. REPRESENTATIONS AND WARRANTIES OF CSSS AND
SHAREHOLDERS
CSSS and
the Shareholders, jointly and severally, represent and warrant to Buyer that the
statements contained in this Section 4, are correct and complete as
of the date of this Agreement and shall be correct and complete at the Closing
Date. The mere listing (or inclusion of a copy) of a document or
other item shall not be deemed adequate to disclose an exception to a
representation or warranty made in this Agreement unless (a) the representation
or warranty has to do with the existence of the document or other item itself or
(b) the Disclosure Schedule identifies the exception with particularity (such as
with a cross-reference to a section in a disclosed agreement) and summarizes the
relevant facts in reasonable detail.
Wherever
a representation or warranty in this Agreement is qualified as having been made
“to the best of CSSS’s knowledge,” such phrase shall mean the knowledge of
Shareholders, CSSS and the officers, directors and employees of CSSS responsible
for the operation of the Business or the Purchased Assets, after reasonable
inquiry.
4.01 Organization; Authority;
Name.
(a) CSSS
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation and is duly authorized, qualified and
licensed under all applicable Laws to carry on its business in the places and in
the manner as presently conducted, except for where the failure to be so
authorized, qualified or licensed would not have a Material Adverse
Effect.
(b) CSSS
and the Shareholders have the full legal right, power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. All corporate action of CSSS necessary to approve the
transactions contemplated by this Agreement has been taken. Each of
the Shareholders is of legal age and is competent to execute this Stock Purchase
Agreement.
(c) Stock Ownership; Binding
Effect. Shareholders own all of the issued and outstanding
shares of CSSS’s capital stock free and clear of any restrictions on transfer,
security interests, liens, pledges, options, purchase rights, contracts,
commitments, claims, and demands. The Shareholders are not parties to
any option, warrant, purchase right, or other contract or commitment that could
require the Shareholders to sell, transfer, or otherwise dispose of the CSSS
Stock (other than this Stock Purchase Agreement). The Shareholders
are not parties to any voting trust, proxy, or other agreement or understanding
with respect to the voting of any capital stock of CSSS.
4.02 Voting. No
Person other than Shareholders has any right to vote the CSSS
Stock. CSSS and the Shareholders have duly executed and delivered
this Agreement, and (assuming due authorization, execution and delivery by
Buyer) this Agreement constitutes a legal, valid and binding obligation of CSSS
and the Shareholders enforceable against each of them in accordance with its
terms.
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4.03 No
Conflict. The execution, delivery and performance of this
Stock Purchase Agreement by CSSS and the Shareholders and the consummation of
the transactions contemplated by this Agreement do not and will
not: (a) violate, conflict with or result in the breach of any
provision of CSSS’s Articles of Incorporation or Bylaws; (b) conflict with or
violate any Law or Governmental Order applicable to the Purchased Assets, the
Business, CSSS, the Shareholders or any of their respective assets, properties
or businesses; or (c) except as set forth in Schedule 4.03,
conflict with, result in any breach of, constitute a default (or event which
with the giving of notice or lapse of time would become a default) under,
require any consent under, or give to any other Person any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Lien on the Purchased Assets, the properties of
CSSS, or the CSSS Stock pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, sublease, license, permit, authorization, franchise
or other instrument or arrangement to which CSSS or any Shareholder is a party
or by which any of the Purchased Assets or the CSSS Stock are bound or
affected.
4.04 Governmental Consents and
Approvals. Except as set forth on Schedule 4.04, the
execution, delivery and performance of this Agreement by CSSS and the
Shareholders do not and will not require any consent or action by, filing with
or notification to, any Governmental Authority.
4.05 Title to
Assets. CSSS has good and marketable title to the Purchased
Assets, free and clear of all Liens. By virtue of the grant,
conveyance, sale, transfer and assignment of the CSSS Stock hereunder, Buyer
shall receive at Closing good and marketable title to the CSSS Stock, free and
clear of all Liens.
4.06 Equipment. Schedule 2.01(d) is a
complete and accurate list of all Equipment. The Equipment is in good
and serviceable condition and repair (subject to normal wear and
tear). CSSS has not, nor, to the best of Shareholder’s knowledge, has
anyone else, made any modifications to any of the Purchased Assets that would
void or invalidate any manufacturer’s warranty or cause the Purchased Assets not
to be in compliance with any Law. CSSS owns all of the Equipment,
except only Equipment that is leased under Leases not in default and identified
in Schedule
2.01(j). CSSS’s central station monitoring facility is listed
with Underwriters Laboratories (“UL”). . All UL
deficiencies reported to CSSS by UL have been fixed or otherwise resolved in all
material respects, and to CSSS’s and the Shareholders’ knowledge there are no
outstanding or unresolved UL deficiencies with respect to CSSS’s central station
or any of the Customer.
4.07 Contracts.
(a) Schedule 2.01(a) is a
complete and accurate list of the Customer Contracts as of the date of this
Agreement. Complete and accurate originals of all Customer Contracts
are filed in the CSSS’s records and will be on CSSS’s leased
premises at Closing. The Customer Contracts include all of
CSSS’s customers to whom CSSS is providing services as of the Closing Date in
connection with the Business. CSSS has billed all of its customers
accurately and timely and in accordance with the Customer
Contracts. All Customer Contracts are in full force and effect and
are valid, binding and enforceable against the respective parties thereto in
accordance with their respective terms, and CSSS is not in default in, nor has
there occurred an event or condition which, with the passage of time
or the giving of notice, would constitute a default with regard to the payment
or performance of any obligation under any Customer Contract. CSSS
has not received any notice that any person intends or desires to amend or
terminate any Customer Contract.
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(b) There
is no contract, agreement or other arrangement granting any Person
any right to purchase any of the Purchased Assets or the CSSS
Stock.
(c) Except
as set forth on Schedule 2.01(a), no
Customer Contract or any other contract, agreement or other arrangement between
CSSS and any of CSSS’s customers or any third party, requires the Consent of any
Person for the purchase of the CSSS Stock by Buyer under this
Agreement.
(d) All
Customers which are alarm dealers have written contracts with the CSSS on a
basic form of contract which is attached as Schedule 4.07(d) with only minor
non-material changes in the basic form.
(e)
Less than one percent (1%) of CSSS’s Customers are commercial or
residential end users of alarms that CSSS bills directly. CSSS has
executed a Monitoring Activation Agreement in the basic form of the contract
which is attached as Schedule 4.07(e),
with only minor non-material changes in the basic form, with all persons and
entities which are the end users of alarms and video equipment that CSSS
monitors.
4.08 Qualified RMR; Attrition
Rate. The Customer Contracts collectively generated monthly
Qualified RMR in an amount not less than $280,000 for each of the months of
February 2009 and March 2009. CSSS’s annual Attrition Rate for each
of the calendar years, 2007 and 2008 has not exceeded 1.92%.
4.09 Compliance with
Law. CSSS has always conducted and continues to conduct the
Business in accordance with all Laws, Permits and Governmental Orders applicable
to CSSS, the Purchased Assets or the Business. CSSS is not in
material violation of any such Law, Permit or Governmental
Order. Schedule 4.09
identifies each Governmental Order applicable to CSSS, the Purchased Assets or
the Business, and no such Governmental Order has or has had a Material Adverse
Effect. Neither CSSS nor either of the Shareholders has received any
citation or notice that CSSS or any of its current or former officers,
directors, shareholders or employees is under investigation or other form of
review relating to the Purchased Assets or the Business with respect to any
applicable Law.
4.10 Tax
Matters.
(a) Except
as noted in Schedule
4.10, CSSS has duly and timely filed all returns for Taxes required to be
filed by it or for which it may be held responsible under applicable Law, all
such Tax returns are true, correct and complete in all material respects, and
CSSS has timely paid or accrued (or had paid or accrued on its behalf) all Taxes
due for all periods ending on or prior to the Closing Date with respect to which
a taxing or collection authority has issued a proposed or final assessment or
made any similar claim. All amounts required to be withheld or
collected by CSSS from customers or from or on behalf of employees or
independent contractors for income, social security and unemployment insurance
Taxes have been collected or withheld and either paid to the appropriate
Governmental Authority or set aside and, to the extent required by law, held in
accounts for such purpose.
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(b)
CSSS has complied in all respects with all applicable laws relating to
withholding taxes and tax information reporting and has, within the time and
manner prescribed by Law, withheld from each employee’s wages and other payments
and paid over to the proper Governmental Authority all amounts required to have
been so withheld and paid. All persons who have provided services to
CSSS and have been classified as independent contractors for tax purposes were
properly so classified. The records of the CSSS contain all
information and documents necessary to comply in all material respects with
applicable tax information reporting and tax withholding requirements under
applicable Law and such records identify with specificity all amounts subject to
backup holding under Section 3406 of the Code. The CSSS has complied
in all material respects with all sales tax resale certificate exemption
requirements.
(c) There
are no existing circumstances that will result in the assertion of any claim for
taxes against CSSS by any Governmental Authority with respect to any period for
which tax returns are required to have been filed or taxes required to have been
paid.
(d) CSSS
has not directly or through any subsidiary conducted any activities in any
jurisdiction which require CSSS (or such subsidiary) to pay tax or file a tax
return of a type that it has not filed in the most recently ending preceding
taxable period for which such type of tax or tax return would be
due.
(e) There
is no audit or other proceeding presently pending or threatened with regard to
any tax liability or any tax return of CSSS or any subsidiary or affiliate of
CSSS or any Shareholder relating to the CSSS or any of its
affiliates.
(f) CSSS
has not waived any statute of limitations or agreed to any extension of time
that has the effect of deferring the payment or collection of any tax or the
filing of any tax return. There is not currently in effect any power of attorney
authorizing any person to act on behalf of the CSSS or to receive information
relating to CSSS with respect to any tax matter (other than authorizations
included as an integral part of any tax return previously filed by the
CSSS).
(g) CSSS
has not been a beneficiary or otherwise participated in any “reportable
transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(1)
that was or will ever be required to be disclosed under Treasury Regulation
Section 1.6011-4. No tax return filed by CSSS contained a disclosure statement
under Section 6662 of the Code (or any similar provision of Law) or has been
filed by or on behalf of CSSS nor has CSSS ever been advised to make such
disclosure which was not in fact made.
(h) CSSS
does not have any “permanent establishments” in any country other than the
United States and has not otherwise engaged in any activity that has
exposed, or will expose, it to the taxing jurisdiction of any such
other country.
(i) Schedule
4.10(i) identifies all tax returns of CSSS filed after December 31, 2003, and
the taxable period covered by each such tax return and identifies those tax
returns or periods that have been audited or are currently the subject of an
audit by a Governmental Authority. CSSS has provided to Buyer complete and
accurate copies of the following materials:
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(i) All
income tax returns filed by CSSS that relate to taxable periods ending after
December 31, 2003;
(ii) All
examination reports relating to taxes of CSSS issued since December 31, 2003 in
connection with tax audit or examinations or asserted failures to file tax
returns or to pay any taxes;
(iii) All
statements of taxes assessed since December 31, 2003 that were not shown on tax
returns filed by CSSS before assessment and all related
correspondence;
(iv) All
written rulings from and written agreements with any Governmental Authority
relating to taxes of CSSS that were received since December 31,
2003;
(v) Copies
of all tax opinions relating to and in the audit files of CSSS; and
(vi) To
the extent requested by Buyer, any document relating to taxes or tax returns
relating to CSSS or the Shareholders.
(j)
There is no dispute or claim concerning any Taxes of CSSS either (i)
claimed or raised by any Governmental Authority in writing or (ii) as to which
any of the directors, officers or representatives of CSSS have knowledge except
as disclosed in Schedule 4.10. No returns for Taxes of CSSS are
currently under audit or examination by any Governmental Authority.
(k) CSSS
has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to an assessment or deficiency for
Taxes.
(l) There
are no Liens for Taxes (other than for current Taxes not yet due and payable) on
CSSS or any of the Purchased Assets.
(m) CSSS
has been a validly existing C corporation within the meaning of the
Code.
4.11 Litigation. Except
as set forth on Schedule 4.11, no
Action is pending or, to the best of CSSS’s knowledge, threatened, against CSSS
or the Shareholders relating to the Purchased Assets or the Business, at law or
in equity. Neither CSSS nor any Shareholder has received notice of
any of the above, and, to the best of CSSS’s knowledge, no facts or
circumstances exist which would give rise to any of the
foregoing. Also listed on Schedule 4.11 are all
instances where CSSS or any Shareholder is the plaintiff, or complaining or
moving party, in any action that is in any way related to the Purchased Assets
or the Business.
4.12 Conduct of CSSS’s
Business. Since December 31, 2008, except for the execution
and delivery of this Agreement or as disclosed on Schedule 4.12, the
Business has been conducted in all material respects in the ordinary course and
consistent with past practice, and there has not been any:
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(a) sale
or transfer of, or any agreement to sell or transfer, any of the Purchased
Assets or any plan, agreement or arrangement granting any right to
purchase or acquire any interest in any of the Purchased Assets, or requiring
Consent of any party to the transfer and assignment of any of the Purchased
Assets, or any loss or damage to the Assets;
(b) waiver
of any material rights or claims of CSSS related to the Purchased
Assets;
(c) material
breach, amendment or termination of any Customer Contract;
(d) transaction
by CSSS outside the ordinary course of its business and related to the Purchased
Assets;
(e) any
increase in rates for service to Customers and there has not been any amnesty or
incentive program regarding payment of overdue accounts receivable;
(f) all
Customer Contract entered into by CSSS have been in the ordinary course of
business with standard terms and pricing;
(g) occurrence,
event, incident, action or failure to act that has had, or that reasonably is
expected to have, a Material Adverse Effect on CSSS or the Business;
or
(h) any
action by CSSS, the Shareholders, or any employee, officer or agent of CSSS or
the Shareholders committing to do any of the foregoing.
4.13 Noncompete
Agreements. Schedule 4.13 is a
complete and accurate list of all Restrictive Agreements as of the date of this
Agreement, complete and accurate copies of which are attached to Schedule
4.13. None of the Restrictive Agreements have been modified,
altered, terminated or otherwise amended. The Transactions do not
violate any of the terms and provisions of the Restrictive
Agreements. The Customer Contracts do not contain any restrictive
covenant provisions.
4.14 Reliance on
Advisors. CSSS and the Shareholders have relied on their own
advisors for all legal, accounting, tax or other advice whatsoever in connection
with this Agreement and the Transactions.
4.15 Contracts.
(a) Schedule 4.15(a) sets
forth a list of all Material Contracts to be assumed by Buyer as part of the
Assumed Liabilities. The Material Contracts constitute all contracts
material to the conduct of the Business as presently conducted by
CSSS. All Contracts are valid, binding and in full force and effect,
and neither CSSS nor any other party to any Contract is in default there
under. The Business is in compliance with all applicable cost
accounting standards (“CAS”) requirements with respect to any Contracts with the
United States or any agency thereof or any prime contractor thereof, except for
such noncompliance that would not (i) result in the United States or any agency
thereof or any prime contractor thereof having the right to terminate or
otherwise cease performance of such Contracts; (ii) result in the United States
or any agency thereof having the right or ability to bar CSSS from engaging in
any future business arrangements with the United States or any agency thereof;
or (iii) have a Material Adverse Effect.
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(b) Except
as noted in Schedule
4.15(b), none of the Material Contracts contains any provision providing
for the termination of the Contract or giving any party thereto the right to
terminate such Contract by reason of the execution of this Agreement or the
consummation of the transactions contemplated herein, and none of the terms of
any Material Contract will be altered by reason of the execution of this
Agreement or the consummation of the transactions contemplated
herein.
(c) None
of the Material Contracts has been awarded to CSSS as a result of or on the
condition that, and none of the Open Orders has been bid on the condition that,
(i) CSSS was, is or remains a “small business” enterprise or (ii) CSSS qualifies
under any other governmental set aside program, in either case, the eligibility
for which may be terminated as a result of the consummation of the transactions
contemplated by this Agreement.
4.16 Open
Orders. All Open Orders to connect alarm end users to CSSS’s
monitoring equipment have been and are processed in a timely manner in the
ordinary course of business. There are valid and executed Customer
Contracts and Monitoring Activation Agreements in existence for each Open
Order.
4.17 Permits. Schedule 2.02(l) sets
forth a list of all Permits required or useful in the conduct of the
Business. All Permits are in full force and effect and no suspension
or cancellation of any have been threatened. No Permits or parts
thereof are subject to loss by reason of dormancy or non use. No
claims have been made by any Governmental Authority or any Person relating to
the Permits and no such claim is contemplated by any Governmental Authority or
other Person, nor does any basis therefore exist. Except as noted in
Schedule
2.01(l), no Permit will be terminated or require the consent of the
issuer to continue in effect as a result of the execution of this Agreement or
the consummation of the transactions contemplated herein.
4.18 Technical
Information. Except as noted in Schedule 4.18, the
patterns, manufacturer’s manuals and copies of all other Technical Information
included in the Purchased Assets constitute all such items in the possession of
CSSS and required to permit CSSS to carry on the Business in substantially the
same manner as the Business was conducted by under the ownership of the
Shareholders.
4.19 Depositary Accounts,
Etc. Schedule 4.19 sets
forth a list of (a) all banks, trust companies, savings and loan associations,
and brokerage or other firms at which CSSS has depository accounts or have
issued bank guarantees, bills of exchange, letters of credit or banker’s
acceptances for the account of CSSS, and (b) all credit card and similar
accounts on which CSSS may be liable and the names of the persons holding such
cards or authorized to use such accounts.
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4.20 Insurance. Schedule 4.20 sets
forth a list of all insurance policies held by or on behalf of CSSS as of the
date hereof and of all public liability insurance and errors and omission
policies held by or on behalf of CSSS for the past three (3) years, copies of
which have been supplied to Buyer. Such policies are sufficient in
all respects for compliance by CSSS with all requirements of law and with the
requirements of all of the Contracts, and, except as noted on Schedule 4.20, CSSS
has not received any notice of actual or proposed cancellation or of reduction
in coverage of, or of any increase in premium under, such policies of insurance,
and to the best of CSSS’s knowledge, there are no retrospective or audit premium
charges due under any insurance policies now or formerly in effect with respect
to CSSS.
4.21 Compliance with Laws;
Litigation. CSSS has been, and is, operating the Business in
compliance with the requirements of all applicable laws regarding such
operations. Except as noted in Schedule 4.21, CSSS
is not engaged in, or a party to, or threatened with, any Actions and after due
inquiry, CSSS does not know of any basis for any such Actions. There
are no outstanding orders, rulings, decrees, judgments, stipulations or
proceedings to which CSSS is a party or by which CSSS is bound, by or with any
court, arbitrator or administrative agency.
4.22 Absence of Sensitive
Payments. CSSS has not made any contributions, payments or
gifts to or for the private use of any governmental official, governmental
employee or governmental agent in any amount where either the payment or the
purpose in making such contribution, payment or gift is illegal under the laws
of the United States or any other jurisdiction; CSSS has not established or
maintained any unrecorded fund or asset for any purpose or made any false or
artificial entries on its books; and CSSS has not made any payments to any
Person with the intention or understanding that any part of such payment was to
be used for any purpose other than that described in the document supporting the
payment.
4.23 Environmental
Matters. Except as noted in Schedule 4.23, CSSS
has conducted all activities of the Business in compliance with, and all
properties owned, leased or operated by CSSS in connection with the Business
comply with, all Environmental Laws. Except as noted in Schedule 4.23, no
facts, events or conditions relating to the facilities, properties or operations
of the Business will prevent, hinder or limit continued compliance with any
Environmental Laws.
4.24 Benefit Plans and Employment
Arrangements.
(a) Schedule 4.24(a) sets
forth a true and correct list of (i) the name, current annual compensation rate
(including bonus and commissions), title, current base salary rate, accrued
bonuses, accrued sick leave, accrued severance pay and accrued vacation benefits
for each present employee of the Business; (ii) each collective bargaining,
union or other employee organization agreement; (iii) each employment, advisory
or consulting agreement; (iv) each employee confidentiality or other agreement
protecting proprietary processes, formulae or information; (v) each corporation
or other trade or business which is an ERISA Affiliate; and (vi) each
Plan. Schedule 4.24(a)
identifies which Plans, if any, are (i) defined benefit pension plans intended
to be qualified under Section 401(a) of the Code, (ii) defined contribution
plans intended to be qualified under Section 401(a) of the Code, (iii)
Multiemployer Plans, (iv) any other Plan (including but not limited to any such
program, contract or arrangement contained in an employment, advisory or
consulting agreement), which provides benefits of any kind after termination of
employment, such as, but not limited to, severance pay, continuation pay,
termination pay or deferred compensation, (v) “employee welfare benefit plans”
within the meaning of ERISA, and (vi) not “employee welfare benefit plans”
within the meaning of ERISA.
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(b) With
respect to each Plan, CSSS has delivered to Buyer true, correct and complete
copies of all current written documents setting forth the terms and conditions
of such Plan (or a written summary of such terms in the case of an unwritten
Plan) and, in the case of each Plan subject to ERISA, copies of the plan
document, the most current summary plan description and any modifications
thereto, the most recently filed IRS Form 5500 (including attachments) and the
most recent actuarial valuation and report, as applicable, and other material
related documents of such Plan such as insurance contracts.
(c) The
acquisition by Buyer of the Purchased Assets and the employment of the Hired
Employees by Buyer will not, directly or indirectly, give rise to any withdrawal
liability or potential withdrawal liability on the part of Buyer with respect to
any Multiemployer Plan in which CSSS or any ERISA Affiliate participates or to
which CSSS or any ERISA Affiliate has or has had any obligation to
contribute. Except as noted in Schedule 4.24, CSSS
has no unfulfilled obligation to contribute to any Multiemployer Plan or
collectively bargained welfare plan. Neither CSSS nor any ERISA
Affiliate has incurred any liability which arises from either a complete or
partial withdrawal (as defined in Section 4203 or 4205 of ERISA, respectively)
from any Multiemployer Plan that has not been discharged and neither CSSS nor
any ERISA Affiliate has incurred a decline in contributions to a Multiemployer
Plan such that, if the current rate of contributions continues, a 70% or greater
decline in contributions will occur within the next three plan
years.
(d) Except
as noted in Schedule
4.24, neither CSSS nor any ERISA Affiliate maintains or contributes to,
or has ever maintained or had an obligation to contribute to, a Plan subject to
Title IV of ERISA or to the minimum funding requirements or standards of Section
412 of the Code or Section 302 of ERISA. All liabilities of CSSS and
of each ERISA Affiliate with respect to each Plan and to each Multiemployer Plan
have been fully paid. The assets of each Plan subject to Title IV of
ERISA are sufficient to fund all benefit liabilities (within the meaning of
Section 4001(a)(16) of ERISA) and there are no unfunded vested benefits under
any Multiemployer Plan allocable to CSSS or any ERISA
Affiliate. There does not exist any condition, there has not occurred
any event, and there has not been any omission, with respect to the sponsorship,
funding or administration of any Plan, which has or could result in a Lien upon
or claim with respect to any of CSSS, the Purchased Assets, or Buyer’s being
liable for any contribution, withdrawal liability, benefit, claim, settlement,
Tax, penalty or payment of any nature. All contributions required to
be made under the terms of any Plan have been timely made in accordance with
applicable law, including without limitation, Department of Labor Reg.
§2510.3-102.
(e) Except
as noted in Schedule
4.24(e), each group health plan that provides health coverage to any
present or former employee of the Business has operated in compliance with all
requirements of Sections 601 through 608 of ERISA and/or Section 4980B of the
Code, relating to the continuation of coverage under certain circumstances in
which coverage would otherwise cease. Schedule 4.24(e) sets
forth a true and complete list of all current employees, and former employees
since March 1, 2009, of the Business and their respective beneficiaries who
are receiving or who are eligible to elect to receive such continuation coverage
under such group health plans pursuant to such provisions of ERISA and the
Code. Each group health plan that is subject to the requirements of
the Health Insurance Portability and Accountability Act, including, without
limitation, the privacy and security provisions thereof, has been operated in
compliance therewith.
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(f) Each
Plan has at all times been administered in accordance with its terms, all
applicable provisions of ERISA (including the “fiduciary responsibility” and
“prohibited transaction” rules thereof), the Code and other applicable laws, and
each Plan intended to be a qualified plan under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service
which has not been revoked and has been timely amended to comply with all
changes in law that have become effective with respect to the Plan since the
effective date of its most recent determination letter. All
applicable requirements under ERISA or the Code as to the filing of reports,
documents and notices regarding the Plans with the Department of Labor, the
Internal Revenue Service and the Pension Benefit Guaranty Corporation and the
furnishing of such reports, documents or notices to participants and
beneficiaries on or prior to the date hereof have been complied
with. There are no active suits, governmental investigations or
proceedings pending or threatened against any Plan or against any fiduciary
thereof respecting the fiduciary’s duties to the Plan or any trust under the
Plan. There is no action or claim (other than routine claims for
benefits made in the ordinary course of Plan administration) pending or, to the
knowledge of CSSS, threatened against or with respect to any Plan, and no facts
exist which could give rise to any such action or claim.
(g) Except
as noted in Schedule
4.24, CSSS has not carried on discussions regarding organization with any
labor union and there has not been any strike, work stoppage, labor dispute or
other labor trouble relating to employees of the Business, and there are no
significant threats of work stoppage or labor trouble by employees of the
Business.
(h) None
of the Plans that are welfare benefit plans within the meaning of §3(1) of ERISA
provides for benefits or coverage for any former or retired employee or their
beneficiaries, except to the extent required by §4980B of the Code.
(i) All
insurance premiums have been paid in full subject only to normal retrospective
adjustments in the ordinary course, with respect to the Plans for Plan or
contract years ending on or before the Closing Date. All insurance
premiums due or payable with respect to the periods from the end of the most
recent Plan or contract year to and including the Closing Date have been paid or
fully accrued in the Financial Statements. No such premium is overdue
or in a grace period for late payments.
(j) All
expenses and liabilities relating to all of the Plans have been paid or fully
accrued in the Financial Statements and, to the extent required, in the
financial statements of the applicable Plan.
(k) Any
fidelity bond required to be obtained under ERISA with respect to any Plan has
been obtained and is in full force and effect.
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(l) Except
as noted in Schedule
4.25(l), neither (i) the execution of this Agreement or the instruments
of transfer and other documents and agreements delivered or to be delivered
pursuant hereto by CSSS, (ii) the performance by CSSS, hereunder or thereunder,
nor (iii) the consummation of the transactions contemplated hereby or thereby,
will result in the creation or acceleration of any obligation or liability to
any Plan or to any employee or former employee of CSSS.
(m) Each
Plan or any other arrangement that is a nonqualified deferred compensation plan
subject to the requirements of Section 409A of the Code has been operated at all
times in compliance therewith.
4.25 Obligations to Pay
Fees. Except as noted in Schedule 4.25, CSSS
has no liability or obligation to pay any fees or commissions to any investment
banker, broker, finder or agent with respect to the transactions contemplated by
this Agreement for which Buyer could become liable or obligated.
4.26 Completeness of
Disclosure. This Agreement, the Disclosure Schedules, and all
other documents and written information furnished to Buyer and its
representatives by CSSS, the Shareholders or their respective representatives,
taken as a whole, do not and will not include any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein
not misleading. If CSSS or the Shareholders become aware of any fact
or circumstance that would change a representation or warranty of CSSS or the
Shareholders in this Agreement or any other statement made or document provided
to Buyer, the party with such knowledge shall promptly give notice of such fact
or circumstance to Buyer. None of (a) such notification, (b) any
pre-closing investigation by Buyer or CSSS, the Purchased Assets or the
Business, or (c) the Closing, shall relieve the Shareholders of their
indemnification or other obligations under this Agreement.
SECTION
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer
represents and warrants that the statements contained in this Section 5 are
correct and complete as of the date of this Agreement.
5.01 Organization, Good Standing,
and Authority. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to execute this Agreement and the other
documents and agreements delivered or to be delivered pursuant hereto, to
perform all the terms and conditions hereof and thereof to be performed by it,
and to consummate the transactions contemplated hereby and
thereby. This Agreement and the other documents and agreements
delivered or to be delivered by Buyer in connection with this Agreement have
been duly authorized and approved by all necessary and proper corporate action
and constitute, and will constitute the valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective
terms.
5.02 No
Violation. Neither the execution and delivery by Buyer of this
Agreement or the other documents and agreements delivered or to be delivered
pursuant hereto by Buyer and the performance by Buyer hereunder or thereunder,
nor the consummation of the transactions contemplated hereby or thereby, will
violate, conflict with, result in the breach of, or accelerate the performance
required by any of the terms, conditions or provisions of (a) the Articles of
Organization of Buyer, (b) any covenant, agreement or understanding to which
Buyer is a party, or (c) any order, ruling, decree, judgment, arbitration award
or stipulation to which Buyer is subject, or constitute a default there
under.
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5.03 Consents and Approvals of
Governmental Authorities and Others. No approval or
authorization of, filing or registration with, or notification to, any
Governmental Authority is required in connection with the execution and delivery
of this Agreement by Buyer or the performance of its obligations hereunder or
the consummation of the transactions contemplated hereby. No consent,
approval or authorization of any Person is required in connection with the
execution or delivery of this Agreement by Buyer, the purchase by Buyer of the
Business and the Purchased Assets, or the performance by Buyer of any other
obligation under this Agreement.
5.04 Obligation to Pay Certain
Fees. Neither Buyer nor any of its officers, members,
managers, employees or Affiliates has agreed to pay any fees or commissions to
any investment banker, broker, finder or agent with respect to the transactions
contemplated by this Agreement, except for a broker’s fee to Vertex Capital
Corporation (Xxxxx Xxxxxxx, sole owner). Buyer represents that
CSSS is not liable or obligated to pay the fee of Vertex Capital
Corporation.
5.05 Litigation. There
are no Actions pending, or, to the knowledge of Buyer, threatened, by any Person
or Governmental Authority challenging the legality, validity or propriety of the
transactions contemplated by this Agreement.
5.06 Completeness of
Disclosure. The representations and warranties contained in
this Section 5 and in the Disclosure Schedules delivered pursuant hereto do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements and information contained in this
Section 5.
SECTION
6. COVENANTS OF CSSS AND SHAREHOLDERS
6.01 Employees. CSSS
shall permit Buyer to discuss the possibility of employment with current
employees of the Business, and shall not interfere with or impede Buyer’s right
to do so, either directly or indirectly.
6.02 Taxes. CSSS
and the Shareholders shall pay, or cause to be paid, in a timely manner, all
Taxes arising from the sale of the CSSS Stock and all Taxes due or payable by
CSSS for all periods prior to the Closing.. When determining
liability for Taxes for the year 2009, Buyer shall cause CSSS to calculate Taxes
as though Taxes for a stub year commencing on January 1, 2009 and ending on the
Closing Date were due and Shareholders shall pay Buyer, the amount due for such
Taxes computed for such stub year promptly within fifteen days of receiving
Buyer’s calculation.
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6.03 Access to Offices, Officers,
Accountants, Etc. CSSS will afford to the officers and
authorized representatives of Buyer (including without limitation, attorneys,
accountants, insurance brokers, financial advisors and bankers) access to the
offices, officers, properties, Books and Records of CSSS and the Business, and
to the attorneys, accountants and other representatives of CSSS and with any and
all Persons Buyer deems appropriate in order to enable Buyer to consummate the
transactions contemplated hereby, and will furnish Buyer with such additional
financial and operating data and other information as to the Business and
Purchased Assets as Buyer may from time to time reasonably
request. CSSS will cooperate with Buyer to facilitate Buyer’s
contacting vendors, dealers, customers and such other Persons as Buyer and its
representatives may desire to contact in connection with Buyer’s investigation
of the Business.
6.04 Preservation of Business
Organization. CSSS will conduct the Business in the ordinary
course, in a manner consistent with applicable federal, state and local
regulations, and use its best efforts to preserve CSSS’s business relationships
intact and to preserve the goodwill of CSSS with its suppliers, customers and
others having business relations with it.
6.05 Change of the CSSS’s
Name. Buyer may change or keep the current corporate name of
CSSS at its sole discretion.
6.06 Approval of Certain
Transactions. Except as specifically contemplated by this
Agreement, without the prior written consent of Buyer, CSSS will not, in the
conduct of the Business through the Closing Date:
(a) incur
or agree to incur any liability or obligation or enter into any agreement or
transaction that cannot be cancelled upon not more than thirty days notice,
except for Customer Contracts entered into in the ordinary course of business
for standard rates on the basic form of agreement;
(b) mortgage,
pledge or otherwise encumber or convey any similar interest in, any Purchased
Assets or sell, lease or convey any interest in any Purchased Assets, except in
the ordinary course of CSSS’s operation of the Business and consistent with past
practice;
(c) declare
or pay any dividends or distribute cash or securities to its shareholders, make
any direct or indirect redemption, purchase or other acquisition of any of its
capital structure, or issue any additional shares of its capital stock , or
permit any transfer, assignment, pledge or other encumbrance of its capital
stock;
(d) make
any capital expenditures;
(e) conduct
the Business other than in the ordinary course;
(f) waive
or release any rights with respect to the Purchased Assets or the
Business;
(g) change
its methods of accounting;
(h) adopt
or modify or pay any bonus, pension, profit sharing or other compensation plan
or enter into or modify any Contract of, or terms and conditions of, employment
other than: (i) offering and employing persons pursuant to at will employment
relationships and terminating employees in accordance with the exercise of
prudent business judgment and CSSS’s policies and practices; or
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(i) take
any other action (A) which would have a Material Adverse Effect or result in a
material adverse change in the condition (financial or other), of CSSS, the
Business or the Purchased Assets or (B) which, if taken prior to the date
hereof, would constitute a breach of any representation or warranty contained in
Section 4 of this Agreement.
6.07 Exclusive
Dealing. CSSS and the Shareholders will not:
(a) solicit
or initiate discussions or engage in negotiations with any Person other than
Buyer (whether or not such discussions are initiated by CSSS), with respect to
the possible acquisition of, CSSS, the Business or the Purchased Assets by such
Person (whether by merger, purchase of capital stock, purchase of assets,
consolidation or otherwise);
(b) provide
any information with respect to CSSS, the Business or the Purchased Assets to
any Person other than Buyer relating to the possible acquisition of CSSS, the
Business or the Purchased Assets by such Person (whether by merger, purchase of
capital stock, purchase of assets, consolidation or otherwise); or
(c) enter
into a transaction with any Person other than Buyer concerning the possible
acquisition of CSSS, the Business or the Purchased Assets by such Person
(whether by merger, purchase of capital stock, purchase of assets, consolidation
or otherwise).
6.08 CSSS’s
Insurance. CSSS shall maintain in full force and effect
comprehensive general liability insurance policies (including without limitation
insurance against errors and omissions) with respect to the Business and the
services provided by CSSS prior to the Closing Date and insuring against claims
now or hereafter made, and shall cause Buyer to be named as an additional
insured on all such policies and shall deliver to Buyer evidence of such
insurance and proof of premium payments within thirty days of the issuance of
each such policy. CSSS shall cause the insurers issuing such policies
to certify to Buyer that if such insurance be proposed to be cancelled or
changed, such insurer shall promptly notify Buyer and such cancellation or
change shall not be effective as to Buyer for sixty (60) days after receipt by
Buyer of such notice, unless the effect of such change is to extend or increase
coverage under such policy. Any insurance policies insuring similar
risks maintained by Buyer shall be excess and non-contributory to CSSS’s
policies. CSSS shall obtain from CSSS’s insurance carriers, and will
deliver to Buyer, waivers of the subrogation rights under CSSS’s insurance
policies, together with cross-liability endorsements to each such
policy.
6.09 Update Disclosure
Schedules. Prior to the Closing Date, CSSS or Shareholders, as
appropriate, shall disclose to Buyer any information contained in the
representations and warranties of CSSS and Shareholders contained in Section 4
or in the Disclosure Schedules delivered pursuant thereto which is no longer
true or complete. Any such disclosure shall not be deemed to modify,
amend or supplement CSSS’s or the Shareholders’ representations and warranties
unless otherwise agreed in writing by Buyer.
6.10 Employees. Shareholders
at Closing shall provide Buyer with the amount of all accrued wages,
salaries, vacation pay, sick pay and other sums due employees through the close
of business on the Closing Date, which amount shall be considered to be an
account payable for purposes of estimating the Closing Date
Adjustments..
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6.11 Intercompany
Accounts. As of the opening of business on the Closing Date,
CSSS and the Business will have cancelled and forgiven (without recourse), as
between CSSS and any of its Subsidiaries on the one hand and Shareholders and
any other business entity owned by the Shareholders on the other hand, all
amounts with respect to any intercompany accounts or otherwise (a) due by CSSS
or any Subsidiary to the Business or (b) due by CSSS or the Business to
Shareholders or any business entity owned by the Shareholders, except for those
liabilities assumed by Buyer pursuant to this Stock Purchase
Agreement. Any liability for Taxes arising from such cancellation and
forgiveness of intercompany accounts shall be the responsibility of
Shareholders; CSSS and Buyer shall have no responsibility for any
such Taxes.
6.12 Further
Assurances. From time to time after the Closing, at Buyer’s
request and without further consideration, the Shareholders will execute and
deliver such other and further instruments of conveyance, assignment and
transfer, and take such other action as Buyer may reasonably request for the
more effective conveyance, transfer and enjoyment of the Purchased Assets and
CSSS Stock to CSSS or Buyer, as applicable. To the extent that the
assignment of confidentiality and noncompetition agreements to CSSS is not
enforceable against the other parties to such agreements, Shareholders will use
its best efforts to enforce such agreements operating in their benefit, if any,
with respect to the Business for CSSS’s and Buyer’s
benefit. Shareholders will cooperate with Buyer in obtaining
execution of any documents by current or prior employees of CSSS with respect to
inventions, invention disclosures and patent applications for goods or processes
invented prior to the Closing Date. Shareholders shall promptly
forward to Buyer any and all monies received by Shareholders at any time after
Closing with respect to any of CSSS, the Purchased Assets or any products sold
or services provided by CSSS from and after the Closing Date, or otherwise
received for the account, or on behalf, of CSSS on or after the Closing
Date. All remittances shall be forwarded to Buyer within two (2)
business days after receipt by the Shareholders. Payments received by
check shall be properly endorsed by Shareholders to Buyer and promptly delivered
to Buyer for deposit.
6.13 Profit Sharing Plan
Termination and Distributions. CSSS shall take all action
necessary to (i) terminate the CSSS, Inc Profit Sharing Plan (“CSSS Plan”) as of
the Closing Date, (ii) permit CSSS Plan participants to receive distribution of
their accrued benefits immediately after the Closing Date and (iii) permit CSSS
Plan participants who become to transfer their accrued benefits,
including any outstanding CSSS Plan loan by direct rollover to a 401k plan that
Buyer may, but shall not be required to sponsor. In addition, prior
to the Closing, CSSS shall adopt any plan amendments and administrative
procedures as may be necessary to preclude any CSSS Plan loan to a participant
from going into default by reason of a participant’s termination of employment
with CSSS incident to the transaction contemplated by this Agreement or by
reason of postponement of any direct transfer. CSSS shall use its
best efforts to cause the CSSS Plan service providers to facilitate the direct
rollovers provided for under this section.
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SECTION
7. COVENANTS OF BUYER
7.01 Confidentiality. If
the transactions provided for herein are not consummated, unless otherwise
required by law, Buyer and its officers, managers, members, agents and
representatives will hold in strict confidence all information obtained from
CSSS and its officers, managers, members, agents or representatives and will
promptly return to CSSS, all documents obtained from CSSS and its officers,
agents or representatives and all copies of such documents made by Buyer and its
officers, managers, members, agents and representatives, or, alternatively, if
requested by CSSS, will destroy all such documents and copies, as well as all
analysis, compilations, summaries, studies or other documents prepared by Buyer
or its officers, agents and representatives which contain information obtained
from CSSS or its officers, managers, members, agents or representatives;
provided, Buyer may retain any documents obtained from CSSS or prepared by Buyer
if Buyer reasonably determines that litigation may result from the failure to
consummate the transactions and such documents may be relevant in such
litigation.
7.02 Hired
Employees. Except as noted in Schedule 7.02, on the Closing
Date, CSSS will not terminate any employees or change the terms and condition of
employment, . Buyer shall offer a bonus payment of one month salary
to the following employees of CSSS, if the employee remains employed with CSSS
for twelve months and one day from the Closing Date: (i) Xxxxxx Xxxxxx, (ii)
Xxxx Xxxxxx, (iii) Xxxxxxx Xxxxxx; and (iv) Xxxxx Xxxxx. The bonus
payment will be due and payable to the each of the four employees named above
366 days after the Closing Date, if the employee is still employed by the Buyer
on such date.
7.03 Xxxxx Xxxxx Employment
Agreement. At Closing CSSS will enter into an employment
agreement with Xxxxx Xxxxx for a term of from Closing through September 30, 2009
pursuant to which Xxxxx Xxxxx will be employed as Buyer’s day to day operation
operations manager, at an annualized salary of $160,000. The Xxxxx
Employment Agreement shall also provide that Xxxxx Xxxx will serve as a
technical advisor to Buyer for the term of October 1, 2009 to December 31, 2009
pursuant to which Xxxxx Xxxxx provide technical advice to Buyer at an annualized
salary of $82,500. The Employment Agreement shall be substantially in
the form attached hereto as Exhibit
A.
SECTION
8. NON-COMPETITION
In order
to induce Buyer to enter into this Agreement and to consummate the transactions
contemplated hereby, the CSSS and Shareholders hereby covenant as
follows:
8.01 Restriction of Management
and Investment. During the Restricted Period, the
Shareholders shall not engage, directly or indirectly (except as a consultant
and/or employee of CSSS), as a proprietor, equity holder, investor (except as an
investor holding not more than 1% of the outstanding capital stock or other
securities of a publicly held company), lender, partner, director, officer,
employee, consultant, or representative, or in any other capacity, in the
Business. The “Restricted Period” commences on the Closing Date and
expires three (3) years thereafter with respect to and Xxxxxxx
Xxxxx. The Restricted Period commences on the Closing Date and
expires on January 1, 2014 with respect to Xxxxx Xxxxx.
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8.02 Restriction on Solicitation
of Employees. During the Restricted
Period, the Shareholders shall not hire, or directly or
indirectly recruit, solicit, induce, or attempt to induce any of the employees
or independent contractors of CSSS to terminate their employment or contractual
relationship with CSSS; and the Shareholders shall not assist any
other Person to do so, or be a proprietor, equity holder, investor (except as an
investor holding not more than 1% of the capital stock or other securities of a
publicly held company), lender, partner, director, officer, employee,
consultant, or representative of any Person who does or attempts to do
so.
8.03 Restrictions on
Solicitations of Customers. During the Restricted
Period, the Shareholders shall not directly or indirectly solicit,
divert, take away, or attempt to divert or take away, from CSSS, Buyer or any of
its Affiliates any of the business or patronage of any of their respective
customers, clients, accounts, vendors, or suppliers, and the
Shareholders shall not assist any other Person to do so, or be a proprietor,
equity holder, investor (except as an investor holding not more than 1% of the
capital stock or other securities of a publicly held company), lender, partner,
director, officer, employee, consultant, or representative of any Person who
does or attempts to do so.
8.04 Confidential
Information. During the Restricted Period, the Shareholders
shall not divulge or disclose Confidential Information to third
parties. Confidential Information is the prospect lists, employee
names and addresses, documents containing the names or addresses of existing or
potential customers of the Business, the design of and operating code of
software, information regarding CSSS’s financial condition or business plans,
the methods by which the CSSS served its customers or conducted its operations,
as well as any other operating procedures of CSSS or the
Business. Notwithstanding the foregoing, Confidential Information
does not include information which is or becomes generally known to the public
or others in the industry of CSSS through no breach by the Shareholders of this
Section 8.04. Shareholders agrees to maintain the
confidentiality of the Confidential Information and further agrees that they
will not, directly or indirectly, use or disclose Confidential Information to
any natural or legal person, other than authorized employees or agents of the
Buyer, during the Restricted Term. After Closing, all Confidential
Information and all correspondence, reports, charts, products, records, designs,
patents, patent applications, plans, manuals, vendor lists, memoranda,
advertising materials, lists and other data or property produced by CSSS or the
Business shall be and shall remain the property of CSSS, and shall be delivered,
together with any and all copies thereof, promptly to Buyer at Closing by the
Shareholders.
8.05 Equitable
Relief. The Shareholders hereby acknowledge that
any breach by any of them of their obligations under this Section 8 would cause
substantial and irreparable damage to CSSS, Buyer and their Affiliates; and that
money damages would be an inadequate remedy therefore, and accordingly,
acknowledge and agree that each Buyer, CSSS or any Affiliate shall be entitled
to an injunction, specific performance, and/or other equitable relief to prevent
the breach of such obligations (in addition to all other rights and remedies to
which such party may be entitled in respect of any such
breach).
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8.06 Enforceability. In
the event that a court of competent jurisdiction determines that any of the
provisions of this Section 8 would be unenforceable as written because they
cover too extensive a geographic area, too broad a range of activities, or too
long a period of time, or otherwise, then such provisions shall automatically be
modified to cover the maximum geographic area, range of activities, and period
of time as may be enforceable, and in addition, such court or arbitrators are
hereby expressly authorized so to modify this Agreement and to enforce it as so
modified. No invalidity or enforceability of any section of this
Agreement or any portion thereof shall affect the validity or enforceability of
any other section or of the remainder of such section.
SECTION 9. CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF BUYER
The
obligation of Buyer to acquire the CSSS Stock, pay the Purchase Price and assume
the Assumed Liabilities is subject to the satisfaction or waiver in writing by
the Buyer, on or prior to the Closing Date, of each of the following express
conditions precedent:
9.01 Authorization. All
corporate and other actions necessary to authorize and effectuate the
consummation of the transactions contemplated hereby by CSSS and Shareholders
shall have been duly taken prior to the Closing, and Shareholders shall have
delivered to Buyer a certificate to that effect with respect to
Shareholders.
9.02 Representations and
Warranties. The representations and warranties of CSSS and the
Shareholders made in or pursuant to this Agreement (without giving any effect to
the modifications to the Disclosure Schedules contemplated in Section 6.09)
shall be true and correct on and as of the Closing Date (i) in all respects with
regard to representations and warranties limited by materiality qualifications
or by reference to Material Adverse Effect, and (ii) in all material respects
with regard to all other representations and warranties, with the same effect as
though all such representations and warranties had been made on and as of such
date (except for representations and warranties that expressly relate to a
specified date, which need be true and correct only as of the specified date),
and there shall have been delivered to Buyer a certificate to that effect, dated
the Closing Date, signed by the Shareholders and a duly authorized officer of
CSSS.
9.03 Performance of
Obligations. Each and all of the covenants and agreements of
CSSS and the Shareholders to be performed or complied with pursuant to this
Agreement on or prior to the Closing Date shall have been duly performed and
complied with or duly waived and there shall have been delivered to Buyer a
certificate to that effect, dated the Closing Date, signed by the Shareholders
and a duly authorized officer of CSSS.
9.04 Due Diligence
Investigation, Lease Space, California Alarm Company License and
Certain other Buyer Approvals. Each and all the following
items are satisfied or waived by Buyer.
(a) The
results of Buyer’s due diligence investigation shall have been satisfactory to
Buyer.
(b) CSSS
shall have entered into lease by the Closing Date with Granite El Camino, LLC
allowing occupancy after July 31, 2009 for the second floor of 000 Xxxx Xxxxxxx
Xxxxxx, Xxxxxxx, Xxxxxxxxxx having 4,977 square feet of space and for unit 252
at 000 Xxxx Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx having approximately 1,100
square feet space, for a rental rate, rental period and other terms and
conditions acceptable to Buyer, in Buyer’s sole discretion. Granite
El Camino, LLC shall consent to Buyer’s purchase of the CSSS
Stock.
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(c) CSSS
shall have a duly issued Alarm Company License from the State of California
which allows the CSSS to legally operate the Business, after Closing when Buyer
owns the capital stock of CSSS.
(d)
X.X. Xxxxxx Chase Bank, Buyer’s lender, shall have consented to Buyer
consummating the transactions set forth in this Agreement.
9.05 Instruments of Conveyance,
Etc. Shareholders shall have executed and delivered such
assignments of the CSSS Stock and other instruments of transfer and
conveyance, as shall be reasonably required by Buyer for the transfer
to the Buyer of all of the CSSS Stock free and clear of any
Liens and shall have delivered, with such instruments and
documents, financing statement releases or termination statements with respect
to any security interests constituting Liens on the Purchased
Assets and CSSS Stock. The Shareholders shall at Closing,
deliver to Buyer the written consent to this transactions set forth in this
Stock Purchase Agreement of each spouse of the Shareholders. The
spousal consent shall be in a form acceptable to Buyer.
9.06 Delivery of Physical
Possession. CSSS shall own at Closing and have physical
possession of all Equipment, Inventory, Technical Information and Tangible
Purchased Assets and any tangible evidence of all Intellectual Property, Open
Orders and Accounts Receivable.
9.07 Opinion of
Counsel. Buyer shall have been provided with an opinion of
Shareholder’s counsel in a form satisfactory to Buyer in its reasonable
discretion.
9.08 Required
Consents. CSSS shall have obtained all consents and approvals
of all Persons and all Governmental Authorities required for the transactions
contemplated hereby.
9.09 Litigation. No
order of any court or administrative agency shall be in effect which restrains
or prohibits the transactions contemplated hereby and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or before
any court or governmental agency or other regulatory or administrative agency or
commission (a) challenging any of the transactions contemplated by this
Agreement; (b) seeking monetary relief by reason of the consummation of such
transactions; or (c) which would adversely affect the Purchased Assets or the
Business following the Closing Date.
9.10 Governmental Action; Damage
to Property. There shall not have occurred any (a) seizure by
any Governmental Authority of all or a portion of the Purchased Assets, or (b)
damage, destruction or other impairment of or to all or a portion of the
Purchased Assets including, without limitation, damage, destruction or other
impairment caused by theft, fire, any casualty or the negligence of any Person,
including CSSS.
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9.11 UCC-3 Lien
Release. The pay-off statements and UCC-3 termination
statements and/or mortgage satisfaction pieces releasing and terminating any
Liens on the Purchased Assets shall have been executed and
delivered.
9.12 Tax Status
Letter. CSSS shall have delivered to Buyer a tax status letter
from the California Department Franchise Tax Board confirming that as of a date
within 30 days the Closing Date, the CSSS shall be current on all applicable
taxes covered by such tax status letter or shall have paid any outstanding
amounts on or before the Closing Date.
9.13 No Adverse
Change. There have been no adverse changes to the financial
condition of CSSS or the Business.
SECTION 10. CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF SHAREHOLDERS
The
obligation of Shareholders to sell or otherwise transfer the CSSS Stock
hereunder is subject to the satisfaction, or waiver in writing by Shareholders,
on or prior to the Closing Date, of each of the following express conditions
precedent:
10.01 Corporate
Action. All corporate actions necessary to authorize and
effectuate the consummation of the transactions contemplated hereby by Buyer
shall have been duly taken prior to the Closing, and Buyer shall have delivered
to CSSS certificates of duly authorized officers of Buyer to that
effect.
10.02 Representations and
Warranties. The representations and warranties of Buyer made
in or pursuant to this Agreement shall be true and correct (i) in all respects
with regard to representations and warranties limited by materiality
qualifications, and (ii) in all material respects with regard to all other
representations and warranties, on and as of the Closing Date with the same
effect as though all such representations and warranties had been made on and as
of such date (except for representations and warranties that expressly relate to
a specified date, which need be true and correct only as of the specified date)
and there shall have been delivered to Shareholders certificates to that effect,
dated the Closing Date, signed by duly authorized officers of
Buyer.
10.03 Performance of
Obligations. Each and all of the covenants and agreements of
Buyer to be performed or complied with pursuant to this Agreement on or prior to
the Closing Date shall have been duly performed or complied with or duly waived
and there shall have delivered to Shareholders certificates to such effect,
dated the Closing Date, signed by duly authorized officers of
Buyer.
10.04 Payment. Buyer
shall have paid the Purchase Price to Shareholders in accordance with Section
2.04 of this Agreement.
10.05 Litigation. No
order of any court or administrative agency shall be in effect which restrains
or prohibits the transactions contemplated hereby, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or before
any court or governmental agency or other regulatory or administrative agency or
commission: (a) challenging any of the transactions contemplated by
this Stock Purchase Agreement or (b) seeking monetary relief by reason of the
consummation of such transactions.
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SECTION 11. SURVIVAL
OF REPRESENTATIONS, WARRANTIES, AND
COVENANTS
All
representations and warranties made by , the Shareholders or Buyer as to any
fact or condition existing on or before the Closing Date in this Agreement, in
any Exhibit, Schedule or in any certificate delivered pursuant hereto shall
survive the Closing (i) indefinitely with respect to the representations and
warranties contained in Sections 4.01, 4.02, 4.03, 4.04, 4.09, 4.10, 4.25, 5.01,
5.02 and 5.03, (ii) for the applicable limitations period plus sixty (60) days
with respect to the representations and warranties contained in Section 4.24,
and (iii) for a period of 24 months with respect to all other representations
and warranties; provided, that there shall be no termination of any such
representation or warranty as to which a claim has been asserted in writing
prior to the termination of any such survival period. The
representations and warranties of CSSS shall terminate and expire at
Closing. The knowledge of CSSS as to any fact in existence at or
before Closing or the non-existence of a fact in not in existence at or prior to
Closing shall not be attributable to Buyer but shall be attributed to
Shareholders. All representations and warranties shall be unaffected
by any investigation made by or on behalf of Buyer, the Shareholders or CSSS or
by any knowledge obtained as a result thereof or otherwise. Except as
otherwise expressly provided in this Agreement, all covenants, agreements,
undertakings and indemnities set forth in this Agreement shall survive
indefinitely.
SECTION
12. INDEMNIFICATION
12.01 Indemnity by CSSS and
Shareholders. The indemnity of CSSS to Buyer set forth in this
Section 12.01, applies only in the event Closing does not occur. If
Closing takes place Buyer may seek indemnity solely from the Shareholders and
CSSS shall not contribute to any indemnity claims asserted against Shareholders
by Buyer. CSSS and the Shareholders, jointly and severally, shall
defend, indemnify and hold Buyer, its officers, managers, members, directors,
employees, subsidiaries and Affiliates harmless from and against all Losses
arising out of or resulting from:
(a) any
breach of any representations and warranties made by either CSSS or the
Shareholders in or pursuant to this Agreement or the failure of such
representations and warranties to be true and correct;
(b) any
failure by CSSS or the Shareholders to carry out, perform, satisfy and discharge
any of its covenants, agreements, undertakings, liabilities or obligations under
this Agreement or under any of the other agreements or documents delivered by
CSSS or Shareholders pursuant to this Agreement;
(c) any
infringement of any patent, trademark, copyright and/or unfair competition
rights arising out of CSSS’s use of any Intellectual Property, Technical
Information or Computer Software Assets, or the use or sale by CSSS of any
products or services incorporating or reflecting any Intellectual Property or
Technical Information;
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(d) any
Liabilities or Obligations with respect to Taxes relating to CSSS for all
periods ending before Closing;
(e) any
fees or commissions to any investment banker, broker, finder or agent claiming
by, through or under CSSS or the Shareholders with respect to the transactions
contemplated by this Agreement;
(f) any
failure of the Shareholders to pay and discharge in a timely fashion
any of the Indemnified Liabilities, as described in Subsection 2.07
of this Agreement;
(g) any
claims asserted by third parties against Buyer relating to the ownership,
occupation and/or operation of the Business, the Purchased Assets or any other
property occupied by CSSS in connection with the Business prior to the Closing
Date, including but not limited to all Liabilities and Obligations arising out
of the acts, omissions, breaches or nonperformance of CSSS with respect to the
Contracts, Leases and Open Orders at or prior to the Closing Date, regardless of
whether such liability or obligation is claimed, known or asserted prior to or
after the Closing Date; and
(h) any
suit, action or other proceeding brought by any Person or Governmental Authority
asserting any of the matters referred to in this Section 12.01.
12.02 Indemnity by
Buyer. Buyer shall defend, indemnify and hold Shareholders
harmless from and against all Losses arising out of or resulting
from:
(a) any
breach of any representations and warranties made by Buyer in or pursuant to
this Agreement or the failure of such representations and warranties to be true
and correct;
(b) any
failure by Buyer to carry out, perform, satisfy and discharge any of its
respective covenants, agreements, undertakings, liabilities or obligations under
this Agreement or any of the other agreements or documents delivered by Buyer
pursuant to this Agreement;
(c) the
failure by Buyer to pay, discharge or perform in a timely fashion any Assumed
Liabilities;
(d) any
claims asserted by third parties against Shareholders relating to the ownership,
occupation or operation of the Business or the Purchased Assets by Buyer after
the Closing Date;
(e) any
fees or commissions to any investment banker, broker, finder or agent claiming
by, through or under Buyer with respect to the transactions contemplated by this
Agreement; and
(f) any
suit, action, or other proceeding brought by any Person or Governmental
Authority asserting any of the matters referred to in this Section
12.02.
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12.03 Notice of
Claim. The indemnified party shall promptly notify the
indemnifying party in writing in reasonable detail of any claim, demand, action
or proceeding for which indemnification will be sought under this Section
12. If such claim, demand, action or proceeding is a third party
claim, demand, action or proceeding (a “Third Party Claim”), the indemnifying
party will have the right at its expense to assume the defense thereof using
counsel reasonably acceptable to the indemnified party. The
indemnified party shall have the right to participate, at its own expense, with
respect to any such Third Party Claim. In connection with any such
Third Party Claim, the parties shall cooperate with each other and provide each
other with access to relevant books and records in their
possession. No such Third Party Claim shall be settled without the
prior written consent of the indemnified party. Notwithstanding the
foregoing, if the indemnified party determines in good faith that any Third
Party Claim, or the conduct of the defense or settlement thereof, could have a
substantial adverse effect on the indemnified party’s relationship with any
Governmental Authority or important supplier or customer, or that the
indemnified party may have available to it one or more defenses or counterclaims
that are conflicting with one or more of those which may be available to, or
asserted by the indemnifying party in respect of such Third Party Claim, the
indemnified party shall have the right to take over and assume control of the
defense, settlement, negotiations or litigation relating to such claim, and the
indemnifying party shall be responsible for the cost of such
defense. No such Third Party Claim shall be settled without the prior
written consent of the indemnifying party which consent shall not be
unreasonably withheld, delayed or conditioned. The party controlling
the defense of any Third Party Claim shall not consent to entry of any judgment
or enter into any settlement that provides for injunctive or other monetary
relief affecting the other party or that does not include as a term thereof the
giving by each claimant to the other parties a complete release from all
liabilities with respect to such claim or litigation.
12.04 Limitations on Amount
- the Shareholders. the Shareholders shall
have no liability for indemnification or otherwise with respect to claims under
Section 12.01(a):
(a) Until
the total of all Losses with respect to such matters exceeds $25,000, and
thereafter for the aggregate amount of all Losses; provided, that this Section
12.04(a) will not apply to claims under Section 12.01(b) through (h), or to any
breach of any of CSSS’s or the Shareholders’ representations and warranties of
which CSSS or the Shareholders had knowledge at any time prior to the Closing or
any intentional breach by CSSS or the Shareholders of any covenant or
obligation, and CSSS and the Shareholders will be jointly and severally liable
for all Losses with respect to such breaches; and
(b) To
the extent that the total amount of indemnification to be paid jointly and
severally by the Shareholders pursuant to Section 12.01(a) shall
exceed fifty percent (50%) of the Purchase Price; provided that this Section
12.04(b) will not apply to claims under Section 12.01(b) through (h) or to any
breach of any of CSSS’s or the Shareholders’ representations and warranties of
which CSSS or the Shareholders had knowledge at any time prior to the Closing
Date or any intentional breach by CSSS or the Shareholders of any covenant or
obligation, and the Shareholders will be jointly and severally liable
for all Losses with respect to such breaches.
12.05 Limitations on Amount -
Buyer. Buyer shall have no liability for indemnification or
otherwise with respect to claims under Section 12.02(a):
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(a) Until
the total of all Losses with respect to such matters exceeds $25,000, and
thereafter for the aggregate amount of all Losses; provided, that this Section
12.05(a) will not apply to claims under Section 12.02(b) through (f) or to any
breach of any of Buyer’s representations and warranties of which Buyer had
knowledge at the Closing Date or any intentional breach by Buyer of any covenant
or obligation, and Buyer will be liable for all Losses with respect to such
breaches; and
(b) To
the extent that the total amount of indemnification to be paid by Buyer pursuant
to Section 12.02(a) shall exceed fifty percent (50%) of the Purchase Price;
provided, that this Section 12.05(b) will not apply to claims under Section
12.02(b) through (f) or to any breach of any of Buyer’s representations and
warranties of which Buyer had knowledge at the Closing Date or any intentional
breach by Buyer of any covenant or obligation, and Buyer will be liable for all
Losses with respect to such breaches.
12.06 Qualifications. Notwithstanding
anything to the contrary in this Agreement, for purposes of the application of
the indemnity provisions in this Section 12, the determination of whether a
breach of any representation, warranty, covenant or obligation in this Agreement
has occurred and the amount of any Losses resulting there from shall be
determined without giving effect to any “Material Adverse Effect” qualification
or any other materiality or similar qualification contained in the
representations, warranties, covenants or obligations herein.
12.07 Termination of
Indemnification.
(a) As to
Buyer. The right of Buyer to be indemnified under this Section
12 shall survive:
(i) as
to matters described in Section 12.01(a), for the applicable period of survival
set forth in Section 11 of this Agreement;
(ii) as
to the matters described in Section 12.01(b) through (h), whether or not arising
from Third Party Claims, without limitation.
(b) As to
Shareholders. The right of Shareholders to be indemnified
under this Section 12 shall survive:
(i) as
to matters described in Section 12.02(a), for the applicable period of survival
set forth in Section 11 of this Agreement; and
(ii) as
to the matters described in Section 12.02(b) through (f), whether or not arising
from Third Party Claims, without limitation.
(c) Exceptions. Notwithstanding
subsections (a) and (b) hereof:
(i) any
indemnity claim based on fraudulent misrepresentations or fraudulent material
omission or fraudulent breach of warranty shall survive without any time
limitations; and
(ii) any
indemnity claim based on any matter which has been described in a notice to an
indemnifying party pursuant to Section 12.03 of this Agreement prior to the
expiration of the applicable time limitation set forth in subsections (a) and
(b) above shall survive until the claim is finally resolved.
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12.08 Set
Off. Buyer may and is hereby authorized at any time and from
time to time to set off and apply against any sum which is due and payable to
Buyer by Shareholders under this Section 12 any sum, liability or other
obligation which may be owed by Buyer to Shareholders under this Agreement,
pending final determination of such matters. The rights under this
Section 12.08 are in addition to any other rights and remedies which Buyer may
otherwise have.
SECTION
13. TERMINATION AND AMENDMENT
13.01 Termination. This
Agreement may be terminated at any time on or prior to the Closing
Date:
(a) by
mutual written agreement of Buyer and the Shareholders;
(b) by
Buyer if at any time it determines that the conditions precedent to its
obligations hereunder in Section 9 hereof will not be satisfied prior to April
30, 2009;
(c) by
Shareholders if at any time it determines that the conditions precedent to its
obligations hereunder in Section 10 hereof will not be satisfied prior to April
30, 2009;
(d) by
Buyer if the transactions contemplated hereby have not been consummated, through
no fault or failure of the Buyer, on or before April 30, 2009; or
(e) by
Shareholders if such transactions have not been consummated, through no fault or
failure of CSSS or its Shareholders, on or before April 30, 2009.
13.02 Effect of
Termination. If either Buyer or CSSS terminates this Agreement
pursuant to Section 13.01, this Agreement, except for the provisions of Sections
7.01, 14.03, 14.04, 14.05 and 14.06 shall become void and have no
effect. Notwithstanding the foregoing, nothing in this Section 13.02
shall relieve any party to this Agreement for breach of any provision of this
Agreement. If it is judicially determined that termination of this
Agreement was the result of any intentional breach of this Agreement, then, in
addition to other remedies at law or in equity for breach of this Agreement, the
party so found to have breached this Agreement intentionally shall indemnify and
hold harmless the other party for its respective costs, fees and expenses of
counsel, accountants, financial advisors or other experts and advisors as well
as fees and expenses incident to negotiation, preparation and execution of this
Stock Purchase Agreement and related documentation.
13.03 Amendment. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by Buyer, Shareholders and CSSS. No
waiver by any party of any default, misrepresentation or breach of a warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of a warranty or
covenant hereunder or effect in any way any rights arising by virtue of any
prior or subsequent to such occurrence.
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SECTION
14. GENERAL
14.01 Costs and
Expenses. Each of the parties hereto shall pay, without right
of reimbursement from the other, all costs incurred by it incident to the
preparation, execution and delivery of this Agreement and the performance of its
obligations hereunder, whether or not the transactions contemplated by this
Agreement shall be consummated, including, without limitation, fees and
disbursements of legal counsel, accountants, and consultants employed by the
respective parties hereto in connection with the transactions contemplated by
this Agreement.
14.02 Parties in Interest;
Assignment; Stockholders Representative.
(a) This
Agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and permitted assigns. Except as
otherwise expressly provided in this Agreement, this Agreement is not made for
the benefit of any Person not a party hereto, and nothing in this Agreement will
be construed as giving any Person, other than the parties hereto and their
respective successors and permitted assigns, any right, remedy, or claim under
or in respect of this Agreement, or any provision hereof. There are
no third party beneficiaries to this Agreement except for the Affiliates of
Buyer and the Shareholders, solely in their capacities as such
Shareholders.
(b) This
Agreement shall not be assigned by Buyer, CSSS or the Shareholders without the
prior written consent of the other party; provided, that Buyer shall have the
right to assign all or any portion of its rights and obligations under this
Agreement to an Affiliate of Buyer without the CSSS’s or the Shareholders’
consent (including the right to receive title to the CSSS Stock). Any
such assignment shall not release Buyer from its obligations herein, including
its obligations with respect to the Assumed Liabilities.
(c) CSSS
and the Shareholders hereby irrevocably make, constitute, designate and appoint
Xxxxx Xxxxx as their agent (the “Shareholders Representative”), and authorize
and empower him to fulfill the role of Shareholders Representative hereunder,
and under any and all other documents or instruments delivered in connection
herewith. In the event of the death, resignation, unavailability or
incapacity of Xxxxxxx Xxxxx shall act as the successor Shareholders
Representative. In the event of death, resignation, unavailability or
incapacity of any successor Shareholders Representative, the successor shall be
appointed within thirty (30) days of such death, resignation, unavailability, or
incapacity by the legal representatives of the Shareholders, whose choice shall
be evidenced in writing and delivered to Buyer and shall be final and binding
upon all of the Shareholders. The decisions and actions of
any successor Shareholders Representative shall be, for all purposes, those of
the Shareholders Representative as if originally named herein. The
death or incapacity of any Shareholders shall not terminate the authority and
agency of the Shareholders Representative with respect to such deceased or
incapacitated Shareholder.
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(d) The
Shareholders Representative is hereby fully authorized by the
Shareholders for them and in their names (i) to receive all notices and other
communications directed to the Shareholders under this Agreement and
any and all other documents or instruments delivered in connection herewith, and
to take any action (or to determine to take no action) with respect thereto as
he may deem appropriate as effectively as the Shareholders and CSSS could act
themselves including, without limitation, the settlement or compromise of any
dispute or controversy and (ii) to amend, modify or waive any of the provisions
of this Stock Purchase Agreement and any and all other documents or instruments
delivered in connection herewith. The Shareholders Representative
shall have the sole and exclusive power to act on behalf of
the Shareholders under this Agreement and any and all other
documents or instruments delivered in connection herewith, and any and all
actions or decisions of the Shareholders Representative shall be binding upon
and enforceable against the Shareholders.
14.03 Confidentiality. Each
party to this Agreement shall take all reasonable precautions to maintain the
confidentiality of the negotiation or existence of this Agreement, the identity
of the parties hereto and any nonpublic information concerning the other parties
or their Subsidiaries or Affiliates provided to or discovered by any of them or
their respective representatives and shall not disclose any of the above
information to anyone other than (a) those people directly involved in the
investigation and negotiations pertaining to the transactions contemplated by
this Agreement, including without limitation, attorneys, accountants and similar
representatives, (b) such lenders or investors as may be necessary to finance
the transactions contemplated hereby, (c) such Persons or
Governmental Authorities whose consents or approvals may be necessary or to whom
notice needs to be given to permit consummation of the transactions contemplated
hereby, and (d) as required by the Securities and Exchange Act of 1934, as
amended and the rules and regulation issued there under.
14.04 Public
Statements. No party to this Agreement shall, without the
prior written consent of the other parties hereto, make or cause to be made any
press release or other public statement or announcement that directly or
indirectly discloses the transactions contemplated by this Agreement; except
that Buyer is authorized to file press release and a Form 8-K under the
Securities Exchange Act of 1934, as amended, if legally required.
14.05 Choice of
Law. This Agreement shall be governed by, construed,
interpreted and the rights of the parties determined in accordance with the
laws, including equitable principles but without regard to principles of
conflict of laws, of the State of California.
14.06 Dispute
Resolution. In the event that there shall be any dispute
arising out of or in any way relating to this Agreement, the breach,
termination, or validity thereof, or the transactions contemplated hereby, the
parties covenant and agree as follows:
(a) The
parties shall first use reasonable efforts to resolve such dispute among them,
and failing to achieve any resolution within thirty (30) days of the initiation
of this dispute resolution process, the parties shall submit the dispute for
mediation under the commercial mediation rules of the American Arbitration
Association (“AAA”) in Los Angeles, California. The parties shall
select the mediator by mutual agreement; provided however, if the parties fail
to agree upon a mediator within thirty (30) days of submission of the dispute
for mediation, they shall proceed with selection of a mediator utilizing AAA’s
services and procedures for selection of a mediator. The mediator
shall be neutral, disinterested, unbiased and independent of the parties and
others having an interest in the outcome. Each party will bear its
own cost of mediation; provided, however, the fees and costs of the mediator
will be borne equally by Buyer and and the
Shareholders. In the event that any party has substantial need for
information in the possession of another party in order to prepare for the
mediation, the parties shall attempt in good faith to agree on procedures for
the expeditious exchange of information. The mediator shall resolve
any disputes as to what discovery may be had. The parties hereby
acknowledge and agree that such mediation shall be deemed to be in the nature of
settlement discussions and that neither the fact that such discussions took
place, nor any statement or conduct of any participant in such discussions shall
be admissible into evidence in any subsequent litigation or arbitration or other
dispute resolution proceeding involving the parties, and they shall be treated
as non-discoverable, confidential and privileged communications by the parties
and the mediator. It is further understood and agreed that any
disclosure in any form, including oral, by any Person participating in such
mediations shall not operate as a waiver of any privilege, including work
product or attorney-client privilege, applicable to the subject matter
thereof.
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(b) If
the parties are unable to resolve such dispute among themselves or through
mediation, such dispute shall be submitted to binding arbitration in Los
Angeles, California, under the auspices of the AAA and pursuant to its
Commercial Arbitration Rules as then in effect, to the extent such rules are not
inconsistent with this Section 14.06, or such other procedures as the Parties
may agree to at the time. The arbitration shall be conducted before a
panel of three arbitrators who shall be selected by mutual agreement of the
parties. If the parties fail to select the arbitrators within forty
(40) days after the commencement of the arbitration, then the arbitrators shall
be selected in accordance with the rules of the AAA. All ex parte communications
between a party and the arbitrators shall be prohibited and the arbitrators
shall serve in an impartial and neutral capacity. Any award issued as
a result of such arbitration shall be final and binding between the parties and
shall be enforceable by any court having jurisdiction over the party against
whom enforcement is sought. A ruling by the arbitrators shall be
non-appealable. The parties agree to abide by and perform any award
rendered by the arbitrators. Either the Shareholders or the Buyer may
cause an arbitration proceeding to commence by giving the other party notice in
writing of such arbitration, and the date of such notice shall be the date of
the commencement of the arbitration for the purposes of the third sentence of
this subsection. In rendering their award, the arbitrators shall
interpret this Agreement and determine the rights and obligations of the parties
in accordance with the laws of the State of California, without regard to
conflict of law principles. The arbitrators shall not have the
authority to award, and no party shall have the right to recover, punitive
damages, exemplary damages, multiple damages, treble damages, or any other
damages aside from actual damages, and any purported award of punitive damages,
exemplary damages, multiple damages, treble damages, or damages aside from
actual damages shall be beyond the arbitrators’ authority, void, and
unenforceable. In addition, the arbitrators are not authorized to
consider or award attorneys’ fees or costs of the arbitration. All
costs and fees of the arbitrators shall be borne by the Shareholders,
and the Buyer equally. Except as provided in the preceding sentence,
each Party shall bear its own costs, expenses, and fees, including the fees and
expenses of counsel and expert witnesses.
(c) The
procedures specified in this Section shall be the sole and exclusive procedures
for the resolution of disputes between the parties arising out of or relating to
this Stock Purchase Agreement, the breach, termination, or validity thereof, the
transactions contemplated hereby; provided, however, that (1) any party may
without prejudice and in its sole discretion seek injunctive or other equitable
remedies in order to prevent breaches of this Stock Purchase Agreement, enforce
specifically this Stock Purchase Agreement and the terms and provisions hereof,
maintain the status quo, or aid the jurisdiction of the arbitrators until an
arbitration award is rendered or the controversy is otherwise resolved, (2) this
Section 14.06 shall not apply to claims for violation of Sections 8 or 14.03 or
as may be necessary to protect proprietary information. Except as
otherwise provided in this Agreement, no action may be brought in any court of
law and EACH OF THE PARTIES WAIVES ANY RIGHTS THAT IT MAY HAVE TO BRING A CAUSE
OF ACTION IN ANY COURT OR IN ANY PROCEEDING INVOLVING A JURY TO THE MAXIMUM
EXTENT PERMITTED BY LAW.
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14.07 Notices. Any
notice, request, consent, waiver or other communication required or permitted to
be given hereunder shall be effective only if in writing and shall be deemed
sufficiently given only if delivered in person or sent by telecopy, electronic
mail (followed by hard copy), by a nationally recognized overnight courier or by
certified or registered mail, postage prepaid, return receipt requested,
addressed as follows:
If to
CSSS, prior to Closing:
Xxxxx Xxxxx, President
CSSS, Inc.
9
Xxxxx
Xxxxxxxx
Xxxxx, XX 00000
If to
Shareholders:
Xxxxx
Xxxxx
9
Rodeo
Foxxxxxx
Xxxxx, XX. 00000
Xxxxxxx
Xxxxx
2700 X.
Xxxxxxxxx
Xx.
000
Xxxxxxxxx
Xxxxx, XX 00000
If to
Buyer and CSSS after Closing:
Xxxxxx
Xxxxxxxx
1500 Xx.
Xxxx XX #000
Xxxxxx
Xxxxx, XX 00000
Fax: (000)
000-0000
with a
copy to:
Xxxxxx
Xxxxxx
240
Xxxxxxxxx Xxxx
Xxxxx
000
Xxxxxxx,
Xxxxxxxxxxxx 00000
Fax: (000)
000-0000
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or to
such other Person or address as either such party may have specified in a notice
duly given by the sender as provided herein. Such notice or
communication shall be deemed to have been given as of the date so personally
delivered, on the business day following delivery by sender to such an overnight
courier, three business days after mailing or when receipt is confirmed if
delivered by telecopy or e-mail.
14.08 Entire
Agreement. This Stock Purchase Agreement (including the
Disclosure Schedules and Exhibits attached hereto) and the documents referred to
herein as having been entered into by any of the parties hereto or delivered by
a party hereto to another party hereto constitute the entire agreement and
understanding of the parties relating to the subject matter hereof and supersede
all prior and contemporaneous agreements and understandings, representations and
warranties, whether oral or written, relating to the subject matter
hereof.
14.09 Cumulative
Remedies. The rights and remedies provided in this Stock
Purchase Agreement are cumulative and are not exclusive of any rights or
remedies a party may otherwise have at law or in equity.
14.10 Waiver. Any
failure of CSSS, the Shareholders or Buyer to comply with any obligation,
covenant, agreement or condition contained herein may be expressly waived in
writing by Buyer in the case of any such failure by the Shareholders in the case
of any such failure by Buyer, but such waiver or failure to insist upon strict
compliance shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Stock Purchase Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 14.10.
14.11 Severability. The
unenforceability or invalidity of any Section or subsection or provision of this
Stock Purchase Agreement shall not affect the enforceability or validity of the
balance of this Stock Purchase Agreement. If any provision of this
Stock Purchase Agreement is so broad as to be unenforceable, such provision
shall be interpreted to be only as broad as is enforceable.
14.12 Headings. The
headings of the Sections and subsections contained in this Stock Purchase
Agreement are for reference purposes only and shall not in any way affect the
meaning, interpretation, enforceability or validity of this Stock Purchase
Agreement.
14.13 Counterparts. This
Stock Purchase Agreement may be executed in any number of counterparts, each of
which so executed will be deemed to be an original, but all of which together
will constitute one and the same agreement.
14.14 Facsimiles. Any
facsimile signature of any party hereto or to any other agreement executed in
connection herewith shall constitute a legal, valid and binding execution hereof
by such party.
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14.15 Construction. CSSS,
the Shareholders and the Buyer hereby agree that any rule of law or any legal
decision that would require interpretation of any claimed ambiguities in this
Stock Purchase Agreement against the party that drafted it has no application
and is expressly waived. Within this Stock Purchase Agreement, the
singular shall include the plural and the plural shall include the singular, and
any gender shall include all other genders, all as the meaning and the context
of this Stock Purchase Agreement shall require. Section, Exhibit and
Disclosure Schedule references contained in this Stock Purchase Agreement refer
to those contained in or attached to this Stock Purchase Agreement unless
otherwise specified.
[Signatures
appear on next page]
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IN
WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to
be executed as of the date first above written.
|
BUYER
|
||
|
Xxxx
Security International, Inc.
|
||
|
By:
|
/s/ Xxxxxx Xxxxxxxx
|
|
| Name: Xxxxxx Xxxxxxxx | ||
| Title: Chief Executive Officer | ||
|
CSSS
|
||
|
CSSS,
Inc.
|
||
|
By:
|
/s/ Xxxxx Xxxxx
|
|
| Name: Xxxxx Xxxxx | ||
| Title: President | ||
|
SHAREHOLDERS
|
||
|
Xxxxx
Xxxxx
|
||
|
Xxxxxxx
Xxxxx
|
||
|
/s/ Xxxxx Xxxxx
|
||
|
Xxxxx
Xxxxx
|
||
| /s/ Xxxxxxx Xxxxx | ||
|
Xxxxxxx
Xxxxx
|
||
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Schedule
I - Definitions
“Accounts
Receivable” means all accounts receivable of CSSS in existence on the Closing
Date with respect to services fully rendered by CSSS on or before the Closing
Date. .
“Action”
means any claim, action, suit, formal or informal arbitration or mediation,
inquiry, proceeding or investigation by or before any Governmental Authority or
private authority.
“Affiliate”
shall mean any Person who controls, is controlled by, or is under common control
with, the designated entity. Ownership, directly or indirectly, of
20% or more of the voting stock or other equity interest shall be deemed to
constitute control.
“Assumed
Liabilities” means the liabilities and obligations of CSSS acknowledged by Buyer
under Section 2.06 of the Agreement, but not including the Indemnified
Liabilities.
“AT&T
Contract” is defined and has the meaning as set forth in Subsection
2.04(c)(i).
“AT&T
Holdback” is defined and has the meaning as set forth in Section
2.04(c)(i).
“Attrition
Rate” means, for any period, the ratio of the following (x) and (y), expressed
as a percentage, (x) the difference between Qualified RMR for the first
month of the period and Qualified RMR for the last month of the period, divided
by (y) Qualified RMR for the first month of the period.
“Attrition
Reduction” is defined and has the meaning as set forth in Subsection 2.04(c)(v),
which amount is twelve (12) times the difference, if any of (i) CSSS’s Qualified
RMR attributable to the Customer Contracts in existence on the Closing Date, for
the month ended April 30, 2009 (“Closing Qualified RMR”); and (ii) the Qualified
RMR of the Business as operated by Buyer and attributable to the Customer
Contracts in existence on the Closing Date, for the month ended March 31,
2010.
“Books
and Records” means all books of account and other financial records of CSSS
relating to the Business.
“Business”
means providing residential and commercial security system alarm monitoring
and/or video monitoring services anywhere in the United States of
America.
“Buyer”
means Xxxx Security International, Inc., a Delaware corporation.
“Closing”
means the act or acts by which the transactions contemplated by the Agreement
are accomplished.
“Closing
Date” means the date on which the Closing occurs. Unless the parties
otherwise agree, any references to “after the Closing Date” means any time after
the normal close of business of CSSS on the Closing Date.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Computer
Software Assets” means all Software, data rights, documentation and associated
license, escrow, support and maintenance agreements used in the conduct of the
Business, including, but not limited to, those listed in Schedule
2.01(h).
“Confidential
Information” has the meaning given the term in Section 8.04 of this
Agreement.
“Consents”
means those authorizations, consents, waivers, orders, approvals and clearances
of Governmental Authorities and officials and other Persons which are necessary
for the sale and transfer to Buyer of the Purchased Assets or the consummation
of the transactions contemplated by this Agreement (including the continuation
of Customer Contracts) where the approval of any other Person may be
required.
“Contamination”
means the uncontained presence of Hazardous Substances at any property, or
arising from any property, which may require remediation or otherwise give rise
to liability under any applicable law.
“Contracts”
means all contracts, distribution agreements, service agreements, development
agreements, consulting agreements, guarantees, commitments, instruments and
other agreements relating to the acquisition or ownership of any of the
Purchased Assets or the operation of the Business.
“Closing
Date Adjustments” means the total sum that the Purchase Price is to be increased
or decreased at Closing computed by increasing or decreasing the Purchase Price
as follows based on the following amounts as of the Closing Date: (i) increasing
the Purchase Price by the amount of cash in the deposit accounts of CSSS, not
including cash held as deposits; (ii) reducing the Purchase Price by revenue
collected by CSSS for services not fully rendered by CSSS as of the Closing
Date; (iii) reducing the Purchase Price by the accounts payable of CSSS; and
(iv) reducing the Purchase Price by amounts necessary for CSSS to pay Secure
Global Solutions to complete the installation and training of the monitoring
software system Secure Global Solutions is currently installing for
CSSS
“Closing
Date Adjustment Statement” means the statement that Buyer and Shareholders
execute on the Closing Date, that details the amount of the estimate of each of
the Closing Date Adjustments.
“CSSS”
means CSSS, Inc., a California Corporation owned by the
Shareholders.
“CSSS
Stock” means 6,750 shares of CSSS common stock owned by Xxxxx Xxxxx and 1,750
shares of CSSS common stock owned by Xxxxxxx Xxxxx, for a total of 8,500 shares
of CSSS common stock.
“Customer
Contracts” means any written contract, agreement or arrangement (including all
amendments thereto) between CSSS (or any party that has validly assigned its
rights and obligations with respect to the provision of Monitoring Services by
CSSS) and its respective customers with respect to the provision of Monitoring
Services.
“Disclosure
Schedules” means the disclosure schedules that shall be prepared by CSSS and the
Shareholders and delivered to Buyer and either attached to the Agreement or
separately executed and identified as the Disclosure Schedules to this
Agreement.
“General
Holdback” is defined and has the meaning as set forth in Subsection
2.04(c)(ii).
“Environmental
Laws” means all environmental or health and safety statutes, ordinances,
regulations, orders, directives, decrees, permits, governmental approvals,
contractual requirements and requirements of common law concerning (i)
activities relating to the Business, (ii) the Purchased Assets or any other
properties or assets now or previously owned, leased or operated by CSSS in
connection with the Business, (iii) repairs or construction of any improvements,
(iv) handling of any materials, (v) discharges into the air, soil, surface,
water or ground water, and (vi) storage, treatment or disposal of any waste at
or connected with any activity at such properties.
“Equipment”
means all machinery, equipment, leasehold improvements, owned trucks, owned
automobiles, office furniture, office equipment, computing and
telecommunications equipment (including the software loaded on such equipment
unless separately listed in Schedule 2.01(h)), including leased equipment, and
the two generators which are in the parking lot of the Leased Real
Property.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
“ERISA
Affiliate” means an entity the employees of which are treated as the employees
of the CSSS under Section 414(b), (c), (m) or (o) of the Code.
“GAAP”
means generally accepted accounting principles in the United States of America
as established from time to time by the Financial Accounting Standards
Board.
“Governmental
Authority” means the government of the United States, any state or political
subdivision thereof, any foreign country and any entity exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government.
“Governmental
Order” means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental
Authority.
“Indemnified Liabilities” means
the liabilities and obligations of CSSS identified under Subsection 2.07 of the
Agreement.
“Intellectual
Property” means all unpatented inventions, invention disclosures, multinational
invention registrations, patents and patent applications (including, but not
limited to, all reissues, divisions, continuations, continuations in part,
extensions and re-examinations) and all rights therein provided by law,
multinational treaties or conventions; all publications and copyrights; all
trade secrets, know how, formulas, and all common law and registered trademarks,
trademark registrations, applications for trademark registrations, tradenames
(including, but not limited to, the names listed in Schedule 4.03), or any
derivation thereof, trade dress, brand names, service marks and logos, whether
owned or licensed, including in each case, without limitation, those listed in
Schedule 2.01(f).
“Inventory”
means all raw materials inventory, work in process inventory, finished goods
inventory and spare parts inventory, together with all installation, testing and
monitoring supplies and boxing, labeling and other shipping materials and, to
the extent permitted by law, an assignment of all related manufacturer or
fabricator warranties, guarantees and indemnities.
“Xxxxx
Employment Agreement” means the Employment Agreement executed between Xxxxx
Xxxxx and CSSS at Closing.
“Xxxxx
Holdback” is defined and has the meaning as set forth in Subsection
2.04(c)(iv).
“Laws”
means any federal, state, local or foreign statute, law, ordinance, regulation,
rule, code, governmental order, requirement or rule of common law.
“Leased
Real Property” means parcels of land, together with all rights, interests and
appurtenances therein or thereto, and the buildings, structures, installations,
fixtures and other improvements thereon, leased by CSSS and used in the
Business, as described in Schedule 4.12(b).
“Leases”
means leases of Equipment and other tangible personal property, leases of Leased
Real Property and other leases of Tangible Purchased Assets or intangible
personal property, in each case whether classified as a capital or operating
lease for accounting purposes.
“Liabilities
and Obligations” means any direct or indirect indebtedness, lease obligation,
guaranty, endorsement, claim, loss, damage, deficiency, cost expense, obligation
or responsibility, fixed or unfixed, known or unknown, asserted or unasserted,
xxxxxx or inchoate, liquidated or unliquidated, secured or unsecured, whether
arising in contract, tort or otherwise, whether now existing or hereafter
arising.
“Liens”
means all mortgages, liens, pledges, charges, security interests, title
retention or security agreements, claims, restrictions, leases, options, rights
of first offer or first refusal, confidentiality or secrecy agreements,
noncompetition agreements, defects in title and other encumbrances or rights of
others with respect to any of the Purchased Assets.
“Losses”
means all claims, damages, losses, liabilities, costs and expenses (including
attorneys’ fees and disbursements and any other legal costs) suffered or
incurred by a party.
“Material
Adverse Effect” means any circumstance, change in, or effect on, the Purchased
Assets or the Business that, individually or in the aggregate with any other
circumstances, changes in, or effects thereon: (i) is or could
reasonably be expected to be materially adverse to the Purchased Assets or to
the business, financial condition, assets or Liabilities and Obligations
(including contingent Liabilities and Obligations), customer or supplier
relationships, prospects, value, results of operations or the condition
(financial or otherwise) of the Business; or (ii) could reasonably be expected
to materially adversely affect the ability of CSSS to use the Purchased Assets
or operate the Business after Closing in the manner in which they are currently
used or operated by CSSS; or (iii) could reasonably be expected to increase
the expenses of operating the Business by ten percent or more or
decrease the revenue of the Business after Closing by ten percent or more from
the annual expenses or revenue, as applicable, currently in existence for the
Business as operated by CSSS.
“Material
Contracts” means any Contract or series of related Contracts which involve the
expenditure by CSSS of more than $10,000 to perform its obligations thereunder
or to obtain the benefit thereof or which is otherwise material to the operation
of the Business or the use and enjoyment of Purchased Assets, including, but not
limited to, those listed in Schedule
4.15(a).
“Monitoring
Services” or “Services” means services provided to customers of the Business for
the monitoring of electronic burglar alarms, fire alarms, and similar security
and life safety systems, including without limitation, video and/or audio
monitoring.
“Multiemployer
Plan” means a “multiemployer plan” within the meaning of Section 3(37(A)) of
ERISA.
“Open
Orders” means all open orders for the connection of Monitoring Services to end
users of electronic burglar alarms, fire alarms and video and/or audio equipment
arising from the Business, together with related purchase orders, contracts,
subcontracts and accounts receivable.
“Permits”
means all governmental permits, licenses, registrations, orders and approvals
relating to the Business, all of which are listed in Schedule
2.01(l).
“Person”
shall mean an individual, partnership, corporation, business trust, joint stock
company, trust, unincorporated association, joint venture, limited liability
company, or any other entity of whatever nature.
“Plan”
means any welfare plan as defined by Section 3(1) of ERISA, any pension plan as
defined by Section 3(2) of ERISA, any other retirement, severance, continuation
pay, termination pay, bonus, stock bonus, deferred compensation, insurance,
vacation, personal leave, tuition reimbursement, dependent care assistance,
cafeteria plan or other plan, policy or arrangement providing employee benefits
(whether or not described in ERISA) maintained by or sponsored by CSSS or an
ERISA Affiliate of CSSS to which CSSS or any ERISA Affiliate contributes or is
obligated to contribute.
“Product
Liability” means Liabilities and Obligations for property damage, death or
personal injury (whether suffered or discovered prior to or after the Closing
Date) arising from, caused by or attributable to, products manufactured, sold or
distributed, or services performed or rendered by CSSS or CSSS’s agents prior to
the Closing Date.
“Purchase
Price” means the consideration payable for the CSSS Stock under Section 2.04 of
the Agreement and the obligations of the Shareholders under Section 8 of the
Agreement.
“Purchased
Assets” means all of the assets, properties and rights of every kind and
description, real, personal and mixed, tangible and intangible, wherever
situated, used in the Business as set forth in Section 2.02..
“Restricted
Period” has the meaning given the term in Section 8.01 of this
Agreement. The “Restricted Period” commences on the Closing Date and
expires three (3) years thereafter with respect to Xxxxxxx Xxxxx. The
Restricted Period commences on the Closing Date and expires on January 1, 2014
with respect to Xxxxx Xxxxx.
“Restrictive
Agreements” mean any noncompetition or nonsolicitation agreements related to the
Customer Contracts, regardless of whether such agreements restrict or benefit
CSSS or the Business.
“RMR
Holdback” is defined and has the meaning as set forth in Subsection
2.04(c)(v).
“Qualified
RMR” means the total recurring revenue received on accounts of customers
subscribing for Monitoring Services under written, fully executed and
enforceable contracts which shall be calculated as the sum of the
following:
(i) the
total recurring revenue (net of any telephone communication, utility company or
third-party pass-through charges, assessments or taxes) for a one-month period
recognized under GAAP by CSSS with respect to the accounts of customers that
have no outstanding receivables for Monitoring Services ;
(ii) plus
the total recurring revenue (net of any telephone communication, utility company
or third-party pass-through charges, assessments or taxes) for a one-month
period recognized under GAAP by CSSS with respect to the accounts of customers
which had outstanding receivable balances for Monitoring Services that were
ninety (90) days or less past due;
(iii) minus
the total recurring revenue (net of any telephone communication, utility company
or third-party pass-through charges, assessments or taxes) for a one-month
period recognized under GAAP by CSSS with respect to the accounts of such
customers as are included in (i) or (ii) above, but which customers’ contracts
have either been cancelled by such customers’ or which such customers have sent
a notice of cancellation, at any time prior to the date of such
calculation.
“Software” means all software owned,
developed, licensed or used, including (i) all modifications, enhancements,
fixes, updates, upgrades, bypasses and workarounds, (ii) the source code and
object code for any of the foregoing and (iii) all operating systems,
bridgeware, firmware, middleware and utilities.
“Subsidiary”
means a corporation in which CSSS or any Subsidiary of CSSS owns a majority of
the common stock or has the power to elect a majority of the
directors.
“Tangible
Purchased Assets” means all tangible properties and assets, whether real or
personal and whether owned or leased, included in the Purchased
Assets.
“Taxes”
mean all income or profits taxes (including, but not limited to, federal income
taxes and state income taxes), estimated taxes, payroll and employee withholding
taxes, unemployment insurance, social security taxes, sales and use taxes,
duties, ad valorem taxes, value added taxes, excise taxes, capital stock or
franchise taxes, gross receipts taxes, business license taxes, occupation taxes,
real and personal property taxes, stamp taxes, environmental taxes, recordation
fees, transfer taxes, workers’ compensation, Pension Benefit Guaranty
Corporation premiums and other governmental charges and other obligations of the
same or of a similar nature to any of the foregoing (including any interest or
penalties relating to any of the foregoing), which a corporation or other entity
may be required to pay, withhold or collect, imposed by any federal,
territorial, state, local, or foreign government or any agency or political
subdivision of any such government;
“Technical
Information” means all customer, dealer and supplier lists; serial number
records; engineering, testing, manufacturing, design, configuration,
installation and other technical drawings, techniques, specifications and
calculations; research and development information; operating, maintenance and
repair manuals and instruction books; cost and estimating information, cost
records, vendor data and other business records (including without limitation,
sales histories); sales inquiries; consultant’s reports; bills of material, test
data and selected test material samples; advertising and promotional literature,
including reproducible masters and all other commercial, sales, marketing, and
technical data (including, but not limited to, data stored electronically or on
other format, together with rights under any third party licenses necessary to
use such data).
“Warranty
Claim” means a claim for the repair or replacement of products manufactured by
the Business under unexpired warranties or for credits or price adjustments for
such products, as a result of their failure to perform in accordance with the
warranties made in connection with their sale, whether express or
implied.
AMENDMENT 1
TO
STOCK PURCHASE
AGREEMENT
This
Amendment 1 to Stock Purchase Agreement (“Amendment”) has been executed as of
this 30th day of April 2009 by and among Xxxx Security International, Inc
(“Buyer”), a Delaware corporation; CSSS, Inc., California corporation (“CSSS”);
Xxxxx Xxxxx and Xxxxxxx Xxxxx, collectively, Xxxxx Xxxxx and Xxxxxxx
Xxxxx are referred to as (the “Shareholders”).
RECITALS:
The
Buyer, CSSS and the Shareholders are parties to a Stock Purchase Agreement dated
April 30, 2009 (“Agreement”). The parties hereto have entered into
this Amendment to modify and amend certain of the terms and provisions of the
Agreement. The terms and provisions of the Agreement are in full
force and effect and are unchanged except as specifically modified and amended
by this Amendment.
IN
CONSIDERATION, of the mutual covenants, agreements, representations and
warranties set forth herein, and in reliance thereon, intending to be legally
bound, the parties agree as follows.
1. Defined
Terms. The capitalized and certain other terms used in this
Amendment shall have the meanings ascribed to them in Schedule I to the
Agreement, unless otherwise defined in Schedule I to this
Amendment.
2. Amendment of Section 2.04(c)
of the Agreement. Section 2.04(c) of the Agreement is deleted
in its entirety and is replaced by Section 2.04(c) set forth below.
(c) On
the Closing Date, the Purchaser will pay to the Shareholders the Purchase Price,
after the Closing Date Adjustments, less: (i) the $300,000 AT&T Holdback, as
defined below; (ii) the $200,000 Inter-Tel Holdback, as defined below; (iii) the
$500,000 General Holdback, as defined below; (iv) the 100,000 Xxxxx Holdback, as
defined below; and (v) the RMR Holdback, as defined below. The
Purchase Price less the AT&T Holdback, the Inter-Tel Holdback, the General
Holdback, the Xxxxx Holdback and the RMR Holdback shall be paid in immediately
available funds (the “Initial
Payment”). The Initial Payment and all future payments shall
be paid and divided between the Shareholders as follows: (i) seventy eight
percent (78%) to Xxxxx Xxxxx and (ii) twenty two percent (22%) to Xxxxxxx
Xxxxx.
(i) $300,000
of the Purchase Price (“AT&T Holdback”) will be
paid to the Shareholders by Buyer upon either (a) the written release by
AT&T or its legal successor, to CSSS from any and all liability CSSS has
under AT&T Service Order and Addendum to Comprehensive Service Order,
between CSSS, Inc. and AT&T Corp, AT&T MA Reference No. 109699, signed
February 15, 2007 and March 3, 2007, Contract ID 1148971(“AT&T Contract”) or (b) the
determination of Buyer, in its sole discretion, that CSSS has no liability or
obligations to AT&T, or its successors, under the AT&T
Contract. Any and all amount CSSS is obligated to pay to discharge
its obligations under the AT&T Contract, including defense costs and legal
fees, shall reduce the amount of the AT&T Holdback to be paid to the
Shareholders. The AT&T Holdback will be paid to Shareholders on
its due date along with accrued interest at the rate of two percent per annum
from the date of Closing.
(ii) $200,000
of the Purchase Price (“Inter-Tel Holdback”) will be paid to the
Shareholders by Buyer upon either (a) the written release by Inter-Tel
NetSolutions, or its legal successor, to CSSS from any and all liability CSSS
has under the Dedicated Long Distance Service Agreement Continental United
States dated October 26, 2004, and executed on October 28, 2004 between CSSS,
Inc. and Inter-Tel NetSolutions, or any renewal thereof (“Inter-Tel Contract”) or (b) the
determination of Buyer, in its sole discretion, that CSSS has no liability or
obligations to Inter-Tel NetSolutions or its successors under the
Inter-Tel Contract. Any and all amount CSSS is obligated
to pay to discharge its obligations under the Inter-Tel Contract, including
defense costs and legal fees, shall reduce the amount of the Inter-Tel Holdback
to be paid to the Shareholders. The Inter-Tel Holdback will be paid
to Shareholders on its due date along with accrued interest at the rate of two
percent per annum from the date of Closing.
(iii) $500,000
of the Purchase Price (“General
Holdback”) will be paid to the Shareholders by Buyer on the day that is
two years from the Closing Date, less any amount of damages or costs incurred or
suffered by Buyer, including attorney fees, from the Shareholders’
breach or default this Stock Purchase Agreement, including the failure to pay an
indemnity claim in accordance with Section 12 of this Stock Purchase Agreement,
or the falsity of any representation or warranty of Shareholders in this Stock
Purchase Agreement. The General Holdback will be paid to Shareholders
on its due date along with accrued interest at the rate of two percent per annum
from the date of Closing.
(iv) Six
months from the Closing Date, Buyer will pay to Shareholders $100,000 of the
Purchase Price (“Xxxxx
Holdback”), if and only, if Xxxxx Xxxxx fully performed the Employment
Agreement, attached as Exhibit A to the Agreement, through the end of the
Employment Agreement’s term. If Xxxxx Xxxxx failed to fully perform
the Employment Agreement, except due to death or physical disability, through
the end of its term, the Purchase Price shall be reduced by an amount equal to
$100,000 of the Purchase Price.
(v) On
the day that is thirteen months from the Closing Date, Buyer shall pay to Seller
ten percent of the Purchase Price, after the Closing Date Adjustments (“RMR Holdback”), less the Attrition Reduction, as
defined in the Agreement. The “Attrition Reduction” shall
equal 12 times the difference, if any, between (a) the Qualified RMR attributable to
the Customers Contracts of CSSS in existence on the Closing Date, less (b)
CSSS’s Qualified RMR, attributable Customer Contracts of CSSS in existence on
the Closing Date, for the month ended twelve months from the Closing
Date. If the Attrition Reduction is greater than the RMR Holdback,
there shall be no payment to Shareholders but Shareholders shall not be
obligated to refund any of the Purchase Price.
3. Entire
Agreement. This Amendment and the Agreement (including the
Disclosure Schedules and Exhibits attached thereto) and the documents referred
to herein and in the Agreement as having been entered into by any of the parties
hereto or delivered by a party hereto to another party hereto constitute the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersede all prior and contemporaneous agreements and
understandings, representations and warranties, whether oral or written,
relating to the subject matter hereof.
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IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as
of the date first above written.
|
BUYER
|
|
|
Xxxx
Security International, Inc.
|
|
|
By:
|
/s/ Xxxxxx Xxxxxxxx
|
|
Name: Xxxxxx
Xxxxxxxx
|
|
|
Title: Chief
Executive Officer
|
|
|
CSSS
|
|
|
CSSS,
Inc.
|
|
|
By:
|
/s/ Xxxxx Xxxxx
|
|
Name:
Xxxxx Xxxxx
|
|
|
Title: President
|
|
|
SHAREHOLDERS
|
|
|
Xxxxx
Xxxxx
|
|
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Xxxxxxx
Xxxxx
|
|
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/s/ Xxxxx Xxxxx
|
|
|
Xxxxx
Xxxxx
|
|
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/s/ Xxxxxxx Xxxxx
|
|
|
Xxxxxxx
Xxxxx
|
|
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Schedule
I - Definitions
“AT&T
Contract” is defined and has the meaning as set forth in Subsection 2.04(c)(i)
of this Amendment.
“AT&T
Holdback” is defined and has the meaning as set forth in Section 2.04(c)(i) of
this Amendment.
“General
Holdback” is defined and has the meaning as set forth in Subsection 2.04(c)(iii)
of this Amendment.
“Inter-Tel
Contract” is defined and has the meaning as set forth in Section 2.04(c)(ii) of
this Amendment.
“Inter-Tell
Holdback” is defined and has the meaning as set forth in Section 2.04(c)(ii) of
this Amendment.
“Xxxxx
Holdback” is defined and has the meaning as set forth in Subsection 2.04(c)(iv)
of this Amendment.
“RMR
Holdback” is defined and has the meaning as set forth in Subsection
2.04(c)(v).
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