LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT (the "Agreement") is
made and entered into as of the 29th day of June, 2004, by and among Vicom,
Incorporated, a Minnesota corporation (the "Buyer"), and Xxxx X. Xxxxx, Xxxxx X.
Xxxxx, Xxxxxxx Xxxx, Xxxxxxxx X. Xxxxx, and Xxxxxxx X. Xxxxx, Xx., (each
individually a "Seller" and collectively, the "Sellers").
WITNESSETH
WHEREAS, Sellers own all of the issued and outstanding membership
interests (the "Membership Interests") in Rainbow Satellite Group, LLC, a
Connecticut limited liability company (the "Company") engaged in the
distribution of television programming and related consumer services; and
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, all of the Membership Interests in the Company, at the purchase
price and upon the terms and subject to the conditions contained in this
Agreement;
NOW, THEREFORE, in consideration of mutual covenants, agreements,
representations and warranties herein contained, the parties hereby agree as
follows:
1. Sale and Purchase of Membership Interests.
Subject to and upon the terms and conditions set forth in this
Agreement, the Sellers agree to sell, assign, transfer, deliver and convey to
the Buyer, and the Buyer agrees to purchase and acquire from the Sellers, all of
the Membership Interests in the Company owned by the Sellers, for an aggregate
purchase price of four million one hundred ten thousand dollars ($4,110,000)
plus the securities specified Section 1(a)(ii), all subject to adjustment as
provided in Sections 1(c) and 9 (collectively, the "Purchase Price").
a. 80% of the Membership Interests in the Company shall be purchased
for the following consideration, delivered at the Closing (as hereinafter
defined in Section 6):
(i) one million dollars ($1,000,000) by certified or official
bank checks, or by wire transfer of immediately available funds, at Closing;
(ii) one million nine hundred ten thousand dollars
($1,910,000) payable in accordance with, and in the amounts and on the dates
specified in, the Secured Promissory Note (the "Note") in the form of Exhibit A
attached hereto and to be executed and delivered by Buyer at Closing; and
1
(iii) two million dollars ($2,000,000) principal amount of
Vicom's class F, 10% convertible preferred stock (the "Preferred Shares") in the
form of Exhibit B attached hereto and to be delivered by Buyer at Closing. The
Preferred Shares shall be convertible into Buyer's common stock, no par value
(the "Common Stock"), at a conversion price of $2 per share of Common Stock and
shall have the "put" and "call" features set forth in Sections 1 (d) and (e).
The term Common Stock and price references thereto shall mean the same as
appropriately adjusted for stock dividends, splits, combinations and the like.
b. The remaining 20% of the Membership Interests in the Company
shall be purchased for one million two hundred thousand dollars ($1,200,000),
payable in cash by certified or official bank checks, or by wire transfer of
immediately available funds, on January 4, 2005 (the "Second Closing Date") at
the second closing referred to in Section 9(d).
c. At Closing, the Purchase Price shall be reduced by $430 (Four
Hundred and Thirty Dollars) per Subscriber (as such term is defined in Section
2(j)) by which the Closing Baseline (as defined in Section 7(a)(iv)) is below
14,300 Subscribers, and increased by the same amount per Subscriber by which the
Closing Baseline exceeds 14,300 Subscribers. Any increase in the Purchase Price
and any adjustment downward in the Purchase Price shall be made to the Note by
increasing or decreasing, as the case may be, the principal amount thereof. The
Purchase Price shall be further adjusted post-Closing, in accordance with the
provisions of Section 9 hereof.
d. Commencing six months after the Closing and at any time until the
first anniversary of the Closing, Sellers shall have the right (the "Put") to
require Buyer to redeem up to an aggregate of $500,000 principal amount of the
Preferred Shares, at par, if the closing price of Buyer's Common Stock, as
quoted on the Nasdaq Smallcap market, shall be below $2.00 per share for each of
any five consecutive trading days during the fourteen days immediately preceding
the date on which the Sellers exercise the Put. Upon exercise of the Put, the
principal amount of the redeemed Preferred Shares will be added to the Note and
payable in accordance with its terms if any amount remains unpaid under the Note
or, if such Note is not then outstanding, Buyer will issue a new note for such
principal amount, in the form of Exhibit A-1 attached hereto (the "Adjustment
Note"). Seller's Put shall expire as of the first anniversary of the Closing
Date.
e. Commencing on the first anniversary of the Closing Date, Buyer
shall have a one-time right (the "Call") to require Sellers to convert all or
any of their outstanding Preferred Shares into Common Stock at a conversion
price of $2.00 per share), if the closing price of Buyer's Common Stock, as
quoted on the Nasdaq Smallcap market, shall exceed $2.75 per share for each of
any five consecutive trading days during the fourteen days immediately preceding
the date on which the Buyer exercises the Call.
2
2. Representations, Warranties and Covenants of the Seller. Sellers
represent and warrant to Buyer as follows:
a. The Company is a limited liability company, validly existing and
in good standing under the laws of the State of Connecticut. Copies of the
Company's Articles of Organization, and all amendments thereto to date, and the
Company's Operating Agreement, and all amendments to date, certified by the
Company's Manager, have been delivered to Buyer, and are complete and correct.
b. When duly and validly executed and delivered by such Seller, this
Agreement and each of the agreements to be delivered at Closing pursuant to
Section 7 (the "Additional Agreements") by the Sellers shall constitute the
valid and binding agreements of such Seller, enforceable against such Seller in
accordance with the terms each such agreement. The execution of this Agreement
and the Additional Agreements and delivery of the Membership Interests requires
no consent, approval or action by any third party and such Seller has the full
power and authority to enter this Agreement and the Additional Agreements,
provided that a transaction effectuating a change of control of the Company may
constitute a breach of certain agreements to which the Company is a party listed
on Schedule 2(b) unless consent therefor has been obtained.
c. The current Membership Interests of each Seller are as listed on
Schedule 2(c). At Closing, each Seller represents and warrants that such Seller
shall have good and marketable title to his or her Membership Interests, free
and clean of all claims, liens and encumbrances.
x. Xxxxxxx have delivered to Buyer copies of the Company's unaudited
financial compilations as of March 31, 2004, copies of which are attached hereto
as Schedule 2(d). Such financial compilations fairly reflect the Company's
assets, liabilities and income and expenses for or as of the period end dates
specified therein. Except as disclosed on Schedule 2(d), to the knowledge of
Sellers, Company has no material liabilities of any nature, including for taxes,
not fully reflected or reserved against and reflected in such financial
compilations, other than those liabilities and obligations arising in the
ordinary course of business after March 31, 2004. At Closing, the Company shall
have no accrued payment obligations which are not fully covered by cash in the
Company's bank account or otherwise provided for by Sellers; provided that Buyer
and Company shall be responsible for any employee vacation time accrued but not
taken prior to Closing. Sellers shall otherwise be free to take distributions of
the Company's cash prior to Closing.
e. Except as set forth on Schedule 2(e), there are no employment
agreements for a fixed term in force between the Company and any employee.
3
f. The Company has no subsidiaries. The Company has entered into
joint venture agreements with third parties as set forth on Schedule 2(f). The
Company will transfer or terminate its interests in and obligations under such
agreements prior to the Closing subject to the provisions of Section 7(c).
g. There is no litigation, action, suit or proceeding pending or, to
the best of such Seller's knowledge, threatened against or relating to the
Company, except as disclosed on Schedule 2(g) hereto.
h. Seller is aware of no facts concerning and the Company has not
received any notice or other communication from any federal, state or local
authority stating or alleging that Seller is not in compliance in any material
respect with any laws.
i. The Company, at the time of Closing, shall have (i) good and
marketable title to all its owned assets as reflected in the balance sheet,
subject to no security interest, mortgage, pledge, lien or other encumbrance,
except as reflected on Schedule 2(i) or in the Company Security Agreement to be
delivered at Closing pursuant to Section 7(b)(vii) and (ii) right of entry
agreements (directly in its own name or by license or assignment) then in effect
with respect to each Significant Account (as defined in Section 9) listed on the
Closing Subscriber Certificate delivered pursuant to Section 7(a)(iv).
j. Schedule 2(j) hereto contains true and complete lists of the
Seller's active individual and bulk DirecTV and SMATV subscriber data. Sellers
represent the current number of Company Subscribers to be no fewer than 14,300.
A "Subscriber" for purposes of this Agreement shall mean (i) with respect to
non-bulk DirecTV direct-to-home subscribers, any person or entity or other
customer classified as a subscriber by DirecTV in its dealings with the Company
and (ii) with respect to other subscribers, a subscriber, customer, or bulk
property unit from whom or which or with respect to whom or which the Company
has received revenues during the prior sixty (60) days and as to whom or which
the Company has not received a termination or cancellation notice. The term
"Subscriber" shall also include a subscriber, customer or unit associated with
any of the properties listed on Schedule 2(j) which have entered into a written
right of entry agreement with the Company as of the Closing for provision of
bulk programming or services that have not yet been made available.
k. Since the date of Seller's financial compilations submitted in
connection herewith, there have been no material adverse changes to the Seller's
business, assets, operations or overall financial condition.
l. Except as disclosed on Schedule 2(l), there are no accounts
receivable of the Company known by Sellers to be past due for 60 or more days.
No representation is made with respect to Subscribers with respect to whom the
Company receives commissions or other revenues from DirecTV.
4
Sellers shall be entitled to modify the Schedules attached hereto prior to
Closing in order to correct or update the information therein contained provided
that no such modification shall reflect a material adverse effect on the
benefits of the transactions provided herein to Buyer.
3. Representations and Warranties of the Buyer: The Buyer represents and
warrants to the Sellers as follows:
a. The Buyer is a corporation, validly existing and in good standing
under the laws of Minnesota.
b. The execution, delivery and performance of this Agreement and the
Additional Agreements to be delivered at Closing by the Buyer require no
consent, approval or action by any third party and have been duly and validly
authorized. When duly and validly executed and delivered by the Buyer, this
Agreement and each of the other agreements to be delivered at Closing shall
constitute the valid and binding agreements of the Buyer, enforceable against
Buyer in accordance with the terms of each such agreement. All actions on the
part of Buyer and its officers, directors, and stockholders necessary for the
issuance of the Preferred Shares and the issuance of the Common Stock issuable
upon conversion of the Preferred Shares have been taken.
c. The Preferred Shares, when delivered pursuant to Section
1(b)(iv), and the shares of Common Stock issued upon conversion of the Preferred
Shares, will be validly issued, fully paid and nonassessable and free of any
liens or encumbrances. The rights, preferences, privileges and restrictions on
the Preferred Shares will be in accordance with Buyer's [Amended and Restated
Articles of Incorporation] [and as set forth in the Certificate of Designation
of the Relative Rights, Restrictions and Preferences of 10% Class F Convertible
Stock (the "Certificate of Designation")] attached hereto as part of Exhibit B.
Buyer has duly reserved shares of Common Stock sufficient in number to satisfy
any issuance required upon conversion of the Preferred Shares.
d. Buyer has timely filed all reports (such reports, together with
the materials and exhibits filed therewith, collectively referred to herein as
the "SEC Reports") and made such public disclosures as are required to be filed
or made by it under the Securities Act of 1933 (as amended and in effect from
time to time, the "'33 Act") and the Securities Exchange Act of 1934 (as amended
and in effect from time to time, the "Exchange Act") for the two years preceding
the date of this Agreement. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the '33 Act and the
Exchange Act and the rules and regulations of the Securities Exchange Commission
(the "Commission") promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
5
e. The financial statements of the Buyer included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved, except as may
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates specified and
the results of operations and cash follows for the periods then ended, subject,
in the case of unaudited statements, to normal, immaterial, year-end audit
adjustments. Since the date of Buyer's latest audited financial statements filed
with the SEC Reports, there have been no material adverse changes to the Buyer's
business, assets, operations or overall financial condition.
4. Conditions Precedent to Obligations of Buyer. The obligations of the
Buyer at Closing shall be subject to the fulfillment on or prior to Closing of
all the conditions set forth below:
a. Each of the representations and warranties of the Sellers
contained in this Agreement shall be true as of the Closing.
b. The Sellers shall have performed all of their obligations under
this Agreement to the extent such obligations were required to have been
performed on or prior to the Closing.
c. All documents and other deliveries required to be delivered to
Buyer at or prior to the Closing shall have been so delivered.
d. Buyer shall have received all such other documents and
instruments in connection with the transactions contemplated by this Agreement
as Buyer and its counsel may reasonably request and all legal matters shall be
satisfactory to such counsel.
e. No action, suit, claim, proceeding, inquiry or investigation by
or before any federal, state, local or other governmental court, arbitrator or
agency shall have been initiated or, to the knowledge of the Sellers,
threatened, seeking to prevent or enjoin or otherwise to affect the transaction
contemplated by this Agreement.
f. Any necessary consents shall have been obtained from DirecTV with
regards to this Agreement and any related transactions.
6
g. Buyer shall have received access to DirecTV data in order to
permit Buyer to verify the Company's DirecTV subscriber base as of the Closing
Date.
5. Conditions Precedent to Obligations of Sellers. The obligations of the
Sellers at Closing shall be subject to the fulfillment on or prior to Closing of
all the conditions set forth below:
a. Each of the representations and warranties of the Buyer contained
in this Agreement shall be true as of the Closing .
b. The Buyer shall have performed all of its obligations under this
Agreement to the extent such obligations were required to have been performed on
or prior to the Closing.
c. All documents and other deliveries required to be delivered to
Sellers at or prior to the Closing shall have been so delivered.
x. Xxxxxxx shall have received all such other documents and
instruments in connection with the transactions contemplated by this Agreement
as Sellers and their counsel may reasonably request and all legal matters shall
be satisfactory to such counsel.
e. No action, suit, claim, proceeding, inquiry or investigation by
or before any federal, state, local or other governmental court, arbitrator or
agency shall have been initiated or, to the knowledge of the Sellers,
threatened, seeking to prevent or enjoin or otherwise to affect the transaction
contemplated by this Agreement.
f. The Company shall have assigned to Sellers all accounts
receivable existing and all other payment obligations to the Company and claims
of the Company against third parties accrued as of the Closing Date, including
those set forth on Schedule 5(f) (the "Outstanding Claims").
g. Any necessary consents shall have been obtained from DirecTV with
regards to this Agreement and any related transactions.
6. Closing. Closing of this Agreement (the "Closing") shall take place at
10 a.m. on July 8, 2004 (the "Closing Date") at the offices of Xxxxx & Xxxxxxx,
P.C., 000 Xxxxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000 or such other time and
place as the parties may agree upon. In the event a party is entitled not to
close on the scheduled date because a condition to the Closing set forth in
Sections 5 or 6 hereof has not been met (or waived by the party or parties
entitled to waive it), such party may postpone the Closing from time to time to
another end of month date, but in any event not beyond July 31, 2004, until the
condition has been met (which all parties will use their best efforts to cause
to happen).
7
Except as otherwise set forth herein, this Agreement will be deemed
effective June 1, 2004 for purposes of establishing Buyer's (Vicom's) rights to
the Company's (Rainbow Satellite Group, LLC) revenues, income and expenses.
7. Deliveries to the Parties on the Closing Date.
The parties shall deliver or cause to be delivered to each other at
the Closing the following:
a. BY SELLERS:
(i) certificates or other documentation reflecting transfer to
Buyer of 80% of the Membership Interests in the Company;
(ii) access to all books and records held by the Company and
reasonably required by Buyer to operate the business;
(iii) the Pledge and Security Agreement, in the form attached
hereto as Exhibit C;
(iv) a certificate (the "Closing Subscriber Certificate") of
Seller's Manager setting forth as of the month during which the Closing occurs
(A) the number of Subscribers (the "Closing Baseline"), (B) the names of each
Significant Account (as defined in Section 9) and the number of Subscribers
associated with each such Significant Account and (C) the names of any
significant properties (a "Prospect") as to which the Company is then in active
negotiations for the purpose of providing programming or other services;
(v) a certificate of Seller's Manager listing all accounts
receivable of the Company existing (if ascertainable and if not ascertainable
then estimated in good faith) on the Closing Date relating to services rendered
by the Company prior to and including the Closing Date (the "Closing Accounts
Receivable");
(vi) the Company Security Agreement, in the form attached
hereto as Exhibit E;
(vii) the Escrow Agreement , in the form attached hereto as
Exhibit F;
(viii) the Cross-License Agreement, in the form attached
hereto as Exhibit H; and
(ix) the Company's Amended and Restated Operating Agreement,
in the form attached hereto as Exhibit J.
8
b. BY BUYER:
(i) one million dollars ($1,000,000) by certified or official
bank checks, or by wire transfer of immediately available funds;
(ii) the Note;
(iii) the Pledge and Security Agreement;
(iv) the Preferred Shares;
(v) an assignment by Company in form and substance
satisfactory to Sellers of the Closing Accounts Receivable and the Outstanding
Claims
(vi) the Company Security Agreement;
(vii) the Escrow Agreement ;
(viii) a legal opinion of Xxxxxx X. Xxxx, Esq., substantially
to the effect of Exhibit G;
(ix) the Cross-License Agreement, in the form attached hereto
as Exhibit H; and
(x) the Company's Amended and Restated Operating Agreement, in
the form attached hereto as Exhibit J.
c. No less than five days prior to the Closing, Sellers will advise
Buyer in writing whether Subscribers associated with a joint venture partner
listed on Schedule 2(f) will be included in the Closing Subscriber Certificate
and if so, the number of such Subscribers. If, in connection with the
transaction hereunder, a payment is required to be made to a joint venture
partner or property owner, Sellers will advise Buyer of the payment amount and
any payment instructions. At Closing, Buyer will deliver a certified or official
bank check for such amount made payable in accordance with Sellers' directions
and the Purchase Price and the payment pursuant to Section 7(b)(i) above each
shall be reduced by the amount of each such check.
8. Indemnification.
a. BY SELLERS. The Sellers shall, jointly and severally, defend,
indemnify, and hold the Buyer harmless from and against, reimburse the Buyer,
with respect to, any and all claims, losses, damages, costs and expenses
(including reasonable attorneys' fees) ("Losses") incurred by Buyer by reason of
or arising out of or in connection with: (i) a breach by the Sellers of any
representation or warranty of the Sellers contained in this Agreement, or in any
certificate delivered to the Buyers pursuant to the provisions of this
Agreement; (ii) the failure, partial or total, of the Sellers to perform any
agreement or covenant required by this Agreement to be performed by them; and/or
(iii) any federal or state income taxes due and payable with respect to the
operation of the Company's business prior to the Closing.
9
b. BY BUYER. Buyer agrees to defend, indemnify, and hold the Sellers
harmless from and against, and to reimburse the Sellers with respect to, any and
all Losses incurred by them by reason of or arising out of or in connection
with: (i) a breach by Buyer of any representation or warranty of Buyer contained
in this Agreement or in any certificate delivered to the Sellers pursuant to the
provisions of this Agreement; (ii) the failure, partial or total, of the Buyers
to perform any agreement or covenant required by this Agreement to be performed
by it; and/or (iii) all liabilities and obligations of the Company of any nature
whether known or unknown, including specifically without limitation, liabilities
for operations after the Closing, but excluding those liabilities or obligations
with respect to which the Buyer is entitled to indemnification from Sellers
pursuant to Section 8(a) above.
c. NOTICE OF CLAIMS. All claims for indemnification under this
Agreement shall be resolved in accordance with the following procedures:
(i) If an indemnified party reasonably believes that it may
incur any Losses, it shall deliver notice (a "Claim Notice") to the indemnifying
party. If an indemnified party receives notice of a third-party claim for which
it intends to seek indemnification hereunder, it shall give the indemnifying
party prompt written notice of such claim, so that the indemnifying party's
defense of such claim under Section 8(d) hereunder may be timely instituted.
(ii) When Losses are actually incurred or paid by an
indemnified party or on an indemnified party's behalf or otherwise fixed or
determined, the indemnified party shall deliver a Payment Certificate to the
indemnifying party for such Losses. If a Claim Notice or a Payment Certificate
refers to any claim, action, suit, or proceeding made or brought by a third
party, the Claim Notice or Payment Certificate shall include copies of the
claim, any process served, and all legal proceedings with respect thereto. For
purposes of clarification, an indemnified party shall not be required to make
payment on any claim to receive indemnification rights under this Section 8.
(iii) If, after receiving a Payment Certificate, the
indemnifying party desires to dispute such claim or the amount claimed in the
Payment Certificate, it shall deliver to the indemnified party a Counternotice
as to such claim or amount. Such Counternotice shall be delivered within twenty
(20) days after the date the Payment Certificate to which it relates is received
by the indemnifying party. If no such Counternotice is received within the
aforementioned 20-day period, the indemnifying party shall be liable for the
prompt payment of all Losses identified in the Payment Certificate.
10
(iv) If, within twenty (20) days after receipt by the
indemnified party of a Counternotice to a Payment Certificate, the parties shall
not have reached agreement as to the claim or amount in question, the claim for
indemnification shall be decided in accordance with the provisions of Section
15.
(v) With respect to any Losses based upon an asserted
liability or obligation to a person or entity not a party to this Agreement for
which indemnification is being claimed, the obligations of the indemnifying
party hereunder shall not be reduced as a result of any action by the party
furnishing the notice of third party claim responding to such claim if such
action is reasonably required to minimize damages or to avoid a forfeiture or
penalty or to comply with a requirement imposed by law.
d. DEFENSE OF THIRD PARTY CLAIMS. The indemnifying party under this
Section 8 shall have the right to conduct and control, through counsel of its
own choosing reasonably acceptable to the indemnified party, the defense of any
third-party claim, action, or suit or compromise or settlement thereof. If the
indemnifying party assumes the defense, the indemnified party may, at its
election, participate in the defense of any such claim, action, or suit through
counsel of its choosing, but the fees and expenses of such counsel shall be at
the expense of the indemnified party, unless the indemnified party shall have
been advised by such counsel that there may be one or more legal defenses
available to it that are different from or in addition to those available to the
indemnifying party (in which case, if the indemnified party notifies the
indemnifying party in writing that it elects separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of the indemnified party with
respect to such defenses). If the indemnifying party shall fail to defend
diligently any such third-party action, claim, or suit, then the indemnified
party may defend, through counsel of its own choosing, such action, claim, or
suit and may settle such action, claim, or suit and recover from the
indemnifying party all Losses associated therewith including the amount of such
settlement or of any judgment and the costs and expenses of such defense. The
indemnifying party shall not compromise or settle any third-party action, claim,
or suit on terms that that shall require any act or forbearance by the
indemnified party or that do not include a full and complete release of the
indemnified party from all liability in respect of such claim, action, or suit
without the prior written consent of the indemnified party, which shall not be
unreasonably withheld. Assumption by an indemnifying party of control of any
such defense, compromise, or settlement shall not be deemed a waiver by it of
its right to challenge its obligation to indemnify the indemnified party;
provided, however, that in such event, the indemnifying party shall not be
entitled to reimbursement from the indemnified party for the costs incurred in
undertaking such defense. The Buyer and the Sellers shall cooperate in all
reasonable respects with each other in connection with the defense, negotiation,
or settlement of any legal proceeding, claim, or demand referred to in this
Section 8.
e. LIMITATIONS. Any and all claims or demands made under Sections
8(a)(i) or 8(b)(i) must be asserted or threatened within twelve (12) months from
the Closing; provided, however, that the obligation of a party for
indemnification claims for which a Claim Notice is given within the time period
set forth above shall continue until the final resolution of each such claim.
The Buyer shall be entitled to indemnification under Sections 8(a)(i) and (ii)
only when the aggregate amount of all Losses from all claims exceed Twenty-five
Thousand and No/100 Dollars ($25,000.00) (the "THRESHOLD AMOUNT"), provided that
at such time as the aggregate of all such Losses exceeds the Threshold Amount,
the Buyer shall only be entitled to be indemnified for all Losses in excess of
the Threshold Amount, and further provided that the aggregate maximum liability
of the Sellers shall not exceed the face amount of the Preferred Shares
delivered at Closing. At Sellers' option, the indemnification shall be payable
by return of such Preferred Shares on a dollar for dollar basis against the face
amount of the Preferred Shares or by credit against any amount payable (in
reverse chronology) by Buyer under the Notes.
11
f. EXCLUSIVE REMEDY. The sole remedy of Buyer and the Sellers for
breaches of this Agreement shall be claims made in accordance with and subject
to the limitations of this Section 8 and Section 15.
9. Post-Closing Adjustments.
a. No later than December 15, 2004, Buyer shall deliver to Sellers a
certificate (the "Adjustment Date Certificate") listing all Subscribers, each
Significant Account and the number of Subscribers at each Significant Account as
of November 30, 2004 (the "Adjustment Date"). The Purchase Price shall be
further adjusted, as hereinafter provided in this Section 9, upward or downward,
in accordance with the Significant Accounts added or lost as of the Adjustment
Date. A "Significant Account" shall mean a property with 50 or more Subscribers
to which the Company provides programming or services and any property to which
programming or services are provided on a bulk basis. A Significant Account
shall be considered to be ADDED if the Company, or Buyer or its affiliates,
commences providing programming or servicing to such property after Closing and
such property is listed as a Prospect on the Closing Subscriber Certificate
delivered at Closing. A Significant Account shall be considered to be LOST if
the Company, or Buyer or its affiliates, do not provide programming or services
to the property as of the Adjustment Date and the Company's right of entry to
such property terminated as a result of nonrenewal and such property was listed
as a Significant Account on the Closing Subscriber Certificate. The Purchase
Price shall be adjusted upwards by the amount of $430 (Four Hundred and Thirty
Dollars) per Subscriber on the Adjustment Date Certificate at each Significant
Account that has been added since the Closing. The Purchase Price shall be
adjusted downwards by the amount of $430 (Four Hundred and Thirty Dollars) per
Subscriber on the Closing Date Certificate at each Significant Account that has
been lost since the Closing. All adjustments shall be effectuated on the Second
Closing Date as provided in Section 9(d).
b. Buyer shall use reasonable good faith efforts to maintain and
renew, as applicable, the Company's right of entry and other agreements with
Significant Accounts through the Adjustment Date. At Buyer's request, Sellers
shall contact Significant Accounts to assist Buyer in maintaining or renewing
such agreements (provided that Sellers shall not be required to incur any
expense in providing such assistance). Buyer further agrees to use reasonable
good faith efforts to conclude negotiations with Prospects sufficiently in
advance of the Adjustment Date so as to permit subscribers at such Prospects to
be included on the Adjustment Date Certificate; provided that Buyer may elect
not to pursue agreements with any Prospect and shall give notice to Sellers if
it abandons its efforts to do so. The subscribers or units shall be included on
the Adjustment Date Certificate if the Prospect has entered into a written right
of entry agreement with the Company (or orally agreed to accept programming or
services from the Company) on a bulk basis even if the programming or services
have not yet been made available or payments in connection therewith been made.
12
c. Notwithstanding the provisions of Section 9(a), Sellers shall be
entitled to an upwards adjustment to the Purchase Price only if and to the
extent that the total monthly revenues of the Company for the month ending on
the Adjustment Date ("Adjustment Date Monthly Revenues") are equal to or greater
than the product of (i) the sum of the Closing Baseline plus the net number of
Subscribers added pursuant to Section 9(a) and (ii) $22; and the net number of
added Subscribers used for purposes of calculating an upwards Purchase Price
adjustment shall be reduced accordingly to the highest number which will satisfy
the foregoing formula. Calculation of the Adjustment Date Monthly Revenues shall
be done on an accrual basis consistent with the Company's prior accounting
practices, provided that included in total revenues, without duplication, shall
be (A) the greater of (x) the Company's actual DirecTV "activation subsidies"
for the month and (y) $41,250 and (B) an amount equal to the anticipated monthly
revenues expected to be generated from or in connection with Subscribers
associated with Prospects included as Significant Accounts in the Adjustment
Date Certificate from which the Company is not yet receiving full payments. In
addition, in the event that business decisions by the Company cause a material
decrease in the Company's monthly revenues per Subscriber, the Adjustment Date
Monthly Revenues shall be adjusted upward to reflect the effect of any such
decisions. On or before December 15, 2004, Buyer shall provide a certificate
setting forth the Adjustment Date Monthly Revenues and any adjustments required
by the preceding sentence. Sellers shall have access to all of Company's and
Buyer's records in order to verify the accuracy of the foregoing calculations.
d. Except as set forth in this Section 9, no other adjustment shall
be made as a result of an increase or decrease in the number of Subscribers
after the Closing Date. On the Second Closing Date, Sellers shall deliver
certificates or other documentation reflecting transfer to Buyer of the
remaining 20% of the Membership Interests in the Company owned by Sellers and
Buyer shall make the payment required pursuant to section 1(c). In addition, the
Purchase Price adjustment referred to in this Section 9 (i) if upward, shall be
added to the principal outstanding on the Note, if any, and if there shall be no
such principal then outstanding same shall be applied to and paid in accordance
with the terms of the Adjustment Note to be signed by Buyers and delivered to
Sellers and (ii) if downward, shall be effectuated by reduction first, to any
cash to be paid by Buyer pursuant to the preceding sentence and, then, to the
principal amount remaining outstanding on the Note and, if there shall be a
further reduction required, by mandatory surrender of Preferred Shares in a
corresponding amount.
13
10. Other Covenants.
a. Accounts Receivable. For so long as any payment obligation under
the Notes remains unpaid, Buyer shall cause the Company to maintain its bank
accounts at Xxxxxx United Bank and BancOne, and no others, and shall cause
Company to direct to and deposit in such accounts any and all revenues payable
to the Company. Sellers shall be entitled to all and any collections of the
Closing Accounts Receivable. Upon receipt of any payment for a Closing Account
Receivable, Company shall promptly and in any event at least monthly account for
and deliver such payment to Sellers. Payments of accounts receivable shall be
applied by the Company and Buyer first to undisputed Closing Accounts Receivable
and then to other receivables of the payor. Buyer shall promptly advise Sellers
of any notice that a Closing Account Receivable is in dispute. The parties shall
cooperate with each other to maximize the collection of receivables after
Closing and Company and Buyer shall not compromise or settle any Closing
Accounts Receivable without the prior written consent of Sellers.
b. Employees. Company shall remain obligated with respect to the
employment agreement listed on Schedule 2(e). If the Buyer or Company
terminates, for any reason other than cause based on poor performance or
misconduct, the employment of any other individual currently employed by the
Company during the first year after the Closing, Buyer agrees to provide any
such terminated employee with severance equal to 60 days' salary for each year
of employment with the Company. In connection with such severance payments, if
any, paid pursuant to the preceding sentence to the four employees listed on
Schedule 10(b), Sellers shall reimburse the Company or Buyer, as appropriate,
for any amount paid to the listed employees in excess of $50,000 dollars up to a
maximum severance amount of $100,000 dollars and for 50% of any severance paid
in excess of $100,000 dollars.
c. Taxes/Access to Records. Sellers shall be entitled to all losses
or other income tax credits attributable to the Company's operations during the
period from January 1, 2004 through the Closing Date. After the Closing, Buyer
will give Sellers and their financial advisors, legal counsel, independent
accountants and other representatives reasonable access during normal business
hours to such records and employees of the Company, and will furnish Sellers
with copies of such documents and with such information with respect to the
Company and its operations as Sellers may reasonably request in order for
Sellers to complete tax returns for the period from January 1, 2004 through the
Closing Date, to verify information relating to Closing Accounts Receivable and
any Post-Closing Adjustment and from time to time while in effect to verify
compliance with the Pledge and Security Agreement and Company Security
Agreement.
d. Piggyback Registration. Commencing on January 6, 2005, if Buyer
at any time proposes to register under the Securities Act of 1933 (the "Act")
any of its securities other than on Forms S-4 or Form S-8 or their then
equivalents, Buyer will give written notice to Sellers and all holders of the
Preferred Shares or Common Stock acquired pursuant to conversion of Preferred
Shares of its intention to do so, and on the written request of any such holder,
Buyer will cause to be included in the registration statement proposed to be
filed by the Buyer all shares of Common Stock underlying the conversion of the
Preferred Shares designated for inclusion in the holders' notice. With respect
to each inclusion of securities in a registration statement pursuant to this
section, the selling holders shall pay the fees and disbursements of their own
counsel, and underwriting discounts or commissions and transfer taxes applicable
to the selling holders' shares if included in the sale, and the Buyer shall pay
all other costs and expenses of the registration, including but not limited to
all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Buyer, all internal expenses,
and legal fees and disbursements and other expenses of complying with state
securities laws of any jurisdictions in which the securities to be offered are
to be registered or qualified. Upon the exercise of registration rights pursuant
hereto, each holder agrees to supply the Buyer with such information requested
by Buyer as may be required by the Buyer to register or qualify the shares to be
registered. Buyer and any holder exercising registration rights hereby agree in
connection therewith to be subject to the indemnification, contribution and
related provisions set forth on Exhibit D attached hereto. The registration
rights hereunder shall expire two years after the Closing.
14
e. Other Actions. Each party shall, at the request of any other
party, whether before or after the Closing, execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary for effecting completely the consummation of this Agreement and the
transactions herein contemplated.
f. Non-Compete.
(i) Sellers each agree that for a period of three years from
the date of this Agreement, said Sellers shall not, directly or indirectly,
solicit a Subscriber or Significant Account on the Closing Subscriber
Certificate and/or the Adjustment Date Certificate for the purpose of providing
DirecTV or American programming; provided, however that Buyer acknowledges that
Sellers are affiliated with Russian Media Group, LLC (together with its
affiliated entities excluding the Company, "RMG") which produces and distributes
Russian language and other (including American) programming throughout North
America. Nothing herein is intended to or shall restrict the activities of RMG
or of any Seller on behalf of RMG. In addition, Sellers shall be free to pursue
transactions with Prospects abandoned by Buyer. The provisions of this Section
10(f)(i) shall automatically terminate if Buyer is in default in any material
respect, beyond any applicable cure period, of any provision of this Agreement
or any of the other agreements delivered at the Closing or Second Closing.
15
(ii) Buyer understands and acknowledges that at certain
properties at which the Company provides satellite television programming
services, RMG provides Russian-language television programming, and that the
Company and RMG may jointly provide service under the same right of entry
agreement and may jointly utilize the satellite signal distribution system in
place at such properties. Buyer covenants that it and the Company will not
interfere with RMG's Russian-language television programming services at any of
such properties, nor offer any competing Russian-language television programming
(other than Russian-language programming that may be offered by DIRECTV) at any
of such properties, and will permit and cause the Company to permit RMG to offer
its Russian-language television programming pursuant to any new right of entry
agreements obtained by the Company or by Buyer or its affiliates, at any of such
properties; provided that notwithstanding anything to the contrary contained in
clause (i) above, RMG shall agree not to provide DIRECTV or other American
television programming at any of such properties. Buyer, Company and RMG on or
prior to Closing shall have entered into a cross-license agreement, reflecting
the foregoing understandings, in the form attached hereto as Exhibit H.
g. Preserve Business and Collateral. From and after the Closing and
until all obligations under the Notes have been paid in full, Buyer shall at all
times act in good faith and operate Company and Company's business so as to (i)
maintain and renew the Company's business relationships with Subscribers and
Significant Accounts and (ii) preserve and increase the value of any collateral
granted at Closing to Sellers.
h. Other Agreements. Buyer shall comply with and shall take all such
actions as may be necessary so that it and Company remain at all times in
compliance with, the terms and conditions applicable to each under the Company's
Articles of Organization and Amended and Restated Operating Agreement (as in
effect as of the Closing), the Notes, the Pledge and Security Agreement, the
Company Security Agreement and the Registration Rights Agreement.
(i). Repurchase Right. For so long, as the Notes remain
outstanding and unpaid, the Membership Interests [certificates] shall be held in
escrow in accordance with the Escrow Agreement and release of the Membership
Interests shall be subject to the terms of the Escrow Agreement and of the
Pledge and Security Agreement. If an Event of Default occurs under the Notes, in
addition to any other rights of Sellers under the Notes, hereunder or in any
security agreement, and provided the default giving rise thereto shall have
remained uncured for thirty (30) days after the date on which Sellers first gave
notice to Buyer of such default, Sellers shall have the right, exercisable in
their sole discretion at any time thereafter upon written notice to Buyer and
the escrow agent, to the return of their Membership Interests and all related
rights (the "Repurchase Right"). In consideration therefor, Sellers shall pay to
Buyer the repurchase price (the "Repurchase Price"), calculated in the manner
and subject to terms set forth in Exhibit I attached hereto and in the Escrow
Agreement. The transfer of Membership Interests to the Sellers shall be
effective and recorded on the books of the Company immediately upon delivery of
the notice of exercise of the Repurchase Right to escrow agent and the
Repurchase Price shall be payable to Buyer in accordance with the Escrow
Agreement. The Repurchase Right shall expire on January 6, 2005, without
affecting any other rights or remedies available at any time to Sellers, if all
payments due to Sellers from Buyer at any time up to and including January 5,
2005 shall have been made and there shall be as of January 6, 2005 no
outstanding past due obligation of Buyer to Sellers; provided that if the
payment date for an obligation due to be paid on or prior to January 5, 2005
shall be extended, deferred, delayed or otherwise changed to a later date, then
the expiration of the Repurchase Right shall occur only on the first day after
such later date and only if all payments then due shall have been made by the
later date; and further provided that if any payment made by Buyer on or prior
to expiration of the Repurchase Right is recovered by Buyer in any bankruptcy or
insolvency proceeding then the Repurchase Right shall be reinstated, Buyer and
Sellers agree that, should the Sellers exercise the Repurchase Right, Sellers
shall suffer substantial and direct damages resulting from Buyer's defaults,
including without limitation, disruptions to the Company's business and to the
relationships among the Company and Sellers and their customers, employees,
joint venture parties and property owners, DirectTV and other suppliers; the
loss of amounts paid to joint venture parties in connection with this
transaction; the adverse tax consequences resulting from the sale and repurchase
of the Membership Interests; the difficulty in ascertaining the status of the
Company's satellite distribution systems at the Company's properties throughout
the country and the expenditures, labor and time needed to effectuate necessary
repairs to any of such systems; costs to reestablish the business infrastructure
necessary to enable them to assume operations of the Company. Buyer and Sellers
further agree that they have taken into account the parties' best good faith
estimates of a portion of such damages (others being difficult to calculate or
estimate) at the time of entering this Agreement and the Repurchase Price
reflects a fair repurchase price for both parties in the event Sellers, in their
sole discretion, elect to exercise the Repurchase Right.
16
11. Brokers and Finders Fees; Other Fees.
a. Sellers represent and warrant to Buyer that Sellers have not
incurred any obligation or liability, contingent or otherwise, for brokerage or
finder's fees or financial advisory fees, brokerage fees, agent's commissions or
other like payment in connection with this Agreement or the transactions
contemplated hereby. Sellers agree to indemnify and hold Buyer harmless against
and in respect of any such claim, obligation or liability in any way arising out
of or relating to this Agreement or the transactions contemplated hereby or to
agreements, arrangements or understandings claimed to have been made by or on
behalf of Sellers with any third party.
b. Buyer represents and warrants to Sellers that, except as set
forth in this Section 10(b), Buyer has not incurred any obligation or liability,
contingent or otherwise, for brokerage or finder's fees or financial advisory
fees, brokerage fees, agent's commissions or other like payment in connection
with this Agreement or the transactions contemplated hereby. Buyer agrees to
indemnify and hold Sellers harmless against and in respect of any such claim,
obligation or liability in any way arising out of or relating to this Agreement
or the transactions contemplated hereby or to agreements, arrangements or
understandings claimed to have been made by or on behalf of Buyer with any third
party. Buyer has retained Paradigm Marketing and Xxx Xxxxxxx to provide advisory
and other services in connection with the transactions contemplated hereby and
Buyer shall be solely responsible for and shall indemnify and hold Sellers
harmless against any claim for fees of any kind payable to Paradigm Marketing,
Xxx Xxxxxxx and affiliates.
17
12. Termination. This Agreement may be terminated at any time prior to the
Closing Date, as follows:
a. by mutual consent of the Buyer and the Sellers;
b. by either the Buyer or the Sellers alone (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant, or agreement contained in this Agreement) if there has been
a breach of any representation, warranty, covenant, or agreement that has a
material adverse effect on the benefits of the transaction provided for in this
Agreement, and such breach has not been cured, or reasonable efforts which are
likely to cure the breach are not being employed to cure such breach, within ten
(10) days after notice thereof is given to the party committing such breach;
c. by either the Buyer or the Sellers alone if the Closing Date has
not occurred on or before July 31, 2004;
d. by either Buyer or the Sellers alone if any permanent injunction
or other order of a court or other competent authority preventing the
transactions contemplated by this Agreement shall have become final and
non-appealable.
The provisions of Sections 8, 11, 12, 13, 14, 15 and 16 shall survive any
termination of this Agreement.
13. Entire Agreement and Modifications; Severability. No representations,
promise, inducement, or statement of intention has been made by the Sellers or
Buyer which is not embodied in this Agreement or in the exhibits or other
documents delivered pursuant hereto or in connection with the transaction
contemplated hereby, and neither the Sellers nor Buyer shall be bound by or
liable for any alleged representation, promise, inducement, or statement of
intention not so set forth. This Agreement may be modified or amended only by
written instrument signed by each of the parties hereto. If any term or other
provision of this Agreement is determined to be invalid, illegal, or incapable
of being enforced by any rule of law or public policy, all other terms and
provisions of the Agreement shall remain in full force and effect. Upon such
determination, the parties hereto shall negotiate in good faith to modify this
Agreement so as to give effect to the original intent of the parties to the
fullest extent permitted by applicable Law.
18
14. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns.
15. Governing Law; Arbitration. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Minnesota, applicable to
contracts executed in and to be performed entirely within that state (without
giving effect to its principles of conflicts of laws). Any dispute between the
parties under this Agreement shall be submitted to final and binding arbitration
in New York City which arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator shall be knowledgeable in the subject matter and area of law relating
to the dispute and shall not have the power to alter, amend or otherwise affect
the terms of this Agreement or any other documents that are executed in
connection herewith or therewith. The final decision of the arbitrator shall be
a reasoned opinion based on the applicable law and furnished in writing to the
parties and will constitute a conclusive determination of the issue in question,
binding on the parties. Any judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction over the subject matter thereof.
The prevailing party in any arbitration shall be entitled to an award of
reasonable attorney's fees and costs, and all costs of arbitration will be paid
by the losing party, subject in each case of to determination by the arbitrator
as to which party is the prevailing party and the amount of such fees and costs
to be allocated to such party.
16. Notices. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or three
business days after being mailed by first class U.S. mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Buyer or Seller will, unless another address is specified in writing, be sent to
the address indicated below:
19
--------------------------------------------------------------------------------
NOTICES TO SELLER: WITH A COPY TO:
--------------------------------------------------------------------------------
c/o Xx. Xxxxx X. Xxxxx Xxxxx & Xxxxxxx, P.C.
000 Xxxxxxxx Xxxxxx 000 Xxxxxxxxx Xxxxxx
X.X. Xxx 000 Xxxxx 000
Xxxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Telecopy: (000) 000-0000 Telecopy: 212-661-2446
Att'n: Xxxxxx Xxxxx, Esq.
--------------------------------------------------------------------------------
NOTICES TO BUYER: WITH A COPY TO:
--------------------------------------------------------------------------------
Xx. Xxx Xxxxxx Mr. Xxxxxx Xxxx
Vicom, Inc. Vicom, Inc.
0000 Xxxxxxx Xxxxxx Xxxxx 0000 Xxxxxxx Xxxxxx Xxxxx
Xxx Xxxx, Xxxxxxxxx 00000 Xxx Xxxx, Xxxxxxxxx 00000
Telecopy: 000-000-0000 Telecopy: 000-000-0000
--------------------------------------------------------------------------------
17. Interpretation. When a reference is made in this Agreement to Sections
or Exhibits, such reference shall be to a Section or Exhibit to this Agreement
unless otherwise indicated. The words "INCLUDE", "INCLUDES", and "INCLUDING"
when used therein shall be deemed in each case to be followed by the words
"WITHOUT LIMITATION". The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. This Agreement has been negotiated by the respective parties
hereto and their attorneys and the language hereof will not be construed for or
against either party. A reference to a Section or an Exhibit will mean a section
in, or exhibit to, this Agreement unless otherwise explicitly set forth.
18. Reliance. Sellers have appointed Xxxxx X. Xxxxx as their agent and
nominee, in any all respects, to represent their interests hereunder and Buyer
may rely upon any act of such agent and nominee on behalf of the Sellers as if
each of the Sellers had taken such action themselves.
20
19. Counterparts. This Agreement may be executed in one or more
counterparts (including via facsimile transmission), all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to each
the other parties, it being understood that all parties need not sign the same
counterpart.
IN WITNESS WHEREOF, THE SELLERS AND BUYER HAVE EXECUTED OR CAUSED THIS AGREEMENT
TO BE EXECUTED BY THEIR DULY AUTHORIZED REPRESENTATIVES AS OF THE DATE FIRST
WRITTEN ABOVE.
BUYER SELLERS
VICOM, INCORPORATED
--------------------------- ---------------------------
By: Xxxx X. Xxxxx
Its:
---------------------------
Xxxxx X. Xxxxx
---------------------------
Xxxxxxx Xxxx
---------------------------
Xxxxxxxx X. Xxxxx
---------------------------
Xxxxxxx X. Xxxxx, Xx.
21
