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AGREEMENT AND PLAN OF MERGER
AMONG
DUALSTAR TECHNOLOGIES CORPORATION,
DCI ACQUISITION CO.,
and
PARACOMM, INC.
Dated as of May 10, 2000
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS...........................................................................1
1.1 Definitions...........................................................................1
ARTICLE II THE MERGER............................................................................6
2.1 The Merger............................................................................6
2.2 Effective Time........................................................................6
2.3 Closing...............................................................................6
2.4 Directors and Officers................................................................7
ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS............7
3.1 MergerCo Common Stock.................................................................7
3.2 Merger Consideration..................................................................7
3.3 Target Common Stock...................................................................8
ARTICLE IV PAYMENT FOR SHARES; REGISTRATION RIGHTS; LOCK-UP; DISSENTING SHARES...................8
4.1 Payment for Shares of Target Common Stock.............................................8
4.2 Registration Rights...................................................................9
4.3 Lock-Up; Voting Agreement.............................................................9
4.4 Appraisal Rights.....................................................................10
4.5 Post-Closing Adjustments.............................................................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF DUALSTAR AND MERGERCO..............................12
5.1 Corporate Organization...............................................................12
5.2 Authority for Transaction............................................................12
5.3 No Consent...........................................................................12
5.4 Brokerage or Finder's Fees...........................................................12
5.5 Exchange Act Reports and Financial Statements........................................13
5.6 Litigation...........................................................................13
5.7 Capitalization.......................................................................13
5.8 Absence of Certain Developments......................................................14
5.9 Blackacre Agreements.................................................................14
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5.10 Material Misstatements or Omissions..................................................14
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF TARGET.............................................14
6.1 Corporate Organization...............................................................14
6.2 Authority for Transaction............................................................14
6.3 No Consent...........................................................................15
6.4 Financial Statements.................................................................15
6.5 Liabilities..........................................................................15
6.6 Absence of Material Adverse Change...................................................15
6.7 Title to Assets; Leases..............................................................15
6.8 Accounts Receivable..................................................................16
6.9 Contracts and Commitments............................................................16
6.10 Indebtedness.........................................................................16
6.11 Intellectual Property................................................................16
6.12 Taxes................................................................................17
6.13 Litigation...........................................................................17
6.14 Labor and Employee Relations.........................................................18
6.15 Employee Benefit Plans...............................................................18
6.16 Compliance with Laws.................................................................18
6.17 Environmental Matters................................................................19
6.18 Land Use.............................................................................19
6.19 Joint Ventures.......................................................................20
6.20 Insurance............................................................................20
6.21 Books and Records....................................................................20
6.22 Powers of Attorney...................................................................20
6.23 No Guarantees........................................................................20
6.24 Brokerage and Finder's Fees..........................................................20
6.25 Material Misstatements or Omissions..................................................20
6.26 Company Subsidiaries.................................................................20
6.27 Capitalization.......................................................................20
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6.28 Rights of Entry; Subscribers.........................................................21
ARTICLE VII ADDITIONAL AGREEMENTS................................................................22
7.1 Stockholders'Action..................................................................22
7.2 Additional Agreements................................................................22
7.3 Fees and Expenses....................................................................22
7.4 Tax Treatment........................................................................22
7.5 Access to Information................................................................22
7.6 Public Announcements.................................................................23
7.7 Employee Benefit Arrangements........................................................23
7.8 Notification.........................................................................23
ARTICLE VIII CONDITIONS TO THE MERGER.................................................................23
8.1 Conditions to the Obligations of Each Party to Effect the Merger.....................23
(a) Stockholder Approval........................................................23
(b) Regulatory Approvals........................................................23
(c) No Injunctions, Orders or Restraints; Illegality............................24
(d) Escrow Agreement............................................................24
8.2 Conditions to Obligations of DualStar and MergerCo...................................24
(a) Representations and Warranties..............................................24
(b) Performance and Obligations of Target.......................................24
(c) Consents, Etc...............................................................24
(d) No Injunction...............................................................24
(e) Material Adverse Change.....................................................24
(f) Resignations................................................................24
(g) Opinion of Counsel..........................................................25
(h) Registration Rights and Lock-Up Agreement...................................25
(i) Voting Agreement............................................................25
(j) Other Deliveries............................................................25
(k) Consents Under Contracts....................................................25
(l) Employment Agreements.......................................................25
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8.3 Conditions to Obligations of Target and the Stockholders.............................25
(a) Representations and Warranties..............................................25
(b) Performance of Obligations of DualStar and MergerCo.........................25
(c) Opinion of Counsel..........................................................25
(d) Material Adverse Change.....................................................25
(e) Registration Rights and Lock-Up Agreement...................................25
(f) Voting Agreement............................................................26
(g) Employment Agreements.......................................................26
(h) Consents, Etc...............................................................26
(i) Other Deliveries............................................................26
ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION..........................26
9.1 Survival of Representations and Warranties...........................................26
9.2 Indemnification......................................................................26
(a) Agreement to Indemnify......................................................26
(b) Expiration of Indemnification...............................................26
(c) Hold Back Escrow............................................................27
(d) Claims Upon Hold Back Escrow................................................27
(e) Resolution of Conflicts; Arbitration........................................27
(f) Distribution of Hold Back Escrow Upon Termination of Hold Back Period.......28
(g) Third Party Claims..........................................................28
(h) Apportionment of Liability; Maximum Liability...............................29
(i) Remedies....................................................................29
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ARTICLE X MISCELLANEOUS........................................................................30
10.1 Amendment............................................................................30
10.2 Notices..............................................................................30
10.3 Entire Agreement; No Third-Party Beneficiaries; Section Headings.....................31
10.4 Confidentiality......................................................................31
10.5 Assignment...........................................................................32
10.6 Applicable Law.......................................................................32
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LIST OF SCHEDULES AND EXHIBITS
Schedule 4.3 -- Cashed Stockholders Party to the Voting
Agreement
Schedule 6.5 -- Liabilities
Schedule 6.7(a) -- Liens
Schedule 6.7(b) -- Leases
Schedule 6.9 -- Contracts and Commitments
Schedule 6.10 -- Indebtedness
Schedule 6.11 -- Intellectual Property
Schedule 6.13 -- Target Litigation
Schedule 6.14 -- Labor and Employee Relations
Schedule 6.15 -- Employee Benefit Plans
Schedule 6.17 -- Environmental Matters
Schedule 6.20 -- Insurance
Schedule 6.26 -- Company Subsidiaries
Schedule 6.27 -- Equity Holders
Schedule 6.28(a)-1 -- MDUs - 50+ Units
Schedule 6.28(a)-2 -- MDUs - 11-49 Units
Schedule 6.28(a)-3 -- MDUs - 1-10 Units
Schedule 6.28(a)-4 -- MDUs - Trailer and Mobile Home Parks
Schedule 6.28(b) -- Subscribers
Schedule 7.7 -- At-Will Employees
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Form of Employment Agreement
Exhibit C -- Form of Registration Rights and Lock-Up
Agreement
Exhibit D -- Form of Voting Agreement
Exhibit E -- Form of Warrant
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made this 10th
day of May, 2000, by and among PARACOMM, INC., a Delaware corporation having its
principal office at 000 X. Xxxxxxx 00, Xxxxx 0, Xxxxxxxx, Xxxxxxx 00000
("Target"), DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation having its
principal office at Xxx Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("DualStar") and
DCI ACQUISITION CO., a Delaware corporation and wholly-owned subsidiary of
DualStar ("MergerCo").
RECITALS:
WHEREAS, the respective Boards of Directors of MergerCo and DualStar
have approved the merger of MergerCo with and into Target (the "Merger") in
accordance with the Delaware General Corporation Law (the "Delaware Corporation
Law") upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of Target has, in light of and subject
to the terms and conditions set forth in this Agreement, determined that the
Merger is in the best interests of Target and its stockholders, and resolved to
approve and adopt this Agreement and the transactions contemplated by this
Agreement, including the Merger (collectively, the "Transactions"), and to
recommend approval and adoption by the stockholders of Target of this Agreement
and the Transactions; and
WHEREAS, DualStar, MergerCo and Target desire to make certain
representations, warranties, covenants and agreements in connection with the
Transactions, and also to prescribe various conditions to the Transactions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, DualStar, MergerCo and Target agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Unless the context requires a different meaning, the
following terms have the meaning, or are defined in the Section of this
Agreement, indicated below:
"Affiliate" - as to any party, any Person directly or indirectly
controlling, controlled by, or under common control with, such party. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling," "controlled by," and under "common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" - Section 4.5(b).
"Agreement" - introductory paragraph.
"At-Will Employees" - Section 7.7.
"Blackacre" - Section 5.9.
"Blackacre Agreements" - Section 5.9.
"Blackacre Parties" - Section 2.1(b) of the Registration Rights and
Lock-Up Agreement.
"Bylaws" - Section 2.1.
"Cashed Shares" - Section 4.1(b).
"Cashed Stockholder(s)" - Section 4.1(b).
"Certificate of Incorporation" - Section 2.1.
"Certificate of Merger" - Section 2.2.
"Class A Cashed Shares" - Section 4.1(b).
"Class B Cashed Shares" - Section 4.1(b).
"Class A Stock Consideration" - Section 3.2(a)(i).
"Class B Stock Consideration" - Section 3.2(b)(i).
"Closing" - Section 2.3.
"Closing Date" - Section 2.3.
"Code" - Section 7.4.
"Common Certificates" - Section 4.1(a).
"Contract Employees" - Xxx Xxxxxxx and Xxxx Xxxxxxx, each of whom shall
be required to enter into an Employment Agreement with the Surviving
Corporation.
"Delaware Corporation Law" - Recitals.
"Dissenting Shares" - Section 4.4(a).
"DualStar" - introductory paragraph.
"DualStar SEC Reports" - any document filed by DualStar with the SEC.
"DualStar Stock" - Section 3.2.
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"Effective Time" - Section 2.2.
"Employee" - Section 6.14.
"Employee Benefit Plans" - Section 6.15.
"Employment Agreements" - the Employment Agreements by and between the
Surviving Corporation and each of the Contract Employees, which Employment
Agreements shall be in substantially the form attached hereto as Exhibit B.
"Environmental Laws" - Section 6.17(a).
"ERISA" - the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" - Section 9.2.
"Escrow Agreement" - that certain Escrow Agreement of even date
herewith, relating to the Hold Back Escrow, among DualStar, the Agent and the
Escrow Agent, in substantially the form attached hereto as Exhibit A.
"Exchange Act" - Section 5.5.
"Financial Statements" - Section 6.4.
"GAAP" - generally accepted accounting principles in effect from time
to time within the United States.
"Governmental Authority" - the government of any nation, state, city,
locality or other political subdivision of any of the foregoing, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Hold Back Escrow" - Section 9.2(c).
"Hold Back Period" - Section 9.2(c).
"Injunction" - Section 8.1(c).
"Intellectual Property" - Section 6.11(a).
"Knowledge" - Target will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) any officer or director thereof is actually aware of such fact or
other matter; or
(b) any of Xxxxxx Xxxxxxx, Xxxxxx Xxxxxxx or Xxxx Xxxxxxx would, as a
prudent individual, be expected to discover or otherwise become aware of such
fact or
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other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
Each of DualStar and MergerCo will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) any officer or director thereof is actually aware of such
fact or other matter; or
(b) any officer or director thereof would, as a prudent
individual, be expected to discover or otherwise become aware of such fact or
other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
"Lien" - any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding Target Common Stock and equity related preferences)
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a capital lease, or any financing lease having substantially the
same economic effect as any of the foregoing, but in each above case excluding
Permitted Liens.
"Loss(es)" - Section 9.2(a).
"Material Adverse Effect" - any effect that is or is reasonably likely
to be materially adverse to a Person or its business, taken as a whole, except
for effects due to general economic conditions or changes in regulatory
conditions affecting the wireless or satellite cable industry generally.
"MDU" - means each dwelling unit contained in any house or building
containing two or more dwelling units, as well as each dwelling unit contained
in any apartment building complex, condominium or cooperative housing
development, mobile home or trailer park or other multi-family dwelling unit
building complex, as to which Target has a right of entry ("XXX") to provide
subscription, wireless or satellite cable television services , including, if
identified on Schedule 6.28(a)-1, 6.28(a)-2, 6.28(a)-3 or 6.28(a)-4, units under
construction or to be constructed.
"MDU Unit Threshold" - 18,237 MDU units.
"Merger" - Recitals.
"Merger Consideration" - Section 3.2.
"MergerCo" - introductory paragraph.
"Officer's Certificate" - Section 9.2(d).
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"Permitted Liens" - (a) materialmen's, mechanic's, carriers', or other
like liens arising in the ordinary course of business, or deposits to obtain the
release of such liens, (b) liens for current taxes not yet due and payable; (c)
liens to be released at or prior to Closing; and (d) in the case of the real
estate owned or real property leased or easements or rights of way (including
ROEs) included within Target's assets, (i) the terms of such leases, easements
or rights-of-way (including ROEs), (ii) municipal and zoning ordinances, (iii)
standard (printed) title insurance exceptions, (iv) easements for public
utilities and recorded building and use restrictions and covenants and other
restrictions and title imperfections which do not materially interfere with the
present use of or materially detract from the value of the property, and (v) in
the case of leased property, any rights of or security interests held by lenders
to the owners of such leased property.
"Person" - any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Post Closing Adjustment Statement" - Section 4.5(b).
"Premises" - Section 6.18.
"Proxy Statement" - Section 4.3(b).
"Registration Rights and Lock-Up Agreement" - that certain Registration
Rights and Lock-Up Agreement among DualStar and each of the stockholders
receiving the Merger Consideration, of even date herewith, in substantially the
form attached hereto as Exhibit C.
"XXX" - definition of MDU.
"SEC" - Securities and Exchange Commission or any successor regulatory
authority thereto.
"Stock Consideration" - Section 3.2(b)(i).
"Stock Consideration Adjustment" - Section 4.5(a).
"Subscriber Threshold" - 2,693 Subscribers.
"Subscribers" - Section 6.28(b).
"Surviving Corporation" - Section 2.1.
"Target" - introductory paragraph.
"Target Class A Stock" - the shares of Target's Class A Common Stock,
$0.01 par value per share.
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"Target Class B Stock" - the shares of Target's Class B Common Stock,
$0.01 par value per share.
"Target Common Stock" - the Target Class A Stock and the Target Class B
Stock, collectively.
"Tax" - Section 6.13.
"Transactions" - Recitals.
"Voting Agreement" - that certain Voting Agreement of even date
herewith among DualStar and each of the Cashed Stockholders set forth on
Schedule 4.3, in substantially the form attached hereto as Exhibit D.
"Warrant(s)" - Section 3.2(a)(ii).
ARTICLE II
THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, Target and MergerCo shall consummate the Merger pursuant
to which (a) MergerCo shall be merged with and into Target, and the separate
corporate existence of MergerCo shall thereupon cease, (b) Target shall be the
surviving corporation in the Merger (sometimes referred to in this Agreement as
the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Delaware and (c) the separate corporate existence of Target with
all its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The certificate of incorporation, as amended, of
Target (the "Certificate of Incorporation"), as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Certificate of
Incorporation, and the bylaws of Target (the "Bylaws") as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law, such Certificate of Incorporation
and such Bylaws. The Merger shall have the effects specified in the Delaware
Corporation Law.
2.2 Effective Time. At the Closing, after all of the conditions set
forth in Article VIII shall have been satisfied or, if permissible, waived by
the party entitled to the benefit of same, MergerCo and Target shall duly
execute and file a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in accordance with the Delaware
Corporation Law. The Merger shall become effective at such time as the
Certificate of Merger, accompanied by payment of the applicable filing fee, has
been examined by and received the endorsed approval of the Secretary of State of
the State of Delaware (the "Effective Time").
2.3 Closing. The closing of the Merger (the "Closing") shall take place
upon the execution of this Agreement (the "Closing Date"), at the offices of
Day, Xxxxx &
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Xxxxxx LLP, Xxx Xxxxxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxxxxxx 00000, unless another
date or place is agreed to by the parties.
2.4 Directors and Officers. The directors and officers of MergerCo
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
Notwithstanding the foregoing, Xxxxxx Xxxxxxx shall be the initial President of
the Surviving Corporation, to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
As of the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Target Common Stock or any
shares of capital stock of MergerCo:
3.1 MergerCo Common Stock. Each share of common stock, par value $.01
per share, of MergerCo issued and outstanding immediately prior to the Effective
Time shall be converted into one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation following the
Merger.
3.2 Merger Consideration. Each share of Target Common Stock issued and
outstanding immediately prior to the Effective Time (other than (x) shares owned
by Target and (y) Dissenting Shares) shall be converted into the right to
receive the following consideration (collectively, the "Merger Consideration"),
upon surrender and exchange of the Common Certificate (as hereinafter defined)
representing such shares of Target Common Stock:
(a) Each share of Target Class A Stock shall be converted into the
right to receive:
(i) that number of shares of common stock, $.01 par value per
share, of DualStar (the "DualStar Stock") equal to 365,690, divided by the total
number of outstanding shares of Target Class A Stock (other than shares owned by
Target), i.e., 72.5 shares of DualStar Stock per share of Target Class A Stock
(the "Class A Stock Consideration"); and
(ii) a warrant (each a "Warrant" and, collectively, the
"Warrants") to purchase that number of shares of DualStar Stock equal to 11,796,
divided by the total number of outstanding shares of Target Class A Stock (other
than shares owned by Target) in the form attached hereto as Exhibit E.
(b) Each share of Target Class B Stock shall be converted into the
right to receive:
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(i) that number of shares of DualStar Stock equal to 409,310,
divided by the total number of outstanding shares of Target Class B Stock (other
than shares owned by Target), i.e., 82.589 shares of DualStar Stock per share of
Target Class B Stock (the "Class B Stock Consideration," and together with the
Class A Stock Consideration, collectively, the "Stock Consideration"); and
(ii) a Warrant to purchase that number of shares of DualStar
Stock equal to 13,204 divided by the total number of outstanding shares of
Target Class B Stock (other than shares owned by Target) in the form attached
hereto as Exhibit E.
3.3 Target Common Stock. All such shares of Target Common Stock, when
converted as provided in Section 3.2, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each Common
Certificate previously evidencing such shares shall thereafter represent only
the right to receive the applicable Merger Consideration. The holders of Common
Certificates previously evidencing shares of Target Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to the Target Common Stock except as otherwise provided in this
Agreement or by law and, upon the surrender of Common Certificates in accordance
with the provisions of Section 4.1, shall only represent the right to receive
for their shares of Target Common Stock, the applicable Merger Consideration,
without any interest thereon.
ARTICLE IV
PAYMENT FOR SHARES; REGISTRATION RIGHTS;
LOCK-UP; DISSENTING SHARES
4.1 Payment for Shares of Target Common Stock.
(a) Prior to the Closing Date, Target, at the request of DualStar,
shall have mailed to each record holder of certificates (the "Common
Certificates") that immediately prior to the Effective Time represented shares
of Target Common Stock a form of letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Common
Certificates shall pass, only upon proper delivery of the Common Certificates to
Target, on behalf of DualStar, and instructions for use in surrendering such
Common Certificates and receiving the Merger Consideration in respect of such
shares.
(b) In effecting the payment of the Merger Consideration with respect
to shares of Target Class A Stock and Target Class B Stock represented by Common
Certificates entitled to payment of the Merger Consideration pursuant to Section
3.2(a) and (b), respectively (the "Class A Cashed Shares" and the "Class B
Cashed Shares," respectively, and collectively, the "Cashed Shares"), upon the
surrender of each such Common Certificate, DualStar shall pay the holder of such
Common Certificate (each a "Cashed Stockholder") the Merger Consideration in
respect of Target Class A Stock or Target Class B Stock, as applicable,
multiplied by the number of Class A Cashed Shares or Class B Cashed Shares, as
the case may be, in consideration for such Cashed Shares,
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provided that 10% of each Cashed Stockholder's Stock Consideration shall be
delivered on behalf of such Cashed Stockholder to the Hold Back Escrow. Upon
such payment, such Common Certificate shall forthwith be canceled.
(c) Until surrendered in accordance with paragraph (b) above, each such
Common Certificate (other than Common Certificates representing (i) shares of
Target Common Stock held in the treasury of Target or by any wholly-owned
subsidiary of Target and (ii) Dissenting Shares) shall represent solely the
right to receive the Merger Consideration relating to such Common Certificates.
No interest or dividends shall be paid or accrued on the Merger Consideration.
If the Merger Consideration (or any portion of the Merger Consideration) is to
be delivered to any person other than the person in whose name the Common
Certificate formerly representing shares of Target Common Stock surrendered is
registered, it shall be a condition to such right to receive such Merger
Consideration that the Common Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
surrendering such shares of Target Common Stock shall pay to DualStar any
transfer or other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Common
Certificate surrendered, or shall establish to the satisfaction of DualStar that
such tax has been paid or is not applicable.
(d) No dividends or other distributions with respect to shares of
Target Common Stock with a record date after the Closing Date shall be paid to
the holder of any unsurrendered Common Certificate with respect to the shares of
Target Common Stock represented by such Common Certificate.
(e) After the Closing Date, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Target Common Stock
which were outstanding immediately prior to the Closing Date. If, after the
Closing Date, Common Certificates formerly representing the shares of Target
Common Stock are presented to DualStar or the Surviving Corporation, they shall
be surrendered and canceled in return for the payment of the Merger
Consideration relating to such Common Certificates, as provided in this Article
IV.
4.2 Registration Rights. DualStar agrees to grant to each of the Cashed
Stockholders unlimited piggyback registration rights with respect to the
DualStar Stock acquired thereby as part of the Merger Consideration (including
shares of DualStar Stock issuable upon exercise of the Warrants), subject to the
terms and conditions of the Registration Rights and Lock-Up Agreement.
4.3 Lock-Up; Voting Agreement.
(a) Each of the Cashed Stockholders shall agree not to, directly or
indirectly, offer, offer to sell, sell, loan, pledge, grant any rights, contract
to sell or grant any option to purchase or otherwise dispose or transfer any
shares of DualStar Stock acquired by it pursuant to the Merger (including shares
of DualStar Stock issuable upon exercise of the Warrants), without the prior
written consent of DualStar, for a period commencing upon the Closing Date and
ending 12 months subsequent to the Closing Date, except as
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otherwise permitted by the terms and conditions of the Registration Rights and
Lock-Up Agreement.
(b) To the extent permissible under applicable law, each of the Cashed
Stockholders set forth on Schedule 4.3 hereto will execute and deliver the
Voting Agreement pursuant to which each such Cashed Stockholder shall agree to
vote any shares of DualStar Stock acquired by it pursuant to the Merger
(including shares of DualStar Stock issuable upon exercise of the Warrants) (i)
in favor of all management proposals at the next annual meeting of the
stockholders of DualStar scheduled to be held as soon as practicable, which
proposals are reflected in the form of preliminary proxy statement previously
delivered thereto (the "Proxy Statement"), and (ii) for so long as such Cashed
Stockholder holds such shares of DualStar Stock and the Blackacre Parties have a
contractual right from DualStar to designate one or more nominees to DualStar's
board of directors, in favor of the Blackacre Parties' nominees to DualStar's
board of directors.
4.4 Appraisal Rights.
(a) Notwithstanding anything in this Agreement to the contrary, shares
of Target Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by holders of Target Common Stock who have
demanded and exercised any appraisal rights in the manner provided under the
Delaware Corporation Law and, as of the Effective Time, have neither effectively
withdrawn nor lost their appraisal rights under the Delaware Corporation Law
(the "Dissenting Shares"), shall not be converted into or be exchangeable for
the right to receive the Merger Consideration, unless and until such holder
shall have failed to exercise or shall have effectively withdrawn or lost such
holder's appraisal rights under the Delaware Corporation Law. If such holder
shall have so failed to exercise or shall have effectively withdrawn or lost
such appraisal rights, such holder's shares of Target Common Stock shall
thereupon be deemed to have been converted into and to have become exchangeable
for, at the Effective Time, the right to receive the Merger Consideration,
without any interest thereon.
(b) Target shall have given DualStar prompt notice of any demands
received by Target for appraisal pursuant to Section 262 of the Delaware
Corporation Law, withdrawals of such demands, and any other instruments served
pursuant to the Delaware Corporation Law and received by Target. Target shall
not have, except with the prior written consent of DualStar or as otherwise
required by applicable law, made any payment with respect to any such demands
for appraisal or offered to settle or settled any such demands.
4.5 Post-Closing Adjustments.
(a) On the date which is sixty (60) days following the Effective Time,
the amount of Stock Consideration set forth in Section 3.2 above shall be
adjusted by the parties hereto pursuant to the provisions of this Section 4.5
(the "Stock Consideration Adjustment"), to the extent necessary.
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(b) Within sixty (60) days following the Effective Time, DualStar shall
prepare and deliver to the agent designated by the Cashed Stockholders pursuant
to the Registration Rights and Lock-Up Agreement (the "Agent") a statement (the
"Post-Closing Adjustment Statement") showing the Surviving Corporation's
aggregate number of MDU units and its aggregate number of Subscribers as of the
Effective Time. If, within thirty (30) days after receipt of the Post-Closing
Adjustment Statement, the Agent has not disputed the items set forth thereon,
the Stock Consideration shall be adjusted, based upon the Post-Closing
Adjustment Statement, in accordance with Section 4.5(c) below. In the event that
the Agent disputes the items set forth in the Post-Closing Adjustment Statement
within such time, DualStar and the Agent shall use their best efforts to agree
to a compromise. If DualStar and the Agent are unable to come to such a
mutually-agreeable compromise, within thirty (30) days after the dispute arises,
or such additional period as may be agreed upon by them, the dispute shall be
resolved by arbitration pursuant to the provisions of Section 9.2(e) hereof. The
decision of an arbitration panel in respect of the Post-Closing Adjustment
Statement shall be final and binding as to the determination of the Stock
Consideration Adjustment provided for in this Section 4.5. The parties agree
that the Post Closing Adjustment Statement shall be prepared solely for the
purpose of determining the Stock Consideration Adjustment, if any. DualStar and
the Agent, on behalf of the Cashed Stockholders, shall each pay one-half of the
fees and expenses of the arbitrators in resolving the disputed issues pursuant
to this Section 4.5, if any.
(c) The Stock Consideration Adjustment, if any, shall be determined as
follows:
(i) In the event that the aggregate number of MDU units set
forth in the final Post-Closing Adjustment Statement is lower than the MDU Unit
Threshold, the Stock Consideration shall be reduced, on a per MDU unit basis, by
subtracting 27.86 shares of DualStar Stock per MDU unit shortfall from the
aggregate Stock Consideration, to be allocated 47.186% to the Cashed Class A
Shares and 52.814% to the Cashed Class B Shares; and
(ii) In the event that the aggregate number of Subscribers set
forth in the final Post-Closing Adjustment Statement is lower than the
Subscriber Threshold, the Stock Consideration shall be reduced, on a per
Subscriber basis, by subtracting 53.85 shares of DualStar Stock per Subscriber
shortfall from the aggregate Stock Consideration, to be allocated 47.186% to the
Cashed Class A Shares and 52.814% to the Cashed Class B Shares;
provided, however, that the Stock Consideration Adjustment shall not exceed, and
shall be payable exclusively from, the aggregate remaining amount of the Hold
Back Escrow, as defined in Section 9.2(c).
(d) If the aggregate Stock Consideration is reduced pursuant to this
Section 4.5, DualStar shall be entitled to receive from the Escrow Agent, from
and out of the remaining Hold Back Escrow, the amount of such reduction. Any
Stock Consideration
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Adjustment shall be apportioned among the Cashed Stockholders in proportion to
the amount of Stock Consideration paid to each of them at the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
DUALSTAR AND MERGERCO
DualStar and MergerCo hereby jointly and severally represent and
warrant to Target as follows:
5.1 Corporate Organization. Each of DualStar and MergerCo is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware.
5.2 Authority for Transaction. The execution and delivery of this
Agreement by each of DualStar and MergerCo, by DualStar of the Warrants and the
Registration Rights and Lock-Up Agreement, and the consummation of the
Transactions, have been duly and validly authorized by each of DualStar and
MergerCo by all necessary action, corporate or otherwise. This Agreement is the
legal, valid and binding obligation of each of DualStar and MergerCo,
enforceable against each of DualStar and MergerCo in accordance with its terms.
The Warrants and the Registration Rights and Lock-Up Agreement are the legal,
valid and binding obligations of DualStar, each enforceable against DualStar in
accordance with their respective terms. Neither the execution and delivery of
this Agreement by DualStar and MergerCo, nor the performance by DualStar and
MergerCo of their obligations hereunder, nor the execution, delivery or
performance by DualStar of the Warrants or the Registration Rights and Lock-Up
Agreement, will violate the certificate of incorporation or bylaws of any of
DualStar or MergerCo or will result in a violation or breach of, or constitute a
default under, any indenture, mortgage, deed of trust or other contract, license
or other agreement to which DualStar or MergerCo is a party or by which either
of them or their assets is bound, or of any provision of any federal or state
judgment, writ, decree, order, statute, rule, or governmental regulation
applicable to DualStar or MergerCo, which could have a Material Adverse Effect
on DualStar or MergerCo.
5.3 No Consent. No consent, approval, order, or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local Governmental Authority is required on the part of
DualStar or MergerCo in connection with the execution or delivery of this
Agreement or the consummation of the Transactions or the issuance of DualStar
Stock upon exercise of the Warrants, except for the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware.
5.4 Brokerage or Finder's Fees. Neither DualStar nor MergerCo has
employed any broker, finder or agent, or agreed to pay or incurred any brokerage
fee, finder's fee or commission with respect to the transactions contemplated by
this Agreement.
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5.5 Exchange Act Reports and Financial Statements. DualStar has
furnished or will upon request furnish to Target copies of the DualStar SEC
Reports, each as filed with the SEC. Each of the DualStar SEC Reports, when it
was filed with the SEC, complied in all material respects with the requirements
of the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the SEC
thereunder, and did not on the date of filing or amendment, if any, contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements contained in, or incorporated by
reference into, the DualStar SEC Reports: (i) were prepared in accordance with
GAAP (except as otherwise noted therein and subject, in the case of unaudited
interim financial statements, to the omission of certain notes not ordinarily
accompanying such unaudited interim financial statements and to normal year-end
adjustments and any other adjustments described therein) and with Regulation S-X
promulgated under the Exchange Act; and (ii) present fairly DualStar's
consolidated financial condition and the consolidated results of its operations,
cash flows and stockholders equity as at the relevant dates thereof and for the
periods covered thereby.
5.6 Litigation. Except as disclosed in the DualStar SEC Reports, there
is no action, suit, grievance or proceeding pending or, to the Knowledge of
DualStar or MergerCo, threatened against DualStar or any of its subsidiaries at
law, in equity, by way of arbitration or before any governmental or
quasi-governmental department, commission, board or agency. To the Knowledge of
DualStar or MergerCo, there are no existing facts or conditions which might give
rise to any charge, claim, litigation, proceeding, or investigation by any third
party which is likely to have a Material Adverse Effect on DualStar or any of
its subsidiaries, nor are there any facts or conditions which might give rise to
any order of condemnation, appropriation or other taking of any assets of
DualStar or any of its subsidiaries.
5.7 Capitalization. The authorized capital stock of DualStar consists
of 25,000,000 shares of DualStar Stock, of which 15,701,571 shares of DualStar
Stock were issued and outstanding as of March 1, 2000. No shares of DualStar
Stock are held in treasury. All of the issued and outstanding shares of DualStar
Stock have been duly authorized and are validly issued, fully paid, and
nonassessable. All of the shares of DualStar Stock to be issued as the Stock
Consideration or pursuant to the Warrants, and the Warrants themselves, have
been duly authorized and, upon consummation of the Merger, or exercise of the
Warrants, as applicable, will be validly issued, fully paid and nonassessable.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class or series of authorized capital stock of
DualStar are as set forth in the certificate of incorporation, as amended, of
DualStar, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Other than as contemplated herein
and except as set forth in the DualStar SEC Reports filed prior to the date
hereof, or as reflected in the Proxy Statement, there are no options, warrants
or other rights outstanding to purchase or acquire, or any securities
convertible into, nor has DualStar or its subsidiaries agreed to issue or
reissue, other than pursuant to this Agreement any authorized and unissued
capital stock of DualStar or its subsidiaries.
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5.8 Absence of Certain Developments. Since December 31, 1999, no event
has occurred with respect to DualStar, MergerCo or any other subsidiary of
DualStar which has had, or which is reasonably likely to have, a Material
Adverse Effect on DualStar, MergerCo or any other subsidiary of DualStar.
5.9 Blackacre Agreements. DualStar has furnished to Target true,
correct and complete copies of all agreements which have been entered into
between DualStar or any of its subsidiaries or Affiliates and Blackacre Capital
Management, L.L.C., M/E Contracting Corp., any of their respective Affiliates or
any of the Blackacre Parties (collectively, "Blackacre"), and any amendments
thereto, including, without limitation, the securities purchase agreement
pursuant to which Blackacre is to invest in DualStar (collectively, the
"Blackacre Agreements"). Each of the Blackacre Agreements is valid, binding and
in full force and effect against DualStar; and, to the Knowledge of DualStar,
assuming the due execution and delivery by Blackacre of the Blackacre
Agreements, each of the Blackacre Agreements is valid, binding and in full force
and effect against Blackacre. None of the Blackacre Agreements has been modified
or amended in a manner adverse to DualStar, and no violation or breach or event
or condition that, after notice or lapse of time or both, would constitute a
violation or breach under any of the Blackacre Agreements on the part of
DualStar or any of its subsidiaries or Affiliates, or to DualStar's Knowledge,
Blackacre, has occurred.
5.10 Material Misstatements or Omissions. No representation or warranty
by DualStar or MergerCo in this Agreement, or any document, statement,
certificate or schedule furnished or to be furnished to Target by, or on behalf
of, DualStar or MergerCo pursuant hereto contains, or will when furnished
contain, any untrue statement of a material fact, or omits, or will then omit to
state, a material fact necessary to make the statement of facts not materially
misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to each of DualStar and MergerCo
as follows:
6.1 Corporate Organization. Target is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware
and is duly qualified as a foreign corporation in the State of Florida. Target
has all necessary corporate power and authority to own and use its properties
and assets and to operate its business as presently conducted, and Target holds
all permits, licenses, orders and approvals of all federal, state and local
governmental or regulatory bodies necessary and required therefor, except where
failure to do so would not have a Material Adverse Effect on Target.
6.2 Authority for Transaction. The execution and delivery of this
Agreement by Target, and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by all necessary action, corporate
or otherwise. This
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Agreement is the legal, valid and binding obligation of Target, enforceable
against Target in accordance with its terms. Neither the execution and delivery
of this Agreement by Target, nor the performance by Target of its obligations
hereunder, will violate Target's certificate of incorporation or bylaws or will
result in a violation or breach of, or constitute a default under, any
indenture, mortgage, deed of trust or other contract, license or other agreement
to which Target is a party or by which it or any of its assets or properties is
bound, or of any provision of any federal or state judgment, writ, decree,
order, statute, rule, or governmental regulation applicable to Target, which
could have a Material Adverse Effect on Target.
6.3 No Consent. No consent, approval, order, or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local Governmental Authority is required on the part of Target
in connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware.
6.4 Financial Statements. Target has delivered to DualStar each of its
audited financial statements for the period from inception through December 31,
1999, and its unaudited financial statements for the three months ended March
31, 2000 (without footnotes) (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with GAAP, and present
fairly the financial condition and results of the operations of Target and its
business as of the dates and for the periods indicated, subject to customary
year-end adjustments.
6.5 Liabilities. To the Knowledge of Target, Target has no material
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, which under GAAP are required to be set forth,
but are not so set forth in the Financial Statements, other than those set forth
on Schedule 6.5 hereto.
6.6 Absence of Material Adverse Change. Since March 31, 2000, there has
not been with respect to the business of Target, nor have any facts come to the
attention of Target that Target or its business will experience, any material
change which will have a Material Adverse Effect on Target, and no facts have
come to the attention of Target that any material change having a Material
Adverse Effect on Target has occurred.
6.7 Title to Assets; Leases.
(a) Target has good and marketable title to all assets owned by it and
a valid leasehold interest in all assets leased by it, in each case, except as
set forth on Schedule 6.7(a) hereto, free and clear of all Liens.
(b) Schedule 6.7(b) hereto lists all leases and lease purchase
agreements to which Target is a party. Each such agreement is valid, binding and
in full force and effect; and no event of default or event or condition that,
after notice or lapse of time or both, would constitute a violation, breach or
event of default thereunder on the part of Target, or to the Knowledge of
Target, any other party thereto, has occurred or will occur
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or in connection with the closing of the transactions contemplated hereby, which
could have a Material Adverse Effect on Target or the Surviving Corporation.
6.8 Accounts Receivable. All accounts receivable of Target arose only
from bona fide transactions in the ordinary course of Target's business. No
material amount included in the accounts receivable of Target as of the Closing
Date has been released for an amount materially less than the value at which it
was included or is or will be regarded as unrecoverable in whole or in material
part, except to the extent there shall have been an appropriate reserve
therefor. Such receivables are not subject to any material counterclaim, refusal
to pay or setoff.
6.9 Contracts and Commitments. Schedule 6.9 hereto lists all written
and oral agreements, contracts, indebtedness, liabilities and other obligations
to which Target is a party or by which it is bound (other than ROEs, the
locations covered by which are to be listed on Schedules 6.28(a)-1, (a)-2, (a)-3
and (a)-4, as required under Section 6.28) which (a) are for a term longer than
twelve (12) months; (b) involve receipts or expenditures by Target greater than
Five Thousand Dollars ($5,000) in any twelve-month period; (c) involve the
mortgage, pledge, grant or creation of a lien or security interest or other
encumbrance on any of Target's assets other than Permitted Liens; (d) require
Target to indemnify any other party for any liability; or (e) was not entered
into in the ordinary course of business. Copies of such written, and summaries
of such oral, agreements, contracts, indebtedness, liabilities and obligations
have been delivered or made available to DualStar. Except as set forth on
Schedule 6.9, each of the contracts or agreements listed on Schedule 6.9 hereto
is valid, binding and in full force and effect, and no event of default or event
or condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder on the part of Target, or to
the Knowledge of Target, any other party thereto, has occurred, other than any
such matter as would not have a Material Adverse Effect on Target or the
Surviving Corporation. Other than as set forth on Schedule 6.9, none of such
contracts or agreements contain any change-of-control provisions that would be
triggered by this Agreement or the consummation of the transactions contemplated
hereby.
6.10 Indebtedness. Except as set forth in the Financial Statements or
on Schedule 6.10 hereto, Target does not have any obligations for money borrowed
or under any guarantees and does not have any agreements or arrangements to
borrow money or to enter into any such guarantee.
6.11 Intellectual Property.
(a) Schedule 6.11 hereto lists all intellectual property owned or
licensed by Target and material to Target's business, including but not limited
to registered and unregistered trademarks, trade names, service marks,
certification marks, domain names, copyrights and registration applications for
the above, and licenses to and from third parties relating to any of the above
(the "Intellectual Property").
(b) Except as set forth on Schedule 6.11, Target owns or has valid and
enforceable license(s) to use all the Intellectual Property and pays no royalty
with respect
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thereto. Except as set forth on Schedule 6.11, each such license is valid,
binding and in full force and effect; and no event of default or event or
condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder on the part of Target, or to
the Knowledge of Target, any other party thereto, has occurred.
(c) Target owns or has the right to use, all material trade secrets,
including know-how, inventions, designs, processes, computer software and
documentation for such software and technical data required for or incident to
the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by Target in connection with its business, free and
clear of any Liens, including without limitation, all claims of current and
former employees, consultants, officers, directors and stockholders of Target,
other than as set forth on Schedule 6.11.
6.12 Taxes.
(a) All returns, reports and other forms related to Taxes required to
be filed by Target on or before the Closing Date have been filed, in accordance
with all applicable laws (after taking into account extensions duly obtained),
and no penalties or other charges are due or will become due with respect to the
late filing of any such return, report or form. All Taxes due have been paid,
provided for in reserves, or properly protested or will be so paid, reserved for
or protested by Target. No audit of any such return, report or form is pending
or, to the Knowledge of Target, threatened. Target is not a party to any pending
action or proceeding by any Governmental Authority for assessment or collection
of Taxes, and no claim for assessment or collection of Taxes has been asserted
or threatened against Target. All deposits required by law to be made by Target
with respect to employees' withholding taxes have been duly made.
(b) As used in this Agreement, "Taxes" (or "Tax" where the context
requires) shall mean all federal, state, county, local, foreign and other taxes
(including, without limitation, income, profits, premium, estimated, excise,
value added, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll-related and property taxes, imposts, customs
duties and other governmental charges and assessments), whether or not measured
in whole or in part by net income, and including deficiencies, interest,
additions to tax or interest or penalties with respect thereto.
6.13 Litigation. Other than as set forth on Schedule 6.13 hereto, there
is no action, suit, grievance or proceeding pending or, to the Knowledge of
Target, threatened against Target at law, in equity, by way of arbitration or
before any governmental or quasi-governmental department, commission, board or
agency. To the Knowledge of Target, there are no existing facts or conditions
which might give rise to any charge, claim, litigation, proceeding, or
investigation by any third party which is likely to have a Material Adverse
Effect on Target, nor are there any facts or conditions which might give rise to
any order of condemnation, appropriation or other taking of any of Target's
assets.
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6.14 Labor and Employee Relations. Other than as set forth on Schedule
6.14 hereto, no current officer or employee of Target ("Employee") is a party to
any employment agreement or union or collective bargaining agreement, and no
union has been certified or recognized as the collective bargaining
representative of any of such Employees or has attempted to engage in
negotiations with Target regarding terms and conditions of employment. No unfair
labor practice charge, work stoppage, picketing or other such activity relating
to labor matters has occurred or is pending. To the Knowledge of Target, there
are no current or threatened attempts to organize or establish any labor union
to represent any Employees. Target is in material compliance with all
requirements of federal, state and local laws and regulations governing employee
relations, including without limitation anti-discrimination laws, wage and hour
laws, labor relations laws and occupational safety and health laws, and no
suits, charges or administrative proceedings relating to any such law or
regulation are pending or, to the Knowledge of Target, have been threatened. No
Employee has given any written notice to Target or, to the Knowledge of Target,
made any written threat, or otherwise revealed to Target an intent, to cancel or
otherwise terminate his or her relationship with Target.
6.15 Employee Benefit Plans. All of the employee benefit plans (as
defined in Section 3(3) of ERISA), multi-employer plans (as defined in Section
4001(a)(3) of ERISA), and compensation programs and employment arrangements
which are maintained, or contributed to, by Target for the Employees are listed
on Schedule 6.15 hereto ("Employee Benefit Plans"). All obligations of Target to
contribute to such Employee Benefit Plans on behalf of Employees for the
calendar years prior to 2000 have been satisfied, and all obligations of Target
to contribute to such plans on behalf of employees for the most recent period
ending on the Closing Date will be satisfied by Target. Except as set forth in
Schedule 6.15, Target does not maintain or sponsor, and is not required to make
contributions to, any written or oral pension, profit sharing, thrift, deferred
compensation, bonus, incentive, stock purchase, severance, hospitalization,
insurance or other similar plan, agreement, or arrangement relating to employee
benefits for any employee or to former employees of Target. To the Knowledge of
Target, the Employee Benefit Plans conform to and have been administered in
compliance with their terms and applicable laws and regulations (including, but
not limited to, ERISA), and no condition exists with respect to any Employee
Benefit Plan that could have a Material Adverse Effect on Target.
6.16 Compliance with Laws. Target has in all material respects duly
complied with all applicable laws, rules, regulations and orders of federal,
state, and local governments, including, but not limited to, Environmental Laws,
and Target is not in material default with respect to any order, judgment, writ,
injunction, decree, award, rule or regulation of any court, governmental or
regulatory body or arbitrator, and to the Knowledge of Target, no event of
default or event or condition that, after notice or lapse of time or both, would
constitute a material violation, material breach or event of default thereunder
has occurred or will occur as a result of the transactions contemplated hereby.
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6.17 Environmental Matters.
(a) All facilities and property whether currently or heretofore owned,
operated or leased by Target (including facilities or properties subleased to a
third party) were, during any period of ownership, operation or leasing
(including subleasing to a third party) by Target, and, to the extent currently
owned, operated or leased by Target, continue to be, in compliance with all
applicable federal, state or local statutes, laws, ordinances, codes, rules,
regulations, guidelines or any binding determinations of any federal, state or
local governmental agency (including consent decrees and administrative orders)
relating to protection of the environment or public or worker health and safety
(collectively, "Environmental Laws"), except where such failure would not have a
Material Adverse Effect on Target or the Surviving Corporation.
(b) Except as set forth on Schedule 6.17, (i) Target's past and present
operations have materially complied and are in material compliance with all
applicable Environmental Laws; (ii) Target has obtained all material
environmental, health and safety governmental permits required for the operation
of its business, and all such governmental permits are in good standing and
Target is in compliance with all material terms and conditions of such permits;
(iii) none of Target, nor any of Target's properties (to Target's Knowledge, in
the case of leased properties), or its past or present operations, is subject to
any ongoing investigation by, order from or agreement with any person
(including, without limitation, any prior owner or operator of any Company
property) respecting (A) any Environmental Laws, (B) any remedial action or (C)
any claim of losses and expenses arising from the release or threatened release
of a contaminant into the environment; and (iv) Target is not subject to any
judicial or administrative proceeding, order, judgment, decree or settlement
alleging or addressing a violation of or liability under any Environmental Laws.
(c) Target is not subject to the environmental liabilities of any third
party, whether by contractual agreement or, to Target's Knowledge, by operation
of law.
6.18 Land Use. The past and current use by Target of 000 X. Xxxxxxx 00,
Xxxxx 0, Xxxxxxxx, Xxxxxxx 00000 and each other location where Target maintains
an office (the "Premises") complies in all material respects with and in no
material way violates, (a) any applicable statute, law, regulation, rule,
ordinance or order of any kind whatsoever (including, without being limited to,
any building, fire, subdivision and zoning statute, law, code, ordinance, rule,
regulation, approval or order, or urban redevelopment plan or other governmental
or quasi-governmental requirement) affecting the Premises or any part thereof,
(b) any building or occupancy permit, (c) any condition, easement, right-of-way,
covenant, agreement or restriction of record affecting or otherwise relating to
the Premises, or (d) any term or provision of any lease, except for such
noncompliance or violations as would not reasonably be expected to have a
Material Adverse Effect on Target or the Surviving Corporation. No current use
by Target of the Premises is dependent on a nonconforming use or other
governmental approval, license or permit the absence of which would materially
limit Target or its business as currently operated. There is no pending or, to
the Knowledge of Target, threatened condemnation of all or any part of the
Premises. To Target's Knowledge, there are no occupancy rights
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(written or oral), leases or tenancies presently affecting the Premises, other
than as set forth on Schedule 6.7(b) hereto.
6.19 Joint Ventures. Target is not a participant, as a partner or
otherwise, in any joint venture or common or pooled risk business enterprises.
6.20 Insurance. Set forth on Schedule 6.20 is a description of the
casualty and liability insurance currently maintained by Target.
6.21 Books and Records. The books of account and other financial and
corporate records of Target are complete and correct in all material respects
and are maintained in accordance with good business practices.
6.22 Powers of Attorney. No person has any power of attorney to act on
behalf of Target other than such powers to so act as normally pertain to the
officers of Target.
6.23 No Guarantees. None of the obligations or liabilities of Target is
guaranteed by or subject to a similar contingent obligation of any other person.
6.24 Brokerage and Finder's Fees. Target has not employed any broker,
finder or agent, or agreed to pay or incurred any brokerage fee, finder's fee or
commission with respect to the transactions contemplated by this Agreement.
6.25 Material Misstatements or Omissions. No representation or warranty
by Target in this Agreement, or any document, statement, Common Certificate or
schedule furnished or to be furnished to DualStar or MergerCo, or on behalf of
Target pursuant hereto contains, or will when furnished contain, any untrue
statement of a material fact, or omits, or will then omit to state, a material
fact necessary to make the statement of facts contained therein not materially
misleading.
6.26 Company Subsidiaries. Target has no subsidiaries, and Target does
not own of record or beneficially, directly or indirectly, (a) any shares of
outstanding capital stock or securities convertible into capital stock of any
other corporation, nor (b) any participating interest in any partnership, joint
venture or other non-corporate business enterprises.
6.27 Capitalization.
(a) As of the Closing Date, the authorized capital stock of Target
consists of 50,000 shares of Target Class A Stock and 50,000 shares of Target
Class B Stock. As of the date of this Agreement, there are, and as of the
Closing Date there will be, 5,044 shares of Target Class A Stock and 4,956
shares of Target Class B Stock issued and outstanding.
(b) All outstanding shares of capital stock of Target have been duly
authorized by all necessary corporate action, have been validly issued, and are
fully paid and nonassessable. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class or series
of authorized capital stock of
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Target are as set forth in the Certificate of Incorporation, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Schedule 6.27 provides an accurate list of all stockholders
owning the issued and outstanding Target Common Stock, together with the number
of shares thereof held by each.
(c) As of the Effective Time, there will be no outstanding securities
convertible into or exchangeable for capital stock of Target or Options,
Warrants or other rights to purchase or subscribe for capital stock of Target,
or any of Target's subsidiaries, or contracts, commitments, agreements,
understandings or arrangements of any kind to which Target or any of Target's
subsidiaries is a party relating to the issuance of any capital stock of Target
or any of Target's subsidiaries, any such convertible or exchangeable securities
or any such options, warrants or rights.
6.28 Rights of Entry; Subscribers.
(a) Each MDU complex with 50 or more units as to which Target has an
XXX for the purposes of providing subscription wireless or satellite cable
television services to one or more Subscribers, as of May 3, 2000, is set forth
on Schedule 6.28(a)-1 hereto. Each such MDU complex with 11 to 49 units is set
forth on Schedule 6.28(a)-2, and each such MDU complex with fewer than 11 units
is set forth on Schedule 6.28(a)-3. Schedules 6.28(a)1-3 contain the address and
a description of the nature of each such MDU complex. Schedule 6.28(a)-4 sets
forth a list of each MDU complex as to which Target has an XXX consisting of a
trailer or mobile home park. To Target's Knowledge, none of the MDUs are
contained in housing developments that are the subject of any direct rental
subsidy to the owners thereof by any Governmental Authority, including but not
limited to housing developments which constitute Section 8 housing or Section
232 housing. No XXX listed has been revoked, rescinded or otherwise withdrawn.
As used herein the term "Section 8 housing" shall mean any multi-tenant
residential building in connection with which the owner receives direct rental
subsidies pursuant to Section 8 of the United States Housing Act of 1937, as
amended, with respect to more than 50% of the units therein, and "Section 232
housing" shall mean any nursing home or intermediate care facility the financing
for which is insured under Section 232 of the National Housing Act.
(b) The following information is set forth on Schedule 6.28(b): (i) the
aggregate number of MDUs, on an MDU complex-by-MDU complex basis, to whom Target
provided subscription wireless or satellite cable television services as of May
3, 2000 (the "Subscribers"); (ii) the billing names and addresses of each
Subscriber; and (iii) a description of the wireless or satellite cable services
provided by Target to each Subscriber and the charges invoiced to each
Subscriber therefor. Except as set forth on Schedule 6.28(b), as of May 3, 2000
no Subscriber set forth on Schedule 6.28(b) pursuant to clause (ii) of the
preceding sentence has given written notice to Target to cancel any subscription
wireless or satellite cable television service provided to such Subscriber by
Target or to otherwise terminate its relationship with Target.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Stockholders' Action. Prior to the Closing, Target, acting through
Target's Board of Directors, shall have, in accordance with applicable law:
(a) obtained the necessary approval of this Agreement and the
Transactions by its stockholders; and
(b) recommended that the stockholders of Target vote in favor of the
approval of this Agreement and the Transactions.
7.2 Additional Agreements. Subject to the terms and conditions provided
in this Agreement, each of the parties to this Agreement agrees to use
commercially reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions and to
cooperate with each other in connection with the foregoing, including the taking
of such actions as are necessary to obtain any necessary consents, approvals,
orders, exemptions and authorizations by or from any public or private third
party, including without limitation any that are required to be obtained under
any federal, state or local law or regulation or any contract, agreement or
instrument to which such party or any of its subsidiaries is a party or by which
any of their respective properties or assets are bound, to defend all lawsuits
or other legal proceedings challenging this Agreement or the consummation of the
Transactions and to cause to be lifted or rescinded any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the Transactions.
7.3 Fees and Expenses. Except as set forth in Sections 4.5 and 9.2 of
this Agreement, whether or not the Merger is consummated, all fees, costs and
expenses incurred in connection with this Agreement and the Transactions shall
be paid by the party incurring such costs or expenses.
7.4 Tax Treatment. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
Each of the parties hereto shall use its best efforts to cause the Merger to
qualify, and will not (both before and after consummation of the Merger) take
any actions, or fail to take any action, which could reasonably be expected to
prevent the Merger from qualifying as a reorganization under the provisions of
Section 368 of the Code. The parties hereto shall account for and report the
Merger for income tax purposes as a reorganization within the meaning of Section
368 of the Code.
7.5 Access to Information. Prior to the Effective Time, Target shall
have, and shall have caused its officers, employees and agents, to afford to
DualStar and to the
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officers, employees and agents of DualStar complete access at all reasonable
times to such officers, employees, agents, properties, books, records and
contracts, and shall furnish DualStar such financial, operating and other data
and information as DualStar may reasonably request.
7.6 Public Announcements. Prior to the Effective Time, subject to
applicable disclosure requirements, no public announcement with respect to the
proposed acquisition shall be made by Target without prior approval of DualStar,
which approval shall not be unreasonably withheld or delayed.
7.7 Employee Benefit Arrangements. The name, position or title, and
annual salary (as of March 31, 2000) of each of Target's employees other than
the Contract Employees (the "At-Will Employees") are listed on Schedule 7.7
hereto. Schedule 7.7 also indicates which of such At-Will Employees is party to
an employment agreement with Target. Each At-Will Employee shall continue to be
employed by the Surviving Corporation at a salary equal to or in excess of such
At-Will Employee's salary set forth on Schedule 7.7 hereto. Each At-Will
Employee who remains in employment with the Surviving Corporation shall remain
eligible to participate in the employee programs and plans, including but not
limited to any employee benefit and welfare plans, insurance and pension plans
maintained or provided by Target immediately prior to the Effective Time.
7.8 Notification. Prior to the Effective time, each of Target and
DualStar shall have, after obtaining Knowledge of the occurrence, non-occurrence
or threatened occurrence or non-occurrence of any fact or event that would cause
or constitute a material breach or failure of any of the representations and
warranties, covenants or conditions set forth in this Agreement, or that would
reasonably be expected to constitute or result in a Material Adverse Effect to
such party, notified the other parties in writing of such fact or event with
reasonable promptness.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment or waiver, where permissible, at or prior to the Closing
Date, of each of the following conditions:
(a) Stockholder Approval. This Agreement and the Transactions,
including the Merger, shall have been approved and adopted by the affirmative
vote of the stockholders of Target to the extent required by the Delaware
Corporation Law and the Certificate of Incorporation.
(b) Regulatory Approvals. All necessary approvals, authorizations and
consents of any governmental or regulatory entity required to consummate the
Merger shall have been obtained and remain in full force and effect, and all
waiting periods
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relating to such approvals, authorizations and consents shall have expired or
been terminated.
(c) No Injunctions, Orders or Restraints; Illegality. No preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission (an "Injunction") nor any statute, rule, regulation or executive
order promulgated or enacted by any Governmental Authority shall be in effect
which would (i) make the consummation of the Merger illegal, or (ii) otherwise
restrict, prevent or prohibit the consummation of any of the Transactions,
including the Merger.
(d) Escrow Agreement. The Escrow Agreement shall have been executed by
each of the parties thereto.
8.2 Conditions to Obligations of DualStar and MergerCo. The obligations
of DualStar and MergerCo to effect the Merger are further subject to the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Target set forth in this Agreement shall be true and correct in all material
respects (except to the extent such representations and warranties expressly
relate to a specific date) as of the Closing Date as though made on and as of
the Closing Date, and DualStar shall have received a certificate to such effect
signed on behalf of Target by its president.
(b) Performance and Obligations of Target. Target shall have performed
all obligations required to be performed by it under this Agreement, including,
without limitation, the covenants contained in Article VII of this Agreement.
(c) Consents, Etc. Any consent, authorization or approval of any third
party required to be obtained by Target in connection with the execution,
delivery and performance of the Agreement shall have been obtained, except where
the failure to have obtained any such consent, authorization or approval would
not reasonably be expected to have a Material Adverse Effect on Target.
(d) No Injunction. There shall not have been entered any order in any
action or proceeding by any state or Federal government or by any Governmental
Authority which prohibits or limits the ownership or operation by Target of any
portion of Target or its business, properties or assets which is material to
Target, or compels Target to dispose of or hold separate any portion of Target
or its business, properties or assets which is material to Target.
(e) Material Adverse Change. There shall not have occurred since March
31, 2000 any change concerning Target having a Material Adverse Effect thereon.
(f) Resignations. Each of the directors and officers of Target shall
have delivered his or her written resignation to DualStar as of the Closing
Date.
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(g) Opinion of Counsel. Target shall have delivered an opinion of its
counsel in form and substance reasonably satisfactory to DualStar and its
counsel.
(h) Registration Rights and Lock-Up Agreement. Each Cashed Stockholder
shall have executed and delivered to DualStar the Registration Rights and
Lock-Up Agreement.
(i) Voting Agreement. Each Cashed Stockholder set forth on Schedule 4.3
shall have executed and delivered to DualStar the Voting Agreement.
(j) Other Deliveries. Target shall have delivered such other documents,
certificates and instruments as DualStar may reasonably request.
(k) Consents Under Contracts. To the extent required under Section
8.2(c), Target shall have delivered evidence satisfactory to DualStar of the
consent of the other parties to the material contracts identified on Schedule
6.9 as having change-of-control provisions that would be triggered by this
Agreement or the consummation of the Transactions contemplated hereby.
(l) Employment Agreements. Each of the Contract Employees shall have
executed and delivered an Employment Agreement.
8.3 Conditions to Obligations of Target and the Stockholders. The
obligation of Target to effect the Merger is further subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties
of DualStar and MergerCo set forth in this Agreement shall be true and correct
in all material respects (except to the extent such representations and
warranties expressly relate to a specific date) as of the Closing Date as though
made on and as of the Closing Date, and Target shall have received a certificate
to such effect signed on behalf of DualStar by its Secretary.
(b) Performance of Obligations of DualStar and MergerCo. Each of
DualStar and MergerCo shall have performed all obligations required to be
performed by it under this Agreement, including, without limitation, the
covenants contained in Article VII of this Agreement.
(c) Opinion of Counsel. DualStar shall have delivered an opinion of its
counsel in form and substance reasonably satisfactory to Target and its counsel.
(d) Material Adverse Change. There shall not have occurred since
December 31, 1999, any change concerning DualStar and DualStar's subsidiaries
taken as a whole having a Material Adverse Effect thereon.
(e) Registration Rights and Lock-Up Agreement. DualStar shall have
executed and delivered to the Cashed Stockholders the Registration Rights and
Lock-Up Agreement.
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(f) Voting Agreement. DualStar shall have executed and delivered to
each Cashed Stockholder set forth on Schedule 4.3 the Voting Agreement.
(g) Employment Agreements. The Surviving Corporation shall have
executed and delivered Employment Agreements to each of the Contract Employees.
(h) Consents, Etc. DualStar shall have delivered to Target evidence
that all necessary consents of Blackacre and the Blackacre Parties to the
execution, delivery and performance of this Agreement and consummation of all
transactions contemplated hereby have been obtained. Any other consent,
authorization or approval of any third party required to be obtained by DualStar
or MergerCo in connection with the execution, delivery and performance of this
Agreement shall have been obtained.
(i) Other Deliveries. DualStar and MergerCo shall have delivered such
other documents, certificates and instruments as Target may reasonably request.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations and Warranties. The representations and
warranties set forth in Sections 6.12 and 6.17 herein shall survive the Merger
until the expiration of the applicable statutes of limitation. All other
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger for a period of one (1) year
following the Effective Time.
9.2 Indemnification.
(a) Agreement to Indemnify. By their approval of this Agreement and by
their execution and delivery of the Registration Rights and Lock-Up Agreements,
the Cashed Stockholders, jointly but not severally, (subject to the limitations
set forth below), agree exclusively from the Hold Back Escrow, other than as set
forth in Section 9.2(i) below, to indemnify and hold DualStar, MergerCo and each
of their Affiliates harmless against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation (hereinafter individually a "Loss" and collectively
"Losses"), incurred by DualStar, MergerCo or any of their Affiliates as a result
of any inaccuracy or breach of a representation or warranty contained in Article
VI herein.
(b) Expiration of Indemnification. The indemnification obligations of
the Cashed Stockholders under Section 9.2(a) above shall terminate one (1) year
following the Effective Time, but shall not terminate as to any Loss (or a
potential claim by an appropriate party) (i) asserted in good faith in writing
prior to such date, or (ii) as a result of any inaccuracy or breach of any of
the representations and warranties contained in Sections 6.12 or 6.17 herein
with respect to which such indemnification obligations shall terminate upon the
expiration of the applicable statute of limitations.
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(c) Hold Back Escrow. As the sole source of and security for the
indemnity provided for in Section 9.2(a) above and 9.2(g) below (subject,
however, to the provisions of Section 9.2(i) below), 77,500 shares of the
aggregate Stock Consideration, evidenced by a stock certificate in the amount of
77,500 shares of DualStar Stock (the "Hold Back Escrow") issued in the name of
the Agent, in his capacity as agent on behalf of the Cashed Stockholders, shall
be transferred to [XXXXXXX & XXXXX], as escrow agent (the "Escrow Agent") under
the Escrow Agreement for a period of one (1) year following the Effective Time
(the "Hold Back Period"), plus such additional period of time that any claim
validly delivered to the Agent prior to the end of the Hold Back Period by
DualStar, MergerCo or any of their respective Affiliates for indemnity pursuant
to this Section 9.2 shall remain unresolved. The parties acknowledge and agree
that, unless and until any of the Hold Back Escrow shall be delivered to
DualStar hereunder, the Agent (on behalf of the Cashed Stockholders) shall have
the right to vote the Hold Back Escrow and shall have the right to receive any
dividends or distributions declared thereon; provided however, that each of the
Cashed Stockholders shall be prohibited, during the Hold Back Period, from
transferring to any third party such Cashed Stockholder's right, title and
interest in and to the Hold Back Escrow. Upon compliance with and subject to the
limitations under the terms hereof, DualStar shall be entitled to obtain
indemnity from the Hold Back Escrow for all Losses incurred by DualStar,
MergerCo or any of their respective Affiliates as a result of any inaccuracy,
breach or failure set forth in Section 9.2(a) above. For purposes of any
indemnity payment pursuant to Section 9.2, each share held in escrow shall be
valued at $9.03 per share (subject to equitable adjustment for stock splits,
stock dividends, reorganizations, classifications or other similar transactions
occurring from and after the Closing Date).
(d) Claims Upon Hold Back Escrow. In the event that DualStar, MergerCo
or any of their respective Affiliates wishes to obtain indemnity from the Hold
Back Escrow, DualStar shall deliver to the Agent, on or before the last day of
the Hold Back Period, a certificate signed by an officer of DualStar (an
"Officer's Certificate") specifying in reasonable detail the individual items of
Loss included in the request for indemnity and the nature of the
misrepresentation, breach of warranty or claim to which such item is related.
DualStar, MergerCo or any of their respective Affiliates shall be entitled to
obtain indemnity from the Hold Back Escrow only when the aggregate of all Losses
suffered by such party with respect to which such party would otherwise be
entitled to indemnity from the Hold Back Escrow hereunder exceeds $50,000, after
which such party shall be entitled to indemnity from the Hold Back Escrow for
any Losses in excess of $20,000.
(e) Resolution of Conflicts; Arbitration. At the time of delivery of
any Officer's Certificate to the Agent, and for a period of twenty (20) days
after such delivery, the Agent may object to the claim made in the Officer's
Certificate in a written statement delivered to DualStar. If the Agent shall so
object to the claim, the Agent and DualStar shall attempt in good faith to agree
upon the rights of the respective parties with respect to such claim. If no such
agreement can be reached after good faith negotiation, either the Agent or
DualStar may demand arbitration of the matter, and in such event the matter
shall be settled by arbitration conducted by three arbitrators. DualStar and the
Agent shall each select one arbitrator, and the two arbitrators so selected
shall select a
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third arbitrator. The decision of a majority of the arbitrators so selected as
to the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and the Escrow Agent
shall be required to act in accordance with such decision and make or withhold
payments out of the Hold Back Escrow in accordance therewith. Judgment upon any
award rendered by the arbitrators may be entered in any court having
jurisdiction. Any such arbitration shall be held in New York, New York, under
the rules then in effect of the American Arbitration Association. In any
arbitration hereunder DualStar and the Cashed Stockholders shall each pay
one-half (1/2) of all of the arbitrators' costs and expenses.
(f) Distribution of Hold Back Escrow Upon Termination of Hold Back
Period. Promptly following termination of the Hold Back Period, the Escrow
Agent, in accordance with the Escrow Agreement, shall deliver to the Cashed
Stockholders their respective amounts of the Hold Back Escrow, minus any amounts
delivered to DualStar pursuant to Section 4.5 hereof or previously applied
pursuant to any other provision hereof and any amount subject to an unresolved
claim pursuant to Section 9.2(d) above. Amounts subject to unresolved claims
pursuant to Section 9.2(d) shall be delivered by the Escrow Agent promptly after
resolution.
(g) Third Party Claims.
(i) In the event DualStar becomes aware of any third-party
claim (A) in excess of the Hold Back Escrow or (B) brought by or on behalf of
any then-current supplier, vendor or customer of the Surviving Corporation,
which DualStar believes may result in a demand against the Hold Back Escrow,
DualStar shall promptly notify the Agent of such claim, and the Agent and the
Cashed Stockholders shall be entitled, at their expense, to participate in any
defense of such claim. DualStar shall have the right to settle any such claim
with the consent of the Agent, which consent shall not be unreasonably withheld;
provided, however, that except with the consent of the Agent, which consent
shall not be unreasonably withheld, no settlement of any such claim with
third-party claimants shall be deemed evidence of, or determinative of, the
amount of liability of the Cashed Stockholders. In the event that the Agent has
consented to any such settlement and acknowledged that the claim is a valid
claim against the Hold Back Escrow, the Agent shall have no power or authority
to object to the amount of such settlement by DualStar against the Hold Back
Escrow for indemnity with respect to such settlement.
(ii) In the event DualStar becomes aware of any third-party
claim for less than, or in the amount of, the Hold Back Escrow, other than any
such claim described in Section 9.2(g)(i)(B) above, which DualStar believes may
result in a demand against the Hold Back Escrow, DualStar shall promptly notify
the Agent of such claim, and the Agent will have the right at any time to assume
and thereafter conduct the defense of such a third party claim with counsel of
its choice reasonably satisfactory to DualStar, utilizing solely the Hold Back
Escrow to pay any settlements or judgments, and any balance thereof to pay costs
of defense (including, without limitation, for defending the claim and for
paying any settlement or judgment); provided, however, that the Agent will not
consent to the entry of any judgment or enter into any settlement with respect
to
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such third party claim without the prior written consent of DualStar, which
consent shall not be unreasonably withheld. Unless and until the Agent assumes
the defense of such a third party claim as provided above, however, DualStar may
defend against such third party claim in any manner it reasonably may deem
appropriate. In no event will DualStar consent to the entry of any judgment or
enter into any settlement with respect to the third party claim without the
prior written consent of the Agent, which consent shall not be unreasonably
withheld.
(h) Apportionment of Liability; Maximum Liability. The liability of the
Cashed Stockholders for any indemnification to which DualStar, MergerCo or any
of their respective Affiliates may be entitled shall be apportioned among the
Cashed Stockholders in proportion to the amount of Stock Consideration paid to
each of them at the Closing. Except as provided in Section 9.2(i) below, the
total liability of the Cashed Stockholders shall not exceed the Hold Back
Escrow. Other than as set forth in Section 9.2(i) below, each of DualStar and
MergerCo agrees that it will look solely to the Hold Back Escrow for the
satisfaction of its claims under the indemnity provided herein and agrees that
no Cashed Stockholder shall be personally liable with respect to such claims
beyond the interest of such Cashed Stockholder in the Hold Back Escrow.
(i) Remedies. Except as otherwise provided in this Section 9.2(i),
resort to the Hold Back Escrow shall be the sole and exclusive remedy of
DualStar, MergerCo and any of their respective Affiliates for any matter related
to this Agreement or the transactions contemplated hereby or any breaches by
Target of its representations, warranties and covenants set forth in this
Agreement. The existence of this Section 9.2 and of the rights and restrictions
set forth herein do not apply to, nor limit any other potential remedies of
DualStar, MergerCo or any of their respective Affiliates with respect to, (i)
breaches of any representation or warranty set forth in Sections 6.12 or 6.17,
or (ii) any fraudulent misrepresentations or fraudulent breaches of any of the
representations and warranties made in Article VI hereof. In the event DualStar,
MergerCo or any of their respective Affiliates incur any Losses by reason of
breaches of any representation or warranty set forth in Sections 6.12 or 6.17 or
any fraudulent misrepresentations or fraudulent breaches of any of the
representations or warranties made in Article VI hereof, each of DualStar and
MergerCo agrees that (A) DualStar, MergerCo or any of their respective
Affiliates will first resort to the Hold Back Escrow, until such amounts are
exhausted or have been released, prior to seeking further indemnification from
the Cashed Stockholders, and (B) subject to the foregoing (i.e., without
prejudice to such parties' rights to resort to the full Hold Back Escrow),
DualStar, MergerCo or any of their respective Affiliates shall apportion all
such Losses on a pro rata basis among the Cashed Stockholders. Each Cashed
Stockholder may satisfy any such liability by delivering to DualStar shares of
DualStar Stock valued at $9.03 per share. Notwithstanding anything to the
contrary set forth herein, it is understood and agreed that the maximum
liability of any Cashed Stockholder for any Losses incurred by DualStar,
MergerCo or any of their respective Affiliates by reason of breaches of any
representation or warranty set forth in Section 6.12 or 6.17, or fraudulent
misrepresentations or fraudulent breaches of any of the representations and
warranties made in Article VI shall be limited to the shares of DualStar Stock
issued to such Cashed Stockholder, or the proceeds received from the sale
thereof, except in either case to the
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extent any such Loss is directly attributable to a fraudulent misrepresentation
or fraudulent breach of representation and warranty by such Cashed Stockholder,
in which case the liability of the Cashed Stockholder committing the fraud (and
no other Cashed Stockholder) shall not be so limited.
ARTICLE X
MISCELLANEOUS
10.1 Amendment. This Agreement may be amended by the parties to this
Agreement by an instrument in writing signed on behalf of each of the parties at
any time before or after any approval of this Agreement by the stockholders of
Target and MergerCo, but in any event following authorization by MergerCo's
Board of Directors and Target's Board of Directors; provided, however, that
after any such stockholder approval, no amendment shall be made which by law
requires further approval by stockholders without obtaining such approval and
that after the Effective Time no instrument pursuant to this Section 10.1 shall
be effective unless it shall have been executed by the Agent on behalf of Target
and the Cashed Stockholders.
10.2 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been received upon the
earlier of actual receipt thereof or, with respect to delivery by overnight
courier or Express mail, the day following delivery to such overnight courier or
the U.S. Postal Service and, with respect to delivery by registered or certified
mail, the third day following such delivery to the U.S. Postal Service, postage
prepaid, and addressed as follows:
(a) If to Target:
-------------
Paracomm, Inc.
000 X. Xxxxxxx 00
Xxxxx 0
Xxxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx Xxxxxxx
With a copy to:
---------------
RubinBaum LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxx, Esq.
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(b) If to DualStar, MergerCo or the Surviving Corporation:
------------------------------------------------------
Xxx Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xx. Xxxxxx Xxxxxx
With a copy to:
---------------
Day, Xxxxx & Xxxxxx LLP
Xxx Xxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx Xxxxxxxxx III, Esq.
(c) If to the Agent or any Stockholder of Target:
---------------------------------------------
Xxxxxx Xxxxxxx
x/x Xxxxxx X. Xxxxxxxxxx
000 Xxxxxxxx
X.X. Xxxxxx 0000
Xxxxxxxxxx, Xxx Xxxx 00000-0000
Fax: (000) 000-0000
With a copy to:
---------------
RubinBaum LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxx, Esq.
10.3 Entire Agreement; No Third-Party Beneficiaries; Section Headings.
This Agreement and the other agreements, documents and instruments executed and
delivered pursuant hereto constitute the entire agreement between the parties,
and there are no agreements or commitments with respect to the transactions
contemplated herein except as set forth in this Agreement; this Agreement
supersedes any prior offer, agreement or understanding between the parties with
respect to the Transactions contemplated herein. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
person, firm or corporation other than the parties hereto and the Cashed
Stockholders any rights or remedies under or by reason of this Agreement. The
captions in this Agreement are for convenience only and shall not be considered
a part of or affect the construction or interpretation of any provision of this
Agreement.
10.4 Confidentiality. Except as may be required by law, Target shall
not, and shall not permit its officers, directors, shareholders and agents to,
directly or indirectly, disclose, discuss, announce or otherwise divulge to any
third party, the existence or terms
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of the negotiations between the parties, this Agreement or the transactions
contemplated herein, without, in each case, the prior written consent of
DualStar.
10.5 Assignment. This Agreement shall inure to the benefit of, and be
binding upon, the heirs, successors and permitted assigns of the parties hereto.
This Agreement may not be assigned by any party without the other parties' prior
written consent.
10.6 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York (excluding application of
any choice of law doctrines that would make applicable the law of any other
state).
[Signature Pages Follow]
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IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized representative as of the date and year first
written above.
PARACOMM, INC.
By: /s/ Xxxxxx Xxxxxxx
----------------------------
Name: Xxxxxx Xxxxxxx
Title: President
DUALSTAR TECHNOLOGIES
CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxxxx
Title: Chairman
DCI ACQUISITION CO.
By: /s/ Xxxx Xxxxxxx
----------------------------
Name: Xxxx Xxxxxxx
Title: President
Solely as a party to Sections 4.5 and
9.2, and 10.1:
/s/ Xxxxxx Xxxxxxx
--------------------------------------
Xxxxxx Xxxxxxx, solely in his capacity
as Agent
