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STOCK PURCHASE AGREEMENT
BY AND AMONG
UNITED SECURITY SYSTEMS, INC.,
THE JUPITER GROUP, INC.,
RESPONSE USA, INC.
AND
VECTOR SECURITY, INC.
August 11, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE I.........................................................................................................1
PURCHASE AND SALE; CLOSING.....................................................................................1
1.1. STOCK PURCHASE........................................................................................1
1.2 PURCHASE PRICE; PAYMENT OF XXXXXX DEBT................................................................1
1.3 PURCHASE PRICE ADJUSTMENT.............................................................................1
1.4 THE CLOSING...........................................................................................3
1.5 CONDITIONS TO THE BUYER'S OBLIGATIONS.................................................................3
1.6 CONDITIONS TO THE SELLER'S OBLIGATIONS................................................................5
ARTICLE II........................................................................................................6
PRE-CLOSING COVENANTS.........................................................................................6
2.1 OPERATIONS AND MAINTENANCE OF THE BUSINESS............................................................6
2.2 INFORMATION...........................................................................................7
2.3 CONSENTS..............................................................................................8
2.4 SCHEDULES SUPPLEMENT AND COOPERATION GENERALLY........................................................9
2.5 INTERCOMPANY DEBT.....................................................................................9
ARTICLE III.......................................................................................................9
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY.........................................................................................9
3.1 ORGANIZATION AND POWER................................................................................9
3.2 AUTHORIZATION OF TRANSACTIONS........................................................................10
3.3 CAPITAL STOCK AND RELATED MATTERS....................................................................10
3.4 ABSENCE OF CONFLICTS.................................................................................10
3.5 FINANCIAL STATEMENTS.................................................................................11
3.6 ABSENCE OF CERTAIN CHANGES...........................................................................11
3.7 TITLE TO, CONDITION AND SUFFICIENCY OF ASSETS........................................................12
3.8 TAXES................................................................................................13
3.9 CONTRACTS AND COMMITMENTS............................................................................14
3.10 PROPRIETARY RIGHTS...................................................................................15
3.11 LITIGATION; PROCEEDINGS.............................................................................16
3.12 BROKERAGE............................................................................................16
3.13 EMPLOYEES............................................................................................16
3.14 EMPLOYEE BENEFIT PLANS...............................................................................16
3.15 AFFILIATE TRANSACTIONS...............................................................................17
3.16 COMPLIANCE WITH LAWS.................................................................................17
3.17 CUSTOMERS AND SYSTEMS................................................................................18
3.18 ENVIRONMENTAL MATTERS................................................................................18
3.19 GUARANTIES...........................................................................................19
3.20 UNDISCLOSED LIABILITIES..............................................................................19
3.21 RESTRICTIONS ON BUSINESS ACTIVITIES..................................................................20
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3.22 UNDERWRITERS' LABORATORY.............................................................................20
3.23 ACCOUNTS RECEIVABLE..................................................................................20
3.24 STANDARD FORM CONTRACTS..............................................................................20
3.25 INSURANCE............................................................................................21
3.26 NO OTHER REPRESENTATIONS AND WARRANTIES..............................................................21
3.27 INVENTORY............................................................................................21
3.28 DISCLOSURE...........................................................................................21
3.29 PERS ACCOUNTS........................................................................................22
3.30 YEAR 2000 COMPLIANCE.................................................................................22
ARTICLE IV.......................................................................................................22
REPRESENTATIONS AND WARRANTIES OF THE SELLER..................................................................22
4.1 ORGANIZATION.........................................................................................22
4.2 AUTHORIZATION OF TRANSACTIONS........................................................................22
4.3 TITLE TO SHARES......................................................................................23
4.4 ABSENCE OF CONFLICTS.................................................................................23
4.5 BROKERAGE............................................................................................23
4.6 LITIGATION; PROCEEDINGS..............................................................................23
ARTICLE V........................................................................................................23
REPRESENTATIONS AND WARRANTIES OF THE BUYER...................................................................23
5.1 ORGANIZATION AND POWER...............................................................................24
5.2 AUTHORIZATION OF TRANSACTIONS........................................................................24
5.3 ABSENCE OF CONFLICTS.................................................................................24
5.4 BROKERAGE............................................................................................25
5.5 LITIGATION; PROCEEDINGS..............................................................................25
5.6 ACQUISITION OF SHARES FOR INVESTMENT.................................................................25
5.7 FINANCING............................................................................................25
ARTICLE VI.......................................................................................................25
TERMINATION...................................................................................................25
6.1 TERMINATION..........................................................................................25
6.2 EFFECT OF TERMINATION................................................................................26
6.3 TERMINATION FEE......................................................................................26
ARTICLE VII......................................................................................................27
INDEMNIFICATION AND RELATED MATTERS...........................................................................27
7.1 SURVIVAL; ABSENCE OF OTHER REPRESENTATIONS...........................................................27
7.2 INDEMNIFICATION......................................................................................27
7.3 INDEMNIFICATION PROCEDURES...........................................................................30
7.4 TREATMENT OF INDEMNIFICATION PAYMENTS................................................................31
ARTICLE VIII.....................................................................................................32
ADDITIONAL AGREEMENTS.........................................................................................32
8.1 THE BUYER'S RETENTION OF RECORDS; CONTINUING ASSISTANCE..............................................32
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8.2 PRESS RELEASES AND ANNOUNCEMENTS.....................................................................32
8.3 FURTHER ASSURANCES...................................................................................33
8.4 EXPENSES.............................................................................................33
8.5 NON-SOLICITATION.....................................................................................33
8.6 NON-COMPETE COVENANT.................................................................................34
8.7 HSR ACT COMPLIANCE...................................................................................35
8.8 EMPLOYEE MATTERS.....................................................................................35
8.9 TAX MATTERS..........................................................................................36
8.10 STANDARD COLLECTION PROCEDURES.......................................................................38
8.11 OVERDUE ACCOUNTS.....................................................................................38
8.12 INDEPENDENT INVESTIGATION............................................................................39
8.13 I.R.C. Sections 338(H)(10) ELECTION..................................................................39
8.14 PERS MONITORING......................................................................................39
8.15 CENTRAL STATION OPERATORS............................................................................39
8.16 TELEPHONE SWITCH.....................................................................................39
ARTICLE IX.......................................................................................................40
MISCELLANEOUS.................................................................................................40
9.1 AMENDMENT AND WAIVER.................................................................................40
9.2 NOTICES..............................................................................................40
9.3 BINDING AGREEMENT; ASSIGNMENT........................................................................41
9.4 SEVERABILITY.........................................................................................41
9.5 NO STRICT CONSTRUCTION...............................................................................42
9.6 CAPTIONS.............................................................................................42
9.7 ENTIRE AGREEMENT.....................................................................................42
9.8 COUNTERPARTS.........................................................................................42
9.9 GOVERNING LAW........................................................................................42
9.10 JURISDICTION AND VENUE...............................................................................42
9.11 WAIVER OF RIGHT TO JURY TRIAL........................................................................43
9.12 PARTIES IN INTEREST..................................................................................43
9.13 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.............................................................43
9.14 OTHER DEFINITIONAL PROVISIONS........................................................................43
EXHIBITS
Exhibit A - Definitions
Exhibit B - Seller's Release
SCHEDULES
Schedule 1.3 - Net Enterprise Value
Schedule 3.3A - Capital Stock
Schedule 3.3B - Subsidiaries; Investments
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Schedule 3.4 - Conflicts
Schedule 3.5 - Financial Statements
Schedule 3.6 - Absence of Certain Changes
Schedule 3.7A - Leased Realty
Schedule 3.7B - Liens
Schedule 3.8 - Taxes
Schedule 3.9 - Contracts and Commitments
Schedule 3.10 - Proprietary Rights
Schedule 3.11 - Litigation; Proceedings
Schedule 3.12 - Brokerage
Schedule 3.13 - Petition of Brotherhood of Electrical
Workers
Schedule 3.14 - Employee Benefit Plans
Schedule 3.15 - Affiliate Transactions
Schedule 3.21 - Restrictions on Business Activities
Schedule 3.22 - Underwriters' Laboratory
Schedule 3.24 - Standard Form Contracts
Schedule 3.25 - Insured Claims
Schedule 3.30 - Year 2000 Compliance
Schedule 5.3 - Buyer's Consents
Schedule 5.4 - Buyer's Brokerage
Schedule 8.8 - Management Employees
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of
August 11, 1999, by and among United Security Systems, Inc., a New Jersey
corporation ("USS"), The Jupiter Group, Inc. d/b/a Triple A Security Patrol, a
Pennsylvania corporation ("TRIPLE A") and Response USA, Inc., a Delaware
corporation (the "SELLER") and Vector Security, Inc., a Pennsylvania corporation
(the "BUYER"). Other capitalized terms used and not otherwise defined in this
Agreement are defined in EXHIBIT A.
The Seller owns all of the outstanding capital stock of the Company
(the "SHARES"). The Seller desires to sell to the Buyer, and the Buyer desires
to purchase from the Seller, the Shares, subject to the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE; CLOSING
1.1. STOCK PURCHASE. Upon the terms and subject to the conditions of
this Agreement, at the Closing, the Seller shall sell, and the Buyer shall
purchase, the Shares.
1.2 PURCHASE PRICE; PAYMENT OF XXXXXX DEBT. In consideration for the
sale and transfer of the Shares, on the Closing Date, the Buyer shall pay to the
Seller by wire transfer in immediately available funds an aggregate amount equal
to the Estimated Purchase Price (as defined below) less a holdback of six and
one-half percent (6 1/2%) of the Estimated Purchase Price to be paid on the
Settlement Date pursuant to the terms of this Agreement. On the Closing Date,
the Seller shall pay or cause to be paid all outstanding amounts under the
XxXxxx Facility.
1.3 PURCHASE PRICE ADJUSTMENT.
(a) At least five (5) days prior to the Closing Date, the Seller shall deliver
to the Buyer a good faith estimate of what the Net Enterprise Value will be as
of the close of business on the Closing Date (the "ESTIMATED PURCHASE PRICE"),
together with supporting documentation (including an estimated consolidated
closing balance sheet for the Company as of the Closing (the "INITIAL BALANCE
SHEET") and a schedule setting forth the calculation of the Company's RMR
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as of the close of business on the Closing Date, which will be prepared in
accordance with the definition of "RMR" contained herein), including advice on
accounting methods, policies, practices, assumptions and procedures used by
Seller in its calculation of the Net Enterprise Value, RMR, Initial Balance
Sheet and Working Capital. The Seller shall prepare the Initial Balance Sheet in
accordance with GAAP (to the extent practicable given that it is an estimate)
and with the Company's past practices consistently applied. The Net Enterprise
Value shall be calculated pursuant to SCHEDULE 1.3 attached hereto (the "Net
Enterprise Value Schedule").
(b) Within a period of 150 days following the Closing Date (the
"SETTLEMENT DATE"), the Buyer will prepare and deliver to the Seller in writing
a calculation of the Net Enterprise Value as of the Closing Date (the "TENTATIVE
FINAL PURCHASE PRICE"), together with such supporting documentation as the
Seller reasonably requests (including a final consolidated balance sheet for the
Company calculated as of the close of business on the Closing Date, which will
be prepared in accordance with GAAP and with the Company's past practices
consistently applied (the "FINAL BALANCE SHEET"), and a schedule setting forth
the calculation of the Company's consolidated RMR as of the close of business on
the Closing Date, which will be prepared in accordance with the definition of
"RMR" contained herein and shall be prepared using the same accounting methods,
policies, practices, assumptions, and procedures as used by the Seller in its
calculation of the Net Enterprise Value, RMR, Initial Balance Sheet and Working
Capital). Unless the Seller gives written notice to the Buyer of any objection
to the Final Balance Sheet or the calculation of the Tentative Final Purchase
Price within 30 days of the Seller's receipt of the Final Balance Sheet, the
Seller will be deemed to have accepted the Final Balance Sheet and such
calculation of the Tentative Final Purchase Price (and the Tentative Final
Purchase Price shall be the Final Purchase Price (as defined below)). Any
objection to the Final Balance Sheet or the calculation of the Tentative Final
Purchase Price will be set forth in writing in reasonable detail. If Seller
makes a timely objection to the Final Balance Sheet or the calculation of the
Tentative Final Purchase Price and if, after good faith negotiations, within 30
days of the Buyer's receipt of such objection, the Buyer and the Seller are
unable to agree on the final purchase price to be paid for the Shares (the
"FINAL PURCHASE PRICE"), the parties agree to engage an accounting firm mutually
acceptable to the Seller and the Buyer or, in the absence of agreement, by an
accounting firm of national reputation selected by lot after eliminating the
Seller's and the Buyer's principal outside accountants and not more than two
additional firms designated as objectionable, one by the Seller and one by the
Buyer (the "INDEPENDENT ACCOUNTANTS"), to resolve the specific issues in dispute
within 30 days after such engagement. The Independent Accountants will be
instructed to make their determination on a basis consistent with the provisions
of this Agreement and their determination will be final and binding on the
parties. No later than 5 business days after the later of: (i) the Settlement
Date (if the parties agree on the amount of the Final Purchase Price on or prior
to such date), (ii) the resolution of any dispute between the parties regarding
the Final Purchase Price, or (iii) the receipt of the Independent Accountants'
determination of the Final Purchase Price, as the case may be, the difference
between the Estimated Purchase Price and the Final Purchase Price will be paid
in cash as follows: (x) if the Estimated Purchase Price is greater than the
Final Purchase Price, the Seller shall pay to the Buyer the amount of such
difference; or (y) if the Estimated Purchase Price is less than the Final
Purchase Price, then the Buyer shall pay to the Seller the amount of such
difference. All payments made pursuant to the preceding sentence shall be made
by wire transfer of immediately available funds to an account specified by
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the Person entitled to receive such payment. All fees and costs of the
Independent Accountants will be shared equally by the Buyer and the Seller.
1.4 THE CLOSING. The closing of the purchase and sale of the Shares
(the "CLOSING") shall take place at the offices of Xxxxx & Xxxxxxxx LLP, 000
Xxxxxx Xxxxxx, Xxxxxx, XX 00000 or at such other place as may be mutually
agreeable to each of the parties, at 10:00 a.m. local time on September 17, 1999
or, if any of the conditions to Closing set forth in Section 1.5 and Section 1.6
below have not been satisfied or waived by the party entitled to the benefit
thereof on or prior to such date, on the fifth business day following
satisfaction or waiver of such conditions the ("Closing Date") or such later
date as the parties may mutually agree. At the Closing, the Seller shall deliver
to the Buyer stock certificates evidencing the Shares (endorsed in blank) to be
purchased by the Buyer pursuant to the Closing, upon payment of the Estimated
Purchase Price thereof by wire transfer of immediately available funds to the
Seller's account.
1.5 CONDITIONS TO THE BUYER'S OBLIGATIONS. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to the satisfaction (or waiver by the Buyer, in whole or in
part, in writing) of the following conditions as of the time of the Closing:
(a) All of the representations and warranties (considered
collectively) and each representation and warranty (considered individually) set
forth in Article III and Article IV will be true and correct in all material
respects at and as of the time of the Closing as though then made, except for
changes expressly required by this Agreement and except for any representation
or warranty that expressly relates to a specific prior date;
(b) The Seller and the Company will have performed and complied in
all material respects with all of the covenants and agreements (considered
collectively), and each of the covenants and agreements (considered
individually), required to be performed by the Seller and the Company under this
Agreement at or prior to the Closing;
(c) There shall be no proceeding commenced or threatened against
Buyer involving this Agreement or the transactions contemplated herein or any
judgment, decree, injunction or order which prohibits the consummation of the
transactions contemplated by this Agreement;
(d) All applicable waiting periods under the HSR Act, if any,
shall have expired or been terminated;
(e) The Company and the Buyer shall have received the resignation
of each director of each of USS and Triple A and each officer of each of USS and
Triple A, effective as of the Closing Date;
(f) On or prior to the Closing Date, the Seller will have delivered
to the Buyer all of the following (dated as of the Closing Date, except as
otherwise indicated):
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(1) With respect to each of USS and Triple A, certificates,
dated not earlier than the tenth (10th) day prior to the Closing Date, of the
Secretary of State of the State of New Jersey and the Commonwealth of
Pennsylvania, respectively, stating that such entities are validly existing or
have comparable active status;
(2) A certificate of an executive officer of the Seller
certifying that each of the conditions set forth in Sections 1.5(a) and 1.5(b)
has been satisfied as of the time of the Closing; and
(3) a certificate of the Secretary or Assistant Secretary of
each of the Seller, USS and Triple A certifying as to the resolutions of the
board of directors of each of such entities, the certificate of incorporation
and by-laws of such entities and incumbency of the officers of such entities
executing this Agreement or any Transaction Document, respectively.
(g) The Seller shall have delivered the Shares to the Buyer,
accompanied by stock powers duly endorsed in blank;
(h) Xxxxx & Xxxxxxxx LLP, counsel to the Seller and the Company,
shall have delivered its opinion to the Buyer in form and substance reasonably
acceptable to the Buyer and its counsel;
(i) The Seller shall have delivered to the Buyer a release in the
form of Exhibit B executed by Seller ("Seller's Release");
(j) The Seller and the Company shall have delivered to Buyer such
documents as Buyer may reasonably request including, without limitation or
example, all of the Company's written customer contracts;
(k) The Seller shall have paid or caused to be paid all outstanding
amounts under the XxXxxx Facility.
(l) The Seller shall have delivered to Buyer a certificate of an
executive officer of the Seller certifying that all powers of attorney
authorizing any Person to represent the Company have been terminated.
(m) There shall be no condition to or inability of Buyer to conduct
the business and operations of the Company in the ordinary course of business
as, of and on the Closing Date including, without limitation or example,
telephone Switch operations, software performance and performing monitoring
services required by Company's customer contracts from premises known as 00
Xxxxx Xxxxxx, Xxxxxx Xxxxx, Xxxxxxxxxxxx;
(n) The Seller and Company shall have caused the satisfaction of
any and all debt or other obligations existing between the Company on the one
hand and any direct or indirect parent of the Company or any Affiliate of the
Company, on the other hand; and
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(o) The Company is not (i) subject to any then current petition to
the National Labor Relations Board ("NLRB") for recognition of any union by or
on behalf of any of the Company's employees, and (ii) the petition of the
International Brotherhood of Electrical Workers, referenced in SCHEDULE 3.13
hereto, to be the representative of any bargaining unit(s) at the Company has
been rejected or defeated by a vote of the Company's employees entitled to so
vote pursuant to NLRB Rules and the result has been certified by the NLRB and
any objections filed by any union have been denied or have been resolved in
favor of the Company by a decision of the NLRB Regional Director and an appeal
has not been filed from any decision of the NRLB Regional Director within 60
days after such vote.
1.6 CONDITIONS TO THE SELLER'S OBLIGATIONS. The obligation of the
Seller to consummate the transactions to be performed by it in connection with
the Closing is subject to the satisfaction (or waiver by the Seller in writing)
of the following conditions as of the Closing Date:
(a) Each of the representations and warranties set forth in Article
V will be true and correct in all material respects at and as of the time of the
Closing as though then made, except for changes expressly required by this
Agreement and except for any representation or warranty that expressly relates
to a specific prior date;
(b) The Buyer will have performed and complied in all material
respects with all of the covenants and agreements required to be performed by
the Buyer under this Agreement at or prior to the Closing;
(c) There shall be no judgment, decree, injunction or order, which
prohibits the consummation of the transactions contemplated by this Agreement;
(d) All applicable waiting periods under the HSR Act , if any,
shall have expired or been terminated;
(e) On or prior to the Closing Date, the Buyer will have delivered
to the Seller all of the following:
(1) A certificate, dated not earlier than the tenth (10th)
business day prior to the Closing Date, of the Secretary of State of the
Commonwealth of Pennsylvania to the effect that the Buyer is validly existing or
has comparable active status in such state;
(2) A certificate of an executive officer of the Buyer
certifying that each of the conditions set forth in Sections 1.6(a) and 1.6(b)
has been satisfied as of the time of the Closing; and
(3) A certificate of the Secretary or Assistant Secretary of
the Buyer certifying as to the resolutions of the board of directors of Buyer
and the incumbency of the officers of the Buyer executing this Agreement or any
Transaction Document.
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(f) The Buyer shall have paid to the Seller the Estimated Purchase
Price in accordance with Section 1.2; and
(g) Xxxxxxxxxx & Xxxxxx, LLP, counsel to the Buyer, shall have
delivered its opinion to the Seller in form and substance reasonably acceptable
to the Seller and its counsel.
ARTICLE II
PRE-CLOSING COVENANTS
2.1 OPERATIONS AND MAINTENANCE OF THE BUSINESS. Prior to the Closing,
unless the Buyer otherwise consents in writing or except as set forth expressly
herein, the Company will, and the Seller will cause the Company to, (a) conduct
the business and operations of the Company only in the ordinary course of
business consistent with past practice. Furthermore, except as may otherwise be
required under this Agreement, the Company shall not, and the Seller shall cause
the Company, not to do any of the following, without the prior consent of the
Buyer:
(i) incur or permit to be incurred any obligation or other liabilities
(exclusive of existing health and property insurance premiums) in excess of
$150,000 in the aggregate except for inventory purchases and other liabilities
incurred in the normal and ordinary course of business consistent with past
practice;
(ii) voluntarily permit to be incurred any Lien or encumbrance on any
of the assets of the Company, other than Permitted Liens;
(iii) increase the compensation payable or to become payable to any of
the employees of the Company, except for increases in the ordinary course of
business consistent with past practice, or otherwise enter into or alter any
employment, consulting, or service agreement, outside the ordinary course of
business;
(iv) commence, enter into, or alter any profit sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retirement, or
incentive plan or any fringe benefit plan for employees of the Company;
(v) sever or terminate the employment of any employees of the Company
except in the ordinary course of business;
(vi) to incur or permit to be incurred any cost, expense, liability or
obligation in connection with the Seller's personal emergency response business
or, with regard to the Company's security business, make or commit to any
individual capital expenditure in excess of $75,000 or make or commit to such
expenditures which would, in the aggregate, exceed $200,000;
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(vii) make any Tax election or settle or compromise any Tax liability,
provided that in the case of elections or compromises that solely affect periods
ending prior to the Closing Date, Buyer's consent shall not be unreasonably
withheld;
(viii) cancel or waive any claims or rights of Company outside the
ordinary course of business and consistent with past practice; or
(ix) change any accounting methods used by Company.
2.1.1 NO CHANGES TO ORGANIZATION DOCUMENTS. Prior to the Closing,
neither the Seller nor the Company shall make any changes to the organizational
documents of either USS or Triple A.
2.1.2 CHANGES TO CAPITAL STOCK. Prior to the Closing, no issuance,
sale, pledge, disposition, redemption, retirement or encumbrance of, or
authorization of the issuance, sale, pledge, disposition, redemption, retirement
or encumbrance of, any shares of capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to register or
acquire any shares of capital stock of, or any other ownership interest in
either USS or Triple A will be made by either the Seller, USS or Triple A.
2.1.3 DIVIDENDS. Prior to the Closing, no dividends or other
distributions or payments will be declared, set aside, made or paid in respect
of the capital stock of either USS or Triple A by the Seller, USS or Triple A.
2.2 INFORMATION.
(a) THE BUYER'S ACCESS. From time to time at the Buyer's request, upon
reasonable prior notice and at reasonable times, the Company will, and the
Seller shall cause the Company to, provide to representatives of the Buyer and
its agents, employees and accounting, tax, legal and other advisors
(collectively, including the Buyer, the "INVESTIGATING PARTIES"):
(1) access to the information regarding the assets and the
liabilities of the Company;
(2) access to all accounts, insurance policies, Tax Returns,
contracts, and other books and records concerning the Company and its operations
and properties, the Shares and such other relevant information and materials as
may be reasonably requested (including the right to make copies and abstracts
thereof); and
(3) opportunity to discuss the affairs, finances and accounts of
the Company with those directors (or equivalent officials), senior management
employees, key sales representatives and independent accountants of the Company
who would reasonably be presumed to have information which would be relevant for
the purposes of conducting the Investigating
7
Parties' business, accounting, financial, environmental, legal and other due
diligence review regarding the Company and the Shares and preparing for the
financing and consummation of the transactions contemplated hereby, in each case
so long as such access does not unreasonably interfere with the business and
operations of the Company.
(b) EXCLUSIVITY. Until this Agreement is terminated by its terms, the
Seller will not (and will not cause or authorize any Affiliate, director,
officer, trustee, employee, or agent of it or the Company to, and will not cause
any stockholder of the Company to), directly or indirectly,
(1) solicit, initiate or encourage any inquiries or the submission
of any proposal or offer from any Person relating to any (A) liquidation,
dissolution or recapitalization of the Company, (B) merger or consolidation with
or into the Company, (C) acquisition or purchase of any material asset (or any
material portion of the assets) of, or any equity interest in, the Company or
(D) similar transaction or business combination involving the Company, other
than assets which are disposed of in the ordinary course of business ((A), (B),
(C) and (D) being a "SALE TRANSACTION");
(2) participate in any discussions or negotiations regarding, or
furnish any information (other than information which is traditionally provided
in the ordinary course of the Company's business to third parties where the
Seller has no reason to believe that such information may be used to evaluate a
possible Sale Transaction) with respect to, assist or participate in, or
facilitate in any other manner, any effort or attempt by any other Person to do
or seek, a Sale Transaction; or
(3) accept any offer or proposal for or enter into any Sale
Transaction;
Until this Agreement is terminated by its terms, the Seller and the Company will
promptly notify the Buyer if any Person makes any proposal or offer with respect
to any of the foregoing and will provide the Buyer with reasonable detail
regarding such proposal or offer including a summary of the terms, conditions
and price of any oral proposal or offer and a copy of any written proposal or
offer and the identity of the offeror.
2.3 CONSENTS. The Seller and the Company will use commercially
reasonable efforts (without being required to make any payment not specifically
required by the terms of any related contract or Legal Requirement or agree to
any material modification or waiver of any term of any contract or any other
right) to (a) obtain or cause to be obtained prior to the Closing Date all the
Consents listed on SCHEDULE 3.4 and (b) cause each Consent to be effective as of
the Closing Date (whether it is granted or entered into prior to or after the
Closing), and the Buyer will use commercially reasonable efforts to cooperate
with such efforts; provided, however, the failure to obtain any such Consent
which would not have a Material Adverse Effect (individually or collectively)
shall not be required to be obtained as a condition to the Buyer's obligation to
close pursuant to Section 1.5 hereof.
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2.4 SCHEDULES SUPPLEMENT AND COOPERATION GENERALLY.
(a) SCHEDULES SUPPLEMENT. If the Seller obtains knowledge that any of
its or Company's representations and warranties set forth in this Agreement are
inaccurate the Seller will promptly notify Buyer in writing and with specificity
and may, prior to the Closing, amend the Schedules hereto to account for such
inaccuracy; provided that the Buyer approves of such amendment, which approval
shall not be unreasonably withheld, provided that it shall not be deemed to be
unreasonable for the Buyer to withhold approval of amendments to the Schedules
which, among other things, would (individually or collectively) result in a
Material Adverse Effect.
(b) EFFORTS TO CLOSE. Each party will use commercially reasonable
efforts to cause the conditions to the Buyer's and the Seller's respective
obligations to consummate the transactions contemplated by this Agreement to be
satisfied including the preparation, execution and delivery of all agreements
and instruments contemplated hereunder to be executed and delivered by such
party in connection with or prior to the Closing.
2.5 INTERCOMPANY DEBT. Prior to or on the Closing, the Company and the
Seller shall cause the payment of all receivables and the satisfaction of any
and all debt existing between the Company on the one hand and any direct or
indirect parent of the Company or any Affiliate of the Company, on the other
hand. Such intercompany receivables and debt shall be of the same type and
nature as those included in the Latest Balance Sheet (as hereinafter defined).
Seller shall pay any and all Tax liability for any intercompany transactions
that result in a gain to the Company as a result of the Company not being
included in a consolidated return with the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
As an inducement to the Buyer to enter into this Agreement, and subject
to the disclosures set forth on the Schedules to this Agreement, the Seller
hereby makes the representations and warranties set forth in this Article III as
of the date of this Agreement.
3.1 ORGANIZATION AND POWER. (a) Each of USS and Triple A is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is qualified to do business in
every jurisdiction in which the nature of its business or its ownership of
property requires it to be so qualified other than those jurisdictions in which
the failure to so qualify would not have a Material Adverse Effect. Each of USS
and Triple A has full corporate power necessary to own and operate its
properties and carry on its respective business as now conducted.
9
3.2 AUTHORIZATION OF TRANSACTIONS. The Company has full corporate power
and authority to own and operate its assets, to carry on its business, to
execute and deliver this Agreement and all other Transaction Documents to which
it is a party and to perform its obligations hereunder and thereunder. The board
of directors of each of USS and Triple A has or will have on or before the
Closing Date (the "APPROVAL DATE"), duly approved this Agreement and all other
Transaction Documents to which the Company is a party and has, or will have on
or before the Approval Date, duly authorized the Company's execution and
delivery of this Agreement and such Transaction Documents and the performance of
the Company's obligations hereunder and thereunder. This Agreement and all other
Transaction Documents to which the Company and, upon execution and delivery by
the Company, all other Transaction Documents to which the Company is a party
have been duly executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforceability hereof or thereof may
be limited by bankruptcy or other laws affecting creditors' rights generally and
except for any limitations on the availability of equitable remedies.
3.3 CAPITAL STOCK AND RELATED MATTERS.
(a) CAPITAL STOCK. The authorized, issued and outstanding capital stock
of each of USS and Triple A is as set forth on the attached SCHEDULE 3.3A and
such stock is owned of record as set forth on the attached SCHEDULE 3.3A free
and clear of all Liens. No legend or other reference to any purported Lien
appears upon any certificate representing capital stock of any Company. All of
the issued and outstanding capital stock of each of USS and Triple A has been
duly authorized, and is validly issued, fully paid and non-assessable and was
not issued in violation of any preemptive rights of stockholders. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require either USS or Triple A to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to either USS or Triple A nor is there any agreement or
understanding with respect to the voting of the Shares.
(b) SUBSIDIARIES; INVESTMENTS. Except as set forth on SCHEDULE 3.3B,
neither USS or Triple A owns any Equity Security of any other Person or any
right which is exercisable or exchangeable for or convertible into any capital
stock or other security, interest or investment in any other Person. USS is the
record and beneficial owner of all of the membership interests of Response Alarm
Monitoring, LLC, free and clear of all Liens.
3.4 ABSENCE OF CONFLICTS. Except as set forth on the attached SCHEDULE
3.4, neither the execution, delivery and performance of this Agreement or the
Transaction Documents by the Company nor the consummation by the Company of the
transactions contemplated hereby or thereby:
10
(a) does or will (i) conflict with or result in any breach of any of
the provisions of, (ii) constitute a default under, (iii) result in a violation
of, (iv) give any third party the right to terminate or to accelerate any
obligation under, or (v) result in the creation of any Lien upon any of the
Shares or assets of the Company, in each case under the provisions of the
articles or certificate of incorporation, by-laws or similar organizational
document of the Company or any indenture, mortgage, lease, loan agreement or
other material agreement, instrument or contract or any material Legal
Requirement by which the Company or any property of the Company is affected, or
to which the Company or any property of the Company is subject, except where
such conflict, breach, default, violation, termination, acceleration or creation
(individually or collectively) would not have a Material Adverse Effect; or
(b) without limiting clause (a) above, requires any Consent of any
Governmental Entity or any other Person (other than compliance with the HSR
Act), other than as described on SCHEDULE 3.4, except for any Consents which the
failure to obtain could not reasonably be expected (individually or
collectively) to have a Material Adverse Effect.
3.5 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 3.5 are (i) the
unaudited consolidated balance sheet of Company as of April 30, 1999, and (ii)
the unaudited consolidated balance sheet of Company (the "LATEST BALANCE SHEET")
as of, and the related statement of income and cash flows for the year ending
June 30, 1999. Each of the foregoing financial statements (in each case
including the notes thereto, if any) has been prepared in accordance with GAAP,
consistently applied, fairly present the financial condition and the results of
operations and cash flow as at the respective dates of and for the periods
referred to in such financial statements, except that such financial statements
are subject to audit and normal recurring year end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse) and do
not contain any disclosure (that, if presented, would differ materially from
those included in the audited financial statements for the prior year). The
financial statements reflect the consistent application of such accounting
principles throughout the periods involved and have been prepared from the books
and records of the Company which have been maintained in accordance with sound
business practices and all Legal Requirements.
3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth on the attached
SCHEDULE 3.6, since the Latest Balance Sheet, there has not been:
(i) any material adverse change in the condition (financial or
otherwise), results of operations, properties, assets, liabilities or business
of the Company, taken as a whole, and no event has occurred or circumstance
exists that may result in such a material adverse change;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties, assets, business
or financial condition of the Company;
(iii) any declaration or payment of any dividend or other
distribution or in respect of any capital stock of the Company, any direct or
indirect redemption, retirement,
11
purchase or other acquisition of any capital stock of the Company, or any
issuance of shares of capital stock (whether of treasury shares or otherwise) or
option, or right, to purchase capital stock (whether treasury shares or
otherwise) of the Company;
(iv) any increase in the compensation or in the rate of
compensation or commissions payable or to become payable by the Company to any
of its directors, officers, employees, or agents other than in the ordinary
course of business consistent with past practice, any hiring of an employee at a
salary in excess of $50,000 per annum, any payment of, or commitment to pay, any
bonus, profit sharing, deferred compensation, severance or other extraordinary
compensation to any employee, or adoption of, or change in, any bonus, profit
sharing, pension, retirement, or other employee benefit plan, agreement or
arrangement, except pursuant to agreements set forth on SCHEDULE 3.9;
(v) any incurrence by the Company of any debt, obligation or
liability (whether absolute or contingent) not fully reserved against (whether
or not presently outstanding) other than incurrences in the ordinary course of
business;
(vi) any sale, lease, abandonment or other disposition by the
Company of any real property or any sale, lease, abandonment or other
disposition of any material (individually or collectively) machinery, equipment
or other properties or assets of the Company, in each case other than in the
ordinary course of business; or
(vii) any material change in the accounting methods used by
Company.
3.7 TITLE TO, CONDITION AND SUFFICIENCY OF ASSETS.
(a) OWNED PROPERTIES. The Company does not own any real property.
(b) LEASED PROPERTIES. The leases and subleases described on the
attached SCHEDULE 3.7A (the "LEASES") constitute all of the leases of real
property to which the Company is the tenant or subtenant. To the Knowledge of
the Company, each Lease is in full force and effect and the Company holds a
valid and existing leasehold or subleasehold interest thereunder in the real
property which is subject thereto (collectively, the "LEASED REALTY"). The
ownership or lease of real property by the Company or the use thereof does not
violate any local zoning or similar land use laws or governmental regulations,
except where such violation would not materially affect the use of such real
property. The Company is not in violation of or in noncompliance with any
covenant, condition, restriction, order or easement affecting the real property
owned or leased by the Company, except where such violation or noncompliance
would not have a Material Adverse Effect. There is no proceeding pending or, to
the Knowledge of the Company, threatened, affecting the real property owned or
leased by the Company.
(c) OWNERSHIP OF ASSETS. Except as set forth on the attached
SCHEDULE 3.7B, the Company owns good title to, or a valid leasehold in, all of
its assets, free and clear of all Liens, other than Permitted Liens.
12
(d) CONDITION OF THE ASSETS. The assets of the Company are in a
condition, normal wear and tear excepted, which is reasonably sufficient for the
continued conduct of the business and operations of the Company in the ordinary
course of business after Closing in substantially the same manner as conducted
prior to Closing, and the Company has no Knowledge of any defects with respect
to any material assets of the Company.
3.8 TAXES.
(a) For purposes of this Agreement, (i) "Tax" means any of the
Taxes, and "Taxes" means (A) all net income, capital gains, gross income, gross
receipts, sales, use, ad valorem, franchise, capital, profits, license, and
other withholding, employment, payroll, transfer, conveyance, documentary,
stamp, property, value added, customs duties, minimum taxes, and, any other
taxes, fees, charges, levies, excises, duties or assessments of any kind
whatsoever, together with additions to tax or additional amounts, interest and
penalties relating thereto that may be imposed by the federal government or any
state, local, or foreign government, and including amounts paid pursuant to any
settlement or compromise of any controversy relating thereto, and (B) any
liability of the Company for the payment of any amount of any type described in
clause (A) as a result of the Company being a transferee or a member of an
affiliated or combined group, (ii) "Tax Returns" means all returns, reports,
statements, and forms required to be filed in respect of any Tax, and (iii)
"Code" means the Internal Revenue Code of 1986, as amended.
(b) Except as set forth on SCHEDULE 3.8 attached hereto:
(i) the Company has: (A) timely filed all federal, foreign,
state, and local Tax Returns required to be filed by or with respect to the
Company on or prior to the Closing Date and all such Tax Returns are true,
complete and correct in all material respects; and (B) paid in full or accrued
on the Latest Balance Sheet all Taxes due, or for which assessments have been
received, for all periods ending on or prior to the Closing Date, specifically
including the estimated potential liability of the New Jersey tax audit.
(ii) the Company is not a party to any pending action or
proceeding related to Taxes, nor, to the Knowledge of the Company, is any action
or proceeding threatened by any governmental authority for the assessment or
collection of any Taxes. No claim for the assessment or collection of any Taxes
has been asserted or proposed to be asserted against the Company, which has not
been settled with all amounts due having been paid or is being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Latest Balance Sheet. There are no matters under
discussion with any taxing authority which might result in the assessment of
additional Taxes against or relating to the Company.
(iii) The federal income Tax Returns of the Company have not
been audited by the IRS.
13
(iv) There are no agreements, waivers, or other arrangements
providing for an extension of time with respect to the filing of any Tax Returns
or for the assessment of any Tax or deficiency against or relating to the
Company. There are no outstanding powers of attorney enabling any party to
represent the Company with respect to Tax matters.
(v) The Company has withheld prior to Closing, proper and
accurate amounts from employees of the Company substantially in compliance in
all material respects with all withholding and similar provisions of any and all
applicable federal, foreign, state, and local laws, statutes, codes, ordinances,
rules, and regulations. All such amounts have been timely remitted to the proper
governmental authority as prescribed by law.
(vi) All other Taxes required to have been withheld or
collected by the Company have been duly withheld and collected and have been
duly paid over to the proper governmental authority, or settled or adequately
reserved for on the Latest Balance Sheet, all as and to the extent prescribed by
law.
(vii) The reserves for Taxes on the Latest Balance Sheet and
the Final Balance Sheet are sufficient for the payment of all unpaid Taxes
through the dates of such statements and for all periods prior thereto,
including, without limitation, all Taxes, if any, imposed after such dates but
in respect of any period or periods prior to the dates of such statements.
(viii) Except as set forth on SCHEDULE 3.8, the Company is not
a party to any agreement, arrangement, or practice for the sharing of Taxes and
is not obligated to indemnify any other party for Taxes.
(ix) There are no liens for Taxes on any asset of the Company,
other than for Taxes not yet due and payable or which are being contested in
good faith.
(x) Neither the Company nor the Seller is a party to any
agreement, contract, arrangement, or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute payments
"within the meaning of Section 28OG of the Code.
(xi) The Company is not a United States real property holding
company within the meaning of Section 897(c) of the Code.
3.9 CONTRACTS AND COMMITMENTS. Except for the contracts described on
the attached SCHEDULE 3.9, the Company is not a party to or bound by, and no
assets of the Company are subject to, any:
(i) collective bargaining agreement or contract with any labor union or
any bonus, pension, profit sharing, retirement or any other form of deferred
compensation plan or any hospitalization insurance or similar plan or practice;
14
(ii) contract for the employment or engagement of any individual
employee or other Person (including as an independent contractor or on a
consulting basis) other than at the will of the employing Person, or any
agreement to provide severance or similar benefits upon any termination of
employment or other engagement;
(iii) agreement, indenture or other contract placing a Lien on any
property of the Company other than capital leases entered into in the ordinary
course of business;
(iv) agreement with respect to the lending of funds by the Company and
other than minimal loans or advances made to employees;
(v) lease or agreement under which it is lessee of, or holds or
operates, any personal property owned by any other party calling for payments in
excess of $50,000 annually or entered into outside of the ordinary course of
business;
(vi) lease or agreement under which it is lessor of, or permits any
third party to hold or operate, any material personal property or any real
property owned or controlled by it; or outstanding contract with distributors,
sales agents or dealers of the Company other than contracts which by their terms
are cancelable by the Company with notice of not more than 30 days and without
cancellation penalties or severance payments in excess of $25,000.
3.10 PROPRIETARY RIGHTS.
(a) LISTING. The attached SCHEDULE 3.10 sets forth a complete and
correct list of all registered and patented Proprietary Rights and all pending
applications for registration of Proprietary Rights owned by the Company, and
(ii) all other licenses or similar agreements to which the Company is a party
either as licensee or licensor for Proprietary Rights, except for mass marketed
software.
(b) OWNERSHIP; INFRINGEMENT. Except as set forth on the attached
SCHEDULE 3.10, the Company owns and possesses all right, title and interest in
and to, or has a valid and enforceable right to use, its corporate and trade
names, trade marks and service marks, and the registered and patented
Proprietary Rights described on the attached SCHEDULE 3.10, free and clear of
all Liens (other than Permitted Liens), and no claim by any third party
contesting the validity, enforceability, use or ownership of any of the
foregoing has been made or, to the Knowledge of the Company, is threatened, (ii)
no loss or expiration of any material Proprietary Rights owned by the Company is
pending or, to the Knowledge of the Company, threatened, (iii) the Company has
received no notice of any infringement or misappropriation by any third party
with respect to any Proprietary Rights owned or used by the Company, including
any demand or request that the Company license rights from a third party, and
(iv) to the Knowledge of the Company, the Company has not infringed or
misappropriated any rights of any third party, and the Company is not aware of
any infringement or misappropriation which will occur as a result of the
continued operation of the Company's businesses as currently conducted.
15
3.11 LITIGATION; PROCEEDINGS. Except as set forth on the attached
SCHEDULE 3.11, there are no complaints, charges, claims, actions, suits,
proceedings, orders, judgments, decrees or investigations pending or, to the
Knowledge of the Company, threatened against the Company or any asset of the
Company at law or in equity, or before or by any Governmental Entity, except for
actions, suits, proceedings, orders, judgments, decrees or investigations which
could not reasonably be expected (individually or collectively) to have a
Material Adverse Effect.
3.12 BROKERAGE. Except as set forth on SCHEDULE 3.12 attached hereto,
there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company, and
all of the obligations set forth on SCHEDULE 3.12 shall be paid in full at the
Closing by the Seller.
3.13 EMPLOYEES. To the Knowledge of the Company, no key executive
employee and no group of employees or independent contractors of the Company has
any plans to terminate his, her or its employment or relationship as an
independent contractor with the Company. The Company has not experienced any
strike, grievance, unfair labor practice claim or other material employee or
labor dispute. To the Knowledge of the Company, except as set forth on Schedule
3.13, there is no organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company. The
Company is in material compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, and is not engaged in any unfair labor practice.
3.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14 sets forth all of the Company's "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) or "employee welfare benefit plans" (as
defined in Section 3(l) of ERISA) (the "PLANS"). None of the Plans is subject to
Title IV of ERISA nor provides for medical or life insurance benefits to retired
or former employees of the Company (other than as required under Code Section
4980B, or similar state law). The Company is not a participating or contributing
employer in any "multi-employer plan" (as defined in Section 3(37) of ERISA)
with respect to employees of the Company or its subsidiaries nor has the Company
or its subsidiaries incurred any withdrawal liability with respect to any
multi-employer plan or any liability in connection with the termination or
reorganization of any multi-employer plan. The Company has no, and has never had
any, defined benefit pension plans.
16
(b) Each Plan is in compliance with the applicable provisions of
ERISA and the Code and all other applicable laws, rules and regulations, and the
Company has performed all of its obligations under the Plans, except where the
failure to comply would not have (individually or collectively) a Material
Adverse Effect.
(c) Each Plan which is intended to be qualified under Section 401
(a) of the Code has been amended to reflect all requirements of the Tax Reform
Act of 1986 and all subsequent legislation which is required to be adopted prior
to the end of the applicable remedial amendment period. The Company has received
an IRS determination letter with respect to each Plan.
(d) The Company has not incurred any material liability to the
Pension Benefit Guaranty Corporation (other than premium payments) or otherwise
under Title IV of ERISA (including any withdrawal liability) or under the Code
with respect to any "employee pension benefit plan" (as defined under Section
3(2) of ERISA) that the Company or any member of its "controlled group" (within
the meaning of Code Section 414) maintains or ever has maintained or to which
any of them contributes, ever has contributed, or ever has been required to
contribute.
(e) Neither the Company, nor any of its employees or directors, nor
any Plan fiduciary of any of the Plans, has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA or any "prohibited transaction" (as
defined in Section 4975(c)(1) of the Code) for which no exemption exists under
Section 4975(d) of the Code or other applicable law or guidance, and no
"reportable event" (as defined in Section 4043 of ERISA and the regulations
promulgated thereunder), other than such as may arise out of the consummation of
the transactions contemplated by this Agreement, has occurred in connection with
any Plan.
(f) Except as set forth on SCHEDULE 3.14, other than routine claims
for benefits made in the ordinary course of business, there are no pending
claims, investigations or causes of action ("CLAIMS") and to the Knowledge of
the Company, no such Claims are threatened against any Plan or fiduciary of any
such Plan by any participant, beneficiary or governmental agency with respect to
the qualification or administration of any such Plan and, to the Knowledge of
the Company, there is no basis to anticipate that any such claims will be made.
3.15 AFFILIATE TRANSACTIONS. Other than as described on the attached
SCHEDULE 3.15, no Insider (a) is a party to any agreement, contract, commitment
or transaction with the Company or which pertains to the business or operation
of the Company (other than in such Insider's capacity as an employee of the
Company), or (b) has any interest in any asset of the Company.
3.16 COMPLIANCE WITH LAWS. The Company has complied with all applicable
Legal Requirements which affect the business or operations of the Company and to
which the Company is subject, except where the failure to comply would not have
(individually or collectively) a Material Adverse Effect.
17
3.17 CUSTOMERS AND SYSTEMS.
(a) The Company has no material obligations or liabilities to
customers or to other users of the Company's security services, except (i) with
respect to deposits made by such customers or such other users, if any, (ii) the
obligation to supply services to customers in the ordinary course of business,
and (iii) potential liabilities with respect to litigation which are set forth
on SCHEDULE 3.11. The Company has no material obligation or liability for the
refund of moneys to its customers other than obligations to refund deposits made
by customers in the ordinary course of business.
(b) Substantially all of the agreements pursuant to which third
party monitoring services are provided are terminable on thirty (30) days'
notice.
(c) To the extent required by law, the Company has provided its
residential customers (that the Company has procured directly rather than
through the purchase of another alarm business) with the three-day right of
rescission in material compliance with the provisions of 16 C.F.R. Part 429
(Cooling-Off Period for Door-to-Door Sales) and, to the Knowledge of the
Company, any similar applicable state laws.
(d) The alarm systems installed by the Company (i) are in working
order and condition in a manner consistent with the standards prevailing in the
security alarm industry, and (ii) have been installed and maintained in
accordance with good and workmanlike practices prevailing in the security alarm
industry and all Legal Requirements.
3.18 ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the capitalized terms defined
below shall have the meanings ascribed to them below.
(i) "Environmental Law(s)" means all federal, state or local
laws, statutes, ordinances, rules, regulations, codes, or other requirements
having the force and effect of law relating to the environment, natural
resources, or employee health and safety and includes, but is not limited to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 ("CERCLA"), 42 U.S.C. Section 9601, the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. Section 6901, the Clean Water Act, 33 U.S.C.
Section 1251, the Clean Air Act, 33 U.S.C. Section 2601, the Toxic Substance
Control Act, 15 U.S.C. Section 2601, the Oil Pollution Act of 1990, 33 U.S.C.
Section 2701, and the Occupational Safety and Health Act, 29 U.S.C. Section
651, as such laws have been amended or supplemented, and the regulations
promulgated pursuant thereto, and all analogous state or local statutes.
(ii) "Environmental Permits" means all approvals,
authorizations, consents, permits, licenses, registrations and certificates
required by any applicable Environmental Law.
18
(iii) "Hazardous Substance(s)" means, without limitation, any
explosives, radioactive materials, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products (including but not
limited to waste petroleum and petroleum products), methane, hazardous
materials, hazardous wastes, pollutants, contaminants and hazardous or toxic
substances, as, defined in or regulated under any applicable Environmental Law.
(iv) "Release" means any past or present spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of a Hazardous Substance into the environment
whether intentional or unintentional.
(b) The Company has obtained all Environmental Permits that are
required for the operation of its business. The Company (i) is in material
compliance with all terms and conditions of its Environmental Permits and of any
applicable Environmental Law, (ii) has not received written notice of any
material violation by or material claim against the Company under any
Environmental Law, (iii) is not in violation of or liable under any
Environmental Law, and (iv) has no basis to expect any order, notice, claim or
other communication from any person concerning any actual or potential violation
or failure to comply with any Environmental Law.
(c) To the Company's Knowledge, there are no Hazardous Substances
and there have been no Releases, or threatened Releases, of any Hazardous
Substances into, on or under any of the properties owned, leased or operated (or
formerly owned, leased or operated) by the Company, in any case in such a way as
to create any material liability (including any costs of investigation and
remediation) under any applicable Environmental Law.
(d) The Company has not been identified as a potentially
responsible party at any hazardous waste site under enforcement or investigation
by the federal or state environmental authorities.
3.19 GUARANTIES. The Company is not a guarantor for any liability or
obligation (including Indebtedness) of any third party.
3.20 UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations, whether accrued, absolute, contingent or otherwise, which are
material to the Company, except (i) to the extent reflected or reserved for on
the Latest Balance Sheet, (ii) liabilities or obligations incurred in the normal
and ordinary course of business of the Company since the Latest Balance Sheet,
(iii) liabilities or obligations disclosed in the Schedules attached hereto, or
(iv) liabilities or obligations disclosed in this Agreement.
19
3.21 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on the
attached SCHEDULE 3.21, to the Knowledge of the Company, there is no agreement,
judgment, injunction, order or decree binding upon the Company and specifically
referring to the Company which has or could reasonably be expected to have the
effect of prohibiting or impairing any business practice of the Company,
acquisition of property by the Company, or the conduct of business by the
Company as currently conducted or as proposed to be conducted by the Company.
3.22 UNDERWRITERS' LABORATORY. The Company's central station located in
Xxxxxx Barre, Pennsylvania has been approved by Underwriters' Laboratory and
such approvals are not suspended or threatened to be suspended. The Company's
central station is operated in conformity with current Underwriters' Laboratory
standards and such other applicable insurance rating organizations' standards.
Except as set forth on SCHEDULE 3.22, no deficiency reports have been issued by
Underwriters' Laboratory, Factory Mutual Research Corporation or by any other
applicable insurance rating organizations relating to the operations of such
facilities and, as to any such reports which have been issued, all deficiencies
noted therein have been remedied to the satisfaction of the issuer of such
report. All required fire inspections with respect to each fire alarm system
installed at the premises of customers of the Company have been performed as
required in accordance with the obligations and commitments of the Company to
its customers, to Underwriters' Laboratory and to any other applicable insurance
rating organizations. All Underwriters' Laboratory or other applicable insurance
rating organization's certificates issued for alarm systems installed at the
premises of the Company's customers have been properly issued and the systems
for which such certificates have been issued comply in all material respects
with all of the Underwriters' Laboratory or other applicable insurance rating
organizations specifications and standards for such systems.
3.23 ACCOUNTS RECEIVABLE. All notes and accounts receivable of the
Company are reflected properly on the Latest Balance Sheet, and are valid,
collectable in accordance with their terms and existing receivables which arose
in the ordinary course of business, subject to allowances for doubtful accounts
set forth on the Company's Latest Balance Sheet.
3.24 STANDARD FORM CONTRACTS.
(a) All of the Company's contracts with its customers are
acceptable to and/or have been accepted by the Company's errors and omissions
insurer. Attached hereto as SCHEDULE 3.24 are true and correct copies of the
forms of "Standard Form Service Contract" (as hereinafter defined) which the
Company currently uses. For purposes of this Agreement, the term "Standard Form
Service Contract" shall mean all such attached forms and all written contracts
between the Company and its customers not on such attached forms but which
contain (i) a clause which limits the liability of the Company to a specified
sum as set forth in the contract, (ii) a clause providing that such contract is
freely assignable without the consent of any other party, and (iii) a clause
providing for third party indemnity. Each Standard Form Service Contract which
the Company has with its customers and each of the terms, provisions and
conditions thereof are
20
valid, binding and in full force and effect provided, however, that
enforceability of such Standard Form Service Contracts may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws at the time in
effect affecting the rights of creditors generally and that a court of competent
jurisdiction may decline to grant specific performance and any other equitable
remedy with respect to the enforcement of any provision of such Standard Form
Service Contracts.
(b) Except as set forth on the Standard Form Service Contracts,
the Company has made no written warranties to any customer of the Company.
(c) The Company has no free, bartered or discounted service
liability to customers existing with respect to its business, other than as set
forth on the attached SCHEDULE 3.24, and nothing would prohibit the Buyer from
discontinuing any such free or bartered service after Closing upon giving
written notice to the customer. The Company has no obligation or liability for
the refund of monies to its customers, other than obligations to refund deposits
made by customers in the ordinary course of business.
(d) All Standard Form Service Contracts are duly executed and,
except for non compliance with 16 C.F.R. Part 429 (and any similar state laws),
comply with all Legal Requirements.
3.25 INSURANCE. The insurance coverage maintained by the Company is
customary for companies of similar size engaged in similar lines of business.
SCHEDULE 3.25contains a list and summary of all pending or, to Company's
Knowledge, threatened claims covered by Company's insurance coverage with or
without reservation and so identified.
3.26 NO OTHER REPRESENTATIONS AND WARRANTIES. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE III AND ARTICLE IV, THE
SELLER AND THE COMPANY MAKE NO OTHER EXPRESS OR IMPLIED REPRESENTATIONS OR
WARRANTIES IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, AND SUCH REPRESENTATIONS AND WARRANTIES SUPERCEDE ANY AND ALL PREVIOUS
WRITTEN OR ORAL STATEMENTS MADE BY THE COMPANY OR THE SELLER TO BUYER.
3.27 INVENTORY. All inventory of the Company consists of a quality and
quantity usable and salable in the Company's ordinary course of business, except
for obsolete items and items of below-standard quality, all of which have been
properly and adequately reflected in the Latest Balance Sheet at the lesser of
Seller's cost or market, in accordance with GAAP. The quantities of each item of
inventory are not excessive, but are reasonable in the circumstances of the
Company as of Closing.
3.28 DISCLOSURE. No representation or warranty of Company or Seller in
this Agreement omits to state a material fact necessary to make the statements
herein, in light of the circumstances in which they were made, not misleading.
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3.29 PERS ACCOUNTS. All security alarm customers of the Company that
are monitored communicate with the Company's central station through telephone
lines or other communication devices or methods that are separate from the
telephone lines or devices or methods utilized to monitor personal emergency
response ("PERS") customers of Seller, and Company does not own or service any
PERS customers.
3.30 YEAR 2000 COMPLIANCE. Except as set forth on SCHEDULE 3.30
attached hereto, neither Seller nor the Company has Knowledge that its computer
hardware, software or firmware is not year 2000 compliant ("Year 2000
Compliance").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
As an inducement to the Buyer to enter into this Agreement, the Seller
hereby makes the representations and warranties set forth in this Article IV as
of the date of this Agreement.
4.1 ORGANIZATION. The Seller is a corporation validly existing and in
good standing under the laws of the jurisdiction of its incorporation and is
qualified to do business in every jurisdiction in which the execution, delivery
and performance of its obligations under this Agreement requires it to be so
qualified other than those jurisdictions in which the failure to so qualify
would not prohibit the consummation of the transactions contemplated hereby.
4.2 AUTHORIZATION OF TRANSACTIONS. The Seller has full corporate power
and authority to execute and deliver this Agreement and all other Transaction
Documents to which it is a party and to perform its obligations hereunder and
thereunder. The board of directors of the Seller has, or will have on or before
the Approval Date, duly approved this Agreement and all other Transaction
Documents to which the Seller is a party and has, or will have on or before the
Approval Date, duly authorized the Seller's execution and delivery of this
Agreement and such Transaction Documents and the performance of the Seller's
obligations hereunder and thereunder. This Agreement and, upon execution and
delivery by the Seller, all other Transaction Documents to which the Seller is a
party, have been duly executed and delivered by the Seller and constitute the
legal, valid and binding obligations of the Seller, enforceable against the
Seller in accordance with their terms, except as the enforceability hereof or
thereof may be limited by bankruptcy or other laws affecting creditors' rights
generally and except for any limitations on the availability of equitable
remedies.
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4.3 TITLE TO SHARES. The Seller is the record and beneficial owner of,
and has good and valid title to, the Shares free and clear of all Liens. No
legend or other reference to any purported Lien appears upon any certificate
representing the Shares. The delivery of certificates representing the Shares
pursuant to Section 1.4 will transfer to the Buyer good and valid title to the
Shares, free and clear of all Liens.
4.4 ABSENCE OF CONFLICTS. Neither the execution, delivery and
performance of this Agreement or any other Transaction Document by the Seller
nor the consummation by the Seller of the transactions contemplated hereby or
thereby:
(a) does or will (i) conflict with or result in any breach of any of
the provisions of, (ii) constitute a default under, (iii) result in a violation
of, (iv) give any third party the right to terminate or to accelerate any
obligation under, or (v) result in the creation of any Lien upon any of the
Shares or property of the Seller, in each case under the provisions of the
articles or certificate of incorporation, by-laws or similar organizational
document of the Seller or any indenture, mortgage, lease, loan agreement or
other material agreement, instrument or contract or any material Legal
Requirement by which the Seller or any property of the Seller is affected.
(b) without limiting clause (a) above, requires any Consent of any
Governmental Entity or any other Person (other than compliance with the HSR Act)
other than as described on SCHEDULE 4.4, except for any Consents which the
failure to obtain could not reasonably be expected (individually or
collectively) to have a Material Adverse Effect.
4.5 BROKERAGE. Except as set forth on SCHEDULE 3.12 attached hereto,
there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Seller, and
all of the obligations set forth on SCHEDULE 3.12 shall be paid in full at the
Closing by the Seller.
4.6 LITIGATION; PROCEEDINGS. There are no actions, suits, proceedings,
orders, judgments, decrees or investigations pending or, to the Knowledge of the
Seller, threatened against or affecting the Seller, at law or in equity, or
before or by any Governmental Entity, in which it is sought to restrain or
prohibit the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Seller to enter into this Agreement, the Buyer hereby
makes the representations and warranties set forth in this Article V as of the
date of this Agreement.
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5.1 ORGANIZATION AND POWER. The Buyer is a corporation validly existing
and in good standing under the laws of the jurisdiction of its organization and
is qualified to do business in every jurisdiction in which the execution,
delivery and performance of its obligations under this Agreement requires it to
be so qualified other than those jurisdictions in which the failure to so
quality would not prohibit the consummation of the transactions contemplated
hereby. The Buyer has full power and authority to execute and deliver this
Agreement and all other Transaction Documents to which it is a party and to
perform its obligations hereunder and thereunder.
5.2 AUTHORIZATION OF TRANSACTIONS. The Buyer has full corporate power
and authority to execute and deliver this Agreement and all other Transaction
Documents to which it is a party and to perform its obligations hereunder and
thereunder. The board of directors of the Buyer has, or will have on or before
the Approval Date, duly approved this Agreement and all other Transaction
Documents to which the Buyer is a party and has, or will have on or before the
Approval Date, duly authorized the Buyer's execution and delivery of this
Agreement and such Transaction Documents and the performance of the Buyer's
obligations hereunder and thereunder. This Agreement and, upon execution and
delivery by Buyer, all other Transaction Documents to which the Buyer is a
party, have been duly executed and delivered by the Buyer and constitute the
legal, valid and binding obligations of the Buyer, enforceable against the Buyer
in accordance with their terms, except as the enforceability hereof or thereof
may be limited by bankruptcy or other laws affecting creditors' rights generally
and except for any limitations on the availability of equitable remedies.
5.3 ABSENCE OF CONFLICTS. Except as set forth on the attached SCHEDULE
5.3, neither the execution, delivery and performance of this Agreement or any
other Transaction Document by the Buyer nor the consummation by the Buyer of the
transactions contemplated hereby or thereby:
(a) does or will (i) conflict with or result in a breach of any of the
provisions of, (ii) constitute a default under, (iii) result in the violation
of, (iv) give any third party the right to terminate or to accelerate any
obligation under, or (v) require any consent, order, approval, authorization or
other action of, or any filing with or notice to, any Governmental Entity or
other Person, in each case under the articles or certificate or incorporation,
by-laws or similar organizational documents of the Buyer or under the provisions
of any indenture, mortgage, lease, loan agreement or other agreement or
instrument to which the Buyer is bound or by which it or any of its assets are
affected, or any Legal Requirement to which the Buyer or any of its assets is
subject, or
(b) without limiting the foregoing, require any Consent of any
Governmental Entity or any other Person (other than compliance with the HSR Act)
other than as described on SCHEDULE 5.3., except for any Consents which the
failure to obtain could not reasonably be expected (individually or
collectively) to have a Material Adverse Effect.
24
5.4 BROKERAGE. Except as set forth on SCHEDULE 5.4 attached hereto,
there are no claims for brokerage commission, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Buyer, and all
of the obligations set forth on SCHEDULE 5.4 shall be paid in full at the
Closing by the Buyer.
5.5 LITIGATION; PROCEEDINGS. There are no complaints, charges, claims,
actions, suits, proceedings, orders or investigations pending or, to the Buyer's
Knowledge, threatened against the Buyer at law or in equity, or before or by any
Governmental Entity, in which it is sought to restrain or prohibit the
transactions contemplated hereby.
5.6 ACQUISITION OF SHARES FOR INVESTMENT. The Buyer is acquiring the
Shares for investment and not with a view toward, or for sale in connection with
any distribution thereof, nor with any present intention of distributing or
selling the Shares. The Buyer agrees and understands that the Shares have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and may not be sold, transferred, offered for sale, pledged, hypothecated
or otherwise disposed of (i) without registration under the Securities Act,
except pursuant to an exemption from such registration available under the
Securities Act, and (ii) except in accordance with applicable provisions of
state securities laws.
5.7 FINANCING. The Buyer has all funds necessary to consummate the
transactions contemplated by this Agreement.
ARTICLE VI
TERMINATION
6.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written agreement of the Seller and the Buyer;
(b) by the Seller, by written notice to the Buyer, on any date
determined for the Closing in accordance with Section 1.4 if each condition set
forth in Section 1.5 has been satisfied (or will be satisfied by the delivery of
documents by the parties at the Closing) or waived by the Buyer in writing on or
before such date, and the Buyer has nonetheless refused to consummate the
transactions contemplated by this Agreement and such failure to close shall not
have resulted from the Company's or the Seller's material breach of this
Agreement or failure to fulfill any obligation under this Agreement;
25
(c) by the Buyer, by written notice to the Seller, on any date
determined for the Closing in accordance with Section 1.4 if each condition set
forth in Section 1.6 has been satisfied (or will be satisfied by the delivery of
documents by the parties at the Closing) or waived by the Seller in writing on
or before such date, and the Seller or the Company has nonetheless refused to
consummate the transactions contemplated by this Agreement and such failure to
close shall not have resulted from the Buyer's material breach of this Agreement
or failure to fulfill any obligation under this Agreement;
(d) by the Buyer or the Seller, by written notice to the other, after
the Termination Date, if the Closing has not occurred and the Person giving such
notice (and the Company, if such notice is given by the Seller) is not in breach
of this Agreement in any material respect and is in compliance with its
obligations under this Agreement;
(e) by the Buyer or the Seller if the condition set forth in Section
1.5(o) has not been satisfied or waived on or before sixty (60) days after the
vote contemplated by Section 1.5(o).
The "TERMINATION DATE" will be the 60th day following the date hereof. The Buyer
may not rely on the failure of any condition precedent set forth in Section 1.5
to be satisfied if such failure resulted from the Buyer's failure to act in good
faith or a breach of or failure to perform any of its representations,
warranties, covenants or other obligations in accordance with the terms of this
Agreement, and the Seller may not rely on the failure of any condition precedent
set forth in Section 1.6 to be satisfied if such failure resulted from the
Seller's or the Company's failure to act in good faith or a breach of or failure
to perform any of its representations, warranties, covenants or other
obligations in accordance with the terms of this Agreement.
6.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided
in Section 6.1, then this Agreement will forthwith become void and there will be
no liability on the part of any party to any other party or any other Person in
respect thereof, provided that the obligations of the parties described in
Sections 6.3, 8.2 and 8.4 will survive any such termination.
6.3 TERMINATION FEE. In recognition of the considerable expense that
the parties have incurred in the transactions contemplated hereby and the
foregoing by the Seller and Buyer of other opportunities as a result of its
commitment to such transactions, if (a) this Agreement is terminated by the
Seller or the Buyer pursuant to Section 6.1(b) or 6.1(c), and (b) the other
party would not have had the right to terminate this Agreement pursuant to
Section 6.1 the party terminating shall be entitled, at its option, either: (i)
to terminate this Agreement upon written notice to the other party in accordance
with Section 6.1 and upon such termination, the other party shall pay to an
account designated by the terminating party, within three (3) business days
following notice, in immediately available funds, the sum of Two Million Five
Hundred Thousand Dollars ($2,500,000.00), as liquidated damages for all loss,
damage and exposure suffered by the terminating party and not as penalty, it
being agreed that damages will be impossible to ascertain and that such amount
is a reasonable sum considering all of the
26
circumstances existing as of the date of this Agreement, including the sum of
the harm to the party's business, the anticipated use of proceeds from the sale
or income from the purchase of the Shares, and the fact that it would be
difficult to fix actual damages to the party, or (ii) to institute and prosecute
proceedings against the other party, either at law or in equity in any court of
competent jurisdiction, to enforce the specific performance of this Agreement it
being acknowledged that irreparable damage would occur in the event that the
provisions of this Agreement were not performed in accordance with their terms.
ARTICLE VII
INDEMNIFICATION AND RELATED MATTERS
7.1 SURVIVAL; ABSENCE OF OTHER REPRESENTATIONS. All representations,
warranties, covenants and agreements set forth in this Agreement or in any
writing or certificate delivered in connection with this Agreement will survive
the Closing Date. The right to indemnification or other remedies based on such
representations, warranties, covenants and agreements will not be affected by
the waiver of any condition or any knowledge or any investigation at any time
made by or on behalf of the Buyer, the Company or the Seller, or of any
information the Buyer, the Company, or the Seller may have in respect thereof,
and regardless of any dissolution of the Company after the Closing; provided
that all claims (other than claims of fraud) made in respect of any such
representations, warranties, covenants or agreements will be subject to any
applicable limitations set forth in this Article VII except as specifically
provided herein. No party has made or will make in connection with this
Agreement any representation or warranty, express or implied, other than as set
forth in this Agreement, the schedules hereto, and the certificates delivered
pursuant hereto.
7.2 INDEMNIFICATION.
(a) BY THE SELLER. Subject to the limitations set forth in this Section
7.2(a) and in Section 7.2(c), after the Closing, the Seller will indemnify the
Buyer, the Company and their respective Affiliates (and the Seller shall have no
right of contribution or other action against the Company arising out of any
breach of a representation, warranty, agreement or covenant by the Company),
shareholders, partners, officers, directors, employees, agents, representatives,
successors (collectively, the "BUYER INDEMNITEES") and hold the Buyer
Indemnitees harmless from and against any loss, liability, deficiency, damage or
expense (including reasonable legal expenses and costs and any cost or expense
arising from or incurred in connection with any action, suit, proceeding, claim
or judgment relating to any matter described in clause (i) or (ii) below, or in
enforcing the indemnity provided by this Section 7.2) (any such amount being
referred to as a "LOSS") which any Buyer Indemnitee may suffer, sustain or
become subject to, as a result of:
27
(i) any breach by the Seller or the Company of any representation,
warranty or certification of the Seller or the Company set forth in this
Agreement or any certificate delivered by the Seller or the Company in
connection with the Closing;
(ii) any breach by the Seller at any time, or, by the Company prior to
the Closing of any covenant or agreement set forth in this Agreement;
(iii) any breach by the Seller at any time, or, by the Company prior to
the Closing of any Transaction Document; or
(iv) any Loss in connection with any action, suit, proceeding, claim or
judgment with any third party arising out of or from any act, error or omission
of the Seller or the Company prior to Closing; or
(v) any Loss in connection with any unfair labor practice claim against
the Seller or the Company relating to an unfair labor practice that occurred
prior to the Closing.
Provided that the Seller's liability pursuant to this Section 7.2(a) will be
subject to the following limitations:
(A) the Seller will not be liable for any Loss described in Section
7.2(a) above unless and until the aggregate amount of all Losses described in
Section 7.2(a) above exceeds One Million Dollars ($1,000,000.) (the "BASKET"),
in which event the Seller will be liable for all Losses described in Section
7.2(a) above, without regard to the Basket; provided that the Basket will not
apply to any Loss incurred as a result of fraud by the Seller or the Company, an
intentional breach of any Transaction Document by the Seller or the Company or
any inaccuracy or breach by the Company or the Seller of any representations and
warranties of which the Seller or the Company had Knowledge at any time prior to
Closing or set forth in Sections 3.3(a) (Capital Stock), 3.7(c) (Ownership of
Assets), 3.8 (Taxes), 3.12 (Brokerage), 3.14 (Employee Benefit Plans), 3.18
(Environmental Matters), 3.20 (Undisclosed Liabilities), and 4.3 (Title to
Shares), or any certification relating thereto, Section 7.2 (a)(v), Section 8.9
(Tax Matters), Section 8.13 (IRC ss.338 Election), or Section 8.14 (PERS
Monitoring), 8.16 (Telephone Switch), or any adjustment to the Estimated
Purchase Price pursuant to this Agreement.
(B) the Seller will not be liable for any Loss described in Section
7.2(a) above unless the Buyer gives the Seller written notice asserting the
misrepresentation, breach or other matter in question on or prior to the one
year anniversary of the Closing Date; provided that this clause (B) will not
apply to any Loss incurred as a result of Section 7.2(a)(iv), fraud, any
inaccuracy or a breach by the Company or the Seller of any representations and
warranties set forth in Sections 3.3(a) (Capital Stock), 3.7(c) (Ownership of
Assets), 3.8 (Taxes), 3.18 (Environmental Matters) and 4.3 (Title to Shares) or
any certification relating thereto, provided further that the Seller will not be
liable for any Loss described in Section 7.2(a) above in connection with any
breach of the representations and warranties contained in Sections 3.3(a),
3.7(c), 3.8, 3.18 or 4.3 or any certification relating thereto, unless the Buyer
gives the Seller written notice asserting the misrepresentation, breach or other
matter in question on or prior to
28
the end of the applicable statute of limitations after which period such
representation and warranty shall terminate and be of no further force or
effect, and
(C) the Seller will not be liable for any Loss described in Section
7.2(a) above to the extent that the aggregate amount of all Losses described in
Section 7.2(a) above exceeds 33% (thirty-three percent) of the Final Purchase
Price (the "Cap"); provided that the Cap will not apply to any Loss incurred as
a result of fraud, any inaccuracy or breach by the Company or the Seller of any
representations and warranties set forth in Sections 3.3(a) (Capital Stock),
3.7(c) (Ownership of Assets), 3.8 (Taxes), 3.18 (Environmental Matters) and 4.3
(Title to Shares), or any certification relating thereto.
(b) BY THE BUYER. Subject to the limitations set forth in this Section
7.2(b) and in Section 7.2(c), after the Closing, the Buyer will indemnify the
Seller and its Affiliates, partners, officers, directors, employees, agents,
representatives, successors (collectively, the "SELLER INDEMNITEES") and hold
any Seller Indemnitee harmless from and against any Loss which any Seller
Indemnitee may suffer, sustain or become subject to, as the result of:
(i) any breach by the Buyer of any representation, warranty or
certification of the Buyer set forth in this Agreement or any certificate
delivered by the Buyer in connection with the Closing; or
(ii) any breach by the Buyer at any time, or, by the Company
following the Closing, of any covenant or agreement set forth in this Agreement;
or
(iii) any breach by the Buyer of any Transaction Document.
(c) CONSEQUENTIAL DAMAGES; MITIGATION. Neither the Seller nor the Buyer
will have any obligation to indemnify any Buyer Indemnitee or Seller Indemnitee
for (a) any Consequential Damages, or (b) any other Losses (i) that are
recovered by the indemnitee from any third party (including insurers, subject to
the last two sentences of this clause (c)), or (ii) to the extent (and as of and
not until the time) such Losses are offset by actual tax savings realized on
account of such Losses by the indemnitee or any of its Affiliates. In the event
any relevant insurance payment has not been received at the time an amount is
due any Buyer Indemnitee or Seller Indemnitee, as the case may be, pursuant to
the provisions of Article 7 hereof, then the amount so due shall be paid in full
by the Seller or the Buyer, as the case may be. To the extent the Buyer
Indemnitee or Seller Indemnitee, as the case may be, receives any payment
pursuant to any insurance policies as to a claim with respect to which it has
previously received payment from the Seller or the Buyer, as the case may be,
hereunder, then in such event the Buyer Indemnitee or Seller Indemnitee, as the
case may be, shall promptly reimburse the Seller or the Buyer, as the case may
be, for the full amount of any such duplicate payment received.
(d) EXCLUSIVE REMEDY. Anything in this Agreement or applicable law to
the contrary notwithstanding, it is understood and agreed by the Buyer and the
Seller that except as expressly provided in Sections 6.3, 7.2(a) and 7.2(b),
after the Closing neither the Buyer nor the Seller will have any obligation or
liability to the other, and neither the Buyer nor the Seller will have any
29
claim or recourse against the Buyer or the Seller, as a result of the breach
prior to the Closing of any representation, warranty, covenant or agreement of
the Company, the Seller or the Buyer contained herein or otherwise arising out
of or in connection with the transactions contemplated by this Agreement or the
operations of the Company, it being understood and agreed that the remedies
provided for in Sections 6.3, 7.2(a) and 7.2(b) will be the sole and exclusive
remedy for any such claim or recourse by the Buyer or the Seller for any such
matters, whether such claims are framed in contract, tort or otherwise.
(e) RIGHT TO SET-OFF. Upon notice to Seller specifying in reasonable
detail the basis for such set-off, Buyer may set-off any amount to which it may
be entitled against amounts otherwise payable to Seller. The exercise of such
right of set-off by Buyer in good faith, whether or not ultimately determined to
be justified, will not constitute an event of default under this Agreement or
any Transaction Document. Neither the exercise or failure to exercise such right
of set-off or to give notice of a claim will constitute an election of remedies
or limit Buyer in any manner in the enforcement of any other remedies that may
be available to it.
7.3 INDEMNIFICATION PROCEDURES.
(a) NOTICE OF CLAIM. Any party making a claim for indemnification under
Section 7.2 (the "INDEMNIFIED PARTY") will notify the Person from whom
indemnification is claimed (the "INDEMNIFYING PARTY") of the claim in writing
promptly after receiving written notice of any action, lawsuit, proceeding,
investigation or other claim against it (if by a third party) or after
discovering the liability, obligation or facts giving rise to such claim for
indemnification. Such notice will describe the claim, the amount thereof (to the
extent then known and quantifiable), and the basis therefor, in each case to the
extent known to the Indemnified Party. Subject to Section 7.2(a), the failure to
so notify the Indemnifying Party will not relieve the Indemnifying Party of its
obligations under Section 7.2, except to the extent that such failure actually
prejudices the Indemnifying Party.
(b) ASSUMPTION OF DEFENSE. Except where the Indemnifying Party fails to
provide reasonable assurance of its financial capacity to defend and provide
indemnification, with respect to any third party claim which gives rise or is
alleged to give rise to a claim for indemnity under Section 7.2, the
Indemnifying Party, at its option (subject to the limitations set forth below),
will be entitled to assume responsibility for and control the defense of such
claim and to appoint a competent and reputable counsel reasonably acceptable to
the Indemnified Party to act as lead counsel of such defense.
(c) LIMITS OF ASSUMPTION OF DEFENSE. An Indemnifying Party's rights
under Section 7.3(b) will be subject to the following limitations:
(i) with respect to any claim the defense of which the Indemnifying
Party has assumed, the Indemnified Party will be entitled to participate in the
defense of such claim and to employ counsel of its choice for such purpose, and
the fees and expenses of such separate counsel will be borne by the Indemnified
Party; and
30
(ii) if the Indemnifying Party assumes control of the defense of
any such claim, then the Indemnifying Party will obtain the prior written
consent of the Indemnified Party before entering into any settlement of such
claim, unless such settlement or judgment relates solely to monetary damages and
such settlement expressly and unconditionally releases the Indemnified Party
from all liabilities and obligations with respect to such claim, without
prejudice. Notwithstanding the foregoing, the Indemnifying Party shall not make
any settlement or compromise with respect to any matter relating to Taxes or Tax
Returns to the extent such settlement or compromise materially affects Tax
periods beginning after the Closing Date, without the prior written consent of
the Indemnified Party, which consent shall not be unreasonably withheld.
If the Indemnifying Party does not assume control of the defense of any claim
pursuant to the limitations set forth in this Section 7.3, or the Indemnifying
Party has the right, but does not assume control of the defense of any claim,
then the Indemnifying Party may nonetheless participate (at its own expense) in
the defense of such claim and the Indemnified Party will consult with the
Indemnifying Party in respect of such defense, as reasonably requested by the
Indemnifying Party, and the Indemnified Party will not enter into any settlement
of such claims which could result in any liability to the Indemnifying Party
under Section 7.2(a) or 7.2(b), as the case may be, unless the Indemnified Party
gives prior written notice to the Indemnifying Party of any such settlement and
receives written approval of such settlement from the Indemnifying Party, such
approval not to be unreasonably withheld. Upon receiving such written approval,
the Indemnified Party may enter into such settlement and such settlement will be
binding upon the Buyer and the Seller for purposes of determining whether any
amount of indemnification is payable pursuant to Section 7.2, subject to any
applicable limitations set forth in Section 7.2; and, for the avoidance of
doubt, if the Indemnifying Party does assume the defense of such claim within
five (5) business days after notice of the proposed settlement is given, the
costs and expenses incurred by the Indemnified Party (including reasonable legal
expenses and fees) prior to the assumption of such defense by the Indemnifying
Party shall be added to any Loss incurred by such claim. As used in this Article
VII, the term "settlement" refers to any settlement, compromise, consent or
similar decree, or election to permit default judgment to be entered, in respect
of any claim.
7.4 TREATMENT OF INDEMNIFICATION PAYMENTS. Each Party will treat all
payments made pursuant to Section 7.2 as adjustments of the Final Purchase Price
consistent with Section 1.338 H 10 election for tax purposes. Each Party agrees
to use reasonable efforts to seek recovery under any insurance coverage which
such Party may have in respect of any Loss. Notwithstanding the foregoing,
nothing herein contained shall require either of the parties to institute a suit
or other proceeding as to any denial of coverage or reservation of rights by any
insurance carrier as to any coverage applicable to the subject matter of any
claim by an Indemnified Party.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 THE BUYER'S RETENTION OF RECORDS; CONTINUING ASSISTANCE. After the
Closing, the Buyer and the Company shall provide the Seller, and its counsel,
accountants and other representatives, and the Seller shall provide the Buyer
and the Company and their respective counsel, accountants and other
representatives, with reasonable access during normal business hours to the
books, records, property, personnel, contracts, commitments and documents
relating to the Company in its possession pertaining to transactions occurring
prior to the Closing Date when requested; provided that such access does not
unreasonably interfere with the business or operations of the Company or the
Person providing such access. At the request and expense of the requesting
Person, the requested Person will deliver copies of any such books and records
to the requesting Person. The Buyer agrees that it shall preserve and keep all
books and records of the Company in the Buyer's possession for a period of at
least seven (7) years from the Closing Date. If, in order to properly prepare
documents required to be filed with governmental authorities or its financial
statements, it is necessary that any party hereto or any successors be furnished
with additional information relating to the Company, and such information is in
the possession of any other party hereto, such party agrees to use its best
efforts to furnish such information to such requesting party, at the cost and
expense of the party being furnished such information.
8.2 PRESS RELEASES AND ANNOUNCEMENTS. (i) Prior to such time as the
boards of directors of the Company, the Seller and the Buyer have given the
approvals described in Sections 3.2, 4.2 and 5.2 (the "APPROVAL TIME"), neither
the Buyer nor the Seller shall make any press releases related to this Agreement
or any transaction contemplated hereby or other announcements generally to
customers or other Persons having business relationships with the Company, and
(ii) following the Approval Time, except for any public disclosure which either
the Buyer or the Seller in good faith believes is reasonably advisable under any
Legal Requirement (in which case, if practicable, the disclosing party will give
the other parties an opportunity to review and comment upon such legally
required disclosure before it is made):
(a) prior to the Closing, no press releases related to this Agreement
or any transaction contemplated hereby or other announcements generally to
customers or other Persons having business relationships with the Company (it
being understood that the Buyer will have the right to contact such Persons in
connection with its investigation of the business of the Company as provided in
Section 2.2(a) and as the Seller may otherwise consent) will be issued or made
without the mutual approval of the Seller and the Buyer, other than notices to
third parties from whom Consent is required to be obtained in connection with
the transactions contemplated hereby; and
(b) after the Closing, neither party will make any press release or
other public announcement with respect to the Company, this Agreement or any
transaction contemplated hereby without the other party's consent, which shall
not be unreasonably withheld or delayed.
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8.3 FURTHER ASSURANCES. Each party will execute and deliver such
further instruments or documents and take such additional actions as any other
party may reasonably request to effect, consummate, confirm or evidence the
transfer to the Buyer of the Shares and the other transactions contemplated
hereby.
8.4 EXPENSES. Except as otherwise expressly provided herein, each of
the Seller and the Buyer will pay all of its own fees, costs and expenses
(including fees, costs and expenses of legal counsel, investment bankers,
accountants, brokers or other representatives and consultants and appraisal
fees, costs and expenses), and the Seller will pay any cost of the Company,
incurred in connection with the preparation, negotiation, execution and delivery
of this Agreement and the other Transaction Documents, the performance of their
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby. The Company or the Seller will prepare and
file, on or before the due dates thereof, any required forms with respect to any
transfer, stamp, conveyance, recording or other similar Taxes, fees, duties or
governmental charges (collectively, "TRANSFER TAXES") imposed by any Taxing
jurisdiction by reason of the transactions contemplated by this Agreement. The
Buyer agrees to cooperate with the Seller in connection with the preparation and
filing of any forms relating to Transfer Taxes. Each of the Buyer and the Seller
will be responsible for one-half of all Transfer Taxes imposed on the Buyer, the
Seller, the Company or any property of the Company by reason of any transaction
contemplated by this Agreement. If valuations of any property or leases are
required to determine the amount of any Transfer Taxes, the Seller and the Buyer
will reasonably determine such valuations, and the parties agree that they will
not take (or cause to be taken) any position inconsistent with such valuations
in connection with any Tax Return or otherwise.
8.5 NON-SOLICITATION.
(a) GENERAL. (i) During the period beginning on the date of this
Agreement and ending on the first anniversary of the Closing Date, without the
Buyer's previous written consent, the Seller will not directly or indirectly
contact, approach, solicit, divert, entice, induce, take away, interfere with or
employ, hire or contract with (whether as an employee, consultant, agent,
independent contractor or otherwise) any person who is employed by the Company
either on the date of this Agreement or on the Closing Date, which shall not
include general solicitations through the media.
(ii) As to all of the customers of the Company, in addition to, and not
in derogation of, the provisions of Section 8.6 hereof, the Seller agrees that
it shall not directly or indirectly, either alone or as a consultant, advisor,
partner, joint ventures, member or stockholder of any person, company, or
business organization, solicit, divert, take away or accept, or attempt to
solicit, divert, take away or accept any security alarm or guard, response or
patrol business from any customer of the Company who becomes a customer of the
Buyer in accordance with the terms of this Agreement; provided, however, the
foregoing restriction shall not prohibit the Seller or its subsidiaries from
continuing to operate its personal response system business.
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(iii) If a court of competent jurisdiction declares that any term or
provision of this Section 8.5(a) is invalid or unenforceable, the parties agree
that the court making the determination of invalidity or unenforceability will
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement will be enforceable as so modified after
the expiration of the time within which the judgment, order or decree of such
court may be appealed.
(b) REMEDY FOR THE SELLER'S BREACH. The Seller acknowledges and agrees
that in the event of a breach by the Seller of any of the provisions of this
Section 8.5, monetary damages will not constitute a sufficient remedy and that
Buyer would have no adequate remedy at law. Consequently, in the event of any
such breach, the Buyer and/or its successors or assigns may, in addition to
other rights and remedies existing in their favor, apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce or prevent any violations of the provisions
hereof, in each case without the requirement of posting a bond or security, the
Seller hereby expressly waiving the requirement for any such bond or security,
or proving actual injury or damages.
(c) ACKNOWLEDGMENT. The Seller acknowledges and agrees that (i) the
covenants set forth in this Section 8.5 are reasonable in scope, duration,
geographic area and in all other respects, (ii) the Buyer would not have entered
into this Agreement but for the covenants of the Seller contained in this
Section 8.5, and (iii) the covenants contained in this Section 8.5 have been
made in order to induce the buyer to enter into this Agreement and shall be
deemed to be independent covenants.
8.6 NON-COMPETE COVENANT.
(a) NON-COMPETITION WITH BUSINESS OF THE COMPANY. In addition to and
not in derogation of the provisions of Section 8.5 hereof, effective upon the
Closing Date, for a period of two (2) years after the date hereof (the
"NON-COMPETITION PERIOD"), the Seller shall not, directly or indirectly, own,
operate, lease, manage, control, engage in, invest in, lend to, partner or joint
venture with, be a member of, permit its name be used by, act as consultant or
advisor to (alone or in association with any person, firm, corporate or other
business organization) any person or entity that is in the security alarm or
guard, response or patrol business anywhere where the Company currently operates
("COVERED ACTIVITIES"); provided, however, the foregoing restriction shall not
prohibit the Seller or its subsidiaries from continuing to operate its personal
response system business. Nothing herein shall prohibit the Seller from being a
passive owner of the outstanding stock of any class of securities of a publicly
traded corporation engaged in Covered Activities, so long as the Seller does not
actively participate in the management of such corporation and so long as the
Seller owns no more than ten (10%) percent of the issued and outstanding stock
of such corporation.
34
(b) ACKNOWLEDGMENT. The Seller acknowledges and agrees that (i) the
covenants set forth in this Section 8.6 are reasonable in scope, duration,
geographic area and in all other respects, (ii) the Buyer would not have entered
into this Agreement but for the covenants of the Seller contained in this
Section 8.6, and (iii) the covenants contained in this Section 8.6 have been
made in order to induce the Buyer to enter into this Agreement and shall be
deemed to be independent covenants.
(c) SEVERABILITY. If a court shall hold that the duration, scope, or
area restrictions stated in this Section 8.6 are unreasonable under
circumstances then existing, the parties agree that the maximum duration, scope,
or area reasonable under such circumstances shall be substituted for the stated
duration, scope or area. If any provision of this Section 8.6 shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable in whole or in part and such determination shall become final, and
such determination shall not be curable by the application of the previous
sentence, such provision shall be deemed to be severed or limited, but only to
the extent required to render the remaining provisions of this Section 8.6
enforceable. This Section 8.6, as thus amended, shall be enforced to give effect
to the intention of the parties insofar as that is possible.
(d) REMEDIES. The Seller acknowledges and agrees that in the event of a
breach by Seller of any of the provisions of this Section 8.6, monetary damages
will not constitute a sufficient remedy and that the Buyer would have no
adequate remedy at law. Accordingly, in the event of any such breach, the Buyer
and/or its successors and assigns may, in addition to any other rights and
remedies existing in their favor, apply to any court of law or equity of
competent jurisdiction for specific performance, injunctive or other relief in
order to enforce or prevent any violations of the provisions hereof without the
Buyer having to post a bond or security, the Seller hereby expressly waiving the
requirements for any such bond or security, or proving actual injury or damages.
8.7 HSR ACT COMPLIANCE. If required, within seven (7) days after the
date hereof, the Seller and the Buyer shall file any notification required to be
filed under the HSR Act to consummate the transactions contemplated hereby, and
shall request early termination of the waiting period thereunder. The Seller and
the Buyer shall use all commercially reasonable efforts to comply as promptly as
practicable, with any request made pursuant to the HSR Act for additional
information. The Seller and the Buyer shall cooperate with each other in such
compliance to the extent commercially reasonable. The Buyer shall pay the
statutory filing fees required by law in connection with the filings required
under the HSR Act.
8.8 EMPLOYEE MATTERS. Schedule 8.8 attached hereto is a list of
employees of the Company and/or Seller who are engaged in management of the
Company (the "MANAGEMENT EMPLOYEES") as of the date indicated thereon (which
date is not more than thirty (30) days prior to the date hereof), including each
such person's name and current position or job classification, along with true
and complete confidential wage or salary and bonus information for each
Management Employee. On and after the Closing, neither the Seller nor Buyer
shall have any further obligation to provide benefits, or make its benefit plans
available, to the Management
35
Employees (or their covered dependents) or other current or former employees of
the Company (or their covered dependents), except as may be required under
applicable law (including without limitation, health continuation coverage under
Code Section 4980B).
8.9 TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between the Buyer and the Seller for certain Tax matters
following the Closing Date:
8.9.1 The Seller shall indemnify and hold harmless the Buyer and the
Company (i) for any and all Taxes of the Company with respect to all taxable
periods of the Company ending on or prior to the Closing Date, including,
without limitation, any Tax liability asserted against Company arising out of
its inclusion in any consolidated return, (ii) for all Taxes allocated to the
Seller pursuant to Section 8.9.2, and (iii) for any reasonable costs and
expenses arising directly out of the imposition, assessment or assertion of any
such Taxes, including those costs incurred pursuant to the terms of this
Agreement in connection with the assertion or defense of any claim or assessment
for such Taxes (collectively, "OTHER AMOUNTS"). The Buyer shall indemnify and
hold harmless the Seller (i) for any and all Taxes of the Company imposed on the
Seller with respect to all taxable periods of the Company beginning after the
Closing Date, (ii) for all Taxes allocated to the Buyer pursuant to Section
8.9.2, and (iii) for any reasonable costs and expenses arising directly out of
the imposition, assessment or assertion of any such Taxes, including those costs
incurred pursuant to the terms of this Agreement in connection with the
assertion or defense of any claim or assessment for such Taxes.
8.9.2 If, with respect to any Tax, the taxable period of the Company
does not terminate on the Closing Date, the Tax (whether based on income,
capital, ownership of property or otherwise) attributable to the taxable period
of the Company that includes the Closing Date shall be allocated to (i) the
Seller for the period up to and including the Closing Date; and (ii) the Buyer
for the period subsequent to the Closing Date (plus amounts reserved therefor on
the Final Balance Sheet). Any indemnification hereunder shall be subject to the
procedures set forth in Section 7.3 hereof. For purposes of this section, Taxes
for the period up to and including the Closing Date shall be determined on the
basis of a closing of the books as of the Closing Date, except that any Tax
imposed annually based on ownership of assets on a particular date, or any
similar tax, shall be prorated to the period prior to and including the Closing
Date and the period thereafter. Where applicable, the parties agree to elect to
close the tax year as of the Closing Date by closing of the books.
8.9.3 The Seller shall prepare or cause to be prepared in a manner
consistent with past practice, and timely file or cause to be timely filed, all
Tax Returns of the Company with respect to periods ending on or before the
Closing Date. The Buyer and the Company shall furnish Tax information to the
Seller for inclusion in such Tax Returns in accordance with the Company's past
practice. The Buyer shall prepare or cause to be prepared in a manner consistent
with past practice, and timely file or cause to be filed, all Tax Returns of the
Company with respect to periods ending after the Closing Date. Buyer shall
deliver or cause to be delivered to the Seller all Tax Returns of the Company
for periods beginning prior to the Closing Date for Seller's
36
review and approval at least thirty (30) days prior to the due date thereof.
Seller shall deliver to the Buyer any Tax Returns relating to the Company for
periods beginning prior to the Closing Date for Buyer's review and approval at
least thirty (30) days prior to the due date thereof. Tax Returns which include
periods ending on or before the Closing Date, and which must be signed by an
officer of the Company, shall be delivered to the Buyer not less than fifteen
(15) days prior to the due date, including any extensions thereof. The Buyer
shall cause such Tax Returns to be signed by an officer of the Company promptly
after delivery of each such Tax Return.
8.9.4 Whenever any Taxing authority sends a notice of an audit,
initiates an examination of the Company, or otherwise asserts a claim, makes an
assessment, or disputes the amounts of Taxes for which the Seller is or may be
liable under this Agreement, the Buyer shall promptly inform the Seller. The
failure of the Buyer to notify the Seller promptly shall not relieve the Seller
of any obligations under this Agreement except to the extent such failure
prejudices Seller's ability to defend the claim. The Seller shall have the
complete right to control, at its cost, any resulting proceedings. The Buyer
shall have the right to attend the proceedings at its own expense. The Seller
may settle any such claim, assessment, or dispute to the extent such proceedings
or determinations affect the amount of Taxes for which the Seller is liable
under this Agreement, only with the prior consent of the Buyer, which consent
shall not be unreasonably withheld or delayed. Whenever any Taxing authority
sends a notice of an audit, initiates an examination of the Company, or
otherwise asserts a claim, makes an assessment or disputes the amount of Taxes
for which the Buyer is or may be liable under this Agreement, the Seller shall
promptly inform the Buyer. The Buyer shall have the right to control, at its
cost, any resulting proceedings and to determine whether and when to settle any
such claim, assessment, or dispute, except to the extent such proceedings or
determinations affect the amount of Taxes for which the Seller is liable under
this Agreement. This Section 8.9.4 shall be subject to the terms of Section 7.3.
8.9.5 Each of the Buyer and the Seller will provide the other with such
reasonable assistance as may be requested by either of them in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each will retain and provide the other with any records or
information which may be relevant to such Return, audit, or examination,
proceedings or determination. Such assistance shall include making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder and shall include providing
copies of any relevant Tax Return and supporting work schedules. The party
requesting assistance hereunder shall reimburse the other for reasonable expense
incurred in providing such assistance except with respect to the preparation of
any Tax Return. Without limiting in any way the foregoing provisions of this
Section 8.9.5, the Buyer hereby agrees that it will retain, until the
appropriate statutes of limitation (including any extensions) expire, copies of
all Tax Returns, work schedules and other records or information which it
possesses and which may be relevant to such Returns of the Company for all
Taxable periods ending on or prior to the Closing Date, and that such records
shall be maintained until the expiration of the applicable statute of
limitations, including any extensions thereof. The Buyer will not destroy or
otherwise dispose of such records without first providing the Seller a
reasonable opportunity to review and take possession of such records.
37
8.9.6 Any and all Tax sharing agreements or practices among or between
the Company on the one hand and the Seller or any of its affiliates on the other
hand shall be terminated as of the Closing Date and no payments relating thereto
shall be made subsequent to the Closing Date.
8.9.7 All powers of attorney authorizing any party to represent the
Company with respect to Taxes shall be terminated on or before the Closing Date.
8.9.8 At the Closing, the Seller shall furnish the Buyer with an
affidavit, as described in Section 1445(b)(2) of the Code, signed under penalty
of perjury, containing such shareholder's United States taxpayer identification
number, address, and a statement that Seller is not a foreign person.
8.9.9 The Company and the Buyer shall jointly and severally indemnify
the Seller and the Seller Indemnities against and hold them harmless from any
liability resulting from any Taxes and additions thereto of the Company or any
of its Affiliates with respect to any taxable period beginning after the Closing
Date and any liability for fees, costs and expenses (including reasonable
attorneys' fees) arising out of or incident to any examination, administrative
hearing or other proceeding before any Taxing authority or any judicial
authority with respect to an amount indemnified pursuant to this sentence.
8.9.10 If the Company incurs a net or capital loss, business credit or
other Tax attribute in a taxable period beginning after the Closing Date that
must be carried back to the Seller's consolidated, combined or unitary Tax
Return, the Company may file a refund claim or application for adjustment only
after receiving the written consent of the Seller, which may not be unreasonably
withheld. In the event the Seller is finally determined to be entitled to
receive a refund attributable to such claim or application, upon receipt of such
refund the Seller shall promptly pay the Company the amount of such refund
(including any interest received thereon from the Governmental Entity or
interest which would have been received from the Governmental Entity if the Tax
had not been credited).
8.10 STANDARD COLLECTION PROCEDURES. The Company shall, and the Buyer
shall cause the Company to, use the Buyer's standard collection procedures with
respect to its accounts and provide the Seller with monthly reports with respect
to such collections until the Settlement Date.
8.11 OVERDUE ACCOUNTS. The Buyer shall, between the Determination Date
and the Settlement Date, have the option to cause all contracts which are
Overdue Contracts (as defined in the definition of RMR) as of the Determination
Date ("CANCELABLE OVERDUE CONTRACTS") to be canceled effective as of the Closing
Date; PROVIDED that the Buyer and the Seller agree that any Cancelable Overdue
Contracts not so canceled shall not be deemed Overdue Contracts (as of the
Closing Date or otherwise) for the purpose of calculating the Company's RMR as
of the Closing Date as part of the purchase price adjustment described in
Section 1.3.
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8.12 INDEPENDENT INVESTIGATION. The Buyer acknowledges and agrees that
(i) as of the Closing Date, it shall have made its own inquiry and investigation
into, and, based upon thereon, will have formed an independent judgment
concerning, the Shares and, the Company, and their respective business; (ii) as
of the Closing Date, it shall have been furnished with or given adequate access
to such information as it has requested assuming compliance by the Seller with
the terms of this Agreement; and (iii) it will not assert any claim against the
Seller or any of its directors, officers, employees, agents, stockholders,
Affiliates, consultants or representatives, or hold any such persons liable for
any, inaccuracies, misstatements or omissions with respect to the Confidential
Memorandum furnished to the Buyer or other information (other than, with respect
to the Seller, the representations and warranties contained in this Agreement).
8.13 I.R.C. Section 338 (H) (10) ELECTION. Buyer and Seller shall
jointly make an election under Section 338(h)(10) of the Code and any
corresponding election under state and local tax laws with respect to the
purchase of the Shares under this Agreement, by timely executing and filing IRS
Form 8023 (or other applicable documents or instruments) in accordance with
Treasury Regulation Section 1.338(h)(10)-1(d)(2) (or such other applicable
regulations). The Seller shall pay any Tax attributable to the making of the
election and shall indemnify the Buyer, and the Company, with respect to any
such Tax. The Seller shall be liable for and shall indemnify the Buyer for any
Tax liability that may be imposed on the Company, or the Buyer, pursuant to
Treasury Reg. 1.1502-6 (or such other applicable regulation) for any pre-Closing
Date period.
8.14 PERS MONITORING. The Seller shall cause all PERS customers that
are monitored by the Company to be monitored by other than the Company prior to
the Closing Date. In the event any PERS customers are monitored by the Company
on or after the Closing Date, Seller shall, (a) as of the Closing Date enter
into the Company's standard form of wholesale or dealer monitoring services
agreement, pursuant to which the Seller shall (b) pay for (i) all labor costs,
(ii) any switch or communication costs, and (iii) all other costs incurred by
either the Company or the Buyer to monitor the PERS customers. Seller shall use
its best efforts to cause all such PERS customers to be monitored by other than
the Company as soon as practicable after the Closing Date.
8.15 CENTRAL STATION OPERATORS. Subject to compliance with all
applicable employment laws, as of the Closing Date the Buyer shall cause the
Company to either (i) retain central station operators and customer service
personnel in their current position(s), or (ii) offer central station operators
and customer service personnel, whose positions may be eliminated, another
position with the Company without any reduction in wage rate. Although all such
employees shall be "at will" employees, the Buyer shall cause the Company to use
commercially reasonable efforts to continue to employ all such employees for a
minimum of one year from the Closing Date.
8.16 TELEPHONE SWITCH. In the event the Company's telephone switch
and/or related equipment (collectively, the "Switch") does not process data and
voice communications in an accurate and timely manner to permit Buyer, and the
Company, to comply with all relevant (i) standards of Underwriters Laboratories,
Inc. or Factory Mutual Research Corporation, or (ii) industry custom and
practice, Seller shall indemnify Buyer, and the Company, for all costs and
39
expenses incurred in repairing or replacing the Switch, in Buyer's reasonable
discretion, from time to time as may be commercially reasonable (which costs and
expenses shall not exceed, in the aggregate, $250,000); PROVIDED, HOWEVER, that
notice of the decision to repair or replace the Switch shall be given to the
Seller on or before the Settlement Date.
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENT AND WAIVER. This Agreement may be amended and any
provision of this Agreement may be waived; PROVIDED that any such amendment or
waiver (a) will be binding upon the Seller (and the Company, prior to the
Closing) only if such amendment or waiver is set forth in a writing executed by
the Seller, and (b) will be binding upon the Buyer (and the Company, after the
Closing) only if such amendment or waiver is set forth in a writing executed by
the Buyer. No course of dealing between or among any Persons having any interest
in this Agreement will be deemed effective to modify, amend or discharge any
part of this Agreement or any rights or obligations of any party under or by
reason of this Agreement. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof will constitute
a waiver of any such breach or any other covenant, duty, agreement or condition.
The rights and remedies of the parties to this Agreement are cumulative and not
alternative.
9.2 NOTICES. All notices, demands and other communications given or
delivered under this Agreement will be in writing and will be deemed to have
been given when personally delivered or transmitted by telecopy (with written
confirmation of receipt) or two business days after being mailed by registered
or certified mail (return receipt requested) or one business day after being
sent or delivered by overnight document courier service (receipt requested).
Notices, demands and communications to the parties will, unless another address
is specified in writing, be sent to the addresses indicated below:
TO THE SELLER (OR TO THE COMPANY, PRIOR TO THE CLOSING):
Response USA, Inc.
3 Executive Campus
0xx Xxxxx Xxxxx
Xxxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Telecopy: 609/896-3535
40
WITH A COPY (WHICH COPY WILL NOT CONSTITUTE NOTICE) TO:
Xxxxx & Xxxxxxxx LLP
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopy: 617/345-3299
TO THE BUYER (OR TO THE COMPANY, AFTER THE CLOSING):
Vector Security, Inc.
0000 Xxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Telecopy: 610/825-4856
WITH A COPY (WHICH COPY WILL NOT CONSTITUTE NOTICE) TO:
Xxxxxxxxxx & Xxxxxx, LLP
0000 Xxxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxx, Esq.
Telecopy: (000) 000-0000
9.3 BINDING AGREEMENT; ASSIGNMENT. This Agreement and all of the
provisions hereof will be binding upon and inure to the benefit of the parties
and their respective successors and assigns; PROVIDED that neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned by the Seller (or the Company, prior to the Closing) without the prior
written consent of the Buyer and neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by the Buyer (or the Company,
after the Closing) without the prior written consent of the Seller. Subject to
the preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any
Transaction Document.
9.4 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid or unenforceable by any court of competent jurisdiction under
applicable law, such provision will be ineffective only to the extent of such
prohibition, or invalidity, or unenforceability, without invalidating the
remainder of such provisions or the remaining provisions of this Agreement.
41
9.5 NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent.
In the event an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties, and no
presumption or burden of proof will arise favoring or disfavoring any Person by
virtue of the authorship of any of the provisions of this Agreement.
9.6 CAPTIONS. The captions used in this Agreement are for convenience
of reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement will be enforced and construed
as if no caption had been used in this Agreement.
9.7 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein contain the entire agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which taken
together will constitute one and the same instrument.
9.9 GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by and construed in
accordance with the internal laws of the State of Delaware, without giving
effect to any choice of law or conflict of law provision (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware. In furtherance of the
foregoing, the internal law of the State of Delaware will control the
interpretation and construction of this Agreement (and all schedules and
exhibits hereto), even if under the jurisdiction's choice of law or conflict of
law analysis, the substantive law of some other jurisdiction would ordinarily
apply.
9.10 JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT BY OR
AGAINST THE COMPANY, THE SELLER OR THE BUYER WITH RESPECT TO THIS AGREEMENT, ANY
OTHER AGREEMENT CONTEMPLATED HEREBY OR ANY TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY MAY BE BROUGHT IN COURT OF CHANCERY OF THE STATE OF DELAWARE. BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY, THE SELLER AND THE BUYER
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS RESPECTIVE PROPERTIES, GENERALLY
AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURT, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT. THE COMPANY, THE SELLER AND THE BUYER HEREBY WAIVE ANY
CLAIM THAT
42
SUCH JURISDICTION IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF
VENUE.
9.11 WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY, THE SELLER AND THE
BUYER HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN
ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT
OF THIS AGREEMENT, ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR THEREBY OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
9.12 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer on any Person other than the parties and their
respective successors and permitted assigns any rights or remedies under or by
virtue of this Agreement.
9.13 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Where any accounting
determination or calculation is required to be made under this Agreement, such
determination or calculation (unless otherwise provided) will be made in
accordance with GAAP and with the Company's past practices consistently applied.
9.14 OTHER DEFINITIONAL PROVISIONS. The terms "hereof," "herein" and
"hereunder" and terms of similar import will refer to this Agreement as a whole
and not to any particular provision of this Agreement. Section, clause, Exhibit
and Schedule references contained in this Agreement are references to Sections,
clauses, Exhibits and Schedules in or attached to this Agreement, unless
otherwise specified. Each defined term used in this Agreement has a comparable
meaning when used in its plural or singular form. Each gender specific term used
in this Agreement has a comparable meaning whether used in a masculine, feminine
or gender-neutral form. Whenever the term "including" is used in this Agreement
(whether or not that term is followed by the phrase "but not limited to" or
"without limitation" or words of similar effect) in connection with a listing of
items within a particular classification, that listing will be interpreted to be
illustrative only and will not be interpreted as a limitation on, or an
exclusive listing of, the items within that classification. Each reference in
this Agreement to any Legal Requirement will be deemed to include such Legal
Requirement as it hereafter may be amended,
43
supplemented or modified from time to time and any successor thereto, unless
such treatment would be contrary to the express terms of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first written above.
RESPONSE USA, INC.
By: ____________________________________
Name:
Title:
UNITED SECURITY SYSTEMS, INC.
By: ____________________________________
Name:
Title:
THE JUPITER GROUP, INC.
By: ____________________________________
Name:
Title:
VECTOR SECURITY, INC.
By: _____________________________________
Name:
Title:
44
EXHIBIT A
DEFINED TERMS
As used in the Agreement to which this Exhibit A is attached, the following
terms will have the following respective meanings:
"AFFILIATE" when used with respect to any Person means any other Person
controlling, controlled by or under common control with such Person.
"APPROVAL DATE" has the meaning set forth in Section 3.2.
"BUYER" has the meaning set forth in the Preamble.
"CLOSING" has the meaning set forth in Section 1.4.
"CLOSING DATE" has the meaning set forth in Section 1.4.
"CODE" has the meaning set forth in Section 3.8(a).
"COMPANY" shall mean collectively, United Security Systems, Inc. and The Jupiter
Group, Inc., and Response Alarm Monitoring, LLC, a wholly owned subsidiary of
USS.
"CONSENT" means any consent, order, approval, authorization or other action of,
or any filing with or notice to or other action with respect to, any
Governmental Entity or any other Person which is required for any of the
execution, delivery or performance of this Agreement or any other Transaction
Document, the consummation of the transactions contemplated hereby or thereby,
or the conduct of the business or operation of the business of the Company, the
ownership of the Shares or the holding or utilization of any of the Company's
assets thereafter, whether such requirement arises pursuant to any Legal
Requirement or any agreement, including any of the foregoing which is required
in order to prevent a breach of or a default under or a termination or
modification of any agreement.
"CONSEQUENTIAL DAMAGES" means (a) Losses arising out of any interruption of
business, loss of profits, loss of goodwill or (b) any indirect, incidental or
special Losses, but expressly excluding, without limitation, any direct Losses.
"DETERMINATION DATE" means the four month anniversary of the Closing Date.
"EQUITY SECURITY" of any Person means (i) any capital stock, partnership,
membership, joint venture or other ownership or equity interest, participation
or securities (whether voting or non-voting, whether preferred, common or
otherwise, and including any stock appreciation, contingent interest or similar
right) and (ii) any option, warrant, security or other right (including debt
securities) directly or indirectly convertible into or exercisable or
exchangeable for, or
45
otherwise to acquire directly or indirectly, any stock, interest, participation
or security described in clause (i) above.
"ERISA" has the meaning set forth in Section 3.14.
"GAAP" means United States generally accepted accounting principles, as in
effect from time to time.
"GOVERNMENTAL ENTITY" means any government, agency, governmental department,
commission, board, bureau, court, arbitration panel or instrumentality of the
United States of America or any state or other political subdivision thereof
(whether now or hereafter constituted and/or existing) and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"HSR ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, and the regulations promulgated thereunder.
"INDEBTEDNESS" means without duplication, (i) any indebtedness for borrowed
money or issued in substitution for or exchange of indebtedness for borrowed
money, (ii) any indebtedness evidenced by any note, bond, debenture or other
debt security, (iii) any indebtedness for the deferred purchase price of
property or services with respect to which a Person is liable, contingently or
otherwise, as obligor or otherwise (other than trade payables and other current
liabilities incurred in the ordinary course of business which are not more than
six months past due), (iv) any commitment by which a Person assures a creditor
against loss (including contingent reimbursement obligations with respect to
letters of credit), (v) any indebtedness guaranteed in any manner by a Person
(including guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien (other than any Permitted Lien) on a Person's
assets, and (viii) any unsatisfied obligation for "withdrawal liability" to a
"multi-employer plan" as such terms are defined under ERISA.
"INDEMNIFIED PARTY" has the meaning set forth in Section 7.3(a).
"INDEMNIFYING PARTY" has the meaning set forth in Section 7.3(a).
"INSIDER" means any stockholder, officer or director of either the Seller or the
Company, any affiliate or natural or adoptive member of the immediate family of
any of the foregoing Persons, or any Person in which any of the foregoing
Persons directly or indirectly owns any material beneficial interest. The
"Immediate Family" of any individual means such individual's (and such
individual's present or former spouse's) grandparents, parents, spouse,
siblings, children and grandchildren.
"INVESTIGATING PARTIES" has the meaning set forth in Section 2.2(a).
46
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" when used in reference to (i) the Company and/or Seller means the
actual knowledge of Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx or Xxxxxx Xxx, and (ii) the
Buyer means the actual knowledge of Xxxx Xxxxxx.
"LATEST BALANCE SHEET" has the meaning set forth in Section 3.5.
"LEGAL REQUIREMENT" means any federal, state and local laws, statutes, codes,
rules, regulations, ordinances, judgments, orders, decrees and the like of any
Governmental Entity, including common law.
"LIEN" means any mortgage, pledge, hypothecation, lien (statutory or otherwise),
preference, priority, security agreement or other encumbrance of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement and any lease having substantially the same effect as any of the
foregoing and any assignment or deposit arrangement in the nature of a security
device).
"LOSS" has the meaning set forth in Section 7.2(a).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the Shares or the
business, operations, financial condition or results of operations of the
Company, taken as a whole.
"XxXXXX FACILITY" means the Receivable Financing Agreement dated as of June 30,
1999 among Response Alarm Monitoring, LLC, XxXxxx, Xxxxx Acceptance Corp. and
USS.
"NET ENTERPRISE VALUE" means, as of any date, the amount determined pursuant to
the Net Enterprise Value Schedule attached hereto.
"PERMITTED LIENS" means
(1) liens securing the payment of Taxes which are not yet due and
payable or which are being contested in good faith by appropriate proceedings;
(2) easements, rights-of-way, reservation of rights, conditions or
covenants, zoning, building or similar restrictions or other restrictions or
encumbrances that do not, individually or in the aggregate, materially interfere
with the further conduct of the business of the Company;
(3) restrictions on transfer imposed under state or federal securities
laws;
(4) the lessors' and sublessors' rights under the leases of real and
personal property by the Company as lessee which are part of the Company's
assets;
47
(5) mechanics', carriers', workers', repairers', and similar
non-consensual Liens arising by operation of law and relating to obligations
which secure only liabilities which are not yet due and payable on the Closing
Date; and
(6) those Liens listed on SCHEDULE 3.7B.
"PERSON" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or any Governmental Entity.
"PROPRIETARY RIGHTS" means all of the following items, along with all income,
royalties, damages and payments due or payable at the Closing or thereafter,
including damages and payments for past, present or future infringements or
misappropriations thereof, the right to xxx and recover for past infringements
or misappropriations thereof and any and all corresponding rights that, now or
hereafter, may be secured throughout the world: patents, patent applications,
and any reissue, continuation, continuation-in-part, division, revision,
extension or re-examination thereof, trademarks, service marks, trade dress,
logos, trade names and corporate names together with all goodwill associated
therewith, copyrights (registered or unregistered); and all registrations,
applications and renewals for any of the foregoing; licenses or other agreements
to or from third parties regarding the foregoing; and all copies and tangible
embodiments of the foregoing (in whatever form or medium), in each case
including the items set forth on SCHEDULE 3.10.
"RMR" means, without duplication, as of any date, the sum of (i) commercial
service contract revenue, (ii) residential service contract revenue, (iii)
municipal service contract revenue, (iv) inspection contract revenue, (v) patrol
service contract revenue and (vi) dealer monitoring revenue, in each case
billable to customers of the Company for a one-month period (regardless of
whether billed monthly or less frequently) including only customers served under
written or oral customer contracts that are then in full force and effect which
are: (a) assignable without the consent of any third party, (b) acceptable to
the Buyer's errors and omissions insurance carrier, and (c) except in the case
of (v) above, only for the provision of monitoring, leasing, inspection and
maintenance of burglar, fire, sprinkler, and other monitoring systems.
Notwithstanding the foregoing, RMR, shall not include any amounts derived from:
(A) direct wire telephone line charges and other telephone line charges, such as
derived channel and multiplex receiver line charges, and other direct
pass-through charges; (B) reimbursement for or prepayment of any false alarm
assessment; (C) reimbursement for or prepayment of amounts in respect of Taxes,
fees, monitoring charges or other charges imposed by any Governmental Entity or
authority relating to the provision of alarm services or the leasing of alarm
systems; (D) customers who have canceled their accounts prior to Closing or who
have notified the Company prior to Closing of their intent to cancel their
accounts following the Closing Date; (E) time and material service revenue or
other revenues that are not received on a regular and recurring basis; (F)
installation purchase payments made by customers or amounts representing
discounts offered for payment in advance for monitoring services to be rendered
or representing payments to be applied towards the customers' purchase of the
alarm security system; (G) any customer if the customer is not "on-line" for
monitoring, leasing, inspection or maintenance service; (H) late charges,
interest fees, or similar charges assessed against the customers; or (I) alarm
services to be provided under any
48
contract as to which the customer is in arrears on any payments relating to
regular and recurring services pursuant to such contract for a period in excess
of one hundred twenty (120) days ("OVERDUE CONTRACTS") as of such date; PROVIDED
that any contract, which is an Overdue Contract as of the Closing Date but which
is not an Overdue Contract as of the Determination Date, shall not be treated as
an Overdue Contract (as of the Closing Date or otherwise) for the purposes of
determining the Company's RMR as of the Closing Date as part of the purchase
price adjustment described in Section 1.3.
"SALE TRANSACTION" has the meaning set forth in Section 2.2(b).
"SELLER" has the meaning set forth in the Preamble.
"SETTLEMENT DATE" has the meaning set forth in Section 1.3(b).
"TAX" (and, with correlative meaning, "TAXES", "TAXABLE" and "TAXING") has the
meaning set forth in Section 3.8(a).
"TAX RETURNS" has the meaning set forth in Section 3.8(a).
"TRANSACTION DOCUMENTS" means this Agreement the other agreements to be executed
and delivered in connection with this Agreement.
"WORKING CAPITAL" means, as of any date, the total current assets, but excluding
intercompany accounts of the Company as of such date, less the total current
liabilities excluding intercompany accounts of the Company and Taxes as of such
date, each as determined in accordance with GAAP and with the Company's past
practices consistently applied.
"YEAR 2000 COMPLIANCE" means that any software, hardware or firmware used by
Company on or after January 1, 1999 or January 1, 2000 will not produce errors
and will continue performing properly and accurately creating, processing,
exchanging, recording, storing, manipulating or presenting time/date-related
data in the same manner and with the same functionality as it performed before
January 1, 1999 or January 1, 2000, including leap year calculations, provided
that all other products (e.g., other software, hardware and firmware) used with
it or with which it interacts properly exchange time/date-related data with the
Company's software, hardware or firmware.
