STOCK PURCHASE AGREEMENT
AGREEMENT made as of the 10th day of October, 2005 by and
among XXXXX BROS. ELECTRONICS, INC. ("Buyer"), a Colorado corporation, having an
address at 000 Xxxxxxx Xxxxxx, Xxxxxx Xxxxx, Xxx Xxxxxx 00000, XXXXX BROS.
ELECTRONICS, INC. ("Parent"), a Delaware corporation, having an address at 000
Xxxxxxx Xxxxxx, Xxxxxx Xxxxx, Xxx Xxxxxx 00000, SECURUS, INC. ("Company"), a
Colorado corporation, having an address at 00000 X. 00xx Xxx., Xxxxxx, Xxxxxxxx
00000, Xxxx Xxxxxx Trust ("PM Trust"), a trust having an address at 000 Xxxxx
Xxxxxxx, Xxxxxx, Xxxxxxxx 00000, Xxxxxxx X. Xxxxxx Trust ("PCM Trust"), a trust
having an address at 000 Xxxxx Xxxxxxx, Xxxxxx, Xxxxxxxx 00000, Xxxx Xxxxxx
("Xxxx Xxxxxx"), an individual having an address at 000 Xxxx Xxxxxxxxx,
Xxxxxxxxx, Xxxxxxxx 00000, and Xxxxxxx Xxxxxx ("Xxxxxxx Xxxxxx"), an individual
having an address at 00 Xxxxxxxxx Xxxxx, Xxxxxxxxx, Xxxxxxxx 00000 (each of PM
Trust, PCM Trust, Xxxx Xxxxxx and Xxxxxxx Xxxxxx is hereinafter referred to
individually as a "Seller" and collectively as the "Sellers").
W I T N E S S E T H:
WHEREAS, PM Trust is the owner of 15.676 shares (13.873% of
Company), PCM Trust is the owner of 13.676 shares (12.103% of Company), Xxxx
Xxxxxx is the owner of 41.824 shares (37.012% of Company) and Xxxxxxx Xxxxxx is
the owner of 41.824 shares (37.012% of Company) of the capital stock, no par
value, of the Company (collectively, the "Shares"), which Shares constitute all
of the presently issued and outstanding securities of the Company of every
class;
WHEREAS, Sellers have agreed to sell, and Buyer has agreed to
purchase, all of the Shares upon the terms, subject to the conditions and in
reliance on the representations and warranties hereinafter set forth;
NOW, THEREFORE, in consideration of the respective agreements
hereinafter set forth, the parties agree as follows:
ARTICLE ONE
SALE OF SHARES, CONSIDERATION, PAYMENT AND RELATED MATTERS
On the basis of the representations and warranties contained
in and subject to the terms and conditions of this Agreement:
1.1 Sale. Sellers shall at the Closing (as hereinafter
defined) sell, assign, transfer, convey and deliver to Buyer, and Buyer shall
purchase, the Shares, free and clear of all liens, claims, charges, equities,
encumbrances, restrictions and voting agreements of every kind, for the
consideration, and payable as hereinafter provided. Certificates for the Shares
shall be delivered by Sellers to Buyer at the Closing duly endorsed, or
accompanied by stock powers duly endorsed, in blank. The certificates for the
Shares and stock powers, if any, shall be delivered at the Closing to the
Company which shall promptly issue new certificates for the Shares, in the
amounts the Buyer shall request, in the name of Buyer.
1.2 Purchase Price and Payment.
(a) The aggregate purchase price for the Shares shall be
determined as specified in Sections 1.2(b), 1.2(c), and 1.2(d) (the
"Purchase Price").
(b) [Intentionally left blank]:
(i) At the Closing, Buyer shall pay the following sums
to Sellers, in accordance with the wiring instructions provided
to the Buyer by the Sellers, by wire transfer in immediately
available funds:
Seller Amount Percentage
PM Trust $106,822.10 13.873%
PCM Trust $93,193.10 12.103%
Xxxx Xxxxxx $284,992.40 37.012%
Xxxxxxx Xxxxxx $284,992.40 37.012%
----------- -------
Total $770,000.00 100.000%
2
(ii) On the Closing or as soon thereafter as may be
practicable, Buyer shall, or shall cause the Company to, repay
the existing bank debt on the balance sheet of Company for the
period ended August 31, 2005, in an amount not to exceed
$240,000, and shall assume, or shall cause the Company to assume,
and cause Sellers to be released therefrom, to the extent
permitted by obligee(s), any and all guarantees of Sellers which
may relate to bonding requirements, vendor obligations
(including, but not limited to, any guarantees to PSA Security
Network) or the like, given by one or more of the Sellers on
behalf of Company and disclosed on Sellers' Schedule 1.2. Sellers
shall promptly, without compensation, execute all documents
reasonably necessary to accomplish the foregoing.
(c) On or within fifteen days of the Closing, Parent shall
issue in the name of the Sellers, according to such Seller's percentage
interest in the Company specified in Section 1.2(b)(i) to the nearest
whole share amounts, one hundred fifty thousand (150,000) shares of
common stock ($.01 par value) of Parent (the "Contingent Shares"),
which shares shall be held in escrow pursuant to the Escrow Agreement
attached hereto as Exhibit "A" and shall be delivered to the Sellers in
accordance with this Subsection and the Escrow Agreement.
(i) Each of December 31, 2006, December 31, 2007,
December 31, 2008, December 31, 2009 and December 31, 2010 shall
be deemed a "Determination Date."
3
(ii) Within ten days of the date the Parent files its
annual report on Form 10-K or such other comparable form, a
calculation in the form of a fraction shall be made, using as the
numerator the amount in dollars of the Company's cumulative
earnings before interest and taxes ("EBIT") from the date of
Closing through such Determination Date and using as the
denominator the number "$2,960,000" (the "Calculation").
(iii) Such Calculation shall in each case be
multiplied by the total of Contingent Shares (150,000) to
determine the cumulative number of Contingent Shares earned, as
of such Determination Date, the "Earned Shares."
(iv) Promptly after the number of Earned Shares has
been determined with respect to a particular Determination Date,
the Buyer shall provide such determination to the escrow agent
specified in the Escrow Agreement and the aggregate number of
Earned Shares as of such Determination Date reduced by the number
of Earned Shares previously distributed to the Sellers, if any,
shall be released from escrow and delivered to the respective
Sellers.
(v) Any Contingent Shares that have not become Earned
Shares on the last Determination Date shall promptly be released
from escrow to be cancelled and returned to the Company's
authorized but unissued common stock.
(vi) The initial calculation of EBIT shall be made by
Parent and shall be based on the same method of accounting and
accounting principles as used by Parent for its other businesses
of the same type as the Company. Upon
4
calculation of EBIT as of a particular Determination Date, Parent
shall provide the calculation to Sellers. If Sellers object to
the calculation within five (5) business days of Parents
providing them with such calculation, the Sellers shall
thereafter have an additional twenty (20) business days to at
Sellers' cost and expense have an independent certified public
accountant review the calculation, and Parent shall cooperate
with such review by making books and records available. If,
following the review by the independent certified public
accountant, a disagreement exists with respect to the
calculation, the matter may be submitted to binding arbitration
in accordance with Section 1.2(f).
(d) Second Earn-out. In the event that all Contingent
Shares shall have become Earned Shares at any time prior to the final
Determination Date, on each remaining Determination Date, the Sellers
will receive an additional payment amount within ten days of the date
the Parent files its annual report on Form 10-K or such other
comparable form equal to one-third (1/3) of the Company's cumulative
EBIT from the date of closing through such Determination Date in excess
of $2,960,000, if any, up to a maximum payment hereunder of Two Hundred
Thousand Dollars ($200,000) (the "Second Earn-Out").
(e) During the earn-out period described above, Buyer
shall manage the Company in such a way that the Company shall only
incur such costs reasonably necessary for the Company to generate
revenue and cover operating expenses, and the Company shall be managed
in a manner to increase earnings and not reasonably interfere with the
earn-out rights of Sellers. Buyer will not be charged any overhead cost
5
allocations or other expenses of Parent or any related entity not
directly related to or reasonably necessary for the Company's ongoing
business.
(f) If there is a dispute between the parties with respect
to any matter in Sections 1.2(c), (d) and (e), such dispute shall be
submitted to binding arbitration in New York, before a single
arbitrator agreed on by the parties, or if they cannot agree, appointed
by JAMS. The arbitrator shall award costs (including, but not limited
to, travel costs) and attorneys' fees to the prevailing party as a part
of his judgment.
(g) Payment, if any, of the Earned Shares and the Second
Earn-Out shall be made according to the Sellers' Percentages listed in
Section 1.2 (b)(i).
1.3 Additional Closing Transactions.
(a) At or prior to the Closing the following transactions,
shall be settled among the Sellers and the Company:
(i) the Company's shareholder advance asset (owed by a
Seller), in the amount of $41,351 (at July 31, 2005) will be
forgiven (the "Shareholder Advance");
(ii) the life insurance policy on Xxxx Xxxxxx, a
Seller, will be transferred by the Company to Xxxx Xxxxxx, and
the Sellers prior to the Closing shall provide the Buyer with
written proof of such transfer and the amount of the cash
value of the insurance policy at the time of the transfer; and
(iii) the Company's deferred compensation liability
(owed to one or more of the Sellers), in the amount of
$75,983.15 (the amount as October 7, 2005) less the sum of (A)
the amount of the forgiven Shareholder Advance identified in
Section 1.3(a)(i) plus (B) $ 25,736 (the amount of the cash
surrender
6
value of the life insurance policy identified in Section
1.3(a)(ii)) will be paid to Xxxx Xxxxxx and the Sellers prior
to the Closing shall provide the Buyer with written proof of
such payment including the amount of such payment.
(iv) Within 15 days of receipt of appropriate
documentation of the credit card balance listed on Section
3.13 of the Sellers' Schedule and provided the credit card
expenses are reasonably related to the business of the
Company, the Company shall pay Xxxxxxx Xxxxxx up to
$27,261.49, Xxxx Xxxxxx up to $10,206.62, and Xxxx Xxxxxx up
$26,241.54 in full payment and satisfaction of Sellers' claims
against the Company.
(b) Sellers shall promptly execute without compensation
all documents reasonably necessary to accomplish the transactions
described in (i) through (iv) of Subsection 1.3(a). The transactions
described in (i) through (iv) of Subsection 1.3(a) constitute the full
and final obligations of the Buyer, the Company and the Parent with
respect thereto, and the Buyer, the Company and the Parent shall not
have any further obligations in connection with such transactions.
Without limiting the generality of the foregoing, any taxes owed as a
result of the distributions made pursuant to subsection 1.3(a) (i)
through 1.3(a) (iv) shall be paid by the recipient of such
distribution.
1.4 Change of Control Provision.
(a) For purposes of this Section 1.4, a "Change of
Control" of the Parent shall be deemed to have occurred upon:
(i) The consummation of a transaction resulting in the
reorganization, merger or consolidation of the Parent with one
or more persons, in which the Parent is not the surviving
entity;
7
(ii) The acquisition of (A) all or substantially all
of the assets of the Parent or (B) beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Securities and Exchange Act of 1934) of more than 50% of the
outstanding securities of the Parent entitled to vote
generally in the election of directors by any person or by any
persons acting in concert; or
(iii) A complete liquidation or dissolution of the
Parent.
(b) In the event that a Change of Control of Parent shall
be deemed to have occurred at any time prior to the final Determination
Date, then (A) all then remaining Contingent Shares which are not
Earned Shares and which have not been distributed to the Sellers shall
thereupon be deemed to be Earned Shares as of the date of the Change of
Control and shall be forthwith distributed to the Sellers, and (B) the
Second Earn-Out described in Section 1.2(d) shall be deemed to have
been fully earned and shall forthwith be paid to the Sellers.
1.5 Post-Closing Audit and Fees.
Immediately following the Closing, an audit of the financial
statements of the Company for the year ended February 28, 2005, in order to
comply with the Parent's SEC Regulation 8-K reporting requirements, shall be
performed by a certified public accountant selected by Sellers and agreeable to
Buyer. All Sellers will provide, without compensation such assistance as may be
required and the audit fee expenditure associated with such audit shall be borne
by Buyer, provided that:
(a) In the event audit fees exceed $50,000, any amount in
excess of $50,000 shall be reimbursed to Buyer on a pro rata basis by
Sellers; and
8
(b) In the event that any circumstances occur which result
in the delayed availability of the audited financial statements past
the later of (i) the applicable filing date for the Parent's Report on
Form 8-K or (ii) sixty (60) days after the date of Closing, the audit
fee shall be reimbursed on a pro rata basis by Sellers.
(c) Any payment or reimbursement required by (a) or (b)
above shall be made by Sellers to Buyer within five (5) days of Buyer's
demand thereof.
ARTICLE TWO
CLOSING AND RELATED MATTERS
2.1 Closing. The consummation of the transactions contemplated
by this Agreement (the "Closing") will take place at such date, location and
time as may be mutually agreeable to the parties hereto.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally represent and warrant to and
agree with Parent and Buyer that, except as otherwise set forth or referred to
in this Agreement or enumerated upon a separate schedule dated and executed
contemporaneously herewith from the Sellers (hereinafter referred to as the
"Sellers' Schedule").
3.1 Corporate Organization, Standing and Subsidiaries. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of Colorado and has all requisite corporate power and authority
to conduct its business and own, lease and operate its properties as and in the
places where such business is now conducted and such properties are now owned,
leased or operated. Copies of the Articles of Incorporation, By Laws and minutes
of the Company heretofore delivered to Buyer are true, correct and complete
copies of each thereof, in the case of the Articles of Incorporation and By Laws
each as amended to date and presently in full force and effect. At the Closing,
Sellers shall deliver to Buyer a certificate to the
9
foregoing effect executed by the Company's Secretary. The Company is duly
qualified and in good standing under the laws of each jurisdiction where the
failure to be so qualified reasonably could be expected to have a material
adverse effect on the Company. The Company has no subsidiaries. The Company has
no interest in any partnership, corporation or other entity, other than as set
forth in the Sellers' Schedule.
3.2 Capital Stock, Ownership, Etc.
(a) The authorized securities of the Company consists of
50,000 shares of Common Stock, no par value, of which the Shares are
the only issued and outstanding securities. The Shares are duly and
validly issued and outstanding, fully paid and non-assessable, with
no personal liability attaching to the ownership thereof. The Company
has no outstanding subscriptions, options, warrants, rights, calls
or other agreements, obligations or commitments of any kind to issue,
sell or purchase, or convert any obligations into, any securities
of any kind or class.
(b) The Sellers are the sole record and beneficial owners
of the Shares, in each case free and clear of all liens, claims,
charges, equities, encumbrances, restrictions, options and voting
and other agreements of every kind, and each Seller has full and
unrestricted right and authority to sell and transfer its Shares to
Buyer in accordance with this Agreement and is conveying to Buyer good
and unencumbered title thereto.
3.3 Financial Statements; Financial Condition and Changes.
(a) The compiled financial statements of the Company for
the fiscal year ended February 28, 2005 and for the interim period
ended August 31 2005, including balance sheets and statements of
operations and retained earnings heretofore
10
delivered by the Sellers to Buyer (the "Compiled Financial Statements") are
true, correct and complete in all material respects and in conformity with the
books and records of the Company, consistently applied through the periods
covered (except as otherwise stated therein) and fairly present in all material
respects the financial condition and results of operations of the Company as at
the dates thereof and for the periods covered thereby. Except as set forth in
the Sellers' Schedule, there have been no occurrences or developments since
August 31, 2005, which would require any material adverse changes to be made in
the Compiled Financial Statements.
(b) Except as set forth in the Sellers' Schedule, as of
the date of this Agreement, the Company has no liabilities or obligations of any
kind, whether absolute, accrued, contingent, or otherwise, other than those (i)
set forth or referred to in the Compiled Financial Statements, (ii) incurred
since August 31, 2005 in the ordinary course of business, and (iii) to be
performed under (A) executory agreements entered into in each case in the
ordinary course of business and of a type not required under generally accepted
accounting principles to be reflected or disclosed in financial statements, and
(B) the other agreements listed or referred to in the Sellers' Schedule or
elsewhere in this Agreement (but excluding any claim of or liability for breach
by the Company of any such agreements), but only to the extent that the
liabilities and obligations referred to in the preceding clauses (i) through
(iii) inclusive do not otherwise constitute a breach of any of the other
representations or warranties of the Seller in this Article III or elsewhere in
this Agreement.
(c) Except as set forth in the Sellers' Schedule, since
August 31, 2005, there have been no changes in the financial condition, assets,
liabilities, operating results
11
or business of the Company other than changes in the ordinary course of
business, none of which has been, individually or in the aggregate, materially
adverse, nor any material damage, destruction or loss of any of its property,
and the business and operations of the Company have been conducted only in the
usual, regular and ordinary course. Without limiting the generality of the
foregoing, since August 31, 2005, the Company has not (i) declared or paid, or
set aside for payment, any dividend or other distribution in respect of its
outstanding securities, (ii) entered into any material agreements or
transactions or incurred any material liabilities or obligations other than in
each case in the ordinary course of business and none of which, individually or
in the aggregate, has been or to the best of the Sellers' knowledge and belief
will be materially adverse; (iii) borrowed or agreed to borrow any money or
loaned or agreed to loan to, or guaranteed or agreed to guarantee the
obligations of, any person; (iv) canceled, compromised or waived any amounts
owing to or any claims heretofore made by it except for immaterial amounts in
the ordinary course of business or otherwise waived, surrendered or released any
material rights, contractual or other; (v) acquired any assets, tangible or
intangible, subject to, or subjected any of its assets, tangible or intangible,
to, any mortgage, pledge, lien, security interest or other encumbrance; (vi)
sold, leased, abandoned or otherwise disposed of any of its property, tangible
or intangible, or interests therein, other than in the ordinary course of
business; (vii) made any increase in the compensation payable to any of its
employees or agents, or agreed so to do, or paid or agreed to pay any deferred
compensation or bonus to any such person, or entered into any employment
agreement with any such person, other than in the ordinary course of business,
or established any incentive, deferred compensation or other employee benefit
plans or arrangements, other
12
than in each case those terminable by the Company without payment or penalty on
not more than fourteen days notice or those required by any collective
bargaining agreements referred to in the Sellers' Schedule or elsewhere in this
Agreement; (viii) terminated or agreed to terminate any material contract,
agreement or other arrangement or relationship with any of its major suppliers
or customers or lost, or received information that it may lose, the business of
any customer or customers; (ix) made or entered into any agreement or commitment
to make any capital expenditures requiring the payment after the date of this
Agreement of more than $1,000 in the aggregate; (x) experienced any material
labor troubles or disputes; or (xi) to the best of the Sellers' knowledge,
experienced any other event or condition of any character which has materially
adversely affected or may in the future materially adversely affect its assets,
business, operations or prospects.
(d) The books of account and other records of the Company
are in all material respects complete and correct, have been maintained in
accordance with good business practices and accurately reflect the information
contained therein.
(e) Sellers' Additional Balance Sheet Warranty. In
addition to any other representation and warranty of Sellers contained in
this Agreement, the Sellers jointly and severally collectively warrant that, at
Closing and thereafter, the Company's last pre-Closing Balance Sheet shall be
free of errors, inaccuracies, misrepresentations or omissions. Any negative
adjustments to the Balance Sheet that are required to be made in accordance with
GAAP within five (5) years of Closing for matters that should have been
reflected at Closing, exceeding in the aggregate five percent (5%) of the total
assets of the Company as reflected on the pre-Closing Balance Sheet, will result
in a corresponding offset, first against the number of Contingent Shares
(calculated for this
13
purpose at a per share value of $4.00) allocated to Sellers, or if all
Contingent Shares have become Earned Shares, against the Second Earn-Out.
Notwithstanding anything to the contrary in this Agreement, (i) the sole remedy
of Buyer and Parent with respect to the matters described in this Section 3.3(e)
shall be the earn out reductions specified in this Section, and (ii) only
negative adjustments to the Balance Sheet resulting for reasons other than as
may result from the post closing audit described in Section 1.5 or for matters
disclosed to Buyer in the Sellers' Schedule shall result in an offset pursuant
to this Section 3.3(e).
3.4 Taxes; Tax Returns.
(a) The Company (i) has filed, or will file before the
date due, all applicable Federal, state, county and local tax and franchise
returns and reports required to be filed by it as of August 31, 2005 and has
paid (or, as to taxes not currently due and payable, has made adequate provision
for the payment of) all income and other taxes, assessments, franchise fees and
other governmental charges required by law (including, without limitation,
withholding, social security, payroll and similar taxes) and all interest and
penalties, if any, thereon and (ii) is not a party to any pending action or
proceeding by any governmental authority for the assessment or collection of any
taxes, assessments, franchise fees or other governmental charges and no claim
for any thereof is pending or to the best of Sellers' knowledge threatened.
Copies of the Company's Federal tax return for the fiscal year ended February
28, 2005, heretofore delivered to Buyer, and are true, correct and complete.
14
(b) Sellers shall file all Federal, state, county and
local tax returns and reports required to be filed by the Company
for the interim period ended August 31, 2005, no later than their
respective due dates.
3.5 Material Agreements. The Sellers' Schedule contains, among
other things, a true, correct, and complete list of (and, except as therein set
forth, the Company is not a party to nor is it or any of its properties or
assets bound by or subject to) any material written or oral agreement,
commitment or understanding (i) not made in the ordinary course of business;
(ii) relating to loans, credits and guarantees, whether to or for the benefit of
or made by the Company; (iii) for the purchase or leasing by or furnishing to
the Company of any merchandise, supplies or services not to be performed within
three months or individually or in the aggregate representing a commitment by
the Company of more than $1,000; (iv) for the sale, leasing or furnishing by the
Company of any merchandise, supplies or services; (v) relating to the employment
of any person or with any labor union or association not terminable without
penalty or premium on notice of fourteen days or less; (vi) involving incentive,
bonus or deferred compensation plans or arrangements or stock option, stock
purchase or similar plans or arrangements; (vii) for the leasing of any
property, real or personal, whether as lessor or lessee; (viii) relating to the
furnishing of brokerage, agency, dealer, distributorship, sales representative,
consulting or advertising services, whether to, for or by the Company; (ix)
relating to partnerships or joint ventures or involving the sharing of profits;
(x) providing for the furnishing of services or the sale of property by the
Company for less than the fair value thereof; or (xi) providing for
expenditures, capital or otherwise, in excess of $1,000 individually or in the
aggregate. All such agreements are valid, binding, and enforceable in accordance
with their respective provisions, performance by the Company of any thereof will
not, individually or in the
15
aggregate, have any material adverse effect on the business, assets, operations
or financial condition of the Company, and true and complete copies of all such
agreements which are in writing have been delivered or made available to Buyer
except as otherwise indicated in the Sellers' Schedule.
3.6 Property Leases.
(a) The Company has good and marketable title to all of
its assets, real, personal and mixed, tangible and intangible, in each
case free and clear of all liens, security interests, claims, charges
and encumbrances except (i) as expressly set forth in the Sellers'
Schedule and (ii) the lien, if any, of current taxes not yet due and
payable. All machinery, fixtures, equipment and similar assets of, and
all real property of or leased by the Company are in good operating
condition and repair.
(b) All leases to which the Company is a party are listed
on the Sellers' Schedule.
(c) All leases to which the Company is a party are in good
standing, and are valid, binding and enforceable in accordance with the
respective provisions thereof.
3.7 Default. Except as set forth in the Sellers' Schedule,
neither the Company nor, to the best of Sellers' knowledge, any other party
hereto is in material violation of or default under, and no event (including,
without limitation, execution of and consummation of the transactions provided
for in this Agreement) has occurred which with the passage of time or notice
from or action by any party thereto or otherwise could result in a material
breach of or default under, or give any other person the right to terminate, as
the case may be, any material indenture, mortgage, security, loan, lease or
other agreement (including, without limitation, those
16
listed or referred to in the Sellers' Schedule) to which the Company is a party
or by which it is bound or to which any of its assets are subject or result in
the creation, imposition or acceleration of any material lien, encumbrance,
charge, equity or restriction of any nature in favor of any other person upon
any of the assets of the Company.
3.8 Permits; Compliance with Laws. The Company possesses all
necessary valid licenses, permits, franchises, consents, authorizations and
approvals of or from governmental departments, agencies and instrumentalities
for the business and operations of the Company as presently conducted and is not
in material default with respect to nor in violation of, and has not received
notice of any violation of or of any proceedings for the termination or
revocation of, any such license, permit, franchise, consent, authorization or
approval or any applicable Federal, state, local or foreign law, statute,
ordinance, regulation, order or requirement relating to its business, operations
or assets, or the use thereof, which default or violation could have a
materially adverse affect upon its business, operations or assets. The Sellers'
Schedule includes a list (including expiration dates) of all material licenses,
permits, consents, authorizations and approvals of or from governmental
departments, agencies and instrumentalities held by the Company in the conduct
of its business.
3.9 Employee Benefit Plans. The Sellers' Schedule includes a
list of all Company Benefit Plans between the Company and any of its employees
whereby the Company is obligated to provide any benefit to any employees arising
out of the employment relationship. As used herein, the term "Benefit Plan"
shall mean any "employee benefit plan" within the meaning of ERISA Section 3(3)
and the term "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended. Except as set forth in the Sellers' Schedules, the
17
Company's Benefit Plans are fully funded, as of August 31, 2005, and
maintained in accordance with its terms and Summary Plan Description.
3.10 Intangible Rights. Except as set forth in the Sellers'
Schedules, the Company does not own any Intangible Rights. As used herein, the
term "Intangible Rights" means and includes all right, title and interest in, to
and under, any United States and foreign patents, trademarks, trade names, trade
styles, service marks, designs, copyrights and labels, together in each case
with all registrations, applications, recordings, reissuances, extensions,
renewals, licenses and rights, if any, and all books, records, documents,
advertising materials, brochures, and instruments, thereof or therefor or
relating thereto, the goodwill of the business symbolized thereby, and all
claims against third parties for violation or infringement of any thereof.
3.11 Litigation. Except as set forth in the Sellers' Schedule,
there are no actions, suits, claims, arbitrations, administrative or other
proceedings or governmental investigations pending or, to the best of the
Sellers' knowledge, threatened against, relating to or affecting the Company or
its business, operations or assets, whether or not fully covered by insurance,
or which question or seek to prevent consummation of the transactions provided
for in this Agreement, whether at law or in equity, or before or by any Federal,
state, local, foreign or other governmental department, agency or
instrumentality nor to the best of Sellers' knowledge is there any basis
therefor. The Company is not bound or adversely affected by or in default with
respect to any judgment, order, writ, injunction or decree of any court or of
any governmental department, agency or instrumentality.
3.12 Employees; Insurance; Banks; Etc. The Sellers' Schedule
contains a complete and correct list and, where applicable, a summary
description of:
18
(a) The names, employment job titles and current annual
rates of compensation paid by the Company to each employee or agent.
(b) All insurance policies of the Company (including
insurance on the lives of any employees of the Company) and
performance, surety and similar bonds presently in force and effect
with respect to the business, operations and assets of the Company, all
of which policies and bonds are validly outstanding and in full force
and effect. The Company has not been advised that any insurer or surety
intends or proposes to cancel any such policy or bond prior to the
present expiration or termination date thereof or to increase the
applicable premium rate, rate classification or charge therefor prior
to or following such expiration or termination date or is unwilling to
renew or extend any such policy or bond following its normal expiration
or termination date.
(c) The names of each bank in which the Company maintains
an account or safe deposit box and of each security broker with which
the Company maintains an account (including, in each case, the name and
account number or other designation thereof) and the names of all
persons authorized to draw thereon or to give instructions with respect
or having access thereto.
(d) The names of all persons, if any, holding tax, customs
and other powers of attorney from the Company and a brief description
thereof.
3.13 Transactions with the Company. Except as set forth in the
Sellers' Schedule, neither any of the Sellers nor any director, officer or
employee of the Company nor any associate (as such term is hereinafter defined)
of any of the foregoing, directly or indirectly (i) has any claim of any kind
against the Company; or is owed any amounts by the Company other than
compensation payable by the Company for its current (but not any prior) pay
period,
19
all such other claims and obligations, if any, of any Seller as against or owing
to such Seller by the Company being hereby waived and released by such Seller,
(ii) is obligated to the Company, (iii) has any interest in the assets of the
Company whether pursuant to any lease, other agreement or otherwise, (iv) is a
party to any executory agreement with the Company, (v) is an adverse party,
directly or indirectly, to any litigation or other proceedings to which the
Company or any of its assets are or may be subject, or (vi) owns, manages,
operates, controls, is employed by or is otherwise in any manner connected with
or interested in any entity with which the Company has had any material business
relationships, whether as a customer, supplier or otherwise, or which has been a
competitor, directly or indirectly, of the Company. As used in this Section, the
term "associate" means any relative by blood or marriage or any company,
partnership, trust or other entity in which any of the Sellers or any such
person or entity has, directly or indirectly, an interest of five percent (5%)
or more or any other person who, directly or indirectly, controls or is
controlled by or is under common control with any of the Sellers or any such
relative, other person or entity.
3.14 Investment Purpose. Each Seller is acquiring the
Contingent Shares for investment and not with a view to the sale or distribution
thereof, for his or her own account and not on behalf of others and has not
granted any other person any right or option or any participation or beneficial
interest in any of the Contingent Shares. Each Seller acknowledges his
understanding that the Contingent Shares are restricted securities within the
meaning of Rule 144 of the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), and that the
Contingent Shares may not be sold except pursuant to an effective registration
statement under the Securities Act or in a transaction exempt from registration
under the Securities Act, and each Seller acknowledges that he or she
understands
20
the meaning and effect of such restriction. Each Seller is aware that no federal
or state regulatory agency or authority has passed upon the sale of the
Contingent Shares or the terms of the sale or the accuracy or adequacy of any
material being provided to such Seller and that the price of the Contingent
Shares was negotiated between Buyer and Sellers and does not necessarily bear
any relationship to the underlying assets or value of Parent. Each Seller
understands that an investment in the Contingent Shares involves a high degree
of risk.
At any time after any Earned Shares have been held for at
least two years by such Seller, and provided that the requesting Seller is not
then and has not been during the three months prior to the date of such request
an "affiliate" of the Parent, on the surrender to the Parent of the certificate
representing such Earned Shares, a stock power executed by the requesting
Seller, medallion signature guaranteed, a written instruction letter and such
other supporting documents as the Parent may reasonably require, together with
evidence reasonably satisfactory to the Parent demonstrating compliance with
applicable securities laws, which shall include without limitation, a legal
opinion from such Seller's counsel that the sale of the Earned Shares by such
Seller will be exempt from the registration requirements of applicable
securities laws, the Parent shall replace such surrendered certificate with a
certificate for a like number of shares, but absent any legend to the effect
that the Earned Shares are "restricted securities."
3.15 Authorization; Validity. This Agreement and each of the
other agreements, instruments and documents executed or to be executed by each
Seller pursuant to this Agreement has been duly authorized and constitutes the
valid and legally binding obligations of such Seller in accordance with its
terms except as enforcement may be limited by applicable bankruptcy, insolvency
and other laws relating to or affecting creditors' rights generally and
21
subject also to general principles of equity affecting the right to specific
performance and injunctive relief.
3.16 Authorization Approvals. The Company's Board of Directors
has authorized the Company to enter into this Agreement, and all other documents
to be executed pursuant to or in connection with this Agreement and minutes of
the meeting so attesting have been provided to Buyer by the Company's Secretary.
No authorization or approval of, or filing with, or compliance with any
applicable order, judgment, decree, statute, rule or regulation of, any court or
governmental authority, or approval, consent, release or action of any third
party, is required in connection with the execution and delivery by the Sellers
of, or the performance or satisfaction of any agreement of the Sellers contained
in or contemplated by, this Agreement.
3.17 Disclosure. Neither this Agreement nor the schedules and
exhibits to this Agreement nor any other written certificate, statement or
document furnished or to be furnished by Sellers in connection with the
transactions provided for in this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which made, not misleading, and to the best of
Sellers' knowledge and belief, all such material books, records, agreements,
documents, financial and operating data and other information of or relating to
the Company as Buyer has requested or may request has heretofore been or will be
made available to Buyer. Without limiting the generality of the foregoing, to
the best of Sellers' knowledge, there has not occurred and does not exist in any
event, circumstance or development not disclosed to Buyer relating to the
Company (as contrasted with general industry, economic or business conditions)
which has materially
22
adversely affected or in the future reasonably may, so far as any Seller can now
foresee, materially adversely affect the business, operations or assets of the
Company.
3.18 Opportunity to Meet with Management. Sellers acknowledge
that they have had an opportunity to meet with and ask questions of Parent's
management.
3.19 Receipt of Disclosure Documents. Each Seller acknowledges
that it has had access to and has reviewed copies of the following (the
"Financial Statements") from Parent: its Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2004 and its 10-QSB for the quarter ended June
30, 2005.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
4.1 Organization; Authorization. Buyer is a company duly
organized, validly existing and in good standing under the laws of the State of
Colorado. Parent is a company duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer and Parent each possess
all requisite corporate power and authority to enter into and perform all of its
respective obligations under this Agreement and all agreements, documents and
instruments contemplated herein.
4.2 No Violations; Validity. No provision of Parent's or
Buyer's respective Certificate of Incorporation or By laws, or of any material
agreement, instrument or understanding, or of any material order, judgment,
decree, statute, rule or regulation of any court or governmental authority, to
which Parent or Buyer is a party or by which it is bound or subject, has been or
will be violated by the execution by Parent or Buyer, as the case may be, of, or
the performance or satisfaction of any agreement or condition upon its part to
be performed or satisfied under, this Agreement and all agreements, documents
and instruments contemplated herein, and all requisite corporate and other
authorizations for such execution, delivery,
23
performance and satisfaction have been duly obtained by Parent and Buyer,
respectively. This Agreement and each of the other agreements, instruments and
documents executed or to be executed by Parent or Buyer, as the case may be,
pursuant to this Agreement constitutes the valid and legally binding obligation
of Parent or Buyer, as the case may be, in accordance with its terms except as
enforcement may be limited by applicable bankruptcy, insolvency and other laws
relating to or affecting creditors' rights generally and subject also to general
principles of equity affecting the right to specific performance and injunctive
relief.
4.3 Authorizations; Approvals. Except for the requirements
pertaining to listing the Contingent Shares with the American Stock Exchange, no
authorization or approval of, or filing with, or compliance with any applicable
order, judgment, decree, statute, rule or regulation of, any court or
governmental authority, or approval, consent, release or action of any third
party, is required in connection with the execution and delivery by Parent or
Buyer, as the case may be, of, or the performance or satisfaction of any
agreement of Parent or Buyer, as the case may be, contained in or contemplated
by, this Agreement other than in connection with any applicable laws and/or
rules pertaining to the issuance of the Contingent Shares, and such laws and/or
rules pertaining to the issuance of the Contingent Shares.
4.4 Investment Representation. Buyer is acquiring the Shares
for its own account and not with a view to the distribution thereof within the
purview of, and none of the Shares will be offered, sold, or otherwise disposed
of by Buyer, in violation of any applicable provisions of the Securities Act or
any applicable state securities laws.
4.5 Authorization of Contingent Shares. The issuance and
delivery by Parent of the Contingent Shares to each Seller has been duly
authorized by all requisite corporate action of the Parent and the Contingent
Shares issued to each Seller, when issued and delivered in
24
accordance with the terms of this Agreement, will be validly issued and
outstanding, fully paid and nonassessable, free and clear of any liens and not
subject to preemptive or other similar rights of stockholders of the Parent.
ARTICLE FIVE
PRE-CLOSING MATTERS
5.1 Information as to Operations of the Company. Until the
Closing:
(a) The Company shall, and Seller shall cause the Company
to, afford to Buyer, its attorneys, accountants and other
representatives, upon reasonable request, access to all properties,
books, records and other documents of the Company, including the right
to make extracts therefrom or copies thereof, and shall furnish Buyer
with, or with copies of, all such agreements, documents and records,
financial and operating data and other information concerning the
Company as Buyer may reasonably request. All access described above
shall only be permitted with the prior agreement of Xxxx Xxxxxx. Also,
no contact with any employees of the Company other than Xxxx Xxxxxx,
Xxxx Xxxxxx, Xxxx Xxxxx, Xxxxx Xxxxx, and Xxxx Xxxxxxxxx shall be
permitted. Buyer shall hold in strict confidence and shall not use or
otherwise publicly disclose, and shall cause its officers, attorneys,
accountants and other representatives to hold in strict confidence and
not to use or publicly disclose, all information so furnished or made
available by the Company which the Company indicates in writing in
advance is confidential other than information which is or becomes
publicly available or otherwise in the public domain through no fault
of the Buyer or Parent. Should this Agreement be terminated or the
transactions contemplated hereby not be consummated for any reason,
Buyer shall, upon written request from Company, return all written
information so furnished and all copies thereof and extracts therefrom.
25
(b) The Company shall, and the Sellers shall cause the
Company to, refrain from taking or omitting to take any action or
entering into any transaction which, had such action been taken or
omitted or such transaction entered into immediately prior to execution
of this Agreement, would have caused any of the representations,
warranties or agreements of the Sellers or the Company in this
Agreement to be untrue, incorrect or inaccurate in any material respect
as of the time of execution of this Agreement or would cause any such
representations, warranties or agreements to be untrue, incorrect or
inaccurate in any material respect as of the time immediately following
such action, omission or transaction or as of the date of Closing.
Without limiting the generality of the foregoing, except as otherwise
set forth or provided in the Sellers' Schedule, the Company shall and
the Sellers shall cause the Company to (i) conduct its business only in
the usual, regular and ordinary course in the same manner as
heretofore, (ii) use its commercially reasonable efforts to preserve
its business, properties and assets, maintain its business organization
intact, keep available the services of its present officers and
employees and preserve its goodwill and existing relationships with
customers, suppliers and others having dealings with it, (iii) maintain
its properties in customary repair, good order and condition,
reasonable use and wear and tear excepted, (iv) maintain insurance on
its properties and with respect to the conduct of its business in
amounts not less than and of such kinds as are comparable to the
insurance in effect on the date of this Agreement, and (v) maintain its
books, accounts and records in the usual, regular and ordinary manner.
26
5.2 Adverse Circumstances.
(a) The Sellers and the Company shall promptly notify
Buyer, as soon as any of them obtains knowledge, of any facts,
circumstances or occurrences which have adversely affected or might
reasonably be expected to adversely affect the business, properties,
assets, financial condition or prospects of the Company or which could
or reasonably might be expected to cause any of their representations,
warranties or agreements in this Agreement to be untrue, incorrect or
inaccurate in any material respect.
(b) Should Buyer elect to consummate the Closing after
receipt of any notice pursuant to subsection 5.2(a), then, anything
elsewhere in this Agreement to the contrary notwithstanding, Buyer
shall be deemed to have waived any rights or claims which it might
possess under this Agreement, or otherwise, against the Sellers or the
Company with respect to the matters expressly referred to (but only if
and to the extent such matters are adequately and properly referred to
or disclosed) in such notice.
ARTICLE SIX
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligation of Buyer. The
obligation of Parent and Buyer to consummate the transactions provided for in
this Agreement shall be subject to the fulfillment at or prior to the Closing of
each of the following conditions (any or all of which may be waived, in whole or
in part, by Buyer in its discretion):
(a) Each of the representations and warranties of the
Sellers in, or in any instrument delivered in connection with or
pursuant to, this Agreement shall, except as otherwise contemplated or
permitted by this Agreement, be true and correct in all material
respects on and as of the date of Closing as if made at and as of such
time. The
27
Sellers and the Company shall have each duly performed and complied in
all material respects with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by them
prior to or at the Closing. Buyer shall have received from the Company
and each Seller a certificate, dated the date of Closing, to the
foregoing effect.
(b) Buyer shall receive from each of the Sellers a general
release dated the date of Closing of all then-existing claims of every
kind against the Company excluding, however, such claims, if any, as
are expressly referred to or described in the Sellers' Schedule.
(c) The Sellers and the Company shall have delivered to
Buyer the minute and stock books of the Company and the resignation of
all present directors and officers of the Company other than those, if
any, designated by Buyer at or prior to the Closing.
(d) Parent and Buyer shall have received the opinion of
Xxxxx, Johnson, Robinson, Xxxx & Xxxxxxxxx, P.C., counsel for Sellers
and the Company, dated the date of Closing, in substantially the form
of Exhibit 6.1(d) attached hereto, to the effect that as set forth in
Sections 3.1, 3.2, 3.8, 3.11, 3.15 and 3.16 (to the best of counsel's
knowledge, based on counsel's review of the corporate books and records
specified in counsel's opinion but without having made any independent
investigation thereof as to Sections 3.1, 3.2, 3.8 and 3.11), (i) this
Agreement has been duly executed and delivered by and constitutes the
valid and legally binding obligation of each Seller and the Company in
accordance with its terms, (ii) upon the sale of the Shares to Buyer in
accordance with this Agreement, Buyer will acquire good and marketable
title thereto,
28
free and clear of all liens, claims, equities, encumbrances,
restrictions, options and voting agreements of every kind (assuming,
for purposes of such opinion, that Buyer is a bona fide purchaser
within the meaning of Article VIII of the Uniform Commercial Code) and
(iii) such counsel, without however having made any independent
investigation thereof, has no reason to believe that any of the other
representations and warranties of each Seller in this Agreement or in
the certificate of each Seller referred to in subsection 6.1(a) are
untrue, incorrect or inaccurate in any material respect.
(e) All actions, proceedings, instruments, documents and
other legal matters relating to the transactions provided for in this
Agreement or incidental thereto shall be reasonably satisfactory to and
approved by Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxx LLP, counsel to Parent and
Buyer, and Sellers and the Company shall have furnished to such counsel
all such instruments, documents and papers as such counsel may have
reasonably requested for this purpose.
6.2 Conditions Precedent to Obligation of Sellers. The
obligation of the Sellers to consummate the transactions provided for in this
Agreement shall be subject to the fulfillment at or prior to the Closing of each
of the following conditions (any or all of which may be waived, in whole or in
part, by the Sellers in their discretion):
(a) Each of the representations and warranties of Parent
and Buyer in, or in any instrument delivered in connection with or
pursuant to, this Agreement shall, except as otherwise contemplated or
permitted by this Agreement, be true and correct in all material
respects on and as of the date of Closing as if made at and as of such
time. Parent and Buyer shall have duly performed and complied in all
material respects with all agreements, covenants, and conditions
required by this Agreement to be performed or
29
complied with by it prior to or at the Closing. The Sellers shall have
received Parent's and Buyer's certificates, dated the date of Closing,
to the foregoing effect.
(b) The Sellers shall have received the opinion of Xxxxxxx
Xxxxx Xxxxxxx & Xxxxxxxx LLP, counsel for Parent and Buyer, dated the
date of Closing, in substantially the form of Exhibit 6.2(b) attached
hereto, to the effect that as set forth in Section 4.1, 4.2, 4.3 and
4.5, such counsel, without however having made any independent
investigation thereof, has no reason to believe that any of the
representations and warranties of Parent and Buyer in this Agreement or
in the certificates of Parent and Buyer referred to in subsection
6.2(a) are untrue, incorrect or inaccurate in any material respect.
(c) All actions, proceedings, instruments, documents and
other legal matters relating to the transactions provided for in this
Agreement or incidental thereto shall be reasonably satisfactory to and
approved by Xxxxx, Johnson, Robinson, Xxxx & Xxxxxxxxx, P.C., counsel
to the Sellers and the Company, and Parent and Buyer shall have
furnished to such counsel all such instruments, documents and papers as
such counsel may have reasonably requested for this purpose.
(d) Each of Xxxxxxx Xxxxxx and Xxxx Xxxxxx shall have
letters of employment from the Buyer and have entered into Stock Option
Agreements in the form set forth on Exhibit 6.2(d) hereto.
6.3 Compliance with Conditions.
(a) All of the conditions to the obligations of Parent,
Buyer and the Sellers respectively set forth in Sections 6.1 and 6.2
are and shall be deemed covenants and agreements by the other and also
by the Company to comply with and fulfill such
30
conditions as require action by it or them (to the extent within its or
their power) and to use its or their commercially reasonable efforts to
obtain compliance with and satisfaction of each such condition as
requires action by any other party or persons, including any person not
a party hereto.
ARTICLE SEVEN
ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 Covenant Not to Compete.
(a) In order to induce Buyer to enter into and consummate
the transactions provided for in this Agreement, each Seller hereby
covenants and agrees that (i) with respect to Xxxx Xxxxxx (settlor of
the PM Trust) and Xxxxxxx X. Xxxxxx (settlor of the PCM Trust), during
the five year period following the date of Closing, and with respect to
Xxxxxxx Xxxxxx and Xxxx Xxxxxx during the period of two (2) years
following the date of their respective dates of termination of
employment with the Company and/or Buyer, he or she will not, without
the prior written consent of Buyer in each instance, directly or
indirectly, whether for himself or herself or for any other person and
whether as proprietor, principal, stockholder, partner, agent,
director, officer, employee, consultant, independent contractor or in
any other capacity, engage in, or have any interest in any business or
other entity that provides products and support for commercial security
systems or other products of Company, Parent or any subsidiary of the
Parent within the State of Colorado; provided, however, that nothing
herein shall prevent Xxxxxxx Xxxxxx and/or Xxxx Xxxxxx from working for
PSA Security Network, or (ii) at any time after the Closing knowingly
do any act which would impair the value of the business, operations or
assets of, or injure the goodwill or reputation of, Buyer, Parent, any
subsidiary of the Parent or the Company or divert any of their business
or employees
31
unless such actions are permitted by clause (i) above. Without limiting
the generality of the foregoing, each Seller hereby covenants and
agrees that with respect to Xxxx Xxxxxx and Xxxxxxx Xxxxxx beginning on
the date of the Closing and ending five years thereafter, and with
respect to Xxxxxxx Xxxxxx and Xxxx Xxxxxx during the two year period
beginning on the date of their respective dates of termination of
employment with the Company and/or Buyer he or she will not solicit any
business from any person, firm, corporation or entity which was a
customer of the Company within the two year period prior to the Closing
nor will he or she hire any person who was an employee of the Company,
Buyer, Parent or any subsidiary of the Parent as of the date of
Closing.
(b) Each Seller agrees that each provision of subsection
7.1(a) is reasonable and necessary for the protection of Buyer; that
each such provision, and the period or periods of time, geographical
areas and types and scopes of restrictions on his or her activities
specified therein, are and are intended to be divisible; that if any
portion thereof (including any sentence, clause or part) shall be held
contrary to law or invalid or unenforceable in any respect in any
jurisdiction, or as to any one or more periods of time, areas or
business activities, or any part thereof, the remaining provisions
shall not be affected but shall remain in full force and effect as to
the other and remaining parts; and that any such invalid or
unenforceable provision shall be deemed, without further action on the
part of the parties hereto, modified, amended and limited to the extent
necessary to render the same valid and enforceable in such
jurisdiction. Seller further recognizes and agrees that any violation
of his or her agreement in subsection 7.1(a) would cause such damages
to Buyer as would be irreparable and the exact amount of which would be
impossible to ascertain and that, for such reason, among others, Buyer
shall be entitled, as
32
a matter of course, to injunctive relief from any court of competent
jurisdiction restraining any further violation. Such right to
injunctive relief shall be cumulative and in addition to and not in
limitation of all other rights and remedies which Buyer may possess.
7.2 Further Assurances. From and after the date of this
Agreement and the date of Closing, the parties hereto shall from time to time,
at the request of any other party and without further consideration, do, execute
and deliver, or cause to be done, executed and delivered, all such further acts,
things and instruments as may be reasonably requested or required more
effectively to evidence and give effect to the transactions provided for in this
Agreement. Without limiting the generality of the foregoing, the parties shall
cooperate with each other (i) in connection with the filing of the Company's tax
returns with respect to any period up to the Closing, and (ii) at the expense of
the requesting party (provided that the foregoing shall only apply to actual
out-of-pocket costs), in the furnishing of information, evidence, testimony and
other assistance in connection with any legal actions, proceedings or disputes
involving any of the parties based upon any contracts, agreements, arrangements
or other matters whether occurring prior or subsequent to the date of this
Agreement and the date of Closing.
ARTICLE EIGHT
SURVIVAL, INDEMNIFICATION AND RELATED MATTERS
8.1 Survival. All of the provisions of, and all of the
representations, warranties, covenants and agreements of the parties in, or in
any document or other instrument executed or delivered pursuant to or in
connection with, this Agreement shall, unless waived, survive and continue in
force and effect from and after the date of Closing and any investigation at any
time made by or on behalf of any party.
33
8.2 Indemnification.
(a) Parent and Buyer, on the one hand, and Sellers, on the
other:
(i) Shall, subject to Section 3.3(e), each indemnify
and hold the other free and harmless from and against and
shall reimburse the other for any and all claims, liabilities,
damages, losses, judgments, costs and expenses including
reasonable counsel fees and other reasonable out-of-pocket
expenses (the foregoing being hereinafter collectively
referred to as "damages") arising out of or resulting from any
inaccuracy or inadequacy in or breach or default of any of its
or his representations, warranties, covenants or agreements
in, or in any document or other instrument executed or
delivered pursuant to or in connection with, this Agreement.
(ii) Shall give the other written notice of any claim,
demand, action, suit or proceeding raised, brought,
threatened, made or commenced against it or the Company
relating to any matter to which the indemnification provisions
of this Section 8.2 apply, and such other party shall have the
right, at its expense, to participate in the settlement and
defense thereof using counsel of its own choice. Failure to
give such notice shall not, however, affect the liability of
any other party under this Agreement unless such failure shall
materially adversely prejudice the defense thereof by such
other party. Nothing herein shall limit the right of any party
to settle any claim, demand, action, suit or proceeding
brought or threatened against it, provided, however, that in
any such event no other party shall be bound by the amount or
terms of any such settlement not consented to by it.
34
(b) Limitations on Indemnification Amount.
(i) Deductible. Sellers shall have no liability for
indemnification with respect to claims under Section 8.2(a)
until the total amount of all damages with respect to such
claims exceeds twenty-five thousand dollars ($25,000) and then
only for the amount by which such damages exceed twenty-five
thousand dollars ($25,000). Parent and Buyer shall have no
liability for indemnification with respect to claims under
Section 8.2(a) until the total amount of all damages with
respect to such claims exceeds twenty-five thousand dollars
($25,000) and then only for the amount by which such damages
exceed twenty-five thousand dollars ($25,000); provided,
however, that the foregoing shall not apply to the failure of
Parent and Buyer to distribute the Earned Shares when and as
required or pay the Second Earn-Out when and as required or
the failure of Parent and Buyer to obtain releases for the
Sellers with respect to personal guarantees disclosed on 1.2
of the Sellers' Schedule .
(ii) Aggregate Amount. Notwithstanding anything to the
contrary herein, the aggregate liability of Sellers for
damages shall not exceed an amount equal to the aggregate
amount of all consideration actually paid to Sellers pursuant
to this Agreement (specifically excluding any payments to Xxxx
Xxxxxx and Xxxx Xxxxxx pursuant to employment arrangements or
stock plans). Notwithstanding anything to the contrary herein,
the aggregate liability of Buyer and Parent for damages shall
not exceed $800,000; provided, however, that the foregoing
shall not apply with respect to the failure of Parent or Buyer
to distribute the Earned Shares when and as required or pay
the Second Earn-Out
35
when and as required, or the failure of Parent and Buyer to
obtain releases for the Sellers with respect to personal
guarantees disclosed on 1.2 of the Sellers' Schedule.
(c) Time Limitation. All representations and
warranties contained in this Agreement and any certificates delivered
at the Closing shall be deemed to have been relied upon notwithstanding
any investigation heretofore, or hereafter made or omitted by any
party hereto and shall survive the Closing for a period of two years
from the Closing.
(d) Notwithstanding anything to the contrary in this
Section 8.2, Sellers' obligation to indemnify Buyer and Parent shall
not apply to the extent such loss is covered by any insurance the
Company may have or which the Company would have had it maintained
commercially reasonable amounts of insurance coverage and such claim
for indemnification could reasonably have been covered by such
insurance.
(e) The provisions of this Section 8.2 shall not be
construed as a waiver by any party of any other rights or remedies
which it may possess, whether under this Agreement, at law or in
equity, arising out of or resulting from any breach or default of
or inaccuracy or inadequacy in any other party's representations,
warranties, covenants or agreements.
ARTICLE NINE
MISCELLANEOUS
9.1 Expenses. Each party shall bear and pay all legal,
accounting and other fees and expenses incurred by it in connection with, and
with the transactions provided for in, this Agreement and the performance of all
its obligations and agreements hereunder; provided, however, that the costs of
the audit contemplated in Section 1.5 shall be paid by Buyer and Parent except
as otherwise expressly provided in such Section.
36
9.2 Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given if personally delivered or if mailed
by first class registered or certified mail return receipt requested, or by
first class mail if received, addressed to the parties at their respective
addresses set forth or referred to on the first page and signature page of this
Agreement, with copies to their respective counsel, Xxxxxxx Xxxxx Xxxxxxx &
Xxxxxxxx LLP, Att: Xxxxxx X. Xxxxxxxx, Esq., Xxx Xxxxxxxxxxxx Xxxxx, Xxx Xxxx,
Xxx Xxxx 00000, in the case of Parent and Buyer, and Xxxxx, Johnson, Robinson,
Xxxx & Ragonetti, P.C., Attn: Xxxxxxx X. Xxxxxx, Esq. 000 Xxxxxxxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000, in the case of Sellers and the Company
(until the Closing, after which time copies of notices, requests, demands and
other communications to the Company shall be sent to Buyer at the address set
forth on the first page, with a copy to Xxxxxxx Xxxxx Xxxxxxx and Xxxxxxxx LLP,
Attn: Xxxxxx X. Xxxxxxxx, Esq.) or to such other person or address as may be
designated by like notice hereunder.
9.3 Parties in Interest. This Agreement shall be binding upon,
and shall inure to the benefit of and be enforceable by, the parties hereto and
their respective legal representatives, successors and assigns, but no other
person shall acquire or have any rights under this Agreement.
9.4 Entire Agreement; Modification; Waiver. This Agreement
contains the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersedes all prior negotiations and
understandings, if any, and there are no agreements, representations or
warranties other than those set forth, provided for or referred to herein. All
exhibits and schedules to this Agreement are expressly made a part of this
Agreement as fully as though completely set forth herein and all references to
this Agreement
37
herein, in any of such writings or elsewhere shall be deemed to refer to and
include all such writings. Neither this Agreement nor any provisions hereof
may be modified, amended, waived, discharged or terminated, in whole or in
part, except in writing signed by the party to be charged. Any party may extend
the time for or waive performance of any obligation of any other party or
waive any inaccuracies in the representations or warranties of any other party
or compliance by any other party with any of the provisions of this Agreement.
No waiver of any such provisions or of any breach of or default under this
Agreement shall be deemed or shall constitute a waiver of any other provisions,
breach or default, nor shall any such waiver constitute a continuing waiver.
9.5 Interpretation. All pronouns and words used in this
Agreement shall be read in the appropriate number and gender, the masculine,
feminine and neuter shall be interpreted interchangeably and the singular shall
include the plural and vice versa, as the circumstances may require.
9.6 Applicable Law. This Agreement shall be deemed to be a
contract made under the laws of the State of New Jersey and for all purposes
shall be construed in accordance with the laws of said state applicable to
contracts made and to be performed entirely within such State. Except as
otherwise provided in Section 1.2(f), the Parent, Buyer and the Sellers each
hereby agree that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted exclusively in the State and
Federal Courts located within the State of New Jersey.
9.7 Headings; Counterparts. The article and section headings
in this Agreement are for reference purposes only and shall not define, limit or
affect the meaning or interpretation of this Agreement. This Agreement is being
executed in two or more counterparts,
38
each of which shall be deemed an original but all of which shall constitute one
and the same instrument. This Agreement may be executed and delivered by
facsimile and the parties agree that such facsimile execution and delivery shall
have the same force and effect as delivery of an original document with original
signatures, and that each party may use such facsimile signatures as evidence of
the execution and delivery of this Agreement by all parties to the same extent
that an original signature could be used.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
39
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
XXXXX BROS. ELECTRONICS, INC.
(Parent)
By: /s/ Xxxxx Reach
-------------------------------------
Xxxxx Reach
Secretary
XXXXX BROS. ELECTRONICS, INC.
(Buyer)
By: /s/ Xxxxx Reach
--------------------------------------
Xxxxx Reach
Secretary
SECURUS, INC.
By: /s/ Xxxxxxx Xxxxxx
---------------------------------------
Xxxxxxx Xxxxxx, President
SELLER 1:
/s/ Xxxxxxx Xxxxxx
______________________________________________
Xxxxxxx Xxxxxx
SELLER 2:
/s/ Xxxx Xxxxxx
______________________________________________
Xxxx Xxxxxx
SELLER 3:
XXXX XXXXXX TRUST
By:
/s/ Xxxx Xxxxxx
------------------------------------------
Xxxx Xxxxxx, Trustee
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxxx X. Xxxxxx, Trustee
SELLER 4:
XXXXXXX X. XXXXXX TRUST
By: /s/ Xxxxxxx X. Xxxxxx
___________________________________________
Xxxxxxx X. Xxxxxx, Trustee
By: /s/ Xxxx Xxxxxx
-------------------------------------------
Xxxx Xxxxxx, Trustee
