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EXHIBIT 2.2
SECURITY ALARM FINANCING ENTERPRISES, INC.
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "AGREEMENT") is made by and between
SECURITY ASSOCIATES INTERNATIONAL, INC., a Delaware corporation, with its
principal offices located at 0000 Xxxxx Xxxxxxxxx Heights Road, Suite 100,
Arlington Heights, IL 60005 ("SELLER"), and SECURITY ALARM FINANCING
ENTERPRISES, INC., a California corporation, with its chief executive office and
principal place of business located at 0000 Xxxxxx Xxxxx, Xxxxx 000, Xxx Xxxxx,
Xxxxxxxxxx, 00000 ("SAFE").
RECITALS
1. The parties hereto have entered into that certain Letter of Intent dated
effective May 18, 1999 (the "LETTER OF INTENT"), setting forth the material
terms and conditions concerning the purchase by SAFE from Seller of certain
alarm monitoring accounts. This Agreement is the "DEFINITIVE AGREEMENT"
contemplated by the Letter of Intent to be entered into by the parties.
2. The parties desire to set forth in full herein their entire agreement with
respect to the matters described in the Letter of Intent and for this Agreement
to supersede in all respects the terms, provisions and conditions of the Letter
of Intent.
AGREEMENT
Subject to the terms and conditions set forth in this Agreement, SAFE
desires to purchase from Seller, and Seller desires to sell and assign to SAFE,
certain RMR Accounts and certain other assets of Seller, all as provided herein
and as such terms are defined below. The Recitals stated above are incorporated
into this Agreement for all purposes. For good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in consideration of
the foregoing recitals, which the parties agree are true, and the mutual
promises contained in this Agreement, the parties hereto agree as follows:
1 DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
set forth below:
1.1 ACCOUNTS RECEIVABLE. "Accounts Receivable" shall mean, as of the
Closing Date, all amounts which have been billed by Seller to, but not collected
from a Customer for monitoring services or other services pursuant to RMR
Accounts for all service periods through the end of June, 1999.
1.2 AFFILIATE. "Affiliate" shall mean any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly
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or indirectly, of the power to direct the management and policies of a Person
whether through the ownership of voting securities, contract or otherwise.
1.3 ALARM DEALER. "Alarm Dealer" shall mean a Person which is a party
(i) to a Dealer Purchase Agreement, (ii) a Third Party Maintenance Agreement, or
(iii) an RMR Account Agreement proposed to be acquired by SAFE hereunder or as a
Qualified Referral Account.
1.4 ANNUALIZED ATTRITION. "Annualized Attrition" shall mean, with
respect to the Qualified Closing Accounts purchased by SAFE on the Closing Date,
a fraction whose numerator is the Attrited Account RMR and whose denominator
(adjusted as provided below) is Six Hundred Thousand Dollars ($600,000),
calculated upon the static pool basis. The "Attrited Account RMR" is the amount
of RMR which would have been paid (but for an RMR Account becoming an Attrited
Account) during a succeeding one year period under all Qualified Closing
Accounts which have become Attrited Accounts during the Attrition Measurement
Period. For purposes of calculation of the above fraction:
1.4.1 RMR from RMR Accounts which are purchased by SAFE on the
Closing Date but which are not Qualified Closing Accounts on the Closing Date,
(a) shall not be included in the numerator and (b) shall not reduce the
denominator, provided that Seller fulfills its obligations under said Section
2.4;
1.4.2 RMR from Excess Pool Accounts shall not be included in
the numerator except to the extent that any Excess Pool Account is used to
satisfy the requirement for the delivery by Seller of a Qualified Substitute
Account pursuant to Section 3.1 which thereafter during the Attrition
Measurement Period becomes an Attrited Account; and
1.4.3 initially, the denominator shall be reduced by the
amount of RMR payable under the Litigation Related Accounts acquired pursuant to
Section 2.7 (and shall not be increased if any Qualified Substitute Account is
substituted for a Litigation Related Account pursuant to Section 2.7); if a
Litigation Related Account is removed from the category of a Litigation Related
Account pursuant to Section 2.7, such former Litigation Related Account shall be
included in the denominator and any former Litigation Related Account which
thereafter becomes an Attrited Account shall be included in the Attrited Account
RMR numerator.
1.5 ASSETS. "Assets" shall mean collectively (i) the RMR Accounts and
Third Party Maintenance Agreements purchased or transferred hereunder, (ii) all
Related Rights with respect to the foregoing and (iii) a three year royalty-free
license to use (but not ownership of) Seller's Alarm Dealer lists in connection
with the RMR Accounts acquired by SAFE hereunder solely for the purposes of
soliciting RMR Account acquisition and/or financing business or locating a
replacement security dealer, so long as SAFE is not in Default.
1.6 ATTRITED ACCOUNT. "Attrited Account" shall mean:
1.6.1 Any RMR Account (i) with respect to which any Customer
obligation remains unpaid ninety (90) days or more after the due date thereof
and which SAFE cancels, or
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(ii) which is canceled or not renewed for any reason by the Customer other than
(a) cancellations primarily caused by the failure of SAFE to perform, in any
material respect, the billing, collection, servicing and customer service
functions related thereto, or (b) cancellations caused by the failure of a
central monitoring station (excepting any central monitoring station owned by
Seller, any Affiliate of Seller or ACM Alarm Central) to provide alarm
monitoring services in accordance with the RMR Account Agreement, or (iii) is
canceled by SAFE or the Customer as a result of (a) material equipment or
installation problems, or (b) a change in the Customer status occurring which,
in SAFE's reasonable opinion, provides SAFE with good cause to believe that such
change will affect the Customer's ability to pay when due any amounts
thereunder, or (c) the failure of Seller to disclose to SAFE any material facts
constituting a violation of the requirements set forth in this Agreement, prior
to SAFE's acquisition thereof, which in SAFE's judgement, exercised in good
faith, requires cancellation; or
1.6.2 Any Temporary Attrited Account which shall become an
Attrited Account, as provided in Section 1.44.
1.7 ATTRITED ACCOUNT RMR. "Attrited Account RMR" is defined in Section
1.4.
1.8 ATTRITION MEASUREMENT PERIOD. "Attrition Measurement Period" shall
mean the period which commences on the Closing Date and ends twelve (12) months
thereafter.
1.9 CASH ATTRITION PAYMENT. "Cash Attrition Payment" shall mean an
amount equal to the product obtained by multiplying (i) the RMR (as scheduled in
Exhibit A to the RMR Schedule) for each Attrited Account, by (ii) thirty-five
(35).
1.10 CLEANUP ACCOUNTS. "Cleanup Accounts" are defined in Section 2.5.
1.11 CLEANUP PERIOD. "Cleanup Period" shall mean the 120 day period
following the Closing Date.
1.12 CLOSING DATE. "Closing Date" shall mean the date on which the
purchase and sale of the Assets is consummated.
1.13 COMMISSIONS. "Commissions" shall mean the commission payments, if
any, which SAFE has agreed to pay Seller as provided in Section 5 hereof.
1.14 CUSTOMER. "Customer" shall mean the subscriber for monitoring
services pursuant to an RMR Account Agreement.
1.15 DEALER PURCHASE AGREEMENTS. "Dealer Purchase Agreements" shall
mean each "Account Purchase Agreement", or similar agreement, between Seller, as
purchaser, and an Alarm Dealer, as seller, whereby Seller acquired any RMR
Accounts and Related Rights to be conveyed to SAFE hereunder.
1.16 DEFAULT. "Default" shall mean with respect to Seller (i) the
failure of Seller or its
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Affiliates to perform in a material respect, when due, any of its obligations
under this Agreement or any other Transaction Document, or (ii) any
representation, warranty or certification made by Seller herein or in any other
Transaction Document shall be false or misleading as of the time made or
furnished in any material respect (except the words "any material respect" shall
be deleted where any such representation, warranty or certification is otherwise
subject to a "materiality"qualification therein).
"Default" shall mean with respect to SAFE (i) the failure of
SAFE or its Affiliates to perform in a material respect, when due, any of its
obligations under this Agreement or any other Transaction Document, or (ii) any
representation, warranty or certification made by SAFE herein or in any other
Transaction Document shall be false or misleading as of the time made or
furnished in any material respect (except the words "any material respect" shall
be deleted where any such representation, warranty or certification is otherwise
subject to a "materiality"qualification therein).
1.17 ERC ACCOUNTS. "ERC Accounts" shall mean the approximately one
thousand five hundred (1,500) RMR Accounts, formerly owned or originated by
Telecommunications Associates Group, Inc., which would not qualify as Qualified
Closing Accounts because the RMR Account Agreement executed by the Customer does
not specify the contract term or the amount of the contracted RMR.
1.18 Intentionally Deleted.
1.19 EXCESS POOL ACCOUNTS. "Excess Pool Accounts" shall mean, as
determined on the Closing Date, an unspecified pool of RMR Accounts, if any, to
the extent that the aggregate RMR payable under Qualified Closing Accounts
purchased by SAFE (after reduction for RMR Accounts determined pursuant to
Section 2.4 not to qualify as Qualified Closing Accounts) exceeds Six Hundred
Thousand Dollars ($600,000).
1.20 HOLDBACK OBLIGATIONS. "Holdback Obligations" shall mean the
obligation of Seller, or any Affiliate of Seller, to pay to a person or entity
the deferred purchase price or other obligations remaining unpaid or unperformed
pursuant to a Dealer Purchase Agreement.
1.21 INTANGIBLE PROPERTY. "Intangible Property" is defined in Section
1.39.
1.22 LIEN. "Lien" shall mean a pledge, assignment, lien, charge,
mortgage, encumbrance, exercise of rights, lease, security interest or claim.
1.23 LITIGATION RELATED ACCOUNTS. "Litigation Related Accounts" shall
mean those RMR Accounts owned or originated by Alarm Dealers Xxxxxxx X. Xxx
d/b/a Foremost Security, Advanced Security Systems, Inc. or Sterling Security
identified in Schedule 2 hereto.
1.24 LOAN. "Loan" shall mean the loan to be advanced to Seller on the
Closing Date by SAFE in the original principal amount of One Million Eight
Hundred Thousand Dollars ($1,800,000), as described in Section 4, and evidenced
by the Note.
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1.25 MAINTENANCE CHARGES. "Maintenance Charges" or "RMC" shall mean the
portion of the total amount payable for each periodic payment period by a
Customer pursuant to an RMR Account requiring Seller to provide maintenance
services for alarm system equipment. Where an RMR Account covers the provision
of both alarm monitoring services and alarm equipment maintenance services, RMC
shall be the amount separately stated in the RMR Account Agreement as the charge
for alarm equipment maintenance services or, if such amount is not separately
stated, RMC amount shall be agreed to by Seller and SAFE and the RMC amount so
agreed upon shall be reflected in Exhibit A to the RMR Schedule.
1.26 MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean,
with respect to SAFE or Seller, as the case may be, a material adverse effect on
(i) the property, business, operations, financial condition, prospects, or
liabilities of such person , (ii) the ability of such person to perform its
obligations under any Transaction Documents, (iii) the validity or
enforceability of any of the Transaction Documents, or the Qualified Closing
Accounts, as a group, or (iv) the rights and remedies of such person under any
of the Transaction Documents.
1.27 NOTE. "Note" shall mean that certain secured promissory note of
Seller in favor of SAFE in the original principal amount of One Million Eight
Hundred Thousand Dollars ($1,800,000), as described in Section 4.
1.28 "PERSON". "Person" shall mean any individual, partnership,
corporation, trust, association, limited liability company, or other entity.
1.29 PREPAID INCOME. "Prepaid Income" shall mean, as of a Closing Date,
all amounts with respect to RMR Accounts which have been or will be collected by
Seller from Customers for RMR or RMC for which the service period begins on or
after July 1, 1999.
1.30 PURCHASE PRICE. "Purchase Price" shall mean the purchase price of
the Assets pursuant to Section 2.2 and as specified in the RMR Schedule attached
hereto.
1.31 QUALIFIED CLOSING ACCOUNTS. "Qualified Closing Accounts" shall
mean those RMR Accounts owned by Seller which on the Closing Date:
(i) (a) are not Attrited Accounts, under subsection 1.6.1(i) or (ii)
and with respect to which the Customers' alarm systems are in working order and
communicating with the monitoring station; and
(ii) (a) except as permitted by Sections 2.5.1 or 2.6, are evidenced by
an original assignable, RMR Account Agreements properly executed by the
Customers, setting forth the original contract term and RMR amount, or (b) are
in conformance in all material respects with the standard forms of RMR Account
Agreement delivered to SAFE by Seller as the standard forms used by the Alarm
Dealer who originated the RMR Account Agreement, (which standard forms of
agreement are identified in Exhibit 1 hereto).
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1.32 QUALIFIED DEALER. "Qualified Dealer" shall mean an Alarm Dealer
acceptable to SAFE who meets at least the following requirements: (1) (i) has a
minimum of two (2) years in the security alarm installation business, (ii) has a
reasonably satisfactory credit history, (iii) possesses a current alarm license
(if required by the state(s) in which the Alarm Dealer is conducting business),
(iv) maintains appropriate liability insurance with appropriate levels and
coverage, (v) is in good standing with no outstanding Liens related to RMR
Accounts to be conveyed (other than Liens which will be terminated at the
closing of the RMR purchase), (vi) is a party to a presently effective and
enforceable non-solicitation agreement (or will be a party to such an agreement
entered into concurrently with the closing of an RMR purchase from such Alarm
Dealer), which may be assigned to SAFE, with respect to all RMR Accounts
proposed to be sold to SAFE, or (2) is otherwise deemed acceptable by SAFE in
its sole discretion.
1.33 QUALIFIED REFERRAL ACCOUNT. "Qualified Referral Account" shall
mean an RMR Account which would not constitute an Attrited Account and which
satisfies the following requirements or otherwise is deemed acceptable to SAFE,
in its sole and absolute discretion:
1.33.1 The seller must have an original, written RMR Account
Agreement, properly executed by the Customer, containing provisions for limits
of liability and third party indemnification, and setting forth the contract
term and RMR amount, and other contract provisions customarily included therein,
with RMR above Eighteen Dollars ($18.00), which RMR Account Agreement may be
assigned to SAFE without the consent or approval of, or notice to, the Customer
or any other person, or as to which such consent has been obtained in writing.
1.33.2 The applicable Customer Beacon Score must be above 600 with
an acceptable credit history.
1.33.3 The Customer's alarm system must be in working order and
communicating with the central monitoring station.
1.33.4 The Customer must show a current payment history not to
exceed 90 days past due.
1.33.5 The minimum investment for the subject alarm system
equipment must be at least Five Hundred Dollars ($500), or if less, such RMR
Account shall be approved by SAFE.
1.34 QUALIFIED SUBSTITUTE ACCOUNT. "Qualified Substitute Account" shall
mean an RMR Account which (i) is tendered to SAFE by Seller in substitution for
an RMR Account which has become an Attrited Account and on the dates of tender
and conveyance to SAFE, constitutes a Qualified Referral Account from a
Qualified Dealer, or (ii) is an RMR Account included among the Excess Pool
Accounts, or (iii) would have qualified as a Qualified Closing Account (but
without the benefit of the Section 2.5.1 or 2.6 exceptions referenced in Section
1.31(ii)(a)), or (iv) is otherwise acceptable to SAFE, in its sole and absolute
discretion.
1.35 RECURRING MONTHLY REVENUE OR RMR. "Recurring Monthly Revenue" or
"RMR" shall mean the total amount payable each month by a Customer for
monitoring services pursuant
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to an RMR Account. With respect to those RMR Account Agreements which require
Customer payments less frequently than monthly, the RMR shall be the amount of
the periodic payment divided by the number of months in the periodic period.
1.35.1 RMR shall not include any amounts derived from, or expected
to be derived from:
1.35.1.1 Reimbursement for or prepayment of telephone line
and other utility company charges associated with the installation, monitoring,
maintaining or furnishing of the monitoring services;
1.35.1.2 Reimbursement for or prepayment of any amounts for
sales, use, or other taxes, fees or other charges imposed by any governmental
authority relating to the furnishing of monitoring or other services;
1.35.1.3 Installation, time and material charges; or
1.35.1.4 RMC and any of the items described in
subparagraphs 1.35.1.1, 1.2 or 1.3 above related thereto.
1.36 RMR ACCOUNT. "RMR Account" shall mean (i) the RMR Account
Agreement, (ii) the right to receive all payments for RMR and RMC thereunder,
and (iii) the right to receive payment for all service charges, interest and
other amounts payable thereunder.
1.37 RMR ACCOUNT AGREEMENT. "RMR Account Agreement" shall mean the
written contract, or portion thereof, whereby the Customer has contracted for
the provision of monitoring services and in certain cases, maintenance services
for alarm system equipment.
1.38 RMR SCHEDULE. "RMR Schedule" shall mean the RMR schedule attached
hereto as Schedule 1 and executed by the SAFE and Seller, setting forth the
Purchase Price and other information regarding the RMR Accounts to be purchased
hereunder.
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1.39 RELATED RIGHTS. "Related Rights" shall mean, with respect to any
RMR Account to be conveyed to SAFE hereunder, all of Seller's (and any
Affiliates') right, title and interest, if any, in and to (i) all monitoring,
alarm, or other equipment, (including, without limitation, telephone lines and
telephone line cards) of any kind whatsoever related thereto or necessary for
the purpose of sending an alarm monitoring signal from any monitored location to
a central monitoring station, (ii) all alarm access codes, lock out codes, down
load software, access pass-key numbers and passwords, communicator
identification, programming information, deposits, telephone numbers, operations
manuals, equipment maintenance manuals, equipment warranties, and all other
rights and interests related thereto, (iii) all rights and remedies of Seller
under each Dealer Purchase Agreement and Third Party Maintenance Agreement (or
in any other agreements with Alarm Dealers in favor of Seller or any Affiliate),
including without limitation, non-compete, non-solicitation, confidentiality and
similar agreements, and (iv) all Confidential Information, as described in
Section 9.3 hereof, and all non-compete, non-solicitation, confidentiality and
similar agreements in any agreement between Seller or any Affiliate and any
Person who provides or has provided alarm system maintenance services for Seller
or any Affiliate (the items described in subsections (ii), (iii) and (iv) being
collectively, the "INTANGIBLE PROPERTY").
1.40 PLEDGE AGREEMENT. "Pledge Agreement" shall mean that certain
Pledge Agreement, dated the date hereof, between SAFE and Seller, in the form
attached hereto as Exhibit 2.
1.41 SELLER'S SENIOR LENDER; SENIOR LENDER SUBORDINATION AGREEMENT.
"Seller's Senior Lender" shall mean Finova Capital Corporation, individually as
a lender and in its capacity as agent, its successors and assigns. "Senior
Lender Subordination Agreement" shall mean the Subordination Agreement executed
by Senior Lender and SAFE, in the form attached hereto as Exhibit 3.
1.42 SUBORDINATION AGREEMENT. "Subordination Agreement" shall mean the
subordination agreement executed by Subordinated Lender in favor of SAFE, in the
form attached hereto as Exhibit 4.
1.43 SUBORDINATED LENDER. "Subordinated Lender" shall mean TJS
Partners, L.P., a New York limited partnership.
1.44 "TEMPORARY ATTRITED ACCOUNTS". "Temporary Attrited Accounts" shall
mean those RMR Accounts (i) which require the payment of RMR with a frequency
less than monthly, and (ii) with respect to which, on the last day of the
Attrition Measurement Period, any Customer obligation remains unpaid thirty (30)
days or more after the due date therefor. On the last day of the Attrition
Measurement Period, all Temporary Attrited Accounts shall be temporarily treated
as Attrited Accounts for purposes of the Attrition Guarantee described in
Section 4. On the day which is sixty (60) days after the last day of the
Attrition Measurement Period, any Temporary Attrited Account with respect to
which any Customer obligation remains unpaid ninety (90) days or more after the
due date therefor shall be deemed for all purposes to be an Attrited Account on
and as of the last day of the Attrition Measurement Period and any other
Temporary Attrited Account shall be deemed for all purposes not to be an
Attrited Account. No payment or
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replacement obligation related to either the Attrition Guarantee and no charge
against Commissions or any Annual RMR Threshold shall be made prior such time as
any such Temporary Attrited Account is deemed to be an Attrited Account,
provided, however, that the Attrition Measurement Period shall be extended, with
respect to Temporary Attrited Accounts, by the sixty (60) day period referred to
above and if at the expiration of such sixty (60) day period a Temporary
Attrited Account is deemed an Attrited Account, then the payment, replacement
obligation related to either the Attrition Guarantee, and charge against
Commissions or any Annual RMR Threshold shall be effective with respect thereto.
1.45 THIRD PARTY MAINTENANCE AGREEMENT. "Third Party Maintenance
Agreement" means an agreement between Seller and an Alarm Dealer pursuant to
which such Alarm Dealer provides maintenance services to RMR Accounts, other
than those where such Alarm Dealer installed the alarm system.
1.46 "TRANSACTION" shall mean the transactions contemplated by the
Transaction Documents.
1.47 "TRANSACTION DOCUMENTS" shall mean this Agreement, the Note, the
Pledge Agreement and the documents, certificates and instruments contemplated to
be executed and delivered in connection herewith, and all modifications thereof
and amendments thereto.
1.48 "SENIOR LENDER SUBORDINATION AGREEMENT" shall mean that
Subordination Agreement executed by SAFE in favor of Seller's Senior Lender, in
form satisfactory to SAFE and Seller's Senior Lender.
2 PURCHASE AND SALE OF ASSETS
2.1 Purchase. Subject to the terms and satisfaction of the conditions
herein, on the Closing Date, SAFE shall purchase from Seller, and Seller shall
sell, convey, assign, transfer, and deliver to SAFE and/or SAFE's designee, the
Assets, free and clear of all Liens. Seller shall not retain any residual or
other rights whatsoever in any Assets, except as expressly set forth herein.
Seller shall deliver to SAFE for evaluation as Qualified Closing Accounts and
for possible purchase all RMR Accounts which Seller or its Affiliates own on the
date hereof or on the Closing Date. SAFE shall make the determination referenced
in subsection 1.6.1(iii) prior to the Closing Date. Subject to the provisions of
Section 9.3, Seller shall retain a perpetual royalty-free license to use (but
not ownership of) the Related Rights but only to the extent and so long as such
items are utilized by Seller solely in the receipt of alarm signals in Seller's
central monitoring station services business so long as Seller is not in
Default.
2.2 PURCHASE PRICE.
2.2.1 The Purchase Price for the Assets shall be set forth in the
RMR Schedule to be executed and delivered on the Closing Date. The Purchase
Price shall be based upon (i) the actual amount of RMR scheduled to be paid
under Qualified Closing Accounts, if the amount of such RMR is equal to or less
than Six Hundred Thousand Dollars ($600,000), or (ii) RMR of Six Hundred
Thousand Dollars ($600,000), if the actual amount of RMR scheduled to be paid
under
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Qualified Closing Accounts is greater than Six Hundred Thousand Dollars
($600,000). If an RMR Account Agreement, in addition to monitoring services,
evidences an agreement for the provision of maintenance or other services for
monitoring equipment, SAFE shall be entitled to retain Customer's RMC payments,
subject to payment to servicing dealers, notwithstanding that such amount is not
included in RMR. On the Closing Date, if any Accounts Receivable exist with
respect to any Qualified Closing Account acquired by SAFE, SAFE shall be
entitled to collect such Accounts Receivable from the Customers. SAFE will remit
to Seller any Accounts Receivable collected on invoices dated prior to June 1
(and for which the monitoring services are provided on or prior to June 30,
1999) to Seller and Seller will remit to SAFE any amounts collected on invoices
dated after June 1 (and for which the monitoring services are provided after
June 30, 1999) to SAFE. Any Prepaid Income shall be the property of SAFE and the
amount of Prepaid Income shall be deducted from the Purchase Price. Any Prepaid
Income for which the invoice date is June 1, 1999 or after and for which the
service date begins on July 1, 1999 will not be deducted from the purchase
price, but only if the Prepaid Income has been deposited in the Escrow Account
pursuant to Section 2.8 and is delivered to SAFE on the Closing Date. If any
Accounts Receivable are paid to SAFE by Customers, SAFE shall remit any such
amount to Seller promptly upon receipt.
2.2.2 The Net Distribution of Cash specified in the RMR Schedules
shall be paid on the Closing Date by wire transfer of immediately available
funds pursuant to and as directed in written wire transfer instructions and a
letter of directions to be delivered by Seller to SAFE at least two (2) days
prior to the Closing Date. Seller shall be responsible for and shall pay any
sales, use or other taxes with respect to the Assets sold hereunder, whether
such taxes shall arise based upon the performance of monitoring or other
services to a Customer prior to the Closing Date or as a result of the sale of
RMR Accounts and any other Asset hereunder.
2.3 EXCESS POOL ACCOUNTS. The Excess Pool Accounts shall be conveyed by
Seller to SAFE on the Closing Date but shall not increase the Purchase Price.
Such Excess Pool Accounts (so long as they have not become Attrited Accounts)
shall be used to satisfy, to the extent available, Seller's obligations under
the Attrition Guarantee pursuant to Section 3. If less than all Excess Pool
Accounts are so used, SAFE shall retain any remainder with no duty to account
therefor or pay any additional consideration to Seller.
2.4 POST-CLOSING ADJUSTMENT. If, after the Closing Date, it is
determined within the Cleanup Period that on the Closing Date less than Six
Hundred Thousand Dollars ($600,000) of RMR under Qualified Closing Accounts was
conveyed to SAFE (without taking into account the Excess Pool Accounts) (the
"DEFICIENT RMR"), then within twenty (20) days after written notification
thereof from SAFE, Seller shall (i) (a) convey to SAFE Qualified Substitute
Accounts requiring the payment of RMR equal to or greater than the Deficient
RMR, or (b) pay to SAFE an amount equal to the Deficient RMR multiplied by
thirty-five (35), and (ii) pay to SAFE an amount equal to the RMR scheduled to
have been paid under the Deficient RMR accounts but which SAFE has not received
from the period beginning on the Closing Date and ending on the earlier of the
date on which Seller (1) provides the Qualified Substitute Accounts, as required
by subsection (i)(a) above, or (2) pays SAFE the payment required by subsection
(i)(b) above. Notwithstanding the foregoing to the contrary, if SAFE shall
determine that an RMR Account
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conveyed to SAFE on the Closing Date (other than the ERC Accounts) did not
qualify as a Qualified Closing Account due to the failure of such RMR Account to
conform in all material respects with the standard forms of RMR Account
Agreement delivered to SAFE by Seller as the standard forms used by the Alarm
Dealer who originated the RMR Account Agreement, then SAFE agrees that prior to
notifying Seller and requiring Seller to perform as required above in this
Section 2.4, SAFE shall notify the affected Customer in writing once and request
that such Customer execute an RMR Account Agreement which would conform to the
applicable standard form. If within fifteen (15) days after sending such letter
the Customer has not returned to SAFE the executed replacement standard form,
then SAFE may proceed to notify Seller and require Seller to perform as
aforesaid with respect to such RMR Account.
2.5 POST-CLOSING RMR ACCOUNT REVIEW.
2.5.1 Seller has informed SAFE that certain RMR Accounts will not
qualify on the Closing Date as Qualified Closing Accounts solely because Seller
cannot deliver to SAFE an original RMR Account Agreement executed by the
Customer, although Seller possesses, and will deliver to SAFE on or prior to the
Closing Date, a copy or facsimile copy of the Customer executed RMR Account
Agreement (RMR Account Agreements described in this Section are referred to as
the "Cleanup Accounts"). SAFE agrees that it will acquire each such Cleanup
Account on the Closing Date so long as such Cleanup Account shall otherwise
qualify as a Qualified Closing Account.
2.5.2 If SAFE has accepted RMR Account Agreements as Qualified
Closing Accounts meeting, among other requirements set forth herein, the
requirements of Section 1.31(ii)(b), but such RMR Account Agreements do not
contain provisions for third party indemnification, during the Cleanup Period
Seller shall use its best efforts, at Seller's expense, to cause each Customer
under such RMR Account Agreement to execute a new RMR Account Agreement to be
conveyed to SAFE, which shall contain the missing third party indemnification
provision, shall be in form and content reasonably satisfactory to SAFE, shall
qualify as a Qualified Closing Account, and shall require the payment of RMR
equal to or greater than the RMR payable under the original RMR Account
purchased by SAFE. SAFE will provide to Seller notice of any RMR Accounts which
SAFE determines are covered by this paragraph.
2.6 ERC ACCOUNTS. SAFE shall acquire each ERC Account on the Closing
Date so long as such ERC Account shall otherwise qualify as a Qualified Closing
Account. During the Cleanup Period, Seller shall use its best efforts, at its
expense, to resign the Customers pursuant to each ERC Account to a new RMR
Account Agreement, which shall be conveyed to SAFE promptly thereafter, shall be
in form and content reasonably satisfactory to SAFE, shall qualify as a
Qualified Closing Account, and shall require the payment of RMR equal to or
greater than the RMR payable under the original ERC Account purchased by SAFE.
SAFE will provide to Seller notice of any RMR Accounts which are covered by this
paragraph. If at or prior to the expiration of the Cleanup Period Seller is
unable to resign an ERC Account Customer, such ERC Account shall nevertheless
continue to be treated as a Qualified Closing Account hereunder, unless the
reason the Customer has refused to sign a new RMR Account Agreement is because
the RMR specified under the new RMR Account Agreement proposed to be signed is
greater than the XXX
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indicated on the RMR Account ledgers which Seller has delivered to SAFE with
respect thereto. In such case, such ERC Account shall be treated under Section
2.4 as an RMR Account which did not qualify on the Closing Date as a Qualified
Closing Account.
2.7 LITIGATION RELATED ACCOUNTS. Seller has advised SAFE that Alarm
Dealers Foremost Security and Advanced Security Systems, Inc., who originated
approximately $17,000 of RMR under Litigation Related Accounts proposed to be
purchased by SAFE, are involved in disputes with Seller. As a result of SAFE's
perceived increased risk of the Litigation Related Accounts becoming Attrited
Accounts, SAFE and Seller have agreed that each Qualified Closing Account which
is a Litigation Related Account shall remain as a Litigation Related Account
until the date (the "Conversion Date") on which Seller shall enter into a
binding final written settlement of the dispute related to such Litigation
Related Account (a copy of which shall be provided to SAFE, if requested by
SAFE) and all parties to such settlement shall complete all payment and other
obligations as required by any such settlement. Thereafter, such Litigation
Related Account shall no longer be treated as such hereunder. Seller's Attrition
Guarantee with respect to the Litigation Related Accounts is set forth in
Section 3. Seller shall retain, and shall not convey to SAFE, any claims and
rights, and any recovery therefrom, with respect to the Litigation Related
Accounts against any Alarm Dealer pursuant to the Dealer Purchase Agreements and
Seller shall have the full right to pursue any injunctive relief against any
Alarm Dealer related thereto.
2.8 ESCROW ACCOUNT. Seller, SAFE and Seller's Senior Lender have
established an Escrow Account with the American National Bank of Chicago N. A.
as escrow holder pursuant to the escrow agreement attached hereto as Exhibit 6
(the "ESCROW AGREEMENT"). The Escrow Account shall be used to disburse funds
received in Seller's lockbox account following its establishment. The funds in
the Escrow Account will be distributed based on the results of the following
procedures: (i) Seller will produce an accounts receivable aging report after
all receipts received through the close of business on June 16, 1999 have been
applied; (ii) Seller will produce an additional accounts receivable aging report
at Closing, reflecting accounts receivable after all receipts through the close
of business on June 29, 1999 have been applied; (iii) the difference between the
current accounts receivable as of the close of business on June 29, 1999 and the
current accounts receivable as of the close of business on June 17th will belong
to SAFE and the balance of the funds in the lockbox account will belong to
Seller; (iv) Seller's Senior Lender will provide a letter of directions on the
Closing Date, directing the escrowee to disburse the funds as determined in
accordance with these procedures, on the Closing Date immediately following the
Closing. If the Transaction has not closed by July 2, 1999, Seller may, at its
option, cause the Escrow Account to be closed in which event Seller's Senior
Lender may direct the escrow holder to distribute the entire contents of the
Escrow Account to Seller.
2.9 NO ASSUMPTION OF LIABILITIES. Except as expressly set forth herein,
SAFE assumes no liability or obligation of Seller with respect to the Assets
purchased hereunder, except that after the Closing Date SAFE shall (i) cause a
third party to provide monitoring services (and Seller and/or its Affiliates
shall provide such monitoring services, as provided in Section 6.2.12), (ii) in
accordance with and to the extent provided in Section 9.5, provide, or cause a
third party to provide maintenance services required to be provided to
Customers, but only in accordance with the terms and conditions of the RMR
Account Agreements and Third Party Maintenance
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Agreements acquired from Seller hereunder and so long as the Customer has paid
when due for the services to be provided thereunder and (iii) perform or assume
any other liabilities relating to acts, or omissions that arise after the
Closing Date with respect to the RMR Accounts acquired by SAFE hereunder, other
than any liabilities required to be performed or assumed by Seller as expressly
provided herein. Seller shall continue to be responsible for, and shall pay
and/or perform when due, all Holdback Obligations and other obligations to Alarm
Dealers in accordance with the Dealer Purchase Agreements existing on the
Closing Date related to RMR Accounts acquired by SAFE and SAFE shall have no
obligation or liability with respect thereto. Seller shall take no action
related to an Alarm Dealer or any Dealer Purchase Agreement which would, in
SAFE's reasonable opinion, adversely affect any Qualified Closing Account, the
relationship of any Alarm Dealer with SAFE, or the frequency of occurrence of
Attrited Accounts. Notwithstanding the foregoing, Seller shall have the
unrestricted right to take such actions as it deems necessary to enforce any
contractual obligations of any Alarm Dealer to Seller.
3 ATTRITION GUARANTEE; QUALIFIED SUBSTITUTE ACCOUNTS
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3.1 ATTRITION GUARANTEE.
3.1.1 General Provisions. During the Attrition Measurement Period,
Seller agrees to guarantee, within the parameters described in Section 3.1.2
below (the "Attrition Guarantee"), that the Qualified Closing Accounts (and any
Substitute Account) purchased by SAFE from Seller shall not become Attrited
Accounts. In measuring the Attrition Guarantee, Seller's Attrition Guarantee
shall not be diminished by any RMR Accounts substituted pursuant to Section 2.4
to replace non-Qualifying Closing Accounts and Seller's obligations under
Section 2.4 are in addition to the Attrition Guarantee obligations described
herein. If during the Attrition Measurement Period any Qualified Closing Account
(or a Qualified Substitute Account conveyed to SAFE for an Attrited Account)
shall become an Attrited Account, SAFE shall notify Seller thereof on a monthly
report to be delivered no later than the 20th day following the end of the
month, which details the cancellations that occurred during the previous month,
the Annualized Attrition as of the end of that month, any current RMR Account
replacement obligations of Seller and any payments due for lost RMR, all after
application of any Excess Pool Accounts that are available to meet those
obligations (the "MONTHLY ATTRITION GUARANTEE REPORT"). Where a Customer informs
Seller, orally that the Customer is canceling, or intends to cancel or not
renew, its RMR Account Agreement, Seller shall instruct such Customer to so
notify SAFE and Seller will forward any writings received promptly to SAFE.
SAFE's delivery of the Monthly Attrition Guaranty Report shall be deemed the
"RMR ACCOUNT CANCELLATION NOTICE". Within thirty (30) days after receipt from
SAFE of an RMR Account Cancellation Notice, Seller shall (i) (a) convey to SAFE
title (free and clear of Liens) to a Qualified Substitute Account(s) which
fulfills the requirements of Section 3.2 below, or (b) pay SAFE the Cash
Attrition Payment for such Attrited Account, and (ii) pay SAFE an amount in cash
equal to the RMR for each Attrited Account (as scheduled in Exhibit A to the RMR
Schedule) which has not been paid to SAFE for the period from and after the
Closing Date to the date of payment, or the date of conveyance to SAFE of
Qualified Substitute Account, as applicable pursuant to subparagraph (i) of this
sentence. Seller's obligation to convey Qualified Substitute Accounts shall be
satisfied initially from any Excess Pool Accounts which, on the date such
conveyance is required hereunder, are not Attrited Accounts. SAFE and Seller
agree that the amount of damages suffered by SAFE arising from an RMR Account
becoming an Attrited Account and any failure to Seller to provide Qualified
Substitute Accounts is difficult to ascertain, and SAFE and Seller acknowledge
that the obligations of Seller set forth in this paragraph related thereto are
reasonable estimates of the damages to be suffered, and constitute liquidated
damages and not a penalty.
3.1.2 ATTRITION PARAMETERS. With respect to Qualified Closing
Accounts (other than Litigation Related Accounts so long as they remain
Litigation Related Accounts), Seller's Attrition Guarantee shall apply to the
extent that Annualized Attrition is greater than 8% and equal to or less than
13% and shall include payment for the lost RMR for those Attrited Accounts to
which the Attrition Guaranty applies, as provided in section 3.1.1 above. With
respect to Qualified Closing Accounts which are Litigation Related Accounts but
only so long as they remain Litigation Related Accounts, Seller's Attrition
Guarantee shall apply to each Litigation Related Account which shall become an
Attrited Account, and shall include payment for the lost RMR for those Attrited
Accounts to which the Attrition Guaranty applies, as provided in section 3.1.1
above, as follows: (i) to the extent that Annualized Attrition is greater than
0% and equal to or
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less than 5%, and (ii) to the extent that Annualized Attrition is greater than
10%. During the period that a Qualified Closing Account is a Litigation Related
Account, no Attrition and no conveyance of Substitute Accounts and/or payments
made to SAFE by Seller pursuant to Section 3.1.1 above shall be taken into
account in measuring Seller's Attrition Guarantee with respect to non Litigation
Related Accounts in the first sentence of this subsection.
3.2 QUALIFIED SUBSTITUTE ACCOUNTS. On the date of tender to SAFE, the
Qualified Substitute Accounts shall (i) require the Customers thereunder to pay
an aggregate RMR equal to or greater than the RMR scheduled to be paid under the
Attrited Account(s) for which substitution is being made, (ii) be in compliance
with (and Seller shall be deemed to have reaffirmed to SAFE) each of the
representations and warranties set forth in Article 7, including without
limitation those set forth in Section 7.5 and (iii) satisfy each of the
conditions set forth in Sections 6.2.4.1, 6.2.4.2, 6.2.4.4(i), 6.2.4.7, 6.2.5,
6.2.6(i)(b)(without regard to any dollar minimum) and (ii)(without regard to any
percentage), 6.2.8, 6.2.9, 6.2.10, 6.2.11, and 6.2.13 or, (iv) are otherwise
Qualified Substitute Accounts as defined in Section 1.34. SAFE shall notify
Seller, within ten (10) business days following delivery by Seller to SAFE of
all information and documents necessary for SAFE to evaluate a RMR Account
tendered by Seller as a Qualified Substitute Account, if such tendered RMR
Account is not acceptable to SAFE as a Qualified Substitute Account, stating
specifically the reason why such RMR Account is not acceptable.
3.3 REDUCTION OF COMMISSIONS. If Seller has failed, as required by Section
3.1, to tender and convey to SAFE Qualified Substitute Accounts and pay the
amounts required thereby, SAFE may, at SAFE's election, reduce any Commissions
due but unpaid to Seller pursuant to Section 5 by the amounts not paid pursuant
to Section 3.1(i)(b), (ii) and (iii).
3.4 ASSIGNMENT OF ATTRITED ACCOUNTS. Intentionally omitted.
3.5 RECONVEYANCE OF ATTRITED ACCOUNTS. If during the Attrition Measurement
Period (i) an RMR Account becomes an Attrited Account, (ii) a Holdback
Obligation remains unpaid with respect to such Attrited Account, and (iii) the
Dealer Purchase Agreement for such Attrited Account requires Seller to reconvey
the Attrited Account to the Alarm Dealer if the Holdback Obligation will be
reduced because the Alarm Dealer failed to replace the Attrited Account with a
replacement RMR Account, then SAFE shall reconvey such Attrited Account to
Seller and Seller shall reconvey such Attrited Account to the Alarm Dealer as
required by the Dealer Purchase Agreement. If during the Attrition Measurement
Period RMR Accounts become Attrited Accounts, but Seller is not obligated to
reconvey such Attrited Accounts to the Alarm Dealer pursuant to the Dealer
Purchase Agreement, then provided that Seller is not in Default hereunder, SAFE
shall pay to Seller twenty-five percent (25%) of the excess, if any, of (i) the
aggregate RMR collected by SAFE from Attrited Account Customers during the
period after (but only so long as) such RMR Accounts have become Attrited
Accounts and ending at the expiration of the Attrition Measurement Period, less
(ii) the reasonable direct expenses incurred by SAFE with respect thereto. SAFE
shall be under no obligation to Seller to take any particular collection action
or make any collection efforts, the extent of which actions, if any, shall be
determined by SAFE in its sole and absolute discretion.
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3.6 ATTRITION GUARANTEE EXAMPLE. Set forth in Exhibit 7 is an example of
the application of the foregoing paragraphs regarding the Attrition Guarantee.
4 LOAN TO SELLER; NOTE
4.1 LOAN. Concurrently with the Closing and provided all conditions
precedent to SAFE's obligations hereunder shall have been satisfied, SAFE shall
make a loan to Seller in the amount of One Million Eight Hundred Thousand
Dollars ($1,800,000), which shall be evidenced by a promissory note in the form
attached hereto as Exhibit 8. (the "NOTE"). The Note shall be secured by (i) a
security interest in certain of Seller's assets identified in the Pledge
Agreement, which shall be subordinate only to the Lien granted to Seller's
Senior Lender, and (ii) a security interest in any Commissions payable, which
shall not be subordinate to any Lien of any person, including Seller's Senior
Lender and Subordinated Lender, all as evidenced in the Note. The term of the
Note shall be twelve (12) months with interest at eight percent (8%) per annum
on the outstanding principal balance; provided, however, that if the initial
period following the Closing Date for determination of Commissions pursuant to
Section 5.2 is extended for sixty (60) days as provided herein, the term of the
Note will be extended to the end of the fourteenth month following the Closing
Date. Amounts not paid when due shall bear interest at fourteen percent (14%)
per annum. It shall be deemed a default under the Note if Seller is declared to
be in default of its obligations to Seller's Senior Lender or to the
Subordinated Lender. The obligations of Seller under the Note shall be
satisfied, and the Note principal and interest shall be deemed to have been
paid, if transactions satisfying the $230,000 Annual RMR Threshold for the
initial period are closed by Seller as set forth in Section 5.2, and in
accordance with the provisions of Section 5.3.1 below. If transactions
satisfying such Annual RMR Threshold are not closed during the initial period
set forth in Section 5.2, the Note shall be due and payable in full according to
its terms. With respect to determining whether the Annual RMR Threshold has been
satisfied for purposes of deeming the Note to have been paid, the Annual RMR
Threshold shall include Commission for both RMR Accounts purchased and RMR
Accounts which are provided as collateral for loans made by SAFE or its
designee.
5 REFERRAL AGREEMENT; COMMISSIONS
5.1 STRATEGIC ALLIANCE. SAFE and Seller desire to establish a strategic
alliance which shall continue for an initial period of three (3) years following
the Closing Date and shall continue thereafter if SAFE and Seller shall
determine to do so. During such three (3) year period (or during any shorter
period if the strategic alliance is terminated as provided herein), the
provisions of Sections 5.1-5.5 shall be effective and the strategic alliance
shall be implemented as follows:
5.1.1 SAFE shall be the exclusive and preferred financing referral
source for Alarm Dealers with whom Seller has or had a business relationship,
including for loans secured by RMR and RMR acquisition opportunities. Promptly
after the Closing, SAFE shall provide general parameters to Seller with respect
to those RMR purchase and loan opportunities which SAFE determines would not be
likely to be purchased or funded by SAFE. RMR purchase or loan opportunities
which do not meet SAFE's parameters shall not be required to be submitted by
Seller to SAFE for evaluation as a purchase or loan opportunity. On the Closing
Date, Seller
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shall deliver to SAFE all of the information contained in Seller's Alarm Dealer
database, which is maintained in a Maximizer software database. SAFE shall have
the exclusive right to solicit such Alarm Dealers for their RMR purchase and/or
loan business within SAFE's parameters and Seller shall not make any such
information available to any other Person who might reasonably be expected to
use same to compete against SAFE in connection with any such transaction. Seller
shall actively promote SAFE's RMR purchase and loan financing programs to its
Alarm Dealer database under terms to be mutually agreed upon to prior to the
Closing Date. If Seller shall acquire a central monitoring station but the
seller thereof desires to retain the right to referrals for RMR purchase from
and loans to Alarm Dealers whose Customer RMR Accounts are then being monitored
by such station, then referrals by such seller shall be excluded from Seller's
referral obligation hereunder other than with respect to RMR Accounts that are
transferred to Seller by such seller or any Affiliate thereof.
5.1.2 Seller's central monitoring stations shall enjoy a preferred
status for the purpose of monitoring SAFE's RMR accounts not purchased
hereunder. It is SAFE's intention to move as many of its monitored RMR Accounts
currently monitored by other central monitoring stations to Seller `s UL central
monitoring stations. Additionally, SAFE shall actively promote Seller's services
to Alarm Dealers with whom SAFE has or had a business relationship.
5.1.3 If during the initial three (3) year period (i) a change in
control of SAFE shall occur (excluding any acquisition of control of SAFE by
General Electric Capital Corporation ["GECC"] or any Affiliate thereof) or (ii)
SAFE shall implement objectionable actions, and either of such events shall
materially and fundamentally alter the manner in which SAFE has historically
conducted its business and shall have a material adverse impact on the business
strategies of SAFE and/or Seller upon which the strategic alliance is based,
then Seller shall have the right to terminate the strategic alliance after
notice to SAFE thereof, which notice shall set forth with particularity the
nature of the objectionable action and the specific material adverse impact
claimed to have occurred. If SAFE shall fail to cure in all material respects
such change or action within thirty (30) days after receipt of such notice
(which shall include the required particulars), then Seller shall have the
right, by providing written notice to SAFE within thirty (30) days thereafter,
to terminate the strategic alliance, in which event neither SAFE nor Seller
shall have any further obligation to the other pursuant to this Section 5.1.
5.1.4 If during the initial three (3) year period (i) a change in
control of Seller shall occur (excluding any acquisition of control of Seller by
Seller's Senior Lender) , or (ii) Seller shall sell a material portion of its
business or assets to a Person who is a competitor of SAFE, or (iii) Xxxxxx
Xxxxxxxxx, Subordinated Lender (or any of Subordinated Lenders partners)[except
that Subordinated Lender may sell a portion of its investment interest in Seller
so long as (a) effective control of Seller is retained by Subordinated Lender
and (b) the purchaser(s) of any such investment interest are not competitors of
SAFE or the ownership of such interest would not adversely affect the conduct of
business between SAFE and Seller], or Xxxxxxx Xxxxx, or any other present or
future director, officer, or principal shareholder (as defined in Section 9.1.1)
shall acquire a greater than five percent (5%) ownership interest in any Person
who is a competitor of SAFE, or (iv) Seller shall implement objectionable
actions, and any of such events shall materially and fundamentally alter the
manner in which Seller has historically
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conducted its business and shall have a material adverse impact on the business
strategies of SAFE and/or Seller upon which the strategic alliance is based,
then SAFE shall have the right to terminate the strategic alliance after notice
to Seller thereof, which notice shall set forth with particularity the nature of
the objectionable action and the specific material adverse impact claimed to
have occurred. If Seller shall fail to cure in all material respects such change
or action within thirty (30) days after receipt of such notice (which shall
include the required particulars), then SAFE shall have the right, by providing
written notice to Seller within thirty (30) days thereafter, to terminate the
strategic alliance, in which event neither SAFE nor Seller shall have any
further obligation to the other pursuant to this Section 5.1.
5.2 COMMISSION PAYMENTS. Seller shall have the opportunity to earn
Commissions, determined according to the Commission formula set forth below,
based upon the purchase by SAFE of RMR Accounts (other than those being acquired
from Seller on the Closing Date) which are Qualified Referral Accounts from
Qualified Dealers which have been referred to SAFE by Seller (as described in
Section 5.4 below. Commissions will be earned if the following annual thresholds
of RMR Accounts purchased (each an "ANNUAL RMR THRESHOLD") are achieved during
each period below, with the initial period to commence on May 15, 1999 and to
end on the date which is twelve months following the earlier of (a) thirty (30)
days following the Closing Date, or (b) the date on which SAFE and Seller shall
agree upon the material terms of their joint marketing agreement. The Annual RMR
Thresholds are first period: $230,000; second twelve month period: $460,000; and
third twelve month period: $690,000. RMR Accounts shall be deemed to be "closed"
by SAFE within any month period (but not double counted) if (i) SAFE has issued,
and the proposed seller has signed and returned to SAFE, a written letter of
intent, and (ii) the RMR Account purchase, or loan secured by RMR Accounts, is
consummated within sixty (60) days after the end of the applicable period.
Commissions with respect to RMR "closed" during the initial period following the
Closing Date will be paid at the end of the fourteenth month following the
Closing Date. Thereafter, Commissions will be paid quarterly. Commissions
payable shall be applied in the following payment priority: (1) to pay any
obligation of Seller due but unpaid hereunder, including obligations for
Seller's Attrition Guarantee pursuant to Section 3, and (2) any unapplied
balance of Commissions payable shall be applied first, to pay accrued and unpaid
interest and second, to pay outstanding principal under the Note. Any remainder
shall be paid to Seller so long as Seller is not in Default.
5.3 COMMISSION FORMULAS.
5.3.1 The schedule below sets forth the manner in which Commissions are
determined for RMR Accounts purchased by SAFE:
--------------------------------------------------------------------------------
ANNUAL RMR THRESHOLD ATTAINED COMMISSION PAYABLE
--------------------------------------------------------------------------------
0% to and including 100% 0%
--------------------------------------------------------------------------------
more than 100% to and including 150% $1.00 x RMR purchased
--------------------------------------------------------------------------------
greater than 150% (i) $1.25 x Annual RMR Threshold attained
plus, (ii) $0.25 x amount of RMR purchased
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--------------------------------------------------------------------------------
in excess of the Annual RMR Threshold
--------------------------------------------------------------------------------
Examples of the foregoing calculation are as follows:
A. Initial period with purchased RMR of $230,000, or 100% of Annual RMR
Threshold. Commission calculation: $1.00 x RMR ($230,000) = $230,00;
B. Initial period with purchased RMR of $402,500, or 175% of Annual RMR
Threshold. Commission calculation: $1.25 x RMR ($402,500) = $503,125, plus
$0.25 x (402,500-230,000) = $546,250;
C. Second 12 month period with purchased RMR of $805,000, or 175% of Annual
RMR Threshold. Commission calculation: $1.25 x RMR ($805,000) = $1,006,250,
plus $0.25 x (805,0000-460,000) = $1,092,500.
5.3.2 The schedule to be inserted below sets forth the manner in which
Commissions are determined for loans made by SAFE and referred by Seller which
are secured by RMR Accounts. Seller and SAFE have agreed to insert such schedule
via an amendment to this Agreement, which amendment shall be agreed to by SAFE
and Seller within thirty (30) days after the Closing Date and which schedule
shall be subject to the approval of GECC. RMR of RMR Accounts, referred by
Seller to SAFE, which secure loans made by SAFE shall be counted on a dollar for
dollar basis for purposes of determining if the RMR Threshold set forth above
has been reached by Seller.
5.4 REFERRALS. Seller will be treated as having "referred" an Alarm Dealer
to SAFE, for purposes of the initial and subsequent referrals, if the referred
Alarm Dealer is listed on Schedule 3, which sets forth those Alarm Dealers with
whom Seller has an existing purchase or servicing relationship and those whom
Seller actively solicits for the acquisition of RMR Accounts and those Alarm
Dealers in Seller's "dealer network", which includes those Alarm Dealers (to the
extent they are not SAFE Alarm Dealers, as defined below) who attend Seller's
seminars, receive training from Seller, subscribe to Seller's Audio Insight
publication, or are customers of central monitoring stations owned by Seller or
its Affiliates ("SELLER'S REFERRAL DEALERS"). The Schedule of Seller's Referral
Dealers shall be used to determine, if SAFE is independently contacted by an
Alarm Dealer, or if SAFE solicits an Alarm Dealer, whether Seller has
established a relationship with such Alarm Dealer and therefore should be
credited with a "referral" if an RMR purchase or RMR secured loan transaction is
consummated by SAFE with such Alarm Dealer. Alarm Dealers with whom SAFE has an
existing purchase or servicing relationship on the Closing Date shall not be
included as a Seller referral source and Schedule 4 sets forth those Alarm
Dealers (the "SAFE ALARM DEALERS").
5.5 SAFE'S PURCHASE OBLIGATION. SAFE acknowledges that it is Seller's
intent to refer to SAFE a sufficient number of Qualified Referral Accounts from
Qualified Dealers during the initial period as are necessary to generate the
Annual Threshold Amount of Commissions for that period. SAFE agrees to review
these referrals for RMR purchase or loan, as the case may be, and to apply in
such review SAFE's normal due diligence standards for purchase or loan
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transactions. SAFE agrees to consummate the purchase or loan transactions
provided that (i) the proposed transactions are at the then prevailing market
price for similar RMR Accounts in size and quality and financial condition of
the respective Alarm Dealer, (ii) SAFE's due diligence review is satisfactory to
SAFE, (iii) such transactions are approved, where required, by the financial
institutions who are lenders to SAFE and funding is made available for same by
such institutions, and (iv) subject to no adverse change having occurred in the
security alarm purchase or financing market. If SAFE shall not consummate a
purchase or loan transaction of Qualified Referral Accounts from Qualified
Dealers which satisfy the requirements of subparagraphs (i) and (ii) above, but
subparagraphs (iii) or (iv) are not able to be satisfied, then although SAFE
shall not be required to consummate any such purchase or loan transaction, for
the purposes solely of determining whether the Annual RMR Threshold under
Section 5.3 has been attained such purchase or loan transactions shall be deemed
to have been consummated by SAFE but no Commissions shall be payable to Seller
with respect to any such deemed purchase or loan transaction; provided, further,
that if SAFE shall not have consummated any such purchase or loan transaction as
a result of the failure of SAFE's lenders to approve and/or fund same, SAFE
shall have a period of sixty (60) days following such lenders adverse
determination during which SAFE may seek to obtain financing from another lender
in order to consummate such transaction (but shall not be required to do so). In
such event, with respect to such purchase or loan transaction, the sixty (60)
day extension period described in Section 5.2 for determining whether a purchase
or loan has been consummated within a "period" shall be extended by any
extension period granted to SAFE under this Section 5.5
SAFE acknowledges that Seller is under contractual obligations to purchase RMR
Accounts from Armor Alarms, Inc., Cornerstone Security, Inc. and Active Security
Systems, Inc. and agrees that, subject to the foregoing, SAFE will purchase all
such RMR Accounts, which in the aggregate shall not exceed the number of RMR
Accounts with associated RMR, at an RMR multiple and on terms and conditions,
all as set forth in Schedule 5.5 hereto. All such RMR Accounts purchased by
Seller, and thereafter by SAFE, from Armor Alarms, Inc., Cornerstone Security,
Inc. and Active Security Systems, Inc. shall be deemed Qualified Referral
Accounts and Seller shall be included in determining the applicable Commissions
to which Seller may be entitled to hereunder. At Seller's discretion, if there
is at the time of its purchase any unsatisfied RMR Account replacement
obligation outstanding, it may tender these RMR Accounts towards satisfaction of
those obligations, so long as such RMR Accounts satisfy the requirements of
Qualified Substitute Accounts and such Alarm Dealers satisfy the requirements of
Qualified Referral Dealers at the time of each such proposed purchase.
Additionally Seller owns approximately 200 accounts currently financed which
were purchased from U.S. Alarms. Seller intends to use, and SAFE will accept,
such accounts as replacements, so long as such RMR Accounts satisfy the
requirements of Qualified Substitute Accounts and such Alarm Dealers satisfy the
requirements of Qualified Referral Dealers at the time of each such proposed
replacement.
6 THE CLOSING; CONDITIONS TO CLOSING
6.1 CLOSING DATE. The Closing Date for the purchase and sale of the Assets
will take place at the offices of SAFE at 10:00 a.m. on June 30, 1999 (the
"CLOSING DATE"), or at such other place or such other time and date as shall be
agreed to by Seller and SAFE in writing.
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6.2 CONDITIONS TO SAFE'S OBLIGATIONS. SAFE's obligations to purchase the
Assets, pay the Purchase Price and consummate the Loan are subject to the
fulfillment of the following conditions to the reasonable satisfaction of SAFE
and its counsel on or prior to the Closing Date. If any condition is not
fulfilled, or waived in writing by SAFE, SAFE shall not be obligated to perform
and shall be relieved of all obligations hereunder. If SAFE proceeds to close
the foregoing transactions all of the conditions to Closing shall be deemed to
have been satisfied or waived.
6.2.1 Representations and Warranties True. All representations and
warranties of Seller contained in this Agreement shall be true and correct as of
the date hereof and on the Closing Date in all material respects (except the
words "in all material respects" shall be deleted where any such representation,
warranty or certification is otherwise subject to a "materiality"qualification
therein).
6.2.2 Performance of Covenants. Seller shall have performed and
complied in all material respects with all covenants and agreements, and
satisfied all conditions that Seller is required by this Agreement to perform,
comply with, or satisfy.
6.2.3 Required Approvals. Intentionally omitted.
6.2.4 Deliveries at Closing. There shall have been delivered to SAFE at
or prior to Closing, all of the following:
6.2.4.1 A Xxxx of Sale for the Assets duly executed by Seller, in
the form attached hereto as Exhibit 9;
6.2.4.2 An assignment agreement whereby Seller shall convey the
Related Rights to SAFE, duly executed by Seller, and in the form attached hereto
as Exhibit 10;
6.2.4.3 The Pledge Agreement and the Note, each duly executed by
Seller;
6.2.4.4 (i) Except as otherwise permitted pursuant to Section
2.5, each original contract, agreement or other document, and all amendments and
modifications thereto, constituting each RMR Account purchased hereunder, signed
by Seller (or the Alarm Dealer from whom Seller purchased the RMR Account) and
each Customer or (ii) with respect to the Cleanup Accounts, a copy or facsimile
copy thereof, along with a certification by Seller in the form attached hereto
as Exhibit 11;
6.2.4.5 The Subordination Agreement, duly executed by the
Subordinated Lender;
6.2.4.6 An opinion of Seller's counsel, dated the Closing Date,
in substantially the form attached as Exhibit 12;
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6.2.4.7 Precautionary Uniform Commercial Code financing
statements providing notice of the purchase Transaction under this Agreement in
the States of incorporation of Seller and in which Seller maintains its chief
executive office, and in any other relevant jurisdiction, shall have been filed
or due provision for such filings shall have been made. Uniform Commercial Code
financing statements to perfect SAFE's security interest and pledge of the
collateral identified in the Pledge Agreement in the States of incorporation of
Seller and in which Seller maintains its chief executive office, and in any
other relevant jurisdiction, shall have been filed or due provision for such
filings shall have been made and Seller's Senior Lender shall have confirmed in
writing to SAFE that it is holding the pledged certificates as agent for SAFE,
as well as for its own account (and in its capacity as agent), as provided in
the Pledge Agreement;
6.2.4.8 The Senior Lender Subordination Agreement, executed by
SAFE and Seller's Senior Lender.
6.2.5 No Liens. There shall not exist any Liens against the Assets.
There shall not exist any Liens against the collateral, granted by Seller to
SAFE pursuant to the Pledge Agreement, excepting only the Liens in favor of
Seller's Senior Lender and any other Lien expressly consented to by SAFE in
writing. Appropriate releases of Liens, where required, shall have been duly
executed by any Lien holder and delivered to SAFE in proper form for recordation
in all filing offices where necessary.
6.2.6 Adverse Changes. There shall not (i) have occurred any material
adverse change (a) in the financial condition, business or prospects of Seller
or with respect to the RMR Accounts, or (b) to the best of Seller's knowledge,
in the financial condition, business or prospects of any Alarm Dealer who was
the originator and/or seller and/or maintenance service of any group of
Qualified Closing Accounts which comprise Sixty Thousand Dollars ($60,000) or
more of RMR (a "10% Dealer"), or (ii) exist any material dispute or any
litigation pending, or to Seller's knowledge threatened, between Seller and any
10% Dealer.
6.2.7 Confirmations. Intentionally omitted.
6.2.8 Maintenance Contracts. Except as set forth in each RMR Account
Agreement delivered to SAFE, neither Seller, nor to Seller's knowledge any Alarm
Dealer, has made any written or oral agreement to provide maintenance services
for any alarm system equipment related to any RMR Account other than those
previously disclosed to SAFE by Seller in writing.
6.2.9 Central Station Signal Confirmation. SAFE shall have received
confirmation from each central monitoring station servicing each RMR Account
that the alarm system equipment for each RMR Account is communicating with the
central monitoring station in a manner satisfactory to the central monitoring
station.
6.2.10 Telephone Lines. Except as provided in Section 9.17, all RMR
Accounts to be conveyed to SAFE hereunder shall have been transferred to a
telephone line(s) owned and
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controlled by SAFE prior to the Closing Date.
6.2.11 Account Information. Seller shall have provided to SAFE (to the
extent Seller possesses or has access to) all information necessary to perform
maintenance on the RMR Accounts, such information to include lock-out codes,
pass-key numbers, pass-words, communicator identification, programming
information, and such other information as SAFE may request.
6.2.12 Central Monitoring Service Agreement. SAFE and Seller,
concurrently with the Closing, shall have entered into an agreement, in the form
attached hereto as Exhibit 13, whereby Seller or an Affiliate of Seller shall
provide central monitoring services to SAFE with respect to the RMR Accounts
conveyed pursuant to this Agreement and other RMR Accounts for which SAFE
desires Seller to provide monitoring services.
6.2.13 Other Documents. Such other certificates or documents as SAFE or
its counsel may reasonably request relating to the transactions contemplated
hereby.
6.3 CONDITIONS TO SELLER'S OBLIGATIONS. Seller's obligations to sell the
Assets and consummate the Loan are subject to the fulfillment of the following
conditions to the satisfaction of Seller and its counsel on or prior to the
Closing Date. If any condition is not fulfilled, or waived in writing by Seller,
Seller shall not be obligated to perform and shall be relieved of all
obligations hereunder. If Seller proceeds to close the foregoing transactions
all of the conditions to Closing shall be deemed to have been satisfied or
waived.
6.3.1 Representations and Warranties True. All representations and
warranties of SAFE contained in this Agreement shall be true and correct as of
the date hereof and on the Closing Date in all material respects (except the
words "in all material respects" shall be deleted where any such representation,
warranty or certification is otherwise subject to a "materiality"qualification
therein).
6.3.2 Performance of Covenants. SAFE shall have performed and complied
in all material respects with all covenants and agreements, and satisfied all
conditions that SAFE is required by this Agreement to perform, comply with, or
satisfy.
6.3.3 Payment of Purchase Price. SAFE shall have delivered the Purchase
Price via wire transfer of immediately available funds to Seller, or to such
other Persons as Seller shall have directed SAFE in writing.
6.3.4 Subordination Agreement. If requested by Senior Lender, SAFE
shall have executed a subordination agreement, in form and content requested by
Senior Lender and reasonably satisfactory to SAFE, whereby SAFE shall confirm
that the Lien granted pursuant to the Pledge Agreement is subordinate to the
Lien in favor of Senior Lender.
6.3.5 Opinion of Counsel. An opinion of SAFE's counsel, dated the
Closing Date, in substantially the form attached as Exhibit 14;
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6.3.6 Other Documents. Such other certificates or documents as Seller
or its counsel may reasonably request relating to the transactions contemplated
hereby.
7 REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to SAFE to enter into this Agreement and purchase
the Assets, Seller represents and warrants to SAFE that:
7.1 ORGANIZATION AND EXISTENCE. Seller (i) is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization; (ii) has all requisite corporate power and authority, and has all
governmental licenses, authorizations, consents and approvals necessary to own
its assets (including without limitation the RMR Accounts) and carry on its
business as now being or as proposed to be conducted; and (c) is qualified to do
business and is in good standing in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary, and/or in which
monitoring services are provided to a Customer under an RMR Account and where
failure so to qualify could (in the aggregate) have a Material Adverse Effect.
The address of Seller's chief executive office and principal place of business
is located at the place set forth in the first paragraph of this Agreement.
7.2 ACTION. Seller has all necessary corporate power, authority and legal
right to execute, deliver and perform its obligations under this Agreement and
the other Transaction Documents. The execution, delivery and performance of this
Agreement and the other Transaction Documents have been duly authorized by all
necessary corporate (including, without limitation, any required shareholder or
other approvals). This Agreement and the other Transaction Documents have been
duly and validly executed and delivered by Seller and, when executed by SAFE,
will constitute the legal, valid and binding obligations of Seller, enforceable
in accordance with their terms.
7.3 NO BREACH. None of the execution and delivery of this Agreement and the
other Transaction Documents, the consummation of the transactions herein and
therein contemplated or compliance with the terms and provisions hereof and
thereof will conflict with or result in a breach of, or require any consent
under, the charter or by-laws of Seller, or any other document or agreement
governing Seller's organization, or any applicable law or regulation (including
without limitation any laws related to "bulk transfers" or "fraudulent
conveyances"), or any order, writ, injunction or decree of any court or
governmental authority or agency, or any agreement or instrument to which Seller
is a party or by which it or any of its property is bound or to which any of
them is subject, other than the consent of Seller's Senior Lender, which will be
obtained concurrent with or prior to the Closing, or constitute a default under
any such agreement or instrument, or result in the creation or imposition of any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind
(other than the Lien in favor of SAFE) in respect of any property of Seller
(including without limitation the Assets) pursuant to the terms of any such
agreement or instrument, or give any Customer a right to terminate any RMR
Account.
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7.4 ABSENCE OF UNDISCLOSED LIABILITIES. Except for Seller's obligations to
arrange or provide for monitoring services or any maintenance services, all of
which are set forth in each RMR Account Agreement or in separate written
maintenance agreements with Customers and Third Party Maintenance Agreements
with Alarm Dealers, true, correct and complete copies of which have been
provided to SAFE, Seller has no obligation or liability (whether accrued,
absolute, contingent, liquidated, unliquidated or otherwise, whether or not
known to Seller, whether due or to become due) related or in any way connected
with any RMR Account arising out of transactions entered into on or prior to the
date hereof or any occurrence or state of facts existing on or prior to the date
hereof. Schedule 9 hereto identifies each Third Party Maintenance Agreement in
effect on the date hereof.
7.5 QUALIFIED CLOSING ACCOUNTS. With respect to each Qualified Closing
Account purchased by SAFE, on the date hereof and on any Closing Date:
7.5.1 Each Qualified Closing Account arose in a bona-fide arms length
transaction and is a valid and binding obligation of Seller and, to the best of
Seller's knowledge, the Customer, enforceable in accordance with its terms, and
is in full force and effect and free from any claim, defense or offset. Seller
has delivered to SAFE an original counterpart, executed by Customer and Seller,
of each RMR Account Agreement, the only other original executed counterpart of
which is in the Customer's possession (excepting only, with respect to the
delivery of an original counterpart, the Cleanup Accounts, as to which Seller
has delivered to SAFE a true and correct copy or facsimile copy of such RMR
Account Agreement, and as to which Cleanup Accounts Seller represents and
warrants that no person, other than the Customer, is in possession of an
original counterpart thereof); no RMR Account Agreement has been modified or
amended in any respect, except to the extent that such modification or amendment
is in writing and an original (excepting the Cleanup Accounts) counterpart of
same, executed by Customer and Seller, has been delivered to SAFE. The
information set forth in Exhibit A to the RMR Schedule with respect to the
Qualified Closing Accounts is true and accurate in all respects.
7.5.2 Seller has performed all obligations required to be performed by
Seller under each RMR Account Agreement in all material respects and is not in
default thereunder, or in breach thereof, nor in receipt of any claim of default
or breach thereunder. Seller has not received any written or oral notice from
any Customer or other party, and has no knowledge, of any breach or anticipated
breach by the Customer of any RMR Account Agreement or the intent of any
Customer not to renew any RMR Account Agreement when its current term shall
expire. Seller has not been notified, and has no knowledge, of any cancellation
or intended cancellation of any RMR Account Agreement and Seller has no
knowledge of any event which would entitle a Customer to cancel any RMR Account
Agreement prior to the expiration of its current term. No Qualified Closing
Account constitutes an Attrited Account.
7.5.3 Seller owns, and on the Closing Date will convey to SAFE, good
and marketable title to each Qualified Closing Account, free and clear of any
and all Liens of whatsoever kind or nature.
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7.5.4 All alarm systems related to the Qualified Closing Accounts are
owned by Seller or the respective Customer and, if owned by Seller, shall be
conveyed on the Closing Date to SAFE, and are, and on the Closing Date will be,
free and clear of all Liens, and if owned by Seller are in good working order
and condition comply in all material respects with applicable laws, codes and
regulations.
7.5.5 Seller has not accepted or received any Prepaid Income or any
prepayment of amounts otherwise due under any Qualified Closing Account, except
as set forth in Exhibit A to the RMR Schedule.
7.5.6 Seller is not a party to or bound by, and shall not at any time
become a party to or bound by, any contract or agreement, oral or written,
pursuant to which Seller purports to pledge, sell, exchange, transfer, dispose,
modify or amend in any manner of any of Seller's right, title or interest in any
Qualified Closing Accounts, excepting only the documents which granted a Lien to
Seller's Senior Lender.
7.5.7 The RMR for each Qualified Closing Account used in the
calculation of the Purchase Price pursuant to Section 2.2 and any RMC, and the
billing cycle therefor and status of payments thereof, all as set forth in the
RMR Schedule, are true, correct and complete.
7.5.8 All costs, warranty and maintenance contracts, special customer
arrangements, or any unusual or non-standard circumstance associated with any
Qualified Closing Account purchased hereunder and known to Seller have been
disclosed to SAFE in writing.
7.5.9 Schedules 5A, 5B, 5C and 5D hereto contain true, correct and
complete lists of each telephone number being used in connection with the
provision of monitoring services under the RMR Accounts conveyed hereunder and
Seller is the owner of all right, title and interest therein, except to the
extent indicated on Schedule 5D. Schedules 5C and 5D also identify all telephone
numbers which are used to provide monitoring services for RMR Accounts in
addition to RMR Accounts being conveyed to SAFE hereunder.
7.6 ASSETS.
7.6.1 Seller has and will have at the Closing good, valid and
marketable title to each and every one of the Assets, whether tangible or
intangible, free and clear of any and all Liens, excepting only the Lien in
favor of Seller's Senior Lender which Lien will be released on or prior to the
Closing Date.
7.6.2 To Seller's knowledge, Seller is the owner of, or otherwise has
the right to use, the Intangible Property, free and clear of any and all Liens,
excepting only the Lien in favor of Seller's Senior Lender, which Lien will be
released on or prior to the Closing Date. Seller's use of the Intangible
Property has not and does not presently conflict with, infringe upon or violate
any proprietary right of any other Person. Seller has no knowledge of any third
party infringement thereof. No claims or demands have been asserted against
Seller with respect to any items of Intangible Property and no proceedings have
been instituted, are pending or, to the best
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knowledge of Seller, have been threatened which challenge the rights of Seller
with respect to any items of Intangible Property. There are no facts known to
Seller which might reasonably serve as the basis of any claim that the
Intangible Property infringes on the rights of any other person or entity, or of
any claim that Seller is in default with respect to any of such items of
Intangible Property.
7.7 LITIGATION. Except as set forth on Schedule 6 hereto, there is no
action, suit, proceeding or investigation now pending or, to the knowledge of
Seller, threatened in any court, or before any arbitrator, or by or before any
governmental or regulatory authority, (i) in connection with any RMR Account, or
any other Asset being transferred hereunder, the execution, delivery or
performance of or under any Dealer Purchase Agreement, or any matter related
thereto, or this Agreement, or seeking to prohibit, restrain or enjoin the
execution, delivery or performance by Seller of any of the foregoing, or (ii)
that, if adversely determined, could (either individually or in the aggregate),
have a Material Adverse Effect, nor, to the knowledge of Seller, is there any
basis therefore.
7.8 BROKERAGE. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement arising as a consequence of any promise, agreement or other act
by or on behalf of Seller.
7.9 COMPLIANCE WITH LAWS. Seller is in compliance with all laws, rules
and regulations related to any RMR Account and the provision of monitoring
services to Customers, the violation of which would have a Material Adverse
Effect, including, without limitation, the provisions of federal and state laws
relating to "truth in lending" and "home solicitation contracts." There are no
pending or, to Seller's knowledge, threatened claims of a violation thereof and
Seller has received no written or oral notice of any such violation.
7.10 TAXES. Seller has filed all Federal and state income tax returns
and all other material tax returns that are required to be filed and has paid
all taxes due pursuant to such returns or pursuant to any assessment received by
Seller. All federal, state and local property, sales and use taxes and all other
taxes or charges incurred during any period prior to and including the date
hereof which may relate to or affect the RMR Accounts, or any other Asset in any
way or may affect or relate to their transfer pursuant to this Agreement, are
the obligation and liability of Seller and have been paid by Seller or will be
paid when due.
7.11 DISCLOSURE. The information, reports, financial statements,
papers, data, exhibits and schedules including, without limitation, copies of
the RMR Account Agreements and Dealer Purchase Agreements furnished by or on
behalf of Seller to SAFE in connection with the negotiation, preparation or
delivery of this Agreement and the other Transaction Documents or included
herein or therein or delivered pursuant hereto or thereto, when taken as a whole
do not contain any untrue statement of material fact or omit to state any
material fact necessary to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by Seller to SAFE in connection with
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby is, and will be, true, complete and accurate in
every material
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respect on the date as of which such information is stated or certified. There
is no fact known to Seller that could have a Material Adverse Effect that has
not been disclosed herein, in the other Transaction Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to SAFE for use in connection with the transactions contemplated
hereby or thereby.
7.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained in any certificate, financial statement or other
instrument or document delivered by or on behalf of Seller pursuant to or in
connection with this Agreement shall constitute representations and warranties
made under this Agreement. All representations and warranties made under this
Agreement shall be made and shall be true at and as of the Closing Date and
shall survive (i) the execution and delivery hereof, and (ii) any investigation
or inquiries made by SAFE or any of its representatives, or the acceptance of
any certificate or opinion in connection herewith. Notwithstanding the
foregoing, SAFE shall not be entitled to recover for any damages pursuant to the
indemnification provisions of Section 9.4.1 or Section 9.4.3 unless (i) written
notice of a claim thereof is delivered to the other party prior to the
Applicable Limitation Date, and (ii) SAFE shall have delivered written notice to
Seller of the possibility of a claim being made within sixty (60) days after the
date on which SAFE shall have actual knowledge of facts which give rise to such
possible claim. For purposes of this Agreement, the term "APPLICABLE LIMITATION
DATE" shall mean ninety (90) days following the second anniversary of the
Closing Date; provided, however, that (i) with respect to any damages arising
from or related to a breach of the representations and warranties set forth in
Section 7.10 (Taxes ), the Applicable Limitation Date shall be the 60th day
after expiration of the applicable Statute of Limitations (as defined below),
and (ii) with respect to any damages arising from or related to a breach of the
representations and warranties set forth in Section 7.1 (Organization and
Existence), Section 7.2 (Action), Section 7.3 (No Breach), Section 7.6 (Assets)
and Section 7.8 (Brokerage), there shall be no Applicable Limitation Date (i.e.,
such representations and warranties shall survive without limitation). The
Statute of Limitations shall mean the period of time during which a private or
governmental plaintiff could bring a claim for actions taken or circumstances
existing prior to the Closing Date (including any extensions thereto by consent
or tolling).
8 REPRESENTATIONS AND WARRANTIES OF SAFE
As a material inducement to Seller to enter into this Agreement and
sell the RMR Accounts, SAFE hereby represents and warrants as follows:
8.1 ORGANIZATION AND POWER. SAFE is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
has all requisite corporate power and authority to enter into this Agreement and
the other Transaction Documents and perform its obligations hereunder and
thereunder.
8.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate (including, without limitation, any required shareholder or
other approvals). This Agreement and the other Transaction
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Documents have been duly and validly executed and delivered by SAFE and, when
executed by Seller, will constitute the legal, valid and binding obligation of
SAFE, enforceable in accordance with its terms.
8.3 NO BREACH. None of the execution and delivery of this Agreement and
the other Transaction Documents, the consummation of the transactions herein and
therein contemplated or compliance with the terms and provisions hereof and
thereof will conflict with or result in a breach of, or require any consent
under, the charter or by-laws of SAFE, or any other document or agreement
governing SAFE's organization, or any applicable law or regulation, or any
order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which SAFE is a party or by which it
or any of its property is bound or to which any of them is subject, other than
the consent of SAFE's lenders, which will be obtained concurrent with or prior
to the Closing, or constitute a default under any such agreement or instrument.
8.4 LITIGATION. There is no action, suit, proceeding or investigation
now pending or, to the knowledge of SAFE, threatened in any court, or before any
arbitrator, or by or before any governmental or regulatory authority, (i) in
connection with the execution, delivery or performance of this Agreement, or
seeking to prohibit, restrain or enjoin the execution, delivery or performance
by SAFE of this Agreement, or (ii) that, if adversely determined, could (either
individually or in the aggregate), have a Material Adverse Effect, nor, to the
knowledge of SAFE, is there any basis therefore.
8.5 COMPLIANCE WITH LAWS. SAFE is in compliance with all laws, rules
and regulations related to its RMR Accounts and the provision of monitoring
services to Customers, the violation of which would have a Material Adverse
Effect, including, without limitation, the provisions of federal and state laws
relating to "truth in lending" and "home solicitation contracts." There are no
pending or, to SAFE's knowledge, threatened claims of a violation thereof and
SAFE has received no written or oral notice of any such violation.
8.6 DISCLOSURE. The information, reports, financial statements, papers,
data, exhibits and schedules furnished by or on behalf of SAFE to Seller in
connection with the negotiation, preparation or delivery of this Agreement and
the other Transaction Documents or included herein or therein or delivered
pursuant hereto or thereto, when taken as a whole do not contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the date
hereof by SAFE to Seller in connection with this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby is,
and will be, true, complete and accurate in every material respect on the date
as of which such information is stated or certified. There is no fact known to
SAFE that could have a Material Adverse Effect that has not been disclosed
herein, in the other Transaction Documents or in a report, financial statement,
exhibit, schedule, disclosure letter or other writing furnished to Seller for
use in connection with the transactions contemplated hereby or thereby.
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8.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in any certificate, financial statement or other instrument
or document delivered by or on behalf of SAFE pursuant to or in connection with
this Agreement shall constitute representations and warranties made under this
Agreement. All representations and warranties made under this Agreement shall be
made and shall be true at and as of the Closing Date and shall survive (i) the
execution and delivery hereof, and (ii) any investigation or inquiries made by
Seller or any of its representatives, or the acceptance of any certificate or
opinion in connection herewith. Notwithstanding the foregoing, Seller shall not
be entitled to recover for any damages pursuant to the indemnification
provisions of Section 9.4.2 or Section 9.4.3 unless (i) written notice of a
claim thereof is delivered to the other party prior to the Applicable Limitation
Date, and (ii) Seller shall have delivered written notice to SAFE of the
possibility of a claim being made within ninety (90) days after the date on
which Seller shall have actual knowledge of facts which give rise to such
possible claim; provided, however, that with respect to any damages arising from
or related to a breach of the representations and warranties set forth in
Section 8.1 (Organization and Power), Section 8.2 (Authorization), and Section
8.3 (No Breach), there shall be no Applicable Limitation Date (i.e., such
representations and warranties shall survive without limitation).
9 ADDITIONAL AGREEMENTS
9.1 NON-INTERFERENCE AND NON-COMPETITION. This Section 9 shall apply to
Seller and its present and future Affiliates. Seller acknowledges that one of
the fundamental expectations of SAFE in acquiring the Assets, and paying a
multiple of RMR, is that the Qualified Closing Accounts will be renewed by each
Customer after expiration of their current terms, and Seller acknowledges that
RMR Accounts are usually so renewed, and that Seller's Referral Dealers will
continue a business relationship with SAFE in substantially the same manner as
with Seller. The parties acknowledge that the restrictions set forth below are
justified by legitimate business interests of SAFE, including, without
limitation, the protection of (i) SAFE's trade secrets (including the Related
Rights acquired in connection with the Transaction), (ii) SAFE's valuable
confidential business information which may not constitute a "trade secret",
(iii) the valuable and substantial relationships of SAFE with prospective and
existing customers, including the Customers, (iv) the goodwill to be acquired by
SAFE from Seller in connection herewith. Accordingly, as a material part of the
consideration to be received by SAFE hereunder, without which SAFE would not
consummate the Transaction, Seller agrees to be bound by the provisions of this
Section 9.
9.1.1 Neither Seller, nor any of Seller's principal shareholders
(who are identified in Schedule 7 hereto), directors, officers, partners,
Affiliates or agents, will in any manner, directly or indirectly, (i) solicit or
offer to sell monitoring, maintenance or other security alarm related services
or equipment that are supplied by SAFE or its Affiliates to Customers, or (ii)
interfere or compete with SAFE, in the purchase of RMR Accounts or in the
loaning of money secured by RMR Accounts (provided, however, that Seller's
directors Xxxxx and Xxxxxxxxxx shall not be subject to the restrictions of this
subsection (ii) provided that they shall comply with the confidentiality
provisions of Section 9.3 hereof), or (iii) take any action which (a) adversely
affects SAFE's interest in any RMR Account conveyed hereunder, or the continued
and repeated
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renewals of the RMR Account Agreements related thereto, or (b) causes, or is
likely to result in, any Customer or any Alarm Dealer not maintaining the same
business relationship with SAFE after the Closing Date as was maintained with
Seller prior to the Closing Date (it being acknowledged that the termination of
the provision of monitoring services to a Customer or to an Alarm Dealer by
Seller and related collection actions shall not constitute an "action" if such
termination is in accordance with Seller's normal termination of monitoring
services where a monitoring customer shall have failed to pay for monitoring
services when due), or (iv) assist any Person in taking any action described in
subparagraphs (i), (ii) or (iii). This paragraph applies to each Customer and
Alarm Dealer, as the case may be, as well as to each monitored location, but
shall be limited to the geographic areas in which Seller presently conducts its
business or in which any monitored location and/or the place of business of any
Customer is or will be located. The provisions of this Section shall be
effective so long as SAFE, or any person deriving title to any or all of the
Qualified Closing Accounts (who are expressly intended to be entitled to the
benefits of, and able to enforce, the provisions hereof), shall continue the
business related to such Qualified Closing Accounts. Seller agrees that the
payment of damages suffered by SAFE from the breach by Seller of its obligations
under this Section 9.1.1 will not adequately compensate SAFE for a breach of the
provisions hereof and acknowledges that SAFE shall be entitled to obtain
injunctive relief from a court of competent jurisdiction for any breach hereof.
The above provisions shall not apply to any director, officer or shareholder to
the extent that any of such Persons, singly or in the aggregate, shall acquire
an ownership interest in any Person, or Affiliate of such Person, greater than
five percent (5%).
9.1.2 Exception- Provision of Central Monitoring Services.
Notwithstanding the foregoing, SAFE acknowledges that Seller is involved, and
intends to continue to be involved, in the provision of security monitoring
services through central monitoring stations and the restrictions set forth in
Section 9.1.1 shall not prohibit Seller from continuing to engage in such
activities.
9.1.3 Exception- Acquisition of Central Monitoring Stations.
Notwithstanding the foregoing, Seller may acquire a central monitoring station
and RMR Accounts in a single or related transactions provided that all RMR
Accounts so acquired by Seller (i) shall be subject to SAFE's first refusal
right set forth in Section 9.2 below; and (ii) if any such RMR Accounts are
purchased by SAFE, they shall be included for purposes of determining
Commissions payable pursuant to Section 5.2. Seller may also purchase RMR
Accounts solely for the purpose of satisfying its Attrition Guarantee.
9.2 RIGHT OF FIRST REFUSAL AND RIGHTS TO ACQUISITION OPPORTUNITIES. If
without violating the provisions of Section 9.1, Seller shall acquire RMR
Accounts, SAFE shall have the first right of refusal with respect to the
purchase of (i) all such RMR accounts to be sold by Seller and (ii) all RMR
Accounts which Seller intends to acquire in connection with Seller's acquisition
of a central monitoring station, pursuant to Section 9.1.3 above. Seller shall
notify SAFE in writing of any such acquisition opportunity or RMR Accounts
subject to the first refusal right, which notice shall be accompanied by summary
information with respect to the RMR Accounts, Alarm Dealers involved therewith,
and similar matters normally required and reviewed by experienced purchasers of
RMR Account portfolios. SAFE shall have a period of fifteen (15)
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days after receipt of any such notice (provided such notice is accompanied by
the required supporting information) to respond to Seller in writing with its
decision as to whether it will exercise such first refusal right. If SAFE elects
to exercise the right of first refusal, SAFE shall use its best efforts to
consummate the purchase of the RMR Accounts within sixty (60) days after
delivery of SAFE's notice to Seller. If SAFE shall not purchase any such RMR
Accounts, Seller shall not thereafter sell any of such RMR Accounts at a price
or on terms more favorable then last proposed to SAFE without first offering
SAFE the right of first refusal to purchase same on such more favorable terms
and conditions, in accordance with the above provisions of this Section 9.2.
With respect to the purchase of RMR Accounts in connection with Seller's
acquisition of a central monitoring station, pursuant to Section 9.1.3 above,
the purchase price shall be the lesser of (i) the amount allocated to such RMR
Accounts in the purchase agreement between Seller and the seller of such central
monitoring station (where such an allocation is made), or (ii) the then fair
market value of such RMR Accounts, of a similar amount, quality and nature, in
an arms-length transaction under prevailing market conditions between a willing
buyer and a willing seller, as determined by SAFE and Seller, in good faith.
9.3 CONFIDENTIALITY. Without the prior written consent of SAFE, which
may be given or withheld in SAFE's sole and absolute discretion, Seller and its
Affiliates, directors, officers, and principal shareholders shall not sell,
transfer or disclose to any Person, and shall keep strictly confidential, any
Confidential Information. "CONFIDENTIAL INFORMATION" shall include,
identification of the RMR Accounts and information related thereto, originals or
copies of any RMR Account Agreement conveyed hereunder, Customer lists or any
other information or data related to such RMR Accounts, the terms and conditions
contained in this Agreement and any other trade secrets or confidential
information of SAFE, whether or not identified or marked as "confidential",
including, but not limited to, the Intangible Property, SAFE's marketing
strategies and other business information concerning SAFE's services,
operations, financing, or SAFE's business policies or practices. Confidential
Information shall also include the identity, addresses and pertinent related
information related to Seller's Customer list conveyed to SAFE pursuant hereto
and SAFE's other Customer lists; provided, however, with respect to this type of
Confidential Information, Seller shall have the limited license to use such
Confidential Information only in connection with the provision of central
monitoring services to such Customers and shall not divulge any of same to any
Person whose business includes the purchase or RMR Accounts or the loaning of
money secured by RMR Accounts. Confidential Information relating to Seller's
Alarm Dealer lists shall not be divulged by Seller to any Person whom Seller
reasonably expects will use such Confidential Information to compete with SAFE,
provided however, that Seller shall have the right to disclose such Confidential
Information to a Person that competes with SAFE if such Person executes a
confidentiality agreement (as to which SAFE shall be included as an intended
beneficiary) in which such Person shall confirm that such Person shall not use
any portion of such Alarm Dealer lists in competition with SAFE in connection
with any RMR Account financing or RMR Account purchase transactions.
Confidential Information does not include any information that is in the public
domain, nor any other item known to Seller independent of its disclosure by SAFE
in connection with this transaction, unless specifically included above. In
addition, SAFE acknowledges that Seller is a public company with disclosure
obligations under both the Securities Act of 1933 and the Securities and
Exchange Act of 1934, and agrees that Seller may disclose such information as
may be required to be disclosed under
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those statutes and the regulations promulgated thereunder.
9.4 INDEMNIFICATION.
9.4.1 Seller shall indemnify SAFE and its Affiliates and each
of their officers, directors, stockholders, employees, agents, representatives,
successors and assigns (collectively, the "SAFE PARTIES") and hold each of them
harmless from and against and pay on behalf of or reimburse such SAFE Parties in
respect of the entirety of any Damages (as defined below) the SAFE Parties may
suffer, sustain or become subject to, through and after the date of the claim
for indemnification resulting from, arising out of, relating to, in the nature
of, or caused by (i) the breach of any representation or warranty made by
Sellers contained in any Transaction Document or any certificate delivered to
SAFE with respect thereto in connection with the Closing, or (ii) the breach of
any covenant or agreement made by the Sellers contained in any Transaction
Document or any certificate delivered to SAFE with respect thereto in connection
with the Closing.
9.4.2 SAFE shall indemnify Seller and its Affiliates and each
of its officers, directors, principal shareholders, employees, agents,
representatives, successors and assigns (collectively, the "SELLER PARTIES") and
hold each of them harmless from and against and pay on behalf of or reimburse
such Seller Parties in respect of the entirety of any Damages the Seller Parties
may suffer, sustain or become subject to, through and after the date of the
claim for indemnification resulting from, arising out of, relating to, in the
nature of, or caused by (i) the breach of any representation or warranty made by
SAFE contained in any Transaction Document or any certificate delivered by SAFE
to Seller with respect thereto in connection with the Closing, or (ii) the
breach of any covenant or agreement made by SAFE contained in any Transaction
Document or any certificate delivered by SAFE to Seller with respect thereto in
connection with the Closing.
9.4.3 If a party hereto seeks indemnification under this
Section 9.4, such party (the "INDEMNIFIED PARTY") shall give written notice to
the other party (the "INDEMNIFYING PARTY") after receiving written notice of any
action, lawsuit, proceeding, investigation or other claim against it (if by a
third party) or discovering the liability, obligation or facts giving rise to
such claim for indemnification, describing the claim, the amount thereof (if
known and quantifiable), and the basis thereof; provided that the failure to so
notify the Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder except to the extent such failure shall have prejudiced
the Indemnifying Party. In that regard, if any action, lawsuit, proceeding,
investigation or other claim shall be brought or asserted by any third party
which, if adversely determined, would entitle the Indemnified Party to indemnity
pursuant to this Section 9.4, the Indemnified Party shall promptly notify the
Indemnifying Party of the same in writing, specifying in detail the basis of
such claim and the facts pertaining thereto and the Indemnifying Party shall be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to the Indemnified Party's claim for
indemnification at its expense, and at its option (subject to the limitations
set forth below) shall be entitled to appoint lead counsel of such defense with
reputable counsel reasonably acceptable to the Indemnified Party; provided that,
as a condition precedent to the Indemnifying Party's right to assume control of
such defense, it must
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first (i) enter into an agreement with the Indemnified Party (in form and
substance reasonably satisfactory to the Indemnified Party) pursuant to which
the Indemnifying Party agrees to be fully responsible for all Damages relating
to such claims and that it will provide full indemnification to the Indemnified
Party for all Damages relating to such claim, (ii) unconditionally guarantee the
payment and performance of any liability or obligation which may arise with
respect to such claim or the facts giving rise to such claim for
indemnification, and (iii) furnish the Indemnified Party with reasonable
evidence that the Indemnifying Party is and will be able to satisfy any such
liability; and provided further that the Indemnifying Party shall not have the
right to assume control of such defense and shall pay the reasonable fees and
expenses of counsel retained by the Indemnified Party, if the claim which the
Indemnifying Party seeks to assume control (i) seeks non-monetary relief, (ii)
involves criminal or quasi-criminal allegations, (iii) involves a claim to which
the Indemnified Party reasonably believes an adverse determination would be
detrimental to or injure the Indemnified Party's reputation or future business
prospects, or (iv) involves a claim which, upon petition by the Indemnified
Party, the appropriate court rules that the Indemnifying Party failed or is
failing to vigorously prosecute or defend.
If the Indemnifying Party is permitted to assume and control
the defense and elects to do so, the Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Indemnifying Party in any
such action and to participate in the defense thereof, but the reasonable fees
and expenses of such counsel employed by the Indemnified Party shall be at the
expense of the Indemnified Party unless (i) the employment thereof has been
specifically authorized by the Indemnifying Party in writing, or (ii) the
Indemnifying Party has been advised by counsel that a reasonable likelihood
exists of a conflict of interest between the Indemnifying Party and the
Indemnified Party.
If the Indemnifying Party shall control the defense of any such
claim, the Indemnifying Party shall obtain the prior written consent of the
Indemnified Party (which shall not be unreasonably withheld) before entering
into any settlement of a claim or ceasing to defend such claim, if pursuant to
or as a result of such settlement or cessation, injunction or other equitable
relief will be imposed against the Indemnified Party or if such settlement does
not expressly unconditionally release the Indemnified Party from all liabilities
and obligations with respect to such claim, without prejudice. The Indemnifying
Party shall pay the Indemnified Party in immediately available funds promptly
after the Indemnified Party provides the Indemnifying Party with written notice
of a claim hereunder and the Parties reasonably agree that there is a reasonable
basis for such claim. The foregoing indemnification provisions are in addition
to, and not in derogation of, any statutory or common law remedy any party may
have for misrepresentation, breach of warranty or breach of covenant. For
purposes of this Section 9.4, "Damages" shall mean any losses, amounts paid in
settlement, claims, damages, liabilities, obligations, judgments, settlements
and reasonable out-of-pocket costs (including, without limitation, costs of
investigation or enforcement), expenses and reasonable attorneys' fees).
9.5 MAINTENANCE SERVICES. After the Closing Date, except as provided
below, SAFE shall assume Seller's obligation, if any, to provide maintenance
services to the Customers as evidenced in the RMR Account Agreements and the
Third Party Maintenance Agreements. Seller shall cooperate with SAFE in every
reasonable manner necessary to assist SAFE in the
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performance of maintenance services to Customers. Such cooperation shall
include, but not be limited to, providing SAFE with all RMR Account data, such
as equipment information, pass codes, maintenance records, installation
contracts, etc., or any other information that SAFE may reasonably request to
the extent in Seller's possession or under Seller's control.
Notwithstanding the foregoing paragraph, during the Attrition
Measurement Period, Seller shall pay the amounts set forth below to certain
service providers to compensate such Persons for standing ready to provide
maintenance services to Customers:
Electronic One- $0.50 per RMR Account per month; IDS- $3.25 per RMR
Account per month; MAJ- $5.50 per RMR Account per month; Multiguard-
$4.00 per RMR Account per month; Active- $900.00 per month.
Schedule 10 sets forth the current amounts of maintenance payments to be made by
Seller to the above maintenance providers and the agreement of SAFE and Seller
with respect to maintenance obligations for Customers with respect to such the
RMR Accounts serviced by such maintenance providers.
9.6 PRIOR CONSENT TO CUSTOMER COMMUNICATIONS. If Seller wishes to
communicate with any Customer by any means and for any purpose, Seller shall
first obtain SAFE's written consent, which consent may be given or withheld in
SAFE's sole and absolute discretion; provided, however, that Seller shall have
the right to communicate with Customers without obtaining SAFE's consent (i) in
connection with the normal provision by Seller of central monitoring services on
behalf of SAFE to such Customers but no such communication shall include any
offer or solicitation for the provision of monitoring or any other services or
(ii) in order to verify the reason for any Customer's cancellation of an RMR
Account Agreement where Seller is being required to perform under Seller's
Attrition Guarantee.
9.7 INTENTIONALLY DELETED.
9.8 RISK OF LOSS. All Assets will be transferred from Seller to SAFE
effective at 11:59 p.m., Pacific Standard Time on the Closing Date. Seller will
maintain adequate insurance coverage and expressly assumes all risk of
destruction, loss or damage to such of the equipment as is owned by Seller
through such time.
9.9 LITIGATION COSTS. If any permitted litigation or claim in
arbitration is instituted by any party to this Agreement against the other
party, including without limitation, regarding the construction of any term, any
dispute, or to recover any damages resulting from a breach of this Agreement,
the prevailing party in any such action shall be entitled to recover from the
losing party its reasonable attorneys' fees and costs associated with such
action.
9.10 EXPENSES. Except as otherwise expressly provided in this
Agreement, each party will pay all of its expenses, including attorneys' and
accountants' fees, in connection with the
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negotiation of this Agreement, the performance of its obligations hereunder and
thereunder, and the consummation of the transactions contemplated by this
Agreement.
9.11 FURTHER ASSURANCES. Seller will execute and deliver, at SAFE's
expense, such further instruments of conveyance and transfer including but not
limited to execution and filing of precautionary Uniform Commercial Code
Financing Statements, and take such additional actions as SAFE may reasonably
request to effect, consummate, confirm or evidence the transfer to SAFE of the
Assets. Seller will execute such documents as may be necessary to assist SAFE in
preserving or perfecting its rights in the Assets and will also do such acts as
are necessary to perform its agreements herein.
9.12 800 CUSTOMER SERVICE TELEPHONE NUMBER. Seller shall assign to SAFE
on the Closing Date all rights to Seller's 800 customer service telephone number
or numbers, and shall execute such documents related thereto as SAFE shall
reasonably request.
9.13 FURNISHING OF INFORMATION. Following the Closing Date, Seller
shall (i) provide to SAFE and its representatives during normal business hours
reasonable access to and information concerning Seller's properties, assets,
books, agreements, commitments, files and records related to the Assets; (ii)
provide such cooperation as SAFE and its representatives may reasonably request
in connection with any audit or review of Seller related to the Assets; and
(iii) furnish to SAFE and its representatives true, correct and complete copies
of all documents, agreements and instruments contemplated hereby related to the
Assets. Following the Closing Date, to the extent directly related to Seller's
Attrition Guarantee hereunder or to the determination of the amount of
Commissions to which Seller is entitled pursuant to the provisions hereof, SAFE
shall (i) provide to Seller and its representatives during normal business hours
reasonable access to and information concerning SAFE's properties, assets,
books, agreements, commitments, files and records; (ii) provide such cooperation
as Seller and its representatives may reasonably request in connection with any
audit or review of the determination of Seller's Attrition Guarantee
responsibilities or the amount of Commissions; and (iii) furnish to Seller and
its representatives true, correct and complete copies of all documents,
agreements and instruments contemplated hereby.
9.14 NO DISCUSSIONS. Seller agrees not to enter into any negotiations
or discussions with any third party with respect to the sale of all or any
portion of the Assets until the Closing Date or termination of this Agreement.
9.15 NOTICE REGARDING CHANGES. Seller shall promptly notify SAFE in
writing prior to the Closing Date of any change in the facts and circumstances
that could render any of the representations and warranties made herein by
Seller inaccurate or misleading.
9.16 RETURN OF DEPOSITS FOR RADIO TRANSMITTERS. Certain of Seller's
Customers, whose RMR Accounts are being conveyed to SAFE are in possession of
radio transmitters related to those alarm systems, which under Federal
Communications Commission regulations must be returned to Seller upon
termination of those RMR Accounts. Each of those Customers deposited $400 as
security for the return of the transmitters. SAFE will undertake
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its best efforts to have such Customers return the transmitters to Seller, but
shall only be required to send a written notice to such Customer requesting
return of such radio transmitters and follow up such letter with a phone call
and one follow up letter. At SAFE's election it may either advance the funds
needed to refund the deposits and be reimbursed by Seller or request the funds
from Seller prior to refunding the deposits. All of the Customers to whom this
Section applies are listed on Schedule 8. If an RMR Account of a Customer
subject to this Section 9.16 shall become an Attrited Account, Seller may take
such legal action, at Seller's cost, against such Customer as may be reasonably
required to recover such transmitter.
9.17 TELEPHONE LINES. It is the express intention of SAFE and Seller
that all RMR Accounts conveyed to SAFE hereunder shall be communicating on, or
shall be transferred to, a telephone line(s) owned and controlled by SAFE. SAFE
shall assume, as an assignee, and Seller shall assign to SAFE all of Seller's
rights to existing telephone lines owned by Seller (i) on the Closing Date,
where such telephone lines are used solely by RMR Accounts to be conveyed to
SAFE hereunder on the Closing Date (which telephone lines and RMR Accounts are
identified on Schedule 5A), and (ii) on the Closing Date, where more than 50% of
the RMR Accounts communicating on such telephone lines are being conveyed to
SAFE on the Closing Date (which telephone lines and RMR Accounts are identified
on Schedule 5B), and during the 12 month period following the Closing Date,
Seller shall, at Seller's cost and expense, reprogram all RMR Accounts using
such telephone line(s) but not conveyed to SAFE to a non-SAFE owned telephone
line. If notwithstanding the best efforts of Seller, the necessary phone company
filings necessary to document the assignment of any telephone lines described in
clauses (i) and (ii) cannot be completed by the Closing Date, Seller shall use
its best efforts to complete such filings promptly following the Closing Date.
Where 50% or less of the RMR Accounts communicating on telephone lines owned by
Seller are not being conveyed to SAFE on the Closing Date (which telephone lines
and RMR Accounts are identified on Schedule 5C), or where RMR Accounts being
conveyed to SAFE are not communicating on telephone lines owned by Seller (which
telephone lines and RMR Accounts are identified on Schedule 5D), (i) Seller
shall promptly initiate action at Seller's expense to reprogram, during the 12
month period following the Closing Date, the RMR Accounts conveyed to SAFE to a
new telephone line(s) owned by SAFE, and (ii) documents necessary to convey
ownership of the current telephone lines to SAFE shall be signed by the parties
and placed into a mutually acceptable escrow (at Seller's cost), and such
ownership transfer to SAFE shall be effected no later than the expiration of the
12 month period following the Closing Date if or to the extent that any RMR
Accounts conveyed to SAFE shall not have been reprogrammed to such new SAFE
owned telephone lines, and during the 12 month period following the Closing
Date, and if any ownership of any such current telephone lines are conveyed to
SAFE, Seller shall, at Seller's cost and expense, reprogram all RMR Accounts not
conveyed to SAFE on such current telephone lines to a non-SAFE owned telephone
line. If Seller shall not perform any such reprogramming as required, SAFE may
SAFE may engage another security alarm company to effect such reprogramming and
Seller shall pay all costs associated therewith, including without limitation,
removal and reprogramming costs. In addition, Seller shall be responsible for a
pro-rata share of any general line charges, including taxes and any assessments,
so long as any non-purchased accounts remain on SAFE's owned telephone lines.
During the twelve (12) month period, SAFE shall pay its pro rata share of
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any line charges.
10 MISCELLANEOUS
10.1 ENTIRE AGREEMENT. This Agreement and the Transaction Documents
embody the entire understanding and agreement between the parties and supersedes
any and all prior negotiations, understandings or agreements, written or oral,
in regard thereto.
10.2 AMENDMENT AND WAIVER.
10.2.1 This Agreement may not be amended nor may any rights
hereunder be waived except by an instrument in writing signed by the party
sought to be charged with such amendment or waiver.
10.2.2 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 person
under or by reason of this Agreement.
10.3 BULK TRANSFER LAWS. It shall be Seller's sole obligation to comply
with the provisions of any so-called bulk transfer or similar laws of any
jurisdiction in connection with the sale of the Assets to SAFE. Seller agrees to
indemnify and hold harmless SAFE, as set forth in Section 9.5, against all
liability, damage or expense which SAFE may suffer due to the failure to so
comply.
10.4 NOTICES. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement must be in
writing and shall be deemed to have been given when personally delivered or upon
receipt if mailed by first class mail, return receipt requested. Notices,
demands and communications to SAFE and Seller will, unless another address is
specified in writing, be sent to the address indicated below:
To Seller: At the address set forth in the first paragraph of
this Agreement
Attention: Xxxxxx Xxxxxxxxx, General Counsel
Telephone: 000-000-0000
Facsimile: 000-000-0000
To SAFE: Security Alarm Financing Enterprises, Inc.
X.X. Xxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. XxxxxXxxxx, Senior Vice-President
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to: Xxxxxx X. Xxxxxx, Esq.
Xxxxxxxx Xxxxxx XxXxxxx & Hamburg
000 Xxxxx Xxxxxx, Xxxxx 0000
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Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
10.5 ASSIGNMENT. This Agreement and all of the provisions hereof will
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that none of the obligations
of Seller hereunder may be assigned without the prior written consent of SAFE.
SAFE consents to the collateral assignment, for security purposes only, by
Seller of its rights under this Agreement to Seller's Senior Lender. SAFE shall
be permitted to pledge, assign, sell, convey, hypothecate, or otherwise transfer
all or a portion of its interest in the Assets, equipment, telephone lines,
telephone line cards, or other equipment acquired pursuant to this Agreement
without the consent of Seller, but (i) the provisions of this Section shall not
limit Seller's rights under Section 5.1.3 and if SAFE shall assign its rights
under the strategic alliance described in Section 5 to a Person whom Seller, in
its good faith determination, believes would be objectionable as a strategic
alliance participant, Seller may terminate the strategic alliance. In connection
with any transfer by a party, the other party shall promptly respond to and
provide any reasonable written confirmations of the transactions described
herein requested by the transferor.
10.6 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such 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 under applicable law, such provisions will be ineffective only to the
extent of such prohibition of invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.7 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person or entity.
10.8 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.
10.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
10.10 APPLICABLE LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of California.
10.11 RELATIONSHIP OF PARTIES. The relationship of the parties
hereunder shall be that of purchaser and seller only. No partnership, joint
venture, agency, fiduciary or other relationship of any kind is intended by the
parties to be created hereby. Seller agrees that it will account for the
transactions described herein as a sale of assets for tax, accounting and all
other purposes and
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will take no position in any filing, report or other instrument or document that
is inconsistent therewith.
10.12 DISPUTE RESOLUTION. In the event of a dispute, the parties agree
to promptly meet and confer in an attempt to resolve the matter privately within
seven (7) days after receipt by a party of written notice from the other party
requesting such meeting. If the parties do not resolve the dispute at such
meeting, or if a party refuses to attend such meeting, then all disputes in any
manner relating to or arising out of this Agreement (regardless of whether such
dispute arises before or after any termination of this Agreement, including
whether any matter is subject to arbitration hereunder) which the parties are
unable to resolve themselves as aforesaid shall be resolved through binding
arbitration conducted in the county of Contra Costa, or the City and County of
San Francisco, State of California before a single arbitrator under the rules
and auspices of either (i) the American Arbitration Association, or (ii) such
other mediation or arbitration group as shall be agreed upon by the parties. The
decision or award of the arbitrator shall be binding upon the parties and shall
be enforceable by a judgment entered in a court having jurisdiction. The
arbitrator shall have the authority to order such limited discovery as he or she
deems appropriate. THE PARTIES HEREBY EXPRESSLY WAIVE ANY RIGHTS TO HAVE ANY
DISPUTES DETERMINED BY A JURY. In the event the arbitrator determines there is a
prevailing party in the arbitration, the prevailing party shall recover from the
losing party all costs of arbitration, including, but not limited to, all fees
actually paid to the arbitrator and all reasonable attorneys' fees, costs, and
expert witness paid by the prevailing party. The provisions of this Section
shall not affect the right of SAFE to seek an injunction pursuant to Section 9
prior to implementing the procedures set forth above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
Dated: As of June 30, 1999
SELLER:
SECURITY ASSOCIATES
INTERNATIONAL, INC.
By:_________________________________
Name:
Title: President
SAFE:
SECURITY ALARM FINANCING
ENTERPRISES, INC.
By:_________________________________
Xxxx X. Xxxxxxxx, President
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