STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (this "Agreement"), dated August 13,
1998, is by and among Guardian International, Inc., a Nevada corporation
("Guardian"), Mutual Central Alarm Services, Inc., a New York corporation and a
wholly-owned subsidiary of Guardian (the "Buyer") and Xxxx Xxxxxxx and Xxxxxx
Xxxxxxx, (individually, a "Seller" and collectively, the "Sellers").
W I T N E S S E T H:
--------------------
WHEREAS, the Sellers are the owners of all of the issued and
outstanding shares (the "STAT-LAND Shares") of common stock, without par value
(the "Common Stock"), of Stat-Land Burglar Alarm Systems & Devices, Inc., a New
York corporation (the "Company"); and
WHEREAS, the Buyer desires to buy from the Sellers and the
Sellers desire to sell to the Buyer all of the STAT-LAND Shares, at the price
and subject to the terms and conditions as more fully described herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, representations and warranties made herein, the parties agree
as follows:
1. Purchase and Sale of STAT-LAND Shares.
1.1. Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxxxxx & Xxxxxxxx, Four Stamford Plaza, 000 Xxx Xxxxxx, Xxxxxxxx,
Xxxxxxxxxxx 00000 on August 13, 1998 (the "Closing Date") or at such other place
and/or on such earlier date as the parties may agree.
1.2. Transfer of the STAT-LAND Shares. Upon the terms and
subject to the conditions hereof, the Sellers hereby sell, assign, transfer and
deliver the STAT-LAND Shares to the Buyer, free and clear of all options,
pledges, security interests, liens, mortgages, claims, debts, charges, voting
agreements, voting trusts or other encumbrances or restrictions on transfer of
any kind whatsoever (collectively, the "Liens"), and the Buyer hereby purchases
and acquires the STAT-LAND Shares from the Sellers.
1.3. Purchase Price.
(a) Subject to Downward Adjustment or Upward
Adjustment, as required in Section 1.6 of this Agreement, the aggregate purchase
price (the "Purchase Price") to be paid by the Buyer in exchange for the
STAT-LAND Shares shall be an amount equal to Two Million Eight Hundred Fifty
Thousand Dollars ($2,850,000), which Purchase Price shall be paid
contemporaneously with the execution of this Agreement by the Buyer and Guardian
to the Sellers in cash and restricted shares of Guardian's Class A Voting Common
Stock, par value $.001 per share (the "Guardian Common Stock") in accordance
with Sections 1.4 and 1.5 hereof.
Stock Purchase Agreement -- Page 1
1.4. Payment of the Cash Portion of the Purchase Price. At the
Closing, the Buyer shall pay and deliver cash in the amount of $2,400,000 (the
"Cash Amount") as follows:
(a) By delivery to Olympian Bank of cash in the
amount of $137,471.67 by wire transfer to Olympian Bank, Brooklyn, NY, ABA
#000000000, for credit to Stat-Land Burglar Alarm Systems, Loan #B/L 151970810
and Loan #C/L 5110006961.
(b) By delivery to Richmond County Savings Bank of
cash in the amount of $27,359.66 by wire transfer to Richmond County Savings
Bank, 0000 Xxxxxxxxx Xxxxxx, Xxxxxx Xxxxxx, XX 00000, ABA/Routing # 0000-0000-0,
for credit to Stat-Land Burglar Alarm Systems & Device, Commercial Loan # 51612.
(c) By delivery to the Sellers by wire transfer of
immediately available funds to the accounts previously designated in writing to
the Buyer by the Sellers, in an amount equal to $13,431.00 in full satisfaction
of Sellers' loan to the Company.
(d) By delivery to the Sellers by wire transfer of
immediately available funds to the accounts previously designated in writing to
the Buyer by the Sellers, in an amount equal to $2,221,737.67.
1.5. Payment of Stock Portion of the Purchase Price.
(a) Subject to the provisions of Section 1.5(b)
below, the non-cash portion of the Purchase Price shall be paid by Guardian's
issuance at the Closing of that number of shares of Guardian Common Stock
(rounded up or down to the nearest whole number of shares of Guardian Common
Stock) (collectively, the "Guardian Shares") having an aggregate market value of
Four Hundred Fifty Thousand Dollars ($450,000), which Guardian Shares shall be
issued in accordance with this Section 1.5. The market value of each share of
Guardian Common Stock (the "Guardian Market Value") shall be calculated as the
average market value for the thirty (30) consecutive trading days ending at the
close of business on the fifth (5th) business day prior to the execution of this
Agreement, which daily market value shall be the last trade price (and if not
traded, the last trade price of the previous trading day on which the Guardian
Common Stock traded) per share of the Guardian Common Stock in the
over-the-counter market as reported by any system maintained by the NASD or any
comparable system.
(b) Guardian shall issue a Guardian Common Stock
certificate in the name of Xxxxxxx & Xxxxx, P.C. (the "Escrow Agent"),
Stock Purchase Agreement -- Page 2
representing that number of Guardian Shares (as adjusted pursuant to Section
1.9, the "Escrow Shares") having an aggregate Guardian Market Value equal to
Four Hundred Thirty-Five Thousand Dollars ($435,000) (as adjusted pursuant to
Section 1.9, the "Escrow Fund"). Such certificate shall be delivered to the
Escrow Agent to be held and distributed by the Escrow Agent in accordance with
the terms of the escrow agreement in the form of Exhibit A hereto (the "Escrow
Agreement") to be entered into by and among the Buyer, the Sellers and the
Escrow Agent. The Escrow Shares held by the Escrow Agent pursuant to the Escrow
Agreement shall be used in the event of the Sellers' breach of the
representations, warranties, covenants or guarantees of the Sellers contained
herein and shall be disbursed by the Escrow Agent in accordance with the terms
hereof and the Escrow Agreement. The Escrow Agent shall release to the Sellers
one-third (1/3) of the Escrowed Shares on October 1, 1999 and an additional
one-third (1/3) of the Escrowed Shares on October 1, 2000, less any claims made
against the Escrowed Shares by the Buyer in accordance with the terms of the
Escrow Agreement prior to each such release.
(c) Guardian shall issue to the Sellers one or more
Guardian Common Stock certificates having an aggregate Guardian Market Value as
determined at the time of the Closing equal to Fifteen Thousand Dollars
($15,000).
1.6. Adjustment to Purchase Price. The Purchase Price shall be
adjusted on a dollar for dollar basis up or down by the amount equal to the
difference between the current assets of the Company less the total liabilities
of the Company, in each case as of the close of business on the date immediately
preceding the execution of this Agreement (the "Purchase Price Adjustment"). The
current assets and the liabilities shall be determined in accordance with
generally accepted accounting principles and shall be prepared from the books
and records of the Company.
If the Purchase Price Adjustment is a positive dollar
amount, the Purchase Price shall be increased by the Purchase Price Adjustment
(an "Upward Adjustment"). If the Purchase Price Adjustment is a negative dollar
amount, the Purchase Price shall be reduced by the Purchase Price Adjustment (a
"Downward Adjustment").
1.7. Determination of the Purchase Price Adjustment.
(a) The Buyer shall have forty-five (45) days
following the Closing (the "Audit Period") to prepare the Closing Date financial
statements of the Company necessary to calculate the Purchase Price Adjustment,
or have such statements prepared by an independent accounting firm of the
Buyer's choosing, and to deliver to the Sellers a report (an "Audit Report") of
the results of such audit and the Buyer's calculation of the Purchase Price
Adjustment.
(b) The Sellers shall have fifteen (15) business days
following their receipt of the Audit Report (the "Sellers' Review Period") to
review the Audit Report and the Buyer's calculation of the Purchase Price
Adjustment. If, upon the expiration of the Seller's Review Period, the Seller
shall have failed to notify the Buyer in writing (an "Adjustment Dispute
Notice") of any dispute (an "Adjustment Dispute") regarding the Audit Report and
the Buyer's calculation of the Purchase Price Adjustment, the Buyer's
determination shall be final, binding and conclusive. In the event of an
Adjustment Dispute, such dispute shall be resolved as provided in Section 1.8
below.
Stock Purchase Agreement -- Page 3
1.8. Adjustment Dispute Resolution.
(a) If prior to the expiration of the Sellers' Review
Period, the Sellers deliver an Adjustment Dispute Notice to the Buyer, then for
a period of twenty (20) days following the Buyer's receipt of the Adjustment
Dispute Notice (the "Negotiation Period"), the Buyer and the Seller shall
negotiate in good faith to resolve the dispute. If the dispute is not finally
resolved by the parties within the Negotiation Period, then the dispute shall be
referred to an accounting firm mutually agreed upon by the parties or, if the
parties cannot agree, to the New York office of Price Waterhouse & Co. (the
"Arbitrator") for resolution in accordance with the terms hereof (the
"Arbitration"), and in any event as soon as practicable. In the event that the
parties cannot agree on an accounting firm and Price Waterhouse & Co. is then
unwilling or unable to serve as the Arbitrator, the parties hereto shall, within
fifteen (15) days following the parties' receipt of notice from Price Waterhouse
& Co. thereof, select by mutual written agreement another nationally recognized
certified public accounting firm to serve as the Arbitrator.
(b) The Arbitrator shall hold a hearing within sixty
(60) days of the submission of the dispute for arbitration (the "Hearing") and
shall render a decision within thirty (30) days of the conclusion of such
Hearing. Any decision made by the Arbitrator within the scope of its authority
shall be final, binding and non-appealable. The Arbitrator's decision regarding
its final resolution of the dispute (the "Arbitrator's Decision") shall be in
writing, shall set forth the calculations made in reaching its decision, shall
describe the manner in which such calculations were made, and shall include a
representation that the manner so used was in accordance with the specific terms
of this Agreement. The Arbitrator's Decision shall specifically set forth the
Arbitrator's calculation of the Purchase Price Adjustment.
(c) The Arbitrator shall only be authorized on any
one issue in dispute either (i) to decide in favor of and select either the
position of the Buyer or the Seller, or (ii) to decide upon a compromise
position between the positions of the Buyer and the Seller. The Arbitrator shall
base its decision solely upon the presentations of the parties at the Hearing
and any materials made available during any aspect of the Hearing and not upon
independent review.
(d) Any such Arbitration shall take place in New
York, New York, unless the parties shall mutually agree on another location. The
Arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Section 1 through 16, and judgment upon the award of the Arbitrator may be
entered by any court having jurisdiction thereof.
Stock Purchase Agreement -- Page 4
(e) The fees and expenses of the Arbitrator shall be
borne fifty percent (50%) by the Sellers and fifty percent (50%) by the Buyer.
Notwithstanding the foregoing, the parties hereto shall bear their own costs and
expenses related to any such Arbitration.
(f) Upon the request of the Arbitrator, each party
hereto agrees to enter into an arbitration agreement providing reasonable
protection to the Arbitrator, in such form as may be mutually acceptable to the
Arbitrator and the parties hereto.
1.9. Payment of Purchase Price Adjustment.
(a) In the event of an undisputed Purchase Price
Adjustment:
(i) if there is a Downward Adjustment, the
Sellers shall pay such amount in accordance with Section
1.9(c) no later than fifteen (15) days after the determination
of the Purchase Price Adjustment; and
(ii) if there is an Upward Adjustment, the
Buyer shall pay such amount in accordance with Section 1.9(d)
no later than fifteen (15) days after the determination of the
Purchase Price Adjustment.
(b) In the event of an Adjustment Dispute, upon
receipt of the Arbitrator's Decision or mutual agreement of the Buyer and the
Seller:
(i) if there is a Downward Adjustment, then
the Sellers shall pay such amount in accordance with Section
1.9(c) no later than fifteen (15) days after the Sellers'
receipt of the Arbitrator's Decision or the reaching of a
mutual agreement; and
(ii) if there is an Upward Adjustment, the
Buyer shall pay such amount in accordance with Section 1.9(d)
no later than fifteen (15) days after the Buyer's receipt of
the Arbitrator's Decision or the reaching of a mutual
agreement.
(c) The amount of any Downward Adjustment shall be
paid as follows:
(i) Fifteen percent (15%) of such amount
shall be paid to the Buyer from the Escrow Fund by delivery to
the Buyer of that number of Escrow Shares having an aggregate
Guardian Market Value equal to fifteen percent (15%) of the
amount of the Downward Adjustment;
(ii) Two percent (2%) of such amount shall
be paid by the Sellers to the Buyer by delivery of shares of
Guardian Common Stock having an aggregate Guardian Market
Value equal to two percent (2%) of the amount of the Downward
Adjustment; and
Stock Purchase Agreement -- Page 5
(iii) The balance of such amount shall be
paid by the Sellers to the Buyer in cash.
(d) The amount of any Upward Adjustment shall be paid
as follows:
(i) Fifteen percent (15%) of such amount
shall be paid by the Buyer by delivery to the Escrow Agent of
certificates for that number of shares of Guardian Common
Stock having an aggregate Guardian Market Value equal to
fifteen percent (15%) of the amount of the Upward Adjustment;
(ii) Two percent (2%) of such amount shall
be paid by the Buyer by delivery to the Sellers of
certificates for that number of shares of Guardian Common
Stock having an aggregate Guardian Market Value equal to two
percent (2%) of the amount of the Upward Adjustment; and
(iii) The balance of such amount shall be
paid by the Buyer to the Sellers in cash.
For purposes of valuing the Guardian Common Stock in respect of payment of a
Purchase Price Adjustment hereunder, each share of Guardian Common Stock shall
be valued at the Guardian Market Value as determined at the time of the Closing.
1.10. Deliveries.
(a) At the Closing, the Sellers shall deliver to the
Buyer:
(i) Certificates representing the STAT-LAND
Shares free and clear of all Liens, either duly endorsed in
blank or accompanied by duly executed stock powers;
(ii) The books and records of the Company;
(iii) An employment agreement in
substantially the form attached hereto as Exhibit B, duly
executed by Xxxx Xxxxxxx (the "Employment Agreement");
(iv) The Escrow Agreement, duly executed by
the Sellers;
(v) True copies of the Articles of
Incorporation and current Bylaws of the Company; a certificate
of good standing with regard to the Company, together with an
incumbency certificate reasonably satisfactory to the Buyer's
counsel;
Stock Purchase Agreement -- Page 6
(vi) Compiled financial statements of the
Company for fiscal year ended December 31, 1997 and a comfort
or "negative assurances" letter for the interim financial
statements of the Company for the period ended June 30, 1998
from Ruffulo & Rudder, CPAs;
(vii) A Qualified Investor Questionnaire and
the Representations and Warranties of Shareholders
substantially in the forms of Exhibit C and Exhibit D
respectively in a manner which does not adversely affect the
exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act");
(viii) Evidence that the Sellers have caused
the Company to collect all principal, interest and other
amounts due from any Affiliate and on all outstanding loans
made by the Company;
(ix) Evidence that the Company has paid, or,
upon payment pursuant to Section 1.4(a), will have caused to
be paid, all principal, interest and other amounts on all
outstanding loans payable by the Company, including, without
limitation, payoff letters from Olympian Bank and Richmond
County Savings Bank agreeing to deliver UCC-3 termination
statements upon payment as set forth in Section 1.4(a),
respectively;
(x) UCC-3 termination statements from
Gateway State Bank or its successor releasing all its liens on
the assets of the Company;
(xi) Employment Agreements in substantially
the form attached hereto as Exhibit E, duly executed before a
notary by (i) Xxxxxxx Xxxxxxx, (ii) Xxxxxxx Xxxxxxx, and (iii)
Xxxxx Xxxxxx (collectively, the "At Will Employment
Agreements");
(xii) Evidence of compliance with applicable
state securities laws; and
(xiii) All other previously undelivered
documents required pursuant hereto to be delivered by the
Sellers, on behalf of the Sellers or the Company, to the Buyer
at or prior to the Closing in connection with the purchase and
sale of the STAT-LAND Shares and the other transactions
contemplated hereby.
(b) At the Closing, the Buyer or Guardian, as the
case may be, shall deliver to the Sellers and/or such other recipient, as the
case may be:
Stock Purchase Agreement -- Page 7
(i) The Purchase Price, as determined and in
the manner required by Section 1.3, 1.4 and 1.5 hereof;
(ii) The Employment Agreement, duly executed
by the Buyer;
(iii) The At Will Employment Agreements,
duly executed by the Buyer;
(iv) The Escrow Agreement, duly executed by
the Buyer;
(v) True copies of the Articles of
Incorporation and current Bylaws of each of the Buyer and
Guardian; a certificate of good standing with regard to the
Buyer, together with appropriate corporate resolutions and
incumbency certificates reasonably satisfactory to the
Sellers' counsel;
(vi) All other previously undelivered
documents required pursuant hereto to be delivered by the
Buyer and/or Guardian to the Sellers at or prior to the
Closing in connection with the purchase and sale of the Shares
and the other transactions contemplated hereby.
1.11. Release. Effective as of the Closing Date, the Sellers
hereby forever release and discharge the Company from any and all claims of the
Sellers against the Company for any liabilities or obligations of the Company
whether known or unknown, fixed or contingent.
2. Representations and Warranties of the Sellers.
The Sellers hereby jointly and severally represent and warrant
to the Buyer as follows:
2.1. Corporate Organization and Good Standing. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of New York, and has full corporate power and authority to
carry on its business as it is now being conducted (the "Business") and to own
the properties and assets it now owns. Except as set forth on Schedule 2.1, the
Company is duly qualified as a foreign corporation or authorized to transact
business in and is in good standing under the laws of each jurisdiction in which
the conduct of its Business or the ownership of its assets requires such
qualification or authorization, which jurisdictions are set forth in Schedule
2.1. The Sellers shall cause the Company to, simultaneously herewith, deliver to
the Buyer complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company as presently in effect. True, complete and correct copies
of the minute books of the Company have been previously delivered to the Buyer.
The minute books are current as required by law, contain the minutes of all
meetings of the incorporators, Board of Directors, committees of the Board of
Directors, if any, and the shareholders thereof from the date of incorporation
to the date hereof, and accurately reflect all material actions taken by the
incorporators, Board of Directors, committees of the Board of Directors and
shareholders of the Company. All capital stock of the Company, including the
Shares, have been issued in compliance with all applicable federal and state
Stock Purchase Agreement -- Page 8
securities laws. Except as set forth in Schedule 2.1, the Company has no
subsidiaries and owns no capital stock or other securities or interests of or in
any other entity, partnership or joint venture. The transactions contemplated
herein have been approved by all necessary corporate action on the part of the
Company and its shareholders.
2.2. Capitalization. The authorized capital stock of the
Company consists of two hundred (200) shares of Common Stock, without par value,
of which two hundred (200) are issued and outstanding. All issued and
outstanding shares of capital stock of the Company are owned jointly by the
Sellers, are validly issued, fully paid, and non-assessable, and are not subject
to and have not been issued in violation of any preemptive rights and are not
subject to any restriction on transfer under the Certificate of Incorporation or
Bylaws of the Company or under any agreement or otherwise, except as otherwise
set forth on Schedule 2.2. Except as set forth on Schedule 2.2, no shares of
capital stock of the Company are held in the treasury of the Company, and there
are no outstanding (a) securities convertible into or exchangeable for any of
the capital stock of the Company, (b) options, warrants or other rights to
purchase or subscribe to capital stock of the Company, or (c) commitments,
agreements or understandings of any kind relating to the issuance, redemption or
repurchase by the Company or others of any capital stock thereof, any such
convertible or exchangeable securities or any options, warrants or rights.
Except as listed on Schedule 2.2, neither the Sellers nor the Company have
entered into any agreement or commitment to register its equity or debt
securities under the Securities Act of 1933, as amended (the "Securities Act").
There are no dissenter's rights in connection with the transactions contemplated
by this Agreement.
2.3. Title of Stock. The Sellers are the record and beneficial
owners of the Shares, free and clear of any and all Liens, which STAT-LAND
Shares represent one hundred percent (100%) of the authorized, issued and
outstanding capital stock of the Company and, upon the sale of the STAT-LAND
Shares in accordance with this Agreement, the Buyer will acquire good, valid and
indefeasible title to the STAT-LAND Shares, free and clear of any and all Liens.
2.4. Authorization; Validity. The Sellers have full power,
capacity and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Sellers and is the legal, valid and binding
obligation of the Sellers, enforceable in accordance with its terms, except to
the extent such enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditor's rights
generally, and (ii) subject to general principles of equity.
Stock Purchase Agreement -- Page 9
2.5. No Violation. The Sellers hereby represent and warrant
that neither the execution and delivery of this Agreement nor the performance by
the Sellers of their obligations hereunder will (a) violate any provision of the
Certificate of Incorporation or By-laws of the Company, (b) with or without the
giving of notice or the passage of time, violate, or be in conflict with, or
constitute a breach or default under (or would constitute a default or result in
a breach with the giving of notice, lapse of time or both), or require the
consent of any other party to, or result in the creation or imposition of any
Lien upon any of the assets of the Company under, any agreement or commitment to
which the Company is a party or by which it is bound, or (c) violate any
authorization, consent, approval, license, statute or law or any judgment,
decree, order, regulation or rule of any court, administrative agency or any
federal, state, local, municipal, or foreign government, governmental or
quasi-governmental agency or authority, or body exercising any administrative,
executive, or regulatory authority (each, a "Governmental Authority") or
arbitrator to which the Company (or its assets and properties), the Sellers or
the STAT-LAND Shares is subject.
2.6. Consent and Approvals. The Sellers hereby represent and
warrant that no consent, approval or authorization of or declaration, filing or
registration with, any federal, state, local or other Governmental Authority
(including, based in part upon representations of the Buyer, the Federal Trade
Commission and the Antitrust Division of the Department of Justice pursuant to
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended) or other
third party is required to be made or obtained by the Company or the Sellers in
connection with the execution, delivery and performance of this Agreement, nor
is any corporate, shareholder or board of directors action required.
2.7. Brokers. No broker, finder or other similar intermediary
has been engaged by the Company or the Sellers (or on their behalf) in
connection with the transactions contemplated by this Agreement.
2.8. Licenses; Compliance. Schedule 2.8 sets forth separately
as to the Company all material authorizations, consents, approvals, licenses and
permits required under applicable law or regulation for the ownership or
operation of the assets owned or operated by the Company or for the conduct of
the Business of the Company. All such authorizations, consents, approvals,
licenses and permits (collectively, the "Authorizations") have been duly issued
or obtained and are in full force and effect. Except as otherwise set forth in
Schedule 2.8, the Company is in compliance with (i) the terms and conditions of
all such Authorizations, (ii) all laws, statutes, regulations and ordinances
affecting the Company and its Business and assets, and (iii) all judgments,
orders, decrees, rulings or other decisions of any Governmental Authority, court
or arbitrator having jurisdiction over the Company. The Sellers have no reason
to believe that such Authorizations will not be renewed by the issuing
Governmental Authority in the ordinary course. None of such Authorizations is
subject to any restriction or condition which would limit in any material
respect the Business and operations of the Company.
Stock Purchase Agreement -- Page 10
2.9. Financial Statements. The unaudited compiled financial
statements of the Company for the calendar years ending as of December 31, 1997
and December 31, 1996, including, without limitation, the balance sheets,
statements of income, changes in financial position and shareholders equity of
the Company, including related notes, if any, and the unaudited financial
statements of the Company for the calendar quarters ended March 31, 1998, and
the months ended May 31 and June 30, 1998, as certified by the Sellers and as
reviewed by Ruffulo & Rudder, CPAs, independent auditors of the Company
(collectively, the "Financial Statements"), are in accordance with the books and
records of the Company, were prepared in accordance with generally accepted
accounting principles consistently applied and fairly present the financial
condition of the Company and the results of its operations for the periods
ending on such dates, respectively. True and complete copies of the Financial
Statements are attached as Schedule 2.9. The Company has maintained its books
and records in accordance with sound business practices and generally accepted
accounting principles, consistently applied, including, without limitation, the
maintenance of an adequate system of internal controls.
2.10. Absence of Changes. Except as set forth in Schedule
2.10, since December 31, 1997, the Company has not: (a) suffered any material
adverse effect in its financial condition, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves, Business, prospects or operations;
(b) incurred any material liabilities or obligations (whether absolute, accrued,
contingent or otherwise), except items incurred in the ordinary course of its
Business; (c) increased, or experienced any material change in any assumptions
underlying, or methods of calculating, any bad debt, contingency or other
reserves; (d) permitted or allowed any of its assets to be subjected to any
Liens of any kind; (e) leased, sold, transferred or otherwise disposed of any of
its assets except in the ordinary course of its Business; (f) made any capital
expenditure or commitment for replacements or additions or structural
improvements or maintenance to property, plant, equipment or other capital
assets in excess of $25,000; (g) declared, paid or set aside for payment any
dividend or other distribution with respect to its capital stock, redeemed,
purchased or otherwise acquired, directly or indirectly, any shares of capital
stock or other securities of the Company; (h) made any change in its method of
accounting or accounting practice; (i) issued, sold or delivered or agreed to
issue, sell or deliver any shares of capital stock of the Company or any
options, warrants or rights to acquire capital stock or securities convertible
into or exchangeable for capital stock, (j) increased the salaries,
compensation, pension or other benefits payable to any manager or employee of
the Company or entered into any employment agreement with any officer or
salaried employee that is not terminable by the employer, without cause and
without penalty on thirty (30) days notice or less; (k) forgiven or canceled any
claims or waived any rights of material value; (l) suffered any casualty,
damage, destruction or property loss (whether or not covered by insurance)
materially adversely effecting the Company; (m) suffered any loss of employees
due to resignation or customers that materially adversely affects the Company;
or (n) agreed, whether in writing or otherwise, to take any of the actions
described in this Section 2.10.
Stock Purchase Agreement -- Page 11
2.11. Undisclosed Liabilities. Except as set forth in
Schedules 2.10 and 2.11, the Company has no liabilities, obligations or
unrealized or anticipated losses (whether accrued, absolute, contingent, mature,
unmatured, whether due or to become due or otherwise) which might be or become a
charge against the Company or its assets, including any "loss contingencies"
considered "probable" or "reasonably possible" within the meaning of the
Financial Accounting Standard Board's Statement of Financial Accounting
Standards No. 5, except trade payables and similar liabilities and obligations
incurred in the ordinary course of the Business since the date of the Financial
Statements, that are not fairly and adequately reflected or reserved against on
the Financial Statements, and, to the knowledge of the Sellers, there is no
circumstance, condition, event or arrangement that hereafter is likely to give
rise to any such liabilities, obligations or losses.
2.12. Litigation; Disputes. Except as set forth in Schedule
2.12, there is no action, suit, proceeding, mediation or investigation pending,
or to the knowledge of the Sellers, threatened against or relating to the
Company or its assets or against the Sellers relating to the Company before any
court, Governmental Authority, mediator or arbitrator, and, to the knowledge of
the Sellers, there is no reasonable basis for the institution of any such
action, suit, proceeding, mediation or investigation. All the actions, suits,
proceedings, mediation or investigations described on Schedule 2.12 are being
diligently prosecuted and, except as set forth in Schedule 2.12, are adequately
covered by insurance or adequate reserves have been set aside therefor on the
Financial Statements.
2.13. Taxes; Tax Elections. "Tax" as used herein shall mean
any tax (including any income tax, capital gains tax, value-added tax, sales
tax, property tax, gift tax or estate tax), levy, assessment, tariff, duty,
deficiency, or other fee, and any related charge or amount (including any fine,
penalty, interest, or addition to tax), imposed, assessed, or collected by or
under the authority of any Governmental Authority. The Company is currently, and
has been since formation, operating as an "S" corporation pursuant to Section
1362 of the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the United States Internal Revenue Service (the "IRS") pursuant to the
Internal Revenue Code and any successor law (the "Code") and the provisions of
all applicable state laws. The Company has duly and timely filed, caused to be
filed or has obtained extensions to file all foreign, federal, state and local
Tax returns and reports which are required to be filed by it, and which returns
are true, complete and correct, and has duly and timely paid or caused to be
paid, withheld and/or paid over or has reserved on its books amounts sufficient
for the payment of, all Taxes as shown on said returns or on any assessment
received by it and all penalties and interest and has provided copies of same as
requested by Buyer. The federal income Tax returns of the Company have never
been examined by the IRS. Except as set forth in Schedule 2.13, the Tax returns
of the Company are not presently being audited by the appropriate foreign,
federal, state or local authorities, nor are there currently in effect with
respect to the Company any agreements for the extension or waiver of any statute
of limitations on the assessment or collection of any Tax. The Company has
provided copies of all material correspondence and/or communications regarding
the audits listed in Schedule 2.13 and no deficiency has been asserted with
respect to same except as disclosed on Schedule 2.13. The Company has
established adequate reserves for the payment of Taxes for years subsequent to
those covered by filed returns. No Tax liens have been filed against the assets
of the Company, no claim for any additional Tax is being asserted against the
Company by any Tax authority, and neither the Sellers nor the Company have been
notified of, and, to the knowledge of the Sellers, there is no valid basis for,
any claim being asserted with respect to any Taxes. Except as set forth in
Schedule 2.13, there is no action, suit, proceeding, investigation or audit
pending or, to the best knowledge of the Sellers, threatened against the Company
Stock Purchase Agreement -- Page 12
in respect to any Tax. All foreign, federal, state, county and local Taxes or
contributions (including interest and penalties, if any) payable by the Company
on or prior to the date hereof were paid when due, and will be paid to the
extent they become due and payable after the date hereof, and there are no
unpaid Taxes which are or could become a Lien on the properties, Business or
assets of the Company. The Company has not filed a consent to the application of
Section 341(f)(2) of the Code, with regard to any property held, acquired or to
be acquired at any time. The Company has not been a member of an affiliated
group filing a consolidated income Tax return nor has any liability for Taxes of
any Person under Treasury Regulation Section 1-1502-6 or any similar provision
of state, local or foreign law. The Company is not obligated nor is a party
under any agreements pursuant to which it may be obligated to make payments
which are not deductible under Section 280G of the Code.
2.14. Bank Accounts. Attached hereto as Schedule 2.14 is a
true and complete list of the names and addresses of all banks and other
financial institutions in which the Company has any accounts, deposits or safe
deposit boxes, and the names of all persons authorized to draw on such accounts
or deposits or to have access to such safe deposit boxes. Except as listed on
Schedule 2.14, as of the Closing, no Person will hold a power of attorney on
behalf of the Company. The books of account of the Company show all checks and
drafts outstanding, and, except as disclosed on Schedule 2.14, there are
sufficient funds in the accounts listed on Schedule 2.14 to pay any and all
checks or drafts presented or outstanding but not yet presented on said
accounts.
2.15. Real Property. The Company owns no real property.
2.16. Leased Property. The Sellers have previously delivered
to the Buyer true and complete copies of the leases of the Company with respect
to both leased real property and leased personal property (respectively, the
"Real Property Leases" and the "Personal Property Leases" and, collectively, the
"Leases" and such property, the "Leased Property"). Schedule 2.16 sets forth a
list of the Leases and separately designates which Leases contain change in
control provisions or otherwise require the consent, waiver or approval of the
other parties thereto with respect to the consummation of the Transactions. The
Leases are the valid and legally binding obligations of the Company and the
lessors thereunder, enforceable in accordance with their respective terms, and
are in full force and effect. None of the real property leased under the Real
Property Leases is affected by, subject to or, to the knowledge of the Sellers,
threatened by any condemnation or eminent domain proceedings or any assessments
for public improvements. Except as set forth on Schedule 2.16, (a) the Company
has valid leasehold interests in all of the leased real and personal property
subject to the Leases; (b) neither the Company nor the Sellers have received any
notice of default or breach under any of the Leases; (c) none of the Leases are
in default; and (d) no event has occurred which, with the passage of time or the
giving of notice or both, would constitute a default thereunder. The Company
Stock Purchase Agreement -- Page 13
has, or will have on or before the Closing Date, delivered all notices to, and
obtained all consents, waivers and approvals from all parties that are required
in connection with the transactions contemplated by this Agreement including,
without limitation, estoppel letters from the landlords with respect to the Real
Property Leases, in form and substance reasonably satisfactory to the Buyer. The
Company enjoys peaceful and undisturbed possession of the Leased Property.
2.17. Title. The Company has valid leasehold interests in all
of its leased property and assets, and good and marketable title to all of its
other property and assets, tangible or intangible, reflected in the Financial
Statements or purported to have been acquired by the Company subsequent to the
date of such statements. Except as set forth in Schedule 2.17 and in the
Financial Statements, such property and assets are free and clear of
restrictions on or conditions to transfer or assignment, and are free and clear
of all Liens, other than Liens for current Taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings (and for
which adequate reserves have been established) and other minor encumbrances
arising in the ordinary course of the Business, that are not substantial in
amount, do not, in any single case or in the aggregate, detract from or
interfere in, the current or future operations of the Business and operations of
the Company. Except as set forth on Schedule 2.17, there are no shared or
jointly owned assets or facilities between or among the Company and those of the
Sellers' Affiliates. "Affiliates" shall be defined in this Agreement to mean, as
to any Person, any other Person, which, directly or indirectly, is in control
of, is controlled by, or is under common control with, such Person. The term
"control," as applied to any Person, means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or other
ownership interest, by contract or otherwise. A true, accurate and complete copy
of the asset list of the Company, setting forth a description of all the
material tangible and intangible assets of the Company is attached hereto as
Schedule 2.17. Such assets constitute all of the assets necessary to operate the
Business in the ordinary course consistent with past practices.
2.18. Condition of Properties. The plants, structures and
equipment of the Company and all other property and assets owned or used by the
Company are in good operating condition, and are structurally sound, reasonable
wear and tear excepted, and are available for immediate use in the Business and
operations of the Company. To the knowledge of the Sellers, the Leased Real
Property and the plants, structures, equipment and other improvements located
thereon, and the present use thereof, comply with all zoning, land use and other
laws, ordinances and regulations of all Governmental Authorities having
jurisdiction thereof. To the knowledge of the Sellers, there is no
asbestos-containing material in any of the buildings or facilities on the Leased
Property.
Stock Purchase Agreement -- Page 14
2.19. Intellectual Property; Trade Secrets. Except for the
name of the Company and as set forth in Schedule 2.19, the Company neither owns
nor licenses Intellectual Property (which is defined to include the name of the
Company, all fictional business names, trade names, registered and unregistered
trademarks, service marks and applications, all patents and patent applications,
and all copyrights in both published works and unpublished works) in the conduct
of its Business. Neither the Company nor the Sellers have received any notice of
any claims, controversies, lawsuits or judgments that affect the use or
availability of the Company's name. All customer lists, account encryption codes
and associated software (collectively, "Trade Secrets") of the Company are
current, accurate in all material respects, and sufficient in detail and content
to identify and explain them and to allow their full and proper use without
reliance on the special knowledge or memory of others. The Company has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets. The Trade Secrets, to the knowledge of the Sellers, have not been
used, divulged, or appropriated either for the benefit of any Person (other than
the Company) or to the detriment of the Company. As used herein, "Person" shall
mean any individual, corporation, general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization or
other entity. To the knowledge of the Sellers, no Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way. The Company
licenses all software used by the Company pursuant to valid and binding license
agreements. All license agreements are in full force and effect and there are no
defaults (or events which with notice, lapse of time or both, could constitute
defaults) under such license agreements. Except as set forth in Schedule 2.19,
the consummation of the transactions contemplated by this Agreement will not
alter, impact on or otherwise affect any of the rights granted to the Company
pursuant to such license agreements. None of the software has manifested any
significant operating problems, other than such problems that have been
corrected or are correctable in the ordinary course of business. All software is
designed to be used prior to, during and after the calendar year 2000 A.D., and
the software will operate during such periods without error relating to date
data.
2.20. Patents. The Company neither owns nor licenses any
patents in the conduct of its Business.
2.21. Contracts. Schedule 2.21 sets forth a complete and
correct list of each of the following contracts (whether oral or written) to
which the Company is a party (collectively, and together with any contracts not
set forth in Schedule 2.21 to which the Company is a party, the "Contracts"):
(a) contracts for the employment of any officer or employee; (b) contracts for
the purchase of materials, supplies, services, merchandise or equipment that
involve annual or aggregate payments in excess of $1,000; (c) management
agreements, franchise agreements, license agreements, advertising agreements and
contracts for the purchase and sale of inventory that involve annual or
aggregate payments or receipts in excess of $1,000; (d) agreements or
arrangements for the sale or lease of any of its assets other than in the
ordinary course of its Business; (e) mortgages, pledges, conditional sales
Stock Purchase Agreement -- Page 15
contracts, security agreements or other similar agreements; (f) leases of
machinery or equipment that involve annual or aggregate payments or receipts in
excess of $1,000; (g) loan agreements, promissory notes, guarantees, letters of
credit, subordination or similar type agreements; (h) agreements or arrangements
for the acquisition or sale of real or personal property that involve annual or
aggregate payments or receipts in excess of $1,000; (i) all consulting and
independent contractor contracts; (j) all contracts and policies for insurance
coverage; (k) agreements with customers; (l) all joint venture, strategic
alliance and partnership agreements; and (m) any contract not otherwise covered
by clauses (a) through (l) above which is not terminable on thirty days (or
less) notice or involves annual or aggregate payments or receipts in excess of
$5,000. The Company has performed all of the obligations required to be
performed by it to date under the Contracts, is not in default under the
Contracts, and no event has occurred which with the passage of time or the
giving of notice or both could constitute a default under any of the Contracts.
To the Sellers' knowledge, the other party to each Contract is not in default
with respect thereto and has materially performed all obligations required to be
performed by it to date. Except as set forth in Schedule 2.21, all of the
Contracts shall remain in full force and effect after the date of the Closing
and none of the Contracts contain change in control provisions. The Sellers will
obtain all necessary consents with respect to any change of control or other
such provisions from the other parties to the Contracts with respect to the
transactions contemplated by this Agreement. There are no unresolved disputes
involving the Company under any Contract. The Sellers have delivered to the
Buyer true and complete copies of the written Contracts listed in Schedule 2.21
and written descriptions of all oral Contracts described in Schedule 2.21, and
all amendments to the foregoing; provided, however, that in the case of customer
agreements, the Sellers have delivered to the Buyer true and complete copies of
the forms of customer agreements and hereby represents and warrants that all
customer agreements conform to one of such forms in all material respects. The
Sellers represent and warrant that all customer agreements which contain
provisions giving the customer the right to terminate as a result of the
transactions contemplated hereby do not exceed monthly recurring income in
excess of $5,000 in the aggregate.
2.22. Insurance Policies. The Company has in full force and
effect, with responsible insurance companies, policies of insurance with respect
to its employees, assets and Business insuring the Company against such
casualties and contingencies and of such types and amounts as are reasonably
adequate for the size and scope of the Business conducted and properties held by
the Company, and the Company maintains such other insurance as may be required
by law and by all contracts to which it is a party. Schedule 2.22 sets forth a
description of all policies of insurance that the Company has and maintains in
full force and effect, the annual premiums therefor, the limits of liability,
whether such policies are on an occurrence or "claims made" basis and all
performance bonds and letters of credit securing such obligations. True and
complete copies of all such policies have previously been delivered to the
Buyer. If the Company has any self-insurance arrangement by or affecting the
Company, such arrangement is described on Schedule 2.22, including any reserves
established thereunder. All premiums due on such policies have been paid and, to
Stock Purchase Agreement -- Page 16
the knowledge of the Sellers, the aggregate amount of all claims under such
policies do not exceed policy limits. Neither the Company nor the Sellers have
received any notification from any insurance carrier denying or disputing any
claim made by or on behalf of the Company denying or disputing any coverage for
any claim denying or disputing the amount of any claim, or regarding the
possible cancellation of any policies. Except as set forth in Schedule 2.22, to
the knowledge of the Sellers, there is no reason to believe that any of such
policies will not be renewed by the respective insurance carriers with
substantially the same coverage. The Company has not received (a) any notice of
cancellation of any policy, (b) any notice that any issuer of such policy has
filed for protection under applicable bankruptcy laws or is otherwise in the
process of liquidating or has been liquidated, (c) any other indication that
such policies are no longer in full force and effect or that the issuer of any
such policy is no longer willing or able to perform its obligations thereunder,
or (d) any refusal of coverage or any notice that a defense will be afforded
with reservation of rights. All premiums due on such policies have been paid,
and the aggregate amount of all claims under such policies do not exceed policy
limits. The Company has given notice to the insurers of all claims that may be
insured thereunder.
2.23. Customers. Except as set forth in Schedule 2.23, no
customer of the Company accounts for more than five percent (5%) of the
Company's gross revenues during the year ended December 31, 1997, ranked by
revenues. To the knowledge of the Sellers, there is no reason to believe that
the benefits of any material relationship of the Company with customers will not
continue to be available to the Company or that any such relationship will be
changed in an adverse manner as a result of the transactions contemplated by
this Agreement, and to the knowledge of the Sellers there is no reason that any
of the agreements between the Company and its customers will be terminated prior
to their stated expiration date or will not be renewed in the ordinary course of
business.
2.24. ERISA and Other Compensation Plans. Except as set forth
in Schedule 2.24, the Company does not maintain or participate in any
arrangement or policies, deferred compensation arrangements, stock purchase,
stock option, employee benefit plan, (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), or any other
employee benefit policies, programs or arrangements maintained currently or in
the past by the Company under which the Company has any current or future
obligation or under which any former or present employee of the Company has any
current or future rights to benefits (the "Benefit Plans"). The Company does not
contribute and has not contributed to any multi-employer pension plan (as
defined in Section 4001(a)(3) of ERISA). The Company does not participate and
has not participated in any employee benefit plan maintained, or subscribed to,
by any other employer.
Stock Purchase Agreement -- Page 17
2.25. Labor Matters. Except as set forth in Schedule 2.25(a),
the Company is not a party to or bound by any collective bargaining agreement or
any other agreement with a labor union relating to the Company's employees, and,
to the knowledge of the Sellers, there has been no effort by any labor union
during the twenty-four (24) months prior to the date of this Agreement to
organize any of such employees into one or more collective bargaining units.
Except as set forth in Schedule 2.25(b): (a) the Company is in compliance with
all federal, state and local laws regarding employment and employment practices,
conditions of employment, wages and hours (including, without limitation, the
Immigration Reform and Control Act of 1986, as amended and supplemented, and
Sections 212(n) and 274A of the Immigration and Nationality Act, as amended and
supplemented, and all implementing regulations relating thereto), and the
Company does not employ any unauthorized aliens (as such term is defined under 8
CFR ss.274a.1(a)); (b) the Company is not engaged in unfair labor practices, and
there are no unfair labor practice complaints pending or, to the knowledge of
the Sellers, threatened against the Company before the National Labor Relations
Board or otherwise; (c) there are no Equal Employment Opportunity Commission
violations or age, sex, racial discrimination, occupation safety or health
standards claims charged, pending or, to the knowledge of the Sellers,
anticipated; (d) there is no labor strike or material dispute pending or, to the
knowledge of the Sellers, threatened against or involving the Company or to the
knowledge of the Sellers at the current customer locations that may effect the
Business of the Company; and (e) none of the employees of the Company are
presently subject to collective bargaining agreements or are engaged in
organizing, or are members of, any union or other employee group that is seeking
recognition as a bargaining unit.
2.26. Employees. The Company has 17 employees. Schedule 2.26
lists the names, job descriptions and annual salary rates, length of service,
commissions, benefits (and benefit accruals) and other compensation for all
present officers, directors, managers, and employees of the Company and also
contains a complete and correct copy of the permanent payroll of the Company as
of June 30, 1998. All employees are "at will" employees and none of the
Company's employees has any employment agreement (written or oral).
2.27. Environmental Matters. Except with respect to the
matters set forth in Schedule 2.27: (a) the Company is in compliance with (i)
all legal requirements designed to minimize, prevent, punish or remedy the
consequences of actions that damage or threaten the environment or public health
and safety ("Environmental Laws") relating to the generation, management,
handling, transportation, treatment, disposal, storage, delivery, discharge,
release or emission of any waste, pollutant or toxic, hazardous or other
substance, including, without limitation, batteries (collectively, "Hazardous
Materials"), and (ii) all regulations and requirements promulgated by the
Occupational Safety and Health Administration that may be applicable to the
Company; (b) there is no proceeding, suit or investigation pending or, to the
knowledge of the Sellers, threatened with respect to any violation or alleged
violation of the Environmental Laws, and there is no reasonable basis known to
the Sellers for the institution of any such proceeding, suit or investigation;
(c) there has been no spillage, leakage, contamination or release of any
Hazardous Materials by the Company for which remedial action is required
pursuant to the Environmental Laws and has not been completed, and no
Stock Purchase Agreement -- Page 18
transportation of Hazardous Materials to any other location in violation of
Environmental Laws; (d) to the knowledge of the Sellers, none of the Leased Real
Property is contaminated with any Hazardous Materials, and the air above and
waters below and adjacent thereto have not received any Hazardous Materials from
the operations of the Company; and (e) there are no underground storage tanks or
other underground facilities on the Leased Real Property.
2.28. Receivables. All accounts, notes and mortgages
receivable and premiums due and uncollected as reflected on the latest balance
sheet included in the Financial Statements and all accounts, notes and mortgages
receivable and premiums due and uncollected arising subsequent to the date of
such balance sheet (collectively, the "Accounts Receivable"): (a) represent
valid obligations due to the Company enforceable in accordance with their
respective terms and conditions; (b) are not subject to any defense, offset or
counterclaim; and (c) subject only to a reserve for bad debts as set forth in
the determination of the Purchase Price Adjustment (the "Reserve"), will be
collected (i) with respect to those Accounts Receivable set forth in Schedule
2.28, before the one hundred twentieth (120th) day following the Closing Date,
and (ii) with respect to all other Accounts Receivable, before the ninetieth
(90th) day following the Closing Date (the "Collection Period").
If the Buyer, through its exercise of commercially reasonable
efforts consistent with the degree of effort and diligence exercised by the
Buyer historically with respect to Accounts Receivable (not to include the
institution of litigation or retention of any collection agency or person or
entity providing similar services), shall not have collected, on or prior to the
expiration of the Collection Period, any portion of the Accounts Receivable
outstanding as of and on the Closing Date less the Reserve (collectively, the
"Uncollected Accounts"), the Seller shall be liable to the Buyer for the full
amount of the Uncollected Accounts, provided, however, that (a) the Buyer shall
subsequently assign to the Seller all of the Buyer's right, title and interest
in and to any and all Uncollected Accounts, including all of the Buyer's right
in any action or cause of action against any account debtor for collection of
any Uncollected Accounts, and (b) as of the date that the Buyer shall have
effected and notified the Seller of its assignment of the Uncollected Accounts,
the Buyer shall not have agreed to forgive, redeem, offset or otherwise permit
alternative payment arrangements for Uncollected Accounts with any account
debtor. Such assignment must occur within forty-five (45) days after the
expiration of the Collection Period by written notice to Sellers, including the
name of the account debtor, the face amount of the receivable, the date of
invoice, and copies of all documentation supporting such receivable. All
Uncollected Accounts assigned in accordance with the procedure set forth above
shall be an "Assigned Receivable." In the event that the Buyer provides products
or services to a customer of the Company after the execution of this Agreement,
the revenue received by the Buyer from such customer shall first be applied to
the satisfaction of any Uncollected Accounts for such customer that antedate the
Closing and which have not been disputed by such customer, and then to the
receivable corresponding to such post-Closing products or services. The Sellers
shall have the right to use commercially reasonable efforts to collect any
Uncollected Accounts assigned to them; provided, that the Sellers shall not
institute litigation to collect any Uncollected Account without prior written
notice to the Buyer. Notwithstanding anything contained herein to the contrary,
Assigned Receivables shall be satisfied solely from the Escrow Fund in
accordance with the provisions of Article 4.
Stock Purchase Agreement -- Page 19
2.29. Affiliated Transactions. Except as set forth on Schedule
2.29, neither Seller is an owner, partner, officer, director, employee, agent,
investor or consultant in any business competitive with that of the Company.
Except as set forth on Schedule 2.29, there are no loans, guarantees, leases or
commitments from or to the Sellers or any Affiliate thereof, on the one hand,
and the Company, on the other hand. Except as set forth in Schedule 2.29, there
are no outstanding transactions between the Sellers or any Affiliate thereof and
the Company, nor do the Sellers or Affiliates have any interest in any property
(whether real, personal or mixed, tangible or intangible), used in or pertaining
to the Business. Except as set forth in Schedule 2.29, the Company has at all
times been operated as a separate business and not as a division, subsidiary or
affiliate of any other entity.
2.30. Disclosure. No representation or warranty of the Sellers
herein and no information disclosed by the Sellers to the Buyer in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. Except as otherwise disclosed in this Agreement or the Schedules to
this Agreement, there is no fact presently known to the Sellers that would or
could reasonably be expected to have a material adverse effect on the financial
condition of the Company.
2.31. No Distribution. The Sellers are acquiring the Guardian
Shares for their own account with the present intention of holding such
securities for purposes of investment, and they have no intention of selling
such securities in a public distribution in violation of the federal securities
laws or any applicable state securities laws. The Sellers understand that the
Guardian Shares are "restricted securities" as defined in Rule 144 under the
Securities Act, and have not been registered pursuant to the provisions of the
Securities Act, in as much as the proposed purchase of the Guardian Shares is
taking place in a transaction not involving any public offering.
2.32. Sophistication. The Sellers are knowledgeable,
experienced and sophisticated in financial and business matters and are able to
evaluate the risks and benefits of the investment in the Guardian Shares.
2.33. Economic Risk. The Sellers are able to bear the economic
risk of their investment in the Guardian Shares for an indefinite period of time
because the Guardian Shares have not been registered under the Securities Act
and, therefore, cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
Stock Purchase Agreement -- Page 20
2.34. Access to Information. The Sellers have been furnished
or otherwise had full access to such other information concerning Guardian and
its subsidiaries as they have requested and that was necessary to enable the
Sellers to evaluate the merits and risks of an investment in Guardian, and after
a review of this information, have had an opportunity to ask questions and
receive answers concerning the financial condition and business of Guardian and
the terms and conditions of the securities purchased hereunder, and have had
access to and have obtained such additional information concerning Guardian and
the securities as they deemed necessary.
2.35. Accredited Investor. The Sellers represent and warrant
that each is an "accredited investor" as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
3. Representations and Warranties of the Buyer.
3.1. Corporate Organization. The Buyer is an organization duly
organized, validly existing and in good standing under the laws of the State of
New York. The Buyer has full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors of the Buyer has duly authorized the execution and delivery of this
Agreement and the performance by the Buyer of its obligations hereunder and this
Agreement constitutes the legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms, except to the extent
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights generally, and
(ii) is subject to general principals of equity. No other corporate proceedings
on the part of the Buyer are necessary to authorize the execution and delivery
of this Agreement and the performance by the Buyer of its obligations hereunder.
3.2. No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
violate any provisions of the Certificate of Incorporation or Bylaws of the
Buyer, (b) violate or be in conflict with, or constitute a default under, or
require the consent of any other party to, any agreement or commitment to which
the Buyer is a party or by which the Buyer or any of its businesses or
properties is bound, or (c) violate any statute or law or any judgment, decree,
order, regulation or rule of any court or Governmental Authority to which the
Buyer is subject.
3.3. No Pending Litigation or Proceedings. There are no
actions, suits, investigations or proceedings of any nature pending, or to the
Buyer's knowledge, threatened, at law or in equity, by or before any court of
governmental department, agency or instrumentality, with respect to which there
is the possibility of a determination which would prevent the Buyer from
consummating the transaction contemplated hereby or which seeks to enjoin or
obtain damages in respect of the transactions contemplated hereby.
Stock Purchase Agreement -- Page 21
3.4. Brokers. No broker, finder or other similar intermediary
has been engaged by the Buyer in connection with the transaction contemplated by
this Agreement.
3.5. Consent and Approvals. The Buyer has obtained each
consent, approval or authorization of and has made each declaration, filing or
registration with all Persons, including any Governmental Authority (including,
based in part upon representations of the Sellers, the Federal Trade Commission
and the Antitrust Division of the Department of Justice pursuant to the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended) required to be
made or obtained by the Buyer in connection with the execution, delivery and
performance of this Agreement.
3.6. No Distribution. The Buyer is acquiring the STAT-LAND
Shares for its own account with the present intention of holding such securities
for purposes of investment, and it has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws. The Buyer understands that the STAT-LAND
Shares are "restricted securities" as defined in Rule 144 under the Securities
Act and have not been registered pursuant to the provisions of the Securities
Act, in as much as the proposed purchase of the STAT-LAND Shares is taking place
in a transaction not involving any public offering.
3.7. Sophistication. The Buyer is knowledgeable, experienced
and sophisticated in financial and business matters and is able to evaluate the
risks and benefits of the investment in the STAT-LAND Shares.
3.8. Economic Risk. The Buyer is able to bear the economic
risk of its investment in the STAT-LAND Shares for an indefinite period of time
because the STAT-LAND Shares have not been registered under the Securities Act
and, therefore, cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
3.9. Access to Information. The Buyer has been furnished or
otherwise had full access to such other information concerning the Company and
its subsidiaries as it has requested and that was necessary to enable the Buyer
to evaluate the merits and risks of an investment in the Company, and after a
review of this information, has had an opportunity to ask questions and receive
answers concerning the financial condition and business of the Company and the
terms and conditions of the securities purchased hereunder, and has had access
to and has obtained such additional information concerning the Company and the
securities as it deemed necessary.
3.10. Accredited Investor. The Buyer is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
Stock Purchase Agreement -- Page 22
3A. Representations and Warranties of Guardian.
3.1A Corporate Organization. Guardian is an organization duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Guardian has full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors of Guardian has duly authorized the execution and delivery of this
Agreement and the performance by Guardian of its obligations hereunder and this
Agreement constitutes the legal, valid and binding obligation of Guardian,
enforceable against Guardian in accordance with its terms, except to the extent
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights generally, and
(ii) is subject to general principals of equity. No other corporate proceedings
on the part of Guardian are necessary to authorize the execution and delivery of
this Agreement and the performance by Guardian of its obligations hereunder.
3.2A No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
violate any provisions of the Certificate of Incorporation or Bylaws of
Guardian, (b) violate or be in conflict with, or constitute a default under, or
require the consent of any other party to, any agreement or commitment to which
Guardian is a party or by which the Buyer is bound, or (c) violate any statute
or law or any judgment, decree, order, regulation or rule of any court or
Governmental Authority to which Guardian is subject.
3.3A No Pending Litigation or Proceedings. There are no
actions, suits, investigations or proceedings of any nature pending, or to
Guardian's knowledge, threatened, at law or in equity, by or before any court of
governmental department, agency or instrumentality, with respect to which there
is the possibility of a determination which would prevent Guardian from
consummating the transaction contemplated hereby or which seeks to enjoin or
obtain damages in respect of the transactions contemplated hereby.
3.4A Financial Statements. The audited financial statements of
Guardian for the calendar year ending December 1995 through December 1997,
including, without limitation, the balance sheets, statements of income, changes
in financial position and shareholders equity of Guardian, including related
notes, if any, and the unaudited financial statements of Guardian for the
calendar quarter ended March 31, 1998 were prepared in accordance with generally
accepted accounting principals consistently applied and fairly present the
financial condition of Guardian and the results of its operations for the
periods ending on such dates, respectively.
3.5A Accuracy of SEC Filings. All information previously filed
and currently being filed with the Securities and Exchange Commission (the
"SEC") by Guardian is complete and accurate, and no such information contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained therein not misleading. There has
been no material change to the business or properties of Guardian since the date
of the most current filed document of Guardian with the SEC.
Stock Purchase Agreement -- Page 23
3.6A Brokers. No broker, finder or other similar intermediary
has been engaged by Guardian in connection with the transaction contemplated by
this Agreement.
3.7A Consent and Approvals. Guardian has obtained each
consent, approval or authorization of and has obtained each declaration, filing
or registration with all Persons, including any Governmental Authority
(including, based in part upon representations of the Sellers, the Federal Trade
Commission and the Antitrust Division of the Department of Justice pursuant to
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended) required
to be made or obtained by Guardian in connection with the execution, delivery
and performance of this Agreement, other than the approvals required for the
establishment of the Stock Option Plan and the grants contemplated in Section
5.3 hereof.
3.8A Title to Guardian Shares. Upon consummation of the
transactions contemplated by this Agreement, the Sellers will acquire good,
valid and indefeasible title to the Guardian Shares, free and clear of any and
all Liens except for those Liens contemplated by this Agreement or those
resulting from the consummation of the transactions contemplated hereby. Upon
consummation of the transactions contemplated hereby, the Guardian Shares will
be validly issued, fully paid and non-assessable.
4. Survival and Indemnification.
4.1. Survival. All representations, warranties, covenants and
agreements contained in this Agreement, and in any certificate, schedule,
document or other writing delivered pursuant hereto or in connection with the
transactions contemplated herein shall be in all cases deemed to have been
relied upon by the parties hereto, and shall (other than with respect to
representations and warranties set forth in Sections 2.13 (Taxes; Tax Elections)
and 2.27 (Environmental Matters)) survive the Closing for a period of two (2)
years thereafter, except that any breaches of representations or warranties
arising out of the Sellers' willful bad faith, willful misconduct or gross
negligence with an intent to defraud, the representations and warranties
contained in Sections 2.13 and 2.27 and the Seller's obligation to indemnify the
Buyer for any Liabilities arising from or in connection with a Xxxxxxx Claim (as
herein defined) shall survive the Closing for a period ending sixty (60) days
following the expiration of the applicable statute of limitations and all
extensions thereof. Notwithstanding the foregoing, if prior to the expiration of
the survival period for any representation, warranty, covenant or agreement, a
claim for indemnification is delivered by a party in the manner required herein,
the rights under this Section 4 of such party providing such notice, with
respect to the subject matter thereof, shall continue in full force and effect
until the subject matter of such notice has been fully determined and disposed
of. The representations, warranties, covenants and agreements contained in this
Agreement or any certificate, schedule, document or other writing delivered
pursuant hereto shall not be affected by any investigation, verification or
examination by any party hereto or by any Person acting on behalf of any such
party prior to or after the Closing.
Stock Purchase Agreement -- Page 24
4.2. Indemnification of the Buyer.
(a) The Sellers, jointly and severally agree to
indemnify and hold harmless the Buyer and its directors, officers, employees,
owners, agents and affiliates from and against any and all liabilities, damages,
claims, deficiencies, assessments, losses, suits, proceedings, actions,
investigations, penalties, interest, costs and expenses, including without
limitation, reasonable fees and expenses of counsel, amounts paid in settlement
and reasonable costs of investigation (whether suit is instituted or not and, if
instituted, whether at the trial or appellate level) (collectively, the
"Liabilities"), but solely to the extent that such Liabilities have not been
reflected on the Audit Report, whether in law or equity, arising from or in
connection with (i) the failure of any representation of the Sellers contained
in this Agreement or in any document delivered in connection herewith to be true
and correct; (ii) any breach or violation of any of the warranties, covenants or
agreements of the Sellers contained in this Agreement or in any document
delivered in connection herewith; (iii) the amount of the MRI Shortfall and Bank
MRI Shortfall (as defined in Section 5.1); or (iv) the record or beneficial
ownership by Xxxxxx Xxxxxxx at any time of any equity interest in the Company,
including, without limitation, the disposition or redemption of any such equity
interest, and all transactions arising out of, in connection with, or in any way
relating to any such equity interest or the disposition or redemption thereof
and Xxxxxx Xxxxxxx'x dissassociation with the Company (a "Xxxxxxx Claim");
provided, however, that any and all Liabilities of the Sellers under this
Section 4.2(a) shall be satisfied solely from the Escrow Fund (the "Cap"),
provided further, however, that the Cap shall not apply to (A) any Liabilities
arising from or relating to Taxes or violations of Environmental Laws; (B) the
extent that any such Liability is found, in a final unappealable judgment by a
court of competent jurisdiction to have arisen from or related to the Sellers'
willful bad faith, willful misconduct or gross negligence with an intent to
defraud; and (C) any Liabilities arising from or relating to a Xxxxxxx Claim.
For purposes of valuing the Guardian Shares comprising the Escrow Fund in
respect of an indemnity claim hereunder, each Guardian Share shall now and
hereafter be valued at the Guardian Market Value as determined at the time of
the Closing.
(b) Limitations on Liabilities. The Sellers shall
have no obligations to indemnify the Buyer for any Liabilities, Bank MRI
Shortfall or MRI Shortfall incurred or suffered by Buyer, or for the value of
the Bank MRI Shortfall or the MRI Shortfall, except to the extent that such
Liabilities, Bank MRI Shortfall or MRI Shortfall, taken together, exceed eighty
thousand dollars ($80,000) (the "Basket") and then only to the extent of such
excess, provided, however, that any Liability arising from or relating to a
Xxxxxxx Claim or which is found, in a final unappealable judgment by a court of
competent jurisdiction to have arisen from or related to the Sellers' willful
bad faith, willful misconduct or gross negligence with an intent to defraud
shall not be subject to the Basket.
Stock Purchase Agreement -- Page 25
4.3. Indemnification of the Sellers. The Buyer and Guardian,
jointly and severally agree to indemnify and hold harmless the Sellers from and
against any and all Liabilities, whether in law or equity, arising from or in
connection with (a) the failure of any representation of the Buyer and/or
Guardian contained in this Agreement or in any document delivered in connection
herewith to be true and correct and (b) any breach or violation of any of the
warranties, covenants or agreements of the Buyer and/or Guardian contained in
this Agreement or in any document delivered in connection herewith; provided,
however, that notwithstanding anything to the contrary contained herein, any and
all Liabilities of the Buyer and Guardian under this Section 4.3 shall be
limited in the aggregate to fifteen percent (15%) of the Purchase Price (the
"Buyer's Cap").
4.4. Procedure.
(a) In the event any Person or entity not a party to
this Agreement shall make any demand or claim or file or threaten to file or
continue any lawsuit (a "Claim"), which Claim may result in Liabilities to an
indemnified person, then, in any such event, within ten (10) business days after
notice (the "Notice") by the party seeking indemnification (the "Indemnified
Party") to the party it is seeking indemnification from (the "Indemnifying
Party") of such Claim (provided, however, that the failure to give such Notice
shall not relieve the Indemnifying Party of its obligations hereunder unless,
and only to the extent that, such failure caused the damages for which the
Indemnifying Party is obligated for hereunder to be greater than they would
otherwise have been had the Indemnified Party given prompt notice hereunder),
the Indemnifying Party shall have the option, at its cost and expense, to retain
counsel for the Indemnified Party (which counsel shall be selected by or be
reasonably satisfactory to the Indemnified Party), to defend any such Claim;
provided, however, that if the amount of such Claim is expressly in excess of
the net amount available from the Cap for payment of such Claim and the Sellers
are the Indemnifying Party, the parties will attempt to amicably determine which
party will have the right to defend such Claim. In the event that parties cannot
so agree prior to the time to answer, the attorneys for the parties shall choose
attorneys to defend such Claim. Thereafter, the Indemnified Party shall be
permitted to participate in such defense at its own expense, provided that, if
the named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party or if the
Indemnifying Party proposes that the same counsel represent both the Indemnified
Party and the Indemnifying Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them, then the Indemnified Party shall have the right to retain its own
counsel at the cost and expense of the Indemnifying Party. In the event that the
Indemnifying Party shall fail to respond within ten (10) days after receipt of
the Notice, the Indemnified Party may retain counsel and conduct the defense of
such demand, claim or lawsuit as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnifying Party.
(b) In the event that the Indemnifying Party shall
fail to give the Notice within the time prescribed herein, or shall elect not to
defend, then the Indemnified Party shall have the right to conduct such defense
Stock Purchase Agreement -- Page 26
with its counsel, and the Indemnified Party shall be permitted to compromise or
settle any such claim without the prior written consent of the Indemnifying
Party on such terms as the Indemnified Party deems appropriate in its judgment.
(c) In the event that the Indemnifying Party does
deliver a Notice to defend on a timely basis and thereby elects to conduct the
defense, the Indemnified Party will cooperate with and make available to the
Indemnifying Party such assistance and materials as the Indemnifying Party may
reasonably request, all at the sole cost and expense of the Indemnifying Party.
Without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld, the Indemnifying Party will not enter into any
settlement of any claim if pursuant to or as a result of such settlement, such
settlement could lead to liability, may not fully relieve the Indemnified Party
of liability or create any financial or other obligation on the part of the
Indemnified Party.
(d) Any judgment entered or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party, and
shall be conclusively deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder, subject to
the Indemnifying Party's right to appeal an appealable judgment or order. Such
indemnification shall be required to be made not later than the tenth (10th) day
following the expiration of any period in which an appeal may be taken, and, if
the Indemnifying Party is the Sellers, shall be satisfied by payment of the
amount thereof in Escrow Shares from the Escrow Fund, in accordance with the
terms of the Escrow Agreement, which provides that, upon submission to the
Escrow Agent of a copy of any such settlement agreement, or of such judgment,
together with an opinion of counsel that all appeals have been taken or the time
for taking appeals has expired, then the Escrow Agent shall promptly distribute
to the Buyer the amount established by such judgment or settlement, plus all
other Liabilities incurred in respect thereof, as set forth in an officer's
certificate duly acknowledged by an officer or authorized representative of the
Buyer, which certificate shall be in the form required by the Escrow Agreement.
All other indemnification claims subject to this Section 4.4 shall be required
to be made no later than the tenth (10th) day following the expiration of any
period in which an appeal may be taken by the payment of cash.
4.5. Notice of Claims. In the case of a claim for
indemnification by an Indemnified Party, such Indemnified Party shall deliver
notice of such claim to the Indemnifying Party (and to the Escrow Agent, in the
case of a claim for indemnification against the Sellers), setting forth in
reasonable detail the basis of such claim for indemnification (each, an
"Indemnification Notice"). Upon the Indemnification Notice having been given to
the Indemnifying Party, the Indemnifying Party shall have a period of thirty
(30) days after (a "Dispute Period") to notify in writing the Indemnified Party
(and the Escrow Agent, in the case of a claim for indemnification against the
Sellers) (a "Dispute Notice") that the claim for indemnification is in dispute,
setting forth in reasonable detail the basis of such dispute. In the event that
a Dispute Notice is not given to the Indemnified Party before the expiration of
the Dispute Period, the Indemnifying Party shall be liable for all Liabilities
suffered by the Indemnified Party with respect to such claim for
Indemnification.
Stock Purchase Agreement -- Page 27
In the event a Dispute Notice is timely given to an
Indemnified Party, the parties shall have thirty (30) days to resolve the
dispute. In the event the dispute is not resolved by the parties within the
required period, the parties shall have the right to pursue all available legal
remedies to resolve such dispute.
5. Further Covenants and Obligations.
5.1. Monthly Recurring Income.
(a) The Sellers hereby covenant and agree, subject to
the Basket and the Cap, that if any Qualified Customer Accounts (as hereinafter
defined) of the Sellers as of the date of this Agreement are canceled or
terminated on or prior to September 1, 1999 (the "First Anniversary"), or, in
the case of any Bank Customer Accounts (as hereinafter defined), on or prior to
September 1, 2001 (the "Third Anniversary"), the Sellers shall be required to
refund a portion of the Purchase Price as determined below.
(b) Not later than thirty (30) days after the date of
the First Anniversary, the Buyer shall notify the Sellers of any Qualified
Customer Accounts that have been canceled or terminated on or prior to the First
Anniversary (the "Terminated Accounts"). The Buyer shall calculate the shortfall
in the MRI (as hereinafter defined) by adding together the amounts for monthly
recurring income set forth on Schedule 5.1 for each Terminated Account and
multiplying that amount by 45. The Buyer shall subtract from such amount the
cash, if any, actually collected from any Terminated Account for services
rendered after the Closing and the Sellers shall be liable to the Buyer for the
resulting amount (the "MRI Shortfall"). Notwithstanding anything contained
herein to the contrary, the MRI Shortfall shall be satisfied solely from the
Escrow Fund in accordance with the provisions of the Escrow Agreement and
Section 4.5 of this Agreement. In the event that the amounts remaining in the
Escrow Fund are insufficient to satisfy the MRI Shortfall, the Sellers shall
have no obligation for the payment of any remaining amounts owed to the Buyer.
(c) Within thirty (30) days of notification from the
President of the Company to the Buyer of cancellation or termination, and not
later than thirty (30) days after the date of the Third Anniversary, the Buyer
shall notify the Sellers of any Bank Customer Accounts that are not Terminated
Accounts and that have been canceled or terminated on or prior to the Third
Anniversary (the "Terminated Bank Customers"). The Buyer shall calculate the
shortfall in the MRI (as hereinafter defined) by adding together the amounts for
monthly recurring income set forth on Schedule 5.1 for each Terminated Bank
Customer and multiplying that amount by 36. The Buyer shall subtract from such
amount the cash, if any, actually collected from any Terminated Bank Customer
for services rendered after the Closing and the Sellers shall be liable to the
Buyer for the resulting amount (the "Bank MRI Shortfall"). Notwithstanding
anything contained herein to the contrary, the Bank MRI Shortfall shall be
satisfied solely from the Escrow Fund in accordance with the provisions of the
Stock Purchase Agreement -- Page 28
Escrow Agreement and Section 4.5 of this Agreement. In the event that the
amounts remaining in the Escrow Fund are insufficient to satisfy the Bank MRI
Shortfall, the Sellers shall have no obligation for the payment of any remaining
amounts owed to the Buyer.
(d) As used in this Section 5.1, the term "Qualified
Customer Accounts" means the alarm system customers listed on Schedule 5.1
hereto, each of which is billed on a recurring basis (monthly, quarterly,
semiannually, or annually) by the Company under written and fully executed
customer contracts for the provision of Services (as defined below) with
original terms of not less than three years containing annual renewal provisions
and that meet the following criteria determined as of the Closing Date: (i) the
customer account does not have a receivable balance in excess of 90 days (or,
with respect to those accounts designated as 120-day accounts on Schedule 2.28,
120 days) past due as of the applicable Service Date (as defined below) for such
account, and (ii) the account has not canceled or provided notice of
cancellation (whether orally or in writing), and the Sellers have no knowledge
that the account will be canceled prior to, at, or subsequent to the Closing
Date. The term "Bank Customer Accounts" means the Qualified Customer Accounts
identified with an asterisk on Schedule 5.1. Also listed on Schedule 5.1 shall
be the monthly recurring income ("MRI") for each Qualified Customer Account. In
determining MRI, monthly recurring income shall not include installation or
other one time charges that are not of a regular and recurring nature. As used
in this Section 5.1, the term "Services" means burglar alarm services, fire
alarm services, closed circuit television and electronic access control
services, all central station monitoring services, maintenance services, leases,
fire testing and all other services provided to commercial, residential and
other customers of the Company. "Service Date" means the first day of any
calendar month in which Services are provided.
5.2. Stock Option Plan. Guardian hereby covenants and agrees
that, within ninety (90) days following the Closing, it shall establish a stock
option plan (the "Stock Option Plan") and grant options pursuant to such plan to
purchase that number of shares of Guardian Common Stock (rounded up or down to
the nearest whole number of shares of Guardian Common Stock) having an aggregate
Guardian Market Value as determined at the time of the Closing of Fifty Thousand
Dollars ($50,000) as follows: (i) Xxxxxxx Xxxxxxx - $25,000; (ii) Xxxxxxx
Xxxxxxx - $20,000; and (iii) Xxxxx Xxxxxx - $5,000. In addition, Guardian shall
grant options to Xxxx Xxxxxxx pursuant to the terms of the Stock Option Plan and
the Employment Agreement.
6. Restriction on Transfer of Shares. The Sellers shall not sell,
transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily) any interest in his
Guardian Shares (which shall include any additional shares issued by dividend,
Stock Purchase Agreement -- Page 29
stock split, conversion or otherwise of the Guardian Shares) to a third party (a
"Transfer"), except in compliance with the provisions of this Section 10 and any
other restrictions on Transfer contained in this Agreement.
6.1. First Refusal Right of Guardian.
(a) At least fifteen (15) days prior to effecting a
Private Sale (defined as any sale of Guardian Shares other than to the public
pursuant to an offering registered under the Securities Act or to the Public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
promulgated under the Securities Act) of any Guardian Shares to a third party,
the Sellers shall deliver a written notice (an "Offer Notice") to the President
of Guardian. The Offer Notice shall disclose in reasonable detail the third
party's bona fide offer, including the proposed number of Guardian Shares to be
transferred, the proposed terms and conditions of the Transfer and the identity
of the prospective transferee(s) (if known).
(b) Guardian may elect to purchase all, but not less
than all, of the number of Guardian Shares specified in the Offer Notice at the
price and on the terms specified therein by delivering written notice of such
election to the Sellers as soon as practical but in any event within fifteen
(15) days after the delivery of the Offer Notice (the "Election Period").
6.2. Transfer to Third Parties.
(a) If Guardian has not elected to purchase all of
such Guardian Shares being offered, the Sellers may, within ninety (90) days
after the expiration of the Election Period, Transfer all such Guardian Shares
to the identified prospective transferee(s) at a price not less than one hundred
percent (100%) of the price offered to Guardian and on other terms no more
favorable to the transferees thereof than offered to Guardian in the Offer
Notice.
(b) Any Guardian Shares not transferred within such
90-day period shall be re-offered to Guardian under this Section 10 prior to any
subsequent Transfer.
6.3. Purchase Price. The purchase price specified in any Offer
Notice shall be payable solely in cash at the closing of the transaction or, if
provided in the Offer Notice, in installments over time.
6.4. Permitted Transfers. The restrictions set forth in this
Section 10 shall not apply with respect to any Transfer of Guardian Shares by
the Sellers pursuant to applicable laws of descent and distribution or among the
Sellers' Family Group ("Permitted Transferees"). For purposes of this Agreement,
"Family Group" means an individual's spouse and descendants (whether natural or
adopted) and spouses of descendants and any trust, family limited partnership or
similar entity solely for the benefit of the individual and/or the individual's
spouse and/or descendants and/or spouses of their descendants.
Stock Purchase Agreement -- Page 30
7. Legends.
7.1. Restrictive Legend. Each certificate evidencing Guardian
Shares or securities convertible into Guardian Shares and each certificate
issued in exchange for or upon the Transfer of any such securities (a
"Certificate" or "Certificates") (if such securities remain Guardian Shares or
remain convertible into Guardian Shares after such Transfer) shall be stamped or
otherwise imprinted with a legend in substantially the following form (the
"Restrictive Legend"):
The securities presented by this certificate may be subject to
transfer restrictions, escrow provisions and/or certain other
restrictions and obligations set forth in a Stock Purchase
Agreement dated August 13, 1998, and by and among the issuer
of such securities (the "Company"), Mutual Central Alarm
Services, Inc. and Xxxx Xxxxxxx and Xxxxxx Xxxxxxx, as amended
and modified from time to time. A copy of such Stock Purchase
Agreement shall be furnished without charge by the Company to
the holder hereof upon written request to the Company at its
principal executive office.
Guardian shall imprint the Restrictive Legend on Certificates outstanding as of
the Closing Date, in addition to imprinting on such Certificates a legend
stating that the Guardian Shares evidenced by such Certificate are not
registered under the Securities Act (the "Securities Law Legend").
7.2. Transfer of Unregistered Guardian Shares. Subject to the
provisions governing the Escrow Shares, Guardian Shares are transferable in (i)
a public offering registered under the Securities Act or (ii) in a transaction
pursuant to Rule 144 or any other legally available means of Transfer after the
Transferring holder of Guardian Shares (the "Transferring Shareholder") has
satisfied the conditions specified in Section 7.3 below.
7.3. Removal of Securities Law Legend. In connection with the
Transfer of any Guardian Shares (other than a Transfer in a public offering
registered under the Securities Act), a Transferring Shareholder shall deliver
(a) written notice to Guardian describing in reasonable detail the Transfer or
proposed Transfer (the "Notice of Transfer") and (b) an opinion (the "Opinion")
of counsel, which (to Guardian's reasonable satisfaction) is knowledgeable in
securities laws matters, to the effect that such Transfer of Guardian Shares may
be effected without registration of such Guardian Shares under the Securities
Act.
7.4. Removal of Restrictive Legend. Removal of the Restrictive
Legend shall be governed in accordance with the terms of this Agreement.
Stock Purchase Agreement -- Page 31
7.5. Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Guardian Shares in violation of any provision of this
Agreement shall be void, and Guardian shall not record such Transfer on its
books or treat any purported Transferee of such Guardian Shares as the owner of
such Guardian Shares for any purpose.
8. Piggyback Registration Rights.
8.1. Definitions
(a) Piggyback Registration. The term "Piggyback
Registration" shall have the meaning set forth in Section 8.2 hereof.
(b) Registrable Securities. The term "Registrable
Securities" means any Guardian Common Stock registered in the names of the
Sellers from time to time and any securities issued or to be issued with respect
to such securities by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. Registrable Securities shall not include any Escrow Shares until
such time that such shares are released from escrow to the Sellers. As to any
particular Registrable Securities, such securities will cease to be Registrable
Securities at such time as: (i) they have been effectively registered under the
Securities Act or disposed of in accordance with the registration statement
covering them or (ii) the Seller registered as the owner of such securities is
entitled to transfer such securities within one (1) calendar quarter under Rule
144 under the Securities Act (or any similar rule then in force).
(c) Registration Expenses. The term "Registration
Expenses" means all expenses incident to Guardian's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, expenses and fees for listing the
securities to be registered on exchanges or trading system on which similar
securities issued by Guardian are then listed or included, and fees and
disbursements of counsel for Guardian.
(d) Restricted Form. The term "Restricted Form" shall
mean a form of registration statement under the Securities Act that imposes for
its use a limitation on the maximum value or number of securities to be included
therein.
(e) Securities Act. The term "Securities Act" shall
mean the Securities Act of 1933, as amended.
(f) Selling Stockholder. The term "Selling
Stockholder" means a Seller who requests inclusion of all or a portion of
his/her shares of Registrable Securities in a Piggyback Registration pursuant to
Section 8.2.
Stock Purchase Agreement -- Page 32
(g) Underwriting Commissions. The term "Underwriting
Commissions" means all underwriting discounts or commissions relating to the
sale of securities of Guardian, but excludes any expenses reimbursed to
underwriters.
8.2. Piggyback Registrations.
(a) Right to Piggyback. Whenever Guardian proposes to
register the offer, sale or offer and sale of any of its securities for its own
behalf under the Securities Act, and the registration form to be used may be
used for the registrations of Registrable Securities (a "Piggyback
Registration"), Guardian will give prompt written notice to all Sellers and will
include in such Piggyback Registration, subject to the allocation provisions
below, all Registrable Securities with respect to which Guardian has received
written requests for inclusion within twenty (20) days after Guardian's mailing
of such notice. Guardian shall not select a Restricted Form that would preclude
registration of the Registrable Securities that Guardian has been requested to
include in such registration if Guardian could use another available form of
registration statement that is not a Restricted Form and the use of which would
not give rise to added Registration Expenses.
(b) Piggyback Expenses. In all Piggyback
Registrations, Guardian will pay the Registration Expenses related to the
Registrable Securities of the Selling Stockholders, but the Underwriting
Commissions will be paid by the Selling Stockholders in proportion to any
Registrable Securities included on their behalf.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten registration on behalf of Guardian, and the
managing underwriters advise Guardian in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering, at a price reasonably related to fair
value, Guardian will allocate the securities to be included as follows: first,
the securities Guardian proposes to sell on its own behalf; second, the
securities of those holders exercising their demand registration rights; and
third, Registrable Securities requested to be included in such registration and
securities requested to be included in such registration by any stockholders of
Guardian other than the Selling Stockholders and stockholders exercising their
demand registration rights, in proportion, as nearly as practicable, as such
holders' shares bear to the aggregate number of securities proposed to be
registered by all holders thereof.
(d) Withdrawal or Abandonment. Nothing contained in
this Section 8.2 shall be construed as limiting or otherwise interfering with
the right of Guardian to withdraw or abandon in its sole discretion any
registration statement filed by it in connection with a Piggyback Registration
notwithstanding the inclusion therein of Registrable Securities.
8.3. Holdback Agreements. Each Seller and Guardian agree not
to effect any public sale or distribution of equity securities of Guardian or of
Stock Purchase Agreement -- Page 33
any securities convertible into or exchangeable or exercisable for such
securities during the seven (7) days prior to and the 90 days after any
underwritten registration of equity securities of Guardian becomes effective or
such longer period as may be required by the managing underwriter (except as
part of such underwritten registration or except in connection with obligations
of Guardian existing on the effective date of the registration statement
relating to such underwritten offering).
8.4. Registration Procedures. Whenever the Selling
Stockholders have requested that any Registrable Securities be registered
pursuant to Section 8.2 of this Agreement, Guardian will, to the extent required
by Section 8.2:
(a) Preparation and Filing of Registration Statement.
Prepare and file with the Securities and Exchange Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, Guardian will furnish each Selling Stockholder with copies of all such
documents proposed to be filed).
(b) Preparation and Filing of Amendments and
Supplements. Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than one hundred twenty (120) days
or until the Registrable Securities included therein have been sold.
(c) Copies of Documents. Furnish to each Selling
Stockholder such number of copies of such registration statement, each amendment
and supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus), and such other documents as
such Selling Stockholder may reasonably request in order to facilitate the
disposition of the Registrable Securities included therein owned by such Selling
Stockholder.
(d) Blue Sky Qualifications. Use its best efforts to
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions as the managing underwriters may reasonably
request; provided, however, that in connection with any such registration or
qualification Guardian shall not be obligated to file a general consent to
service of process, or to qualify to do business as a foreign corporation, or
otherwise subject itself to taxation in connection with such qualification or
compliance.
(e) Notification of Effectiveness; Amendments. Notify
each Selling Stockholder at any time when a prospectus relating to the
Registrable Securities included therein is required to be delivered under the
Securities Act within the period that Guardian is required to keep the
registration statement effective of the happening of any event as a result of
Stock Purchase Agreement -- Page 34
which the prospectus included in such registration statement as theretofore
amended or supplemented contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such Selling Stockholder, Guardian will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(f) Listing. Cause all such Registrable Securities to
be listed or included on securities exchanges on which similar securities issued
by Guardian are then listed or included.
(g) Transfer Agent and Registrar. Provide a transfer
agent and registrar for all such Registrable Securities not later than the
effective date of such registration statement.
(h) Other Agreements. Enter into such customary
agreement (including an underwriting agreement in form reasonably acceptable to
Guardian) and take such other customary actions as may be reasonably necessary
to expedite or facilitate the disposition of such Registrable Securities.
(i) Letters from Independent Accountants. Obtain a
"cold comfort" letter addressed to Guardian from its independent accountants in
such form and covering such matters of the type customarily covered by "cold
comfort" letters delivered by such public accountants.
(j) Inspection of Records. Make available for
inspection upon reasonable notice by any Selling Stockholder, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of Guardian, and cause Guardian's officers, directors and employees
to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
8.5. Information Regarding Selling Stockholders. Each Selling
Stockholder shall provide to Guardian such information as may be reasonably
requested by Guardian for use in the preparation and filing of any registration
statement covering Registrable Securities owned by such Selling Stockholder, and
the obligation of Guardian to include Registrable Securities in any registration
statement on behalf of any Selling Stockholder shall be subject to such Selling
Stockholder's providing such information as promptly as practicable.
8.6. Indemnification.
Stock Purchase Agreement -- Page 35
(a) Indemnification by Guardian. Guardian hereby
indemnifies, to the extent permitted by law, each Selling Stockholder, its
officers and directors, and each person who controls such holder (within the
meaning of the Securities Act), against all losses, claims, damages, liabilities
and expenses arising out of or resulting from any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
any information furnished in writing to Guardian by any Selling Stockholder
expressly for use therein or by any such Selling Stockholder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after Guardian has furnished such Selling Stockholder with
copies of the same. In connection with any underwritten offering, Guardian will
indemnify the underwriters, their officers and directors, and each person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the Selling
Stockholders.
(b) Indemnification by the Selling Stockholders. In
connection with any registration statement in which a Selling Stockholder is
participating, each such Selling Stockholder will furnish to Guardian in writing
such information as is reasonably requested by Guardian for use in such
registration statement or prospectus and will indemnify, to the extent permitted
by law, Guardian, its directors and officers and each person who controls
Guardian (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses arising out of or resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission or such alleged untrue statement or alleged omission is
contained in information so furnished in writing by such Selling Stockholder
specifically for use in preparation of the registration statement.
(c) Procedures as to Indemnification. Any person
entitled to indemnification hereunder shall (i) give prompt notice to the
indemnifying party of any claim with respect to which it may seek
indemnification and (ii) unless in such indemnified party's reasonable judgment
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). An indemnifying party who is not entitled, or
elects not, to assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
Stock Purchase Agreement -- Page 36
8.7. Condition to Guardian's Obligations. In connection with
an underwritten offering, it shall be a condition to Guardian's obligations to
include Registrable Securities on behalf of any Selling Stockholder that the
underwriters agree to indemnify Guardian, its directors and officers and each
person who controls Guardian (within the meaning of the Securities Act) against
any losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact or any
omission or alleged omission of a material fact required to be stated in the
registration statement or prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein not misleading, but only to
the extent that such untrue statement or omission or such alleged untrue
statement or alleged omission is contained in information furnished in writing
by such underwriters on their own behalf specifically for use in preparing the
registration statement.
8.8. Termination. The Registration Rights granted pursuant to
this Agreement shall terminate as to any Seller upon the earlier to occur of (i)
when there have become effective one or more registration statement(s) in which
such Seller has had the opportunity to participate and through which, if fully
utilized, all of its Registrable Securities could have been registered or (ii)
when all Registrable Securities held by such Seller are eligible for sale under
Rule 144.
9. Miscellaneous Provisions.
9.1. Fees and Expenses. Except in the event of a default,
and/or as otherwise set forth herein, each party will pay its own expenses in
connection with the execution and delivery of this Agreement and the performance
of such party's obligations hereunder, including attorneys' fees whether or not
the transactions contemplated hereby are consummated.
9.2. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by certified mail, return receipt
requested with postage prepaid, or by overnight guaranteed delivery service, or
by facsimile (upon confirmation of receipt):
(a) if to the Sellers, to:
Xx. Xxxx Xxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxx Xxxxxx, Xxx Xxxx 00000
Phone: 000-000-0000
Fax: n/a
Stock Purchase Agreement -- Page 37
with a copy to:
Xxxxxxx X. Xxxxxxxx
Xxxxxxx & Xxxxx, P.C.
Xxx Xxxx Xxxxx - Xxxxx 0000
Xxx Xxxx, XX 00000
Phone: 000-000-0000
Fax: 000-000-0000
(b) if to the Buyer or Guardian, to:
Guardian International, Inc.
0000 X. 00xx Xxxxxxx
Xxxxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxxxxx Xxxxxxxx
Phone: 000-000-0000
Fax: 000-000-0000
with a copy to:
Mutual Central Alarm Services, Inc.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxx
Phone: 000-000-0000
Fax: 000-000-0000
and
Xxxxxxx X. Xxxxxxx, Esq.
Xxxxxxxx & Xxxxxxxx
Four Stamford Plaza
000 Xxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Phone: 000-000-0000
Fax: 000-000-0000
9.3. Succession of Agreement. This Agreement and the rights
and obligations contained herein shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
9.4. Time is of the Essence. For purposes herein, the parties
agree that time shall be of the essence of this Agreement and the
representations and warranties made are all material and of the essence of this
Agreement.
Stock Purchase Agreement -- Page 38
9.5. Captions and Paragraph Headings. Captions and paragraph
headings contained in this Agreement are for convenience and reference only and
in no way define, describe, extend or limit the scope or intent of this
Agreement, nor the intent of any provision hereof.
9.6. No Waiver. No waiver of any provision of this Agreement
shall be effective unless it is in writhing, signed by the party against whom it
is asserted and any such written waiver shall only be applicable to the specific
instance to which it relates and shall not be deemed to be a continuing or
future waiver.
9.7. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same Agreement.
9.8. Gender. All terms and words used in this Agreement
regardless of the number and gender in which used, shall be deemed to include
any other gender or number as the context or the use thereof may require.
9.9. Entire Agreement and Modification. This Agreement and the
exhibits and schedules constitute the entire understanding and agreement between
the parties and may not be changed, altered or modified except by an instrument
in writing signed by all parties against whom enforcement of such change would
be sought. In the event any term or provision of this Agreement be determined by
appropriate judicial authority to be illegal or otherwise invalid, such
provision shall be given its nearest legal meaning or be construed as deleted as
such authority determines, and the remainder of this Agreement shall be
construed to be in full force and effect.
9.10. Exhibits. All Exhibits and schedules attached hereto
contain additional terms of this Agreement. Typewritten or handwritten
provisions inserted in this form or attached hereto shall control all printed
provisions in conflict therewith.
9.11. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New York (conflict of laws
provisions notwithstanding), and venue with respect to any litigation shall be
New York, New York.
9.12. Further Assurances. Each of the parties shall execute
all documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
9.13. Public Announcements. On the date of execution of this
Agreement, the Buyer and the Sellers shall issue a press release with respect to
the execution of this Agreement in a mutually acceptable form. Except with
respect to such press release and the information contained therein, each of the
Sellers and the Buyer, on the other hand, will consult with the other before
issuing any press release or otherwise making any public statements with respect
to this Agreement and the transactions contemplated hereby, and shall not issue
Stock Purchase Agreement -- Page 39
any such press release or make any such public statement prior to such
consultation. Notwithstanding the above, any party required by law to disclose
the existence or the terms of his Agreement shall use its best efforts to
provide prior notice to the other party giving such other party an opportunity
to comment on the content of such disclosure, but shall in any event be
permitted to make such disclosure.
9.14. Remedies. The parties hereto shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief (without posting a bond or other security) in order to
enforce or prevent any violation of the provisions of this Agreement.
[SIGNATURE PAGE FOLLOWS]
Stock Purchase Agreement -- Page 40
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be duly executed as of the 13th day of August, 1998.
/s/XXXX XXXXXXX
--------------------------------
Xxxx Xxxxxxx
/s/XXXX XXXXXXX *
--------------------------------
Xxxxxx Xxxxxxx
GUARDIAN INTERNATIONAL, INC.
By: /s/XXXXXX X. XXXXX
--------------------------------
Xxxxxx X. Xxxxx
Title: Vice President
MUTUAL CENTRAL ALARM SERVICES, INC.
By: /s/XXXX X. XXXXX
--------------------------------
Name: Xxxx X. Xxxxx
Title: President
* Signed by Xxxx Xxxxxxx, pursuant to a
power of attorney
Stock Purchase Agreement -- Page 41
EXHIBIT A
Escrow Agreement
----------------
EXHIBIT B
Employment Agreement
--------------------
EXHIBIT C
Investor Questionnaire
----------------------
EXHIBIT D
Representations and Warranties of Shareholder
---------------------------------------------
EXHIBIT E
At Will Employment Agreement
----------------------------
