STOCK PURCHASE AGREEMENT
by and between
Edison Enterprises
and
ADT Security Services, Inc.
Dated as of June 27, 2001
TABLE OF CONTENTS
Page
Article I Definitions....................................................................................1
Article II Purchase and Sale of Shares....................................................................6
2.1 Purchase of Shares.............................................................................6
2.2 Purchase Price.................................................................................7
2.3 Closing........................................................................................7
2.4 Closing Deliveries.............................................................................7
Article III Representations and Warranties of Seller.......................................................9
3.1 Due Organization; Due Qualification............................................................9
3.2 Corporate Authority; Enforceability of Agreement...............................................9
3.3 No Violations; Third-Party Consents and Governmental Approvals.................................9
3.4 Capitalization of the Company; Title to Shares.................................................9
3.5 Subsidiaries..................................................................................10
3.6 Financial Statements..........................................................................10
3.7 No Undisclosed Liabilities....................................................................10
3.8 Absence of Certain Changes....................................................................11
3.9 Certain Assets................................................................................13
3.10 Contracts.....................................................................................13
3.11 Material Licenses and Permits.................................................................13
3.12 Employees and Employment Arrangements.........................................................13
3.13 Employee Benefit Plans........................................................................14
3.14 Compliance with Laws..........................................................................14
3.15 Litigation....................................................................................14
3.16 Environmental Matters.........................................................................15
3.17 Taxes.........................................................................................15
3.18 Insurance.....................................................................................16
3.19 Books and Records.............................................................................16
3.20 Broker's Fees.................................................................................16
3.21 Intercompany Services.........................................................................16
3.22 Real Property.................................................................................16
3.23 Intellectual Property Rights..................................................................16
3.24 Product Liability and Recalls.................................................................16
-i-
TABLE OF CONTENTS
Continued
Page
3.25 Customers and Suppliers........................................................................16
3.26 Inventory......................................................................................17
3.27 Notes and Accounts Receivables.................................................................17
3.28 Powers of Attorney.............................................................................17
3.29 Bank Accounts; Safe Deposit Boxes..............................................................17
3.30 Guaranties.....................................................................................17
3.31 Restrictions on Business Activities............................................................17
3.32 Monitoring Station.............................................................................17
3.33 Product Warranty...............................................................................18
3.34 RMR............................................................................................18
3.35 Federal Tax Identification Number..............................................................18
Article IV Representations and Warranties of Buyer........................................................18
4.1 Due Organization; Due Qualification............................................................18
4.2 Corporate Authority; Enforceability of Agreement...............................................18
4.3 No Violations; Third-Party Consents and Governmental Approvals.................................18
4.4 Adequate Financial Resources...................................................................19
4.5 Litigation.....................................................................................19
4.6 Investment Intent..............................................................................19
4.7 Broker's Fees..................................................................................19
Article V Covenants of Seller............................................................................19
5.1 Operations in Ordinary Course..................................................................19
5.2 Forbearance....................................................................................19
5.3 Access to Information..........................................................................21
5.4 Powers of Attorney.............................................................................21
5.5 Non-Competition and Non-Solicitation...........................................................21
5.6 No Negotiation or Solicitation.................................................................21
5.7 Conditions to Closing..........................................................................22
Article VI Covenants of Buyer.............................................................................22
6.1 Interference or Damage.........................................................................22
6.2 Conduct........................................................................................22
6.3 Conditions to Closing..........................................................................22
-ii-
TABLE OF CONTENTS
Continued
Page
6.4 Records........................................................................................22
Article VII Additional Agreements..........................................................................23
7.1 Trademarks.....................................................................................23
7.2 Confidentiality................................................................................24
7.3 Regulatory Approvals...........................................................................24
7.4 Third-Party Consents...........................................................................24
7.5 Expenses.......................................................................................24
7.6 "As Is" Purchase...............................................................................25
7.7 Extinguishment of Intercompany Accounts; Termination of Affiliate Transactions.................25
7.8 Employee Benefit Plans and Compensation Arrangements...........................................25
7.9 Transition Services and 401(k) Plans...........................................................26
7.10 Disclaimer Regarding Financial Data and Projections............................................27
7.11 Supplements to Disclosure Schedules............................................................27
Article VIII Closing Conditions...........................................................................27
8.1 General Closing Conditions.....................................................................27
8.2 Conditions to Buyer's Obligations..............................................................28
8.3 Conditions to Seller's Obligations.............................................................28
Article IX Termination of this Agreement..................................................................29
9.1 Events of Termination..........................................................................29
9.2 Effect of Termination..........................................................................29
9.3 Manner of Termination..........................................................................29
Article X Indemnification................................................................................30
10.1 Indemnification by Each Party..................................................................30
10.2 Indemnification by Seller......................................................................30
10.3 Indemnification by Buyer.......................................................................30
10.4 Certain Limitations; Liability Cap.............................................................30
10.5 Claims.........................................................................................31
10.6 Exclusive Remedy...............................................................................32
Article XI Tax Matters....................................................................................32
11.1 Section 338(h)(10) Election....................................................................32
-iii-
TABLE OF CONTENTS
Continued
Page
11.2 Tax Cooperation................................................................................32
11.3 Tax Records....................................................................................33
11.4 Tax Liability of Seller........................................................................33
11.5 Buyer's Liability for Taxes....................................................................34
11.6 Transfer Taxes.................................................................................34
11.7 Tax Sharing Agreements.........................................................................34
11.8 Tax Elections..................................................................................35
Article XII Miscellaneous..................................................................................35
12.1 Notices........................................................................................35
12.2 Entire Agreement...............................................................................36
12.3 No Assignment..................................................................................36
12.4 Binding Effect.................................................................................36
12.5 Incorporation by Reference.....................................................................36
12.6 Headings.......................................................................................36
.
12.7 Construction...................................................................................36
12.8 Severability...................................................................................36
12.9 Governing Law..................................................................................37
12.10 Dispute Resolution.............................................................................37
12.11 Cumulative Rights and Remedies.................................................................37
12.12 Waivers........................................................................................37
12.13 Counterpart Execution..........................................................................37
12.14 Amendment......................................................................................37
12.15 Further Actions................................................................................37
12.16 Waiver of Jury Trial...........................................................................37
-iv-
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of June 27, 2001, by and between Edison
Enterprises, a California corporation ("Seller"), and ADT Security Services, Inc., a Delaware corporation
("Buyer").
Recitals
WHEREAS, Edison Select, a California corporation (the "Company"), is a wholly owned subsidiary
of Seller;
WHEREAS, the Acquired Companies (as defined below) are principally engaged in the residential
security services business and the residential electrical warranty repair services business (such businesses as
they are currently conducted by the Acquired Companies being referred to herein as the "Business"); and
WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, Buyer wishes
to purchase from Seller, and Seller wishes to sell to Buyer, all of the issued and outstanding capital stock of
the Company (the "Shares");
NOW THEREFORE, in consideration for the mutual covenants, representations, warranties, and
agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Seller and Buyer hereby agree as follows:
Article I
Definitions
As used in this Agreement, the following capitalized terms shall have the meaning set forth
below:
"Acquired Companies" shall mean the Company and each of its Subsidiaries.
"Affiliate" shall mean, with respect to any specified Person, any other Person that directly
or indirectly controls or is controlled by or is under common control with such specified Person.
"Affiliated Group" shall mean any affiliated group within the meaning of Section 1504(a) of the
Code.
"Agreement" shall have the meaning set forth in the preamble hereof.
"Basket" shall have the meaning set forth in Section 10.4(b).
"Business" shall have the meaning set forth in the recitals hereto.
Page 1
"Business Day" shall mean any day that is not a Saturday, Sunday or other day on which banks
are required or authorized by law to be closed in Los Angeles, California.
"Buyer" shall have the meaning set forth in the preamble hereof.
"Cap" shall have the meaning set forth in Section 10.4(b).
"Central Stations" shall have the meaning set forth in Section 3.32.
"Claim" shall have the meaning set forth in Section 10.5.
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the recitals hereto.
"Confidentiality Agreement" shall mean that certain letter agreement between Seller and Buyer
regarding confidentiality and nondisclosure obligations.
"Customer Account Agreement" shall mean the Customer Account Services Agreement, dated as of
September 1998 and as amended, by and between Southern California Edison Company and the Company.
"Customer Contracts" shall mean any form contracts or other agreements between an Acquired
Company and its customers pursuant to which an Acquired Company is obligated to provide recurring services to
such customers in connection with the Business but excluding services such as (a) installation, repairs or
maintenance performed on a time and materials basis and (b) other nonrecurring services.
"Employees" shall have the meaning set forth in Section 7.8.
"Encumbrance" shall mean any security interest, pledge, mortgage, lien, charge or other
encumbrance of any kind.
"Environmental Law(s)" shall mean all Laws relating to the environment, natural resources, or
public or employee health and safety and includes, without limitation, the Comprehensive Environmental Response
Compensation and liability Act, 42 U.S.C.ss.9601 et seq., the Hazardous Materials Transportation Act, 49 X.X.X.xx.
1801 et seq., the Resource Conservation and Recovery Act, 42 X.X.X.xx. 6901 et seq., the Clean Water Act, 33
U.S.C. Sectionss.1251 et seq., the Clean Air Act, 42 U.S.C.ss.7401 et seq., the Toxic Substance Control Act, 15
U.S.C.ss.2601 et seq., the Oil Pollution Act of 1990, 33 X.X.X.xx. 2701 et seq., and the Occupational Safety and
Health Act, 29 U.S.C.ss.651 et seq., as such Laws have been amended or supplemented.
"Environmental Permits" shall have the meaning set forth in Section 3.16(a).
Page 2
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
"Existing Plans" shall have the meaning set forth in Section 7.8.
"Financial Statements" shall have the meaning set forth in Section 3.6.
"GAAP" shall mean generally accepted accounting principles as used in the United States of
America as in effect at the time any applicable financial statement was prepared.
"Governmental Authority" shall mean any United States federal, state or local, or any foreign
government, (a) governmental, regulatory or administrative authority, agency or commission or (b) court, tribunal
or judicial body.
"Governmental Order" shall mean any order, writ, injunction, decree, stipulation, determination
or award entered by or with any Governmental Authority.
"Guarantor" shall have the meaning set forth in the guarantee included on the signature page
hereto.
"Hazardous Substances" shall mean chemicals, pollutants, contaminants, wastes, and substances
that have been defined or regulated as toxic or hazardous by any applicable Environmental Laws, including,
without limitation, any flammable explosives, radioactive materials, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products (including, without limitation, waste petroleum and
petroleum products), and methane.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder.
"Indemnitee" shall have the meaning set forth in Section 10.5.
"Indemnitor" shall have the meaning set forth in Section 10.5.
"Independent Accounting Firm" shall mean (a) any "Big Five" accounting firm or its successor,
except for the respective independent public accounting firms of Seller, Buyer, and their respective Affiliates,
or (b) such other accounting firm upon which both parties hereto agree.
"Insurance Policies" shall have the meaning set forth in Section 3.18.
"Knowledge" shall mean (a) with respect to Seller, the actual knowledge (without independent
inquiry) of Xxxxxxx X. Xxxxx, President and Chief Operating Officer of the Company, or Xxxxx X. Xxxxxxxx,
Controller of the Company, and (b) with respect to Buyer, the actual knowledge (without independent inquiry) of
the executive officers of Buyer.
"Law" shall mean any statute, law, ordinance, regulation or rule of any Governmental Authority.
Page 3
"Leases" shall have the meaning set forth in Section 3.9(b).
"Liabilities" shall mean any and all liabilities and obligations, whether accrued, absolute,
known, unknown, contingent, matured or unmatured.
"License Expiration Date" shall have the meaning set forth in Section 7.1(c).
"Licenses and Permits" shall have the meaning set forth in Section 3.11.
"Losses" shall mean any and all losses, liabilities, damages, expenses, penalties, fines, and
other costs (including court costs, costs of investigation, and reasonable attorneys' fees).
"Material Adverse Effect" shall mean any material adverse effect on the Business or operations,
assets or financial condition of the Acquired Companies, taken as a whole, other than any effect on such
Business, operations, assets or financial condition (i) resulting from events, conditions or circumstances
generally affecting businesses similar to the Business, (ii) resulting from general economic conditions, or (iii)
resulting from the announcement or performance of this Agreement.
"Material Contracts" shall have the meaning set forth in Section 3.10(a).
"New Plans" shall have the meaning set forth in Section 7.8.
"Permitted Activities" shall mean (a) ownership of any class of Public Securities of a Person
not in excess of ten percent (10%) of such class, (b) any activities or actions in connection with the businesses
of Seller and its Affiliates (other than the Acquired Companies) as of the date hereof, or (c) any activities or
actions performed by a public utility in connection with the provision of electrical services.
"Permitted Liens" shall mean (a) statutory liens for current taxes, assessments or other
governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by
appropriate proceedings; (b) mechanics', carriers', workers' repairers', and similar liens arising or incurred in
the ordinary course of business that are not material to the business, operations or financial condition of the
property so encumbered; (c) zoning, entitlement, and other land use and environmental regulations by Governmental
Authorities; and (d) any immaterial imperfections in title, charges, easements, restrictions, and encumbrances.
"Person" shall mean any individual, partnership, firm, corporation, association, trust,
unincorporated organization, joint venture, limited liability company or other entity.
"Plan Claims" shall have the meaning set forth in Section 3.13(e).
"Plans" shall have the meaning set forth in Section 3.13(a).
"Public Securities" means any class of securities of a Person whose securities are traded on a
recognized securities exchange or through an automated quotation system of a registered securities association.
Page 4
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Recent Balance Sheet" shall have the meaning set forth in Section 3.6.
"Records" shall have the meaning set forth in Section 3.19.
"Regulatory Approvals" shall mean each approval, authorization, waiver, consent or notice of
the transactions contemplated by this Agreement required by applicable Law to be obtained from, or given to, any
Governmental Authority in connection with the transactions contemplated by this Agreement.
"Release" shall mean any past or present spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Substance into the
environment.
"RMR" shall mean the revenue to be derived by the Acquired Companies from all charges payable
to the Acquired Companies by their customers for any and all services to be furnished to such customers by an
Acquired Company during the month immediately following the date on which the calculation of RMR is made
(including, without limitation, alarm monitoring services, patrol services, armed response services, common
location guards, sentry services, warranty services, and OnCall services), but shall not include any revenues
derived from or which are expected to be derived from: (i) reimbursement for or prepayment of telephone line and
other utility company charges associated with the installation, monitoring, maintaining or furnishing of alarm
services or charges paid to third parties for the provision of central station monitoring service or wireless
transmission services; (ii) reimbursement for or prepayment of any false alarm assessments; (iii) reimbursement
for or prepayment of amounts equal to taxes, fees or other charges imposed by any Governmental Authority relative
to the furnishing of alarm services; (iv) non-recurring sentry or patrol services provided to a customer that are
paid for by such customer only if and to the extent such services are provided; (v) "locks", "keys", "runs" or
"time and materials" charges (as those terms are defined below), installation charges or any other like charges
that are receivable and/or expected to be derived by the Acquired Companies from services which are not provided
on a regular and recurring basis; (vi) any Customer Contract providing for the furnishing of monitored alarm
services which has not been "cut-in" (as defined below) at or prior to the close of business on the date of
determination of RMR; (vii) services to be provided under any Customer Contract as to which written notice of
termination has been received by an Acquired Company (irrespective of the effective date); or (viii) alarm
services to be provided under any Customer Contract as to which the customer is in arrears on any payments
pursuant to such contract for a period in excess of ninety (90) days from the due date thereof as of the date of
determination of RMR. For purposes of calculating RMR, it is agreed that if any customer submits payment on
other than a monthly basis then such payments required thereunder shall be recalculated on a monthly basis. For
example, if payment of $30.00 was required to be made quarterly, then the monthly sum would be $10.00 ($30.00
divided by 3). For purposes of this Agreement, "locks", "keys", "runs", and "time and materials" shall mean
non-recurring, non-regular services provided to a customer other than as part of the regular and recurring
services provided by the Acquired Companies and "cut-in" means the date on which an alarm system at a customer's
premises which is to be monitored
Page 5
at an off-premises facility is operational so that the customer may be charged for alarm services commencing as
of such date.
"Section 338(h)(10) Allocation" shall have the meaning set forth in Section 11.1(c).
"Section 338(h)(10) Elections" shall have the meaning set forth in Section 11.1(a).
"Section 338(h)(10) Forms" shall have the meaning set forth in Section 11.1(b).
"Seller" shall have the meaning set forth in the preamble hereof.
"Seller 401(k) Plan" shall have the meaning set forth in Section 7.9(b).
"Shares" shall have the meaning set forth in the recitals hereto.
"Subsidiary(ies)" shall mean the subsidiaries of the Company.
"Tax Return" shall mean any report of Taxes due, any claims for refund of Taxes paid, any
information return with respect to Taxes or any other similar report, statement, declaration or document required
to be filed under the Code or other tax Law, including any attachments, exhibits or other materials submitted
with any of the foregoing, and including any amendments or supplements to any of the foregoing.
"Taxes" shall mean federal, state, county, local, foreign, and other taxes (including, without
limitation, income, profits, premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, withholding, employment and payroll related, and property
taxes, import duties, and other governmental charges and assessments), whether or not measured in whole or in
part by net income, and including interest, additions to tax, and penalties with respect thereto.
"Tax Records" shall have the meaning set forth in Section 11.3.
"Trademarks" shall have the meaning set forth in Section 7.1(a).
"Transfer Taxes" shall have the meaning set forth in Section 11.6
Article II
Purchase and Sale of Shares
2.1 Purchase of Shares. Upon the terms and subject to the conditions set forth herein, at the Closing (as
defined herein), Seller shall sell and transfer the Shares to Buyer, and Buyer shall purchase the Shares from
Seller, in exchange for the Purchase Price (as defined herein).
Page 6
2.2 Purchase Price. The purchase price for the Shares (the "Purchase Price") shall be Two Hundred Twelve
Million Five Hundred Thousand Dollars ($212,500,000).
2.3 Closing. Upon the terms and subject to the conditions set forth herein, the closing of the purchase
and sale of the Shares (the "Closing") shall occur at 10:00 AM at the offices of the law firm of Xxxxxx, Xxxxxx &
Xxxxx LLP, 000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, on the second Business Day
following the satisfaction or waiver of all of the conditions set forth in Article VIII (other than conditions
designated to be satisfied at the Closing) or at such other place or at such other time as the parties hereto may
mutually agree (the date on which the Closing occurs being referred to herein as the "Closing Date"). Subject to
Article IX, any failure to consummate the purchase and sale of the Shares in accordance with the provisions of
this Agreement shall not result in the termination of this Agreement and shall not relieve any party hereto of
any obligation hereunder.
2.4 Closing Deliveries.
(a) Seller's Closing Deliveries. At the Closing, Seller shall deliver, or cause to be delivered, each of
the following to Buyer:
(i) stock certificates evidencing the Shares, duly endorsed in blank or accompanied by stock powers duly
executed in blank, in proper form for transfer;
(ii) a certificate executed by an executive officer of Seller, certifying (A) that each of Seller's
representations and warranties contained in this Agreement is true and
accurate in all material respects as if made on the Closing Date, except (1)
to the extent that any such representation or warranty is expressly stated
only as of a specified earlier date or dates such representation or warranty
shall be true and accurate as of such specified date or dates and (2) for
changes permitted or contemplated by this Agreement, and (B) that Seller has
complied in all materials respects with each of Seller's covenants and
obligations contained in this Agreement;
(iii) a certificate of the Secretary or an Assistant Secretary of Seller as to (A) the charter and bylaws of
Seller as in full force and effect as of the Closing, (B) the resolutions duly
adopted by the board of directors of Seller authorizing the execution,
delivery, and performance of this Agreement by Seller, which resolutions must
be in full force and effect as of the Closing, and (C) the incumbency and
signatures of the officers of Seller executing this Agreement and any
documents delivered by Seller at the Closing;
(iv) a certificate issued by the Secretary of State of the State of California, dated as of a recent date,
attesting to the good standing of Seller in the State of California;
Page 7
(v) a certificate issued by the Secretary of State of the State of California, dated as of a recent date,
attesting to the good standing of the Company in the State of California; and
(vi) a receipt certifying receipt of the Purchase Price from Buyer.
(b) Buyer's Closing Deliveries. At the Closing, Buyer shall deliver, or cause to be delivered, each of the
following to Seller:
(i) the full amount of the Purchase Price, in immediately available funds in the lawful money of the United
States of America, via wire transfer to one or more bank accounts designated
by Seller in advance by written notice to Buyer;
(ii) a certificate executed by an executive officer of Buyer, certifying (A) that each of Buyer's
representations and warranties contained in this Agreement is true and
accurate in all material respects as if made on the Closing Date, except (1)
to the extent that any such representation or warranty is expressly stated
only as of a specified earlier date or dates such representation or warranty
shall be true and accurate as of such specified date or dates and (2) for
changes permitted or contemplated by this Agreement, and (B) that Buyer has
complied in all materials respects with each of Buyer's covenants and
obligations contained in this Agreement;
(iii) a certificate of the Secretary or an Assistant Secretary of Buyer as to (A) the charter and bylaws of
Buyer as in full force and effect as of the Closing, (B) the resolutions duly
adopted by the board of directors of Buyer authorizing the execution,
delivery, and performance of this Agreement by Buyer, which resolutions must
be in full force and effect as of the Closing, and (C) the incumbency and
signatures of the officers of Buyer executing this Agreement and any documents
delivered by Buyer at the Closing;
(iv) a certificate issued by the Secretary of State of the State of Delaware, dated as of a recent date,
attesting to the good standing of Buyer in the State of Delaware; and
(v) a receipt certifying receipt of the Shares from Seller.
Page 8
Article III
Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer as follows:
3.1 Due Organization; Due Qualification. The Seller and each of the Acquired Companies is a corporation
duly organized, validly existing, and in good standing under its jurisdiction of incorporation. Each of the
Acquired Companies has the corporate power and corporate authority to carry on its businesses and to own its
assets. Each of the Acquired Companies is duly licensed or qualified to do business in each jurisdiction in
which its business or the character of the assets owned by it makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed would not have a Material Adverse Effect. Seller has
delivered, or caused to be delivered, to Buyer true and accurate copies of the articles of incorporation and the
bylaws of each of the Acquired Companies (including all amendments thereto).
3.2 Corporate Authority; Enforceability of Agreement. Seller has the corporate power and corporate
authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and
delivery by Seller of this Agreement and the performance by Seller of its obligations hereunder have been duly
authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and
delivered by Seller and, assuming due authorization, execution, and delivery of the same by Buyer, constitutes a
legal, valid, and binding agreement enforceable against Seller in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and other similar Laws
relating to or affecting creditors' rights generally and general equitable principles (whether considered in a
proceeding in equity or at law).
3.3 No Violations; Third-Party Consents and Governmental Approvals.
(a) Except as disclosed in Schedule 3.3(a), the execution, delivery, and performance by Seller of this
Agreement will not (i) violate, conflict with or result in a breach of any provision of the articles of
incorporation or bylaws of Seller or the Acquired Companies (including any amendments thereto), (ii) conflict
with or violate any Law or Governmental Order applicable to Seller or the Acquired Companies or any of their
respective assets or (iii) conflict with, result in any breach of or constitute a default (or an event which with
the giving of notice or lapse of time, or both, would become a default) under any Lease or Material Contract.
(b) Except as disclosed in Schedule 3.3(b) and for any applicable filings under the HSR Act, the execution,
delivery, and performance by Seller of this Agreement will not require any Regulatory Approvals.
3.4 Capitalization of the Company; Title to Shares.
(a) The duly authorized capital stock of the Company consists of ten thousand (10,000) shares of common
stock of which one hundred (100) shares are issued and outstanding and held beneficially and of record by
Seller. There are no shares of capital stock of the Company issued or outstanding other than the Shares. All of
the Shares are duly authorized,
Page 9
validly issued, fully paid, nonassessable, and free of preemptive rights. Other than the rights granted to Buyer
hereunder, there is no outstanding option, warrant, right, subscription, call, unsatisfied preemptive right or
other agreement or right of any kind to purchase or otherwise acquire from the Company any capital stock of the
Company.
(b) Seller is the record and beneficial owner of, and has good title to, the Shares. The transfer and
delivery of the Shares by Seller to Buyer as contemplated by this Agreement will transfer good title to the
Shares to Buyer, free and clear of all Encumbrances, except for Encumbrances arising from any action taken by
Buyer or its Affiliates.
3.5 Subsidiaries. Schedule 3.5 sets forth for each Subsidiary (a) the name of such Subsidiary, its
jurisdiction of its incorporation, and the jurisdiction in which it is authorized to conduct business as a
foreign corporation, (b) the number of shares of authorized capital stock of each class of its capital stock, (c)
the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof,
and the number of shares held by each such holder, and (d) its officers and the members of its Board of
Directors. All of the issued and outstanding shares of capital stock of each Subsidiary have been duly
authorized, validly issued, fully paid, nonassessable, and free of preemptive rights. Either the Company or one
of the Subsidiaries holds of record and owns beneficially all of the outstanding shares of each Subsidiary, free
and clear of all Encumbrances, except for Encumbrances arising from any action taken by Buyer or its Affiliates.
Other than the rights granted to Buyer hereunder, there is no outstanding option, warrant, right, subscription,
call, unsatisfied preemptive right or other agreement or right of any kind to purchase or otherwise acquire from
any of the Subsidiaries any capital stock of any of the Subsidiaries. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of any capital stock of any Subsidiary. None of
the Acquired Companies controls, directly or indirectly, or has any direct or indirect equity participation in
any corporation, partnership, trust or other business association which is not a Subsidiary.
3.6 Financial Statements. Seller has delivered, or caused to be delivered, to Buyer (a) an unaudited
balance sheet of the Company on a consolidated basis for the fiscal year ended on December 31, 2000, and an
unaudited income statement related thereto, and (b) an unaudited balance sheet of the Company on a consolidated
basis for the fiscal quarter ended on March 31, 2001 (the "Recent Balance Sheet"), and an unaudited income
statement related thereto (all such balance sheets and related income statements referred to in clause (a) and
(b) hereof being collectively referred to herein as the "Financial Statements"). Except as disclosed in Schedule
3.6, the Financial Statements have been prepared in accordance with GAAP and fairly present, in all material
respects, the financial condition of the Company as of their respective dates thereof and the results of
operations for the Company for the periods covered thereby.
3.7 No Undisclosed Liabilities. Except as disclosed in Schedule 3.7 or in the Recent Balance Sheet, there
are no material Liabilities of the Acquired Companies except:
(a) Liabilities that either are adequately reserved against or accrued for in the Recent Balance Sheet,
applying accounting principles routinely applied by Seller or the Company in the preparation of the Company's
financial statements;
Page 10
(b) Liabilities that are not required by GAAP to be included in financial statements;
(c) Liabilities incurred since the date of the Recent Balance Sheet in the ordinary course of business of
the Acquired Companies in amounts consistent with past practice; and
(d) Liabilities contemplated or permitted by this Agreement.
3.8 Absence of Certain Changes.
(a) As of the date hereof, other than as disclosed in Schedule 3.8 and other than for matters or changes
contemplated or permitted by this Agreement or relating to the execution of this Agreement or the transactions
contemplated by this Agreement, including, without limitation, the fact that Buyer will own and operate the
Acquired Companies following the Closing, since the date of the Recent Balance Sheet, there has not been:
(i) any action taken by an Acquired Company to accelerate the receipt of any of its accounts receivable or
to delay the payment of any of its obligations, other than in its ordinary course of business in amounts
consistent with past practice;
(ii) any purchase or commitment to purchase by an Acquired Company of any assets, other than in its ordinary
course of business in amounts consistent with past practice, or any capital expenditure or commitment for any
capital expenditure by the Acquired Companies in excess of $100,000 individually or $500,000 in the aggregate;
(iii) any sale, transfer, encumbrance or other disposition by an Acquired Company of any of its assets, other
than in its ordinary course of business in amounts consistent with past practice;
(iv) any incurrence, assumption or guarantee by an Acquired Company of any indebtedness, other than in its
ordinary course of business in amounts consistent with past practice;
(v) any execution, renewal, termination or material amendment by an Acquired Company of any Material
Contract, other than in its ordinary course of business;
(vi) any increase (either individually or in the aggregate) in the compensation of the directors, executive
officers, senior managers, or employees of an Acquired Company, other than in its ordinary course of business in
amounts consistent with past practice, or entry into, or amendment in a material respect of, the terms of any
employment agreement or incentive agreement with any such person;
(vii) any merger or consolidation of an Acquired Company with any other Person;
(viii) any change in an Acquired Company's accounting methods or practices;
Page 11
(ix) any event that has had a Material Adverse Effect;
(x) any payment, discharge or satisfaction of any individual Liability of an Acquired Company in excess of
$250,000, other than the payment, discharge or satisfaction, in its ordinary course of business, of Liabilities
incurred in the ordinary course of business (including, without limitation, health and property insurance
premiums);
(xi) except in the ordinary course of business, any assets (whether real, personal or mixed, tangible or
intangible) of an Acquired Company becoming subject to any Encumbrance (other than Permitted Liens);
(xii) any cancellation or waiver of any claims or rights of value, or any sale, lease, transfer, assignment,
distribution or other disposition of any material assets of an Acquired Company, except for sales in its ordinary
course of business, or any disposal of any material assets to another Acquired Company;
(xiii) any disposition of current customer lists by an Acquired Company;
(xiv) any elimination of any reserves established on the Company's books or any changing of the method of
accrual by an Acquired Company, unless there was a change of facts or circumstances pertaining to any reserves
which would justify their elimination;
(xv) any agreement by an Acquired Company to do any of the things described in the foregoing;
(xvi) casualties, damages, destruction and losses which exceed $500,000 in aggregate; or
(xvii) any change, event or development which, when viewed individually or in the aggregate with all such
changes, events, and developments, would have a Material Adverse Effect.
(b) As of the date hereof, other than as disclosed in Schedule 3.8 and other than for matters or changes
contemplated or permitted by this Agreement or relating to the execution of this Agreement or the transactions
contemplated by this Agreement, including, without limitation, the fact that Buyer will own and operate the
Acquired Companies following the Closing, since the date of the Recent Balance Sheet, no Acquired Company has:
(i) authorized for issuance, issued, delivered or sold any equity securities of an Acquired Company, or
altered the terms of any outstanding securities issued by it or increased its indebtedness for borrowed money; or
(ii) declared, paid or set aside for payment any dividend or other distribution (whether in cash, stock or
property or otherwise) in respect of any Shares or redeemed, purchased or otherwise acquired any Shares, any
securities convertible into or exchangeable for any Shares, or any options, warrants or other rights to purchase
or subscribe to any of the foregoing (and no dividends are or will be owed to any holder of Shares).
Page 12
3.9 Certain Assets.
(a) Fixed Assets. Schedule 3.9(a) lists all material fixed assets owned by the Acquired Companies as
reflected on the Recent Balance Sheet. Except as disclosed in Schedule 3.9(a), the Acquired Companies have good
title to all such fixed assets (except as disposed of since such date in the ordinary course of business of the
Acquired Companies in amounts consistent with past practice), and all material fixed assets acquired since such
date, free and clear of any Encumbrances, other than Permitted Liens.
(b) Leasehold Interests. Schedule 3.9(b) lists all real property leases to which an Acquired Company is a
party (collectively, the "Leases"), and the Company has delivered or made available to Buyer copies of all of
such Leases. Each of the Leases is legal, valid, binding, and in full force and effect. No Acquired Company has
received any written notice of breach or default of any material term thereunder.
3.10 Contracts.
(a) Material Contracts. Schedule 3.10(a) sets forth all contracts and agreements (other than the Leases)
requiring an Acquired Company to make specified annual payments of $100,000 or more that are not terminable by
such Acquired Company upon ninety (90) or fewer days' notice (collectively, the "Material Contracts"). To
Seller's Knowledge, each of the Material Contracts is legal, valid, binding, and in full force and effect. No
Acquired Company has received any written notice of breach or default of any material term thereunder.
(b) Form of Customer Contracts. Substantially all of the Customer Contracts currently in effect are in
substantially the form of one or more of the form contracts collectively provided herewith as part of Schedule
3.10(b).
3.11 Material Licenses and Permits. Except as disclosed in Schedule 3.11, the Acquired Companies have all
licenses, permits, franchises, approvals, authorizations, and registrations (collectively, the "Licenses and
Permits") necessary for the conduct of the Business, except where the lack of such Licenses and Permits would not
have a Material Adverse Effect. No Acquired Company is in violation of or default under any Licenses or Permits,
which violation or default would individually or in the aggregate have a Material Adverse Effect or would
interfere materially with the consummation of the transactions contemplated hereby. Schedule 3.11 lists all
Licenses and Permits held by the Acquired Companies, and except as set forth on Schedule 3.11, all such Licenses
and Permits are in full force and effect as of the date hereof.
3.12 Employees and Employment Arrangements. Schedule 3.12 lists all employees of the Acquired Companies as
of May 25, 2001 by job title (excluding the names of such employees) and, for each such employee, his or her (i)
compensation type (salary or commission), (ii) total compensation in calendar year 2001 through May 25, 2001, and
(iii) annual compensation in calendar year 2000. Except as disclosed on Schedule 3.12 and 3.13(a), no Acquired
Company has any obligations, contingent or otherwise, under (a) any employment, collective bargaining or other
labor agreement, (b) any agreement containing severance or termination pay arrangements or any agreement
containing any provision for
Page 13
payment upon or related to a change in control or other disposition event of an Acquired Company, (c) any
deferred compensation agreement, retainer or consulting arrangements or (d) any pension or retirement plan, bonus
or profit-sharing plan, or stock option or stock purchase plan.
3.13 Employee Benefit Plans.
(a) Schedule 3.13(a) lists all "employee welfare benefit" or "employee pension benefit" plans relating to
the employees of the Acquired Companies, as such plans are defined in Sections 3(1) and 3(2), respectively, of
ERISA (collectively, the "Plans"), under which the Acquired Companies, with respect to any employee, former
employee or beneficiary of the Acquired Companies, have any obligation. The Company has furnished or made
available to the Buyer true and correct copies of instruments evidencing all such Plans, all as amended to the
date hereof.
(b) Except as disclosed in Schedule 3.13(b), no employee benefit plans of any type (including, without
limitation, the Plans) are maintained by an Acquired Company, and no Acquired Company is obligated to contribute
to any "multiemployer plan" (within the meaning of section 4001(a)(3) of ERISA). No Acquired Company is in
default under or in violation of any such plan or arrangement, except where such default or violation would not
have a Material Adverse Effect. Each of the employee benefit plans identified on Schedule 3.13(b) as a plan
qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS, and no
event has occurred since the date of such letter that will cause such plan to lose its qualified status.
(c) Except with respect to the Plans, no Acquired Company has any liability with respect to any "welfare
plan" (as defined in section 3(l) of ERISA) that provides benefits to retired employees (other than as required by
section 601 of ERISA). With respect to any welfare plan disclosed in Schedule 3.13(a) that provides benefits to
retired employees, the Company has reserved the right to amend or terminate such plan.
(d) Each of the Acquired Companies is in compliance in all material respects with all applicable Laws
respecting employment and employment practices, terms and conditions of employment and wages and hours.
(e) Other than routine claims for benefits made in the ordinary course of business, there are no pending
claims, investigations or causes of action which, if adversely determined, would have a Material Adverse Effect
(such claims, investigations or causes of action, the "Plan Claims") and, to Seller's Knowledge, no such Plan
Claims are threatened against any of the Plans or fiduciary of any such Plan by any participant, beneficiary or
Governmental Authority with respect to the qualification or administration of any such Plan.
3.14 Compliance with Laws. To Seller's Knowledge, the Acquired Companies have conducted the Business in all
material respects in accordance with all applicable material Laws.
3.15 Litigation. Except as disclosed in Schedule 3.15, there is no suit, action, litigation, claim or other
similar proceeding, or investigation pending or, to Seller's Knowledge,
Page 14
threatened before any Governmental Authority against an Acquired Company or its assets, which, if adversely
determined, would have a Material Adverse Effect, and there is no outstanding Governmental Order imposed upon
Seller or an Acquired Company with respect to the Business, or which challenges the validity of the transactions
contemplated by this Agreement.
3.16 Environmental Matters.
(a) Except as disclosed in Schedule 3.16, (i) each Acquired Company (A) has obtained all material permits
that are required under applicable Environmental Laws for the lawful operation of its Business (the
"Environmental Permits"), (B) is in compliance in all material respects with all terms and conditions of its
Environmental Permits, and (C) is in compliance with applicable Environmental Laws, and (ii) no Acquired Company
has received written notice of any material violation by or material claim against it under any Environmental Law.
(b) Except as disclosed in Schedule 3.16, there have been no Releases, or, to Seller's Knowledge, threatened
Releases, of any Hazardous Substances into, on or under any of the properties owned or operated (or formerly
owned or operated) by an Acquired Company, in such a way as to create any material Liability under any applicable
Environmental Law.
(c) Except as disclosed in Schedule 3.16, none of the Acquired Companies have been identified as a
potentially responsible party at any federal or state "superfund" site.
3.17 Taxes. Except as disclosed in Schedule 3.17:
(a) Each Acquired Company has filed all Tax Returns that it was required to file, all such Tax Returns are
true, complete, and correct, and all Taxes shown thereon as owing have been paid.
(b) No Acquired Company has waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(c) No Acquired Company has been a member of an Affiliated Group filing a consolidated federal income Tax
Return other than a group the common parent of which is Edison International, a California corporation.
(d) No Acquired Company is a party to any pending action or proceeding for the assessment or collection of
any Taxes, and no claim in writing for the assessment or collection of any Taxes has been asserted against an
Acquired Company, which has not been settled with all amounts due having been paid.
(e) No Acquired Company is a party to any agreement, arrangement, or practice for the sharing of Taxes or is
obligated to indemnify any other party for Taxes.
(f) There are no outstanding rulings of, or requests for rulings with, any Tax authority addressed to any of
the Acquired Companies that are, or if issued, would be, binding on any of the Acquired Companies after the
Closing Date.
Page 15
3.18 Insurance. Schedule 3.18 sets forth all of the insurance policies benefiting the Acquired Companies
with respect to the Business (collectively the "Insurance Policies"). All of the Insurance Policies are in full
force and effect. No notice of cancellation or material amendment has been received with respect to any of the
Insurance Policies. Except as otherwise set forth on Schedule 3.18, the Acquired Companies will not be entitled
to the benefit of the Insurance Policies following the Closing. None of the Acquired Companies have been denied
insurance or suffered the cancellation of any insurance with respect to it in the prior two (2) years.
3.19 Books and Records. Seller has made available, or caused to be made available, to Buyer the books of
account, minute books, stock record books, and other similar records of the Acquired Companies (collectively, the
"Records").
3.20 Broker's Fees. Except for Xxxxxx Brothers Inc., whose fees shall be paid by Seller, no broker, finder,
creditor or investment banker is entitled to any brokerage, finder's, commitment or other fee or commission in
connection with the transactions contemplated by this Agreement based upon any arrangement made by or on behalf
of Seller or its Affiliates.
3.21 Intercompany Services. Schedule 3.21 sets forth the material support and other services provided to
the Acquired Companies by Seller and its Affiliates. Except as otherwise indicated on Schedule 3.21, none of
such services will be provided to the Acquired Companies by Seller or its Affiliates following the Closing.
3.22 Real Property. Schedule 3.22 lists all real property owned by the Acquired Companies. There is no
condemnation pending or, to Seller's Knowledge, threatened affecting such real properties.
3.23 Intellectual Property Rights. Except as disclosed in Schedule 3.23., to Seller's Knowledge, (a) no
products designed or manufactured by the Acquired Companies infringe any intellectual property rights held, owned
or used by any third party, and (b) none of the intellectual property rights in such products are being infringed
upon by others or used by others, whether or not such use constitutes infringement, or has been the subject of
dispute, whether or not resulting in litigation.
3.24 Product Liability and Recalls. Except as disclosed in Schedule 3.24, (a) there is no claim, action,
suit, inquiry, proceeding or investigation in any case by or before any Governmental Authority pending or, to
Seller's knowledge, threatened, against or involving an Acquired Company relating to any product alleged to have
been designed or manufactured by an Acquired Company and alleged to have been defective or improperly designed or
manufactured, and (b) no Acquired Company has received written notice of any claim, action, suit, inquiry,
proceeding or investigation in any case by or before any Governmental Authority pending against or involving an
Acquired Company relating to any product alleged to have been sold by an Acquired Company and alleged to have
been defective or improperly designed or manufactured.
3.25 Customers and Suppliers. Schedule 3.25 lists the ten (10) largest customers of the Acquired Companies
(identified by customer number), by dollar amount of
Page 16
revenue billed for the twelve (12) months ended March 31, 2001 and the ten (10) largest suppliers of the Acquired
Companies, by dollar amount paid for the twelve (12) months ended March 31, 2001.
3.26 Inventory. The inventory as reflected in the Recent Balance Sheet is carried at an amount not in excess
of the lower of cost or net realizable value. Subject to inventory valuation reserves, such inventory is
merchantable and fit for the purpose for which it was procured or manufactured, and none of such inventory is
obsolete, damaged, or defective, or not usable or saleable in the ordinary course of business of the Acquired
Companies.
3.27 Notes and Accounts Receivables. Except as disclosed in Schedule 3.6, all notes and accounts receivable
of the Acquired Companies are reflected properly on their respective books and records in accordance with the
Company's accounting policies, a copy of which has been delivered or made available to Buyer.
3.28 Powers of Attorney. Except as disclosed in Schedule 3.28, there are no powers of attorney executed on
behalf of the Acquired Companies.
3.29 Bank Accounts; Safe Deposit Boxes. Schedule 3.29 lists each account with any bank, trust company,
securities broker or other financial institution with which an Acquired Company has any account, the identifying
numbers thereof, and the name of each person authorized to draw thereon. For the avoidance of doubt, as of the
Closing Date, all funds in all such accounts shall be transferred to Seller as contemplated in the last sentence
of Section 5.2. No Acquired Company maintains a safety deposit box with any bank, trust company or other
financial institution.
3.30 Guaranties. Except as disclosed in Schedule 3.30, no Acquired Company is a guarantor for any Liability
of any third party.
3.31 Restrictions on Business Activities. Except for this Agreement or as disclosed in Schedule 3.31, to
Seller's Knowledge, there is no agreement, judgment, injunction, order or decree binding upon an Acquired Company
which would have the effect of prohibiting or impairing in a material respect any business practice of the
Acquired Companies, acquisition of property by the Acquired Companies or the conduct of business by the Acquired
Companies as currently conducted by the Acquired Companies.
3.32 Monitoring Station. The Acquired Companies provide alarm monitoring services for their customers
through the Company's central monitoring stations located in Fresno, San Dimas and Santa Monica, California (the
"Central Stations"). Except as disclosed in Schedule 3.32, (a) the Central Stations are operated in conformity
with current Underwriters' Laboratory and all applicable insurance rating organization's standards, (b) no
deficiency reports have been issued by Underwriters' Laboratory or by any other applicable insurance rating
organizations relating to the operations of the Central Stations, (c) all fire inspections required pursuant to
customer agreements or Underwriters' Laboratory or other applicable insurance rating organization's standards
relating to certified fire alarm systems installed at the premises of customers of the Acquired Companies have
been performed, if and to the extent required thereunder, (d) no deficiency reports have been issued by
Underwriters' Laboratory or by any
Page 17
other applicable insurance rating organizations relating to the operations of the Central Stations, and (e) the
alarm systems for which certificates have been issued by applicable insurance rating organizations comply in
all material respects with the Underwriters' Laboratory or other applicable insurance rating organization's
specifications and standards for such systems.
3.33 Product Warranty. No product manufactured or sold by an Acquired Company is subject to any guaranty or
warranty, other than guaranties or warranties (i) under standard terms and conditions of sale, (ii) under
applicable Laws, (iii) provided pursuant to Edison OnCall services, or (iv) separately purchased by customers
(e.g., extended warranties).
3.34 RMR. As of the date hereof, the RMR of the Company on a consolidated basis is no less than $9,100,000.
3.35 Federal Tax Identification Number. The Company's Federal Tax Identification Number is 00-0000000.
Article IV
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller as follows:
4.1 Due Organization; Due Qualification. Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of Delaware.
4.2 Corporate Authority; Enforceability of Agreement. Buyer has the corporate power and corporate
authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and
delivery by Buyer of this Agreement and the performance by Buyer of its obligations hereunder have been duly
authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and, assuming due authorization, execution, and delivery of the same by Seller, constitutes a
legal, valid, and binding agreement enforceable against Buyer in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and other similar Laws
relating to or affecting creditors' rights generally and general equitable principles (whether considered in a
proceeding in equity or at law).
4.3 No Violations; Third-Party Consents and Governmental Approvals.
(a) The execution, delivery, and performance by Buyer of this Agreement will not (i) violate, conflict with
or result in a breach of any provision of the articles of incorporation or bylaws of Buyer (including any
amendments thereto), (ii) to Buyer's Knowledge, conflict with or violate any Law or Governmental Order applicable
to Buyer or any of its assets or (iii) conflict with, result in any breach of or constitute a default (or an
event which with the giving of notice or lapse of time, or both, would become a default) under any contract,
agreement, indenture, note, bond, mortgage, lease, license or permit to which Buyer is a party or by which any of
such assets is bound or affected.
Page 18
(b) Except for any applicable filings under the HSR Act, the execution, delivery, and performance by Buyer
of this Agreement will not require any Regulatory Approvals or the affirmative consent or approval of any
nongovernmental third party.
4.4 Adequate Financial Resources. Buyer has cash, marketable securities, and lines of credit available in
an aggregate amount sufficient to permit Buyer to pay to Seller the full Purchase Price in connection with the
purchase of the Shares from Seller and to otherwise consummate the transactions contemplated by this Agreement.
4.5 Litigation. Buyer is not a party to any, and there are no pending or, to Buyer's Knowledge, overtly
threatened, legal, administrative, arbitration or other proceedings, claims, actions or governmental or
regulatory investigations of any nature against Buyer challenging the validity of the transactions contemplated
by this Agreement or which, if, adversely determined, individually or in the aggregate, would have a material
adverse effect on Buyer or its ability to consummate the transactions contemplated by this Agreement, and there
is no Governmental Order imposed upon Buyer which challenge the validity of the transactions contemplated by this
Agreement or which would have a material adverse effect on Buyer or its ability to consummate the transactions
contemplated by this Agreement.
4.6 Investment Intent. Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act of 1933, as amended.
4.7 Broker's Fees. No broker, finder, creditor or investment banker is entitled to any brokerage, finder's,
commitment or other fee or commission in connection with the transactions contemplated by this Agreement based
upon any arrangement made by or on behalf of Buyer or its Affiliates.
Article V
Covenants of Seller
5.1 Operations in Ordinary Course. Between the date hereof and the Closing Date, Seller shall cause the
Acquired Companies to carry on the Business in the ordinary course and will use its commercially reasonable
efforts, consistent with past practices, to preserve existing relationships with vendors, customers, and others
who have business relationships related to the Business.
5.2 Forbearance. Except as disclosed in Schedule 5.2 or as otherwise contemplated by this Agreement
(including, without limitation, Section 7.1), between the date hereof and the Closing Date, Seller shall not,
with respect to the Business, without the prior consent of Buyer, permit an Acquired Company to:
(a) take any action to accelerate the receipt of any of its accounts receivable or to delay the payment of
any of its obligations, other than in its ordinary course of business in amounts consistent with past practice;
Page 19
(b) make any purchase of or commitment to purchase any assets, other than in its ordinary course of business
in amounts consistent with past practice, or make any capital expenditure or commitment for any capital
expenditure in excess of $100,000 individually or $500,000 in the aggregate;
(c) sell, transfer, encumber or otherwise dispose of any of its assets, other than in its ordinary course of
business in amounts consistent with past practice;
(d) incur, assume or guarantee any indebtedness, other than in its ordinary course of business in amounts
consistent with past practice;
(e) execute, renew, terminate or materially amend any Material Contract, other than in its ordinary course
of business;
(f) increase (either individually or in the aggregate) the compensation of any of its directors, executive
officers, senior managers, or employees, except for increases in its ordinary course of business in amounts
consistent with past practice, or otherwise enter into or amend in a material respect any employment, consulting,
or other personal services agreement;
(g) merge or consolidate with any other Person;
(h) change its accounting methods or practices;
(i) incur any individual Liability in excess of $250,000, except in its ordinary course of
business consistent with past practice (including, without limitation, employee payroll and benefits, Taxes,
payments under the Leases, software licenses, and health and property insurance premiums);
(i) incur any Encumbrances, except Permitted Liens, on any of its material assets;
(j) terminate any of its employees, except for terminations which Seller reasonably determines is "for
cause";
(k) alter any profit sharing, deferred compensation, bonus, stock option, stock purchase, pension,
retirement, or incentive plan of the Acquired Companies in a manner that affects in a material respect employees
thereof, or commence or enter into any such plan for the benefit of employees of the Acquired Companies; or
(l) enter into an agreement to do any of the things described in the foregoing.
Notwithstanding the foregoing, from the date hereof until the Closing, Seller shall have the right, without
notice to, or consent of, the Buyer, to cause the Acquired Companies to distribute all cash and cash equivalents
(including, without limitation, certificates of deposit and other marketable securities) to Seller, including,
without limitation, all cash and cash equivalents recorded on the Recent Balance Sheet; provided, that, the
Acquired Companies shall retain all insurance proceeds and condemnation awards attributable to any losses
incurred by the Acquired Companies after the date hereof.
Page 20
5.3 Access to Information. During the period prior to the Closing, upon reasonable advance notice by
Buyer, Seller shall cause the Company to afford Buyer access during normal business hours to the properties,
contracts, commitments, personnel, and Records associated with the Business as Buyer may reasonably request;
provided, that, Buyer shall not have access to any data or other information that identifies any customers of the
Company; provided, further, that Seller shall at all times have the right to monitor and control such access as
necessary or desirable to ensure that such access does not disturb or interfere with the normal operations of the
Business or the Acquired Companies.
5.4 Powers of Attorney. All powers of attorney authorizing any party to represent an Acquired Company with
respect to Taxes shall be terminated on or before the Closing Date or limited to Tax periods ending on or before
the Closing Date.
5.5 Non-Competition and Non-Solicitation.
(a) Seller agrees that, as part of the consideration for the payment by Buyer of the Purchase Price, for a
period of five (5) years immediately following the Closing Date, neither Seller nor any of its Affiliates will,
directly or indirectly, operate, perform, have any interest in or otherwise be engaged in a business which
develops, manufactures, sells, installs or distributes products or performs services in competition with the
Business. For purposes of this Section 5.5, notwithstanding anything to the contrary herein, the term "Business"
shall not include any Permitted Activities.
(b) Seller agrees that for a period of five (5) years immediately following the Closing Date, neither Seller
nor any of its Affiliates will, directly or indirectly, either for themselves or for any other Person, hire or
solicit the employment of, or induce any employee of an Acquired Company as of the Closing Date to terminate his
or her employment with Buyer or any of its Affiliates and to work in a business that competes with the Business;
provided, that, notwithstanding the foregoing, (i) Seller and its Affiliates may solicit for purposes of
employment any person through general advertising or other general solicitation not targeted to employees of
Buyer and its Affiliates and any offer of employment to, or hiring of, such person resulting from such a
solicitation shall be permitted under this Section 5.5(b), and (ii) Seller and its Affiliates may solicit or hire
any such person if such person is no longer employed by Buyer or any of its Affiliates.
(c) Seller acknowledges that the restrictions on the activities of Seller and its Affiliates under this
Section 5.5 constitute a material inducement to Buyer's entering into and performing under this Agreement.
Seller further acknowledges and agrees that a breach of any of its obligations under this Section 5.5 will result
in irreparable harm and continuing damage to Buyer for which there will be no adequate remedy at law and further
agrees that in the event of any breach of said obligations and agreements, Buyer will be entitled to injunctive
relief and to such other relief as is proper under the circumstances.
5.6 No Negotiation or Solicitation. Prior to the Closing Date, each of Seller and Guarantor will not, and
each will cause its employees, officers and agents not to, (a) directly or indirectly solicit, initiate,
entertain or encourage the submission of any proposal or offer from any third person relating to the direct or
indirect acquisition of any of the capital stock or any
Page 21
assets of the Acquired Companies, except in ordinary course of business of the Acquired Companies, or (b)
participate in any discussions or negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate any effort or attempt by any third person to do or seek any of the foregoing.
Seller will notify Buyer if any third person makes any proposal, offer, inquiry or contact with respect
to any of the foregoing within two (2) Business Days after receipt of any such offer or proposal.
5.7 Conditions to Closing. Seller shall use its commercially reasonable efforts to satisfy, as
expeditiously as reasonably possible, all of the conditions to the obligations of Buyer hereunder within Seller's
control.
Article VI
Covenants of Buyer
6.1 Interference or Damage. Between the date hereof and the Closing Date, Buyer shall not interfere with
the Acquired Companies' normal operations or relations with their customers, vendors or employees. Any
communication from Buyer to any customer, vendor or employee of the Acquired Companies regarding the transactions
contemplated by this Agreement shall be subject to Seller's prior written approval in each instance.
6.2 Conduct. Between the date hereof and the Closing Date, Buyer and its Affiliates shall not undertake,
and shall cause its agents, dealers and other representatives not to undertake, any marketing or advertising
efforts specifically directed toward customers of the Acquired Companies.
6.3 Conditions to Closing. Buyer shall use its commercially reasonable efforts to satisfy, as
expeditiously as reasonably possible, all of the conditions to the obligations of Seller hereunder within Buyer's
control.
6.4 Records. Buyer shall maintain all Records for not less than five (5) years following the Closing Date;
provided, that, all Tax Records shall be maintained in accordance with Section 11.3. After the Closing Date,
Buyer shall promptly provide such copies of the Records for the periods prior to the Closing as Seller reasonably
requests; provided, however, that from and after one hundred eighty (180) days after the Closing Date, Seller
shall reimburse Buyer for its actual out-of-pocket costs incurred in connection therewith.
Page 22
Article VII
Additional Agreements
7.1 Trademarks.
(a) Notwithstanding anything herein to the contrary (including, without limitation, Section 5.2), at any
time on or prior to the Closing, Seller shall have the right to cause the Acquired Companies to transfer to
Seller, with or without consideration, any and all of their interest in the names "Edison," "Edison Select,"
"Edison Security," "Edison OnCall" and in the other trademarks, trade names, service marks, names and logos
presently or previously used by the Acquired Companies or their Affiliates (collectively, the "Trademarks").
(b) Buyer acknowledges that, except as provided in subsection (c) below, Seller is not selling, transferring
or otherwise conveying to Buyer any right to use, or interest in, any of the Trademarks.
(c) In the event Seller exercises its right to cause the Acquired Companies to transfer the Trademarks to
Seller prior to the Closing, Seller hereby licenses to the Company, effective as of the Closing, the right to use
the Trademarks to the extent necessary to permit the Acquired Companies to transition following the Closing to
the use of trademarks, trade names, service marks, names and logos in the Business other than the Trademarks.
Such license shall terminate automatically six months after the Closing Date (such termination date being
referred to herein as the "License Expiration Date"), and neither Buyer nor the Acquired Companies nor any of
their respective Affiliates shall have any right thereafter to use in any manner any of the Trademarks or any
other trademark, trade name, service xxxx, name or logo that could be confusingly similar to any of the
Trademarks.
(d) Buyer shall take all actions necessary to change, and to cause the Acquired Companies to change, as soon
as commercially practicable after the Closing, but in no event later than the License Expiration Date, the name
of the Company, Edison Security Corp., and Edison Home Protection Company to names that do not include the name
"Edison" or any variant thereof. In addition, Buyer shall, as soon as commercially practicable after the Closing,
but in no event later than the License Expiration Date, cause the Acquired Companies to (i) discontinue all use
of the Trademarks, (ii) dispose of or alter all items bearing any of the Trademarks such that such items no
longer bear such Trademarks, and (iii) cease the use of the Trademarks on all documents, yard signs, advertising,
billing, and other materials associated with the Acquired Companies. With respect to yard signs and other
promotional materials bearing the Trademarks that are displayed by customers of the Acquired Companies, from and
after the Closing Date Buyer shall cause the Acquired Companies to replace such yard signs and materials in their
ordinary course of business as services are performed for such customers.
Page 23
7.2 Confidentiality.
(a) Unless and until the Closing has been consummated, Buyer and its officers, employees, counsel,
accountants, and other representatives shall hold in strictest confidence, and shall not distribute, transmit or
use any of the data and information obtained from Seller or developed by Buyer in connection with the
transactions contemplated by this Agreement except in furtherance of the Closing. Upon termination of this
Agreement for any reason, Buyer shall return to Seller all such data and information. Buyer's obligations under
this section are in addition to its obligations under the Confidentiality Agreement.
(b) For a period of three (3) years from the Closing Date, each of the parties hereto and their respective
officers, employees, counsel, accountants, and other representatives shall hold in strictest confidence, and
shall not disclose the terms and conditions of this Agreement, including the consideration to be paid hereunder
and the structure of the transactions contemplated by this Agreement, except to the extent that such information
is required to be disclosed by applicable Law or a Governmental Authority and except for mutually agreed upon
releases of information.
(c) Through the Closing, Buyer and Seller each shall coordinate with each other in advance as to the form
and content of (i) any communication intended for dissemination to the public or the customers of the Acquired
Companies regarding the transactions contemplated by this Agreement and (ii) any application made to any
Governmental Authority relating to the transactions contemplated by this Agreement. Neither party shall
disseminate any such communication without the prior written approval of the other, which approval shall not be
unreasonably withheld or delayed, except that nothing contained herein shall prevent any party hereto from making
any and all public disclosures that such party believes to be advisable to make, based upon the advice of
counsel, to comply with any applicable securities Law or request or application requirement of any Governmental
Authority.
7.3 Regulatory Approvals. Seller and Buyer shall cooperate in preparing, submitting, filing, and updating
all Regulatory Approvals as may be required by applicable Law with respect to the transactions contemplated by
this Agreement, and shall make an appropriate filing pursuant to the HSR Act with respect to the transactions
contemplated by this Agreement as promptly as practicable (but in any event no later than eight (8) Business Days
following the date hereof). Seller and Buyer shall use their commercially reasonable efforts to obtain all
Regulatory Approvals and accomplish all such actions as expeditiously as possible. Each party hereto shall
notify the other party promptly of any significant development with respect to any application, notification or
similar filing under this section.
7.4 Third-Party Consents. Seller shall seek to obtain the consents of any nongovernmental third parties
whose consent is required to consummate the transactions contemplated by this Agreement. Notwithstanding
anything herein to the contrary, the receipt of such consents shall not constitute a condition to the Closing nor
shall the failure to obtain any such consents result in any reduction of the Purchase Price.
7.5 Expenses. Regardless of whether the transactions contemplated by this Agreement are consummated, and
except as otherwise provided herein, all costs and expenses
Page 24
incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the
party hereto incurring such expenses.
7.6 "As Is" Purchase. Buyer acknowledges that it will, subject to Seller's express representations,
warranties, covenants, and obligations hereunder, acquire the Acquired Companies in "AS IS" condition, with all
faults, in reliance upon Buyer's inspection thereof. Except as otherwise expressly set forth in this Agreement,
and without limiting Seller's express representations and warranties, Seller makes no representations or warranty
of any kind whatsoever with respect to any of the assets or Liabilities of the Acquired Companies, whether
express or implied, including, without limitation, any representations or warranties concerning or with respect
to (i) the value, nature, quality of condition, or state of repair of any of the Acquired Companies' assets;
(ii) the compliance of the Acquired Companies, or any real property owned or leased by an Acquired Company, or the
operation of any facilities of the Acquired Companies, with any Laws; or (iii) the habitability, merchantability,
marketability, profitability or fitness for a particular purpose of any personal or real property owned or leased
by an Acquired Company. Buyer hereby expressly disclaims the implied warranty of habitability, the implied
warranty of merchantability, the implied warranty of fitness for a particular purpose, and all express or implied
warranties relating to the quality of or otherwise relating to the physical condition of the assets of the
Acquired Companies.
7.7 Extinguishment of Intercompany Accounts; Termination of Affiliate Transactions.
(a) On or prior to the Closing, except as set forth on Schedule 7.7(a), Seller (i) shall cause the Acquired
Companies to pay, and satisfy in full all obligations of the Acquired Companies payable to Seller and its
Affiliates and (ii) shall pay and satisfy in full all obligations payable to the Acquired Companies by Seller and
its Affiliates; it being understood that as of the Closing (A) except as set forth in Schedule 7.7(b) and for
obligations under this Agreement, no Acquired Company, on the one hand, or Seller or its Affiliates, on the other
hand, shall have any obligation to the other, and (B) all cash and cash equivalents of the Acquired Companies
shall have been distributed as contemplated in the last sentence of Section 5.2.
(b) Except as set forth on Schedule 7.7(b), all support and other services provided by Seller and its
Affiliates to the Acquired Companies shall terminate on or prior to the Closing Date.
7.8 Employee Benefit Plans and Compensation Arrangements.
(a) As of the Closing, the employees of the Acquired Companies will cease to participate in any existing
bonus and other incentive plans or programs, including deferred bonus plans or programs, that provide benefits to
employees or former employees of the Acquired Companies, and Seller shall settle with such persons all
liabilities and obligations relating to their participation in such plans or programs in accordance with the
terms of such plans. Seller shall hold Buyer and any entity required to be combined with Buyer (within the
meaning of Sections 414(b), (c), (m) or (o) of the Code), including the Acquired Companies, harmless from and
fully indemnify them against any costs, expenses, losses and liabilities suffered by them which relate to such
bonus and other incentive plans or programs.
Page 25
(b) As of the Closing, the employees of the Acquired Companies will cease to constitute eligible
participants in those medical, hospitalization, life insurance, disability, workers' compensation and other
welfare plans identified on Schedule 7.8(a) (collectively, the "Existing Plans"). Schedule 7.8(b) sets forth the
welfare benefit plans (collectively the "New Plans") that Buyer will offer to active employees of the Acquired
Companies as of the Closing Date (collectively the "Employees") on and after the Closing Date in lieu of the
Existing Plans. The Employees will be allowed credit for their service with Seller, its Affiliates, and the
Acquired Companies (including credit for their services with predecessors to the extent that Seller granted such
credit under its employee benefit plans) for purposes of satisfying eligibility and vesting requirements for the
New Plans, unless such credit would result in a duplication of benefits. The Employees will be allowed to
participate in the New Plans without being subject to any waiting periods or any restrictions or limitations for
preexisting conditions to the extent such waiting periods, restrictions or limitations were not applicable under
the Existing Plans, and will receive credit for any co-payments or deductibles paid during 2001 under the
Existing Plans to the extent such credit information is provided to the Buyer within sixty (60) days following
the Closing Date. All eligible claims incurred by Employees or their covered dependents prior to the Closing
Date under the Existing Plans shall be covered by the Existing Plans, and neither Buyer nor, after the Closing
Date, any Acquired Company, shall have any Liabilities in connection therewith. Seller shall retain all
Liabilities under the Existing Plans with respect to any amounts payable or benefits to be provided to any
employee or former employee of the Acquired Companies or any beneficiary thereof for payments, services,
benefits, materials or supplies incurred, provided or received thereunder by any employee or former employee of
the Acquired Companies or beneficiary thereof. Expenses and benefits with respect to claims incurred by
Employees or their covered dependents on or after the Closing Date shall be the sole responsibility of Buyer or
the Acquired Companies. For purposes of this paragraph, a medical, dental, vision or behavioral health claim is
deemed incurred when the services that are the subject of the claim are performed; in the case of
hospitalization, upon commencement of hospitalization; in the case of life insurance, when the death occurs; in
the case of long-term disability benefits, the later of when the disability is determined to have occurred or
when the employee ceased active employment as a result of the disability; and in the case of workers'
compensation, when the event giving rise to the claim occurs.
7.9 Transition Services and 401(k) Plans.
(a) Transition Services. From the date hereof through the Closing Date, Seller shall provide Buyer
reasonable access to such data and information, including proprietary information, as is necessary to convert
payroll and employee benefits of the Acquired Companies to Buyer's systems as of the Closing. Seller shall
cooperate with Buyer's reasonable requests and use its commercially reasonable efforts to provide transition
services to Buyer for payroll, the Existing Plans and administrative services for the Acquired Companies for a
period not to exceed thirty (30) days beyond the Closing Date; provided, that, Buyer shall, promptly upon
Seller's request, reimburse Seller and its Affiliates for any and all out-of-pocket costs incurred in connection
with providing such services.
(b) 401(k) Plan. Buyer shall cause a 401(k) plan maintained by the Buyer or one of its Affiliates to accept
direct rollovers pursuant to Section 401(a)(31) of the Code of distributions from the 401(k) plan of Seller or
its Affiliates (the "Seller 401(k) Plan") to
Page 26
Employees who are employed by the Acquired Companies on the Closing Date; provided, that, Seller shall provide to
Buyer a determination letter issued by the Internal Revenue Service with respect to the Seller 401(k) Plan and
such other information as is reasonably requested by Buyer in connection with implementing such rollovers.
Such direct rollovers, conducted pursuant to a trust-to-trust transfer to Buyer's 401(k) plan, will nclude
any and all participant loans held within the transferred accounts. Until such trust-to-trust transfer is
complete, Seller shall cooperate to facilitate the continued repayment of participant loans into the Seller 401(k)
Plan to the extent permitted by Law.
7.10 Disclaimer Regarding Financial Data and Projections. In connection with Buyer's investigation of the
Acquired Companies, Buyer has received from Seller, the Company, and/or representatives thereof certain (a)
financial data, (b) projections and other forecasts, and (c) business plan information relating to the Acquired
Companies or the Business. Buyer acknowledges (i) that there are uncertainties inherent in attempting to make
any projections and other forecasts and plans, (ii) that Buyer is familiar with such uncertainties, (iii) that
Buyer is taking full responsibility for making its own evaluation of the adequacy and, except as expressly set
forth in Article III, accuracy of all financial data, projections and other forecasts and plans so furnished to
it; and (iv) that Buyer shall have no claim against anyone with respect thereto. Accordingly, except as
expressly set forth in Article III, Buyer acknowledges that Seller has not made, and is not making, any
representation or warranty with respect to such financial data, projections, forecasts or plans.
7.11 Supplements to Disclosure Schedules. Prior to the Closing, Seller may supplement the disclosure
schedules referenced herein, by notice given in accordance with Section 12.1, in order to update the disclosures
made thereunder or to otherwise include information which would have been required to be set forth or described
in the disclosure schedules or to have been noted as an exception to the representations and warranties contained
in Article III had it existed on the date hereof. For purposes of determining the accuracy of the
representations and warranties of Seller contained in Article III, in order to determine the fulfillment of the
conditions set forth in Section 8.2(a), the disclosure schedules delivered by the Seller shall be deemed to
include only that information contained therein on the date hereof and shall be deemed to exclude any information
contained in any subsequent supplement or amendment thereto; provided, however, that if the Closing occurs, then
the disclosure schedules as supplemented pursuant to this section shall be deemed to modify the representations
and warranties contained in Article III for purposes of determining whether an indemnification obligation exists
under Section 10.1 and shall be deemed to constitute a waiver of the right to indemnification under such section
for the matters disclosed in any such supplement or amendment.
Article VIII
Closing Conditions
8.1 General Closing Conditions. The obligations of the parties hereto to effect the Closing shall be
subject to the following conditions:
Page 27
(a) Antitrust Waiting Periods. All waiting periods under the HSR Act shall have expired or been terminated.
(b) No Injunctions. There shall be no Governmental Order, or other legal restraint or prohibition, in
effect which would prevent the Closing of the transactions contemplated by this Agreement.
8.2 Conditions to Buyer's Obligations. The obligation of Buyer to effect the Closing shall be subject to
the following conditions, unless waived in writing by Buyer:
(a) Representations and Warranties. Each of the representations and warranties made by Seller herein shall
be true and correct in all material respects as of the Closing Date with the same force and effect as though such
representations and warranties had been made as of the Closing Date, except (i) to the extent that any such
representation or warranty is expressly stated only as of a specified earlier date or dates such representation
or warranty shall be true and accurate as of such earlier specified date or dates and (ii) for changes that are
permitted or contemplated by this Agreement.
(b) Conditions Performed. Each of the terms, covenants and conditions of this Agreement to be complied
with or performed by Seller on or before the Closing Date shall have been duly complied with and performed in all
material respects, or Buyer shall have waived such compliance or performance, and all documents to be delivered
or actions to be taken by Seller pursuant to Section 2.4(a) shall have been delivered or performed.
(c) Material Adverse Effect. There shall not have been any Material Adverse Effect from the date hereof to
the Closing Date.
(d) Assumption of Certain Employee Benefits. Seller shall have assumed, or shall have caused one of its
Affiliates (other than an Acquired Company) to assume, all Liabilities included in (i) "Accrued Deferred
Compensation" and (ii) "Accrued Retirement Plan", in each case under "Current Liabilities - Accrued Expenses" on
the Recent Balance Sheet.
8.3 Conditions to Seller's Obligations. The obligation of Seller to effect the Closing shall be subject to
the following conditions, unless waived in writing by Seller:
(a) Representations and Warranties. Each of the representations and warranties made by Buyer herein shall
be true and correct in all material respects as of the Closing Date with the same force and effect as though such
representations and warranties had been made as of the Closing Date, except (a) to the extent that any such
representation or warranty is expressly stated only as of a specified earlier date or dates such representation
or warranty shall be true and accurate as of such earlier specified date or dates and (b) for changes that are
permitted or contemplated by this Agreement.
(b) Conditions Performed. Each of the terms, covenants and conditions of this Agreement to be complied with
or performed by Buyer on or before the Closing Date shall have been duly complied with and performed in all
material respects, or Seller shall have waived such compliance or performance, and all documents to be delivered
or actions to be taken by Buyer pursuant to Section 2.4(b) shall have been delivered or performed.
Page 28
Article IX
Termination of this Agreement
9.1 Events of Termination. Subject to Sections 9.2 and 9.3 hereof, this Agreement may be terminated upon
the occurrence of any of the following events:
(a) by mutual written consent of Seller and Buyer;
(b) by Buyer, if any of the conditions set forth in Sections 8.1 or 8.2 has not been satisfied on or prior
to sixty (60) after the date hereof (unless the relevant condition shall have failed to have been satisfied as a
result of any act or omission by Buyer);
(c) by Seller, if any of the conditions set forth in Section 8.1 or 8.3 has not been satisfied on or prior
to sixty (60) after the date hereof (unless the relevant condition shall have failed to have been satisfied as a
result of any act or omission by Seller); or
(d) by either party hereto if a representation or warranty of the other party is or becomes false or
inaccurate or if the other party fails to comply with a covenant in a timely manner; provided, that, such other
party does not cure such breach within ten (10) days after receipt of written notice thereof; provided, further,
that such breach is material to either the value of the Shares or a party's ability to consummate the
transactions contemplated by this Agreement.
9.2 Effect of Termination. Upon termination, this Agreement shall be of no further force or effect between
the parties hereto, except as to (a) any liability for breach of any duty, representation, warranty, covenant or
obligation arising prior to the date of termination, or (b) as to any post-termination obligations under Article
X or Sections 6.1 or 7.2.
9.3 Manner of Termination. Notwithstanding anything herein to the contrary, neither party hereto shall
have the right to terminate this Agreement on account of its own breach or any immaterial breach by the other
party. If a party hereto desires to terminate this Agreement pursuant to any right under this Article IX, such
termination shall be ineffective unless written notice is given to the other party at least fifteen (15) days
prior to the date of termination and, in the case of a termination pursuant to Section 9.1(d), the breaching
party fails to cure or to take steps to cure the applicable breach in accordance with such section.
Page 29
Article X
Indemnification
10.1 Indemnification by Each Party. Buyer and Seller each agree to indemnify, hold harmless, and defend the
other, and its successors and assigns, from, and to reimburse the other promptly for, any and all Losses that the
other party suffers (a) as the result of the inaccuracy or breach of the indemnifying party's representations or
warranties, subject to the limits on Seller's indemnification obligations set forth in Section 10.4 below, or (b)
at any time as the result of the breach of any other covenant, undertaking, agreement or other provision of this
Agreement by the indemnifying party.
10.2 Indemnification by Seller. In addition to its obligations under Section 10.1, Seller shall indemnify,
hold harmless, and defend Buyer and its Affiliates from and against any and all Losses from (a) any claim for
payment of a broker's or finders fee or any other commission or similar fee to any agent, broker, investment
banker, person or firm acting on behalf of or under authority of Seller, including, without limitation, Xxxxxx
Brothers Inc., or acting pursuant to any statement, representation or agreement of Seller, (b) the litigation
captioned Xxxx Xxxxx, Xxxxxxx Xxxxxxxx, and Xxxxxxx Xxxxxx, on behalf of themselves and all similarly situated
persons, v. Westec Security, Inc., Secoamerica and Does 1 through 100 (Orange County Superior Court, No. 792589),
it being understood that Seller shall control the defense of such matter and that Buyer shall, and shall cause
the Acquired Companies to, cooperate with Seller in such defense, including, without limitation, by making
employees of the Acquired Companies and all relevant documents available to Seller as reasonably necessary or
desirable to defend such action, and (c) fees payable to the City of Beverly Hills, California, in connection
with false alarms at residences of certain of the Acquired Companies' customers residing in such city occurring
prior to the Closing Date.
10.3 Indemnification by Buyer. In addition to its obligations under Section 10.1, Buyer shall indemnify,
hold harmless and defend Seller and its Affiliates from and against any and all Losses from (a) any claim for
payment of a broker's or finders fee or any other commission or similar fee to any agent, broker, investment
banker, person or firm acting on behalf of or under authority of Buyer or acting pursuant to any statement,
representation or agreement of Buyer and (b) any claim arising out of or relating to the Business, including,
without limitation, any and all Liabilities of Seller or any of its Affiliates (i) under the separation
agreements listed on Schedule 3.12; or (ii) related to the enhanced change in control severance benefits
identified on Schedule 3.12.
10.4 Certain Limitations; Liability Cap.
(a) As a condition to Buyer's rights of indemnification set forth herein, Buyer shall use its commercially
reasonable efforts to obtain reimbursement for any Loss under the insurance policies maintained by Buyer and the
Acquired Companies, and to the extent that any such reimbursement is obtained, (i) Buyer shall promptly so notify
Seller in writing and (ii) (A) the amount of such reimbursement shall be deducted from and to the extent of any
of Buyer's then-pending claims for indemnification and/or (B) if no such indemnification claims are pending, or
the amount of such reimbursement exceeds any such pending claims, Buyer shall
Page 30
promptly use such reimbursement to repay Seller the amount of any indemnification payments theretofore made by Seller
to Buyer hereunder.
(b) Notwithstanding anything herein to the contrary, the maximum aggregate liability of Seller with respect
to Losses arising out of or related to any breach of any of Seller's representations or warranties shall be fifty
percent (50%) of the Purchase Price (the "Cap"). In addition, no claim shall be made by Buyer for any breach of
any representation or warranty, except to the extent that Buyer's cumulative Losses exceed three million dollars
($3,000,000) (the "Basket"), in which case Seller shall only be liable for the amount of such Losses in excess of
two million dollars ($2,000,000). Notwithstanding the foregoing, the Basket and the Cap shall not be applicable
to Losses relating to any breaches under Section 3.4(b), Section 3.16, Section 3.17, Section 3.34, or Article XI
hereof, or to Losses based on fraud by Seller. The representations and warranties of Seller shall survive the
Closing for a period of eighteen (18) months from and after the Closing Date, except that (i) Section 3.16 shall
survive for a period of thirty-six (36) months from and after the Closing Date, (ii) Section 3.17 shall survive
until sixty (60) days after the expiration of the applicable statute of limitations or any extensions thereof
with respect to all taxable periods of the Acquired Companies ending on or prior to the Closing Date, and (iii)
Section 3.4(b) shall survive indefinitely, it being understood that any claim for a breach of representation or
warranty not asserted in writing on or prior to the termination of the applicable survival period shall be deemed
to have been waived by Buyer and shall provide no basis for any recovery against Seller under any circumstances,
regardless of whether such recovery is sought under or outside of the remedies provided by this Agreement. The
covenants of the parties contained herein shall survive in accordance with their respective terms.
10.5 Claims. If any party (the "Indemnitee") receives notice of circumstances that would give rise to a
claim by such party under this Article X, or of the commencement of any action or proceeding with respect to
which any other party is obligated to provide indemnification (the "Indemnitor") pursuant to this Article X (each
a "Claim"), the Indemnitee shall promptly give the Indemnitor notice thereof; provided, however, that the failure
to give such notice hereunder shall not affect a party's rights to indemnification hereunder except to the extent
that such failure materially prejudices the Indemnitor and except as set forth in the last sentence of Section
10.4 above. Within thirty (30) days after delivery of such notice, the Indemnitor shall notify the Indemnitee
whether it elects to make payment of the amount claimed or to contest such claim by appropriate legal
proceedings. Any defense of a claim shall be conducted by counsel of good standing chosen by Indemnitor and
reasonably satisfactory to Indemnitee. Such defense shall be conducted at the expense of Indemnitor, except that
if any proceeding involves both claims against which indemnity is granted under this Agreement and other claims
for which indemnification is not granted hereunder, the expense of defending against such claims shall be borne
by the Indemnitor and the Indemnitee in respective proportion to the dollar amount of the claims for which they
may be liable based on the aggregate dollar amount of the claims. Notwithstanding anything to the contrary
contained herein, Seller shall not compromise a claim relating to Taxes of the Acquired Companies that affects
the Tax liability of any of the Acquired Companies for any period ending after the Closing Date without the prior
written consent of Buyer, which consent shall not be unreasonably withheld.
Page 31
10.6 Exclusive Remedy. The indemnification provisions set forth in this Article X shall constitute the
parties' sole and exclusive remedy with respect to claims for money damages arising out of or related to this
Agreement.
Article XI
Tax Matters
11.1 Section 338(h)(10) Election.
(a) With respect to Seller's sale of the Shares to Buyer, Seller and Buyer shall jointly make, or cause to
be made, timely and irrevocable elections under Section 338(h)(10) of the Code with respect to the Acquired
Companies, and, if permissible, similar elections under any applicable state or local income tax Laws (the
"Section 338(h)(10) Elections"). Buyer, Seller, and the Acquired Companies shall report the transaction
consistent with the Section 338(h)(10) Elections and agree not to take any action that could cause such Section
338(h)(10) Elections to be invalid and shall take no position contrary thereto unless required to do so pursuant
to a determination (as defined in Section 1313(a) of the Code) or any similar state or local tax provision.
(b) Buyer, Seller, and the Acquired Companies shall execute any and all forms necessary to effectuate the
Section 338(h)(10) Elections (including, without limitation, Internal Revenue Service Form 8023 and any similar
forms under applicable state and local income tax laws (the "Section 338(h)(10) Forms")). Buyer, Seller, and the
Acquired Companies shall each cause the Section 338(h)(10) Forms to be duly executed by an authorized person for
Buyer, Seller, and the Acquired Companies, as the case may be, and shall duly and timely file the Section
338(h)(10) Forms in accordance with applicable tax Laws and the terms hereunder.
(c) As soon as practicable after the date hereof but in no event later than 180 days after the Closing Date,
Seller and Buyer shall use their best efforts to agree on the fair market value of the assets of the Acquired
Companies and the allocation of the deemed sales price of the assets of the Acquired Companies resulting from the
Section 338(h)(10) Elections (as required pursuant to Section 338(h)(10) of the Code and regulations promulgated
thereunder) among such assets (the "Section 338(h)(10) Allocation"). If Buyer and Seller agree on the Section
338(h)(10) Allocation, Buyer, Seller, and the Acquired Companies shall file all Tax Returns consistently with the
Section 338(h)(10) Allocation unless required to do otherwise pursuant to a determination (as defined in Section
1313(a) of the Code) or any similar state or local tax provision.
(d) With respect to the actions described in this Section 11.1 to be taken by the Acquired Companies, Seller
shall be responsible for causing the Acquired Companies to take such actions to the extent that such action is to
be taken at or prior to the Closing, and Buyer shall be responsible for causing the Acquired Companies to take
such actions to the extent that such action is to be taken after the Closing.
11.2 Tax Cooperation. Seller and Buyer shall each, and Buyer shall cause the Company to (a) cooperate in
the preparation of any Tax Returns which any other party is
Page 32
responsible for preparing and filing; (b) cooperate fully in preparing for any audits of, or disputes with,
taxing authorities; (c) make available to the other parties and to any taxing authority, as reasonably requested
on a timely basis, all information, records, and documents relating to Taxes; and (d) furnish within ten
(10) days the other parties with copies of all correspondence or notice of assessments received from any
taxing authority in connection with any audit or information request with respect to Taxes for which any other
party may be liable. Seller shall have the sole right to represent the interests of the Acquired Companies in any
tax audit or administrative or court proceeding to the extent relating to Tax Returns filed by the Acquired
Companies or Buyer to the extent that it relates solely to a matter for which Seller has agreed to indemnify
Buyer, and employ counsel of its choice at its expense; provided, however, that Seller shall keep Buyer reasonably
informed on an ongoing basis. Buyer shall cooperate, and shall cause the Acquired Companies to cooperate, with
Seller with respect to any Tax audit or administrative or court proceeding referred to in this paragraph. Such
cooperation shall include, without limitation, (x) providing prompt notice of any Tax deficiency, assessment
or audit relating to the Acquired Companies or relating to any event for which Seller may be liable and all relevant
information that is available to Buyer and the Acquired Companies, as the case may be, with respect to any such
audit or proceeding, (y) making personnel available at reasonable times, and (z) preparing responses to requests
for information on a timely basis; provided, however, that all of the foregoing shall be done in a manner so as
not to interfere unreasonably with the conduct of the business of Buyer and the Acquired Companies. Any refunds
or credits of Taxes of the Acquired Companies plus interest paid thereon with respect to taxable periods or portions
thereof ending on or before the Closing Date shall be for the account of Seller.
11.3 Tax Records. Buyer shall cause the Acquired Companies to (a) retain all business records or files
relating to Taxes or Tax Returns pertaining to the Acquired Companies (collectively, "Tax Records") until the
expiration (with valid extensions) of the applicable statute of limitations, and (b) for the period ending one
(1) year after the expiration (with valid extensions) of the applicable statute of limitations, refrain from
disposing or destroying such records without first offering to turn over possession thereof to Seller (at
Seller's expense) by written notice to Seller at least thirty (30) days prior to the proposed date of such
disposition or destruction.
11.4 Tax Liability of Seller. The income of the Acquired Companies will be apportioned to the period up to
and including the Closing Date and the period after the Closing Date by closing the books of the Acquired
Companies as of the end of the Closing Date. Except as otherwise provided herein, Seller shall be liable for,
and shall indemnify Buyer and the Acquired Companies, and hold them harmless from and against, (a) all Taxes
payable with respect to the assets and operations of the Acquired Companies for any taxable period ending on or
before the Closing Date and, (b) for any taxable period beginning before and ending after the Closing Date, the
Taxes allocable to that portion of the taxable period ending on the Closing Date (and shall, to the extent that
such Taxes are not satisfied on or before the Closing Date, remain liable therefor). Buyer shall cause the
Acquired Companies to provide Seller with appropriate information to prepare and file the Tax Returns of the
Acquired Companies for all periods ending on or prior to the Closing Date, and (except for sales Tax Returns that
are required to be filed after the Closing, which shall be filed by Buyer) Seller shall be responsible for filing
the appropriate Tax Returns of the Acquired Companies for all periods ending on or before the Closing Date. If
necessary, Buyer shall cause the appropriate officer of the Acquired
Page 33
Companies to sign such Tax Returns upon Seller's request; provided, that, in such event, Seller shall provide
such supporting documentation as is reasonably necessary to sign such Tax Return ten (10) days in advance of
the due date for filing (with valid extensions). To the extent that Seller's liability for Taxes, as determined
under this Section 11.4 exceeds the tax payments made with respect thereto for periods ending on or before the
Closing Date, such excess shall be paid by Seller to the Acquired Companies. To the extent that the tax payments
made with respect to the periods ending on or before the Closing Date exceed Seller's liability for Taxes, as
determined under this Section 11.4, and the Acquired Companies receives or has the right to receive a refund of
such excess, such excess (i.e., the amount of the refund or credit) shall be paid by the Acquired Companies or
Buyer to Seller. The parties agree and acknowledge that the Company currently anticipates a refund of Taxes and
related interest from the State of California for state sales Taxes relating to the period from October 1, 1996
through December 31, 1999, and upon receipt thereof, such refund shall be promptly paid by the Company (or, if
such refund is received by the Company after the Closing Date, by Buyer) to Seller. For purposes of this
Section 11.4, Taxes shall include Tax liability that an Acquired Company has for the Taxes of another person
under Treas. Reg. Section 1.1502-6, as a transferee or successor, by contract or otherwise.
11.5 Buyer's Liability for Taxes. Buyer and the Acquired Companies shall be liable for, and shall indemnify
Seller and hold Seller harmless from and against, (a) all Taxes payable with respect to the assets or operations
of the Acquired Companies for any taxable period beginning after the Closing Date, and (b) for any taxable period
beginning before and ending after the Closing Date, the Taxes allocable to that portion of the taxable period
ending after the Closing Date. Buyer and Seller agree to report all transactions not in the ordinary course of
business occurring on the Closing Date after the Closing on Buyer's income Tax Returns, except for transactions
occurring pursuant to a binding contract entered into by Seller or any of the Acquired Companies before the
Closing Date. Buyer agrees to indemnify Seller for any additional tax owed by Seller (including tax owed by
Seller due to this indemnification payment) resulting from any transaction not in the ordinary course of business
occurring on the Closing Date after the Closing, except for transactions occurring pursuant to a binding contract
entered into by Seller or any of the Acquired Companies before the Closing Date.
11.6 Transfer Taxes. Notwithstanding anything herein to the contrary, Buyer shall pay all sales, use,
transfer, stock transfer, real property transfer, recording, gains, excise, stamp, documentary, registration,
licensing, and other similar taxes, duties or fees due (collectively "Transfer Taxes") in connection with the
transfer of Shares pursuant to this Agreement. In the event that any such Transfer Taxes are paid by Seller,
Buyer shall promptly reimburse Seller for the full amount of such payment upon Seller's request therefor. Buyer
and Seller agree to cooperate, at Buyer's expense, in filing all necessary documentation and tax returns with
respect to Transfer Taxes.
11.7 Tax Sharing Agreements. All tax sharing agreements, if any, between the Company and an Affiliate of
the Acquired Companies with respect to the Acquired Companies shall be terminated as of the Closing Date and will
have no further effect for any taxable year (whether the current year, a future year or a past year).
Page 34
11.8 Tax Elections. Except as otherwise expressly permitted by the terms of this Agreement, none of the
Acquired Companies shall, without the prior written consent of Buyer, make any election regarding Taxes, execute
any waiver of restrictions on assessment or collection of any Tax, or settle or compromise any claim regarding
any Tax liability, except for elections or Tax liabilities that relate exclusively to Tax periods ending on or
before the Closing Date.
Article XII
Miscellaneous
12.1 Notices. All notices, requests, demands, waivers or communications required or permitted to be given
hereunder in writing and shall be deemed to have been duly delivered, given, and received (a) on the day of
delivery if personally delivered to the intended recipient to whom such notice, request, demand, waiver or
communication is directed or (b) upon actual receipt if delivered by next-day or overnight courier to the
intended recipient's address set forth below or to such other address as the intended recipient may specify from
time-to-time by notice to the other party hereto:
If to Buyer, then to:
ADT Security Services, Inc.
Xxx Xxxx Xxxxxx Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Attn: President
with a copy to:
ADT Security Services, Inc.
Xxx Xxxx Xxxxxx Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Attn: General Counsel
If to Seller, then to:
Edison Enterprises
000 Xxxxxxxx Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Facsimile (000) 000-0000
Attn: President
Page 35
with a copy to:
Xxxxxx, Xxxxxx & Xxxxx LLP
000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Facsimile (000) 000-0000
Attn: Xxxx X. Xxxxx, Esq.
Xxxxx X. Xxxxxx, Esq.
12.2 Entire Agreement. This Agreement constitutes the entire agreement and fully supercedes any and all
prior or contemporaneous agreements or understandings, whether written or oral, between the parties hereto,
except for the Confidentiality Agreement, with respect to the subject matter hereof.
12.3 No Assignment. This Agreement may not be assigned or transferred by any party hereto, by operation of
law or otherwise, without the prior written consent of the other party (such consent to be granted or withheld in
the sole discretion of such other party); provided, that, Buyer shall have the right to assign its rights and
obligations under this Agreement, in whole and not in part, to its Affiliate (a) without such consent (provided,
that, Buyer shall continue to remain liable for all such Affiliate's obligations hereunder) or (b) with the prior
written consent of Seller (such consent not to be unreasonably withheld).
12.4 Binding Effect. Except as otherwise provided herein, every covenant, term, and provision hereof shall
be binding upon and inure to the benefit of the parties hereto and their respective successors, permitted
transferees, and permitted assigns. Nothing herein is intended to confer upon any Person other than the parties
hereto any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
12.5 Incorporation by Reference. Every exhibit, schedule, and other appendix attached hereto and referred
to herein is incorporated into this Agreement by reference unless this Agreement expressly otherwise provides.
Any information disclosed under any schedule hereto shall be deemed disclosed and incorporated into any other
section under or schedule to this Agreement where such disclosure would be appropriate, whether or not repeated
under any section or schedule number where such disclosure might be deemed appropriate.
12.6 Headings. The descriptive headings contained herein (including, without limitation, the descriptive
headings in the schedules hereto) are for purposes of convenience only and are not intended to affect the meaning
or interpretation of this Agreement.
12.7 Construction. Every covenant, term, and provision of this Agreement shall be construed simply
according to its fair meaning and not strictly for or against any party hereto, regardless of the identity of the
Person who drafted such covenant, term or provision.
12.8 Severability. Except as otherwise provided in the succeeding sentence, every provision hereof is
intended to be severable, and if any term or provision hereof is illegal or invalid for any reason whatsoever,
such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement. The
preceding sentence of this Section 12.8 shall be of no force or effect if the consequence of enforcing the
remainder of this Agreement without
Page 37
such illegal or invalid term or provision would be to cause any party hereto to lose the material benefit of its
economic bargain.
12.9 Governing Law. This Agreement shall be governed by the laws of the State of California applicable to
contracts made and to be performed entirely within the State of California by residents of the State of
California.
12.10 Dispute Resolution. All disputes arising from or related to this Agreement or the transactions
contemplated by this Agreement may be brought in any United States federal or California state court of competent
jurisdiction sitting in the County of Los Angeles, California, and each of the parties hereto consents to the
jurisdiction of such courts and waives any objection to venue laid therein.
12.11 Cumulative Rights and Remedies. The rights and remedies provided herein are not exclusive of any
rights or remedies that any party hereto may otherwise have at law or in equity.
12.12 Waivers. No waiver by any party hereto of any default with respect to any provision, condition or
requirement hereof shall be deemed to be a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party hereto to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
12.13 Counterpart Execution. This Agreement may be executed in any number of counterparts with the same
effect as if all of the parties hereto had signed the same document. All counterparts shall be construed
together and shall constitute one agreement.
12.14 Amendment. This Agreement may be amended or modified only by written instrument signed by both parties
hereto.
12.15 Further Actions. Each party hereto agrees to execute such further instruments and to perform such
further acts, at its own expense, as may be reasonably necessary to carry out the intent of this Agreement or to
consummate the transactions contemplated by this Agreement.
12.16 Waiver of Jury Trial. EACH OF SELLER AND BUYER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
Page 37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
duly authorized officers as of the day and year first written above.
ADT SECURITY SERVICES, INC.
By: XXXXXXX XXXXXX
-------------------------------
XXXXXXX XXXXXX
President
Edison Enterprises
By: XXXXXXXX X. XXXXXX, XX.
-------------------------------
XXXXXXXX X. XXXXXX, XX.
Chairman of the Board and Chief
Executive Officer
GUARANTEE
Edison International ("Guarantor") irrevocably guarantees each and every representation,
warranty, covenant, agreement and other obligation of Seller, and/or any of its permitted assigns, and the full
and timely performance of Seller's obligations under the provisions of the foregoing Agreement. This is a
guarantee of payment and performance, and not of collection, and Guarantor acknowledges and agrees that this
guarantee is full and unconditional, and no release or extinguishment of Seller's obligations or liabilities
(other than in accordance with the terms of the Agreement), whether by decree in any bankruptcy proceeding or
otherwise, shall affect the continuing validity and enforceability of this guarantee, as well as any provision
requiring or contemplating performance by Guarantor.
Guarantor hereby waives, for the benefit of Buyer, (i) any right to require Buyer as a
condition of payment or performance by Guarantor, to proceed against Seller or pursue any other remedy whatsoever
and (ii) to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by
law which limit the liability of or exonerate guarantors or sureties, except to the extent that any such defense
is available to Seller.
Guarantor agrees to be bound by Section 5.6 of the Agreement.
The provisions of Article XII of the Agreement are incorporated herein, mutatis mutandis,
except that notices and other communications hereunder to Guarantor shall be delivered to Edison International,
0000 Xxxxxx Xxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000, Attn: General Counsel, Facsimile No. (000) 000-0000 (with
a copy to Seller as provided in Section 12.1 of the Agreement).
Page 38
Guarantor understands that Buyer is relying on this guarantee in entering into the Agreement
and may enforce this guarantee as if Guarantor were a party thereto.
EDISON INTERNATIONAL
By: XXXXXXXX X. XXXXXX, XX.
-----------------------
XXXXXXXX X. XXXXXX, XX.
Sr. Vice President, Chief Financial
Officer and Treasurer
