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EXHIBIT 2.5
STOCK PURCHASE AGREEMENT
BY AND AMONG
THE SHAREHOLDERS OF
CENTENNIAL SECURITY HOLDINGS, INC.
CENTENNIAL SECURITY HOLDINGS, INC.
and
WESTAR CAPITAL, INC.
Dated as of
October 2, 1997
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TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF STOCK..................................................-1-
1.1 Agreement to Purchase and Sell.......................................-1-
1.2 Certain Definitions..................................................-2-
2. PURCHASE PRICE AND CLOSING..................................................-6-
2.1 Purchase Price.......................................................-6-
2.2 Closing Date and Location; Payments.................................-11-
2.3 Noncompetition and Nonsolicitation Agreements.......................-11-
3. INDIVIDUAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF
SELLERS....................................................................-11-
3.1 Ownership of Stock..................................................-11-
3.2 Capacity and Authority, Enforceability, No Violations...............-11-
3.3 Consents and Approvals..............................................-12-
3.4 Absence of Defaults.................................................-12-
3.5 Litigation and Claims...............................................-12-
3.6 Non-Foreign Status..................................................-13-
4. JOINT REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS.................-13-
4.1 Organization and Corporate Documents................................-13-
4.2 Capitalization......................................................-14-
4.3 Sole Business; Subsidiaries; Affiliates.............................-14-
4.4 Authority of Sellers................................................-15-
4.5 Real Property.......................................................-15-
4.6 Title to Property...................................................-16-
4.7 Compliance with Laws; Litigation....................................-16-
4.8 Certain Information Regarding Assets; Insurance.....................-16-
4.9 Absence of Adverse Changes or Other Events..........................-17-
4.10 Financial Statements................................................-18-
4.11 Tax Returns and Payments............................................-18-
4.12 Agreements with Employees...........................................-19-
4.13 Intellectual Property Rights........................................-20-
4.14 Business Documents..................................................-20-
4.15 Subscriber and System Information...................................-21-
4.16 Business Market.....................................................-23-
4.17 Central Station.....................................................-23-
4.18 U.L. Certification..................................................-24-
4.19 Broker or Finder....................................................-24-
4.20 Labor and Employment Matters........................................-24-
4.21 Creditors...........................................................-26-
4.22 Contracts...........................................................-26-
4.23 Environmental Matters...............................................-27-
4.24 Banks, Officers and Powers of Attorney..............................-27-
4.25 Inventory...........................................................-27-
4.26 Liabilities.........................................................-27-
4.27 Schedules Delivered.................................................-27-
4.28 Disclosure..........................................................-28-
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5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER.........................-28-
5.1 Authority of Buyer..................................................-28-
5.2 Consents............................................................-28-
5.3 Broker or Finder....................................................-28-
5.4 Litigation..........................................................-29-
5.5 Investment Purpose..................................................-29-
5.6 Disclosure..........................................................-29-
6. ACTIONS PRIOR TO OR ON THE CLOSING DATE....................................-29-
6.1 Prior To or At Closing..............................................-29-
(a) Investigation................................................-29-
(b) Preservation of Representations and Warranties...............-30-
(c) Consents and Approvals.......................................-30-
(d) Exclusive Dealing............................................-30-
(e) Lien Searches................................................-31-
(f) Maintenance of Business......................................-31-
(g) Insurance....................................................-31-
(h) Organization and Transition..................................-32-
(i) Consummation of Agreement....................................-32-
(j) Corporate Matters............................................-32-
(k) Capitalization...............................................-32-
(l) Accounts Receivable..........................................-32-
(m) Resignations.................................................-32-
(n) Crime Busters, Inc...........................................-32-
(o) Payoff of Notes..............................................-33-
(p) Southeast Security Management Co.............................-33-
6.2 Post-Closing........................................................-33-
(a) Employees....................................................-33-
(b) Access to Records............................................-34-
(c) Reprogramming Costs..........................................-34-
(d) Completion of Work in Progress...............................-34-
(e) Collection of Accounts Receivable............................-34-
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...............................-34-
7.1 Covenants and Warranties............................................-34-
7.2 No Restraint or Litigation..........................................-35-
7.3 Necessary Consents, Approvals and Permits...........................-35-
7.4 Opinion of Counsel..................................................-35-
7.5 Adverse Change......................................................-35-
7.6 Documents, Certificates and Other Items.............................-35-
7.7 Satisfaction of Debts...............................................-37-
7.8 Accounts Receivable.................................................-37-
7.9 Capitalization......................................................-37-
7.10 Excluded Assets.....................................................-37-
7.11 Updated Schedules...................................................-37-
7.12 Minimum RMR.........................................................-38-
7.13 Oral 3rd Party Monitoring Agreements................................-38-
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS.............................-38-
8.1 Covenants and Warranties............................................-38-
8.2 Delivery of Purchase Price..........................................-38-
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8.3 Documents, Certificates and Other Items.............................-38-
8.4 No Restraint or Litigation..........................................-39-
8.5 Approvals...........................................................-39-
9. INDEMNIFICATION............................................................-39-
9.1 Indemnification by Sellers and Buyer................................-39-
9.2 Notice of Claims....................................................-40-
9.3 Third Party Claims..................................................-41-
9.4 Survival of Indemnity Obligations...................................-42-
9.5 Basket and Cap......................................................-42-
9.6 Tax Indemnification/Returns.........................................-43-
9.7 Buyer's Tax Claim Defense...........................................-44-
9.8 Sole and Exclusive Remedy...........................................-44-
9.9 Deferred Payment as Source of Payment Obligations of Sellers........-45-
10. DAMAGE TO PROPERTY AND RISK OF LOSS........................................-45-
11. TERMINATION OF AGREEMENT...................................................-45-
12. GENERAL PROVISIONS.........................................................-46-
12.1 Survival of Obligations; Effect of Investigations...................-46-
12.2 Transfer Charges and Taxes..........................................-47-
12.3 Dispute Resolution..................................................-47-
12.4 Confidentiality.....................................................-48-
12.5 Public Announcements................................................-48-
12.6 Governing Law Exclusive Jurisdiction and Consent to Service of
Process ..........................................................-49-
12.7 Notices.............................................................-49-
12.8 Assignment..........................................................-50-
12.9 Entire Agreement; Amendments........................................-50-
12.10 Interpretation......................................................-50-
12.11 Waivers.............................................................-51-
12.12 Expenses............................................................-51-
12.13 Partial Invalidity..................................................-51-
12.14 Further Assurances..................................................-51-
12.15 Counterparts........................................................-52-
12.16 Third-Party Beneficiaries...........................................-52-
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STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of this 2nd day of October, 1997 by and among
WESTAR CAPITAL, INC., a Kansas corporation or its permitted assignee ("Buyer"),
on the one hand, and CENTENNIAL SECURITY HOLDINGS, INC., a Delaware corporation
(the "Parent") and the persons and entities listed on Schedule 1.1,
(individually each a "Seller" and collectively the "Sellers"), being the owners
of record of all of the issued and outstanding capital stock of the Parent.
BACKGROUND
WHEREAS, the Parent is the sole shareholder of CENTENNIAL SECURITY, INC.
(the "Corporation"); and
WHEREAS, the Corporation is the sole shareholder of RADAR SECURITY, INC.,
an Ohio corporation, (the "Ohio Subsidiary"); and together with the Corporation
referred to herein collectively as the "Subsidiaries"); and
WHEREAS, the Parent and the Subsidiaries are referred to herein
collectively as the "Company;" and
WHEREAS, the Company owns and operates a business engaged in the business
of marketing, selling, leasing, installing and servicing residential and
commercial alarm systems and providing alarm system monitoring, paging and other
related services in the areas in and around California, Florida, Connecticut,
Indiana, New York, New Jersey, Ohio, Michigan, Kentucky, West Virginia and
Pennsylvania (the "Security Business"); and
WHEREAS, Sellers own all of the issued and outstanding capital stock of
Parent described on Schedule 4.2, which stock at Closing shall constitute all
shares of any class of capital stock of the Parent (the "Stock"); and
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the
Stock on the following terms and conditions; and
WHEREAS, Sellers have appointed Centennial Fund IV, L.P. a Delaware
limited partnership, as their representative (the "Sellers' Representative") to
act on their behalf with respect to certain aspects of the performance of this
Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth in this Agreement, and intending
to be legally bound, the parties agree as follows:
1. PURCHASE AND SALE OF STOCK
1.1 Agreement to Purchase and Sell.
Subject to the terms and conditions of this Agreement, Sellers agree
to sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees to
purchase from Sellers on the Closing Date, the number of shares of Stock set
forth opposite their respective names on Schedule 1.1, free and clear of any and
all Encumbrances, which Stock at Closing shall constitute all shares of any
class of capital stock of Parent owned of record or beneficially by such Seller.
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1.2 Certain Definitions.
As used in this Agreement, the following terms will mean the
following:
(a) "Adjustment Date" means that business day which is 60 days
after the Valuation Date. If the 60th day is a Saturday, Sunday or holiday, the
Adjustment Date shall be the next business day.
(b) "Assets" means all of the assets of the Company of every kind
and character, real, personal, tangible, intangible or mixed, used or useful in
connection with, or necessary to its operations and business as currently
conducted, other than the Excluded Assets. The Assets include the following:
(i) All of the Company's rights in, to and under all
tangible assets of the Company, including central station equipment, alarm
systems (including local alarm systems installed, sold or acquired by the
Company but which generate no recurring revenue), closed circuit television and
access control equipment, electronic alarm equipment, alarm test equipment,
machinery, tools, computers, related software and source/object code, office
equipment, furnishings, vehicles, Inventory, spare equipment and parts
reasonably necessary for day-to-day maintenance and repair, other tangible
personal property of any nature, and the Company's rights in fixtures attached
to real estate leased to the Company and used by the Company (collectively, the
"Tangible Assets"). Certain of the leased and owned tangible assets (including
all vehicles) of the Company and including all those having an estimated
replacement cost of more than $1,000.00 are set forth in Schedule 1.2(b)(i).
(ii) All of the Company's interest of every kind and
description in real property, buildings and structures, together with all
improvements thereon, all of which are set forth in Schedule 1.2(b)(ii).
(iii) (A) All installed monitored alarm contracts, whether
written or oral, including all installations and equipment of the Company
located at Subscribers' residences or places of business related thereto, and
any and all related agreements for alarm services (including monitoring, paging,
test and inspections, repair service, and leasing of equipment (herein the
"Alarm Services") (the "Subscriber Contracts") between the Company and their
respective Subscribers (the "Alarm Accounts") all of which are identified on
Schedule 1.2(b)(iii)(A);
(B) All agreements to provide third-party monitoring
to alarm dealers all of whom are set forth in Schedule 1.2(b)(iii)(B) (the
"Wholesale Alarm Accounts");
(C) All of the Company's rights in, to and under all
leases of real property and equipment that are related to and used by the
Company, telephone book listing agreements, noncompetition, nonsolicitation and
nondisclosure agreements with third parties, and all other agreements, licenses
(including any licenses or agreements to use the names "Masada Security,"
"Centennial," "Habitec,"and "Sonitrol" and the names set forth on Schedule 4.1),
and any licenses held personally which are necessary for the operation of the
Security Business as presently conducted and transferable to the Company,
permits (including permits relating to installations which are pending,
currently in progress or completed) and manufacturer's warranties on tangible
property that are related to the Company's conduct of its business
(collectively, the "Business Documents"). A list of the Business Documents is
set forth in Schedule 1.2(b)(iii)(C).
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(iv) All of the Company's rights in, to and under the
following assets, intangibles and rights that are related to, and presently
owned by the Company or used in its business: (A) refundable deposits from
customers, prepaid service charges and prepaid income items; (B) system designs,
plans and drawings; (C) options, claims, contract rights, patents, copyrights,
trade secrets and trade names, including the name "Centennial Security" and the
names set forth on Schedule 4.1 (under subparts "Fictitious Names"and "Rights to
Use Certain Names" of such schedule) and all variations thereof; (D) cash and
cash equivalents; (E) accounts receivable; (F) operating and accounting data;
(G) customer lists and files (including any lists and files of former
customers); (H) computer programs and documentation; (I) telephone lines and
numbers (including WATS lines and numbers); (J) Work in Progress; (K)
outstanding bids and proposals; (L) goodwill; and (M) the stock of the
Corporation and the Ohio Subsidiary.
(c) "Closing" or "Closing Date" means the consummation of this
transaction which is contemplated to be on or about the last business day of the
calendar month in which all of the conditions to Closing have been satisfied,
unless the parties otherwise agree to an earlier or later date, but not sooner
than 15 business days after the date of this Agreement. The Stock shall be
transferred by Sellers to Buyer upon receipt of the payment due at Closing.
(d) "Closing Financials" means (a) the audited consolidated
statements of the Company's income and expenses for the period from January 1,
1997 through and including 11:59:59 p.m. of the Closing Date, and (b) the
audited consolidated balance sheet of the Company as of the day preceding the
Closing Date, in each case together with the report thereon of Ernst & Young,
the Company's independent certified public accountants. The balance sheet shall
be prepared in sufficient detail and in a format necessary to permit Buyer to
prepare the Adjusted WC.
(e) "Encumbrance" means any security interest, pledge, mortgage,
lien (including without limitation, environmental liens, lis pendens liens,
claims of liens, and Tax liens), charge, encumbrance, adverse claim,
preferential arrangement or restriction of any kind, including, without
limitation, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership, other than: (i) a lien of taxes
not yet delinquent or the validity of which are being contested in good faith by
appropriate actions and that are described on Schedule 4.11; and (ii) easements,
covenants and restrictions that are presently of record and that do not
materially interfere with or impair the Company's use and presently intended use
of any of the real property or materially reduce the value of any of the real
property used by Company.
(f) "Excluded Assets" means those assets set forth on Schedule
1.2(f) which either are (i) not the property of the Company, or (ii) will be
transferred by Company "AS IS" prior to the Closing to another person or entity
free of all Encumbrances and without recourse to Company or Buyer.
(g) "GAAP" means generally accepted accounting principles as are
in effect from time to time in the United States.
(h) "Valuation Period" means the 120 day period commencing as of
the Closing Date and ending on the Valuation Date.
(i) "Inventory" means all raw materials, work in process and
finished goods produced or used by the Company in the Security Business.
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(j) "Liabilities" means any and all debts, losses, liabilities,
claims, damages, fines, costs, royalties, proceedings, deficiencies or
obligations (including those arising out of any claim, action, suit or
proceeding, such as any settlement or compromise thereof or judgment or award
therein), of any nature, whether known or unknown, absolute, accrued, contingent
or otherwise and whether due or to become due, and whether or not resulting from
third-party claims, and any reasonable out-of-pocket costs and expenses
(including reasonable attorneys', accountants' or other fees and expenses
incurred in defending any claim, action, suit or proceeding or in investigating
any of the same or in asserting any rights hereunder), and including any
accountability or responsibility for any of the foregoing, and including:
(A) any foreign, federal, state, county or local
income or other tax arising from the operation of the Security Business or the
ownership of the Assets on or prior to the Closing Date;
(B) any liabilities, obligation or commitment of
Sellers related to the Stock, or the Company to their creditors, whether arising
out of contract or tort, or to any party holding an Encumbrance on any of Stock
or Assets;
(C) any employee obligation relating to or arising out
of the period prior to the Effective Time, including any obligation for wages,
commissions, vacation and holiday pay, sick pay, bonuses, incentive compensation
bonuses, severance pay, pensions, or any obligation under any collective
bargaining agreement, employment agreement or employment at-will relationship,
or any obligation to retain any employee of the Company after the Closing Date;
(D) any severance pay or other employee benefit
obligation triggered by or arising out of the consummation of this transaction
after the Closing Date;
(E) any liabilities the existence of which would
constitute a breach of any of the representations, warranties or covenants of
Sellers or Company in this Agreement; and
(F) any liabilities arising because Hazardous
Materials are present on the real or personal property leased or otherwise used
by the Company and being transferred pursuant to this Agreement, or any
Liabilities for the use, handling, generation or disposal of Hazardous Materials
by the Company, or any previous owner of the Assets relating to or arising out
of the period prior to the Effective Time. The term "Hazardous Materials"
includes hazardous waste, hazardous substances, toxic substances and all related
materials, including all materials and substances regulated by The Comprehensive
Environmental Response, Compensation and Liability Act of 1980, The Resource
Conservation and Recovery Act of 1976, The Superfund Amendments and
Reauthorization Act of 1986, The Clean Water Act, The Clean Air Act, The Toxic
Substance Control Act, all as amended from time to time, and/or any other
applicable federal, state or local environmental law, statute, rule, regulation
or ordinance
(k) "Recurring Monthly Revenue" ("RMR") means the sum of monthly
recurring revenue to be derived by the Company from all Alarm Accounts and
Wholesale Alarm Accounts in service as of the Closing Date. RMR shall only
include those sums derived from Alarm Accounts and Wholesale Alarm Accounts that
are: (i) provided Alarm Services pursuant to Subscriber Contracts on the
Company's standard written contract forms to which there have been no material
alterations as to any customer, or on Customer Purchase Orders or on Modified
Agreements which, collectively, do not represent more than 5% of the total
Closing RMR (the "RMR Basket"); (ii) provided Alarm Services pursuant to
Subscriber Contracts which do not
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contain a provision, which requires the customer's consent to the consummation
of the transactions contemplated hereby, except that up to 1% of the total
Closing RMR (the "RMR Change-In-Control Basket") may be from Subscriber
Contracts, which do contain such "change-in-control" provisions (the
"Change-In-Control Subscriber Contracts"); (iii) billed as stipulated in the
applicable Subscriber Contract (including any increases in service rates imposed
by the Company subsequent to the execution of any written agreement or entry of
any oral agreement and prior to the date of this Agreement); (iv) not more three
(3) calendar months past due from the date of the earliest unpaid invoice date
for RMR issued prior to the Closing Date (which invoice date is on or before the
first date of service for the applicable billing period); unless derived from
Alarm Accounts that historically pay late, which are identified on a slow-pay
schedule delivered to Buyer 5 business days prior to the Closing Date and
approved by Buyer (the "Slow Pay Schedule"); and (v) in effect on the Closing
Date and as of the Closing Date had not been canceled, and with respect to which
no written notice of cancellation or oral notice of cancellation recorded in the
ordinary course of business (either in writing or other media) by the Company
has been received prior to the Closing Date. RMR shall not include any amounts
derived from or which are expected to be derived from: (a) reimbursement for or
prepayment of private line telephone line charges associated with any monitored
account; (b) reimbursement for or prepayment of any false alarm assessment; (c)
reimbursement for or prepayment of any amounts equal to taxes, fees, monitoring
charges or other charges imposed by any governmental authority relative to the
furnishing of alarm services; (d) alarm services to be provided under any
agreement, which by its terms is terminable and has been terminated by the
Company's customer as a result of the consummation of the transaction
contemplated hereby; (e) time and material service revenue, or other revenues
that are not received on a regular and recurring basis; (f) charges paid to
third party response agencies (including answering service charges) for
monitoring, patrol or alarm response, other than charges paid to RRSS or other
third party monitoring facilities of Company identified on Schedule 4.17; (g)
charges subject to reduction for lease-to- buy equipment; (h) charges which are
not recurring throughout the entire remaining term of the applicable Subscriber
Contract. In addition, RMR shall not include the recurring regular monthly fees
and charges payable pursuant to customer contracts with respect to which on the
Closing Date the alarm system has not been fully installed and operational,
unless included on the Schedule 1.2(r). RMR attributable solely to the Wholesale
Alarm Accounts is referred to as the "Wholesale RMR," and RMR attributable to
the Alarm Accounts is referred to as "Alarm RMR." RMR shall not include any
recurring revenue attributable to the Crime Buster, Inc. alarm accounts and/or
Southeast Security Management Co. alarm accounts.
(l) "Majority in Interest of Sellers" means any Seller or group of
Sellers or holders of stock options immediately prior to Closing, who,
individually or collectively, has the power to vote a majority of the shares of
the Stock (assuming conversion of the options to Stock at the Closing.).
(m) "Non-qualified Account" means an Alarm Account included among
the Assets that did not meet the definition of RMR at the Closing Date and was
not included in the Closing RMR, and is set forth on Schedule 1.2(m) to be
delivered by Sellers to Buyer 2 business days prior to the Closing Date.
(n) "Sellers' Representative" means Centennial Fund IV, L.P. or
such other person or entity designated in writing to Buyer by a Majority in
Interest of Sellers.
(o) "Subscriber" means any person, business, corporation or other
entity that has an Alarm Account with the Company for the provision of Alarm
Services.
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(p) "Valuation Date" means the business day that coincides with or
next follows the last day of the Valuation Period.
(q) "Working Capital Adjustment" means the amount obtained by
subtracting the total liabilities (both current and long term other than the
Notes) from the current assets (on a consolidated basis) as of the Closing Date
in accordance with GAAP applied on a basis consistent with the past practices of
the Parent, the Corporation and the Ohio Subsidiary, as the case may be. The
method of calculation and the exclusive components of the Working Capital
Adjustment are set forth on Schedule 1.2(q). The Working Capital Adjustment
determined by the Company at Closing is referred to as the "Closing WC." If the
total liabilities included in the Working Capital Adjustment exceed the assets
included in the Working Capital Adjustment, then the Working Capital Adjustment
is expressed as a negative number.
(r) "Work in Progress" or "WIP" means new Alarm Accounts sold
prior to the Closing Date pursuant to a fully executed written contract or
customer's purchase order, which have not been completely installed and are not
being monitored as of the Closing Date, and shall be set forth on Schedule
1.2(r) to be delivered 2 business days prior to the Closing, which schedule
shall set forth in reasonable detail, the name, address, the purchase price
and/or installation fee, deposit received, work performed, the RMR associated
with the Alarm Account (the "WIP RMR"), and anticipated installation completion
date for each account included in the work in process (each a "WIP Account").
"WIP Losses" means the loss, if any, incurred by Company or Buyer in installing
each WIP Account (the installation revenue for the WIP Account included in the
Closing WC or paid to Company or Buyer after the Closing Date less an
administration fee of $150.00, cost of materials, direct labor and any
applicable sales commissions for such WIP Account.)
(s) "Notes" means the obligations of the Company evidenced by
secured or unsecured promissory notes of the Company and that are reflected
under the captions "Notes Payable," and "Subordinate Notes Payable," including
any portion under "Current Portion of Long Term Debt" on the Financial
Statements.
2. PURCHASE PRICE AND CLOSING.
2.1 Purchase Price.
(a) Determination of the Purchase Price. The purchase price
("Purchase Price") for the sale of the Stock shall be the amount obtained by
taking the total of: the amount of the Company's Alarm RMR as of the Closing
Date (the "Closing Alarm RMR"), multiplied by 62; plus the amount of the
Company's Wholesale RMR as of the Closing Date (the "Closing Wholesale RMR")
multiplied by 30; plus the Working Capital Adjustment, plus an amount equal to
the WIP RMR anticipated by Buyer, in its commercially reasonable opinion, to be
put in service before the Valuation Date multiplied by 62. The Purchase Price
will be reduced by the amount of the Notes as of the Closing Date; (including
all accrued interest, penalties and late-payment fees and all prepayment
penalties, if any). On the Adjustment Date, the Purchase Price shall be
increased by an amount equal to the Re-qualified RMR, if any, (as herein
defined) multiplied by 31. This determination of the Purchase Price assumes
that: (i) unearned income attributable to alarm services to be performed after
the Closing Date for Alarm Accounts,.is included as a liability on the balance
sheet of the Parent and/or the Company, and will be included in the Working
Capital Adjustment and Closing WC, and if it is not so included, the Purchase
Price would be reduced by the amount of the unearned income at the Closing Date;
and (ii) the valuation of accounts
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receivable includes an appropriate reserve for bad debt made in accordance with
GAAP consistently applied in accordance with past practices of Company.
(b) Estimated Closing Purchase Price. At Closing, Buyer will
prepare a good faith estimate of the Purchase Price (the "Closing Purchase
Price"), subject to Sellers' Representative's review and acceptance. 85% of the
Closing Purchase Price, without deduction for the amount of the Notes, less the
amount of Notes, will be paid to the Sellers' Representative on behalf of the
Sellers pursuant to Sellers' Representative's written wire instructions and
payment authorization substantially in the form of Schedule 2.1(b)-A on the
Closing Date by federal funds wire transfer or other form of immediately
available funds. The balance of the Closing Purchase Price (the "Deferred
Payment") will be withheld by Buyer and delivered to the Escrow Agent to be held
pursuant to the terms of an escrow agreement substantially in the form of
Exhibit A (the "Holdback Escrow Agreement") and as more specifically set forth
in Section 2.1(c). Interest earned in the escrow account shall be distributed to
Sellers' Representative on behalf of Sellers on a quarterly basis pursuant to
the terms set forth in the Holdback Escrow Agreement. The amount of the Notes
will be paid to the Note holders at Closing. The calculation of the Closing
Purchase Price and its components shall be set forth on Schedule 2.1(b)-B, a
proforma of which is attached hereto, and which proforma sets forth Sellers'
estimate of the Closing Purchase Price, which estimate is not binding upon any
party and is provided solely for exemplary purposes. If Sellers' Representative
does not accept Buyer's determination of the Closing Purchase Price and the
difference between Buyer's estimation of the Closing Purchase Price and Sellers'
Representative's estimation of the Closing Purchase Price is $400,000 or less,
the Closing Purchase Price will be calculated using one-half of such difference,
and either Buyer or Sellers will have the right to dispute such amount after
Closing pursuant to Section 2.1(h). If the difference between Buyer's
determination of the Closing Purchase Price and Sellers' Representative's
determination of the Closing Purchase Price is greater than $400,000, then the
dispute will be submitted prior to Closing to the Independent Accountants (as
herein defined) who will resolve such dispute within 10 days after such
engagement, such resolution being a condition of Closing. The reasonable fees of
the Independent Accountants will be allocated in the manner set forth in Section
2.1(h).
(c) Deferred Payment. One-third of the Deferred Payment shall be
paid to Sellers on the second anniversary of the Closing Date less any
adjustments due to offsets for the indemnification obligations of Sellers under
this Agreement, and any downward adjustments to the Purchase Price as set forth
herein. The balance of the Deferred Payment shall be paid to Sellers on the
third anniversary of the Closing Date less any adjustments due to offsets for
the indemnification obligations of Sellers under this Agreement.
(d) Closing Date Review. Not later than sixty (60) days after the
Closing, the Sellers will, at their sole expense, cause the Company's certified
public accounting firm (Ernst & Young) to deliver to the Sellers'
Representatives, the Company and Buyer the Closing Financials (together with
related work papers) for the Company. The Shareholders' Representative shall
direct Ernst & Young to prepare the Closing Financials, at Sellers' expense, in
accordance with generally accepted accounting principles applied consistently by
the Company throughout the periods indicated and on a consistent basis with the
Financial Statements. Buyer will cause Company to make its employees and
accounting records reasonably available to Company's certified public accounting
firm at the Company's offices as may be necessary to permit such accounting firm
to prepare the Closing Financials. After the Valuation Date and on or before the
Adjustment Date, Buyer will redetermine the Purchase Price at the Closing Date
(the "Adjusted Purchase Price") and deliver to Sellers' Representative a
schedule (the "Closing Date Review Schedule")setting forth:
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(i) its calculation of the Alarm RMR in effect as of the
Closing Date ("Adjusted Alarm RMR");1
(ii) its calculation of the Wholesale RMR in effect as of the
Closing Date ("Adjusted Wholesale RMR");
(iii) its calculation of the Working Capital Adjustment as of
the Closing Date ("Adjusted WC") based upon the information provided in the
Closing Financials;
(iv) its calculation of the WIP RMR attributable to the WIP
Accounts which meets the definition of RMR set forth in Section 1.2(j) as of the
Valuation Date, have been completely installed on or prior to the Valuation
Date, are capable of being monitored on the Valuation Date, (the "Adjusted WIP
RMR"), and the aggregate amount of the WIP Losses, if any;
(v) its calculation of the RMR attributable to Non-qualified
Accounts in service on the Valuation Date, which have paid, in full, the
accounts receivable balance for RMR existing as of the Closing Date, and which,
on the Valuation Date, are not more than 1 calendar month past due in the
payment of RMR from the earliest unpaid invoice date issued prior to the
Valuation Date (provided such invoice date is earlier than the first service
date for the applicable billing period) and, in all other respects, meet the
definition of RMR as set forth in Section 1.2(j) as of the Valuation Date (the
"Re- qualified RMR"); and
(vi) its calculation of the amounts due under the Notes as of
the Closing Date, (including all accrued interest, penalties and late-payment
fees and all prepayment penalties, if any).
(e) Adjusted Purchase Price.
The Closing Date Review Schedule shall also include the
resulting Buyer's calculation of the Adjusted Purchase Price determined as
follows:
(i) the Adjusted Alarm RMR multiplied by 62; plus
(ii) the Adjusted Wholesale RMR multiplied by 30; plus
(iii) the Adjusted WIP RMR multiplied by 62; minus the WIP
Losses; plus
(iv) the Re-qualified RMR multiplied by 31; plus
(v) the Adjusted WC (which may be a negative amount); minus
--------
1 Adjusted Alarm RMR shall not include any RMR attributable to Alarm Accounts
evidenced by Customer Purchase Orders or Modified Agreements in excess of the
RMR Basket; and shall not include any RMR attributable to Alarm Accounts
evidenced by Change-In-Control Subscriber Contracts in excess of the RMR
Change-In-Control Basket for which there are as of the Valuation Date accounts
receivable in excess of 30 days.
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(vi) the amounts necessary to cancel and satisfy the Notes in
full as of the Closing Date, (including all accrued interest, penalties and
late-payment fees and all prepayment penalties, if any).
The Closing Date Review Schedule shall be accompanied by a certificate signed by
an officer of Buyer setting forth that the schedule and adjustments have been
prepared in accordance with the terms and provisions of the Agreement. In the
event the Adjusted Purchase Price is more or less than the Closing Purchase
Price, then Deferred Payment shall be adjusted upwards or downwards by such
difference accordingly. If the Adjusted Purchase Price is greater than the
Closing Purchase Price, the balance shall be added to the Deferred Payment and
paid into the escrow account by Buyer; and if the Adjusted Purchase Price is
less than the Closing Purchase Price, the Deferred Payment will be decreased by
said amount and paid out of the escrow account to Buyer.
(f) Valuation Date Review: Subsequent to calculating the Adjusted
Purchase Price pursuant to Section 2.1(e), and after the Valuation Date and on
or before the Adjustment Date, Buyer shall recompute the Alarm RMR ("Second Look
Alarm RMR") and the Wholesale RMR (the "Second Look Wholesale RMR" and together
with the Second Look Alarm RMR the "Total Second Look RMR") as of the Valuation
Date for the Alarm Accounts and Wholesale Alarm Accounts originally included in
the RMR, and prepare and deliver to Sellers' Representative a schedule setting
forth the amount of each element of the Total Second Look RMR, the amount of any
further adjustment to the Adjusted Purchase Price (such adjusted purchase price
being the "Final Purchase Price"), and the amount of the remaining balance of
the Deferred Payment. The RMR shall be reduced only for each Alarm Account or
Wholesale Alarm Account (a "Non-Performing Account") included in the RMR which
is canceled or terminated for either or both of the following reasons:
(i) the Non-Performing Account was canceled by Buyer, the
Parent or the Company on or before the Valuation Date because: (a) a notice of
cancellation, dispute or intent not to renew has been received by the Company
from a Subscriber, either orally (and is reflected in the ordinary course of
business in the records of Company either in writing or other stored media) or
in writing, prior to the Closing Date; or (b) a notice of cancellation, dispute
or intent not to renew had been received by Buyer, the Sellers, the Company,
either orally (and is reflected in the ordinary course of business in the
records of Company either in writing or other stored media) or in writing after
the Closing Date which cancellation relates to circumstances, events or
occurrences existing prior to the Closing Date; or
(ii) the Non-Performing Account was canceled by Buyer after
the Valuation Date but prior to the Adjustment Date because the Non-Performing
Account had an accounts receivable balance for RMR at the Closing Date of one
calendar month or more (whether included on the Slow-Pay Schedule or not), and
Buyer did not receive, during the Valuation Period, at least one (1) payment
from the Subscriber in an amount not less than the RMR attributable to the Alarm
Account. Credits given to Non-Performing Accounts or Non-qualified Accounts
shall not be considered payments hereunder, nor shall Sellers offer to make or
actually make any payments on behalf of a Non-Performing Account or a
Non-qualified Account or offer or cause to offer any gift or any other
inducement or coercion to any Non-Performing Account or Non-qualified Account to
make any payments to Buyer after the Closing Date.
(g) Exceptions to Non-Performing Accounts. The RMR shall not be
reduced for any Non-Performing Account that was canceled by Buyer pursuant to
the terms of subsection
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2.1(f)(i) and/or 2.1(f)(ii), if during the Valuation Period, Buyer did any of
the following with respect to such NonPerforming Account: (A) relocated the
monitoring service from the monitoring facility used at Closing unless the move
is from the Interactive monitoring facility to the RRSS monitoring facility or
another monitoring facility currently used by the Company or Buyer; (B)
increases the RMR except for increases attributable to additions or changes in
services or equipment; (C) changes the billing cycle (e.g., change from a
monthly to quarterly xxxx cycle); or (D) requests the Non-Performing Account to
execute a new alarm service contract, unless the existing Subscriber Contract
with the Non-Performing Account is (A) a Modified Agreement; or (B) a Customer
Purchase Order that is subject to renewal during the Valuation Period.
(h) Purchase Price Reduction. If after deducting the aggregate
amount of the Alarm RMR and Wholesale RMR for the Non-Performing Accounts from
the Closing RMR, the Second Look Alarm RMR is less than the Closing RMR then the
Adjusted Purchase Price and Deferred Payment will be reduced by an amount equal
to the difference between the Closing Alarm RMR and the Second Look Alarm RMR
multiplied by 62. If after deducting the aggregate amount of the Wholesale RMR
for the Non-Performing Accounts for the Closing Wholesale RMR, the Second Look
Wholesale RMR is less than the Closing Wholesale RMR then the Adjusted Purchase
Price and Deferred Payment will be reduced by an amount equal to the difference
between the Closing Wholesale RMR and the Second Look Wholesale RMR multiplied
by 30. However, if a new customer takes over an Alarm Account at the location of
a Non-Performing Account prior to the Valuation Date, then Buyer shall add back
into the Second Look Alarm RMR an amount equal to the RMR for the new customer
multiplied by 52. The Adjusted Purchase Price and the Deferred Payment shall be
further reduced by an amount equal to the product of $50.00 multiplied by the
number of Customer Purchase Orders or Modified Agreements that exceed 3% of the
total Closing RMR that are included in RMR pursuant to clause (i) of Section
1.2(k). Nothing in the immediately preceding sentence shall be interpreted to
mean that the Closing RMR may include RMR related to Customer Purchase Orders or
Modified Agreements in excess of the RMR Basket.
(i) Purchase Price or Adjustment Dispute: Should Sellers'
Representative dispute Buyer's calculation of the Adjusted Purchase Price under
subsections 2.1(e) or Buyer's calculation of the Final Purchase Price under
subsections 2.1(f) and 2.1(h) above, Sellers' Representative will promptly, but
in no event later than 15 business days after receipt of such calculation,
deliver to Buyer written notice describing in reasonable detail the dispute,
together with Sellers' Representative's determination as to the Adjusted
Purchase Price or Final Purchase Price, as the case may be, in reasonable
detail. If the dispute is not resolved by the parties within 15 business days
from the date of receipt by Buyer of such written notice from Sellers'
Representative, the Sellers and Buyer agree to promptly engage Price Waterhouse
(the "Independent Accountants") to resolve the dispute within 30 business days
after such engagement. The Independent Accountants' determination will be
restricted to the terms set forth in this Agreement and will be final and
binding on the parties. All fees and costs of the Independent Accountants will
be borne pro rata by Buyer and Sellers in proportion to the difference between
the Independent Accountants' determination of the Adjusted Purchase Price or
Final Purchase Price, as the case may be, and Sellers' Representative's and
Buyer's determination of such adjustment. For example, if Sellers'
Representative's determination differs by $20,000 from the Independent
Accountants' determination, but Buyer's determination only differs by $5,000,
Sellers will bear 20/25 of such fees and costs and Buyer will bear 5/25 of such
fees and costs.
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2.2 Closing Date and Location; Payments.
The consummation of the transfer and delivery of the Stock to Buyer,
including the recording thereof on the stock registry records of Parent, and the
receipt of the consideration therefor by Sellers will constitute the Closing.
Unless otherwise mutually agreed to by the parties and subject to satisfaction
of the conditions precedent set forth in Articles 7 and 8, the Closing will take
place at 9:00 a.m., local time, at the offices of Buyer in Topeka, KS, on the
Closing Date but in any event prior to the Termination Date, except as provided
under Article 11. The effective date of the sale of the Stock will be as of
11:59:59 p.m. on the Closing Date (the "Effective Time").
2.3 Noncompetition and Nonsolicitation Agreements.
In connection with the consummation of these transactions, Xxxxxx X.
Xxxxxx ("Xxxxxx")shall have executed a Noncompetition Agreement substantially in
the form of Exhibit B-1 and Company shall have paid to Shiver the cash
consideration set forth in the Noncompetition Agreement together with all
severance payment obligations due to Shiver. Each of Xxxxx X. Xxxxxxx, Xxxx Xxx,
Xxxxxxx Xxxx, Xxxxxxx Xxxxxxxxx, Xxx Xxxxxxxxx and Xxxxxx Pilot will have
executed a nonsolicitation agreement substantially in the form of Exhibit B-2
(the "Nonsolicitation Agreement"), and Company shall have paid to each of them
the cash consideration set forth in the Nonsolicitation Agreement. Buyer's
remedy for a breach of the Noncompetition Agreement or Nonsolicitation
Agreements will not be limited to any amount given as consideration for the
Noncompetition Agreement or Non-solicitation Agreements and that Buyer's
remedies will be as specified in the Noncompetition Agreement or
Non-solicitation Agreements, as the case may be.
3. INDIVIDUAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS.
As an inducement to Buyer to enter into this Agreement and to consummate
these transactions, each Seller, individually and severally solely with respect
to such Seller, represents, warrants and covenants to Buyer and agrees that as
of this date and through and including the Closing Date:
3.1 Ownership of Stock
Such Seller is the owner, beneficially and of record, of, and has good
title to, all shares of the Stock to be transferred by such Seller hereunder,
free and clear of all Encumbrances.
3.2 Capacity and Authority, Enforceability, No Violations
(a) Such Seller has the requisite power, legal capacity and
authority and the right to execute and deliver this Agreement and to carry out
the terms and conditions applicable to such Seller under this Agreement,
including the power, legal capacity, legal authority and right to sell, convey
and transfer to Buyer at the Closing the Stock, free and clear of any and all
Encumbrances, to be sold to Buyer by such Seller. Upon consummation of the
Closing, Buyer will acquire from such Seller legal and beneficial ownership of,
good and marketable title to, and all right to vote the Stock to be sold to
Buyer by such Seller, free and clear of all Encumbrances.
(b) This Agreement constitutes, and each other agreement and
instrument to be executed and delivered pursuant to the terms of this Agreement
(collectively, the "Sellers Transaction Documents") by such Seller will
constitute, the legal, valid and binding obligation of
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such Seller enforceable in accordance with such Sellers Transaction Document's
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by general equitable principles.
(c) The execution and delivery of this Agreement and the other
Sellers Transaction Documents by such Seller, and such Seller's consummation of
the transactions contemplated hereby and thereby and the performance of such
Seller's obligations hereunder and thereunder, will not (a) conflict with or
result in the violation of any applicable law or rule or regulation affecting
such Seller or the Stock owned by such Seller; (b) conflict with or result in
the violation of any judgment, order, decree or award of any court, arbitrator,
mediator or governmental agency or instrumentality to which such Seller is a
party or by which such Seller or the Stock owned by such Seller may be bound or
affected; or (c) conflict with, result in the violation or termination of, or
accelerate the performance required by, any contract, indenture, instrument or
other agreement to which such Seller is a party or by which such Seller or the
Stock owned by such Seller may be bound or affected, except in the case of
clauses (a), (b) and (c) for any such conflict, violation, termination or
acceleration as would not have an adverse effect on such Seller's ownership of
the Stock or a material adverse effect on such Seller's ability to perform its
obligations under this Agreement and the other Sellers Transaction Documents or
consummate the transactions contemplated hereby and thereby.
3.3 Consents and Approvals
Other than as set forth on Schedule 3.3, no consent, approval,
authorization or other action by, or filing or registration with, any federal,
state or local governmental authority, or any other person or entity, which
consent has been not obtained and is in full force and effect, is required in
connection with the execution and delivery by such Seller of this Agreement, the
consummation of the transactions contemplated hereby or the performance of such
Seller's obligations hereunder. The transfer of the Stock from such Seller to
Buyer is not subject to registration under federal law or the law of any state.
3.4 Absence of Defaults
Such Seller is not in default under or in violation of (a) any
contract, indenture, instrument, or other agreement, arrangement or
understanding to which such Seller is a party and by which the Stock owned by
such Seller beneficially and of record, may be bound or affected, and no fact,
circumstance or event has occurred which, upon notice, lapse of time or both,
would constitute such a default or violation; (b) any applicable law, rule or
regulation affecting the Stock owned by such Seller; or (c) any judgment, order,
decree, or award of any court, arbitrator, mediator or governmental agency or
instrumentality by which the Stock owned by such Seller beneficially and of
record is bound or affected.
3.5 Litigation and Claims
Such Seller is not a party to, nor is there, any pending or to such
Seller's best knowledge threatened litigation or other legal proceeding or
governmental investigation against such Seller, or affecting the Stock owned by
such Seller beneficially and of record, or challenging the validity or propriety
of, or seeking to enjoin or set aside, (a) the execution and delivery of this
Agreement or any document contemplated hereby by such Seller; (b) the
consummation by such Seller of the transactions contemplated hereby or thereby;
or (c) the performance by such Seller of such Seller's obligations hereunder or
thereunder.
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3.6 Non-Foreign Status
Such Seller is not a foreign person or entity under Section 1445 of
the Internal Revenue Code of 1986, as amended.
3.7 Authority of Sellers' Representative.
At Closing, the Sellers' Representative is authorized, on behalf of
Seller, to execute and deliver the Wire Instructions and Payment Authorization
(the form of which is attached as Schedule 2.1(b)(A)) to Buyer and Buyer may
rely upon the accuracy of the information contained therein, including the
amount payable to such Seller, without independent inquiry or verification.
4. JOINT REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS.
As an inducement to Buyer to enter into this Agreement and to
consummate these transactions, Sellers represent, warrant and covenant to Buyer
and agree that as of this date and through and including the Closing Date:
4.1 Organization and Corporate Documents.
(a) The Parent, and the Corporation are each a corporation duly
incorporated and organized, validly existing and in good standing under the laws
of the state of Delaware. The Ohio Subsidiary is a corporation duly incorporated
and organized, validly existing and in good standing under the laws of the state
of Ohio. Each of the Parent, the Corporation and the Ohio Subsidiary has the
requisite corporate power and authority to own or lease all of the Assets owned
or leased by it, to own and operate the Security Business owned and operated by
it, and to carry on its business as now conducted. The Parent, the Corporation
and the Ohio Subsidiary are qualified as foreign corporations in all
jurisdictions in which they are required to be so qualified, except where such
failure to be qualified would not have a material adverse effect on the Company
or the Security Business. The Parent has no direct or indirect subsidiaries
other than the Corporation and the Ohio Subsidiary. The Corporation has no
direct or indirect subsidiaries other than the Ohio Subsidiary. The Company does
not engage in any business or activity other than the Security Business.
(b) Except as set forth on Schedule 4.1, none of the Parent, the
Corporation nor the Ohio Subsidiary has, within the 6 year period immediately
preceding the date of this Agreement, changed its name, been the surviving
entity of a merger or consolidation, or acquired all or substantially all of the
assets of any person or entity. Schedule 4.1 also sets forth all of the
fictitious names under which the Parent, the Corporation and the Ohio Subsidiary
or such predecessors of the Parent, the Corporation and the Ohio Subsidiary have
conducted business.
(c) The Articles of Incorporation of the Parent, the Corporation
and the Ohio Subsidiary and all amendments thereto to date, certified by the
Secretary of State of the jurisdiction of incorporation, and the Bylaws of the
Parent, the Corporation and the Ohio Subsidiary, as amended to date, certified
by the Secretary or an Assistant Secretary of the Parent, the Corporation and
the Ohio Subsidiary, as the case may be, all of which have been, or, at least 10
business days prior to Closing, will be, delivered to Buyer, are true, complete
and correct, and the minute books of the Parent, the Corporation and the Ohio
Subsidiary, which Sellers will make available to Buyer and its counsel at least
10 business days prior to the Closing Date, correctly reflect all corporate
actions taken at the meetings reported therein and correctly record all
resolutions. The stock certificate books and ledgers of the Parent, the
Corporation and Ohio
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Subsidiary, as will be made available to Buyer for inspection at least 10
business days prior to the Closing Date, and which will be delivered to Buyer at
Closing, are true, correct and complete, and accurately set forth the ownership
of all of the issued and outstanding capital stock of the Parent, the
Corporation and Ohio Subsidiary by the persons set forth on Schedule 4.1, in the
amounts set forth thereon.
4.2 Capitalization.
(a) Schedule 4.2 accurately sets forth the number of all
authorized shares of all classes of capital stock, the nature and description of
such stock (e.g., whether common or preferred and the class and terms thereof)
and the par value of the capital stock of the Parent, the Corporation and the
Ohio Subsidiary. All of the issued and outstanding capital stock of the Parent,
the Corporation and the Ohio Subsidiary has been validly issued, is fully paid
and nonassessable, and is entitled to vote at all shareholder meetings. The
issued and outstanding capital Stock of the Parent is owned beneficially and of
record by the shareholders set forth in Section 1.1, free and clear of all
Encumbrances, except as set forth under subsection (d) on Schedule 4.2 which
Encumbrances shall be satisfied in full upon payment of the Notes.
(b) Except as set forth on Schedule 4.2, there are no outstanding
subscriptions, options, rights, warrants, unsatisfied preemptive rights,
convertible securities, puts, calls, conversion rights, agreements or
commitments of any kind which have not been waived obligating the Parent, the
Corporation or the Ohio Subsidiary, or any of the Sellers with respect to the
Parent, the Corporation and the Ohio Subsidiary, to purchase, redeem, issue,
acquire or transfer any shares of their capital stock or other securities, and
there is no security of any kind convertible into capital stock.
(c) None of the shares of stock of the Parent, the Corporation or
the Ohio Subsidiary has been issued in violation of any preemptive rights of its
respective shareholders or transferred in violation of any transfer restrictions
relating thereto. Except as set forth on Schedule 4.2, there are no existing
shareholder agreements, voting agreements or voting trusts respecting any shares
of the capital stock of the Parent, the Corporation or the Ohio Subsidiary.
4.3 Sole Business; Subsidiaries; Affiliates.
(a) The Parent was organized and incorporated on November 22,
1993, and began conducting business on May 10, 1994. The Parent has been under
the same management since March 1,1994 and the same ownership since June, 1997.
The Parent has no direct or indirect interest by stock ownership or otherwise in
any firm, association or business enterprise, other than the Corporation and the
Ohio Subsidiary, and except as set forth on Schedule 4.3. The Sellers own
beneficially and of record, all of the outstanding stock of the Parent, free and
clear of all Encumbrances, except as set forth on Schedule 4.3.
(b) The Corporation was organized and incorporated on February 1,
1995, and began conducting business on February 22, 1995. The Corporation has
been under the same management and ownership since February 10, 1995. The
Corporation has no direct or indirect interest by stock ownership or otherwise
in any firm, association or business enterprise, other than the Ohio Subsidiary
and except as set forth on Schedule 4.3. The Parent owns beneficially and of
record, all of the outstanding stock of the Corporation, free and clear of all
Encumbrances, except as set forth on Schedule 4.3.
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(c) The Ohio Subsidiary was organized and incorporated on June 21,
1985, and began conducting business on July 1, 1985. The Ohio Subsidiary has
been under the same management and ownership since March 2, 1995. The Ohio
Subsidiary has no direct or indirect interest by stock ownership or otherwise in
any firm, association or business enterprise except as set forth on Schedule
4.3. The Corporation owns beneficially and of record, all of the outstanding
stock of the Ohio Subsidiary, free and clear of all Encumbrances, except as set
forth on Schedule 4.3.
(d) Except as set forth on Schedule 4.3, none of the Parent, the
Corporation and the Ohio Subsidiary is a party to any joint venture arrangement,
nor does the Parent, the Corporation or the Ohio Subsidiary have the right to
acquire any securities of or ownership interests in any other person or entity.
(e) Except as set forth on Schedule 4.3, none of the Parent, the
Corporation or the Ohio Subsidiary has entered into any contracts or other
arrangements with any affiliate, except for those that are terminable at will or
without liability.
4.4 Authority of Sellers.
Except as set forth under the subsection Defaults on Schedule 4.4,
none of the Parent, the Corporation or the Ohio Subsidiary is in default under
or in violation of any provision of its Articles of Incorporation or Bylaws or
any agreement, understanding, arrangement, indenture, contract, lease, sublease,
loan agreement, note, restriction, obligation or liability to which it is a
party or by which it is bound or to which it or its assets are subject which
would adversely affect the Stock, or have a material adverse effect on the
Security Business, the Assets or the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of these
transactions will not: (a) conflict with or result in any violation of or
constitute a default under (i) any term of the Articles of Incorporation or
Bylaws of the Parent, the Corporation or the Ohio Subsidiary, or (ii) except as
set forth on Schedule 4.4, any agreement, mortgage, debt instrument, indenture,
or other instrument, judgment, decree, order, award, law, rule or regulation by
which the Parent, the Corporation, the Ohio Subsidiary or Sellers are bound; (b)
result in the creation of any Encumbrance upon any of the Assets; (c) result in
the cancellation, modification, revocation or suspension of any license,
certificate, permit or authorization held by the Parent, the Corporation or the
Ohio Subsidiary except as set forth under the subsection Regulatory on Schedule
4.4; or (d) except as set forth under the subsection Constractual Consents Item
No. 6 on Schedule 4.4, create a right in any person to accelerate payment of
principal of any indebtedness of any Seller, the Parent, the Corporation or the
Ohio Subsidiary.
4.5 Real Property.
(a) The Company does not own any real property.
(b) All of the real property used by the Company under lease is
set forth on Schedule 1.2(b)(ii). The Company has a valid and subsisting lease
for all such real property. Except as disclosed on Schedule 4.5, all such leases
are fully assignable by the Company and do not require any consent or notice
with respect to a change in control. True, correct and complete copies of such
leases and all amendments, assignments and consents thereto have been furnished
by Sellers to Buyer.
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4.6 Title to Property.
Except as described on Schedule 4.6, the Parent, the Corporation or
the Ohio Subsidiary has good and marketable title to all of the Assets, free and
clear of all Encumbrances, defects in title, equities, covenants and other
restrictions of any nature whatsoever. The Assets constitute all of the assets
used in connection with or necessary to the Security Business.
4.7 Compliance with Laws; Litigation.
(a) Except as set forth on Schedule 4.7, Sellers and the Company
have complied with all laws, regulations, rules, writs, injunctions, ordinances,
franchises, decrees or orders of any federal or state court or of any municipal
or governmental department, commission, board, bureau, agency or
instrumentality, except where such failure to comply would not adversely effect
the Stock or have a material adverse effect on the Assets or the Security
Business.
(b) Except as set forth on Schedule 4.7, all reports, schedules
and/or returns of any administrative agency of the federal or any state or local
government required to be filed by the Company have been filed, except where
such failure to comply would not adversely effect the Stock or have a material
adverse effect on the Assets or the Security Business.
(c) Except as set forth on Schedule 4.7, there are no lawsuits,
claims, suits, proceedings or investigations pending or, to the best knowledge
of Sellers or Parent, threatened against or affecting the Company, that relate
to the Stock, or relate to the Sellers' interest in or ownership of Stock, nor
are there any lawsuits, claims, suits or proceedings pending in which the
Company or any Seller is the plaintiff or claimant, that relate to the Stock,
the Assets or the Security Business and which involve the possibility of any
judgment, order, award or other decision that might impair the ability of
Sellers, or any of them, to perform this Agreement, or might impair the quality
of title to the Assets, or might adversely affect the normal operation of the
Security Business in any material respect, or might result in liability for
damages or might otherwise adversely affect the Company's right, title or
interest in the Assets, or the Security Business or Sellers' right, title or
interest in the Stock or adversely affect the Company's or the Buyer's ability
to operate and conduct the Security Business as it is presently operated and
conducted.
(d) There is no action, suit or proceeding pending or, to the best
knowledge of Sellers, threatened which questions the legality or propriety of
these transactions.
4.8 Certain Information Regarding Assets; Insurance.
(a) The Tangible Assets are in good operating condition, ordinary
wear and tear and routine service needs excepted. The Tangible Assets are
available for immediate use in the Security Business except for those items
being serviced in the ordinary course of business. Except as set forth on
Schedule 4.8, all of the Tangible Assets and the state of maintenance thereof
are in compliance with all applicable statutes, ordinances, rules and
regulations. The Company has not delayed or deferred any maintenance or repair
of the Tangible Assets other than in the ordinary course of business consistent
with its standard practices, policies and procedures, and consistent with good
industry practices. The Assets include all such assets (other than spare parts
and Inventory which are covered under Section 4.8(b)), and properties as are
necessary to conduct the Security Business as it is now being conducted, in all
material respects, for the foreseeable future without substantial modification.
The Inventory included in the Assets has been valued
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at the lower of cost or market value. All of the Tangible Assets are adequately
covered by one or more of the insurance policies set forth in Schedule 4.8.
(b) The Tangible Assets include and at Closing will include such
spare parts and Inventory as are necessary to permit the operation of the
Security Business as presently conducted without material interruption.
(c) Schedule 4.8 sets forth a true and complete list of all
insurance policies insuring any of the Assets or relating to the Security
Business. Except as set forth on Schedule 4.8, all such policies are on (and for
the applicable statute of limitations period plus 1 year have been on) an
"occurrence basis," which means, for example, that if a claim against the
Company arose after the Closing Date for an event which occurred prior to the
Closing Date, the Company's applicable insurance policy in existence on the date
such event occurred would cover such claim. The Company carries property damage,
workers' compensation, automobile, directors and officers, general liability and
errors and omissions insurance with respect to the Security Business and the
Assets in such amounts as are adequate and reasonable and against such risks as
are customary in relation to the character and location of such properties and
the nature of such business. All such policies are in full force and effect and
neither the Parent nor the Subsidiaries has received any notice of cancellation
with respect thereto. During the past 5 years, no application by the Company for
insurance with respect to the Assets or the Security Business has been denied
for any reason. During the past 5 years, the Company has not had any claim made
against it by any customer that would adversely affect the Company's insurance
rating. At least 10 days prior to the Closing Date, Sellers will cause the
Company's insurance agent to deliver to Buyer a copy of the Parent's, the
Corporation's and the Ohio Subsidiary's insurance claims history for the past 5
years to the extent available.
(d) Except as set forth on Schedule 4.8, the accounts and notes
receivable reflected on the most recent Financial Statements are free and clear
of any Encumbrance and are not subject to setoff, third party collection efforts
or suit (other than immaterial offsets or counterclaims in an aggregate amount
of no more than $5,000).
4.9 Absence of Adverse Changes or Other Events.
Except as set forth on Schedule 4.9, since December 31, 1996,
neither the Parent, the Corporation nor Ohio Subsidiary has: (a) created or
incurred any liability (absolute or contingent) except for unsecured current
liabilities under contracts entered into in the ordinary course of business; (b)
loaned any money or otherwise pledged the credit of the Parent, the Corporation
or the Ohio Subsidiary, or mortgaged, pledged or subjected to any Encumbrance
any of the Assets; (c) suffered any losses or any other event or condition of
any character adverse to its business, or waived any rights of substantial
value; (d) made any capital expenditures or capital additions or improvements
which in the aggregate exceed $25,000; (e) declared or paid any dividends or
made any other distribution on or in respect of, or directly or indirectly
purchased, retired, redeemed or otherwise acquired any shares of, its capital
stock; (f) suffered any labor disputes or organizational activity by its
employees; (g) issued or sold any shares of its capital stock or rights, options
or warrants to purchase its capital stock, or any securities convertible into
its capital stock other than as disclosed on Schedule 1.1; (h) become bound by
or entered into any contract, commitment or transaction other than in the
ordinary course of business; (i) disposed of any of its assets, other than in
the ordinary course of business or (j) entered into any contract or agreement to
do or perform any of the foregoing actions.
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4.10 Financial Statements.
Exhibit C contains copies of the independently audited consolidated
financial statements of the Parent, the Corporation and the Ohio Subsidiary at
December 31, 1994, December 31, 1995, and December 31, 1996 (the last 3 fiscal
years) and unaudited consolidated revenue reports and income statements of the
Parent, the Corporation and the Ohio Subsidiary for each month during the period
January 1, 1997 through July 31, 1997 (the "Financial Statements"). The
financial results and condition of the Corporation and the Ohio Subsidiary are
consolidated as part of the Financial Statements of the Parent. The Financial
Statements accurately reflect all of the income, expenses, equity, liabilities
and assets of the Company in existence at the respective dates thereof and the
operation of the Company as of such dates. The Assets include all of the assets
reflected in such Financial Statements and all assets acquired since the date of
such Financial Statements, excepting only such assets as have been consumed in
the normal course of business or as have been destroyed by fire, Acts of God or
other occurrences beyond the control of the Company, or are not required to be
included in accordance with GAAP. The Financial Statements, including the notes
thereto: (a) are in accordance with the books and records of the Company; (b)
present fairly the financial condition of the Company as of the respective dates
thereof and its results of operations for the respective periods then ended; and
(c) except in the case of the Financial Statements for the period January 1,
1997 through July 31, 1997 for year end adjustments and the absence of notes, or
except as indicated in the notes to such Financial Statements, have been
prepared in accordance with GAAP, consistently applied with prior periods, with
no material difference between such statements and the financial records
maintained, and the accounting methods applied, by the Parent, the Corporation
and the Ohio Subsidiary for tax purposes.
4.11 Tax Returns and Payments.
(a) Except as set forth on Schedule 4.11, the Company: (i) have
timely and properly filed or caused to be filed, all tax returns, reports,
schedules, declarations, and tax-related documents which they are or have been
required to file, by any jurisdiction to which they are or have been subject to
taxation, all such tax returns being true, correct and complete; (ii) have
timely paid or caused to be paid in full all taxes which are or were due and
payable to any taxing authorities; (iii) have made or caused to be made all
withholdings of taxes required to be made, and such withholdings have either
been timely paid to the appropriate governmental agency or set aside in accounts
for such purpose; and (iv) have otherwise satisfied in all material respects all
legal requirements applicable with respect to such obligations to all taxing
jurisdictions. True, correct and complete copies of the federal, state income
tax returns and state and local sales, use, real and personal property tax
returns of the Company for the last 3 fiscal years have been delivered or at
least 10 business days prior to Closing will be delivered by Sellers to Buyer.
(b) The Company has properly accrued and reflected on the
Financial Statements and will from the date hereof through the Closing Date
properly accrue, all liabilities for taxes and assessments, all such accruals
being in the aggregate sufficient for payment of all such taxes and assessments.
Through the Closing Date, Company will timely and properly file all tax returns
which they are required to file, all such tax returns to be true, correct and
complete. Sellers will pay or cause to be paid when due all taxes, if any, which
have become due on or before the Closing Date pursuant to such returns or
reports or forms, or pursuant to assessments received by the Company, provided
that Buyer will cause the Company to pay such taxes to the extent that such
taxes are reflected as current liabilities in Closing WC.
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(c) The federal and state income tax returns of the Company have
not been audited by the Internal Revenue Service or state taxing authority, as
the case may be.
(d) Except as set forth on Schedule 4.11, there are no unassessed
tax deficiencies proposed or to Seller's best knowledge threatened against the
Company, nor are there any agreements, waivers, or other arrangements providing
for extension of time with respect to the assessment or collection of any tax
against the Company or any actions, suits, proceedings, investigations or claims
now pending against the Company with respect to any tax, or any matters under
discussion with any federal, state, local or foreign authority relating to any
taxes.
(e) Except with respect to the current group, the Parent, the
Corporation and the Ohio Subsidiary are not and have never been members of an
affiliated group of corporations (within the meaning of Section 1504 of the
Internal Revenue Code (the "IRC")). The Company is not a party to, are not bound
by, and do not have any obligation under any tax sharing, tax indemnity, or
similar agreement. The Company has not made and will not make a change in the
method of accounting for a taxable year beginning on or before the Closing Date,
which would require it to include any adjustment under Section 481(a) of the IRC
in taxable income of any taxable year beginning on or after the Closing Date.
The Company has not filed a consent pursuant to Section 341(f) of the Internal
Revenue Code, or agreed to have Section 341(f)(2) of the IRC apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
IRC) owned by it. The Parent and the Subsidiaries have not been target
corporations or target affiliates in a qualified stock purchase within the
meaning of Section 338 of the IRC (or any predecessor provision).
(f) For purposes of this Agreement, "tax" and "taxes" includes all
income, gross receipts, franchise, excise, transfer, severance, value added,
sales, use, wage, payroll, workmen's compensation, employment, occupation,
intangibles, and real and personal property taxes; taxes measured by or imposed
on capital; levies, imposts, duties, licenses, legislation fees; other taxes
imposed by a federal, state, municipal, local, foreign or other governmental
authority or agency, including assessments in the nature of taxes; including
interest, penalties, fines, assessments and deficiencies relating to any tax or
taxes; and including any transferee or secondary liability for taxes and any
liability in respect of taxes as a result of being a member of any affiliated,
consolidated, combined or unitary group or any liability in respect of taxes
under a tax sharing, tax allocation, tax indemnity or other agreement.
(g) For purposes of this Agreement, "tax return" or "tax returns"
includes all reports, estimates, information, statements and returns relating to
or required to be filed in connection with any taxes pursuant to the statutes,
rules or regulations of any federal, state, local or foreign government taxing
authority.
4.12 Agreements with Employees.
(a) Except as set forth on Schedule 4.12, the Company is not a
party to any employment agreement, written or oral, which it cannot terminate at
will on or after Closing without obligation or liability.
(b) The names, titles and rates of compensation of all of the
employees of the Company are listed on Schedule 4.12. None of the key management
employees has indicated to the Company any intention to terminate his or her
employment with the Company other than Xxxxxx X. Xxxxxx.
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(c) Each of the Parent, the Corporation and the Ohio Subsidiary,
have entered into a non-compete/non-solicitation/non-disclosure agreement
substantially in the form included in Schedule 4.12 with each of its respective
key employees designated on Schedule 4.12.
4.13 Intellectual Property Rights.
Schedule 4.13 sets forth any patents (including all reissues,
divisions, continuations and extensions thereof), applications for patents,
patent disclosures docketed, inventions, improvements, trademarks, trademark
applications, trade names and copyrights owned by the Company or under which the
Company otherwise has rights, and all licenses, franchises, permits,
authorizations, agreements and arrangements that concern the same or that
concern like items owned by others and used by the Company. True, correct and
complete copies of all such licenses, franchises, permits, authorizations,
agreements and arrangements have been delivered by Sellers to Buyer. The Company
has not received any notice of, any conflict with the asserted rights of others
with respect to any of these intellectual property rights, or any other
intellectual property rights used in connection with the Security Business. The
Company owns or is the licensee of all rights to all patents, patent
applications, inventions, improvements, trademarks, trademark applications,
trade names and copyrights necessary to conduct the Security Business as
presently conducted, including the names "Centennial," "Masada Security,"
"Sonitrol of Lake County," "Sonitrol of Cincinnati," Sonitrol of Dayton," and
"Habitec Security." The consummation of this transaction will not cause the loss
or impairment of any of Company's rights under any of the items described on
Schedule 4.13..
4.14 Business Documents.
Except for the Subscriber Contracts, agreements to provide third
party monitoring and Business Documents all of which are identified on Schedule
1.2(b)(iii)(A), Schedule 1.2(b)(iii)(B), and Schedule 1.2(b)(iii)(C), the
Company does not have any presently existing material contract, agreement,
lease, permit, consent, license or commitment, whether written or oral,
affecting or relating to the Security Business. As used in the prior sentence
"material" means any such agreement, document or instrument that cannot be
terminated by Company on 30 day's or less notice without liability to Company,
or which provides for annual payments in excess of $5,000. All of the Business
Documents are valid and enforceable against the Company, and to Sellers' and
Parent's best knowledge are valid and enforceable against the other parties
thereto in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally or by general equitable principles.
Sellers will cause the Company to deliver or make available to Buyer not later
than 10 business days prior to Closing copies of all of the Business Documents
identified on Schedule 1.2(b)(iii)(C). Without limiting the foregoing, Sellers
represent that the Security Business and all equipment used in connection with
it are now being utilized, operated and maintained, in all material respects, in
conformity with the Business Documents, with all applicable laws and regulations
(including zoning regulations), and with the orders, rules and regulations of
any government or governmental agency or authority having jurisdiction with
respect thereto. Sellers warrant that the Company does not have any manner at
any time failed to so utilize, operate and maintain the Security Business in a
manner that could now or hereafter result in cancellation or termination of any
of the Business Documents, or in liability for damages under any of the Business
Documents or any other applicable laws and regulations, nor has the Company, or
to the knowledge of the Sellers, any other party to the Business Documents,
defaulted in its obligations pursuant to any of the Business Documents, which
default could result in the cancellation of any Business Document or adversely
affect the rights of the Company under that Business Document. The Company is
not a party to any
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franchise, license, distributor or other similar type of agreement. Except as
set forth on Schedule 4.14, all entities from whom the Company has acquired
assets are governed by noncompetition agreements which (a) are not subject to
termination, cancellation or modification as a result of a change of control of
Company and (b) have a term that extends beyond the Closing Date.
4.15 Subscriber and System Information.
(a) Except as disclosed on Schedule 4.15, the Company has entered
into written agreements with all of its customers; and all of the Subscriber
Contracts are valid and enforceable and are in full force and effect in
accordance with their terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general equitable principles, do not
require the consent of any customer or require notice to any customer for a
change of control of Company, and contain terms and conditions which are
standard within the electronic security industry, including those involving
limitation of liability/liquidated damages, third-party indemnification,
automatic renewals and the right to increase customer rates. Schedule 4.15
includes a true and correct copy of each form of contract that the Company
currently has in effect with its customers (the "Form Contracts"). Except as set
forth on Schedule 4.15, the Company has not modified the Form Contracts and have
not undertaken any obligations or made any warranties or guarantees to any
customers other than those set forth in the Form Contracts. Not more than 5% of
the customers included on Schedule 1.2(b)(iii)(A) are parties to an oral
contract or a Form Contract that has been altered or amended in any material
manner, for example, deleting or modifying the limitation of liability or third
party indemnity provisions) (each such oral contract or altered or modified
written contract a "Modified Agreement") or are parties to contracts other than
the Form Contracts (a "Customer Purchase Order"). None of Company's customers
have a history of excessive false alarms. The Company has not failed in any
material respect to so utilize, operate and maintain the Security Business in a
manner that could now or hereafter result in cancellation or termination of any
of the Subscriber Contracts, or result in liability for damages under any of the
Subscriber Contracts or any other applicable laws and regulations, nor has the
Company, or to the knowledge of the Sellers, any other party to the Subscriber
Contracts, defaulted in its obligations pursuant to any of the Subscriber
Contracts, which default or failure could result in the cancellation of any
Subscriber Contracts or materially adversely affect the rights of the Company
under any Subscriber Contracts.
(b) Except as set forth on Schedule 4.15, the Company has provided
each residential customer with the 3-day right of rescission in compliance with
the provisions of 16 C.F.R. Part 429 (Cooling-Off Period for Door-to-Door Sales)
and any applicable state laws. Sellers acknowledge that any failure on the
Company's behalf to comply with such regulation and laws in connection with any
transaction involving a residential customer may result in such customer having
the right to rescind or cancel such transaction. Sellers further acknowledge
that Buyer does not intend to be responsible for the payment of any liability
that might arise as a result of any such rescission or cancellation, and
therefore Buyer is entitled to indemnification from Sellers as provided in
Section 9 hereof.
(c) Schedule 1.2(b)(iii) sets forth a true and accurate list of
the amounts which the Company charges its customers for monitoring, service,
maintenance, repairs, open/close, refundable deposits, reconnect fees and any
other services provided by the Company to the extent an itemization of such
charges is reflected on such Schedules. The Company does not have any
obligations or liabilities to customers or to other users of the Company's
electronic security services which are material to the Security Business,
except: (i) with respect to deposits made by such customers or such other users,
if any; and (ii) the obligation to supply services (including
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warranty service) to customers in the ordinary course of business. All payment
calculations and other charges made or assessed by the Company pursuant to the
Subscriber Contracts have been done accurately, have been appropriately
disclosed to the customer and do not conflict with any applicable law, rule or
regulation. To the best knowledge of Sellers, there are no complaints by
customers or other users of the Company's electronic security services that,
individually or in the aggregate, could have a material adverse effect upon the
Assets or the financial condition or operation of the Security Business as it
presently conducted and operated.
(d) The Company does not have any free service liability to
customers existing with respect to the Security Business, other than as set
forth in Schedule 4.15, and nothing would prohibit Buyer from discontinuing,
without liability or obligation, any free service after Closing. The Company
does not have any obligation or liability for the refund of monies to their
customers other than obligations to refund deposits made by customers in the
ordinary course of business. Under applicable law, the Company is not required
to pay their customers interest on these refundable deposits. Since December 31,
1996, none of the Sellers or any of the Company's officers, directors,
shareholders, employees or agents have paid directly or indirectly (except for
their own residences) any accounts receivable of customers.
(e) All of the alarm systems installed or taken over by the
Company are in good working order and condition, failure of a customer to report
to the Company any problem with an alarm system which are known to the customer
and customer non-use excepted, and have been installed, inspected, tested and
maintained in accordance with good and workmanlike practices prevailing in the
security alarm industry, in accordance with any applicable specifications or
standards of U.L. and all local authorities, including local telephone
companies. All such alarm systems conform in all material respects to the
contracts pursuant to which they were installed and in no case has an
installation been made by the Company which at the time of installation was in
violation of any applicable law, code or regulation. All manufacturer's
warranties applicable to any such alarm systems are freely assignable to Buyer.
The Company is not aware of any difficulty in obtaining replacement parts for
its product lines. All inspections, tests and repairs required to be performed
pursuant to the Contracts have been performed in a timely manner.
(f) The Company's average gross attrition rate(2) over the period
from January 1, 1996 through July 31, 1997 and over the period from January 1,
1997 through July 31, 1997 has not exceeded 13% on an annualized basis. No one
account represents more than 2% of the Company's RMR. Except as set forth on
Schedule 4.15, there has been no general, overall increase in the Company's
rates in the last 12 months, and Sellers agree that there will be no such
increase in such rates prior to Closing; provided, however, that nothing
contained herein will limit the Company's right to increase rates in the
ordinary course of business on an account-by- account basis for customers whose
contracts are renewed in accordance with existing practices.
--------
(2) Gross Attrition is the percentage obtained by dividing the number of Alarm
Accounts existing on the first day of the measurement period and terminated or
lost for any reason during the measurement period, divided by the number of
Alarm Accounts existing on the first day of the period. If the measurement
period is less than a year, the number of lost accounts is annualized. For
example, if the number of Alarm Accounts on the first day of a six month
measurement period was 1000, and the number of Alarm Accounts terminated or lost
during the period was 50, the annualized Gross Attrition rate would be 10% (50
accounts lost in 6 months is 100 accounts on an annualized basis).
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Except as set forth in Schedule 4.15 Sellers are not aware of any legal or
economic impediments which would prevent Buyer from instituting any rate
increases after the Closing Date.
(g) The Company has the sole right to use all of the telephone
lines and numbers applicable to its accounts with the exception of not more than
500 Alarm Accounts which Company is in the process of converting. Schedule 4.15
sets forth a list of all of the telephone numbers (voice and data) used in
connection with the operation of the Security Business, and its point of
termination (e.g., Rapid Response or other monitoring facility). In addition,
Schedule 4.15 sets forth the approximate number of systems monitored by each
third party monitoring facility.
(h) The Company is in substantial compliance with all known false
alarm ordinances and has paid all false alarm fines, necessary permit fees,
and/or license fees which are the obligations of the Company (as opposed to the
obligation of its customers).
(i) To the best knowledge of Company's key management personnel,
there are no pending plans by any telephone company to change the dialing
procedures or exchange numbers within the areas servicing the customers of the
Security Business such that the Company would need to reprogram its customer's
digital dialers within the 6 month period immediately following the Closing
Date.
(j) All equipment sold or leased by the Company to its customers
was of merchantable quality. The Company has not breached any express or implied
warranties in connection with such sales or leases.
(k) The total RMR as of July 31, 1997 was not less than
$1,200,000. The total Wholesale RMR as of July 31, 1997 was not more than
$3,000.00. The total Non-Qualified RMR as of September 30, 1997 was not more
than $40,000 excluding Alarm Accounts on the Slow Pay Schedule.
(l) Other than as reflected in the Notes, the total amount of the
purchase price or other consideration held back from sellers of security
businesses and/or assets to Company related to the acquisition of security
business and/or assets is not more than $816,000 as of the Closing Date.
4.16 Business Market.
The Company's customers are located in the states set forth in
Schedule 4.16.
4.17 Central Station. All of the Company's Alarm Accounts are monitored
at (a) the Company's central station located in Dayton, Ohio; (b) Rapid Response
Security Service ("RRSS") and (c) the other third-party monitoring facilities
set forth on Schedule 4.17, pursuant to agreements between the Company and each
monitoring facility, complete copies of which have been provided to Buyer.
Except as set forth on Schedule 4.17, all of the Alarm Accounts are monitored on
telephone receiver lines, the right to which belong to the Company and, except
as set forth on Schedule 4.17 are capable of being transferred to Buyer's
monitoring facilities via a line swing, and no field re-programming is necessary
to transfer the monitoring of the Alarm Accounts from any of the monitoring
facilities to Buyer's monitoring facilities. The Company has an existing right
of first refusal to purchase the assets of RRSS which right shall survive the
Closing of this transaction and shall not be void or voidable or capable of
being rescinded or
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canceled by RRSS or otherwise modified as a result of the sale of Stock and the
resulting change of control of the Company contemplated herein.
4.18 U.L. Certification.
The central station of the Company in Dayton, Ohio, is certified by
Underwriters Laboratories, Inc. ("U.L.") as qualified for the Listing Categories
set forth on Schedule 4.18. Sellers acknowledge the importance to the Security
Business of the U.L. certifications in the competitive climate of the electronic
security industry, and Sellers and the Company are not aware of any reason why
the Company could lose any of its U.L. certifications. Sellers further
represents that the Company's central station recently was inspected by U.L. and
nothing was found that would jeopardize that U.L. Certification. The Company is
required by U.L. to perform fire inspections on the accounts set forth on
Schedule 4.18, and all inspections required by U.L. to be performed prior to the
Closing Date, have been timely performed or will be timely performed prior to
the Closing Date. Schedule 4.18 also sets forth the alarm accounts that have
been issued a U.L. Certificate.
4.19 Broker or Finder.
(a) None of the Parent, Corporation, the Ohio Subsidiary, Sellers
or any party acting on their behalf has paid or become obligated to pay any fee
or commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.
(b) Except as set forth on Schedule 4.19 none of Parent,
Corporation or Ohio Subsidiary is a party to any agreement with a broker or
finder pursuant to which it is obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of any acquisitions of any
stock, assets or properties, including, without limitation, alarm monitoring
accounts, at any time.
4.20 Labor and Employment Matters.
(a) Except as set forth on Schedule 4.20, the Parent, the
Corporation and the Ohio Subsidiary are not and have not been a sponsor of,
party to or obligated to contribute to any employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or any employment contract, employee loan, incentive compensation,
profit sharing, retirement, pension, deferred compensation, severance,
termination pay, stock option or purchase plan, guaranteed annual income plan,
fund or arrangement, payroll incentive, policy, fund, agreement or arrangement,
non-competition or consulting agreement, hospitalization, disability, life or
other insurance plan, or other employee fringe benefit program or plan, or any
other plan, payroll practice, policy fund agreement or arrangement similar to or
in the nature of the foregoing, oral or written ("Employee Benefit Plan(s)" or
"Plan(s)"), and have not been a party to any collective bargaining agreements.
No such Plan is a multiemployer plan as defined in Section 3(37) of ERISA or
subject to Title IV of ERISA. True, correct and complete copies of all of the
written Plans and labor agreements, and true, correct and complete written
descriptions of all of the oral Plans described in Schedule 4.20 have been or at
least 10 business days prior to Closing will be delivered to Buyer.
(b) Except as set forth on Schedule 4.20, the Parent, the
Corporation and the Ohio Subsidiary have no unfunded liabilities, or potential,
contingent or actual withdrawal liabilities, on account of or in connection with
any of the Plans or otherwise. All contributions or premium payments due from
the Parent, the Corporation and the Ohio Subsidiary to such
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Plans have been paid in a timely manner, and any additional contributions or
premium payments due on or before the Closing Date will have been paid by that
date.
(c) With respect to each Employee Benefit Plan: (i) all
disclosures to employees relating to each such Plan and required to have been
made on or before the Closing Date have been or will be duly made by that date;
(ii) there is no litigation, disputed claim (other than routine claims for
benefits), governmental proceeding, inquiry or investigation pending or
threatened with respect to each such Plan, its related trust, or any fiduciary,
administrator or sponsor of such Plan; (iii) each such Plan has been
established, maintained, funded and administered in all material respects in
accordance with its governing documents, and any applicable provisions of ERISA,
the IRC, other applicable Law, and all regulations promulgated thereunder; (iv)
the Parent, the Corporation and the Ohio Subsidiary have or prior to Closing
will have delivered to Buyer a true, correct and complete copy of (A) each trust
or custodial agreement and each deposit administration, group annuity, insurance
or other funding contract associated with each such Plan, (B) the most recent
financial information for each such Plan, (C) the most recent actuarial or
valuation report relating to each such Plan, (D) if applicable, the most recent
Return/Report of each Plan (including attachments) required to be filed with any
governmental agency, (E) the Plan document for each such Plan, (F) the summary
Plan description (including summaries of material modifications, if any) for
each such Plan, and (G) if applicable, each Form 5310 (application for
Determination Upon Termination, etc.) filed with the Internal Revenue Service or
the Pension Benefit Guaranty Corporation (the "PBGC") with respect to any Plan
in the current Plan year or any of the 5 Plan years preceding the current Plan
year; (v) neither any such Plan nor any fiduciary has engaged in a prohibited
transaction as defined in ERISA Section 406 or IRC Section 4975 (for which no
individual or class exemption exists under ERISA Section 408 or IRC Section
4975, respectively); (vi) all filings and reports as to each such Plan required
to have been made on or before the Closing Date to the Internal Revenue Service,
or to the U.S. Department of Labor or to the PBGC, have been or will be duly
made by that date; (vii) each such Plan which is intended to qualify as a
tax-qualified retirement plan under IRC Section 401(a) has received a favorable
determination letter(s) from the Internal Revenue Service as to qualification of
such Plan for the period from its adoption through the Closing Date; nothing has
occurred, whether by action or failure to act, which has resulted in or would
cause the loss of such qualification; and each trust thereunder is exempt from
tax pursuant to IRC Section 501(a); (viii) no event has occurred and no
condition exists relating to any such Plan that would subject the Parent, the
Corporation and the Ohio Subsidiary to any tax under IRC Sections 4972 or 4979,
or to any liability under ERISA Section 502; and (ix) to the extent applicable,
each such Plan has been funded in accordance with its governing documents. ERISA
and the IRC, has not experienced any accumulated funding deficiency (whether or
not waived) and has not exceeded its full funding limitation (within the meaning
of IRC Section 412) at any time.
(d) With respect to any Plan which provides group health benefits
to employees of the Parent, the Corporation and the Ohio Subsidiary and is
subject to the requirements of IRC Section 4980B and ERISA Title 1 Part 6
("COBRA"): (i) such group health plan has been administered in every respect in
accordance with its governing documents and COBRA; and (ii) all filings,
reports, premium payments (if any) and notices as to each such group health plan
required to have been made on or before the Closing Date to government agencies,
participants and/or beneficiaries have been or will be duly made by that date.
(e) Except as disclosed on Schedule 4.20, none of the Parent, the
Corporation or the Ohio Subsidiary (i) is a party to any collective bargaining
agreement or discussions or negotiations with any person or group which may
reasonably be expected to result in any such agreement, (ii) has within the last
5 years experienced any strike, grievance, unfair labor practice
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claim or other labor difficulty (other than grievances and unfair labor practice
claims in which the Parent's, the Corporation's and the Ohio Subsidiary's only
exposure was to monetary damages of $10,000 or less), (iii) is aware of any
threatened strike, grievance, unfair practice claim or other labor difficulty,
and there exists no reasonable basis for the assertion of any grievance or,
unfair labor practice claim or other charge or complaint against the Parent, the
Corporation and the Ohio Subsidiary by or before the National Labor Relations
Board or any other Governmental Authority or representative thereof, (iv) is
aware of any filing by any employee or employee group seeking recognition as a
collective bargaining representative or unit, or (v) has any knowledge that any
former employer of any of its employees is contemplating remedial action of any
nature against that employee or the Parent, the Corporation and the Ohio
Subsidiary based on the employee having terminated the former employment and
having become an employee of the Parent, the Corporation and the Ohio
Subsidiary.
(f) Except as disclosed on Schedule 4.20, the Parent, the
Corporation and the Ohio Subsidiary are not obligated to and do not (directly or
indirectly) provide death benefits or health care coverage to any former
employees or retirees.
(g) Except as disclosed on Schedule 4.20, the consummation of this
transaction and the change of control of Company will not trigger, accelerate,
vest or escalate any benefits, rights or features of any policy, plan or
practice, including any payment thereunder, to any employees of Company (e.g.,
such as golden parachute obligations related to a change of control of Company
or similar benefits).
(h) The Parent, the Corporation and the Ohio Subsidiary have
complied with all applicable provisions of the Immigration Reform and Control
Act of 1986.
4.21 Creditors.
Schedule 4.21 sets forth a true, complete and correct list of each
of the creditors of the Company and the amount due by the Company to each such
creditor. Except as set forth on Schedule 4.21, the Company has not incurred or
suffered any debt, liability or other obligation of a material nature, whether
accrued, absolute, contingent or material nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, except for debts,
liabilities or other obligations incurred in the ordinary course of business
since July 31, 1997 which are usual and normal in amount both individually and
in the aggregate. Except for certain Notes designated by Buyer or as included in
the Working Capital Adjustment, all of such debts, liabilities and obligations
will be satisfied by Sellers or the Company on or before the Closing Date.
Except as disclosed on Schedule 4.21 each of the Notes may be paid by Company or
Buyer at Closing with out any prepayment penalty or other surcharge.
4.22 Contracts.
Except as disclosed on Schedule 4.22 or elsewhere in this Agreement,
the Company is not a party to or bound by any written or oral: (a) agreement or
understanding not made in the ordinary course of its business or which is
materially adverse to it; (b) continuing contract for the future purchase of
materials, supplies, machinery or other equipment in excess of the requirements
of its business now booked or of normal operating requirements requiring payment
in excess of $50,000 in the aggregate or which cannot be canceled without
liability on not more than 60 days notice; (c) sales agency agreement or
advertising contract; (e) contract or agreement with any employee, director or
officer; (e) contract or agreement containing covenants by Sellers, or the
Company not to compete in any lines or business or with any person; (f)
dealership,
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commission or distributorship agreement, right or other similar arrangement; (g)
loan, credit or financing agreements, including all agreements for any
commitments for future loans, credit or financing; or (h) guarantee or
suretyship agreement.
4.23 Environmental Matters.
The Company does not own, operate or lease or has owned, operated or
leased any property that has used, generated, stored or disposed of any
Hazardous Materials, nor to the best of Company's knowledge after due inquiry
have there been any Hazardous Materials used, generated, stored or disposed of
by any previous owner or any other third-party on any property owned, operated
or leased by the Company or any of its affiliates.
4.24 Banks, Officers and Powers of Attorney.
Schedule 4.24 contains: (a) a list of all banks (with account
numbers) in which the Parent or the Subsidiaries has an account or safe deposit
box and the names of all persons authorized to draw thereon or have access
thereto; (b) the names of all incumbent directors and officers of the Parent,
the Corporation and the Ohio Subsidiary; and (c) the names of all persons
holding powers of attorney from the Parent, the Corporation and the Ohio
Subsidiary and a summary statement of the terms thereof.
4.25 Inventory.
The Inventory consists of items of a quality and quantity usable and
saleable in the usual and ordinary course of business, and is reflected in the
Financial Statements with adequate provision for obsolete, outdated, unsalable,
unusable or damaged items. All items of Inventory consisting of finished goods
meet applicable design and manufacturing specifications and comply with any and
all warranties customarily given to Subscribers or customers with respect to the
various items of Inventory.
4.26 Liabilities.
The Company does not, and at the Closing will not have any
obligations, indebtedness or Liabilities, contingent or otherwise, other than:
(i) obligations of the Company to Subscribers pursuant to the Subscriber
Contracts or obligations under the Business Documents from events first
occurring on or after the Closing Date; (ii) those disclosed or adequately
reserved for in the Financial Statements (as updated by the Closing WC); (iii)
those expressly described or listed in Schedule 4.21, Schedule 4.22, and
Schedule 4.26; (iv) immaterial obligations, indebtedness or liabilities arising
in the ordinary course of business and not required by GAAP to be recorded in
financial statements or notes thereto, and which in the aggregate do not exceed
$7,500.00; (v) unexpired real and personal property lease obligations which are
disclosed on the schedules hereto; and (vi) the Notes. All of the Liabilities
set forth on Schedule 4.21(other than the Notes) shall have been paid by Company
prior to Closing or shall be included in the Closing WC unless otherwise
expressly agreed to by Buyer.
4.27 Schedules Delivered
All of the schedules described in this Agreement and prepared by the
Company which are being delivered to Buyer herewith or to be delivered at
Closing are accurate and complete as of the date delivered, and will be accurate
and complete as of the Closing Date,
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unless the schedule reflects a different date, and if so, are true, accurate and
complete as of the date indicated, and have been prepared in conformity with the
provisions of this Agreement.
4.28 Disclosure.
No representation or warranty by Sellers in this Agreement or any
Schedule or Exhibit, or any statement, list or certificate furnished or to be
furnished by Sellers pursuant to this Agreement, or in connection with these
transactions, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein not
misleading or necessary in order to provide a prospective purchaser of the Stock
or the Security Business with proper information as to such stock and business.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
As an inducement to Sellers and Parent to enter into this Agreement
and to consummate these transactions, Buyer represents, warrants and covenants
to Sellers and Parent, and agrees that as of this date and through and including
the Closing Date:
5.1 Authority of Buyer.
Buyer is a corporation duly incorporated and organized, validly
existing and in good standing under the laws of the state of Kansas. Buyer has
full corporate power and authority to enter into this Agreement, to consummate
these transactions and to comply with its terms, conditions and provisions. This
Agreement constitutes, and each other agreement and instrument to be executed
and delivered pursuant to the terms of this Agreement (collectively, the "Buyer
Transaction Documents") by Buyer will constitute, the legal, valid and binding
obligation of Buyer enforceable in accordance with such Buyer Transaction
Document's terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general equitable principles. Neither the
execution and delivery of this Agreement or other Buyer Transaction Documents,
nor the consummation of the transactions contemplated by it or them will
conflict with or result in any violation of or constitute a default under any
term of the Articles of Incorporation or Bylaws of Buyer or any agreement,
mortgage, debt instrument, indenture or other instrument, judgment, decree,
order, award, law or regulation by which Buyer is bound.
5.2 Consents. Other than as set forth on Schedule 5.2 and other than the
consents that Sellers or Company must obtain and disclosed on Schedules 4.4 and
4.5, no consent, approval, authorization or other action by, or filing or
registration with, any federal, state or local governmental authority or any
other person or entity, is required in connection with the execution and
delivery by Buyer of this Agreement, the consummation by Buyer of the
transactions contemplated hereby or the performance of Buyer's obligations
hereunder.
5.3 Broker or Finder.
Neither Buyer nor any party acting on its behalf has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of these transactions, except for the services of
Xxxxxx Associates, Inc. whose fee Buyer agrees to pay.
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5.4 Litigation.
There is no action, suit or preceding pending or, to the best
knowledge of Buyer threatened which questions the legality or propriety of these
transactions
5.5 Investment Purpose.
Buyer is an accredited investor as defined in the Federal Securities
Act of 1933 as amended. Other than as disclosed on Schedule 5.5, Buyer is
acquiring the Stock for investment purposes only for its own account and not
with a view to resell or otherwise distribute; and Buyer does not presently
intend to resell or otherwise dispose of all or any part of the Stock. Buyer
acknowledges that Sellers have relied upon this representation in making
Sellers' representations set forth in Section 3.2(c).
5.6 Disclosure.
No representation or warranty by Buyer in this Agreement or any
Schedule or Exhibit, or any statement, list or certificate furnished or to be
furnished by Buyer pursuant to this Agreement, or in connection with these
transactions, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein not
misleading.
6. ACTIONS PRIOR TO OR ON THE CLOSING DATE
The parties covenant and agree to take the following actions prior
to or after the Closing Date:
6.1 Prior To or At Closing.
The parties covenant and agree to take the following actions prior
to or on the Closing Date:
(a) Investigation.
(i) From the date of this Agreement through the Closing
Date, and for a period of not less than 15 business days after the date of this
Agreement (the "Due Diligence Period"), the Parent will provide Buyer and its
representatives, consistent with the maintenance of employee morale and so as
not to unreasonably interfere with the conduct of the Security Business, access
during normal business hours to the employees, properties, facilities,
equipment, and books and records of the Company. The Parent and Sellers
acknowledge that Buyer also desires to contact customers (including making
telephone inquiries and local on-site visits) and suppliers of the Company and
the Company agrees to cooperate with Buyer in making such contact, in order that
Buyer will have full opportunity to investigate the business affairs of the
Company. All contacts with customers will be done in a manner that will not
disclose the identity of Buyer or the transactions contemplated by this
Agreement. All investigations by Buyer pursuant to this provision shall be
completed during the Due Diligence Period.
(ii) During the Due Diligence Period, Buyer and its counsel,
auditors and other representatives will have access to the premises, properties
(including properties held under lease), corporate and financial records,
titles, deeds and other documents of the Company, and to the working papers of
the auditors of the Company used in the preparation of the
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Financial Statements and will be provided such information and assistance from
the officers, directors and employees of the Company and from the auditors of
the Company in connection with their investigations as Buyer or its counsel,
auditors or other representatives will reasonably request.
(b) Preservation of Representations and Warranties.
(i) Sellers and Parent will refrain, and Parent will cause
the Subsidiaries to refrain from knowingly taking any action which would render
untrue any representation, warranty or covenant made by the Company or Sellers
contained in this Agreement, and will not knowingly omit to take any action, the
omission of which would render untrue any such representation, warranty or
covenant. Promptly upon the occurrence of, or promptly upon Parent or Sellers
becoming aware of the impending or threatened occurrence of, any event which
would cause any of the representations or warranties of Sellers or Company
contained herein, or in any Schedule or Exhibit, to be materially inaccurate,
Sellers will give detailed written notice thereof to Buyer and will use their
best efforts to prevent or promptly remedy the same. Buyer will refrain from
knowingly taking any action which would render untrue any representation,
warranty or covenant made by Buyer contained in this Agreement, and will not
knowingly omit to take any action, the omission of which would render untrue any
such representation, warranty or covenant. Promptly upon the occurrence of, or
promptly upon Buyer becoming aware of the impending or threatened occurrence of,
any event which would cause any of the representations or warranties of Buyer
contained herein, or in any Schedule or Exhibit, to be materially inaccurate,
Buyer will give detailed written notice thereof to Parent and will use its best
efforts to prevent or promptly remedy the same.
(ii) Buyer on the one hand and the Parent and Sellers on the
other hand will promptly notify the other party of any action, suit or
proceeding that will be instituted or threatened against such party or the
Company to restrain, prohibit or otherwise challenge the legality of any of
these transactions. Parent or Sellers will promptly notify Buyer of any lawsuit,
claim, proceeding or investigation that may be threatened, brought, asserted or
commenced against Sellers relating to the Stock or the Company, or the Company
and of any material damage, destruction or other casualty, whether or not
insured, to the Assets. As used in the preceding sentence, "material" means an
amount more than $5,000 for any single occurrence and more than $15,000 in the
aggregate.
(c) Consents and Approvals.
Promptly after the execution of this Agreement, each party will use
its best efforts to obtain all third-party consents and approvals necessary to
consummate this transaction. Parent and Sellers acknowledge that obtaining all
of the Required Consents is a condition of Closing by Buyer.
(d) Exclusive Dealing.
Sellers, the Parent and their affiliates will deal, and will cause
the Company to deal, exclusively with Buyer with respect to the transactions
contemplated by this Agreement, and will not solicit, encourage or entertain
offers of inquiry (nor will Sellers or any of their affiliates authorize or
permit any director, officer, employee, attorney, accountant or other
representative or agent of Sellers, the Parent, the Corporation or the Ohio
Subsidiary, to solicit, encourage or entertain offers or inquiries) from other
companies, persons or entities, provide information to or participate in, or
continue after the date hereof, any discussions or negotiations with any
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companies, persons or entities with a view to an acquisition of any of the
Stock, the Assets or the Security Business.
(e) Lien Searches.
The Parent will have delivered to Buyer, at Sellers' expense, at
least 3 business days prior to the end of the Due Diligence Period, complete
copies of the lien searches performed by the Parent against the Parent, the
Corporation and the Ohio Subsidiary showing all the UCC-1 financing statements,
federal, state or local tax liens, unsatisfied judgments, and pending litigation
filed against such entities. In addition, the Parent has delivered to Buyer
copies of all lien searches conducted by or on behalf of the Company or obtained
by the Company in connection with any prior acquisitions by the Company.
(f) Maintenance of Business.
The Parent and Sellers agree that they will, unless otherwise
expressly consented to by Buyer in writing or as set forth on Schedule 6.1,
cause the Company to: (a) continue to operate the Security Business in the
ordinary course of business as presently conducted; (b) will maintain the Assets
(including maintenance of the inventories of spare equipment and parts listed on
Schedule 1.2(b)(i)); (c) keep all of their business books, records and files all
in the ordinary course of business in accordance with past practices
consistently applied; (d) continue to perform their obligations under all of the
Business Documents and Subscriber Contracts; (e) not sell, transfer, assign or
permit the creation of any Encumbrance on any of the Assets; (f) not, other than
in the ordinary course of business, permit the amendment or cancellation of any
of the Subscribers Contracts or Business Documents without the prior written
consent of Buyer; (g) not enter into any contract or commitment nor incur any
indebtedness or other liability or obligation of any kind relating to the
Security Business that is not in the ordinary course of business without the
prior written consent of Buyer; (h) not enter into any compromise or settlement
of any litigation, proceeding or governmental investigation relating to its
properties or business other than in the ordinary course of business; (i) not
acquire any accounts, or other than in the ordinary course of business, any
assets from any third-party; (j) not lend money or otherwise pledge their
credit; (k) not, nor will Sellers permit any of the Company's officers,
directors, shareholders, agents or employees to, pay any of the Company's
accounts receivable from customers; (l) not decrease their customer rates or
conduct any marketing programs, including any amnesty programs, involving free
service or reduced rates for service except in the ordinary course of business
consistent with the Company's past practices which are described on Schedule
6.1(f); and (m) sell all new systems and services in a commercially reasonable
manner and priced in accordance with the Company's standard pricing policies and
sales practices now in effect. Buyer agrees that it will not unreasonably
withhold its consent where such consent is required in this section.
(g) Insurance.
Parent will cause the Company to maintain in full force and
effect all existing insurance policies to cover and protect the Assets against
damage or destruction, and insure the Company against liability.
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(h) Organization and Transition.
The Parent will cause the Company to use all reasonable
efforts consistent with sound business judgment to preserve intact their present
business and organization, to retain the services of their present employees, to
preserve their relationships with customers, suppliers and others having
business relationships with them and to maintain the goodwill enjoyed within the
areas served by the Security Business. If requested to do so by Buyer, Sellers's
Representative will assist in Buyer, as Buyer may reasonably request, in the
orderly transition of the Security Business and taking control of the Assets.
(i) Consummation of Agreement.
Buyer, the Parent and Sellers will use their best efforts to
perform and fulfill all obligations and conditions on their part to be performed
and fulfilled under this Agreement, to the end that these transactions will be
fully carried out.
(j) Corporate Matters.
The Parent will not and the Parent will not permit the
Corporation or the Ohio Subsidiary to: (a) amend their Articles of Incorporation
or Bylaws; (b) issue any additional shares of capital stock; (c) issue or create
any warrants, obligations, subscriptions, options, convertible securities or
other commitments for the issuance of transfer of shares of capital stock; (d)
declare or pay any dividend on or make any distribution in respect of capital
stock; (e) directly or indirectly purchase, redeem, or otherwise acquire any
shares of capital stock; or (f) agree to do any of the foregoing acts.
(k) Capitalization.
Sellers will cause all warrants to have been redeemed,
canceled, converted to Stock or common stock, as the case may be, or otherwise
extinguished. All stock options of the Parent, the Corporation, or the Ohio
Subsidiary shall have been canceled, redeemed, retired or otherwise
extinguished.
(l) Accounts Receivable.
At Closing, the Parent will deliver to Buyer an accurate,
complete and up-to-date aging of all of the accounts receivable of the Company
which existed as of a date which is not more than 2 days prior to the Closing
Date. Sellers acknowledge that all of the accounts receivable of the Security
Business existing on the Closing Date are part of the Assets.
(m) Resignations.
Sellers will cause all officers and members of the Board of
Directors of the Parent and the Subsidiaries to submit resignations on and
effective as of the Closing Date, or will remove such officers and members of
the Board of Parent and the Subsidiaries who do not resign effective as of the
Closing Date or sooner.
(n) Crime Busters, Inc.
The Company has negotiated the purchase of the alarm accounts
and other assets necessary to operate a security business of Crime Busters, Inc.
("CBI") for a purchase price
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equal to the recurring monthly revenue multiplied by 35.5. A copy of the
definitive executed agreement between the Company and CBI is attached hereto as
Exhibit H (the "CBI Agreement"). It is contemplated by the parties that the CBI
transaction will not close prior to the consummation of the transactions
contemplated by this Agreement, and Buyer agrees to cause the Company to
complete the transaction in accordance with the terms of the agreement set forth
in Exhibit H. Upon closing the transaction, Buyer will add the amount of the
deposit initially paid by Company to CBI ($75,000) to the Final Purchase Price.
If the CBI transaction closes prior to the Closing Date on the terms and
conditions set forth in the CBI Agreement, the cash consideration paid to CBI at
or prior to the closing of the CBI transaction will be added to the Purchase
Price and paid to Sellers at Closing, provided that in no event shall such cash
consideration to be greater than $6,500,000 (exclusive of payments due with
respect to Associates accounts and under the dealer program). If the transaction
fails to close, and Buyer or Company recovers the $75,000 deposit, Buyer shall
pay or cause Company to pay said amount to Sellers. Sellers' and Parent agree
that the closing date contemplated in the CBI Agreement will not be advanced or
accelerated without the express written consent of Buyer first obtained. Except
as provided below, all reasonable attorney's fees and costs incurred by the
Company after the date of this Agreement and prior to the Closing Date in
connection with the acquisition of CBI will be the obligation of Buyer and will
not be included as a liability in the Closing WC. Such attorney's fees shall not
exceed $6,000.00, and any fees in excess of such amount shall be included as a
liability in the Closing WC. Buyer acknowledges that Sellers make no
representations and warranties with respect to CBI other than those set forth in
this Section.
(o) Payoff of Notes
Sellers shall cause Buyer to have received from each holder of a
Note designated by Buyer at least 7 business days prior to the Closing Date, and
including Toronto Dominion Bank, a "pay-off letter" or equivalent documentation
in form satisfactory to Buyer's counsel (whose approval shall not be
unreasonably withheld), pursuant to which such holder shall have agreed to
accept from the Buyer or Company at the Closing payment in full of all amounts
owed with respect to such Note and to release all collateral, if any, for such
obligation. Buyer agrees to cause Company to payoff the Notes at or immediately
after Closing.
(p) Southeast Security Management Co..
The Company is negotiating the purchase of the alarm accounts and
other assets necessary to operate a security business of Southeast Security
Management Co. ("SSM") for a purchase price equal to the recurring monthly
revenue multiplied by 32. A copy of the executed letter of intent between the
Company and SSM is attached hereto as Exhibit J (the "SSM Letter of Intent").
Sellers represent, warrant and covenant that Company has not entered into and
will not enter into prior to the Closing a binding agreement to purchase alarm
accounts and other assets from SSM.
6.2 Post-Closing.
(a) Employees.
No employee of the Company will automatically remain an
employee of the Company as a result of these transactions. Buyer may offer
employment to certain employees of the Company on terms and conditions which it
announces, and Buyer may, after Closing, unilaterally implement terms and
conditions of employment for such persons, including a
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condition that each potential employee execute Buyer's standard
nonsolicitation/nondisclosure agreement.
(b) Access to Records.
Buyer shall cause the Company to give Sellers' Representative
and their accountants reasonable access to all records and documents Sellers may
reasonably require related to their obligations hereunder.
(c) Reprogramming Costs.
Sellers shall pay to Buyer the costs set forth below necessary
to reprogram each Alarm Account that can not be transferred to Buyer's
monitoring facilities via a line swing or telephone line call forward
arrangement and must be reprogrammed either remotely or pursuant to a field
visit to the customer's premises. The costs shall be $25.00 for each Alarm
Account that may be remotely reprogrammed and by $75.00 for each Alarm Account
which requires a field visit to be reprogrammed. However, Buyer agrees to waive
the cost and related charge for the first 500 Alarm Accounts that would be
subject to the charge. The total cost for reprogrammed Alarm Accounts shall be
determined by Buyer after the Valuation Date and prior to the Adjustment Date,
and Buyer may offset the amount due to Sellers from the Final Purchase Price.
(d) Completion of Work in Progress.
Buyer agrees to complete or cause the Company to complete the
Work in Progress in the normal course of business and to in accordance with
Buyer's standard installation practices and policies and without unreasonable
delay.
(e) Collection of Accounts Receivable.
Buyer agrees to cause the Company to collect the accounts
receivable included among the Assets in the normal course of business consistent
with the Buyer's practices and policies existing at the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
On or prior to the Closing Date, Sellers or Parent will have
satisfied each of the following conditions, unless waived in writing by Buyer:
7.1 Covenants and Warranties.
There will have been no material breach by Sellers or Parent in the
performance of any of their covenants and agreements herein; each of the
representations and warranties of Sellers contained or referred to in this
Agreement which is qualified by materiality will be true and correct on the
Closing Date as though made on the Closing Date; each of the representations and
warranties of Sellers contained or referred to in this Agreement not qualified
by materiality will be true and correct in all material respects on the Closing
Date as though made on the Closing Date, except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Buyer; and Sellers shall cause Sellers'
Representative to deliver to Buyer a certificate to that effect, dated the
Closing Date, and each Seller will have delivered to Buyer a certificate to that
effect, dated the Closing Date, for the
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representations, warranties and covenants made by such Seller pursuant to
Article 3 of this Agreement.
7.2 No Restraint or Litigation.
No action, suit or proceeding will be pending or threatened by any
third-party (excluding any affiliate of Buyer) or governmental or regulatory
agency to restrain, prohibit or otherwise challenge the legality or validity of
these transactions or the transfer of any of the Stock or the Assets.
7.3 Necessary Consents, Approvals and Permits.
The parties will have received all of the consents listed on
Schedule 7.3 (the "Required Consents") and such consents will be valid and
enforceable on and after the Closing Date. In addition, the waiting period,
including any extensions thereof, under the Xxxx-Xxxxx- Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act") will have expired or been
terminated.
7.4 Opinion of Counsel.
Sellers will have delivered to Buyer the legal opinions of Xxxxxxxx
Ingersoll Professional Corporation, counsel for the Company, duly executed and
substantially in the form of Exhibit D-1, and each of the Seller's identified on
Schedule 7.4 will have delivered to Buyer the legal opinions of their respective
counsel, duly executed and substantially in the form of Exhibit D-2. Such
opinions may contain customary exclusions, qualifications and assumptions
typically included in such legal opinions and acceptable to Buyer's counsel.
7.5 Adverse Change.
There will not have occurred any event that could have an adverse
effect on the Stock or a material adverse effect on the Security Business or on
the condition of a material portion of the Assets. As used in this context
"material" shall mean an economic effect of more than $250,000 that is not
reflected in a downward adjustment in the Purchase Price.
7.6 Documents, Certificates and Other Items.
Sellers will have delivered or caused to be delivered to Buyer:
(a) duly issued certificates for all of the Stock, duly endorsed
in blank or with blank stock powers attached, together with any required
transfer stamps or taxes paid and attached thereto;
(b) resignations or removal of all of the officers and directors
of the Parent, the Corporation and the Ohio Subsidiary;
(c) minute books, stock certificate and transfer books, corporate
seal and other corporate records of the Parent, the Corporation and the Ohio
Subsidiary which are true, correct and complete as of Closing;
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(d) the Noncompetition Agreement and Nonsolicitation Agreements
described in Section 2.3 each duly executed by the parties bound thereto,
together with delivery of all consideration thereunder;
(e) a current Certificate of Good Standing evidencing the Parent's
the Corporation's and the Ohio Subsidiary's corporate standing in each state
where they are incorporated or qualified to do business;
(f) a current certificate issued by the appropriate taxing
authority of the states of Michigan, New York, New Jersey, Ohio, and
Pennsylvania certifying that there are no tax liens of record against the
Parent, Corporation, the Ohio Subsidiary or any of the entities listed on
Schedule 4.1 and that the Company is not and such entities are not obligated for
any taxes which are due and payable but which have not been paid, to the extent
such certificates are available from such taxing authorities;
(g) a consent from the spouse of each individual Seller, duly
executed and substantially in the form of Exhibit E;
(h) the Holdback Escrow Agreement described in Section 2.1(b),
duly executed by Sellers' Representative;
(i) an estoppel certificate from RRSS setting forth: a) there is
no default on the part of any party to the agreement between Company and RRSS,
(b) that the payment of all sums due to RRSS are current, and (c) the agreement
is in full force and effect;
(j) an estoppel certificate from the landlords of the real
properties located at Bellerose, New York, Madison, New Jersey and Dayton, Ohio
setting forth: a) there is no default on the part of any party to the agreement
between Company and the landlord (b) that the payment of all sums due to the
landlord are current, and (c) the lease is in full force and effect;.
(k) a fully executed release from each Seller substantially in the
form of Exhibit G;
(l) all other documents and instruments required under this
Agreement;
(m) all other documents and instruments reasonably requested by
Buyer in connection with the consummation of these transactions including,
without limitation, all applicable lien releases in connection with the
Toronto-Dominion Bank (Texas) debt facility;
(n) the due execution and delivery of the Second Amendment to
Asset Purchase Agreement regarding the Habitec acquisition substantially in the
form attached hereto as Exhibit I; and
(o) a true, correct and complete copy of the executed agreement
between Sellers and Sellers' Representative authorizing Sellers' Representative
to act on behalf of Sellers hereunder.
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7.7 Satisfaction of Debts.
(a) Sellers will have delivered to Buyer the lien searches
described in Section 6.1(e).
(b) Sellers will have delivered to Buyer a true and correct list
of each of the secured and unsecured creditors of the Parent, the Corporation
and the Ohio Subsidiary and the and the amount due by the Parent, the
Corporation and the Ohio Subsidiary to each such creditor on the Closing Date.
(c) Except for the Liabilities described in Section 4.26, Sellers
will have satisfied on the Closing Date all of the outstanding obligations and
liabilities of the Parent, the Corporation and the Ohio Subsidiary as of the
Closing Date.
(d) Seller will have made appropriate arrangements for the
termination of any liens and Encumbrances on file against any of the Assets and
will have delivered to Buyer payoff letters evidencing the total amount due as
of the Closing Date in order to remove all of the liens of record against the
Parent, the Corporation and the Ohio Subsidiary.
7.8 Accounts Receivable.
Sellers will have delivered to Buyer the list of accounts receivable
described in Section 6.1(l).
7.9 Capitalization.
All outstanding and/or authorized warrants, stock options or rights
to acquire any class of capital stock (whether or not vested) of the Parent, the
Corporation, or the Ohio Subsidiary shall have been canceled, redeemed, retired
or otherwise extinguished.
7.10 Excluded Assets.
All of the Company's right, title and interest in the assets of the
Company set forth on Schedule 1.2(e), and any related liability shall have been
assigned to Sellers, their designees or others, and such persons shall have
acknowledged receipt of such assets and the assumption of any related liability
as of or prior to the Closing Date.
7.11 Updated Schedules.
Parent or Sellers may update the schedules delivered hereunder and
deliver such updated schedules to Buyer not later than 3 business days prior to
the Closing Date, to reflect changes to the Company, the Assets, the Security
Business or the Stock that have occurred between the date of this Agreement and
the Closing Date, provided that nothing contained in any of the updated
schedules prepared by Sellers or the Parent shall disclose that either: (a) the
ownership of the Stock by the Sellers is different than as presented in this
Agreement or in any Schedule hereto as of the date hereof, or (b) the financial
and operational condition of the Assets, Security Business or the Company, is
adversely different in any material respects than as presented in this Agreement
or in the exhibits and schedules or other documents provided herewith. As used
in this context "material" shall mean an economic effect of more than $250,000
that is not reflected in a downward adjustment in the Purchase Price.
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7.12 Minimum RMR.
The total RMR at Closing is not less than $1,200,000.
7.13 Oral 3rd Party Monitoring Agreements.
All of the oral agreements pursuant to which Alarm Accounts are
monitored by third-party monitoring companies on behalf of Company shall have
been evidenced by duly executed written agreements in a form reasonably
satisfactory to Buyer or the monitoring of such Alarm Accounts shall have been
transferred to Rapid Response to be monitored pursuant to the existing
monitoring agreement with Rapid Response.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
On or prior to the Closing Date, Buyer will have satisfied each
of the following conditions unless waived in writing by Sellers' Representative:
8.1 Covenants and Warranties.
There will have been no material breach by Buyer in the performance
of any of its covenants and agreements herein; each of the representations and
warranties of Buyer contained or referred to in this Agreement will be true and
correct in all material respects on the Closing Date as though made on the
Closing Date, except for changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in writing by
Sellers or any transaction contemplated by this Agreement; and the President or
any Vice President of Buyer will have delivered to Sellers a certificate to such
effect, dated the Closing Date.
8.2 Delivery of Purchase Price.
Buyer will have delivered the Purchase Price to be paid at Closing
to Sellers, and the Deferred Payment to the Escrow Agent, less the amount of any
closing adjustments.
8.3 Documents, Certificates and Other Items.
Buyer will have delivered or caused to be delivered to Sellers'
Representative:
(a) the legal opinion of Xxxx Xxxxxxxxx, Esquire, general counsel
for Buyer, substantially in the form of Exhibit F (such opinion may contain
customary exclusions, qualifications and assumptions typically included in such
legal opinions);
(b) the Holdback Escrow Agreement described in Section 2.1(b),
duly executed by Buyer;
(c) all of the documents or instruments required under this
Agreement; and
(d) all other documents and instruments reasonably required by
Sellers' Representative in connection with the consummation of these
transactions.
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8.4 No Restraint or Litigation.
No action, suit or proceeding will be pending or threatened by any
third-party (excluding any affiliate of any Seller) or governmental or
regulatory agency to restrain, prohibit or otherwise challenge the legality or
validity of these transactions.
8.5 Approvals.
The waiting period, including any extensions thereof, under the HSR
Act will have expired or been terminated. All Required Consents will have been
obtained.
9. INDEMNIFICATION
9.1 Indemnification by Sellers and Buyer.
(a) Subject to the limitations in Sections 9.3(f), 9.4, 9.5, 9.7,
9.8 and 9.9, Sellers will indemnify, hold harmless, defend and bear all costs of
defending Buyer, together with its successors and permitted assigns, from,
against and with respect to any and all damage, loss, deficiency, expense
(including any reasonable attorney and accountant fees, legal costs or
expenses), action, suit, proceedings, demand, assessment or judgment to or
against Buyer (collectively, "Buyer's Aggregate Net Loss") arising out of or in
connection with:
(i) any debt, obligation, commitment or Liability of Sellers
which is not expressly assumed by Buyer or which is expressly assumed by Sellers
in this Agreement, whether arising prior to, on or after the Closing Date and
whether or not disclosed to Buyer, including those relating to environmental and
employee liabilities;
(ii) any debt, obligation, commitment or Liability of
Company, other than the Liabilities described in Section 4.26(i), (ii), (iv),
(v) and (vi), arising prior to or on the Closing Date, and whether or not
disclosed to Buyer, including those relating to environmental and employee
liabilities and third-party claims set forth on Schedule 4.7.
(iii) any debt, obligation, penalty or Liability of Company
arising out of or as a result of Company's obligation prior to Closing to
provide residential customers with the 3-day notice of cancellation in
compliance with the provisions of 16 C.F.R. Part 429 and any applicable state
laws;
(iv) any debt, obligation, penalty or Liability of Company
arising out of or as a result of Company's failure prior to Closing to be
licensed to provide alarm service in any state where its Alarm Accounts are
located, or its failure to be qualified to do business in any state in which in
conducts business;
(v) any breach or violation of, or nonperformance by,
Sellers or Parent of any of their representations, warranties, covenants or
agreements contained in this Agreement (including a failure to disclose a
Liability of the Company) or in any document, certificate or schedule required
to be furnished pursuant to this Agreement;
(vi) any debt, obligation or Liability of Company for acts or
omissions occurring prior to or on the Closing Date arising out of or as a
result of or in connection with any of (i) the Subscriber Contracts, (ii) the
agreements by which Company provides third-party monitoring services to dealers
and (iii) the agreements by which Alarm Accounts and Wholesale
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Alarm Accounts are monitored by third-party monitoring companies on behalf of
Company, which agreements do not contain provisions limiting Company's liability
and third-party indemnification provisions consistent with industry standards;
(vii) any debt, obligation, penalty or Liability of the
Company arising from the failure of Sellers to cause the Federal Communications
Commission ("FCC") to renew all of the FCC licenses used by Company and to
obtain the FCC's consent to the change of control of the licensee(s) as
contemplated hereby within sixty (60) days after the Closing;
(viii) any debt, obligation or Liability of Company arising
out of Company's failure to have adequate telephone lines in accordance with the
contracts under which services are provided and the applicable laws of the State
of New York with regard to the Alarm Accounts and Wholesale Alarm Accounts
located in that State as described on Schedule 4.15; and
(ix) any debt, obligation or Liability of Company arising out
of the problems concerning UL certificates, UL accounts and UL monitoring
identified on Schedule 4.18.
(b) Subject to Sections 9.3(f), 9.4, 9.5 and 9.8, Buyer will
indemnify, hold harmless, defend and bear all costs of defending Sellers,
together with their successors and permitted assigns, from, against and with
respect to any and all damage, loss, deficiency, expense (including any
reasonable attorney and accountant fees, legal costs or expenses provided that
any indemnification with respect to any such attorney fees and related expenses
shall be limited to those of one legal counsel who represents all of the
Sellers), action, suit, proceeding, demand, assessment or judgment to or against
Sellers (collectively, "Sellers' Aggregate Net Loss") arising out of or in
connection with:
(i) all liabilities, damages or claims incurred or accrued
related to events occurring after the Closing Date and related to the Company;
and
(ii) any breach or violation of, or nonperformance by, Buyer
of any of its representations, warranties, covenants or agreements contained in
this Agreement (including Buyer's covenants in Section 9.3(f)) or in any
document, certificate or schedule required to be furnished pursuant to this
Agreement.
(c) Should Buyer and Sellers' Representative be unable to agree as
to the amount of Buyer's Aggregate Net Loss for which Buyer is to be
indemnified, or the amount of Sellers' Aggregate Net Loss for which Sellers is
to be indemnified, then either Buyer or Sellers' Representative, as the case may
be, may commence arbitration proceedings in accordance with the provisions of
Section 12.3.
9.2 Notice of Claims.
If any claim is made by or against a party which, if sustained,
would give rise to a liability of the other party hereunder (whether or not such
claim may be subject to the basket described in Section 9.5), that party (the
"Claiming Party") will promptly cause written notice of the claim to be
delivered to the other party (the "Indemnifying Party") and will afford the
Indemnifying Party and its counsel, at the Indemnifying Party's sole expense,
the opportunity to defend or settle the claim (and, with respect to claims made
by third parties, the Claiming Party will have the right to participate at its
sole expense). Any notice of a claim will state, with reasonable specification,
the alleged basis for the claim and the amount of liability asserted by or
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against the other party by reason of the claim. If such notice is not given, it
will not release the Indemnifying Party, in whole or in part, from its
obligations under this Article 9, except to the extent that the Indemnifying
Party's ability to defend against such claim is actually prejudiced thereby.
Alternatively, if notice is given and the Indemnifying Party fails to assume the
defense of the claim within 10 days after receipt thereof with counsel
satisfactory to the Claiming Party, the claim may be defended, compromised or
settled by the Claiming Party without the consent of the Indemnifying Party and
the Indemnifying Party will remain liable under this Article 9.
9.3 Third Party Claims.
(a) Except as provided herein, the Indemnifying Party will engage
counsel, reasonably acceptable to the Claiming Party, defend any claim brought
by a third party involving a judicial or arbitration action or the threat of a
judicial or arbitration action (a "Third Party Claim"), and will provide notice
to the Claiming Party not later than 15 business days following delivery by the
Claiming Party to the Indemnifying Party of a notice of a Third Party Claim,
such notice to include an acknowledgment by the Indemnifying Party that it will
be liable in full to the Claiming Party for any Sellers' Aggregate Net Loss or
Buyer's Aggregate Net Loss, as the case may be, in connection with the Third
Party Claim. If the Sellers are the Claiming Party then Buyer's indemnification
obligation with respect to legal fees and costs shall be limited to the one
counsel that represents all such indemnified parties. The Claiming Party will
fully cooperate with such counsel. The Indemnifying Party will cause its counsel
to consult with the Claiming Party, as appropriate, as to the defense of such
claim, and the Claiming Party may, at its own expense, participate in such
defense, assistance or enforcement, but the Indemnifying Party will control such
defense, assistance or enforcement. The Indemnifying Party will cause its
counsel to keep the Claiming Party, as appropriate, informed at all times of the
status of such defense, assistance or enforcement.
(b) The Claiming Party will have the right to engage counsel and
to control the defense of a Third Party Claim if the Indemnifying Party has not
notified the Claiming Party of its appointment of counsel, reasonably acceptable
to the Claiming Party, and control of the defense of a Third Party Claim
pursuant to Sections 9.2 and 9.3 within the time period provided therein. The
Claiming Party will, in such case, cause its counsel to consult with the
Indemnifying Party as to the conduct of such defense, assistance or enforcement.
(c) The Indemnifying Party may settle any Third Party Claim which
it is defending pursuant to Section 9.2 or 9.3(a) if such Third Party Claim
solely involves monetary damages and only if the amount of such settlement is to
be paid entirely by the Indemnifying Party pursuant to this Article 9. The
Indemnifying Party will not enter into a settlement of a Third Party Claim which
involves a non-monetary remedy or which will not be paid entirely by the
Indemnifying Party pursuant to this Article 9 without the written consent of the
Claiming Party, which consent will not be unreasonably withheld.
(d) Notwithstanding the foregoing, in the event of any settlement
of, or final judgment with respect to, a Third Party Claim which relates to
acts, omissions, conditions, events or other matters occurring both before and
after the Closing Date, the parties will negotiate in good faith as to the
portion of such Third Party Claim as to which such indemnification is payable.
In the event the parties are unable to agree on such portion, the matter will be
settled pursuant to Section 12.3.
(e) The parties will cooperate with one another in good faith in
connection with the defense, compromise or settlement of any Third Party Claim.
Without limiting the
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generality of the foregoing, the party controlling the defense or settlement of
any matter will take steps reasonably designed to ensure that the other party
and its counsel are informed at all times of the status of such matter. Neither
party will dispose of, compromise or settle any Third Party Claim in a manner
that is not reasonable under the circumstances and in good faith.
(f) The amount of any indemnification under this Agreement will be
reduced by (i) any insurance proceeds paid to the Claiming Party as a result of
the loss or other matter for which indemnification is sought, as adjusted for
any increased insurance premiums resulting from the tender of the claim to the
insurance carrier and (ii) any indemnification amounts paid to the Claiming
Party by a former seller of stock or assets to the Company, or offset by the
Claiming Party against amounts due to such former seller by the Company, in
either case as a result of the loss or other matter for which indemnification is
sought. The Claiming Party will be obligated to submit to its insurance carrier
all coverable claims and pursue such claims against its insurance carrier in
good faith, and will not abandon or compromise any such claim without the
consent of the other party. Buyer agrees to retain not less than the same
general liability and errors and omissions insurance coverage or equivalent
self-insurance, on an occurrence basis, as the Company had prior to the Closing
Date (including the same deductible) for a period of three (3) years after the
Closing Date. Buyer will provide Sellers' Representative with a certificate of
insurance evidencing such coverage at the Closing and annually thereafter.
9.4 Survival of Indemnity Obligations.
The rights of Buyer and Sellers to assert indemnification claims
will survive for a period of three (3) years from the Closing Date, except
claims related to fraud, willful misconduct, title to the Stock, and authority
of Buyer and Sellers to execute and deliver this Agreement and any of the
documents contemplated hereunder, and to consummate the transactions hereunder
shall survive until the expiration of 75 days following the date on which the
running of the statute of limitations and any extensions thereof with respect to
any such claim will bar the assertion, assessment and collection of such claim.
9.5 Basket and Cap.
Except for claims of or relating to the calculation of the Purchase
Price, fraud, willful misconduct, title to the Assets, authority to consummate
these transactions, pension and employee matters, environmental, tax and insured
third party claims, Buyer and Sellers will not be required to indemnify the
other until a recoupable $500,000 basket has been exceeded. For example, if
Buyer has indemnifiable claims of $70,000, Sellers will have no liability to
Buyer with respect to such claims because such amount is less than $500,000.
Alternatively, if Buyer has indemnifiable claims of $525,000, Sellers will be
liable to Buyer for the full amount of such claims. However, any Buyer's claim
for indemnity of any litigation disclosed on Schedule 4.7 shall not be subject
to this basket and Sellers shall be obligated to indemnify Buyer for the entire
amount (subject to Section 9.9) of such Buyer's claim. Further, the aggregate
amount of the indemnification obligation of Buyer to Sellers with respect to
Sellers' Aggregate Net Loss, or of Sellers to Buyer with respect to Buyer's
Aggregate Net Loss, as the case may be, will not exceed the amount of the
Deferred Payment, exclusive of claims relating to fraud, willful misconduct,
title to the Stock, and authority of Buyer and Sellers to execute and deliver
this Agreement and any of the documents contemplated thereunder, and to
consummate the transactions contemplated hereunder.
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9.6 Tax Indemnification/Returns.
(a) Sellers will be responsible and liable for, and will indemnify
and hold Buyer, the Parent and the Subsidiaries harmless from and against all
taxes owed by, attributable to or accrued against the Parent, the Corporation
and the Ohio Subsidiary including any taxes resulting from these transactions
for all periods ending on or before the Closing Date, except to the extent of
the accrual for taxes reflected as current liabilities in the Closing WC as of
the Closing Date. Subject to the provisions of Section 9.6(f) below, Sellers
agree with Buyer that Sellers, at their expense, will complete and file on a
timely basis all federal, state and local tax returns due for the Company for
the fiscal year beginning January 1, 1997 and ending on the Closing Date. Buyer
agrees that it will not make a IRC Section 338 election with respect to the
Stock.
(b) Subject to the provisions of Section 9.6(f) below, Sellers
will be responsible for the preparation and filing of all tax returns of the
Company for all periods ending on or before the Closing Date. Buyer will cause
the Company to furnish to Sellers all information pertaining to the Company
reasonably requested by Sellers and necessary for the preparation of such
returns and will otherwise cooperate fully with Sellers in the preparation of
such returns. The federal income, deductions and credits with respect to the
Company on such returns will be computed consistent with past practices,
principles and methods and be determined on the basis of the appropriate
permanent records of the Company. Prior to filing any such return for a taxable
period ending on or before the Closing Date, Sellers' Representative will submit
such returns to Buyer for its review. Except as otherwise provided herein,
Sellers will have the obligation and authority to represent the Company, at
Sellers' expense, before the Internal Revenue Service or any other governmental
agency or authority or any court regarding the federal income or state tax
liabilities of the Company for any taxable period ending on or prior to the
Closing Date, and to settle any such matters provided Sellers have retained the
liability with respect to any such taxes. If Sellers elect to contest or appeal
any such matter, Buyer agrees to cooperate with Sellers in such contest or
appeal.
(c) Buyer, Parent and the Company will be responsible for all
taxes of the Company for any taxable period beginning after the Closing Date and
the post-Closing portion of any taxable period beginning prior to the Closing
Date and ending after the Closing Date. Sellers agree to make available to
Buyer, the Company records in the custody of Sellers or of any affiliated
corporation or person, to furnish other information (including all adjustments
to and changes in tax items of the Company for taxable periods of the Company
ending on or before the Closing Date), and otherwise to cooperate to the extent
reasonably required for the filing of tax returns relating to the Company for
taxable periods ending after the Closing Date and of other tax returns relating
to the Company for any taxable period.
(d) Sellers acknowledge that the Parent, the Subsidiaries and
Buyer will be entitled to the tax benefit of any loss, credit, or other item of
the Company that: (i) has arisen or arises before the Closing Date but is
reportable in or carried forward to a taxable period ending after the Closing
Date; or (ii) arises after the Closing Date, although such loss, credit, or
other item may be carried back to a taxable period ending on or before the
Closing Date. Sellers' Representative agrees to cooperate with the Parent, the
Company and Buyer in taking such action as may be necessary (including amending
any return or report and filing any claim for refund) for the Parent, the
Company or Buyer to realize the tax benefit of carrying such a loss, credit, or
other item described in (ii) above back to a taxable period ending on or before
the Closing Date. Sellers' Representative promptly will remit or cause to be
remitted to Buyer: (x) any amount received as a refund; and (y) if not realized
as a refund, the amount of any
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reduction in tax liability (of the Company or Sellers) resulting from the use of
such a loss, credit, or other item as described in (ii) above.
(e) Within 60 days after the Closing Date, Sellers' Representative
will furnish Buyer a list of the net operating loss ("NOL") carryovers and
investment tax credit ("ITC") carryovers attributable to the Company as of the
Closing Date known to the Parent or the Sellers' Representative, if any.
Sellers' Representative agrees to reasonably cooperate with Buyer to make
available to Buyer the NOL and ITC carryovers attributable to the Company as of
the Closing Date, subject, however, to any adjustment to or change in any tax
item of the Company required by the Internal Revenue Service. Sellers will not
agree to any such adjustment or change without Buyer's consent, which consent
will not be unreasonably withheld.
(f) If requested by Sellers' Representative, Buyer will prepare
the tax returns described in subparts (a) and (b) above for the benefit of
Sellers at Sellers' cost. Sellers shall reimburse Buyer or Company, as the case
may be for all accounting fees incurred by Buyer or Company in the preparation
of such tax returns, and if Sellers fail to pay such reimbursement, Buyer may at
its option, deduct the amount due to Buyer or Company from the Deferred Payment.
Buyer shall provide Sellers's Representative with copies of all bills and
invoices from the accountants for the preparation of such tax returns.
(g) For purposes of this Section 9.6, "tax" or "taxes" will have
the meanings specified in Section 4.11(f) and "tax returns" will have the
meaning specified in Section 4.11(g).
9.7 Buyer's Tax Claim Defense.
Promptly after receipt by Buyer of notice of the commencement of any
action or proceeding which could result in a Buyer's claim as to any tax
liability (including penalties, assessments or fines) Buyer will give prompt
notice of such commencement to Sellers' Representative. If in respect to any
such Buyer's claim, Sellers' Representative shall request, in writing, the right
to defend such action, Buyer will permit Sellers to do so (subject to the
counsel retained by Sellers in connection therewith being reasonably acceptable
to Buyer and Buyer's right to be kept currently advised and to participate in
the defense) if: (a) Seller, in writing, shall have confirmed to Buyer, without
any qualifications, whatsoever, that such claim is within the scope of the
provisions of Section 9.1(a)(i); and (b) Sellers shall have paid such tax
liability (including any penalties, assessments or fines) under protest, or
shall have furnished an appropriate bond or other form of security as required
by the taxing authority or pursuant to applicable law, or has taken such other
action as may reasonably be necessary in order to prevent the imposition of any
fines, penalties, forfeitures, liens or other like charges against Buyer or its
assets or properties.
9.8 Sole and Exclusive Remedy.
After the Closing, the indemnification provided in this Article 9
will be the sole and exclusive remedy of Buyer and Sellers with respect to the
matters described in this Article 9 without regard to whether such matter
involves claims framed in contract, tort, equity or otherwise, and exclusive of
any claims based upon title to the Stock, authority of Buyer and Sellers to
execute and deliver this Agreement and any of the documents contemplated
hereunder, and to consummate the transaction contemplated by this Agreement,
fraud or wilful misconduct.
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9.9 Deferred Payment as Source of Payment Obligations of Sellers.
Buyer agrees that except as expressly set forth below, any Buyer's
indemnity claims resolved in favor of Buyer shall be paid solely out of the
Deferred Payment except with respect to Buyer's indemnity claims relating to
fraud, willful misconduct, title to the Stock, and authority of Sellers,
including the authority to convey the Stock, which claims may be asserted
against the Parent, a specific Seller or Sellers on a several basis or paid out
of the Deferred Payment or a combination of both. To the extent the Deferred
Payment is depleted then claims relating to fraud, wilful misconduct, title to
the Stock, and authority of Sellers, including the authority to sell the Stock,
can be asserted against the Sellers on a several basis. If any Buyer's indemnity
claims are unresolved or in dispute as of the date the Deferred Payment, or any
portion thereof, is to be delivered to Sellers by Escrow Agent, Buyer may demand
that Escrow Agent retain from the Deferred Payment an amount equal to any
unresolved or disputed Buyer's indemnity claims pending resolution. The Deferred
Payment shall be the sole source of payment to Buyer for all Buyer's indemnity
claims, except for Buyer's indemnity claims asserting or related to fraud,
willful misconduct, title to the Stock or authority of a Seller(s), including
the authority to convey the Stock. Sellers acknowledge and agree that all
Buyer's indemnity claims to be paid out of the Deferred Payment are joint and
several obligations of the Sellers up to the aggregate amount of the Deferred
Payment.
10. DAMAGE TO PROPERTY AND RISK OF LOSS
The risk of any loss or damage to the Assets and the Security
Business resulting from fire, theft, hurricane or any other casualty (except
reasonable wear and tear), and condemnation will be borne by the Company at all
times prior to 11:59:59 p.m. on the Closing Date. In the event that any such
loss or damage will be sufficiently substantial so as to preclude and prevent
resumption of normal operations of any material portion of the Security Business
within 2 days from the occurrence of the event resulting in such loss or damage,
Sellers' Representative will immediately notify Buyer in writing of their
inability to resume normal operations or to replace or restore the lost or
damaged property, and Buyer, at any time within 10 days after receipt of such
notice, may elect either: (a) to waive such defect and proceed toward
consummation of these transactions in accordance with terms of this Agreement,
or (b) to terminate this Agreement. If Buyer elects to terminate this Agreement
pursuant to this Section, the parties will be fully released and discharged of
any and all obligations under this Agreement, except for the ongoing duty of
confidentiality. If Buyer elects to consummate this transaction despite such
loss or damage and does so, there will be no diminution of the Purchase Price on
account of such loss or damage and all insurance proceeds payable as a result of
the occurrence of the event resulting in loss or damage to the property, plus
the amount of any deductible for such insurance coverage, will be delivered to
Buyer, or the rights thereto will be assigned to Buyer if not yet paid over to
the Company or Sellers' Representative.
11. TERMINATION OF AGREEMENT.
(a) If Buyer determines, as a result of its due diligence
conducted during the Due Diligence Period, that Sellers have made a
misrepresentation in this Agreement (including any Exhibit or Schedule hereto)
which cannot be cured by Sellers in a commercially reasonable manner prior to
Closing, and the parties are unable to mutually agree on a remedy for such
misrepresentation within 10 days after Buyer provides notice to Sellers of such
misrepresentation, Buyer may terminate this Agreement and none of the Buyer,
Company, or Sellers shall have any further liability to each other, except for
the ongoing duty of confidentiality.
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(b) In the event Buyer fails to consummate the purchase of the
Stock for reasons other than those set forth in Section 11(a) and Sellers have
complied with all of the material terms and conditions on their part contained
herein, and there is no event excusing Buyer's performance hereunder, then Buyer
shall pay to the Parent the sum of $2,000,000 as liquidated damages, and this
Agreement will be automatically terminated and none of the Buyer, Company, or
Sellers shall have any further obligation or liability to the other hereunder or
thereunder, except for the ongoing duty of confidentiality.
(c) In the event Sellers or the Parent fail to consummate the sale
of the Stock and Buyer has complied with all of the material terms and
conditions on its part contained herein, and there is no event excusing Sellers'
performance hereunder, then Sellers or Parent shall pay to Buyer the sum of
$2,000,000 as liquidated damages, and this Agreement will then be automatically
terminated and none of the Buyer, Company, or Sellers shall have any further
obligations or liability to the other hereunder or thereunder, except for the
ongoing duty of confidentiality. Alternatively, Buyer will have the right, in
the exercise of its sole discretion, to elect to pursue all of its rights and
remedies against Sellers, including specific performance of the terms of this
Agreement. Buyer will not be required to post a bond or other security in
connection with any suit brought by it for specific performance.
(d) Both parties acknowledge that the actual damages a party may
suffer as a result of the failure of the other to perform is difficult to
ascertain in advance and therefore the amount designated as liquidated damages
herein is reasonable and is not a penalty or forfeiture.
(e) In the event Closing has not occurred by November 30, 1997
(the "Termination Date"), for any reason other than a delay in the termination
of the HSR waiting period, and neither Buyer nor Sellers are in breach of their
obligations hereunder, then either party hereto will have the right to terminate
this Agreement and none of the Buyer, Company, or Sellers shall have any further
liability to each other, except for the ongoing duty of confidentiality.
12. GENERAL PROVISIONS.
12.1 Survival of Obligations; Effect of Investigations.
Sellers, the Parent and Buyer acknowledge that the representations,
warranties, covenants and agreements of Sellers, the Parent and Buyer contained
in this Agreement form an integral part of the consideration given to Buyer in
exchange for the Purchase Price and to Sellers in exchange for the Stock,
without which Buyer would be unwilling to purchase, and Sellers would be
unwilling to sell, the Stock. Notwithstanding any investigation and review made
by Buyer pursuant to this Agreement, Sellers, the Parent and Buyer agree that
all of the representations, warranties, covenants and agreements of Sellers, the
Parent and Buyer contained in this Agreement or in any Exhibit, Schedule,
statement, report, certificate or other document or instrument required to be
delivered pursuant to this Agreement will, subject to the limitations set forth
in Section 9.4, survive the making of this Agreement, any investigation or
review made by or on behalf of the parties and the Closing. Any inspection,
preparation, or compilation of information or schedules, or audit of the
inventories, properties, financial condition or other matters relating to the
Parent, the Corporation, the Ohio Subsidiary or Sellers conducted by or on
behalf of Buyer pursuant to this Agreement will in no way limit, affect, or
impair the ability of Buyer to rely upon the representations, warranties,
covenants, and agreements of Sellers and Parent set forth in this Agreement or
in any Exhibit, Schedule, statement, report, certificate or other document or
instrument required to be delivered pursuant to this Agreement.
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12.2 Transfer Charges and Taxes.
Sellers will pay all stamp, sales, realty transfer or other taxes
(federal, state or local) imposed by law and all third-party transfer charges in
respect of any and all transfers pursuant to this Agreement.
12.3 Dispute Resolution.
No party to this Agreement shall be entitled to take legal action
with respect to any dispute relating hereto (other than disputes regarding the
Purchase Price which are to be resolved pursuant to Section 2.1(h)) until it has
complied in good faith with the following alternative dispute resolution
procedures. This Section shall not apply to the extent it is deemed necessary to
take legal action immediately to preserve a party's adequate remedy. However,
nothing shall prevent any party from resorting to the judicial proceedings
mentioned in this Section if interim relief from the court is necessary to
prevent serious and irreparable injury to one of the parties.
(a) Negotiation. The parties shall attempt promptly and in good
faith to resolve any dispute arising out of or relating to this Agreement,
through negotiations between representatives who have authority to settle the
controversy. Any party may give the other party(ies) written notice of any such
dispute not resolved in the normal course of business. Within 20 days after
delivery of the notice, representatives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary, to exchange information and to attempt to resolve the dispute, until
the parties conclude that the dispute cannot be resolved through unassisted
negotiation. Negotiations extending sixty days after notice shall be deemed at
an impasse, unless otherwise agreed by the parties.
If a negotiator intends to be accompanied at a meeting by an
attorney, the other negotiator(s) shall be given at least three working days'
notice of such intention and may also be accompanied by an attorney.
(b) ADR Procedure. If a dispute with more than $25,000
(Twenty-Five Thousand Dollars) at issue has not been resolved within 60 days of
the disputing party's notice, a party wishing resolution of the dispute
("Claimant") shall initiate assisted Alternative Dispute Resolution ("ADR")
proceedings as described in this Section. Once the Claimant has notified the
other ("Respondent") of a desire to initiate ADR proceedings, the proceedings
shall be governed as follows: By mutual agreement, the parties shall select the
ADR method they wish to use. That ADR method may include arbitration, mediation,
mini-trial, or any other method which best suits the circumstances of the
dispute. The parties shall agree in writing to the chosen ADR method and the
procedural rules to be followed within 30 days after receipt of notice of intent
to initiate ADR proceedings. To the extent the parties are unable to agree on
procedural rules in whole or in part, the current Center for Public Resources
(CPR) Model Procedure for Mediation of Business Disputes, CPR Model Mini-trial
Procedure, or CPR Commercial Arbitration Rules--whichever applies to the chosen
ADR method--shall control, to the extent such rules are consistent with the
provisions of this Section. If the parties are unable to agree on an ADR method,
the method shall be arbitration. The parties shall select a single neutral third
party ("Neutral") to preside over the ADR proceedings, by the following
procedure: Within 15 days after an ADR method is established, the Claimant shall
submit a list of 5 acceptable Neutrals to the Respondent. Each Neutral listed
shall be sufficiently qualified, including demonstrated neutrality, experience
and competence regarding the subject matter of the dispute. A Neutral shall be
deemed to have adequate experience if an attorney or former judge. None of the
Neutrals may be present or former employees, attorneys, or agents of either
party. The list shall supply information about
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each Neutral, including address, and relevant background and experience
(including education, employment history and prior ADR assignments). Within 15
days after receiving the Claimant's list of Neutrals, the Respondent shall
select one Neutral from the list, if at least one individual on the list is
acceptable to the Respondent. If none on the list are acceptable to the
Respondent, the Respondent shall submit a list of 5 Neutrals, together with the
above background information, to the Claimant. Each of the Neutrals shall meet
the conditions stated above regarding the Claimant's Neutrals. Within 15 days
after receiving the Respondent's list of Neutrals, the Claimant shall select one
Neutral, if at least one individual on the list is acceptable to the Claimant.
If none on the list are acceptable to the Claimant, then the parties shall
request assistance from the Center for Public Resources, Inc., to select a
Neutral.
The ADR proceeding shall take place within 30 days after the Neutral
has been selected. The Neutral shall issue a written decision within 30 days
after the ADR proceeding is complete. Each party shall be responsible for an
equal share of the costs of the ADR proceeding. The parties agree that any
applicable statute of limitations shall be tolled during the pendency of the ADR
proceedings, and no legal action may be brought in connection with this
agreement during the pendency of an ADR proceeding.
The Neutral's written decision shall become final and binding on the
parties, unless a party objects in writing within 30 days of receipt of the
decision. The objecting party may then file a lawsuit, application or complaint
in any court or regulatory agency allowed by this Agreement. The Neutral's
written decision shall be admissible in the objecting party's lawsuit or
regulatory proceeding. All negotiations and information obtained pursuant to ADR
proceedings hereunder are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal and state Rules of Evidence.
12.4 Confidentiality.
Buyer and Sellers agree that they will treat in confidence in
accordance with the terms of the Confidentiality Agreement entered into on or
about August 21, 1997 (the "Confidentiality Agreement") all documents, materials
and other information which they have obtained regarding the other party during
the course of the negotiations leading to the consummation of these
transactions, the investigation provided for herein and the preparation of this
Agreement and other related documents. In the event these transactions are not
consummated, all copies of non-public documents and material which have been
furnished in connection with these transactions will be promptly returned to the
party furnishing such documents and material, will continue to be treated as
confidential information and will not be used for the benefit of the party who
returned such confidential information.
12.5 Public Announcements.
None of the Buyer, Company nor Sellers will, without the approval of
the other party (which may not be unreasonably withheld), make any press release
or other public announcement concerning these transactions, except as and to the
extent that such party will be so obligated by law, in which case the other
party will be advised and Buyer, Company and Sellers' Representative will use
their best efforts to cause a mutually agreeable press release or announcement
to be issued.
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12.6 Governing Law Exclusive Jurisdiction and Consent to Service of
Process.
This Agreement will be governed by, and construed and enforced in
accordance with, the laws of the state of Delaware, without regard to its
conflicts of law provisions. EACH PARTY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY SUCH LEGAL PROCEEDING. Any and all service of process and any other notice
in any such legal proceeding shall be effective against such party when
transmitted in accordance with Section 12.7 hereof. Nothing contained herein
shall be deemed to affect the right of any party to serve process in any manner
permitted by applicable law.
12.7 Notices.
All notices or other communications required or permitted hereunder
will be in writing and will be deemed given or delivered when delivered
personally, by registered or certified mail, by legible facsimile transmission
or by overnight courier (fare prepaid) addressed as follows:
If to Buyer, to: with copies to:
Xxxx X. Xxxxxx, President Xxxx X. Xxxxxx, Esquire
Westar Capital, Inc. Xxxxxxxx, Xxxxxxxxxx & Xxxxx LLP
000 X. Xxxxxx Xxxxxx 00000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxxx, XX 00000 Xxx Xxxxxxx, XX 00000
Telecopy: (___)_________ Telecopy: (000) 000-0000; and
Xxxx X. Xxxxxxxxx, Esquire
Westar Capital, Inc.
000 X. Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Telecopy: 000-000-0000
If to Sellers, to Seller's Representative: with copies to:
Centennial Capital Fund IV, L.P. S. Xxxxx Xxxxxxxx III, Esquire
0000 Xxxx Xxx Xxxx. Xxxxx 0000 Xxxxxxxx Ingersoll Professional Corporation
Xxxxxxx, XX 00000 One Oxford Centre
Attention: Xxxxx Xxxx 000 Xxxxx Xxxxxx, 00xx Xxxxx
Telecopy: (000) 000-0000 Xxxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
and
Morganthaler Venture Partners III L.P.
000 Xxxxxx Xxxxxx Xxxxx 000
Xxxxxxxxx, Xxxx 00000
Attention: Xxxx X. Xxxxxxxxxxx
Telecopy: (000) 000-0000
and
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54
Xxxxxx X. Xxxxxx
00 Xxx Xxxxx 00
Xxxxxxx, XX 00000
Facsimile: (___)___________
or to such address as such party may indicate by a notice delivered to the other
parties. Notice will be deemed received the same day (when delivered
personally), 5 days after mailing (when sent by registered or certified mail)
and the next business day (when delivered by overnight courier or by facsimile
transmission). Any party to this Agreement may change its address to which all
communications and notices may be sent by addressing notices of such change in
the manner provided.
12.8 Assignment.
This Agreement may not be assigned by Sellers without the prior
written consent of Buyer. Buyer will have the right to assign this Agreement and
the rights and obligations hereunder to its subsidiaries, affiliates, successors
and assigns or to Protection One, Inc. or its subsidiaries, affiliates,
successors and assigns without the prior written consent of Sellers, provided
Buyer stays obligated hereunder with respect to its closing obligations and such
assignment will not cause a delay beyond the Termination Date in obtaining
termination or expiration of the waiting period under the HSR Act. To the extent
this Agreement is assigned by Buyer, which is a corporation, to a subsidiary or
affiliate of Buyer that is a partnership, all direct and indirect references
herein to Buyer's corporate standing will be deemed to refer to partnership
standing. This Agreement is nonrecourse to the shareholders of Buyer or the
shareholders of its assignee.
12.9 Entire Agreement; Amendments.
This Agreement is an integrated document, contains the entire
agreement between the parties, wholly cancels, terminates and supersedes any and
all previous and/or contemporaneous oral agreements, negotiations, commitments
and writings of the parties with respect to such subject matter, except for the
Sellers Transaction Documents, Buyer Transaction Documents and the
Confidentiality Agreement. No change, modification, extension, termination,
notice of termination, discharge, abandonment or waiver of this Agreement or any
of its provisions, nor any representation, promise or condition relating to this
Agreement, will be binding upon any party unless made in writing and signed by
such party.
12.10 Interpretation.
The Table of Contents, Index of Defined Terms, List of Schedules,
List of Exhibits, Article titles and Section headings are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of any of the provisions of this Agreement. All
references to Sections and subsections contained in this Agreement refer to the
Sections and subsections of this Agreement. All references to Schedules or
Exhibits contained in this Agreement are references to the Schedules or Exhibits
described on the list immediately following the signature page hereto. All
references to the words "include" or "including" mean "including without
limitation." Any and all Schedules, Exhibits, statements, reports, certificates
or other documents or instruments referred to in or attached to this Agreement,
including the "Background" portion of this Agreement, are incorporated by
reference as though fully set forth at the point referred to in this Agreement.
There will be no presumption against any party on the ground that such party was
responsible for preparing this Agreement or any part of it. Any
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55
representation or warranty of a party based upon "knowledge" or "best knowledge"
or similar words will include actual knowledge and constructive knowledge, which
means imputed knowledge under principles of agency law or knowledge that an
ordinary person would have exercising prudence of a reasonable manner in the
same or similar circumstances. All pronouns and any variations thereof will be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
context may require.
12.11 Waivers.
Any term or provision of this Agreement may be waived, or the time
for its performance may be extended, by the party or parties entitled to the
benefit thereof, but any such waiver must be in writing and must comply with the
notice provisions contained in Section 12.7. The failure of any party to enforce
at any time any provision of this Agreement will not be construed to be a waiver
of such provision, nor in any way to affect the validity of this Agreement or
any part of it or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement will be held to
constitute a waiver of any other or subsequent breach.
12.12 Expenses.
Except as otherwise provided in this Agreement, and except for (i)
filing fees under the HSR Act and (ii) out-of-pocket costs for lien searches
obtained by Sellers, which, in the event the Closing occurs, will be split
equally between Buyer and Sellers, Buyer and Sellers will each pay all costs and
expenses incident to the negotiation and preparation of this Agreement and to
the performance and compliance with all agreements and conditions on their part
to be performed or complied with, including the fees, expenses and disbursements
of their counsel and accountants. In addition, any such fees or costs of the
Sellers arising out of professional services performed or costs incurred on or
prior to the Closing Date, and fees associated with the preparation of the
Closing Financials and any stub year tax returns shall be the sole
responsibility of Sellers, shall be excluded from any liabilities of the Company
as of the Closing Date, shall not be included in the Financials or the Closing
WC, and shall not be charged to the Company; provided however, Buyer
acknowledges that Company has paid or may pay certain of such expenses prior to
the Closing Date and the parties intend that such expenses will also be paid
from the proceeds due to Sellers at Closing.
12.13 Partial Invalidity.
Wherever possible, each provision will be interpreted in such manner
as to be effective and valid under applicable law, but in case any one or more
of these provisions will, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
will not affect any other provisions of this Agreement, and this Agreement will
be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein, unless the deletion of such
provision or provisions would result in such a material change as to cause the
completion of these transactions to be unreasonable.
12.14 Further Assurances.
From time to time following the Closing Date and without further
consideration, Sellers will at the request of Buyer, execute and deliver to
Buyer such other instruments of conveyance and transfer as Buyer may reasonably
request or as may be otherwise necessary to more effectively convey and transfer
to, and vest in, Buyer and put Buyer in possession of, any
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56
part of the Stock or the Assets. In the case of any agreement, contract, lease,
easement or other commitment which is included in the Assets but which requires
the consent of a third-party because of the change of control of the Parent
contemplated by this Agreement, whose consent has not been obtained prior to
Closing, Sellers' Representative will cooperate with Buyer at Buyer's request in
trying to promptly obtain such consent.
12.15 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which will be considered an original instrument and all of which together will
be considered one and the same agreement, and will become effective when
counterparts, which together contain the signatures of each party, will have
been delivered to Buyer, Parent and Sellers. Delivery of executed signature
pages by facsimile transmission will constitute effective and binding execution
and delivery of this Agreement.
12.16 Third-Party Beneficiaries.
This Agreement will not confer any rights or remedies upon any
person other than the parties to this Agreement and their respective successors
and permitted assigns.
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IN WITNESS WHEREOF, the parties have executed or have caused this
Stock Purchase Agreement to be executed as of the date first written above.
BUYER: WESTAR CAPITAL, INC.
By:__________________________________________
Xxxx X. Xxxxxx, President
PARENT: CENTENNIAL SECURITY HOLDINGS, INC.
By:__________________________________________
Xxxxxx X. Xxxxxx, President
SHAREHOLDERS: CENTENNIAL FUND IV, L.P.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
CENTENNIAL HOLDINGS, INC.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
XXXXXXX VENTURE PARTNERS, IV - DIRECT
FUND, L.P.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
XXXXXXXXXXXX VENTURE PARTNERS III, L.P.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
X-0
00
XXXXX XXXXXXX CAPITAL ASSOCIATES
By:__________________________________________
Name:_____________________________________
Title:____________________________________
CIBC WOOD GUNDY VENTURES, INC.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
NORTHWOOD VENTURES
By:__________________________________________
Name:_____________________________________
Title:____________________________________
NORTHWOOD CAPITAL PARTNERS LLC
By:__________________________________________
Name:_____________________________________
Title:____________________________________
HABITEC MICHIGAN, L.P.
HABITEC OHIO, L.P.
HABITEC SECURITY LTD., L.P.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
SECURITY ONE LIMITED PARTNERSHIP
By:__________________________________________
Name:_____________________________________
Title:____________________________________
DIVERSIFIED ALARM, INC.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
X-0
00
XXXXXXXX XXXX XXXXXXX XXXXXXXXXXX
By:__________________________________________
Name:_____________________________________
Title:____________________________________
XXXX, XXXX & COMPANY
By:__________________________________________
Name:_____________________________________
Title:____________________________________
BLUE CHIP CAPITAL FUND LIMITED
PARTNERSHIP
By:__________________________________________
Name:_____________________________________
Title:____________________________________
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By:__________________________________________
Name:_____________________________________
Title:____________________________________
MIAMI VALLEY VENTURE FUND L.P.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
UTECH CLIMATE CHALLENGE FUND, L.P.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
---------------------------------------------
Xxxxxxxxx Xxxxxxxx, an individual
---------------------------------------------
Xxxxxxx Xxxxxxx, an individual
---------------------------------------------
Xxxxxx X. Xxxxxx, an individual
S-3
60
INDEX OF DEFINED TERMS
PAGE
Adjusted Alarm RMR.......................................................-8-
Adjusted Purchase Price..................................................-7-
Adjusted WC..............................................................-8-
Adjusted Wholesale RMR...................................................-8-
Adjusted WIP RMR.........................................................-8-
Adjustment Date..........................................................-2-
ADR.....................................................................-47-
Alarm Accounts...........................................................-2-
Alarm RMR................................................................-5-
Alarm Services...........................................................-2-
Assets...................................................................-2-
Business Documents.......................................................-2-
Buyer Transaction Documents.............................................-28-
Buyer's Aggregate Net Loss..............................................-39-
Buyer....................................................................-1-
CBI Agreement...........................................................-33-
Claimant................................................................-47-
Closing Alarm RMR........................................................-6-
Closing Date Review Schedule.............................................-7-
Closing Date.............................................................-3-
Closing Purchase Price...................................................-7-
Closing Wholesale RMR....................................................-6-
Closing..................................................................-3-
COBRA...................................................................-25-
Company..................................................................-1-
Confidentiality Agreement...............................................-48-
Corporation..............................................................-1-
Customer Purchase Order.................................................-21-
Deferred Payment.........................................................-7-
Due Diligence Period....................................................-29-
Effective Time..........................................................-11-
Employee Benefit Plans..................................................-24-
Encumbrance..............................................................-3-
ERISA...................................................................-24-
Excluded Assets..........................................................-3-
Final Purchase Price.....................................................-9-
Financial Statements....................................................-18-
Form Contracts..........................................................-21-
GAAP.....................................................................-3-
Hazardous Materials......................................................-4-
Holdback Escrow Agreement................................................-7-
HSR Act.................................................................-35-
Independent Accountants.................................................-10-
Inventory................................................................-3-
IRC.....................................................................-19-
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61
ITC.....................................................................-44-
Liabilities..............................................................-4-
Majority in Interest of Sellers..........................................-5-
Modified Agreement......................................................-21-
Neutral.................................................................-47-
NOL.....................................................................-44-
Non-Performing Account...................................................-9-
Non-qualified Account....................................................-5-
Notes....................................................................-6-
Ohio Subsidiary..........................................................-1-
Parent...................................................................-1-
Plans...................................................................-24-
Purchase Price...........................................................-6-
Re-qualified RMR.........................................................-8-
Recurring Monthly Revenue................................................-4-
Respondent..............................................................-47-
RMR......................................................................-4-
RRSS....................................................................-23-
Second Look Alarm RMR....................................................-9-
Second Look Wholesale RMR................................................-9-
Security Business........................................................-1-
Sellers Transaction Documents...........................................-11-
Sellers..................................................................-1-
Sellers' Aggregate Net Loss.............................................-40-
Sellers' Representative..................................................-5-
Seller...................................................................-1-
Stock....................................................................-1-
Subscriber Contracts.....................................................-2-
Subscriber...............................................................-5-
Subsidiaries.............................................................-1-
Tangible Assets..........................................................-2-
Total Second Look RMR....................................................-9-
U.L.....................................................................-24-
Valuation Date...........................................................-6-
Valuation Period.........................................................-3-
Wholesale Alarm Accounts.................................................-2-
Wholesale RMR............................................................-5-
WIP Losses...............................................................-6-
WIP RMR..................................................................-6-
WIP......................................................................-6-
Work in Progress.........................................................-6-
Working Capital Adjustment...............................................-6-
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LIST OF EXHIBITS
EXHIBIT PAGE
------- ----
Exhibit A: Form of Holdback Escrow Agreement..............................-7-
Exhibit B-1: Form of Noncompetition Agreement..............................-11-
Exhibit B-2: Form of Nonsolicitation Agreement.............................-11-
Exhibit C: Financial Statements, Revenue Reports
and Income Statements.........................................-18-
Exhibit D-1: Form of Legal Opinions of Xxxxxxxx Xxxxxxxxx
Professional Corporation......................................-35-
Exhibit D-2: Form of Legal Opinions of Specific Sellers' Counsel...........-35-
Exhibit E: Spousal Consent...............................................-36-
Exhibit F: Form of Legal Opinion of Xxxx Xxxxxxxxx, Esquire..............-38-
Exhibit G: Form of Sellers' Release......................................-36-
Exhibit H: Copy of Executed CBI Purchase Agreement.......................-33-
Exhibit I: Form of Second Amendment to Asset Purchase Agreement..........-36-
Exhibit J: Copy of Executed SSM Letter of Intent ........................-33-
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LIST OF SCHEDULES
Schedule 1.1 - Shareholders of Parent
Schedule 1.2(b) - Assets
Schedule 1.2(b)(i) - Tangible Assets
Schedule 1.2(b)(ii) - Real Property
Schedule 1.2(b)(iii)(A) - Alarm Accounts
Schedule 1.2(b)(iii)(B) - Wholesale Alarm Accounts
Schedule 1.2(b)(iii)(C) - Business Documents
Schedule 1.2(f) - Excluded Assets
Schedule 1.2(m) - Non-qualified Accounts
Schedule 1.2(q) - Working Capital Adjustment Components
Schedule 1.2(r) - Work in Progress
Schedule 2.1(b)-A - Form of Wire Instructions and Payment Authorization
Schedule 2.1(b)-B - Proforma Calculation of Closing Purchase Price
Schedule 3.3 - Required Consents and Approvals
Schedule 4.1 - Organization
Schedule 4.2 - Capitalization
Schedule 4.3 - Sole Business, Subsidiaries
Schedule 4.4 - Authority of Sellers
Schedule 4.5 - Real Property
Schedule 4.6 - Title to Property
Schedule 4.7 - Compliance with Laws
Schedule 4.8 - Insurance Policies
Schedule 4.9 - Changed Events
Schedule 4.11 - Tax Disclosures
Schedule 4.12 - Employee Agreements
Schedule 4.13 - Intellectual Property
Schedule 4.14 - Non-Competition Agreements from Prior Sellers
Schedule 4.15 - Form Contracts
Schedule 4.16 - Locations of Alarm Accounts
Schedule 4.17 - Central Station Line Swing Exceptions
Schedule 4.18 - U.L. Certification
Schedule 4.20 - Labor/ERISA Matters
Schedule 4.21 - Creditors
Schedule 4.22 - Contracts
Schedule 4.24 - Banks and Accounts
Schedule 4.26 - Disclosed Liabilities
Schedule 5.2 - Consents of Buyer
Schedule 5.5 - Investment Purpose
Schedule 6.1(f) - Maintenance of Business - Marketing Policies and Practices
Schedule 7.3 - Required Consents
Schedule 7.4 - Opinion Letters from Counsel for Specific Sellers
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