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Exhibit 10.5
PLAN AND AGREEMENT OF MERGER
BETWEEN
SECURITY ASSOCIATES INTERNATIONAL, INC.,
KING ACQUISITION CORP.
KC ACQUISITION CORP.,
XX. XXXXXX X. FEW SR.,
XX. XXXXX X. XXXXX
and
XX. XXXXXXX X. XXXXXX
DATED AS OF: MAY 11, 2000
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PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREMENT OF MERGER (the "Agreement"), dated and effective
as of 3:00 p.m., Central Daylight Savings Time, May 11, 2000, is entered into by
and among Security Associates International, Inc, a Delaware corporation
("SAI"), King Acquisition Corp., a Delaware corporation ("King Acquisition"), KC
Acquisition Corp., a New Jersey corporation (the "Company"), Xx. Xxxxxx X. Few
Sr. ("Few"), Xx. Xxxxx X. Xxxxx ("Xxxxx") and Xx. Xxxxxxx X. XxXxxx ("XxXxxx")
(Messrs. Few, Xxxxx and XxXxxx are sometimes referred to herein individually as
a "Selling Shareholder" and collectively as the "Selling Shareholders").
RECITALS
WHEREAS, the board of directors of the Company, and the shareholders of
the Company (the "Shareholders"), have approved the transactions contemplated
hereby and have determined that it is advisable and in their respective best
interests to consummate the merger described in Article II (the "Merger') and
the other transactions contemplated herein; and
WHEREAS, the respective boards of directors of SAI and King Acquisition
have approved the transactions contemplated hereby, subject to the approval of
the shareholders of SAI, and have determined that it is advisable and in their
respective best interests to consummate the Merger and the other transactions
contemplated herein; and
WHEREAS, as a result of the Merger, King Acquisition will be merged
with and into the Company, all of the outstanding capital stock of the Company
will be converted into the right to receive a combination of cash and securities
of SAI, all of the outstanding capital stock of King Acquisition will be
converted into capital stock of the Company and the Company will be the
surviving corporation, all on the terms and subject to the conditions set forth
in this Agreement; and
WHEREAS, for Federal income tax purposes the Parties intend that the
Merger shall qualify as a tax-free reorganization within the meaning of Section
368(a) of the Code (as defined herein);
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein and other good and valuable consideration, the parties hereto,
on the basis of, and in reliance upon, the representations, warranties,
covenants, obligations and agreements set forth in this Agreement, and upon the
terms and subject to the conditions contained herein, agree as follows:
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ARTICLE 1
DEFINITIONS
The following terms shall have the meanings assigned below when used in
this Agreement:
1.1 "Account" shall mean a written monitoring agreement pursuant to
which the Company or its Subsidiaries provides Monitoring Services to
Subscribers. All Accounts are "Dealer Owned Accounts," as defined below;
1.2 "Affiliate" shall mean, with respect to any particular Person,
any Person controlling, controlled by or under common control with such Person,
whether by ownership or control of voting securities, by contract or otherwise;
1.3 "Agreement" shall mean this Plan and Agreement of Merger;
1.4 "AMEX" shall mean the American Stock Exchange;
1.5 "Antenna" shall mean a radio antenna and antenna site used by the
Company or its Subsidiaries pursuant to an antenna site license agreement to
which the Company or its Subsidiaries is a party ("Antenna Lease");
1.6 "Acquisition Common" shall mean the common stock, $0.01 par
value, of King Acquisition;
1.7 "Assets" shall mean all of the assets (as defined under GAAP) of
the Company and its Subsidiaries, including, but not limited to, the assets
listed on Schedule 3.12(a);
1.8 "Audited Company Financial Statements" shall have the meaning
assigned in Section 3.7(a);
1.9 "Billed Accounts" shall mean Dealer Owned Accounts for which the
Company or its Subsidiaries bills Subscribers on behalf of the Dealers which own
the Accounts;
1.10 "Central Stations" shall mean the central monitoring stations
owned and operated by the Company, or its Subsidiaries, which are located at the
locations set forth on Schedule 3.4;
1.11 "Closing" shall mean the consummation of the Merger;
1.12 "Closing Date" shall mean the third business day following the
date upon which the conditions to closing referred to in Articles 7 and 8, as
applicable, of this Agreement have been satisfied or waived by the Party
authorized to do so as provided in
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this Agreement and the Escrow Agreement or such other date as the Parties may
agree in writing;
1.13 "Closing Date Balance Sheet" shall mean the balance sheet,
prepared as provided in Section 3.7, delivered at the Closing showing the assets
and liabilities of the Company and its Subsidiaries as of a date not more than
five days prior to the Closing Date;
1.14 "Code" shall mean the Internal Revenue Code of 1986, as amended,
and any successor statute thereto, and the rules and any successor statute
thereto, and the rules and regulations issued and promulgated thereunder, as in
effect from time to time;
1.15 "Company" shall mean KC Acquisition Corp., a New Jersey
corporation;
1.16 "Company Common" shall mean the Common Stock, with no par value
per share, of the Company;
1.17 "Company Financial Statements" shall mean the Audited Company
Financial Statements, the Unaudited Company Financial Statements, the Escrow
Date Balance Sheet and the Closing Date Balance Sheet;
1.18 "Company Released Claims" shall have the meaning assigned in
Section 5.15;
1.19 "Company Released Parties" shall have the meaning assigned in
Section 5.15;
1.20 "Company Releasing Parties" shall have the meaning assigned in
Section 6.5;
1.21 "Confidential Information" shall mean any and all oral, written,
electronic or other information designated as confidential or which ought to be
considered as confidential from its nature or from the circumstances surrounding
its disclosure, regardless of whether such information was disclosed before, on
or after the date of this Agreement, other than such information that (i) is
generally available or known by the public immediately prior to the time of
disclosure (except through the actions or inactions of the Person to whom
disclosure has been made) or (ii) has been acquired or developed independent
from the Person making the disclosure thereof.
1.22 "Contracts" shall mean Accounts, Dealer Monitoring Agreements,
and all agreements, contracts and arrangements relating to the businesses
conducted by the Company and its Subsidiaries;
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1.23 "Dealer" shall mean an individual or business entity that
contracts in writing to provide Monitoring Services to Subscribers, and who in
turn subcontracts the provision of the actual Monitoring Services from the
Company or its Subsidiaries;
1.24 "Dealer Monitoring Agreements" shall mean the written contracts
(and those oral contracts summarized on Schedule 1.24 attached hereto) pursuant
to which the Company or its Subsidiaries has contracted to provide Monitoring
Services to Dealer Owned Accounts;
1.25 "Dealer Owned Account" shall mean any Account owned by a Dealer;
1.26 "Distributed Business Items" means the assets and liabilities of
the business lines of the Company historically operated under the names "King
Capital" and "Monitoring Services" (the "Transferred Business Units") that are
described on Schedule 1.26 attached hereto and that are being transferred by the
Company to Morlyn Financial Group, LLC ("Morlyn") prior to Closing.
1.27 "Effective Time" shall have the meaning assigned in Section 2.1;
1.28 "Employee Benefit Plan" shall mean any employee benefit plan
within the meaning of Section 3(3) of ERISA which is (i) maintained for
employees of the Company or any ERISA Affiliate or (ii) has at any time within
the preceding six years been maintained for the employees of the Company its
Subsidiaries or any other current or former ERISA Affiliate.
1.29 "Environmental Laws" shall mean any and all federal, state and
local laws, rules, regulations and ordinances that relate to or impose liability
or standards of conduct concerning public or occupational health and safety or
protection of the environment, as now or hereafter in effect and as have been or
hereafter may be amended or re-authorized, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
Sec. 9601 et seq.), the Hazardous Materials Transportation Act (42 U.S.C. Sec.
1802 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sec. 6901,
et seq.), the Federal Water Pollution Control Act (33 U.S.C. Sec. 1251 et seq.
), the Toxic Substances Control Act (15 U.S.C. Sec. 2601 et seq.), the Clean Air
Act (42 U.S.C. Sec. 7901 et seq.), the National Environmental Policy Act (42
U.S.C. Sec. 4231 et seq.), the Refuse Act (33 U.S.C. Sec. 407 et seq.), the Safe
Drinking Water Act (42 U.S.C. Sec. 300(f) et seq.), the Occupational Safety and
Health Act (29 U.S.C. Sec 651 et seq.), and all rules, regulations, codes,
ordinances and guidance documents promulgated or published thereunder, and the
provisions of any licenses, permits, orders and decrees issued pursuant to any
of the foregoing.
1.30 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, and the rules and
regulations issued and promulgated thereunder, as in effect from time to time.
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1.31 "ERISA Affiliate" shall mean any Person who is a member of group
which is under common control with the Company, who together with the Company is
treated as a single employer within the meaning of Section 414(b), (c), and (m)
of the Code and, if not otherwise so included, any other Subsidiary.
1.32 "Equipment" shall mean the tangible assets used or useful in
connection with the Monitoring Business or any other business conducted by the
Company or its direct or indirect Subsidiaries, including, but not limited to
that listed on Schedule 3.12(a);
1.33 "Equipment Lease" shall mean a lease pertaining to Equipment and
shall also include the Antenna Lease.
1.34 "Escrow Agent" shall mean the Person acting as the escrow agent
pursuant to the Escrow Agreement;
1.35 "Escrow Agreement" shall mean the Escrow Agreement to be entered
into among the Parties and the Escrow Agent pursuant to Section 9.2 which
provides, among other things, for the closing into, and release from, escrow of
the transactions contemplated by this Agreement on the terms and subject to the
conditions contained therein;
1.36 "Escrow Closing" shall mean the closing in escrow pursuant to the
Escrow Agreement as contemplated in Section 9.2 and in the Escrow Agreement.
1.37 "Escrow Date Balance Sheet" shall mean the balance sheet,
prepared as provided in Section 3.7, delivered at the Escrow Closing, showing
the assets and liabilities of the Company and it Subsidiaries as of a date not
more than five days prior to the Escrow Closing Date.
1.38 "Escrow Closing Date" shall mean June 30, 2000 or such earlier
date which is three business days after the date upon which the conditions to
closing, other than SAI Stockholder Approval, referred to in Articles 7 and 8 of
this Agreement have been satisfied or waived by the Party authorized to do so as
provided in this Agreement or such other date as the Parties may agree upon in
writing;
1.39 "Excluded Assets" shall have the meaning assigned in Section
3.12(b);
1.40 "Facilities" shall have the meaning assigned in Section 3.27(a);
1.41 "Form Contracts" shall have the meaning assigned in Section 3.13;
1.42 "GAAP" shall mean "Generally Accepted Accounting Principles"
which shall mean the accounting rules, principles and conventions adopted by the
American Institute of Certified Public Accountants and referred to by that name;
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1.43 "Hazardous Materials" shall mean any hazardous, toxic, dangerous
or other waste, substance or material defined as such in, regulated by or for
the purposes of any Environmental Law.
1.44 "including" shall indicate examples of a foregoing general
statement and is not a limitation on that general statement.
1.45 "Indemnitee" shall have the meaning assigned in Section 10.2;
1.46 "Indemnitor" shall have the meaning assigned in Section 10.2;
1.47 "Intellectual Property" shall mean all of the patents,
trademarks, trade names (excluding, the names "King Capital" and Monitoring
Services"), service marks, trade secrets, designs, know-how, copyrights,
computer programs and software and all rights, licenses and contracts relating
to any of the foregoing, and all other proprietary rights and information of the
Company and its Subsidiaries;
1.48 "Knowledge" means actual knowledge and knowledge a reasonable
person would have after due investigation and includes such knowledge of such
Party's officers, directors, the Company's Central Regional Manager, the
Company's National Sales Manager, legal counsel, financial representatives and
subsidiaries.
1.49 "Lease" shall mean each Real Estate Lease, each Equipment Lease
and each other lease pursuant to with the Company or its Subsidiaries rent or
lease Property;
1.50 "Leasehold Property" shall mean any real estate which is the
subject of a Lease under which the Company or its Subsidiaries is or has been
the lessee.
1.51 "Liabilities" shall have the meaning assigned under GAAP.
1.52 "Letter of Intent" shall mean the letter of intent, dated as of
April 21, 2000, among XxxxxxxxXxxxxxx.xxx, Inc. ("SecurityVillage"), SAI, the
Company and TJS Partners, L.P. which provides, among other things for the Merger
and the other transactions contemplated in this Agreement;
1.53 "Lien" shall have the meaning assigned in Section 3.12;
1.54 "Material Adverse Effect" shall have the meaning assigned in
Section 3.7;
1.55 "Material Contract" shall have the meaning assigned in Section
3.10;
1.56 "Merger" shall have the meaning assigned in the first Recital;
1.57 "Minimum RMR" shall mean RMR payable to the Company and its
Subsidiaries of not less than $1,100,000;
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1.58 "Monital" shall mean Monital Signal Corporation, Griptight
Holdings, Inc. and their respective subsidiaries prior to the Monital
Acquisition;
1.59 "Monital Acquisition" shall mean the merger of Griptight
Holdings, Inc. and Monital Signal Corporation into a Subsidiary of the Company
(the "Monital Acquisition Subsidiary") and the acquisition of a 20% equity
interest in Monital Signal Corporation, which transactions will result in the
Company owning 99.2% of the Monital Acquisition Subsidiary;
1.60 "Monital Retail Account Transactions" shall mean the sale by
Monital of its retail accounts to Palisades Partners or its assignee for a
purchase price of $450,000, the application of the proceeds therefrom to
indebtedness of Monital to M&S Partners, the potential loan from Palisades
Partners or its assignee to Monital for the release of certain liens or
encumbrances on such retail accounts and the subsequent repayment of such loan
by SAI upon the closing of the Merger, all as contemplated in Section 2(d) of
the Letter of Intent;
1.61 "Monitoring Business" shall mean the business of providing
Monitoring Services as presently conducted;
1.62 "Monitoring Services" shall mean the provision of remote alarm
monitoring services to Subscribers, and all related security services, including
but not limited to, notification and dispatch of emergency personnel, supervised
openings and closings, closed circuit monitoring and any other security related
services;
1.63 "Multiemployer Plan" shall mean any multiemployer plan as defined
pursuant to Section 3(37) of ERISA to which the Company or any ERISA Affiliate
makes, or accrues an obligation to make, contributions, or has made, or has been
obligated to make, contributions within the preceding six (6) years;
1.64 "Pension Plan" shall mean any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Part 3 of Title I of
ERISA, or Section 412 of the Code and which (i) is maintained for employees of
the Company, its direct or indirect Subsidiaries or any ERISA Affiliate, or (ii)
has at any time within the preceding six years been maintained for the employees
of the Company or any of its current or former ERISA Affiliates;
1.65 "Permits" shall mean all governmental licenses, registrations,
permits, approvals and applications therefor;
1.66 "Person" shall mean any individual, trust, corporation,
partnership, limited partnership, limited liability company or other business
association or entity, court, governmental body or governmental agency;
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1.67 "Prebilled RMR" shall mean RMR billed by the Company or its
Subsidiaries to Dealers in advance for monitoring services to be performed
subsequent to the Closing Date;
1.68 "Proxy Statement" shall mean the proxy statement distributed by
SAI to its stockholders in connection with the meeting of the stockholders of
SAI called for the purpose, among other things, of obtaining SAI Stockholder
Approval;
1.69 "Real Estate Leases" shall have the meaning assigned in Section
3.11(a);
1.70 "Required Consents" shall have the meaning assigned in Section
5.3;
1.71 "RMR" shall mean the total regular recurring monthly amounts
payable by Dealers, as appropriate, for Monitoring Services. RMR shall exclude
any amounts due under Dealer Monitoring Agreements listed on Schedule 1.72. RMR
includes all service charges, including leased equipment revenue. RMR does not
include any amounts derived from:
(a) reimbursement for or payment of telephone line or other
utility charges associated with the installation,
monitoring, maintenance, or furnishing of the alarm
services;
(b) reimbursement or payments of false alarm assessments;
(c) reimbursement or payment of taxes, fees or other charges
imposed by any governmental authority or utility relating to
the furnishing of alarm services;
(d) reimbursement or payment for time and materials charges that
are receivable from any seller or installer of monitoring
equipment for services which are not provided on a regular
or recurring basis; or
(e) charges incurred in connection with the maintenance of alarm
systems or the underlying equipment.
1.72 "SAI" shall mean Security Associates International, Inc., a
Delaware corporation;
1.73 "King Acquisition" shall mean King Acquisition Corp., a Delaware
corporation;
1.74 "SAI Common" shall mean the common stock, $.001 par value, of
SAI;
1.75 "SAI Financial Statements" shall have the meaning assigned in
Section 4.5;
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1.76 "SAI Indemnified Parties" shall have the meaning assigned in
Section 10.1(a);
1.77 "SAI Preferred" shall mean the Series B Convertible Preferred
Stock, par value $0.01 per share of SAI, having substantially the terms,
preferences and provisions previously disclosed to the Selling Shareholders;
1.78 "SAI SEC Reports" shall have the meaning assigned in Section 4.5;
1.79 "SAI/Xxxx XXX" shall mean the letter of intent, dated April 5,
2000, between SAI and the Selling Shareholders of the Company relating to the
acquisition of the Company by SAI and referred to in Section 3(c)(y) of the
Letter of Intent;
1.80 "SAI Stockholder Approval" shall have the meaning assigned in
Section 7.21;
1.81 "SAI Stockholders Meeting" shall have the meaning assigned in
Section 6.4;
1.82 "SEC" shall mean the Securities and Exchange Commission;
1.83 "Securities Act" shall mean the Securities Act of 1933, as
amended;
1.84 "Securities Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended;
1.85 "SecurityVillage" shall mean XxxxxxxxXxxxxxx.xxx, Inc., a
Delaware corporation;
1.86 "Shareholder Indemnified Parties" shall have the meaning assigned
in Section 10.1(b);
1.87 "Shareholders" shall have the meaning assigned in the first
Recital of this Agreement;
1.88 "Shares" shall mean all of the issued and outstanding capital
stock of the Company;
1.89 "Selling Shareholder Released Claims" shall have the meaning
assigned in Section 6.5;
1.90 "Selling Shareholder Released Parties" shall have the meaning
assigned in Section 6.5;
1.91 "Selling Shareholder Releasing Parties" shall have the meaning
assigned in Section 5.15;
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1.92 "Selling Shareholders" shall mean Messrs. Xxxxxx X. Few Sr.,
Xxxxx X. Xxxxx and Xxxxxxx X. XxXxxx;
1.93 "Subscriber" shall mean any individual or entity who has
contracted to obtain remote security system monitoring services for a security
alarm system installed on the premises of that individual or entity;
1.94 "Subsidiary" shall have the meaning assigned in Section 3.3;
1.95 "SV/SAI Agreement" shall have the meaning assigned in Section 3
of the Letter of Intent;
1.96 "SV Option" means the option referred to in Section 1 of the
Letter of Intent pursuant to which SecurityVillage has the right to acquire up
to 8% of the equity of the Company (on a fully diluted basis after giving effect
to the Monital Acquisition) for $1.5 million (or in lieu thereof a call option
for such 8% equity interest or another investment vehicle that provides
equivalent economic value to SecurityVillage);
1.97 "Taxes" shall have the meaning assigned in Section 3.23;
1.98 "Termination Event" shall mean (1) a "Reportable Event" described
in Section 4043 of ERISA and the regulations issued thereunder; or (ii) the
withdrawal of the Company or any ERISA Affiliate from a Pension Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2); or (iii) the termination of a Pension Plan, the filing of a notice
of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a termination under Section 4041 of ERISA; or (iv) the institution
of proceedings to terminate, or the appointment of a trustee with respect to,
any Pension Plan by the PBGC; or (v) any other event or condition which would
constitute grounds under Section 4042(a) of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan, or (vi) the partial or
complete withdrawal of the Company or any ERISA Affiliate from a Multiemployer
Plan or (vii) the imposition of a lien pursuant to Section 412 of the Code or
Section 302 of ERISA; or (viii) any event or condition which results in the
reorganization or insolvency of a Multiemployer Plan under Sections 4241 or 4245
of ERISA; or (ix) any event or condition which results in the termination of a
Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC
of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.
1.99 "Third Party Claim" shall have the meaning assigned in Section
10.2(a); and
1.100 "Unaudited Company Financial Statements shall mean the reviewed
financial statements of the Company and its Subsidiaries for each of the two
years ended December 31, 1999 and the financial statements of the Company for
the three month
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period ended March 31, 2000, all as more fully described in Section 3.7 of this
Agreement.
ARTICLE 2
THE MERGER
In connection with the Merger, the respective boards of directors and
shareholders of King Acquisition and the Company have, by resolutions duly
adopted, approved the following provisions of this Article II as their "Plan of
Reorganization" within the meaning of applicable law:
2.1 Articles of Merger. Subject to the provisions of this Agreement,
Certificates of Merger executed on behalf of each of King Acquisition and the
Company and meeting the requirements of applicable law (the "Certificates of
Merger"), shall be duly prepared, executed and acknowledged by the Company, King
Acquisition and such other parties as may be appropriate, and thereafter the
Certificates of Merger shall be delivered to the Secretary of State of the
states of New Jersey and Delaware, as provided under applicable law, for filing
at or before the Closing. The Merger shall become effective on the date upon
which the Certificates of Merger are filed in accordance with applicable law
(the "Effective Time").
2.2 Closing. The Closing shall take place as provided in Article 9
and in the Escrow Agreement.
2.3 Effects of the Merger.
(a) At the Effective Time, the separate corporate existence
of King Acquisition shall cease, King Acquisition shall
be merged with and into the Company and the Company, as
the surviving corporation in the Merger (the "Surviving
Corporation"), shall continue its corporate existence
under the laws of the state of New Jersey under such
name as SAI shall designate.
(b) At and after the Effective Time, the Merger will have
the effects set forth under applicable law.
2.4 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of King Acquisition, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation immediately after the Effective Time and shall thereafter continue
to be its Certificate of Incorporation until amended as provided therein and
under applicable law.
2.5 Directors and Officers. The directors of King Acquisition holding
office immediately prior to the Effective Time shall be the directors of the
Surviving Corporation immediately after the Effective Time. The officers of King
Acquisition
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holding office immediately prior to the Effective Time shall be the officers of
the Surviving Corporation immediately after the Effective Time.
2.6 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of King Acquisition, the Company or
the holders of any of the following securities, the following securities will be
converted in the manner set forth below:
(a) Each share of Company Common which is issued and
outstanding immediately prior to the Effective Time
(other than treasury shares) shall be canceled and
extinguished and converted into and become a right to
receive (x) 225 shares of SAI Preferred (having in the
aggregate a $22.5 million liquidation value and
convertible into 4.5 million shares of SAI Common in the
aggregate), and (y) and $25,000 ($5 million in the
aggregate); provided, however, that if as the result of
the conversion of any Shareholder's Company Common upon
consummation of the Merger, a fractional interest in a
share of SAI Preferred would be deliverable under this
Section 2.6.(a), in lieu of a fractional share being
delivered therefor, such fractional interest shall
automatically be converted into the right to receive an
amount in cash (without interest) equal to the product
of the average of the high and low sale prices of the
SAI Common as reported by the AMEX on the trading day
immediately prior to the Effective Time, multiplied by
the number of shares of SAI Common into which such
fractional interest would be convertible. No such holder
will be entitled to dividends, voting rights or any
other rights as a shareholder in respect of any
fractional share.
(b) The SV Option shall be canceled and extinguished and
converted and become a right to receive 300,000 shares
of SAI Common in the aggregate.
(c) To the extent that actual RMR is less than the Minimum
RMR, then the number of shares of SAI Preferred, SAI
Common, and cash to be exchanged pursuant to this
Section 2.6 shall be proportionately reduced.
(d) Each share of Acquisition Common issued and outstanding
immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and
nonassessable share of Company Common.
2.7 Closing of Company Transfer Books. Immediately prior to the
Effective Time the stock transfer books of the Company shall be closed and no
transfer of shares of Company stock shall thereafter be made or recognized.
After the Effective Time valid
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certificates previously representing shares of Company Common which are
presented in accordance with this Agreement to the Surviving Corporation shall
be exchanged as provided in Section 2.8.
2.8 Exchange of Common Certificates. Each holder of a certificate or
certificates representing shares of Company Common issued and outstanding
immediately prior to the Effective Time shall at or as soon as practicable
following the Closing, surrender to SAI for exchange a certificate or
certificates, duly endorsed in blank or accompanied by duly executed stock
powers, representing the number of shares of Company Common held by such holder.
In exchange therefor, SAI shall (x) issue to such holder of Company Common a
certificate or certificates representing the number of shares of SAI Preferred
to be issued to such holder pursuant to Section 2.6(a), and (y) the amount of
cash, if any, to be paid to be paid to such holder pursuant to Sections 2.6(a).
Surrendered certificates shall forthwith be canceled. At Closing,
SecurityVillage will surrender the original SV Option to SAI in exchange for the
SAI Common called for by Section 2.6(b). Until so surrendered and exchanged,
each such certificate (or the SV Option, as applicable) shall represent solely
the right to receive the consideration therefor provided in Sections 2.6(a) and
2.6(b), without interest, and SAI shall not be required to issue to such holder
the stock to which such holder otherwise would be entitled; provided, that
procedures allowing for payment against receipt of customary and appropriate
certifications and indemnities shall be provided with respect to lost or
destroyed certificates.
2.9 Rights of the Company Shareholders. From and after the Effective
Time, the holders of shares of Company Common issued and outstanding at the
Effective Time shall have no rights with respect to such shares other than to
surrender the certificate or certificates representing such shares pursuant to
Section 2.8.
2.10 Taking of Necessary Action; Further Action. SAI and King
Acquisition, on the one hand, and the Company and the Selling Shareholders, on
the other hand, shall use reasonable efforts to take all such action (including
action to cause the satisfaction of the conditions to the Merger) as may be
necessary or appropriate in order to effectuate the Merger as promptly as
possible. If, at any time after the Effective Time, any further action is
necessary or desirable to vest the Surviving Corporation with full possession of
all the rights, privileges, immunities and franchises of the Company and
Acquisition, the officers of the Surviving Corporation are fully authorized in
the name of either the Company or Acquisition or otherwise to take, and shall
take, all such action.
ARTICLE 3
REPRESENTATIONS WARRANTIES OF THE SELLING SHAREHOLDERS
The Selling Shareholders, jointly and severally, represent, warrant and
acknowledge to SAI, King Acquisition, and their respective successors and
assigns that on the date of execution of this Agreement, at the Escrow Closing
and at the Closing, except in each case as set forth on the applicable
Disclosure Schedules attached hereto and except as provided in Section 3.32:
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3.1 Organization and Standing; Certificate of Incorporation and
By-laws. The Company and each Subsidiary of the Company is a corporation duly
organized and validly existing under and by virtue of, the laws of the state of
its incorporation and is in good standing under such laws. The Company and each
Subsidiary of the Company has the requisite corporate power and authority to own
and operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. The Company and each Subsidiary of
the Company is duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction where the character of its properties or the
nature of the activities conducted by it makes such qualification or licensing
necessary, each of which is listed on Schedule 3.1. The Company and its
Subsidiaries do business under the names listed on Schedule 3.1 and do not
conduct any business, and are not commonly known by any other names, other than
as set forth on Schedule 3.1. The Company and each Subsidiary of the Company has
complied with all laws requiring the registration or other recording of such
names in each jurisdiction in which the Company or such direct or indirect
Subsidiary does business. The certified copies of the Certificate or Articles of
Incorporation and By-laws of the Company and each of its Subsidiaries attached
to Schedule 3.1, are true, correct and complete and contain all amendments
through the date hereof.
3.2 Power and Authority. The Company, each of its Subsidiaries and
the Selling Shareholders have, and will have at the Closing, all requisite legal
power and authority to execute and deliver this Agreement, to consummate the
Merger and to carry out and perform their obligations under this Agreement. None
of the Company's shareholders has dissented from the transactions contemplated
by this Agreement and no shareholder of the Company has or will have dissenter's
rights as a result thereof. This Agreement has been duly executed and delivered
by the Company and each Selling Shareholder, and constitutes a legal, valid and
binding obligation of the Company and each Selling Shareholder, enforceable
against each in accordance with its terms. Attached to Schedule 3.2 are
certified copies of the resolutions of the Company authorizing the transactions
contemplated hereby, which have not been amended or revoked.
3.3 Subsidiaries. Except as disclosed on Schedule 3.3, the Company
has no Subsidiaries or affiliated companies and does not otherwise own or
control, directly or indirectly, any equity interest in any corporation,
association or business entity. As used herein, a "Subsidiary" is any
corporation, limited liability company, partnership, or other business entity
with respect to which the Company owns, directly or indirectly, any equity
interest, and includes any Subsidiary of a Subsidiary.
3.4 Central Stations. The Company and its Subsidiaries own and
operate the Central Stations from which they monitor security systems pursuant
to the Accounts and the Dealer Monitoring Agreements. The Central Stations are
located at the locations described on Schedule 3.4.
3.5 Capitalization. The authorized capital stock of the Company
consists, and will consist at the Closing, of 2,500 shares of common stock, with
no par value per share,
16
of which 200 shares are issued and outstanding, and all of which are, and at the
Closing will be, owned, beneficially and of record by Few, Xxxxx and XxXxxx, the
Selling Shareholders, as follows: Few (160 shares), Xxxxx (20 shares) and XxXxxx
(20 shares). All of such shares have been duly authorized and validly issued and
are fully paid and nonassessable. The authorized, issued and outstanding capital
stock of each Subsidiary of the Company is, and at the Closing will be, as set
forth on Schedule 3.5. Except for the 0.8% interest in Monital held by LWG
Holdings Limited, an English limited company, all shares of capital stock of
each Subsidiary of the Company are, and at the Closing will be, owned
beneficially and of record by the Company or a Subsidiary of the Company, free
and clear of all liens, encumbrances, restrictions and claims of every kind.
Except for the SV Option and except as described on Schedule 3.5, there are no
pre-emptive rights, options, warrants, conversion rights, rights of exchange or
other rights, plans or agreements of any nature whatsoever providing for the
purchase, issuance or sale of any capital stock of the Company or any Subsidiary
of the Company or of any securities convertible into or exchangeable for any
shares of the capital stock of the Company or any Subsidiary of the Company.
Except for the Letter of Intent, no shareholder of the Company or any Subsidiary
of the Company is party to any agreement or arrangement pursuant to which it is
obligated to dispose of any of the capital stock of the Company or any
Subsidiary of the Company to any party other than SAI in connection with the
Merger. Other than the Selling Stockholders, there are no other holders of
capital stock of the Company. All securities of the Company and each Subsidiary
of the Company were issued and transferred in compliance with all applicable
federal and state securities laws and regulations. The Merger and the exchange
of the shares of Company Common involved therein as contemplated by this
Agreement will be in compliance with all applicable federal and state securities
regulations.
3.6 Consents and Approvals. No approval or authorization of the
Shareholders or the directors of the Company or of any governmental authority or
agency or any other third party is required for the consummation by the Company
of the Merger or the other transactions contemplated by this Agreement, except
for those listed on Schedule 3.6, all of which have been obtained and copies of
which have been delivered to SAI. Except as contemplated by this Agreement, no
filing or registration with any court or governmental or regulatory agency or
board is required to be made on behalf of the Company or any Subsidiary of the
Company in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
3.7 Company Financial Statements; Closing Date Balance Sheet.
(a) The Company has delivered to SAI the Unaudited Company
Financial Statements; and, prior to the Escrow Closing,
the Company will deliver to SAI the Escrow Date Balance
Sheet, and prior to the Closing, the Company will
deliver to SAI the Closing Date Balance Sheet. The
Unaudited Company Financial Statements are attached to
Schedule 3.7. The Unaudited Company
17
Financial Statements are complete and correct in all
material respects and do not contain any information
which is false or misleading. The Escrow Date Balance
Sheet and the Closing Date Balance Sheet will contain,
among other things, specific schedules setting forth
the Company's RMR as of the dates thereof, and will be
true, accurate, complete and correct in all material
respects and will not contain any information which is
false or misleading as of their respective dates. The
Unaudited Company Financial Statements do, the Escrow
Date Balance Sheet, and the Closing Date Balance Sheet
will, fairly present the financial condition and
operating results of the Company and its Subsidiaries
as of the dates, and during the periods, indicated
therein. Prior to the Escrow Closing, the Company will
provide SAI with audited financial statements for
periods covered by the Unaudited Company Financial
Statements (the "Audited Company Financial
Statements"). The Audited Company Financial Statements
will fairly present the financial condition and
operating results of the Company and its Subsidiaries
as of the dates, and during the periods, indicated
therein, and will be prepared in accordance with GAAP,
consistently applied throughout the periods indicated,
except for the absence of footnotes and subject in the
case of interim financials, including the Escrow Date
Balance Sheet and the Closing Date Balance Sheet, to
the effect of normal year-end adjustments (which will
not be material). The Audited Company Financial
Statements will not differ from the Unaudited Company
Financial Statements in any material respect. Since
December 31, 1999, there has not been any material
adverse change, or any event or condition which could
reasonably be expected to result in any material
adverse change, in the financial condition, results or
operations, business, prospects or properties of the
Company or any of its Subsidiaries, the Monitoring
Business or any other business conducted by the Company
or any of its Subsidiaries (a "Material Adverse
Effect").
(b) The books and records of the Company and each of its
Subsidiaries are and have been properly prepared and
maintained in form and substance adequate for preparing
audited financial statements in accordance with GAAP,
and fairly and accurately reflect all of the assets and
liabilities of the Company, its Subsidiaries and all
contracts and transactions to which the Company or its
Subsidiaries is or was a party or by which the Company,
its Subsidiaries or any of their respective businesses
or assets is or was affected. The corporate minute
books of the Company and each of its Subsidiaries,
copies of which have been made available
18
to SAI, correctly reflect all resolutions adopted and
all other material corporate actions taken at all
meetings or through consents of the directors
(including committees thereof) and the shareholders of
the Company and each of its Subsidiaries. The stock
transfer books and stock ledger of the Company and each
of its Subsidiaries are complete and correctly reflect
all issuances and transfers of the capital stock of the
Company and each of such Subsidiaries.
(c) At the Closing the Company will have a tax basis of at
least (i) $18 million in depreciable and/or amortizable
assets for Federal income tax purposes, calculated in
accordance with GAAP, less (ii) the amount by which
such assets have been depreciated and/or amortized for
Federal income tax purposes since January 1, 2000,
calculated in accordance with GAAP.
3.8 Absence of Changes. Except for Monital Retail Account
Transactions, the transfer of the Distributed Business Items and the incurrence
in the ordinary course of indebtedness in the ordinary course of business for
working capital and/or under the Company's "8X" program, and except as otherwise
set forth in Schedule 3.8, since December 31, 1999:
(a) neither the Company nor any of its Subsidiaries has
entered into any material agreement or transaction
which was not in the ordinary course of business;
(b) there has been no material damage to, destruction of or
loss of physical property (whether or not covered by
insurance) or any other material adverse change in the
Company, its Subsidiaries, or their Assets, the
Monitoring Business or any other business conducted by
the Company or any of its Subsidiaries;
(c) except as permitted pursuant to Section 5.11, neither
the Company nor any of its Subsidiaries has declared or
paid any dividend or made any distribution (in cash,
securities or other property) on its capital stock, or
redeemed, purchased or otherwise acquired any of its
capital stock;
(d) neither the Company nor any of its Subsidiaries has
increased the compensation of its officers, or the rate
of pay of its employees as a group; and there are no
impending resignations or terminations of any officers
or employees of the Company or any of its Subsidiaries;
19
(e) there has been no labor dispute involving the Company
or any of its Subsidiaries;
(f) there has not been any material change in the
contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(g) there have not been any loans made by the Company or
any of Subsidiaries to any of their employees, officers
or directors;
(h) neither the Company nor any of its Subsidiaries has
borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent), except
non-material expenses incurred in the ordinary course
of business;
(i) neither the Company nor any of its Subsidiaries has
paid any material obligations or liabilities, other
than current liabilities paid in the ordinary course of
business;
(j) neither the Company nor any of its Subsidiaries has
mortgaged, pledged or subjected to any lien, charge or
any other encumbrance, any of its properties or assets;
(k) neither the Company nor any of its Subsidiaries has
sold, assigned, transferred or leased any of its assets
other than in the ordinary course of business;
(l) neither the Company nor any of its Subsidiaries has
made any material capital expenditures or commitments
therefor;
(m) neither the Company nor any of its Subsidiaries has
changed its accounting methods or practices;
(n) there has been no other event or condition of any
character that has or can reasonably be expected to
result in a Material Adverse Effect to the Company and
its Subsidiaries;
(o) neither the Company nor any of it Subsidiaries has
changed the pricing for its services or indicated that
reduced pricing for their services could be expected;
and
(p) neither the Company nor any of its Subsidiaries has, to
the Knowledge of the Company or the Selling
Shareholders received, verbally or in writing, any
notice of intent to cancel or reduce use of its
services by any Dealer.
20
3.9 Liabilities and Indebtedness. Schedule 3.9 contains a true and
complete list of each and every Liability of the Company and each of its
Subsidiaries, including, but not limited to, all prebilled RMR and unearned
revenue and each and every agreement or other instrument under or pursuant to
which the Company or any of its Subsidiaries has outstanding indebtedness or
obligations of greater than $10,000 individually or $50,000 in the aggregate.
The Company has furnished SAI with true and correct copies of each such
agreement and instrument, including all amendments and copies of any guarantee
security agreements and/or financing statements executed by the Company or any
of its Subsidiaries relating to said agreements. Neither the Company nor any of
its Subsidiaries is in default in any material respect under any of its
agreements or evidences of indebtedness. Except as recorded on the face of the
Closing Balance Sheet or as disclosed on Schedule 3.9 attached hereto, neither
the Company nor any of its Subsidiaries has any material (individually or in the
aggregate) Liabilities or obligations, absolute or contingent.
3.10 Material Contracts. Schedule 3.10 contains a true, accurate and
complete list of each and every agreement, contract, arrangement or
understanding of the Company and each of its Subsidiaries pursuant to which the
Company or its Subsidiaries is obligated (or potentially obligated) to pay more
than $10,000 or pursuant to which the Company or any of its Subsidiaries is
obligated (or potentially obligated) to provide services with a value in excess
of $10,000 ("Material Contract"). No party (including the Company or any of its
Subsidiaries) to any Material Contract is in default in any material respect
thereunder. Except as set forth on Schedule 3.10, neither the Company nor any of
its Subsidiaries is a party to any Material Contract.
3.11 Leases.
(a) Schedule 3.11(a) contains a true and complete list of all
real estate leases of the Company and each of its
Subsidiaries (the "Real Estate Leases") and sets forth a
brief summary of the principal terms thereof. True and
complete copies of all such Real Estate Leases have been
supplied to SAI, including all amendments thereto. The
Company and its Subsidiaries will be able to utilize all of
the Central Stations under such Real Estate Leases for those
Facilities for the balance of the terms of their respective
leases, including any renewal terms. Neither the Company nor
its Subsidiaries or any Shareholder has any Knowledge of any
intention on the part of any lessor to terminate any Real
Estate Lease or raise the rental rate or take any other
action that might make the continued use by the Company or
any of its Subsidiaries of any of the Facilities housing the
Central Stations more onerous.
(b) Schedule 3.11(b) contains a true, accurate and complete list
of every equipment lease of the Company and each of its
Subsidiaries, including the Antenna Lease ("Equipment
Leases")
21
and sets forth a brief summary of the principal terms of
each such lease. True, accurate and complete copies of all
such Equipment Leases have been supplied to SAI, including
all amendments thereto. The Company and its Subsidiaries
will be able to utilize all of the equipment leased under
such Equipment Leases for the balance of the terms of their
respective leases, including any renewal terms. Neither the
Company, its Subsidiaries nor any Shareholder has any
Knowledge of any intention on the part of any lessor to
terminate any Equipment Lease or raise the rental rate or
take any other action that might make the continued use by
the Company or any of its Subsidiaries of any of the
equipment leased thereunder more onerous.
(c) Schedule 3.11(c) contains a true, accurate and complete list
of all Leases not listed in Schedules 3.11(a) or 3.11(b).
Neither the Company, its Subsidiaries nor any other party is
in default under the terms of any Lease. None of the Leases
requires the consent of the lessors thereunder to the
transactions contemplated by this Agreement. Consummation of
the transactions contemplated hereby will not result in the
cancellation of any of the Leases or the acceleration of the
obligations thereunder. Prior to the Escrow Closing, the
Company shall have obtained and delivered to SAI all
necessary landlord and other lessor consents necessary for
the Company and its Subsidiaries to operate the Central
Stations, and to assume the rights of the Company or its
Subsidiaries under the Leases.
3.12 Title to Properties and Assets; Liens, etc. The Company or one of
its Subsidiaries has good and marketable title to its properties and assets, and
has good title to all its leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, claim, encumbrance, restriction or charge
("Lien"), except for the Liens listed on Schedule 3.12. The Company or its
Subsidiaries own or lease all such equipment and properties as are necessary to
the Monitoring Business and each other business conducted by the Company or its
Subsidiaries. Schedule 3.12(a) contains a true, accurate and complete list of
all (x) Leases which require the consent of a party other than the Company or
its Subsidiaries in connection with the Merger, and (y) Assets of the Company
and its Subsidiaries which consist of:
(a) Cash and Securities;
(b) Bank Accounts;
(c) Contracts;
(d) Real Estate;
22
(e) Equipment;
(f) Intellectual property;
(g) Leasehold interests in Real Estate Leases and Equipment
Leases;
(h) The rights to the telephone lines used in the Monitoring
Business, all of which are listed on Schedule 3.12(a);
(i) Accounts receivable;
(j) Prepaid expenses and deposits;
(k) All books and records of the Company and each of its
Subsidiaries, including without limitation all financial,
accounting and personnel records, all original Contracts,
monitoring and service records, lockout codes, computer
codes, up and download codes and information, and all other
documentation necessary or appropriate in order for the
Company and its Subsidiaries to operate the Monitoring
Business and the other business operated by the Company and
its Subsidiaries;
(l) All other contracts and commitments by which the Company or
any of its Subsidiaries is bound;
(m) The goodwill of the Company;
(n) All contracts and policies of insurance; and
(o) All other assets and rights used in the operation of the
Monitoring Business, excepting only those listed on Schedule
3.12(b) as "Excluded Assets".
All Equipment owned by the Company or any of its Subsidiaries is, and
at the Closing will be, in good operating condition and repair, ordinarily wear
and tear excepted. All of the Equipment is in compliance with all applicable
statutes, rules, regulations and ordinances.
Except as disclosed on Schedule 3.12(a), all real property owned by the
Company or any of its Subsidiaries is free and clear of all Liens and is not
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature, except (a) liens for current taxes
not yet due, and (b) (i) minor imperfections of title, if any, none of which is
substantial in amount, materially detracts from the value or impairs the use of
the property subject thereto, or impairs the operations of the Company or its
Subsidiaries, and (ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject thereto. Except as
disclosed on
23
Schedule 3.12(a), all buildings, plants, and structures owned by the Company and
its Subsidiaries lie wholly within the boundaries of the real property owned by
the Company or its Subsidiaries and do not encroach upon the property of, or
otherwise conflict with the property rights of, any other Person.
Schedule 3.12(b) is a true and complete list of those assets formerly
owned by the Company or any of its Subsidiaries which have been distributed to
the shareholders of the Company or any of its Subsidiaries or entities
controlled by such shareholders at or prior to the Closing. Assets listed on
Schedule 3.12(b) which are to be distributed to the Selling Shareholders
immediately prior to the Closing, if any, shall be referred to herein as
"Excluded Assets." Except as disclosed on Schedule 3.12 or referred to
specifically in this Agreement, other than the Excluded Assets, no Asset of the
Company or any of its Subsidiaries has been disposed of since December 31, 1999,
other than in the ordinary course of business.
3.13 Form Contracts. Attached to Schedule 3.13 are the forms of
agreements the Company and its Subsidiaries use with Dealers and Subscribers to
document its arrangements for monitoring Dealer Owned Accounts (collectively,
the "Form Contracts"). The Form Contracts include all contracts currently in
use, and earlier forms of contracts that were used for agreements that are still
in effect. Neither the Company nor any of its Subsidiaries has entered into any
oral agreements with any Subscriber or Dealer, except for those agreements
described in reasonable detail on Schedule 3.13. Except as disclosed on Schedule
3.13 there are no agreements with any Dealer or Subscriber materially varying
from the provisions of the Form Contracts. Neither the Company nor any of its
Subsidiaries provides monitoring to any Subscriber of a Dealer that has not
executed a written contract with that Dealer. The Company and each of its
Subsidiaries has delivered to SAI all of the Dealer Monitoring Agreements of the
Company and its Subsidiaries and copies of the form agreements used by the
respective Dealers for each Dealer Owned Account.
3.14 Telephone Lines. Schedule 3.14 contains a true, accurate and
complete list of (i) each telephone line being used in the operations of the
Company and its Subsidiaries; (ii) the name of the owner of the line if other
than the Company or one of its Subsidiaries, (iii) the name of the telephone
service supplier for each line; (iv) all charges associated with each line,
including without limitation, advertising and yellow pages charges, and (v) the
specific use to which each line is put. Where the use of a line is dedicated to
a particular Dealer or other entity, Schedule 3.14 also sets forth a brief
description of the agreement for dedication of that line. Except as disclosed on
Schedule 3.14, the Company and its Subsidiaries have the exclusive right to use
all the telephone lines. Except those disclosed on Schedule 3.14, there are no
charges associated with the telephone lines. Immediately following the Closing
the Company and its Subsidiaries will have all right, title, interest in and the
right to use as currently used all of said telephone lines. All of the contract
rights and outstanding obligations of the Company and its Subsidiaries with
respect to any and all Yellow Page listings and advertisements are set forth on
Schedule 3.14. The Company will provide SAI with the forms of any and all
telephone agency and supersession letters and will take such actions as are
necessary for
24
the continuing right of the Company and its Subsidiaries to use of all such
telephone lines after the Closing.
3.15 Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in violation of any term of its respective Articles or
Certificate of Incorporation or By-laws, or of any term or provision of any
mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or
decree applicable to the Company or such Subsidiary. The execution, delivery and
performance of and compliance with this Agreement (i) have not resulted and will
not result in any violation of, or conflict with, or constitute a default under,
the Articles or Certificate of Incorporation or By-laws of the Company or any of
its Subsidiaries or of the governing documents of any Selling Shareholder, (ii)
have not resulted, and will not result, in the creation of, any Lien upon any of
the properties or assets of the Company or its Subsidiaries or any Selling
Shareholder, (iii) have not resulted and will not result in the loss of any
license, permit, certificate, legal privilege or legal right enjoyed or
possessed by the Company or any of its Subsidiaries; (iv) do not and will not
give any party to any agreement to which the Company or any of its Subsidiaries
is a party a right of termination; and (v) do not and will not require the
consent of any other person or entity under any agreement, indenture, mortgage,
lease or other instrument or undertaking by which the Company, any of its
Subsidiaries or any Selling Shareholder is bound or to which any of their
respective properties are subject. No Selling Shareholder is a party to, subject
to or bound by any agreement or any judgment, order, writ, prohibition,
injunction or decree of any court or other governmental body which would prevent
the execution or delivery of this Agreement by such Selling Shareholder, such
Selling Shareholder's approval of the Merger or the conversion of such
Shareholder's shares of Company Common pursuant to the Merger.
3.16 Compliance with Laws.
(a) The Company and each of its Subsidiaries has complied, and
is currently in compliance, with all laws, rules,
regulations, and orders applicable to the operation of its
remote alarm monitoring business or any other business
conducted by the Company or any such Subsidiary. Neither the
Company nor any of its Subsidiaries has taken any action
which would, or failed to take any action which failure
would, in any way preclude or prevent the Company or any
such Subsidiary from continuing to operate the Monitoring
Business or any other business conducted by the Company or
any such Subsidiary following the Closing. The Company and
its Subsidiaries, and their respective employees, have, and
following the Closing, the Company, its Subsidiaries, and
their respective employees will continue to have, all
Permits necessary for the conduct of the Monitoring Business
(including, if required separate licenses required for the
monitoring of burglar alarm systems, fire
25
alarm systems and combined systems) and any other business
conducted by the Company or any such Subsidiary in all
jurisdictions in which the Company or any such Subsidiary
does business, and all such Permits are currently in effect.
Schedule 3.16(a) contains a true, accurate and complete list
of all states in which the Company, its Subsidiaries or
individuals acting on their behalf are licensed, the
entities and individuals licensed in each of such state and
the Accounts with respect to which such entities and
individuals are licensed.
(b) No violations are, or have been, recorded in respect of any
such Permits and no proceedings are pending, or to the
Knowledge of the Company and the Selling Shareholders,
threatened concerning revocation or limitation of any such
Permit. No such Permit will be revoked as a result of the
transactions contemplated by this Agreement. Copies of all
Permits used in the conduct of the business of the Company
and its Subsidiaries are attached to Schedule 3.16.
(c) To the Knowledge of the Company and the Selling
Shareholders, all of the Dealers for which the Company and
its Subsidiaries provide Monitoring Services are licensed as
installers of security systems by the appropriate entities
in the jurisdictions in which they conduct business, and
neither the Company, its Subsidiaries nor any of their
respective shareholders are aware of any fact which could
lead to the revocation or suspension of any of such Dealer's
licenses.
3.17 Intellectual Property. The Company and each of its Subsidiaries
owns or has the right to use, and following the Closing the Company and each of
its Subsidiaries will continue to own and have the right to use, free and clear
of all Liens, all Intellectual Property used in the conduct of their respective
businesses without infringing upon or otherwise acting adversely to the right or
claimed right of any person. Schedule 3.17 contains a true and complete list of
the Intellectual Property of the Company, its Subsidiaries and the owner(s),
licensors, grantors and licensee(s) thereof. Except as disclosed on Schedule
3.17, neither the Company nor any of its Subsidiaries is, or following the
Closing will be, obligated or under any liability to make any payments for
royalties, fees or otherwise to any owner of, licensor of, or other claimant to,
any Intellectual Property, with respect to the use thereof or in connection with
the conduct of its business or otherwise. Neither the Company nor any of its
Subsidiaries has granted any licenses allowing third parties to use any of the
Intellectual Property of the Company or its Subsidiaries. The conduct of the
Monitoring Business or any other business conducted by the Company and its
Subsidiaries does not, and will not, violate the Intellectual Property or any
other proprietary interest of any other Person. The Company
26
and its Subsidiaries possess, and after the Closing will possess, ownership of
or licenses to utilize all proprietary technology necessary for the conduct of
the Monitoring Business and any other business conducted by the Company or its
Subsidiaries. Neither the Company nor any of its Subsidiaries is in default
under any agreement governing its use of any Intellectual Property.
3.18 Schedule 3.18 consists of the following:
(a) Schedule 3.18(a) is a true, accurate and complete list of
the Dealer Monitoring Agreements of the Company, its
Subsidiaries, and sets forth completely and accurately, as
of April 30, 2000 (i) the RMR due from each Dealer under
each such agreement; (ii) the agings of the accounts
receivable from each Dealer under each such agreement; and
(iii) the method of billing such Dealers.
(b) Except as disclosed on Schedule 3.18(a), all Accounts and
Dealer Monitoring Agreements or included in the RMR are
evidenced by written contracts, except those oral agreements
described on Schedule 3.18. The Accounts and Dealer
Monitoring Agreements arose in bona-fide arms length
transactions in the normal course of business and such
agreements are valid and binding obligations of the Dealers
and Subscribers that are parties thereto without any
counterclaims, set-offs or other defenses thereto, and
neither the Company, its Subsidiaries or any selling
Shareholder has any basis to believe that the amounts
payable under such Accounts and Dealer Monitoring Agreements
are not collectible. Neither the Company nor any of its
Subsidiaries has any basis to believe that any Account or
Dealer Monitoring Agreement will not continue in existence
after the Closing.
3.19 Litigation, etc. There are no actions, suits, proceedings or
investigations pending or threatened against the Company, its Subsidiaries or
their respective properties before any court, arbitration panel or governmental
agency (nor, to the Selling Shareholder's or the Company's Knowledge, is there
any reasonable basis therefor), nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against the Company, its Subsidiaries
or their respective assets or the Monitoring Business or any other business
conducted by the Company and its Subsidiaries, except as described on Schedule
3.19. Schedule 3.19 also contains a true and complete list of every incident for
the last five years in which a Subscriber or third party asserted that it
experienced a loss related to any failure or omission of the Company, its
Subsidiaries (other than Monital except to the extent disclosed in the Monital
Acquisition) or their provision of Monitoring Services, a short description of
the claim and its current status or resolution.
27
3.20 Related Party Transactions. Except as disclosed on Schedule 3.20,
neither the Company, its Subsidiaries nor any shareholder, officer, director,
employee of the Company, its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any contract with the
Company or its Subsidiaries, including but not limited to any agreement, written
or unwritten, for employment or consulting, or any lease for real or personal
property. No officer or employee of the Company or its Subsidiaries is a party
to or bound by any agreement, contract or commitment, or subject to any
restrictions (including confidentiality or non-compete restrictions) in
connection with any previous or current employment of any such person, which
adversely affects, or in the future may adversely affect, the business of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person, except as disclosed on Schedule 3.20. All existing agreements between
each Shareholder and the Company or its Subsidiaries have been (or on or prior
to the Closing will be) terminated and, thereafter, except as contemplated
herein, such Shareholder will not be a party to, subject to or bound by any
agreement, commitment or understanding whatsoever between such Shareholder and
the Company.
3.21 Securities Law Compliance.
(a) Each of the Selling Shareholders understands and agrees that: (i) the
SAI Preferred to be issued pursuant to the Merger has not been, and
as of the Effective Time will not be, registered under the Securities
Act or under any state securities laws; (ii) the SAI Preferred is
being offered and issued in reliance upon Federal and state
exemptions for transactions not involving any public offering; (iii)
a "stop transfer" order will be placed against the certificates
representing shares of SAI Preferred issued pursuant to the Merger
until such time as (A) such SAI Preferred is registered under the
Securities Act or (B) until SAI has received an opinion of counsel
satisfactory to it that a proposed transfer or sale does not require
registration or qualification under applicable law; and (iv) until
removed in accordance with Section 5.17, the certificates
representing the shares of SAI Preferred and SAI Common issued in the
Merger will bear the legend set forth below:
The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any
applicable state securities laws, in reliance on exemptions under
the Act and applicable state securities laws. No transfer or sale
of these shares or any interest therein may be made without such
registration and qualification unless the issuer has received an
opinion of counsel satisfactory to it that a proposed
28
transfer or sale does not require registration or qualification
under applicable law.
(b) The Selling Shareholders each further represent that: (i) he is
acquiring the SAI Preferred to be acquired him pursuant to the
Merger solely for his own account for investment purposes and not
with a view to the distribution thereof within the meaning of the
Securities Act; (ii) he is a sophisticated investor with knowledge
and experience in business and financial matters and is an
"accredited investor" within the meaning of Rule 501 under the
Securities Act; (iii) he has had access to all SAI SEC Reports filed
by SAI during the current year and the year preceding the current
year, and has had the opportunity to obtain additional information
and ask questions and receive answers as desired in order to
evaluate the merits and risks inherent in holding the SAI Preferred;
(iv) he has not been offered the SAI Preferred by any form of
general advertising or general solicitation; and (v) he is able to
bear the economic risk and lack of liquidity inherent in holding the
SAI Preferred.
3.22 Brokers or Finders. Neither the Company, its Subsidiaries nor any
Shareholder has dealt with any broker or finder, and have not incurred, and will
not incur, directly or indirectly, as a result of any action taken by the
Company, its Subsidiaries or any Selling Shareholder, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the transactions contemplated by this Agreement.
3.23 Tax Matters. The Company and each of its Subsidiaries: (i) has timely
filed all income, sales and employment tax returns that are required to have
been filed with all appropriate federal, state, county and local governmental
agencies that relate to the Company or its Subsidiaries or with respect to which
the Company or any of its Subsidiaries is liable or otherwise in any way
subject, including without limitation all tax returns due for the period ending
December 31, 1999, (and all such returns fairly reflect the operations of the
Company and its Subsidiaries for tax purposes), and all taxes, fees, assessments
and governmental charges of any nature ("Taxes") shown by such returns to be due
and payable have been paid, except for those amounts set forth on Schedule 3.23
as being contested in good faith and for which appropriate amounts have been
reserved and are reflected on the Company's Financial Statements, and will be
reflected on the Escrow Date Balance Sheet or the Closing Date Balance Sheet, as
the case may be, in accordance with GAAP; (ii) has timely paid all Taxes owed by
it or which it is obligated to withhold from amounts owing to any employee
(including without limitation social security taxes), creditor or third party
and (iii) has not waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to a tax assessment or deficiency.
The assessment of any additional Taxes for periods for which returns have been
filed will not exceed the liability therefor appearing on the Escrow Date
Balance
29
Sheet or the Closing Date Balance Sheet, as the case may be, and there are no
material unresolved questions or claims concerning the tax liability of the
Company, its Subsidiaries. The tax returns of the Company and its Subsidiaries
have not been reviewed or audited by any federal, state, local or county taxing
authority. There is no pending dispute with any taxing authority relating to any
of said tax returns. The Company's Financial Statements do, and the Escrow Date
Balance Sheet and the Closing Date Balance Sheet will, accurately reflect all of
the tax liability of the Company and its Subsidiaries for Taxes as of their
respective dates. All of the income, sales and employment-related tax returns of
the Company and its Subsidiaries for the years 1997, 1998 and 1999 are attached
to Schedule 3.23. The books of the Company and its Subsidiaries will be closed
as of the Closing Date in order to properly determine the Taxes due for the
period ending on the Closing Date. The Selling Shareholders will fully cooperate
with the Company and its Subsidiaries in preparing their respective tax returns,
including, but not limited to, those for the stub period ending on the Closing
Date (the "Stub Period"). Neither the Company nor the Selling Shareholders have
taken or failed to take, or prior to the Closing will take or fail to take, any
action which would result in the loss of the Company's status as a Subchapter S
corporation or which would otherwise affect the Company's status as a Subchapter
S Corporation prior to Closing.
3.24 Insurance. The Company and each of its Subsidiaries has valid workers'
compensation, fire, casualty, liability and errors and omissions policies, in
such amounts and with such coverage as is reasonably related to the foreseeable
risks of the Company and its Subsidiaries, in each case with reputable insurers.
The Company has provided to SAI true, accurate and complete copies of all such
policies. All of the fire, casualty, liability and errors and omissions policies
of the Company and its Subsidiaries are "occurrence" policies not "claims made"
policies. Neither the Company nor any of its Subsidiaries (a) is in default with
respect to any provision contained in any such policy, or (b) has failed to give
any notice or present any claim under any such policy in due and timely fashion.
Neither the Company nor any of its Subsidiaries will be placed in default, nor
will their coverage be canceled, as a result of the transactions contemplated by
this Agreement. There are no outstanding unpaid claims under any such policy.
Neither the Company nor any of its Subsidiaries has received notice of, nor have
they Knowledge of, any inaccuracy in any application for such policies, any
failure to pay premiums when due or any similar state of facts that might form
the basis for termination of any such insurance or rejection of any claim.
Within three years prior to the Closing Date, neither the Company nor any of its
Subsidiaries has canceled or terminated any insurance policy, nor has any
insurance company canceled or terminated any insurance policy of the Company or
its Subsidiaries or rejected any claim under such policy. All such policies will
remain in full force and effect following the Closing. Following the Closing,
the Company and its Subsidiaries will be able to cancel all such policies upon
no more than thirty (30) days written notice without payment of any additional
premium or any penalty.
30
3.25 Pension Plans. Neither the Company nor any of its Subsidiaries maintains
or contributes to, or has any obligation under, or on the Closing Date will
maintain, contribute to, or have any obligation under, any Employee Benefit Plan
other than those identified on Schedule 3.25. The Company has provided SAI with
true, accurate and complete copies of all contracts, agreements, and documents
described in Exhibit 3.25.
(a) ERISA and Code Compliance and Liability. The Company and each
ERISA Affiliate is in compliance with all applicable provisions of
ERISA with respect to all Employee Benefit Plans. Each Employee
Benefit Plan that is intended to be qualified under Section 401(a)
of the Code has been determined by the Internal Revenue Service to
be so qualified, and each trust related to such plan has been
determined to be exempt under Section 501(a) of the Code. No
material liability has been incurred by the Company or any ERISA
Affiliate that remains unsatisfied for any taxes or penalties with
respect to any Employee Benefit Plan or any Multiemployer Plan.
(b) Funding. No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in funding waiver from
the Internal Revenue Service been received or requested with
respect to any Pension Plan, nor has the Company or any ERISA
Affiliate failed to make any contributions or to pay and amounts
due and owing as required by Section 412 of the Code, Section 302
of ERISA or the terms of any Pension Plan prior to the due dates
of such contributions under Section 412 of the Code or Section 302
of ERISA, nor has there been any event requiring any disclosure
under Section 4041)(c)(3)(C), 4063(a) or 4068 of ERISA with
respect to any Pension Plan.
(c) Prohibited Transactions and Payments. Neither the Company nor any
ERISA Affiliate has (i) engaged in a non-exempt "prohibited
transaction" as such term is defined in Section 406 of ERISA or
Section 4975 of the Code; (ii) incurred any liability to the PBGC
which remains outstanding other than the payment of premiums and
there are no premium payments which are due and unpaid; (iii)
failed to make a required contribution or payment to a
Multiemployer Plan; or (iv) failed to make a required installment
or other required payment under Section 412 of the code.
(d) No Termination Event. No Termination Event has occurred or is
reasonably expected to occur.
31
(e) ERISA Litigation. No material proceeding, claim, lawsuit and/or
investigation is existing or threatened concerning or involving
any (i) employee welfare benefit plan (as defined in Section 3(1)
of ERISA) currently maintained or contributed to by the Company or
any of its Subsidiaries, (ii) Pension Plan or (iii) Multiemployer
Plan.
3.26 Directors, Officers and Employees.
(a) Directors, Officers and Employees. Schedule 3.26 sets forth the
names of each director, officer and employee of the Company and
each of its Subsidiaries and states the rate of compensation
payable to each. Attached to Schedule 3.26 are copies of each
written employment agreement and noncompetition agreement with any
of such directors, officers and employees. Except as set forth in
Schedule 3.26, no such agreement shall cause the Company or its
Subsidiaries to make additional payments as a result of the
Merger.
(b) Labor Matters. Neither the Company nor any of its Subsidiaries has
been, or is, a party to any collective bargaining agreement with
any union representing any of its employees. The Company and each
of its Subsidiaries has been, and is, in compliance with all
applicable laws, rules and regulations relating to employment and
employment practices, immigration laws, terms and conditions of
employment, wages and hours. None of the employees of the Company
or its Subsidiaries is represented by a labor union. There has not
been, and there are not presently, pending or threatened any
unfair labor practice or discrimination charges or complaints
against the Company or its Subsidiaries before the National Labor
Relations Board, the Equal Employment Opportunity Commission or
any similar national, state or local body.
(c) Continued Service by Certain Employees. Xx. Xxxxxx X. Few Sr. has
agreed, without additional consideration, to remain employed by
SAI, the Company or its Subsidiaries at his current compensation
level. The individuals listed on Schedule 3.26(c) will continue to
act as the Company's qualifying license holders. The Selling
Shareholders agree to have each such employee execute a letter
agreement with SAI providing for the following:
(i) Continued employment by SAI, the Company or a Subsidiary of
the Company;
(ii) Continued compensation at current levels; and
32
(iii) Confidentiality and non-competition undertakings.
3.27 Environmental Matters.
Except as set forth in Schedule 3.27:
(a) The Company and its Subsidiaries are, and at all times have been,
in full compliance with, and have not been and are not in
violation of or liable under, any Environmental Law. None of the
Selling Shareholders or the Company or its Subsidiaries has any
basis to expect, nor has any of them or any other Person for whose
conduct they are or may be held to be responsible received, any
order, notice, or other communication from (i) any governmental
body or private citizen acting in the public interest, or (ii) the
current or prior owner or operator of any owned or leased property
or facility ("Facilities"), of any actual or potential violation
or failure to comply with any Environmental Law, or of any
obligation to undertake or bear the cost of any environmental,
health, and safety liabilities with respect to any of the
Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company or its Subsidiaries has
had an interest, or with respect to any property or Facility at or
to which hazardous materials were generated, manufactured,
refined, transferred, imported, used, or processed by the Company,
or any other Person for whose conduct they are or may be held
responsible, or from which hazardous materials have been
transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b) There are no pending or, to the Knowledge of the Selling
Shareholders, the Company or its Subsidiaries, threatened claims,
Liens, or other restrictions of any nature, resulting from any
environmental, health, and safety liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting
any of the Facilities or any other properties and assets (whether
real, personal, or mixed) in which Company has or had an interest.
(c) None of the Selling Shareholders or the Company or its
Subsidiaries has Knowledge of any basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice,
Order, summons, warning, or other communication that relates to
hazardous activity, hazardous materials, or any alleged, actual,
or potential violation or failure to comply with any Environmental
Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any environmental, health, and
safety liabilities
33
with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which the Company or
its Subsidiaries had an interest, or with respect to any property
or Facility to which hazardous materials generated, manufactured,
refined, transferred, imported, used, or processed by the Company,
or its Subsidiaries or any other Person for whose conduct they are
or may be held responsible, have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(d) There are no hazardous materials present on or in the environment
at the Facilities or at any geologically or hydrologically
adjoining property, including any hazardous materials contained in
barrels, above or underground storage tanks, landfills, land
deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities
or such adjoining property, or incorporated into any structure
therein or thereon.
(e) There has been no release or, to the Knowledge of the Selling
Shareholders, the Company, or its Subsidiaries threat of a
release, of any hazardous materials at or from the Facilities or
at any other locations where any hazardous materials were
generated, manufactured, refined, transferred, produced, imported,
used, or processed from or by the Facilities, or from or by any
other properties and assets (whether real, personal, or mixed) in
which the Company or its Subsidiaries has or had an interest, or
to the Knowledge of the Selling Shareholders, Company or its
Subsidiaries any geologically or hydrologically adjoining
property, whether by the Company, its Subsidiaries or any other
Person.
The Selling Shareholders have delivered to SAI true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by or on behalf of the Company pertaining to hazardous materials or
hazardous activities in, on, or under the Facilities, or concerning compliance
by the Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
3.28 UL Compliance and Compliance with Laws. The Central Stations are
certified by Underwriters Laboratories, Inc. ("U.L."). A copy of each U.L.
listing of the Central Stations is attached to schedule 3.28. The Selling
Shareholders are not aware of any reason why the Central Stations would lose
their U.L. certifications. No Accounts require inspections to be or remain in
compliance with any governmental regulation, law or code, and all Accounts are
in compliance with any applicable code or regulation.
3.29 Ownership of Stock. The Selling Shareholders are the lawful owners,
both beneficially and of record, of the Shares, have good and marketable title
to the
34
Shares and, except for the King Option referred to in Section 3 of the
Letter of Intent, such ownership and title are free and clear of all liens,
encumbrances, preemptive rights, shareholders' agreements, voting trusts or
similar agreements, rights of first refusal, restrictions on transfer and other
restrictions and claims of every kind. The Shares are fully paid and
non-assessable and have the rights set forth in the Company's Articles or
Certificate of Incorporation and Bylaws. Schedule 3.29 sets forth the Shares
owned by each Shareholder; and each Selling Shareholder has good and marketable
title to the Shares owned by such Selling Shareholder.
3.30 Proxy Statement. The information supplied by the Company for inclusion
in the Proxy Statement shall not, at the time the Proxy Statement is first
mailed to the stockholders of SAI, at the time of the SAI Stockholders Meeting
or at the Effective Time, contain any statement which, at such time and in light
of the circumstances under which it was made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made in the Proxy Statement not false or
misleading. If at any time prior to the Effective Time any event relating to the
Company, it Subsidiaries or any of their respective affiliates, officers or
directors should be discovered by the Company which should be set forth in a
supplement to the Proxy Statement, the Company shall promptly inform SAI.
3.31 Representations and Warranties True on Closing Date. The
representations and warranties made by the Selling Shareholders herein, and all
statements made in any exhibit, schedule or certificate or other document or
instrument furnished pursuant to this Agreement, do not contain, and as of the
Closing will not contain, any untrue statement of a material fact, or omit to
state any material fact required to be stated therein, or necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading. The Selling Shareholders have clearly and fully disclosed
to SAI, in writing, all material facts concerning the Company and its
Subsidiaries necessary for SAI to accurately evaluate its investment in the
Company and its Subsidiaries, their Assets and the Monitoring Business and other
business conducted by the Company and its Subsidiaries.
3.32 Representations relating to Monital. Notwithstanding anything in this
Agreement to the contrary, the Selling Shareholders' representations and
warranties as they relate to Monital, are made to the Knowledge of the Selling
Shareholders, the Company, the Central Regional Manager of the Company, the
National Sales Manager of the Company, the Company's Subsidiaries (except
Monital) and the respective officers, directors, legal counsel and financial
advisors of the Company and its Subsidiaries (except Monital) for all facts,
circumstances and conditions occurring with respect to Monital prior to the
consummation by the Company of the Monital Acquisition. The Selling Shareholders
hereby represent and warrant that (i) they have disclosed and provided, or prior
to the Escrow Closing Date will have disclosed and provided, to SAI all
documents and information received by the Selling Shareholders and/or their
representatives during the course of their due diligence investigation of
Monital
35
(including without limitation, their document review and management interviews)
and (ii) they have no Knowledge that any of the representations and warranties
made in the transaction documents for the Monital Acquisition are untrue.
3.33 Selling Shareholder Released Claims. Neither the Company nor any
Subsidiary has any pending claim or cause of action of any kind whatsoever
against any Selling Shareholder, including, but not limited to, any claim
relating to such Selling Shareholder's performance of his duties as an officer,
director or employee of the Company or any of its Subsidiaries, or any facts or
circumstances which now or , with the passage of time, would give rise to any
such claim or cause of action. Neither the Company nor any Subsidiary has
assigned or otherwise transferred, or prior to the Closing will assign or
otherwise transfer, any right or interest in or to any such claim or cause of
action, including, but not limited to, Selling Shareholder Released Claims.
ARTICLE 4
REPRESENTATIONS, WARRANTIES, AND
ACKNOWLEDGEMENTS OF SAI AND KING ACQUSITION
SAI and King Acquisition, jointly and severally, represent, warrant, and
acknowledge to the Selling Shareholders that:
4.1 Incorporation. SAI is a validly existing corporation in good standing
under the laws of the State of Delaware. King Acquisition is a validly existing
corporation in good standing under the laws of the state of Delaware.
4.2 Power and Authority. SAI and King Acquisition each have the requisite
corporate power and authority to own and operate their respective properties and
assets, and to carry on their respective businesses as presently conducted and
as proposed to be conducted. Subject to approval of the Merger and other
transactions contemplated herein by the shareholders of SAI and its lenders, SAI
and King Acquisition each have all requisite corporate power and authority to
execute and deliver this Agreement; to consummate the Merger and to carry out
and perform its obligations under the terms of this Agreement.
4.3 Authorization. All action on the part of SAI and King Acquisition
necessary for the authorization, execution, delivery and performance of this
Agreement and the performance of all of the obligations of SAI and King
Acquisition hereunder have been taken or will be taken prior to the Closing.
This Agreement has been duly executed and delivered by SAI and King Acquisition,
respectively, and constitutes their valid and binding obligations, enforceable
against each in accordance with its terms. Except as contemplated by this
Agreement, no filing or registration with any court or governmental or
regulatory agency or board is required to be made on behalf of SAI or King
Acquisition in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
36
4.4 SAI Securities. SAI has taken, or prior to the Closing will take, all
actions necessary to authorize and approve the issuance of the SAI Preferred and
the SAI Common to be issued in connection with the Merger, and as of the
Effective Time the SAI Preferred and the SAI Common will, when issued in
accordance herewith, be duly authorized, validly issued, fully paid and
nonassessable. Except as contemplated in the Letter of Intent, there are no
statutory or contractual shareholders' preemptive rights or rights of refusal
with respect to the issuance of the SAI Preferred or the SAI Common upon
consummation of the Merger.
4.5 Commission Filings. SAI has filed and made available to the Company and
the Shareholders all forms, reports and documents required to be filed by SAI
with the SEC under the Securities Exchange Act, and the Securities Act during
the one year period ending on the date hereof (collectively, the "SAI SEC
Reports"). The SAI SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Exchange Act, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such SAI SEC Reports or necessary in order to make the
statements in such SAI SEC Reports, in the light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements of SAI included in the SAI SEC Reports (the "SAI Financial
Statements") complied when filed as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, and were, when filed, in accordance with the
books and records of SAI, complete and accurate in all material respects, and
presented fairly the consolidated financial position and the consolidated
results of operations, changes in Shareholders' equity and cash flows of SAI and
its Subsidiaries as of the dates and for the periods indicated, in accordance
with generally accepted accounting principles, consistently applied, subject in
the case of interim financial statements to normal year-end adjustments and the
absence of certain footnote information.
4.6 Litigation, etc. Except as previously disclosed to the Selling
Shareholders or included in the SAI SEC Reports, there are no actions, suits,
proceedings or investigations pending or, to SAI's Knowledge, threatened against
SAI before any court, arbitration panel or governmental agency (nor, to SAI's
Knowledge, is there any reasonable basis therefor) which were not incurred in
the ordinary course and would have a material adverse effect on SAI, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding, that
in any such case seeks to enjoin or challenge the transactions contemplated
hereby.
4.7 Disclosure. The representations and warranties made by SAI herein, and
all statements made in any exhibit, schedule or certificate furnished by SAI
pursuant to this Agreement, do not contain, and at the Closing Date will not
contain, any untrue statement
37
of a material fact, or omit to state any material fact required to be stated
therein, or necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
ARTICLE 5
COVENANTS OF THE SELLING SHAREHOLDERS
5.1 Maintenance of Business. From the date hereof until the Closing, the
Selling Shareholders shall cause the Company and its Subsidiaries to carry on
and preserve the business, goodwill and the relationships of the Company, its
Subsidiaries and the Monitoring Business and any other business conducted by the
Company or its Subsidiaries with Dealers, Subscribers, suppliers, employees,
agents and others in substantially the same manner as they have been prior to
the date hereof. The Company will provide SAI with prior notice prior to making
any changes to employee compensation or benefits.
5.2 Absence of Certain Changes. From the date hereof until the Closing,
except for the Monital Retail Account Transactions, the transfer of the
Distributed Business Items or as otherwise expressly permitted or contemplated
hereby, the Selling Shareholders shall not cause or permit the Company and its
Subsidiaries to, and neither the Company nor any of its Subsidiaries shall,
without SAI's prior express written consent:
(a) incur any additional indebtedness for money borrowed, or guarantee
any indebtedness or obligation of any other party other than the
incurrence of working capital indebtedness and 8x program debt in
the ordinary course of business;
(b) pay any dividends or make any distributions to its shareholders
(other than distributions permitted pursuant to Section 5.11) with
respect to its capital stock;
(c) issue any capital stock or securities convertible into capital
stock or grant or issue any options, warrants or rights to
subscribe for its capital stock or securities convertible into its
capital stock;
(d) enter into, amend or terminate any agreement or arrangement, other
than in the ordinary course of business and the Company shall
notify SAI prior to entering into, amending or terminating any
material agreement or arrangement even in the ordinary course of
business;
(e) increase the compensation payable or to become payable to any of
its officers, employees or agents, or adopt or amend any employee
benefit plan;
38
(f) acquire or dispose of any properties or assets used in its
business except in the ordinary course of business;
(g) permit any change in its business or the manner in which its books
and records are maintained;
(h) create or suffer to be imposed any lien, mortgage, security
interest or other charge on or against its business, properties or
assets;
(i) acquire any new accounts other than pursuant to transactions
mutually consented to by SAI and the Company;
(j) engage in any activities or transactions outside the ordinary
course of its business as conducted at the date hereof; or
(k) agree or commit to any of the foregoing.
5.3 Necessary Consents. Prior to the Closing, the Selling Shareholders will
use their best efforts to obtain written consents and take such other actions as
may be necessary or appropriate to allow the consummation of the transactions
contemplated hereby and to allow the continuation of the business and operations
of the Company and its Subsidiaries after the Closing, including but not limited
to, any consents required with respect to any Real Estate Leases or Equipment
Leases for continued use of such Facilities and Equipment following the Closing
on the terms set forth in such Real Estate Leases and Equipment Leases
(collectively, "Required Consents").
5.4 Access to Information. From the date hereof until the Closing, the
Company and the Selling Shareholders shall give SAI and its accountants, legal
counsel and other representatives full access, during normal business hours, to
all of the properties, books, contracts, commitments and records relating to the
business, Assets and Liabilities of the Company and its Subsidiaries, and will
furnish SAI, its accountants, legal counsel and other representatives during
such period all such information concerning their affairs as SAI may reasonably
request; provided, that any furnishing of such information or any investigation
by SAI shall not affect SAI's right to rely on the representations, warranties
and covenants made by the Selling Shareholders in this Agreement. SAI shall, to
the extent that it has actual Knowledge, based on its review of materials
received from the Company, of any misstatements or omissions in the Company's
disclosure schedules, use its best efforts to inform the Company of such
misstatements or omissions.
5.5 Certain Defaults; Litigation. The Selling Shareholders will give prompt
notice to SAI of:
(a) any default by the Company, its Subsidiaries or any other party,
subsequent to the date of this Agreement and prior to the Closing
under any instrument or agreement to which the Company or any
39
of its Subsidiaries is a party or by which it is bound, which
default could, if not remedied, result in any Material Adverse
Effect on the Company, its Subsidiaries or the Monitoring Business
or other business conducted by the Company or its Subsidiaries or
which would render incorrect any representation or warranty made
herein, and
(b) any suit, action, proceeding or investigation instituted or
threatened against or affecting the Company, its Subsidiaries or
the Monitoring Business or other business conducted by the Company
and its Subsidiaries subsequent to the date of this Agreement and
prior to the Closing.
5.6 Assistance in Transition. From the date hereof until the Closing, the
Selling Shareholders shall provide, and cause the Company and it Subsidiaries to
provide, SAI all reasonable assistance in connection with the transition of
ownership and management of the Company and its Subsidiaries.
5.7 Other Negotiations. Except as expressly set forth in the Letter of
Intent, from the date hereof until the termination of this Agreement, the
Selling Shareholders and the Company will not, and will cause the Company's
officers and directors not to, initiate discussions or negotiate, or authorize
any Person to discuss or negotiate on behalf of the Selling Shareholders or the
Company, with any party other than SAI, or entertain or consider any inquiries
or proposals received from any party other than SAI, concerning the possible
disposition of all or any portion of the business, assets or capital stock of
the Company or its Subsidiaries.
5.8 Assistance in Compliance with Loan Covenants. The Company and the
Selling Shareholders will cooperate with in (i) SAI's negotiating of all of the
documentation to be entered into by the Company, the Shareholders, SAI, SAI's
lenders, and any other party in connection with obtaining financing for the
acquisition of the Shares, (ii) any actions required of SAI, the Company or the
Shareholders to comply with the covenants contained in any loan agreement with
SAI's lenders and (iii) closing the transactions contemplated thereby or by this
Agreement. Each Selling Shareholder agrees to enter into a Consent to Assignment
of Acquisition Instruments, in the form of Exhibit 5.8(a) hereto, pursuant to
which such Selling Shareholder will agree that SAI's lenders may enforce SAI's
remedies under this Agreement in the event of SAI's default under its loan
agreements with such lenders. In addition, the Selling Shareholders will use
their best efforts to cause each lessor under the Leases to enter into an
agreement, in the form of Exhibit 5.8(b), collaterally assigning the Company's
interests in each such lease to SAI's lenders.
5.9 Noncompetition and Nonsolicitation. The Selling Shareholders each
acknowledge that but for their agreement to be bound by the terms of this
Section 5.9, SAI would not consummate the transactions contemplated by this
Agreement. From the
40
date hereof until the fifth (5th) anniversary of the Closing Date (unless
otherwise provided), each Selling Shareholder agrees that he will refer all
inquiries by current or former clients (as of the Closing) of the Company and
its Subsidiaries relating to the business of the Company and its Subsidiaries to
SAI, and that he will not, directly or indirectly:
(a) enter into competition with the Company or SAI, or their
respective Subsidiaries, by establishing a remote alarm system
monitoring center providing monitoring services to any location
within twenty five (25) miles of any location where the Company,
SAI or their respective Subsidiaries provide such services;
(b) provide, or solicit any Dealer or Subscriber for the purposes of
providing, any services similar to those provided by the Company,
SAI or their respective Subsidiaries, either directly or through
any other Person.
(c) reveal the customer list of the Company or its Subsidiaries to any
Person;
(d) employ any employee of the Company, SAI or their respective
Subsidiaries or solicit or encourage any such employee to
terminate his or her employment with any of the foregoing (other
than employees who have worked primarily for the Transferred
Business Units and who accept employment with Morlyn on or prior
to Closing), at any time within one year after such employee's
termination of employment with the Company or SAI; or
(e) for so long as the Company and its Subsidiaries are engaged in the
Monitoring Business and its other businesses, take any other
action which is intended to, or which would reasonably be expected
to:
(i) adversely affect the Company's, SAI's or their respective
Subsidiaries' interest in any Contract;
(ii) adversely affect the Company's, SAI's or their respective
Subsidiaries' contractual relationship with any Dealer or
Subscriber; or
(iii) discourage any Dealer, Subscriber or supplier from
continuing its business relationship with the Company, SAI
or their respective Subsidiaries after the Closing on the
same terms as were maintained prior to the Closing.
41
For purposes of this Section 5.9, the term "Selling Shareholder" shall also
include any corporation, partnership or other business entity in which a Selling
Shareholder now or in the future owns, directly or indirectly, a controlling
equity interest, and the parents, spouse, or children, of a Selling Shareholder,
or any entity in which any of them own, directly or indirectly, a controlling
interest. Notwithstanding any other provision of this Agreement, each Selling
Shareholder agrees that money damages would not be a sufficient remedy for
breach of this Section 5.9 and that SAI shall be entitled to specific
performance, injunctive relief or other equitable relief as a remedy for breach
of this Section 5.9; provided, however, that all such equitable remedies would
be in addition to all remedies available at law to SAI.
5.10 Confidentiality. From the date hereof until the Closing, the Selling
Shareholders will, and will cause the Company and its Subsidiaries and their
respective officers, directors and employees to, treat as strictly confidential
all Confidential Information concerning SAI, the Company and their respective
Subsidiaries that is not part of the public domain and shall not disclose any
such information to any third party. At all times after the Closing each of the
Selling Shareholders will treat and hold as confidential all Confidential
Information concerning SAI, the Company and their respective Subsidiaries,
refrain from using any of such Confidential Information (except, as applicable,
in direct furtherance of such Shareholder's duties on behalf of SAI, the Company
or their respective Subsidiaries (as directed by SAI)) and shall deliver
promptly to the SAI or the Company or destroy, at the request and option of SAI,
all tangible embodiments (and all copies) of Confidential Information concerning
SAI, the Company or their respective Subsidiaries which are in such
Shareholder's possession. In the event that any of the Selling Shareholders is
requested or required (by oral question or written request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information concerning
SAI, the Company or their respective Subsidiaries, such Shareholder will notify
SAI promptly of the request or requirement so that SAI may seek an appropriate
protective order or waive compliance with the provisions of this Section 5.10.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of the Selling Shareholders is, on the advice of counsel, compelled to
disclose any of such Confidential Information to any tribunal or else stand
liable for contempt, such Selling Shareholder may disclose such Confidential
Information to the tribunal; provided, however, that the disclosing Selling
Shareholder shall, upon the request of SAI or the Company and at their expense,
exert all reasonable efforts to obtain an order or other assurance that
confidential treatment will be accorded to such portion of the Company
Confidential Information required to be disclosed as the Company or SAI shall
reasonably designate.
5.11 Tax Returns. The Selling Shareholders agree to cause the Company and
its Subsidiaries to file for all tax periods prior to the Closing Date, all
Federal, state, and local income, property, and payroll tax returns. The Selling
Shareholders hereby agree to indemnify SAI pursuant to Article 10 hereof for any
costs incurred for any unpaid tax liabilities related to the Company or its
Subsidiaries arising from any state of facts existing prior to the Closing Date,
including, but not limited to, Federal, state, and local
42
income taxes. With regard to the partial tax year ended on the Closing Date (the
"Stub Period"), the Selling Shareholders shall cause the Company's final
Subchapter S return for such period to be prepared and filed. The Company will
cause its Subsidiaries to prepare and file in a timely manner their final tax
return(s) for the Stub Period consistent with the basis for preparation
previously disclosed by Weil Xxxxxxxx. The Company will make a distribution to
the Selling Shareholders in an amount equal to their Federal and state tax
liability arising from the inclusion of the Company's income on their personal
Federal and state tax returns for such period as reflected on such tax returns
or as certified to SAI by the accountant preparing such returns to the extent
not previously distributed by the Company. The Selling Shareholders will
indemnify the Company for any tax liability of the Company or its Subsidiaries
for the Stub Period in excess of the amount shown on the final tax returns of
the Company and its Subsidiaries for the Stub Period.
5.12 Financial Statement Audits. If at any time XXX xxxxx it necessary or
advisable to have an independent audit performed on the financial statements of
the Company or its Subsidiaries, (including, without limitation, in connection
with the Proxy Statement), the Selling Shareholders will fully cooperate with
SAI and the independent auditors in the performance of the audit. In furtherance
and not in limitation of the foregoing, the Selling Shareholders will cooperate
and provide all assistance reasonably requested by SAI's independent accountants
and the Company's independent accountants (including without limitation,
executing any and all customary management representation letters with respect
to the Company's financial statements) in connection with the preparation and
delivery to SAI of audited financial statements and for the Company as of and
for each of the fiscal years ended December 31, 2003.
5.13 Disclosure to State Taxing Authorities. The Selling Shareholders shall
make all necessary disclosures related to the exchange of the Shares in
connection with the Merger as are required under the applicable state laws, and
no amounts are required to be withheld from consideration to be received by the
Selling Shareholders in connection with the Merger pursuant to such laws.
5.14 Update Disclosure; Breaches. From and after the date of this Agreement
until the Closing, the Selling Shareholders shall promptly notify SAI, by
written update to the attachments hereto, of (i) the occurrence or
non-occurrence of any event which would be likely to cause any condition to its
obligations to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied, (ii) any fact, condition or occurrence which
would be likely to result in any of the representations or warranties of the
Selling Shareholders not being true and correct as of the Closing, or (iii) the
failure of the Selling Shareholders to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by the Company, its
Subsidiaries or the Selling Shareholders pursuant to this Agreement which would
be likely to result in any condition to the obligations of any Party to effect
the Merger and the other transactions contemplated by this Agreement not to be
satisfied. The delivery of any notice pursuant to this Section 5.14 shall not
cure any breach of any representation or
43
warranty requiring disclosure of such matter prior to the date of this Agreement
or otherwise limit or affect the remedies available hereunder to SAI.
5.15 Waiver and Release. Subject to, and conditioned upon, the consummation
of the Merger, each Selling Shareholder, on behalf of himself and his heirs,
executors, administrators, successors and assigns (with respect to each Selling
Shareholder, the "Selling Shareholder Releasing Parties"), irrevocably and
unconditionally waives and releases any and all rights with respect to, and
releases, forever acquits and discharges each of the Company and its
Subsidiaries and their officers, employees, agents and other representatives,
and their respective heirs, executors, administrators, successors and assigns
(the "Company Released Parties"), with respect to, each and all claims, demands,
charges, complaints, obligations, causes of action, suits, liabilities,
indebtedness, sums of money, covenants, agreements, instruments, contracts
(written or oral, express or implied), controversies, promises, fees, expenses
(including attorneys' fees, costs and expenses), damages and judgments, at law
or in equity, in contract or tort, in federal, state or other judicial,
administrative, arbitration or other proceedings, of any nature whatsoever,
known or unknown, suspected or unsuspected, previously, now or hereafter
arising, in each case which arise out of, are based upon or are connected with
facts or events occurring or in existence on or prior to the Effective Time (the
"Company Released Claims"). Each Selling Shareholder further represents and
warrants that such Shareholder has not assigned or otherwise transferred any
right or interest in or to any of the Released Claims. This Section 5.15 shall
not apply to any of the following: (a) claims for salaries and benefits accrued
through the Closing under the express terms of the written benefit plans of the
Company or its Subsidiaries, or (b) claims for indemnification pursuant to
Section 10.1(b) herein.
5.16 Verbal Dealer Monitoring Arrangements. The Company and the Selling
Shareholders shall use their best efforts to replace all verbal Dealer or
Subscriber monitoring arrangements with written agreements reflecting such
arrangements prior to Closing.
5.17 Post-Closing Transfer of SAI Securities.
(a) The Selling Shareholders hereby acknowledge and agree that the SAI
Preferred or the SAI Common issued in connection with the Merger
may not be transferred except pursuant to (a) a registered
offering under the Securities Act (in which case all transfers
shall be made in accordance with all applicable provisions of the
Registration Agreement), (b) Rule 144 promulgated pursuant to the
Securities Act (or any similar rule or rules then in force) if
available, or (c) subject to the conditions specified in
subparagraph (b) below, any other legally available means of
transfer.
(b) In connection with the transfer of any SAI Preferred or SAI Common
issued in connection with the Merger (other than a
44
transfer pursuant to a registered public offering), the holder
thereof shall deliver written notice to SAI describing in
reasonable detail the transfer or proposed transfer, together
with an opinion of securities counsel (with such opinion and
such counsel being satisfactory to SAI) to the effect that such
transfer of SAI Preferred or SAI Common may be effected without
registration of such SAI Preferred or SAI Common under the
Securities Act or any applicable state securities law. In
addition, if the holder of SAI Preferred delivers to SAI such
an opinion that concludes that no subsequent transfer of such
SAI Preferred or SAI Common will require registration under the
Securities Act or any applicable state securities law, SAI
shall promptly upon such contemplated transfer deliver new
certificates for such SAI Preferred or SAI Common which do not
bear the restrictive legend set forth in Section 3.21(a). If
SAI is not required to deliver new certificates for such SAI
Preferred or SAI Common not bearing such legends, the holder
thereof shall not transfer the same until the prospective
transferee has confirmed to SAI in writing its agreement to be
bound by the conditions contained in this Section.
ARTICLE 6
COVENANTS OF SAI
6.1 Necessary Consents. Prior to the Closing, SAI will use its best efforts
obtain such consents and take such other actions as may be necessary or
appropriate to allow the consummation of the Merger and the other transactions
contemplated hereby, including the approval of its shareholders.
6.2 Offer of Employment. SAI agrees that SAI, the Company or its
Subsidiaries will offer employment to each of the individuals listed on Schedule
6.2 at the annual salary rates set forth on Schedule 6.2. Each such employee
that accepts such an offer will be an employee at will.
6.3 Confidentiality. SAI agrees to abide by the confidentiality provisions
of the Letter of Intent; provided, however, that SAI, as a reporting company
under the Securities Exchange Act and as an issuer of securities under the
Securities Act, may make all disclosures concerning this Agreement, the Selling
Shareholders and the Company and its Subsidiaries as are required by Federal and
state securities laws, as determined by SAI and its counsel.
6.4 SAI Stockholders Meeting. SAI shall call a meeting of its stockholders
(the "SAI Stockholders Meeting"), to be held as promptly as practicable for the
purpose of voting, among other things, upon the Merger and the issuance of the
shares of SAI Preferred and SAI Common contemplated hereunder, SAI will, through
its Board of Directors recommend to its stockholders, as applicable, approval of
such matters and will
45
coordinate and cooperate with respect to the timing of such meetings and shall
use its best efforts to hold such meeting on the same day and as soon as
practicable after the date hereof. As promptly as practicable after the
execution of this Agreement, but in any event on or prior to September 1, 2000,
SAI shall prepare and file with the SEC the Proxy Statement, shall use its best
efforts to cause the Proxy to become approved by the SEC as soon as after such
filing as practicable, and shall promptly furnish a copy of the Proxy Statement
to each of SAI's Stockholders.
6.5 Subject to, and conditioned upon, the consummation of the Merger, the
Company, its Subsidiaries and their respective successors and assign (the
"Company Releasing Parties"), irrevocably and unconditionally waives and
releases any and all rights with respect to, and releases, forever acquits and
discharges each of the Selling Shareholders and their respective heirs,
executors, administrators, successors and assigns ("Selling Shareholder Released
Parties"), with respect to, each and all claims, demands, charges, complaints,
obligations, causes of action, suits, liabilities, indebtedness, sums of money,
covenants, agreements, instruments, contracts (written or oral, express or
implied), controversies, promises, fees, expenses (including attorneys' fees,
costs and expenses), damages and judgments, at law or in equity, in contract or
tort, in federal, state or other judicial, administrative, arbitration or other
proceedings, of any nature whatsoever, known or unknown, suspected or
unsuspected, previously, now or hereafter arising, in each case which arise out
of, are based upon or are connected with facts or events occurring or in
existence on or prior to the Effective Time ("Selling Shareholder Released
Claims"). This Section 6.5 shall not apply to limit or diminish in any way the
Selling Shareholders' joint and several obligations under Article 10.
ARTICLE 7
SAI'S CONDITIONS FOR CLOSING
The obligations of SAI and King Acquisition to consummate the Merger and
the other transactions contemplated by this Agreement are subject to the
fulfillment, at or before the Escrow Closing and the Closing, of all the
following conditions, unless waived in writing by SAI:
7.1 Representations True. The representations and warranties of the Selling
Shareholders in this Agreement shall be true and correct when made and shall be
true and correct at the Escrow Closing and at the Closing as those made as of
the Escrow Closing and the Closing, respectively.
7.2 Covenants Performed. The Company and the Selling Shareholders shall
have performed or complied with all of the terms, covenants and conditions of
this Agreement to be performed or complied with at or prior to the Closing.
7.3 No Violations; No Actions. As of the Escrow Closing and as of the
Closing, consummation of the transactions contemplated by this Agreement shall
not violate any order, decree or judgment of any court or governmental entity
and no action or proceeding shall have been instituted by any Person or
threatened by any governmental
46
entity which, in either such case, in the reasonable judgment of SAI, has a
probability of resulting in an order judgment or decree restraining, prohibiting
or rendering unlawful the consummation of the Merger or the other transactions
contemplated by this Agreement.
7.4 Company RMR. As of the Escrow Closing and as of the Closing, the
Company's RMR shall not be less than $600,000.
7.5 Company Assets. As of the Escrow Closing and as of the Closing, the
Company will have a tax basis of at least (i) $18 million in depreciable and/or
amortizable assets for Federal income tax purposes, calculated in accordance
with GAAP, less (ii) the amount by which such assets have been depreciated
and/or amortized for Federal income tax purposes since January 1, 2000,
calculated in accordance with GAAP.
7.6 Closing Balance Sheet. The Company shall have delivered the Closing
Balance Sheet to SAI.
7.7 Monital Retail Account Transactions. In the event that the Monital
Acquisition is consummated prior to the Closing, the Monital Retail Account
Transactions shall have been consummated.
7.8 FCC Approvals. All required FCC approvals shall have been obtained.
7.9 Few Company Note. Mr. Few shall have forgiven the indebtedness
represented by the outstanding promissory note, dated January 9, 1998, from the
Company to him.
7.10 No Material Adverse Change. During the period commencing on the date
of execution of this Agreement to the Closing, there shall not have been any
material adverse change in the condition (financial or otherwise), liabilities,
business or prospects of the Company or any of its Subsidiaries.
7.11 Closing Balance Sheets. The Company shall have delivered to SAI the
Escrow Date Balance Sheet prior to the Escrow Closing and the Closing Date
Balance Sheet prior to the Closing.
7.12 Opinion of Counsel for the Selling Shareholders. SAI shall have
received opinions from counsel for the Selling Shareholders, in form and
substance satisfactory to SAI, dated as of the Escrow Closing Date and to be
dated as of the Closing Date, respectively, covering the subject matter
contained in Sections 3.1, 3.2, 3.3, 3.5, 3.6, 3.12, 3.15, 3.16, 3.17, 3.19,
3.20, 3.21, 3.25, 3.27 and 3.29.
7.13 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to SAI, and SAI
47
shall have received all such originals or certified or other copies of such
documents as it may reasonably request.
7.14 Employment Agreement. SAI, the Company or its Subsidiaries shall have
entered into a written employment agreement with Mr. Few, in the form attached
as Exhibit 7.14.
7.15 Delivery of Documents. SAI shall have received all documents and other
items to be delivered by the Selling Shareholders under Section 9.3 and 9.4.
7.16 Exhibits. The Selling Shareholders shall have completed and attached
hereto all Exhibits and Schedules required by this Agreement, and all such
Schedules shall have been acceptable to SAI, in its sole discretion.
7.17 Required Consents. As of the Closing Date, all corporate, statutory,
regulatory and third party consents and approvals which are required under the
laws or regulations of the United States and any other authority shall have been
obtained; and all other necessary consents and approvals of third parties to the
transactions contemplated hereby and to the continued uninterrupted operation of
the business of the Company and its Subsidiaries shall have been obtained,
including, but not limited to, the Required Consents.
7.18 SV/SAI Transactions. In the event that the transactions contemplated
in the SV/SAI Agreement to be consummated at or prior to the consummation of the
transactions contemplated hereby shall not have been consummated, SAI's
obligation to close shall not be excused but may, at SAI's election, be delayed
for up to 120 days to the extent necessary to obtain financing to replace the
financial consideration to have been received by SAI as a result of the
consummation of the transactions contemplated in the SV/SAI Agreement.
7.19 Monital Acquisition Documents. If the Company and the other parties
thereto shall have executed the Monital Acquisition Documents prior to the
Escrow Closing Date, true, accurate and complete copies of the Monital
Acquisition Documents shall be attached hereto as Schedule 7.19.
7.20 Officer's and Other Certificates. The Selling Shareholders shall have
delivered to SAI the following:
(a) certificates of the each Selling Shareholder, dated as of the
Escrow Closing Date and to be dated as of the Closing Date,
respectively, stating that the conditions specified in Sections
7.1, 7.2, 7.3, 7.4, 7.5, 7.7, 7.8, 7.9, 7.10, 7.17 and 7.19 have
been fulfilled at or prior to the Escrow Closing and the Closing,
respectively;
48
(b) certificates of the Company, executed on behalf of the Company by
its President, dated as of the Escrow Closing Date and to be dated
as of the Closing Date, respectively, stating that the conditions
specified in Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.7, 7.8, 7.9,
7.10, 7.17 and 7.19 have been fulfilled at or prior to the
Closing;
(c) certificates of the Company's Secretary, dated as of the Escrow
Closing Date and to be dated as of the Closing Date, respectively
certifying that: (x) that attached thereto are true, accurate and
complete copies of the Articles or Certificate of Incorporation
and By-laws of the Company and each of its Subsidiaries, and all
amendments thereto, and copies of the resolutions adopted by the
Board of Directors and Shareholders approving the Merger and other
transactions contemplated by this Agreement; and that (y) there
have been no amendments or modifications to the attached Articles
or Certificates of Incorporation since the date of such
certificate and that the attached resolutions are in full force
and effect on the date of such certificate and have not been
superceded or modified in any manner whatsoever; and
(d) incumbency certificates, in form and content, dated as of the
Closing Date, satisfactory in form and content to SAI and its
counsel.
7.21 SAI Stockholder Approval. The stockholders of SAI shall have approved
the Merger and the issuance of the SAI Preferred and SAI Common required
pursuant to this Agreement ("SAI Stockholder Approval").
7.22 Disclosure Schedules. The Company and the Selling Shareholders shall
have delivered to SAI all of the Schedules called for to be delivered by the
Company and/or the Selling Shareholders pursuant to this Agreement (including
without limitation, information concerning Monital for the period after the
closing of the Monital Acquisition and for the Company and its other
Subsidiaries for all other periods); and no fact, event, circumstance, contract
or condition disclosed in such Disclosure Schedules shall have or result, or
reasonably be expected to have or result, in a material adverse effect on the
financial condition, results or operations, business prospects or properties of
the Company or its Subsidiaries.
7.23 Disposal of Distributed Business Items. The Company shall have
completed the transfer of the Distributed Business Items to and Morlyn shall
have assumed the related liabilities of the Company and its Subsidiaries.
49
ARTICLE 8
SELLING SHAREHOLDERS' CONDITIONS FOR CLOSING
The obligation of the Selling Shareholders to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or before the
Closing, of all the following conditions, unless waived in writing by a majority
in interest of the Selling Shareholders:
8.1 Representations True. The representations and warranties of SAI set
forth in Article 4 shall be true and correct when made and true and correct as
of the Closing as though made as of the Closing.
8.2 Covenants Performed. SAI shall have performed or complied with all of
the terms, covenants and conditions of this Agreement to be performed or
complied with by SAI at or before the Closing.
8.3 No Violations; No Actions. As of the Closing, consummation of the
transactions contemplated by this Agreement shall not violate any order, decree
or judgment of any court or governmental body having competent jurisdiction and
no action or proceeding shall have been instituted by any person or entity or
threatened by any governmental agency which, in either such case, in the
reasonable judgment of the Selling Shareholders, has a probability of resulting
in an order judgment or decree restraining, prohibiting or rendering unlawful
the consummation of the transactions contemplated by this Agreement.
8.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to the Selling Shareholders, and they shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
8.5 Delivery of Documents. The Selling Shareholders shall have received all
documents and other items to be delivered by SAI under Section 9.3 and 9.5.
8.6 Required Consents. As of the Closing, all statutory and regulatory
consents and approvals which are required under the laws or regulations of the
United States and any other authority shall have been obtained; and all other
necessary consents and approvals of third parties to the transactions
contemplated hereby shall have been obtained; provided, however, that the
consents of the shareholders of SAI and King Acquisition shall not have been
obtained prior to the meeting of shareholders of SAI contemplated herein.
50
ARTICLE 9
CLOSINGS
9.1 Time and Place. The Escrow Closing and the Closing, as the case may be,
shall each commence at the offices of SAI, or at any other place to which the
Parties shall mutually agree, at 10:00 a.m. on the Escrow Closing Date or the
Closing Date, as the case may be, or such other times, dates or places as the
Parties may mutually agree upon in writing. All actions to be taken, and all
documents and instruments to be delivered, at the Escrow Closing or the Closing,
as the case may be, shall be deemed to have been taken or delivered, as the case
may be, simultaneously. SAI shall file the Proxy Statement with the SEC by no
later than September 1, 2000, unless the delay shall have been the result of a
breach or delay on the part of the Company or SV or the Selling Shareholders.
9.2 Escrow Closing. At or prior to the Escrow Closing, the Parties and the
Escrow Agent shall enter into an escrow agreement (the "Escrow Agreement")
which, in form and substance, shall be reasonably (x) consistent with the terms
and of this Agreement, and (y) satisfactory to the Parties. Pursuant to the
terms and conditions of the Escrow Agreement, on the Escrow Closing Date, the
parties shall execute and deliver to the Escrow Agent all documents and
instruments required to be executed and delivered, and take such other actions
as may be required by this Agreement to be taken, in connection with the Escrow
Closing; and the transactions contemplated hereby shall be considered tendered
in escrow (the "Escrow Closing"). From and after the Escrow Closing until the
Closing, (i) the parties shall continue to comply with their respective
covenants under this Agreement, including without limitation, those in Articles
5 and 6, and (ii) the Closing shall take place on the Closing Date upon the
terms and conditions set forth herein and in the Escrow Agreement.
9.3 Actions to be taken in connection with the Closing. At the Closing, on
the Closing Date, upon the unanimous direction of the parties thereto to be
given upon satisfaction of the conditions to Closing set forth in Articles 7 and
8:
(a) SAI shall deliver to the Selling Shareholders a certificate,
dated the Closing Date, in form and substance satisfactory to the
Selling Shareholders and their counsel, confirming that the
shareholders of SAI and SAI, as the sole shareholder of King
Acquisition, have approved Merger and transactions contemplated
hereby;
(b) the Selling Shareholders shall deliver to SAI the corporate
records of the Company and its Subsidiaries relating to the
Monitoring Business and other business conducted by the Company
and its Subsidiaries; and
(c) the applicable Parties (or the Escrow Agent, as applicable)
shall,: (i) file or cause to be filed the appropriate
Certificates of Merger with the Secretary of State of the states
of New Jersey and
51
Delaware; (ii) deliver to SAI the items called for by Section 9.4; and
(iii) make the payments to the Selling Shareholders referred to in
Section 9.5(a) and deliver to the Selling Shareholders the other items
called for by Section 9.5.
9.4 Deliveries of the Selling Shareholders. At or prior to the Closing, the
Selling Shareholders will execute and deliver or cause to be executed and
delivered, simultaneously with the execution and delivery of the items referred
to in Section 9.5 below, the following:
(a) Stock Certificates. Certificates representing the Company
Shares endorsed in blank over to SAI or accompanied by duly
executed stock powers endorsed in blank;
(b) Corporate Documents. The Articles or Certificate of
Incorporation of the Company and each of its Subsidiaries,
certified by the Secretary of State of their respective
state(s) of incorporation, as of a date not more than ten
days prior to the Closing Date, and the By-Laws of the
Company and each of its Subsidiaries, certified by the
Secretary of the Company as in effect at the Closing;
(c) Certificate of Good Standing. A Long-form Certificate of
Good Standing, dated not more than ten days prior to the
Closing Date, with respect to the Company, issued by the
Secretary of State of the state of New Jersey and
Certificates of Good Standing, dated not more than ten days
prior to the Closing Date, issued by the Secretary of State
of each foreign jurisdiction in which the Company or any of
its Subsidiaries is qualified to do business;
(d) Consents. Evidence that all consents, approvals, or
authorizations of or notifications to any third parties
(including governmental agencies), if any, required to
exchange the Shares in connection with the Merger and to
consummate the Merger and the other transactions
contemplated hereby and to continue to operate the business
of the Company and its Subsidiaries without interruption
have been obtained, including without limitation, any
revenue notices required by the state of New Jersey with any
corresponding taxes due paid by the Selling Shareholders,
and the consent the lessors under the Real Estate Leases and
the Equipment Leases for the continued use of any leased
Equipment and the Facilities following the Closing on the
terms contained in the respective leases.
(e) Opinion of Counsel. The opinion of counsel referred to in
Section 7.12 of this Agreement;
52
(f) Certificates. The certificates referred to in Section 7.20
of this Agreement;
(g) Collateral Assignment of Leases. The Collateral Assignment
of Leases for each of the Company's Leases and Equipment
Leases in form and content reasonably satisfactory to SAI
and the Selling Shareholders;
(h) Employment Agreement. Executed employment agreement (s)
between the SAI or the Company and the individual (s)
referred to Section 7.14;
(i) Evidence of Release of Liens. Evidence, in form and
substance satisfactory to SAI, that all liens, charges and
encumbrances on the Shares, the Company and its properties
(other than Liens on the property of the Company or its
Subsidiaries incurred in the ordinary course of their
respective businesses) have been fully released prior to the
Closing, or will be released concurrently with the Closing;
(j) Resignations. The written resignations of each director and
officer of the Company and each of its Subsidiaries,
effective as of the Closing;
(k) Signature Cards. Substitute signature cards for all of the
bank accounts of the Company and each of its Subsidiaries
naming persons designated by SAI as the new signatories for
said bank accounts;
(l) Credit Cards. All corporate credit cards of the Company and
its Subsidiaries; and
(m) Other Documents. Such other documents and instruments as SAI
or its counsel reasonably shall deem necessary to consummate
the transactions contemplated hereby.
9.5 Deliveries of SAI. At the Closing, SAI will execute and deliver or
cause to be executed and delivered, simultaneously with the delivery of the
items referred to in Section 9.4 above, the following:
(a) Payment of Cash Consideration. SAI shall pay the cash
consideration to be paid pursuant to Article 2 in connection
with the Merger to the Selling Shareholders at the Closing
by bank wire transfer;
53
(b) Delivery of SAI Preferred and SAI Common. SAI shall deliver
a certificate or certificates representing the shares of SAI
Preferred or SAI Common to which each equity holder of the
Company is entitled in connection with the Merger for
delivery pursuant to Article 2;
(c) Resolutions. A copy of the resolutions of the Board of
Directors and Stockholders of SAI and the Board of Directors
and SAI, as the sole shareholder of King Acquisition,
certified by SAI's Secretary as having been duly and validly
adopted and being in full force and effect, authorizing
execution and delivery of this Agreement, the consummation
of the Merger and the performance of the transactions
contemplated hereby by SAI and SAI, respectively, subject to
SAI Stockholder Approval;
(d) Corporate Documents. The Certificate of Incorporation of SAI
and the Certificate of Incorporation of King Acquisition,
certified by the Secretary of State of the state's of
Delaware and New Jersey, respectively, as of a date not more
than ten days prior to the Closing Date, and the By-Laws of
SAI and King Acquisition, certified by the secretary of SAI
as in effect at the Closing;
(e) Certificate of Good Standing. Certificates of Good Standing,
dated not more than ten days prior to the Closing Date, with
respect to SAI and King Acquisition, issued by the Secretary
of State of the states of Delaware and New Jersey;
(f) Officer's Certificate. Certificates, dated as of the Escrow
Closing Date and the Closing Date, respectively, from an
officer of SAI, confirming the satisfaction of the
conditions required pursuant to Sections 8.1 and 8.2 as of
the Escrow Closing and the Closing, respectively; and
(g) Other Documents. Such other documents and instruments as the
Selling Shareholders or their counsel reasonably shall deem
necessary to consummate the transactions contemplated
hereby.
All actions and proceedings hereunder and all documents and other papers
required to be delivered by SAI or King Acquisition hereunder or in connection
with the consummation of the Merger and the other transactions contemplated
hereby and all other related matters shall have been approved by, and, in the
case of such documents and papers, shall be in form and substance reasonably
satisfactory to, the Company, the Selling Shareholders and their respective
counsel.
54
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification.
(a) Subject to Section 10.1(d), the Selling Shareholders, jointly and
severally, will indemnify and hold harmless SAI, its Subsidiaries
and their respective successors, affiliates and assignees and their
respective shareholders, officers, directors, employees and agents
("SAI Indemnified Parties") against any losses, claims, damages or
liabilities, including, without limitation, reasonable attorneys'
fees and other reasonable defense costs, in each case, to the
extent not covered by insurance (hereafter "Losses"), to which any
SAI Indemnified Party becomes subject in connection with the
following; provided, however, that, in the event that the Merger is
not consummated as provided herein, the Company and the Selling
Shareholders, jointly and severally, shall be responsible for the
indemnification obligations of the Selling Shareholders contained
in Section 10.1(a); and provided further, that in the event that
the Merger is not consummated as provided herein, the Selling
Shareholders shall be responsible for the indemnification
obligations contained in Section 101.(a) only if such Selling
Shareholders caused the Company to take, or to fail to take, any
action or failure to act giving rise to the claim for
indemnification thereunder:
(i) finders' fees or brokerage commissions incurred or alleged
to have been incurred by the Selling Shareholders with
respect to the transactions contemplated by this Agreement;
(ii) any liability of the Company or its Subsidiaries not
disclosed in writing prior to the Escrow Closing (other than
liabilities of a similar type as those disclosed which arise
thereafter prior to the Closing in the ordinary course of
business to the extent expressly permitted by the terms of
this Agreement);
(iii) any misrepresentation of fact, or failure to disclose a
material fact, by the Selling Shareholders;
(iv) any breach of any representation or warranty by the Selling
Shareholders contained in this Agreement or in any document
delivered hereunder;
55
(v) any claims which have been or may be in the future asserted
arising out of the provision of Monitoring Services (or
failure to adequately provide such services) or otherwise
arising out of the business conducted by the Company or its
Subsidiaries which occurred prior to the Closing;
(vi) any breach of any covenant or agreement by the Company or
the Selling Shareholders contained herein or in any document
delivered hereunder, to be performed prior to or after the
Closing;
(vii) the failure to obtain any Required Consent; or
(viii) any other liability or expense resulting from a dispute or
cause of action relating to the business of the Company or
its Subsidiaries, arising from an event, act, or omission
occurring before the Closing or related to the enforcement
of the indemnification provisions of this Agreement.
(b) SAI will indemnify and hold harmless the Selling Shareholders, their
heirs, successors, affiliates, assigns ("Selling Shareholder
Indemnified Parties") against any Loss to which any Selling
Shareholder Indemnified Party becomes subject in connection with:
(i) finders' fees or brokerage commissions incurred or alleged to
have been incurred by SAI with respect to the purchase
transaction;
(ii) any misrepresentation of fact, or failure to disclose a
material fact, by SAI;
(iii) any breach of any representation or warranty by SAI
contained herein or in any document delivered hereunder;
(iv) any breach of any covenant or agreement by SAI contained
herein or in any document delivered hereunder, to be
performed prior to or after the Closing Date; or
(v) any liability or expense resulting from a dispute or cause of
action relating to the Company or its Subsidiaries, arising
from an event, act or omission occurring after the Closing.
56
(c) Such indemnification shall include any and all actions, suits,
proceedings, demands, assessments or judgments, costs and expenses
incidental to any of the foregoing matters set forth in Section
10.1(a) and 10.1(b) or enforcement of the indemnification provisions
of this Agreement.
(d) The obligation of the Selling Shareholders to indemnify SAI under
Section 10.1(a) shall be subject to the following:
(i) The Selling Shareholders will be obligated to indemnify SAI from
and against any Losses (other than Losses under Section
10.1(a)(vii)) only after SAI shall have suffered aggregate Losses
in excess of $50,000, at which point the Selling Shareholders
will be obligated to indemnify SAI from and against all Losses
relating back to the first dollar; and
(ii) The Selling Shareholders will be obligated to indemnify SAI from
and against any Losses under Section 10.1(a)(vii) only after SAI
shall have suffered aggregate Losses under such Section in excess
of $50,000 (with respect to any particular Required Consent), or
$150,000 (with respect to all Required Consents in the
aggregate), at which point the Selling Shareholders will be
obligated to indemnify SAI from and against all such Losses in
excess of such amounts; and
(iii) The Selling Shareholders shall be obligated to indemnify SAI
from and against any Losses arising out of the breach of any of
the representations and warranties made by the Selling
Shareholders only to the extent that SAI makes a written claim
within the applicable survival period (as specified in Section
12.1) with respect to the breach which gives rise to such Losses.
10.2 Indemnification Procedures. For the purposes of this Section 10.2, the
term "Indemnitee" shall refer to the person or persons entitled, or claiming to
be entitled, to be indemnified, pursuant to the provisions of Section 10.1. The
term "Indemnitor" shall refer to the person or persons having the obligation to
indemnify pursuant to such provisions.
(a) Notice. An Indemnitee shall promptly give the Indemnitor written
notice of any matter which an Indemnitee has determined has given
or could give rise to a right of indemnification under this
Agreement, stating the amount of the Loss, if known, and method
57
of computation thereof, all with reasonable particularity and
containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed or
arises. If an Indemnitee shall receive notice of any claim by a
third party which is or may be subject to indemnification (a
"Third Party Claim"), the Indemnitee shall give the Indemnitor
prompt written notice of such Third Party Claim and shall permit
the Indemnitor, at its option, to participate in the defense of
such Third Party Claim by counsel of its own choice (subject to
Indemnitee's approval, which shall not be unreasonably withheld)
and at the Indemnitor's expense. If, however, the Indemnitor
acknowledges in writing its obligation to indemnify the
Indemnitee hereunder against all Losses that may result from such
Third Party Claim (subject to the limitations set forth herein),
then the Indemnitor shall be entitled, at its option, to assume
and control the defense of such Third Party Claim at its expense
and through counsel of its choice, provided however, that
Indemnitee shall have the right to approve in its sole reasonable
discretion the choice of counsel. In the event the Indemnitor
exercises its right to undertake the defense of any such Third
Party Claim, the Indemnitee shall co-operate with the Indemnitor
in such defense and make available to the Indemnitor, at the
Indemnitor's expense, all witnesses, pertinent records, materials
and information in its possession or under its control relating
thereto as is reasonably required by the Indemnitor. Similarly,
in the event the Indemnitee is, directly or indirectly,
conducting the defense against any such Third Party Claim, the
Indemnitor shall co-operate with the Indemnitee in such defense
and make available to it all such witnesses, records, materials
and information in its possession or under its control relating
thereto as is reasonably required by the Indemnitee. In the event
that the Indemnitor fails to agree to undertake defense of the
Third Party Claim within thirty (30) days of receipt of notice of
such claim from the Indemnitee, the Indemnitee shall be entitled
to undertake such defense with counsel of its own choice, and the
Indemnitor shall promptly reimburse the Indemnitee for all
expenses incurred. The Indemnitor without the written consent of
the Indemnitee may settle no Third Party Claim, unless the
settlement involves only the payment of money by the Indemnitor.
Similarly, no Third Party Claim, which is being defended in good
faith by the Indemnitor, shall be settled by the Indemnitee
without the written consent of the Indemnitor.
(b) Calculation of Losses. Losses shall be determined after taking
into account any insurance proceeds received by an Indemnitee or
its
58
affiliates from a non-affiliated insurance company on account of
such Losses (after taking into account any costs incurred in
obtaining such proceeds and any increase, determined in the
reasonable judgment of the Indemnitee and confirmed by the
insurance company, in insurance premiums as a result of the claim
for which such proceeds were paid). The Indemnitor shall not be
liable for any increase in Losses sustained by the Indemnitee,
resulting from Indemnitee's failure to give Indemnitor timely
written notice of any matter likely to give rise to a right of
Indemnification hereunder.
ARTICLE 11
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by written notice by the terminating Party to the other Parties,
whether before or after approval of the matters presented in connection with the
Merger by the Selling Shareholders of the Company, as follows:
(a) by mutual written consent of SAI and the Company; or
(b) by either SAI or the Company, if the Merger shall not have been
consummated by December 29, 2000 (provided, however, that the
right to terminate this Agreement under this Section 11.1(b)
shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date, and
provided further, that this Agreement may be extended up to 45
days by either Party by written notice to the other Party if the
Merger would have been consummated but for the absence of one or
more required Approvals or third-party consents, and such
Approval (s) or consent(s) can reasonably be expected to be
obtained within such 45 day period); or
(c) by either SAI or the Company if a court of competent jurisdiction
or other governmental entity shall have issued a final order,
decree or ruling, or taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the
Merger, and all appeals with respect to such order or action have
been exhausted or the time for appeal of such order, decree,
ruling or action shall have expired;
(d) by SAI, if a material breach of any representation, warranty,
covenant or agreement on the part of the Selling Shareholders set
59
forth in this Agreement shall have occurred which would cause the
conditions set forth in Article 7 not to be satisfied, and, that
with respect to any breach of a covenant or agreement hereunder,
such covenant or agreement is incapable of being cured or, if
capable of being cured, shall not have been cured within ten (10)
business days following receipt by the Company of written notice
of such breach from SAI;
(e) by the Company, if a material breach of any representation,
warranty, covenant or agreement on the part of SAI set forth in
this Agreement shall have occurred which would cause the
conditions set forth in Article 8 not to be satisfied, and, with
respect to any breach of a covenant or agreement hereunder, such
covenant or agreement is incapable of being cured or, if capable
of being cured, shall not have been cured within ten (10)
business days following receipt by SAI of written notice of such
breach from the Company; or
(f) by the Company, if the Proxy Statement has not been filed by SAI
on or prior to September 1, 2000.
11.2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 11.1, there shall be no Liability or obligation on the part
of SAI, the Company, or their respective officers, directors, shareholders or
affiliates, except as provided in Article 10, and further except for the
liability of any Party then in breach of any of its representations, warranties,
covenants or agreements in this Agreement; and provided, that the provisions of
Sections 5.9, 5.10 and 6.3, Article 10 and this Section 11.2 shall remain in
full force and effect and survive any termination of this Agreement.
60
ARTICLE 12
MISCELLANEOUS
12.1 Survival. The covenants and indemnification obligations of the parties
contained in this Agreement and their respective obligations to be performed
under the terms hereof at, prior to or after the Closing hereunder, shall not
expire with, or be terminated or extinguished by, such Closing, but shall
survive the Closing and any investigation made at any time by or on behalf of a
party. The representations and warranties set forth in this Agreement shall
survive the Closing until the fourth anniversary of the Closing, except for
representations and warranties relating to taxes, title to stock and
environmental matters and claims of the nature covered by the insurance carried
by the Company and its Subsidiaries, which shall survive until the expiration of
the applicable statute of limitation of the particular matter, and except claims
for fraudulent breach, which shall have no expiration period.
12.2 Further Assurances. At the request of a party to this Agreement, and
without further consideration, the other party agrees to execute such documents
and instruments and to do such further acts as may be necessary or desirable to
effectuate the transactions contemplated hereby.
12.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW JERSEY
WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. THE SELLING
SHAREHOLDERS AGREE THAT THEY WILL NOT ASSERT ANY CLAIM AGAINST ANY OFFICER,
DIRECTOR, EMPLOYEE OR AGENT OF SAI OR ANY OF ITS AFFILIATES, PURSUANT TO ANY
CLAIM THEY MAY HAVE UNDER THIS AGREEMENT BY REASON OF ANY FAILURE OR ALLEGED
FAILURE BY SAI TO MEET ITS OBLIGATIONS HEREUNDER. THE PARTIES HERETO AGREE AND
INTEND THAT THE PROPER AND EXCLUSIVE FORUM FOR THE LITIGATION OF ANY DISPUTES OR
CONTROVERSIES ARISING OUT OF, OR RELATED TO, THIS AGREEMENT SHALL BE THE COURTS
OF THE STATE OF ILLINOIS FOR THE COUNTY OF XXXX. EACH PARTY AGREES THAT HE OR IT
WILL NOT COMMENCE OR MOVE TO TRANSFER ANY ACTION OR PROCEEDING, ARISING OUT OF
OR RELATING TO THIS AGREEMENT, IN OR TO ANY COURT OTHER THAN A STATE COURT
LOCATED IN THE COUNTY OF XXXX IN THE STATE OF ILLINOIS. EACH PARTY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFORESAID COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE SELLING SHAREHOLDERS AT THE ADDRESSES PROVIDED
HEREIN, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
NOTHING CONTAINED IN THIS SECTION SHALL AFFECT THE RIGHT OF SAI TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW. IN THE
61
EVENT THAT ANY PARTY SHOULD COMMENCE OR MAINTAIN ANY ACTION ARISING OUT OF OR
RELATED TO THIS AGREEMENT IN A FORUM OTHER THAN THE STATE COURTS LOCATED IN THE
STATE OF ILLINOIS, COUNTY OF XXXX, THE OTHER PARTY SHALL BE ENTITLED TO MOVE FOR
THE DISMISSAL OF SUCH ACTION, AND THE NON-MOVING PARTY STIPULATES THAT SUCH
ACTION SHALL BE DISMISSED. THE PARTIES AGREE THAT PRIOR TO INSTITUTING ANY SUIT,
THEY WILL GIVE WRITTEN NOTICE OF THEIR INTENT TO DO SO AND MAKE A REASONABLE
ATTEMPT TO RESOLVE ANY DISPUTE BY NEGOTIATING WITH EACH OTHER IN GOOD FAITH.
12.4 Successors and Assigns. This Agreement shall be binding on, and inure
to the benefit of, the parties to it and their respective heirs, legal
representatives, successors, and assigns.
12.5 Each Party to Bear Own Costs. The Selling Shareholders and SAI shall
each bear its own legal and other expenses incurred on its behalf with respect
to the preparation of this Agreement, any related documents and the transactions
contemplated hereby.
12.6 Entire Agreement; Amendment. This Agreement, its Schedules, the Escrow
Agreement and the other documents delivered to be delivered pursuant to this
Agreement constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
Accordingly, this agreement supercedes, among other things, the SAI/Xxxx XXX and
all provisions of the Letter of Intent or the SV/SAI Agreement relating to the
consummation of the acquisition of the Company by SAI which are covered by the
terms of this Agreement. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
12.7 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed:
To SAI or King Acquisition at: Security Associates International, Inc.
0000 Xxxxx Xxxxxxxxx Xxxxxxx Xxxx
Xxxxxxxxx Xxxxxxx, Xxxxxxxx 00000-0000
ATTN: PRESIDENT
To KC ACQUISITION CORP. at: KC Acquisition Corp.
X.X. Xxx 0000
Xxxxx Xxxxxxxxxx, XX 00000-0000
62
To Xx. Xxxxxx X. Few Sr. at: Xx. Xxxxxx X. Few Sr.
c/o King Acquisition Corp.
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
To Xx. Xxxxxxx X. XxXxxx at: Xx. Xxxxxxx X. XxXxxx
c/x XxXxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxx, X.X. 00000
To Xx. Xxxxx X. Xxxxx at: Xx. Xxxxx X. Xxxxx
c/x XxXxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxx, X.X. 00000
Any party may change its address for purposes of this Section by giving
notice of the new address to the other party in the manner set forth above. Each
such notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or seventy-two
(72) hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid. 12.8 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any party
to this Agreement, upon any breach or default by the other party under this
Agreement, shall impair any such party, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
12.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
12.10 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided
63
that no such severability shall be effective if it materially changes the
economic benefit of this Agreement to any party.
12.11 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and shall not be considered in construing or
interpreting this Agreement.
12.12 Incorporation by Reference. The Schedules, Exhibits, certificates and
other documents attached hereto or referred to herein are deemed to be a part of
this Agreement and are incorporated herein by this reference.
*****
64
The foregoing Agreement is hereby executed as of the date first above
written.
SECURITY ASSOCIATES
INTERNATIONAL, INC.
By:_____________________________________
Xxxxx X. Xxxxxxx, its President
KING ACQUISITION CORP.
By:_____________________________________
Title:__________________________________
KC ACQUISITION CORP.
By:_____________________________________
Title:__________________________________
SELLING SHAREHOLDERS
________________________________________
Xxxxxx X. Few, Sr.
________________________________________
Xxxxxxx X. XxXxxx
________________________________________
Xxxxx X. Xxxxx
