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Exhibit 3
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ALARMGUARD HOLDINGS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF FEBRUARY 2, 1998
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS.......................................................1
1.1 Definitions; Interpretation........................................1
ARTICLE II ISSUANCE AND SALE OF PREFERRED STOCK.............................6
2.1 Number of Shares and Price.........................................6
ARTICLE III CLOSING; CLOSING DELIVERIES.....................................6
3.1 Closing............................................................6
3.2 Payment for and Delivery of Preferred Shares.......................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................7
4.1 Existence; Qualification; Subsidiaries.............................7
4.2 Authorization and Enforceability; Issuance of Shares...............7
4.3 Capitalization.....................................................8
4.4 Private Sale; Voting Agreements....................................8
4.5 Financial Statements; Disclosure...................................8
4.6 Absence of Certain Changes.........................................9
4.7 Litigation........................................................10
4.8 Licenses, Compliance with Law, Other Agreements, Etc..............11
4.9 Third-Party Approvals.............................................11
4.10 No Undisclosed Liabilities........................................11
4.11 Tangible Assets...................................................11
4.12 Inventory.........................................................11
4.13 Owned Real Property...............................................11
4.14 Real Property Leases..............................................12
4.15 Agreements........................................................12
4.16 Intellectual Property.............................................12
4.17 Employees.........................................................12
4.18 ERISA; Employee Benefits..........................................13
4.19 Environment, Health and Safety....................................13
4.20 Transactions With Affiliates......................................14
4.21 Taxes.............................................................14
4.22 Other Investors...................................................14
4.23 Year 2000 Representations.........................................14
4.24 Seniority.........................................................15
4.25 Investment Company................................................15
4.26 Certain Fees......................................................15
4.27 Solicitation Materials............................................15
4.28 Form S-3 Eligibility..............................................16
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4.29 Listing and Maintenance Requirements Compliance...............................16
4.30 Registration Rights; Rights of Participation..................................16
4.31 Recent Results of Operations..................................................16
4.32 Small Business Matters........................................................16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............................17
5.1 Authorization and Enforceability..............................................17
5.2 Government Approvals..........................................................17
ARTICLE VI COMPLIANCE WITH SECURITIES LAWS............................................17
6.1 Investment Intent of Purchaser................................................17
6.2 Status of Preferred Shares....................................................17
6.3 Sophistication and Financial Condition of Purchaser...........................17
6.4 Transfer of Preferred Shares and Conversion Shares............................17
6.5 Exculpation Among Purchasers..................................................19
ARTICLE VII CONDITIONS PRECEDENT......................................................19
7.1 Closing Deliveries to the Purchasers..........................................19
7.2 Closing Deliveries to the Company.............................................20
ARTICLE VIII COVENANTS OF THE COMPANY.................................................20
8.1 Restricted Actions............................................................20
8.2 Required Actions..............................................................21
8.3 Reservation of Common Stock...................................................23
8.4 Purchasers' Rights if Trading in Common Stock is Suspended or Delisted........23
8.5 Use of Proceeds...............................................................23
ARTICLE IX SURVIVAL...................................................................24
9.1 Survival......................................................................24
ARTICLE X INDEMNIFICATION.............................................................24
10.1 Indemnification...............................................................24
ARTICLE XI GENERAL PROVISIONS.........................................................25
11.1 Successors and Assigns........................................................25
11.2 Entire Agreement..............................................................25
11.3 Notices.......................................................................25
11.4 Purchasers Fees and Expenses..................................................26
11.5 Amendment and Waiver..........................................................26
11.7 Counterparts..................................................................27
11.8 Headings......................................................................27
11.9 Specific Performance..........................................................27
11.10 Remedies Cumulative...........................................................27
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11.11 GOVERNING LAW......................................................27
11.12 No Third Party Beneficiaries.......................................27
11.13 Severability.......................................................27
Schedule I Purchasers
Exhibit A Amendment to the Certificate of Designations.
Exhibit B Financial Statements
Exhibit C Registration Rights Agreement
Exhibit D Opinion of Counsel
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PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT") dated as of
February 2, 1998 between Alarmguard Holdings, Inc., a Delaware corporation (the
"COMPANY"), Advance Capital Partners, L.P., a Delaware limited partnership,
Advance Capital Offshore Partners, L.P., a Cayman Islands limited partnership
(collectively, "ADVANCE"), and each of the other purchasers set forth on
Schedule I hereto (with Advance, each a "PURCHASER" and collectively the
"PURCHASERS").
The Purchasers desire to purchase from the Company, and the Company
desires to issue to the Purchasers, shares of Series A Convertible Preferred
Stock $.0001 par value per share of the Company (the "SERIES A PREFERRED") and
Series B Convertible Preferred Stock $.0001 par value per share of the Company
(the "Series B PREFERRED").
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
I.1 DEFINITIONS; INTERPRETATION.
(a) For purposes of this Agreement, the following terms have
the indicated meanings:
"ADVANCE" has the meaning set forth in the recitals hereof.
"ADVANCE CLOSING" has the meaning set forth in Section 3.1.
"ADVANCE CLOSING DATE" has the meaning set forth in Section
3.1.
"AFFILIATE" of a person means any other person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with such person.
"CERTIFICATE OF DESIGNATIONS" means the Certificate of
Designations designating the rights and preferences of the Series A Preferred
and Series B Preferred adopted by the Board of Directors of the Company and set
forth as EXHIBIT A hereto.
"CLOSING" has the meaning set forth in Section 3.1.
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"CLOSING DATE" has the meaning set forth in Section 3.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the common stock of the Company, par
value $.0001 per share.
"COMPANY" has the meaning set forth in the recitals hereof.
"CONFIDENTIAL INFORMATION" means any information concerning
the Company's business other than information that (i) was already known to the
Person having a duty to keep confidential such information on a nonconfidential
basis prior to the time of disclosure, (ii) is or becomes generally available to
the public through no act or omission of such Person or (iii) becomes available
to such Person on a nonconfidential basis from a source other than any party
hereto (or any agent or representative thereof) if such source was not under a
prohibition against disclosing the information to such Person.
"CONVERSION SHARES" means shares of Common Stock issued or
issuable upon conversion of Preferred Shares.
"CREDIT AGREEMENT" means that certain Third Amended and
Restated Acquisition Credit and Term Loan Agreement by and among the Company,
certain Subsidiaries of the Company, BankBoston, N.A. as Administrative Agent,
General Electric Capital Corporation as Documentation Agent and the lenders
party thereto, as the same may be amended, restated, modified or supplemented
from time to time.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of
the Company dated September 30, 1997.
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or by-products, asbestos,
polychlorinated biphenyls, noise or radiation.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FINANCIAL STATEMENTS" means (i) the unaudited balance sheets
of the Company for the quarterly periods ended June 30, 1997 and September 30,
1997, each as included in a quarterly report of the Company on Form 10-Q as
filed with the SEC pursuant to the Exchange Act and the audited balance sheet of
Triton Group Ltd. dated March 31, 1997 as included in the annual report of
Triton Group Ltd. (a predecessor to the Company) on Form 10-K as filed with the
SEC pursuant to the Exchange Act and the related unaudited and audited, as
applicable, statements of income and consolidated cash flow for the quarterly
and fiscal year-to-date periods then ended, each as included in the Company's
applicable quarterly report or annual report on Form 10-Q and Form 10-K, as
applicable, as filed with the SEC pursuant to the Exchange Act, and (ii) the
unaudited balance sheet of Security Systems Holdings, Inc. for the quarterly
period ended March 31, 1997 and the audited balance sheet of Security Systems
Holdings, Inc. dated December 31, 1996 and the related unaudited and audited, as
applicable, statements of income and consolidated cash flow for the quarterly
and fiscal year-to-date periods then ended, all of which are attached as EXHIBIT
B hereto.
"Financing" means the purchase of Preferred Shares by the SBIC
Holders hereunder.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time, consistently applied.
"GOVERNMENTAL AGENCY" means any federal, state, local, foreign
or other governmental agency, instrumentality, commission, authority, board or
body and the American Stock Exchange.
"INCLUDES" and "INCLUDING" mean includes and including,
without limitation.
"INTELLECTUAL PROPERTY" means all patents, patent applications
and inventions; all trademarks, service marks, trade dress, trade names and
corporate names and all goodwill associated therewith; all copyrights; all
registrations, applications and renewals for any of the foregoing; all trade
secrets, Confidential Information, know-how, technical and computer data,
documentation and software, financial, business and marketing plans, customer
and supplier lists and all other intellectual property rights; and all copies
and tangible embodiments of the foregoing.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" or "KNOW" when used with respect to the Company
means the knowledge of the senior management of the Company, or any other
management personnel that has had significant involvement in the business and
affairs of the Company.
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"LIABILITY" means any liability or obligation (whether
absolute or contingent, liquidated or unliquidated or due or to become due).
"LIEN" means any lien, mortgage, pledge, security interest,
restriction, charge or other encumbrance.
"MATERIAL ADVERSE CHANGE" means any material adverse change in
the business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on
(i) the business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole, or (ii) the
transactions contemplated hereby or by the Related Documents.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past practice (including with respect to quantity,
quality and frequency).
"PERMITTED LIENS" means (i) liens for taxes not yet due and
taxes for which adequate provision is made in the Current Balance Sheet, (ii)
purchase money security interests in supplies and equipment, (iii) precautionary
liens filed by lessors with respect to leased equipment, (iv) encumbrances which
are not substantial in amount, do not materially detract from the value of the
property subject thereto and do not materially impair the use of the property
subject thereto or the operation of the Company's business, and (v) liens
securing the obligations under the Credit Agreement and the other documents,
agreements and instruments executed in connection therewith.
"PERSON" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other entity.
"PLAN" means any employee benefit plan (as defined in Section
3(3) of ERISA), subject to Title IV of ERISA or the minimum funding requirements
of Section 412 of the Code, maintained or contributed to by the Company, its
predecessor or any Subsidiary at any time during the 5-calendar years
immediately preceding the date of this Agreement.
"PREFERRED SHARES" has the meaning set forth in Section 2.1.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement between the Company and the Purchasers in the form of EXHIBIT C
hereto.
"RELATED DOCUMENTS" means all documents and instruments to be
executed or adopted by the Company in connection herewith, including the
Certificate of Designations, the Preferred Shares and the Registration Rights
Agreement.
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"SBA" means the United States Small Business Administration,
and any successor agency performing the functions thereof.
"SBIC" means a Small Business Investment Company licensed by
the SBA under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1958, as
amended.
"SBIC HOLDERS" means IBJS Capital Corporation and Exeter
Capital Partners IV, L.P.
"SBIC Regulations" means the SBIC Act and the regulations
issued by the SBA thereunder, codified at Title 13 of the Code of Federal
Regulations ("13 CFR"), Parts 107 and 121.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A PREFERRED" has the meaning set forth in the recitals
hereof.
"SERIES B PREFERRED" has the meaning set forth in the recitals
hereof.
"SUBSIDIARY" means any corporation, partnership, association
or other business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by the
Company or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by the Company. For
purposes hereof, the Company shall be deemed to have a majority ownership
interest in a partnership, association or other business entity if the Company,
directly or indirectly, is allocated a majority of partnership, association or
other business entity gains or losses, or is or controls the managing director
or general partner of such partnership, association or other business entity.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss.59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX RETURNS" means any return, declaration, report, claim for
refund, or
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information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
(b) The words "HEREIN", "HEREOF" and "HEREUNDER" refer to this
Agreement as a whole and not to any particular article, section or
other subdivision of this Agreement.
ARTICLE II
ISSUANCE AND SALE OF PREFERRED
II.1 NUMBER OF SHARES AND PRICE. On the terms and subject to the
conditions of this Agreement, at the Closing, the Company shall issue to the
Purchasers, 27,750 shares of Series A Preferred and 5,000 shares of Series B
Preferred (collectively, with the Shares of Series A Preferred to be issued to
Advance at the Advance Closing, the "PREFERRED SHARES") for a purchase price of
$1,000 per share. On the terms and subject to the conditions of this Agreement,
at the Advance Closing, the Company shall issue to Advance, 7,250 shares of
Series A Preferred for a purchase price of $1,000 per share. Each Purchaser's
obligation to purchase the number of Preferred Shares opposite such Purchaser's
name on Schedule I hereto shall be subject to the prior or simultaneous purchase
by each other Purchaser (other than Advance) of the number of Preferred Shares
opposite such Purchaser's name on Schedule I hereto.
ARTICLE III
CLOSING; CLOSING DELIVERIES
III.1 CLOSING. The closing of the transactions contemplated hereby (the
"CLOSING") shall take place at 10:00 a.m. on February 2, 1998, at the offices of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, New York, New York or at such other time, place and/or date as
shall be agreed upon by the parties hereto except that the closing of the
issuance and sale of Preferred Shares to Advance (the "ADVANCE CLOSING") shall
take place at 10:00 a.m. on February 13, 1998 or on such other date as shall be
agreed upon by the Company and Advance. The date upon which the Closing occurs
is referred to herein as the "CLOSING DATE" and the date upon which the Advance
Closing occurs is referred to herein as the "ADVANCE CLOSING DATE".
III.2 PAYMENT FOR AND DELIVERY OF PREFERRED SHARES. At the Closing, the
Company shall issue and deliver to the Purchasers, stock certificates for the
Preferred Shares duly registered in the name of each Purchaser, against payment
by such Purchaser, by wire transfer of immediately-available funds to the
account designated by the Company, of the purchase price therefor set forth in
Section 2.1. At the Advance Closing, the Company shall issue and deliver to
Advance stock certificates for the Preferred Shares duly registered in the name
of Advance, against payment by Advance, by wire transfer of
immediately-available funds to the account
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designated by the Company, of the purchase price therefor set forth in Section
2.1.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as
follows:
IV.1 EXISTENCE; QUALIFICATION; SUBSIDIARIES. The Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has full corporate
power and authority to conduct its business and own and operate its properties
as now conducted, owned and operated. The copies of the Restated Certificate of
Incorporation and By-Laws of the Company and all amendments thereto previously
delivered to the Purchasers are true, correct and complete copies of such
documents. The Company and each Subsidiary is licensed or qualified as a foreign
corporation and is in good standing in all jurisdictions where such person is
required to be so licensed or qualified, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect. Except as set forth on SCHEDULE 4.1, the Company has no Subsidiaries and
owns no capital stock or other securities of, and has not made any other
investment in, any other entity. All of the issued shares of capital stock of
each Subsidiary have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or adverse claims other than liens
securing the obligations under the Credit Agreement.
IV.2 AUTHORIZATION AND ENFORCEABILITY; ISSUANCE OF SHARES.
(a) The Company has full power and authority and has taken all required
corporate and other action necessary to permit it to execute and deliver this
Agreement and the Related Documents and to carry out the terms hereof and
thereof and to issue and deliver the Preferred Shares and the Conversion Shares
(including adoption of the Certificate of Designations), and none of such
actions will violate any provision of the Restated Certificate of Incorporation
of the Company, the By-Laws of the Company or of any applicable law, regulation,
order, judgment or decree or rule of the stock exchange where the Company's
Common Stock is listed, or result in the breach of or constitute a default (or
an event which, with notice or lapse of time or both would constitute a default)
under any material agreement, instrument or understanding to which the Company
is a party or by which it is bound or by which it will become bound as a result
of the transaction contemplated by this Agreement. This Agreement and each of
the Related Documents constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to
the extent limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application related to the enforcement of
creditor's rights generally and (ii) general principles of equity.
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(b) The Preferred Shares have been duly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued and
outstanding. The Preferred Shares and, when issued, the Conversion Shares, will
be fully paid and nonassessable. The Conversion Shares have been duly reserved
for issuance upon conversion of the Preferred Shares and, when so issued, will
be duly authorized, validly issued and outstanding, fully paid and nonassessable
shares of Series A Preferred, Series B Preferred or Common Stock, as the case
may be. Neither the issuance and delivery of the Preferred Shares nor the
issuance and delivery of any Conversion Shares upon conversion of any Preferred
Shares is subject to any preemptive right of any stockholder of the Company or
to any right of first refusal or other similar right in favor of any Person
which has not been waived.
IV.3 CAPITALIZATION. As of the Closing, the authorized capital stock of
the Company shall consist of (i) 25,000,000 shares of Common Stock, par value
$.0001 per share, of which 5,592,476 shares are outstanding, 4,972,434 shares
are reserved for issuance upon conversion of Preferred Shares and 770,000 shares
are reserved for issuance upon the exercise of certain stock options, and (ii)
5,000,000 shares of Preferred Stock, par value $.0001 per share, of which 35,700
shares have been designated Series A Preferred and 5,000 shares have been
designated Series B Preferred, of which 40,000 shares will be sold to the
Purchasers pursuant to this Agreement. At the time of the Closing, all of the
outstanding capital stock will be validly issued, fully paid and nonassessable
and will have been issued in compliance with all applicable securities laws
(including the provisions of the Securities Act and the rules and regulations
promulgated thereunder). Except as set forth on SCHEDULE 4.3, as of the Closing,
the Company has not granted or issued any options, convertible securities,
warrants, calls, pledges, transfer restrictions (except restrictions imposed by
federal and state securities laws), liens, rights of first offer, rights of
first refusal, antidilution provisions or commitments of any character relating
to any issued or unissued shares of capital stock of the Company other than as
contemplated in the Related Documents. Except as contemplated by this Agreement
and the Related Documents or as set forth in SCHEDULE 4.3, there are no
preemptive or other preferential rights applicable to the issuance and sale of
securities of the Company, including the Preferred Shares.
IV.4 PRIVATE SALE; VOTING AGREEMENTS. Assuming the accuracy of the
representations and warranties made by recipients of the Company's capital stock
made in connection with the acquisition of such capital stock, the Company has
not violated any applicable federal or state securities laws in connection with
the offer, sale and issuance of any of its capital stock. Subject to the
accuracy of the Purchaser's representations contained herein, neither the offer,
sale and issuance of the Preferred Shares hereunder nor the issuance and
delivery of any Preferred Shares or Conversion Shares upon conversion of any
Preferred Shares requires registration under the Securities Act or any state
securities laws.
IV.5 FINANCIAL STATEMENTS; DISCLOSURE.
(a) The Financial Statements (together with the notes thereto,
as applicable), (i) are true, correct and complete in all material
respects, (ii) are in accordance with the books and records of the
Company and (iii) fairly present the financial condition and
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results of operations of the Company as of the dates and for the
periods indicated, in accordance with GAAP except that the unaudited
balance sheets and related financial statements do not contain an
auditors' opinion and do not contain footnotes and are subject to
normal year-end audit adjustments.
(b) This Agreement together with the schedules, attachments,
exhibits, written statements and certificates supplied to the
Purchasers by or on behalf of the Company with respect to the
transactions contemplated hereby does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact
which has not been disclosed to the Purchasers in writing of which the
Company has knowledge, and which has had or would reasonably be
anticipated to have a Material Adverse Effect.
(c) As of its filing date, each document filed with the SEC by
the Company, as amended or supplemented prior to the Closing Date, if
applicable, pursuant to the Securities Act and/or the Exchange Act (i)
complied in all material respects with the applicable requirements of
the Securities Act and/or Exchange Act and (ii) did not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. Each
final registration statement filed with the SEC by the Company pursuant
to the Securities Act, as of the date such statement became effective
(i) complied in all material respects with the applicable requirements
of the Securities Act and (ii) did not contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading (in the case of any prospectus, in light of the
circumstances under which they were made).
IV.6 ABSENCE OF CERTAIN CHANGES.
(a) Except as set forth on SCHEDULE 4.6 since the date of the
Current Balance Sheet, neither the Company nor any Subsidiary
has:
(i) incurred any Liabilities other than current
Liabilities incurred, or obligations under contracts entered
into, in the Ordinary Course of Business and for individual
amounts not greater than $250,000;
(ii) paid, discharged or satisfied any claim, Lien or
Liability, other than any claim, Lien or Liability (A)
reflected or reserved against on the Current Balance Sheet and
paid, discharged or satisfied in the Ordinary Course of
Business since the date of the Current Balance Sheet or (B)
incurred and paid, discharged or satisfied since the date of
the Current Balance Sheet, in each case in the Ordinary Course
of Business;
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(iii) sold, leased, assigned or otherwise transferred
any of its assets, tangible or intangible (other than sales of
inventory in the Ordinary Course of Business and use of
supplies in the Ordinary Course of Business);
(iv) permitted any of its assets, tangible or
intangible, to become subject to any Lien (other than any
Permitted Lien);
(v) written off as uncollectible any accounts
receivable other than (1) in the Ordinary Course of Business,
or (2) for amounts not greater than $100,000;
(vi) terminated or amended or suffered the
termination or amendment of, other than in the Ordinary Course
of Business, failed to perform in all material respects all of
its obligations or suffered or permitted any material default
to exist under, any material agreement, license or permit;
(vii) suffered any damage, destruction or loss of
tangible property (whether or not covered by insurance) which
in the aggregate exceeds $100,000;
(viii) made any loan (other than intercompany
advances) to any other Person (other than advances to
employees in the Ordinary Course of Business which do not
exceed $5,000 individually or $25,000 in the aggregate);
(ix) canceled, waived or released any debt, claim or
right in an amount or having a value exceeding $100,000;
(x) paid any amount to or entered into any agreement,
arrangement or transaction with any Affiliate (including its
officers, directors and employees) outside the Ordinary Course
of Business and which was not approved by a majority of the
Company's disinterested directors;
(xi) declared, set aside, or paid any dividend or
distribution with respect to its capital stock or redeemed,
purchased or otherwise acquired any of its capital stock;
(xii) other than in the Ordinary Course of Business,
granted any increase in the compensation of any officer or
employee or made any other change in employment terms of any
officer or employee;
(xiii) made any change in any method of accounting or
accounting practice;
(xiv) suffered or caused any other occurrence, event
or transaction outside the Ordinary Course of Business which
could have a Material Adverse Effect;
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or
(xv) agreed, in writing or otherwise, to any of the
foregoing.
(b) Since the date of the Current Balance Sheet there has been
no Material Adverse Change.
IV.7 LITIGATION. As of the date hereof no claim, suit, proceeding or
investigation is pending or, to the knowledge of the Company, threatened against
or affecting the Company or any Subsidiary or any officer or director thereof or
the Company's and the Subsidiaries' business which if decided adversely to any
such person could have a Material Adverse Effect.
IV.8 LICENSES, COMPLIANCE WITH LAW, OTHER AGREEMENTS, ETC. The Company
and each Subsidiary have all material franchises, permits, licenses and other
rights to allow it to conduct its business and is not in violation, in any
material respects of any order or decree of any court, or of any law, order or
regulation of any Governmental Agency, or of the provisions of any material
contract or agreement to which it is a party or by which it is bound, and
neither this Agreement nor the Related Documents nor the transactions
contemplated hereby or thereby will result in any such violation except where
the failure to have any such franchise permit or license or any such violation
could not be expected to have a Material Adverse Effect. The Company's and the
Subsidiaries' business has been conducted in all material respects in compliance
with all federal, state and local laws, ordinances, rules and regulations,
except where such violations, defaults or noncompliance would not have a
Material Adverse Effect.
IV.9 THIRD-PARTY APPROVALS. Assuming the accuracy of the
representations and warranties of the Purchasers contained in this Agreement,
the Company is not required to obtain any order, consent, approval or
authorization of, or to make any declaration or filing with, any Governmental
Agency or other third party (including under any state securities or "blue sky"
laws) in connection with the execution and delivery of this Agreement or the
Related Documents, or the consummation of the transactions contemplated hereby
or thereby to occur on the Closing Date or the Advance Closing Date, except for
any consents, approvals or authorizations the failure to obtain which could not
have a Material Adverse Effect.
IV.10 NO UNDISCLOSED LIABILITIES. Neither the Company nor any of its
Subsidiaries has any Liabilities except (i) as and to the extent of the amounts
reflected or reserved against on the Current Balance Sheet (excluding the
footnotes thereto), (ii) liabilities and obligations incurred in the Ordinary
Course of Business since the date thereof, (iii) such other liabilities that in
the aggregate will not result in a Material Adverse Effect, and (iv) Liabilities
under the Credit Agreement (as defined therein).
IV.11 TANGIBLE ASSETS. The Company and its Subsidiaries own or lease
all tangible assets used or reasonably necessary in connection with the conduct
of its business. All material tangible assets are free from any Liens (other
than Permitted Liens), are free from any material defects, have been maintained
in accordance with normal industry practice and any regulatory
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standard or procedure to which such assets are subject, are in good operating
condition and repair (subject to normal wear and tear) and are suitable for the
purposes for which such assets are used or proposed to be used, other than
liens, defects and wear and tear which in the aggregate could not be expected to
have a Material Adverse Effect.
IV.12 INVENTORY. All inventory of the Company and its Subsidiaries,
whether reflected on the Current Balance Sheet or otherwise, consists of a
quality and quantity usable or salable in the Ordinary Course of Business,
subject to normal rates of defect or obsolescence not inconsistent with the
Company's historical experience.
IV.13 OWNED REAL PROPERTY. The Company and its Subsidiaries own no real
property.
IV.14 REAL PROPERTY LEASES. There exists no event of default (nor any
event which with notice or lapse of time would constitute an event of default)
with respect to the Company, any Subsidiary and, to the Company's knowledge,
with respect to any other party thereto under any agreement pursuant to which
the Company is the lessee or lessor of any real property, except for such
defaults and defects in enforceability as could not in the aggregate be expected
to have a Material Adverse Effect, and all such agreements are in full force and
effect and enforceable against the lessor or lessee in accordance with their
terms except for such defaults and defects in enforceability as could not in the
aggregate be expected to have a Material Adverse Effect.
IV.15 AGREEMENTS. Neither the Company nor any Subsidiary is in default,
nor to the knowledge of the Company is there any basis for a valid claim of
default, and to the Company's knowledge no event has occurred which, with notice
or lapse of time, would constitute a default, under any agreement, arrangement
or understanding to which the Company or any Subsidiary is a party, and to the
knowledge of the Company no other Person is in default under any such agreement,
in each case other than defaults which in the aggregate could not be expected to
have a Material Adverse Effect. Additionally, neither the Company nor any
Subsidiary is party to any agreement the performance of which in accordance with
its terms (including any termination provision thereof) could be expected to
have a Material Adverse Effect.
IV.16 INTELLECTUAL PROPERTY. SCHEDULE 4.16 sets forth a complete list
of (i) all patented, registered or applied for Intellectual Property owned or
filed by the Company; and (ii) all trade names and material unregistered
trademarks used by the Company in connection with its business. The Company owns
and possesses all right, title and interest in and to, or has a valid and
enforceable license to use, the Intellectual Property necessary for the
operation of its business as currently conducted and as currently proposed to be
conducted, and no claim by any third party contesting the validity,
enforceability, use or ownership of such Intellectual Property has been made or,
to the knowledge of the Company, is threatened. The Company has not infringed or
misappropriated the Intellectual Property of any third party.
IV.17 EMPLOYEES. Except as set forth on SCHEDULE 4.17, since the date
of the Current Balance Sheet, no key employees and no group of employees has
terminated, or to the
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knowledge of the Company plans to terminate, employment with the Company or any
Subsidiary, as applicable. Except as set forth on SCHEDULE 4.17, the Company is
not a party to or bound by any collective bargaining agreement, nor has it
experienced any strike, material grievance, material claim of unfair labor
practice or other collective bargaining dispute. Except as set forth on Schedule
4.17, to the knowledge of the Company there is no organizational effort being
made or threatened by or on behalf of any labor union with respect to its
employees. The Company has not committed any unfair labor practice or materially
violated any federal, state or local law or regulation regulating employers or
the terms and conditions of its employees' employment, including laws regulating
employee wages and hours, employment discrimination, employee civil rights,
equal employment opportunity and employment of foreign nationals, except for
such violations as could not be expected to have a Material Adverse Effect.
IV.18 ERISA; EMPLOYEE BENEFITS. Each Plan (other than a Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA) that is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service or has timely
filed for a favorable determination letter from the Internal Revenue Service and
no event has occurred since the date of the last determination letter that could
reasonably be expected to materially adversely affect the qualified status of
such Plan. Each Plan (other than a Plan which is a "multiemployer plan" within
the meaning of Section 4001(a)(3) of ERISA) is in full force and effect and has
been administered in all material respects in accordance with its terms and is
and has been, and each plan administrator and fiduciary of a Plan is acting and
has been acting, in compliance in all material respects with all applicable
requirements of the Code and ERISA (including the funding, reporting and
disclosure and prohibited transaction provisions thereof) and other applicable
laws, regulations and rulings in connection with each such Plan. No Plan has
been terminated or partially terminated. With respect to each Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA, no
complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of
ERISA) has occurred, no such Plan is in reorganization or insolvency (within the
meaning of Title IV of ERISA) and no material withdrawal liability has been
assessed against the Company. The Company or one of its Subsidiaries has made,
accrued or provided for all contributions required under each Plan. To the
knowledge of the Company, no event has occurred or is reasonably expected to
occur with respect to any employee pension benefit plan of the Company or any
member of the Company's controlled group (within the meaning of Section 414 of
the Code), which could reasonably be expected to directly or indirectly result
in any material liability (other than liability arising in the ordinary course)
to the Company or any member of its controlled group pursuant to Title IV of
ERISA or Section 412 of the Code. No Plan (other than a Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA) has
incurred an "accumulated funding deficiency" within the meaning of Section 412
of the Code or Section 302 of ERISA.
IV.19 ENVIRONMENT, HEALTH AND SAFETY.
(a) The Company (as used in this Section 4.19, Company shall
include the Company's Subsidiaries and its predecessor) has complied
and is in compliance in all
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material respects with all Environmental and Safety Requirements that
are applicable to the Company's business.
(b) The Company has not received any written notice, report or
other information regarding any liabilities or potential liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations,
relating to the Company or its facilities and arising under
Environmental and Safety Requirements.
(c) The Company has not, either expressly or by operation of
law, assumed or undertaken any liability, including without limitation
any obligation for corrective or remedial action, of any other person
relating to Environmental and Safety Requirements.
IV.20 TRANSACTIONS WITH AFFILIATES. Except as disclosed in filings made
by the Company with the SEC pursuant to the Securities Act and the Exchange Act,
neither the Company nor any Subsidiary is party to any agreement, arrangement or
transaction with any Affiliate which is material to the Company's and its
Subsidiaries business, taken as a whole.
IV.21 TAXES.
(a) Each of the Company, its predecessor and its Subsidiaries
has filed all Tax Returns that it was required to file, and has paid
all Taxes shown thereon as owing, except where the failure to file Tax
Returns or to pay Taxes would not have a Material Adverse Effect on the
financial condition of the Company and its Subsidiaries taken as a
whole.
(b) None of the Company and its Subsidiaries (A) has been a
member of an affiliated group filing a consolidated federal Tax Return
(other than a group the common parent of which was the Company) or (B)
has any Liability for the Taxes of any Person (other than any of the
Company and its Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(c) Each of the Company, its predecessor and its Subsidiaries
has withheld and paid all taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax Liability
of any of the Company and its Subsidiaries either (A) claimed or raised
by any authority in writing or (B) as to which any of the directors and
officers (and employees responsible for Tax matters) of the Company and
its Subsidiaries has knowledge based upon personal contact with any
agent of such authority and which is material to the Company and its
Subsidiaries taken as a whole.
IV.22 OTHER INVESTORS. Set forth on SCHEDULE 4.22 is a list of all
shareholders of the
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Company who as of the date hereof, based upon Schedule I hereto and SEC filings
of shareholders, after giving effect to the terms hereof, own more than 5% of
the fully diluted common equity of the Company and sets forth such percentage
ownership.
IV.23 YEAR 2000 REPRESENTATIONS.
(a) None of the computer software, computer firmware, computer
hardware (whether general or special purpose) or other similar or
related items of automated, computerized or software systems that are
used or relied on by Company or by any of its Subsidiaries in the
conduct of their respective businesses will malfunction, will cease to
function, will generate incorrect data or will produce incorrect
results when processing, providing or receiving (i) date-related data
from, into and between the twentieth and twenty-first centuries or (ii)
date-related data in connection with any valid date in the twentieth
and twenty-first centuries.
(b) None of the products and services sold, licensed,
rendered, or otherwise provided by the Company or by any of its
Subsidiaries in the conduct of their respective businesses will
malfunction, will cease to function, will generate incorrect data or
will produce incorrect results when processing, providing or receiving
(i) date-related data from, into and between the twentieth and
twenty-first centuries or (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries; and,
accordingly, neither the Company nor any of its Subsidiaries is or will
be subject to any claim, demand, action, suit, liability, damage,
material loss, or material expense arising from, or related to,
circumstances where such products and services malfunction, cease to
function, generate incorrect data, or produce incorrect results when
processing, providing or receiving (i) date-related data from, into and
between the twentieth and twenty-first centuries or (ii) date-related
data in connection with any valid date in the twentieth and
twenty-first centuries.
(c) Neither the Company nor any of its Subsidiaries has made
any other representations or warranties regarding the ability of any
product or service sold, licensed, rendered, or otherwise provided by
the Company or by any of its Subsidiaries in the conduct of their
respective businesses to operate without malfunction, to operate
without ceasing to function, to generate correct data or to produce
correct results when processing, providing or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries and (ii) date-related data in connection with any valid date
in the twentieth and twenty-first centuries.
IV.24 SENIORITY. No class of equity securities of the Company is senior
to the Preferred Shares in right of payment, whether upon liquidation,
dissolution or otherwise.
IV.25 INVESTMENT COMPANY. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
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IV.26 CERTAIN FEES. Other than fees and expenses due and payable to
▇▇▇▇▇▇ Brothers, no fees or commissions will be payable by the Company to any
broker, financial advisor, finder, investment banker, or bank with respect to
the transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of ▇▇▇▇▇▇ Brothers or other Persons for fees of a type contemplated in
this Section that may be due in connection with the transactions contemplated by
this Agreement. The Company shall indemnify and hold harmless each of the
Purchasers, its employees, officers, directors, agents and partners, and their
respective affiliates (as such term is defined under Rule 405 promulgated under
the Securities Act), from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect to any such claimed or existing fees.
IV.27 SOLICITATION MATERIALS. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Preferred
Shares other than the disclosure materials delivered to Purchasers (the
"Disclosure Materials") or (ii) solicited any offer to buy or sell the Preferred
Shares by means of any form of general solicitation or advertising. None of the
Disclosure Materials or any other information provided to the Purchasers by or
on behalf of the Company contain any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
IV.28 FORM S-3 ELIGIBILITY. No later than May 1, 1998, the Company will
be eligible to register securities for resale with the SEC under Form S-3
promulgated under the Securities Act.
IV.29 LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. (i) The Company
has not received notice (written or oral) from the American Stock Exchange that
the Company is not in compliance with the listings or maintenance requirements
of such Exchange.
(ii) Upon conversion of the Preferred Shares into shares of Common
Stock and upon the affirmative vote of the Company's shareholders approving the
issuance of the Preferred Shares and the Conversion Shares, which vote shall
occur not later than July 31, 1998, all Conversion Shares shall be listed on the
American Stock Exchange.
IV.30 REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as described
on Schedule 4.30 hereto, (A) the Company has not granted or agreed to grant to
any Person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the SEC or any other governmental
authority which has not been satisfied and (B) no Person, including, but not
limited to, current or former shareholders of the Company, underwriters, brokers
or agents, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by this Agreement or any other related document which has not been
waived.
IV.31 RECENT RESULTS OF OPERATIONS. Set forth on SCHEDULE 4.31 is (i)
the
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Company's monthly recurring revenues for the month of December 1997 and (ii) the
Company's number of subscribers as of December 31, 1997, each as prepared and
calculated in the Ordinary Course of Business.
IV.32 SMALL BUSINESS MATTERS. The Company acknowledges that each SBIC
Holder is a federally licensed SBIC under the SBIC Act. The Company, together
with its "affiliates" (as that term is defined in 13 CFR ss.121.103), is a
"small business concern" within the meaning of the SBIC Regulations, including
13 CFR ss.121.301. The information regarding the Company and its affiliates set
forth in SBA Form 480, Form 652 and Parts A and B of Form 1031 delivered at the
Closing will be accurate and complete. Neither the Company nor any of its
subsidiaries will use the proceeds of the Financing directly or indirectly for
any purpose, for which an SBIC is prohibited from providing funds by SBIC
Regulations (including 13 CFR ss.107.720).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as
follows:
V.1 AUTHORIZATION AND ENFORCEABILITY. Such Purchaser has taken all
action necessary to permit it to execute and deliver this Agreement and the
other documents and instruments to be executed by it pursuant hereto and to
carry out the terms hereof and thereof. This Agreement and each such other
document and instrument, when duly executed and delivered by such Purchaser,
will constitute a valid and binding obligation of such Purchaser, enforceable
against such Purchaser in accordance with its terms.
V.2 GOVERNMENT APPROVALS. Such Purchaser is not required to obtain any
order, consent, approval or authorization of, or to make any declaration or
filing with, any Governmental Agency in connection with the execution and
delivery of this Agreement and the other documents and instruments to be
executed by it pursuant hereto or the consummation of the transactions
contemplated hereby and thereby, except for such order, consent, approval,
authorization, declaration or filing as which has been or will be obtained or
made.
ARTICLE VI
COMPLIANCE WITH SECURITIES LAWS
VI.1 INVESTMENT INTENT OF PURCHASER. Each Purchaser represents and
warrants to the Company that it is acquiring the Preferred Shares for its own
account, with no present intention of selling or otherwise distributing the same
to the public.
VI.2 STATUS OF PREFERRED SHARES. Each Purchaser has been informed by
the Company that the Preferred Shares have not been and will not be registered
under the Securities
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Act or under any state securities laws and are being offered and sold in
reliance upon federal and state exemptions for transactions not involving any
public offering.
VI.3 SOPHISTICATION AND FINANCIAL CONDITION OF PURCHASER. Each
Purchaser represents and warrants to the Company that it is an "Accredited
Investor" as defined in Regulation D under the Securities Act and that it
considers itself to be an experienced and sophisticated investor and to have
such knowledge and experience in financial and business matters as are necessary
to evaluate the merits and risks of an investment in the Preferred Shares.
VI.4 TRANSFER OF PREFERRED SHARES AND CONVERSION SHARES.
(a) Preferred Shares and Conversion Shares may be transferred
pursuant to (i) public offerings registered under the Securities Act,
(ii) Rule 144 of the SEC (or any similar rule then in force), (iii) to
an Affiliate of the transferor, or (iv) subject to the conditions set
forth in Section 6.4(b), any other legally-available means of transfer.
(b) In connection with any transfer of any Preferred Shares or
Conversion Shares (other than a transfer described in Section
6.4(a)(i), (ii) or (iii)), the holder of such shares shall deliver
written notice to the Company describing in reasonable detail the
proposed transfer, together with an opinion of counsel (▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ or such other counsel which, to the Company's reasonable
satisfaction, is knowledgeable in securities law matters) to the effect
that such transfer may be effected without registration of such shares
under the Securities Act. The holder of the shares being transferred
shall not consummate the transfer until (i) the prospective transferee
has confirmed to the Company in writing its agreement to be bound by
the provisions of this Section 6.4 or (ii) such holder shall have
delivered to the Company an opinion of such counsel that no subsequent
transfer of such Preferred Shares or Conversion Shares shall require
registration under the Securities Act. Promptly upon receipt of any
opinion described in clause (ii) of the preceding sentence, the Company
shall prepare and deliver in connection with the consummation of the
proposed transfer, new certificates for the Preferred Shares or
Conversion Shares being transferred that do not bear the legend set
forth in Section 6.4(c). Notwithstanding anything to the contrary
contained herein, Preferred Shares may not be transferred to any of the
Company's competitors listed on SCHEDULE 6.4(B) hereto without the
Company's written consent (other than pursuant to clauses (a)(i) or
(a)(ii) above or a tender offer made to each holder of the Company's
Common Stock).
(c) Except as provided in Section 6.4(b), until transferred
pursuant to clauses (a)(i) or (a)(ii) above, each certificate for
Preferred Shares or Conversion Shares shall be imprinted with a legend
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON FEBRUARY 2, 1998 [OR FEBRUARY 13, 1998 IN THE CASE
OF PREFERRED SHARES ISSUED ON THE ADVANCE CLOSING DATE] AND
HAVE NOT BEEN
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REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
APPLICABLE STATE SECURITIES LAW. THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
CONDITIONS SET FORTH IN THE PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF FEBRUARY 2, 1998 BETWEEN THE ISSUER (THE
"COMPANY") AND THE PURCHASERS LISTED ON SCHEDULE I THERETO.
THE COMPANY RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN
REQUEST TO THE COMPANY.
VI.5 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm or corporation (including without
limitation any other Purchaser), other than the Company and its officers and
directors, in making its investment or decision to invest in the Company. Each
Purchaser agrees that no other Purchaser (acting in such capacity) nor the
respective controlling persons, officers, directors, partners, agents or
employees of any such other Purchaser shall be liable to any other Purchaser in
connection with this investment for any action taken or omitted to be taken by
any of them prior to the date hereof in connection with the Preferred Shares.
ARTICLE VII
CONDITIONS PRECEDENT
VII.1 CLOSING DELIVERIES TO THE PURCHASERS. The following documents and
items shall be delivered to the Purchasers at or prior to the Closing:
(a) Evidence acceptable to the Purchasers of adoption by the
Company of the Certificate of Designations;
(b) A fully executed and delivered counterpart of the
Registration Rights Agreement;
(c) The written opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, counsel for
the Company, in the form of EXHIBIT D hereto dated as of the Closing
Date;
(d) certificates of a duly authorized officer of the Company
dated as of the Closing Date:
(A) stating that the following conditions have been satisfied
as of the Closing Date,
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(i) the representations and warranties of the Company
contained herein and in any writing delivered pursuant hereto
shall be true and correct when made and at and as of the time
of the Closing;
(ii) No action, suit, investigation or proceeding
shall be pending or threatened before any court or
Governmental Agency to restrain, prohibit, collect damages as
a result of or otherwise challenge this Agreement or any
Related Document or any transaction contemplated hereby or
thereby;
(iii) All acts or covenants required hereunder to be
performed by the Company prior to the Closing shall have been
fully performed by it;
(iv) No Material Adverse Change shall have occurred
between the date of the Current Balance Sheet and the Closing
Date; and
(B) setting forth the resolutions of the board of directors of
the Company authorizing the execution and delivery of this Agreement
and the Related Documents (including the Certificate of Designations)
and the consummation of the transactions contemplated hereby and
thereby and certifying that such resolutions were duly adopted and have
not been rescinded or amended;
(e) such other documents relating to the transactions
contemplated hereby as Advance or other Purchasers may reasonably
request; and
(f) to each SBIC Holder,
(i) duly completed and executed SBA Forms 480, 652
and Parts A and B of 1031, and
(ii) a written certification from the Company
regarding its intended use of the proceeds of the Financing.
VII.2 CLOSING DELIVERIES TO THE COMPANY. At Closing, each Purchaser
other than Advance will deliver to the Company the aggregate purchase price for
the Preferred Shares purchased by it. At the Advance Closing, Advance will
deliver to the Company the aggregate purchase price for the Preferred Shares
purchased by it.
ARTICLE VIII
COVENANTS OF THE COMPANY
VIII.1 RESTRICTED ACTIONS. Without the prior written consent of the
holders of two-thirds of the then outstanding Preferred Shares the Company shall
not, and shall not permit
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any Subsidiary to:
(a) become subject to any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's right to
comply with the terms of this Agreement or any of the Related
Documents;
(b) use the proceeds from the sale of the Preferred Shares
other than (i) primarily for acquisitions of assets or businesses
reasonably related to the Company's existing business, and repayment of
indebtedness, and (ii) the remainder for other working capital purposes
of the Company;
(c) enter into any transaction or series of transactions with
any stockholder, director, officer, employee or Affiliate which would
require disclosure pursuant to Rule 404 of Regulation S-K under the
Securities Act unless such transaction is approved by the Company's
disinterested directors; or
(e) expand the Company's Board of Directors to greater than
nine members.
VIII.2 REQUIRED ACTIONS. For so long as at least 20% of the Preferred
Shares remain outstanding, the Company shall, and shall cause each Subsidiary
to:
(a) cause all properties owned by the Company or any of its
Subsidiaries or used or held for use in the conduct of its business or
the business of any of its Subsidiaries to be maintained and kept in
good condition, repair and working order (reasonable wear and tear
excepted) and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Board of Directors
may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the foregoing shall not prevent the Company
from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the management of the Company,
desirable in the conduct of its business or the business of any of its
Subsidiaries and is not disadvantageous in any material respect to the
holders of Preferred Shares;
(b) preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of
the Company and each of its Subsidiaries; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right, license or
franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the
loss thereof is not disadvantageous in any material respect to the
holders of Preferred Shares;
(c) maintain the books, accounts and records of the Company
and its Subsidiaries in accordance with past custom and practice as
used in the preparation of the
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Financial Statements except to the extent permitted or required by
GAAP;
(d) keep all of its and its Subsidiaries' properties which are
of an insurable nature insured with insurers, believed by the Company
in good faith to be financially sound and responsible, against loss or
damage to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties
(which may include self-insurance, if reasonable and in comparable form
to that maintained by companies similarly situated);
(e) comply with all material legal requirements and material
contractual obligations applicable to the operations and business of
the Company and its Subsidiaries and pay all applicable Taxes as they
become due and payable;
(f) permit representatives of the holders of Preferred Shares
(upon the request of holders of Preferred Shares aggregating 12.5% or
more of the Preferred Shares originally issued hereunder) and their
agents (including their counsel, accountants and consultants) to have
reasonable access during business hours to the Company's books,
records, facilities, key personnel, officers, directors, customers,
independent accountants and legal counsel;
(g) at all times file all reports (including annual reports,
quarterly reports and the information, documentation and other reports)
required to be filed by the Company under the Exchange Act and Sections
13 and 15 of the rules and regulations adopted by the SEC thereunder,
and the Company shall use its best efforts to file each of such reports
on a timely basis, and take such further action as any holder or
holders of Securities may reasonably request, all to the extent
required to enable such holders to sell Securities pursuant to Rule 144
adopted by the SEC under the Securities Act (as such rule may be
amended from time to time) or any similar rule or regulation hereafter
adopted by the SEC and to enable the Company to register securities
with the SEC on Form S-3 or any similar short-form registration
statement and upon the filing of each such report deliver a copy
thereof to each holder of the Preferred Shares (or, if the Company is
no longer subject to the requirements of the Exchange Act, provide
reports in substantially the same form and at the same times as would
be required if it were subject to the Exchange Act);
(h) maintain at all times a valid listing for the Common Stock
on a national securities exchange or the Nasdaq National Market System;
(i) maintain all material Intellectual Property Rights
necessary to the conduct of its business and own or have a valid
license to use all right, title and interest in and to, such material
Intellectual Property Rights;
(j) within fifteen (15) days after the Advance Closing Date
(but not before) and at each subsequent election of directors, (and
each Purchaser agrees to use its best efforts) elect to the Board of
Directors of the Company pursuant to Section 5A of the
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27
Certificate of Designations (x) one individual designated by Advance as
long as Advance owns any Preferred Shares and (y) one individual
elected by the holders of a plurality of the Series A Preferred and
Series B Preferred, voting together as a single class; and
(k) on the Closing Date, have executed and delivered the
Credit Agreement on substantially the same principal terms and
conditions as set forth in the commitment letter issued by the lenders
a party thereto dated January 7, 1998; and
(l) deliver Conversion Shares in accordance with the terms and
conditions, and time periods, set forth in the Certificate of
Designations.
VIII.3 RESERVATION OF COMMON STOCK. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purposes of issuance upon conversion of the Preferred
Shares, such number of shares of Common Stock as are issuable upon the
conversion of all outstanding shares of the Preferred Shares. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all Taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
VIII.4 PURCHASERS' RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR
DELISTED. If at any time while any Purchaser (or any assignee thereof) owns any
Preferred Shares or Conversion Shares, trading in the shares of the Common Stock
is suspended on or delisted from the American Stock Exchange or any other
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally or
temporary suspensions pending the release of material information) for more than
five business days in the aggregate, at the option of any Purchaser exercisable
by written notice to the Company delivered after such suspension or delisting,
the Company shall redeem, in cash, one-twentieth of the Preferred Shares and
Conversion Shares then held by such Purchaser, at an aggregate purchase price
equal to the sum of (i) the number of Preferred Shares to be redeemed multiplied
by the product of (1) the average per share market value for the five (5)
business days immediately preceding (a) the day of such notice or (b) the date
of payment in full of the redemption price calculated under this Section,
whichever is greater and (2) a fraction, the numerator of which is 1,000 and the
denominator of which is the Conversion Price on (a) the date of the repurchase
notice, or (b) the date of payment in full of the redemption price pursuant to
this Section, whichever is lower, (ii) the aggregate of all accrued but unpaid
dividends payable in respect of all Preferred Shares to be redeemed, (iii) the
number of Conversion Shares then held by such Purchaser multiplied by the
average per share market value for the five (5) business days immediately
preceding (A) the date of the notice or (B) the date of payment in full by the
Company of the redemption price calculated under this Section, whichever is
greater, and (iv) interest on the amounts set forth in (i) - (iii) above
accruing from the 5th business day after such notice until the repurchase price
under this Section is paid in full at the rate of 14% per annum.
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The Company shall provide written notice of any redemption demand made pursuant
to this Section to each other holder of Preferred Shares or Conversion Shares
within 24 hours of its receipt thereof.
VIII.5 USE OF PROCEEDS. At the same time the Company files its annual
report on Form 10-K and at such other times as any SBIC Holder reasonably
requests, the Company shall deliver to each SBIC Holder a written statement
certified by the Company's president or chief financial officer describing in
reasonable detail the use of the proceeds of the Financing hereunder by the
Company and its Subsidiaries. In addition to any other rights granted hereunder,
the Company shall grant such SBIC Holder and the SBA access to the Company's
books and records for the purpose of verifying the use of such proceeds and
verifying the certifications made by the Company in SBA Forms 480 and 652
delivered pursuant to Section 7.1(f) above and for the purpose of determining
whether the principal business activity of the Company and its Subsidiaries
continues to constitute an eligible business activity (within the meaning of the
SBIC Regulations).
ARTICLE IX
SURVIVAL
IX.1 SURVIVAL. The representations and warranties of the parties hereto
contained herein, or in any writing delivered pursuant hereto, shall survive the
Closing and expire 30 days following the filing of the Company's annual report
on Form 10-K with the SEC for the Company's fiscal year that ends in 1999,
except that, notwithstanding anything to the contrary contained herein, the
representations of the Company contained in Section 4.23 hereof shall survive
the Closing and expire on December 31, 2001.
ARTICLE X
INDEMNIFICATION
X.1 INDEMNIFICATION. In consideration of each Purchaser's execution and
delivery of this Agreement and acquiring the Preferred Stock hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Purchaser and
each other holder of Preferred Stock and all of their officers, directors,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses (including, without limitation, costs of suit and attorneys' fees and
expenses) in connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is sought) (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to (a) the breach of any
representation of warranty contained in any agreement
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29
relating to any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Preferred
Stock, (b) the execution, delivery, performance or enforcement of this Agreement
and any other instrument, document or agreement executed pursuant hereto by any
of the Indemnitees or (c) resulting from any breach of any representation,
warranty, covenant or agreement made by the Company herein or in any Related
Document. The Company shall reimburse the Indemnitees for the Indemnified
Liabilities as such Indemnified Liabilities are incurred. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
ARTICLE XI
GENERAL PROVISIONS
XI.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including each subsequent holder of Preferred Shares or Conversion Shares.
Except as otherwise specifically provided herein, this Agreement shall not be
assignable by any party without the prior written consent of the other parties
hereto.
XI.2 ENTIRE AGREEMENT. This Agreement and the other writings referred
to herein or delivered pursuant hereto constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
arrangements or understandings.
XI.3 NOTICES. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be (i) delivered in person,
(ii) transmitted by telecopy, (iii) sent by first-class, registered or certified
mail, postage prepaid, or (iv) sent by reputable overnight courier service, fees
prepaid, to the recipient at the address or telecopy number set forth below, or
such other address or telecopy number as may hereafter be designated in writing
by such recipient. Notices shall be deemed given upon personal delivery, seven
days following deposit in the mail as set forth above, upon acknowledgment by
the receiving telecopier or one day following deposit with an overnight courier
service.
(a) If to the Company:
Alarmguard Holdings, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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30
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) If to Advance:
Advance Capital Partners, L.P.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
(c) If to any other Purchaser to the address set forth
opposite such Purchaser's name on Schedule I hereto.
XI.4 PURCHASERS FEES AND EXPENSES. The Company shall reimburse the
Purchasers for the reasonable fees and expenses of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ incurred in
connection with the documentation, negotiation and consummation of the
transactions contemplated by this Agreement and the Related Documents (including
any future amendments or waivers thereto) and for reasonable due diligence
expenses incurred by the Purchasers.
XI.5 AMENDMENT AND WAIVER. No amendment of any provision of this
Agreement shall be effective, unless the same shall be in writing and signed by
the Company and the holders of two-thirds of the Preferred Shares and Conversion
Shares held by holders of Series A Preferred and Series B Preferred, taken
together. Any failure of the Company to comply with any provision hereof may
only be waived in writing by the holders of two-thirds of the Preferred Shares
and Conversion Shares held by holders of Series A Preferred and Series B
Preferred, taken together, and any failure of any holder of Preferred Shares or
Conversion Shares to comply with any provision hereof may only be waived in
writing by the Company. No such waiver shall operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure by any party to
take any action against any breach of this Agreement or default by any other
party shall
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31
constitute a waiver of such party's right to enforce any provision hereof or to
take any such action. Notwithstanding anything to the contrary contained herein,
no amendment to or waiver of Section 8.2(j) without the prior written consent of
Advance shall be permitted. No amendment of any provision of this Agreement
shall be effective prior to the Advance Closing.
11.6 LIKE TREATMENT OF HOLDERS. Neither the Company nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemptions or
exchange of Preferred Shares, or otherwise, to any holder of Preferred Shares,
for or as an inducement to, or in connection with the solicitation of, any
consent, waiver or amendment of any terms or provisions of the Preferred Shares
or this Agreement or the Registration Rights Agreement, unless such
consideration is required to be paid to all holders of Preferred Shares bound by
such consent, waiver or amendment whether or not such holders so consent, waive
or agree to amend and whether or not such holders tender their Preferred Shares
for redemption or exchange. The Company shall not, directly or indirectly,
redeem any Preferred Shares unless such offer of redemption is made pro rata to
all holders of Preferred Shares on identical terms.
11.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
11.8 HEADINGS. The headings of the various sections of this Agreement
have been inserted for reference only and shall not be deemed to be a part of
this Agreement.
11.9 SPECIFIC PERFORMANCE. The Company, on the one hand, and the
Purchasers, on the other hand, acknowledge that money damages would not be a
sufficient remedy for any breach of this Agreement. It is accordingly agreed
that the parties shall be entitled to specific performance and injunctive relief
as remedies for any such breach, these remedies being in addition to any of the
remedies to which they may be entitled at law or equity.
11.10 REMEDIES CUMULATIVE. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE STATE OF
NEW YORK OR OF ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF
ANY LAWS OTHER THAN THOSE OF THE STATE OF NEW YORK.
11.12 NO THIRD PARTY BENEFICIARIES. Except as specifically set forth or
referred to herein, nothing herein is intended or shall be construed to confer
upon any person or entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason
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32
of this Agreement.
11.13 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
* * * * *
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date first above written.
ALARMGUARD HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.,
its General Partner
By: Advance Capital Management, LLC,
its General Partner
By:
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Principal
ADVANCE CAPITAL OFFSHORE PARTNERS, L.P.
By: Advance Capital Offshore Associates, LDC,
its General Partner
By: Advance Capital Associates, L.P.,
its Sole Director
By: Advance Capital Management, LLC,
its General Partner
28
33
By:
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Principal
CANAAN EQUITY, L.P.
By: Canaan Equity Partners, L.L.C.
By:
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Member/Manager
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
its General Partner
By: Exeter IV Advisors, Inc.,
its General Partner
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇
Title: President
LB I GROUP INC.
By:
-----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Senior Vice President
▇▇▇▇▇▇▇ ASSOCIATES, L.P.
By:
-----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
as Attorney-in-Fact
By:
-----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: ▇▇▇▇▇▇▇▇▇
▇▇
▇▇▇▇ ▇▇▇▇▇ MANAGEMENT, L.P.
By:
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
OZ MASTER FUND, LTD.
By:
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. Och
Title: Managing Member
OZ Management, L.L.C.
IBJS CAPITAL CORPORATION
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Director
CREDIT SUISSE (GUERNSEY) LIMITED
as trustee of the Dynamic Growth Fund II
By:
-----------------------------------
Name: M. E. ▇▇▇▇▇▇
Title: Associate
AETNA LIFE INSURANCE COMPANY
By:
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Assistant Vice President
GRANITE PROPERTIES MANAGEMENT CORP.
By:
-----------------------------------
35
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Director, Private Equity
By:
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
393LMM1355/1.486634-1