EXHIBIT 2.2
AGREEMENT AND PLAN
OF
MERGER
BETWEEN
KC ACQUISITION CORPORATION,
a New Jersey corporation,
CRITICOM IDC CORP.,
a New Jersey corporation,
CRITICOM INTERNATIONAL CORPORATION,
a Minnesota corporation,
AND
THE SHAREHOLDERS OF
CRITICOM INTERNATIONAL CORPORATION,
a Minnesota corporation,
Dated as of September 26, 2002
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AGREEMENT AND PLAN
OF
MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and
entered into effective as of September 26, 2002 ("Effective Date"), by and among
KC Acquisition Corporation, a New Jersey corporation (the "Buyer") and Criticom
IDC Corp., a New Jersey corporation and a wholly-owned subsidiary of the Buyer
("Transitory Subsidiary" or "Surviving Corporation") Criticom International
Corporation, a Minnesota corporation (the "Target") and the Shareholders of
Criticom International Corporation (the "Shareholders" or "Target
Shareholders"). The Buyer, the Transitory Subsidiary, the Target, and the
Shareholders are referred to collectively herein as the "Parties" and
individually a "Party".
This Agreement contemplates a tax-free forward subsidiary merger of the
Target with and into the Transitory Subsidiary pursuant to Internal Revenue Code
section 368(a)(2)(D). The Shareholders (being the individuals listed on Exhibit
2.3.5) of the Target shall receive (i) capital stock of the Buyer (the "Buyer
Stock") and (ii) cash, in exchange for one hundred (100%) percent of the capital
stock of the Target (the "Target Shares"). The Parties expect that the Merger
will further certain of their business objectives and believe it to be in their
best interests to cause the above-referenced Merger to occur.
Now, therefore, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, the Parties hereby agree
as follows:
ARTICLE 1.
DEFINITIONS
1.1 Certain Defined Terms. Defined terms used in this Agreement shall
have the meanings set forth or described on Schedule 1.1 attached hereto (such
meanings to be equally applicable to both the singular and plural forms of such
terms).
1.2 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with generally accepted
accounting principles in the United States ("GAAP"), consistently applied by the
respective Parties in accordance with their past practices.
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ARTICLE 2.
BASIC TRANSACTION
2.1 The Merger. On and subject to the terms and conditions of this
Agreement, the Target shall merge with and into the Transitory Subsidiary (the
"Merger") at the Effective Time. The Transitory Subsidiary shall survive the
Merger and shall thereafter operate under the name Criticom JDC Corporation (the
"Surviving Corporation").
2.2 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m.. on September 26, 2002
or as soon thereafter as all closing conditions are satisfied (the "Closing
Date") at the offices of the Buyer's counsel at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, unless the parties hereto agree upon a different time,
date or place.
2.3 Effect of Merger.
2.3.1 General. The Merger shall become effective at the time
(the "Effective Time") when the Target and Transitory Subsidiary file both (i)
the Certificate of Merger with the Secretary of State of the State of New Jersey
and (ii) the Articles of Merger with the Secretary of State of the State of
Minnesota. The Merger shall have the effect set forth in the New Jersey General
Corporation Law. The Surviving Corporation may, at any time after the Effective
Time, take any action (including executing and delivering any document) in the
name and on behalf of either the Target or the Transitory Subsidiary in order to
carry out and effectuate the transactions contemplated by this Agreement.
2.3.2 Articles of Incorporation. The Articles of Incorporation
of the Surviving Corporation shall be amended and restated in the form of
Exhibit 2.3.2 attached.
2.3.3 Bylaws. The Bylaws of the Surviving Corporation shall be
amended and restated in the form of Exhibit 2.3.3 attached.
2.3.4 Directors and Officers. The directors and officers of
the Transitory Subsidiary shall remain the directors and officers of the
Surviving Corporation at and as of the Effective Time (retaining their
respective positions and terms of office).
2.3.5 Conversion of the Target Shares. At and as of the
Effective Time, and subject to adjustment as hereinafter provided, the Target
Shares shall be converted into the following: (i) 35.29 shares of Buyer Stock,
representing fifteen (15%) percent of the issued and outstanding shares of Buyer
Stock, not subject to dilution prior to Closing without consent of the Target
(the "Share Conversion"), and (ii) One Million and No/100 Dollars
($1,000,000.00) (the "Cash") (the Share Conversion and the Cash shall
hereinafter collectively be referred to as the "Merger Consideration"). The
Merger Consideration shall be paid by Buyer and divided between and among the
Target Shareholders, in proportion to their respective ownership interests in
the Target, all as set forth on Exhibit 2.3.5 hereto (the "Conversion Ratio").
Except as otherwise specifically provided herein, it is assumed that the Target
has not and shall not declare and/or make dividends or distributions of any
kind, nor any extraordinary payments to employees or officers, either directly
or indirectly, from June 30, 2001, through the Closing Date
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other than: (i) distributions for payment of taxes on Target's taxable income
allocated to shareholders as disclosed and approved by the Buyer prior to
Closing and for any stub period not covered by that pre-approved distribution,
in accordance with the Shareholder Rights and Voting Agreement, and (ii)
distributions under that certain Memorandum with ▇▇▇▇▇ ▇▇▇▇▇▇▇ referred to in
Section 3.2 below (collectively the "Pre-Closing Target Distributions"). The
exchange of the Target Shares and the Merger Consideration shall occur at
Closing. Target shall only be permitted to distribute pre-closing up to a total
of One Hundred Seventy Three Thousand Dollars ($173,000.00) to the Target
Shareholders to meet their collective pass-through tax liabilities for the
period beginning January 1, 2002 through the Closing herein. In consideration of
the Pre-Closing Target Distributions, Buyer shall be permitted to distribute to
its shareholders (excluding the Criticom Target Shareholders), prior to Closing,
up to the amount of the Pre-Closing Target Distributions, in such form and
manner as Buyer shall determine.
2.3.6 Buyer and Surviving Corporation Stock. Each share of
Buyer Stock issued and outstanding at and as of the Effective Time shall remain
issued and outstanding. As a result of these transactions at Closing, Buyer
shall be the owner of all the issued and outstanding shares of stock of the
Surviving Corporation, which will be Buyer's wholly owned subsidiary. Except as
otherwise set forth herein, upon any change in the issued or outstanding shares
in the Surviving Corporation, Preemptive Rights shall be given to all current
owners. The Parties hereby agree to the following changes/additions/
reclassifications of shares in the Surviving Corporation following Closing
herein:
(A) After Closing, Buyer may become a wholly owned subsidiary
of a holding company "Integrated Alarm Systems Holdings, Inc." or substantially
similar name ("IAS Holdings"), along with the other entities affiliated with
Buyer, the affiliated entities being Integrated Alarm Systems, Inc; or
substantially similar name and Morlyn Financial Group, LLC (the "Finance
Companies"). Upon such event as further detailed in Section 6.4.16 hereafter,
the Parties agree that the stock ownership of Buyer shall change so that the
Shareholders' ownership interests will be in IAS Holdings and shall then total
thirteen and one-half (13.5%) percent, but subject to further reduction in
percentage ownership if IAS Holdings offers shares to the public as detailed in
Section 2.3.6(B) herein, which may occur simultaneously with this aspect of
reorganization.
(B) The parties intend to be part of a public offering of
shares of IAS Holdings to the public pursuant to an Initial Public Offering
("IPO") after Closing. The timing and actual terms of such an IPO shall be
subject to changes in market conditions. Based upon the current outline of the
IPO, a total of Fifteen Million Three Hundred Thirty Four Thousand (15,334,000)
shares are to be distributed amongst the shareholders of IAS Holdings prior to
the IPO (the "IPO Shares"), with Thirteen Million Eight Hundred Thirty Four
Thousand (13,834,000) of the IPO Shares divided between the present shareholders
of Buyer (▇▇▇▇▇▇ Few, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇) and One Million Five
Hundred Thousand (1,500,000) of the IPO Shares divided amongst the Target
Shareholders. In addition, in the event the IPO occurs and the shares of IAS
Holdings are distributed as set forth in this Section 2.3.6(B), the Target
Shareholders may earn additional warrants convertible into post-IPO Shares of
IAS Holdings as detailed on Schedule 2.3.6(B) attached. There shall be no
warrants earned or issued if the IPO does not occur and IAS Holdings fails to
become a publicly traded company. To the extent that the terms of the IPO change
and the share ownership interests of all shareholders are changed, the change to
all
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shareholders shall apply pro rata to all such shareholders of IAS Holdings at
that time, including proportional change in the shares to be distributed amongst
the shareholders as well as a proportional change in the numbers of shares
represented by each of the warrants which may be earned by the Target
Shareholders herein. Preemptive Rights shall not apply to this event, except
that to the extent other shareholders of Buyer exclusive of the Target
Shareholders receive the right to buy shares in the IPO the Target Shareholders
shall receive a pro rata right based upon their respective percentage stock
interests in Buyer, to the extent otherwise set forth in the Shareholder Rights
and Voting Agreement to be executed at Closing.
2.4 Procedure for Payment. At the Closing, the Surviving Corporation
shall deliver the Merger Consideration to the Target Shareholders.
2.5 Closing of Transfer Records. Except for the share ownership listed
on Exhibit 2.3.5 in the names of ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. Speed, since June 30, 2001, and as of the Closing, no
transfers of Target Shares outstanding prior to the Effective Time shall be made
on the stock transfer books of the Surviving Corporation. All options to
purchase Target Shares have been exercised and no other options to purchase
Target Shares exist, except as exercised and owned by the Shareholders on
Exhibit 2.3.5.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE TARGET AND
SHAREHOLDERS.
The Target and the Shareholders, individually, jointly and severally,
hereby represent and warrant to the Buyer and the Transitory Subsidiary that the
statements contained in this Article 3 are correct and complete as of the date
of this Agreement, will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article 3), and will remain correct and complete
(as stated on the date of signing this Agreement and on the date of Closing)
through the end of the survival period detailed in Section 9.1 be1ow, except as
set forth in the disclosure schedule accompanying this Agreement and initialed
by the Parties (the "Target Disclosure Schedule"). The Target Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Article 3.
3.1 Corporate Organization and Qualification. The Target is a
corporation duly organized, validly existing and in good standing under the laws
of Minnesota and is qualified and in good standing as a foreign corporation in
each jurisdiction where (i) property is owned, leased or operated, or (ii) the
business conducted by it requires such qualification, except where failure to so
qualify or be in good standing would not have a Material Adverse Effect (as that
term is hereinafter defined). The Target has not had any subsidiary within the
past five years except Criticom International Corporation CA, which has had no
general day-to-day business activity within the past two years. The Target has
no interest in any partnership, joint venture, associations or other similar
business arrangements. The Target has heretofore made available to the Buyer
complete and correct copies of the articles of incorporation, as amended to
date, and bylaws, as in effect on the date hereof, and the stock certificate and
transfer books and minute books in the form in which they are maintained by the
Target.
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3.2 Capitalization. The entire authorized, issued and outstanding
capital stock of the Target as of the date hereof is set forth on the Target
Disclosure Schedule. All outstanding Target Shares are owned solely by the
Target Shareholders and are free and clear of any Encumbrances. Each of the
Shareholders has the absolute right without restriction or qualification to
transfer all of his/her/its Target Shares to Transitory Subsidiary as provided
hereinabove. There are not as of the date hereof and there will not be at the
Closing Date any outstanding stock appreciation rights ("SARs") or any
outstanding or authorized options, warrants, calls, rights, commitments or any
other agreements of any character which the Target is a party to, or may be
bound by, requiring the Target to issue, transfer, sell, purchase, redeem or
acquire, or register under any securities law, any shares of capital stock or
any securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of capital stock of the Target. As of the
Closing Date, there will be no subsidiaries of the Target except Criticom
International Corporation CA, which has had no general day-to-day business
activity within the past two years. There are not, except as set forth on the
Target Disclosure Schedule with regard to certain non-compete and
confidentiality agreements in favor of the Target which survive for expired
employment agreements with certain Shareholders, and a Memorandum of
Understanding with ▇▇▇▇▇ ▇▇▇▇▇▇▇, as of the date hereof and there will not be at
the Closing Date any stockholder agreement, voting trust or other agreements or
understandings to which the Target is a party or is bound relating directly or
indirectly to any Target Shares. As to the said agreement with ▇▇▇▇▇ ▇▇▇▇▇▇▇,
the Shareholders shall address the prior distributions made to him by requiring
and completing the repayment to the Target of all such distributions and
interest thereon prior to Closing. There are no other entities or businesses in
which the Target or any Shareholders either alone or with any other Person or
entity, own an interest, directly or indirectly, which was affiliated with the
Target or which competes with, or is in any business the same or similar to the
Target, except Royal Thoughts, LLC, which will separately execute an agreement
of Restrictive Covenant as provided in Section 5.9 hereof.
3.3 Authority. The Target Shareholders have the requisite power and
authority to approve, authorize, execute and deliver this Agreement and together
with Target to consummate the transaction contemp1ated hereby. This Agreement
has been duly and validly executed and delivered by the Target and Shareholders
and, assuming this Agreement constitutes the valid and binding agreement of the
Buyer, constitutes the valid and binding agreement of the Target and
Shareholders, enforceable against the Target and Shareholders in accordance with
its terms, subject to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
3.4 No Violation. Neither the execution, delivery and performance of
this Agreement nor the consummation by the Target of the transactions
contemplated hereby, will conflict with, or result in any violation of the
articles of incorporation or bylaws of the Target; result in the breach of, or
constitute a default (with or without notice or lapse of time, or both) under,
or to the knowledge of Target or any officer, director or Shareholder of Target,
result in the modification, limitation or revocation of, or result in the loss,
suspension, impairment or forfeiture of any right, privilege or benefit under,
or require any payment under, or give rise to a right of termination,
cancellation or acceleration of any obligation under, any provision of any note,
bond, debt instrument, mortgage, indenture, deed of trust, item of intellectual
property, Permit, license, lease, lien, contract, commitment, agreement or other
instrument or arrangement to which the
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Target is a party or by which any of its respective properties, assets or
businesses are bound or any judgment, order or decree or any federal, state or
foreign law, statute, ordinance, rule or regulation applicable to the Target or
by which it is bound or by which any of its respective property or assets or
business is bound or affected, or result in the creation of any Encumbrances
upon any of the properties or assets of the Target or upon the Target Shares.
Target and Shareholders believe that Target has substantially all Permits and
licenses required to provide monitoring services, but Target may not have all
Permits and licenses necessary to provide all monitoring services or may not
fully comply with all requirements of each such licensing or permitting
authority. Notwithstanding the foregoing to the contrary, the Parties understand
and acknowledge that the Merger may affect certain licenses and permits, and
that the Surviving Corporation may need to reapply for permits and licenses
necessary to operate its business.
3.5 Consents and Approvals. No Permit of, or registration, declaration
or filing with, any Governmental Body, or any other Person not a party to this
Agreement, is required for the validity of the execution and delivery, or for
the performance by the Target or Shareholders in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, other than filing Articles of Merger with appropriate
governmental authorities and as may be set forth on the Target Disclosure
Schedule. Target and Shareholders believe that Target has substantially all
Permits and licenses required to provide monitoring services, but Target may not
have all Permits and licenses necessary to provide all monitoring services or
may not fully comply with all requirements of each such licensing or permitting
authority. Notwithstanding the foregoing to the contrary, the Parties understand
and acknowledge that the Merger may affect certain licenses and permits, and
that the Surviving Corporation may need to reapply for permits and licenses
necessary to operate its business.
3.6 Financial Statements. The Target Disclosure Schedule sets forth the
Target's balance sheets as of December 31, 2001, and the related statements of
income and cash flows for the periods indicated in each case, together with the
notes thereto, if any, and an interim statement through June 30, 2002
(collectively, the "Target Financial Statements"). Except as set forth on the
Target Disclosure Schedule, the Target Financial Statements have been prepared,
and the Target Financial Statement items, including, without limitation, reserve
and inventories, have been presented in accordance with GAAP consistently
applied in accordance with the past practices of the Target throughout the
periods indicated and fairly present the financial condition, results of
operations, cash flows and changes in retained earnings of the Target as of the
respective dates thereof and for the respective periods covered thereby.
3.7 Taxes. For purposes of this Agreement: "Tax" or "Taxes" shall mean
(i) all federal, state and local and foreign taxes and assessments of any nature
whatsoever, based on the laws and regulations in effect from time to time
through the Closing Date, including, without limitation, all income, profits,
franchise, gross receipts, capital, sales, use, withholding, value added, ad
valorem, transfer, employment, social security, disability, occupation,
property, severance, production, excise, environmental and other taxes, duties
and other similar governmental charges and assessments imposed by or on behalf
of any government or taxing authority, including all interest, penalties and
additions imposed with respect to such amounts, and (ii) any obligations under
any agreements or arrangements with respect to any Taxes described in the Target
Disclosure Schedule.
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3.7.1 Each of the Target and its Subsidiaries has filed all
Tax Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by any of the Target and its
Subsidiaries (whether or not shown on any Tax Return) have been paid. None of
the Target and its Subsidiaries currently is the beneficiary of any extension of
time within which to file any Tax Return, except as set forth on the Target
Disclosure Schedule. No claim has ever been made by an authority in a
jurisdiction where any of the Target and its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no Security Interests on any of the assets of any of the Target and its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
3.7.2 Each of the Target and its Subsidiaries has withheld and
paid all Taxes required under applicable law to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
3.7.3 No Target, Subsidiary, Target Shareholder or director or
officer (or employee responsible for Tax matters) of any of the Target and its
Subsidiaries expects any authority to assess, or has reason to believe that any
authority has any basis to assess, any additional Taxes for any period for which
Tax Returns have been filed. There is no dispute or claim concerning any Tax
Liability of any of the Target and its Subsidiaries either (i) claimed or raised
by any authority in writing or (ii) as to which any of the Target, Subsidiary,
Target Shareholder or director or officer (or employee responsible for Tax
matters) has knowledge. Attached on the Target Disclosure Schedule is true,
correct and complete copy of all federal, state, local, and foreign income Tax
Returns filed with respect to any of the Target and its Subsidiaries for taxable
periods ended on or after 12/31/00 and indicating those Tax Returns that have
been audited, and indicating further those Tax Returns that currently are the
subject of audit.
3.7.4 None of the Target and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
3.7.5 None of the Target and its Subsidiaries has filed any
consent under Code ss.341(f) concerning collapsible corporations. None of the
Target and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code ss.280G.
None of the Target and its Subsidiaries has been a United States real property
holding corporation within the meaning of Code ss.897(c)(2) during the
applicable period specified in Code ss.897(c)(l)(A)(ii). Each of the Target and
its Subsidiaries has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal
income Tax within the meaning of Code ss.6662. None of the Target and its
Subsidiaries is a party to any Tax allocation or sharing agreement. None of the
Target and its Subsidiaries (i) has been a member of an Affiliated Group (other
than the Target and its subsidiary Criticom International Corporation CA) filing
a consolidated federal income Tax Return or (ii) has any Liability for the Taxes
of any Person (other than any of the Target and its Subsidiaries) under Reg. ss.
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
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3.7.6 The unpaid Taxes of the Target and its Subsidiaries (1)
did not, as of the Most Recent Fiscal Month End, exceed the reserve for Tax
Liability set forth on the face of the Most Recent Balance Sheet (or in any
notes attached thereto) and (ii) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Target and its Subsidiaries in filing their Tax Returns.
3.8 Assets of Target.
3.8.1 The Target has (or will have as of Closing, if no
liability is incurred to accomplish same) good, valid and marketable title
(including leasehold title and the interest purported to be granted in the lease
in respect of such property) to all assets used in the conduct of its
businesses, whether or not reflected on current Target Financial Statements or
thereafter acquired in the ordinary course of business consistent with past
practice, in each case free and clear of all Encumbrances or any Security
Interest, other than an Encumbrance or a Security Interest set forth on the
Target Disclosure Schedule and in the Target Financial Statements, none of which
shall, individually or in the aggregate, impair the marketability, value or
present use and operation of any of the assets subject to or affected thereby
(referred to collectively as "Permitted Liens").
3.8.2 The assets of the Target, including but not limited to
assets reflected on current Target Financial Statements, constitute all of the
assets (i) necessary to conduct its Business, (ii) currently owned, held,
leased, licensed or otherwise available to the Target and which directly or
indirectly are or may be used in, or otherwise relate to, the Business as
presently conducted, and (iii) with respect to fixed assets and personal
property, are in good condition, repair and operating order.
3.9 Property. Except as set forth on the Target Disclosure Schedule, the
Target neither has nor had any time during the past five years any interests in
real property owned in fee or leased.
3.10 Software. Neither the Target nor any of its officers, directors, or
Shareholders has any knowledge, and none of them have received any notice, that
any software used by the Target violates or infringes upon the patent,
copyright, trade secret, trademark or other intellectual property rights of any
third party. Neither the Target nor any of its officers, directors, or
Shareholders have any knowledge, and none of them have received any notice, that
Target is using any software in whole or in part without full license and use
rights and the payment of all required fees for use of same.
3.11 Intellectual Property. Neither the Target nor any of its officers,
directors, or Shareholders have any knowledge, and none of them have received
any notice, that use by Target of any and all Intellectual Property Rights in
the Business or the conduct of the Business as presently conducted infringes or
violates the rights (statutory, contractual or otherwise) of any other Person,
and all Trademark, Patent and Copyright registrations and grants included in the
Target's Intellectual Property Rights which are indicated as being owned by the
Target are set forth on the Target Disclosure Schedule. Neither the Target nor
any of its officers, directors, or Shareholders have knowledge, and none of them
have received any notice, that Target is using in
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whole or in part any Intellectual Property Rights of others without full license
and use rights and the payment of all required fees for use of same. Target is
not aware of any information or has no other reason to know that any of the
Target's Intellectual Property Rights have been, are being, or will be infringed
by others or that any Information has been or is being misappropriated by
others; nor is the Target aware of any information or have any reason to know
that any Person has obtained, sought, is seeking, or will seek to obtain patent
coverage on any invention or development used in the conduct of the Business or
which is the subject of any of the Patents or Information.
3.12 Contracts. The Target Disclosure Schedule sets forth, as of the
date hereof, a true and complete list of each of the following types of
contracts to which the Target or a Subsidiary is a party or by or to which any
of its properties may be bound or subject, excluding monitoring contracts (each
a "Contract"): (i) Any ongoing contract or agreement which individually or in
the aggregate calls for payments by any party or could impose a liability upon
the Target in excess of Ten Thousand and No/100 Dollars ($10,000.00) in any one
twelve month period, except that as to purchase orders the threshold herein
shall be Twenty Five Thousand and No/100 Dollars ($25,000.00); (ii) All
employment or severance agreement or employment contracts covering any former or
present directors, officers or employees, as to any and all presently
enforceable documents; (iii) Any lease or similar agreement for use of any real
property; and (iv) All agreements for use of Software or Intellectual Property
Rights.
3.13 Litigation. The Target Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of all pending or, to the
knowledge of the Target, or any of its officers, directors or Shareholders,
threatened Actions by or against the Target, and in addition, of any and all
Actions which either Target or any of its officers, directors or Shareholders
has any knowledge that may be filed against Target. In each case, Target has
given a brief description of each Action or Order, the applicability of
insurance coverage and defense therefor, and the current status thereof.
3.14 Employee and Related Matters; ERISA. There exists no liability in
connection with any Plan of Target that has been or will be terminated and all
procedures for termination of such plans have been properly followed. Target has
not been involved in any transaction that would cause or did cause the Target to
be subject to any violation, prohibited transaction, reportable event, or other
liability with respect to ERISA. Target has not incurred any material liability
under ERISA that could become or remain a liability of the Target or the Buyer
or Transitory Subsidiary after the Closing Date. To the Target's knowledge,
there are no pending or threatened claims, action, audits, or examinations with
respect to any of the Target's Plans and any trust created thereunder. Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will: (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due from the Target under any Plan of the Target, (ii)
increase any benefits otherwise payable under any Plan of the Target, or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits. Target has no union contracts. The Target Disclosure Schedule includes
all Plans of the Target.
3.15 Absence of Changes or Events. Since June 30, 2001, and through the
Closing Date, except as disclosed on the Target Disclosure Schedule, there has
not been any change in
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the business, financial condition, assets, Liabilities, results of operations or
prospects of the Target, except for changes which have not had or could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
3.16 Required Licenses; Compliance with Applicable Laws. The Target has
all Permits that are required in order for it to conduct the day-to-day
operations of the Business except where noncompliance with a Permit requirement
could not reasonably be expected to have a Material Adverse Effect upon Target
or its Business. Target has complied with all Laws and Orders, except where
noncompliance could not reasonably be expected to have a Material Adverse Effect
upon Target or its Business. Target has complied, and is in full compliance in
all respects, with all Environmental Laws. Target and Shareholders believe that
Target has substantially all Permits and licenses required to provide monitoring
services, but Target may not have all Permits and licenses necessary to provide
all monitoring services or may not fully comply with all requirements of each
such licensing or permitting authority.
3.17 Brokers and Finders. Target has not employed any investment
banker, broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
3.18 Insurance. The Target Disclosure Schedule sets forth a true,
complete and correct list of all insurance policies of any nature whatsoever
presently in effect and maintained with respect to the Business or property of
Target, indicating all coverages, limits and effective dates. All such insurance
is adequate to fully protect the assets of the Target, and is placed with
insurance companies qualified to do business in each State where the Target has
assets.
3.19 Absence of Undisclosed Liabilities. Except as set forth on the
Target Disclosure Schedule, the Target has no Liabilities except Liabilities or
obligations that are adequately reflected or reserved against in the Target
Financial Statements, or those that were incurred after June 30, 2001, in the
ordinary course of business consistent with past practice and which do not
individually or in the aggregate constitute a Material Adverse Effect, or are
specifically contemplated or otherwise provided for by this Agreement.
3.20 Accuracy of Information. No statement by the Target or
Shareholders contained herein and no statements contained in any exhibit,
report, statement or certificate furnished by or on behalf of the Target or
Shareholders in connection with this Agreement contains or will contain any
untrue or misleading statement of a material fact and the Target and
Shareholders have not failed to inform the Buyer of any material fact which when
considered with other information furnished to the Buyer is necessary to make
the statements, representations, warranties, covenants and agreements contained
in this Agreement (and the Schedules hereto) or in any such exhibit, report,
statement or certificate, in light of the circumstances under which such
statements, representations, warranties, covenants and agreements are made, not
materially misleading in the context in which given.
3.21 Books of Accounts; Records. The general ledgers, stock record
books, minute books and other material records of the Target relating to its
respective assets, properties,
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Contracts, and outstanding legal obligations are, in all material respects,
complete and correct, and have been consistently maintained.
3.22 Outside Financial Interests. Except as disclosed on the Target
Disclosure Schedule, no officer, director or Shareholder of Target has any
financial interest, direct or indirect, in any lessor, supplier or customer of
Target other than ownership of five percent (5%) or less of the outstanding
capital stock of any corporation listed on a national securities exchange or
quoted over-the-counter.
3.23 Accounts Receivable. All notes, trade and other accounts
receivable (collectively the "Target Receivables") reflected on Target Financial
Statements have arisen from bona fide transactions in the ordinary course of
business and are [subject to such reserve for bad debt as reflected in the
Target Financial Statements] believed to be collectible.
3.24 Knowledge. Where any representation or warranty refers to the
knowledge, information, belief or awareness of the Target or Shareholders or any
similar expression, this shall include such knowledge, information, belief or
awareness that the Target, its officers, directors and the Shareholders would
have had, if the Target, its officers, directors or any of its Shareholders had
made reasonable inquiry into the subject matter of such representation or
warranty.
3.25 Continuity of Business Enterprise. The Target operates at least
one significant historic business line or owns at least a significant portion of
its historic business assets in a business, in each case within the meaning of
Regulation 1.368-1(d).
3.26 McGinnSmith Financing Proceeds/WTC Project Assets. The Target has
recently undertaken financing with ▇▇▇▇▇▇ ▇▇▇▇▇ and Co, Inc. ("▇▇▇▇▇▇ ▇▇▇▇▇")
which was in addition to the loans and indebtedness which the parties had agreed
would be in effect at Closing. The Target has received through this ▇▇▇▇▇▇ ▇▇▇▇▇
financing the sum of Nine Hundred Thousand and No/l00 Dollars ($900,000.00) and
has the right to draw down the additional sum of Nine Hundred Thousand and
No/100 Dollars ($900,000.00), plus has a debt service escrow of One Hundred
Thousand and No/100 Dollars ($100,000.00). Transitory Subsidiary shall receive a
credit towards the Merger Consideration in the amount of any additional
borrowings that are received by Target or its Shareholders or any of them in
connection with such financing transactions over and above the present drawings
of Nine Hundred Thousand and No/100 Dollars ($900,000.00) if and to the extent
that such additional funds are not available to Surviving Corporation on a
dollar for dollar basis. In addition, Transitory Subsidiary shall be entitled to
utilize and control on and after Closing, towards its payments of the Merger
Consideration and other obligations, the entire balance still available to be
drawn, if not drawn prior to the Closing and in such event then fully available
to Surviving Corporation on a dollar for dollar basis as of Closing, pursuant to
that ▇▇▇▇▇▇ ▇▇▇▇▇ financing which at present is in the additional sum of Nine
Hundred Thousand and No/100 Dollars ($900,000.00). The Surviving Corporation
shall also receive and control the disposition of the debt service reserve
thereunder in the sum of One Hundred Thousand and No/l00 Dollars ($100,000.00)
when it becomes available and is released from escrow in accordance with the
terms of that financing arrangement.
Target also presently has approximately Nine Hundred Thousand and
No/100
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Dollars ($900,000.00) combined in the following assets: cash and open
receivables net of payables related to its work at the World Trade Center
("WTC") project, investment in Target's E-Bridge Project presently represented
to be One Hundred Sixty Five Thousand One Hundred and Fifty and No/l00 Dollars
($165,150.00), and pay down of principal on the ▇▇▇▇▇▇ ▇▇▇▇▇ financing described
above in the original principal sum of Nine Hundred Thousand and No/100 Dollars
($900,000.00), said pay down of principal presently represented to be Two
Hundred Ninety Nine Thousand Six Hundred One and 75/100 Dollars ($299,601.75).
This allocation between cash and net receivables assets in the WTC project may
change, but the total of all these four categories of assets shall be at least
Nine Hundred Thousand and No/l00 Dollars ($900,000.00) at Closing, subject to
the verification by Buyer and submission of adequate supporting documentation
thereof by Target. Schedule 3.26 attached accurately represents the sources and
uses of the McGinnSmith loan proceeds received by Target as detailed above and
the assets of the Target as of the date set forth thereon. Any change in on
Schedule 3.26 shall require seven (7) days advance notice and approval by Buyer.
To the extent that the actual cash on hand in the bank at Closing shall exceed
the sum of One Hundred Fifty Nine Thousand and No/l00 Dollars ($159,000.00) at
Closing, Target may pay at or prior to Closing, up to that excess, the Target's
obligations as detailed on Schedule 3.26 attached in the categories and up to
the amounts listed thereon as Distribution for taxes and Estimated Legal
Expenses, such payments being further limited, however, to the actual receipt of
payment due on the receivables net of payables from the WTC project. To the
extent that these expenses shall exceed the overage amount calculated above or
the actual receipt of payment on the WTC receivables net of payables thereon,
the Target Shareholders shall remain responsible therefor. If the total combined
of these specified assets shall be less than Nine Hundred Thousand and No/100
Dollars ($900,000.00) at Closing, the shortfall therein shall be a credit
towards the Merger Consideration due at Closing.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
OF BUYER AND TRANSITORY SUBSIDIARY
The Buyer and the Transitory Subsidiary hereby represent and warrant to
the Target that the statements contained in this Article 4 are correct and
complete as of the date of this Agreement, will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 4), and will
remain correct and complete (as stated on the date of signing this Agreement and
on the date of Closing) through the end of the survival period detailed in
Section 9.1 below, except as set forth in the disclosure schedule accompanying
this Agreement and initialed by the Parties (the "Buyer Disclosure Schedule").
The Buyer Disclosure Schedule will be arranged in paragraphs corresponding to
the lettered and numbered paragraphs contained in this Article 4.
4.1 Corporate Organization and Qualification. The Buyer and the
Transitory Subsidiary are corporations duly organized, validly existing and in
good standing under the laws of New Jersey and are qualified and in good
standing as foreign corporations in each jurisdiction where (i) properties are
owned, leased or operated, or (ii) the business conducted by them requires such
qualification, except where failure to so qualify or be in good standing would
not have a Material Adverse Effect. The Buyer and the Transitory have heretofore
made available to
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the Target complete and correct copies of the articles of incorporation, as
amended to date, and bylaws, as in effect on the date hereof, and the stock
certificate and transfer books and minute books in the form in which they are
maintained by the Buyer and the Transitory Subsidiary.
4.2 Capitalization. The entire authorized, issued and outstanding
capital stock of the Buyer and the Transitory Subsidiary as of the date hereof
and the ownership of each the Buyer and the Transitory Subsidiary is set forth
on the Buyer Disclosure Schedule. All outstanding Transitory Subsidiary Shares
are owned by the Buyer free and clear of any Encumbrances. There are not as of
the date hereof and there will not be at the Closing Date any outstanding stock
appreciation rights ("SARs") or any outstanding or authorized options, warrants,
calls, rights, commitments or any other agreements of any character which the
Buyer and the Transitory Subsidiary are a party to, or may be bound by,
requiring the Buyer and the Transitory Subsidiary as the case may be, to issue,
transfer, sell, purchase, redeem or acquire, or register under any securities
law, any shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock of the Buyer and the Transitory Subsidiary. Except as set forth in
the Buyer Disclosure Schedule, there are not as of the date hereof and there
will not be at the Closing Date any stockholder agreement, voting trust or other
agreements or understandings to which the Buyer and the Transitory Subsidiary is
a party or is bound relating directly or indirectly to any Shares. Except as set
forth in the Buyer Disclosure Schedule, there are no other entities or
businesses in which the Buyer and the Transitory Subsidiary either alone or with
any other Person or entity, own an interest, directly or indirectly which
competes with, or is in any business the same or similar to the Buyer and the
Transitory Subsidiary.
4.3 Authority. The Buyer and the Transitory Subsidiary have the
requisite power and authority to approve, authorize, execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Buyer and the Transitory
Subsidiary, and, assuming this Agreement constitutes the valid and binding
agreement of the Target, constitutes the valid and binding agreement of the
Buyer and the Transitory Subsidiary, enforceable against the Target in
accordance with its terms, subject to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general principles of equity.
4.4 No Violation. Neither the execution, delivery and performance of
this Agreement nor the consummation by the Buyer or the Transitory Subsidiary of
the transactions contemplated hereby, will conflict with, or result in any
violation of the articles of incorporation or bylaws of the Buyer or the
Transitory Subsidiary; result in the breach of, or constitute a default (with or
without notice or lapse of time, or both) under, or to the knowledge of Buyer or
Transitory Subsidiary or any officer, director or shareholder of Buyer, result
in the modification, limitation or revocation of, or result in the loss,
suspension, impairment or forfeiture of any right, privilege or benefit under,
or require any payment under, or give rise to a right of termination,
cancellation or acceleration of any obligation under, any provision of any note,
bond, debt instrument, mortgage, indenture, deed of trust, item of intellectual
property, Permit, license, lease, lien, contract, commitment, agreement or other
instrument or arrangement to which the Buyer or the Transitory Subsidiary are a
party or by which any of their respective properties, assets or businesses are
bound or any judgment, order or decree or any federal, state or foreign law,
statute, ordinance, rule or regulation applicable to the Buyer or the Transitory
Subsidiary or
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by which they are bound or by which any of their respective property or assets
or business is bound or affected, or result in the creation of any Encumbrances
upon any of the properties or assets of the Buyer or the Transitory Subsidiary.
Buyer believes that Buyer has substantially all Permits and licenses required to
provide monitoring services, but Buyer may not have all Permits and licenses
necessary to provide all monitoring services or may not fully comply with all
requirements of each such licensing or permitting authority. Notwithstanding the
foregoing to the contrary, the Parties understand and acknowledge that the
Merger may affect certain licenses and permits, and that the Surviving
Corporation may need to reapply for permits and licenses necessary to operate
its business.
4.5 Consents and Approvals. No Permit of, or registration, declaration
or filing with, any Governmental Body, or any other Person not a party to this
Agreement, is required for the validity of the execution and delivery, or for
the performance by the Buyer or the Transitory Subsidiary in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, other than filing Articles of Merger with appropriate
governmental authorities and as may be set forth on the Buyer Disclosure
Schedule. Buyer believes that Buyer has substantially all Permits and licenses
required to provide monitoring services, but Buyer may not have all Permits and
licenses necessary to provide all monitoring services or may not fully comply
with all requirements of each such licensing or permitting authority.
Notwithstanding the foregoing to the contrary, the Parties understand and
acknowledge that the Merger may affect certain licenses and permits, and that
the Surviving Corporation may need to reapply for permits and licenses necessary
to operate its business.
4.6 Financial Statements. The Buyer Disclosure Schedule sets forth the
Buyer and the Transitory Subsidiary's balance sheets as of December 31, 2001,
and the related statements of income and cash flows for the periods indicated in
each case, together with the notes thereto, if any and an interim statement
through June 30, 2002 (collectively, the "Buyer and Transitory Subsidiary
Financial Statements"). Except as set forth on the Buyer Disclosure Schedule,
the Buyer and Transitory Subsidiary Financial Statements have been prepared, and
the Buyer and the Transitory Subsidiary Financial Statement items, including,
without limitation, reserve and inventories, have been presented in accordance
with GAAP consistently applied in accordance with the past practices of the
Buyer and the Transitory Subsidiary throughout the periods indicated and fairly
present the financial condition, results of operations, cash flows and changes
in retained earnings of the Buyer and the Transitory Subsidiary as of the
respective dates thereof and for the respective periods covered thereby.
4.7 Taxes. For purposes of this Agreement: "Tax" or "Taxes" shall mean
(i) all federal, state and local and foreign taxes and assessments of any nature
whatsoever, based on the laws and regulations in effect from time to time
through the Closing Date, including, without limitation, all income, profits,
franchise, gross receipts, capital, sales, use, withholding, value added, ad
valorem, transfer, employment, social security, disability, occupation,
property, severance, production, excise, environmental and other taxes, duties
and other similar governmental charges and assessments imposed by or on behalf
of any government or taxing authority, including all interest, penalties and
additions imposed with respect to such amounts, and (ii) any obligations under
any agreements or arrangements with respect to any Taxes described in the Buyer
Disclosure Schedule.
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4.7.1 Each of the Buyer and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by any of the Buyer and its
Subsidiaries (whether or not shown on any Tax Return) have been paid. None of
the Buyer and its Subsidiaries currently is the beneficiary of any extension of
time within which to file any Tax Return, except as set forth on the Buyer
Disclosure Schedule. No claim has ever been made by an authority in a
jurisdiction where any of the Buyer and its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no Security Interests on any of the assets of any of the Buyer and its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
4.7.2 Each of the Buyer and its Subsidiaries has withheld and
paid all Taxes required under applicable law to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
4.7.3 No Buyer, Subsidiary, Buyer Shareholder or director or
officer (or employee responsible for Tax matters) of any of the Buyer and its
Subsidiaries expects any authority to assess, or has reason to believe that any
authority has any basis to assess, any additional Taxes for any period for which
Tax Returns have been filed. There is no dispute or claim concerning any Tax
Liability of any of the Buyer and its Subsidiaries either (i) claimed or raised
by any authority in writing or (ii) as to which any of the Buyer, Subsidiary,
Buyer Shareholder or director or officer (or employee responsible for Tax
matters) has knowledge. Attached on the Buyer Disclosure Schedule is true,
correct and complete copy of all federal, state, local, and foreign income Tax
Returns filed with respect to any of the Buyer and its Subsidiaries for taxable
periods ended on or after December 31, 2000 and indicating those Tax Returns
that have been audited, and indicating further those Tax Returns that currently
are the subject of audit.
4.7.4 None of the Buyer and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
4.7.5 None of the Buyer and its Subsidiaries has filed any
consent under Code ss.341(f) concerning collapsible corporations. None of the
Buyer and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code ss.280G.
None of the Buyer and its Subsidiaries has been a United States real property
holding corporation within the meaning of Code ss.897(c)(2) during the
applicable period specified in Code ss.897(c)(l)(A)(ii). Each of the Buyer and
its Subsidiaries has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal
income Tax within the meaning of Code ss.6662. None of the Buyer and its
Subsidiaries is a party to any Tax allocation or sharing agreement. None of the
Buyer and its Subsidiaries (i) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return or (ii) has any Liability for the Taxes
of any Person (other than any of the Buyer and its Subsidiaries) under Reg.
ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
4.7.6 The unpaid Taxes of the Buyer and its Subsidiaries (i)
did not, as of the
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Most Recent Fiscal Month End, exceed the reserve for Tax Liability set forth on
the face of the Most Recent Balance Sheet (or in any notes attached thereto) and
(ii) do not exceed that reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Buyer and
its Subsidiaries in filing their Tax Returns.
4.8 Assets of Buyer and the Transitory Subsidiary.
4.8.1 The Buyer and the Transitory Subsidiary have (or will
have as of Closing, if no liability is incurred to accomplish same) good, valid
and marketable title (including leasehold title and the interest purported to be
granted in the lease in respect of such property) to all assets used in the
conduct of their respective businesses, whether or not reflected on current
Buyer and Transitory Subsidiary Financial Statements or thereafter acquired in
the ordinary course of business consistent with past practice, in each case free
and clear of all Encumbrances, other than an Encumbrance or a Security Interest
set forth on the Buyer Disclosure Schedule and in the Buyer and Transitory
Subsidiary Financial Statements, none of which shall, individually or in the
aggregate, impair the marketability, value or present use and operation of any
of the assets subject to or affected thereby (referred to collectively as
"Permitted Liens").
4.8.2 The assets of the Buyer and the Transitory Subsidiary,
including but not limited to assets reflected on current Buyer and Transitory
Subsidiary Financial Statements, constitute all of the assets (i) necessary to
conduct its Business, (ii) currently owned, held, leased, licensed or otherwise
available to the Buyer and the Transitory Subsidiary and which directly or
indirectly are or may be used in, or otherwise relate to, the Business as
presently conducted, and (iii) with respect to fixed assets and personal
property, are in good condition, repair and operating order.
4.9 Property. Except as set forth on the Buyer Disclosure Schedule,
the Buyer neither has nor had any time during the past five years any interests
in real property owned in fee or leased.
4.10 Software. Neither the Buyer, the Transitory Subsidiary, nor any
of their respective officers, directors, or shareholders have any knowledge, and
none of them have received any notice, that any software used by the Buyer or
the Transitory Subsidiary violates or infringes upon the patent, copyright,
trade secret, trademark or other intellectual property rights of any third
party. Neither the Buyer nor the Transitory Subsidiary nor any of their
respective officers, directors, or shareholders have any knowledge, and none of
them have received any notice, that Buyer or the Transitory Subsidiary is using
any software in whole or in part without full license and use rights and the
payment of all required fees for use of same.
4.11 Intellectual Property. Neither the Buyer nor the Transitory
Subsidiary nor any of their respective officers, directors, or shareholders have
any knowledge, and none of them have received any notice, that use by Buyer or
the Transitory Subsidiary of any and all Intellectual Property Rights in their
business or the conduct of the business as presently conducted infringes or
violates the rights (statutory, contractual or otherwise) of any other Person,
and all Trademark, Patent and Copyright registrations and grants included in the
Buyer or the Transitory
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Subsidiary's Intellectual Property Rights which are indicated as being owned by
the Buyer or the Transitory Subsidiary are set forth on the Buyer Disclosure
Schedule. Neither the Buyer nor the Transitory Subsidiary nor any of their
respective officers, directors, or shareholders have knowledge, and none of them
have received any notice, that Buyer or the Transitory Subsidiary is using in
whole or in part any Intellectual Property Rights of others without full license
and use rights and the payment of all required fees for use of same. Buyer and
the Transitory Subsidiary are not aware of any information or have no other
reason to know that any of the Buyer or the Transitory Subsidiary's Intellectual
Property Rights have been, are being, or will be infringed by others or that any
Information has been or is being misappropriated by others; nor is the Buyer or
the Transitory Subsidiary aware of any information or have any reason to know
that any Person has obtained, sought, is seeking, or will seek to obtain patent
coverage on any invention or development used in the conduct of the Business or
which is the subject of any of the Patents or Information.
4.12 Contracts. The Buyer Disclosure Schedule sets forth, as of the
date hereof, a true and complete list of each of the following types of
contracts to which the Buyer is a party or by or to which any of its properties
may be bound or subject, excluding monitoring contracts (each a "Contract:"):
(i) Any ongoing contract or agreement which individually or in the aggregate
calls for payments by any party or could impose a liability upon the Buyer in
excess of Ten Thousand and No/100 Dollars ($10,000.00) in any one twelve month
period, except that as to purchase orders the threshold herein shall be Twenty
Five Thousand and No/l00 Dollars ($25,000.00); (ii) All employment or severance
agreement or employment contracts covering any former or present directors,
officers or employees, as to any and all presently enforceable documents; (iii)
Any lease or similar agreement for use of any real property; and (iv) All
agreements for use of Software or Intellectual Property Rights.
4.13 Litigation. The Buyer Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of all pending or, to the
knowledge of the Buyer or Transitory Subsidiary, or any of their officers,
directors or shareholders, threatened Actions by or against the Buyer or
Transitory Subsidiary, and in addition, of any and all Actions which either
Buyer or Transitory Subsidiary or any of their officers, directors or
shareholders has any knowledge that may be filed against Buyer or Transitory
Subsidiary. In each case, Buyer and Transitory Subsidiary has given a brief
description of each Action or Order, the applicability of insurance coverage and
defense therefor, and the current status thereof.
4.14 Employee and Related Matters; ERISA. There exists no liability in
connection with any Plan of Buyer that has been or will be terminated and all
procedures for termination of such Plans have been properly followed. Buyer has
not been involved in any transaction that would cause or did cause the Buyer to
be subject to any violation, prohibited transaction, reportable event, or other
liability with respect to ERISA. Buyer has not incurred any material liability
under ERISA that could become or remain a liability of Buyer or Transitory
Subsidiary after the Closing Date. To the Buyer's knowledge, there are no
pending or threatened claims, action, audits, or examinations with respect to
any of the Buyer's Plans and any trust created thereunder. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or otherwise)
becoming due from the Buyer under any Plan of the Buyer, (ii) increase any
benefits otherwise payable under any Plan
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of the Buyer, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
4.15 Absence of Changes or Events. Since June 30, 2001, and through
the Closing Date, except as disclosed on the Buyer Disclosure Schedule, there
has not been any change in the business, financial condition, assets,
Liabilities, results of operations or prospects of the Buyer, except for changes
which have not had or could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
4.16 Required Licenses; Compliance with Applicable Laws. The Buyer has
all Permits that are required in order for it to conduct the day-to-day
operations of the Business except where noncompliance with a Permit requirement
could not reasonably be expected to have a Material Adverse Effect upon Buyer or
its Business. Buyer has complied with all Laws and Orders, except where
noncompliance could not reasonably be expected to have a Material Adverse Effect
upon Buyer or its Business. Buyer has complied, and is in full compliance in all
respects, with all Environmental Laws. Buyer believes that Buyer has
substantially all Permits and licenses required to provide monitoring services,
but Buyer may not have all Permits and licenses necessary to provide all
monitoring services or may not fully comply with all requirements of each such
licensing or permitting authority.
4.17 Brokers and Finders. Buyer has not employed any investment
banker, broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
4.18 Insurance. The Buyer Disclosure Schedule sets forth a true,
complete and correct list of all insurance policies of any nature whatsoever
presently in effect and maintained with respect to the Business or property of
Buyer, indicating all coverages, limits and effective dates. All such insurance
is adequate to fully protect the assets of the Buyer, and is placed with
insurance companies qualified to do business in each State where the Buyer has
assets.
4.19 Absence of Undisclosed Liabilities. Except as set forth on the
Buyer Disclosure Schedule, the Buyer has no Liabilities except Liabilities or
obligations that are adequately reflected or reserved against in the Buyer
Financial Statements, were incurred after June 30, 2001, in the ordinary course
of business consistent with past practice and which do not individually or in
the aggregate constitute a Material Adverse Effect, or are specifically
contemplated or otherwise provided for by this Agreement.
4.20 Accuracy of Information. No statement by the Buyer or Transitory
Subsidiary contained herein and no statements contained in any exhibit, report,
statement or certificate furnished by or on behalf of the Buyer or Transitory
Subsidiary in connection with this Agreement contains or will contain any untrue
or misleading statement of a material fact and the Buyer and Transitory
Subsidiary have not failed to inform the Target and Shareholders of any material
fact which when considered with other information furnished to the Target and
Shareholders is necessary to make the statements, representations, warranties,
covenants and agreements contained in this Agreement (and the Schedules hereto)
or in any such exhibit, report, statement or certificate, in light of the
circumstances under which such statements,
-19-
representations, warranties, covenants and agreements are made, not materially
misleading in the context in which given.
4.21 Books of Accounts; Records. The general ledgers, stock record
books, minute books and other material records of the Buyer relating to its
respective assets, properties, Contracts, and outstanding legal obligations are,
in all material respects, complete and correct, and have been consistently
maintained.
4.22 Outside Financial Interests. Except as disclosed on the Buyer
Disclosure Schedule, no officer, director or Shareholder of Buyer has any
financial interest, direct or indirect, in any lessor, supplier or customer of
Buyer other than ownership of five percent (5%) or less of the outstanding
capital stock of any corporation listed on a national securities exchange or
quoted over-the-counter.
4.23 Accounts Receivable. All notes, trade and other accounts
receivable (collectively the "Buyer Receivables") reflected on Buyer Financial
Statements have arisen from bona fide transactions in the ordinary course of
business and are [subject to such reserve for bad debt as reflected in the Buyer
Financial Statements] believed to be collectible.
4.24 Knowledge. Where any representation or warranty refers to the
knowledge, information, belief or awareness of the Buyer or any similar
expression, this shall include such knowledge, information, belief or awareness
that the Buyer, its officers, directors and its shareholders would have had, if
the Buyer, its officers, directors or any of its shareholders had made
reasonable inquiry into the subject matter of such representation or warranty.
4.25 Continuity of Business Enterprise. It is the present intent of
the Buyer to continue at least one historic business line of the Target or to
use at least a significant portion of the Target's historic business assets in a
business, in each case within the meaning of Regulation section 1.368-1(d).
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS; ACKNOWLEDGMENTS.
5.1 Conduct of Business of the Company. From the date hereof through
the Closing Date, except as consented to or approved by the Buyer in writing and
except as provided for or contemplated in Section 5.13 below, the Target
covenants and agrees that it shall operate its Business in the ordinary and
usual course consistent with past practices. Moreover, except as consented to by
the Buyer in writing, the Target agrees that from the date hereof through
Closing Date, it shall not engage in any practice, take any action or enter into
any transaction of the nature that would require a disclosure as provided for or
contemplated by Article 3 of this Agreement.
5.2 Reasonable Efforts. The Target and Shareholders, the Buyer and the
Transitory Subsidiary shall: (i) promptly make their respective filings and
thereafter make any other required submissions under all applicable laws with
respect to the transactions contemplated
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hereby; and (ii) use all their reasonable efforts to promptly take, or cause to
be taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable.
5.3 Access to Information. From the date hereof and through the
Closing Date, upon reasonable notice, the Target shall permit representatives of
the Buyer to have full access to all premises, properties, personnel, books,
records, contracts and documents of or pertaining to the Target, provided that
no due diligence investigation pursuant to this Section 5.3 shall affect or be
deemed to modify any of the representations or warranties made by the Target and
Shareholders.
5.4 Publicity. Except as required by law, the Target and
Shareholders, the Buyer and the Transitory Subsidiary shall not release any
public announcement relating to the transactions contemplated hereby, without
the prior written consent of the Buyer and the Target. In the event that public
notice is legally required, the disclosing party agrees to give the other party
hereto prior written notice of the disclosure to be made and a reasonable
opportunity for such other party to consult with the disclosing party prior to
making any such disclosure.
5.5 Environmental Actions. From the date hereof until Closing,
Shareholders shall promptly notify the appropriate governmental agencies (the
"Regulator") of any site contamination at any of the Target's properties.
Shareholders shall then undertake, or cause the Target to undertake, all
necessary corrective action, including, but not limited to, the removal of any
underground tanks and such further assessment, monitoring and remediation as
required by the Regulator until the Regulator is satisfied that no further
action is required. All Costs and expenses (including without limitation testing
costs) incurred by Buyer, its consultants and agents, in performing
environmental work shall be initially paid by Buyer, who will then be entitled
to recover any and all such costs and expenses from Shareholders. Shareholders
hereby covenant and agree to promptly repay such disbursements to Buyer.
5.6 Taxes.
5.6.1 Mutual Assistance. The Buyer and the Target will
provide each other such records and assistance as may reasonably be requested
by either of them in connection with the preparation of any Return, any audit or
other examination by any government or taxing authority, and any judicial or
administrative proceedings relating to liability for Taxes (including refunds
thereof). The Buyer and the Target agree to reimburse each other for any costs
and expenses reasonably incurred at the other party's request with respect to
the provision of such records and assistance. Any such records or other
information disclosed pursuant hereto shall be held in strict confidence and
shall not be disclosed to others for any reason whatsoever, except to the extent
that such disclosure is required in order to effect the intent of this Agreement
or such disclosure is required by law.
5.6.2 Allocation of Tax Liability. Each of the Shareholders
shall be responsible for and shall individually, jointly and severally indemnify
and hold Buyer and the Surviving Corporation harmless for, from and against all
Taxes relating to the ownership and operation of Target and its Subsidiaries for
all taxable periods ending on or before the Closing Date to the extent that such
Taxes exceed the aggregate accruals for such Taxes reflected on the
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Target Financial Statements and to the extent that the Buyer, its shareholders
or the Surviving Corporation are liable therefor. Buyer and the Surviving
Corporation shall be jointly and severally responsible for and shall indemnify
and hold Shareholders harmless for, from and against all Taxes relating to the
ownership and operations of Surviving Corporation for all taxable periods
beginning after the Closing Date to the extent that the Surviving Corporation is
liable therefor. Each of the Shareholders shall be individually, jointly and
severally responsible for and shall indemnify and hold Buyer and Surviving
Corporation harmless for, from and against all Taxes relating to the ownership
and operation of Target for any taxable period beginning before the Closing Date
and ending after the Closing Date to the extent the Taxes with respect to such
period are properly accruable under GAAP as applied in accordance with the past
practices of the Target, but only to the extent such Taxes exceed the aggregate
accruals for such Taxes reflected on the Target Financial Statements. In the
case of any Taxes accruable under GAAP with respect to a tax period that begins
before the Closing Date and ends after the Closing Date, if a method of accrual
is not specified by GAAP, the portion of such Tax attributable to the period
ending on the Closing Date shall: (i) in the case of any such Taxes not based
upon or related to income or receipts, be deemed to be the amount of such Taxes
for the entire taxable period multiplied by a fraction, the numerator of which
is the number of days in the period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period; and
(ii) in the case of any such Taxes based upon or related to income or receipts,
be determined on the basis of an interim closing of the books at the close of
business on the Closing Date.
5.6.3 Tax Audit Adjustments. The Buyer will be responsible for the
good faith representation of the Surviving Corporation in regard to all
federal, state and local Tax audits for all years open for the assessment of
deficiencies through and including any taxable period ending on or before the
Closing Date. The Buyer shall inform the Target Shareholders of (i) the
commencement of any audit or examination, (ii) proposals of deficiencies or
refunds, and (iii) the assessment of deficiencies or the agreement to refund an
overpayment of Taxes, with respect to the Target if such actions would
materially, adversely affect the Tax liability of the Surviving Corporation or
its shareholders. Neither the Buyer nor the Surviving Corporation shall settle,
compromise, accept, reject, protest or appeal any adjustment or proposed
adjusment in connection with any Tax audit or examination unless the Buyer and
the Surviving Corporation, except in the case of any adjustment which could
affect the future years of tax filings by the Surviving Corporation, has first
obtained the written approval of at least a majority of Target Shareholders,
which approval shall not be unreasonably withheld, conditioned, or delayed (in
no event to exceed twenty (20) Business Days), with respect to such adjustment
if such actions would materially, adversely affect the Tax liability of the
Surviving Corporation or Target Shareholders giving effect to this Agreement. If
the Shareholders do not approve the request to settle, from that point forward
all costs of audit and all such taxes, interest and penalties due shall be the
joint and several obligation of the Shareholders.
5.6.4 Tax Returns. Prior to the Closing Date, Shareholders shall cause
Target to duly and timely file all Returns with respect to the ownership and
operations of Target required to be filed by it by such time (giving effect to
any extensions available therefor) and shall cause the payment of all Taxes due
and payable with respect to such Returns, provided that Target may contest in
appropriate proceedings any Tax, governmental charge, duty, or assessment; and
Target will withhold from each payment made to each of their employees, if
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any, the amount of all Taxes (including, but not limited to, federal income
taxes and Federal Insurance Contribution Act Taxes and state and local income,
wage, disability, unemployment, and similar Taxes) required to be withheld
therefrom and will pay the same, before becoming delinquent, to the proper
tax-receiving officers. Shareholders shall duly and timely file all federal,
state and local Returns and reports for Target for all taxable periods ending on
or prior to the Closing Date, such costs of so doing shall be accrued on the
Target Financial Statements, and Buyer shall duly and timely file all Returns
and reports for Target for all taxable periods beginning after the Closing Date.
Buyer shall duly and timely file all other Returns and reports for the Target
for all taxable periods beginning before and ending after the Closing Date.
Buyer and Shareholders shall, however, bear the expenses of preparing such
Returns in the proportion as the tax liability for such periods relates to their
respective period of ownership of the Target. Notwithstanding anything to the
contrary set forth above, for each Target Tax Return covering a period ending on
or before the Closing Date that is due to be filed after the Closing Date, Buyer
shall at Buyer's expense prepare, with the cooperation and assistance of the
Shareholders, and sign such Returns and reports for the Target and submit same
to Buyer in a timely manner so as to enable Buyer to timely file such Returns
and reports with the appropriate taxing authorities. To the extent that the
Surviving Corporation shall pay to any shareholders, either the prior
Shareholders or otherwise, for any pass through tax liability for any time
period prior to closing, any such payments shall only be made as provided in
Section 2.3.5 above.
5.7 Insurance. The Target shall keep, or cause to be kept, all
insurance policies set forth on Target Disclosure Schedule in full force and
effect through the close of business on the Closing Date.
5.8 Resignations. Except to the extent the Buyer directs otherwise,
the Target shall cause the resignation of all ofTarget's present directors and
officers, as set forth on Schedule 5.8, effective as of the Closing Date, and
shall deliver such resignations to Buyer at Closing.
5.9 Non-compete Agreements. The Target, Shareholders, Royal Thoughts,
LLC, and Buyer and the Transitory Subsidiary shall enter into the non-compete
and confidentiality agreement with each other (the "Restrictive Covenant
Agreements") in form and substance as set forth in Exhibits 5.9.1 and 5.9.2 and
the Right of First Refusal Agreement with Royal Thoughts, LLC in form and
substance set forth in Exhibit 5.9.3 hereto.
5.10 Employment and Non-compete Agreements. The Target shall enter
into employment, non-compete and confidentiality agreements with the individuals
named in Section 5.9 (the "Employment Agreements") in form and substance as set
forth in Exhibit 5.10.
5.11 Third-Party Consents. To the extent that the change of ownership
of any Target Shares requires, pursuant to any Target contract, the consent,
release or waiver of any third party, the Target shall use all reasonable
efforts to obtain such consent, release or waiver. To the extent that the change
of ownership of any Buyer Shares requires, pursuant to any Buyer contract, the
consent, release or waiver of any third party, the Buyer shall use all
reasonable efforts to obtain such consent, release or waiver.
5.12 [intentionally omitted]
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5.13 [intentionally omitted]
5.14 Post-Closing Covenants. The parties agree regarding their
management and other obligations that shall take place after the Closing as
follows, in accordance with the Shareholder and Voting Rights Agreement amongst
the parties: The Buyer shall take such action as necessary to permit the
individual Target Shareholders to elect amongst themselves a total of two (2)
members of the Board of Directors of the Buyer. The remaining shareholders of
the Buyer separate and apart from the Target Shareholders shall elect six (6).
members of the Board of Directors of the Buyer.
5.15 Shareholders Agreement. The Target Shareholders, Buyer and
Buyer's shareholders shall enter into and sign the Shareholder Rights and Voting
Agreement in the form attached hereto on Exhibit 5.15.
ARTICLE 6
CONDITIONS.
The respective obligations of each party to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Closing Date of each of the following conditions, any or all of
which may be waived, in writing, in whole or in part, to the extent permitted by
Applicable Law, and further subject to the opportunity to cure, if any, as set
forth in Article 8 hereinafter:
6.1 Governmental and Regulatory Consents. No threat or challenge to
the consummation of the transaction shall have been made or, if made, such
threat or challenge shall have been resolved in favor of permitting such
transaction.
6.2 Litigation. No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) or taken any action and no
such action has been filed which prohibits or materially and adversely affects
the consummation of the transactions contemplated by this Agreement; provided,
however, that the parties invoking this condition shall use commercially
reasonable efforts to have any such judgment, decree, injunction or other order
or Action vacated or resolved.
6.3 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligations of the Buyer and the Transitory Subsidiary to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or prior to the Closing Date of each of the following conditions,
any or all of which may be waived, in writing, in whole or part by the Buyer to
the extent permitted by applicable law:
6.3.1 Each of the representations and warranties of the Target
and Shareholders contained in this Agreement shall have been true and correct in
all material respects when made and shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of the Closing Date
(except to the extent they relate to a particular date); the Target and
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Shareholders shall have performed or complied in all respects with all
agreements and covenants required by this Agreement to be performed or complied
with by the Target and Shareholders at or prior to the Closing Date; and the
Target and Shareholders shall have delivered to the Buyer a certificate, dated
the Closing Date, on behalf of the Target and Shareholders and executed by each
of them, in form and substance reasonably satisfactory to the Buyer, to such
effect;
6.3.2 All required, material authorizations, consents or
approvals of any third party under the Target Contracts or otherwise, and all
consents or approvals of any third party reasonably requested by the Buyer,
shall have been obtained;
6.3.3 The Restrictive Covenant Agreements and Right of First
Refusal Agreement as detailed in Sections 5.9.1, 5.9.2, and 5.9.3 shall have
been fully executed and delivered to the Buyer;
6.3.4 The Employment Agreements as detailed in Section 5.10
shall have been executed and delivered to the Buyer;
6.3.5 Approval of the Agreement and transactions contemplated
thereby by the Board of Directors and shareholders of the Buyer and Transitory
Subsidiary;
6.3.6 The Buyer shall have been furnished at the Closing with
an opinion of ▇▇▇▇▇ ▇▇▇▇▇▇, P.A., the Target's counsel, dated as of the Closing
Date and in form and substance satisfactory to the Buyer as set forth on Exhibit
6.3.6 hereto;
6.3.7 All notes and other receivables from or to any
Shareholders, employees, or consultants of Target shall have been fully paid and
satisfied;
6.3.8 The items set forth in Schedule 6.3.8 shall be released
or removed from record or satisfactory evidence thereof (as determined in the
Buyer's sole discretion) shall have been delivered to the Buyer;
6.3.9 Satisfactory evidence of the termination of any profit
sharing plans or other qualified retirement plans of the Target shall be
delivered to the Buyer, and any and all costs associated therewith shall be paid
by Target prior to Closing or by the Shareholders to the extent incurred or to
be paid after Closing. Alternatively, Target may provide an effective amendment
to Target's plans at no cost to the Surviving Corporation which places Target's
plans within the umbrella of Buyer's existing plans and limits all benefits to
the extent of the Buyer's plans. Evidence shall consist of appropriate board
resolutions from the Target and plan termination documentation;
6.3.10 The Buyer and Royal Thoughts, LLC, shall have
consummated the transactions contemplated in the Purchase Agreement (attached
hereto as Exhibit 6.3.10) related to the purchase by the Buyer of an interest of
five and twenty five thousandths percent (5.025%) of all the authorized, issued
and outstanding membership interests in Royal Thoughts, LLC for a purchase price
of One Million Six Hundred Seventy Five Thousand and No/100 Dollars
($1,675,000.00). At Closing, the Royal Thoughts Note of $675,000.00 due Target
shall not have an amount due thereon in excess of Six Hundred Seventy Five
Thousand and No/100 Dollars
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($675,000.00);
6.3.11 There shall be a Minimum Monthly Collected Recurring
Revenue of Three Hundred Fifty Five Thousand and No/100 Dollars ($355,000.00)
from the monitoring contracts of the Target at the time of Closing, which shall
have been verified by the Buyer prior to Closing as to the past six (6) months
of average monthly collected revenues;
6.3.12 The Target shall have good and valid title, subject to
no liens and encumbrances other than Permitted Encumbrances (as that term is
herein defined), to accounts covering subscribers representing not less than
seventy five thousand (75,000) monitored security systems;
6.3.13 As of the Closing Date, the Target shall have no
encumbrances other than: (i) the ▇▇▇▇▇▇ ▇▇▇▇▇ financing described in Section
3.26 above; (ii) ordinary and usual trade payables and accruals of the Target
disclosed to the Buyer in the Target Disclosure Schedule; (iii) indebtedness to
any third parties (other than those set forth in (i) and (ii) above) disclosed
to the Buyer in the Target Disclosure Schedule and (iv) Permitted Liens.
Excluding the ▇▇▇▇▇▇ ▇▇▇▇▇ financing described in Section 3.26 above, the Target
shall have total indebtedness of any and all kinds to any third parties which
shall total not more than Eight Hundred Thousand and no/100 Dollars
($800,000.00) (the amount of "Permitted Encumbrances");
6.3.14 As of the Closing Date, there shall not have been since
June 30, 2001 any material adverse change in the Target's Business, the Target's
assets or the Target's contracts, whether or not covered by insurance;
6.3.15 As of the Closing, no action or proceeding before any
court or Governmental Body or agency shall be pending or threatened wherein an
unfavorable judgment, decree or order would prevent the carrying out of this
Agreement or any of the transactions contemplated hereby, declare unlawful any
of such transactions, cause any of such transactions to be rescinded, or
adversely affect the Target's assets, the locations where the Target's business
is operated, any of the Target contracts or the Buyer's or the Surviving
Corporation's use or enjoyment thereof, except Actions and litigation set forth
on the Target Disclosure Schedule;
6.3.16 At the Closing, the Buyer shall have received a
certificate, executed by the Target and Shareholders, confirming that the
conditions herein have been met;
63.17 At the Closing, the Buyer shall have received from the
Target a certificate, executed by the Target, certifying to its respective (i)
articles of incorporation, (ii) by-laws, and (iii) the resolutions adopted by
its Board of Directors and stockholders related to this Agreement on the
transactions contemplated hereby;
6.3.18 At the Closing, the Target shall have delivered to the
Buyer or the Transitory Subsidiary, as applicable:
(i) Instruments of sale, transfer, issuance, assignment,
conveyance and delivery relating to the Target's assets and liabilities and the
cancellation of all of the outstanding Target Shares (it being agreed by Target
and Shareholders that in the event any of the assets is in
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any location other than a location where the Target is operating its business,
the Target shall cause delivery of physical possession thereof at a location
designated by the Buyer for such purpose);
(ii) The releases of all liens held by any Target
Shareholder on the assets of the Target;
(iii) The release of all liens on the Target's assets and
other property sold hereunder and evidence of the absence of any liens on the
same other than Permitted Encumbrances;
(iv) Evidence of all proceedings taken by the Target, its
Shareholders, directors and officers, in connection with the consummation of the
Closing;
(v) An estoppel statement dated not more than five (5) days
before the Closing signed by each landlord under each Lease confirming among
other things that the Lease of the Target is in full force and effect, that the
Target is not in default thereunder as of the date of the certificate, the date
through which base rent and common area charges or other additional rent has
been paid, the amount of any security deposit of the Target held by the
landlord, and that the rent, term and other economic terms of the Lease are as
represented by Target and Shareholders;
(vi) A schedule of the Target's Accounts Receivable and,
with respect to each such receivable, the amount thereof (the "Accounts
Receivable Schedule");
(vii) A certificate executed by the Target and Shareholders
confirming that no casualty, loss or damage has occurred to the Target's assets
since the date of this Agreement; and
(viii) A certificate executed by the Target and Shareholders
containing the information required to be set forth in any section of the Target
Disclosure Schedule as though the Closing Date were substituted for the date of
this Agreement;
6.3.19 All Target Shareholders shall have executed the
Shareholders Agreement in the form on Exhibit 5.15 hereto;
6.3.20 There shall not have occurred an Event of Default or
an Incipient Event of Default in regard to any of the Target or Shareholders or
their respective obligations under this Agreement or any other Contract or
commitment by any of them;
6.3.21 All deliveries required of the Target above in
connection with the consummation of the Closing and all certificates,
instruments, documents and evidence is delivered to the Buyer in such connection
shall be satisfactory in form and substance to the Buyer acting in a
commercially reasonable manner; and
6.3.22 Target shall have provided all materials to be
included within the Target Disclosure Schedule and updated the same until the
Closing.
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6.4 Conditions to Obligations of the Target. The obligation of the
Target to consununate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions, any or all of which may be waived, in writing, in whole or
in part by the Target to the extent permitted by Applicable Law:
6.4.1 Each of the representations and warranties of either
the Buyer or the Transitory Subsidiary in this Agreement shall be true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of the Closing Date as if made at and as of the
Closing Date (except to the extent they relate to a particular date); each the
Buyer and the Transitory Subsidiary shall have performed or complied in all
respects with all agreements and covenants required by this Agreement to be
performed or complied with by the Buyer and the Transitory Subsidiary at or
prior to the Closing Date; and the Buyer and the Transitory Subsidiary shall
have delivered, to the Target a certificate, dated the Closing Date, on behalf
of the Buyer and the Transitory Subsidiary by a vice president of the Buyer and
the Transitory Subsidiary, in form and substance reasonably satisfactory to the
Target, to such effect;
6.4.2 As of the Closing, no action or proceeding before any
court or Government Body or agency shall be pending or threatened wherein an
unfavorable judgment, decree or order would prevent the carrying out of this
Agreement or any of the transactions contemplated hereby, declare unlawful any
of such transactions, or cause any of such transactions to be rescinded or
adversely affect any of the Buyer's assets, the locations where the Buyer'
business is operated;
6.4.3 At the Closing, the Target shall have received from
the Buyer and the Transitory Subsidiary a certificate, executed by each of the
Buyer and the Transitory Subsidiary, confirming that the conditions herein have
been met;
6.4.4 All proceedings taken by the Buyer and the Transitory
Subsidiary in connection with the consummation of the Closing, and also the
instruments, documents and evidence as delivered to the Target in such
connection shall be satisfactory in form and substance to the Target acting in a
commercially reasonable manner;
6.4.5 The Buyer shall have paid the Merger Consideration at
the Closing;
6.4.6 The Target shall have been furnished at the Closing
with an opinion of ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇, Esqs., attorneys for the Buyer and the
Transitory Subsidiary, dated as of the Closing Date;
6.4.7 The Restrictive Covenant Agreements and Right of First
Refusal Agreement as set forth in Exhibit 5.9 shall have been fully executed
and delivered to the Target;
6.4.8 Approval of the Agreement and transactions
contemplated thereby by the Shareholders and Board of Directors of the Target;
6.4.9 Buyer and the Buyer Shareholders shall have executed
the Shareholders Agreement in the form on Exhibit 5.15 hereto;
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6.4.10 The Buyer and Royal Thoughts, LLC, shall have
consummated the transactions contemplated in the Purchase Agreement (attached
hereto as Exhibit 6.3.10) related to the purchase by the Buyer of an interest of
five and twenty five thousandths percent (5.025%) of all the authorized, issued
and outstanding membership interests in Royal Thoughts, LLC for a purchase price
of One Million Six Hundred Seventy Five Thousand and No/100 Dollars
($1,675,000.00);
6.4.11 As of the Closing Date, there shall not have been
since June 30, 2001 any material adverse change in the Buyer's or Transitory
Subsidiary's business, the Buyer's or Transitory Subsidiary's assets or the
Buyer's or Transitory Subsidiary's Contracts, whether or not covered by
insurance;
6.4.12 At the Closing, the Target shall have received from
the Buyer and Transitory Subsidiary, a certificate, executed by the Buyer and
Transitory Subsidiary, certifying to its respective (i) articles of
incorporation, (ii) by-laws, and (iii) the resolutions adopted by their
respective Boards of Directors and stockholders related to this Agreement on the
transactions contemplated hereby;
6.4.13 All deliveries required of the Buyer and Transitory
Subsidiary above in connection with the consummation of the Closing and all
certificates, instruments, documents and evidence is delivered to the Target in
such connection shall be satisfactory in form and substance to the Target acting
in a commercially reasonable manner;
6.4.14 There shall be a Minimum Monthly Collected Recurring
Revenue of Two Million and No/l00 Dollars ($2,000,000.00) from the monitoring
contracts of the Buyer and affiliated entities at the time of Closing, which
shall have been verified by Target prior to Closing; and
6.4.15 Buyer shall have provided all materials to be
included within the Buyer Disclosure Schedule and updated the same until the
Closing herein.
6.4.16 Buyer shall have provided due diligence and financial
materials for the Finance Companies so that the Target Shareholders can
reasonably determine the value of the Finance Companies.
ARTICLE 7
CLOSING DELIVERIES.
7.1 Deliveries by the Target. On the Closing Date, the Target shall
deliver or cause to be delivered to the Buyer (unless previously delivered) the
following:
7.1.1 One or more stock certificates representing all of the
Target Shares endorsed for cancellation by Target;
7.1.2 All certificates referenced in Section 6.3 hereof;
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7.1.3 Copies of the articles of incorporation, and all
amendments thereto, and the bylaws, and all amendments thereto, of the Target
certified, in the case of the articles of incorporation as of the most recent
practicable date by the appropriate state official, and in the case of the
bylaws, as of the Closing Date by the corporate secretary of the Target;
7.1.4 All minute books, stock transfer books, stock
certificate books, and corporate certificates, and all corporate seals and
financial and accounting books and records of the Target;
7.1.5 A certificate of good standing for the Target
certified as of a recent date by the appropriate state official;
7.1.6 The Restrictive Covenant Agreements and Right of First
Refusal Agreement described in Section 5.9 signed by the Target, Shareholders,
and Royal Thoughts, LLC, as applicable;
7.1.7 The Employment Agreements signed by the employees and
the Target;
7.1.8 The Shareholders Rights and Voting Agreement signed by
all of the Target Shareholders;
7.1.9 The opinion of counsel to the Target referred to in
Section 6.3 hereof;
7.1.10 The estoppel statements signed by each landlord per
Section 6.3.18(v) hereof;
7.1.11 Except to the extent the Buyer directs otherwise or
as contemplated by this Agreement, the Target shall cause the resignation,
termination or other removal of the Target's present directors and officers,
effective as of the Closing Date;
7.1.12 Evidence that the prior Shareholders' Agreement, if
any, between the Target and Shareholders has been terminated and that the
Memorandum of Understanding with ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated on or about July 29, 1999,
has been terminated without any further payment by Target except as to a
continuing payment of Five Hundred and No/100 Dollars ($500.00) per month to
▇▇▇▇▇▇▇. In consideration of this obligation to ▇▇▇▇▇▇▇, Buyer shall have the
right to enter into a similar agreement with one or more of its employees or
shareholders for a total benefit of up to Two Thousand Eight Hundred Thirty
Dollars ($2,830.00) per month, which right shall survive the closing and
termination of this Agreement;
7.1.13 The Board resolutions referred to in Section 6.3,
including a certified copy of the Target's Board of Directors resolution
authorizing this transaction;
7.1.14 Evidence of the termination of any profit sharing
plans, employee benefit and other qualified retirement plans of the Target;
7.1.15 The originals of Leases, together with duly executed
consents of the
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landlord or sub-landlord, if required, in form and substance reasonably
acceptable to Buyer;
7.1.16 [intentionally omitted];
7.1.17 A certificate of incumbency of Target certified by
its secretary or assistant secretary, which shall identify by name, title and
signature the officer(s) and directors of the Target authorized to execute this
Agreement and all related documents; and
7.1.18 All other documents, instruments or writings
reasonably required to be delivered by the Target at or prior to the Closing
pursuant to this Agreement or otherwise required in connection herewith,
including, without limitation, the resignations referred to in Section 6 hereof
7.2 Deliveries by the Buyer. At the Closing, the Buyer will deliver or
cause to be delivered to the Target (unless previously delivered) the following:
7.2.1 The cash portion of the Merger Consideration via wire
transfer;
7.2.2 Shares of common stock of the Buyer, representing
fifteen percent (15%) of its issued and outstanding stock (a total of 35.29
shares), in the names of the Target Shareholders, apportioned amongst them as
set forth on Schedule 7.2.2 attached hereto;
7.2.3 The officer's certificate referred to in Section 6.4.3
hereof;
7.2.4 Copies of the articles of incorporation, and all
amendments thereto, and the bylaws, and all amendments thereto, of the Buyer and
the Transitory Subsidiary certified, in the case of the articles of
incorporation as of the most recent practicable date by the appropriate state
official, and in the case of the bylaws, as of the Closing Date by the corporate
secretary of each the Buyer and the Transitory Subsidiary;
7.2.5 A cerlificate of good standing for each of the Buyer
and the Transitory Subsidiary, certified as of a recent date by the appropriate
state official;
7.2.6 A certificate of incumbency of the each of the Buyer
and the Transitory Subsidiary certified by the secretary or assistant secretary
of each, which shall identify by name, title and signature the officer(s) of
each the Buyer and the Transitory Subsidiary authorized to execute this
Agreement and all related documents;
7.2.7 A certified copy of the Board of Directors resolution
of each of the Buyer and the Transitory Subsidiary authorizing this transaction;
7.2.8 The Shareholders Rights and Voting Agreement signed by
Buyer and its shareholders;
7.2.9 The opinion of the counsel of the Buyer and the
Transitory Subsidiary referred to in Section 6.4 hereof;
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7.2.10 The Restrictive Covenant Agreements and Right of
First Refusal Agreement described in Section 5.9 signed by the Buyer and
Transitory Subsidiary, as applicable; and
7.2.11 All other documents, instruments or writings
reasonably required to be delivered by each the Buyer and the Transitory
Subsidiary at or prior to the Closing pursuant to this Agreement or otherwise
required in connection herewith.
ARTICLE 8
TERMINATION.
8.1 Termination by Mutual Consent. This Agreement may be terminated
and the transaction may be abandoned at any time prior to the Closing Date, by
the mutual written consent of the Buyer, the Transitory Subsidiary and the
Target.
8.2 Termination by Either the Buyer or the Target. This Agreement may
be terminated by action of either the Buyer, the Transitory Subsidiary or the
Target if any court of competent jurisdiction in the United States or some other
Governmental Body or regulatory authority shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transaction.
8.3 Termination by the Buyer and the Transitory Subsidiary. This
Agreement may be terminated at any time prior to the Closing Date by action of
the Board of Directors (or a duly authorized committee thereof) of the Buyer and
the Transitory Subsidiary, if (i) a condition to the performance of the Buyer or
Transitory Subsidiary under Section 6.3 hereof shall not be fulfilled on or
before the time specified for the fulfillment thereof despite diligent efforts
to do so and which failure, breach of default has not been cured within five (5)
Business Days following receipt by the Target of notice of such failure, (ii) a
failure, breach or default, in any material respect, of any representation,
warranty or covenant of the Target or Shareholders shall occur hereunder, which
failure, breach or default has not been cured within five (5) Business Days
following receipt by the Target of notice of such failure, or (iii) at any time
if all of the conditions precedent to its obligation to effect the transaction
shall not have been fulfilled to the satisfaction of Buyer or Transitory
Subsidiary acting in a commercially reasonable manner, other than by reason of
the failure of the Buyer and the Transitory Subsidiary in good faith to reach
agreement on such subject matter.
8.4 Termination by the Target. This Agreement may be terminated at
any time prior to the Closing Date by action of the Target, if (i) a condition
to the performance of the Target under Section 6.4 hereof shall not be fulfilled
on or before the time specified for the fulfillment thereof despite diligent
efforts to do so and which failure, breach of default has not been cured within
five (5) Business Days following receipt by the Buyer of notice of such failure,
(ii) a failure, breach or default, in any material respect, of any
representation, warranty or covenant of the Buyer or the Transitory Subsidiary
shall occur hereunder, which failure, breach or default has not been cured
within five (5) Business Days following receipt by the Buyer of notice of such
failure, or (iii) at any time if all of the conditions precedent to its
obligation to
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effect the transaction shall not have been fulfilled to the satisfaction of
Target acting in a commercially reasonable manner, other than by reason of the
failure of the Target in good faith to reach agreement on such subject matter.
8.5 Effect of Termination and Abandonment. In the event of termination
of this Agreement pursuant to this Article 8, this Agreement, except for this
Article 8, shall no longer be of any force or affect and there shall be no
liability on the part of any party or its respective directors, officers or
shareholders, except in the case of termination pursuant to Section 8.3 or
Section 8.4 hereof; other than Sections 8.3(iii) and 8.4(iii) herein, because of
a failure, default or breach of the other party, in which event the aggrieved
party or parties, in addition to any and all other rights, remedies and damages
available at law or equity, may recover from the defaulting party the amount of
expenses and damages incurred by such aggrieved party or parties in connection
with this Agreement and the transactions contemplated hereby which the aggrieved
party or parties would otherwise have to bear pursuant to Section 10.1 of this
Agreement.
ARTICLE 9
INDEMNIFICATION.
9.1 Survival of Representations. The representations and warranties in
this Agreement shall survive the Closing and shall remain effective after the
Closing Date for a period of three (3) years, regardless of any investigation or
inquiry by Buyer, Target or the Shareholders at any time; provided, however,
that the representations and warranties contained in Sections 3.1, 3.2, 3.3,
3.4, 3.7, 3.14, 4, and 3.21 shall survive the Closing Date without limitation,
and all fraudulent representations and warranties shall survive the Closing Date
without limitation; and all representations, warranties and covenants relating
to Taxes, or compliance with Laws, shall survive for the applicable statutes of
limitations, including any extensions thereof.
9.2 Indemnification by the Shareholders. Subject to the limitations
set forth in this Article 9 and excepting the matters disclosed on the Target
Disclosure Schedule, each of the Shareholders shall individually, jointly and
severally indemnify and hold harmless the Surviving Corporation and Buyer, their
respective affiliates and each of their respective officers, directors,
employees, and agents for, from and against any loss, liability, claim (whether
or not involving a third party claim), damage (including punitive,
consequential, or treble damages), or expense (including reasonable legal fees
and expenses), and expenses and costs of investigation, obligations, liens,
assessments, judgments and fines, including, without limitation, any of the
foregoing arising out of personal or bodily injury to, or damages to the
property, business or assets of, Buyer, the Surviving Corporation, or any third
party (the foregoing being collectively referred to herein as a "Loss" or
"Losses"), suffered or incurred by any such Indemnified Party to the extent
arising, directly or indirectly, from or in connection with:
9.2.1 Any breach of any representation or warranty or
covenant of Target or any Shareholders or any of them contained in this
Agreement, including all schedules and exhibits and all related agreements
executed in connection with the Closing;
9.2.2 Any breach of any covenant of Target or any
Shareholders or any of them
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contained in this Agreement requiring performance after the Closing Date,
including without limitation, Tax indemnification provided in Section 5.6;
9.2.3 Whether or not disclosed or required to be disclosed
on any Schedule to this Agreement, any environmental liabilities, including, but
not limited to, any remediation expenses as provided in Section 3.16 or Section
5.5.
9.2.4 Criminal misconduct by any of Target or any of the
Shareholders, whether or not disclosed to Buyer on the Schedules hereto or
otherwise and which occurred prior to the Closing Date;
9.2.5 Except to the extent adequately provided for in the
Target Financial Statements, any claim arising out of or by virtue of or based
upon any breach or failure by Target to have performed any obligation or
satisfied any liability under any contract or agreement to the extent required
to be performed or satisfied at or prior to the Closing Date, exclusive of the
Actions detailed in the Target Disclosure Sehedule herein; and
9.2.6 Except to the extent adequately provided for in the
Target Financial Statements, any claims arising out of or by virtue of or based
upon any Actions or Orders against Target or any Shareholders or any of their
respective properties, assets, operations, or businesses to the extent arising
out of or in connection with the acts or omissions (whether voluntary or
involuntary) of Target or any of the Shareholders prior to the Closing Date,
exclusive of the Actions detailed in the Target Disclosure Schedule herein.
9.3 Indemnification by the Buyer and the Transitory Subsidiary.
Subject to the limitations set forth in this Article 9 and excepting the matters
disclosed on the Buyer Disclosure Schedule, the Buyer shall indemnify and hold
harmless the Target, the Target Shareholders, their affiliates and each of its
respective officers, directors, employees, and agents for, from and against any
loss, liability, claim (whether or not involving a third party claim), damage
(including punitive, consequential, or treble damages), or expense (including
reasonable legal fees and expenses), and expenses and costs of investigation,
obligations, liens, assessments, judgments and fines, including, without
limitation, any of the foregoing arising out of personal or bodily injury to, or
damages to the property of; any third party (the foregoing being collectively
referred to herein as a "Loss" or "Losses"), suffered or incurred by any such
Indemnified Party to the extent arising, directly or indirectly, from or in
connection with:
9.3.1 Any breach of any representation or warranty or
covenant of the Buyer and the Transitory Subsidiary contained in this Agreement,
including all schedules and exhibits and all related agreements executed in
connection with the Closing;
9.3.2 Any breach of any covenant of the Buyer contained in
this Agreement requiring performance after the Closing Date.
9.3.3 Criminal misconduct by any of Buyer or Transitory
Subsidiary, whether or not disclosed to Buyer on the Schedules hereto or
otherwise and which occurred prior to the Closing Date;
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9.3.4 Except to the extent adequately provided for in the
Buyer and Transitory Subsidiary Financial Statements, any claim arising out of
or by virtue of or based upon any breach of failure by the Buyer and the
Transitory Subsidiary to have performed any obligation or satisfied any
liability under any contract or agreement to the extent required to be
performed or satisfied at or prior to the Closing Date, exclusive of the
Actions detailed in the Buyer Disclosure Schedule herein; and
9.3.5 Except to the extent provided for in the Buyer and
Transitory Subsidiary Financial Statements, any claims, known or unknown,
arising out of or by virtue of or based upon any Actions or Orders against the
Buyer or the Transitory Subsidiary, their properties, assets, operations or
business to the extent arising out of or in connection with the acts or
omissions (whether voluntary or involuntary) of the Buyer or the Transitory
Subsidiary prior to the Closing Date, exclusive of the Actions detailed in the
Buyer Disclosure Schedule herein.
9.4 Termination of Indemnification. The obligations to indemnify and
hold harmless a party hereto shall not terminate with respect to any item as to
which the Person to be indemnified or the related party hereto shall have,
before the expiration of the applicable period in which a claim for
indemnification under Article 9 can be made (which other than representations
and warranties shall not exceed the applicable statute of limitations for
bringing such underlying claim), previously made a claim by delivering a notice
(stating in reasonable detail the basis of such claim) to the Indemnifying
Party.
9.5 Procedures Relating to Indemnification.
9.5.1 In order for a party (the "Indemnified Party") to be
entitled to any indemnification, defense or hold harmless provided for under
this Section 9 in respect of, arising out or involving a claim or demand made by
any persons, firm, governmental authority, corporation or other claimant against
the Indemnified Party (a "Third Party Claim"), such Indemnified Party must
notify the other party (the "Indemnifying Party") in writing, and in reasonable
detail, of the Third Party Claim within 30 calendar days after receipt by such
Indemnified Party of written notice of the Third Party Claim; provided, however,
that failure to give such notification shall not affect the indemnification
provided hereunder, except to the extent the Indemnifying Party shall have been
actually prejudiced as a result of such failure (except that the Indemnifying
Party shall not be liable for any expenses or Losses incurred during the period
in which the Indemnified Party failed to give such notice). Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, within five (5)
business days after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to the Third Party Claim.
9.5.2 If a Third Party Claim is made against an Indemnified
Party, the Indemnifying Party will be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party. Should the Indemnifying Party be entitled to, and so elect
to, assume the defense of a Third Party Claim, the Indemnifying Party will not
be liable to the Indemnified Party for legal expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof. If the
Indemnifying Party is entitled to assume and does assume such defense, the
Indemnified Party shall have the right to participate in the defense
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thereof and to employ counsel, separate from the counsel employed by the
Indemnifying Party, it being understood that the Indemnifying Party shall
control such defense but the fees and expenses of such counsel shall be the
expense of such Indemnified Party unless (i) the Indemnifying Party has agreed
in writing to pay such fees and expenses, (ii) any relief other than the payment
of money damages is sought against any Indemnified Party, or (iii) such
Indemnified Party shall have been advised by its counsel that there may be one
or more legal defenses reasonably available to it which are different from or
additional to those available to the Indemnifying Party. In any such case as
provided in (i), (ii) or (iii) above, the reasonable fees and expenses of such
separate counsel shall be borne by the Indemnifying Party. If the Indemnifying
Party is entitled to, and chooses to, defend or prosecute any Third Party Claim,
all the parties hereto shall cooperate in the defense or prosecution thereof.
Such cooperation shall include the retention and, upon the Indemnifying Party's
request, the provision to the Indemnifying Party of records and information
which are reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Whether or not the Indemnifying
Party shall have assumed the defense of a Third Party Claim, the Indemnified
Party shall not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the Indemnifying Party's prior written
consent (which consent shall not be unreasonably withheld, conditioned or
delayed). The Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise or consent to the entry of any judgment
with respect to any action or Third Party Claim if the effect thereof is to
admit any criminal liability by, or to permit any injunctive relief or other
order providing non-monetary relief to be entered against, the Indenmified
Party.
9.5.3 Upon receipt of notice of any claim of indemnity
hereunder, the Indemnifying Party shall, within thirty (30) days after such
receipt, notify the Indemnified Party that such Indemnifying Party either (i)
acknowledges and accepts its obligation and agrees to accept liability for any
losses resulting from such claim or (ii) disputes such claim. Failure to give
such notice will be deemed to constitute acknowledgment and acceptance by the
Indemnifying Party.
9.6 Payment of Indemnity Payments. In the event that any payment is
due to an Indemnified Party, such payment shall be made to such Indemnified
Party within ten (10) days of such payment becoming due, and any payment that is
made after such tenth (10th) day shall bear interest from (and including) the
date due to (but excluding) the date of payment, at a rate equal to five percent
(5%) above Prime in effect on the date such payment became due, but in no event
to exceed the maximum contract rate permitted under applicable usury laws;
provided, however, no payment shall be due so long as it is the subject of any
bona fide, reasonable contest by the Indemnifying Party. Any amounts due for
indemnity hereunder may be offset and satisfied in whole or in part by payment
from any monies to be paid to that indemnifying party from the indemnified party
herein.
9.7 Limitation on Indemnity Obligations. The parties' indemnity
obligations shall be limited as follows:
9.7.1 A party's obligation to indemnify, defend and hold
harmless hereunder shall be applicable only to the extent that the aggregate
amount of any such individual claim or
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Loss for which indemnity shall apply exceeds Ten Thousand and No/l00 Dollars
($10,000.00) (it being understood that any and all "materiality" and "knowledge"
qualifications for purposes of determining whether a liability exceeds Ten
Thousand and No/100 Dollars ($10,000.00) shall be disregarded in making a
determination of any threshold amount for Loss or Losses); provided, however,
that such $10,000.00 threshold shall not be applicable (i) with respect to
Taxes, (ii) with respect to any claims under Section 3.16, and (iii) with
respect to any and all claims and Losses once an aggregate of Fifty Thousand and
No/l00 Dollars ($50,000.00) in total claims and Losses of any and all kinds,
without regard to any thresholds, is exceeded (it being understood that any and
all "materiality" and "knowledge" qualifications for purposes of determining
whether liabilities exceed Fifty Thousand and No/100 Dollars ($50,000.00)
shall be disregarded in making a determination of the aggregate amount for a
Loss or Losses). By way of further illustration, knowledge and materiality
limitations contained in any particular representations shall not be considered
in determining whether a claim exceeds the $10,000.00 threshold or in reaching
the $50,000.00 aggregate, however, knowledge and materiality are still to be
considered when contained in a representation and therefore in determining
whether a breach of that representation has occurred and the party's liability
for a breach. For example purposes, if claims qualified by knowledge total
Forty Nine Thousand and No/100 Dollars ($49,000.00), none of which would
constitute a breach of this Agreement, along with separate claims of Two
Thousand and No/100 Dollars ($2,000.00) that do constitute a breach of the
Agreement, then the total claims would be Fifty One Thousand and No/100 Dollars
($51,000.00), for which only One Thousand and No/l 00 Dollars ($1,000.00) would
be recoverable from the Target Shareholders. However, under this example, any
further claims under the Agreement shall be paid by the Target Shareholders
without regard to any threshold as to an individual claim or in the aggregate.
9.7.2 The obligations of Buyer and Transitory Subsidiary or
Surviving Corporation at any given time to indemnify the Target Shareholders
(and the amounts applicable to the thresholds in Section 9.7.1 above) hereunder
shall be limited to the actual percentage of stock ownership which those Target
Shareholders own in Buyer at the time that any such claim or Loss is presented.
This percentage of ownership shall be applied to any indemnification claim or
Loss and thereby limit the indemnity due the Target Shareholders by Buyer by
that percentage being multiplied by the claim of Loss.
9.7.3 Subject to the provisions of Section 9.7.4 and Section
9.7.5 of this Agreement, the total of the obligations of either side of this
transaction, the Buyer and Transitory Subsidiary on the one hand and the Target
and Target Shareholders on the other hand, for indemnification herein, and for
other causes of action hereunder exclusive of fraud or intentional concealment,
shall be limited to the total sum of Eleven Million Seven Hundred Thousand and
No/l00 Dollars ($11,700,000.00). The payment of any claim for indemnification
may be made through the delivery of (i) cash; (ii) Buyer Stock or IPO Shares (as
the case may be); or (iii) some combination of (i) and (ii). Selection of the
form of payment shall be made, in the sole and absolute discretion, of the
party(s) against whom an indemnity claim is asserted.
9.7.4 Subject to the aforementioned limits, the total of the
obligations of the Target Shareholders for indemnification hereunder, and for
other causes of action hereunder exclusive of fraud or intentional concealment,
shall be limited to the total Merger Consideration actually received by Target
Shareholders, namely: (i) One Million and No/100 Dollars ($1,000,000.00) plus
(ii) the Value of all shares of Buyer Stock transferred pursuant to this
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transaction, valued for this purpose at Nine Million Seven Hundred Thousand and
No/100 Dollars ($9,700,000.00) or Two Hundred Seventy Five Thousand and No/100
Dollars ($275,000.00) per share of Buyer transferred at Closing. The Merger
Consideration shall include, in the event of an IPO, but not be limited to: (i)
those IPO Shares that are actually received by the Target Shareholders at the
time of the IPO pursuant to Section 2.3.6 hereof and (ii) those warrants that
are actually issued by IAS Holdings and received by the Target Shareholders
pursuant to Schedule 2.3.6 hereof. On or after an IPO, the value attributable to
shares to be returned to satisfy an indemnity obligation hereunder shall be the
price for the original shares transferred at Closing, valued as set forth above
in this Section 9.7.4, but converted into the number of shares then held in the
public company. In that event, any warrants held shall be transferred pro rata
with the shares held by such shareholder.
In addition, the Target Shareholders who own any interest in Royal
Thoughts, LLC, hereby commit to satisfy any indemnity obligations hereunder up
to an additional total of One Million and No/100 Dollars ($1,000,000.00) in
value of their membership interests in Royal Thoughts, LLC as further assets
backing up their indemnity obligations. These Target Shareholders (▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. Speed, ▇▇▇▇ ▇.▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇, and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇) represent that they own all of the outstanding membership
interests in Royal Thoughts, LLC exclusive of the membership interests being
sold and transferred to Buyer, and they further covenant and agree that none of
them shall sell, pledge or encumber all or any part of those membership
interests during the period of indemnity hereunder.
9.7.5 Subject to the aforementioned limits, the total of the
obligations of the Buyer and Surviving Corporation for indemnification herein,
and for other causes of action hereunder exclusive of fraud or intentional
concealment, shall be limited to the total actual Merger Consideration paid
herein, as valued hereinabove for the Target Shareholders, namely the payment by
way of cash or shares in the same amounts and same allocation as permitted to
the Target Shareholders hereinabove. Any payment by way of shares of Buyer shall
be valued in the same manner as for the Target Shareholders above.
9.7.6. If to satisfy indemnity claims of Buyer hereunder,
the Target Shareholders (i) shall have repaid to Buyer all of the Merger
Consideration as described herein (One Million and No/100 Dollars
($1,000,000.00) plus all the shares in Buyer transferred pursuant to this
transaction (or if later sold, transferred, or otherwise unavailable to be
returned or sold to satisfy indemnity claims, then the fair market value
thereof)) and (ii) shall have also transferred One Million and No/100 Dollars
($1,000,000.00) in value of their membership interests in Royal Thoughts, LLC to
Buyer as required above in order to satisfy their obligations to indemnify Buyer
hereunder, then and upon all of those events, the Target Shareholders may
compete against the Buyer and its subsidiaries in the business of monitoring of
security systems but not in any manner which would otherwise conflict with the
restrictions in the Restrictive Covenants executed herewith (Exhibits 5.9.1 and
5.9.2).
9.8 Fraud. None of the limitations in this Article 9 shall apply to
any matter giving rise to a claim which, or the delay in discovery of which, is
the consequence of fraud or intentional concealment by the Target, any of the
Shareholders, the Buyer or the Transitory Subsidiary, or any of them.
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9.9 Continuation of Indemnities; No Circular Indemnities. The right to
indemnification, if any, from Buyer or Surviving Corporation of any current or
former officer or director of Target pursuant to the Certificates of
Incorporation of Target or under any Applicable Law, shall survive the Closing
Date; provided, however, that subject to Applicable Law no indemnification shall
be available to any officer or director for any claim or matter if, with regard
to the subject matter thereof, the Surviving Corporation or Buyer prevails upon
a claim (at law or in equity) against that officer or director. For purposes of
the foregoing, Surviving Corporation or Buyer, as the case may be, shall be
considered to have "prevailed upon a claim" only if: (a) a final order resolving
such claim in favor of Surviving Corporation or Buyer, as the case may be, shall
be issued by a court, administrative body or other tribunal of competent
jurisdiction, unless such final order is subsequently overturned on appeal; or
(b) the subject officer or director enters into an agreement with Surviving
Corporation or Buyer, as the case may be, for the purpose of resolving such
claim and therein agrees that Surviving Corporation or Buyer, as the case may
be, has prevailed upon such claim for purposes of this Section 9.9.
ARTICLE 10
MISCELLANEOUS AND GENERAL
10.1 Payment of Expenses. Except as otherwise provided herein, whether
or not the transaction shall be consummated, each party hereto shall pay their
own expenses incident to preparing for, entering into, and carrying out this
Agreement and the consummation of the transactions contemplated hereby.
10.2 Modification or Amendment. At any time prior to the Closing Date,
the Parties hereto may modify or amend this Agreement, by written agreement
executed and delivered by duly authorized officers of the respective Parties.
10.3 Waiver of Conditions. The conditions to each of the Parties'
obligations to consummate the transaction are for the sole benefit of such Party
and may be waived, in writing, by such Party in whole or in part to the extent
permitted by applicable law.
10.4 Counterparts. This Agreement may be executed in counterparts and
by different parties on different counterparts with the same effect as if the
signatures thereto were on the same instrument. Further, this document may be
executed by facsimile signatures, which shall be deemed original signatures for
purposes of this Agreement. This Agreement shall be effective and binding upon
all parties hereto as of the date when all parties have executed a counterpart
of this Agreement.
10.5 Governing Law. This Agreement shall be governed by, and construed
in accordance with the laws of the State of New Jersey, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
10.6 Notices. Any notice, request, instruction or other document to be
given hereunder by any Party shall be in writing and delivered personally or
sent by registered or certified mail, postage prepaid, or by facsimile
transmission (with a confirming copy sent by overnight courier), as follows:
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If to The Target, With a copy to:
Criticom International Corporation ▇▇▇▇▇ ▇▇▇▇▇▇, P.A.
1301 East 79th Street Suite ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
ATTN: ▇▇▇▇ ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer or the Transitory Subsidiary: With a copy to:
KC Acquisition Corp. ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
P.O. Box ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
10.7 Entire Agreement; Assignment. This Agreement (i) constitutes the
entire agreement among the Parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
among the Parties with respect to the subject matter hereof, and (ii) shall not
be assigned by operation of law or otherwise, provided that the Buyer may assign
its rights and obligations to any wholly owned subsidiary of the Buyer, in whole
or in part, but no such assignment shall relieve the Buyer of its obligations
hereunder if such assignee does not perform such obligations.
10.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each Party hereto and their respective heirs,
administrators, successors and permitted assigns, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
10.9 Obligation of Shareholders. Whenever this Agreement requires
Target to take any action under this Agreement, such requirement shall be deemed
to include an undertaking on the part of Shareholders to cause Target to take
such action and for Shareholders to meet all such obligations.
10.10 Remedies for Breach. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
-40-
10.11 Captions. The article, section and paragraph captions herein are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
10.12 Further Assurances. From time to time, at the request of either
Party hereto and without further consideration, the other Party or Parties will
execute and deliver to such requesting Party such documents and take such other
action (but without incurring any material financial obligation) as such
requesting party may reasonably request in order to consummate more effectively
the transactions contemplated hereby.
10.13 Dispute Resolution.
10.13.1 Any dispute arising under or relating to this
Agreement, including, without limitation, any dispute with respect to any
indemnification claim, unless otherwise resolved, will be settled in accordance
with the dispute resolution procedures set forth on Schedule 10.13 hereto.
10.13.2 The Parties hereto agree that the circumstance in
which disputes between them will not be subject to the provisions of this
Section is where (i) there is an alleged breach of any provision of this
Agreement relating to Target Intellectual Property Rights or confidentiality or
nondisclosure, or (ii) a Party makes a good faith determination that a breach of
the terms of this Agreement by the other Party is such that irreparable harm to
such Party may result from the breach such that equitable or other relief in the
form of a temporary restraining order or other immediate injunctive relief is
the only adequate remedy. The question of damages, if any, incurred by such
party as a result, of such breach will be resolved pursuant to the dispute
resolution procedures set forth in Schedule 10.12 hereto.
10.14 Schedules and Exhibits. All Schedules and Exhibits to the
Agreement are incorporated by reference and made a part of this Agreement.
10.15 Advice of Counsel. Each Party represents and warrants that in
executing this Agreement:
10.15.1 Such Party has had the opportunity to obtain
independent accounting, financial, investment, legal, tax and other appropriate
advice;
10.15.2 The terms of the Agreement have been carefully read
by such Party and its consequences explained to such Party by his, her or its
independent advisors;
10.15.3 Such Party fully understands the terms and
consequences of this Agreement;
10.15.4 Such Party has not relied on any inducements,
promises or representations made by the other Party (except those expressly set
forth herein) or the accountants, attorneys or other agents representing or
serving the other Party;
10.15.5 Such Party has made its own independent
determinations as to the
-41-
tax effect upon such Party without reliance upon any other party to any extent;
and
10.15.6 Such Party's execution of this Agreement is free
and voluntary.
10.16 Representation of the Target. The Target agrees that ▇▇▇▇ ▇▇▇▇▇
shall have the authority on behalf of the Target and the Shareholders to accept
and give notices hereunder and act on behalf of the Target and Shareholders in
respect of all matters or actions required of the Target or Shareholders after
the Closing hereof.
-42-
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto and shall be
effective as of the date first hereinabove written.
THE BUYER: THE TRANSITORY SUBS1DIARY:
KC ACQUISITION CORPORATION, CRITICOM IDC CORP.,
a New Jersey corporation a New Jersey corporation
By: _____________________________ By: ____________________________
Name: ___________________________ Name: __________________________
Title: __________________________ Title: _________________________
THE TARGET:
CRITICOM INTERNATIONAL
CORPORATION,
a Minnesota corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Title: President
--------------------------
-43-
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto and shall be
effective as of the date first hereinabove written.
THE BUYER: THE TRANSITORY SUBSIDIARY:
KC ACQUISITION CORPORATION, CRITICOM IDC CORP.,
a New Jersey corporation a New Jersey corporation
By /s/ ▇▇▇▇▇▇ ▇. Few /s/ ▇▇▇▇▇▇ ▇. Few
------------------------------ -----------------------------
Name: ▇▇▇▇▇▇ ▇. Few a New Jersey corporation
Title: President
By: _______________
Name: ▇▇▇▇▇▇ ▇. Few
------------------------
THE TARGET: Title: President
CRITICOM INTERNATIONAL -----------------------
CORPORATION,
a Minnesota corporation
By: ___________________________
Name: _________________________
Title: ________________________
SELLING SHAREHOLDERS:
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-44-
SELLING SHAREHOLDERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇ by ▇▇▇▇▇▇ ▇., ▇▇▇▇▇, power of attorney
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, power of attorney
/s/ ▇▇▇▇▇ ▇. Speed
--------------------------------
▇▇▇▇▇ ▇. Speed
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-45-
SCHEDULE 1.1
DEFINITIONS
The following terms have the meanings assigned to them in this Schedule 1 when
used in this Agreement or in any Exhibit or Schedule hereto, unless the context
otherwise requires:
Accounts Receivable Schedule has the meaning set forth in Section 6.3.18(vi) of
this Agreement.
Actions shall mean any action, suit, investigation, or legal administrative or
arbitral proceeding, or investigation before or by any Governmental Body.
Agreement has the meaning set forth in the first paragraph of this Agreement.
Applicable Law shall mean all applicable provisions of all (i) constitutions,
treaties, statutes, laws (including the common law), rules, regulations,
ordinances, codes or orders of any Governmental Body, (ii) Governmental
Approvals and (iii) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Body.
Business shall mean the business of providing security and other alarm
monitoring services by any of the parties to this Agreement and such other
business as actually engaged in by such party.
Business Day shall mean a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required to close.
Buyer has the meaning set forth in the first paragraph of this Agreement.
Buyer Disclosure Schedule has the meaning set forth in Article 4 of this
Agreement.
Buyer Receivables has the meaning set forth in Section 4.23 of this Agreemnent;
Buyer and Transitory Subsidiary Financial Statements has the meaning set forth
in Section 4.6 of this Agreement.
Buyer or Transitory Subsidiary Intellectual Property Rights has the meaning set
forth in Section 4.11 of this Agreement.
Buyer or Transitory Subsidiary Plan or Plans has the meaning set forth in
Section 4.14 of this Agreement.
Buyer's Subsidiary shall mean the wholly owned entity established by the Buyer
herein for the Target to merge into. `
Buyer Stock has the meaning as set forth in the recitals to this Agreement.
Cash has the meaning set forth in Section 2.3.5 of this Agreement.
-46-
CERCLA shall mean the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C.ss.9601 et seq.
Closing has the meaning set forth in Section 2.2 of this Agreement.
Closing Date has the meaning set forth in Section 2.2 of this Agreement.
COBRA shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
Code shall mean the Internal Revenue Code of 1986, as amended.
Consent shall mean any consent, approval, authorization, waiver, permit, grant,
franchise, concession, agreement, license, exemption or order of, registration,
certificate, declaration or filing with, or report or notice to, any Person,
including but not limited to any Governmental Body.
Contract has the meaning set forth in Section 3.12 of this Agreement.
Copyright means all rights throughout the world to copyrights licensed to or
owned in whole or in part by any Company, or created for, used in or necessary
for the conduct of the Business, whether registered or unregistered, in any
copyrightable work of authorship, and any applications and/or registrations
thereof, including all proeeeds thereof (such as, by way of example, income,
license royalties and proceeds of current infringements), the right to ▇▇▇ for
past, present and future infringements, and all rights corresponding thereto
throughout the world.
Effective Date has the meaning set forth in the first paragraph of this
Agreement.
Effective Time has the meaning set forth in Section 2.3.1 of this Agreement.
Employment Agreements has the meaning set forth in Section 5.10 of this
Agreement.
Encumbrances shall mean any lien, claim, marital, community or spousal interest,
proxy, security interest, option, mortgage, pledge, easement, charge,
conditional sale or other title retention agreement, defect in title, preemptive
or subscription right, covenant or other encumbrance or restriction of any
kind.
Environmental Laws shall mean all Applicable Laws relating to the protection of
the environment, to human health and safety, or to any emission, discharge,
generation, processing, storage, holding, abatement, existence, Release,
threatened Release or transportation of any Hazardous Materials, including,
without limitation, (i) CERCLA, the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Section 6901, et. seq.) and the Occupational Safety and
Health Act, as amended, (64 U.S.C. Section 651, et. seq.), (ii) all other
requirements pertaining to reporting, licensing, permitting, investigation or
remediation of emissions, discharges, releases or threatened releases of
Hazardous Materials into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, sale, treatment,
receipt, storage, disposal, transport or handling of Hazardous Materials, and
(iii) all other requirements pertaining to the protection of the health and
safety of employees or the public.
-47-
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and rules and regulations issued pursuant to that
Act or any successor law.
Finance Companies has the meaning set forth in Section 2.3.6(A) of this
Agreement.
GAAP has the meaning set forth in Section 1.2 of this Agreement.
Government Approvals shall mean any Consent of, with or to any Governmental
Body.
Governmental Body means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency or instrumentality thereof, or any court or arbitrator.
Hazardous Materials means any (i) "hazardous substance," "pollutants," or
"contaminant" (as defined in Sections 101(14) and (33) of CERCLA or the
regulations issued pursuant to Section 102 of CERCLA and found at 40 C.F.R. ss.
302), including any element, compound, mixture, solution, or substance that is
or may be designated pursuant to Section 102 of CERCLA; (ii) substance that is
or may be designated pursuant to Section 311 (b)(2)(A) of the Federal Water
Pollution Control Act, as amended (33 U.S.C. ss. 1251, l32l(b)(2)(A)) ("FWPCA");
(iii) hazardous waste having the characteristics identified under or listed
pursuant to Section 3001 of the Resource Conservation and Recovery Act, as
amended (42 U.S.C. ss. 6901, 6921) ("RCRA") or having characteristics that may
subsequently be considered under RCRA to constitute a hazardous waste; (iv)
substance containing petroleum, as that term is defined in Section 9001(8) of
RCRA; (v) toxic pollutant that is or may be listed under Section 307(a) of
FWPCA; (vi) hazardous air pollutant that is or may be listed under Section 112
of the Clean Air Act, as amended (42 U.S.C. ss. 7401, 7412); (vii) imminently
hazardous chemical substance or mixture with respect to which action has been or
may be taken pursuant to Section 7 of the Toxic Substances Control Act, as
amended (15 U.S.C. ss. 2601, 2606); (viii) source, special nuclear, or
by-product material as defined by the Atomic Energy Act of 1954, as amended (42
U.S.C. ss. 2011 et seq.); (ix) asbestos, asbestos-containing material, or urea
formaldehyde or material that contains it, (x) waste oil and other petroleum
products, and (xii) any other toxic materials, contaminants, or hazardous
substances or wastes pursuant to any applicable Environmental Law.
HIPAA means the Health Insurance Portability and Accountability Act of 1996, as
amended, and any rules and regulations promulgated pursuant to the Act.
IAS Holdings has the meaning set forth in Section 2.3.6(A) of this Agreement.
Indemnified Party has the meaning set forth in section 9.5.1 of this Agreement.
Indemnifying Party has the meaning set forth in Section 9.5.1 of this Agreement.
Information means all inventions, developments, discoveries, technology,
improvements, processes, formulas, designs, trade secrets, know-how, information
regarding products, product concepts, materials, equipment, techniques, data,
business and marketing information, and other information pertaining to any
Party's Business, which is licensed to or owned in whole or in part by any
Party, or which is or has been created or developed for, used in or necessary
for the conduct of the Business, including all proceeds thereof (such as, by
way of example, income,
-48-
license royalties and proceeds of current infringements), the right to ▇▇▇ for
past, present and future infringements and all rights corresponding thereto
throughout the world.
Intellectual Property Rights means any and all Patents, Trademarks, Information
and Copyrights.
IPO has the meaning set forth in Section 2.3.6(B) of this Agreement.
IPO Shares has the meaning set forth in Section 2.3.6(B) of this Agreement.
Laws shall mean any applicable federal, state, local or foreign statutes, laws,
codes, common law rules, ordinances, rules, regulations, Permit, licensing or
other requirements or any judicial or administrative decision of any
Governmental Body.
Liabilities shall mean, as to any Person, all debts, adverse claims, liabilities
and obligations of such Person, whether accrued, vested or otherwise, fixed or
unfixed, ▇▇▇▇▇▇ or inchoate, direct or indirect, liquidated or non-liquidated,
secured or unsecured, accrued, absolute, contingent or otherwise, whether in
contract, tort, strict liability or otherwise and whether or not actually
reflected, or required by GAAP to be reflected, in such Person's balance sheet
or other books and records.
Loss or Losses has the meaning set forth in Sections 9.2 and 9.3 of this
Agreement.
Material Adverse Effect shall mean any change, effect, condition, event or
circumstance that is materially adverse to the business, financial condition,
assets, properties, prospects or results of operations of any of the Companies
or their respective Business.
Merger has the meaning set forth in Section 2.1 of this Agreement.
Merger Consideration has the meaning set forth in Section 2.3.5 of this
Agreement.
Minimum Monthly Collected Recurring Revenue means the monthly recurring income
which a subscriber or dealer has contracted to pay for the monitoring services
to be provided to that customer under his or her contract for monitoring
services.
Multi-employer Plan means any multi-employer plan within the meaning of Section
3(37) of ERISA.
Orders shall mean all orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Body.
Patents means all patents, patent applications (including all divisions,
continuations, continuations-in-part, reissues, extensions and reexaminations
thereof) and inventions or developments which have been identified for filing of
patent applications or for investigation of the possibility of filing patent
applications licensed to or owned in whole or in part by the Party owning the
Patent, or developed for, used in or necessary for the conduct of that Party's
Business, including all proceeds thereof (such as, by way of example, income,
license royalties and proceeds of current infringements), the right to ▇▇▇
for past, present and future infringements
-49-
and all rights corresponding thereto throughout the world.
Permit shall mean a franchise, license, permit, authorization, consent or
approval from any Governmental Body.
Permitted Liens has the meaning set forth in Section 3.8.1 and 4.8.1 of this
Agreement.
Permitted Encumbrances has the meaning set forth in Section 6.3.13 of this
Agreement.
Person means any individual, corporation, partnership, firm, joint venture,
association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
Plans means any pension plans, welfare plans, ERISA or Non-ERISA employment
related commitments of Buyer, Target or Subsidiary (as applicable), including,
without limitation, if applicable, the cost of accrued and unpaid wages, unpaid
bonuses, stock options, severance pay, accrued personal days, unpaid holidays,
and sick leave, the cost of retirement benefits and pensions, withdrawal
liabilities, the cost of payroll taxes, including FICA, Federal Unemployment
Insurance, State Unemployment Insurance and Federal and State withholding, and
the cost of health insurance, dental insurance, disability insurance, life
insurance and the like for events occurring prior to and including the Closing
Date.
Pre-Closing Target Distributions has the meaning set forth in Section 2.3.6 of
this Agreement.
Preemptive Rights shall mean the rights of any Person as an owner of shares or
other interest in any entity to purchase additional shares or other ownership
interests in that entity upon the issuance of any shares or ownership interests
to any other person, upon the same terms and provisions as offered to such other
person, in order to preserve the person's same percentage of ownership in the
entity as existed prior to such issuance of additional shares or other ownership
interests to any other Person.
Prime or Prime Rate shall mean the rate or interest announced publicly by
Citibank, N.A., in New York, from time to time as the base rate of Citibank,
N.A.
Real Property shall mean all real property (including, without limitation, all
interests in and rights to real property) and improvements located thereon that
are owned or leased by any Party and used in connection with that Party's
Business.
Regulator has the meaning set forth in Section 5.5 of this Agreement.
Release shall mean any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, migration, transporting, placing and the like, including without
limitation, the moving of any materials through, into or upon, any land, soil,
surface water, ground water or air, or otherwise entering into the environment.
Restrictive Covenants has the meaning set forth in Section 5.9 of this Agreement
SAR(s) has the meaning set forth in Sections 3.2 and 4.2 of this Agreement.
-50-
Share Conversion has the meaning set forth in Section 2.3.5 of this Agreement.
Software shall mean all computer programs licensed to, used or owned, in whole
or in part, by the Parties, or which is or has been created or developed for,
used in, or necessary for the conduct of each Parties' respective Business,
including, but not limited to, the computer programs listed in Schedules
attached hereto and made a part hereof. Software shall also include any and all
program documentation, program listings, flow charts, logic diagrams, input and
output forms, manuals, specifications, instructions, and other materials
prepared by or for any Party, and all copies of materials prepared by or for any
Party, and all copies of the foregoing, in any medium, related to the Software.
Further, Software includes any and all translations, updates, modifications, and
enhancements to the Software made by any Party up to the Closing Date, and
includes all of any Party's Intellectual Property Rights in the Software.
Surviving Corporation has the meaning set forth in Section 2.1 of this
Agreement.
Tax or Taxes has the meaning set forth in Sections 3.7 and 4.7 of this
Agreement.
Target has the meaning set forth in the first paragraph of this Agreement.
Target Contracts has the meaning set forth in Section 3.12 of this Agreement.
Target Disclosure Schedule has the meaning set forth in Article 3 of this
Agreement.
Target Financial Statements has the meaning set forth in Section 3.6 of this
Agreement.
Target Intellectual Property Rights has the meaning set forth in Section 4.11
of this Agreement.
Target Receivables has the meaning set forth in Section 3.23 of this Agreement.
Target Shareholders and Shareholders has the meaning set forth in the first
paragraph of this Agreement and the names set forth on Exhibit 2.3.5 of this
Agreement.
Target Shares has the meaning set forth in the Recitals of this Agreement.
Tax Returns has the meaning set forth in Sections 3.7 and 4.7 of this Agreement.
Third Party Claim has the meaning set forth in Section 9.5.1 of this Agreement.
Trademarks means those trademarks, service marks, trade names and trade dress,
designs and labels licensed to, owned in whole or in part, or used by any Party
in connection with the that Party's respective Business, throughout the world,
whether or not registered, and any applications and registrations in respect of
all goods and services thereof, including all extensions and renewals thereof,
all proceeds thereof (such as, by way of example, income, license royalties and
proceeds of current infringements), the right to ▇▇▇ for past, present and
future infringements and all rights corresponding thereto throughout the world.
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EXHIBIT 2.3.2
ARTICLES OF INCORPORATION OF CRITICOM IDC CORPORATION
EXHIBIT 2.3.3
By-Laws of Criticom IDC Corporation
-52-
EXHIBIT 2.3.5
THE MERGER CONSIDERATION
The Cash portion of the Merger Consideration shall be paid at Closing
as follows:
A total of Six Hundred Thousand and No/100 Dollars ($600,000) shall be paid and
distributed to the Target Shareholders, net of approximately Eighty Four
Thousand and No/100 Dollars ($84,000.00) due Target as a loan payment from ▇▇▇▇▇
▇▇▇▇▇▇▇, resulting in a net payment to the Target Shareholders at Closing of
approximately Five Hundred Sixteen Thousand and No/l00 Dollars ($516,000.00).
The remaining balance of the Cash portion of the Merger Consideration,
approximately Four Hundred Thousand and No/l00 Dollars ($400,000.00), shall be
paid and satisfied by providing the Target Shareholders at Closing with the
Purchase Note attached hereto as Exhibit 2.3.5.1.
CRITICOM INTERNATIONAL CORPORATION SHARE CONVERSIONS
STOCK OWNERSHIP CERTIFICATE No. # SHARES ISSUED
01/01/2001 (Fully diluted basis)
1. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 14 54,217 [52.36%]
2. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ & 6 14,891 [14.38%]
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
[H & W as JT]
3. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 7 2,778
8 [10/21/97] 935 [7.30%]
9 [03/01/98] 945
10 [12/27/99] 954
11 [12/26/00] 964
15 [ /01] 974
4. ▇▇▇▇ ▇. ▇▇▇▇▇ 13 [01/01/01] 10,354 [10.0%]
5. ▇▇▇▇ ▇.▇▇▇▇▇▇▇ 12 [01/01/01] 10,354 [10.0%]
6. ▇▇▇▇▇ ▇. SPEED [Options] 5,177 [5.0%]
7. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ [Options] 1,000 [0.96%]
Total Shares 103,543 [100.00%]
-53-
EXHIBIT 2.3.5.1
THE PURCHASE NOTE
PROMISSORY NOTE
---------------
$400,000.00 September __, 2002
This Promissory Note (the "Note") is executed and delivered under and
pursuant to the terms of that certain Agreement and Plan of Merger dated the
date hereof (the "Merger Agreement") by and among KC Acquisition Corporation, a
New Jersey corporation, Criticom IDC Corp., a New Jersey corporation, Criticom
International Corporation, a Minnesota corporation, and the Shareholders of
Criticom International Corporation (▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇.▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. Speed, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, collectively, the "Target Shareholders"). The terms and
conditions of the Merger Agreement are incorporated herein by reference.
FOR VALUE RECEIVED, the undersigned, KC ACQUISITION CORPORATION, a New
Jersey corporation (hereinafter "Maker"), hereby promises to pay to the order of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, as agent, for his benefit and for the ratable benefit of the
other Target Shareholders (hereinafter "Holder"), at the agent's address at ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, the principal sum of Four Hundred
Thousand and 00/100 ($400,000) Dollars in lawful money of the United States of
America, with interest, as provided below, and payable in the following manner:
(i) On October 15, 2002, a payment of principal, together with
interest, in the amount of Two Hundred Thousand and No/l00
Dollars ($200,000.00);
(ii) From time to time, payments in the amount equal to the net
proceeds received by Maker in connection with that certain
World Trade Center project currently being performed by the
Maker (the "WTC Procceds"), such payments to be paid as and
when such proceeds are actually received and calculated by
Maker; and
(iii) On January 31, 2003, the Maker, subject to its option to
extend the term as provided below, shall pay all of the then
remaining and outstanding balance, if any, of principal and
interest and any other amounts owing hereunder.
Interest on the unpaid balance of principal hereunder shall be
calculated from the date hereof at the rate of ten percent (10%) per annum and
shall be due and payable together with payments of principal.
Notwithstanding anything herein to the contrary, the principal amount
of this Promissory Note, together with interest thereon and costs, including
attorney fees, shall become immediately due and payable, at the option of the
Holder in the event of the occurrence of any of the following which are hereby
specified as an "Event of Default":
1. A failure to make payment when due of any amount due under
this Promissory Note
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within fifteen (15) days of the date on which such amount is
due;
2. Any default in any other term, covenant or condition of this
Promissory Note; or
3. The filing of any petition by or against the Maker for relief
under any bankruptcy or insolvency laws, or an assignment of
any of the Maker's assets for the benefit of creditors.
Notwithstanding anything herein to the contrary, the Maker shall have
the following option to extend the term of this Promissory Note. In the event
that on January 31, 2003 any amounts remain due hereunder, Maker may then extend
the term of this Promissory Note for an additional period of ninety (90) days,
exercisable by written notice from Maker to Holder which may be given any time
on or prior to January 31, 2003. The extension period shall be governed by all
of the terms and conditions herein, with the exception that interest on the
unpaid balance shall accrue during the extension option period at a rate of
fourteen percent (14%) per annum as of February 1, 2003.
In the event that any payment under this Promissory Note is not
received by Holder within fifteen (15) days of the date when due, a late charge
equal or the lesser of (y) five percent (5%) of the amount of such payment or
(z) the maximum amount of late charge permitted by law shall be due and payable
at the option of the holder. Notwithstanding the foregoing, any late charge
shall not exceed $1,000.00. Maker agrees that the late charge is a reasonable
estimate of the administrative costs which Holder will incur in the processing
of the delinquency. Holder's acceptance of a late payment and/or of the late
payment charge will not waive any default under this Promissory Note or affect
the acceleration of this Promissory Note (if this Promissory Note has, been
accelerated). Notwithstanding the foregoing, Holder's acceptance of all past due
principal, interest and late charges shall constitute a waiver of any monetary
Event of Default under this Promissory Note existing prior to Holder's receipt
of such payments.
The Maker hereby agrees to pay all costs and expenses which may be
incurred by Holder in connection with the enforcement of the terms, covenants
and conditions of this Promissory Note, and the collection of the monies due and
owing herein, including, without limitation, all counsel fees and costs.
The Maker does hereby waive presentment, demand for payment protest and
notice of dishonor of this Promissory Note, and hereby authorizes the Holder,
without notice, to grant extensions in the time of payment of and reductions in
the rate of interest on any money due and owing hereunder.
The Maker may prepay this Promissory Note in whole or in part at any
time without penalty.
The terms, covenants and conditions of this Promissory Note shall be
binding upon and shall inure to the benefit of the Maker and the Holder and
their respective heirs, executors, administrators, successors and assigns.
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT)
WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY,
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AND FOR THEIR MUTUAL BENEIFT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF
LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED
TO, THIS PROMISSORY NOTE OR THE INDEBTEDNESS EVIDENCED THEREBY.
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of Minnesota. Maker and Holder agree that any dispute
which may arise between them with regard to this Promissory Note shall be
resolved by litigation in state or federal court. Litigation may be initiated by
Holder or its assignee or Maker or its assignee, in the State of Minnesota.
MAKER AND HOLDER HEREBY KNOWINGLY AND IRREVOCABLY WAIVE ANY OBJECTIONS ON THE
GROUNDS OF IMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH
ABOVE AND AGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY
MAIL IF AND TO THE EXTENT PERMITTED BY THE LOCAL RULES OF SUCH JURISDICTION.
The terms and provisions of this Promissory Note may only be changed in
writing, executed by both Maker and Holder.
KC ACQUISITION CORPORATION,
a New Jersey corporation
By:______________________________________
Its: ____________________________________
STATE OF NEW JERSEY )
)ss.
COUNTY OF )
On this ______ day of September, 2002, before me personally appeared
__________________________________, to me known to be the ___________________
of KC ACQUISITION CORPORATION, a New Jersey corporation, for and on behalf of
the corporation.
---------------------------------------
Notary Public
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SCHEDULE 2.3.6
EARNING OF WARRANTS CONVERTIBLE INTO SHARES OF IAS HOLDINGS
Subject to the terms of the warrant program detailed below, the Target
Shareholders may earn warrants convertible into post-IPO Shares of IAS Holdings
based upon the performance of the Surviving Corporation as a publicly traded
corporation, as follows:
1. During the period of 10/1/02 through 9/30/03, if the gross revenues of the
Surviving Corporation shall be a minimum of Five Million Two Hundred Thousand
and No/l00 Dollars ($5,200,000.00), the Target Shareholders shall divide amongst
them in proportion to their respective percentage stock interests in the Target,
three tenths (0.30) of a warrant for each dollar by which the gross revenues of
the Surviving Corporation shall exceed Four Million Six Hundred Thousand and
No/100 Dollars ($4,600,000.00) during that year. By way of example, if the
gross revenues of the Surviving Corporation during the applicable period shall
not meet or exceed Five Million Two Hundred Thousand and No/100 Dollars
($5,200,000.00) during the applicable period, no warrants whatsoever shall be
earned nor issued. Similarly, if the gross revenues of the Surviving Corporation
shall be Five Million Three Hundred Thousand and No/100 Dollars ($5,300,000.00)
during the applicable period, then the Target Shareholders shall have exceeded
the threshold by Seven Hundred Thousand and No/l00 Dollars ($700,000.00) and
also the required annual minimum in order to earn warrants, and the Target
Shareholders thereby earn Two Hundred Ten Thousand (210,000) warrants
(calculated as .30 times 700,000).
2. During the period of 10/1/03 through 9/30/04, if the gross revenues of the
Surviving Corporation shall be a minimum of Six Million One Hundred Twenty
Thousand and No/100 Dollars ($6,120,000), the Target Shareholders shall divide
amongst them in proportion to their respective percentage stock interests in the
Target, three tenths (0.30) of a warrant for each dollar by which the gross
revenues of the Surviving Corporation shall exceed Five Million Five Hundred
Twenty Thousand and No/100 Dollars ($5,520,000.00) during that year. By way of
example, if the gross revenues of the Surviving Corporation during the
applicable period shall not meet or exceed Six Million One Hundred Twenty
Thousand and No/100 Dollars ($6,120,000.00) during the applicable period, no
warrants whatsoever shall be earned nor issued. Similarly, if the gross revenues
of the Surviving Corporation shall be Six Million Three Hundred Twenty Thousand
and No/100 Dollars ($6,320,000.00) during the applicable period, then the Target
Shareholders shall have exceeded the threshold by Eight Hundred Thousand and
No/100 Dollars ($800,000) and also the required annual minimum in order to earn
warrants, and thereby earn Two Hundred Forty Thousand (240,000) warrants.
3. During the period of 10/1/04 through 9/30/05, if the gross revenues of the
Surviving Corporation shall be a minimum of Seven Million Two Hundred Twenty
Four Thousand and No/100 Dollars ($7,224,000.00), the Target Shareholders shall
divide amongst them in proportion to their respective percentage stock interests
in the Target, three tenths (0.30) of a warrant for each dollar by which the
gross revenues of the Surviving Corporation shall exceed Six Million Six Hundred
Twenty Four Thousand and No/100 Dollars ($6,624,000.00). By way of example, if
the gross revenues of the Surviving Corporation during the applicable period
shall not meet or exceed Seven Million Two Hundred Twenty Four Thousand and
No/100 Dollars ($7,224,000.00) during the applicable period, no warrants
whatsoever shall be earned nor issued. Similarly, if the gross revenues of the
Surviving Corporation shall be Seven Million Five
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Hundred Twenty Four Thousand and No/100 Dollars ($7,524,000) during the
applicable period, then the Target Shareholders shall have exceeded the
threshold by Nine Hundred Thousand and No/100 Dollars ($900,000.00) and also the
required annual minimum in order to earn warrants, and thereby earn Two Hundred
Seventy Thousand (270,000) warrants.
Each warrant shall entitle the holder to convert each warrant into one share of
IAS Holdings, for a nominal fee of approximately two cents ($.02) per share, for
a period of sixty (60) days from date of issue. To the extent that the share
ownership interests of all shareholders change from the initial share ownership
numbers projected in Section 2.3.6(B.) above, the conversion value for each
warrant herein shall be increased or decreased, as the case may be in that same
proportional change. The total number of warrants that may be earned under this
program shall not exceed eight hundred thousand (800,000) warrants during the
entire three-year period. The gross revenues of the Surviving Corporation shall
be determined each year under review by the accountants for the company in
accordance with generally accepted accounting principles as consistently
applied.
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Schedule 3.26
Criticom
IDC Cash
Position 9/18/02
Proceeds
23-Oct ▇▇▇▇▇▇ ▇▇▇▇▇ 500,000.00
4-Sep ▇▇▇▇▇▇ ▇▇▇▇▇ 300,000.00
18-Mar ▇▇▇▇▇▇ ▇▇▇▇▇ 100,000.00
----------
Total Proceeds to Date 900,000.00
Allowed
Uses of
Proceeds
E-Bridge
Uses may increase depending on timing of completion
of the DICE project and any other approved items
depending on the timing of actual closing.
IBM - Consulting for E-Bridge Project Definition 33,000.00
Tracker - Web access to maps and client mapping
features including Web map licenses 68,000.00
Aeris Hub to Tracker 20,000.00
DICE Pinpoint with 2-way and web access, down
payment 10,750.00
DICE Pinpoint remainder with hubs and data access 22,750.00
Aeris Hub to DICE Monitoring (Satronics) 10,650.00
------------
0.00
----
sum for E-bridge 165,150.00
Distribution
for taxes (preliminary)
Estimated tax through 9/15/2002 173,000.00
Cash
Cost of
Funds
Principal Paid thru 8/26/02 299,601.75
----------
Uses 637,751.75
----------
Total
Funds
Required 262,248.25
----------
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Funds Available
9/18/02
Checkbook 67,822.87
Firstar - or WTC wires (0.00)
▇▇▇▇▇ Fargo 373,166.04
----------
Cash Sum 440,988.91
Due from M&S Partners (thru 9/26/2002) 12,252.50
Due from Royal Thoughts, net after $675,000 (will be
paid on closing) 314,796.51
----------
Cash and "near cash" sum 768,037.92
WTC A/R 259,310.41
WTC A/P (60,046.40)
----------
199,264.01
TOTAL Funds including WTC 967,3O1.93
----------
Funds
Available
in excess of
Required 705,053.68
Estimate
for Legal
Expense 75,000.00
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SCHEDULE 10.13
--------------
DISPUTE RESOLUTION
1. Representatives. If any dispute arises under or relates to this
Agreement, at the written request of either party each party will appoint a
designated representative (the "Representative") to meet for the purpose of
resolving the dispute. The Representatives will meet at a mutually agreeable
place within the Hackensack, New Jersey, metropolitan area and within 10 days
after either party makes a written request to the other for such a meeting. The
Representatives will honor reasonable requests to exchange information related
to the dispute and will make an effort to negotiate a resolution to the dispute.
Negotiations shall continue until the dispute is resolved or until either party
informs the other in writing that negotiations will not result in a mutually
acceptable resolution and a mediator should be appointed.
2. Mediation. If the dispute is not resolved under paragraph 1 hereof;
the dispute shall be submitted to non-binding mediation (the "Mediation"),
unless both parties to the dispute elect to bypass mediation and resolve the
dispute through arbitration (as provided in paragraph 3 hereof). The parties
shall appoint a mutually agreeable neutral mediator (the "Mediator"). If the
parties are unable to agree on a Mediator within 10 days after the mediation is
requested, either party may refer the matter to the Hackensack, New Jersey,
office of the American Arbitration Association ("AAA") for the limited purpose
of having AAA provide a panel of seven names from which the parties will select
a Mediator. If the parties are unable to agree on a person on the panel, the
parties shall alternatively strike names from the panel until one name is left
on the panel. A coin toss will determine which party is entitled to strike the
first name. Except as otherwise provided in this Agreement or as the parties may
agree otherwise at the time of the Mediation, the Mediation shall be conducted
pursuant to the Commercial Mediation Rules of the AAA, as amended and in effect
on January 1, 1992. The Mediation shall be conducted within 30 days after the
appointment of the Mediator. The parties shall share equally the cost of the
Mediation, including but not limited to, fees of the Mediator, the cost, if any,
of obtaining a location for the Mediation and any filing fee. If during the
Mediation the parties reach a settlement of all or any of their dispute they
shall reduce the settlement to the form of a written settlement agreement that
shall be binding upon the parties. The Mediation may be terminated only after
both parties have participated in the Mediation and are unable to agree on a
settlement. Mediation discussions or opinions of the Mediator are confidential
and may not be relied upon, referred to or introduced as evidence in any
subsequent arbitration or other proceeding.
3. Arbitration. If the dispute is not resolved under paragraph 1 or
paragraph 2 hereof, as the case may be, the parties agree that the dispute shall
be resolved by a private arbitration conducted by a panel of 3 arbitrators (the
"Panel"). Each party shall select one arbitrator of its own choice within 10
days after the termination of negotiations pursuant to paragraph 1 or Mediation
pursuant to paragraph 2 hereof; as the case may be. Within 15 days after the
termination of such negotiations or mediation, the parties shall agree upon a
third arbitrator, selected from a pool of no fewer than 7 names agreed upon by
the parties (the "Pool"), all of whom shall be a member of the National Academy
of Arbitrators. The parties shall select the third arbitrator from the Pool by
alternately striking names until only one name remains on the Pool. A toss of a
coin will determine which party is to strike the first name. The arbitrator
chosen from the Pool shall be the Chair of the Panel. Neither party may choose
as its arbitrator the person who was its Representative under paragraph 1 of
this Dispute Resolution Procedure or
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any person who participated in the Mediation or any person who is an officer,
director or employee of either party or any affiliated entity of either party,
or a person who has a direct or indirect personal or financial interest in the
outcome of the arbitration. Upon selection of the third arbitrator by either the
parties or the arbitrators, the Panel shall be formed.
4. Hearing. The Panel shall set a hearing date for an arbitration (the
"Hearing") within 90 days from the date the Panel is formed, unless otherwise
agreed by the parties, or unless otherwise ordered by the Panel at the request
of either party.
5. Witnesses and Exhibits. Unless Otherwise agreed, within 30 days
before the Hearing each party shall submit to the Panel with a copy to the other
party a list of all witnesses and exhibits which it intends to present at the
Hearing.
6. Guidelines. The Panel shall not be strictly bound by rules of
procedure or rules of evidence, but shall use the Federal Rules of Evidence as a
guideline in conducting the Hearing.
7. Hearing Closed. When testimony is complete and each party has
introduced its exhibits, subject to the provisions of this Agreement, and each
party has made a closing statement pursuant the provisions of this Agreement or
waived the opportunity to do so, the Panel shall declare the Hearing closed;
provided, however, the parties may submit post-hearing briefs pursuant to an
agreed upon schedule or one formulated by the Panel.
8. Hearing Location. The Hearing shall be held at a location agreed
upon by the parties and convenient for the Board, or if the parties cannot
agree upon a location, at a location within Hackensack, New Jersey, designated
by the Panel.
9. Conduct. The Hearing shall be conducted in private. Attendance at
the Hearing shall be limited to the following: (a) the Panel; (b)
representatives of each party; (c) each party's attorneys and attorneys'
assistants or advisors, if any, including expert witnesses, if any; (d) a court
reporter if requested by either party; and (e) any witnesses. The Panel may
sequester witnesses upon the motion of a Party.
10. Panel's Award. Within 30 days of the close of the Hearing or
submission of the post-hearing briefs, the Panel shall issue a written
submission of the post-hearing briefs, the Panel shall issue a written opinion
and award (the "Award"), based on evidence, arguments and post-hearing briefs,
if any. The Award shall be a majority decision of the Panel, shall resolve the
parties; dispute and shall be final and binding on the parties. The fact that an
opinion is issued does not enlarge or restrict the authority of a court to
review the arbitration proceedings or the Award. The Panel shall have the Award
delivered to each Party.
11. Communication. Except as otherwise provided in this Agreement,
there shall be no ex parte communication regarding the subject matter of the
Hearing between a party or its attorneys and any arbitrator on the Panel from
the time the Panel is appointed until after the parties receive the Award.
12. Waiver of Hearing. The parties may agree to submit the dispute to
the Panel without a Hearing, in which event the Panel will render and deliver to
the parties a written opinion and Award within 30 days of being notified that
the parties waive the Hearing.
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13. Limitations on Panel. Notwithstanding any other provision of this
Agreement, the Panel shall have no power to delete from, add to, or modify the
terms of this Agreement, and may not award any remedy that effectively conflicts
directly or indirectly with any provision of this Dispute Resolution Procedure.
14. Governing Law. The Laws of the State of New Jersey shall govern
the arbitration. For the purpose of enforcement of any arbitral award hereunder,
the parties hereto hereby irrevocably submit to, the exclusive jurisdiction of
the Superior Court of New Jersey in Bergen County and the United States
District Court for the District of New Jersey over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby and
each party hereby irrevocably agrees that all claims in respect of such dispute
or any suit, action or proceeding related thereto may be heard and determined in
such court. The parties hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection that they may now or hereafter have
to the laying of venue of any such dispute brought in such court or any defense
of inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Each of the parties hereto hereby consents to process being served by any party
to this Agreement in any suit, action or proceeding by the mailing of a copy
thereof in accordance with the provisions of Section 10.6 hereof.
15. Arbitration Expenses. Seller and Buyer shall share equally the
costs and expenses of the arbitration, including, but not limited to, filing
fees, fees of the arbitrators and costs, if any, of obtaining a location for
the arbitration. Each party shall bear its own witness and expert fees, and
copying and travel expenses. Each party shall bear its own attorney fees
relating to the dispute.
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