SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number 0-28490
GUARDIAN INTERNATIONAL, INC.
(Name of Small Business Issuer as specified in its charter)
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Nevada 58-1799634
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3880 N. 28 Terrace (954) 926-5200
Hollywood, Florida 33020 (The Company's telephone number, including area code)
(Address of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form and no disclosure will be
contained, to the best of registrant 's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the 1997 fiscal year were $5,624,790.
The aggregate market value of voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was sold
as of March 26, 1998 was $10,580,073.48.
As of March 26, 1998, there are 11,073,441 shares of Class A Voting
Common Stock, par value $.001 per share, and 634,035 shares of Class B Nonvoting
Common Stock, par value $.001 per share, of the issuer outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one): Yes___ No X
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TABLE OF CONTENTS
Page No.
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Introductory Note.................................................................................... 3
PART I
Item 1. Description of Business............................................................ 4
Item 2. Description of Property............................................................ 16
Item 3. Legal Proceedings.................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders................................ 17
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.............................................................. 17
Item 6 Management's Discussion and Analysis or Plan of Operation.......................... 22
Item 7. Financial Statements............................................................... 30
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure......................................................... 47
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act......................... 47
Item 10. Executive Compensation............................................................. 49
Item 11. Security Ownership of Certain Beneficial Owners and
Management....................................................................... 50
Item 12. Certain Relationships and Related Transactions..................................... 50
Item 13. Exhibits and Reports on Form 8-K................................................... 51
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Introductory Note
FORWARD-LOOKING STATEMENTS. In connection with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"), Guardian
International, Inc. (the "Company") is hereby providing cautionary statements
identifying important factors that could cause the Company's actual results to
differ materially from those projected in forward-looking statements (as such
term is defined in the Reform Act) made by or on behalf of the Company herein or
orally, whether in presentations, in response to questions or otherwise. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, identified through the use of words or phrases such as the Company or
management "believes," "expects," "anticipates," "hopes," words or phrases such
as "will result," "are expected to," "will continue," "is anticipated,"
"estimated," "projection" and "outlook," and words of similar import) are not
historical facts and may be forward-looking. Such forward-looking statements
involve estimates, assumptions and uncertainties and, accordingly, actual
results could differ materially from the those expressed in the forward-looking
statements. Such uncertainties include, among others, the following: (i) the
ability of the Company to add additional customer accounts to its account base
through acquisitions from third parties, internally generated new accounts and
strategic alliances which lend to the Company's appeal as an acquirer; (ii) the
level of subscriber attrition; (iii) the availability of capital to the Company
relative to certain larger companies in the security alarm industry which have
significantly greater capital and other resources; and (iv) increased false
alarm fines and/or the possibility of reduced public response to alarm signals
and (v) other risk factors and uncertainties described in the Company's reports
filed with the Securities and Exchange Commission (the "SEC") from time to time.
The Company cautions that the factors described above could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which the statement is
made and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of the factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
"MRR". As used in this Annual Report on Form 10-KSB ("Annual Report"), "MRR"
means monthly recurring revenue that the Company is entitled to receive under
contracts in effect at the end of the period covered by this Annual Report,
unless a different period is specified. Monthly recurring revenue is an index
commonly used in the security alarm industry as a measure of the size of a
company. It is not, however, used as a measure of profitability or performance
and does not include any allowance for future attrition or allowance for
doubtful accounts.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY'S SERVICES
The information contained below includes statements of the Company's or
management's beliefs, expectations, hopes, goals and plans that are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements. For a description of such risks and uncertainties,
see the information set forth in the Introductory Note to this Annual Report
under the caption "Forward-Looking Statements," which information is
incorporated herein by reference.
The Company was incorporated under the laws of the State of Nevada on
October 30, 1986 as Burningham Enterprises, Inc. On August 28, 1996, Guardian
International, Inc., then a privately held Florida corporation, merged with and
into the Company (then named Everest Security Systems Corporation). Following
the merger, the Company changed its name to Guardian International, Inc. For
more information regarding the Company's history and its merger with the
privately held Guardian International, Inc., see the information set forth in
this Item 1 under the caption "History".
The Company is presently a leading supplier of security monitoring and
high grade monitored security systems in Florida and New York City (see Item 1 -
"Recent Developments"). Based on the Company's gross revenues and number of
subscribers for the fiscal year ended December 31, 1997 ("Fiscal Year 1997"),
and assuming no significant changes in the data published in SDM MAGAZINE'S
(formerly SECURITY DISTRIBUTING & MARKETING MAGAZINE) May 1997 issue's annual
listing of the top security firms in the United States, the Company expects that
it will be ranked among the top 100 security companies in the United States in
SDM MAGAZINE'S 1998 annual listing. In addition, according to the 1998 Fact Book
Issue of SECURITY SALES (Vol. 19, No.12, supplement), only 5.3% of all security
companies in the United States generate gross revenues in excess of $2,500,000.
These statistics place the company as a significant leader among U.S. security
firms. As reflected in the Company's financial statements set forth in Item 7
below, the Company's gross revenues for fiscal year ended December 31, 1997
("Fiscal Year 1997") were $5,624,790.
The Company's principal activities include the following: (i)
monitoring services provided pursuant to alarm contracts owned by the Company;
(ii) monitoring services provided pursuant to alarm contracts owned by other
alarm companies (wholesale monitoring); (iii) the sales and installation of
electronic security systems including alarm, CCTV and access control systems;
(iv) maintenance of electronic security systems; and (v) acquisition of alarm
contracts in connection with the acquisition of other alarm companies or
otherwise.
The Company's revenues consist primarily of monthly recurring payments
under written contracts for the monitoring of security systems. For Fiscal Year
1997, monitoring revenues represented approximately 67% of total revenues. The
balance of the Company's revenues are derived from (i) the sale of electronic
security systems (approximately 23% of total revenues), (ii) the provision of
maintenance services (approximately 9% of total revenues) and (iii)
miscellaneous sources (approximately 1% of total revenues).
Neither the Company nor the pre-merged Guardian International, Inc.
(see "History" below) has ever had any net income and both the Company and the
pre-merged Guardian International, Inc. have a history of
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consistent and sometimes significant net losses. See Item 6 - Management's
Discussion and Analysis or Plan of Operation "Results of Operations" for further
discussion.
RETAIL MONITORING SERVICES
The Company monitors digital signals arising from burglaries, fires and
other events through security systems installed at subscribers' premises. Most
of these signals are received and processed at the Company's well-equipped
central monitoring station located in Hollywood, Florida. The Company's central
monitoring station is listed by Underwriters Laboratories, Inc. ("UL") both as
(i) a burglar alarm system central station and (ii) a protective signaling
services central station. In addition, the company also received certification
from Factory Mutual ("FM"), an industry regulatory agency, in August 1996. The
Company's central station is constructed to withstand hurricane-force winds and
can maintain operations indefinitely without electrical power using its propane
generators.
The Company's central monitoring station has many security devices,
including closed circuit television ("CCTV"), motion detecting units, high
intensity lighting and access control. All of the equipment the Company uses to
monitor its customers' systems and to protect its central monitoring station is
generally the latest enhancement and the majority of the equipment is less than
four years old. In June 1997, the Company installed new Data General computer
hardware which significantly increased the processing power, disk storage and
growth capabilities of its billing/service and monitoring systems.
The central monitoring station is redundant and, therefore, if there is
ever a failure in a piece of equipment, an exact duplicate is available to back
it up within minutes. The central station monitoring facility is largely
paperless, resulting in lower costs and greater efficiency than would be
obtained otherwise. The Company's phone system is digital (as opposed to
analog); all conversations are recorded and compressed digitally. Every alarm
function is handled through automation including the dialing of customer and
police telephone numbers, thereby reducing the possibility of human error.
The Company's central monitoring station is comprised of a number of
electronic devices. These devices include: alarm receiving equipment, telephone
dialers, radio signal receiving equipment, a digital telephone recorder, a
digital telephone system and a voice mail / auto phone attendant. All of these
devices are maintained internally by the Company's technical personnel. The
balance of the Company's equipment includes dual redundant Data General
Aviion(TM) servers, associated CRTs (terminals) and the software which runs the
automated functions of the Company's security, service and accounting functions.
The software is maintained by Monitoring Automation Systems (Irvine, CA) and the
Data General Corporation computers and terminals are maintained by Data General
Corporation (Boston, MA) pursuant to annual maintenance contracts. The
maintenance services of Monitoring Automation Systems and Data General cost the
Company approximately $5,800 per month in the aggregate.
The monitoring services provided by the Company include monitoring
homes and commercial facilities for burglary, fire and environmental problems.
If an alarm, fire or environmental condition is detected, a signal is
transmitted over telephone and/or radio transmission to the Company's central
monitoring station. When the conditions require verification and/or dispatch
action, the Company's human operators react in accordance with standard
procedures.
The central monitoring system also monitors opening and closing
schedules for the Company's commercial customers. Commercial customers have the
option of receiving weekly reports reflecting the date,
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time, action and employee name with respect to each opening or closing activity
during the relevant week. The reports can be sent to any location around the
world via facsimile or e-mail.
Retail monitoring generated revenues of approximately $3.2 million and
$2.2 million in fiscal years 1997 and 1996, respectively. As of the date of this
Annual Report, the Company had approximately 16,300 retail customers, which
includes the accounts acquired from both Mutual and Gator (see "Recent
Developments", below). No retail customer represents more than 5% of the
Company's total revenues.
WHOLESALE MONITORING PROGRAM
Under the Company's wholesale monitoring program (the "Wholesale
Monitoring Program") subscribers are monitored on a "wholesale" basis for
certain third party security alarm companies, some of which are competitors of
the Company. This practice is commonly referred to in the industry as "third
party monitoring" or "wholesale" monitoring. The Company also offers such third
party companies additional services, such as off-site data entry and account
maintenance, automated account history and testing via touch tone telephone,
marketing and technical support.
Under the Wholesale Monitoring Program, the Company bills the third
party company a monthly amount for all services rendered. The third party
company is responsible for billing its customers. Typical fees for wholesale
monitoring are approximately 20% of the amount billed directly by the Company to
its retail customers. While wholesale monitoring results in significantly lower
margins than are obtained with respect to the Company's retail subscribers, the
wholesale customer base creates an opportunity for the Company to expand its
customer base by purchasing customer accounts from third party companies. In
fact, the Company has on occasion purchased customer accounts that were being
monitored under the Wholesale Monitoring Program.
The Wholesale Monitoring Program generated revenues of $573,000 and
$504,000 in fiscal years 1997 and 1996, respectively. As of the date of this
Annual Report, the Company had approximately 12,000 wholesale customers. No such
wholesale account represents more than 5% of the Company's total revenues.
INSTALLATION AND SALE OF ELECTRONIC SECURITY SYSTEMS
The Company typically installs electronic security systems for its
residential and commercial customers. These systems can range in complexity from
simple alarm panels interfaced with one or two sensors up to highly integrated
card access and CCTV systems. Residential systems are usually sold for a
one-time non-refundable fee. Commercial systems are usually leased to the
customer for a period of time coinciding with the monitoring contract.
Most of the alarm-related products sold by the Company are manufactured
or distributed by subsidiaries of Pittway Corporation. The Company sells a
variety of brands of access control and CCTV products depending upon the
specific application.
Revenues derived from the installation and sale of security systems
totaled approximately $1,287,000 and $863,000 in fiscal years 1997 and 1996,
respectively. Increased revenues are a result of increased efforts to generate
accounts, through additional sales and marketing staffing, and the additional
Specialty Device Installers, Inc. ("SDI") revenues (see "History - General"
below).
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MAINTENANCE OF ELECTRONIC SECURITY SYSTEMS
A strong maintenance and service capability is an important element in
maintaining good customer relations and low attrition. Guardian provides
responsive service to its clients whose electronic security systems require
repair or upgrading. Depending on the nature of the problem and the customer,
such services are typically provided within 24-48 hours.
Revenues derived from the maintenance of security systems totaled
approximately $489,000 and $69,000 in fiscal years 1997 and 1996, respectively.
Increased revenues correlate to the increase in the Company's account base (see
"Customer Account Activity during Fiscal Year 1997).
HISTORY
GENERAL
The Company was incorporated under the laws of the State of Nevada on
October 30, 1986 as Burningham Enterprises, Inc.("Burningham"). Burningham
launched a "blank check/blind pool" initial public offering (the "IPO"),
registering its shares with the Securities and Exchange Commission ("SEC") on a
Registration Statement on Form S-18 which was declared effective in March 1987.
The Company raised $100,000 pursuant to the IPO.
The Company had no operations and did not acquire any business between
October 1986 and February 1988, at which time the Company changed its name from
Burningham Enterprises to Everest Funding Corporation ("Everest Funding") and
completed a reverse subsidiary merger with Everest Mortgage Corporation ("EMC").
Following that merger, EMC became a wholly-owned subsidiary of the Company. EMC
was in the mortgage origination business, but ceased operations in late 1993.
EMC was subsequently dissolved on July 5, 1995.
The Company was again inactive between the end of 1993 and June 1995,
at which time the Company underwent a change of control. New directors were
elected to the Company's Board of Directors (the "Board") and in July 1995, the
Board and a majority of shareholders approved a one for twenty reverse split,
effective July 24, 1995. On November 27, 1995, the Company changed its name from
Everest Funding to Everest Security Systems Corporation ("Everest Security") and
entered into the home alarm installation and service business.
On October 9, 1995, the Company entered into a stock purchase agreement
("Stock Purchase Agreement") with SDI, a company incorporated under the laws of
the State of Florida in August 1991. Under the terms of the Stock Purchase
Agreement, the Company purchased all of the shares of SDI in exchange for
100,000 shares of common stock. The Stock Purchase Agreement also required the
Company to enter into an employment contract with Frank Bauer for a term of five
years commencing on October 1, 1995 in the role of President of SDI, a
wholly-owned subsidiary. SDI was subsequently downsized due to poor financial
performance and a lack of significant margins from the subcontract installation
business. Mr. Bauer is presently serving as an employee of the Company, but is
not an officer of the Company nor a member of the Board, nor the President of
any significant operating subsidiary. During the first quarter of Fiscal Year
1997, the Company significantly downsized SDI as a result of SDI's poor
operating performance and discontinued its operations entirely by the end of
Fiscal Year 1997.
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On January 15, 1996, the Company formed Federal Alarm Systems, Inc.
("FASI"), a wholly owned subsidiary organized under the laws of the State of
Florida. FASI was established to provide monitoring services for the owners of
burglar alarm systems installed by SDI and to monitor and service purchased
burglar alarm contracts. Subsequent to the establishment of FASI, the Company's
management decided to perform these services FASI has been dissolved.
MERGER WITH GUARDIAN INTERNATIONAL, INC.
On August 15, 1996, the Company executed an Agreement and Plan of
Merger ("Merger Agreement") with Guardian International, Inc. ("Guardian"), a
Florida corporation. On August 28, 1996, Guardian merged with and into Everest
(the "Merger"). Pursuant to the terms of the Merger Agreement, in reliance upon
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933,as amended, the Company issued 3,226,902 shares of Common Stock to the
shareholders of Guardian in exchange for all of the outstanding shares of common
stock of Guardian. These shares represented approximately fifty percent (50%) of
the Company's then issued and outstanding Common Stock. Also, pursuant to the
terms of the Merger Agreement, the Company paid approximately $1.8 million to
Harold Ginsburg, one of the shareholders of Guardian, in repayment of certain
loans to Guardian and as a return of capital.
Following the Merger, the Company changed its name to Guardian International,
Inc. The Company's directors preceding the Merger resigned following the Merger
and the directors of Guardian filled the vacancies on the Board. For a listing
of the Company's directors, see Item 9 - Directors, Executive Officers,
Promoters and Control Persons contained herein. For a discussion of the
accounting treatment of this transaction, see Note 2 of Notes to Consolidated
Financial Statements included in Item 7 - Financial Statements contained herein.
RECENT DEVELOPMENTS
INVESTMENT BY WESTAR CAPITAL, INC.
On October 15, 1997, the Company and Westar Capital, Inc. ("Westar") ,
a wholly-owned subsidiary of Western Resources, Inc., executed definitive
agreements to acquire approximately 37 percent of the equity of the Company. The
proceeds of investment totaled approximately $7.5 million. The investment
consisted of Westar purchasing 2,500,000 newly issued shares of Class A Voting
Common Stock, par value $.001 ("Class A Stock"), and 1,875,000 shares of newly
issued Series A 9 3/4% Convertible Cumulative Preferred Stock, par value $.001
(the "Series A Preferred Stock"). The Series A Preferred Stock is convertible to
Class A Stock on a share for share basis. As part of the transaction, the
Company will expand its Board to eight members, with two members appointed by
Westar Capital.
ACQUISITION OF MUTUAL CENTRAL ALARM SERVICES, INC.
In February 1998, the Company completed the acquisition of 100% of the
equity securities of Mutual Central Alarm Services, Inc. ("Mutual"), the
nation's 70th largest monitored alarm company (according to SDM MAGAZINE) and
one of the largest independent alarm companies in the metropolitan New York
area. Founded nine years ago, Mutual has grown through a strategy of
concentration on high-grade UL listed commercial security, fire, CCTV and access
control systems. Mutual provides services to a prestigious roster of high-end
retail businesses, financial institutions and Fortune 500 companies. The
acquisition will contribute MRR of
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approximately $320,000, annual revenues of about $5 million and earnings before
interest, taxes, depreciation and amortization ("EBITDA") of approximately $1.5
million.
The total purchase price was approximately $10 million in cash and
1,981,700 shares (the "Mutual Shares") of Guardian unregistered Class A Stock.
The Company granted certain rights to the selling shareholders to have the
Mutual Shares registered by the Company under the Securities Act of 1933, as
amended (the "Securities Act") 750,000 shares of the Mutual Shares are being
held in escrow for a one year period for indemnification purposes. The effective
date of the acquisition was February 1, 1998 (the "Effective Date"). The
transaction will be accounted for under the purchase method of accounting.
Pursuant to the terms of the Stock Purchase Agreement effective as of
February 1, 1998, by and among the Company, Mutual and the selling stockholders
of Mutual (the "Stock Purchase Agreement"), the Company and Mutual entered into
employment agreements with Joel A. Cohen and with Raymond L. Adams. Mr. Cohen
was retained under a five year agreement as President of Mutual and was
appointed to serve as a Vice President of the Company. Mr. Cohen was also
granted options to purchase 100,000 shares of Class A Common Stock. Twenty
percent of the options vest and are exercisable on each of the first five
anniversaries of the effective date of his employment agreement. Mr. Adams was
retained under a three-year agreement as a Vice President of Mutual. Mr. Adams
was also granted options to purchase 100,000 shares of Class A Common Stock,
thirty three and one-third percent of which vest and are exercisable on each of
the first three anniversaries of the effective date of his employment agreement.
The Company funded the cash portion of the acquisition with borrowings
under its existing credit facility, as amended, with Heller Financial, Inc.
("Heller") (see Item 6 - Management's Discussion and Analysis of Plan of
Operation "Credit Facility") and proceeds from a $4.0 million preferred stock
investment from Westar, a Kansas corporation and a wholly-owned subsidiary of
Protection One, Inc., a Delaware corporation. Protection One, Inc. is a
majority-owned subsidiary of Western Resources, Inc. Westar purchased 1,600,000
shares of Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
$.001 (the "Series B Preferred Stock"), of Guardian at $2.50 per share. The
Company granted to Westar certain rights to have the Common Stock issuable upon
conversion of the Series B Preferred Stock registered by the Company under the
Securities Act.
Guardian will continue to operate Mutual under its trade name as a
wholly-owned subsidiary and will continue to operate Mutual's New York based
central monitoring and dispatch center.
ACQUISITION OF GATOR TELECOM, INC.
On March 9, 1998, the Company acquired all the assets of Gator Telecom,
Inc., a Florida corporation ("Gator"), for $1.4 million in cash and 94,937
shares of restricted Class A Stock. The Company funded the cash portion of the
acquisition by using its Renewed Credit Facility with Heller.
Gator provides security installation, monitoring, structured wiring and
home automation to over 125 active residential builders in the Tampa Bay area.
Gator was founded in 1981.
The Company will continue to operate Gator from its 5,000 square foot
service facility in Tampa. Dan Lawrence, the founder of Gator, has been named
the Company's Central Florida Regional Manager and will also oversee service for
the Company's pre-existing 1,500 Tampa customers that are presently serviced by
dealers.
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The acquisition, which included a significant number of corporate
assets such as accounts receivable, inventory, vehicles and other fixed assets,
will also add approximately 1,800 monitored subscribers to the Company's current
MRR base and increase MRR under contract by more than $37,000.
MARKET OVERVIEW AND TRENDS
The Company's target market consists of owners of single family
residences, residential development communities where the Company has or may
obtain bulk service contracts and commercial establishments.
The security alarm industry is characterized by a high degree of
fragmentation and currently is comprised mostly of a large number of small
providers of alarm systems and services. A survey published by SDM Magazine in
May 1997 reported that in 1996, based upon information provided by its
respondents, the 100 largest companies in the alarm industry accounted for
approximately 25% of industry revenues. The Company believes that many smaller
alarm service companies, because of their small size, have higher overhead
expenses as a percentage of revenues than the Company and lack access to capital
on terms as attractive as those available to the Company. Moreover, due to a
decline in security system installation prices over the last two years, security
alarm companies participating in market growth are required today to make a
substantial investment in each new subscriber; for example, in order to be
competitive, security alarm companies must sell equipment at below cost or
transfer equipment gratuitously in the expectation of generating future
recurring monitoring revenues. Consequently, access to capital has become an
increasingly important factor in a security alarm company's success.
The residential security alarm market is also characterized by rapid
growth, but a relatively low level of market penetration and is therefore still
in a relatively immature stage. The pricing has only recently made it accessible
to a broader homeowners' market. The Company believes that several factors have
spawned an increased demand for residential security alarm systems in the
markets where the Company operates, including increased crime rates, increased
public concern about crime and the prevalence of insurance company discounts to
homeowners who purchase alarm systems, which discounts are typically larger when
alarm systems are monitored by a central station. In addition, insurance
companies may require that businesses install an alarm system as a condition to
obtaining or renewing insurance coverage. Also, the Company enjoys the benefits
of operating in two separate sectors of the industry, high grade commercial and
traditional residential. By operating in both sectors, economic strength in one
can subsidize any weaknesses that may occur in the other, a reputation earned in
one sector can carry over into the reputation for the other and cash flow from
commercial projects can help fund investments in the residential market.
Advances in digital communications technology have prompted some
consolidation in the security alarm industry. Prior to the development of
digital communications technology, alarm monitoring required a dedicated
telephone line, which made long-distance monitoring uneconomic. Consequently, in
order to achieve a national or regional presence, alarm monitoring companies
were required to maintain a large number of geographically dispersed local
monitoring stations. The development of digital communications technology
eliminated the need for dedicated telephone lines, reducing the cost of
monitoring services to the subscriber and permitting the monitoring of
subscriber accounts over a wide geographic area from a central monitoring
station. The elimination of local monitoring stations has decreased the cost of
providing alarm monitoring services and has substantially increased the
economies of scale for larger alarm service companies. In addition, the
concurrent development of microprocessor-based control panels has substantially
reduced the cost of the equipment available to subscribers in the residential
and commercial markets. Digital technology has also enabled
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equipment manufacturers to build more features into security systems (e.g.,
remote user interface, lighting and heating controls, user programming
features).
Large, consumer-oriented companies in industries facing deregulation,
including long distance and local telephone companies and electric and gas
utilities (e.g. Entergy Corporation, Western Resources, Inc. and Ameritech
Corporation), have demonstrated an increased interest in the security alarm
industry over the last several years. The Company believes telecommunication and
utility companies are interested in offering their customers additional
services, including security services, as a means of enhancing customer loyalty
and reducing future risk of losing customers in a fully competitive environment.
The entrance by such large companies into the security alarm business poses the
threat that such companies will engage in price wars with other companies in the
security alarm industry. Such price wars, if they were to occur, could have a
materially adverse effect on the Company's financial condition. As discussed
above in "Recent Developments", Westar Security, Inc. to which Westar assigned
its interest in the Company, has invested $11.5 million in the Company. Upstar
Security, Inc. is a wholly-owned subsidiary of Protection One, Inc., a
majority-owned subsidiary of Western Resources, Inc. The Company believes that
its strategic alliance with affiliates of Western Resources, Inc. will help the
Company's competitive position by (i) improving the Company's financial strength
by increasing the Company's equity; (ii) lowering its cost of capital; (iii)
improving its appeal to potential sellers of alarm accounts or alarm companies;
(iv) improving and expanding acquisition and investment opportunities
made available to the Company and (v) improving the quality of financial and
strategic advice available to the Company through Board representation and
otherwise.
BUSINESS STRATEGY
The Company's strategy for growth has consisted primarily of the
implementation of an aggressive and strategic acquisition plan, while
maintaining a strong balance sheet. Between 1994 and 1997, prior to its merger
into the Company, Guardian acquired a combination of 20 alarm companies and/or
portfolios of customer monitoring contracts from existing alarm companies. The
financing for these acquisitions was derived from a $7,000,000 credit facility
with Heller, which has been replaced by the Company's Renewed Credit Facility
(see Item 6 Management's Discussion and Analysis or Plan of Operations "Credit
Facility") and with the proceeds from the investment by Westar (see "Recent
Developments").
Management believes that numerous acquisition opportunities continue to
be available and the Company is pursuing, and intends to continue to pursue,
acquisitions of alarm companies or portfolios of subscriber accounts, some of
which may be significant to the Company's expected future growth. Through its
recent acquisition of Mutual, the Company has expanded its operations outside of
Florida and into New York. The Company plans to continue pursuing other
acquisitions outside Florida, not only in New York, but in major metropolitan
areas in North and South America. Acquisitions of account portfolios thus far
have been achieved primarily through the acquisition of alarm companies, the
"Independent Alarm Acquisition Program" and, until recently, the "Dealer
Program", as described below.
Under the Independent Alarm Acquisition Program, the Company acquires
customer contracts from independent alarm companies in Florida. Under this
Program, the independent alarm company solicits sales of its own alarm systems
from potential residential or commercial customers, who are also offered the
option to enter into an agreement with the independent alarm company, in the
independent alarm company's own name, for the provision of alarm monitoring
and/or repair services, typically for a 60 month term, although the monitoring
period may be shorter. The independent alarm company then sells the customer
contract to the Company for an amount typically between 25 to 35 times the
amount of MRR to be generated by the contract,
11
<PAGE>
or a proportionately smaller multiple of MRR if the contract is for less than 60
months. The costs of such acquisitions are accounted for at the fair value as of
the date of acquisition and amortized over 10 years.
While the Company is not using aggressive efforts to continue the
Dealer Program, there are several authorized dealers in Florida. Most of the
Dealers are independent alarm companies performing under agreements to sell
under the Company name, although in most cases the Dealer is not obligated under
the agreement to sell exclusively for the Company. The Dealers are offered
numerous support services including but not limited to marketing, equipment
discounts, technical expertise and competitive purchase multiples. The Company's
goal is to aid the Dealers in achieving performance goals, which in turn benefit
the Company. Each Dealer solicits sales of the Dealer's own alarm systems from
residential or commercial customers, who also may be offered the option to enter
in an agreement for the provision of alarm monitoring and/or repair services,
typically for a 60 month term, although the monitoring period may be shorter.
The Dealer can offer the provision of monitoring services to the customer under
the name of the Company, under the Dealer's own name, or under any other
independent alarm company name. In such cases where the customer contract for
monitoring services is written under the name of the Company, the Company pays
the Dealer a placement fee. In other cases where the customer contract is
written under any provider's name other than the Company, the Dealer sells the
contract to the Company. The amount paid by the Company to the Dealer under
either scenario described is typically between 25 to 35 times the amount of MRR
to be generated by the contract, or a proportionately smaller multiple of MRR if
the contract is for less than 60 months. The amount paid to Dealers is
capitalized and amortized over 10 years.
Under both the Independent Alarm Acquisition Program and the Dealer
Program, the independent alarm company or the Dealer, as the case may be
(collectively referred as the "Contract Seller"), may be required to guarantee
that a minimum number of payments (usually between 12 and 18 monthly payments)
will be received by the Company from the customer (the "Minimum Payment Period")
and that customers will pay any amounts owed within 90 days during such Minimum
Payment Period. If the guaranteed number of payments is not received by the
Company, or if a customer is late in paying any amounts due for a period
exceeding 90 days, the Contract Seller must replace the subscriber contract with
a new contract of equal original duration and MRR. In order to ensure that such
Contract Seller guarantees are met, the Company typically withholds an average
of 10% of the payment made to the Contract Seller at the inception of the
transaction (referred as a "holdback"). After the guarantee period lapses, the
Company will pay the Contract Seller the holdback monies due.
Another source of growth of account portfolios is the Company's
internal sales department. The Company has various retail marketing programs in
place intended to generate additional subscribers. One such program is a
customer referral program pursuant to which new customers are generated by
referrals from the Company's existing and continually increasing customer
account base. These "referral accounts" enable the Company to increase its
revenue at a much lower cost than traditional marketing methods. In addition,
the Company recently became an authorized distributor of First Alert(TM)
security products, a product line available to a select group of alarm dealers.
Such dealers also receive significant marketing support from First Alert
Professional(TM) including sales literature, sales training and leads.
Management is hopeful that significant additional revenue sources will
be generated from the Company's bulk service communities builder projects. The
Company currently has master association contracts ("Master Contracts") with
eight development companies. Each Master Contract calls for Company-installed
alarms to be monitored by the central station with one bill each month to the
relevant master homeowners association. Closings on homes located in these
developments began in the first quarter of 1996 and will continue for the next
three (3) years. Guardian's revenue under a Master Contract increases
incrementally with
12
<PAGE>
each closing. Current MRR under the Master Contracts is approximately $13,000.
Management anticipates that upon completion of the development projects, the
Company will generate over twenty-five thousand dollars ($25,000) in additional
MRR under the Master Contracts; there can be no assurances, however, as to the
completion of these projects or the realization of the additional MRR.
The financial strategy for effecting the business goals was enhanced in
1997 by developing a relationship with Western Resources, see "Recent
Developments", above. The Company believes that the relationship represents a
reliable source of equity capital for the future, affording management the
ability to focus on executing the business strategy. Some of the relationship's
many potential benefits are enumerated in "Market Overview and Trends", above.
CUSTOMER ACCOUNT ACTIVITY DURING FISCAL YEAR 1997
The Company purchased 4,268 contracts (net of 434 contracts which were
returned to sellers due to collectability problems -- such returned contracts
are not counted towards attrition, as defined in "Overview" in Item 6 -
Management's Discussion and Analysis or Plan of Operation, below) during Fiscal
Year 1997.
The following table reflects the Company's customer account activity
during Fiscal Year 1997:
<TABLE>
<CAPTION>
<S> <C>
Number of customer contracts owned as of January 1, 1997 7,940
Contracts purchased during Fiscal Year 1997 4,268
Contracts generated through internal sales during Fiscal Year 1997 618
Contracts lost through net attrition* (971)
-------
Number of customer contracts owned as of December 31, 1997 11,855
=======
</TABLE>
* For the definition of net attrition and a discussion of the primary
reasons for attrition of customer accounts, see information under the
caption "Overview" in Item 6 - Management's Discussion and Analysis or
Plan of Operation, below.
The 4,268 contracts purchased by the Company during Fiscal Year 1997
generated average MRR of approximately $28 per contract. The range of MRR for
most contracts is between $12 per contract and $60 per contract, with the vast
majority being between $12 and $35. Approximately 68% of the contracts purchased
were residential contracts and approximately 32% were commercial contracts.
Through the Mutual and Gator acquisitions ("Recent Developments", above) the
Company acquired approximately 2,500 and 1,800 contracts, respectively. The
average MRR for the Mutual contracts is approximately $125 per contract; the
Gator contracts have an average MRR of approximately $18 per contract.
13
<PAGE>
The breakdown of the number of purchased contracts for Fiscal Year 1997
by MRR range is as follows:
Number of Contracts Purchased
Monthly Recurring During the Year Ended
Revenue Range December 31, 1997
$12 - $25 3,315
$26 - $35 501
$36 - $60 319
Over $60 133
-----
4,268
=====
The average attrition guarantee period, for which dealers must replace
nonperforming contracts, is between 12 and 18 months from the date of purchase.
The average purchase price holdback is 10%.
EQUIPMENT AND TECHNOLOGY
In June 1997, the Company invested $150,000 to upgrade the hardware and
software of its security monitoring system. These improvements included new Data
General/Aviion machines based on Intel processors, positioning the Company for a
transition to a Windows NT computing environment. This investment increased
capacity and improved the productivity of operators and other administrative
staff using the automation and accounting systems. The Company expects to
upgrade its security monitoring system periodically as necessary to keep up with
technological advances.
The Company currently operates under the MAS 5.50.11 version, for its
automation, service and billing system. The Company is one of the few companies
in the United States to incorporate integrated MAS fax technology. This gives
the Company the ability to automate numerous aspects of information that were
previously processed manually. In addition, such technological advancements as
the provision of alpha-numeric alarm indications and the use of security
industry-specific software such as MASTrak and MASLink, give the Company's
off-site locations the ability to process data efficiently with little or no
human interaction.
The Company's central monitoring system currently has the capacity to
monitor up to approximately 250,000 subscribers with moderate upgrades to the
storage and processor capacity of its existing hardware system. Moreover, the
operating facility would require minimal physical changes to accommodate such a
volume of accounts.
MARKETING
A large portion of the Company's marketing activities have consisted
of referrals and a limited amount of advertising. As mentioned above, the
Company elected to become a First Alert Professional(TM) dealer to enhance its
direct sales efforts. The direct sales staff was more than doubled in 1997 and
additional increases are expected in fiscal year 1998. The Company intends to
14
<PAGE>
expand its direct sales organization not only in South Florida and New York, but
in other major metropolitan markets of North and South America.
The Company purchased customer accounts from 14 independent alarm
companies and 14 dealers during Fiscal Year 1997. Such dealers and independent
alarm companies are located throughout South Florida, Central Florida and the
Tampa/Sarasota, Florida areas.
COMPETITION
Competitive conditions vary within each segment of the security
industry. The largest segment is composed of security system dealers. Most of
these companies have fewer than twenty employees, average one
hundred fifty to eight hundred fifty (150- 850) customer accounts, are usually
under capitalized, are owner-managed and do not have their own central
monitoring stations.
According to a 1996 survey conducted by SDM Magazine (published in May
1997), the 100 largest companies in the security industry account for
approximately twenty-five percent (25%) of the industry's total revenue.
Therefore, the majority of the industry revenue is generated by smaller alarm
service companies.
The segment of the industry composed of central monitoring services is
characterized by a small number of companies that provide both wholesale and
retail monitoring. The barriers to entry in this segment are high due to the
large investment required to equip and conform the facilities for UL approval.
This segment is divided into national and regional firms. The smaller regional
companies have difficulty competing with the larger national firms due to higher
overhead, the inability to purchase service and equipment on volume discounts
and, often, the lack of capital or financing to make acquisitions. However, the
Company believes that large regional companies have a competitive advantage
relative to large national companies because large national companies provide
sales and/or leases, installations and service of security systems and provide
central monitoring services, but typically provide only retail monitoring for
security systems installed by them. They generally do not enter the wholesale
market. In contrast, regional companies typically provide wholesale monitoring
services to other regional and local alarm companies that are unable to supply
the monitoring function for the security systems which they sell. (See
"Wholesale Monitoring Program," above, for a discussion of the Company's
Wholesale Monitoring Program.)
There are a number of larger companies which may have significantly
greater capital and resources than the Company. See "Market Overview and
Trends," above, for a discussion of competition from large companies in other
industries. The following chart reflects the size of the nine largest alarm
companies. The information was obtained from the May 1997 issue of SDM MAGAZINE.
<TABLE>
<CAPTION>
1996 Revenue
Company (in millions) Number of Accounts
<S> <C> <C>
ADT Security $994 1,430,000
Security Link from Ameritech $250 367,000
Wells Fargo Alarm Services $241 166,800
Honeywell $223 200,000
Brinks Home Security $156 446,500
Westar Security, Inc. (1) $142 425,000
Republic Security Services, Inc. (2) $100 280,000
Protection One, Inc. $ 74 196,500
Westec Security $ 68 70,000
Guardian International, Inc. $ 4 8,000
</TABLE>
(1) Westar Security, Inc. is a wholly-owned subsidiary of Protection One, Inc.,
a Delaware corporation, a majority-owned subsidiary of Western Resources, Inc.
and owns 41.0% of the Company's outstanding Common Stock as of March 26, 1998.
(2) The assets of Republic Security Services, Inc were purchased by Ameritech in
1997.
GOVERNMENT REGULATION
The Company's operations are subject to federal, state, county and
municipal laws, regulations and licensing requirements. The Company's employees
include four qualifiers for the low-voltage electrical contractor license as
required by the State of Florida. In addition, the Company believes it holds all
the licenses required to operate in the counties and municipalities in Florida
in which it is presently providing services.
Because the Company operates a central monitoring station and installs
burglar and fire alarms, the State of Florida requires that the Company's
employees directly involved in the monitoring of customers and provision of
field repair services complete a certification program and that the Company
maintain a license to conduct its monitoring business. The Company believes that
it holds the necessary licenses to conduct its business and that it is in
compliance with all licensing and regulatory requirements in each jurisdiction
in which it operates.
The Company relies on the use of telephone lines and radio frequencies
to transmit signals and relay alarm calls. The cost and type of equipment that
may be employed for telephone lines is regulated by the federal and state
governments. The use and operation of radio frequencies is regulated by the
Federal Communications Commission and the state public utilities commissions.
TRADEMARKS
During fiscal year 1996, the Company filed applications with the United
States Patent and Trademark Office ("Office") to register the mark Guardian
International. In early 1998, the Company received notification from the Office
that its application had not been accepted. The Company is currently conducting
research on all of its tradenames, Guardian International, Inc., Gibraltar
Security Alarm Services, Alarm Control, Inc., Mutual Central Alarm Services, Inc
and Gator Telecom, Inc., to determine the feasibility of continuing to operate
under separate trade names or consolidate into one name. No assurance can be
given that the Company will be able to successfully enforce or protect its
rights to its tradenames in the event that any of them is subject to third-party
infringement.
15
<PAGE>
EMPLOYEES
At December 31, 1997, the Company employed 74 individuals, all of whom
were full-time employees. Any future increase in the number of employees will
depend upon growth of the Company's business.
As of December 31, 1997, none of the Company's employees was
represented by a labor union or covered by a collective bargaining agreement.
The Company and management believe that the Company's relations with its
employees are satisfactory.
RESEARCH AND DEVELOPMENT AND ENVIRONMENTAL ISSUES
The Company does not conduct any research and development activity.
The Company has the need to dispose of many batteries, which constitute
environmentally sensitive waste. The used batteries are stored in the Company's
warehouse until such time they are transported to a recycling center for
disposal.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate headquarters from Guardian
Investments, a Florida partnership owned by Harold and Sheilah Ginsburg, both of
whom are directors, officers and principal shareholders of the Company. (See
Item 12 - Certain Relationships and Related Transactions, below.) During 1997,
the Company occupied 6,000 square feet of the building which houses the
Company's central monitoring facility located at 3880 N. 28 Terrace, Hollywood,
Florida 33020. The telephone number is (954) 926-5200. The lease will expire on
December 31, 1999, but the Company has an option to renew for an additional five
years under the same terms and conditions. The annual rental at year end was
approximately $84,000, with annual increases not to exceed three percent (3%).
The terms of the lease are no less favorable to the Company than those which
could be obtained from unaffiliated third parties.
With the acquisition of Mutual, the Company became the assignee on a
lease with Windbrook Realty. The assignment commenced February 1, 1998 and
extends through December 31, 1999. The leased property is a 3,500 square foot
building housing a central monitoring station, offices and warehouse facilities.
The annual rent is approximately $88,000.
With the acquisition of Gator, the Company executed a three year lease,
commencing March 1, 1998, with Dan and Cindy Lawrence, former owners of Gator.
The leased property is a 5,000 square foot building housing a central monitoring
station, offices and warehouse facilities. The annual rental is approximately
$50,000.
OWNERSHIP OF REAL ESTATE
The Company does not own any real estate at this time.
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company experiences routine litigation in the normal conduct of its
business. The Company believes that any such pending litigation will not have,
individually or in the aggregate, a material adverse effect on its respective
business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through proxy
or otherwise, during Fiscal Year 1997. As set forth in the Company's Definitive
Information Statement on Schedule 14C filed with the SEC on October 23, 1997
(the "Definitive Schedule 14C"), Richard, Harold, Sheilah and Rhonda Ginsburg
(the "Ginsburgs"), who owned or controlled 51% of the outstanding shares of
Common Stock as of that date, approved by written consent in November 1997, the
filing of amendments to the Company's Certificate of Incorporation (i) to
authorize the Company to issue Preferred Stock and (ii) to increase the number
of authorized shares of Class B Nonvoting Common Stock, par value $.001 ("Class
B Stock"), each share of which is convertible into one share of Class A Stock.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Common Stock has been publicly traded under the symbol "GIIS" since
November 1996 through the National Quotation Bureau's National Daily Quotation
Price Sheets. Prior to the merger of Guardian into the Company, the Common Stock
(Everest Security common stock) was traded under the symbol EVST.
To the best of the Company's knowledge, there are presently 12
market-makers. A public trading market for the Common Stock having the
characteristics of depth, liquidity and orderliness, depends on the existence of
market-makers as well as the presence of willing buyers and sellers. There can
be no assurance that these market-makers will continue to make a market for the
Common Stock. If the market-makers discontinue making a market for the Company,
the Common Stock would possess virtually no liquidity.
The following table sets forth the high and low bid information of the
Common Stock for the fiscal periods indicated below, as reported by the National
Quotation Bureau during such periods. The prices reflect inter-dealer prices
without retail mark-up, mark-down, quotation, or commission. The figures do not
necessarily represent actual transactions.
High Low
1996
First Quarter $3.56 $3.00
Second Quarter $4.87 $3.25
Third Quarter $5.00 $4.13
Fourth Quarter $2.50 $1.75
1997
First Quarter $2.50 $1.00
Second Quarter $1.25 $0.63
Third Quarter $1.75 $0.78
Fourth Quarter $2.50 $1.47
The Company is authorized to issue 30,000,000 shares of Preferred
Stock, of which 3,475,000 shares are issued and outstanding as of March 26,
1998. The Company is presently authorized to issue 100,000,000 shares of Class A
Stock, of which 11,080,441 shares are issued 11,073,441 are outstanding as of
March 26, 1998. There are 127 holders of record of Class A Stock. The Company is
authorized to issue 1,000,000 shares of Class B Stock, of which 634,035 shares
are issued and outstanding as of March 26, 1998. Heller is the sole holder of
record of Class B Stock.
Pursuant to the terms of the agreement and plan of merger dated August
15, 1996 by and among the Company, Guardian and Guardian's principal
shareholders (the "Merger Agreement"), the pre-merger Guardian shareholders were
entitled to receive an additional 1,000,000 million shares of Common Stock if
certain additional capital was not raised and deposited with the Company within
60 days of the closing date of the Merger (the "Outside Date"). The additional
capital was not deposited on or prior to the Outside Date and, therefore, the
pre-merger Guardian shareholders, which includes the Ginsburgs, received the
pledged shares proportionately to their ownership in pre-merged Guardian.
Subsequently, the principal shareholders distributed 500,000 of the pledged
shares to other shareholders of the Company.
In connection with the merger of Guardian into the Company, Heller
received 484,035 shares of Class B Stock in exchange for certain capital
appreciation rights with respect to the common stock of pre-merger
17
<PAGE>
Guardian held by Heller. In addition, pursuant to the terms of an agreement
entered into among the pre-merger Guardian shareholders and Heller, as a result
of the Company's failure to raise the additional equity capital (see paragraph
immediately above), the Company was required to issue 150,000 shares of Class B
Stock to Heller. In order to fulfill this commitment, the Company's Articles of
Incorporation were amended to authorize additional shares of Class B Stock which
were issued to Heller in November 1997.
DIVIDENDS
The Company has not declared any cash dividends on its Common Stock
since its inception and does not anticipate paying such dividends in the
foreseeable future. The Company plans to retain any future earnings for use in
the Company's business. In addition to the self-imposed restriction on the
payment of dividends resulting from the Company's own policies, the payment of
dividends is currently restricted pursuant to the terms of the existing credit
facility with Heller and is likely to remain subject to such restriction for the
foreseeable future. For additional information regarding the Heller credit
facility, see "Credit Facility," in Item 6 Management's Discussion and Analysis
or Plan of Operation, below.
The Company has not declared any cash dividends on its Series A
Preferred Stock (the "Preferred Stock") and Series B Preferred Stock and does
not anticipate paying cash dividends until required to do so two years after the
Preferred Stock was issued. During the interim period, the Company will pay
dividends in the form of additional shares of Preferred Stock. The payment of
cash dividends is currently restricted pursuant to the terms of the existing
credit facility with Heller (see Item 6 - Management's Discussion and Analysis
or Plan of Operation "Credit Facility").
Assuming the payment of dividends is not prohibited under the Renewed
Credit Facility, defined below, the payment of any future dividends rests within
the discretion of the Board, subject to the conditions then existing, including
the Company's earnings, capital requirements, financial condition and other
relevant factors.
TRANSFER AGENT
The transfer agent for the Common Stock is Interwest Transfer Company,
1981 E. Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117.
RECENT SALES OF UNREGISTERED SECURITIES
On June 7, 1995, the Company issued 20,000,000 shares of common stock
for 100,000 shares of J.A. Industries, Inc. valued at $100,000. The shares were
issued in reliance upon the exemption from registration afforded by Section 4(2)
of the Securities Act. The shares were issued in a private placement to
International Treasury & Investments Ltd.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
<S> <C> <C> <C>
International Treasury 6/7/95 20,000,000 (before the 1 for $100,000 in J.A.
& Investments Ltd. 20 reverse split) Industries stock
</TABLE>
On July 5, 1995, the Company issued 3,975,000 shares of Everest common
stock to three individuals (or entities owned or controlled by such individuals)
for par value. Two of the individuals were officers and
18
<PAGE>
directors of the Company. The issuance was exempt from registration in
accordance with Rule 701 of the Securities Act. The shares were issued as
compensation for services rendered or to be rendered.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
<S> <C> <C> <C>
427968 B.C. Ltd. (1) 7/5/95 1,325,000 (prior to 1:20 $1,325
reverse split)
Knight Financial Ltd. (2) 7/5/95 1,325,000 (prior to the $1,325
1:20 reverse split)
Steven A. Sanders 7/5/95 1,325,000 (prior to the $1,325
1:20 reverse split)
</TABLE>
In October 1995, the Company issued 500,000 shares of Everest common
stock at $2.00 per share. The issuance was exempt from registration pursuant to
Rule 504 of Regulation D promulgated under the Securities Act.
These shares were issued in a private placement to accredited investors.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
<S> <C> <C> <C>
427968 B.C. Ltd. 10/13/95 50,000 $100,000
427968 B. C. Ltd. 10/17/95 10,000 $20,000
Royal Bank of Scotland (3) 10/30/95 100,000 $200,000
Anne Huber 10/31/95 15,000 $30,000
Rodney Adler 12/04/95 100,000 $200,000
Tiger Eye Investments
[Cayman] Ltd. (4) 12/15/95 75,000 $150,000
International Treasury &
Investments Ltd. (5) 12/15/95 75,000 $150,000
Langara Capital Foundation (6) 12/15/95 75,000 $150,000
</TABLE>
- ----------------------
(1) 427968 B.C. Ltd. is controlled by J.A. Michie.
(2) Knight Financial Ltd. is controlled by Robert Knight.
(3) Royal Bank of Scotland purchased shares for clients of the bank,
identities unknown.
(4) Tiger Eye Investments (Cayman) Ltd. is owned by Campbell Nominees, Ltd.
(5) International Treasury & Investments is owned by Warwyck Nominees,
Ltd. and an affiliate of G.M. Capital Partners, Ltd.
19
<PAGE>
(6) Langara Capital Foundation is owned by Lichtenstein Trust,
administered by J.A. Michie.
In November 1995, the Company issued 100,000 shares of Everest
common stock at $0.01 per share to Frank Bauer in accordance with the terms of
the purchase agreement of SDI. These shares were issued in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities Act.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
<S> <C> <C> <C>
Frank Bauer 11/95 100,000 $1,000
</TABLE>
On March 12, 1996, the Company issued 30,000 shares of Everest common
stock to employees and directors of the Company as payment for their services.
The issuance was exempt from registration under Section 4(2) of the Securities
Act.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
<S> <C> <C> <C>
Frank Bauer 3/12/96 10,000 $100
Gary Liscio 3/12/96 5,000 $ 50
Harvey Doischen 3/12/96 5,000 $ 50
Karl Gelbard 3/12/96 10,000 $100
</TABLE>
On August 14, 1996, the Company issued a total of 1,000,000 shares of
Everest common stock at $3.50 per share to the following institutions. The
issuance was exempt from registration under Regulation S promulgated under the
Securities Act.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
<S> <C> <C> <C>
Bank of Austria
(Switzerland)
8/14/96 15,000 $52,500
Bank Leu 8/14/96 60,000 $210,000
Coutts & Co. AG Zurich 8/14/96 15,000 $52,500
Credit Suisse 8/14/96 170,000 $595,000
Darier Hentsch Private
Bank & Trust 8/14/96 30,000 $105,000
FAI Overseas Investments 8/14/96 200,000 $700,000
Royal Bank of Scotland 8/14/96 400,000 $1,400,000
Swiss Bank Corp. 8/14/96 110,000 $385,000
</TABLE>
20
<PAGE>
On October 4, 1996, pursuant to a Plan and Agreement of Merger between
the Company (then known as Everest Security Systems Corporation) and Guardian
International, Inc., a Florida corporation ("Guardian"), 3,226,902 shares of
Common Stock were issued to the shareholders of Guardian in exchange for all of
the outstanding shares of common stock of Guardian. These shares were issued in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act.
NUMBER OF
PURCHASER DATE OF PURCHASES COMMON SHARES
Harold Ginsburg 10/04/96 903,533
Rhonda Ginsburg 10/04/96 629,245
Richard Ginsburg 10/04/96 629,246
Sheilah Ginsburg 10/04/96 903,533
Robert and Nancy Kasky 10/04/96 161,345
In connection with the acquisition of the assets of Alarm Controls
Inc., the Company issued 50,000 shares of Common Stock to Terry Akins and
100,000 options to purchase 100,000 shares of Common Stock at a price of $2.50
per share, pursuant to the Option Agreement dated May 7, 1997.
NUMBER OF
PURCHASER DATE OF PURCHASES COMMON SHARES
Terry Akins 5/7/97 50,000
On October 21, 1997 and November 24, 1997, pursuant to a Stock Purchase
Agreement between the Company and Westar Capital, Inc., dated as of October 14,
1997, the Company issued 2,500,000 shares of Common Stock to Westar Capital,
Inc. and 1,875,000 shares of Series A Preferred Stock.
NUMBER OF
PURCHASER DATE OF PURCHASES COMMON SHARES
Westar Capital, Inc. 10/14/97 2,500,000
Westar Capital, Inc. 11/24/97 1,875,000*
* On an as-converted basis. In February 1998, Westar increased its holdings in
the Company with the purchase of 1,600,00 shares of Series B Preferred Stock at
$2.50 per share, the proceeds of which were used to fund the Mutual acquisition.
See Item 1 - Description of Business "Recent Developments" and Item 11 -
Security Ownership of Certain Beneficial Owners and Management.
21
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained below includes statements of the Company's or
management's beliefs, expectations, hopes, goals and plans that are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements. For a description of such risks and uncertainties,
see the information set forth in the Introductory Note to this Annual Report
under the caption "Forward-Looking Statements," which information is
incorporated herein by reference.
OVERVIEW
The majority of the Company's revenues is derived from recurring
payments for the monitoring of security systems, pursuant to contracts with
initial terms typically ranging from one to five years. The remainder of the
Company's revenues is derived from the sale and installation of security
systems, servicing of such installed systems and from third party subcontract
installation revenue. Monitoring and service revenues are recognized as the
service is provided. Installation revenue is recognized when the required work
is completed. All direct installation costs, which include equipment, labor and
installation overhead and selling and marketing costs are generally expensed in
the period when incurred. In cases where the Company maintains ownership of the
equipment, however, the costs of such equipment is capitalized to property and
equipment and amortized over seven years.
Alarm monitoring revenues generate a significantly higher gross margin
than do the other services provided by the Company. During Fiscal Year 1997,
installation and service revenues generated only negligible gross margins.
Management believes, however, that such installation and service activity is
necessary for the generation and retention of alarm monitoring subscribers.
All direct external costs associated with purchases of subscriber
accounts (primarily through the Independent Alarm Acquisition Program and Dealer
Program, discussed in Item 1 - Description of Business) are capitalized and
amortized over 10 years on a straight-line basis. In contrast, the Company's
costs related to the sales, marketing and installation of new alarm monitoring
systems generated by the Company's internal sales force are generally expensed
in the period in which incurred. In cases where the Company maintains ownership
of the equipment, however, the costs of such equipment is capitalized to
property and equipment and amortized over seven years. To date, the Company has
not had a large internal sales force and the number of subscriber accounts
generated internally during Fiscal Year 1997 was not material. In the future, if
the Company expands its internal sales operations, as anticipated, the
accounting treatment for such internally generated revenues would result in
higher operating expenses in the period such revenues are generated, but lower
amortization expenses as a percentage of revenues.
The Company loses customers from time to time for various reasons,
including, primarily, the following: (i) the customer moves from the service
location; (ii) the customer dies; (iii) a business or commercial accounts closes
or goes out of business; (iv) a building or home is destroyed; and (v) the
customer can no longer afford to pay for service(ivii) a customer is
dissatisfied with the Company's level of service. Subscriber attrition has a
direct impact on the Company's results of operations, since it affects both the
Company's revenues and its amortization expense. Attrition can be measured in
terms of canceled subscriber accounts and the resulting decreased monitoring
revenue. Net attrition for a given period of time is defined as the number of
accounts disconnecting service during the period in question, net of any
replacement of such subscriber by means of Dealer or independent company
replacement during the guarantee period, or by other account replacement methods
employed by the Company. These methods might include, for example, the
solicitation of monitoring contracts from new occupants (if attrition is
attributable to customer relocation). Net subscriber attrition of the Company's
own customers during fiscal years 1997 and 1996 was less than 10%.
22
<PAGE>
The Company has developed an in-house program for identifying and
decreasing account attrition that includes the following: (1) the identification
of possible lost accounts via a daily test; (2) false alarm fines, tracking and
cause identification; (3) early account delinquent procedures; (4) quality
customer service; (5) control lockout; (6) early identification of new
tenants/residences in homes with alarms installed by the Company; and (7)
aggressive problem solving by management. These procedures identify possible
account attrition at various stages and attempt to prevent lost accounts or
replace lost accounts by quick and efficient intervention.
Amounts paid to independent alarm companies and Dealers are capitalized
and amortized over ten years. If a customer signed on by an independent alarm
company or Dealer is lost and not replaced, the unamortized contract amount is
written off. Such write-offs are included in amortization of customer contracts
in the accompanying Statements of Operations.
MRR represents the monthly recurring revenue the Company is entitled to
receive under subscriber contracts in effect at the end of the period. Included
in MRR and the number of subscribers are amounts associated with subscribers
with past due balances. The Company maintains the policy and practice of
expending every economically feasible effort to preserve the revenue stream
associated with these contractual obligations. To this end, the Company actively
works toward the collection of amounts owed and the retention of subscribers. In
certain instances, this collection and evaluation period may exceed six months.
When, in the judgment of the Company's collection personnel, all reasonable
efforts have been made to collect balances due and certain legal steps are taken
to ensure proper cancellation of the relevant monitoring contract, nonpaying
subscribers are disconnected from the Company's monitoring center and are
included in the calculation of net subscriber and MRR attrition.
RESULTS OF OPERATIONS
As discussed in various portions of this Annual Report, including Note
2 of the Notes to Consolidated Financial Statements of the Company set forth in
Item 7 herein, the Company is the surviving corporation of a merger of Guardian
with the Company's predecessor, Everest Security, which was consummated on
August 28, 1996. See Item 1- Description of Business "History," above. The
transaction was a reverse acquisition for accounting purposes, with Guardian
deemed to be the acquirer. The financial results for fiscal year 1996 include
the consolidated balance sheet of the surviving entity as of December 31, 1996;
the statement of operations and of cash flows include Guardian's figures for the
entire twelve month period, but include SDI's figures only from the date of
merger (August 28, 1996).
23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated.
Year Ended December 31,
1997 1996
Revenues:
Monitoring 67.1 74.2
Installation and service 32.9 25.8
----- -----
Total revenues 100.0 100.0
Operating expenses
Monitoring 10.3 13.8
Installation and service 29.4 25.6
General and administrative 44.2 40.1
----- -----
83.9 79.5
----- -----
Income before interest expense, amortization and
depreciation 16.1 20.5
----- -----
Interest expense 17.8 15.5
Amortization of customer contracts 21.0 16.0
Depreciation and amortization 5.3 5.4
----- -----
44.1 36.9
----- -----
Net loss (28.0) (16.4)
----- -----
Neither the Company nor the pre-merged Guardian International, Inc.
(see Item 1 - Description of Business "History") has ever had any net income and
has a history of consistent and sometimes significant net losses. Although no
assurance can be given by the Company as to when or if the Company will realize
net earnings, the Company anticipates that, based on its strategy of continued
growth and customer account expansion and barring any unforeseen significant
changes in the nature of its business or operations (including its method of
financing customer account acquisitions through its existing and/or any renewed
credit facility with Heller and the accounting for such acquisitions), it will
continue to record net losses until such time as the Company's retail customer
contract base totals approximately more than 20,000 contracts and it has
significantly reduced its indebtedness. At December 31, 1997, the Company had
approximately 11,900 retail customer contracts. A large increase in customers is
necessary to achieve net earnings because a significant amount of interest
expense and amortization costs are incurred in connection with account
acquisitions. The Company believes that its existing credit facilities with
Heller, in conjunction with additional equity financing to maintain prudent
debt/equity levels, will provide sufficient capital availability for achieving a
base of 20,000 customers. There can be no assurances, however, that the Company
will achieve a base of 20,000 customers. For information regarding the Company's
strategy for expanding its customer account base and the average terms of
monitoring contracts, please refer to the information under the caption
"Business Strategy" in Item 1 - Description of Business, above.
EBITDA is another important factor in considering profitability. EBITDA
does not represent cash flow from operations as defined by generally accepted
accounting principles, should not be construed as an alternative to net earnings
and is indicative neither of the Company's operating performance nor of cash
flows available to fund all the Company's cash needs. Items excluded from EBITDA
are significant components in understanding and assessing the Company's
financial performance. Management believes presentation of EBITDA enhances
24
<PAGE>
an understanding of the Company's financial condition, results of operations and
cash flows because EBITDA is used by the Company to satisfy its debt service
obligations and its capital expenditure and other operational needs as well as
to provide funds for growth. In addition, EBITDA has been used by the investment
community to determine the current borrowing capacity and to estimate the
long-term value of companies with recurring cash flows from operations and net
losses. The following table provides a calculation of EBITDA for fiscal years
1997 and 1996:
For the Fiscal Year Ended
December 31,
1997 1996
Net loss $(1,574,091) $(590,348)
Plus:
Amortization of customer contracts 1,181,607 577,611
Depreciation and amortization 295,666 195,679
Interest expense 1,001,187 560,680
----------- ---------
EBITDA * $904,369 $743,622
----------- ---------
* 1997 includes non-recurring costs of approximately $143,000 in connection
with a proposed merger which was not consummated.
FISCAL 1997 COMPARED TO FISCAL 1996
Total revenues for "Fiscal Year 1997" increased 55% to $5,624,790, from
$3,620,990 for the fiscal year ended December 31, 1996 ("Fiscal Year 1996").
Monitoring revenues increased by 40% to $3,772,108 during Fiscal Year 1997, from
$2,685,734 during Fiscal Year 1996. Installation and service revenues increased
by 98% to $1,852,682 during Fiscal Year 1997, compared to $935,256 during Fiscal
Year 1996. Total retail subscribers numbered approximately 11,900 at December
31, 1997, compared to approximately 7,900 at December 31, 1996, a net increase
of approximately 51%. The increase in revenues and number of subscribers from
Fiscal Year 1996 to Fiscal Year 1997 is primarily attributable to the Company's
portfolio acquisition of Alarm Controls, Inc. (ACI) during the second quarter of
Fiscal Year 1997, which added approximately 2,200 retail subscribers, the
ongoing Independent Alarm Acquisition Program and Dealer Program and the
continued addition of new accounts through the Company's internal sales force.
Additionally, during Fiscal Year 1996 SDI provided approximately $520,000 in
installation and service revenue subsequent to the merger of Guardian and
Everest.
Total operating expenses for Fiscal Year 1997 increased 70% to
$6,197,694, from $3,650,658 during Fiscal Year 1996. Monitoring expenses
increased 16% to $579,373 during Fiscal Year 1997, compared to $498,929 during
Fiscal Year 1996. The increase in monitoring costs from Fiscal Year 1996 to
Fiscal Year 1997 was a result of the significant increase in monitoring revenues
and number of subscriber accounts (see previous paragraph). As a percentage of
monitoring revenues, however, monitoring expenses decreased to 15% in Fiscal
Year 1997, compared to 19% in Fiscal Year 1996. The decrease in monitoring
expenses as a percentage of monitoring revenue is attributable to the Company's
state-of-the-art monitoring facility, which currently is configured to monitor
up to 250,000 subscribers. Though the ongoing costs of monitoring will increase
as the number of subscriber accounts increase, such costs will not increase
proportionately to the increase in MRR. The Company expects monitoring costs
25
<PAGE>
to continue to decrease as a percentage of monitoring revenue until such time as
the central monitoring facility is at or near capacity. Installation and service
costs for Fiscal Year 1997 increased by 78% to $1,653,003, compared to $926,319
during Fiscal Year 1996. Included in installation and service costs during
Fiscal Year 1996 is approximately $398,000 incurred by SDI subsequent to the
merger of Guardian and Everest. The increase in total installation and service
costs from Fiscal Year 1996 to Fiscal Year 1997 was the result of a similar
percentage increase in related revenues from Fiscal Year 1996 to Fiscal Year
1997 (see previous paragraph). As a percentage of installation and service
revenue, such costs were 89% in Fiscal Year 1997, compared to 99% in Fiscal Year
1996. The Company does not now generate, nor does it anticipate generating in
the future, any appreciable margins or profits from installation and service
activity, but such activity is necessary to the generation and retention of
alarm monitoring subscribers.
Total gross profit, defined as total revenues less monitoring costs and
installation and service costs, increased by 55% to $3,392,414 in Fiscal Year
1997, compared to $2,195,742 in Fiscal Year 1996. Gross profit from monitoring
revenues increased by 46% to $3,192,735 in Fiscal Year 1997, compared to
$2,186,805 in Fiscal Year 1996. Gross profit from installation and service
activities increased 2,134% to $199,679 compared to $8,937 in Fiscal Year 1996.
See the previous two paragraphs for a discussion of revenues and expenses of
such monitoring and installation and service activity.
General and administrative ("G&A") costs increased by 71% to $2,488,045
in Fiscal Year 1997, compared to $1,452,120 during Fiscal Year 1996. Included in
G&A costs during Fiscal Year 1996 is approximately $246,000 incurred by SDI
subsequent to the merger of Guardian and Everest. The increase in G&A costs from
Fiscal Year 1996 to Fiscal Year 1997 is related primarily to the Company's
growth in revenue, resulting in an increase in the Company's overhead cost
structure. Additionally, there were certain nonrecurring costs of approximately
$143,000 incurred in 1997 in connection with a proposed merger which was not
consummated. Included in G&A is bad debt expense of $287,870 in Fiscal Year
1997, compared to $124,015 in Fiscal Year 1996. As a percentage of total
revenues, bad debt expense was 5.1% in Fiscal Year 1997 compared to 3.4% in
Fiscal Year 1996. The increased bad debt expense during Fiscal Year 1997 over
Fiscal Year 1996 resulted from increases in revenues and a stricter reserve
policy. Along with the stricter reserve policy, deductions against the bad debt
reserve increased as a result of the policy permitting a shorter period for
collection efforts. As a percentage of total revenues, G&A increased to 44% in
Fiscal Year 1997 compared to 40% in Fiscal Year 1996. As with monitoring costs,
discussed above, the Company does not anticipate a proportionate increase in G&A
as a percentage of revenues as subscriber revenue increases in the future.
Amortization of customer contracts increased 105% to $1,181,607 during
Fiscal Year 1997, compared to $577,611 during Fiscal Year 1996. The increase in
such costs from 1996 to 1997 resulted from the increase in the amount of
capitalized customer contracts, which increased from a net balance of $5,124,449
at December 31, 1996 to $8,048,495 at December 31, 1997. Such costs are
amortized over 10 years, unless a contract is canceled and not replaced by the
corresponding independent alarm company or Dealer, or otherwise, in which case
the remaining unamortized balance is written off (charged to amortization
expense). Included in such amortization costs are $373,408 and $138,000 for
Fiscal Year 1997 and Fiscal Year 1996, respectively, relating to customer
attrition. See discussion in "Overview," above.
Depreciation and amortization increased by 51% to $295,666 during
Fiscal Year 1997, compared to $195,679 during Fiscal Year 1996. Such costs
include (i) depreciation of property and equipment (the gross balance of which
increased from approximately $785,000 at December 31, 1996 to approximately $1.2
million at December 31, 1997 as a result of the Company's continued expansion
activities and the merger of Guardian and Everest, which resulted in additional
property and equipment being acquired); (ii) the investment in new
26
<PAGE>
monitoring automation host computers; (iii) amortization of goodwill recorded in
connection with the merger of Guardian and Everest (such gross amount totaling
approximately $1.2 million which is being amortized over 10 years); and (vi)
amortization of certain other intangible assets.
Interest expense increased 79% to $1,001,187 during Fiscal Year 1997,
compared to $560,680 during Fiscal Year 1996. The increase in interest expense
was the result of additional debt incurred primarily in connection with the cost
of acquiring subscriber accounts. The total number of retail subscriber accounts
increased from approximately 7,900 as of December 31, 1996 to approximately
11,900 as of December 31, 1997. The majority of such subscriber acquisition
costs, amounting to $4.2 million, were financed by Heller and by the proceeds of
the investment in the Company's Preferred Stock by Westar. Total borrowings
under the Heller Credit Facility decreased from approximately $5.0 million as of
December 31, 1996 to approximately $753,000 million as of December 31, 1997. As
of March 26, 1998, the Company had approximately $8.8 million of borrowings
under the Heller Renewed Credit Facility, in connection with the acquisition of
Mutual, discussed in Item 1 - Description of Business "Recent Developments".
Net loss increased by 167% to $1,574,091 during Fiscal Year 1997,
compared to $590,348 during Fiscal Year 1996. The increased net loss is
attributable to increased amortization costs and increased interest expense, as
discussed in the preceding paragraphs.
Credit Facility
On November 16, 1994, Guardian, prior to its merger into the Company,
entered into a $7,000,000 Loan and Security Agreement with Heller primarily for
the purpose of borrowing funds to acquire customer accounts (the "Credit
Facility"). Borrowings under the Credit Facility bore interest at 3% to 4% above
the prime rate and the Company was required to pay a funding fee of 1% of any
amounts borrowed. The loan was collateralized by the Company's assets and
secured by the personal guarantees of Harold and Sheilah Ginsburg, both of whom
are directors, officers and principal shareholders of the Company. The Credit
Facility had a maturity date of November 30, 1999.
As discussed in Item 1 above, under the caption "Recent Developments,"
in May 1997, the Company renegotiated the Credit Facility (the "Renewed Credit
Facility") with Heller to increase the maximum credit availability to $15
million. The Renewed Credit Facility was further amended in connection with the
investment in the Company by Westar Capital to increase the availability,
subject to various constraints including operating cash flow coverage and MRR
levels, to $20,000,000.
The Credit Facility and the Renewed Credit Facility included customary
covenants, including, but not limited to, restrictions related to the incurrence
of other debt, the encumbrance or sale of the Company's assets and the payment
of dividends or other distributions to the Company's shareholders. At December
31, 1997 and 1996, the Company did not comply with certain conditions of the
Credit Facility and the Renewed Credit Facility for which waivers were obtained
from Heller. Specifically, at December 31, 1997, the Company exceeded the
allowable annualized net attrition rate, had a debt service coverage ratio below
the permissible level and had made a $12,000 loan outside the limits of the
conditions (see Exhibit 10(m)). Borrowings under the Credit Facility amounted to
$753,000 as of December 31, 1997. Borrowings under the Renewed Credit Facility
amounted to approximately $8.8 million as of March 26, 1998 (see Item 1 -
Description of Business "Recent Developments"). For information regarding
Heller's ownership of Class B Stock see Item 5, above.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As discussed in various portions of this Annual Report, the surviving
Company is the result of a merger of the predecessor Guardian International,
Inc. ("Guardian") with Everest, which occurred on August 28, 1996. Everest
conducted a private placement in August 1996 under Regulation S promulgated
under the Securities Act of 1,000,000 shares of common stock for $3.50 per
share. Everest received proceeds of approximately $3.0 million, net of related
costs of the private placement. Subsequent to the merger of Guardian and
Everest, approximately $1.8 million was paid to Harold Ginsburg, a shareholder
of Guardian, in repayment of certain loans to Guardian and as a return of
capital and approximately $1.2 million remained within the Company for working
capital purposes.
During fiscal 1994, Guardian entered into the $7 million credit
facility with Heller, with a maturity date of November 30, 1999. (See "Credit
Facility," immediately above.) The Credit Facility was increased to $15 million
in May 1997 under the terms of the Renewed Credit Facility and subsequently
increased again to $20 million simultaneous with the investments by Westar
Capital, Inc. The Renewed Credit Facility is used primarily for acquisitions of
customer subscriber accounts. Borrowings under the Credit Facility amounted to
$753,000 as of December 31, 1997. Borrowings under the Renewed Credit Facility
amounted to approximately $8.8 million as of March 26, 1998, see Item 1 -
Description of Business "Recent Developments". The Company's continued plan of
growth, through acquisitions of subscriber accounts, is contingent upon its
ability to borrow under the Heller Renewed Credit Facility.
At December 31, 1997, the Company had a working capital deficit of
$342,200 and a current ratio of .68 to 1, compared to working capital of
$841,220 and current ratio of 2.1 to 1 at December 31, 1996. Net cash flow
provided by operating activities during Fiscal Year 1997 and Fiscal Year 1996
was $427,540 and $212,647, respectively. The Company incurred a net loss of
$1,574,091 during Fiscal Year 1997, compared to a net loss of $590,348 during
Fiscal Year 1996; however, included in such losses was depreciation and
amortization totaling approximately $1.5 million during Fiscal Year 1997,
compared to approximately $773,000 during Fiscal Year 1996. Also included in net
cash provided by operations during Fiscal Year 1997 was a cash outflow of
approximately $258,000 related to an increase in accounts receivable from Fiscal
Year 1996 to Fiscal Year 1997. The increase in accounts receivable relates to
the Company's overall increase in revenues (the Company's accounts receivable
turnover ratio was 7.9 in Fiscal Year 1997, compared to a ratio of 8.1 in Fiscal
Year 1996). Net cash used in investing activities was $4,397,264 during Fiscal
Year 1997, comprised primarily of acquisition of customer accounts of
approximately $4.2 million (such significant amount of acquisitions being
consistent with the Company's continued growth strategy). Net cash used in
investing activities was $358,790 in Fiscal Year 1996, comprised primarily of
approximately $3.3 million of acquisition of customer accounts partially offset
by approximately $3.2 million of cash received in the merger of Guardian and
Everest (such amount constituting the net proceeds from the Regulation S common
stock offering as described above). Net cash provided by financing activities
was $3,026,176 in Fiscal Year 1997. The primary items were approximately $7.7
million of net proceeds from the Heller Renewed Credit Facility and proceeds of
approximately $7.3 million, net of associated costs, from the issuance of the
Series A Preferred Stock and Class A Stock, partially offset by approximately
$11.9 million in repayments of long-term debt. Net cash provided by financing
activities was $1,169,741 during Fiscal Year 1996. The primary items included in
such financing activities during Fiscal Year 1996 were proceeds from Heller of
approximately $5.1 million, less repayments of long-term debt under the Credit
Facility of approximately $2.0 million, further offset by a payment to Harold
Ginsburg, a former majority shareholder of Guardian (and presently a director,
officer and principal shareholder of the Company) in repayment of loans to
pre-merger Guardian and as a return of capital of approximately $1.8 million.
For the various reasons specified, the Company's cash balance amounted to
$94,313 at December 31, 1997, compared to $1,037,861 million at December 31,
1996.
28
<PAGE>
Total shareholder' equity was $9,016,226 as of December 31, 1997,
compared to $3,115,590 as of December 31, 1996. The net increase of
approximately $5.9 million consisted primarily of an increase of approximately
$7.3 million relating to the issuance of the Series A Preferred Stock and Class
A Stock and a decrease of approximately $1.6 million relating to the net loss
incurred during Fiscal Year 1997.
The Company does not currently have any significant commitments for
capital outlays.
Year 2000 Compliance
The Company has received assurance from Monitoring Automation Systems
(MAS) that, with the exception of an upgrade to be installed to our operating
system during 1998, all applications in their software are Year 2000 compliant.
The Year 2000 compliance status of no other supplier will materially
affect the Company's business.
The Company believes that any costs incurred in connection with the
Year 2000 compliance will not have a material adverse effect.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from a
large number of customers, including both residential and commercial customers.
The Company extends credit to its customers in the normal course of business,
performs periodic credit evaluations and maintains allowances for potential
credit losses.
29
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Guardian International, Inc.:
We have audited the accompanying consolidated balance sheets of Guardian
International, Inc. and subsidiary ("the Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guardian International, Inc.
and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II - Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
McKEAN, PAUL, CHRYCY, FLETCHER & CO.
Miami, Florida,
March 5, 1998.
30
<PAGE>
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 94,313 $1,037,861
Accounts receivable, net of allowance for doubtful accounts of
$198,848 and $166,315 in 1997 and 1996, respectively 539,512 569,180
Other 121,223 20,736
-------------- ----------
Total Current Assets 755,048 1,627,777
-------------- ----------
Property and Equipment, net 729,058 484,859
Customer Accounts, net 8,048,495 5,124,449
Intangible Assets, net 1,514,951 1,718,377
Deposits and Other Assets 27,506 26,517
-------------- ----------
Total Assets $11,075,058 $8,981,979
-------------- ----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 781,879 $ 578,592
Unearned revenue 242,168 123,961
Current portion of long term obligations 73,201 84,004
-------------- ----------
Total Current Liabilities 1,097,248 786,557
-------------- ----------
Long Term Obligations, less current portion 961,584 5,079,832
Shareholders' Equity:
Preferred stock, $.001 par value, 30,000,000 shares authorized; and
1,894,033 and 0 shares issued and outstanding in 1997 and 1996,
respectively 1,894 -
Class A voting common stock, $.001 par value, 100,000,000 shares
authorized; 9,003,804 and 6,453,804 shares issued; and 8,996,804
and 6,453,804 shares outstanding in 1997 and 1996, respectively 9,004 6,454
Class B non-voting common stock, $.001 par value, 1,000,000 shares
authorized; and 634,035 and 484,035 issued and outstanding in 1997
and 1996, respectively 634 484
Additional paid-in capital 12,091,050 4,777,772
Accumulated deficit (3,079,918) (1,467,762)
Treasury shares (6,438) -
Notes receivable from sale of stock - (201,358)
-------------- ----------
9,016,226 3,115,590
-------------- ----------
Total Liabilities and Shareholders' Equity $11,075,058 $8,981,979
-------------- ----------
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
31
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
For the Year Ended December 31,
1997 1996
Revenues:
Monitoring $3,772,108 $2,685,734
Installation and service 1,852,682 935,256
---------- ----------
Total Revenues 5,624,790 3,620,990
---------- ----------
Operating Expenses:
Monitoring 579,373 498,929
Installation and service 1,653,003 926,319
General and administrative 2,488,045 1,452,120
Amortization of customer contracts 1,181,607 577,611
Depreciation and amortization 295,666 195,679
---------- ----------
Total Operating Expenses 6,197,694 3,650,658
---------- ----------
Loss From Operations (572,904) (29,668)
Interest Expense 1,001,187 560,680
---------- ----------
Net Loss $(1,574,091) $(590,348)
---------- ----------
Average Common Shares Outstanding 7,510,549 4,497,771
---------- ----------
Loss Per Common Share $ (0.21) $ (0.13)
---------- ----------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
32<PAGE>
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
PREFERRED COMMON STOCK COMMON ADDITIONAL
STOCK CLASS A STOCK PAID-IN ACCUMULATED
SERIES A SHARES AMOUNT CLASS B CAPITAL DEFICIT
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 3,226,902 $3,227 $ - $1,060,903 $(877,414)
-
Issuance of stock in connection
with Everest acquisition - 3,226,902 3,227 - 4,962,429 -
Distribution to shareholder - - - - (1,667,838) -
Issuance of 484,035 shares of
stock to financial institution - - - 484 422,278 -
Net loss for period - - - - - (590,348)
---------- --------- ------ -------- ---------- ----------
Balance, December 31, 1996 - 6,453,804 6,454 484 4,777,772 (1,467,762)
Purchase of treasury shares - (7,000) - - - -
Write-off of notes receivable from
sale of stock - - - - (201,358) -
Issuance of Class A voting common
stock in connection with
acquisition - 50,000 50 - 38,950 -
Issuance of 150,000 shares of
stock to financial institution - - - 150 130,350 -
Sale of 1,875,000 Series A
preferred stock at $2.00 per
share and Class A voting
common stock at $1.50 per
share, net of issuance costs of
$188,335 1,875 2,500,000 2,500 - 7,307,290 -
Dividend on Series A preferred
stock of 19,033 shares 19 - - - 38,046 (38,065)
Net loss for period - - - - - (1,574,091)
---------- --------- ------ -------- ---------- ----------
Balance, December 31, 1997 $1,894 8,996,804 $9,004 $634 $12,091,050 $(3,079,918)
========== ========= ====== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NOTES RECEIVABLE
TREASURY FROM
SHARES SALE OF STOCK TOTAL
<S> <C> <C> <C>
Balance, January 1, 1996 $ - $ - $186,716
Issuance of stock in connection
with Everest acquisition - (201,358) 4,764,298
Distribution to shareholder - - (1,667,838)
Issuance of 484,035 shares of
stock to financial institution - - 422,762
Net loss for period - - (590,348)
---------- --------------- ----------
Balance, December 31, 1996 - (201,358) 3,115,590
Purchase of treasury shares (6,438) - (6,438)
Write-off of notes receivable from
sale of stock - 201,358 -
Issuance of Class A voting common
stock in connection with
acquisition - - 39,000
Issuance of 150,000 shares of
stock to financial institution - - 130,500
Sale of 1,875,000 Series A
preferred stock at $2.00 per
share and Class A voting
common stock at $1.50 per
share, net of issuance costs of
$188,335 - - 7,311,665
Dividend on Series A preferred
stock of 19,033 shares - - -
Net loss for period - - (1,574,091)
---------- --------------- ----------
Balance, December 31, 1997 $(6,438) $ - $9,016,226
========== =============== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
33
<PAGE>
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,574,091) $ (590,348)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 295,666 195,679
Amortization of customer accounts 1,181,607 577,611
Amortization of deferred financing costs 323,210 14,092
Provision for doubtful accounts 287,870 124,015
Changes in assets and liabilities:
Accounts receivable (258,202) (349,874)
Intangibles and other assets (248,043) 57,327
Accounts payable and accrued liabilities 301,316 121,064
Unearned revenue 118,207 63,081
----------- -----------
Net Cash Provided By Operating Activities 427,540 212,647
----------- -----------
Cash Flows From Investing Activities:
Purchase of fixed assets (215,712) (237,731)
Acquisition of customer accounts (4,181,552) (3,274,389)
Cash acquired in acquisition - 3,153,330
----------- -----------
Net Cash Used In Investing Activities (4,397,264) (358,790)
----------- -----------
Cash Flows From Financing Activities:
Payments of long term obligations (11,938,404) (2,022,467)
Proceeds from line of credit 7,659,353 5,054,690
Payment of shareholder loans - (194,644)
Distribution to shareholder - (1,667,838)
Proceeds from sale of preferred stock, net 7,311,665 -
Purchase of treasury shares (6,438) -
----------- -----------
Net Cash Provided By Financing Activities 3,026,176 1,169,741
----------- -----------
Net Change In Cash and Cash Equivalents (943,548) 1,023,598
Cash and Cash Equivalents, beginning of period 1,037,861 14,263
----------- -----------
Cash and Cash Equivalents, end of period $ 94,313 $1,037,861
----------- -----------
</TABLE>
(CONTINUED)
34
<PAGE>
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
1997 1996
<S> <C> <C>
Noncash Investing and Financing Activities:
Financed acquisition of property $150,000 $ 100,537
-------- ------------
Issuance of Class B common stock $130,500 $ 422,761
-------- ------------
Issuance of Class A common stock in acquisition of:
Vehicles $ 16,870 $ -
-------- ------------
Customer contracts $ 22,130 $ -
-------- ------------
Write off of notes from sale of stock $201,358 $ -
-------- ------------
Contract holdbacks applied against accounts written off $ 98,029 $ -
-------- ------------
Dividend on Preferred Stock $ 38,065 $ -
-------- ------------
Value of Everest net assets acquired :
Subscriber accounts acquired $ - $ 352,000
Goodwill $ - $ 1,223,000
Other assets $ - $ 332,743
Purchase price and assumed liabilities $ - $ (1,870,032)
Supplemental Disclosures:
Interest paid $ 698,833 $ 540,933
-------- ------------
Income taxes paid $ - $ -
-------- ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
35
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Guardian
International, Inc. ("Guardian") and its wholly owned subsidiary,
collectively the Company ("the Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Company operates a central monitoring alarm station and sells and
installs alarm systems for residential and commercial customers in the
United States (its primary market).
REVENUE RECOGNITION
Revenues are recognized when installation of security alarm systems has
been performed and when monitoring services are provided. Customers are
billed for monitoring services primarily on a monthly or quarterly basis in
advance of the period in which such services are provided. Unearned
revenues result from billings in advance of performance of monitoring.
Costs of providing installations, including inventory, are charged to
income in the period when the installation occurs, except in cases where
the Company maintains ownership of the equipment installed, in which case
the Company capitalizes the cost of the equipment to property and equipment
and depreciates the amount over a seven year period. Losses on contracts
for which future costs are anticipated to exceed revenues are recognized in
the period in which such losses are identified. Contracts for monitoring
services are generally for an initial non-cancelable term of five years
with automatic renewal on an annual basis thereafter, unless terminated by
either party. A substantial number of contracts are on an automatic renewal
basis.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a remaining maturity of three
months or less at the date acquired are considered cash equivalents.
CUSTOMER ACCOUNTS AND INTANGIBLE ASSETS
Customer accounts acquired from alarm dealers are reflected at cost. The
cost of acquired accounts is based on the estimated fair value at the date
of acquisition and included in "Customer Accounts, net" in the accompanying
consolidated balance sheets. Costs applicable to internally generated
customer accounts are expensed as incurred. Customer accounts that are
capitalized are amortized on a straight-line basis over a 10 year period.
It is the Company's policy to perform monthly evaluations of acquired
customer account attrition and, if necessary, adjust the remaining useful
lives. The Company periodically estimates future cash flows from customer
accounts. Because expected cash flows have exceeded the unamortized cost of
customer accounts the Company has not recorded an impairment loss.
36
<PAGE>
Intangible assets are recorded at cost and amortized over their estimated
useful lives. The carrying value of intangible assets is periodically
reviewed and impairments are recognized when expected operating cash flows
derived from such intangibles is less than their carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is provided on the straight-line method. The estimated useful
lives for property and equipment range from five to seven years, and the
estimated useful lives for leasehold improvements (see Note 8) is
approximately thirty years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accrued payroll, and other accrued
liabilities approximate fair value because of their short term maturities.
INCOME TAXES
Everest, the predecessor company (see Note 2), is a C Corporation subject
to income taxes at the corporate level. Prior to the merger, Guardian was
an S Corporation and subject to tax at the shareholder level. As a result
of the merger on August 28, 1996, Guardian's S Corporation was terminated
and any future earnings will be subject to income taxes at the corporate
level.
The Company has established deferred tax assets and liabilities for
temporary differences between financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect in the years in which
the differences are expected to reverse.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from
a large number of customers, including both residential and commercial. The
Company extends credit to its customers in the normal course of business,
performs periodic credit evaluations and maintains allowances for potential
credit losses.
LOSS PER COMMON SHARE
The Company adopted SFAS No. 128 "Earnings Per Share", in December 1997.
Basic loss per common share is computed by dividing net loss attributable
to common shareholders (net loss of $1,574,091 plus the preferred dividends
of $38,065) by the weighted average number of shares of common stock
outstanding during the year. Diluted loss per share, which assumes that the
convertible preferred stock is converted into Class A voting common stock
and the stock options to purchase shares of Class A voting common stock
(see Note 11) are exercised, is not presented because the effect would be
anti-dilutive for both 1997 and 1996. The Company's reported loss per share
for 1996 has been restated to comply with the requirements of SFAS No. 128;
however, there was no change to the amount previously reported. The
weighted average shares outstanding used in the computation of net loss
attributable to common shares are as follows:
Weighted Average Shares
Outstanding for the Year
Ended December 31,
1997 1996
Class A common stock 7,008,842 4,332,005
37
<PAGE>
Class B common stock 501,707 165,766
--------- ---------
7,510,549 4,497,771
========= =========
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. ACQUISITIONS
On August 28, 1996, Everest Security Systems Corporation ("Everest" or "the
predecessor company") acquired all of the outstanding common stock of
Guardian International, Inc. ("Guardian"), a non public company, by issuing
3,226,902 new shares of Everest, representing 50% of Everest at August 28,
1996. In addition, the merger specified that $1,750,000 shall be paid to
the principal shareholder of Guardian as consideration for consummating the
transaction as a return of capital (including repayment of remaining
shareholder loans of $82,162 at the merger date). The transaction has been
accounted for under the purchase method of accounting as a reverse
acquisition with Guardian being deemed the acquirer. The fair value of the
acquired company, Everest, was $1,948,539, not including net cash of
approximately $3,100,000 from a private placement conducted by Everest on
August 14, 1996. The excess of the cost over the fair value of the net
assets acquired was $1,223,000 and is being amortized on a straight-line
basis over 10 years. The name of the surviving entity was changed from
Everest to Guardian. The consolidated balance sheet at December 31, 1996
includes the consolidated balance sheet of the surviving entity and its
wholly owned subsidiary; the consolidated statements of operations and cash
flows include Guardian's operations for the twelve month period ended
December 31, 1996 and include the wholly owned subsidiary acquired by
Guardian from the merger date (August 28, 1996) through December 31, 1996.
In connection with the acquisition, the Company issued during 1996, 484,035
shares of Class B non-voting common stock to a financial institution for
cancellation of their existing Capital Appreciation Rights, as defined in
the loan agreement. Also, in accordance with the terms of an agreement the
financial institution was issued during 1997, an additional 150,000 shares
of Class B non-voting common stock. The shares were valued at $0.87 per
share ($422,762 and $130,500 in the aggregate, respectively), capitalized
as a cost of the acquisition of Everest and are being amortized over the
remaining life of the debt expiring in May 1999 (see Note 7).
In May 1997, the Company purchased customer accounts and contracts from a
private alarm company for $2,200,000 in cash, 50,000 shares of Class A
voting common stock valued at $0.78 per share, the market price of the
Company's common stock on the date of the transaction ($39,000 in the
aggregate), and an option to the Seller to purchase 100,000 additional
shares of Class A voting common stock at $2.50 per share (see Note 11).
Subsequent to year end in February 1998, the Company acquired all of the
outstanding common stock of a private alarm company, for approximately
$10,000,000 in cash and 1,981,700 shares of restricted Class A voting
common stock, valued at $3.25 per share ($6,440,525 in the aggregate).
The cash portion of the
38
<PAGE>
transaction was funded through the Company's credit facility
(approximately $6,250,000) and the sale of 1,600,000 shares of 10 1/2%
convertible, cumulative preferred stock for $4,000,000. The transaction
will be accounted for under the purchase method of accounting. The fair
value of the net assets acquired is approximately $15,530,000, not
including net cash and cash equivalents. The acquisition agreement also
contains a provision whereby a net working capital surplus (as defined)
will be distributed to the former owners within forty-five days of the
closing date. The excess of the cost over the fair value of the net
assets acquired, approximately $1,119,000, will be amortized on a
straight-line basis over 10 years. The pro forma balance sheet is based
on initial estimates, as the Company has not yet finalized its purchase
price allocation. The effects resulting from the finalization of the
purchase price allocation is not expected to have a material effect on
the financial statements.
Unaudited pro forma balance sheet at December 31, 1997 giving effect to the
February 1998 acquisition as of January 1, 1997 is reflected below.
UNAUDITED
December 31,
1997
Cash and cash equivalents $ 1,805,197
Other current assets 2,185,506
Property and equipment, net 827,861
Customer accounts, net 21,177,331
Intangibles, net 2,521,862
Other assets 187,804
-----------
Total assets $28,705,561
-----------
Current liabilities $ 2,977,865
Long term obligations 7,836,584
Shareholders' equity 17,891,112
-----------
Total liabilities and shareholders' equity $28,705,561
-----------
Unaudited pro forma results of operations giving effect to the acquisitions
as of January 1, 1997 and 1996 are reflected below.
UNAUDITED
For the Years Ended
December 31,
1997 1996
Revenues, net $11,029,936 $9,305,514
Net loss applicable to common shares $ 3,042,876 $2,385,709
Loss per common share $ 0.32 $ 0.29
Average common shares outstanding 9,624,577 8,357,109
Pro forma net loss per share is computed by dividing the pro forma net loss
by the pro forma average number of common shares outstanding during the
periods.
Pro forma average number of common shares outstanding represents the
number of shares of common stock outstanding after giving retroactive
effect to the 1,981,700 and 3,226,902 shares issued in connection with the
acquisitions.
39
<PAGE>
The pro forma information is not necessarily indicative of the results
of operations that would have occurred had the acquisition taken place on
January 1 of the years presented, or of results, which may occur in the
future.
3. CUSTOMER ACCOUNTS
The following is an analysis of the changes in acquired customer accounts
for the years ended December 31, 1997 and 1996.
1997 1996
Balance, beginning of year $5,124,449 $2,075,671
Purchase of customer accounts 4,203,682 3,274,389
Customer accounts acquired in merger - 352,000
Charges against contract holdbacks (98,029) -
Amortization of customer accounts (1,181,607) (577,611)
---------- ----------
Balance, end of year $8,048,495 $5,124,449
---------- ----------
In conjunction with certain purchases of customer contracts and accounts,
the Company withholds a portion of the price as a credit to offset
qualifying attrition of the acquired customer accounts and for purchase
price settlements of assets acquired and liabilities assumed. The Company
withheld $292,297 and $92,949 at December 31, 1997 and 1996, respectively,
as contract holdbacks in connection with the acquisition of customer
accounts which are included in "Accounts payable and accrued expenses" in
the consolidated balance sheets (see Note 6).
4. PROPERTY AND EQUIPMENT
Property and equipment, net, consist of the following at December 31, 1997
and 1996:
1997 1996
Property and equipment, at cost:
Station equipment $ 673,381 $504,973
Station equipment under capital lease 150,000 -
Vehicles, furniture and office equipment 183,878 147,244
Leasehold improvements 157,585 133,025
---------- --------
1,164,844 785,242
Accumulated depreciation and amortization (435,786) (300,383)
---------- --------
$ 729,058 $484,859
---------- --------
40
<PAGE>
5. INTANGIBLE ASSETS
Intangible assets, net, consist of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
Amortization
Period 1997 1996
<S> <C> <C> <C>
Intangibles, at cost:
Excess of acquisition cost over net
assets acquired 10 years $1,223,000 $ 1,223,000
Deferred financing costs 3 years 695,686 422,761
Covenant not to compete, organization
costs and other Various 203,187 215,429
---------- -----------
2,121,873 1,861,190
Less accumulated amortization (606,922) (142,813)
---------- -----------
$1,514,951 $ 1,718,377
---------- -----------
</TABLE>
Excess of acquisition cost over net assets acquired was recorded as a
result of the merger of Guardian and Everest as described in Note 2.
Deferred financing costs were incurred as a result of issuing to a
financial institution 634,035 shares of Class B non-voting common stock in
connection with the merger of Guardian and Everest as described in Note 2.
The Company has also accrued the cost of commitment fees and expenses
incurred in connection with the refinancing of its credit facility (see
Note 7). The amortization of such costs is charged to interest expense over
the life of the related indebtedness.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1997 and 1996:
1997 1996
Trade accounts payable $192,900 $357,219
Contract holdbacks 292,297 92,949
Accrued commitment fee 85,266 -
Other 211,416 128,424
-------- --------
$781,879 $578,592
-------- --------
7. LONG TERM OBLIGATIONS
Long term obligations consist of the following at December 31, 1997 and
1996:
1997 1996
Credit facility with financial institution $ 752,898 $4,968,571
Obligation for assets under capital lease 136,267 -
Equipment notes payable and other 145,620 195,265
--------- ---------
1,034,785 5,163,836
Less current portion (73,201) (84,004)
--------- ---------
$961,584 $5,079,832
--------- ---------
During 1997, the Company entered into a lease agreement for central station
equipment expiring in 2002, which specifies for annual and aggregate future
minimum rentals of $38,700 and $170,925, respectively. The lease has been
capitalized using an interest rate of approximately 10.51%. Amortization of
the capitalized amount is included in depreciation expense.
41
<PAGE>
During 1997, the Company refinanced its existing credit facility with its
lender (the "Renewed Credit Facility"). Under the Renewed Credit Facility,
as amended and restated, the maximum credit facility available to the
Company was increased from $7 million, available under the then existing
agreement, to $20 million. Interest under the Renewed Credit Facility is
based on the 90 day LIBOR plus an additional percentage varying from 4% to
5% (10.89% at December 31, 1997), depending on the Company's outstanding
borrowings and Tangible Net Worth (as defined). Interest under the prior
credit facility bore interest at prime plus 3% (8.50% at December 31,
1996). The Renewed Credit Facility expires in May 1999, and shall
automatically renew from year to year thereafter unless terminated by
either party. The credit facility is collateralized by substantially all of
the Company's assets.
On December 31, 1997 and 1996, the Company did not comply with certain
conditions of the credit facility, primarily the debt service and the
net worth ratio requirements for which waivers were obtained from the
lender.
Subsequent to year end and in connection with the February 1998 acquisition
(see Note 2), the Company amended its credit facility with its lender ("the
Amended Credit Facility"). Under the Amended Credit Facility, the term of
the credit facility has been extended to May 31, 2001. Borrowings will bear
interest at a Base Rate (defined as the Federal Reserve System's Prime
Rate) plus one and three-quarters percent (1.75%) or, at the Company's
election, the LIBOR rate plus three and one-half percent (3.50%).
Availability under the Amended Credit Facility is subject to certain
"Borrowing Base" limitations (as defined). The Amended Credit Facility
includes customary covenants, including, but not limited to, restrictions
related to the incurring of other debt, the encumbrance or sale of the
Company's assets, and the payment of dividends or making of other
distributions to the Company's shareholders.
Long term obligations mature as follows: $73,201 in 1998, $828,260 in 1999,
$68,920 in 2000, $48,694 in 2001, and $15,710 in 2002.
8. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
LEASED FACILITIES
The Company leases its monitoring facilities from an affiliate which is
owned by the principal shareholders of the Company at an annual rental of
approximately $84,000 (plus annual increases not to exceed 3%) through
December 31, 1999 with an option to renew for an additional 5 years under
the same terms. Future minimum payments under operating and capital leases
(see Note 7) are as follows:
Operating Capital
1998 $102,086 $ 38,700
1999 104,528 38,700
2000 103,020 38,700
42
<PAGE>
2001 97,335 38,700
2002 100,256 16,125
Thereafter 298,185 -
-------- -------
$805,410 170,925
-------- -------
Less interest (34,658)
-------
Capital lease obligations reflected as current
($25,585) and non-current ($110,682) portions
of long term obligations $136,267
--------
9. INCOME TAXES
At December 31, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $3,200,000, which begin to
expire in 2010. The components of deferred tax assets and liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax (liabilities) assets
Allowance for doubtful accounts - current $ 77,551 $ 64,863
Difference in amortization of customer contracts (491,076) (222,931)
Net operating loss carryforwards 1,241,041 231,702
Other 39,325 54,925
--------- -----------
866,841 128,559
Less valuation allowance (866,841) (128,559)
--------- -----------
Net deferred tax (liabilities) assets $ - $ -
========= ===========
</TABLE>
Realization of the above deferred tax assets is dependent on generating
sufficient taxable income in the future to offset the deductible temporary
differences generating the deferred tax assets. Net deferred tax assets
have been fully reserved as their net realizability is not assured at the
current time.
10. SHAREHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
In October and November 1997, the Company issued 2,500,000 shares of Class
A common stock for $1.50 per share ($3,750,000 in the aggregate) and
1,875,000 newly authorized shares of 9 3/4% Convertible, Cumulative
Preferred Stock for $2.00 per share ($3,750,000 in the aggregate). The
proceeds of the $7,500,000 investment was used to reduce debt and for
acquisitions. The Preferred Shares are convertible (at the option of the
holder or any time after two years from the date of issuance if the common
stock trades above $3.00 per share for 20 consecutive days) into shares of
Class A voting common stock on a share for share basis and have a
liquidation preference of $2.00 per share. Dividends, at 9 3/4% per annum,
are payable quarterly at the Company's option in cash or additional
Preferred Shares during the first two years after issuance and in cash
thereafter. The January 1, 1998 dividends will be paid by the issuance of
additional Preferred Shares (19,033 shares or $38,065 in the aggregate,
representing the pro-rata dividend from November 25, 1997). All references
to the number of Preferred Shares have been restated to reflect the effect
of the stock dividend.
The Company's Class B non-voting common shares are convertible into Class A
voting common stock at any time at the holder's election.
43
<PAGE>
NOTES RECEIVABLE FROM SALE OF STOCK
Prior to its merger with Guardian International, Inc. (see Note 2), Everest
Security Systems Corporation issued, among other issuances of common stock,
485,000 shares of Common Stock at $2.00 per share. As consideration for
285,000 of the shares issued pursuant to such offering, Everest received
notes with original balances totaling $570,000. As of the date of the
merger of Guardian and Everest, the balances outstanding on the notes was
$201,358. After exhaustive collection efforts by the Company subsequent to
the merger, no further monies have been received, nor are any additional
collections anticipated. In light of the above factors, during the quarter
ended June 30, 1997 the Company wrote off the $201,358 as a direct
reduction to additional paid-in capital.
11. STOCK OPTIONS
During 1997, the Company issued 300,000 stock options to purchase shares of
common stock at exercise prices ranging from $1.95 to $2.50 per share to
various employees. 200,000 of these options are exercisable on a pro rata
basis over five years and the remaining are exercisable on January 1, 1998.
Also, there were 184,720 options shares issued and outstanding preceding
and subsequent to the merger with Everest (see Note 2). As of December 31,
1997 and 1996, 214,720 and 184,720 stock options were exercisable,
respectively.
The following is a summary of stock option activity for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTION EXERCISE PRICE
SHARES DATE OF EXPIRATION
<S> <C> <C> <C>
Outstanding at January 1, 1996 -
Granted -
Assumed in connection with merger 184,720 $2.05 December 31, 2000
Expired -
Exercised -
-------
Outstanding at December 31, 1996 184,720 $2.05
Granted 300,000 $2.13 100,000 options on January 1, 2002
200,000 options on October 21, 2007
Expired (10,000) $3.00
Exercised -
-------
Outstanding at December 31, 1997 474,720 $2.08
-------
</TABLE>
44
<PAGE>
The Company has adopted Statement No. 123, ("SFAS No. 123") "Accounting for
Stock-Based Compensation", which requires the Company to either recognize
expense for stock based awards based on the fair value on the date of grant
or provide footnote disclosure regarding the impact of such charges. The
Company continues to account for stock options pursuant to APB No. 25.
Accordingly, the Company does not record compensation costs unless the
market price exceeds the exercise price on the date of grant. If the
Company had elected to recognize compensation cost based on the fair value
of the options granted, the pro forma net loss and net loss per common
share would be as follows:
<TABLE>
<CAPTION>
UNAUDITED
For the Year Ended December 31,
1997 1996
<S> <C> <C>
Net loss applicable to common shares:
As reported for 1997 and previously reported pro
forma for 1996 $1,612,156 $1,065,830
Pro forma for SFAS No. 123 $1,758,116 $1,083,730
Net loss per common share:
As reported for 1997 and previously reported pro
forma for 1996 $0.21 $ 0.17
Pro forma for SFAS No. 123 $0.23 $ 0.17
</TABLE>
The value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following weighted average
assumptions: expected volatility approximating 157%, risk-free interest
rate ranging from 6% to 7%, expected dividends of $0 and expected lives of
5 to 10 years.
12. IMPLEMENTATION OF NEW FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income" and No. 131 "Disclosure About Segments of an Enterprise and Related
Information." SFAS No. 130 requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately
from retained income and additional capital in the shareholders' equity
section of the balance sheet. SFAS 131 established standards for the way
that public enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. It also established standards for disclosures about
products and services, geographic areas and major customers. Both
statements are effective for fiscal year 1998. The Company has not
completed evaluating the impact of implementing the provisions of SFAS Nos.
130 and 131.
45
<PAGE>
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO OTHER BALANCE AT
BEGINNING OF YEAR COST AND EXPENSES ACCOUNTS (A) DEDUCTIONS (B) END OF YEAR
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from assets for
Doubtful accounts $166,315 $287,870 $ - $(255,337) $198,848
-------- -------- ----------- --------- --------
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from assets for
Doubtful accounts $15,000 $124,015 $ 27,300 $ - $166,315
-------- -------- ----------- --------- --------
</TABLE>
(A) Allowance of subsidiary acquired in merger.
(B) Results from write-offs of accounts receivable.
46
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions of the executive
officers and directors of the Company as of December 31, 1997. A summary of the
background and experience of each of these individuals is set forth following
the table. Under the Company's bylaws, directors hold office for a period of one
year, at which time the shareholders elect new directors. Further, under the
Company's bylaws, directors hold office until their successors are elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE
POSITION
<S> <C> <C>
Harold Ginsburg (1) 29 Chief Executive Officer, President, Director
Sheilah Ginsburg (1) 58 Secretary/Treasurer, Director
Harold Ginsburg (1) 65 Chairman of the Board of Directors
Darius G. Nevin 40 Vice President, Chief Financial Officer, Director
William Remington 68 Director
Terry E. Akins 51 Chief Operating Officer, Vice President
</TABLE>
(1) Richard Ginsburg is the son of Harold and Sheilah Ginsburg.
47
<PAGE>
RICHARD GINSBURG
Mr. Ginsburg was a co-founder of Guardian. He received a Bachelor of Science
degree in communications from the University of Miami. He subsequently acquired
management skills at Guardsman Central Security Corporation where he was the
Central Station Manager from 1987 to 1990. Mr. Ginsburg then became Operations
Manager for the Alert Centre, another security alarm company, a position he
filled from 1990 to 1992. From 1993 to the present, at Guardian, Mr. Ginsburg
developed and implemented the Guardian Authorized Dealer Program, the Guardian
acquisition strategy program and the development of Guardian's central
monitoring station and related operations. Mr. Ginsburg has a working knowledge
of numerous industry automation systems, including PICK, UNIX and off-site data
base management programs commonly used within the alarm industry.
Mr. Richard Ginsburg does not hold directorships in any other reporting
companies.
HAROLD GINSBURG
Mr. Harold Ginsburg was a co-founder and the President of Guardian from its
inception in 1993 until August 15, 1996. Mr. Ginsburg is an acknowledged
authority on electronic/computer technology security systems and has personally
developed high-tech security systems for such companies as United Parcel
Services, WendiCorp, Lufthansa and many other regional and national firms. Mr.
Ginsburg also has served as a consultant to financial organizations and
government agencies throughout Latin America and Europe. In addition to being
regarded as an international consultant in the alarm service and monitoring
industry, he is responsible for the start-up of several successful security
companies, including Guardsman Security Corporation, which he owned and operated
from 1983 to 1991, at which time Guardsman was sold to Alert Centre, now owned
by ADT Security, Inc. In 1978, Mr. Ginsburg founded Gibraltar Central Security
Corporation, which he partially owned and operated until 1982, at which time
Gibraltar Central was sold to Security Centres of London, England.
Mr. Harold Ginsburg does not hold directorships in any other reporting
companies.
SHEILAH GINSBURG
Mrs. Sheilah Ginsburg was a co-founder of Guardian. She is responsible for
day-to-day accounting and administrative functions of the Company. Prior to her
participation in the development of Guardian, Mrs. Ginsburg was the Vice
President/Controller of Guardsman Central Security, a business similar to
Guardian.
Mrs. Ginsburg does not hold directorships in any other reporting companies.
48
<PAGE>
DARIUS G. NEVIN
Mr. Darius G. Nevin assumed the position of Chief Financial Officer of the
Company in October 1997. For most of the ten years leading up to that time, Mr.
Nevin served as Chief Financial Officer of Guard Technologies, Inc. (now
Security Technologies Group, Inc.), a provider of electronic security systems
and services to the commercial market. For the last three years, prior to
joining the Company, Mr. Nevin also served as President of Guard Technologies,
Inc. Before entering the security industry, Mr. Nevin was a junior partner of
Madison Dearborn Partners, at that time the venture capital division of First
Chicago Corp. Mr. Nevin holds an A.B. from Harvard University and an M.B.A. from
the University of Chicago.
Mr. Nevin does not hold directorships in any other reporting companies.
WILLIAM REMINGTON
Mr. William Remington is a Canadian citizen and resident. For the past
twenty-one years, Mr. Remington has been the Director General of the Town of
Hampstead, Quebec, Canada. In addition, Mr. Remington has participated in the
design and installation of central monitoring stations for alarm monitoring
companies located in Montreal, Canada, Kingston, Jamaica, London, England and
Florida.
Mr. Remington does not hold directorships in any other reporting companies.
TERRY E. AKINS
Mr. Terry E. Akins served as president of ACI, which he co-founded in 1970,
between 1989 and May 1997. From 1970 to 1989, Mr. Akins served as Vice President
of ACI. In addition, Mr. Akins has been active with local, state and national
alarm associations, having served in 1989 as President of The Alarm Association
of Florida, an association he co-founded in 1970. Mr. Akins received a Bachelor
of Science from the Georgia Institute of Technology in 1969.
Mr. Akins does not hold directorships in any other reporting companies.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's directors and executive officers are required to file initial
reports of ownership and reports of changes of ownership of Common Stock with
the Securities and Exchange Commission. Based upon a review of these filings and
written representations from the directors and executive officers, all required
filings were timely made in 1997, except that Messrs. Richard Ginsburg and
Darius G. Nevin each failed to report one transaction on a Form 4.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following sets forth certain information regarding the aggregate cash and
other compensation paid to or earned by the Chief Executive Officer of the
Company. No other executive officer earned salary and bonus in Fiscal Year 1997
in excess of $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY (1) OTHER(2)
Richard Ginsburg, President and 1997 $91,985 $10,800
CEO, Director 1996 29,042 10,800
(1) Mr. Ginsburg's salary was increased in October 1997, with the execution of
his employment agreement, see below. The 1996 compensation represents only
the amounts paid between September 1, 1996, the date Mr. Ginsburg was
elected Chief Executive Officer of the Company, and December 31, 1996. The
annualized compensation for 1996 for Mr. Ginsburg was $90,000.
(2) Included in other annual compensation, in both 1997 and 1996, is
approximately $600 per month for lease payments for the automobile used by
Mr. Ginsburg and approximately $300 per month for health insurance
premiums.
COMPENSATION OF DIRECTORS
Directors of the Company received no compensation to act in such capacity,
during Fiscal Year 1997.
EMPLOYMENT AGREEMENTS
On October 14, 1997, the Company entered into an employment agreement for an
initial three year term with Mr. Richard Ginsburg pursuant to which he serves as
Chief Executive Officer of the Company. Under the terms of the agreement, Mr.
Ginsburg receives an initial annual base salary of $100,000, which may be
increased from time to time by the Board of Directors and will be eligible for
annual bonuses also determined at the discretion of the Board. Also included was
a grant of 100,000 options to purchase Guardian Common Stock at $1.95 per share,
which vest 20% at the inception of the contract and 20% on each anniversary of
employment until fully vested and expire in ten years.
49
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 26, 1998 by the executive
officers and directors of the Company. The percentages shown include the Common
Stock and the Preferred Stock, unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF
NAME OF BENEFICIAL OWNER OF IDENTITY GROUP (1) OWNED OUTSTANDING SHARES
<S> <C> <C>
Richard Ginsburg(2) 649,246 4.1%
Harold Ginsburg(2) 1,003,533 6.4
Sheilah Ginsburg(2) 903,533 5.7
Other Directors and Officers, as a group (3) 3,272,910 20.8
</TABLE>
(1) The address for each person listed in this table is c/o Guardian
International, Inc., 3880 North 28 Terrace, Hollywood, Florida 33020-1118.
(2) Richard Ginsburg is the son of Harold and Sheilah Ginsburg. Harold and
Sheilah and are husband and wife and each disclaims ownership of the
other's shares.
(3) Includes 100,000 shares issuable upon exercise of options held by Terry
E. Akins.
The following table sets forth certain information regarding each person
known to the Company, other than the executive officers and directors of the
Company (similar information regarding executive officers and directors is shown
in the above table), who may be considered a beneficial owner of more than 5% of
the outstanding shares of the Common Stock as of March 26, 1998. The percentages
shown include both the Class A Stock and the Preferred Stock. The information
below was obtained from Schedule 13D, Amendment No. 3, dated February 26, 1998,
filed by Westar Capital, Inc. with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE OF
NAME OF BENEFICIAL OWNER OF IDENTITY GROUP OWNED (1) OUTSTANDING SHARES (1)
<S> <C> <C>
Westar Capital, Inc. 6,454,033 41.0%
818 Kansas Avenue
Topeka, KS 66612
Harold Ginsburg(2) 1,003,533 6.4
Sheilah Ginsburg(2) 903,533 5.7
</TABLE>
(1) The Company issued to Westar Security, Inc. an additional 19,033 shares of
Series A Preferred Stock as a stock dividend, which were not included in the
Schedule 13D referenced above.
(2) The address for each person listed in this table is c/o Guardian
International, Inc., 3880 North 28 Terrace, Hollywood, Florida 33020-1118.
(3) Harold and Sheilah and are husband and wife and each disclaims ownership
of the other's shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its corporate headquarters from Guardian Investment,
a Florida partnership owned by Harold and Sheilah Ginsburg, both of whom are
directors, officers and principal shareholders of the Company. During 1997, the
Company occupied 6,000 square feet of the building which houses the Company's
central monitoring station, located at 3880 N. 28 Terrace, Hollywood, Florida
33020. The telephone number is (954) 926-5200. The lease will expire on December
31, 1999, but the Company has an option to renew for an additional five years
under the same terms and conditions. At December 31, 1997 the annual rental was
approximately $84,000, with annual increases not to exceed three percent (3%).
The terms of the lease are no less favorable to the Company than those which
could be obtained from unaffiliated third parties.
For a discussion of certain Common Stock issuances and transfers to certain
affiliates of the Company, see Item 5 - Market for Common Equity and Related
Stockholder Matters.
50
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (SEE TABLE OF CONTENTS)
EXHIBITS
3(i) Articles of Incorporation dated October 30, 1986 incorporated by
reference to the Company's Form 10SB12G filed as of June 18, 1996
3(i)(a) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10SB12G filed as of June 18, 1996
3(i)(b) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10SB12G filed as of June 18, 1996
3(i)(c) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10SB12G/A filed as of January 23,
1997
3(i)(d) Amendment to the Articles of Incorporation filed with the Secretary
of the State of Nevada on November 24, 1997
3(ii) Amended and Restated Bylaws of the Company incorporated by
reference to Exhibit 3(ii) of the Company's Quarterly Report on
Form 10QSB filed as of November 14, 1997
4(a) Specimen Stock Certificate incorporated by reference to the
Company's Form 10SB12G as of June 18, 1996
4(b) Certificate of the Designations, Voting Power, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Preferred Stock,
filed in the Office of the Secretary of State of the State of
Nevada on November 24, 1997 designating the first series of
Preferred Stock of the Company as "Series A 9 3/4% Convertible
Cumulative Preferred Stock, par value $.001 per share"
4(c) Certificate of the Designations, Voting Power, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Preferred Stock, of
Guardian International, Inc., filed in the Office of the Secretary
of State of the State of Nevada on February 23, 1998 designating
the second series of Preferred Stock of the Company as "Series B 10
1/2% Convertible Cumulative Preferred Stock, par value $.001 per
share"
4(d) Amendment to Certificate of the Designations, Voting Power,
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of the
Series A 9 3/4% Convertible Cumulative Preferred Stock, par value
$.001 per share, of Guardian International, Inc., filed in the
Office of the Secretary of State of the State of Nevada on March
13, 1998.
4(e) Amendment to Certificate of the Designations, Voting Power,
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of the
Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
$.001 per share, of Guardian International, Inc., filed in the
Office of the Secretary of State of the State of Nevada on March
13, 1998.
9 Lock-up Agreement dated August 15, 1996 among the Company,
International Treasury and Investments, Ltd., Steven Sanders,
Knight Financial Corporation and Frank Bauer incorporated by
reference to Exhibit 9 of the Company's Annual Report on Form
10KSB40 filed as of March 31, 1997
51
<PAGE>
10(a) Share Purchase Agreement dated October 9, 1995 between Security
Device Installers, Inc. and Everest Security Systems Corporation
incorporated by reference to the Company's Form 10SB12G filed as of
June 18, 1996
10(b) Amendment to October 9, 1995 Share Purchase Agreement incorporated
by reference to the Company's Form 10SB12G filed as of June 18,
1996
10(b)(1) Employment Agreement between Security Device Installers, Inc. and
Frank Bauer incorporated by reference to the Company's Form
10SB12G/A filed January 23, 1997
10(d) Consulting Agreement between Harold Ginsburg and the Company
incorporated by reference to the Company's Form 10SB12G/A filed
January 23, 1997
10(e) Executive Employment Agreement between Richard Ginsburg and the
Company incorporated by reference to Exhibit 10(e) of the Company's
Annual Report on Form 10KSB filed as of March 31, 1997
10(f) Employee Stock Option Agreement with G.M. Capital Partners, Ltd.
incorporated by reference to the Company's Form 10SB12G/A filed
January 23, 1997
10(g) Employee Stock Option Agreement with Frank Bauer incorporated by
reference to Exhibit 10(f) to the Company's Form 10SB12G filed as
of June 18, 1996
10(h) Loan and Security Agreement between Heller Financial, Inc. and
Guardian International, Inc. and exhibits thereto incorporated by
reference to the Company's Form 10SB12G/A filed January 23, 1997
10(i) Modification Agreement with Heller Financial, Inc. incorporated by
reference to the Company's Form 10SB12G/A filed as of January 23,
1997
10(j) Amended and Restated Loan and Security Agreement with Heller
Financial, Inc. dated as of February 23, 1998
10(k) Waiver letter from Heller Financial, Inc. dated March 11, 1997
incorporated by reference to Exhibit 10(k) of the Company's Annual
Report on Form 10-KSB filed March 31, 1997
10(l) Waiver letter from Heller Financial, Inc. dated March 26, 1997
incorporated by reference to Exhibit 10(l) of the Company's Annual
Report on Form 10-KSB filed March 31, 1997
10(m) Waiver letter from Heller Financial, Inc. dated March 26, 1998
10(n) Plan and Agreement of Merger of Guardian International, Inc. with
and into Everest Security Systems Corporation, incorporated by
reference to Exhibit 2.1 AG of the Company's 8-K filed September
12, 1996
10(o) Stock Subscription Agreement dated as of October 14, 1997
incorporated by reference to Exhibit (1) to the Company's Form 8-K
filed as of October 23, 1997
10(p) Registration Rights Agreement dated as of October 21, 1997
incorporated by reference to Exhibit (2) to the Company's Form 8-K
filed as of October 23, 1997
10(q) Stockholders Agreement dated as of October 21, 1997 incorporated
by reference to Exhibit (3) to the Company's Form 8-K filed as of
October 23, 1997
10(r) Employment Agreement with Harold Ginsburg effective as of October
10, 1997
52
<PAGE>
10(s) Employment Agreement with Richard Ginsburg dated October 15, 1997
10(t) Employment Agreement with Darius G. Nevin dated October 15, 1997
10(u) Stock Purchase Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(a) of the Company's Form
8-K filed as of March 10, 1998
10(v) Registration Rights Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(b) of the Company's Form
8-K filed as of March 10, 1998
10(w) Escrow and Pledge Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(c) of the Company's Form
8-K filed as of March 10, 1998
10(x) Employment Agreement with Joel A. Cohen dated as of February 1,
1998 incorporated by reference to Exhibit 10(d) of the Company's
Form 8-K filed as of March 10, 1998
10(y) Employment Agreement with Raymond L. Adams dated as of February 1,
1998 incorporated by reference to Exhibit 10(e) of the Company's
Form 8-K filed as of March 10, 1998
10(aa) Asset Purchase Agreement effective as of March 9, 1998
incorporated by reference to Exhibit 10(a) to the Company's Form
8-K filed as of March 24, 1998
10(bb) Warranty Bill of Sale dated as of March 5, 1998 incorporated by
reference to Exhibit 10(b) to the Company's Form 8-K filed as of
March 24, 1998
10(cc) Assignment and Assumption Agreement dated as of March 5, 1998
incorporated by reference to Exhibit 10(c) to the Company's Form
8-K filed as of March 24, 1998
10(dd) Guaranty Agreement dated as of March 9, 1998 incorporated by
reference to Exhibit 10(d) to the Company's Form 8-K filed as of
March 24, 1998
10(ee) Escrow Agreement date March 9, 1998 incorporated by reference to
Exhibit 10(e) to the Company's Form 8-K filed as of March 24, 1998
10(ff) Employment Agreement with Dan Lawrence dated March 9, 1998
incorporated by reference to Exhibit 10(f) to the Company's Form
8-K filed as of March 24, 1998
10(gg) Amendment to Registration Rights Agreement dated as of February 23,
1998
10(hh) Stock Subscription Agreement dated as of February 23, 1998
10(ii) Guardian International, Inc. Incentive Stock Option Plan
incorporated by reference to the Company's Form 10SB12G filed as
of June 18, 1996
21 List of the Company's wholly-owned subsidiaries as of March 26 1998
27 Financial Data Schedule
53
<PAGE>
REPORTS ON FORM 8-K
On October 22, 1997 the Company filed a Form 8-K announcing the $7.5
million investment by Westar Capital, Inc., which resulted in a change in
control of the Company.
54
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GUARDIAN INTERNATIONAL, INC.
By: /s/ RICHARD GINSBURG
Richard Ginsburg
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ HAROLD GINSBURG Chairman of the Board March 31, 1998
Harold Ginsburg
/s/ RICHARD GINSBURG Director, President March 31, 1998
Richard Ginsburg and Chief Executive Officer
(Principal Executive Officer)
/s/ SHEILAH GINSBURG Director, Secretary and Treasurer March 31, 1998
Sheilah Ginsburg
/s/ DARIUS G. NEVIN Director, Chief Financial Officer March 31, 1998
Darius G. Nevin (Principal Financial and Principal
Accounting Officer)
/s/ WILLIAM REMINGTON Director March 31, 1998
William Remington
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
<S> <C> <C>
3(i) Articles of Incorporation dated October 30, 1986 incorporated by
reference to the Company's Form 10SB12G filed as of June 18, 1996
3(i)(a) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10SB12G filed as of June 18, 1996
3(i)(b) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10SB12G filed as of June 18, 1996
3(i)(c) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10SB12G/A filed as of January 23,
1997
3(i)(d) Amendment to the Articles of Incorporation filed with the Secretary
of the State of Nevada on November 24, 1997
3(ii) Amended and Restated Bylaws of the Company incorporated by
reference to Exhibit 3(ii) of the Company's Quarterly Report on
Form 10QSB filed as of November 14, 1997
4(a) Specimen Stock Certificate incorporated by reference to the
Company's Form 10SB12G as of June 18, 1996
4(b) Certificate of the Designations, Voting Power, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Preferred Stock,
filed in the Office of the Secretary of State of the State of
Nevada on November 24, 1997 designating the first series of
Preferred Stock of the Company as "Series A 9 3/4% Convertible
Cumulative Preferred Stock, par value $.001 per share"
4(c) Certificate of the Designations, Voting Power, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Preferred Stock, of
Guardian International, Inc., filed in the Office of the Secretary
of State of the State of Nevada on February 23, 1998 designating
the second series of Preferred Stock of the Company as "Series B 10
1/2% Convertible Cumulative Preferred Stock, par value $.001 per
share"
4(d) Amendment to Certificate of the Designations, Voting Power,
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of the
Series A 9 3/4% Convertible Cumulative Preferred Stock, par value
$.001 per share, of Guardian International, Inc., filed in the
Office of the Secretary of State of the State of Nevada on March
13, 1998.
4(e) Amendment to Certificate of the Designations, Voting Power,
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of the
Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
$.001 per share, of Guardian International, Inc., filed in the
Office of the Secretary of State of the State of Nevada on March
13, 1998.
9 Lock-up Agreement dated August 15, 1996 among the Company,
International Treasury and Investments, Ltd., Steven Sanders, Knight
Financial Corporation and Frank Bauer incorporated by reference to
Exhibit 9 of the Company's Annual Report on Form 10KSB40 filed as of
March 31, 1997
56
<PAGE>
10(a) Share Purchase Agreement dated October 9, 1995 between Security
Device Installers, Inc. and Everest Security Systems Corporation
incorporated by reference to the Company's Form 10SB12G filed as of
June 18, 1996
10(b) Amendment to October 9, 1995 Share Purchase Agreement incorporated
by reference to the Company's Form 10SB12G filed as of June 18,
1996
10(b)(1) Employment Agreement between Security Device Installers, Inc. and
Frank Bauer incorporated by reference to the Company's Form
10SB12G/A filed January 23, 1997
10(d) Consulting Agreement between Harold Ginsburg and the Company
incorporated by reference to the Company's Form 10SB12G/A filed
January 23, 1997
10(e) Executive Employment Agreement between Richard Ginsburg and the
Company incorporated by reference to Exhibit 10(e) of the Company's
Annual Report on Form 10KSB filed as of March 31, 1997
10(f) Employee Stock Option Agreement with G.M. Capital Partners, Ltd.
incorporated by reference to the Company's Form 10SB12G/A filed
January 23, 1997
10(g) Employee Stock Option Agreement with Frank Bauer incorporated by
reference to Exhibit 10(f) to the Company's Form 10SB12G filed as
of June 18, 1996
10(h) Loan and Security Agreement between Heller Financial, Inc. and
Guardian International, Inc. and exhibits thereto incorporated by
reference to the Company's Form 10SB12G/A filed January 23, 1997
10(i) Modification Agreement with Heller Financial, Inc. incorporated by
reference to the Company's Form 10SB12G/A filed as of January 23, 1997
10(j) Amended and Restated Loan and Security Agreement with Heller
Financial, Inc. dated as of February 23, 1998
10(k) Waiver letter from Heller Financial, Inc. dated March 11, 1997
incorporated by reference to Exhibit 10(k) of the Company's Annual
Report on Form 10-KSB filed March 31, 1997
10(l) Waiver letter from Heller Financial, Inc. dated March 26, 1997
incorporated by reference to Exhibit 10(l) of the Company's Annual
Report on Form 10-KSB filed March 31, 1997
10(m) Waiver letter from Heller Financial, Inc. dated March 26, 1998
10(n) Plan and Agreement of Merger of Guardian International, Inc. with
and into Everest Security Systems Corporation, incorporated by
reference to Exhibit 2.1 AG of the Company's 8-K filed September
12, 1996
10(o) Stock Subscription Agreement dated as of October 14, 1997
incorporated by reference to Exhibit (1) to the Company's Form 8-K
filed as of October 23, 1997
10(p) Registration Rights Agreement dated as of October 21, 1997
incorporated by reference to Exhibit (2) to the Company's Form 8-K
filed as of October 23, 1997
10(q) Stockholders Agreement dated as of October 21, 1997 incorporated
by reference to Exhibit (3) to the Company's Form 8-K filed as of
October 23, 1997
10(r) Employment Agreement with Harold Ginsburg effective as of October
10, 1997
57
<PAGE>
10(s) Employment Agreement with Richard Ginsburg dated October 15, 1997
10(t) Employment Agreement with Darius G. Nevin dated October 15, 1997
10(u) Stock Purchase Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(a) of the Company's Form
8-K filed as of March 10, 1998
10(v) Registration Rights Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(b) of the Company's Form
8-K filed as of March 10, 1998
10(w) Escrow and Pledge Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(c) of the Company's Form
8-K filed as of March 10, 1998
10(x) Employment Agreement with Joel A. Cohen dated as of February 1,
1998 incorporated by reference to Exhibit 10(d) of the Company's
Form 8-K filed as of March 10, 1998
10(y) Employment Agreement with Raymond L. Adams dated as of February 1,
1998 incorporated by reference to Exhibit 10(e) of the Company's
Form 8-K filed as of March 10, 1998
10(aa) Asset Purchase Agreement effective as of March 9, 1998
incorporated by reference to Exhibit 10(a) to the Company's Form
8-K filed as of March 24, 1998
10(bb) Warranty Bill of Sale dated as of March 5, 1998 incorporated by
reference to Exhibit 10(b) to the Company's Form 8-K filed as of
March 24, 1998
10(cc) Assignment and Assumption Agreement dated as of March 5, 1998
incorporated by reference to Exhibit 10(c) to the Company's Form
8-K filed as of March 24, 1998
10(dd) Guaranty Agreement dated as of March 9, 1998 incorporated by
reference to Exhibit 10(d) to the Company's Form 8-K filed as of
March 24, 1998
10(ee) Escrow Agreement date March 9, 1998 incorporated by reference to
Exhibit 10(e) to the Company's Form 8-K filed as of March 24, 1998
10(ff) Employment Agreement with Dan Lawrence dated March 9, 1998
incorporated by reference to Exhibit 10(f) to the Company's Form
8-K filed as of March 24, 1998
10(gg) Amendment to Registration Rights Agreement dated as of February 23,
1998
10(hh) Stock Subscription Agreement dated as of February 23, 1998
10(ii) Guardian International, Inc. Incentive Stock Option Plan
incorporated by reference to the Company's Form 10SB12G filed as
of June 18, 1996
21 List of the Company's wholly-owned subsidiaries as of March 26 1998
27 Financial Data Schedule
</TABLE>
58
<PAGE>
EXHIBIT INDEX
3(i)(d) Amendment to the Articles of Incorporation filed with the Secretary
of the State of Nevada on November 24, 1997
4(b) Certificate of the Designations, Voting Power, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Preferred Stock,
filed in the Office of the Secretary of State of the State of
Nevada on November 24, 1997 designating the first series of
Preferred Stock of the Company as "Series A 9 3/4% Convertible
Cumulative Preferred Stock, par value $.001 per share"
4(c) Certificate of the Designations, Voting Power, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Preferred Stock, of
Guardian International, Inc., filed in the Office of the Secretary
of State of the State of Nevada on February 23, 1998 designating
the second series of Preferred Stock of the Company as "Series B
10 1/2% Convertible Cumulative Preferred Stock, par value $.001 per
share"
4(d) Amendment to Certificate of the Designations, Voting Power,
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of the
Series A 9 3/4% Convertible Cumulative Preferred Stock, par value
$.001 per share, of Guardian International, Inc., filed in the
Office of the Secretary of State of the State of Nevada on March
13, 1998.
4(e) Amendment to Certificate of the Designations, Voting Power,
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of the
Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
$.001 per share, of Guardian International, Inc., filed in the
Office of the Secretary of State of the State of Nevada on March
13, 1998.
10(j) Amended and Restated Loan and Security Agreement with Heller
Financial, Inc. dated as of February 23, 1998
10(m) Waiver letter from Heller Financial, Inc. dated March 26, 1998
10(r) Employment Agreement with Harold Ginsburg effective as of October
10, 1997
10(s) Employment Agreement with Richard Ginsburg dated October 15, 1997
10(t) Employment Agreement with Darius G. Nevin dated October 15, 1997
10(gg) Amendment to Registration Rights Agreement dated as of February 23,
1998
10(hh) Stock Subscription Agreement dated as of February 23, 1998
21 List of the Company's wholly-owned subsidiaries as of March 26 1998
27 Financial Data Schedule
EXHIBIT 3(I)(D)
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
GUARDIAN INTERNATIONAL, INC.
We the undersigned, Richard Ginsburg, President and Chief Executive
Officer, and Sheilah Ginsburg, Secretary of Guardian International, Inc., a
Nevada corporation (the "Corporation"), do hereby certify:
That the Board of Directors of the Corporation at a meeting duly
convened, held on the 14th day of October, 1997, adopted a resolution to amend
the original articles as follows:
RESOLVED, Article FOURTH is deleted in its entirety and the following
is inserted in lieu thereof:
"FOURTH.
1. The amount of the total authorized capital stock of the Corporation
is 131,000,000 shares, consisting of (i) 100,000,000 shares of `Class A Voting
Common Stock,' par value $.001 per share; (ii) 1,000,000 shares of `Class B
Nonvoting Common Stock,' par value $.001 per share; and (iii) 30,000,000 shares
of Preferred Stock, par value $.001 per share.
2. CLASS B COMMON STOCK.
Except as otherwise provided herein all shares of Class A
Voting Common Stock and Class B Nonvoting Common Stock will be identical and
will entitle the holders thereof to the same rights and privileges.
(a) VOTING RIGHTS. The holders of Class A Voting Common Stock
will be entitled to one (1) vote per share on all matters to be voted on by the
Corporation's stockholders, and except as otherwise required by law, the holders
of Class B Nonvoting Common Stock will have no right to vote their shares of
Class B Nonvoting Common Stock on any matters to be voted on by the
Corporation's stockholders.
(b) DIVIDENDS. When and as dividends are declared thereon,
whether payable in cash, property or securities of the Corporation, the holders
of Class A Voting Common Stock and the holders of Class B Nonvoting Common Stock
will be entitled to share ratably according to the number of shares of Class A
Voting Common Stock or Class B Nonvoting Common Stock held by them, in such
dividends; provided, that if dividends are declared which are payable in shares
of Class A Voting Common Stock or Class B Nonvoting Common Stock, dividends will
be declared which are payable at the same rate on both classes of common stock,
and the dividends payable in shares of Class A Voting Common Stock to holders of
Class A Voting
<PAGE>
Common Stock, and the dividends payable in shares of Class B Nonvoting Common
Stock will be payable to the holders of Class B Nonvoting Common Stock.
(c) LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Class A Voting Common Stock and Class B Nonvoting Common Stock
shall be entitled to share ratably, according to the number of shares of Class A
Voting Common Stock or Class B Nonvoting Common Stock held by them, in the
remaining assets of the Corporation available for distribution to its
stockholders.
(d) CONVERSION OF CLASS B NONVOTING COMMON STOCK.
i. At any time and from time to time, each record
holder of Class B Nonvoting Common Stock will be entitled to convert any and all
of the shares of such holder's Class B Nonvoting Common Stock into the same
number of shares of Class A Voting Common Stock at holder's election, provided,
that each holder of Class B Nonvoting Common Stock shall only be entitled to
convert any share or shares of Class B Nonvoting Common Stock to the extent that
after giving effect to such conversion such holder or its affiliates shall not
directly or indirectly, own, control or have power to vote a greater quantity of
securities of any kind issued by the Corporation than such holder and its
affiliates are permitted to own, control or have power to vote under any law or
under any regulation, rule or other requirement of any governmental authority at
any time applicable to such holder and its affiliates.
ii. Each conversion of shares of Class B Nonvoting
Common Stock into shares of Class A Voting Common Stock will be effected by the
surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with a written notice by the holder of such Class B
Nonvoting Common Stock stating that such holder desires to convert the shares,
or a stated number of the shares, of Class B Nonvoting Common Stock represented
by such certificate or certificates into Class A Voting Common Stock and a
written undertaking that upon such conversion such holder and its affiliates
will not directly or indirectly own, control or have the power to vote a greater
quantity of securities of any kind issued by the Corporation than such holders
and its affiliates are permitted to own, control or have the power to vote under
any applicable law, regulation, rule or other governmental requirement. Such
conversion will be deemed to have been effected as of the close of business on
the date on which certificate or certificates have been surrendered and such
notice has been received, and at such time the rights of the holder of the
converted Class B Nonvoting Common Stock as such holder will cease and the
person or persons in whose name or names the certificate or certificates for
shares of Class A Voting Common Stock are to be issued upon such conversion will
be deemed to have become the holder or holders of record of the shares of Class
A Voting Common Stock represented thereby.
iii. Promptly after such surrender and the receipt of
such written notice, the Corporation will issue and deliver in accordance with
the surrendering holder's
2
<PAGE>
instructions (x) the certificate or certificates for the Class A Voting Common
Stock issuable upon such conversion and (y) a certificate representing any Class
B Nonvoting Common Stock which was represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which was not converted.
iv. If the Corporation in any manner subdivides or
combines the outstanding shares of one class of either Class A Voting Common
Stock or Class B Nonvoting Common Stock, the outstanding shares of the other
class will be proportionately subdivided or combined.
v. In the case of, and as a condition to, any capital
reorganization of, or any reclassification of the capital stock of, the
Corporation (other than a subdivision or combination of shares of Class A Voting
Common Stock or Class B Nonvoting Common Stock into a greater or lesser number
of shares (whether with or without par value) or a change in the par value of
Class A Voting Common Stock or Class B Nonvoting Common Stock or from par value
to no par value) or in the case of, and as a condition to, the consolidation or
merger of the Corporation with or into another corporation (other than a merger
in which the Corporation is the continuing corporation and which does not result
in any reclassification of outstanding shares of Class A Voting Common Stock or
Class B Nonvoting Common Stock), each share of Class B Nonvoting Common Stock
shall be convertible into the number of shares of stock or other securities or
property receivable upon such reorganization, reclassification, consolidation or
merger by a holder of the number of shares of Class A Voting Common Stock of the
Corporation into which such shares of Class B Nonvoting Common Stock were
convertible immediately prior to such reorganization, reclassification,
consolidation or merger; and, in any such case, appropriate adjustment shall be
made in the application of the provisions set forth in this paragraph with
respect to the rights and interests thereafter of the holders of Class B
Nonvoting Common Stock to the end that the provisions set forth in this
paragraph (including provisions with respect to the conversion rate) shall
thereafter be applicable, as nearly as they reasonably may be, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the conversion of the shares of Class B Nonvoting Common Stock.
vi. The shares of Class B Nonvoting Common Stock
which are converted into shares of Class A Voting Common Stock as provided
herein shall not be reissued.
vii. The Corporation will at all times reserve and
keep available out of its authorized but unissued shares of Class A Voting
Common Stock or its treasury shares, solely for the purpose of issue upon
conversion of the Class B Nonvoting Common Stock as provided above, such number
of Class A Voting Common Stock as shall then be issuable upon the conversion of
all then outstanding shares of Class B Nonvoting Common Stock (assuming that all
such shares of Class B Nonvoting Common Stock are hold by persons entitled to
convert such shares into Class A Voting Common Stock).
<PAGE>
viii. The issuances of certificates for Class A
Voting Common Stock upon the conversion of Class B Nonvoting Common Stock will
be made without charge to the holders of such shares for any issuance tax in
respect thereof or other cost incurred by the Corporation in connection with
such conversion and the related issuance of Class A Voting Common Stock. The
Corporation will not close its books against the transfer of Class B Nonvoting
Common Stock or Class A Voting Common Stock issued or issuable upon the
conversion of Class B Nonvoting Common Stock in any manner which would interfere
with the timely conversion of Class B Nonvoting Common Stock.
3. PREFERRED STOCK.
(a) Shares of Preferred Stock may be issued from time to time
in one or more series as may from time to time be determined by the Board of
Directors, each of said series to be distinctly designated. All shares of any
one series of Preferred Stock shall be alike in every particular, except that
there may be different dates from which dividends, if any, thereon shall be
cumulative, if made cumulative. The voting powers and the preferences and
relative, participating, optional and other special rights of each such series,
and the qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding; and the Board of
Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Preferred Stock, the voting powers and the designation,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
i. DESIGNATION AND NUMBER. The distinctive
designation of, and the number of shares of Preferred Stock which shall
constitute such series, which number may be increased (except where otherwise
provided by the Board of Directors) or decreased (but not below the number of
shares thereof then outstanding) from time to time by like action by the Board
of Directors;
ii. DIVIDENDS. The rate and times at which, and the
terms and conditions on which, dividends, if any, on Preferred Stock of such
series shall be paid, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes, or series of
the same or other classes of stock and whether such dividends shall be
cumulative or noncumulative;
iii. CONVERSION PRIVILEGES. The right, if any, of the
holders of Preferred Stock of such series to convert the same into or exchange
the same for, shares of any other class or classes, or of any series of the same
or any other class or classes of stock of the Corporation and the terms and
conditions of such conversion or exchange;
<PAGE>
iv. REDEMPTION. Whether or not Preferred Stock of
such series shall be subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions on which, Preferred
Stock of such series may be redeemed;
v. LIQUIDATION. The rights, if any, of the holders of
Preferred Stock of such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets, dissolution or winding
up, of the Corporation;
vi. SINKING FUND REQUIREMENTS. The terms of the
sinking fund or redemption or purchase account, if any, to be provided for the
Preferred Stock of such series; and
vii. VOTING RIGHTS. The voting powers, if any, of the
holders, of such series of Preferred Stock which may, without limiting the
generality of the foregoing, include the right, voting as a series or by itself
or together with other series of Preferred Stock or all series of Preferred
Stock as a class, to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any one or more series
of Preferred Stock or under such other circumstances and on such conditions as
the Board of Directors may determine.
(b) The relative powers, preferences and rights of each series
of Preferred Stock in relation to the powers, preferences and rights of each
other series of Preferred Stock shall, in each case, be as fixed from time to
time by the Board of Directors in the resolution or resolutions adopted pursuant
to authority granted in paragraph 3(a) of this Article FOURTH and the consent,
by class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution or
resolutions as to any series of Preferred Stock adopted pursuant to paragraph
3(a) of this Article FOURTH that the consent of the holders of a majority (or
such greater proportion as shall be therein fixed) of the outstanding shares of
such series voting therein shall be required for the issuance of any or all
other series of Preferred Stock.
4. Subject to the provisions of paragraphs 2 and 3, shares of Common
Stock or any series of Preferred Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
5. The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased from time
to time by the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.";
<PAGE>
That the number of shares of the Corporation outstanding and entitled
to vote on an amendment to the Articles of Incorporation is 6,496,804 shares;
that the said change(s) and amendment have been consented to and approved by a
majority of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/S/ RICHARD GINSBURG
------------------------------------
Richard Ginsburg, President
and Chief Executive Officer
/S/ SHEILAH GINSBURG
------------------------------------
Sheilah Ginsburg, Secretary
State of Florida )
)ss
County of Broward )
On OCTOBER 20, 1997, personally appeared before me, a Notary Public, L.
MARLENE CROSSLEY, who acknowledged that they executed the above instrument.
/S/ L. MARLENE CROSSLEY
---------------------------------
L. Marlene Crossley
Notary Public, State of Florida
Commission No. CC570109
My Commission Expires: 08/11/2000
6
Exhibit 4(b)
CERTIFICATE OF THE DESIGNATIONS, VOTING POWERS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF PREFERRED STOCK OF
GUARDIAN INTERNATIONAL, INC.
The undersigned hereby certify that they are the duly elected and
acting President and Secretary of Guardian International, Inc., a Nevada
corporation, (the "Company"), and pursuant to Nev. Rev. Stat. ss. 78.1955, DO
HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
of the Company (the "Board") by Article FOURTH of the Company's Articles of
Incorporation (the "Articles"), the Board by unanimous written consent dated
October 21, 1997 adopted the following resolutions:
RESOLVED, that the amendments to Article FOURTH of the
Articles to be filed with the Nevada Secretary of State on November 24,
1997 to (a) authorize the Company to issue 30,000,000 shares of
blank-check preferred stock, par value $.001 per share (the "Preferred
Stock"), and (b) increase the number of authorized shares of Class B
Nonvoting Common Stock of the Company, par value $.001 per share, from
484,035 shares to 1,000,000 shares are hereby approved; and further
RESOLVED, that the Board hereby establishes and authorizes the
issuance of a first series of the Preferred Stock and hereby fixes the
number of shares to constitute the first series, the annual rate of
dividends payable on such shares and the date from which dividends
shall commence to accrue, the terms and conditions on which the shares
may or shall be converted, as the case may be, and the voting rights
and liquidation preferences of such shares, as follows:
I. DESIGNATION AND RANK.
The first series of Preferred Stock of the Company is
designated "Series A 9 3/4% Convertible Cumulative Preferred
Stock, par value $.001 per share" (the "Series A Preferred
Stock"), and the number of shares which shall constitute such
Series shall be 1,875,000 shares. All shares of Series A
Preferred Stock shall rank equally and be identical in all
respects. So long as the Series A Preferred Stock is
outstanding, unless consented to by the affirmative vote of
2/3 of the holders of the outstanding Series A Preferred
Stock, the Company shall not issue additional securities of
any kind, including shares of preferred stock of any class,
(including without limitation additional shares of Series A
Preferred Stock other than Dividend Preferred Shares) series
or designation ranking in priority or in parity as to rights
and preferences with the Series A Preferred Stock now or
hereafter authorized.
<PAGE>
II. DIVIDENDS.
The holders of the Series A Preferred Stock, in
preference to the holders of Common Stock and any other class
or classes of stock of the Company ranking junior in rights
and preferences to the Series A Preferred Stock as to payment
of dividends and other distributions, shall be entitled to
receive, but only out of any funds legally available for the
declaration of dividends, cumulative, preferential dividends
at the annual rate of 9 3/4%, payable as follows:
(a) Series A Preferred Stock dividends (the
"Dividends") shall commence to accrue on the shares of
Preferred Stock and be cumulative from and after the date of
issuance of such shares of Series A Preferred Stock and shall
be deemed to accumulate and accrue from day to day thereafter.
(b) The Dividends shall be payable to the holders of
the Series A Preferred Stock quarterly on the 1st day of
January, April, July and November at the Company's option in
cash or in additional shares of Series A Preferred Stock
("Dividend Preferred Shares") during the first two years after
the date of issuance of such shares of Series A Preferred
Stock. Thereafter, Dividends shall be paid quarterly on the
1st day of January, April, July and November in cash. Once
issued, any Dividend Preferred Shares shall rank pari passu
and have all of the rights and privileges associated with all
other shares of the Series A Preferred Stock.
III. REDEMPTION.
The Series A Preferred Stock shall not be redeemable
by the Company.
IV. VOTING RIGHTS.
The holders of Series A Preferred Stock shall be
entitled to vote with the Common Stock on all matters required
or permitted to be submitted to the stockholders of the
Company for their approval, but not as a separate class,
except to the extent required by Nevada law, and shall have
such other voting rights as specifically provided under Nevada
law.
V. SPECIAL VOTING RIGHTS.
(a) ELECTION OF DIRECTORS. Notwithstanding the other
provisions of this Section V, upon the occurrence of a Default
Event
2
<PAGE>
(hereafter defined) and for the duration of the Default Period
(hereafter defined) the holders of the Series A Preferred
Stock, in addition to any other voting rights they may have
herein or by law, shall be entitled to vote (voting as a class
by a majority of the outstanding shares thereof) for the
election to the Board of Directors of the smallest number of
directors necessary to constitute at any given time a majority
of the number of members of the Board of Directors, and should
such percentage when applied to the number of the members of
the Board of Directors result in a number that includes a
fraction, then such number shall be increased to the next
whole number. In addition, during the Default Period the
holders of the Series A Preferred Stock shall be entitled to
designate (voting as a class as aforesaid) the number of
positions on the Board of Directors, which shall be the
smallest number of directors necessary for the nominees of the
holders of Series A Preferred Stock to constitute a majority
of the full Board. In case the holders of the Series A
Preferred Stock become entitled to exercise such special
voting rights, they may call a special meeting of stockholders
during the Default Period, in the manner provided herein or in
the bylaws or otherwise as provided by law, for the purpose of
increasing or decreasing the number of positions on the Board
of Directors and electing such members to the Board of
Directors. In addition, the holders of the Series A Preferred
Stock shall have such special voting rights at any annual or
regular meeting of stockholders (or any other special meeting
not called by the holders of the Series A Preferred Stock)
held during the Default Period. In lieu of the foregoing, the
holders of the Series A Preferred Stock may take any of such
actions by a written consent signed by the holders of at least
a majority of the shares of the Series A Preferred Stock
outstanding and entitled to vote thereon.
(b) REMOVAL; VACANCIES. During the Default Period,
each director elected by the holders of the Series A Preferred
Stock may be removed only by the vote of the holders of the
majority of the outstanding shares of the Series A Preferred
Stock, voting separately as a class, at a meeting of the
stockholders, or of the holders of shares of the Series A
Preferred Stock, called for that purpose. During the Default
Period, any vacancy in the office of a director elected by the
holders of the Series A Preferred Stock may be filled by a
vote of the remaining directors then in office elected by the
holders of the Series A Preferred Stock, or, if not so filled,
by the holders of the Series A Preferred Stock at any meeting,
annual or special, for the election of directors held
thereafter. A special meeting of stockholders, or of the
holders of shares of the Series A Preferred Stock, may be
called for the purpose of filling any such vacancy. In the
case of removal of any
3
<PAGE>
such director, the vacancy may be filled at the same meeting
at which such removal shall be voted. Holders of the Series A
Preferred Stock shall be entitled to notice of each meeting of
stockholders at which they shall have any right to vote or
notice of which is otherwise required by law. In lieu of the
foregoing, the holders of the Series A Preferred Stock may
take any of such action by a written consent signed by the
holders of at least a majority of the shares of the Series A
Preferred Stock outstanding and entitled to vote thereon.
(c) EXPIRATION OF RIGHT. Upon termination of the
Default Period, the special voting rights of the holders of
the Series A Preferred Stock provided hereunder shall be
immediately divested, but always subject to the revesting of
such right in the holders of the Series A Preferred Stock upon
the occurrence of any subsequent Default Event. In the event
that such rights of the holders of the Series A Preferred
Stock shall cease as provided above, then the directors
elected to the Board of Directors by the holders of the Series
A Preferred Stock under this Section V shall be automatically
removed from office, and their respective positions terminated
and the number of positions on the Board of Directors reduced
in accordance with such termination, without further action on
the part of the holders of the Series A Preferred Stock, the
holders of the Common Stock or the Board of Directors.
(d) DEFAULT EVENT. For purposes hereof, a "Default
Event" occurs on the date that (i) the Company has failed to
pay any four quarterly Dividends when due whether consecutive
or not and (ii) such Dividends remain unpaid.
(e) DEFAULT PERIOD. For purposes hereof, "Default
Period" means a period commencing on the date a Default Event
occurs and ending upon the payment of the next quarterly
Dividend in full and such cumulative Dividends in arrears in
full, such that not more than three quarterly Dividends shall
be in arrears.
VI. LIQUIDATION.
(a) The Series A Preferred Stock shall be preferred
upon liquidation over the Common Stock and any other class or
classes of stock of the Company ranking junior in rights and
preferences to the Series A Preferred Stock upon liquidation.
Holders of shares of Series A Preferred Stock shall be
entitled to be paid, after full payment is made on any stock
ranking prior to the Series A Preferred Stock as to rights and
preferences (but before any distribution is made to the
holders of the Common Stock and such junior stock) upon the
4
<PAGE>
voluntary or involuntary dissolution, liquidation or winding
up of the Company (a "Liquidation").
(b) The amount payable on each share of Series A
Preferred Stock in the event of Liquidation shall be $2.00 per
share.
(c) Upon Liquidation, if the net assets of the
Company are insufficient to permit the payment in full of the
amounts to which the holders of all outstanding shares of
Series A Preferred Stock are entitled as provided above, the
entire net assets of the Company remaining (after full payment
is made on any stock ranking prior to the Series A Preferred
Stock as to rights and preferences) shall be distributed among
the holders of Series A Preferred Stock in amounts
proportionate to the full preferential amounts and holders of
shares of preferred stock ranking in parity with the Series A
Preferred Stock as to rights and preferences to which they are
respectively entitled.
(d) For the purpose of this Section VI, the voluntary
sale, lease, exchange or transfer, for cash, shares of stock,
securities or other consideration, of all or substantially all
the Company's property or assets to, or its consolidation or
merger with, one or more corporations shall not be deemed to
be a Liquidation.
(e) Notwithstanding the foregoing, in the event that
any holder of Series A Preferred Stock converts its Series A
Preferred Stock to Common Stock pursuant to Section VII
hereof, the right to preferential liquidation rights pursuant
to this Section with respect to such converted Shares shall be
immediately terminated.
VII. CONVERSION.
(a) Subject to the provisions for adjustment
hereinafter set forth, each share of Series A Preferred Stock
shall be convertible at any time at the option of the holder
thereof, upon surrender to the transfer agent for the Series A
Preferred Stock or the Company of the certificate or
certificates evidencing the shares so to be converted, into
one fully paid and nonassessable share of Class A Common Stock
of the Company, par value $.001 per share ("Class A Common
Stock").
(b) Subject to the provisions for adjustment
hereinafter set forth, the Series A Preferred Stock must be
converted to Class A Common Stock:
5
<PAGE>
(i) upon a secondary public offering by the
Company of at least 2,500,000 shares of Class A Common Stock
at not less than $2.00 per share; or
(ii) if, at any time after two years from
the date of issuance of the Series A Preferred Stock, the
Class A Common Stock trades above $3.00 per share for 20
consecutive trading days.
(c) The number of shares of Class A Common Stock into
which an issued and outstanding share of Series A Preferred
Stock is convertible shall be subject to adjustment from time
to time only as follows:
(i) In the event that the Company shall at any
time (A) declare a dividend on the Class A Common Stock in
shares of its Class A Common Stock, (B) split or subdivide the
outstanding Class A Common Stock or (C) combine the
outstanding Class A Common Stock into a smaller number of
shares, each share of Series A Preferred Stock outstanding at
the time of the record date for such dividend or of the
effective date of such split, subdivision or combination shall
thereafter be convertible into the aggregate number of shares
of Class A Common Stock which, if such share of Series A
Preferred Stock had been converted immediately prior to such
time, the holder of such share would have owned or have been
entitled to receive by virtue of such dividend, subdivision or
combination. Such adjustment shall be made successively
whenever any event listed above shall occur.
(ii) No adjustment in the number of shares of
Class A Common Stock issuable upon conversion of a share of
Series A Preferred Stock shall be required unless such
adjustment would require an increase or decrease in the
aggregate number of shares of Class A Common Stock so issuable
of at least 100 shares; provided that any adjustments which by
reason of this subsection VII(c)(ii) are not required to be
made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section
VII(c) shall be made to the nearest cent, or to the nearest
hundredth of a share, as the case may be.
(iii) In the event of any capital reorganization
of the Company, or of any reclassification of the Common Stock
(other than a subdivision or combination of outstanding shares
of Class A Common Stock), or in case of the consolidation of
the Company with or the merger of the Company with or into any
other corporation or of the sale of the properties and assets
of the Company as, or
6
<PAGE>
substantially as, an entirety to any other corporation, each
share of Series A Preferred Stock shall after such capital
reorganization, reclassification of Common Stock,
consolidation, merger or sale be convertible upon the terms
and conditions specified in this Section VII, for the number
of shares of stock or other securities or assets to which a
holder of the number of shares of Class A Common Stock into
which a share of Series A Preferred Stock is then convertible
(at the time of such capital reorganization, reclassification
of Class A Common Stock, consolidation, merger or sale) would
have been entitled upon such capital reorganization,
reclassification of Common Stock, consolidation, merger or
sale; and in any such case, if necessary, the provisions set
forth in this Section VII with respect to the rights of
conversion thereafter of the Series A Preferred Stock shall be
appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities
or assets thereafter deliverable on the conversion of the
Series A Preferred Stock. The Company shall not effect any
such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such
assets or the appropriate corporation or entity shall assume
by written instrument, the obligation to deliver to the holder
of each share of Series A Preferred Stock the shares of stock,
securities or assets to which, in accordance with the
foregoing provisions, such holder may be entitled upon
conversion of such Series A Preferred Stock and all other
obligations of the Company under this Section VII, and
effective provisions are made in the Articles or Certificate
of Incorporation of such successor or transferee corporation
providing for conversion privileges relating to the Series A
Preferred Stock equivalent to those set forth in this Section
VII.
(iv) If any question at any time arises with
respect to the number of shares of Class A Common Stock into
which a share of Series A Preferred Stock is convertible
following any adjustment pursuant to this Section VII, such
question shall be determined by agreement between the holders
of a majority of the outstanding shares of Series A Preferred
Stock and the Company or, in the absence of such an agreement
by an independent investment banking firm or an independent
appraiser (in either case the cost of which engagement will be
borne by the Company) reasonably acceptable to the Company and
the holders of a majority of outstanding shares of Series A
Preferred Stock and such determination shall be binding upon
the Company and the holders of the Series A Preferred Stock.
7
<PAGE>
(v) Anything in this Section VII to the
contrary notwithstanding, the Company shall be entitled to
make such increases in the number of shares of Class A Common
Stock issuable upon conversion of shares of Series A Preferred
Stock, in addition to those adjustments required by this
Section VII, as it in its sole discretion shall determine to
be advisable in order that any consolidation or subdivision of
the Class A Common Stock, or any issuance wholly for cash of
any shares of Class A Common Stock at less than the current
market price, or any issuance wholly for cash of shares of
Class A Common Stock or securities which by their terms are
convertible into or exchangeable for shares of Class A Common
Stock, or any issuance of rights, options or warrants referred
to hereinabove in this Section VII, hereinafter made by the
Company to the holders of its Class A Common Stock shall not
be taxable to them.
(vi) Upon any adjustment of the number of the
shares of Class A Common Stock issuable upon conversion of
shares of Series A Preferred Stock pursuant to this Section
VII, the Company shall promptly but in any event within 20
days thereafter, cause to be given to each of the registered
holders of the Series A Preferred Stock, at its address
appearing on the Register for the Series A Preferred Stock by
registered mail, postage prepaid, return receipt requested a
certificate signed by its chairman, president or chief
financial officer setting forth the number of shares of Class
A Common Stock issuable upon conversion of shares of Series A
Preferred Stock as so adjusted and describing in reasonable
detail the facts accounting for such adjustment and the method
of calculation used. Where appropriate, such certificate may
be given in advance and included as a part of the notice
required to be mailed under the other provisions of this
resolution.
(vii) The Company will at all times have
authorized, and reserve and keep available, free from
preemptive rights, for the purpose of enabling it to satisfy
any obligation to issue shares of Class A Common Stock upon
the conversion of the Series A Preferred Stock, the number of
shares of Class A Common Stock deliverable upon conversion of
the Series A Preferred Stock.
(viii) The Company shall not be required to issue
fractional shares of Class A Common Stock upon conversion of
the Series A Preferred Stock but shall pay for any such
fraction of a share an amount in cash equal to the current
market price per share of Class A Common Stock of such share
multiplied by such fraction.
8
<PAGE>
(ix) The Company will pay all taxes
attributable to the issuance of shares of Class A Common Stock
upon conversion of shares of Series A Preferred Stock;
provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in
the issue of any shares of Class A Common Stock in a name
other than that of the registered holder of the Series A
Preferred Stock surrendered for conversion, and the Company
shall not be required to issue or deliver such certificate
unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company
that such tax has been paid.
VIII. NOTICES TO HOLDERS OF SERIES A PREFERRED STOCK.
In the event:
(a) of any consolidation or merger to which the
Company is a party and for which approval of any stockholders
of the Company is required, or of the conveyance or transfer
of the properties and assets of the Company substantially as
an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a
change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a
subdivision or combination); or
(b) of Liquidation; or
(c) that the Company proposes to take any other
action which would require an adjustment in the number of
shares of Class A Common Stock or other securities or assets
issuable upon conversion of shares of Series A Preferred Stock
pursuant to Section VII;
then the Company shall cause to be given to each of the
registered holders of the Series A Preferred Stock at its
address appearing on the Register for the Series A Preferred
Stock, at least 20 calendar days prior to the applicable
record date hereinafter specified, by registered mail, postage
prepaid, return receipt requested, a written notice stating
(i) the date as of which the holders of record of Common Stock
entitled to participate in the event contemplated by clause
(c) above are to be determined, or (ii) the date on which any
such consolidation, merger, conveyance, transfer or
Liquidation is expected to become effective, and the date as
of which it is expected that holders of record of Common Stock
shall be entitled to exchange
9
<PAGE>
their shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger,
conveyance, transfer or Liquidation. The failure to give the
notice required by this Section VIII or any defect therein
shall not affect the legality or validity of any distribution,
right, warrant, consolidation, merger, conveyance, transfer or
Liquidation, or the vote upon any action.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed in its corporate name on this 20th day of October, 1997.
GUARDIAN INTERNATIONAL, INC.
By: /s/ Richard Ginsburg
Richard Ginsburg, President and
Chief Executive Officer
By: /s/ Sheilah Ginsburg
Sheilah Ginsburg, Secretary
10
<PAGE>
STATE OF FLORIDA )
)
COUNTY OF BROWARD )
BEFORE ME, the undersigned authority, personally appeared RICHARD
GINSBURG and SHEILAH GINSBURG, to me known to be the President and Chief
Executive Officer and Secretary, respectively, of GUARDIAN INTERNATIONAL, INC.,
a Nevada corporation, who acknowledged before me that they have executed the
foregoing Certificate in their respective capacity as officers of the said
corporation for the reasons and purpose therein expressed, and that the
statements contained in the said Certificate are true and correct.
Sworn to and subscribed before me at Broward, Florida this 20 day of
October, 1997.
/s/ L. Marlene Crossley
L. Marlene Crossley
Notary Public, State of Florida
Commission No. CC570109
My Commission Expires: 08/11/2000
11
Exhibit 4(c)
CERTIFICATE OF THE DESIGNATIONS, VOTING POWERS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF PREFERRED STOCK OF
GUARDIAN INTERNATIONAL, INC.
The undersigned hereby certify that they are the duly elected and
acting President and Secretary of Guardian International, Inc., a Nevada
corporation, (the "Company"), and pursuant to Nev. Rev. Stat. \sectionsign\
78.1955, DO HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
of the Company (the "Board") by Article FOURTH of the Company's Articles of
Incorporation (the "Articles"), the Board by unanimous written consent dated
February 18, 1998 adopted the following resolution:
RESOLVED, that the Board hereby establishes and authorizes the
issuance of a second series of the blank-check preferred stock, par
value $.001 per share (the APreferred Stock@) and hereby fixes the
number of shares to constitute the second series, the annual rate of
dividends payable on such shares and the date from which dividends
shall commence to accrue, the terms and conditions on which the shares
may or shall be converted, as the case may be, and the voting rights
and liquidation preferences of such shares, as follows:
I. DESIGNATION AND RANK.
The second series of Preferred Stock of the Company is
designated "Series B 10 1/2% Convertible Cumulative Preferred
Stock, par value $.001 per share" (the "Series B Preferred
Stock"), and the number of shares which shall constitute such
Series shall be 1,600,000 shares. All shares of Series B
Preferred Stock shall rank equally and be identical in all
respects. So long as the Series B Preferred Stock is
outstanding, unless consented to by the affirmative vote of
2/3 of the holders of the outstanding Series B Preferred
Stock, the Company shall not issue additional securities of
any kind, including shares of Preferred Stock of any class,
(including without limitation additional shares of Series B
Preferred Stock other than Dividend Preferred Shares, defined
below, and Dividend Preferred Shares issued on the Series A
9:% Convertible Cumulative Preferred Stock, par value $.001
per share (the ASeries A Preferred Stock@)) series or
designation ranking in priority or in parity as to rights and
preferences with the Series B Preferred Stock now or hereafter
authorized.
<PAGE>
II. DIVIDENDS.
The holders of the Series B Preferred Stock, in
preference to the holders of Common Stock and any other class
or classes of stock of the Company ranking junior in rights
and preferences to the Series B Preferred Stock as to payment
of dividends and other distributions shall be entitled to
receive, but only out of any funds legally available for the
declaration of dividends, cumulative, preferential dividends
at the annual rate of 102%, in parity with the holders of
Series A Preferred Stock, payable as follows:
(a) Series B Preferred Stock dividends (the
"Dividends") shall commence to accrue on the shares of
Preferred Stock and be cumulative from and after the date of
issuance of such shares of Series B Preferred Stock and shall
be deemed to accumulate and accrue from day to day thereafter.
(b) The Dividends shall be payable to the holders of
the Series B Preferred Stock quarterly on the 1st day of
January, April, July and October at the Company's option in
cash or in additional shares of Series B Preferred Stock
("Dividend Preferred Shares") during the first two years after
the date of issuance of such shares of Series B Preferred
Stock. Thereafter, Dividends shall be paid quarterly on the
1st day of January, April, July and October in cash. Once
issued, any Dividend Preferred Shares shall rank pari passu
and have all of the rights and privileges associated with all
other shares of the Series B Preferred Stock.
III. REDEMPTION.
The Series B Preferred Stock shall not be redeemable
by the Company.
IV. VOTING RIGHTS.
The holders of Series B Preferred Stock shall be
entitled to vote with the Common Stock on all matters required
or permitted to be submitted to the stockholders of the
Company for their approval, but not as a separate class,
except to the extent required by Nevada law, and shall have
such other voting rights as specifically provided under Nevada
law. Each issued and outstanding share of Series B Preferred
Stock shall have one vote.
V. SPECIAL VOTING RIGHTS.
2
<PAGE>
(a) ELECTION OF DIRECTORS. Notwithstanding the other
provisions of this Section V, upon the occurrence of a Default
Event (hereafter defined) and for the duration of the Default
Period (hereafter defined) the holders of the Preferred Stock,
in addition to any other voting rights they may have herein or
by law, shall be entitled to vote (voting as a class by a
majority of the outstanding shares thereof) for the election
to the Board of Directors of the smallest number of directors
necessary to constitute at any given time a majority of the
number of members of the Board of Directors, and should such
percentage when applied to the number of the members of the
Board of Directors result in a number that includes a
fraction, then such number shall be increased to the next
whole number. In addition, during the Default Period the
holders of the Preferred Stock shall be entitled to designate
(voting as a class as aforesaid) the number of positions on
the Board of Directors, which shall be the smallest number of
directors necessary for the nominees of the holders of
Preferred Stock to constitute a majority of the full Board. In
case the holders of the Preferred Stock become entitled to
exercise such special voting rights, they may call a special
meeting of stockholders during the Default Period, in the
manner provided herein or in the bylaws or otherwise as
provided by law, for the purpose of increasing or decreasing
the number of positions on the Board of Directors and electing
such members to the Board of Directors. In addition, the
holders of the Preferred Stock shall have such special voting
rights at any annual or regular meeting of stockholders (or
any other special meeting not called by the holders of the
Preferred Stock) held during the Default Period. In lieu of
the foregoing, the holders of the Preferred Stock may take any
of such actions by a written consent signed by the holders of
at least a majority of the shares of the Preferred Stock
outstanding and entitled to vote thereon.
(b) REMOVAL; VACANCIES. During the Default Period,
each director elected by the holders of the Preferred Stock
may be removed only by the vote of the holders of the majority
of the outstanding shares of the Preferred Stock, voting
separately as a class, at a meeting of the stockholders, or of
the holders of shares of the Preferred Stock, called for that
purpose. During the Default Period, any vacancy in the office
of a director elected by the holders of the Preferred Stock
may be filled by a vote of the remaining directors then in
office elected by the holders of the Preferred Stock, or, if
not so filled, by the holders of the Preferred Stock at any
meeting, annual or special, for the election of directors held
thereafter. A special meeting of stockholders, or of the
holders of shares of the Preferred Stock, may be called for
the purpose of filling any such vacancy. In the case of
removal of any such director, the vacancy may be filled at
3
<PAGE>
the same meeting at which such removal shall be voted. Holders
of the Preferred Stock shall be entitled to notice of each
meeting of stockholders at which they shall have any right to
vote or notice of which is otherwise required by law. In lieu
of the foregoing, the holders of the Preferred Stock may take
any of such action by a written consent signed by the holders
of at least a majority of the shares of the Preferred Stock
outstanding and entitled to vote thereon.
(c) EXPIRATION OF RIGHT. Upon termination of the
Default Period, the special voting rights of the holders of
the Preferred Stock provided hereunder shall be immediately
divested, but always subject to the revesting of such right in
the holders of the Preferred Stock upon the occurrence of any
subsequent Default Event. In the event that such rights of the
holders of the Preferred Stock shall cease as provided above,
then the directors elected to the Board of Directors by the
holders of the Preferred Stock under this Section V shall be
automatically removed from office, and their respective
positions terminated and the number of positions on the Board
of Directors reduced in accordance with such termination,
without further action on the part of the holders of the
Preferred Stock, the holders of the Common Stock or the Board
of Directors.
(d) DEFAULT EVENT. For purposes hereof, a "Default
Event" occurs on the date that (i) the Company has failed to
pay any four quarterly Preferred Stock Dividends when due
whether consecutive or not and (ii) such Preferred Stock
Dividends remain unpaid.
(e) DEFAULT PERIOD. For purposes hereof, "Default
Period" means a period commencing on the date a Default Event
occurs and ending upon the payment of the next quarterly
Dividend in full and such cumulative Dividends in arrears in
full, such that not more than three quarterly Dividends shall
be in arrears.
VI. LIQUIDATION.
(a) The Series B Preferred Stock shall be preferred
upon liquidation over the Common Stock and any other class or
classes of stock of the Company ranking junior in rights and
preferences to the Series B Preferred Stock upon liquidation.
Holders of shares of Series B Preferred Stock shall be
entitled to be paid, after full payment is made on any stock
ranking prior to the Series B Preferred Stock as to rights and
preferences (but before any distribution is made to the
holders of the Common Stock and such junior stock) upon the
voluntary or involuntary dissolution, liquidation or winding
up of the Company (a "Liquidation").
4
<PAGE>
(b) The amount payable on each share of Series B
Preferred Stock in the event of Liquidation shall be $2.50 per
share.
(c) Upon Liquidation, if the net assets of the
Company are insufficient to permit the payment in full of the
amounts to which the holders of all outstanding shares of
Series B Preferred Stock are entitled as provided above, the
entire net assets of the Company remaining (after full payment
is made on any stock ranking prior to the Series B Preferred
Stock as to rights and preferences) shall be distributed among
the holders of Series B Preferred Stock in amounts
proportionate to the full preferential amounts and holders of
shares of preferred stock ranking in parity with the Series B
Preferred Stock as to rights and preferences to which they are
respectively entitled.
(d) For the purpose of this Section VI, the voluntary
sale, lease, exchange or transfer, for cash, shares of stock,
securities or other consideration, of all or substantially all
the Company's property or assets to, or its consolidation or
merger with, one or more corporations shall not be deemed to
be a Liquidation.
(e) Notwithstanding the foregoing, in the event that
any holder of Series B Preferred Stock converts its Series B
Preferred Stock to Common Stock pursuant to Section VII
hereof, the right to preferential liquidation rights pursuant
to this Section with respect to such converted Shares shall be
immediately terminated.
VII. CONVERSION.
(a) Subject to the provisions for adjustment
hereinafter set forth, each share of Series B Preferred Stock
shall be convertible at any time at the option of the holder
thereof, upon surrender to the transfer agent for the Series B
Preferred Stock or the Company of the certificate or
certificates evidencing the shares so to be converted, into
one fully paid and nonassessable share of Class A Common Stock
of the Company, par value $.001 per share ("Class A Common
Stock").
(b) Subject to the provisions for adjustment
hereinafter set forth, the Series B Preferred Stock must be
converted to Class A Common Stock:
(i) upon a secondary public offering by the
Company of Class A Common Stock at not less than $4.00 per
share; or
5
<PAGE>
(ii) if, at any time after four years from
the date of issuance of the Series B Preferred Stock, the
Class A Common Stock trades above $4.00 per share for 20
consecutive trading days.
(c) The number of shares of Class A Common Stock into
which an issued and outstanding share of Series B Preferred
Stock is convertible shall be subject to adjustment from time
to time only as follows:
(i) In the event that the Company shall at any
time (A) declare a dividend on the Class A Common Stock in
shares of its Class A Common Stock, (B) split or subdivide the
outstanding Class A Common Stock or (C) combine the
outstanding Class A Common Stock into a smaller number of
shares, each share of Series B Preferred Stock outstanding at
the time of the record date for such dividend or of the
effective date of such split, subdivision or combination shall
thereafter be convertible into the aggregate number of shares
of Class A Common Stock which, if such share of Series B
Preferred Stock had been converted immediately prior to such
time, the holder of such share would have owned or have been
entitled to receive by virtue of such dividend, subdivision or
combination. Such adjustment shall be made successively
whenever any event listed above shall occur.
(ii) No adjustment in the number of shares of
Class A Common Stock issuable upon conversion of a share of
Series B Preferred Stock shall be required unless such
adjustment would require an increase or decrease in the
aggregate number of shares of Class A Common Stock so issuable
of at least 100 shares; provided that any adjustments which by
reason of this subsection VII(c)(ii) are not required to be
made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section
VII(c) shall be made to the nearest cent, or to the nearest
hundredth of a share, as the case may be.
(iii) In the event of any capital reorganization
of the Company, or of any reclassification of the Common Stock
(other than a subdivision or combination of outstanding shares
of Class A Common Stock), or in case of the consolidation of
the Company with or the merger of the Company with or into any
other corporation or of the sale of the properties and assets
of the Company as, or substantially as, an entirety to any
other corporation, each share of Series B Preferred Stock
shall after such capital reorganization, reclassification of
Common Stock, consolidation, merger or sale be convertible
upon the terms and conditions specified in this Section
6
<PAGE>
VII, for the number of shares of stock or other securities or
assets to which a holder of the number of shares of Class A
Common Stock into which a share of Series B Preferred Stock is
then convertible (at the time of such capital reorganization,
reclassification of Class A Common Stock, consolidation,
merger or sale) would have been entitled upon such capital
reorganization, reclassification of Common Stock,
consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section VII with
respect to the rights of conversion thereafter of the Series B
Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of
stock or other securities or assets thereafter deliverable on
the conversion of the Series B Preferred Stock. The Company
shall not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the consummation
thereof, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation
purchasing such assets or the appropriate corporation or
entity shall assume by written instrument, the obligation to
deliver to the holder of each share of Series B Preferred
Stock the shares of stock, securities or assets to which, in
accordance with the foregoing provisions, such holder may be
entitled upon conversion of such Series B Preferred Stock and
all other obligations of the Company under this Section VII,
and effective provisions are made in the Articles or
Certificate of Incorporation of such successor or transferee
corporation providing for conversion privileges relating to
the Series B Preferred Stock equivalent to those set forth in
this Section VII.
(iv) If any question at any time arises with
respect to the number of shares of Class A Common Stock into
which a share of Series B Preferred Stock is convertible
following any adjustment pursuant to this Section VII, such
question shall be determined by agreement between the holders
of a majority of the outstanding shares of Series B Preferred
Stock and the Company or, in the absence of such an agreement
by an independent investment banking firm or an independent
appraiser (in either case the cost of which engagement will be
borne by the Company) reasonably acceptable to the Company and
the holders of a majority of outstanding shares of Series B
Preferred Stock and such determination shall be binding upon
the Company and the holders of the Series B Preferred Stock.
(v) Anything in this Section VII to the
contrary notwithstanding, the Company shall be entitled to
make such increases in the number of shares of Class A Common
Stock issuable upon conversion of shares of Series B Preferred
Stock, in addition to those adjustments required by this
Section VII, as it in its sole
7
<PAGE>
discretion shall determine to be advisable in order that any
consolidation or subdivision of the Class A Common Stock, or
any issuance wholly for cash of any shares of Class A Common
Stock at less than the current market price, or any issuance
wholly for cash of shares of Class A Common Stock or
securities which by their terms are convertible into or
exchangeable for shares of Class A Common Stock, or any
issuance of rights, options or warrants referred to
hereinabove in this Section VII, hereinafter made by the
Company to the holders of its Class A Common Stock shall not
be taxable to them.
(vi) Upon any adjustment of the number of the
shares of Class A Common Stock issuable upon conversion of
shares of Series B Preferred Stock pursuant to this Section
VII, the Company shall promptly but in any event within 20
days thereafter, cause to be given to each of the registered
holders of the Series B Preferred Stock, at its address
appearing on the Register for the Series B Preferred Stock by
registered mail, postage prepaid, return receipt requested a
certificate signed by its chairman, president or chief
financial officer setting forth the number of shares of Class
A Common Stock issuable upon conversion of shares of Series B
Preferred Stock as so adjusted and describing in reasonable
detail the facts accounting for such adjustment and the method
of calculation used. Where appropriate, such certificate may
be given in advance and included as a part of the notice
required to be mailed under the other provisions of this
resolution.
(vii) The Company will at all times have
authorized, and reserve and keep available, free from
preemptive rights, for the purpose of enabling it to satisfy
any obligation to issue shares of Class A Common Stock upon
the conversion of the Series B Preferred Stock, the number of
shares of Class A Common Stock deliverable upon conversion of
the Series B Preferred Stock.
(viii) The Company shall not be required to issue
fractional shares of Class A Common Stock upon conversion of
the Series B Preferred Stock but shall pay for any such
fraction of a share an amount in cash equal to the current
market price per share of Class A Common Stock of such share
multiplied by such fraction.
(ix) The Company will pay all taxes attributable
to the issuance of shares of Class A Common Stock upon
conversion of shares of Series B Preferred Stock; provided
that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the
issue of any shares of Class A Common Stock
8
<PAGE>
in a name other than that of the registered holder of the
Series B Preferred Stock surrendered for conversion, and the
Company shall not be required to issue or deliver such
certificate unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
VIII. NOTICES TO HOLDERS OF SERIES B PREFERRED STOCK.
In the event:
(a) of any consolidation or merger to which the
Company is a party and for which approval of any stockholders
of the Company is required, or of the conveyance or transfer
of the properties and assets of the Company substantially as
an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a
change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a
subdivision or combination); or
(b) of Liquidation; or
(c) that the Company proposes to take any other
action which would require an adjustment in the number of
shares of Class A Common Stock or other securities or assets
issuable upon conversion of shares of Series B Preferred Stock
pursuant to Section VII;
then the Company shall cause to be given to each of the
registered holders of the Series B Preferred Stock at its
address appearing on the Register for the Series B Preferred
Stock, at least 20 calendar days prior to the applicable
record date hereinafter specified, by registered mail, postage
prepaid, return receipt requested, a written notice stating
(i) the date as of which the holders of record of Common Stock
entitled to participate in the event contemplated by clause
(c) above are to be determined, or (ii) the date on which any
such consolidation, merger, conveyance, transfer or
Liquidation is expected to become effective, and the date as
of which it is expected that holders of record of Common Stock
shall be entitled to exchange their shares for securities or
other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer
or Liquidation. The failure to give the notice required by
this Section VIII or any defect therein shall not affect the
legality or validity of any
9
<PAGE>
distribution, right, warrant, consolidation, merger,
conveyance, transfer or Liquidation, or the vote upon any
action.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed in its corporate name on this 20th day of February, 1998.
GUARDIAN INTERNATIONAL, INC.
By:/s/ Darius G. Nevin
Darius G. Nevin, Vice President
By:/s/ Sheilah Ginsburg
Sheilah Ginsburg, Secretary
10
<PAGE>
STATE OF FLORIDA )
)
COUNTY OF BROWARD )
BEFORE ME, the undersigned authority, personally appeared DARIUS G.
NEVIN and SHEILAH GINSBURG, to me known to be the Vice President and Chief
Financial Officer and Secretary, respectively, of GUARDIAN INTERNATIONAL, INC.,
a Nevada corporation, who acknowledged before me that they have executed the
foregoing Certificate in their respective capacity as officers of the said
corporation for the reasons and purpose therein expressed, and that the
statements contained in the said Certificate are true and correct.
Sworn to and subscribed before me at Broward, Florida this 20 day of
February, 1998.
/s/ L. Marlene Crossley
L. Marlene Crossley
Notary Public, State of Florida
Commission No. CC570109
My Commission Expires: 08/11/2000
11
EXHIBIT 4(D)
AMENDMENT TO CERTIFICATE OF THE DESIGNATIONS, VOTING POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE SERIES A
9 3/4% CONVERTIBLE, CUMULATIVE PREFERRED STOCK PAR VALUE $.001 PER
SHARE OF GUARDIAN INTERNATIONAL, INC.
("Amended Certificate of Designation")
The undersigned hereby certify that they are the duly elected and
acting President and Secretary, respectively, of Guardian International, Inc., a
Nevada corporation, (the "Company"), and pursuant to Nev. Rev.
Stat. \sectionsign\ 78.1955, DO HEREBY CERTIFY THAT:
I. A certificate of designations creating a series of Preferred Stock of the
Company designated as Series A 9:% Convertible Cumulative Preferred Stock (the
ASeries A Preferred Stock@) was filed with the Nevada Secretary of State on
November 24, 1997 (the "Original Designation").
II. The Board of Directors of the Company by unanimous written consent on March
12, 1998 adopted the following resolution amending the Original Designation:
RESOLVED, that Section I of the Original Designation shall be amended
and restated in its entirety as follows:
The first series of Preferred Stock of the Company is
designated "Series A 9:% Convertible Cumulative Preferred
Stock, par value $.001 per share" (the "Series A Preferred
Stock"), and the number of shares which shall constitute such
Series shall be 2,681,927 shares. All shares of Series A
Preferred Stock shall rank equally and be identical in all
respects. So long as the Series A Preferred Stock is
outstanding, unless consented to by the affirmative vote of
2/3 of the holders of the outstanding Series A Preferred
Stock, the Company shall not issue additional securities of
any kind, including shares of preferred stock of any class,
(including without limitation additional shares of Series A
Preferred Stock other than Dividend Preferred Shares) series
or designation ranking in priority or in parity as to rights
and preferences with the Series A Preferred Stock now or
hereafter authorized.
<PAGE>
RESOLVED, that Section V of the Original Designation shall be amended
and restated in its entirety as follows:
(a) ELECTION OF DIRECTORS. Notwithstanding the other
provisions of this Section V, upon the occurrence of a Default
Event (hereafter defined) and for the duration of the Default
Period (hereafter defined) the holders of the Preferred Stock,
in addition to any other voting rights they may have herein or
by law, shall be entitled to vote (voting as a class by a
majority of the outstanding shares thereof) for the election
to the Board of Directors of the smallest number of directors
necessary to constitute at any given time a majority of the
number of members of the Board of Directors, and should such
percentage when applied to the number of the members of the
Board of Directors result in a number that includes a
fraction, then such number shall be increased to the next
whole number. In addition, during the Default Period the
holders of the Preferred Stock shall be entitled to designate
(voting as a class as aforesaid) the number of positions on
the Board of Directors, which shall be the smallest number of
directors necessary for the nominees of the holders of
Preferred Stock to constitute a majority of the full Board. In
case the holders of the Preferred Stock become entitled to
exercise such special voting rights, they may call a special
meeting of stockholders during the Default Period, in the
manner provided herein or in the bylaws or otherwise as
provided by law, for the purpose of increasing or decreasing
the number of positions on the Board of Directors and electing
such members to the Board of Directors. In addition, the
holders of the Preferred Stock shall have such special voting
rights at any annual or regular meeting of stockholders (or
any other special meeting not called by the holders of the
Preferred Stock) held during the Default Period. In lieu of
the foregoing, the holders of the Preferred Stock may take any
of such actions by a written consent signed by the holders of
at least a majority of the shares of the Preferred Stock
outstanding and entitled to vote thereon.
(b) REMOVAL; VACANCIES. During the Default Period,
each director elected by the holders of the Preferred Stock
may be removed only by the vote of the holders of the majority
of the outstanding shares of the
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Preferred Stock, voting separately as a class, at a meeting of
the stockholders, or of the holders of shares of the Preferred
Stock, called for that purpose. During the Default Period, any
vacancy in the office of a director elected by the holders of
the Preferred Stock may be filled by a vote of the remaining
directors then in office elected by the holders of the
Preferred Stock, or, if not so filled, by the holders of the
Preferred Stock at any meeting, annual or special, for the
election of directors held thereafter. A special meeting of
stockholders, or of the holders of shares of the Preferred
Stock, may be called for the purpose of filling any such
vacancy. In the case of removal of any such director, the
vacancy may be filled at the same meeting at which such
removal shall be voted. Holders of the Preferred Stock shall
be entitled to notice of each meeting of stockholders at which
they shall have any right to vote or notice of which is
otherwise required by law. In lieu of the foregoing, the
holders of the Preferred Stock may take any of such action by
a written consent signed by the holders of at least a majority
of the shares of the Preferred Stock outstanding and entitled
to vote thereon.
(c) EXPIRATION OF RIGHT. Upon termination of the
Default Period, the special voting rights of the holders of
the Preferred Stock provided hereunder shall be immediately
divested, but always subject to the revesting of such right in
the holders of the Preferred Stock upon the occurrence of any
subsequent Default Event. In the event that such rights of the
holders of the Preferred Stock shall cease as provided above,
then the directors elected to the Board of Directors by the
holders of the Preferred Stock under this Section V shall be
automatically removed from office, and their respective
positions terminated and the number of positions on the Board
of Directors reduced in accordance with such termination,
without further action on the part of the holders of the
Preferred Stock, the holders of the Common Stock or the Board
of Directors.
(d) DEFAULT EVENT. For purposes hereof, a "Default
Event" occurs on the date that (i) the Company has failed to
pay any four quarterly Preferred Stock
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Dividends when due whether consecutive or not and (ii) such
Preferred Stock Dividends remain unpaid.
(e) DEFAULT PERIOD. For purposes hereof, "Default
Period" means a period commencing on the date a Default Event
occurs and ending upon the payment of the next quarterly
Dividend in full and such cumulative Dividends in arrears in
full, such that not more than three quarterly Dividends shall
be in arrears.
III. The shareholder approval of this amendment required by Nev. Rev. Stat. '
78.1955, subsection 3, has been obtained.
IV. No class or series of stock is senior to the Series A Preferred Stock prior
to the date of this amendment.
V. The designation of the Series A Preferred Stock is not altered by this
amendment.
IN WITNESS WHEREOF, the Company has caused this Amended Certificate of
Designation to be duly executed in its corporate name on this 12th day of March,
1998.
GUARDIAN INTERNATIONAL, INC.
By: /s/ Richard Ginsburg
Name: Richard Ginsburg
Its: President and Chief Executive Officer
By: /s/ Sheila Ginsburg
Name: Sheila Ginsburg
Its: Secretary
This instrument was acknowledged before me on 3/12, 1998 by Richard
Ginsburg, as President of Guardian International, Inc.
/s/ L. Marlene Crossley
L. Marlene Crossley
Notary Public, State of Florida
Commission No. CC570109
My Commission Expires: 08/11/2000
WPB/129222-1
EXHIBIT 4(E)
AMENDMENT TO CERTIFICATE OF THE DESIGNATIONS, VOTING POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE SERIES B
10 1/2% CONVERTIBLE, CUMULATIVE PREFERRED STOCK PAR VALUE $.001 PER
SHARE OF GUARDIAN INTERNATIONAL, INC.
("Amended Certificate of Designation")
The undersigned hereby certify that they are the duly elected and
acting President and Secretary, respectively, of Guardian International, Inc., a
Nevada corporation, (the "Company"), and pursuant to Nev. Rev.
Stat. \sectionsign\ 78.1955, DO HEREBY CERTIFY THAT:
I. A certificate of designations creating a series of Preferred Stock of the
Company designated as Series B 10 1/2% Convertible Cumulative Preferred Stock
(the "Series B Preferred Stock") was filed with the Nevada Secretary of State on
February 23, 1998 (the "Original Designation").
II. The Board of Directors of the Company by unanimous written consent on March
12, 1998 adopted the following resolution amending the Original Designation:
RESOLVED, that Section I of the Original Designation shall be amended
and restated in its entirety as follows:
The second series of Preferred Stock of the Company is
designated "Series B 10 1/2% Convertible Cumulative Preferred
Stock, par value $.001 per share" (the "Series B Preferred
Stock"), and the number of shares which shall constitute such
Series shall be 2,533,203 shares. All shares of Series B
Preferred Stock shall rank equally and be identical in all
respects. So long as the Series B Preferred Stock is
outstanding, unless consented to by the affirmative vote of
2/3 of the holders of the outstanding Series B Preferred
Stock, the Company shall not issue additional securities of
any kind, including shares of Preferred Stock of any class,
(including without limitation additional shares of Series B
Preferred Stock other than Dividend Preferred Shares, defined
below, and Dividend Preferred Shares issued on the Series A
9:% Convertible Cumulative Preferred Stock, par value $.001
per share (the "Series A Preferred Stock")) series or
designation ranking in priority or in parity as to rights and
<PAGE>
preferences with the Series B Preferred Stock now or hereafter
authorized.
III. The shareholder approval of this amendment required by Nev. Rev. Stat. '
78.1955, subsection 3, has been obtained.
IV. No class or series of stock is senior to the Series B Preferred Stock prior
to the date of this amendment.
V. The designation of the Series B Preferred Stock is not altered by this
amendment.
IN WITNESS WHEREOF, the Company has caused this Amended Certificate of
Designation to be duly executed in its corporate name on this 12th day of March,
1998.
GUARDIAN INTERNATIONAL, INC.
By: /S/ RICHARD GINSBURG
Name: Richard Ginsburg
Its: President and Chief Executive Officer
By: /S/ SHEILA GINSBURG
Name: Sheila Ginsburg
Its: Secretary
This instrument was acknowledged before me on 3/12, 1998 by Richard
Ginsburg, as President of Guardian International, Inc.
/S/ L. MARLENE CROSSLEY
L. Marlene Crossley
Notary Public, State of Florida
Commission No. CC570109
My Commission Expires: 08/11/2000
EXHIBIT 10(J)
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated
as of February 23, 1998 and entered into by and among GUARDIAN INTERNATIONAL,
INC., a Nevada corporation with its principal place of business at 3880 North
28th Terrace, Hollywood, Florida 33020 ("Guardian"), the Borrowing Subsidiaries
from time to time party hereto (Guardian and such Borrowing Subsidiaries may be
individually referred to herein as a "Borrower" and collectively as
"Borrowers"), and HELLER FINANCIAL, INC., a Delaware corporation ("Lender"),
with offices at 500 West Monroe Street, Chicago, Illinois 60661. All capitalized
terms used herein are defined in Annex A of this Agreement.
WHEREAS, Borrowers and Lender are parties to that certain Amended and
Restated Loan and Security Agreement dated as of May 22, 1997 (as from time to
time amended, the "Prior Loan Agreement") pursuant to which Lender extended a
credit facility to Borrowers to provide working capital financing for Borrowers
and to provide funds for other general corporate purposes of Borrowers; and
WHEREAS, pursuant to that certain Stock Purchase Agreement effective as
of February 1, 1998 (the "Mutual Central Purchase Agreement") among Guardian and
the Persons listed on Exhibit A thereto as "Sellers" (the "Mutual Central
Sellers"), Guardian has agreed to acquire all of the issued and outstanding
capital stock of Mutual Central Alarm Services, Inc., a New York corporation
("Mutual Central") and, upon the consummation of such acquisition (such
acquisition being referred to herein as the "Mutual Central Acquisition"),
Mutual Central shall become a wholly-owned Subsidiary of Guardian; and
WHEREAS, Guardian has requested, and Lender has agreed, that from and
after the Effective Date (as herein defined), Mutual Central shall become a
Borrowing Subsidiary hereunder; and
WHEREAS, Guardian secured all of its obligations under the Prior Loan
Agreement by granting to Lender a security interest in and lien upon certain of
its property, which security interests and liens shall continue to secure the
Obligations hereunder and further, on the Effective Date, Guardian shall pledge
all of the issued and outstanding capital stock of Mutual Central to Lender as
further security for the Obligations; and
WHEREAS, on the Effective Date, Mutual Central shall secure all of its
Obligations hereunder by granting to Lender a security interest and lien upon
certain of its property; and
WHEREAS, the parties hereto wish to amend and restate the Prior Loan
Agreement in order to (a) consent to the consummation of the Mutual Central
Acquisition by Guardian and to permit up to $10,000,000 of the Loan to be used
to pay a portion of the purchase price payable by Guardian in connection
therewith; (b) reflect the addition of Mutual Central as a Borrowing Subsidiary
hereunder; (c) extend the term of this Agreement to May 31, 2001; and (d)
otherwise modify the terms and conditions set forth in the Prior Loan Agreement,
all on the terms and conditions set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrowers and Lender agree as
follows:
SECTION 1 DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Capitalized terms used but not otherwise defined in
this Agreement shall have the respective meanings assigned thereto in Annex A
to this Agreement.
1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Lender pursuant to subsection 5.1 (including Annex B referred to therein) shall
be prepared in accordance with GAAP as in effect at the time of such
preparation. No "Accounting Changes" (as defined below) shall affect financial
covenants, standards or terms in this Agreement; provided that Borrowers shall
prepare footnotes to each Compliance Certificate and the financial statements
required to be delivered hereunder that show the differences between the
financial statements delivered (which reflect such Accounting Changes) and the
basis for calculating financial covenant compliance (without reflecting such
Accounting Changes). "Accounting Changes" means: (a) changes in accounting
principles required by GAAP and implemented by Borrowers; (b) changes in
accounting principles recommended by Borrowers' certified public accountants and
implemented by Borrowers; and (c) changes in carrying value of any Borrower's
(or any Subsidiary's) assets, liabilities or equity accounts resulting from (i)
the application of purchase accounting principles (A.P.B. 16 and/or 17 and EITF
88-16 and FASB 109) to the Related Transactions or the "Merger Transactions" as
defined in the Prior Loan Agreement, or (ii) as the result of any other
adjustments that, in each case, were applicable to, but not included in, the Pro
Forma. All such adjustments described in clause (c) above resulting from
expenditures made subsequent to the Original Closing Date (including, but not
limited to, capitalization of costs and expenses or payment of pre-Original
Closing Date liabilities) shall be treated as expenses in the period the
expenditures are made.
1.3 OTHER DEFINITIONAL PROVISIONS. References to "Sections", "subsections",
"Annexes", "Exhibits" and "Schedules" shall be to Sections, subsections,
Annexes, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. Any of the terms defined in Annex A or
otherwise in the Loan Documents may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference. In this
Agreement, words importing any gender include the other genders; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement or any
other Loan Document; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations.
1.4 EFFECT OF AMENDMENT AND RESTATEMENT. This Agreement shall supersede in all
respects the Prior Loan Agreement from and after the Effective Date with respect
to the transactions hereunder and with
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<PAGE>
respect to the Existing Obligations. The parties hereto acknowledge and agree,
however, that (i) this Agreement and all other Loan Documents executed and
delivered herewith do not constitute a novation, payment and reborrowing or
termination of the Existing Obligations under the Prior Loan Agreement and the
other Prior Loan Documents as in effect prior to the Effective Date, (ii) such
Existing Obligations are in all respects continuing and outstanding (including
without limitation all accrued interest on the Existing Obligations to the
Effective Date and all accrued fees under the Prior Loan Agreement to the
Effective Date, which accrued interest and fees shall be payable in accordance
with the terms of the Prior Loan Agreement) with only the terms being modified
from and after the Effective Date as provided in this Agreement and the other
Loan Documents, (iii) the Liens in favor of Lender securing payment of such
Existing Obligations are in all respects continuing and in full force and effect
with respect to all Obligations; and (iv) all references in the other Loan
Documents to the Prior Loan Agreement shall be deemed to refer without further
amendment to this Agreement. Notwithstanding the foregoing, the parties hereto
acknowledge and agree that, as of the Effective Date, the "Individual Guaranty"
(as defined in the Prior Loan Agreement) shall be terminated in its entirety and
shall be of no further force and effect.
SECTION 2 LOANS AND COLLATERAL
2.1 Loans
(A) LOAN. Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Borrowers herein set forth,
Lender agrees to lend to Borrowers from time to time an aggregate amount not to
exceed at any time the Maximum Loan Amount. Amounts borrowed under this
subsection 2.1(A) may be repaid and reborroweLender shall have no obligation to
make advances under this subsection 2.1(A) to any Borrower to the extent any
requested advance would cause the principal balance of the Loan then outstanding
to exceed the Maximum Loan Amount; provided that Lender may, in its sole
discretion, elect from time to time to make Loans in excess of the Maximum Loan
Amount. The parties hereto acknowledge and agree that the outstanding principal
balance of the Existing Obligations is $818,310.13 as of the Effective Date, and
such principal balance is hereby restated as part of the Loan outstanding under,
and governed by, this Agreement. Each Borrower shall execute and deliver to
Lender a note dated the Effective Date and otherwise in form and substance
satisfactory to Lender (each a "Note" and, collectively, the "Notes"). Each Note
shall represent the obligation of each Borrower to pay the amount of the
Commitment or, if less, the aggregate unpaid principal amount of all advances to
such Borrower (including without limitation the Existing Obligations) together
with interest thereon.
(1) "Maximum Loan Amount" means, as of any date of
determination, the lesser of (a) $20,000,000, or (b) the Borrowing Base.
(2) "Borrowing Base" means, as of any date of determination,
an amount equal to the lesser of (a) Borrowers' Pro Forma EBIDAT as of the last
day of the most recently ended fiscal month for the trailing twelve-month period
then ended, multiplied by 3.50, or (b) aggregate MRI in respect of all Contracts
of Borrowers as of the last day of the then most recently ended month,
multiplied by 25. The Borrowing Base shall be determined from time to time based
on the most recent Borrowing Base Certificate delivered by Borrower
Representative to Lender. "Pro Forma EBIDAT" shall be defined and calculated in
accordance with the Borrowing Base Certificate attached hereto as Exhibit A.
3
<PAGE>
(B) BORROWING MECHANICS. If any Borrower desires to borrow under this
subsection 2.1, Borrower Representative shall, via an Authorized Officer and on
behalf of such Borrower, give Lender telephonic notice by 11:00 a.m. (Chicago
time) (promptly confirmed via telecopy) (1) on the proposed Funding Date, in the
case of any Base Rate Loans of $250,000 or less, or on the date which is (1) one
(1) Business Day prior to the proposed Funding Date, in the case of any Base
Rate Loans in excess of $250,000, or (2) on the date which is three (3) Business
Days prior to the proposed Funding Date, in the case of any LIBOR Loan. All such
written confirmations shall be made by the delivery by Borrower Representative
of a duly executed Loan Request in the form of Exhibit B-1 hereto, which shall
set forth (i) the amount of the requested advance, (ii) the Funding Date
therefor (which shall be a Business Day), and (iii) the identity of the
applicable Borrower(s) on behalf of whom such advance is requested and the
amount to be disbursed to or on behalf of each such Borrower. Lender shall not
incur any liability to any Borrower for acting upon any telephonic notice that
Lender believes in good faith to have been given by an Authorized Officer of
Borrower Representative or other person authorized to borrow on behalf of any
Borrower or for otherwise acting in good faith under this subsection 2.1(C).
Lender will not make any advance pursuant to any telephonic notice or otherwise
unless Lender has also received the most recent Borrowing Base Certificate then
required to be delivered pursuant to Annex B. The making of an advance pursuant
to telephonic notice shall constitute a Loan under this Agreement. Each such
advance to each Borrower shall be deposited on the applicable Funding Date
therefor in immediately available funds in such account as such Borrower
Representative may from time to time designate to Lender in writing.
2.2 INTEREST. From the date the Loans are made and the date the other
Obligations become due, the Loans and the other Obligations shall bear interest
as follows, depending upon Borrower Representative's election from time to time,
as permitted herein, to have portions of the Loans accrue interest based upon
the LIBOR, at the rates set forth in paragraphs (1) or (2) below:
(1) the Loan and all other Obligations shall bear interest at
the sum of the Base Rate plus one and three-quarters of one percent (1.75%) per
annum. "Base Rate" means a variable rate of interest per annum equal to the rate
of interest from time to time published by the Board of Governors of the Federal
Reserve System in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate. Base Rate also includes
rates published in any successor publications of the Federal Reserve System
reporting the Bank prime loan rate or its equivalent. The statistical release
generally sets forth a Bank prime loan rate for each business day. The
applicable Bank prime loan rate for any date not set forth shall be the rate set
forth for the last preceding date. In the event the Board of Governors of the
Federal Reserve System ceases to publish a Bank prime loan rate or equivalent,
the term "Base Rate" shall mean a variable rate of interest per annum equal to
the highest of the "prime rate," "reference rate," "base rate" or other similar
rate as determined by Lender announced from time to time by any of Bankers Trust
Company, The Chase Manhattan Bank or Citibank, N.A. (with the understanding that
any such rate may merely be a reference rate and may not necessarily represent
the lowest or best rate actually charged to any customer by such bank). "Base
Rate Loans" means Loans bearing interest at rates determined by reference to the
Base Rate.
(2) the Loan shall bear interest at the sum of the LIBOR plus
three and one-half of one percent (3.50%) per annum. "LIBOR" means, for each
Interest Period, a rate equal to: (a) the rate of
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<PAGE>
interest determined by Lender at which deposits in U.S. dollars for the relevant
Interest Period are offered based on information presented on the Reuters Screen
LIBO Page as of 11:00 a.m. (London time) on the day which is two (2) Business
Days prior to the first day of such Interest Period, provided that if at least
two such offered rates appear on the Reuters Screen LIBO Page in respect of such
Interest Period, the arithmetic mean of all such rates will be the rate used,
provided, further, that if fewer than two offered rates appear or if Reuters
ceases to provide LIBOR quotations, such rate shall be the rate of interest at
which deposits in U.S. dollars are offered for the relevant Interest Period by
any of Bankers Trust Company, The Chase Manhattan Bank, or Citibank, N.A. to
prime banks in the London interbank market, divided by (b) a number equal to 1.0
minus the aggregate (but without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on the day which is three
(3) Business Days prior to the beginning of such Interest Period (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as now and from
time to time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) which are required to
be maintained by a member bank of the Federal Reserve System; such rate to be
rounded upward to the next whole multiple of one-sixteenth of one percent
(.0625%). "LIBOR Loans" means Loans bearing interest at rates determined by
reference to the LIBOR.
Each LIBOR Loan may be obtained for a one (1), two (2), three (3), or six (6)
month period (each being an "Interest Period"). With respect to all LIBOR Loans:
(a) the Interest Period will commence on the date that the LIBOR Loan is made or
the date on which a Base Rate Loan is converted into a LIBOR Loan, as
applicable, or in the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the next preceding
Interest Period expires, (b) if the Interest Period expires on a day that is not
a Business Day, then it will expire on the next Business Day, and (c) no
Interest Period shall extend beyond the date set forth in clause (c) of the
definition of the term "Expiry Date.
If the introduction of or the interpretation of any law, rule, or regulation
subsequent to the Effective Date, would increase the reserve requirement or
otherwise increase the cost to Lender of making or maintaining a LIBOR Loan,
then Lender shall submit a certificate to Borrower Representative demonstrating
the calculation of the increased cost and requiring payment thereof to Lender
within ten (10) days after the date of the certificate. There are no limitations
on the number of times such certificate may be submitted.
(B) DEFAULT RATE OF INTEREST. At the election of Lender, after the
occurrence of an Event of Default and for so long as it continues, the Loans and
other Obligations shall bear interest at a rate that is two percent (2.00%) in
excess of the rates otherwise payable under this Agreement. Furthermore, during
any period in which any Event of Default is continuing, as the Interest Periods
for LIBOR Loans then in effect expire, such Loans shall be converted at Lender's
discretion into Base Rate Loans and the LIBOR election will not be available to
Borrowers until all Events of Default are cured or waived.
(C) COMPUTATION OF INTEREST AND RELATED FEES. Interest on all Loans and
all other Obligations and the fee set forth in subsection 2.3(B) shall be
calculated daily on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed in the period during which it accrues. The date of
funding a Base Rate Loan and the first day of an Interest Period with respect to
a LIBOR Loan shall be
5
<PAGE>
included in the calculation of interest. The date of payment of a Base Rate Loan
and the last day of an Interest Period with respect to a LIBOR Loan shall be
excluded from the calculation of interest. If a Loan is repaid on the same day
that it is made, one (1) days' interest shall be charged. Interest on all Base
Rate Loans is payable in arrears on the first day of each month and on the
maturity of such Loans, whether by acceleration or otherwise. Interest on LIBOR
Loans shall be payable on the last day of the applicable Interest Period, unless
the Interest Period is greater than three (3) months, in which case interest
will be payable on the last day of each three (3) month interval. In addition,
interest on LIBOR Loans is due on the maturity of such Loans, whether by
acceleration or otherwise.
(D) EXCESS INTEREST. Under no circumstances will the rate of interest
chargeable be in excess of the maximum amount permitted by law. If excess
interest is charged and paid in error, then the excess amount will be promptly
refunded.
(E) LIBOR RATE ELECTION. All Loans made on the Effective Date shall be
Base Rate Loans and remain so for thirty (30) days. Thereafter, Borrower
Representative may request that Loans to be made be LIBOR Loans, that
outstanding portions of the Loans be converted to LIBOR Loans and that all or
any portion of a LIBOR Loan be continued as a LIBOR Loan upon expiration of the
applicable Interest Period. Any such request will be made by submitting a LIBOR
Loan request in the form of Exhibit B-2. Once given, a LIBOR Loan request shall
be irrevocable and Borrowers shall be bound thereby. Upon the expiration of an
Interest Period, in the absence of a new LIBOR Loan request submitted to Lender
not less than three (3) Business Days prior to the end of such Interest Period,
the LIBOR Loan then maturing shall be automatically converted to a Base Rate
Loan. There may be no more than six (6) LIBOR Loans outstanding at any one time.
Loans which are not the subject of a LIBOR Loan request shall be Base Rate
Loans.
2.3 FEES (A) CLOSING FEE. Borrowers shall pay to Lender on the Effective Date a
closing fee in the amount of $200,000, which fee shall be deemed fully earned
when so paid.
(B) COMMITMENT FEE. From the Effective Date, Borrowers shall pay Lender
a fee in an amount equal to (1) (a) the Commitment less (b) the average daily
balance of the Loans during the preceding month, multiplied by (2) one-half of
one percent (.50%) per annum. Such fee is to be paid monthly in arrears on the
first day of each month.
(C) LIBOR BREAKAGE FEE. Upon (i) any default by any Borrower in making
any borrowing of, conversion into or continuation of any LIBOR Loan following
Borrower Representative's delivery of any LIBOR Loan request in respect thereof
or (ii) any payment of a LIBOR Loan on any day that is not the last day of the
Interest Period applicable thereto (regardless of the source of such prepayment
and whether voluntary, by acceleration or otherwise), Borrowers shall pay Lender
an amount (the "LIBOR Breakage Fee") equal to the amount of any losses, expenses
and liabilities (including, without limitation, any loss (including interest
paid) sustained by Lender in connection with the re-employment of such funds)
that Lender may sustain as a result of such default or such payment.
2.4 PAYMENTS AND PREPAYMENTS
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(A) PAYMENTS. All payments by Borrowers of the Obligations shall be
made in same day funds and delivered to Lender by wire transfer to the following
account or such other place as Agent may from time to time designate.
ABA No. 0710-0001-3
Account Number 55-00540
The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
Reference: Heller Corporate Finance Group
for the benefit of Guardian
International and Subsidiaries
Borrowers shall receive credit on the day of receipt for funds received by
Lender by 1:00 p.m. Chicago time. In the absence of timely receipt, such funds
shall be deemed to have been paid on the next Business Day. Whenever any payment
to be made hereunder shall be stated to be due on a day that is not a Business
Day, the payment may be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the amount of interest
and fees due hereunder.
Each Borrower hereby authorizes Lender to make Loans for the payment of
interest, commitment fees and LIBOR Breakage Fees. Prior to an Event of Default,
other fees, costs and expenses (including those of attorneys) reimbursable to
Lender pursuant to this Agreement or any other Loan Document may be debited to
the Loan after fifteen (15) days notice. After the occurrence of an Event of
Default, no notice will be required.
(B) MANDATORY PREPAYMENTS. (1) At any time that the principal balance
of the Loan exceeds the Maximum Loan Amount, Borrowers shall immediately repay
the Loan to the extent necessary to reduce the principal balance to an amount
that is equal to or less than the Maximum Loan Amount.
(2) PREPAYMENTS FROM ASSET DISPOSITIONS. Immediately upon
receipt by any Borrower of the Net Proceeds in excess of $500,000 for any single
transaction or series of transactions, Borrowers shall repay the outstanding
principal balance of the Loan by the amount of any reduction in the Borrowing
Base attributable to the Asset Disposition giving rise to such Net Proceeds.
Borrowers may reinvest all remaining Net Proceeds of such Asset Disposition,
within ninety (90) days, in productive replacement fixed assets of a kind then
used or usable in the business of Borrowers and their Subsidiaries. If Borrowers
do not intend to so reinvest such Net Proceeds or if the period set forth in the
immediately preceding sentence expires without Borrowers having reinvested such
Net Proceeds, Borrowers shall prepay the Loans in an amount equal to the
remaining Net Proceeds of such Asset Disposition. The payments shall be applied
in accordance with subsection 2.4(B)(4).
(3) PREPAYMENT FROM ISSUANCE OF SECURITIES. Immediately upon
the receipt by any Borrower or any Subsidiary of any Borrower of the proceeds of
the issuance of equity securities (other than (1) proceeds of the issuance of
equity securities received on or before the Effective Date, (2) proceeds from
the issuance of equity securities to members of the management of any Borrower
and (3) proceeds of the issuance of equity securities to any Borrower or any
Subsidiary of any Borrower), Borrowers shall prepay the Loans in an amount equal
to such proceeds, net of underwriting discounts and
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commissions and other reasonable costs associated therewith. The payments shall
be applied in accordance with subsection 2.4(B)(4).
(4) APPLICATION OF PROCEEDS. With respect to the prepayments
described in subsections 2.4(B)(2) and 2.4(B)(3) (other than any amount applied
to the Loans as a result of the reduction of the Borrowing Base as specified
therein), such prepayments shall be applied to reduce the outstanding principal
balance of the Loans.
(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. Borrowers may at any time on
at least three (3) days' prior written notice from Borrower Representative to
Lender (i) voluntarily prepay all or part of the Loan and permanently reduce
(but not terminate) the Commitment; or (ii) repay the Loan and the other
Obligations in full and terminate the Commitment; provided that upon such
termination, all Loans and other Obligations shall be immediately due and
payable in full. Each such written notice shall specify the amount of such
prepayment and the date on which such prepayment is to be made and shall further
specify whether or not Borrowers intend to permanently reduce or terminate the
Commitment in connection with such prepayment (it being acknowledged and agreed
that no such reduction or termination shall be effected in connection with any
prepayment unless the Lender has received such written notice from Borrower
Representative specifying Borrowers' intention to so reduce or terminate the
Commitment). Upon any such prepayment and reduction or termination of the
Commitment, each Borrower's right to request advances shall simultaneously be
permanently reduced or terminated, as the case may be. Any such full or partial
prepayment and reduction or termination of the Commitment may be made without
premium or penalty, except that Borrowers shall be liable for LIBOR Breakage
Fees, if applicable.
(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
2.5 TERMS OF THIS AGREEMENT. All of the Obligations shall become due and payable
as otherwise set forth herein, but in any event, all Obligations shall become
due and payable on the date set forth in clause (c) of the definition of the
term "Expiry Date". Notwithstanding any termination, until all Obligations have
been fully paid and satisfied, Lender shall be entitled to retain security
interests in and liens upon all Collateral, and even after payment of all
Obligations hereunder, Borrowers' obligation to indemnify Lender in accordance
with the terms hereof shall continue.
2.6 STATEMENTS; APPLICATION OF PAYMNTS. Lender will maintain loan account
records for (a) all Loans, interest charges and payments thereof, (b) the
charging and payment of all fees, costs and expenses and (c) all other debits
and credits pursuant to this Agreement. The balance in the loan accounts shall
be presumptive evidence of the amounts due and owing to Lender, provided that
any failure by Lender to so record shall not limit or affect the Borrowers'
obligation to pay. Within five (5) days of the first of each month, Lender shall
provide a statement for each loan account setting forth the principal of each
account and interest due thereon. Borrower Representative must deliver a written
objection within sixty (60) days after receipt of the statement or the statement
will be presumptive evidence of the Obligations absent manifest error.
Borrowers, jointly and severally, promise to pay all of the Obligations as such
amounts
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become due or are declared due pursuant to the terms of this Agreement.
After the occurrence and during the continuance of an Event of Default, each
Borrower irrevocably waives the right to direct the application of any and all
payments at any time or times thereafter received by Lender from or on behalf of
any Borrower, and each Borrower hereby irrevocably agrees that Lender shall have
the continuing exclusive right to apply and to reapply any and all payments
received at any time or times after the occurrence and during the continuance of
an Event of Default against the Obligations in such manner as Lender may deem
advisable notwithstanding any previous entry by Lender upon any books and
records.
2.7 GRANT OF SECURITY INTEREST. To secure the payment and performance of the
Obligations, including all renewals, extensions, restructurings and refinancings
of any or all of the Obligations, each Borrower hereby grants to Lender a
continuing security interest, lien and mortgage in and to all right, title and
interest of such Borrower in the following property of such Borrower, whether
now owned or existing or hereafter acquired or arising and regardless of where
located (all being collectively referred to as the "Collateral"): (A) Accounts;
(B) Inventory; (C) general intangibles (as defined in the UCC); (D) documents
(as defined in the UCC) or other receipts covering, evidencing or representing
goods; (E) instruments (as defined in the UCC); (F) chattel paper (as defined in
the UCC); (G) Equipment; (H) Intellectual Property; (I) Investment Property; (J)
all deposit accounts of such Borrower maintained with any bank or financial
institution; (K) all cash and other monies and property of such Borrower in the
possession or under the control of Lender or any assignee or participant; (L)
without duplication of the foregoing, all Contracts, Contract Obligor Documents,
Contract Rights, Remittances and Underlying Collateral; (M) all books, records,
ledger cards, files, correspondence, computer programs, tapes, disks and related
data processing software that at any time evidence or contain information
relating to any of the property described above or are otherwise necessary or
helpful in the servicing or collection thereof or realization thereon; and (N)
proceeds of all or any of the property described above.
2.8 APPOINTMENT OF BORROWER REPRESENTATIVE. Each of Mutual Central and any other
Borrowing Subsidiary from time to time party hereto hereby designates Guardian
as its representative and agent on its behalf for the purposes of requesting
advances, giving instructions with respect to the disbursement of the proceeds
of the Loans, executing and delivering Borrowing Base Certificates, LIBOR Loan
requests, Compliance Certificates and other reports and certificates required to
be delivered hereunder, giving and receiving all other notices and consents
hereunder or under any of the other Loan Documents and taking all other actions
(including in respect of compliance with covenants) on behalf of any Borrower or
Borrowers under the Loan Documents. Guardian hereby accepts such appointment.
Lender may regard any notice or other communication pursuant to any Loan
Document from Borrower Representative as a notice or communication from all
Borrowers, and may give any notice or communication required or permitted to be
given to any Borrower or Borrowers hereunder to Borrower Representative on
behalf of such Borrower or Borrowers. Each Borrower agrees that each notice,
election, representation and warranty, covenant, agreement and undertaking made
on its behalf by Borrower Representative shall be deemed for all purposes to
have been made by such Borrower and shall be binding upon and enforceable
against such Borrower to the same extent as if the same had been made directly
by such Borrower.
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2.9 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made
hereunder shall be made free and clear of and without deduction for any and all
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto; excluding, however, the following: taxes imposed on the
income of Lender by the jurisdiction under the laws of which Lender is organized
or doing business or any political subdivision thereof and taxes imposed on its
income by the jurisdiction of Lender's applicable lending office or any
political subdivision thereof (all such taxes, levies, imposts, deductions,
charges or withholdings and all liabilities with respect thereto excluding such
taxes imposed on income, herein "Tax Liabilities"). If Borrowers shall be
required by law to deduct any such amounts from or in respect of any sum payable
hereunder to Lender, then the sum payable hereunder shall be increased as may be
necessary so that, after making all required deductions, Lender receives an
amount equal to the sum it would have received had no such deductions been made.
(B) CHANGES IN TAX LAWS. In the event that, subsequent to the Original
Closing Date:
(1) any changes in any existing law, regulation, treaty, directive or
official pronouncement having the force of law or application thereof,
or
(2) any new law, regulation, treaty, directive enacted or application
thereof, or
(3) compliance by Lender with any request or directive (having the
force of law) from any governmental authority, agency or
instrumentality,
does or shall subject Lender to any tax of any kind whatsoever with respect to
this Agreement, the other Loan Documents or any Loans made hereunder, or change
the basis of taxation of payments to Lender of principal, fees, interest or any
other amount payable hereunder (except for income taxes or franchise taxes
imposed generally by federal, state or local taxing authorities with respect to
interest or commitment or other fees payable hereunder or changes in the rate of
tax on the overall net income of Lender), and the result of any of the foregoing
is to increase the cost to Lender of making or continuing any Loan hereunder, or
to reduce any amount receivable hereunder, then, in any such case, Borrowers,
jointly and severally, shall promptly pay to Lender, upon its demand, any
additional amounts necessary to compensate Lender, on an after-tax basis, for
such additional cost or reduced amount receivable, as reasonably determined by
Lender with respect to this Agreement or the other Loan Documents. If Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall promptly notify Borrower Representative of the event by reason of which
Lender has become so entitled. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Lender to Borrower
Representative shall, absent manifest error, be final, conclusive and binding
for all purposes unless, within fifteen days following the date of such
certificate, Borrower Representative delivers to Lender a written objection
thereto setting forth the substantive basis for such objection in detail.
2.10 ADDITION OF BORROWING SUBSIDIARIES. In the event Guardian or any Borrowing
Subsidiary forms or acquires any Subsidiary after the date hereof, such
Subsidiary may be added to this Agreement as a "Borrower" hereunder, subject to
the satisfaction of each of the following conditions precedent: (a) Lender shall
have given its prior written consent to the formation or acquisition of such
Subsidiary; (b)
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Guardian shall have requested in writing that such Subsidiary become a Borrowing
Subsidiary; (c) Guardian and/or such Borrowing Subsidiary shall have delivered
to Lender such financial statements, reports and other information regarding
such new Subsidiary and its business as Lender shall have requested and the
substance of such statements, reports and other information shall be
satisfactory to Lender; (d) Lender shall have completed such other due diligence
in respect of such Subsidiary and the business to be conducted thereby as Lender
may request, and shall be satisfied with the results of such diligence; (e)
Lender shall have given its prior written consent to the addition of such
Subsidiary as a Borrowing Subsidiary; and (f) such Subsidiary shall have
executed and delivered such counterpart signature pages to this Agreement and
such other Loan Documents (including without limitation UCC-1 financing
statements covering all of the Collateral in which a Lien is granted to Lender
hereunder and Bank Agency Agreements to the extent requested by Lender) as
Lender may request in connection with the addition of such Subsidiary as a
Borrowing Subsidiary. The parties hereto acknowledge that, as of the Effective
Date, Mutual Central shall become a Borrowing Subsidiary hereunder, subject to
satisfaction on the Effective Date of the conditions specified in clauses (c),
(d) and (f) above.
SECTION 3 CONDITIONS TO LOANS
3.1 CONDITIONS TO LOANS. The obligations of Lender to execute and deliver this
Agreement and to make Loans on the Effective Date and on each Funding Date are
subject to satisfaction of all of the conditions set forth below.
(A) EFFECTIVE DATE DELIVERIES AND CONDITIONS. Lender shall have
received, in form and substance satisfactory to Lender, all documents,
instruments and information identified on Schedule 3.1(A) and all other
agreements, notes, certificates, orders, authorizations, financing statements,
opinions and other documents which Lender may at any time reasonably request. In
addition to each of the conditions precedent to all Loans set forth below in
this subsection 3.1, each of the conditions precedent set forth on Schedule
3.1(A) shall have been met or satisfied as of the Effective Date.
(B) SECURITY INTERESTS. Lender shall have received satisfactory
evidence that all security interests and liens granted to Lender by each
Borrower pursuant to this Agreement or the other Loan Documents have been duly
perfected and constitute first priority liens on the Collateral, subject only to
Permitted Encumbrances.
(C) REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the Schedules or Exhibits as a result of any disclosures made by Borrowers to
Lender after the Effective Date and approved by Lender.
(D) NO DEFAULT. No event shall have occurred and be continuing or would
result from the consummation of the requested borrowing that would constitute an
Event of Default or a Default.
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(E) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have performed in
all material respects all agreements and satisfied all conditions which any Loan
Document provides shall be performed by it on or before that Funding Date.
(F) NO PROHIBITION. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Lender
from making any Loans.
(G) MARGIN REGULATIONs. The making of the Loans requested on such
Funding Date shall not violate Regulation G, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System.
(H) NO LITIGATION. There shall not be pending or, to the best knowledge
of any Authorized Officer of any Borrower, threatened, any action, charge,
claim, demand, suit, proceeding, petition, governmental investigation or
arbitration against or affecting any Loan Party or any property of any Loan
Party that has not been disclosed by Borrowers in writing, and there shall have
occurred no development in any such action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration that, in the
opinion of Lender, would reasonably be expected to have a Material Adverse
Effect.
(I) COMPLIANCE WITH SECTION 2.1. Each Borrower (or Borrower
Representative on behalf of Borrowers) shall have given all notices required as
of such Funding Date pursuant to subsection 2.1.
(J) AVAILABILITY. After giving effect to the making of all advances on
the Effective Date, Borrowers shall have Availability of not less than
$2,000,000. After giving effect to the making of any advance on any Funding Date
subsequent to the Effective Date, the outstanding principal balance of the Loan
shall not exceed the Maximum Loan Amount.
SECTION 4 BORROWERS' REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement, and to make Loans
hereunder, Borrowers, jointly and severally, represent and warrant to Lender
with respect to all Loan Parties that the following statements are and, after
giving effect to the Related Transactions, will be true, correct and complete:
4.1 ORGANIZATION, POWERS, CAPITALIZATION
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and qualified to do business in all states where
such qualification is required, which jurisdictions are listed on Schedule
4.1(A). Each of the Loan Parties has all requisite corporate power and authority
to own and operate its properties, to carry on its business as now conducted and
proposed to be conducted and to enter into each Loan Document.
(B) CAPITALIZATION. The authorized capital stock of each of the Loan
Parties is as set forth on Schedule 4.1(B). Except as set forth on Schedule
4.1(B), all issued and outstanding shares of capital stock of each of the Loan
Parties are duly authorized and validly issued, fully paid, nonassessable, free
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and clear of all Liens (other than Liens in favor of Lender) and such shares
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities. The capital stock of each of the Loan Parties is
owned by the stockholders and in the amounts set forth on Schedule 4.1(B);
provided that in the case of Guardian, such Schedule identifies the amount of
capital stock owned by Westar, each member of the Ginsburg Group and each other
principal stockholders thereof, and the amount collectively held by the public
stockholders. No shares of the capital stock of any Loan Party, other than those
described above, are issued and outstanding. Except as set forth on Schedule
4.1(B), there are no preemptive or other outstanding rights, options, warrants,
conversion rights or similar agreements or understandings for the purchase or
acquisition from any Loan Party, of any shares of capital stock or other
securities of any such entity.
4.2 AUTHORIZATION OF BORROWING, NO CONFLICT. Each applicable Loan Party has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Effective Date, the execution, delivery and
performance of the Loan Documents by each Loan Party signatory thereto will have
been duly authorized by all necessary corporate action and, if applicable,
shareholder action. The execution, delivery and performance by each Loan Party
of each Loan Document and the consummation of the transactions contemplated by
this Agreement do not and will not be in contravention of any applicable law,
the corporate charter or bylaws of any Loan Party or any agreement or order by
which any Loan Party or any Loan Party's property is bound. This Agreement is,
and the other Loan Documents, when executed and delivered will be, the legally
valid and binding obligations of the applicable Loan Parties respectively, each
enforceable against the Loan Parties, as applicable, in accordance with their
respective terms.
4.3 FINANCIAL CONDITION. All financial statements concerning Guardian, Mutual
Central and their respective Subsidiaries which have been or will hereafter be
furnished to Lender pursuant to this Agreement, including those listed below,
have been or will be prepared in accordance with GAAP consistently applied
throughout the periods involved (except as disclosed therein) and do or will
present fairly the financial condition of the corporations covered thereby as at
the dates thereof and the results of their operations for the periods then
ended.
(A) The consolidated balance sheets at December 31, 1996 and
the related statement of income of Guardian and its Subsidiaries
(excluding Mutual Central), for the Fiscal Year then ended, audited by
McKean, Paul, Chrycy, Fletcher & Co.
(B) The consolidated balance sheet at December 31, 1997 and
the related statement of income of Guardian and its Subsidiaries
(excluding Mutual Central) for the twelve (12) months then ended.
(C) The consolidated balance sheet at December 31, 1997 and
the related statement of income of Mutual Central and its Subsidiaries
for the Fiscal Year then ended, audited by Merdinger, Fruchter, Rosen
and Corso, P.C..
The Pro Forma (a copy of which is attached hereto as Schedule 4.3) was
prepared by Borrowers based on the unaudited consolidated balance sheet of
Guardian and its Subsidiaries (excluding Mutual Central) dated December 31, 1997
and the unaudited consolidated balance sheet of Mutual Central and its
Subsidiaries dated December 31, 1997 and was prepared in accordance with GAAP,
with only such
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adjustments thereto as would be required in accordance with GAAP. The
Projections delivered on the Effective Date and the updated Projections to be
delivered from time to time after the Effective Date pursuant to Annex B have
been and will be prepared by Borrowers in light of the past operations of the
businesses of Borrowers and their Subsidiaries, and such Projections represent
and will represent the good faith estimate of Borrowers and their senior
management concerning the most probable course of Borrowers' business as of the
date such Projections are prepared and delivered.
4.4 INDEBTEDNESS AND LIABILITIES. As of the Effective Date, no Loan Party has
(a) any Indebtedness except as reflected on the Pro Forma; or (b) any
Liabilities other than as reflected on the Pro Forma or as incurred in the
ordinary course of business following the date of the Pro Forma.
4.5 CONTRACT WARRANTIES. There have been no modifications or amendments to any
Contract or any other Contract Obligor Document. No Borrower has granted any
extensions of time for the payment of any Contract, compromised any Contract for
less than the full face value thereof, released in whole or in part any Contract
Obligor or other Contract Rights Payor liable for the payment of any Contract,
or allowed any credit whatsoever in respect of any Contract or any other
Contract Obligor Document, other than in accordance with Borrowers' Current
Credit Policies, which grant, compromise, release or allowance would reasonably
be expected to have a Material Adverse Effect.
4.6 NAMES. No Loan Party conducts business and has not at any time during the
past five years conducted business under any name, trade name or fictitious
business name other than those names set forth with respect to each Loan Party
on Schedule 4.6.
4.7 LOCATIONS; FEIN. Schedule 4.7 sets forth the location of each Loan Party's
principal place of business, the location of each Loan Party's books and
records, the location of each Loan Party's service centers for the
administration of Contracts, the location of all other offices of each Loan
Party and all Collateral locations, and such locations are each such Loan
Party's sole locations for its business and the Collateral. Schedule 4.7 also
sets forth each Loan Party's federal employer identification number.
4.8 TITLE TO PROPERTIES; LIENS. Each Loan Party has good, sufficient and legal
title, subject to Permitted Encumbrances, to all its respective material assets.
Except for Permitted Encumbrances, all such properties and assets are free and
clear of Liens. To the best knowledge of each Loan Party after due inquiry,
there are no actual, threatened or alleged defaults with respect to any leases
of real property under which any Loan Party is lessee which would have a
Material Adverse Effect.
4.9 PERFECTION. This Agreement creates a valid and, except for the Permitted
Encumbrances, first priority security interest in the Collateral, securing the
payment and performance of the Obligations and all actions necessary to perfect
and protect such security interest have been duly taken.
4.10 LITIGATION; ADVERSE FACTS. There are no judgments outstanding against any
Loan Party or affecting any property of any Loan Party nor is there any action,
charge, claim, demand, suit, proceeding, petition, governmental investigation or
arbitration now pending or, to the best knowledge of each Borrower after due
inquiry, threatened against or affecting any Loan Party or any property of any
Loan Party which could reasonably be expected to result in any Material Adverse
Effect. No Loan Party has
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received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed to any liability which could reasonably be expected to
result in any Material Adverse Effect.
4.11 PAYMENT OF TAXES. All material tax returns and reports of each Loan Party
required to be filed by any of them have been timely filed, and all taxes,
assessments, fees and other governmental charges upon such Persons and upon
their respective properties, assets, income and franchises which are shown on
such returns as due and payable have been paid when due and payable. None of the
United States income tax returns of any Loan Party are under audit. No tax liens
have been filed and, to the best knowledge and belief of each Authorized Officer
of each Loan Party, no claims are being asserted with respect to any such taxes.
The charges, accruals and reserves on the books of each Loan Party in respect of
any taxes or other governmental charges are in accordance with GAAP.
4.12 PERFORMANCE OF AGREEMENTS. None of the Loan Parties is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any contractual obligation of any such Person, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default which, in either case, could reasonably be
expected to have a Material Adverse Effect.
4.13 EMPLOYEE BENEFIT PLANS. Each Loan Party and each ERISA Affiliate is in
compliance in all material respects with all applicable provisions of ERISA, the
IRC and all other applicable laws and the regulations and interpretations
thereof with respect to all Employee Benefit Plans. No material liability has
been incurred by any Loan Party or any ERISA Affiliate which remains unsatisfied
for any taxes or penalties with respect to any Employee Benefit Plan.
4.14 INTELLECTUAL PROPERTY. Each Loan Party owns, is licensed to use or
otherwise has the right to use, all Intellectual Property used in or necessary
for the conduct of its business as currently conducted that are material to the
financial condition, business or operations of any Loan Party, and all such
Intellectual Property is identified on Schedule 4.14.
4.15 BROKER'S FEES. No broker's or finder's fee or commission will be payable
with respect to any of the transactions contemplated hereby. In addition, there
are no investment banking fees, broker's or finders fees or similar fees or
payments payable by any Loan Party to any Person in connection with the Merger
Transactions which remain unpaid, nor are any claims by any Person for any such
fees or payments outstanding.
4.16 ENVIRONMENTAL COMPLIANCE. Each Loan Party has been and is currently in
compliance with all applicable Environmental Laws, including obtaining and
maintaining in effect all permits, licenses or other authorizations required by
applicable Environmental Laws. There are no claims, liabilities, investigations,
litigation, administrative proceedings, whether pending or, to the best
knowledge of any Borrower, threatened, or judgments or orders relating to any
Hazardous Materials asserted or threatened against any Loan Party or relating to
any real property currently or formerly owned, leased or operated by any Loan
Party.
4.17 SOLVENCY. As of and from and after the date of this Agreement, each Loan
Party: (a) owns and will own assets the fair saleable value of which are (i)
greater than the total amount of liabilities (including
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contingent liabilities) of such Loan Party and (ii) greater than the amount that
will be required to pay the probable liabilities of such Loan Party as they
mature; (b) has capital that is not unreasonably small in relation to its
business as presently conducted or any contemplated or undertaken transaction;
and (c) does not intend to incur and does not believe that it will incur debts
beyond its ability to pay such debts as they become due.
4.18 DISCLOSURE. No representation or warranty of or with respect to any
Borrower, Mutual Central or any other Loan Party contained in this Agreement and
the other Loan Documents, the financial statements referred to in subsection
4.3, the other Related Transactions Documents, or any other document,
certificate or written statement furnished to Lender by or on behalf of any such
Person for use in connection with the Loan Documents contains any untrue
statement of a material fact or omitted, omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made. The
Projections and pro forma financial information contained in such materials are
based upon good faith estimates and assumptions believed by such Persons to be
reasonable at the time made, it being recognized by Lender that such projections
as to future events are not to be viewed as facts and that actual results during
the period or periods covered by any such projections may differ from the
projected results. There is no material fact known to any Borrower that has had
or will have a Material Adverse Effect and that has not been disclosed herein or
in such other documents, certificates and statements furnished to Lender for use
in connection with the transactions contemplated hereby. There is no material
fact known to any Borrower that has had or will have a Material Adverse Effect
and that has not been disclosed herein or in such other documents, certificates
and statements furnished to Lender or any Lender for use in connection with the
transactions contemplated hereby.
4.19 INSURANCE. Each Loan Party maintains adequate insurance policies for public
liability and property damage for its business and properties, no notice of
cancellation has been received with respect to such policies and each Loan Party
is in compliance with all conditions contained in such policies.
4.20 COMPLIANCE WITH LAWS. No Loan Party is in violation of any law, ordinance,
rule, regulation, order, policy, guideline or other requirement of any domestic
or foreign government or any instrumentality or agency thereof, having
jurisdiction over the conduct of its business or the ownership of its
properties, including, without limitation, any violation relating to any use,
release, storage, transport or disposal of any Hazardous Material, which
violation would subject any Loan Party, or any of their respective officers, to
criminal liability or have a Material Adverse Effect and no such violation has
been alleged.
4.21 BANK ACCOUNTS. Schedule 4.21 sets forth the account numbers and locations
of all bank accounts of each Loan Party.
4.22 SUBSIDIARIES. No Borrower has any Subsidiaries other than as set forth on
Schedule 4.22. No other Loan Party has any Subsidiaries.
4.23 USE OF PROCEEDS AND MARGIN SECURITY. Borrowers shall use the proceeds of
all Loans made on the Effective Date solely to fund a portion (not in excess of
$10,000,000) of the purchase price for the Mutual Central Acquisition, to
restate the Existing Obligations and to pay fees, costs and expenses of the
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Related Transactions on the Effective Date. Borrowers shall use the proceeds of
all Loans made subsequent to the Effective Date solely to make Bulk Contract
Purchases permitted in accordance with the terms hereof, and to provide funds
for their working capital needs and general corporate purposes in the ordinary
course of business. The proceeds of all Loans shall be used for proper business
purposes consistent with all applicable laws, statutes, rules and regulations.
No portion of the proceeds of any Loan shall be used by any Borrower in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation G, Regulation U, Regulation T or Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the Exchange Act.
4.24 EMPLOYEE MATTERS. Except as set forth on Schedule 4.24, (a) no Loan Party
nor any of such Loan Party's employees is subject to any collective bargaining
agreement, (b) no petition for certification or union election is pending with
respect to the employees of any Loan Party and no union or collective bargaining
unit has sought such certification or recognition with respect to the employees
of any Loan Party, and (c) there are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of any Borrower, threatened
between any Loan Party and its respective employees, other than employee
grievances arising in the ordinary course of business which could not reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect. Except as set forth on Schedule 4.24, no Loan Party is subject to an
employment contract with any employee.
4.25 GOVERNMENTAL REGULATION. None of the Loan Parties is, or after giving
effect to any loan will be, subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act or the Investment Company Act
of 1940 or to any federal or state statute or regulation limiting its ability to
incur indebtedness for borrowed money.
4.26 ACTIVITIES AND LICENSES. All Contracts and other Contract Obligor
Documents, and all advertising, origination and administration activities,
procedures and materials with regard to all Contracts and other Contract Obligor
Documents or accounts made, created, acquired, assumed, collected or serviced by
or on behalf of any Borrower or any other Loan Party, comply in all material
respects with all applicable federal, state and local laws, ordinances, rules
and regulations, including but not limited to those related to the provision of
Alarm System installation and monitoring, Contract administration, consumer
protection, equal credit opportunity, fair debt collection, rescission rights
and disclosures, except where failure to comply would not have a Material
Adverse Effect. Schedule 4.26 attached hereto (as the same may be amended or
revised from time to time) completely and accurately lists all licenses and
permits obtained by such Loan Party, in each state in which it conducts
business, in connection with its activities. All such licenses and permits are
in full force and effect, and no additional licenses or permits are required in
connection with the conduct of the business of any Loan Party.
SECTION 5 AFFIRMATIVE COVENANTS
Borrowers covenant and agree that, so long as the Commitment hereunder
shall be in effect and until payment in full of all Obligations, unless Lender
shall otherwise give its prior written consent, Borrowers shall perform, and
shall cause each other Loan Party to perform, all covenants in this Section 5
applicable to such Person.
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5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Each Borrower will maintain, and
cause each other Loan Party to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP. Borrowers will deliver to
Lender the financial statements and other reports and information at the times
and in the manner described in Annex B hereto.
5.2 ACCESS TO ACCOUNTANTS. Each Borrower authorizes Lender to discuss the
financial condition and financial statements of such Borrower and each other
Loan Party with Borrowers' and the Loan Parties' independent public accountants
upon reasonable notice to Borrower Representative of its intention to do so.
5.3 INSPECTION. Each Borrower shall and shall cause each other Loan Party to
permit Lender and any authorized representatives designated by Lender to visit
and inspect any of the properties of such Borrower or any such Loan Party,
including its and their financial and accounting records, and to make copies and
take extracts therefrom, and to discuss its and their affairs, finances and
business with its and their officers and independent public accountants, at such
reasonable times during normal business hours and as often as may be reasonably
requested.
5.4 COLLATERAL RECORDS. Each Loan Party shall keep full and accurate books and
records relating to the Collateral and shall mark such books and records to
indicate Lender's security interests in the Collateral.
5.5 CONTRACT COVENANTS; VERIFICATION. Each applicable Loan Party shall, at its
own expense, use its best efforts to assure prompt payment of all amounts due or
to become due under the Contracts. Lender shall have the right, at any time or
times hereafter, to verify the validity, amount or any other matter relating to
any Contract or Contract Right, by mail, telephone or in person. After the
occurrence of an Event of Default, no Borrower shall, without the prior consent
of Lender, adjust, settle or compromise the amount or payment of any Contract or
Contract Right, or release wholly or partly any Contract Obligor with respect
thereto, or allow any credit or discount thereon, other than in accordance with
Borrowers' Current Credit Policies.
5.6 COLLECTION OF ACCOUNTS AND PAYMENTS. As promptly as practicable following
the Effective Date, if requested by Lender, Lender and each Borrower shall enter
into a bank agency agreement ("Bank Agency Agreement") substantially in the form
of Exhibit D with each financial institution specified by Lender with which such
Borrower maintains from time to time any deposit accounts (general or special).
Pursuant to the Bank Agency Agreements and pursuant hereto, each Borrower grants
and shall grant to Lender a continuing lien upon, and security interest in, all
such accounts and all funds at any time paid, deposited, credited or held in
such accounts (whether for collection, provisionally or otherwise) or otherwise
in the possession of such financial institutions, and each such financial
institution shall act as Lender's agent in connection therewith. Following the
Effective Date, no Borrower shall establish any deposit account with any
financial institution unless prior thereto, such Borrower shall have notified
Lender of the establishment of such account and, if requested by Lender, Lender
and such Borrower shall have entered into a Bank Agency Agreement with such
financial institution.
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5.7 INTENTIONALLY OMITTED
5.8 CORPORATE EXISTENCE. Each Loan Party will at all times preserve and keep in
full force and effect its corporate existence and all rights and franchises
material to its business. Borrower Representative will promptly notify Lender of
any change in the corporate structure of any Borrower or any other Loan Party.
5.9 PAYMENT OF TAXES. Each Borrower will, and will cause each other Loan Party
to, pay all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or with respect to any of its franchises,
business, income or property before any penalty accrues thereon provided that no
such tax need be paid if the applicable Borrower or any such other Loan Party is
contesting same in good faith by appropriate proceedings promptly instituted and
diligently conducted and if such Borrower or such Loan Party has established
appropriate reserves as shall be required in conformity with GAAP.
5.10 MAINTENANCE OF PROPERTIES; INSURANCE. Each Borrower will, and will cause
each other Loan Party to, maintain or cause to be maintained in good repair,
working order and condition all material properties used in the business of such
Borrower and each other Loan Party and will make or cause to be made all
appropriate repairs, renewals and replacements thereof. Each Borrower will, and
will cause each other Loan Party to, maintain or cause to be maintained, with
financially sound and reputable insurers, public liability and property damage
insurance with respect to its business and properties against loss or damage of
the kinds customarily carried or maintained by corporations of established
reputation engaged in similar businesses and in amounts reasonably acceptable to
Lender and will deliver evidence thereof to Lender. Borrowers shall also
maintain business interruption insurance providing coverage for a period of at
least six (6) months and in an amount not less than $1,800,000. Each Borrower
shall and will cause each other Loan Party to cause Lender to be named as loss
payee on all insurance policies relating to any Collateral, as assignee in the
case of all business interruption insurance, and as additional insured under all
liability policies, in each case pursuant to appropriate endorsements in form
and substance reasonably satisfactory to Lender. Borrowers represent and warrant
that they and each of their Subsidiaries currently maintains all material
properties as set forth above and maintains all insurance described above. In
the event Borrowers fail to provide Lender with evidence of the insurance
coverage required by this Agreement, Lender may purchase insurance at Borrowers'
expense to protect Lender's interests in the Collateral. This insurance may, but
need not, protect Borrowers' interests. The coverage purchased by Lender may not
pay any claim made by any Borrower or any claim that is made against any
Borrower in connection with the Collateral. Borrowers may later cancel any
insurance purchased by Lender, but only after providing Lender with evidence
that Borrowers have obtained insurance as required by this Agreement. If Lender
purchases insurance for the Collateral, Borrowers will be responsible for the
costs of that insurance, including interest and other charges imposed by Lender
in connection with the placement of the insurance, until the effective date of
the cancellation or expiration of the insurance. The costs of the insurance may
be added to the Obligations. The costs of the insurance may be more than the
cost of insurance Borrowers are able to obtain on their own.
5.11 COMPLIANCE WITH LAWS. Each Borrower will (a) comply with and will cause
each other Loan Party to comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority (including, without
limitation, laws, rules regulations and orders relating to taxes,
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employer and employee contributions, securities, employee retirement and welfare
benefits, environmental protection matters, employee health and safety, and
other federal, state and local laws, rules, regulations and orders described in
subsection 4.26) as now in effect and which may be imposed in the future in all
jurisdictions in which any Loan Party is now doing business or may hereafter be
doing business, and (b) maintain or obtain and will cause each other Loan Party
to maintain or obtain, all licenses and permits now held or hereafter required
by any such Person, for which the loss, suspension, revocation or failure to
obtain or renew, could have a Material Adverse Effect.
5.12 FURTHER ASSISTANCE. Each Borrower shall, and shall cause each other Loan
Party to, from time to time, execute such guaranties, financing or continuation
statements, documents, security agreements, reports and other documents or
deliver to Lender such instruments, certificates of title or other documents as
Lender at any time may reasonably request to evidence, perfect or otherwise
implement the guaranties and security for repayment of the Obligations provided
for in the Loan Documents.
5.13 COLLATERAL LOCATIONS. Each Borrower will, and will cause each other Loan
Party to, keep the Collateral at the applicable locations specified on Schedule
4.7. With respect to any new location (which in any event shall be within the
continental United States), each Borrower will, and will cause each other Loan
Party to, execute such documents and take such actions as Lender deems necessary
to perfect and protect the security interests of the Lender in the Collateral.
5.14 BAILEES. If any Collateral is at any time in the possession or control of
any warehouseman, bailee or any agents or processors of or for any Loan Party,
such Loan Party shall, upon the written request of Lender, notify such
warehouseman, bailee, agent or processor of the security interests in favor of
Lender created hereby and shall instruct such Person to hold all such Collateral
for Lender's account subject to Lender's instructions.
5.15 OTHER DOCUMENTS. Each Borrower will, and will cause each other Loan Party
to, maintain accurate and complete files relating to the Contracts and other
Collateral to the satisfaction of Lender, and such files will contain copies of
all Contract Obligor Documents together with all relevant credit memoranda and
all collection information and correspondence relating to such Contract Obligor
Documents.
5.16 CUSTODIAN. As of the Effective Date, the custodial arrangements required
under the Prior Loan Agreement shall be terminated, and Lender shall, as
promptly as practicable, deliver to Borrower Representative any original
Contract Obligor Documents in Lender's possession.
5.17 LIABILITY UNDER CONTRACTS. Notwithstanding anything herein to the contrary
(i) each Borrower shall remain liable under all of its Contracts and any other
contracts and agreements between each Borrower and any Contract Obligors or
otherwise included in or related to the Collateral, to the extent set forth
therein, and shall perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by
Lender of any rights under any of the Loan Documents shall not release any
Borrower from any of its duties or obligations under any Contracts or any such
other contracts and agreements, and (iii) Lender shall not have any obligation
or liability under the Contracts or any such other contracts and agreements, nor
shall Lender be obligated to perform any of the obligations or duties of any
Borrower thereunder or to take any action to collect or enforce any
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rights thereunder.
SECTION 6 FINANCIAL COVENANTS
Borrowers covenant and agree that so long as the Commitment remains in
effect and until payment in full of all Obligations, Borrowers shall comply with
and shall cause each other Loan Party to comply with all covenants in this
Section 6 applicable to such Person.
6.1 CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital Expenditures
(excluding Mutual Central Attrition Capital Expenditures) of Borrowers and their
Subsidiaries will not exceed $250,000 (the "Capex Limit") in any Fiscal Year of
Borrowers. Notwithstanding the foregoing, in the event Borrowers and their
Subsidiaries do not expend the entire Capex Limit permitted in any Fiscal Year,
Borrowers and their Subsidiaries may carry forward to the immediately succeeding
Fiscal Year 50% of the unutilized portion of the Capex Limit. All Capital
Expenditures (excluding Mutual Central Attrition Capital Expenditures) made by
Borrowers and their Subsidiaries shall first be applied to reduce the applicable
Capex Limit and then to reduce the carry forward from the previous Fiscal Year,
if any. In addition to the foregoing, the aggregate amount of Mutual Central
Attrition Capital Expenditures made by Mutual Central will not exceed $600,000
in any Fiscal Year. "Capital Expenditures" and "Mutual Central Attrition Capital
Expenditures" will be calculated as illustrated on Exhibit C.
6.2 LEASE LIMITS. Borrowers will not and will not permit any of their respective
Subsidiaries directly or indirectly to become or remain liable in any way,
whether directly or by assignment or as a guarantor or other surety, for the
obligations of the lessee under any operating lease (other than intercompany
leases between any Borrower and any Subsidiary of any Borrower), if the
aggregate amount of all rents paid by Borrowers and their Subsidiaries under all
such leases would exceed $450,000 in any Fiscal Year of Borrowers.
6.3 FIXED CHARGE COVERAGE. Borrowers shall not permit Fixed Charge Coverage for
any twelve (12) month period ending on the last day of any month, commencing
with the month ending February 28, 1998 and on the last day of each month
thereafter, to be less than 1.1:1.0. "Fixed Charge Coverage" will be calculated
as illustrated on Exhibit C.
6.4 INDEBTEDNESS TO EBIDAT RATIO. Borrowers shall not permit the ratio of (a)
Total Indebtedness calculated as of the last day of any month, commencing with
the month ending February 28, 1998 and on the last day of each month thereafter,
to (b) EBIDAT for the twelve (12) month period ending on each such day, to be
greater than 3.50:1.0. "Total Indebtedness" and "Operating Cash Flow" will be
calculated as illustrated on Exhibit C.
6.5 SENIOR INTEREST COVERAGE. Borrowers shall not permit Senior Interest
Coverage for any twelve (12) month period ending on the last day of any month,
commencing with the month ending February 28, 1998 and on the last day of each
month thereafter, to be less than 2.0:1.0. "Senior Interest Coverage" will be
calculated as illustrated on Exhibit C.
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6.6 MAXIMUM MRI ATTRITION. Borrowers shall not at any time permit MRI Attrition
to exceed ten percent (10.0%) as of the end of each month for the trailing
twelve-month period then ended.
SECTION 7 NEGATIVE COVENANTS
Borrowers covenant and agree that so long as the Commitment remains in
effect and until payment in full of all Obligations, Borrowers shall comply with
and shall cause each other Loan Party to comply with all covenants in this
Section 7 applicable to such Person.
7.1 INDEBTEDNESS AND LIABILITIES. No Borrower will, nor will any Borrower permit
any other Loan Party to, directly or indirectly create, incur, assume, guaranty,
or otherwise become or remain directly or indirectly liable, on a fixed or
contingent basis, with respect to any Indebtedness except: (a) the Obligations;
(b) intercompany Indebtedness among Borrowers and their Subsidiaries (other than
SDI); provided that such Indebtedness is subordinated in right of payment to the
Obligations; (c) Indebtedness not to exceed $150,000 in the aggregate at any
time outstanding secured by purchase money Liens (including for computation
purposes outstanding purchase money Indebtedness existing on the Effective Date
and identified on Schedule 7.1); (d) Indebtedness in respect of Capital Leases
up to $500,000 in the aggregate; and (e) Indebtedness existing on the Effective
Date and identified on Schedule 7.1. Except for Indebtedness described permitted
in the preceding sentence, Borrowers will not, and will not permit any other
Loan Party to, incur any Liabilities except for trade payables, accounts payable
and normal accruals in the ordinary course of business not yet due and payable
or with respect to which the applicable Borrower or the applicable other Loan
Party is contesting in good faith the amount or validity thereof by appropriate
proceedings and then only to the extent that such Borrower or such Loan Party
has established adequate reserves therefor, if appropriate under GAAP.
7.2 GUARANTIES. Except for endorsements of instruments or items of payment for
collection in the ordinary course of business, Borrowers shall not and shall not
permit any other Loan Party to guaranty, endorse, or otherwise in any way become
or be responsible for any obligations of any other Person, whether directly or
indirectly by agreement to purchase the indebtedness of any other Person or
through the purchase of goods, supplies or services, or maintenance of working
capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise.
7.3 TRANSFERS, LIENS AND RELATED MATTERS
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(A) TRANSFERS. Borrowers shall not and shall not permit any other Loan
Party to sell, assign (by operation of law or otherwise) or otherwise dispose
of, or grant any option with respect to any of the Collateral, except that
Borrowers and the other Loan Parties may (i) sell Inventory in the ordinary
course of business; and (ii) make Asset Dispositions of Equipment, fixtures or
real property if all of the following conditions are met: (1) the fair market
value of assets sold or otherwise disposed of in any single transaction or
series of related transactions does not exceed $100,000 and the aggregate fair
market value of assets sold or otherwise disposed of in any Fiscal Year by all
of the Loan Parties collectively does not exceed $250,000; (2) the consideration
received is at least equal to the fair market value of such assets; (3) the sole
consideration received is cash; (4) after giving effect to the sale or other
disposition of the assets included within such Asset Disposition, Borrowers are
in compliance on a pro forma basis with the covenants set forth in Section 6
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; (5) no Event of Default shall result from such sale or other
disposition; and (6) the Net Proceeds of such Asset Disposition are applied as
required by subsection 2.4(B)(2).
(B) LIENS. Except for Permitted Encumbrances, Borrowers will not and
will not permit any other Loan Party to directly or indirectly create, incur,
assume or permit to exist any Lien on or with respect to any of the Collateral
or any other assets of such Person or any proceeds, income or profits therefrom.
(C) NO NEGATIVE PLEDGES. Neither any Borrower nor any other Loan Party
shall enter into or assume any agreement (other than the Loan Documents)
prohibiting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired.
(D) No Restrictions on Loan Party Distributions to Borrowers. Except
as provided herein, no Borrower will nor will any Borrower permit any other Loan
Party directly or indirectly to create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any such Loan Party to: (1) pay dividends or make any other
distribution on any of such Loan Party's capital stock owned by any Borrower or
any other Subsidiary of any Borrower; (2) subject to subordination provisions,
pay any indebtedness owed to any Borrower or any other Subsidiary of any
Borrower; (3) make loans or advances to any Borrower or any other Subsidiary of
any Borrower; or (4) transfer any of its property or assets to any Borrower or
any other Subsidiary of any Borrower.
7.4 INVESTMENTS AND LOANS. Borrowers shall not and shall not permit any other
Loan Party to make or permit to exist Investments in or loans to any other
Person, except: (a) Cash Equivalents; (b) loans and advances to employees for
moving, entertainment, travel and other similar expenses in the ordinary course
of business in an aggregate outstanding amount not in excess of $10,000 at any
time; (c) Guardian may make Investments in SDI in an aggregate amount not in
excess of $100,000, the proceeds of which shall be used solely to wind up the
business of SDI, to satisfy all of SDI's outstanding liabilities and to effect
the dissolution of SDI; (d) loans and advances to Dealers so long as (i) the
aggregate amount of such loans and advances at any one time outstanding does not
exceed $500,000; (b) such loans and advances are evidenced by a promissory note
acceptable to Lender, which note shall be delivered to Lender and pledged as
additional collateral security for the Obligations, and (iii) at the time any
such loan or advance is made and after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing; and (e) other
Investments existing on the Effective Date and described on Schedule
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7.4.
7.5 RESTRICTED JUNIOR PAYMENTS. No Borrower will nor will any Borrower permit
any other Loan Party to directly or indirectly declare, order, pay, make or set
apart any sum for any Restricted Junior Payment, except that:
(a) Subsidiaries of any Borrower may make Restricted Junior Payments
with respect to their common stock to the extent necessary to permit
such Borrower to pay the Obligations, to make Restricted Junior
Payments permitted under clauses (b) and (c) below and to permit such
Borrower to pay expenses incurred in the ordinary course of business;
(b) Guardian may consummate repurchases of its outstanding capital
stock from its stockholders (other than Westar or members of the
Ginsburg Group) so long as (i) at the time of any such repurchase and
after giving effect thereto (x) Borrowers shall have Availability of
not less than $1,000,000, and (y) no Default or Event of Default shall
have occurred and be continuing, and (ii) the aggregate amount of such
repurchases does not exceed $100,000; and
(c) Guardian may declare and pay cash dividends on the Preferred Stock
as and when payable pursuant to the terms of Guardian's charter, the
Westar Equity Documents and the Supplemental Westar Equity Documents,
provided that (i) at the time any such dividend is declared and paid
and after giving effect thereto (x) Borrowers shall have a ratio of
Total Indebtedness to EBIDAT (calculated on the basis of Borrowers'
financial statements for the then most recently ended fiscal month
after giving pro forma effect to the payment of such dividend) of at
least the ratio then required pursuant to subsection 6.4 for the most
recently ended month for which monthly financial statements and a
Compliance Certificate are required to be delivered pursuant to Annex
B, (y) Borrowers shall have Availability of not less than $1,000,000,
and (z) no Default or Event of Default shall have occurred and be
continuing, and (ii) the aggregate amount of such cash dividends
declared and paid on any payment date therefor shall not exceed the
amount required to be paid as of such date pursuant to the terms of the
Westar Equity Documents and the Supplemental Westar Equity Documents as
in effect on the Effective Date and, without limitation of the
foregoing (x) during the period commencing November 24, 1997 and ending
on November 24, 1999, dividends on the Series A Preferred Stock
declared and paid on any payment date therefor shall be paid solely by
the issuance of additional shares of Series A Preferred Stock in the
amount required on such payment date pursuant to the terms of the
Westar Equity Documents, and (y) during the period commencing February
23, 1998 and ending on February 23, 2000, dividends on the Series B
Preferred Stock declared and paid on any payment date therefor shall be
paid solely by the issuance of additional shares of Series B Preferred
Stock in the amount required on such payment date pursuant to the terms
of the Supplemental Westar Equity Documents.
7.6 RESTRICTION ON FUNDAMENTAL CHANGES. Neither any Borrower nor any other Loan
Party will: (a) enter into any transaction of merger or consolidation; (b)
liquidate, wind-up or dissolve itself (or suffer
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any liquidation or dissolution), except that SDI shall cease operations as
promptly as practicable (and, if such operations are not ceased and SDI is not
dissolved on or prior to June 30, 1998, Guardian shall execute and deliver a
pledge agreement, in form and substance satisfactory to Lender, pledging all of
the issued and outstanding capital stock of SDI to Lender as additional
collateral securing the Obligations); (c) convey, sell, lease, sublease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets, or issue,
sell or dispose of any of its capital stock or the capital stock of any of its
Subsidiaries, whether now owned or hereafter acquired, except that (i) Guardian
may issue and sell shares of its Series B Preferred Stock to Westar on the
Effective Date in accordance with the terms of the Supplemental Westar Equity
Documents, and (ii) subsequent to the Effective Date, Guardian may issue shares
of its Preferred Stock to Westar in lieu of the payment of cash dividends on its
Preferred Stock owned by Westar, or may issue shares of its Class A Common Stock
to Westar upon the conversion of its Preferred Stock held by Westar, in either
case so long as such issuance in lieu of dividends or conversion is consummated
and effected in accordance with the terms of the Westar Equity Documents and/or
the Supplemental Westar Equity Documents, as applicable; or (d) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person, except that
any Borrower may acquire assets from another Person pursuant to a Bulk Contract
Purchase so long as (i) at the time of any such transaction and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing; (ii) the applicable Seller shall have agreed in writing to be bound
by a guarantee or replacement clause substantially similar to that set forth in
Schedule 7.6; and (iii) Lender shall have completed such due diligence in
respect of the portfolio of Contracts to be acquired pursuant to such Bulk
Contract Purchase (or series of related such transactions) as it may request and
Lender shall have given its prior written consent to the consummation thereof by
the applicable Borrower, such consent not to be unreasonably withheld or
delayed; provided that the requirements of this clause (iii) need not be
satisfied in the case of any such Bulk Contract Purchase (or series of related
such transactions) which is for an aggregate amount of $2,500,000 or less.
7.7 CHANGES RELATING TO PREFERRED STOCK OR WESTAR EQUITY DOCUMENTS. Guardian
will not change any of the terms of the Preferred Stock as in effect on the
Effective Date, nor shall Guardian change or amend any of the terms of the
Westar Equity Documents or the Supplemental Westar Equity Documents as in effect
as of the Effective Date.
7.8 TRANSACTIONS WITH AFFILIATES. Borrowers will not and will not permit any of
their respective Subsidiaries directly or indirectly to enter into or permit to
exist any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any management, consulting, investment banking,
advisory or other similar services) with any Affiliate or with any director,
officer or employee of any Loan Party, except (a) as set forth on Schedule 7.8,
(b) transactions in the ordinary course of and pursuant to the reasonable
requirements of the business of such Borrower or any such Subsidiary and upon
fair and reasonable terms which are fully disclosed to Lender and are no less
favorable to such Borrower or such Subsidiary than would be obtained in a
comparable arm's length transaction with a Person that is not an Affiliate, (c)
payment of reasonable compensation to officers and employees for services
actually rendered to such Borrower or such Subsidiary and (d) payment of
director's fees not to exceed $50,000 in the aggregate for any Fiscal Year of
Borrowers. Notwithstanding the foregoing, unless otherwise approved by Lender,
no payments may be made with respect to any items set forth on Schedule 7.8
after the occurrence and during the continuation of a Default or Event of
Default.
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7.9 ENVIRONMENTAL LIABILITIES. Borrowers will not and will not permit any other
Loan Party to: (a) violate any applicable Environmental Law; (b) dispose of any
Hazardous Materials (except in accordance with applicable law) into or onto or
from, any real property owned, leased or operated by any Loan Party; or (c)
permit any Lien imposed pursuant to any Environmental Law to be imposed or to
remain on any real property owned, leased or operated by any Loan Party.
7.10 CONDUCT OF BUSINESS. From and after the Effective Date, no Borrower will
nor will any Borrower permit any other Loan Party to engage in any business
other than businesses of the type engaged in by such Borrower or such Loan Party
on the Effective Date, as described on Schedule 7.10.
7.11 COMPLIANCE WITH ERISA. Borrowers will not and will not permit any other
Loan Party to establish any new Employee Benefit Plan or amend any existing
Employee Benefit Plan if the liability or increased liability resulting from
such establishment or amendment is material. No Loan Party shall fail to
establish, maintain and operate each Employee Benefit Plan in compliance in all
material respects with the provisions of ERISA, the IRC and all other applicable
laws and the regulations and interpretations thereof.
7.12 TAX CONSOLIDATIONS. Borrowers will not, and will not permit any other Loan
Party to, file or consent to the filing of any consolidated income tax return
with any Person (other than Guardian).
7.13 SUBSIDIARIES. No Borrower will, nor will any Borrower permit any other Loan
Party to, establish, create or acquire any new Subsidiaries without the prior
written consent of Lender.
7.14 FISCAL YEAR. Neither any Borrower nor any other Loan Party shall change its
Fiscal Year.
7.15 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Borrowers will not and will not
permit any other Loan Party to disclose the name of Lender in any press release
or in any prospectus, proxy statement or other materials filed with any
governmental entity relating to a public offering of the capital stock of any
Loan Party.
SECTION 8 DEFAULT, RIGHTS AND REMEDIES
8.1 EVENT OF DEFAULT. "Event of Default" shall mean the occurrence or existence
of any one or more of the following:
(A) PAYMENT. Failure to make payment of any of the Obligations when
due; or
(B) DEFAULT IN OTHER AGREEMENTS. (1) Failure of any Loan Party to pay
when due any principal or interest on any Indebtedness or (2) breach or default
of any Loan Party with respect to any Indebtedness; if such failure to pay,
breach or default entitles the holder to cause such Indebtedness having an
individual principal amount in excess of $75,000 or having an aggregate
principal amount in excess of $150,000 to become or be declared due prior to its
stated maturity; or
(C) BREACH OF CERTAIN PROVISIONS. Failure of any Loan Party to perform
or comply with any
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term or condition contained in subsections 5.1, 5.3, 5.5 or 5.6 or contained in
Section 6 or Section 7; or
(D) BREACH OF WARRANTY. Any representation, warranty, certification or
other statement made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made; or
(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Any Borrower or any other Loan
Party defaults in the performance of or compliance with any term contained in
this Agreement or the other Loan Documents and such default is not remedied or
waived within ten (10) days after receipt by Borrowers of notice from Lender of
such default (other than occurrences described in other provisions of this
subsection 8.1 for which a different grace or cure period is specified or which
constitute immediate Events of Default); or
(F) CHANGE IN OWNERSHIP. (1) The Ginsburg Group shall collectively
cease to (a) own and/or maintain voting and dispostive power over fifteen
percent (15.0%) of the issued and outstanding voting Common Stock of Guardian,
or (b) have the right to nominate and elect (i) at least four of the eight
members of Guardian's Board of Directors, at all times prior to the conversion
of the Preferred Stock of Guardian owned by Westar to Class A Common Stock of
Guardian, and (ii) at least three of the nine members of Guardian's Board of
Directors, at all times after such conversion of Preferred Stock into Class A
Common Stock, provided that (i) such limitations shall not prevent any member of
the Ginsburg Group from transferring all or any part of their ownership
interests in Guardian's Common Stock (x) to any other member of the Ginsburg
Group, or (y) into any trust established by such member for estate planning
purposes so long as such member retains exclusive voting control, for his or her
lifetime, over all such shares so placed in trust; and (ii) such limitation
shall terminate upon the completion of a Qualified Public Offering; or (2)
Westar shall cease to have the right to nominate and elect (a) at least two of
the eight members of Guardian's Board of Directors, at all times prior to the
conversion of the Preferred Stock of Guardian owned by Westar to Class A Common
Stock of Guardian, and (b) at least three of the nine members of Guardian's
Board of Directors, at all times after such conversion of Preferred Stock into
Class A Common Stock; or (3) the Ginsburg Group and Westar shall cease to have
the right to mutually agree upon, nominate and elect (i) at least two of the
eight members of Guardian's Board of Directors, at all times prior to the
conversion of the Preferred Stock of Guardian owned by Westar to Class A Common
Stock of Guardian, and (ii) at least three of the nine members of Guardian's
Board of Directors, at all times after such conversion of Preferred Stock into
Class A Common Stock; or (4) any other Loan Party ceases to be a wholly-owned
Subsidiary of Guardian; or
(G) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) A court
enters a decree or order for relief with respect to any Loan Party in an
involuntary case under the Bankruptcy Code or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree or
order is not stayed or other similar relief is not granted under any applicable
federal or state law; or (2) the continuance of any of the following events for
sixty (60) days unless dismissed, bonded or discharged: (a) an involuntary case
is commenced against any Loan Party under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect; or (b) a decree or order of a
court for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over any Loan Party, or over
all or a substantial part of its property, is entered; or (c) an interim
receiver, trustee or
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other custodian is appointed without the consent of the applicable Loan Party,
for all or a substantial part of the property of Loan Party; or
(H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) An order
for relief is entered with respect to any Loan Party or any Loan Party commences
a voluntary case under the Bankruptcy Code or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case or to the conversion of an
involuntary case to a voluntary case under any such law or consents to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or a substantial part of its property; or (2) any Loan Party makes any
assignment for the benefit of creditors; or (3) the board of directors of any
Loan Party adopts any resolution or otherwise authorizes action to approve any
of the actions referred to in this subsection 8.1(H); or
(I) LIENS. Any lien, levy or assessment is filed or recorded with
respect to or otherwise imposed upon all or any part of the Collateral or the
assets of any Loan Party by the United States or any department or
instrumentality thereof or by any state, county, municipality or other
governmental agency (other than Permitted Encumbrances) and such lien, levy or
assessment is not stayed, vacated, paid or discharged within forty-five (45)
days; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process involving (1) an amount in any individual case in
excess of $100,000 or (2) an amount in the aggregate at any time in excess of
$200,000 (in either case not adequately covered by insurance as to which the
insurance company has acknowledged coverage) is entered or filed against any
Loan Party or any of their respective assets and remains undischarged,
unvacated, unbonded or unstayed for a period of thirty (30) days or in any event
later than five (5) days prior to the date of any proposed sale thereunder; or
(K) DISSOLUTION. Any order, judgment or decree is entered against any
Loan Party decreeing the dissolution or split up of such Loan Party and such
order remains undischarged or unstayed for a period in excess of thirty (30)
days; or
(L) SOLVENCY. Any Loan Party ceases to be solvent (as represented by
such Loan Party in subsection 4.17) or admits in writing its present or
prospective inability to pay its debts as they become due; or
(M) INJUNCTION. Any Loan Party is enjoined, restrained or in any way
prevented by the order of any court or any administrative or regulatory agency
from conducting all or any material part of its business and such order
continues for more than thirty (30) days; or
(N) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any Loan
Documents to which it is party, or gives notice to such effect; or
(O) FAILURE OF SECURITY. Lender does not have or ceases to have a
valid and perfected first
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priority security interest in the Collateral (subject to Permitted
Encumbrances), in each case, for any reason other than the failure of Lender to
take any action within its control; or
(P) DAMAGE, STRIKE, CASUALTY. Any material damage to, or loss, theft
or destruction of, any material portion of the Collateral, whether or not
insured, or any strike, lockout, labor dispute, embargo, condemnation, act of
God or public enemy, or other casualty which causes, for more than ninety (90)
consecutive days, the cessation or substantial curtailment of revenue producing
activities at any facility of any Loan Party if any such event or circumstance
could reasonably be expected to have a Material Adverse Effect.
(Q) LICENSES AND PERMITS. The loss, suspension or revocation of, or
failure to renew, any license or permit not held or hereafter acquired by any
Loan Party, if such loss, suspension, revocation or failure to renew could have
a Material Adverse Effect.
8.2 SUSPENSION OF COMMITMENT. Upon the occurrence of any Default or Event of
Default, notwithstanding any grace period or right to cure, Lender, without
notice or demand, may immediately cease making additional Loans and the
Commitment shall be suspended; provided that, in the case of a Default, if the
subject condition or event is waived, cured or removed within any applicable
grace or cure period, the Commitment shall be reinstated.
8.3 ACCELERATION. Upon the occurrence of any Event of Default described in the
foregoing subsections 8.1(G) or 8.1(H), all Obligations shall automatically
become immediately due and payable, without presentment, demand, protest or
other requirements of any kind, all of which are hereby expressly waived by
Borrowers, and the Commitment shall thereupon terminate. Upon the occurrence and
during the continuance of any other Event of Default, Lender may, by written
notice to Borrowers, declare all or any portion of the Obligations to be, and
the same shall forthwith become, immediately due and payable and the Commitment
shall thereupon terminate.
8.4 REMEDIES. If any Event of Default shall have occurred and be continuing,
Lender may exercise in respect of the Collateral, in addition to all other
rights and remedies provided for herein or in any other Loan Document or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and may also (a) notify any or all Contract Obligors or other
applicable Contract Rights Payors to make all payments directly to Lender; (b)
require Borrowers to, and each Borrower hereby agrees that it will, at its
expense and upon request of Lender forthwith, assemble all or part of the
Collateral as directed by Lender and make it available to Lender at a place to
be designated by Lender which is reasonably convenient to both parties; (c)
withdraw all cash in any bank account subject to a Bank Agency Agreement and
apply such monies in payment of the Obligations in the manner provided in
subsection 8.7; (d) without notice or demand or legal process (except for such
notice or demand, if any, as is expressly required by the Code), enter upon any
premises of any Borrower and take possession of the Collateral; and (e) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of the Lender's offices or
elsewhere, at such time or times, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as Lender may deem
commercially reasonable. Each Borrower agrees that, to the extent notice of sale
shall be required by law, at least ten (10) days notice to Borrowers of the time
and place of any public sale or the time after which any private sale is to
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be made shall constitute reasonable notification. At any sale of the Collateral,
if permitted by law, Lender may bid (which bid may be, in whole or in part, in
the form of cancellation of indebtedness) for the purchase of the Collateral or
any portion thereof for the account of Lender. Lender shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given.
Borrowers shall remain jointly and severally liable for any deficiency. Lender
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Lender shall not be
required to proceed against any Collateral but may proceed against Borrowers or
any Borrower directly. To the extent permitted by law, each Borrower hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any law now existing or hereafter enacted.
8.5 APPOINTMENT OF ATTORNEY-IN-FACT. Each Borrower hereby constitutes and
appoints Lender as such Borrower's attorney-in-fact with full authority in the
place and stead of such Borrower and in the name of such Borrower, Lender or
otherwise, from time to time in Lender's discretion after the occurrence and
during the continuance of an Event of Default to take any action and to execute
any instrument that Lender may deem necessary or advisable to accomplish the
purposes of this Agreement, including: (a) to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any of the Collateral; (b) if the
Obligations shall have been accelerated, to adjust, settle or compromise the
amount or payment of any Contract, or release wholly or partly any Contract
Obligor or other applicable Contract Rights Payor thereunder or allow any credit
or discount thereon; (c) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a) above;
(d) to file any claims or take any action or institute any proceedings that
Lender may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of Lender with respect to any of
the Collateral; (e) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, assignments, verifications and
notices in connection with Accounts and other documents relating to the
Collateral; (f) prepare, file and sign such Borrower's name on any proof of
claim in bankruptcy or similar document against any Contract Obligor or other
Contract Rights Payor; (g) prepare, file and sign such Borrower's name on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Collateral; and (h) use the information recorded on or
contained in any data processing equipment and computer hardware and software
relating to the Collateral to which such Borrower has access. The appointment of
Lender as each Borrower's attorney and Lender's rights and powers are coupled
with an interest and are irrevocable until payment in full and complete
performance of all of the Obligations.
8.6 LIMITATION ON DUTY OF LENDER WITH RESPECT TO COLLATERAL. Beyond the safe
custody thereof, Lender shall have no duty with respect to any Collateral in its
possession or control (or in the possession or control of any agent or bailee)
or with respect to any income thereon or the preservation of rights against
prior parties or any other rights pertaining thereto. Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which Lender accords its own property. Lender shall not be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
select ed by Lender in good faith.
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8.7 APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance of
an Event of Default, the proceeds of any sale of, or other realization upon, all
or any part of the Collateral shall be applied: first, to all fees, costs and
expenses incurred by Lender with respect to this Agreement, the other Loan
Documents or the Collateral; second, to all fees due and owing to Lender; third,
to accrued and unpaid interest on the Obligations (including any interest which
but for the provisions of the Bankruptcy Code, would have accrued on such
amounts); fourth, to the principal amounts of the Obligations outstanding; and
fifth, to any other indebtedness or obligations of any Borrower owing to Lender.
8.8 LICENSE OF INTELLECTUAL PROPERTY. Each Borrower hereby assigns, transfers
and conveys to Lender, effective upon the occurrence of any Event of Default
hereunder, the nonexclusive right and license to use all Intellectual Property
owned or used by such Borrower together with any goodwill associated therewith,
all to the extent necessary to enable Lender to realize on the Collateral and
any successor or assign to enjoy the benefits of the Collateral. This right and
license shall inure to the benefit of all successors, assigns and transferees of
Lender and its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and license is granted free of charge,
without requirement that any monetary payment whatsoever be made to any Borrower
by Lender. Without limitation of the foregoing, each Borrower (a) hereby grants
the Lender and any successor servicer appointed by the Lender an irrevocable
license to use any Software utilized by such Borrower in connection with
monitoring, collecting or otherwise servicing and administering the Contracts;
(b) shall immediately upon demand by Lender deliver all such Software and any
other books, records, backup tapes, files or other information (of any kind
whatsoever, whether stored or kept electronically, on disk or otherwise) of such
Borrower pertaining to monitoring, collecting or otherwise servicing and
administering the Contracts; and (c) shall cooperate fully with the Lender in
promptly obtaining any licenses or modifications thereto as the Lender deems
necessary to enable Lender or any successor servicer appointed by Lender to use
any Software.
8.9 ASSIGNED AGREEMENTS. If an Event of Default has occurred and is continuing,
each Loan Party hereby irrevocably authorizes and empowers Lender to assert,
either directly or on behalf of such Loan Party, any claims such Loan Party may
have, from time to time, against any other party to any Assigned Agreement or to
otherwise exercise any right or remedy of such Loan Party under any Assigned
Agreement (including, without limitation, the right to enforce directly against
any party to an Assigned Agreement all of such Loan Party's rights thereunder
(including all recourse or other recovery rights against any Dealer or Seller
and any guarantees given to such Loan Party pursuant to any Dealer Agreement or
Bulk Contract Purchase Document in respect of any Contracts), to make all
demands and give all notices and to make all requests required or permitted to
be made by such Loan Party under any Assigned Agreement).
8.10 WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of Lender to
exercise, and no delay in exercising and no course of dealing with respect to,
any right under this Agreement or the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise by Lender of any right
under this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The rights in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other remedies provided by law.
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SECTION 9 MISCELLANEOUS
9.1 ASSIGNMENTS AND PARTICIPATIONS. Lender may assign its rights and delegate
its obligations under this Agreement and further may assign, or sell
participations in, all or any part of the Loans, the Commitment or any other
interest herein to an Affiliate or to another Person. In the case of an
assignment authorized under this subsection 9.1, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it would
if it were a Lender hereunder. Lender shall be relieved of its obligations
hereunder with respect to the Commitment or assigned portion thereof. Each
Borrower hereby acknowledges and agrees that any assignment will give rise to a
direct obligation of such Borrower to the assignee and that the assignee shall
be considered to be a "Lender". Lender may furnish any information concerning
any Borrower and the other Loan Parties in its possession from time to time to
assignees and participants (including prospective assignees and participants).
9.2 SET OFF. In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence of any
Event of Default, Lender and each assignee or participant is hereby authorized
by each Borrower at any time or from time to time, without notice to such
Borrower, any other Loan Party or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and to apply any and all
balances held by it at any of its offices for the account of such Borrower
(regardless of whether such balances are then due to such Borrower) and any
other property at any time held or owing by that Lender or that assignee or
participant to or for the credit or for the account of such Borrower against and
on account of any of the Obligations then outstanding; provided, that no
participant shall exercise such right without the prior written consent of
Lender.
Each Borrower hereby agrees, to the fullest extent permitted by law,
that any Lender or assignee or participant may exercise its right of setoff with
respect to amounts in excess of its pro rata share of the Obligations (or, in
the case of a participant, in excess of its pro rata participation interest in
the Obligations) and that such Lender, assignee or participant, as the case may
be, shall be deemed to have purchased for cash in the amount of such excess,
participations in each other Lender's, assignee's or participant's share of the
Obligations.
9.3 EXPENSES AND ATTORNEYS' FEES. Whether or not the transactions contemplated
hereby shall be consummated, Borrowers, jointly and severally, agree to promptly
pay all fees, costs and expenses incurred by Lender in connection with any
matters contemplated by or arising out of this Agreement or the other Loan
Documents including the following, and all such fees, costs and expenses shall
be part of the Obligations, payable on demand and secured by the Collateral: (a)
fees, costs and expenses (including fees of accountants and other professionals
retained by Lender and, at any time that a Default shall have occurred and be
continuing, allocated costs of internal counsel) incurred in connection with the
examination, review, due diligence investigation, documentation and closing of
the financing arrangements evidenced by the Loan Documents; (b) fees, costs and
expenses (including fees of accountants and other professionals retained by
Lender and, at any time that a Default shall have occurred and be continuing,
allocated costs of internal counsel) incurred from and after the Effective Date
in connection with the review, negotiation, preparation, documentation,
execution and administration of the Loan Documents, the Loans, and any
amendments, waivers, consents, forbearances and other modifications relating
thereto or any subordination or intercreditor agreements; (c) fees, costs and
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expenses incurred in creating, perfecting and maintaining perfection of Liens in
favor of Lender; (d) fees, costs and expenses incurred in connection with
forwarding to Borrowers the proceeds of Loans including Lender's standard wire
transfer fee; (e) fees, costs, expenses and bank charges, including bank charges
for returned checks, incurred by Lender in establishing, maintaining and
handling lock box accounts, blocked accounts or other accounts for collection of
the Collateral; (f) fees, costs, expenses (including attorneys' fees and, at any
time that an Event of Default shall have occurred and be continuing, allocated
costs of internal counsel) and costs of settlement incurred in collecting upon
or enforcing rights against the Collateral or incurred in any action to enforce
this Agreement or the other Loan Documents or to collect any payments due from
any Borrower or any other Loan Party under this Agreement or any other Loan
Document or incurred in connection with any refinancing or restructuring of the
credit arrangements provided under this Agreement, whether in the nature of a
"workout" or in connection with any insolvency or bankruptcy proceedings or
otherwise.
9.4 INDEMNITY. In addition to the payment of expenses pursuant to subsection
9.3, whether or not the transactions contemplated hereby shall be consummated,
Borrowers jointly and severally agree to indemnify, pay and hold Lender and any
assignee or participant, and the officers, directors, employees, agents,
affiliates and attorneys of Lender and such assignees and participants
(collectively called the "Indemnitees") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including the fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of this Agreement or the
other Loan Documents, the consummation of the transactions contemplated by this
Agreement, the statements contained in the commitment letters, if any, delivered
by Lender, Lender's agreement to make the Loans hereunder, the use or intended
use of the proceeds of any of the Loans or the exercise of any right or remedy
hereunder or under the other Loan Documents (the "Indemnified Liabilities");
provided that no Borrower shall have any obligation to an Indemnitee hereunder
with respect to Indemnified Liabilities arising from the gross negligence or
willful misconduct of that Indemnitee as determined by a court of competent
jurisdiction.
9.5 AMENDMENTS AND WAIVERS. This Agreement together with the other Loan
Documents constitutes the entire agreement among Lender and the Loan Parties
with respect to the subject matter hereto, and no amendment, modification,
termination or waiver of any provision of this Agreement or of the other Loan
Documents, or consent to any departure by any Loan Party therefrom, shall be
effective unless the same shall be in writing and signed by Lender and each
applicable Loan Party. Each amendment, modification, termination or waiver shall
be effective only in the specific instance and for the specific purpose for
which it was given.
9.6 NOTICES. Unless otherwise specifically provided herein, all notices shall be
in writing addressed to the respective party as set forth below and may be
personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. (Chicago time) or, if not, on the
next succeeding Business Day; (c) if delivered by overnight courier, upon
receipt by the addressee thereof (which receipt shall be deemed to have occurred
on the date on which such delivery shall have been signed for by any person at
such address, as
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determined by the applicable courier); or (d) if by U.S. Mail, four Business
Days after depositing in the United States mail, with postage prepaid and
properly addressed.
If to Borrower Representative, GUARDIAN INTERNATIONAL, INC.
any other Borrower or any 3880 North 28th Terrace
other Loan Party: Hollywood, Florida 33020
Attn: Richard Ginsburg, President
Telecopy No.: (954) 926-1822
With a copy to: STEEL, HECTOR & DAVIS LLP
200 South Biscayne Boulevard,
41st floor
Miami, Florida 33131-2398
Attn: Harvey Goldman, Esq.
Telecopy No.: (305) 577-7001
If to Lender: HELLER FINANCIAL, INC.
Attn: Account Manager,
Corporate Finance Group
500 West Monroe Street
Chicago, Illinois 60661
Telecopy No.: (312) 441-7367
With a copy to: HELLER FINANCIAL, INC.
Attn: Legal Department
Corporate Finance Group
500 West Monroe Street
Chicago, Illinois 60661
Telecopy No. (312) 441-7367
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this subsection
9.6.
9.7 SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrowers set forth in subsections 9.3 and 9.4 shall survive
the payment of the Loans and the termination of this Agreement.
9.8 INDULGENCE NOT WAIVER. No failure or delay on the part of Lender in the
exercise of any power, right or privilege hereunder or under the Loan Documents
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
9.9 MASHALING; PAYMENTS SET ASIDE. Lender shall not be under any obligation to
marshal any assets
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in favor of any Loan Party or any other party or against or in payment of any or
all of the Obligations. To the extent that any Loan Party makes a payment or
payments to Lender or Lender enforces its security interests or exercise its
rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
9.10 ENTIRE AGREEMENT. This Agreement and the other Loan Documents referred to
herein embody the final, entire agreement among the parties hereto and supersede
any and all prior commitments, agreements, representations, and understandings,
whether written or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous, or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto.
9.11 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
9.12 SEVERABILITY. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement or the other
Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
9.13 HEADINGS. Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
9.14 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
9.15 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
except that no Loan Party may assign its rights or obligations hereunder without
the prior written consent of Lender.
9.16 NO FIDUCIARY RELATIONSHIP; LIMITATION OF LIABILITIES
(A) No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by Lender to any Loan Party.
(B) Neither Lender, nor any affiliate, officer, director, employee,
attorney, or agent of Lender shall have any liability with respect to, and each
Borrower hereby waives, releases, and agrees not to sue any of them upon, any
claim for any special, indirect, incidental, or consequential damages suffered
or
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incurred by such Borrower or any other Loan Party in connection with, arising
out of, or in any way related to, this Agreement or any of the other Loan
Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents. Each Borrower hereby waives, releases, and agrees not
to sue Lender or any of Lender's affiliates, officers, directors, employees,
attorneys, or agents for punitive damages in respect of any claim in connection
with, arising out of, or in any way related to, this Agreement or any of the
other Loan Documents, or any of the transactions contemplated by this Agreement
or any of the transactions contemplated hereby.
9.17 CONSENT TO JURISDICTION. EACH BORROWER HEREBY CONSENTS TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF
ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS
OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH BORROWER EXPRESSLY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH
BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO
SUCH BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE
SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.
9.18 WAIVER OF JURY TRIAL. EACH BORROWER AND LENDER EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH BORROWER AND
LENDER EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO
A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH BORROWER AND LENDER
EACH FURTHER WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF
REVIEWING THIS JURY WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
9.19 CONSTRUCTION. Each Borrower and Lender each acknowledge that it has had the
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement and the other Loan Documents with its legal counsel and
that this Agreement and the other Loan Documents shall be construed as if
jointly drafted by Borrowers and Lender.
9.20 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers,
consents, or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
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9.21 NO DUTY. All attorneys, accountants, appraisers, and other professional
Persons and consultants retained by Lender shall have the right to act
exclusively in the interest of Lender and shall have no duty of disclosure, duty
of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to any Loan Party or any shareholders of any Loan Party or any other
Person.
9.22 CONFIDENTIALITY. Lender agrees to exercise its best efforts to keep any non
public information delivered or obtained pursuant to the Loan Documents,
confidential from Persons other than those employed by or engaged by Lender in
evaluating, approving, structuring or administering the Loans and those employed
by or engaged by Lender's assignees or participants, or potential assignees or
participants.
SECTION 10 CROSS-GUARANTY
10.1 GUARANTY. Each Borrower hereby absolutely and unconditionally guaranties to
Lender the full and prompt payment of all Obligations owed or hereafter owing to
Lender by each other Borrower. Notwithstanding any provision herein contained to
the contrary, each Borrowing Subsidiaries' liability under this Section 10
(which liability is in any event in addition to amounts for which such Borrowing
Subsidiary is primarily liable under the other Sections of this Agreement and
the other Loan Documents) shall be limited to an amount not to exceed as of any
date of determination the greater of:
(A) the net amount of all Loans advanced to any other Borrower under
this Agreement and then re- loaned or otherwise transferred to such Borrowing
Subsidiary; or
(B) the amount which could be claimed by Lender from such Borrowing
Subsidiary under this Section 10 without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law after taking into account, among other
things, such Borrowing Subsidiary's right of contribution and indemnification
from the other Borrowers under subsection 10.2 hereof.
10.2 CONTRIBUTION WITH RESPECT TO GUARANTY OBLIGATIONS
(A) To the extent that any Borrower shall make a payment under this
Section 10 of all or any of the Obligations for which such Borrower is not
primarily liable (a "Guarantor Payment") which, taking into account all other
Guarantor Payments then previously or concurrently made by the other Borrowers,
exceeds the amount which such Borrower would otherwise have paid if each
Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion that such Borrower's "Allocable Amount" (as defined
below) (in effect immediately prior to such Guarantor Payment) bore to the
aggregate Allocable Amounts of all Borrowers in effect immediately prior to the
making of such Guarantor Payment, then such Borrower shall be entitled to
received contribution and indemnification payments from, and be reimbursed by,
each of the other Borrowers for the amount of such excess, pro rata based upon
their respective Allocable Amounts in effect immediately prior to such Guarantor
Payment.
(B) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower under this Section
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10 without rendering such claim voidable or avoidable under Section 548 of
Chapter 11 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or
common law.
(C) This subsection 10.2 is intended only to define the relative rights
of Borrowers and nothing set forth in this subsection 10.2 is intended to or
shall impair the obligations of Borrowers, jointly and severally, to pay any
amounts as and when the same shall become due and payable in accordance with the
terms of this Agreement, including, without limitation, Section 2 hereof, and
nothing contained in this subsection 10.2 shall limit the liability of any
Borrower to pay the Obligations for which it is primarily liable.
(D) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of any Borrower to which such
contribution and indemnification is owing.
10.3 OBLIGATIONS ABSOLUTE. The liability of each Borrower to Lender under this
Section 10 shall not be affected or impaired by any of the following acts by
Lender: (i) any acceptance of collateral security, guarantors, accommodation
parties or sureties for any or all Obligations; (ii) one or more extensions or
renewals of any Obligations (whether or not for longer than the original period)
or any modification of the interest rates, fees, maturities or principal amount
of, or other contractual terms applicable to, any Obligations; (iii) any waiver
or indulgence granted to any Borrower, any delay or lack of diligence in the
enforcement of Obligations, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any Obligations; (iv) any
full or partial release of, compromise or settlement with, or agreement not to
sue any Borrower or any guarantor or other person liable in respect of any
Obligations; (v) the acceptance of any instrument in renewal or substitution of
any Obligation; (vi) any failure to obtain collateral security (including rights
of setoff) for any Obligations, or to obtain or maintain the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; or any modification, alteration, substitution, exchange,
surrender, cancellation, termination, release or other change, impairment,
limitation, loss or discharge of any collateral security; (vii) any assignment,
pledge or other transfer of any Obligations or any evidence thereof; or (viii)
any manner, order or method of application of any payments or credits upon
Obligations. Each Borrower hereby waives any and all defenses and discharges
available to a surety, guarantor, or accommodation co-obligor, other than
payment in full in cash of the Obligations and termination of the Commitment
pursuant thereto.
10.4 WAIVER. EACH BORROWER HEREBY WAIVES PRESENTMENT, DEMAND FOR PAYMENT, NOTICE
OF DISHONOR OR NONPAYMENT, AND PROTEST OF ANY INSTRUMENT EVIDENCING LIABILITIES.
10.5 RECOVERY. If any payment is applied by Lender to the Obligations and is
hereafter set aside, recovered, rescinded or required to be returned for any
reason (including, without limitation, the bankruptcy, insolvency or
reorganization of any Borrower or any other obligor), the Obligations to which
such payment was applied shall for the purposes of this Section 10 be deemed to
have continued in existence, notwithstanding such payment and application and
this guaranty shall be enforceable as to such Obligations as fully as if such
payment and application had never been made.
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10.6 LIABILITY CUMULATIVE. The liability of Borrowers under this Section 10 is
in addition to and shall be cumulative with all liabilities of each Borrower to
Lender under this Agreement and the other Loan Documents to which any such
Borrower is a party or in respect of any Obligations of the other Borrowers,
without any limitation as to amount, unless the instrument or agreement
evidencing or creating such other liability specifically provides to the
contrary.
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Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
HELLER FINANCIAL, INC. GUARDIAN INTERNATIONAL, INC., a Nevada
corporation, as a Borrower and as
Borrower Representative
By: /s/SCOTT E. GAST By: /s/RICHARD GINSBURG
Scott E. Gast Richard Ginsburg
Title: Assistant Vice President Title: President
MUTUAL CENTRAL ALARM SERVICES, INC., a New
York corporation, as a Borrowing Subsidiary
By: /s/RICHARD GINSBURG
Richard Ginsburg
Title:__President
<PAGE>
ANNEX A
DEFINITIONS
Capitalized terms used but not otherwise defined in the Agreement and
the other Loan Documents shall have the following meanings:
"Accounts" means, with respect to any Loan Party, all "accounts" (as
defined in the UCC) now owned or hereafter created or acquired by such Loan
Party, including all accounts receivable, Contracts, Contract Rights, other
contract rights and general intangibles relating thereto, notes, drafts and
other forms of obligations owed to or owned by such Loan Party arising or
resulting from the sale of goods or the rendering of services, all proceeds
thereof, all guaranties and security therefor, and all goods and rights
represented thereby or arising therefrom including the right of stoppage in
transit, replevin and reclamation.
"Affiliate" means any Person (other than Lender): (a) directly or
indirectly controlling, controlled by, or under common control with, any Loan
Party; (b) directly or indirectly owning or holding five percent (5%) or more of
any equity interest in any Loan Party; or (c) five percent (5%) or more of whose
voting stock or other equity interest is directly or indirectly owned or held by
any Loan Party. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with") means the possession directly or indirectly of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement" means the Second Amended and Restated Loan and Security
Agreement dated as of the Effective Date among Borrowers and Lender, as it may
be amended, restated, supplemented or otherwise modified from time to time.
"Alarm System" means a residential home or commercial security system
installed by a Dealer and with respect to which a Borrower has entered into a
Contract or purchased a Contract from a Dealer or a Seller.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any of the
following: (a) any of the capital stock or other equity or ownership interest of
any Subsidiary of any Loan Party, or (b) any or all of the assets of any Loan
Party other than sales of Inventory in the ordinary course of business.
"Assigned Agreements" means, collectively, all Dealer Agreements and
all Bulk Contract Purchase Documents.
"Authorized Officer" means any of Harold Ginsburg or Richard Ginsburg,
and any such other Persons as any Borrower may designate as an Authorized
Officer by written notice to Lender.
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"Availability" means, as of any date of determination, the Maximum Loan
Amount as of such date less the outstanding principal balance of the Loan as of
such date.
"Borrower Representative" means Guardian in its capacity as Borrower
Representative pursuant to subsection 2.8.
"Borrowers" means, collectively, Guardian, Mutual Central and each
other Borrowing Subsidiary, if any, from time to time party hereto.
"Borrowing Base" has the meaning assigned to that term in subsection
2.1(A).
"Borrowing Base Certificate" means a certificate duly executed by an
officer of Borrowers appropriately completed and in substantially the form of
Exhibit A.
"Borrowing Subsidiary" means Mutual Central and each other Subsidiary
of Guardian or any Borrowing Subsidiary which becomes a Borrower hereunder
pursuant to subsection 2.10.
"Bulk Contract Purchase" means the purchase by any Borrower of a
portfolio of Contracts from a Seller.
"Bulk Contract Purchase Documents" means, in the case of any Bulk
Contract Purchase, the asset purchase agreement, assignment of monitoring
contracts and related documents executed and delivered in connection therewith,
each in form and substance conforming, in all material respects, to Borrowers'
past practices in respect of Bulk Contract Purchases.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Illinois or Florida, or
the Commonwealth of Pennsylvania or is a day on which banking institutions
located in any such states are closed.
"Capital Lease" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (i) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date of acquisition thereof;
(ii) commercial paper maturing no more than one (1) year from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iii)
certificates of deposit or bankers' acceptances maturing within one (1) year
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $500,000,000; (iv) time deposits
maturing no more than thirty (30) days from the date of creation thereof with
commercial banks having membership in the Federal Deposit Insurance Corporation
in amounts not exceeding the lesser of $100,000 or the maximum amount of
insurance applicable to the aggregate amount of Borrower's deposits at such
institution; and (v) deposits or investments in mutual or similar funds offered
or sponsored by brokerage or other companies having membership in the Securities
Investor Protection
<PAGE>
Corporation in amounts not exceeding the lesser of $100,000 or the maximum
amount of insurance applicable to the aggregate amount of Borrowers' deposits at
such institution.
"Class A Common Stock" means the Class A voting common stock of
Guardian, $.001 par value per share.
"Class B Common Stock" means the Class B non-voting common stock of
Guardian, $.001 par value per share.
"Collateral" has the meaning assigned to that term in subsection 2.7.
"Commitment" means the commitment of Lender to make Loans as set forth
in subsection 2.l(A), which commitment is in an amount equal to $20,000,000, as
such amount may be reduced from time to time in accordance with the terms of the
Agreement.
"Common Stock" means, collectively, the Class A Common Stock and Class
B Common Stock.
"Compliance Certificate" means a certificate delivered from time to
time in respect of the Loan Parties' compliance with the financial covenants set
forth in Section 6 of the Agreement, which certificate shall be duly executed by
the chief executive officer or chief financial officer of Borrower
Representative, appropriately completed and in substantially the form of Exhibit
C.
"Contract" means a written contract between a Contract Obligor and a
Borrower, or a written contract between a Contract Obligor and a Dealer or a
Seller which has been assigned to a Borrower, pursuant to which a Borrower
provides electronic alarm monitoring or other security services or sells,
installs and services Alarm Systems.
"Contract Obligor" means the residential homeowner or commercial
property owner obligated under a Contract to make periodic payments to a
Borrower for the electronic alarm monitoring or other security services or goods
provided under such Contract.
"Contract Obligor Documents" means, in respect of any Contract, the
original executed Contract with original signatures of each applicable Contract
Obligor and the applicable Dealer or Seller and bearing on its front or back
surface an assignment to Lender.
"Contract Rights" means, with respect to any Contract of any Borrower,
(a) such Borrower's interest in the related Alarm System; (b) all rights of such
Borrower regarding the Contract and the related Alarm System, including but not
limited to rights to electronic funds transfers and rights under all Dealer
Agreements, Bulk Contract Purchase Documents or other purchase agreements
pursuant to which such Contract was acquired by such Borrower; (c) all rights of
such Borrower with respect to any policies of fire, theft or comprehensive
insurance, public liability insurance or property damage insurance maintained
with respect to the related Alarm System or the property at which such Alarm
System is installed, the Contract, or any applicable Contract Obligor; (d) all
Remittances in respect of such Contract, and (e) all rights of such Borrower to
the originals of all books, records (including electronic data), reports, files,
and documents relating to the Contracts, including, but not limited to, Contract
Obligor Documents, financial statements of Contract Obligors, and all payment
reports or records relating to the Contracts.
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"Contract Rights Payors" means, in respect of any Contract, Persons,
other than the applicable Contract Obligors, against whom Contract Rights can be
asserted, including without limitation Dealers and Sellers.
"Current Credit Policies" means Borrowers' current policies and
procedures regarding the purchase of Contracts from Dealers or Sellers, as from
time to time amended, restated, supplemented or otherwise modified with the
prior written consent of Lender.
"Dealer" means a retail seller and installer of Alarm Systems that (a)
has been in the business of selling and installing Alarm Systems for not less
than twenty-four (24) months on the date such Dealer installs an Alarm System,
(b) maintains at all times business liability insurance of not less than
$500,000, (c) provides warranty service and maintenance to each Alarm System
sold by such Dealer for a period of not less than one year from the date of sale
or installation, and (d) has all legally required permits and licenses for the
conduct of its business.
"Dealer Agreement" means an agreement between a Dealer and a Borrower
pursuant to which such Borrower from time to time purchases Contracts from such
Dealer, together with any guaranties executed and delivered by a Dealer, or any
of its officers, directors, stockholders or other affiliates, in favor of such
Borrower with respect to such Dealer's obligations (recourse or otherwise) under
any such Dealer Agreement.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Default Rate" has the meaning assigned to that term in subsection 2.2.
"Effective Date" means February 23, 1998.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six (6) years been maintained for the employees of any Loan Party or any current
or former ERISA Affiliate.
"Environmental Laws" means any present or future federal, state or
local law, rule, regulation or order relating to pollution, waste, disposal,
industrial hygiene or the protection of human health or safety, plant life or
animal life, natural resources or the environment.
"Equipment" means, with respect to any Loan Party, all "equipment" (as
defined in the UCC) now owned or hereafter acquired by such Loan Party
including, without limitation, all machinery, motor vehicles, trucks, trailers,
vessels, aircraft and rolling stock and all parts thereof and all additions and
accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who
is a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of Section 414(b) and (c) of the IRC.
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"Event of Default" means each of the events set forth in subsection
8.1.
"Existing Obligations" means all "Obligations" as defined in the Prior
Loan Agreement outstanding as of the Effective Date.
"Expiry Date" means the earlier of (a) the suspension (subject to
reinstatement) of the Lender's obligations to make Loans pursuant to subsection
8.2, (b) the acceleration of the Obligations pursuant to subsection 8.3 or (c)
May 31, 2001.
"Fiscal Year" means each twelve month period ending on the last day of
December in each year.
"Funding Date" means, with respect to any advance made pursuant to
subsection 2.1, the date of the funding of such advance.
"GAAP" means generally accepted accounting principles as set forth in
statements from Auditing Standards No. 69 entitled "The Meaning of 'Present
Fairly in Conformance with Generally Accepted Accounting Principles in the
Independent Auditors Reports'" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"Ginsburg Group" means, collectively, Harold Ginsburg, Sheilah
Ginsburg, Richard Ginsburg and Rhonda Ginsburg and any transferees of any such
Persons to the extent permitted by subsection 8.1(F) of the Agreement.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances", "hazardous materials",
"hazardous wastes", "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity or
"EP toxicity"; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.
"Indebtedness" as applied to any Person, means: (a) all indebtedness
for borrowed money; (b) obligations under leases which in accordance with GAAP
constitute Capital Leases; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money;
(d) any obligation owed for all or any part of the deferred purchase price of
property or services if the purchase price is due more than six months from the
date the obligation is incurred or is evidenced by a note or similar written
instrument; and (e) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person.
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"Intellectual Property" means, with respect to any Loan Party, all of
such Loan Party's present and future designs, patents, patent rights and
applications therefor, trademarks and registrations or applications therefor,
trade names, inventions, copyrights and all applications and registrations
therefor, Software, license rights, trade secrets, methods, processes, knowhow,
drawings, specifications, descriptions, and all memoranda, notes and records
with respect to any research and development, whether now owned or hereafter
acquired by such Loan Party, all goodwill associated with any of the foregoing,
and proceeds of all of the foregoing, including, without limitation, proceeds of
insurance policies thereon.
"Inventory" means, with respect to any Loan Party, all "inventory" (as
defined in the UCC) now owned or hereafter acquired by such Loan Party, wherever
located including finished goods, raw materials, work in process and other
materials and supplies used or consumed in such Loan Party's business and goods
which are returned to or repossessed by such Loan Party.
"Investment" means (i) any direct or indirect purchase or other
acquisition by any Borrower or any Subsidiary of any Borrower of any beneficial
interest in, including stock, partnership interest or other equity securities
of, or ownership interest in, any other Person; and (ii) any direct or indirect
loan, advance or capital contribution by any Borrower or any Subsidiary of any
Borrower to any other Person, including all indebtedness and accounts receivable
from that other Person that are not current assets or did not arise from sales
to that other Person in the ordinary course of business. The amount of any
Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment.
"Investment Property" shall have the meaning ascribed thereto in
Section 9-115 of the UCC in those jurisdictions in which such definition has
been adopted and shall include, without limitation (i) all securities, whether
certificated or uncertificated, including, without limitation, stocks, bonds,
interests in limited liability companies, partnership interests, treasuries,
certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of any Loan Party, including without limitation, the rights of any
Loan Party to any securities account and the financial assets held by a
securities intermediary in such securities account and any free credit balance
or other money owing by any securities intermediary with respect to that
account; (iii) all securities accounts held by any Loan Party; (iv) all
commodity contracts held by any Loan Party; and (v) all commodity accounts held
by any Loan Party.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" means Heller Financial, Inc. together with its successors and
permitted assigns pursuant to subsection 9.1.
"Liabilities" shall have the meaning given that term in accordance with
GAAP and shall include Indebtedness.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
6
<PAGE>
"Loan" means all advances made by Lender pursuant to subsection 2.1 and
any amounts added to the principal balance of the Loan pursuant to the
Agreement.
"Loan Documents" means the Agreement, the Notes, the Pledge Agreement,
any Bank Agency Agreements, and all other instruments, documents and agreements
executed by or on behalf of any Loan Party and delivered concurrently herewith
or at any time hereafter to or for Lender in connection with the Loans and other
transactions contemplated by the Agreement (including without limitation any
such instruments, documents and agreements delivered at any time with respect to
any new Borrowing Subsidiary pursuant to subsection 2.10 of the Agreement), all
as amended, restated, supplemented or modified from time to time.
"Loan Party" means, collectively, each Borrower, each Borrower's
Subsidiaries and any other Person (other than Lender or any bank party to a Bank
Agency Agreement) which is or becomes a party to any Loan Document.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of any Loan Party on an individual basis or the Loan Parties taken as a whole or
(b) the impairment of the ability of any Loan Party to perform its obligations
under any Loan Document to which it is a party or of Lender to enforce or
collect any of the Obligations.
"Maximum Loan Amount" has the meaning assigned to that term in
subsection 2.1(A).
"Merger Transactions" has the meaning assigned to that term in the
recitals to the Prior Loan Agreement.
"MRI" means monthly recurring alarm monitoring and extended service
plan from services provided under Contracts owned by Borrowers, excluding patrol
revenue. In the case of any Contract providing for quarterly (as opposed to
monthly) payments, MRI in respect of such Contract shall be determined by
dividing the amount of such quarterly payment by three (3), and in the case of
any Contract providing for annual payments, MRI in respect of such Contract
shall be determined by dividing the amount of such annual payment by twelve
(12).
"MRI Attrition" means, for any trailing twelve-month period, the
quotient of:
(A) MRI for the last month of such trailing twelve-month period
("Ending MRI"); less Ending MRI attributable to internal
installations (excluding new owner reconnects), less Ending
MRI attributable to Contracts acquired during such period;
less MRI for the month immediately preceding the beginning of
such period ("Beginning MRI"); less MRI attributable to
account guaranties enforced during such period; divided by
(B) the quotient of (i) Beginning MRI plus Ending MRI divided by (ii)
two (2).
"Mutual Central Acquisition Documents" means, collectively, the Mutual
Central Purchase Agreement, the Escrow and Pledge Agreement dated as of the
Effective Date among Guardian, the Mutual Central Sellers and Emanuel Zimmer,
Esq., as escrow agent, the Employment Agreement dated as of February 1, 1998
among Mutual Central, Guardian and Joel A. Cohen ("Cohen", the Employment
Agreement dated as of February 1, 1998 among Mutual Central,
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<PAGE>
Guardian and Raymond L. Adams ("Adams"), each Irrevocable Proxy Coupled With an
Interest dated as of the Effective Date executed by each of Cohen, Adams and
Norman Rubin in favor of Richard Ginsburg, the Registration Rights Agreement
dated as of the Effective Date among Guardian and certain of the Mutual Central
Sellers party thereto, and each of the other documents, agreements, certificates
and instruments executed and delivered pursuant to any of the foregoing.
"Note" and "Notes" have the meaning ascribed to such terms in
subsection 2.1.
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Lender under the Loan
Documents including the principal amount of all debts, claims and indebtedness,
accrued and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable.
"Original Closing Date" means May 22, 1997.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (d) easements, rights-of-way, restrictions,
and other similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of any Loan Party; (e) Liens
for purchase money obligations, provided that (i) the Indebtedness secured by
any such Lien is permitted under subsection 7.1, and (ii) such Lien encumbers
only the asset so purchased; (f) Liens in favor of Lender, and (g) Liens
existing as of the Effective Date and set forth on Schedule 7.3.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreement" means the Pledge Agreement dated as of the Effective
Date between Guardian and Lender, pursuant to which Guardian shall pledge to
Lender all of the issued and outstanding capital stock of certain of its
Subsidiaries.
"Preferred Stock" means, collectively, the Series A Preferred Stock
and the Series B Preferred Stock.
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"Prior Loan Agreement" has the meaning assigned to that term in the
recitals to the Agreement.
"Prior Loan Documents" means each of the "Loan Documents" as defined in
the Prior Loan Agreement.
"Pro Forma" means the unaudited consolidated balance sheet of Borrowers
and their Subsidiaries as of the Effective Date after giving effect to the
Related Transactions. The Pro Forma is annexed hereto as Schedule 4.3.
"Projections" means Borrowers' good faith estimate of forecasted
consolidated and consolidating: (a) balance sheets; (b) profit and loss
statements; (c) cash flow statements; and (d) capitalization statements, all
prepared on a Subsidiary by Subsidiary basis and otherwise consistent with
Borrowers' historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions.
"Qualified Public Offering" shall mean a firm underwritten public
offering of Guardian's Common Stock registered on form S-1, S-2 or S-3 under the
Securities Act of 1933, as amended, by a nationally recognized investment
banking firm, resulting in net proceeds to Guardian of at least $10,000,000, and
after giving effect to which Guardian shall be qualified for listing on the
NASDAQ National Market, the American Stock Exchange or the New York Stock
Exchange.
"Related Transactions" means the execution and delivery of the Related
Transactions Documents, the funding of the initial Loan on or after the
Effective Date, the restatement of the Existing Obligations on the Effective
Date, the repayment of the Indebtedness identified on Schedule A-1 which is to
be paid in full on the Effective Date, the consummation of the transactions
contemplated by the Supplemental Westar Equity Documents, the Mutual Central
Acquisition, and the payment of all fees, costs and expenses associated with all
of the foregoing.
"Related Transactions Documents" means the Loan Documents, the
Supplemental Westar Equity Documents, the Mutual Central Acquisition Documents
and all other agreements, instruments and documents executed or delivered in
connection with the Related Transactions.
"Remittances" means all payments made with respect to Contracts,
including, but not limited to, scheduled installments, full and partial
prepayments, liquidation proceeds, insurance proceeds and refunds, late charges,
fees (including but not limited to NSF fees and extension fees), and any other
payments made by Contract Obligors or any other Contract Rights Payor, including
without limitation recoveries from Dealers or Sellers.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
or other equity security of, or ownership interest in, any Loan Party now or
hereafter outstanding, except a dividend payable solely in shares of that class
of stock to the holders of that class; (b) any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of stock or other equity
security of, or ownership interest in, any Loan Party now or hereafter
outstanding; (c) any payment or prepayment of interest on, principal of,
premium, if any, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Subordinated
Debt; (d) any payment made to retire, or to obtain the surrender of, any
outstanding warrants, options or other
9
<PAGE>
rights to acquire shares of any class of stock or other equity security of, or
ownership interest in, any Loan Party now or hereafter outstanding; and (e) any
payment by any Loan Party of any management fees or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise.
"SDI" means Specialty Device Installers, Inc., a Florida corporation
and a wholly-owned Subsidiary of Guardian.
"Seller" means a Person involved in the electronic alarm monitoring
business which sells or otherwise transfers Contracts to a Borrower pursuant to
a Bulk Contract Purchase.
"Series A Preferred Stock" means the Series A 9 3/4% Convertible
Cumulative Preferred Stock of Guardian in the aggregate amount of $3,750,000 as
of the Effective Date, plus the amount of any Series A Preferred Stock issued in
lieu of the payment of cash dividends thereon pursuant to the terms of the
Westar Equity Documents.
"Series B Preferred Stock" means the Series B 10.5% Convertible
Cumulative Preferred Stock of Guardian in the aggregate amount of $4,000,000 as
of the Effective Date, plus the amount of any Series B Preferred Stock issued in
lieu of the payment of cash dividends thereon pursuant to the terms of the
Supplemental Westar Equity Documents.
"Software" means all software, firmware or other computer programs,
whether now or hereafter owned, licensed or leased by any Loan Party (including,
without limitation, operating system software, utilities and application
programs in whatever form (including without limitation, source code and object
code in magnetic tape, disk or hard copy format)), together with all
improvements, additions, documentation and materials related thereto.
"Subordinated Debt" means all Indebtedness of Borrowers on a
consolidated basis which is subordinated in right of payment to the Obligations.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of stock (or equivalent ownership or controlling interest)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof. All references herein and
in any other Loan Document to a "Subsidiary" shall, unless otherwise specified,
refer to a Subsidiary of a Borrower.
"Supplemental Westar Equity Documents" means, collectively, that
certain Stock Subscription Agreement dated as of the Effective Date between
Guardian and Westar and all agreements, instruments or other documents referred
to in any of the foregoing or required thereby, including without limitation the
Certificate of Designation filed by Borrower in respect of the Series B
Preferred Stock.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, as amended from time to time, and any successor
statute.
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<PAGE>
"Underlying Collateral" means, in the case of any Contract, all
Collateral (other than the Alarm System) in which a Lien has been granted by any
Contract Obligor thereunder to secure payment of such Contract.
"Westar" means Westar Security, Inc., a Nevada corporation, as assignee
of Westar Capital, Inc., a Kansas corporation.
"Westar Equity Documents" means, collectively, that certain Stock
Subscription Agreement dated as of October 14, 1997 between Guardian and Westar,
that certain Registration Rights Agreement dated as of October 21, 1997 between
Guardian and Westar, that certain Guardian International, Inc. Stockholders
Agreement dated as of October 21, 1997 among Guardian, Harold Ginsburg, Sheilah
Ginsburg, Richard Ginsburg, Rhonda Ginsburg and Westar, and all agreements,
instruments or other documents referred to in any of the foregoing or required
thereby, including without limitation the Certificate of Designation filed by
Borrower in respect of the Series A Preferred Stock.
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<PAGE>
ANNEX B
REPORTING REQUIREMENTS
Borrowers will deliver or cause to be delivered to Lender each of the
financial statements and other reports and information described below as and
when required as set forth below:
(A) MONTHLY FINANCIAL. As soon as available and in any event within
fifteen (15) days after the end of each month, Borrower Representative will
deliver (1) the consolidated and consolidating balance sheet of Borrowers and
their Subsidiaries as at the end of such month and the related consolidated and
consolidating statements of income, stockholders' equity and cash flow for such
month and for the period from the beginning of the then current Fiscal Year to
the end of such month, and (2) a schedule of the outstanding Indebtedness for
borrowed money of Borrowers and their Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest with respect to each such debt issue or
loan.
(B) INTENTIONALLY OMITTED.
(C) YEAR-END FINANCIAL. As soon as available and in any event within
ninety (90) days after the end of each Fiscal Year, Borrower Representative will
deliver: (1) the consolidated balance sheet of Borrowers and their Subsidiaries
as at the end of such year and the related consolidated statements of income,
stockholders' equity and cash flow for such Fiscal Year; (2) a schedule of the
outstanding Indebtedness for borrowed money of Borrowers and each of their
Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan; (3) a report with respect to the
consolidated financial statements from a firm of independent certified public
accountants selected by Borrowers, which report shall be prepared in accordance
with Statement of Auditing Standards No. 58 (the "Statement") entitled "Reports
on Audited Financial Statements" and such report shall be "Unqualified" (as such
term is defined in such Statement); and (4) copies of the consolidating
financial statements of Borrowers and their Subsidiaries, including (a)
consolidating balance sheets of Borrowers and their Subsidiaries as at the end
of such Fiscal Year showing intercompany eliminations and (b) related
consolidating statements of earnings of Borrowers and their Subsidiaries showing
intercompany eliminations.
(D) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, Borrower
Representative will deliver copies of all significant reports submitted to any
Borrower by independent public accountants in connection with each annual,
interim or special audit of the financial statements of Borrowers made by such
accountants, including the comment letter submitted by such accountants to
management in connection with their services.
(E) COMPLIANCE CERTIFICATE. Together with the delivery of each set of
financial statements referenced in subparts (A) and (C) of this Annex B,
Borrower Representative will deliver to Lender a Compliance Certificate.
(F) INTENTIONALLY OMITTED.
<PAGE>
(G) INTENTIONALLY OMITTED.
(H) MONTHLY COLLATERAL REPORTING. As soon as available and in any event
within twenty (20) days after the end of each month, Borrower Representative
will deliver each of the following, all prepared as of the last day of the
preceding month for the period then ended and all in such form and containing
such detail as Lender may specify or request: (i) a summary aged trial balance
of all then-existing Accounts (with details to be made available upon Lender's
request); (ii) an attrition report reflecting recovery income; (iii) an
aging/delinquency report; and (iv) a new business report reflecting purchased
Contracts and internally generated Contracts.
(I) BORROWING BASE CERTIFICATES. At least monthly, no later than
fifteen (15) days after the last day of each month, or more frequently as Lender
may request, Borrower Representative will deliver a Borrowing Base Certificate
setting forth the calculation of the Borrowing Base as of the last day of the
immediately preceding month, in the case of Borrowing Base Certificates
delivered monthly as required above, or as of such date as Lender may specify,
in the case of any more frequent Borrowing Base Certificates requested by
Lender.
(J) MANAGEMENT REPORT. Together with each delivery of financial
statements of Borrowers and their Subsidiaries pursuant to subparts (A) and (C)
of this Annex B, Borrower Representative will deliver a management report (1)
describing the operations and financial condition of the Loan Parties for the
month then ended and the portion of the current Fiscal Year then elapsed (or for
the Fiscal Year then ended in the case of year-end financials); (2) setting
forth in comparative form the corresponding figures for the corresponding
periods of the previous Fiscal Year and the corresponding figures from the most
recent Projections for the current Fiscal Year delivered to Lender pursuant to
subpart (Q) of this Annex B; and (3) discussing the reasons for any significant
variations. The information above shall be presented in reasonable detail and
shall be certified by the chief financial officer of Borrower Representative to
the effect that such information fairly presents the results of operations and
financial condition of the Loan Parties as at the dates and for the periods
indicated.
(K) GOVERNMENT NOTICES. Borrower Representative will deliver to Lender
promptly after receipt copies of all notices, requests, subpoenas, inquiries or
other writings received by any Loan Party from any governmental agency
concerning any Employee Benefit Plan, the violation or alleged violation of any
Environmental Laws, the storage, use or disposal of any Hazardous Material or
any Loan Party's payment or non-payment of any taxes including any tax audit.
(L) EVENTS OF DEFAULT, ETC. Promptly upon any officer of any Borrower
obtaining knowledge of any of the following events or conditions, Borrower
Representative shall deliver a certificate of its chief executive officer
specifying the nature and period of existence of such condition or event and
what action the applicable Loan Party has taken, is taking and proposes to take
with respect thereto: (1) any condition or event that constitutes an Event of
Default or Default; (2) any notice of default that any Person has given to any
Loan Party, or any other action taken, with respect to a claimed default; or (3)
any Material Adverse Effect.
(M) TRADE NAMES. Borrower Representative will give Lender at least
thirty (30) days advance written notice of any change of name or of any new
trade name or fictitious business name of any Loan Party. Each Loan Party's use
of any trade name or fictitious business name will be in compliance with all
laws regarding the use of such names.
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<PAGE>
(N) LOCATIONS. Borrower Representative will give Lender at least thirty
(30) days advance written notice of any change in any Loan Party's principal
place of business or any change in the location of its books and records or the
Collateral or of any new location for administration of Contracts or for its
books and records or the Collateral.
(O) BANK ACCOUNTS. Borrower Representative will give Lender prompt
notice of any new bank accounts or lockboxes established by any Loan Party.
(P) LITIGATION. Promptly upon any officer of any Borrower obtaining
knowledge of (1) the institution of any action, suit, proceeding, governmental
investigation or arbitration against or affecting any Loan Party or any property
of any Loan Party not previously disclosed by Borrowers to Lender or (2) any
material development in any action, suit, proceeding, governmental investigation
or arbitration at any time pending against or affecting any Loan Party or any
property of any Loan Party which is reasonably likely to have a Material Adverse
Effect, Borrower Representative will promptly give notice thereof to Lender and
provide such other information as may be reasonably available to it to enable
Lender and its counsel to evaluate such matter.
(Q) PROJECTIONS. As soon as available and in any event no later than
thirty (30) days prior to the end of each Fiscal Year of Borrowers, Borrower
Representative will deliver Projections of Borrowers and their Subsidiaries for
the forthcoming three Fiscal Years, year by year, and for the forthcoming Fiscal
Year, month by month.
(R) SEC FILINGS AND PRESS RELEASES; SUBORDINATED DEBT NOTICES. Promptly
upon their becoming available, Borrower Representative will deliver copies of
(1) all financial statements, reports, notices and proxy statements sent or made
available by any Borrower or any other Loan Party to their security holders
generally, (2) all regular and periodic reports and all registration statements
and prospectuses, if any, filed by any Borrower or any other Loan Party with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority, (3) all press releases and other
statements made available by any Borrower or any other Loan Party to the public
concerning developments in the business of any such Person, and (4) any notices
or other correspondence regarding any default or breach or claimed default or
breach sent to, or received from, any holder of Subordinated Debt or any trustee
or similar Person in connection in any Subordinated Debt.
(S) SUPPLEMENTED SCHEDULES; NOTICE OF CORPORATE CHANGES. Annually,
concurrently with the delivery of the Projections required by subpart (Q) of
this Annex B, Borrowers shall supplement in writing and deliver to Lender
revisions of the Schedules annexed to the Agreement to the extent necessary to
disclose new or changed facts or circumstances after the Effective Date;
provided that subsequent disclosures shall not constitute a cure or waiver of
any Default or Event of Default resulting from the matters disclosed.
(T) NOTICE OF CERTAIN TRANSACTIONS. Borrower Representative shall
provide Lender with prompt written notice of (i) the execution and delivery of a
Dealer Agreement with any new Dealer, and (ii) the execution and delivery of any
Bulk Contract Purchase Documents in connection with any contemplated Bulk
Contract Purchase.
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(U) OTHER INFORMATION. With reasonable promptness, Borrowers will
deliver such other information and data with respect to any Loan Party or the
Collateral as Lender may reasonably request from time to time.
4
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-------------------------------------------------------------
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
DATED AS OF FEBRUARY 23, 1998
among
GUARDIAN INTERNATIONAL, INC.,
and
THE BORROWING SUBSIDIARIES FROM TIME TO TIME PARTY HERETO,
as Borrowers,
and
HELLER FINANCIAL, INC.,
as Lender
-------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
SECTION 1 DEFINITIONS..........................................................................................2
1.1 Certain Defined Terms...........................................................................2
1.2 Accounting Terms................................................................................2
1.3 Other Definitional Provisions...................................................................2
1.4 Effect of Amendment and Restatement.............................................................2
SECTION 2 LOANS AND COLLATERAL.................................................................................3
2.1 Loans...........................................................................................3
2.2 Interest........................................................................................4
2.3 Fees............................................................................................6
2.4 Payments and Prepayments........................................................................6
2.5 Term of this Agreement..........................................................................8
2.6 Statements; Application of Payments.............................................................8
2.7 Grant of Security Interest......................................................................8
2.8 Appointment of Borrower Representative..........................................................9
2.9 Taxes...........................................................................................9
2.10 Addition of Borrowing Subsidiaries.............................................................10
SECTION 3 CONDITIONS TO LOANS.................................................................................10
3.1 Conditions to Loans............................................................................10
SECTION 4 BORROWERS' REPRESENTATIONS AND WARRANTIES...........................................................11
4.1 Organization, Powers, Capitalization...........................................................12
4.2 Authorization of Borrowing, No Conflict........................................................12
4.3 Financial Condition............................................................................12
4.4 Indebtedness and Liabilities...................................................................13
4.5 Contract Warranties............................................................................13
4.6 Names..........................................................................................13
4.7 Locations; FEIN................................................................................13
4.8 Title to Properties; Liens.....................................................................14
4.9 Perfection.....................................................................................14
4.10 Litigation; Adverse Facts......................................................................14
4.11 Payment of Taxes...............................................................................14
4.12 Performance of Agreements......................................................................14
4.13 Employee Benefit Plans.........................................................................14
4.14 Intellectual Property..........................................................................14
4.15 Broker's Fees..................................................................................15
4.16 Environmental Compliance.......................................................................15
4.17 Solvency.......................................................................................15
4.18 Disclosure.....................................................................................15
4.19 Insurance......................................................................................15
4.20 Compliance with Laws...........................................................................15
4.21 Bank Accounts..................................................................................16
4.22 Subsidiaries...................................................................................16
4.23 Use of Proceeds and Margin Security............................................................16
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4.24 Employee Matters...............................................................................16
4.25 Governmental Regulation........................................................................16
4.26 Activities and Licenses........................................................................16
SECTION 5 AFFIRMATIVE COVENANTS...............................................................................17
5.1 Financial Statements and Other Reports.........................................................17
5.2 Access to Accountants..........................................................................17
5.3 Inspection.....................................................................................17
5.4 Collateral Records.............................................................................17
5.5 Contract Covenants; Verification...............................................................17
5.6 Collection of Accounts and Payments............................................................18
5.7 Endorsement....................................................................................18
5.8 Corporate Existence............................................................................19
5.9 Payment of Taxes...............................................................................19
5.10 Maintenance of Properties; Insurance...........................................................19
5.11 Compliance With Laws...........................................................................19
5.12 Further Assurances.............................................................................19
5.13 Collateral Locations...........................................................................19
5.14 Bailees........................................................................................20
5.15 Other Documents................................................................................20
5.16 Custodian......................................................................................20
5.17 Contract Administration........................................................................20
SECTION 6 FINANCIAL COVENANTS.................................................................................21
6.1 Capital Expenditure Limits.....................................................................21
6.2 Lease Limits...................................................................................21
6.3 Fixed Charge Coverage..........................................................................21
6.4 Indebtedness to Cash Flow Ratio................................................................21
6.5 Senior Interest Coverage.......................................................................22
6.6 Maximum MRI Attrition..........................................................................22
SECTION 7 NEGATIVE COVENANT...................................................................................22
7.1 Indebtedness and Liabilities...................................................................22
7.2 Guaranties.....................................................................................23
7.3 Transfers, Liens and Related Matters...........................................................23
7.4 Investments and Loans..........................................................................24
7.5 Restricted Junior Payments.....................................................................24
7.6 Restriction on Fundamental Changes.............................................................25
7.7 Changes Relating to Subordinated Debt, Preferred Stock or Westar Equity Documents..............25
7.8 Transactions with Affiliates...................................................................26
7.9 Environmental Liabilities......................................................................26
7.10 Conduct of Business............................................................................26
7.11 Compliance with ERISA..........................................................................26
7.12 Tax Consolidations.............................................................................26
7.13 Subsidiaries...................................................................................26
7.14 Fiscal Year....................................................................................26
7.15 Press Release; Public Offering Materials.......................................................26
7.16 Bank Accounts..................................................................................27
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7.17 Certain Required Forms; No Amendments to Current Credit Policies...............................27
SECTION 8 DEFAULT, RIGHTS AND REMEDIES........................................................................27
8.1 Event of Default...............................................................................27
8.2 Suspension of Commitment.......................................................................29
8.3 Acceleration...................................................................................30
8.4 Remedies.......................................................................................30
8.5 Appointment of Attorney-in-Fact................................................................30
8.6 Limitation on Duty of Lender with Respect to Collateral........................................31
8.7 Application of Proceeds........................................................................31
8.8 License of Intellectual Property...............................................................31
8.9 Assigned Agreements............................................................................32
8.10 Waivers, Non-Exclusive Remedies................................................................32
SECTION 9 MISCELLANEOUS........................................................................................32
9.1 Assignments and Participations.................................................................32
9.2 Set Off........................................................................................32
9.3 Expenses and Attorneys' Fees...................................................................33
9.4 Indemnity......................................................................................33
9.5 Amendments and Waivers.........................................................................34
9.6 Notices........................................................................................34
9.7 Survival of Warranties and Certain Agreements..................................................35
9.8 Indulgence Not Waiver..........................................................................35
9.9 Marshaling; Payments Set Aside.................................................................35
9.10 Entire Agreement...............................................................................35
9.11 Independence of Covenants......................................................................35
9.12 Severability...................................................................................35
9.13 Headings.......................................................................................36
9.14 APPLICABLE LAW. ..............................................................................36
9.15 Successors and Assigns.........................................................................36
9.16 No Fiduciary Relationship; Limitation of Liabilities...........................................36
9.17 CONSENT TO JURISDICTION........................................................................36
9.18 WAIVER OF JURY TRIAL...........................................................................36
9.19 Construction...................................................................................37
9.20 Counterparts; Effectiveness....................................................................37
9.21 No Duty........................................................................................37
9.22 Confidentiality................................................................................37
SECTION 10 CROSS-GUARANTY.......................................................................................37
10.1 Guaranty.......................................................................................37
10.2 Contribution with Respect to Guaranty Obligations..............................................38
10.3 Obligations Absolute...........................................................................38
10.4 WAIVER.........................................................................................39
10.5 Recovery.......................................................................................39
10.6 Liability Cumulative...........................................................................39
</TABLE>
iii
<PAGE>
ANNEXES
Annex A - Definitions
Annex B - Reporting Requirements
EXHIBITS
Exhibit A - Borrowing Base Certificate
Exhibit B-1 - Loan Request
Exhibit B-2 - LIBOR Loan Request
Exhibit C - Compliance Certificate
Exhibit D - Bank Agency Agreement
SCHEDULES
Schedule 3.1(A) - List of Closing Documents
Schedule 4.1(A) - Jurisdictions of Organization and Qualification
Schedule 4.1(B) - Capitalization of Loan Parties
Schedule 4.3 - Pro Forma
Schedule 4.6 - Trade Names (Present and Past Five Years)
Schedule 4.7 - Location of Principal Place of Business, Books
and Records and Collateral; FEIN
Schedule 4.14 - Intellectual Property
Schedule 4.21 - Bank Accounts
Schedule 4.22 - Subsidiaries
Schedule 4.24 - Employee Matters
Schedule 4.26 - Licenses
Schedule 7.1 - Indebtedness
Schedule 7.3 - Other Liens
Schedule 7.4 - Investments
Schedule 7.6 - Form of Guarantee or Replacement Clause
Schedule 7.8 - Transactions with Affiliates
Schedule 7.10 - Business of the Loan Parties
Schedule A-1 - Indebtedness to be Repaid from the Initial Advance
vi
EXHIBIT 10(M)
March 24, 1998
Mr. Scott Gast
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Dear Scott:
We have determined during the course of our year-end audit that currently we do
not comply with certain of the covenants in our Loan and Security Agreement as
follows:
1. Section 6.4 - the Company's Annualized Net Attrition rate exceeded the
allowed percentage.
2. Section 6.5(a) - the Company's Debt Service Coverage for the period fell
below the permissible ratio.
3. Section 7.4 - the Company extended a loan, in the amount of $12,000, to a
dealer with whom the Company conducts business.
We respectfully request that you waive the compliance requirements for the above
stated Sections by signing the acknowledgment below and returning it to me.
Sincerely,
/s/DARIUS G. NEVIN
Darius G. Nevin
Chief Financial Officer
Signature: /s/SCOTT E. GAST
Scott E. Gast
Title: Assistant Vice President
Date: March 16, 199
EXHIBIT 10(R)
HAROLD GINSBURG EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and is effective this October
10, 1997 by and between Mr. Harold Ginsburg ("Employee") and Guardian
International, Inc., a Nevada Corporation ("Company").
Now, therefore, Employee and Company agree as follows:
1. RESPONSIBILITIES
Company hereby employs Employee, and Employee accepts employment, to provide to
Company the following services as directed by the President to include, but not
be limited to:
a. Evaluation and implementation of acquisitions of security alarm
companies and accounts;
b. Assistance in managing telephone networks and costs; and
c. General business management.
Employee shall report to the President.
2. TERM
Employee shall provide services to Company pursuant to this Agreement for a term
commencing on October 10, 1997 and ending on October 10, 2000.
3. COMPENSATION AND BENEFITS
Company shall pay Employee a salary of sixty thousand dollars ($60,000) per year
for services performed pursuant to this Agreement. Payment shall be made
bi-weekly and one week in arrears. Employee shall be entitled to four weeks'
paid vacation that shall accumulate if not used. Employee shall be entitled to a
car allowance of $600 per month and the Company will pay for medical insurance
for himself and his spouse as provided by the Company for its other employees.
4. TERMINATION.
A. This Agreement may be terminated by Company as follows:
(i) If Employee is unable to provide the services by reason of
temporary or permanent illness, disability, incapacity or
death.
(ii) Breach or default of any obligation of Employee pursuant to
Section 5, Covenant Not to Compete, or Section 6,
Confidentiality, of this Agreement.
Page 1 of 3
<PAGE>
(iii) Breach or default by Employee of any other material
obligation in this Agreement, which breach or default is not
cured within five (5) days of written notice from Company.
B. Employee may terminate this Agreement as follows:
(i) Breach or default of any material obligation of Company, which breach or
default is not cured within five (5) days of written notice from Employee.
(ii) If Company files protection under the federal bankruptcy laws, or any
bankruptcy petition or petition for receiver is commenced by a third party
against Company, any of the foregoing of which is not dismissed for a
period of sixty (60) days.
5. COVENANT NOT TO COMPETE
So long as Employee is employed by the Company and for a period of two years
after termination of employment, Employee agrees not to perform any services for
any other company, person, or entity providing any services or equipment related
to electronic security unless requested to do so by the Company.
6. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
Employee acknowledges that he is privy to information that is confidential to
the Company and agrees not to disclose it to any non-Company person or entity
unless directed to do so by the Company. Confidential information includes, but
is not limited to, customer lists, pricing schedules, customer locations, and
Company-specific practices regarding identification and evaluations of
acquisition opportunities. Employee acknowledges that disclosure of such
confidential information will cause significant damage to the Company and agrees
to such injunctive relief as may be sought by the Company.
7. CONTROLLING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of Florida.
8. HEADINGS
The headings in this Agreement are inserted for convenience only and shall not
be used to define, limit or describe the scope of this Agreement or any of the
obligations herein.
9. FINAL AGREEMENT
This Agreement constitutes the final understanding and agreement between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements between the parties, whether written
or oral. This Agreement may be amended, supplemented or changed only by an
agreement in writing signed by both of the parties.
Page 2 of 3
<PAGE>
10. NOTICES
Any notice required to be given or otherwise given pursuant to this Agreement
shall be in writing and shall be hand delivered, mailed by certified mail,
return receipt requested or sent by recognized overnight courier service as
follows:
If to Employee:
Mr. Harold Ginsburg
1950 South Ocean Drive
Penthouse D
Hallandale, FL 33009
If to Company:
Guardian International, Inc.
3880 N. 28 Terrace
Hollywood, FL
33020-1118
11. SEVERABILITY
If any term of this Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, then this Agreement, including all of the remaining
terms, will remain in full force and effect as if such invalid or unenforceable
term had never been included.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the
date first above written.
Guardian International, Inc.
/s/HAROLD GINSBURG By: /s/RICHARD GINSBURG
Harold Ginsburg, Chairman Richard Ginsburg, President
Page 3 of 3
EXHIBIT 10(S)
EMPLOYMENT AGREEMENT
The Employment Agreement (this "Agreement") is made and entered into
this 21st day of October, 1997, by and between Guardian International, Inc., a
Nevada corporation("Employer"), and Richard Ginsburg ("Employee").
WITNESSETH
WHEREAS, the Board of Directors of Employer (the "Board") recognizes
that Employee's contributions to the past and future growth and success of the
security business of Employer (the "Business") have been, and are expected to
continue to be substantial and the Board therefore desires to assure Employer of
Employee's services as an employee of, and for the benefit of, Employer in an
executive, managerial capacity; and
WHEREAS, in order to induce Employee to remain in the employ of
Employer, this Agreement sets forth employment and other benefits which Employer
shall pay to Employee in connection with his employment, provides for Employee's
employment for a term of three years and provides for Employee's agreement not
to compete with the Business in the event of his termination of employment on
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the receipt and sufficiency of which
are mutually acknowledged, the parties hereto hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment, upon the terms and conditions set forth in this
Agreement.
2. TERM. Subject to the provisions for termination contained in Section
10 hereof, the term of this Agreement, and the employment of Employee hereunder,
shall commence on October 15, 1997 and continue for a three-year term ending on
October 14, 2000.
3. DUTIES. During the term of his employment hereunder, Employee shall
serve as President and Chief Executive Officer of Employer. In such capacity,
Employee (i) shall have full authority as to the operations and management of
Employer in accordance with the general direction established by the Board, (ii)
shall supervise and administer the day-to-day operations, business and affairs
of Employer, (iii) shall have the power and authority to enter into contracts in
the name and on behalf of Employer in the ordinary course of its Business, (iv)
shall have the power and authority to do and to perform any and all other acts
and things which he shall reasonably consider to be necessary, desirable,
convenient, or appropriate, and in the best interests of Employer, in the
ordinary and usual course of its Business, (v) shall report to the Board, and
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<PAGE>
(vi) shall perform such other duties as shall be usual and customary of his
offices in accordance with the Bylaws of Employer.
4. EXCLUSIVITY OF SERVICES. Employee shall devote his full business
time, energy and ability exclusively to the business, affairs and interests of
Employer and matters related thereto, shall use Employee's best efforts and
abilities to promote Employer's interests, and shall perform the services
contemplated by this Agreement in accordance with policies established by and
under the direction of the Board. During the term hereof, Employee shall not
serve as an officer, director, employee, consultant or advisor to any other
business, and shall not engage in any other business activities other than the
permitted Activities, as herein defined. The Employee may (i) make and manage
personal business investments of his choice, provided, that the Employee shall
hold no investment in any entity which competes in any way with Employer or its
subsidiaries, other than an investment representing a less than 5% interest in
any publicly held entity; and (ii) serve in any capacity with any civic,
educational or charitable organization without seeking or obtaining approval by
the Board, provided, that the activities and services described in clauses (i)
and (ii) (collectively, the "Permitted Activities") do not substantially
interfere or conflict with the performance of duties hereunder or create any
conflict of interest with such duties. Employee hereby confirms that he is under
no contractual commitments inconsistent with his obligations set forth in this
Agreement.
5. COMPENSATION.
a. During the term of his employment hereunder, Employee shall
receive a salary of One Hundred Thirty Five Thousand Dollars ($100,000) per
annum (the "Salary"), payable in equal installments no less frequently than
semi-monthly. Salary increases may be considered annually by the Board of
Directors.
b. Employee shall be entitled to a bonus from time to time
during the term of his Agreement pursuant to such policies as are adopted from
time to time by the Board.
c. Employee shall be entitled, in addition to the above, to
any benefits and perquisite to which executive officers of Employer may be or
may generally become entitled to receive under any present or future employment
benefit and perquisite plans or programs, or executive contingent compensation
plans, of Employer, and Employee shall be eligible to receive, during the period
of his employment under this Agreement, benefits and emoluments for which
corporate executive officers are eligible under every plan or program to the
extent permissible under the general terms and provisions thereof. The foregoing
notwithstanding, Employer may change or discontinue any such benefits in its
sole discretion; provided, however, that so long as any benefit is made
available to other executive officers, same shall be provided to Employee.
d. In addition to the above, upon execution of this Agreement,
Employer shall grant to Employee an option to purchase 100,000 shares of
Employer's Class A Common Stock at a price equal to the average Closing price
for the five trading days immediately following the
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<PAGE>
public announcement of the equity investment by Westar Capital, Inc. in the
Employer. Employee shall be entitled to exercise a maximum of 20% of the option
shares each year of this Agreement. However, at the end of five years or anytime
thereafter following the date of this Agreement, Employee may, if he has
exercised fewer than the maximum allowable shares in the preceding five years,
exercise the remaining shares without restriction.
6. AUTOMOBILE ALLOWANCE. During the term of his employment hereunder,
Employer shall furnish to Employee an automobile allowance in an amount equal to
Six Hundred Dollars ($600) once a month.
7. EXPENSE REIMBURSEMENT. During the term of Employee's employment
hereunder, Employer, upon the submission of proper proof by Employee, shall
promptly reimburse Employee for reasonable business expenses actually and
necessarily paid or incurred by him in connection with the discharge of his
duties hereunder.
8. VACATION. During the term of his employment hereunder, Employee,
during each year of the term of this Agreement, shall be entitled to four weeks
of vacation time as selected in consecutive or nonconsecutive periods or any
combination thereof by Employee in his reasonable discretion consistent with his
duties and responsibilities hereunder, during which vacation time Employee shall
be paid the applicable portion of his Salary.
9. INSURANCE. During the term of his employment hereunder, Employer
shall at all times provide to Employee, and pay the reasonable premiums of,
medical insurance policies for Employee and his immediate family and shall
further provide and pay the premiums of group term life insurance, group
disability insurance and such other insurance as is from time to time provided
to all of Employer's senior employees on terms no less favorable than that
provided to Employer's other senior personnel.
10. TERMINATION.
a. Notwithstanding anything contained in this Agreement,
Employer by written notice to Employee shall at all times in its sole discretion
have the right to terminate this Agreement, and Employee's employment hereunder,
"for cause" effective upon delivery of notice to Employee. For purposes for this
Agreement, "for cause" shall mean: (i) any conviction of Employee of a felony;
(ii) conduct amounting to a material act of fraud or dishonesty involving
Employer; (iii) a material act of fraud or dishonesty not involving Employer
which has a material adverse effect upon the Business or reputation of Employer;
(iv) continuing material violation by Employee of his obligations under this
Agreement after written notice thereof to Employee and failure to cure such
violation within fifteen (15) days following such notice.
b. Employer by written notice to Employee shall have the right
to terminate this Agreement and Employee's employment upon the total and
permanent physical or mental disability ("Disability") of Employee, evidenced by
an inability to engage in his assigned duties for
3
<PAGE>
a period of 180 or more days, either consecutively or in the aggregate during
any nine-month period, as determined by an impartial reputable physician agreed
upon by the Board and Employee (or his representative, as the case may be).
c. If Employee dies during the term of his employment
hereunder, this Agreement shall terminate automatically upon the date of
Employee's death.
11. PAYMENTS UPON TERMINATION OR EXPIRATION.
a. In the event that this Agreement, and Employee's employment
hereunder, is terminated for cause pursuant to Section 10(a) hereof, then, in
such event, (i) Employer shall have no obligation whatsoever to make any
payment, including, without limitation, any payment of Salary, bonus, automobile
allowance or any insurance premium, to or on behalf of Employee for any period
subsequent to the date of such termination; and (ii) Employer may, subject to
the terms of such plans and applicable law remove Employee from coverage under
any medical, life, disability or other insurance plans or programs made
available to Employee by Employer.
b. In the event that this Agreement, and Employee's employment
hereunder, is terminated for death or Disability of Employee pursuant to Section
10(b) or 10(c) hereof, then, in any such event, Employer shall have no
obligation whatsoever to make any payment, including without limitation, any
payment of Salary, bonus, automobile allowance or any such insurance premium, to
or on behalf of Employee for any period subsequent to the date of such
termination or expiration. Notwithstanding the above, in the event this
Agreement is terminated for Disability of Employee pursuant to Section 10(b)
hereof, Employee shall have the right at Employer's expense through the
remaining term of this Agreement to continue such disability insurance as
Employer was providing as of the date of termination, and, at Employee's own
expense, to continue any group medical insurance then provided to Employee and
to such other benefits as he is then entitled under such insurance and any
disability plan or program of Employer.
c. In the event that this Agreement, and Employee's employment
hereunder, is terminated by Employer without cause during the terms set forth in
Section 2 hereof, or Employee shall terminate his employment with Employer as a
result of a material breach by Employer of the terms hereof, which breach is not
cured within fifteen (15) days following notice in writing from Employee to
Employer specifying the nature of such breach, then, in such event, in addition
to such amounts as have accrued prior to the date of termination and have not
previously been paid including any accrued vacation benefits, Employer shall pay
to Employee, payable at such time as such payments would otherwise be payable
hereunder, Employee's Salary, and any bonus the Board has otherwise approved
prior to termination, and shall continue to provide such other perquisites and
benefits as are then being provided pursuant to Sections 5(c), 6 and 9, subject
only to the requirements of any plan or agreement under which such perquisites
or benefits are provided, for the remaining term of this Agreement (the
"Severance Period").
4
<PAGE>
d. If (i) the term of this Agreement expires pursuant to
Section 2 hereof, (ii) this Agreement is not renewed or replaced and (iii)
Employee's employment with Employer ceases, other than for cause as defined
herein, then, in such event, Employer shall make a severance payment to Employee
equal to the Salary paid to Employee during the last year of the term of this
Agreement, payable at Employer's discretion either in a lump sum or in 24 equal
semi-monthly installments. The period during which such payments are made
pursuant to this Section 11(d) or, if such payment is made in a lump sum, the
one (1) year period following termination of this Agreement shall be deemed the
Severance Period. Notwithstanding the above, in lieu of making the severance
payment described in this Section 11(d), Employer may release Employee from the
covenant set forth in Section 14 hereof.
12. INCAPACITY; ILLNESS; DISABILITY. If at any time during the term of
this Agreement, and Employee's employment hereunder, Employee shall, as the
result of mental or physical incapacity, illness or disability, be unable or
fail to perform reasonably his duties and responsibilities provided for herein,
Employer shall nevertheless be obligated to continue to meet all of its
obligations hereunder to Employee unless and until such time as Employer shall
terminate this Agreement pursuant to Section 10(b) hereof; provided, however,
that the amount of any disability insurance benefits which Employee may be
entitled to receive from any source shall be deducted from the portion of the
Salary to be paid by Employer to Employee.
13. CONFIDENTIALITY.
a. Employee agrees that, both during the term of this
Agreement and after the termination of this Agreement, Employee will hold in a
fiduciary capacity for the benefit of Employer, and shall not, directly or
indirectly, use or disclose, except as authorized by Employer in connection with
the performance of his duties, any Confidential Information (as defined below)
that Employee may have or acquire (whether or not developed or compiled by
Employee and whether or not Employee has been authorized to have access to such
Confidential Information) during the term of this Agreement; provided that the
foregoing shall not prohibit the discussion of Confidential Information with an
attorney representing Employee in connection with a dispute between Employee and
Employer to the extent necessary to resolve such dispute. The term "Confidential
Information" as used in this Agreement shall mean and include any material
information, data and know-how relating to the Business of Employer that is
disclosed to Employee by Employer or known by him as a result of his
relationship with Employer and not generally within the public domain (whether
constituting a trade secret or not), including without limitation, the
following: financial information, supply and service information, marketing
information, personnel information, customer information and information with
respect to any corporate affairs that Employer treats as confidential.
The term "Confidential Information" does not include information that
has become generally available to the public by the act of Employer or by the
act of one who has the right to disclose such information without violating any
right of Employer or the customer to which such information pertains.
5
<PAGE>
Nothing in this Section 13 shall prevent Employee from disclosing any
Confidential Information to the extent such disclosure is required by law or any
order of a court or government authority with jurisdiction.
b. The covenant contained in this Section 13 shall survive the
termination of Employee's employment with Employer for any reason for a period
of two (2) years; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this Section 13 shall continue to survive after said two (2) year period to the
greatest extent permitted by applicable law. These rights of Employer are in
addition to those rights Employer has under the common law or applicable
statutes for the protection of trade secrets.
14. COVENANT NOT TO COMPETE. Employee agrees that he will not engage or
participate in any business that competes with the Business of Employer in any
city or county within the United States in which the Employer is then engaging
and continues to engage in its Business, whether as employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or other representative capacity, at any time during Employee's employment with
Employer and during the applicable Severance Period as defined in Section 11(c)
or (d) of this Agreement. Notwithstanding the foregoing, Employee may hold an
investment representing a less than 5% interest in any publicly held entity
engaging in a business that competes with the Business of Employer. In addition,
in the event Employee's employment is terminated by Employer for cause as set
forth in Section 10(a) hereof, Employee shall be subject to the covenant not to
compete set forth in this Section 14 for a period of two years following the
date of termination. In the event that Employee violates the covenant contained
in this Section 15, Employer may, in addition to any other remedies available,
withhold severance payments due under Section 11(c) or (d). Further, upon
termination of Employee's employment with Employer in connection with the
expiration of the term of this Agreement, Employer may release Employee from
this covenant not to compete in lieu of making the severance payments described
in Section 11(d) hereof. In the event any court shall refuse to enforce any
portion of the covenant set forth in this Section 14, then such unenforceable
portion shall be deemed eliminated and severed from said contract for the
purposes of said court's proceedings to the extent necessary to permit the
remaining portions of the covenant to be enforced.
15. COVENANTS AGAINST OTHER ACTIONS DAMAGING EMPLOYER. Employee agrees
that he will not, at any time during his employment with Employer and for the
period that the covenant set forth in Section 14 above applies (the "Non-Compete
Period"), for himself or on behalf of or in conjunction with any third party
solicit any employee of Employer or its subsidiaries to leave such employment;
provided that the posting by Employee or nay entity with which Employee is
involved of general advertisements soliciting employees shall not constitute the
solicitation of any employee of Employer or its subsidiaries. Employee further
agrees that, during the Non-Compete Period, he will not directly or indirectly,
on his own behalf or in the service of or on behalf of others, solicit, divert
or appropriate, or attempt to solicit, divert or appropriate, to any competing
6
<PAGE>
business, any customers of Employer or its subsidiaries. If, during the term of
this agreement, Employee is engaged in or associated with the planning or
implementing of any project, program or venture involving Employer and a third
party or parties (a "Venture"), or any discussions, analysis or negotiations
with respect to an investment in, merger, acquisition or purchase, directly or
indirectly, of the stock, assets, or business of any entity (an "Acquisition"),
all rights in the Venture and the Acquisition and any opportunity to make any
investment in the entity to be so acquired (the "Target") shall belong to
Employer and shall constitute a corporate opportunity belonging exclusively to
Employer. Except as approved by the Board, Employee shall not be entitled to any
interest in any such Venture or to invest or solicit any third party to invest
in the Target or consummate the Acquisition, or to any commission, finder's fee
or other compensation in connection therewith other than any Salary paid to
Employee for performance of his duties in the ordinary course of business. In
the event any court shall refuse to enforce any portion of the covenants set
forth in this Section 15, then such unenforceable portion shall be deemed
eliminated and severed from said contract for the purposes of said court's
proceedings to the extent necessary to permit the remaining portions of the
covenant to be enforced.
16. ARBITRATION. Any dispute or controversy between the parties under
this Agreement shall exclusively be referred to binding, non-appealable
arbitration in accordance with the procedures set forth in Exhibit A hereto and
without recourse to any litigation except as set forth in Exhibit A. Each party
hereby irrevocably submits itself to a personal jurisdiction in Miami, Florida,
for the purpose of such arbitration proceedings, and/or any suits to confirm the
same. Pending the completion of any arbitration proceedings, payments not in
dispute shall continue to be made and obligations not in dispute shall continue
to be performed.
17. NO DELEGATION. Employee shall not delegate his employment
obligations pursuant to this Agreement to any other person without the prior
consent of the Board.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without reference to the
conflicts of laws principles thereof.
19. TERMINATION OF PRIOR AGREEMENT. The Executive Employment Agreement
by and between Employer and Employee dated August 15, 1996 is hereby terminated
and superseded by this Agreement.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, understandings
and arrangements, both oral and written, between the parties hereto with respect
to the subject matter hereof. This Agreement may not be modified in any way
unless in writing signed by both Employer and Employee.
21. NOTICES. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered by hand and receipted
7
<PAGE>
or when received or refused if delivered by United States mail, by registered or
certified mail, return receipt requested, postage prepaid, as follows:
If to Employer: Guardian International, Inc.
3880 North 28th Terrace
Hollywood, Florida 33020
If to Employee; Richard Ginsburg
PO Box 800207
Miami, Florida 33280-0207
or to such other addresses as either party hereto may from time to time give
notice of to the other on five days prior notice in the manner aforesaid.
22. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective legal
representatives, successors and, where applicable, assigns.
23. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part hereof, all of which are inserted conditionally on their being valid in
law, and, in the event that anyone or more of the words, phrases, sentences,
clauses or sections contained in this Agreement declared invalid, this Agreement
shall be construed as if such invalid word or words, phrase or phrases, sentence
or sentences, clause or clauses, or section or sections had not been inserted.
24. WAIVERS. The waiver by either party hereto of a breach of any
provision of this Agreement shall not be construed as a waiver of any subsequent
breach.
25. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
[INTENTIONALLY BLANK]
8
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9
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
EMPLOYER:
GUARDIAN INTERNATIONAL, INC., a Nevada
corporation
By: /s/DARIUS G. NEVIN
Name: Darius G. Nevin
Title: Chief Financial Officer
[Corporate Seal]
EMPLOYEE:
/s/RICHARD GINSBURG
Richard Ginsburg
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EXHIBIT A
ARBITRATION PROCEDURES
a. If a dispute or controversy arises, the parties hereto shall attempt
in good faith to resolve such dispute or controversy promptly by negotiation.
Any such dispute or controversy which has not been resolved by negotiation
within thirty (30) days after the initiation of discussions shall be resolved by
binding arbitration in accordance with the then current CPR Rules for
Non-Administered Arbitration of Business Disputes. Unless the parties agree
otherwise, the arbitration shall be conducted in Miami, Florida, by a panel of
three arbitrators. The disputing parties shall each select one arbitrator, and
the arbitrators so selected shall select an attorney as the third arbitrator. If
the arbitrators selected by the disputing parties fail to agree on the third
arbitrator within thirty (30) days of the date this arbitration provision
becomes operative, any person involved may request CPR to make the appointment
in accordance with its applicable rules.
b. The arbitrators shall decide the issues submitted to them in
accordance with the provisions and commercial purposes of this Agreement;
provided that, all substantive questions of law shall be determined under the
laws of the State of Florida (without regard to its principles of conflicts of
laws).
c. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C.ss. 1, et seq., and judgment upon the award rendered by the
arbitrators may be entered by any court having jurisdiction thereof. The
arbitrators may grant any remedy or relief which is just and equitable,
including injunctive relief or specific performance.
d. The parties hereto agree to facilitate the arbitration by: (i)
making available to one another and to the arbitrators for examination,
inspection and extraction all documents, books, records and personnel under
their control if determined by the arbitrators to be relevant to the dispute;
(ii) participating in reasonable discovery, including oral depositions; (iii)
conducting arbitration hearings to the greatest extent possible on successive
days; and (iv) observing strictly the time periods established by the Rules or
by the arbitrators for submission of evidence or briefs.
e. Initially, the disputing parties shall each pay one-half of the
costs (excluding attorneys' fees) of any arbitration; provided, however, that
the arbitrators shall divide all costs (excluding attorneys' fees) incurred in
conducting the arbitration in their final award in accordance with what they
deem just and equitable under the circumstances, and any party who is allocated
in excess of one-half of such costs shall reimburse the other for such excess
costs.
f. Notwithstanding the exclusivity of the dispute resolution procedures
specified herein, a party hereto, without prejudice to such procedures, may file
a complaint or seek a preliminary injunction or other provisional judicial
relief if in its sole judgment such action is
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necessary to avoid irreparable damage or to preserve the status quo. Despite any
such action, the parties shall continue to participate in good faith in the
procedures specified herein.
12
EXHIBIT 10(T)
EMPLOYMENT AGREEMENT
The Employment Agreement (this "Agreement") is made and entered into
this 21st day of October, 1997, by and between Guardian International, Inc., a
Nevada corporation("Employer"), and Darius G. Nevin ("Employee").
WITNESSETH
WHEREAS, the Board of Directors of Employer (the "Board") recognizes
that Employee's contributions to the past and future growth and success of the
security business of Employer (the "Business") have been, and are expected to
continue to be substantial and the Board therefore desires to assure Employer of
Employee's services as an employee of, and for the benefit of, Employer in an
executive, managerial capacity; and
WHEREAS, in order to induce Employee to commence employment with
Employer, this Agreement sets forth employment and other benefits which Employer
shall pay to Employee in connection with his employment, provides for Employee's
employment for a term of three years and provides for Employee's agreement not
to compete with the Business in the event of his termination of employment on
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the receipt and sufficiency of which
are mutually acknowledged, the parties hereto hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment, upon the terms and conditions set forth in this
Agreement.
2. TERM. Subject to the provisions for termination contained in Section
10 hereof, the term of this Agreement, and the employment of Employee hereunder,
shall commence on October 15, 1997 and continue for a three-year term ending on
October 14, 2000.
3. DUTIES. During the term of his employment hereunder, Employee shall
serve as Chief Financial Officer. In such capacity, Employee (i) shall have full
authority as to the financial operations and financial management of Employer in
accordance with the general direction established by the Board, (ii) shall
supervise and administer the financial day-to-day operations, business and
financial affairs of Employer, (iii) shall have the power and authority to enter
into contracts in the name and on behalf of Employer in the ordinary course of
its Business, (iv) shall have the power and authority to do and to perform any
and all other acts and things which he shall reasonably consider to be
necessary, desirable, convenient, or appropriate, and in the best interests of
Employer, in the ordinary and usual course of its Business, (v) shall report to
the Chief
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Executive Officer, and (vi) shall perform such other duties as shall be usual
and customary of his offices in accordance with the Bylaws of Employer.
4. EXCLUSIVITY OF SERVICES. Employee shall devote his full business
time, energy and ability exclusively to the business, affairs and interests of
Employer and matters related thereto, shall use Employee's best efforts and
abilities to promote Employer's interests, and shall perform the services
contemplated by this Agreement in accordance with policies established by and
under the direction of the Board. During the term hereof, Employee shall not
serve as an officer, director, employee, consultant or advisor to any other
business, and shall not engage in any other business activities other than the
permitted Activities, as herein defined. The Employee may (i) make and manage
personal business investments of his choice, provided, that the Employee shall
hold no investment in any entity which competes in any way with Employer or its
subsidiaries, other than an investment representing a less than 5% interest in
any publicly held entity; and (ii) serve in any capacity with any civic,
educational or charitable organization without seeking or obtaining approval by
the Board, provided, that the activities and services described in clauses (i)
and (ii) (collectively, the "Permitted Activities") do not substantially
interfere or conflict with the performance of duties hereunder or create any
conflict of interest with such duties. Employee hereby confirms that he is under
no contractual commitments inconsistent with his obligations set forth in this
Agreement.
5. COMPENSATION.
a. During the term of his employment hereunder, Employee shall
receive a salary of One Hundred Thirty Five Thousand Dollars ($135,000) per
annum (the "Salary"), payable in equal installments no less frequently than
semi-monthly. Salary increases may be considered annually by the Board of
Directors.
b. Employee shall be entitled to a bonus from time to time
during the term of his Agreement pursuant to such policies as are adopted from
time to time by the Board.
c. Employee shall be entitled, in addition to the above, to
any benefits and perquisite to which executive officers of Employer may be or
may generally become entitled to receive under any present or future employment
benefit and perquisite plans or programs, or executive contingent compensation
plans, of Employer, and Employee shall be eligible to receive, during the period
of his employment under this Agreement, benefits and emoluments for which
corporate executive officers are eligible under every plan or program to the
extent permissible under the general terms and provisions thereof. The foregoing
notwithstanding, Employer may change or discontinue any such benefits in its
sole discretion; provided, however, that so long as any benefit is made
available to other executive officers, same shall be provided to Employee.
d. In addition to the above, upon execution of this Agreement,
Employer shall grant to Employee an option to purchase 100,000 shares of
Employer's Class A Common Stock at a price equal to the average Closing price
for the five trading days immediately following the
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public announcement of the equity investment by Westar Capital, Inc. in the
Employer. Employee shall be entitled to exercise a maximum of 20% of the option
shares each year of this Agreement. However, at the end of five years or anytime
thereafter following the date of this Agreement, Employee may, if he has
exercised fewer than the maximum allowable shares in the preceding five years,
exercise the remaining shares without restriction.
6. AUTOMOBILE ALLOWANCE. During the term of his employment hereunder,
Employer shall furnish to Employee an automobile allowance in an amount equal to
Five Hundred Dollars ($500) once a month.
7. EXPENSE REIMBURSEMENT. During the term of Employee's employment
hereunder, Employer, upon the submission of proper proof by Employee, shall
promptly reimburse Employee for reasonable business expenses actually and
necessarily paid or incurred by him in connection with the discharge of his
duties hereunder.
8. VACATION. During the term of his employment hereunder, Employee,
during each year of the term of this Agreement, shall be entitled to four weeks
of vacation time as selected in consecutive or nonconsecutive periods or any
combination thereof by Employee in his reasonable discretion consistent with his
duties and responsibilities hereunder, during which vacation time Employee shall
be paid the applicable portion of his Salary.
9. INSURANCE. During the term of his employment hereunder, Employer
shall at all times provide to Employee, and pay the reasonable premiums of,
medical insurance policies for Employee and his immediate family and shall
further provide and pay the premiums of group term life insurance, group
disability insurance and such other insurance as is from time to time provided
to all of Employer's senior employees on terms no less favorable than that
provided to Employer's other senior personnel.
10. TERMINATION.
a. Notwithstanding anything contained in this Agreement,
Employer by written notice to Employee shall at all times in its sole discretion
have the right to terminate this Agreement, and Employee's employment hereunder,
"for cause" effective upon delivery of notice to Employee. For purposes for this
Agreement, "for cause" shall mean: (i) any conviction of Employee of a felony;
(ii) conduct amounting to a material act of fraud or dishonesty involving
Employer; (iii) a material act of fraud or dishonesty not involving Employer
which has a material adverse effect upon the Business or reputation of Employer;
(iv) continuing material violation by Employee of his obligations under this
Agreement after written notice thereof to Employee and failure to cure such
violation within fifteen (15) days following such notice.
b. Employer by written notice to Employee shall have the right
to terminate this Agreement and Employee's employment upon the total and
permanent physical or mental disability ("Disability") of Employee, evidenced by
an inability to engage in his assigned duties for
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a period of 180 or more days, either consecutively or in the aggregate during
any nine-month period, as determined by an impartial reputable physician agreed
upon by the Board and Employee (or his representative, as the case may be).
c. If Employee dies during the term of his employment
hereunder, this Agreement shall terminate automatically upon the date of
Employee's death.
11. PAYMENTS UPON TERMINATION OR EXPIRATION.
a. In the event that this Agreement, and Employee's employment
hereunder, is terminated for cause pursuant to Section 10(a) hereof, then, in
such event, (i) Employer shall have no obligation whatsoever to make any
payment, including, without limitation, any payment of Salary, bonus, automobile
allowance or any insurance premium, to or on behalf of Employee for any period
subsequent to the date of such termination; and (ii) Employer may, subject to
the terms of such plans and applicable law remove Employee from coverage under
any medical, life, disability or other insurance plans or programs made
available to Employee by Employer.
b. In the event that this Agreement, and Employee's employment
hereunder, is terminated for death or Disability of Employee pursuant to Section
10(b) or 10(c) hereof, then, in any such event, Employer shall have no
obligation whatsoever to make any payment, including without limitation, any
payment of Salary, bonus, automobile allowance or any such insurance premium, to
or on behalf of Employee for any period subsequent to the date of such
termination or expiration. Notwithstanding the above, in the event this
Agreement is terminated for Disability of Employee pursuant to Section 10(b)
hereof, Employee shall have the right at Employer's expense through the
remaining term of this Agreement to continue such disability insurance as
Employer was providing as of the date of termination, and, at Employee's own
expense, to continue any group medical insurance then provided to Employee and
to such other benefits as he is then entitled under such insurance and any
disability plan or program of Employer.
c. In the event that this Agreement, and Employee's employment
hereunder, is terminated by Employer without cause during the terms set forth in
Section 2 hereof, or Employee shall terminate his employment with Employer as a
result of a material breach by Employer of the terms hereof, which breach is not
cured within fifteen (15) days following notice in writing from Employee to
Employer specifying the nature of such breach, then, in such event, in addition
to such amounts as have accrued prior to the date of termination and have not
previously been paid including any accrued vacation benefits, Employer shall pay
to Employee, payable at such time as such payments would otherwise be payable
hereunder, Employee's Salary, and any bonus the Board has otherwise approved
prior to termination, and shall continue to provide such other perquisites and
benefits as are then being provided pursuant to Sections 5(c), 6 and 9, subject
only to the requirements of any plan or agreement under which such perquisites
or benefits are provided, for the remaining term of this Agreement (the
"Severance Period").
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d. If (i) the term of this Agreement expires pursuant to
Section 2 hereof, (ii) this Agreement is not renewed or replaced and (iii)
Employee's employment with Employer ceases, other than for cause as defined
herein, then, in such event, Employer shall make a severance payment to Employee
equal to the Salary paid to Employee during the last year of the term of this
Agreement, payable at Employer's discretion either in a lump sum or in 24 equal
semi-monthly installments. The period during which such payments are made
pursuant to this Section 11(d) or, if such payment is made in a lump sum, the
one (1) year period following termination of this Agreement shall be deemed the
Severance Period. Notwithstanding the above, in lieu of making the severance
payment described in this Section 11(d), Employer may release Employee from the
covenant set forth in Section 14 hereof.
12. INCAPACITY; ILLNESS; DISABILITY. If at any time during the term of
this Agreement, and Employee's employment hereunder, Employee shall, as the
result of mental or physical incapacity, illness or disability, be unable or
fail to perform reasonably his duties and responsibilities provided for herein,
Employer shall nevertheless be obligated to continue to meet all of its
obligations hereunder to Employee unless and until such time as Employer shall
terminate this Agreement pursuant to Section 10(b) hereof; provided, however,
that the amount of any disability insurance benefits which Employee may be
entitled to receive from any source shall be deducted from the portion of the
Salary to be paid by Employer to Employee.
13. CONFIDENTIALITY.
a. Employee agrees that, both during the term of this
Agreement and after the termination of this Agreement, Employee will hold in a
fiduciary capacity for the benefit of Employer, and shall not, directly or
indirectly, use or disclose, except as authorized by Employer in connection with
the performance of his duties, any Confidential Information (as defined below)
that Employee may have or acquire (whether or not developed or compiled by
Employee and whether or not Employee has been authorized to have access to such
Confidential Information) during the term of this Agreement; provided that the
foregoing shall not prohibit the discussion of Confidential Information with an
attorney representing Employee in connection with a dispute between Employee and
Employer to the extent necessary to resolve such dispute. The term "Confidential
Information" as used in this Agreement shall mean and include any material
information, data and know-how relating to the Business of Employer that is
disclosed to Employee by Employer or known by him as a result of his
relationship with Employer and not generally within the public domain (whether
constituting a trade secret or not), including without limitation, the
following: financial information, supply and service information, marketing
information, personnel information, customer information and information with
respect to any corporate affairs that Employer treats as confidential.
The term "Confidential Information" does not include information that
has become generally available to the public by the act of Employer or by the
act of one who has the right to disclose such information without violating any
right of Employer or the customer to which such information pertains.
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Nothing in this Section 13 shall prevent Employee from disclosing any
Confidential Information to the extent such disclosure is required by law or any
order of a court or government authority with jurisdiction.
b. The covenant contained in this Section 13 shall survive the
termination of Employee's employment with Employer for any reason for a period
of two (2) years; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this Section 13 shall continue to survive after said two (2) year period to the
greatest extent permitted by applicable law. These rights of Employer are in
addition to those rights Employer has under the common law or applicable
statutes for the protection of trade secrets.
14. COVENANT NOT TO COMPETE. Employee agrees that he will not engage or
participate in any business that competes with the Business of Employer in any
city or county within the United States in which the Employer is then engaging
and continues to engage in its Business, whether as employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or other representative capacity, at any time during Employee's employment with
Employer and during the applicable Severance Period as defined in Section 11(c)
or (d) of this Agreement. Notwithstanding the foregoing, Employee may hold an
investment representing a less than 5% interest in any publicly held entity
engaging in a business that competes with the Business of Employer and may
continue to own a less than 5% interest in STI Holding Corporation, a Delaware
company. In addition, in the event Employee's employment is terminated by
Employer for cause as set forth in Section 10(a) hereof, Employee shall be
subject to the covenant not to compete set forth in this Section 14 for a period
of two years following the date of termination. In the event that Employee
violates the covenant contained in this Section 15, Employer may, in addition to
any other remedies available, withhold severance payments due under Section
11(c) or (d). Further, upon termination of Employee's employment with Employer
in connection with the expiration of the term of this Agreement, Employer may
release Employee from this covenant not to compete in lieu of making the
severance payments described in Section 11(d) hereof. In the event any court
shall refuse to enforce any portion of the covenant set forth in this Section
14, then such unenforceable portion shall be deemed eliminated and severed from
said contract for the purposes of said court's proceedings to the extent
necessary to permit the remaining portions of the covenant to be enforced.
15. COVENANTS AGAINST OTHER ACTIONS DAMAGING EMPLOYER. Employee agrees
that he will not, at any time during his employment with Employer and for the
period that the covenant set forth in Section 14 above applies (the "Non-Compete
Period"), for himself or on behalf of or in conjunction with any third party
solicit any employee of Employer or its subsidiaries to leave such employment;
provided that the posting by Employee or nay entity with which Employee is
involved of general advertisements soliciting employees shall not constitute the
solicitation of any employee of Employer or its subsidiaries. Employee further
agrees that, during the Non-Compete Period, he will not directly or indirectly,
on his own behalf or in the service of or on behalf of
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others, solicit, divert or appropriate, or attempt to solicit, divert or
appropriate, to any competing business, any customers of Employer or its
subsidiaries. If, during the term of this agreement, Employee is engaged in or
associated with the planning or implementing of any project, program or venture
involving Employer and a third party or parties (a "Venture"), or any
discussions, analysis or negotiations with respect to an investment in, merger,
acquisition or purchase, directly or indirectly, of the stock, assets, or
business of any entity (an "Acquisition"), all rights in the Venture and the
Acquisition and any opportunity to make any investment in the entity to be so
acquired (the "Target") shall belong to Employer and shall constitute a
corporate opportunity belonging exclusively to Employer. Except as approved by
the Board, Employee shall not be entitled to any interest in any such Venture or
to invest or solicit any third party to invest in the Target or consummate the
Acquisition, or to any commission, finder's fee or other compensation in
connection therewith other than any Salary paid to Employee for performance of
his duties in the ordinary course of business. In the event any court shall
refuse to enforce any portion of the covenants set forth in this Section 15,
then such unenforceable portion shall be deemed eliminated and severed from said
contract for the purposes of said court's proceedings to the extent necessary to
permit the remaining portions of the covenant to be enforced.
16. ARBITRATION. Any dispute or controversy between the parties under
this Agreement shall exclusively be referred to binding, non-appealable
arbitration in accordance with the procedures set forth in Exhibit A hereto and
without recourse to any litigation except as set forth in Exhibit A. Each party
hereby irrevocably submits itself to a personal jurisdiction in Miami, Florida,
for the purpose of such arbitration proceedings, and/or any suits to confirm the
same. Pending the completion of any arbitration proceedings, payments not in
dispute shall continue to be made and obligations not in dispute shall continue
to be performed.
17. NO DELEGATION. Employee shall not delegate his employment
obligations pursuant to this Agreement to any other person without the prior
consent of the Board.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without reference to the
conflicts of laws principles thereof.
19. TERMINATION OF PRIOR AGREEMENT. The Consulting Agreement by and
between Employer and Employee dated June 10, 1997 is hereby terminated and
superseded by this Agreement.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, understandings
and arrangements, both oral and written, between the parties hereto with respect
to the subject matter hereof. This Agreement may not be modified in any way
unless in writing signed by both Employer and Employee.
21. NOTICES. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered by hand and receipted
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or when received or refused if delivered by United States mail, by registered or
certified mail, return receipt requested, postage prepaid, as follows:
If to Employer: Guardian International, Inc.
3880 North 28th Terrace
Hollywood, Florida 33020
If to Employee; Darius G. Nevin
1410 Palancia Avenue
Coral Gables, Florida 33146
or to such other addresses as either party hereto may from time to time give
notice of to the other on five days prior notice in the manner aforesaid.
22. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective legal
representatives, successors and, where applicable, assigns.
23. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part hereof, all of which are inserted conditionally on their being valid in
law, and, in the event that anyone or more of the words, phrases, sentences,
clauses or sections contained in this Agreement declared invalid, this Agreement
shall be construed as if such invalid word or words, phrase or phrases, sentence
or sentences, clause or clauses, or section or sections had not been inserted.
24. WAIVERS. The waiver by either party hereto of a breach of any
provision of this Agreement shall not be construed as a waiver of any subsequent
breach.
25. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
[INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
EMPLOYER:
GUARDIAN INTERNATIONAL, INC., a Nevada
corporation
By: /s/RICHARD GINSBURG
Name: Richard Ginsburg
Title: President
[Corporate Seal]
EMPLOYEE:
/s/DARIUS G. NEVIN
Darius G. Nevin
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EXHIBIT A
ARBITRATION PROCEDURES
a. If a dispute or controversy arises, the parties hereto shall attempt
in good faith to resolve such dispute or controversy promptly by negotiation.
Any such dispute or controversy which has not been resolved by negotiation
within thirty (30) days after the initiation of discussions shall be resolved by
binding arbitration in accordance with the then current CPR Rules for
Non-Administered Arbitration of Business Disputes. Unless the parties agree
otherwise, the arbitration shall be conducted in Miami, Florida, by a panel of
three arbitrators. The disputing parties shall each select one arbitrator, and
the arbitrators so selected shall select an attorney as the third arbitrator. If
the arbitrators selected by the disputing parties fail to agree on the third
arbitrator within thirty (30) days of the date this arbitration provision
becomes operative, any person involved may request CPR to make the appointment
in accordance with its applicable rules.
b. The arbitrators shall decide the issues submitted to them in
accordance with the provisions and commercial purposes of this Agreement;
provided that, all substantive questions of law shall be determined under the
laws of the State of Florida (without regard to its principles of conflicts of
laws).
c. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Section 1, ET SEQ., and judgment upon the award rendered by the
arbitrators may be entered by any court having jurisdiction thereof. The
arbitrators may grant any remedy or relief which is just and equitable,
including injunctive relief or specific performance.
d. The parties hereto agree to facilitate the arbitration by: (i)
making available to one another and to the arbitrators for examination,
inspection and extraction all documents, books, records and personnel under
their control if determined by the arbitrators to be relevant to the dispute;
(ii) participating in reasonable discovery, including oral depositions; (iii)
conducting arbitration hearings to the greatest extent possible on successive
days; and (iv) observing strictly the time periods established by the Rules or
by the arbitrators for submission of evidence or briefs.
e. Initially, the disputing parties shall each pay one-half of the
costs (excluding attorneys' fees) of any arbitration; provided, however, that
the arbitrators shall divide all costs (excluding attorneys' fees) incurred in
conducting the arbitration in their final award in accordance with what they
deem just and equitable under the circumstances, and any party who is allocated
in excess of one-half of such costs shall reimburse the other for such excess
costs.
f. Notwithstanding the exclusivity of the dispute resolution procedures
specified herein, a party hereto, without prejudice to such procedures, may file
a complaint or seek a preliminary injunction or other provisional judicial
relief if in its sole judgment such action is
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necessary to avoid irreparable damage or to preserve the status quo. Despite any
such action, the parties shall continue to participate in good faith in the
procedures specified herein.
12
EXHIBIT 10(GG)
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This Amendment dated as of February 23, 1998 between Guardian
International, Inc., a Nevada corporation (the "Company"), and Westar Security,
Inc., a Kansas corporation (the "Stockholder") to the Registration Rights
Agreement dated October 21, 1997 (the ARegistration Rights Agreement@) between
the Company and Westar Capital, Inc., a Kansas corporation (AWestar Capital@).
RECITALS
On November 24, 1997, Westar Capital assigned all of its rights and
obligations under the Registration Rights Agreement to the Stockholder. Pursuant
to the Stock Subscription Agreement between the Company and the Stockholder of
even date herewith, the Company is selling to the Stockholder 1,600,000 shares
(the "Preferred B Shares") of Series B 10 1/2% Convertible Cumulative Preferred
Stock (the "Preferred Stock"), par value $.001 per share, which is convertible
into Common Stock. The parties hereto desire to amend the Registration Rights
Agreement to include the Preferred B Shares in the definition of AShares@ and to
increase the number of mandatory rights to four.
AGREEMENT
1. DEFINITION OF SHARES. The last sentence in the Recitals of the
Registration Rights Agreement is hereby amended in its entirety to read as
follows: AIn this Agreement, the Common Shares and the Common Stock issuable by
the Company upon conversion of the Preferred Shares and upon conversion of the
Preferred B Shares, together with any stock dividends, distributions, or splits
or any shares issued or issuable in connection with any reclassification,
recapitalization, merger or consolidation or reorganization (AAdjustments@),
shall be collectively referred to as the "Shares."
2. MANDATORY RIGHTS. The first sentence of the fifth paragraph of
Section 1(b) is hereby amended in its entirety to read as follows:
"The Stockholder shall be entitled to request four registrations
pursuant to this Section 1(b)."
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
GUARDIAN INTERNATIONAL, INC.
By:/s/ Richard Ginsburg
---------------------------------------
Richard Ginsburg
President and Chief Executive Officer
WESTAR SECURITY, INC.
By:/s/ John W. Hesse
---------------------------------------
Name: John W. Hesse
Its: Secretary/Treasurer
ACKNOWLEDGED AND AGREED:
HELLER FINANCIAL, INC.
By: /s/ Scott E. Gast
------------------------------------
[Name] Scott E. Gast
[Title] Assistant Vice President
Date: 2/23/98
2
EXHIBIT 10(HH)
STOCK SUBSCRIPTION AGREEMENT
STOCK SUBSCRIPTION AGREEMENT dated as of February 23, 1998, between
Guardian International, Inc., a Nevada corporation (the "Company"), and Westar
Security, Inc., a Kansas corporation (the "Purchaser").
RECITALS
1. The Company is entering into a Stock Purchase Agreement with the
shareholders of Mutual Central Alarm Services, Inc., a New York corporation,
dated of even date herewith (the "Stock Purchase Agreement"), pursuant to which
the Company will acquire 100% of the outstanding shares of the Common Stock, par
value $.01, of Mutual for an aggregate purchase price of $14,000,000 (the
"Transaction").
2. The Purchaser has consented to the Transaction, as required by the
Stock Subscription Agreement dated as of October 21, 1997 between the Company
and Westar Capital, Inc., a Kansas corporation and an affiliate of the Purchaser
(the "Prior Stock Subscription Agreement"). On November 24, 1997, Westar
Capital, Inc. assigned its rights and obligations under the Prior Stock
Subscription Agreement to the Purchaser.
3. The Purchaser desires to acquire from the Company, and the Company
wishes to sell to the Purchaser, certain securities to be issued by the Company,
on the terms and conditions set forth below.
AGREEMENT
1. AUTHORIZATION OF SECURITIES; PURCHASE PRICE. The Company has
authorized the issuance and sale to the Purchaser of 1,600,000 shares of Series
B 10 1/2% Convertible Cumulative Preferred Stock, par value $.001 per share (the
"Preferred Shares"), for an aggregate purchase price of $4,000,000. The
Preferred Shares will have the terms and conditions set forth in the Certificate
of Designations attached hereto as Exhibit A (the "Certificate of
Designations").
2. CLOSING. The Company will sell to the Purchaser and, subject to the
terms and conditions hereof, the Purchaser will purchase from the Company, at
the closing provided for in this Section 2, the Preferred Shares. The closing of
the sale and purchase of the Preferred Shares (the "Closing") shall take place
at the offices of the Company at 3880 N. 28th Terrace, Hollywood, Florida, 33020
or by mail if the parties agree, unless otherwise agreed between the Purchaser
and the Company. At the Closing, the Company will deliver to the Purchaser one
or
<PAGE>
more stock certificates (as the Purchaser may designate), each dated the date
of the Closing (the "Closing Date") and duly registered in the Purchaser's name
(or in the name of any nominee the Purchaser designates to hold the Preferred
Shares for its account), representing the Preferred Shares against receipt of
$4,000,000 from the Purchaser by delivery of federal funds payable to the
Company. Purchaser agrees that it will send by wire transfer to the Trust
Account (in accordance with the wire instructions attached as Exhibit F) of
Steel Hector & Davis LLP the $4,000,000 to be held in escrow pending the
satisfaction of all conditions precedent to the closing of the Transaction.
3. DELIVERIES AT CLOSING.
3.1 OPINIONS OF COUNSEL. The Purchaser shall have received an opinion
from Steel Hector & Davis LLP, counsel to the Company, dated the Closing Date
and substantially in the form of Exhibit B, and an opinion from Lionel Sawyer &
Collins, Nevada counsel to the Company, dated the Closing Date in the form of
Exhibit C, and the Company shall have received an opinion from Renee Kingsley,
Esq., counsel of the Purchaser, dated the Closing Date and substantially in the
form of Exhibit D.
3.2 WAIVERS AND CONSENTS. All waivers and consents required to be
obtained by the Company in connection with the Closing shall be satisfactory in
substance and form to the Purchaser, including but not limited to the consent of
Heller Financial, Inc.
3.3 CORPORATE ACTION.
a. The Company shall have delivered to the Purchaser certified
copies of (a) the resolutions duly adopted by the full board of directors of the
Company authorizing the execution, delivery and performance of this Agreement,
the issuance and sale of the Preferred Shares, the reservation for issuance upon
conversion of the Preferred Shares of an aggregate of 1,600,000 shares of Class
A Voting Common Stock, par value $.001 per share, and the consummation of all
other transactions contemplated by this Agreement, (b) the Articles of
Incorporation and Bylaws of the Company, each as amended to date, and (c)
incumbency of the Company's officers.
b. The Purchaser shall have delivered to the Company a
secretary's certificate confirming the resolutions duly adopted by the full
board of directors of the Purchaser authorizing the execution, delivery and
performance of this Agreement and an incumbency of the Purchaser's officers.
3.4 CERTIFICATE OF DESIGNATIONS. The Certificate of Designations shall
have been filed with the Secretary of State of the State of Nevada and shall be
in full force and effect under the laws of such state.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants that:
4.1 ORGANIZATION; GOOD STANDING; VALID AND BINDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted and
proposed to be conducted, to enter into this Agreement, to issue and sell the
Preferred Shares, and to carry out the terms hereof and thereof. Each of the
Company's subsidiaries is duly organized, validly existing and in good standing
under the laws of its state of incorporation. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business, and is
in good standing in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes qualification necessary,
except where failure to so qualify would not individually or in the aggregate
have a material adverse change in the business, assets, liabilities, prospects,
results of operations or condition, financial or otherwise, of the Company and
its subsidiaries, taken as a whole ("Material Adverse Change"). The execution,
delivery and performance of this Agreement and all other agreements contemplated
hereby to which the Company is a party have been duly authorized by the Company.
Each of such agreements has been duly and validly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, liquidation, moratorium, receivership, conservatorship,
readjustment of debts, fraudulent conveyance or similar laws affecting the
enforcement of creditors rights generally.
4.2 INFORMATION FURNISHED; BUSINESS. The Company has furnished the
Purchaser with true and complete copies of (a) the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996, as amended to date, (b)
any and all of the Company's Current Reports on Form 8-K which have been filed
with the Securities and Exchange Commission ("SEC") since December 31, 1996, (c)
the Company's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997, as amended to date (collectively
"SEC Documents"), and (d) all other reports and documents filed by the Company
with the SEC under the Exchange Act since January 1, 1997. The financial
statements contained in the SEC Documents have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as stated in the notes thereto), and present fairly (subject, in the case of
unaudited statements, to normal recurring adjustments) the financial condition
of the Company as of their respective dates and the results of operations and
cash flows for the respective periods. Except as disclosed in the SEC Documents
or as set forth on Schedule 4.2, since January 1, 1997 there has been no
Material Adverse Change. Since January 1, 1997, the Company has made all filings
required to be made in compliance with the Exchange Act, and such filings, as
modified by subsequent reports filed pursuant to the Exchange Act conformed in
all material respects to the requirements of the Exchange Act, and the rules and
regulations of the SEC thereunder, and such filings did not contain any untrue
statement of a material fact and did not omit to state any material fact
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<PAGE>
necessary in order to make the statements contained therein not misleading in
light of the circumstances under which such statements were made as of their
respective dates of filing.
4.3 LITIGATION. Except as disclosed on Schedule 4.3, there are no
actions, proceedings or investigations nor any judgment, decree, injunction,
rule, or order pending or threatened which question or affect the validity of
this Agreement, the Preferred Shares or any action taken or to be taken pursuant
hereto or thereto, or which might result, either in any case or in the
aggregate, in any Material Adverse Change, or in any liabilities on the part of
the Company which, either in any case or in the aggregate, are or might be
material and which liabilities have not been disclosed in the notes to the
Company's financial statements contained in the SEC Documents and adequately
reserved for on the Company's balance sheet as at September 30, 1997.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS. Except for consents and
approvals required to be obtained as set forth on Schedule 4.4, the execution,
delivery and performance of this Agreement and the other agreements contemplated
hereby, and the issuance of the Preferred Shares, do not and will not result in
any violation of or be in conflict with or constitute (with or without due
notice or lapse of time or both) a default or result in an adverse event under
any term of the Articles of Incorporation, as amended (the "Charter"), or
By-Laws of the Company, or of any material agreement, instrument, obligation,
license, judgment, decree, order, statute, rule or governmental regulation
applicable to the Company, its assets or properties or result in the imposition
or creation of any lien or encumbrance upon any asset or property of the
Company. The Company is not in violation of any term of its Charter or By-Laws,
or of any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation which is material to the business, operations, prospects
or affairs of the Company.
4.5 GOVERNMENTAL CONSENTS. Except for such consents, approvals and
authorizations as are set forth on Schedule 4.5, neither the Company, nor any of
its subsidiaries is or will be required to obtain any consent, approval or
authorization of, or to make any declaration or filing with, any governmental
authority as a condition precedent to the valid execution and delivery of this
Agreement and the other agreements contemplated hereby, and, the valid offer,
issue and delivery of the Preferred Shares. Schedule 4.5 correctly sets forth
the names and jurisdictions of domicile of each subsidiary of the Company.
4.6 CAPITAL STOCK. Schedule 4.6 correctly describes each class of the
authorized capital stock of the Company on the date hereof, including, as to
each such class, the number of shares thereof authorized and the number of
shares thereof issued and outstanding. All of the outstanding shares of the
Company are validly issued and outstanding, fully paid and non-assessable and
free of preemptive rights. The Company has no outstanding securities convertible
into or exchangeable for capital stock and no outstanding options, warrants or
other rights to subscribe for or purchase, or agreements for the purchase from
or the issue or sale by the Company of, capital stock, other than as set forth
in such Schedule 4.6, which correctly describes each such security, right or
agreement and the number of shares subject thereto, whether or not
-4-
<PAGE>
reserved for on the books of the Company. Schedule 4.6 also sets forth all
shares of capital stock reserved or required for issuance pursuant to any
employee benefit, stock option or other similar plan.
4.7 DISCLOSURE. There is no fact known to the Company which materially
adversely affects the business, operations, affairs, prospects, properties,
assets or condition of the Company which has not been set forth in this
Agreement or in the schedules attached hereto. No representation or warranty
contained in this Agreement, the other agreements contemplated hereby, or the
Schedules hereto or thereto, or any officers certificate furnished thereunder,
at the date hereof, or at the Closing Date contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
SEC Documents or as set forth on the schedules attached hereto, since September
1, 1997, the Company has in all material respects conducted its business in the
ordinary course consistent with past practices.
4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
4.9 and in the SEC Documents, and liabilities incurred after September 1, 1997
in the ordinary course of business and consistent with past practices, the
Company does not have any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature required by GAAP to be reflected in a
consolidated balance sheet (or reflected in the notes thereto).
4.10 NO DEFAULT. Except as set forth on Schedule 4.10 hereto, neither
the Company nor any of its subsidiaries is in violation or breach of, or default
under (and no event has occurred which with notice or the lapse of time or both
would constitute a violation or breach of, or a default under) any term,
condition or provision of (i) any material note, bond, mortgage, deed of trust,
security interests, indenture, license, contract, agreement, plan or other
instrument or obligation to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary or any of their respective
properties or assets may be bound or affected, (ii) any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company, any subsidiary of
the Company or any of their respective properties or assets or (iii) any
registration, license, permit or other consent or approval of any governmental
agency, except in each case for breaches, defaults or violations which would not
individually or in the aggregate have a material adverse effect on the business,
assets, liabilities, results of operations or condition, financial or otherwise,
of the Company and its subsidiaries, taken as a whole.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants that:
5.1 NO DISTRIBUTION. The Purchaser is acquiring the Preferred Shares
for its own account with the present intention of holding such securities for
purposes of investment, and it
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<PAGE>
has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws. The Purchaser understands that the Preferred Shares are "restricted
securities" as defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), and have not been registered pursuant to the provisions
of the Securities Act, in as much as the proposed purchase of the Preferred
Shares is taking place in a transaction not involving any public offering.
5.2 SOPHISTICATION. The Purchaser is knowledgeable, experienced and
sophisticated in financial and business matters and is able to evaluate the
risks and benefits of the investment in the Preferred Shares.
5.3 ECONOMIC RISK. The Purchaser is able to bear the economic risk of
its investment in the Preferred Shares for an indefinite period of time because
the Preferred Shares have not been registered under the Securities Act and,
therefore, cannot be sold unless subsequently registered under the Securities
Act or an exemption from such registration is available.
5.4 ACCESS TO INFORMATION. The Purchaser has been furnished or
otherwise had full access to such other information concerning the Company and
its subsidiaries as it has requested and that was necessary to enable the
Purchaser to evaluate the merits and risks of an investment in the Company, and
after a review of this information, has had an opportunity to ask questions and
receive answers concerning the financial condition and business of the Company
and the terms and conditions of the securities purchased hereunder, and has had
access to and has obtained such additional information concerning the Company
and the securities as it deemed necessary. The Purchaser has carefully reviewed
the information furnished pursuant to Section 4.2.
5.5 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
5.6 LEGEND. The Purchaser understands that the certificate(s)
representing the Preferred Shares (and any Common Stock issued upon conversion
of the Preferred Shares) will bear restrictive legends thereon as follows:
"The securities represented by this certificate have been acquired
directly or indirectly from the Company without being registered under
the Securities Act of 1933, as amended (the "Act"), or any other
applicable securities laws, and are restricted securities as that term
is defined under Rule 144 promulgated under the Act. These securities
may not be sold, pledged, transferred, distributed or otherwise
disposed of in any manner unless they are registered under the Act and
all other applicable securities laws, or unless the request for
transfer is accompanied by a favorable opinion of counsel, reasonably
satisfactory to the Company, stating that the transfer will not result
in a violation of the Act and all other applicable state securities
law."
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<PAGE>
5.7 ADDITIONAL PURCHASER REPRESENTATIONS. The Purchaser is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. The execution, delivery and performance of
this Agreement and all other agreements contemplated hereby to which such
Purchaser is a party have been duly authorized by the Purchaser. Each of such
agreements constitutes a valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, liquidation, moratorium, receivership, conservatorship,
readjustment of debts, fraudulent conveyance or similar laws affecting the
enforcement of creditors rights generally. The Purchaser has made or obtained
all material third party and governmental consents, approvals and filings to be
made or obtained prior to the Closing by the Purchaser in connection with the
consummation of the transactions hereunder. The execution and delivery by the
Purchaser of the Agreement and the fulfillment of and compliance with the
respective terms thereof by the Purchaser do not and shall not (a) conflict with
or result in a breach of the terms, conditions or provisions of, (b) constitute
a default under or (c) result in a violation of the organizational documents of
the Purchaser or any material agreement or instrument to which Purchaser is
subject.
6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY THE COMPANY. In addition to all other sums due
hereunder or provided for in this Agreement and any other rights and remedies
available to Purchaser under applicable law, the Company agrees to hold harmless
and indemnify the Purchaser and all directors, officers and controlling persons
of the Purchaser (within the meaning of Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (individually referred to as an "Indemnified Person") from and against
any losses, claims, damages, costs and expenses, and liabilities (including
attorneys' fees and expenses of investigation) incurred by each Indemnified
Person pursuant to any action, suit, proceeding or investigation against any one
or more of the Company and such Indemnified Person, and arising out of or in
connection with a breach by the Company of any agreement, representation,
warranty, covenant or obligation contained in this Agreement and any and all
costs and expenses incurred by any Indemnified Person in connection with the
enforcement of its rights under this Agreement and the other agreements
contemplated hereby. The Company further agrees, promptly upon demand by an
Indemnified Person, from time to time, to reimburse each Indemnified Person for,
or pay, any loss, claim, damage, liability or expense as to which the Company
has indemnified the Indemnified Person pursuant to this Agreement.
6.2 INDEMNIFICATION BY THE PURCHASER. In addition to all other sums due
hereunder or provided for in this Agreement, the Purchaser agrees to hold
harmless and indemnify the Company and all directors, officers and controlling
persons of the Company (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) (individually referred to as an "Indemnified
Person") from and against any losses, claims, damages, costs and expenses and
liabilities (including attorneys' fees and expenses of investigation) incurred
by each Indemnified Person pursuant to any action, suit, proceeding or
investigation against any one or more of the
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<PAGE>
Purchaser and such Indemnified Person, and arising out of or in connection with
a breach by the Purchaser of any agreement, representation, warranty, covenant
or obligation contained in this Agreement and any and all costs and expenses
incurred by any Indemnified Person in connection with the enforcement of its
rights under this Agreement. The Purchaser further agrees, promptly upon demand
by an Indemnified Person, from time to time, to reimburse each Indemnified
Person for, or pay, any loss, claim, damage, liability or expense as to which
the Purchaser has indemnified the Indemnified Person pursuant to this Agreement.
6.3 PROCEDURE. Each Indemnified Person agrees to give prompt written
notice to the indemnifying party after the receipt by the Indemnified Person of
any written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such Indemnified
Person will claim indemnification or contribution pursuant to this Agreement,
PROVIDED that the failure of any Indemnified Person to give notice shall not
relieve the indemnifying party of its obligations except to the extent that the
indemnifying party is actually prejudiced by the failure to give notice. If any
such action is brought against an indemnified party, the indemnifying party will
be entitled to participate in and to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party for any legal or other expenses incurred by the latter in connection with
the defense thereof unless (i) in the reasonable opinion of counsel for the
indemnifying party a conflict of interest exists between the indemnified party
and indemnifying party, (ii) the indemnified party reasonably objects to such
assumption on the basis that there may be defenses available to it which are
different from or in addition to the defenses available to the indemnifying
party, (iii) the indemnifying party has failed to timely assume the defense of
any such action or proceeding or (iv) the indemnifying party and its counsel do
not actively and vigorously pursue the defense of such action . Whether or not
such defense is assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who
elects not to assume the defense of an action or where a potential conflict of
interest or other defenses may able available, shall not be obligated to pay the
fees and expenses of more than one counsel and local counsel where appropriate
for all parties indemnified by such indemnifying party with respect to such
action, unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such action. Cost and expenses incurred by
the indemnified party shall be reimbursed, from time to time, by the
indemnifying party as and when bills are received or expenses are incurred.
6.4 GROSS UP. Any payment required to be made under this Section 6
shall be increased so that the net amount retained by the Indemnified Person,
after deduction of any
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<PAGE>
federal, state, local or foreign tax due thereon (assuming a maximum effective
total statutory tax rate), shall be equal to the amount otherwise due.
7. EXCHANGE AND REPLACEMENT OF SECURITIES. Upon surrender of any
Preferred Share certificate by the Purchaser for exchange at the office of the
Company, the Company, at its expense (exclusive of applicable transfer taxes or
other similar taxes), will issue or cause to be issued, in exchange, a new
Preferred Share certificate in such denominations as may be requested for the
same number of Preferred Shares and registered as the Purchaser may request.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Share certificate, upon delivery of a
written agreement of indemnity reasonably satisfactory to the Company in form or
amount, or, in the case of any such mutilation upon surrender and cancellation
thereof, the Company, at its expense, will issue or cause to be issued a new
Preferred Share certificate in replacement of such lost, stolen, destroyed or
mutilated Preferred Share certificate.
8. SURVIVAL. All agreements, representations and warranties contained
herein or made in writing by or on behalf of the Company or by or on behalf of
the Purchaser in connection with the transactions contemplated hereby shall
survive the execution and delivery of this Agreement, all investigations made by
Purchaser or on Purchaser's behalf, and the issuance and delivery of the
Preferred Shares.
9. NO BROKER. Each party hereto represents and warrants that it has
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
10. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
hand delivered or sent by first class registered or certified mail (return
receipt requested), postage prepaid, to the respective addresses of the Company
and the Purchaser set forth below, unless subsequently changed by written
notice. Any notice shall be deemed to be effective when it is received.
To the Purchaser:
Westar Security, Inc.
4221 West Carpenter Freeway
Irving, Texas 75063
Attention: Chief Financial Officer
Phone: 972-916-6102
Fax: 972-916-6156
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<PAGE>
With a copy to:
Renee T. Kingsley, Esq.
Protection One, Inc.
4221 West Carpenter Freeway
Irving, Texas 75063
Phone: 972-916-6142
Fax: 972-916-6904
To the Company:
Guardian International, Inc.
3880 North 28th Terrace
Hollywood, Florida 33020-1118
Attention: Richard Ginsburg, President and Chief Executive
Officer
Phone: 954-926-5200
Fax: 954-926-1822
With a copy to:
Harvey Goldman, Esq.
Steel Hector & Davis LLP
200 South Biscayne Boulevard
41st Floor
Miami, FL 33131-2398
Phone: 305-577-7011
Fax: 305-577-7001
11. COSTS AND EXPENSES. Whether or not the transactions contemplated
hereby close, each party will bear its own costs and expenses for due diligence
and for the preparation and negotiation of this Agreement. The Company agrees to
pay, or cause to be paid, all documentary and similar taxes levied under the
laws of the United States of America or any state or local taxing authority
thereof or therein in connection with the issuance and sale of the Preferred
Shares and the execution and delivery of the other documents contemplated hereby
and any modification of any of such documents and will hold the Purchaser
harmless without limitation as to time against any and all liabilities with
respect to all such taxes.
12. MUTUAL COVENANTS. Each of the Company and Purchaser agrees to
promptly use its best efforts to SECURE such consents as may be necessary to
effect the transactions contemplated hereunder.
13. PRESS RELEASES. Simultaneously with the execution of this
Agreement, the parties hereto shall issue a press release in mutually acceptable
form (the "Press Release"). The
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<PAGE>
parties hereto agree to consult with each other prior to any press release
regarding the transactions contemplated herein.
14. ASSIGNMENT, SUCCESSORS AND NO THIRD-PARTY RIGHTS. Neither party may
assign any of its rights under this Agreement without the prior written consent
of the other party, except that the Purchaser may assign any of its rights under
this Agreement to any "affiliate" of the Purchaser as defined in Regulation D
promulgated under the Securities Act of 1933, as amended. This Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any person other than the parties
to this Agreement any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
15. SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable. In the
event any provision of this Agreement shall be held invalid, the parties agree
to enter into such further agreements as may be necessary in order to carry out
the intent and purposes of the parties herein.
16. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Florida without regard
to conflicts of law principles thereunder.
17. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may be not amended except by a
written agreement executed by the party to be charged with the Amendment.
18. WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor the delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by applicable law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
any party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no
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notice to or demand on one party will be deemed to be a waiver of an obligation
of such party or of the right of the party giving such notice or demand to take
further notice or demand as provided in this Agreement or the documents referred
to in this Agreement.
19. SECTION HEADINGS; COUNTERPARTS. The headings in this Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
20. DISPUTE RESOLUTION. Any dispute arising from, relating to, or in
connection with the matters contained herein shall be resolved in accordance
with procedures set forth in Exhibit E hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their behalf as of the date first written above.
GUARDIAN INTERNATIONAL, INC.
By: /S/ RICHARD GINSBURG
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Richard Ginsburg,
President and Chief Executive Officer
WESTAR SECURITY, INC.
By: /S/ JOHN W. HESSE
- ------------------------
Name: JOHN W. HESSE
Its:SECRETARY/TREASURER
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EXHIBIT A
CERTIFICATE OF DESIGNATIONS
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<PAGE>
EXHIBIT B
OPINION OF STEEL HECTOR & DAVIS LLP
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<PAGE>
EXHIBIT C
OPINION OF LIONEL, SAWYER & COLLINS
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<PAGE>
EXHIBIT D
OPINION OF COUNSEL TO PURCHASER
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<PAGE>
EXHIBIT E
DISPUTE RESOLUTION
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EXHIBIT F
WIRE INSTRUCTIONS FOR
NORTHERN TRUST BANK TRUST ACCOUNT
Northern Trust Bank of Florida
ABA# 066009650
For Credit To: Steel Hector & Davis Trust Account
Account Number: 5018000075
Special Instructions: Please notify Jean Ann Corrao at (561) 650-7282 upon
receipt.
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EXHIBIT 21
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
Specialty Device Installers, Inc. Florida
The Guardian Security Group, Inc. Florida
Mutual Central Alarm Services, Inc. (1) New York
Gator Telecom, Inc. (2) Florida
(1) Acquired pursuant to a Stock Purchase Agreement effective as of February 1,
1998
(2) Acquired pursuant to an Asset Purchase Agreement effective March 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
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0
1,894
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