UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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.
(Exact name of small business issuer as specified in its charter)
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 (Issuer's telephone number)
(Address of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO _____
-----
As of November 13, 1998, there were 8,582,241 shares of Class A Voting
Common Stock, par value $.001 per share ("Class A Common Stock"), and 634,035
shares of Class B Nonvoting Common Stock, par value $.001 per share, immediately
convertible into shares of Class A Common Stock on a one for one basis, of the
issuer outstanding.
Transitional Small Business Disclosure Format (check one):
YES ____ NO _X__
<PAGE>
GUARDIAN INTERNATIONAL, INC.
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 1
Consolidated Statements of Operations for the Three and
Nine Month Periods Ended September 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for the Nine Month
Periods Ended September 30, 1998 and 1997 3
Consolidated Statement of Changes in Shareholders' Equity
for the Nine Month Period Ended September 30, 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 9
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 503,126 $ 94,313
Accounts receivable, net of allowance for doubtful accounts of
$406,999 and $198,848, respectively 2,313,289 539,512
Other 770,684 121,223
------------ -----------
Total current assets 3,587,099 755,048
------------ -----------
Property and equipment, net 1,863,678 729,058
Customer accounts, net 30,513,599 8,048,495
Goodwill and other intangible assets, net 2,825,860 1,514,951
Deposits and other assets 204,460 27,506
------------ -----------
Total assets $38,994,696 $11,075,058
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,061,826 $ 781,879
Unearned revenue 3,034,946 242,168
Current portion of long term obligations 77,471 73,201
------------ -----------
Total current liabilities 6,174,243 1,097,248
------------ -----------
Unearned revenue 989,797 -
Long term obligations, less current portion 14,773,510 961,584
------------ -----------
Total liabilities 21,937,550 2,058,832
------------ -----------
Shareholders' equity:
Preferred stock, $.001 par value, 30,000,000 shares authorized:
Series A preferred stock, 2,037,133 and 1,894,033 shares issued and
outstanding, respectively 2,037 1,894
Series B preferred stock, 1,704,232 and 0 shares issued and
outstanding, respectively 1,704 -
Class A voting common stock, $.001 par value, 100,000,000 shares
authorized, 11,569,241 and 9,003,804 shares issued; and 11,569 9,004
11,562,241 and 8,996,804 shares outstanding, respectively
Class B non voting common stock, $.001 par value, 634,035 shares
authorized, issued and outstanding, respectively 634 634
Additional paid-in capital 22,315,360 12,091,050
Accumulated deficit (5,267,720) (3,079,918)
Treasury shares, at cost (6,438) (6,438)
------------ -----------
Total Shareholders' Equity 17,057,146 9,016,226
------------ -----------
Total Liabilities and Shareholders' Equity $38,994,696 $11,075,058
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
1
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Monitoring $2,478,262 $ 1,016,747 $ 6,472,840 $ 2,836,102
Installation and service 1,911,866 460,236 4,149,185 1,237,948
---------- ------------ ------------ ------------
Total revenues 4,390,128 1,476,983 10,622,025 4,074,050
---------- ------------ ------------ ------------
Operating expenses:
Monitoring 551,822 192,632 1,430,165 546,061
Installation and service 1,417,942 408,909 2,905,824 1,293,882
General and administrative 1,393,995 646,091 3,655,458 1,474,503
Amortization of customer contracts 1,128,165 350,385 2,830,868 768,212
Depreciation and amortization 153,896 88,009 417,240 245,573
---------- ------------ ------------ ------------
Total operating expenses 4,645,820 1,686,026 11,239,555 4,328,231
---------- ------------ ------------ ------------
Loss from operations (255,692) (209,043) (617,530) (254,181)
Interest expense 441,340 284,081 1,023,494 724,201
---------- ------------ ------------ ------------
Loss before income taxes (697,032) (493,124) (1,641,024) (978,382)
Provision for income taxes - - - -
---------- ------------ ------------ ------------
Net loss (697,032) (493,124) (1,641,024) (978,382)
Preferred stock dividends (209,776) - (546,778) -
---------- ------------ ------------ ------------
Net loss applicable to common stock $(906,808) $(493,124) $(2,187,802) $(978,382)
========== ============ ============ ============
Loss per common share $ (0.08) $ (0.07) $ (0.19) $ (0.14)
========== ============ ============ ============
Weighted average shares outstanding 12,061,192 6,980,839 11,495,113 6,960,304
========== ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
2
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,641,024) $ (978,382)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 417,240 245,573
Amortization of customer accounts 2,830,868 743,726
Amortization of deferred financing costs 193,442 148,877
Provision for doubtful accounts 379,834 112,972
Changes in assets and liabilities:
Accounts receivable (796,626) (275,865)
Intangible assets, deposits and other assets (656,368) (131,182)
Accounts payable and accrued liabilities 892,114 82,468
Unearned revenue 539,738 123,655
------------- ----------
Net cash provided by operating activities 2,159,218 71,842
------------- ----------
Cash flows used in investing activities:
Purchase of fixed assets (1,087,963) (139,522)
Business acquisitions, net of cash acquired (16,629,340) -
Purchase and placement of customer accounts (1,751,156) (3,154,090)
------------- ----------
Net cash used in investing activities (19,468,459) (3,293,612)
------------- ----------
Cash flows from financing activities:
Payments of long term obligations (1,750,095) (2,818,516)
Proceeds from line of credit 15,505,144 5,175,723
Issuance of preferred stock, net of issuance costs 3,963,005 (6,438)
------------- ----------
Net cash provided by financing activities 17,718,054 2,350,769
------------- ----------
Net increase (decrease) in cash and cash equivalents 408,813 (871,001)
Cash and cash equivalents, beginning of period 94,313 1,037,861
------------- ----------
Cash and cash equivalents, end of period $ 503,126 $ 166,860
============= ==========
Supplemental disclosures:
Interest paid $ 639,453 $ 568,264
============= ==========
Non cash investing and financing activities:
Financed acquisition of property and equipment $ - $ 166,168
Recognition of Class B common stock to be issued - 130,500
Accrue commitment fee to senior lender - 112,500
Issuance of common stock to purchase customer contracts - 39,000
Write off of note receivable from sale of stock - 201,358
Issuance of Class A common stock and options in consideration
for business acquisitions 5,705,157 -
Stock dividends on Series A and Series B preferred stock 546,778 -
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Common Stock Common Stock
Series A Series B Class A Class B
-------- -------- ------- -------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,894,033 $ 1,894 - $ - 9,003,804 $ 9,004 634,035 $ 634
Stock dividend on Series A
preferred stock 143,100 143 - - - - - -
Stock dividend on Series B
preferred stock - - 104,232 104 - - - -
Issuance of Series B
preferred stock, net of
issuance costs of $13,855 - - 1,600,000 1,600 - - - -
Issuance of Class A common
stock, net of issuance - - - - 2,565,437 2,565 - -
costs of $23,139
Issuance of options - - - - - - - -
Net loss - - - - - - -
---------- ------- --------- ------- ---------- -------- ------- ------
Balance September 30, 1998 2,037,133 $ 2,037 1,704,232 $ 1,704 11,569,241 $ 11,569 634,035 $ 634
========== ======= ========= ======= ========== ======== ======= ======
(RESTUBBED TABLE)
Additional
Paid-in Accumulated Treasury
Capital Deficit Shares Total
------- ------- ------ -----
<C> <C> <C> <C>
Balance, December 31, 1997 $12,091,050 $ (3,079,918) $ (6,438) $9,016,226
Stock dividend on Series A
preferred stock 286,055 (286,198) - -
Stock dividend on Series B
preferred stock 260,476 (260,580) - -
Issuance of Series B
preferred stock, net of
issuance costs of $13,855 3,984,545 - - 3,986,145
Issuance of Class A common
stock, net of issuance 5,061,234 - - 5,063,799
costs of $23,139
Issuance of options 632,000 - - 632,000
Net loss - (1,641,024) - (1,641,024)
----------- ------------ --------- -----------
Balance September 30, 1998 $22,315,360 $ (5,267,720) $ (6,438) $17,057,146
=========== ============ ========= ===========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part of these statements.
4
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying
unaudited consolidated financial statements contain adjustments (consisting
only of normal and recurring adjustments) necessary to present fairly the
Company's financial position and the results of operations for the periods
presented and the disclosures herein are adequate to make the information
presented not misleading. Operating results for interim periods are not
necessarily indicative of the results that can be expected for a full year.
These interim financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for
the year ended December 31, 1997, included in the Company's Form 10-KSB and
with the Form SB-2 dated August 13, 1998.
Reclassification
----------------
Certain 1997 amounts in the consolidated statements of operations have been
reclassified to conform to the 1998 presentation. Such reclassifications
have no impact on the net loss reported for 1997.
2. ACQUISITIONS
In August 1998, the Company acquired a New York-based alarm company for
approximately $2.4 million in cash consideration and 289,018 shares of
Class A Common Stock. The acquisition agreement also contains a provision
whereby a net working capital surplus (as defined) will be distributed to
the former owners. This amount will be finalized and paid in the final
quarter of 1998. The Company funded the cash portion of the acquisition
using borrowings under its facility with its senior lender (see Note 6).
The transaction was accounted for under the purchase method of accounting.
The acquisition increased the Company's customer base by approximately 875
subscribers.
In addition to the above acquisition, the Company made three other
acquisitions in the nine months ended September 30, 1998. Following is a
summary of the Company's 1998 acquisitions, all of which were accounted for
under the purchase method of accounting:
<TABLE>
<CAPTION>
Purchase Price
---------------------------------
Class A Number of
Company Acquired Cash Common Stock Subscribers
---------------- ---- ------------ -----------
<S> <C> <C> <C>
Mutual $10,522,713 1,981,700 shares 2,583
All others 6,895,057 578,224 shares 5,840
----------- --------- -----
$17,417,770 2,559,924 shares 8,423
=========== ========= =====
</TABLE>
In conjunction with these acquisitions, net cash consideration paid was as
follows:
Assets acquired $27,814,743
Liabilities assumed (4,691,816)
Equity issued (5,705,157)
-------------
Cash paid 17,417,770
Less - cash acquired (788,430)
-------------
Net cash paid $16,629,340
=============
5
<PAGE>
3. CUSTOMER ACCOUNTS
The following is an analysis of the changes in acquired customer accounts
for the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1997 $ 8,048,495
Purchase of customer accounts from dealers 610,922
Customer accounts acquired in acquisitions 23,544,817
Internally generated accounts 1,703,877
Charges against contract holdbacks (152,585)
Amortization of internally generated accounts
charged to installation and service expense (411,059)
Amortization of customer accounts (2,830,868)
-----------
Balance, September 30, 1998 $30,513,599
===========
</TABLE>
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
had a total balance withheld of $61,529 and $292,297 at September 30, 1998
and December 31, 1997, respectively, as contract holdbacks in connection
with the acquisition of customer accounts which are included in "Accounts
payable and accrued expenses" in the accompanying consolidated balance
sheets.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
Amortization September 30, December 31,
Period 1998 1997
------ ---- ----
<S> <C> <C> <C>
At cost:
Goodwill 10 years $2,623,872 $1,223,000
Deferred financing costs 3 years 788,243 695,686
Covenant not to compete and other 5 - 10 years 394,303 203,187
----------- ----------
3,806,418 2,121,873
Accumulated amortization (980,558) (606,922)
----------- ----------
$2,825,860 $1,514,951
=========== ==========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Trade accounts payable $ 851,740 $192,900
Contract holdbacks 61,529 292,297
Accrued commitment fee - 85,266
Accrued expenses 2,148,557 211,416
----------- --------
$3,061,826 $781,879
=========== ========
</TABLE>
6
<PAGE>
6. LONG TERM OBLIGATIONS
Long term obligations consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Credit facility with financial institution $14,587,043 $752,898
Obligation for assets under capital lease 117,331 136,267
Equipment notes payable and other 146,607 145,620
------------ ------------
14,850,981 1,034,785
Less-current portion (77,471) (73,201)
------------ ------------
$14,773,510 $ 961,584
============ ============
</TABLE>
In connection with the acquisition of Mutual (see Note 2), the Company
amended its credit facility (the "Renewed Credit Facility") with Heller
Financial, Inc., the Company's senior lender. Under the Renewed Credit
Facility, borrowings will bear interest at floating rates, either at Prime
plus 1 3/4% or, at the Company's election, LIBOR plus 3 1/2%. At September
30, 1998, the debt was bearing interest at varying rates. The Renewed
Credit Facility expires in May 2001. Availability under the Renewed Credit
Facility is subject to certain "Borrowing Base" limitations (as defined).
In relation to the investment by Westar Security, Inc. (see Note 7.
"Subsequent Events" below), in October 1998, Heller consented to increase
the Company's borrowing base and made other amendments to conform the
agreement with the activities discussed below in Note 7. The Renewed 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. The Company believes it
was in compliance with all such covenants as of September 30, 1998.
7. SUBSEQUENT EVENTS
Stock Repurchase Program
------------------------
On October 12, 1998, the Company's Board of Directors authorized the
repurchase of up to $1 million of Guardian Common Stock in the open market
over the next eighteen months. Repurchase decisions will be based on
comparisons of Guardian's trading price as a multiple of common industry
performance measurements compared to the selling prices of private security
monitoring companies as a multiple of those same parameters.
Westar Security, Inc. Investment
--------------------------------
On October 21, 1998, Westar Security, Inc. ("Westar"), a subsidiary of
Protection One, Inc. and Western Resources, Inc., purchased 10,000 shares
of Series D 6% Convertible Cumulative Preferred Stock, par value $.001 per
share ("Series D Preferred Stock"), of the Company for $10 million.
The proceeds of the sale of the Series D Preferred Stock will be used to
pay down long-term debt, which will position the Company to make further
acquisitions and to carry out other corporate purposes including the stock
repurchase program.
In addition on October 21, 1998, Westar exchanged its existing equity
holdings in Guardian (2,980,000 million shares of Class A Common Stock,
2,037,133 million shares of Guardian Series A 9 3/4% Convertible Cumulative
Preferred Stock, par value $.001 per share ("Series A Preferred Stock"),
and 1,704,232 million shares of Guardian Series B 10 1/2% Convertible
Cumulative Preferred Stock, par value $.001 per share ("Series B Preferred
Stock")) for 16,397 shares of Series C 7% Redeemable Cumulative Preferred
Stock, par value $.001 ("Series C Preferred Stock"), of the Company. After
giving effect to the transactions, Guardian will have approximately 9.2
million
7
<PAGE>
shares of Common Stock outstanding including 634,035 shares of Class B
Non-Voting Common Stock, par value $.001 per share. The Company has retired
the Series A Preferred Stock and the Series B Preferred Stock, subsequent
to the exchange transaction.
Under Generally Accepted Accounting Principles, the Series C Preferred
Stock is considered temporary equity and will be presented in the mezzanine
section of the Company's consolidated balance sheet.
The pro forma effect of the October transactions discussed above had they
occurred on September 30, on extracts from the unaudited pro forma
consolidated balance sheet is reflected below:
<TABLE>
<CAPTION>
September 30,
1998 Pro forma
------------- Pro forma September 30,
(Unaudited) Entries 1998
----
<S> <C> <C> <C> <C>
Long term obligations, less current portion 14,773,510 (10,000,000) (2) 4,773,510
Reedemable preferred stock - 16,397,000 (1) 16,397,000
Shareholders' equity:
Preferred stock, $.001 par value, 30,000,000 shares authorized:
Series A preferred stock, 2,037,133 shares issued and 2,037 (2,037) (1) -
outstanding
Series B preferred stock, 1,704,232 shares issued and 1,704 (1,704) (1) -
outstanding
Series D preferred stock, 10,000 shares issued and - 10 (2) 10
outstanding
Class A voting common stock, $.001 par value, 100,000,000
shares authorized, 11,569,241 issued and 8,582,241
shares outstanding 11,569 - 11,569
Class B non voting common stock, $.001 par value, 634,035
shares authorized, issued and
Outstanding, respectively 634 - 634
Additional paid-in capital 22,315,360 1,668,887 (1),(2) 23,984,247
Accumulated deficit (5,267,720) - (5,267,720)
Treasury shares, at cost (6,438) (8,062,156) (1) (8,068,594)
------------ ------------- -------------
Total Shareholders' Equity 17,057,146 (6,397,000) 10,660,146
------------ ------------- -------------
Total Liabilities and Shareholders' Equity $38,994,696 $ - $38,994,696
============ ============= =============
</TABLE>
(1) Exchange of existing equity holdings
(2) Issuance of Series D Preferred Stock and pay down of long-term debt
8
<PAGE>
GUARDIAN INTERNATIONAL, INC.
Item 2. Management's Discussion and Analysis
Introductory Note
FORWARD-LOOKING STATEMENTS.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, 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
made herein. 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 risks and uncertainties, and, accordingly,
actual results could differ materially from those expressed in the
forward-looking statements. Information with respect to these risks and
uncertainties is included in the Company's Form SB-2 filed with the Securities
and Exchange Commission on August 13, 1998.
Overview
The majority of the Company's revenues is derived from recurring
payments for the monitoring and maintenance of security and fire 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 and fire systems and the servicing and upgrades of such
installed systems. Monitoring and service revenues are recognized as the service
is provided. On installations for which the Company retains title to the
electronic security systems, the excess of installation revenue over estimated
selling costs is amortized over the initial term of the related
service/monitoring contract (generally five years). All other installation
revenues are recognized in the period in which installation occurs. All direct
installation costs, which include materials, labor and installation overhead are
capitalized and amortized over a five year period. In most cases, when the
Company maintains ownership of the equipment, the costs of such equipment are
capitalized to property and equipment and amortized over seven to ten years.
Alarm monitoring revenues generate significant gross margins, whereas
installation and service activity may result in direct costs exceeding revenues.
Management believes, however, that such installation and service activity is
necessary for the generation and retention of alarm monitoring subscribers.
The Company's objective is to provide residential and commercial
security services to an increasing number of subscribers. The Company's growth
strategy is to enhance its position in the security alarm monitoring industry in
Florida and in the Metropolitan New York City area by increasing the number and
density of subscribers for whom it provides services. The Company is pursuing
this strategy through a balanced growth plan involving incorporating
acquisitions of portfolios of subscriber accounts in existing and contiguous
markets and growth of the Company's core business through referrals and
traditional local marketing. The Company believes that increasing the number and
density of its subscribers will help it to achieve economies of scale and
enhance results of operation. The Company also regularly reviews opportunities
for expanding its operations into other large metropolitan markets.
9
<PAGE>
Key Operating Measures
The Company believes that EBITDA, Monthly Recurring Revenue ("MRR") and
MRR Attrition are key measurements of performance in the security monitoring
industry.
EBITDA. Earnings before interest, taxes, depreciation and amortization
("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 nor is it indicative of the Company's operating performance or 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 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 the three month
and nine month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net loss $(697,032) $(493,124) $(1,641,024) $(978,382)
Plus:
Amortization of customer contracts 1,128,165 350,385 2,830,868 768,212
Depreciation and amortization 153,896 88,009 417,240 245,573
Interest expense 441,340 284,081 1,023,494 724,201
----------- --------- ---------- ---------
EBITDA $ 1,026,369 $ 229,351 $2,630,578 $ 759,604
=========== ========= ========== =========
</TABLE>
Monthly Recurring Revenue. MRR represents the monthly recurring revenue
the Company is entitled to receive under subscriber contracts in effect at the
end of the period. MRR is a term commonly used in the security alarm industry as
a measure of the size of a company and as a key factor in assessing the value of
a company. It does not measure profitability or performance, and does not
include any allowance for future subscriber attrition or uncollectible accounts
receivable. MRR at September 30, 1998 and 1997 was approximately $860,000 and
$320,000, respectively.
MRR Attrition. The Company experiences customer cancellations, i.e.,
attrition, of monitoring and related services as a result of subscriber
relocation, the cancellation of acquired accounts during the process of
integrating such accounts into the Company's operations, unfavorable economic
conditions and other reasons. This attrition is offset to a certain extent by
revenues from the sale of additional services to existing subscribers, the
reconnection of premises previously occupied by subscribers, the conversion of
accounts previously monitored by other alarm companies and guarantees provided
by the sellers of such accounts. The Company defines attrition numerically for a
particular period as a quotient, the numerator of which is equal to the
difference of gross MRR lost as the result of canceled subscriber accounts less
MRR lost that was replaced pursuant to guarantees from sellers of accounts
purchased by the Company, and the denominator of which is the expected month-end
MRR calculated at the end of such period. Net MRR attrition of the Company's
customers during the nine months ended September 30, 1998 and 1997 was less than
10%, on an annualized basis.
10
<PAGE>
Results of Operations
The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated for consolidated operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Monitoring 56.5 68.8 60.9 69.6
Installation and service 43.5 31.2 39.1 30.4
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
Operating expenses
Monitoring 12.6 13.0 13.5 13.4
Installation and service 32.3 27.7 27.4 31.8
General and administrative 31.8 43.7 34.4 36.2
------ ------ ------ ------
76.7 84.4 75.3 81.4
------ ------ ------ ------
Income before interest expense, amortization and
depreciation 23.3 15.6 24.7 18.6
------ ------ ------ ------
Interest expense 10.1 19.2 9.6 17.8
Amortization of customer contracts 25.7 23.7 26.7 18.9
Depreciation and amortization 3.5 6.0 3.9 6.0
------ ------ ------ ------
39.3 48.9 40.2 42.7
------ ------ ------ ------
Net loss (16.0) (33.3) (15.5) (24.1)
====== ====== ====== ======
</TABLE>
The Company has never 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 such net losses until such time as it has significantly reduced its
indebtedness and has substantially increased its customer base.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Revenue. Total revenues for the nine months ended September 30, 1998
increased 161% to approximately $10.6 million from approximately $4.1 million
during the corresponding period in the prior year. Monitoring revenues for the
nine months ended September 30, 1998 increased to approximately $6.5 million, or
128%, from approximately $2.8 million during the corresponding period of the
prior year. Installation and service revenues for the nine months ended
September 30, 1998 increased by 235% to approximately $4.1 million, compared to
approximately $1.2 million during the corresponding period of the prior year.
Total retail subscribers approximated 21,000 at September 30, 1998, compared to
11,800 at September 30, 1997, a net increase of 78%. The increase in revenues
and number of subscribers in 1998 from 1997 is primarily attributable to the
Company's 1998 acquisitions (see Note 2 to the Consolidated Financial
Statements).
Operating Expenses. Total operating expenses for the nine months ended
September 30, 1998 increased 141% to approximately $8.0 million, compared to
approximately $3.3 million during the corresponding period in the prior year.
Monitoring expenses increased 162% to approximately $1.4 million, compared to
approximately $546,000 during the corresponding period in the prior year. As a
11
<PAGE>
percentage of monitoring revenues during the nine months ended September 30,
1998, monitoring expenses were 22%, compared to 19% during the corresponding
period in the prior year. The increase in monitoring costs, in absolute as well
as on a percentage basis, from 1997 to 1998 was a result of the significant
increase in monitoring revenues and number of subscriber accounts, as well as
the acquisition of Mutual, which operates its own central monitoring station.
Installation and service costs during the nine months ended September 30, 1998
increased by 125% to approximately $2.9 million, compared to approximately $1.3
million during the corresponding period in the prior year. The increase in total
installation and service costs in 1998 from 1997 was partly the result of
increases in related revenues in 1998 from 1997. As a percentage of installation
and service revenue, installation and service costs were 70% during the nine
months ended September 30, 1998, compared to 105%, during the corresponding
period in the prior year, due to the larger gross margins Mutual derives from
its large commercial security system sales.
Gross Profit. Total gross profit, defined as total revenues less
monitoring and installation and service costs, increased by 181% to
approximately $6.3 million during the nine months ended September 30, 1998,
compared to approximately $2.2 million during the corresponding period in the
prior year. Gross profit from monitoring revenues increased by 120% to
approximately $5.0 million during the nine months ended September 30, 1998,
compared to approximately $2.3 million during the corresponding period in the
prior year. The increase in gross profit from monitoring revenues is primarily
attributable to the Company's 1998 acquisitions. Gross profit from installation
and service activities increased to approximately $1.2 million during the nine
months ended September 30, 1998, compared to a loss of approximately $56,000
during the corresponding period in the prior year, due to the profitability
Mutual derives from its large commercial security system sales.
General and Administrative. General and administrative costs ("G&A")
increased by 148% to approximately $3.7 million during the nine months ended
September 30, 1998, compared to approximately $1.5 million during the
corresponding period in the prior year. The increase in G&A costs in 1998 from
1997 is related primarily to the Company's 1998 acquisitions and its growth in
revenue, resulting in an increase in the Company's overhead cost structure. As a
percentage of total revenues, G&A decreased to 34% during the nine months ended
September 30, 1998, as compared to 36% in the corresponding period in the prior
year.
Amortization of Customer Contracts. Amortization of customer contracts
increased by 268% to approximately $2.8 million during the nine months ended
September 30, 1998, compared to approximately $768,000 during the corresponding
period in the prior year. The increase in such costs resulted from the increase
in the amount of capitalized customer contracts, which increased to a net
balance of $30,513,599 at September 30, 1998 from $7,573,813 at September 30,
1997.
Depreciation and Amortization. Depreciation and amortization increased
by 70% to approximately $417,000 during the nine months ended September 30,
1998, compared to approximately $246,000 during the corresponding period in the
prior year. Such costs include depreciation of property and equipment (the gross
balance of which increased to approximately $2.9 million at September 30, 1998
from approximately $1.2 million at September 30, 1997 as a result of (i) the
Company's continued expansion activities and (ii) the Company's 1998
acquisitions (which resulted in additional property and equipment being
acquired), goodwill amortization (a gross balance of approximately $1.4 million
in goodwill was recorded in connection with the acquisitions, which is being
amortized over 10 years), and amortization of certain other intangible assets.
Interest Expense. Interest expense increased 41% to approximately $1.0
million during the nine months ended September 30, 1998, compared to
approximately $724,000 during the corresponding period in the prior year. The
increase in interest expense resulted from additional debt incurred primarily in
connection with acquiring subscriber accounts. The majority of such subscriber
acquisition costs were
12
<PAGE>
financed by Heller. Total borrowings under the Renewed Credit Facility increased
to approximately $14.6 million at September 30, 1998 from approximately $7.7
million at September 30, 1997.
Net Loss. Net loss applicable to common stock for the nine months ended
September 30, 1998 was approximately $2.2 million, or $(0.19) per share,
compared to a net loss of approximately $978,000, or $(0.14) per share, during
the corresponding period of the prior year.
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Revenue. Total revenues for the three months ended September 30, 1998
increased 197% to approximately $4.4 million from approximately $1.5 million
during the corresponding period in the prior year. Monitoring revenues for the
three months ended September 30, 1998 increased to approximately $2.5 million,
or 144% from approximately $1.0 million during the corresponding period of the
prior year. Installation and service revenues for the three months ended
September 30, 1998 increased by 315% to approximately $1.9 million, compared to
approximately $460,000 during the corresponding period of the prior year. Total
retail subscribers approximated 21,000 at September 30, 1998, compared to 11,800
at September 30, 1997, a net increase of 78%. The increase in revenues and
number of subscribers in 1998 from 1997 is primarily attributable to the
Company's 1998 acquisitions (see Note 2 to the Consolidated Financial
Statements).
Operating Expenses. Total operating expenses for the three months ended
September 30, 1998 increased 170% to approximately $3.4 million compared to
approximately $1.2 million during the corresponding period in the prior year.
Monitoring expenses increased 186% to approximately $552,000, compared to
approximately $193,000 during the corresponding period in the prior fiscal year.
As a percentage of monitoring revenues during the three months ended September
30, 1998, monitoring expenses were 22%, compared to 19% during the corresponding
period in the prior year. The increase in monitoring costs, in absolute as well
as on a percentage basis, from 1997 to 1998 was a result of the significant
increase in monitoring revenues and number of subscriber accounts, as well as
the acquisition of Mutual, which operates its own central monitoring station.
Installation and service costs during the three months ended September 30, 1998
increased by 247% to approximately $1.4 million, compared to approximately
$409,000 during the corresponding period in the prior year. The increase in
total installation and service costs in 1998 from 1997 was partly the result of
increases in related revenues in 1998 from 1997. As a percentage of installation
and service revenue, installation and service costs were 74% during the three
months ended September 30, 1998, compared to 89%, during the corresponding
period in the prior year, due to the larger gross margins Mutual derives from
its large commercial security system sales.
Gross Profit. Total gross profit, defined as total revenues less
monitoring and installation and service costs, increased by 176% to
approximately $2.4 million during the three months ended September 30, 1998,
compared to approximately $875,000 during the corresponding periods in the prior
year. Gross profit from monitoring revenues increased by 134% to approximately
$1.9 million during the three months ended September 30, 1998, compared to
approximately $824,000 during the corresponding period in the prior year. The
increase in gross profit from monitoring revenues is primarily attributable to
the Company's 1998 acquisitions. Gross profit from installation and service
activities increased by 861% to approximately $493,000 during the three months
ended September 30, 1998, compared to approximately $51,000 during the
corresponding period in the prior year. This increase is primarily due to the
profitability Mutual derives from its large commercial security system sales.
General and Administrative. General and administrative costs ("G&A")
increased by 116% to approximately $1.4 million during the three months ended
September 30, 1998, compared to approximately $646,000 during the corresponding
period in the prior year. The increase in G&A costs in 1998 from 1997 is related
primarily to the Company's 1998 acquisitions and its growth in revenue,
13
<PAGE>
resulting in an increase in the Company's overhead cost structure. As a
percentage of total revenues, G&A decreased to 32% during the three months ended
September 30, 1998, as compared to 44% during the corresponding period in the
prior year.
Amortization of Customer Contracts. Amortization of customer contracts
increased by 222% to approximately $1.1 million during the three months ended
September 30, 1998, compared to approximately $350,000 during the corresponding
period in the prior year. The increase in such costs resulted from the increase
in the amount of capitalized customer contracts, which increased to a net
balance of $30,513,599 at September 30, 1998 from $7,573,813 at September 30,
1997.
Depreciation and Amortization. Depreciation and amortization increased
by 75% to approximately $154,000 during the three months ended September 30,
1998, compared to approximately $88,000 during the corresponding period in the
prior year. Such costs include depreciation of property and equipment (the gross
balance of which increased to approximately $2.9 million at September 30, 1998
from approximately $1.2 million at September 30, 1997 as a result of (i) the
Company's continued expansion activities and (ii) the Company's 1998
acquisitions (which resulted in additional property and equipment being
acquired), goodwill amortization (a gross balance of approximately $1.4 million
in goodwill was recorded in connection with the acquisitions, which is being
amortized over 10 years), and amortization of certain other intangible assets.
Interest Expense. Interest expense increased 55% to approximately
$441,000 during the three months ended September 30, 1998, compared to
approximately $284,000 during the corresponding period in the prior year. The
increase in interest expense resulted from additional debt incurred primarily in
connection with acquiring subscriber accounts. The majority of such subscriber
acquisition costs were financed by Heller. Total borrowings under the Renewed
Credit Facility increased to approximately $14.6 million at September 30, 1998
from approximately $7.7 million at September 30, 1997.
Net Loss. Net loss applicable to common stock for the three months
ended September 30, 1998 was approximately $(907,000), or $(0.08) per share,
compared to a net loss of approximately $(493,000), or $(0.07) per share, during
the corresponding period of the prior year.
Liquidity and Capital Resources
Capital Resources. In May 1997, the Company refinanced its existing
credit facility with Heller. Under the Renewed Credit Facility, the maximum
credit facility available to the Company was increased from an existing $7.0
million to $15.0 million. In connection with the acquisition of Mutual (see Note
2), the Renewed Credit Facility was further amended to increase the maximum
available to $20.0 million. The Renewed Credit Facility expires in May 2001.
Availability under the Renewed Credit Facility is subject to certain "Borrowing
Base" limitations (as defined). In relation to the investment by Westar
Security, Inc. (see Note 7 "Subsequent Events"), in October 1998, Heller
consented to increase the Company's borrowing base and made other amendments to
conform the agreement with the activities discussed in Note 7. The Renewed
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 and other financial performance
covenants. The Company believes it was in compliance with all such covenants as
of September 30, 1998.
The Renewed Credit Facility will be used primarily for acquisitions of
subscriber accounts. The Company's continued plan of growth through acquisitions
of subscriber accounts is contingent upon its ability to borrow under the
Renewed Credit Facility.
14
<PAGE>
Liquidity. Net cash provided by operating activities during the nine
months ended September 30, 1998 was approximately $2.2 million. The Company
incurred a net loss of approximately $1.6 million during such period; however,
included in such loss was depreciation and amortization expense, amortization of
customer contracts expense and amortization of deferred financing costs totaling
approximately $3.4 million, bad debt provision of approximately $380,000, cash
outflows of approximately $1.5 million related to increases in accounts
receivable and other assets and cash inflows of approximately $1.4 million
related to net increases in liabilities.
Net cash used in investing activities was approximately $19.5 million
during the nine months ended September 30, 1998 and was comprised of
approximately $16.6 million used in the 1998 acquisitions, the purchase and
placement of customer accounts of approximately $1.8 million and the purchases
of fixed assets of approximately $1.1 million which includes equipment under
lease at customer premises of approximately $860,000.
Net cash provided by financing activities was approximately $17.7
million during the nine months ended September 30, 1998, consisting of net
proceeds from issuance of preferred stock of approximately $4.0 million,
proceeds under borrowings from Heller of approximately $15.5 million reduced by
repayments to Heller and other long-term debt of approximately $1.7 million. The
Company's cash balance was $503,126 at September 30, 1998.
Total shareholders' equity was $17,057,146 at September 30, 1998,
increasing by a net amount of $8,040,920 during the nine months ended September
30, 1998. The net increase resulted from the investment in the Company by Westar
Security, Inc. ("Westar") and the issuance of Class A Stock in connection with
the Company's 1998 acquisitions less the net loss of approximately $1.6 million.
Affiliation with Western Resources, Inc. As discussed in the Company's
1997 Form 10-KSB, in Part I, Item I "Recent Developments", Westar is a
wholly-owned subsidiary of Protection One, Inc. which is 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 and mezzanine capital; (ii) lowering its cost of
capital; (iii) improving its appeal to potential sellers of alarm accounts or
alarm companies and (iv) improving and expanding acquisition and investment
opportunities made available to the Company.
The Company does not currently have any significant commitments for
capital outlays.
Year 2000 Compliance
Guardian faces the same Year 2000 problem that other participants in
the security and alarm monitoring industry face given the high reliance on
computer-based monitoring and electronic customer site equipment. The Year 2000
problem is a result of prior computer programming limiting the use of the year
placeholder to a two digit number, such as "98", so that when the year 2000
arrives, many systems could interpret the year date "00" as being of the turn of
a prior century. Accordingly, many systems may fail or the processes which those
systems control may malfunction due to the inappropriate year interpretation.
Guardian does not believe that the Year 2000 problem will have a
significant impact on the Company or on its continuing ability to deliver
installation and alarm monitoring goods and services to its present installed
customer base and/or prospective customers.
15
<PAGE>
State of Readiness
The Company's primary business process is the act of monitoring
electronic signals, from equipment placed at residential and commercial customer
premises, which are generally sent over standard analog telephone lines.
Guardian conducts this primary process, including secondary processes of
accounting and financial reporting, through the use of systems acquired from
Monitoring Automation Systems (MAS). In a recent technical bulletin received
from MAS, the Company was informed that all of the MAS monitoring, database and
billing systems are Year 2000 compliant, however, its general ledger and
accounts payable programs are no longer being offered. Guardian is in the final
stages of selecting Year 2000 compliant general ledger and accounts payable
software, which it intends to install by early 1999. The Company's other
significant monitoring station resides at its Mutual subsidiary in New York. A
conversion process to a MAS central station package is nearing completion at
that site and will also be Year 2000 compliant.
The Company is aware of certain non-IT processes which are of critical
importance to Guardian's business, but are largely beyond the Company's ability
to control. These non-IT processes encompass the Company's interaction with
providers of local and long-distance telephony, local police and fire response,
utilities including, but not limited to, electricity and water, and both public
and private transportation.
In order to address the remainder of what the Company believes to be
its Year 2000 risk, it has developed a multi-phase plan to identify, assess and
remediate the Year 2000 problem from its business processes. Accordingly, the
Company has categorized the following phases through which it intends to
progress in the near future:
<TABLE>
<CAPTION>
Phase Estimated Completion Date
<S> <C> <C>
I. Identification February 1999
o Establish readiness program and methodology
o Identify all computer programs and collect manufacturers' statements
o Identify and evaluate all equipment with embedded programs
II. Assessment and Inventory April 1999
o Awareness assessment (vendors) and inventory phase
III. Contingency Plans June 1999
o Develop written contingency plan and policy
IV. Remediation and Testing August 1999
o Corrective application and sample testing
V. Post-Evaluation March 2000
o Post Y2K evaluation of life safety systems (implementation of full testing field services)
</TABLE>
Costs
The Company estimates that the total cost to remediate its controllable
Year 2000 risks will be approximately $30,000. These costs will primarily be
incurred on information technology-related (IT) upgrades. As of September 30,
1998, none of these dollars had been expended.
Risks
Guardian believes that its most reasonably likely worst case scenario
is a limited failure of some portion of its customer premise equipment leased by
Guardian. As a general rule, such equipment is Year 2000 compliant either as a
result of recent vendor updates and upgrades, new equipment, or equipment that
is not date dependent. However, the Company does not believe that it will be
able to
16
<PAGE>
physically visit, assess, test and potentially remediate all of its
approximately 5,000 leased systems that are currently in operation. The Company
intends to work in concert with its equipment vendors to ensure that the risk of
the most reasonable likely worst case scenario actually occurring is reduced to
a minimum level.
Contingency Plans
As of September 30, 1998, the Company had not developed specific,
actionable contingency plans and based on its current assessment anticipates not
having to create one. In the event of failure of the Company's primary
monitoring process, Guardian is currently capable of performing the monitoring
of electronic signals on a manual basis, as required by its Underwriters
Laboratory certification. However, as the Company works through the planned
phases described above, if the need to develop such a plan arises, a contingency
plan would be created prior to January 1, 2000.
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.
17
<PAGE>
GUARDIAN INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) Note 7, "Subsequent Events, to the Consolidated Financial Statements,
discussing the exchange of Series A Preferred Stock and Series B Preferred
Stock, is incorporated into this Item 2 by reference.
(b) Note 7, "Subsequent Events, to the Consolidated Financial Statements,
discussing the issuance of Series C Preferred Stock and Series D Preferred
Stock, is incorporated into this Item 2 by reference.
(c) The following issuance were exempt pursuant to Section 4(2) of the
Securities Act of 1933, as amended:
On August 13, 1998, the Company issued 289,018 shares of Class
A Stock, pursuant to a Stock Purchase Agreement dated August 13, 1998,
as partial consideration in acquiring all of the outstanding common
stock of Stat-Land Burglar Alarm Systems & Devices, Inc. (see Note 2 to
the Consolidated Financial Statements).
Date of Number of Common
Purchaser Purchase Shares
--------- -------- ------
Stat-Land sellers 8/13/98 289,018
Note 6, "Long Term Obligations", Note to Consolidated Financial
Statements, disclosing limitations on payments of dividends, is
incorporated into this Item 2 by reference. In addition, the Stockholders
Agreement dated as of October 21, 1998 by and among the Company, Westar and
Harold Ginsburg, Sheilah Ginsburg, Richard Ginsburg and Rhonda Ginsburg and
the Certificates of Designations for the Series C Preferred Stock and the
Series D Preferred Stock, incorporated by reference to Exhibits 10(b), 4(c)
and 4(d), respectively, of the Company's Form 8-K filed November 3, 1998,
set forth limitations on payments of dividends.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
Exhibit No. Description
- ---------- -----------
3(i) Articles of Incorporation dated October 30, 1986
incorporated by reference to Exhibit 3(i) of the Company's
Form 10-SB filed May 6, 1996
3(i)(a) Amendment to the Articles of Incorporation incorporated by
reference to Exhibit 3(i)(a) the Company's Form 10-SB filed
May 6, 1996
3(i)(b) Amendment to the Articles of Incorporation incorporated by
reference to Exhibit 3(i)(b) of the Company's Form 10-SB
filed May 6, 1996
3(i)(c) Amendment to the Articles of Incorporation incorporated by
reference to Exhibit 3(i)(c) of the Company's Form 10-SB/A
filed January 24, 1997
3(ii) Amended and Restated By-Laws of the Company incorporated by
reference to Exhibit 3(ii) of the Company's Quarterly Report
on Form 10-QSB filed as of November 14, 1997
4(a) Specimen Stock Certificate incorporated by reference to
Exhibit 4 of the Company's Form 10-SB12G as of June 18, 1996
18
<PAGE>
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, of Guardian International, Inc., 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,
incorporated by reference to Exhibit 4(b) of the Company's
Form 10-KSB filed March 31, 1998.
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, incorporated by reference to Exhibit 4(c) of the
Company's Form 10-KSB filed March 31, 1998.
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, incorporated
by reference to Exhibit 4(d) of the Company's Form 10-KSB
filed March 31, 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, incorporated
by reference to Exhibit 4(e) of the Company's Form 10-KSB
filed March 31, 1998.
4(f) 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., filed in the Office of the Secretary of
the State of Nevada on October 19, 1998, incorporated by
reference to Exhibit 4(a) of the Company's Form 8-K filed
November 3, 1998.
4(g) 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., filed in the Office of the Secretary of
the State of Nevada on October 19, 1998, incorporated by
reference to Exhibit 4(b) of the Company's Form 8-K filed
November 3, 1998.
4(h) Certificate of the Designations, Voting Powers, Preferences
and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of
Series C Preferred Stock, filed in the Office of the
Secretary of the State of Nevada on October 21, 1998
designating the third series of Preferred Stock of the
Company as "Series C 7.00% Redeemable Cumulative Preferred
Stock, par value $.001 per share", incorporated by reference
to Exhibit 4(c) of the Company's Form 8-K filed November 3,
1998.
4(i) Certificate of the Designations, Voting Powers, Preferences
and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations or Restrictions of
Series D Preferred Stock, filed in the Office of the
Secretary of the State of Nevada on October 21, 1998
designating the fourth series of Preferred Stock of the
Company as "Series D 6.00% Convertible Cumulative Preferred
Stock, par value $.001 per share", incorporated by reference
to Exhibit 4(d) of the Company's Form 8-K filed November 3,
1998.
10(a) Stock Purchase Agreement dated as of August 13, 1998.
10(b) Escrow Agreement dated as of August 13, 1998.
19
<PAGE>
10(c) Employment Agreement between Vincent Monardo and the Company
dated August 13, 1998.
10(d) Employment Agreement between Kevin Killea and the Company
dated August 13, 1998.
10(e) Employment Agreement between Michael Assenza and the Company
dated August 13, 1998.
10(f) Employment Agreement between Paul Ferrara and the Company
dated August 13, 1998
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
1. Form 8-K filed as of September 1, 1998 announced the selection of Arthur
Andersen LLP to serve as the Company's independent accountants to
replace McKean, Paul, Chrycy, Fletcher & Co., who were dismissed
effective September 1, 1998.
20
<PAGE>
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, as of the 16th day of November, 1998.
GUARDIAN INTERNATIONAL, INC.
By: /s/ DARIUS G. NEVIN
------------------------------------------
Darius G. Nevin
Chief Financial Officer and Vice President
21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10(a) Stock Purchase Agreement dated as of August 13, 1998.
10(b) Escrow Agreement dated as of August 13, 1998.
10(c) Employment Agreement between Vincent Monardo and the Company
dated August 13, 1998.
10(d) Employment Agreement between Kevin Killea and the Company
dated August 13, 1998.
10(e) Employment Agreement between Michael Assenza and the Company
dated August 13, 1998.
10(f) Employment Agreement between Paul Ferrara and the Company
dated August 13, 1998
27 Financial Data Schedule (for SEC use only)
22
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (this "Agreement"), dated August 13,
1998, is by and among Guardian International, Inc., a Nevada corporation
("Guardian"), Mutual Central Alarm Services, Inc., a New York corporation and a
wholly-owned subsidiary of Guardian (the "Buyer") and Paul Ferrara and Stella
Ferrara, (individually, a "Seller" and collectively, the "Sellers").
W I T N E S S E T H:
--------------------
WHEREAS, the Sellers are the owners of all of the issued and
outstanding shares (the "STAT-LAND Shares") of common stock, without par value
(the "Common Stock"), of Stat-Land Burglar Alarm Systems & Devices, Inc., a New
York corporation (the "Company"); and
WHEREAS, the Buyer desires to buy from the Sellers and the
Sellers desire to sell to the Buyer all of the STAT-LAND Shares, at the price
and subject to the terms and conditions as more fully described herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, representations and warranties made herein, the parties agree
as follows:
1. Purchase and Sale of STAT-LAND Shares.
1.1. Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cummings & Lockwood, Four Stamford Plaza, 107 Elm Street, Stamford,
Connecticut 06904 on August 13, 1998 (the "Closing Date") or at such other place
and/or on such earlier date as the parties may agree.
1.2. Transfer of the STAT-LAND Shares. Upon the terms and
subject to the conditions hereof, the Sellers hereby sell, assign, transfer and
deliver the STAT-LAND Shares to the Buyer, free and clear of all options,
pledges, security interests, liens, mortgages, claims, debts, charges, voting
agreements, voting trusts or other encumbrances or restrictions on transfer of
any kind whatsoever (collectively, the "Liens"), and the Buyer hereby purchases
and acquires the STAT-LAND Shares from the Sellers.
1.3. Purchase Price.
(a) Subject to Downward Adjustment or Upward
Adjustment, as required in Section 1.6 of this Agreement, the aggregate purchase
price (the "Purchase Price") to be paid by the Buyer in exchange for the
STAT-LAND Shares shall be an amount equal to Two Million Eight Hundred Fifty
Thousand Dollars ($2,850,000), which Purchase Price shall be paid
contemporaneously with the execution of this Agreement by the Buyer and Guardian
to the Sellers in cash and restricted shares of Guardian's Class A Voting Common
Stock, par value $.001 per share (the "Guardian Common Stock") in accordance
with Sections 1.4 and 1.5 hereof.
Stock Purchase Agreement -- Page 1
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1.4. Payment of the Cash Portion of the Purchase Price. At the
Closing, the Buyer shall pay and deliver cash in the amount of $2,400,000 (the
"Cash Amount") as follows:
(a) By delivery to Olympian Bank of cash in the
amount of $137,471.67 by wire transfer to Olympian Bank, Brooklyn, NY, ABA
#026011882, for credit to Stat-Land Burglar Alarm Systems, Loan #B/L 151970810
and Loan #C/L 5110006961.
(b) By delivery to Richmond County Savings Bank of
cash in the amount of $27,359.66 by wire transfer to Richmond County Savings
Bank, 1214 Castleton Avenue, Staten Island, NY 10310, ABA/Routing # 2260-7102-0,
for credit to Stat-Land Burglar Alarm Systems & Device, Commercial Loan # 51612.
(c) By delivery to the Sellers by wire transfer of
immediately available funds to the accounts previously designated in writing to
the Buyer by the Sellers, in an amount equal to $13,431.00 in full satisfaction
of Sellers' loan to the Company.
(d) By delivery to the Sellers by wire transfer of
immediately available funds to the accounts previously designated in writing to
the Buyer by the Sellers, in an amount equal to $2,221,737.67.
1.5. Payment of Stock Portion of the Purchase Price.
(a) Subject to the provisions of Section 1.5(b)
below, the non-cash portion of the Purchase Price shall be paid by Guardian's
issuance at the Closing of that number of shares of Guardian Common Stock
(rounded up or down to the nearest whole number of shares of Guardian Common
Stock) (collectively, the "Guardian Shares") having an aggregate market value of
Four Hundred Fifty Thousand Dollars ($450,000), which Guardian Shares shall be
issued in accordance with this Section 1.5. The market value of each share of
Guardian Common Stock (the "Guardian Market Value") shall be calculated as the
average market value for the thirty (30) consecutive trading days ending at the
close of business on the fifth (5th) business day prior to the execution of this
Agreement, which daily market value shall be the last trade price (and if not
traded, the last trade price of the previous trading day on which the Guardian
Common Stock traded) per share of the Guardian Common Stock in the
over-the-counter market as reported by any system maintained by the NASD or any
comparable system.
(b) Guardian shall issue a Guardian Common Stock
certificate in the name of Amabile & Erman, P.C. (the "Escrow Agent"),
Stock Purchase Agreement -- Page 2
<PAGE>
representing that number of Guardian Shares (as adjusted pursuant to Section
1.9, the "Escrow Shares") having an aggregate Guardian Market Value equal to
Four Hundred Thirty-Five Thousand Dollars ($435,000) (as adjusted pursuant to
Section 1.9, the "Escrow Fund"). Such certificate shall be delivered to the
Escrow Agent to be held and distributed by the Escrow Agent in accordance with
the terms of the escrow agreement in the form of Exhibit A hereto (the "Escrow
Agreement") to be entered into by and among the Buyer, the Sellers and the
Escrow Agent. The Escrow Shares held by the Escrow Agent pursuant to the Escrow
Agreement shall be used in the event of the Sellers' breach of the
representations, warranties, covenants or guarantees of the Sellers contained
herein and shall be disbursed by the Escrow Agent in accordance with the terms
hereof and the Escrow Agreement. The Escrow Agent shall release to the Sellers
one-third (1/3) of the Escrowed Shares on October 1, 1999 and an additional
one-third (1/3) of the Escrowed Shares on October 1, 2000, less any claims made
against the Escrowed Shares by the Buyer in accordance with the terms of the
Escrow Agreement prior to each such release.
(c) Guardian shall issue to the Sellers one or more
Guardian Common Stock certificates having an aggregate Guardian Market Value as
determined at the time of the Closing equal to Fifteen Thousand Dollars
($15,000).
1.6. Adjustment to Purchase Price. The Purchase Price shall be
adjusted on a dollar for dollar basis up or down by the amount equal to the
difference between the current assets of the Company less the total liabilities
of the Company, in each case as of the close of business on the date immediately
preceding the execution of this Agreement (the "Purchase Price Adjustment"). The
current assets and the liabilities shall be determined in accordance with
generally accepted accounting principles and shall be prepared from the books
and records of the Company.
If the Purchase Price Adjustment is a positive dollar
amount, the Purchase Price shall be increased by the Purchase Price Adjustment
(an "Upward Adjustment"). If the Purchase Price Adjustment is a negative dollar
amount, the Purchase Price shall be reduced by the Purchase Price Adjustment (a
"Downward Adjustment").
1.7. Determination of the Purchase Price Adjustment.
(a) The Buyer shall have forty-five (45) days
following the Closing (the "Audit Period") to prepare the Closing Date financial
statements of the Company necessary to calculate the Purchase Price Adjustment,
or have such statements prepared by an independent accounting firm of the
Buyer's choosing, and to deliver to the Sellers a report (an "Audit Report") of
the results of such audit and the Buyer's calculation of the Purchase Price
Adjustment.
(b) The Sellers shall have fifteen (15) business days
following their receipt of the Audit Report (the "Sellers' Review Period") to
review the Audit Report and the Buyer's calculation of the Purchase Price
Adjustment. If, upon the expiration of the Seller's Review Period, the Seller
shall have failed to notify the Buyer in writing (an "Adjustment Dispute
Notice") of any dispute (an "Adjustment Dispute") regarding the Audit Report and
the Buyer's calculation of the Purchase Price Adjustment, the Buyer's
determination shall be final, binding and conclusive. In the event of an
Adjustment Dispute, such dispute shall be resolved as provided in Section 1.8
below.
Stock Purchase Agreement -- Page 3
<PAGE>
1.8. Adjustment Dispute Resolution.
(a) If prior to the expiration of the Sellers' Review
Period, the Sellers deliver an Adjustment Dispute Notice to the Buyer, then for
a period of twenty (20) days following the Buyer's receipt of the Adjustment
Dispute Notice (the "Negotiation Period"), the Buyer and the Seller shall
negotiate in good faith to resolve the dispute. If the dispute is not finally
resolved by the parties within the Negotiation Period, then the dispute shall be
referred to an accounting firm mutually agreed upon by the parties or, if the
parties cannot agree, to the New York office of Price Waterhouse & Co. (the
"Arbitrator") for resolution in accordance with the terms hereof (the
"Arbitration"), and in any event as soon as practicable. In the event that the
parties cannot agree on an accounting firm and Price Waterhouse & Co. is then
unwilling or unable to serve as the Arbitrator, the parties hereto shall, within
fifteen (15) days following the parties' receipt of notice from Price Waterhouse
& Co. thereof, select by mutual written agreement another nationally recognized
certified public accounting firm to serve as the Arbitrator.
(b) The Arbitrator shall hold a hearing within sixty
(60) days of the submission of the dispute for arbitration (the "Hearing") and
shall render a decision within thirty (30) days of the conclusion of such
Hearing. Any decision made by the Arbitrator within the scope of its authority
shall be final, binding and non-appealable. The Arbitrator's decision regarding
its final resolution of the dispute (the "Arbitrator's Decision") shall be in
writing, shall set forth the calculations made in reaching its decision, shall
describe the manner in which such calculations were made, and shall include a
representation that the manner so used was in accordance with the specific terms
of this Agreement. The Arbitrator's Decision shall specifically set forth the
Arbitrator's calculation of the Purchase Price Adjustment.
(c) The Arbitrator shall only be authorized on any
one issue in dispute either (i) to decide in favor of and select either the
position of the Buyer or the Seller, or (ii) to decide upon a compromise
position between the positions of the Buyer and the Seller. The Arbitrator shall
base its decision solely upon the presentations of the parties at the Hearing
and any materials made available during any aspect of the Hearing and not upon
independent review.
(d) Any such Arbitration shall take place in New
York, New York, unless the parties shall mutually agree on another location. The
Arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Section 1 through 16, and judgment upon the award of the Arbitrator may be
entered by any court having jurisdiction thereof.
Stock Purchase Agreement -- Page 4
<PAGE>
(e) The fees and expenses of the Arbitrator shall be
borne fifty percent (50%) by the Sellers and fifty percent (50%) by the Buyer.
Notwithstanding the foregoing, the parties hereto shall bear their own costs and
expenses related to any such Arbitration.
(f) Upon the request of the Arbitrator, each party
hereto agrees to enter into an arbitration agreement providing reasonable
protection to the Arbitrator, in such form as may be mutually acceptable to the
Arbitrator and the parties hereto.
1.9. Payment of Purchase Price Adjustment.
(a) In the event of an undisputed Purchase Price
Adjustment:
(i) if there is a Downward Adjustment, the
Sellers shall pay such amount in accordance with Section
1.9(c) no later than fifteen (15) days after the determination
of the Purchase Price Adjustment; and
(ii) if there is an Upward Adjustment, the
Buyer shall pay such amount in accordance with Section 1.9(d)
no later than fifteen (15) days after the determination of the
Purchase Price Adjustment.
(b) In the event of an Adjustment Dispute, upon
receipt of the Arbitrator's Decision or mutual agreement of the Buyer and the
Seller:
(i) if there is a Downward Adjustment, then
the Sellers shall pay such amount in accordance with Section
1.9(c) no later than fifteen (15) days after the Sellers'
receipt of the Arbitrator's Decision or the reaching of a
mutual agreement; and
(ii) if there is an Upward Adjustment, the
Buyer shall pay such amount in accordance with Section 1.9(d)
no later than fifteen (15) days after the Buyer's receipt of
the Arbitrator's Decision or the reaching of a mutual
agreement.
(c) The amount of any Downward Adjustment shall be
paid as follows:
(i) Fifteen percent (15%) of such amount
shall be paid to the Buyer from the Escrow Fund by delivery to
the Buyer of that number of Escrow Shares having an aggregate
Guardian Market Value equal to fifteen percent (15%) of the
amount of the Downward Adjustment;
(ii) Two percent (2%) of such amount shall
be paid by the Sellers to the Buyer by delivery of shares of
Guardian Common Stock having an aggregate Guardian Market
Value equal to two percent (2%) of the amount of the Downward
Adjustment; and
Stock Purchase Agreement -- Page 5
<PAGE>
(iii) The balance of such amount shall be
paid by the Sellers to the Buyer in cash.
(d) The amount of any Upward Adjustment shall be paid
as follows:
(i) Fifteen percent (15%) of such amount
shall be paid by the Buyer by delivery to the Escrow Agent of
certificates for that number of shares of Guardian Common
Stock having an aggregate Guardian Market Value equal to
fifteen percent (15%) of the amount of the Upward Adjustment;
(ii) Two percent (2%) of such amount shall
be paid by the Buyer by delivery to the Sellers of
certificates for that number of shares of Guardian Common
Stock having an aggregate Guardian Market Value equal to two
percent (2%) of the amount of the Upward Adjustment; and
(iii) The balance of such amount shall be
paid by the Buyer to the Sellers in cash.
For purposes of valuing the Guardian Common Stock in respect of payment of a
Purchase Price Adjustment hereunder, each share of Guardian Common Stock shall
be valued at the Guardian Market Value as determined at the time of the Closing.
1.10. Deliveries.
(a) At the Closing, the Sellers shall deliver to the
Buyer:
(i) Certificates representing the STAT-LAND
Shares free and clear of all Liens, either duly endorsed in
blank or accompanied by duly executed stock powers;
(ii) The books and records of the Company;
(iii) An employment agreement in
substantially the form attached hereto as Exhibit B, duly
executed by Paul Ferrara (the "Employment Agreement");
(iv) The Escrow Agreement, duly executed by
the Sellers;
(v) True copies of the Articles of
Incorporation and current Bylaws of the Company; a certificate
of good standing with regard to the Company, together with an
incumbency certificate reasonably satisfactory to the Buyer's
counsel;
Stock Purchase Agreement -- Page 6
<PAGE>
(vi) Compiled financial statements of the
Company for fiscal year ended December 31, 1997 and a comfort
or "negative assurances" letter for the interim financial
statements of the Company for the period ended June 30, 1998
from Ruffulo & Rudder, CPAs;
(vii) A Qualified Investor Questionnaire and
the Representations and Warranties of Shareholders
substantially in the forms of Exhibit C and Exhibit D
respectively in a manner which does not adversely affect the
exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act");
(viii) Evidence that the Sellers have caused
the Company to collect all principal, interest and other
amounts due from any Affiliate and on all outstanding loans
made by the Company;
(ix) Evidence that the Company has paid, or,
upon payment pursuant to Section 1.4(a), will have caused to
be paid, all principal, interest and other amounts on all
outstanding loans payable by the Company, including, without
limitation, payoff letters from Olympian Bank and Richmond
County Savings Bank agreeing to deliver UCC-3 termination
statements upon payment as set forth in Section 1.4(a),
respectively;
(x) UCC-3 termination statements from
Gateway State Bank or its successor releasing all its liens on
the assets of the Company;
(xi) Employment Agreements in substantially
the form attached hereto as Exhibit E, duly executed before a
notary by (i) Michael Assenza, (ii) Vincent Monardo, and (iii)
Kevin Killea (collectively, the "At Will Employment
Agreements");
(xii) Evidence of compliance with applicable
state securities laws; and
(xiii) All other previously undelivered
documents required pursuant hereto to be delivered by the
Sellers, on behalf of the Sellers or the Company, to the Buyer
at or prior to the Closing in connection with the purchase and
sale of the STAT-LAND Shares and the other transactions
contemplated hereby.
(b) At the Closing, the Buyer or Guardian, as the
case may be, shall deliver to the Sellers and/or such other recipient, as the
case may be:
Stock Purchase Agreement -- Page 7
<PAGE>
(i) The Purchase Price, as determined and in
the manner required by Section 1.3, 1.4 and 1.5 hereof;
(ii) The Employment Agreement, duly executed
by the Buyer;
(iii) The At Will Employment Agreements,
duly executed by the Buyer;
(iv) The Escrow Agreement, duly executed by
the Buyer;
(v) True copies of the Articles of
Incorporation and current Bylaws of each of the Buyer and
Guardian; a certificate of good standing with regard to the
Buyer, together with appropriate corporate resolutions and
incumbency certificates reasonably satisfactory to the
Sellers' counsel;
(vi) All other previously undelivered
documents required pursuant hereto to be delivered by the
Buyer and/or Guardian to the Sellers at or prior to the
Closing in connection with the purchase and sale of the Shares
and the other transactions contemplated hereby.
1.11. Release. Effective as of the Closing Date, the Sellers
hereby forever release and discharge the Company from any and all claims of the
Sellers against the Company for any liabilities or obligations of the Company
whether known or unknown, fixed or contingent.
2. Representations and Warranties of the Sellers.
The Sellers hereby jointly and severally represent and warrant
to the Buyer as follows:
2.1. Corporate Organization and Good Standing. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of New York, and has full corporate power and authority to
carry on its business as it is now being conducted (the "Business") and to own
the properties and assets it now owns. Except as set forth on Schedule 2.1, the
Company is duly qualified as a foreign corporation or authorized to transact
business in and is in good standing under the laws of each jurisdiction in which
the conduct of its Business or the ownership of its assets requires such
qualification or authorization, which jurisdictions are set forth in Schedule
2.1. The Sellers shall cause the Company to, simultaneously herewith, deliver to
the Buyer complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company as presently in effect. True, complete and correct copies
of the minute books of the Company have been previously delivered to the Buyer.
The minute books are current as required by law, contain the minutes of all
meetings of the incorporators, Board of Directors, committees of the Board of
Directors, if any, and the shareholders thereof from the date of incorporation
to the date hereof, and accurately reflect all material actions taken by the
incorporators, Board of Directors, committees of the Board of Directors and
shareholders of the Company. All capital stock of the Company, including the
Shares, have been issued in compliance with all applicable federal and state
Stock Purchase Agreement -- Page 8
<PAGE>
securities laws. Except as set forth in Schedule 2.1, the Company has no
subsidiaries and owns no capital stock or other securities or interests of or in
any other entity, partnership or joint venture. The transactions contemplated
herein have been approved by all necessary corporate action on the part of the
Company and its shareholders.
2.2. Capitalization. The authorized capital stock of the
Company consists of two hundred (200) shares of Common Stock, without par value,
of which two hundred (200) are issued and outstanding. All issued and
outstanding shares of capital stock of the Company are owned jointly by the
Sellers, are validly issued, fully paid, and non-assessable, and are not subject
to and have not been issued in violation of any preemptive rights and are not
subject to any restriction on transfer under the Certificate of Incorporation or
Bylaws of the Company or under any agreement or otherwise, except as otherwise
set forth on Schedule 2.2. Except as set forth on Schedule 2.2, no shares of
capital stock of the Company are held in the treasury of the Company, and there
are no outstanding (a) securities convertible into or exchangeable for any of
the capital stock of the Company, (b) options, warrants or other rights to
purchase or subscribe to capital stock of the Company, or (c) commitments,
agreements or understandings of any kind relating to the issuance, redemption or
repurchase by the Company or others of any capital stock thereof, any such
convertible or exchangeable securities or any options, warrants or rights.
Except as listed on Schedule 2.2, neither the Sellers nor the Company have
entered into any agreement or commitment to register its equity or debt
securities under the Securities Act of 1933, as amended (the "Securities Act").
There are no dissenter's rights in connection with the transactions contemplated
by this Agreement.
2.3. Title of Stock. The Sellers are the record and beneficial
owners of the Shares, free and clear of any and all Liens, which STAT-LAND
Shares represent one hundred percent (100%) of the authorized, issued and
outstanding capital stock of the Company and, upon the sale of the STAT-LAND
Shares in accordance with this Agreement, the Buyer will acquire good, valid and
indefeasible title to the STAT-LAND Shares, free and clear of any and all Liens.
2.4. Authorization; Validity. The Sellers have full power,
capacity and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Sellers and is the legal, valid and binding
obligation of the Sellers, enforceable in accordance with its terms, except to
the extent such enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditor's rights
generally, and (ii) subject to general principles of equity.
Stock Purchase Agreement -- Page 9
<PAGE>
2.5. No Violation. The Sellers hereby represent and warrant
that neither the execution and delivery of this Agreement nor the performance by
the Sellers of their obligations hereunder will (a) violate any provision of the
Certificate of Incorporation or By-laws of the Company, (b) with or without the
giving of notice or the passage of time, violate, or be in conflict with, or
constitute a breach or default under (or would constitute a default or result in
a breach with the giving of notice, lapse of time or both), or require the
consent of any other party to, or result in the creation or imposition of any
Lien upon any of the assets of the Company under, any agreement or commitment to
which the Company is a party or by which it is bound, or (c) violate any
authorization, consent, approval, license, statute or law or any judgment,
decree, order, regulation or rule of any court, administrative agency or any
federal, state, local, municipal, or foreign government, governmental or
quasi-governmental agency or authority, or body exercising any administrative,
executive, or regulatory authority (each, a "Governmental Authority") or
arbitrator to which the Company (or its assets and properties), the Sellers or
the STAT-LAND Shares is subject.
2.6. Consent and Approvals. The Sellers hereby represent and
warrant that no consent, approval or authorization of or declaration, filing or
registration with, any federal, state, local or other Governmental Authority
(including, based in part upon representations of the Buyer, the Federal Trade
Commission and the Antitrust Division of the Department of Justice pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) or other
third party is required to be made or obtained by the Company or the Sellers in
connection with the execution, delivery and performance of this Agreement, nor
is any corporate, shareholder or board of directors action required.
2.7. Brokers. No broker, finder or other similar intermediary
has been engaged by the Company or the Sellers (or on their behalf) in
connection with the transactions contemplated by this Agreement.
2.8. Licenses; Compliance. Schedule 2.8 sets forth separately
as to the Company all material authorizations, consents, approvals, licenses and
permits required under applicable law or regulation for the ownership or
operation of the assets owned or operated by the Company or for the conduct of
the Business of the Company. All such authorizations, consents, approvals,
licenses and permits (collectively, the "Authorizations") have been duly issued
or obtained and are in full force and effect. Except as otherwise set forth in
Schedule 2.8, the Company is in compliance with (i) the terms and conditions of
all such Authorizations, (ii) all laws, statutes, regulations and ordinances
affecting the Company and its Business and assets, and (iii) all judgments,
orders, decrees, rulings or other decisions of any Governmental Authority, court
or arbitrator having jurisdiction over the Company. The Sellers have no reason
to believe that such Authorizations will not be renewed by the issuing
Governmental Authority in the ordinary course. None of such Authorizations is
subject to any restriction or condition which would limit in any material
respect the Business and operations of the Company.
Stock Purchase Agreement -- Page 10
<PAGE>
2.9. Financial Statements. The unaudited compiled financial
statements of the Company for the calendar years ending as of December 31, 1997
and December 31, 1996, including, without limitation, the balance sheets,
statements of income, changes in financial position and shareholders equity of
the Company, including related notes, if any, and the unaudited financial
statements of the Company for the calendar quarters ended March 31, 1998, and
the months ended May 31 and June 30, 1998, as certified by the Sellers and as
reviewed by Ruffulo & Rudder, CPAs, independent auditors of the Company
(collectively, the "Financial Statements"), are in accordance with the books and
records of the Company, were prepared in accordance with generally accepted
accounting principles consistently applied and fairly present the financial
condition of the Company and the results of its operations for the periods
ending on such dates, respectively. True and complete copies of the Financial
Statements are attached as Schedule 2.9. The Company has maintained its books
and records in accordance with sound business practices and generally accepted
accounting principles, consistently applied, including, without limitation, the
maintenance of an adequate system of internal controls.
2.10. Absence of Changes. Except as set forth in Schedule
2.10, since December 31, 1997, the Company has not: (a) suffered any material
adverse effect in its financial condition, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves, Business, prospects or operations;
(b) incurred any material liabilities or obligations (whether absolute, accrued,
contingent or otherwise), except items incurred in the ordinary course of its
Business; (c) increased, or experienced any material change in any assumptions
underlying, or methods of calculating, any bad debt, contingency or other
reserves; (d) permitted or allowed any of its assets to be subjected to any
Liens of any kind; (e) leased, sold, transferred or otherwise disposed of any of
its assets except in the ordinary course of its Business; (f) made any capital
expenditure or commitment for replacements or additions or structural
improvements or maintenance to property, plant, equipment or other capital
assets in excess of $25,000; (g) declared, paid or set aside for payment any
dividend or other distribution with respect to its capital stock, redeemed,
purchased or otherwise acquired, directly or indirectly, any shares of capital
stock or other securities of the Company; (h) made any change in its method of
accounting or accounting practice; (i) issued, sold or delivered or agreed to
issue, sell or deliver any shares of capital stock of the Company or any
options, warrants or rights to acquire capital stock or securities convertible
into or exchangeable for capital stock, (j) increased the salaries,
compensation, pension or other benefits payable to any manager or employee of
the Company or entered into any employment agreement with any officer or
salaried employee that is not terminable by the employer, without cause and
without penalty on thirty (30) days notice or less; (k) forgiven or canceled any
claims or waived any rights of material value; (l) suffered any casualty,
damage, destruction or property loss (whether or not covered by insurance)
materially adversely effecting the Company; (m) suffered any loss of employees
due to resignation or customers that materially adversely affects the Company;
or (n) agreed, whether in writing or otherwise, to take any of the actions
described in this Section 2.10.
Stock Purchase Agreement -- Page 11
<PAGE>
2.11. Undisclosed Liabilities. Except as set forth in
Schedules 2.10 and 2.11, the Company has no liabilities, obligations or
unrealized or anticipated losses (whether accrued, absolute, contingent, mature,
unmatured, whether due or to become due or otherwise) which might be or become a
charge against the Company or its assets, including any "loss contingencies"
considered "probable" or "reasonably possible" within the meaning of the
Financial Accounting Standard Board's Statement of Financial Accounting
Standards No. 5, except trade payables and similar liabilities and obligations
incurred in the ordinary course of the Business since the date of the Financial
Statements, that are not fairly and adequately reflected or reserved against on
the Financial Statements, and, to the knowledge of the Sellers, there is no
circumstance, condition, event or arrangement that hereafter is likely to give
rise to any such liabilities, obligations or losses.
2.12. Litigation; Disputes. Except as set forth in Schedule
2.12, there is no action, suit, proceeding, mediation or investigation pending,
or to the knowledge of the Sellers, threatened against or relating to the
Company or its assets or against the Sellers relating to the Company before any
court, Governmental Authority, mediator or arbitrator, and, to the knowledge of
the Sellers, there is no reasonable basis for the institution of any such
action, suit, proceeding, mediation or investigation. All the actions, suits,
proceedings, mediation or investigations described on Schedule 2.12 are being
diligently prosecuted and, except as set forth in Schedule 2.12, are adequately
covered by insurance or adequate reserves have been set aside therefor on the
Financial Statements.
2.13. Taxes; Tax Elections. "Tax" as used herein shall mean
any tax (including any income tax, capital gains tax, value-added tax, sales
tax, property tax, gift tax or estate tax), levy, assessment, tariff, duty,
deficiency, or other fee, and any related charge or amount (including any fine,
penalty, interest, or addition to tax), imposed, assessed, or collected by or
under the authority of any Governmental Authority. The Company is currently, and
has been since formation, operating as an "S" corporation pursuant to Section
1362 of the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the United States Internal Revenue Service (the "IRS") pursuant to the
Internal Revenue Code and any successor law (the "Code") and the provisions of
all applicable state laws. The Company has duly and timely filed, caused to be
filed or has obtained extensions to file all foreign, federal, state and local
Tax returns and reports which are required to be filed by it, and which returns
are true, complete and correct, and has duly and timely paid or caused to be
paid, withheld and/or paid over or has reserved on its books amounts sufficient
for the payment of, all Taxes as shown on said returns or on any assessment
received by it and all penalties and interest and has provided copies of same as
requested by Buyer. The federal income Tax returns of the Company have never
been examined by the IRS. Except as set forth in Schedule 2.13, the Tax returns
of the Company are not presently being audited by the appropriate foreign,
federal, state or local authorities, nor are there currently in effect with
respect to the Company any agreements for the extension or waiver of any statute
of limitations on the assessment or collection of any Tax. The Company has
provided copies of all material correspondence and/or communications regarding
the audits listed in Schedule 2.13 and no deficiency has been asserted with
respect to same except as disclosed on Schedule 2.13. The Company has
established adequate reserves for the payment of Taxes for years subsequent to
those covered by filed returns. No Tax liens have been filed against the assets
of the Company, no claim for any additional Tax is being asserted against the
Company by any Tax authority, and neither the Sellers nor the Company have been
notified of, and, to the knowledge of the Sellers, there is no valid basis for,
any claim being asserted with respect to any Taxes. Except as set forth in
Schedule 2.13, there is no action, suit, proceeding, investigation or audit
pending or, to the best knowledge of the Sellers, threatened against the Company
Stock Purchase Agreement -- Page 12
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in respect to any Tax. All foreign, federal, state, county and local Taxes or
contributions (including interest and penalties, if any) payable by the Company
on or prior to the date hereof were paid when due, and will be paid to the
extent they become due and payable after the date hereof, and there are no
unpaid Taxes which are or could become a Lien on the properties, Business or
assets of the Company. The Company has not filed a consent to the application of
Section 341(f)(2) of the Code, with regard to any property held, acquired or to
be acquired at any time. The Company has not been a member of an affiliated
group filing a consolidated income Tax return nor has any liability for Taxes of
any Person under Treasury Regulation Section 1-1502-6 or any similar provision
of state, local or foreign law. The Company is not obligated nor is a party
under any agreements pursuant to which it may be obligated to make payments
which are not deductible under Section 280G of the Code.
2.14. Bank Accounts. Attached hereto as Schedule 2.14 is a
true and complete list of the names and addresses of all banks and other
financial institutions in which the Company has any accounts, deposits or safe
deposit boxes, and the names of all persons authorized to draw on such accounts
or deposits or to have access to such safe deposit boxes. Except as listed on
Schedule 2.14, as of the Closing, no Person will hold a power of attorney on
behalf of the Company. The books of account of the Company show all checks and
drafts outstanding, and, except as disclosed on Schedule 2.14, there are
sufficient funds in the accounts listed on Schedule 2.14 to pay any and all
checks or drafts presented or outstanding but not yet presented on said
accounts.
2.15. Real Property. The Company owns no real property.
2.16. Leased Property. The Sellers have previously delivered
to the Buyer true and complete copies of the leases of the Company with respect
to both leased real property and leased personal property (respectively, the
"Real Property Leases" and the "Personal Property Leases" and, collectively, the
"Leases" and such property, the "Leased Property"). Schedule 2.16 sets forth a
list of the Leases and separately designates which Leases contain change in
control provisions or otherwise require the consent, waiver or approval of the
other parties thereto with respect to the consummation of the Transactions. The
Leases are the valid and legally binding obligations of the Company and the
lessors thereunder, enforceable in accordance with their respective terms, and
are in full force and effect. None of the real property leased under the Real
Property Leases is affected by, subject to or, to the knowledge of the Sellers,
threatened by any condemnation or eminent domain proceedings or any assessments
for public improvements. Except as set forth on Schedule 2.16, (a) the Company
has valid leasehold interests in all of the leased real and personal property
subject to the Leases; (b) neither the Company nor the Sellers have received any
notice of default or breach under any of the Leases; (c) none of the Leases are
in default; and (d) no event has occurred which, with the passage of time or the
giving of notice or both, would constitute a default thereunder. The Company
Stock Purchase Agreement -- Page 13
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has, or will have on or before the Closing Date, delivered all notices to, and
obtained all consents, waivers and approvals from all parties that are required
in connection with the transactions contemplated by this Agreement including,
without limitation, estoppel letters from the landlords with respect to the Real
Property Leases, in form and substance reasonably satisfactory to the Buyer. The
Company enjoys peaceful and undisturbed possession of the Leased Property.
2.17. Title. The Company has valid leasehold interests in all
of its leased property and assets, and good and marketable title to all of its
other property and assets, tangible or intangible, reflected in the Financial
Statements or purported to have been acquired by the Company subsequent to the
date of such statements. Except as set forth in Schedule 2.17 and in the
Financial Statements, such property and assets are free and clear of
restrictions on or conditions to transfer or assignment, and are free and clear
of all Liens, other than Liens for current Taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings (and for
which adequate reserves have been established) and other minor encumbrances
arising in the ordinary course of the Business, that are not substantial in
amount, do not, in any single case or in the aggregate, detract from or
interfere in, the current or future operations of the Business and operations of
the Company. Except as set forth on Schedule 2.17, there are no shared or
jointly owned assets or facilities between or among the Company and those of the
Sellers' Affiliates. "Affiliates" shall be defined in this Agreement to mean, as
to any Person, any other Person, which, directly or indirectly, is in control
of, is controlled by, or is under common control with, such Person. The term
"control," as applied to any Person, means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or other
ownership interest, by contract or otherwise. A true, accurate and complete copy
of the asset list of the Company, setting forth a description of all the
material tangible and intangible assets of the Company is attached hereto as
Schedule 2.17. Such assets constitute all of the assets necessary to operate the
Business in the ordinary course consistent with past practices.
2.18. Condition of Properties. The plants, structures and
equipment of the Company and all other property and assets owned or used by the
Company are in good operating condition, and are structurally sound, reasonable
wear and tear excepted, and are available for immediate use in the Business and
operations of the Company. To the knowledge of the Sellers, the Leased Real
Property and the plants, structures, equipment and other improvements located
thereon, and the present use thereof, comply with all zoning, land use and other
laws, ordinances and regulations of all Governmental Authorities having
jurisdiction thereof. To the knowledge of the Sellers, there is no
asbestos-containing material in any of the buildings or facilities on the Leased
Property.
Stock Purchase Agreement -- Page 14
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2.19. Intellectual Property; Trade Secrets. Except for the
name of the Company and as set forth in Schedule 2.19, the Company neither owns
nor licenses Intellectual Property (which is defined to include the name of the
Company, all fictional business names, trade names, registered and unregistered
trademarks, service marks and applications, all patents and patent applications,
and all copyrights in both published works and unpublished works) in the conduct
of its Business. Neither the Company nor the Sellers have received any notice of
any claims, controversies, lawsuits or judgments that affect the use or
availability of the Company's name. All customer lists, account encryption codes
and associated software (collectively, "Trade Secrets") of the Company are
current, accurate in all material respects, and sufficient in detail and content
to identify and explain them and to allow their full and proper use without
reliance on the special knowledge or memory of others. The Company has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets. The Trade Secrets, to the knowledge of the Sellers, have not been
used, divulged, or appropriated either for the benefit of any Person (other than
the Company) or to the detriment of the Company. As used herein, "Person" shall
mean any individual, corporation, general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization or
other entity. To the knowledge of the Sellers, no Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way. The Company
licenses all software used by the Company pursuant to valid and binding license
agreements. All license agreements are in full force and effect and there are no
defaults (or events which with notice, lapse of time or both, could constitute
defaults) under such license agreements. Except as set forth in Schedule 2.19,
the consummation of the transactions contemplated by this Agreement will not
alter, impact on or otherwise affect any of the rights granted to the Company
pursuant to such license agreements. None of the software has manifested any
significant operating problems, other than such problems that have been
corrected or are correctable in the ordinary course of business. All software is
designed to be used prior to, during and after the calendar year 2000 A.D., and
the software will operate during such periods without error relating to date
data.
2.20. Patents. The Company neither owns nor licenses any
patents in the conduct of its Business.
2.21. Contracts. Schedule 2.21 sets forth a complete and
correct list of each of the following contracts (whether oral or written) to
which the Company is a party (collectively, and together with any contracts not
set forth in Schedule 2.21 to which the Company is a party, the "Contracts"):
(a) contracts for the employment of any officer or employee; (b) contracts for
the purchase of materials, supplies, services, merchandise or equipment that
involve annual or aggregate payments in excess of $1,000; (c) management
agreements, franchise agreements, license agreements, advertising agreements and
contracts for the purchase and sale of inventory that involve annual or
aggregate payments or receipts in excess of $1,000; (d) agreements or
arrangements for the sale or lease of any of its assets other than in the
ordinary course of its Business; (e) mortgages, pledges, conditional sales
Stock Purchase Agreement -- Page 15
<PAGE>
contracts, security agreements or other similar agreements; (f) leases of
machinery or equipment that involve annual or aggregate payments or receipts in
excess of $1,000; (g) loan agreements, promissory notes, guarantees, letters of
credit, subordination or similar type agreements; (h) agreements or arrangements
for the acquisition or sale of real or personal property that involve annual or
aggregate payments or receipts in excess of $1,000; (i) all consulting and
independent contractor contracts; (j) all contracts and policies for insurance
coverage; (k) agreements with customers; (l) all joint venture, strategic
alliance and partnership agreements; and (m) any contract not otherwise covered
by clauses (a) through (l) above which is not terminable on thirty days (or
less) notice or involves annual or aggregate payments or receipts in excess of
$5,000. The Company has performed all of the obligations required to be
performed by it to date under the Contracts, is not in default under the
Contracts, and no event has occurred which with the passage of time or the
giving of notice or both could constitute a default under any of the Contracts.
To the Sellers' knowledge, the other party to each Contract is not in default
with respect thereto and has materially performed all obligations required to be
performed by it to date. Except as set forth in Schedule 2.21, all of the
Contracts shall remain in full force and effect after the date of the Closing
and none of the Contracts contain change in control provisions. The Sellers will
obtain all necessary consents with respect to any change of control or other
such provisions from the other parties to the Contracts with respect to the
transactions contemplated by this Agreement. There are no unresolved disputes
involving the Company under any Contract. The Sellers have delivered to the
Buyer true and complete copies of the written Contracts listed in Schedule 2.21
and written descriptions of all oral Contracts described in Schedule 2.21, and
all amendments to the foregoing; provided, however, that in the case of customer
agreements, the Sellers have delivered to the Buyer true and complete copies of
the forms of customer agreements and hereby represents and warrants that all
customer agreements conform to one of such forms in all material respects. The
Sellers represent and warrant that all customer agreements which contain
provisions giving the customer the right to terminate as a result of the
transactions contemplated hereby do not exceed monthly recurring income in
excess of $5,000 in the aggregate.
2.22. Insurance Policies. The Company has in full force and
effect, with responsible insurance companies, policies of insurance with respect
to its employees, assets and Business insuring the Company against such
casualties and contingencies and of such types and amounts as are reasonably
adequate for the size and scope of the Business conducted and properties held by
the Company, and the Company maintains such other insurance as may be required
by law and by all contracts to which it is a party. Schedule 2.22 sets forth a
description of all policies of insurance that the Company has and maintains in
full force and effect, the annual premiums therefor, the limits of liability,
whether such policies are on an occurrence or "claims made" basis and all
performance bonds and letters of credit securing such obligations. True and
complete copies of all such policies have previously been delivered to the
Buyer. If the Company has any self-insurance arrangement by or affecting the
Company, such arrangement is described on Schedule 2.22, including any reserves
established thereunder. All premiums due on such policies have been paid and, to
Stock Purchase Agreement -- Page 16
<PAGE>
the knowledge of the Sellers, the aggregate amount of all claims under such
policies do not exceed policy limits. Neither the Company nor the Sellers have
received any notification from any insurance carrier denying or disputing any
claim made by or on behalf of the Company denying or disputing any coverage for
any claim denying or disputing the amount of any claim, or regarding the
possible cancellation of any policies. Except as set forth in Schedule 2.22, to
the knowledge of the Sellers, there is no reason to believe that any of such
policies will not be renewed by the respective insurance carriers with
substantially the same coverage. The Company has not received (a) any notice of
cancellation of any policy, (b) any notice that any issuer of such policy has
filed for protection under applicable bankruptcy laws or is otherwise in the
process of liquidating or has been liquidated, (c) any other indication that
such policies are no longer in full force and effect or that the issuer of any
such policy is no longer willing or able to perform its obligations thereunder,
or (d) any refusal of coverage or any notice that a defense will be afforded
with reservation of rights. All premiums due on such policies have been paid,
and the aggregate amount of all claims under such policies do not exceed policy
limits. The Company has given notice to the insurers of all claims that may be
insured thereunder.
2.23. Customers. Except as set forth in Schedule 2.23, no
customer of the Company accounts for more than five percent (5%) of the
Company's gross revenues during the year ended December 31, 1997, ranked by
revenues. To the knowledge of the Sellers, there is no reason to believe that
the benefits of any material relationship of the Company with customers will not
continue to be available to the Company or that any such relationship will be
changed in an adverse manner as a result of the transactions contemplated by
this Agreement, and to the knowledge of the Sellers there is no reason that any
of the agreements between the Company and its customers will be terminated prior
to their stated expiration date or will not be renewed in the ordinary course of
business.
2.24. ERISA and Other Compensation Plans. Except as set forth
in Schedule 2.24, the Company does not maintain or participate in any
arrangement or policies, deferred compensation arrangements, stock purchase,
stock option, employee benefit plan, (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), or any other
employee benefit policies, programs or arrangements maintained currently or in
the past by the Company under which the Company has any current or future
obligation or under which any former or present employee of the Company has any
current or future rights to benefits (the "Benefit Plans"). The Company does not
contribute and has not contributed to any multi-employer pension plan (as
defined in Section 4001(a)(3) of ERISA). The Company does not participate and
has not participated in any employee benefit plan maintained, or subscribed to,
by any other employer.
Stock Purchase Agreement -- Page 17
<PAGE>
2.25. Labor Matters. Except as set forth in Schedule 2.25(a),
the Company is not a party to or bound by any collective bargaining agreement or
any other agreement with a labor union relating to the Company's employees, and,
to the knowledge of the Sellers, there has been no effort by any labor union
during the twenty-four (24) months prior to the date of this Agreement to
organize any of such employees into one or more collective bargaining units.
Except as set forth in Schedule 2.25(b): (a) the Company is in compliance with
all federal, state and local laws regarding employment and employment practices,
conditions of employment, wages and hours (including, without limitation, the
Immigration Reform and Control Act of 1986, as amended and supplemented, and
Sections 212(n) and 274A of the Immigration and Nationality Act, as amended and
supplemented, and all implementing regulations relating thereto), and the
Company does not employ any unauthorized aliens (as such term is defined under 8
CFR ss.274a.1(a)); (b) the Company is not engaged in unfair labor practices, and
there are no unfair labor practice complaints pending or, to the knowledge of
the Sellers, threatened against the Company before the National Labor Relations
Board or otherwise; (c) there are no Equal Employment Opportunity Commission
violations or age, sex, racial discrimination, occupation safety or health
standards claims charged, pending or, to the knowledge of the Sellers,
anticipated; (d) there is no labor strike or material dispute pending or, to the
knowledge of the Sellers, threatened against or involving the Company or to the
knowledge of the Sellers at the current customer locations that may effect the
Business of the Company; and (e) none of the employees of the Company are
presently subject to collective bargaining agreements or are engaged in
organizing, or are members of, any union or other employee group that is seeking
recognition as a bargaining unit.
2.26. Employees. The Company has 17 employees. Schedule 2.26
lists the names, job descriptions and annual salary rates, length of service,
commissions, benefits (and benefit accruals) and other compensation for all
present officers, directors, managers, and employees of the Company and also
contains a complete and correct copy of the permanent payroll of the Company as
of June 30, 1998. All employees are "at will" employees and none of the
Company's employees has any employment agreement (written or oral).
2.27. Environmental Matters. Except with respect to the
matters set forth in Schedule 2.27: (a) the Company is in compliance with (i)
all legal requirements designed to minimize, prevent, punish or remedy the
consequences of actions that damage or threaten the environment or public health
and safety ("Environmental Laws") relating to the generation, management,
handling, transportation, treatment, disposal, storage, delivery, discharge,
release or emission of any waste, pollutant or toxic, hazardous or other
substance, including, without limitation, batteries (collectively, "Hazardous
Materials"), and (ii) all regulations and requirements promulgated by the
Occupational Safety and Health Administration that may be applicable to the
Company; (b) there is no proceeding, suit or investigation pending or, to the
knowledge of the Sellers, threatened with respect to any violation or alleged
violation of the Environmental Laws, and there is no reasonable basis known to
the Sellers for the institution of any such proceeding, suit or investigation;
(c) there has been no spillage, leakage, contamination or release of any
Hazardous Materials by the Company for which remedial action is required
pursuant to the Environmental Laws and has not been completed, and no
Stock Purchase Agreement -- Page 18
<PAGE>
transportation of Hazardous Materials to any other location in violation of
Environmental Laws; (d) to the knowledge of the Sellers, none of the Leased Real
Property is contaminated with any Hazardous Materials, and the air above and
waters below and adjacent thereto have not received any Hazardous Materials from
the operations of the Company; and (e) there are no underground storage tanks or
other underground facilities on the Leased Real Property.
2.28. Receivables. All accounts, notes and mortgages
receivable and premiums due and uncollected as reflected on the latest balance
sheet included in the Financial Statements and all accounts, notes and mortgages
receivable and premiums due and uncollected arising subsequent to the date of
such balance sheet (collectively, the "Accounts Receivable"): (a) represent
valid obligations due to the Company enforceable in accordance with their
respective terms and conditions; (b) are not subject to any defense, offset or
counterclaim; and (c) subject only to a reserve for bad debts as set forth in
the determination of the Purchase Price Adjustment (the "Reserve"), will be
collected (i) with respect to those Accounts Receivable set forth in Schedule
2.28, before the one hundred twentieth (120th) day following the Closing Date,
and (ii) with respect to all other Accounts Receivable, before the ninetieth
(90th) day following the Closing Date (the "Collection Period").
If the Buyer, through its exercise of commercially reasonable
efforts consistent with the degree of effort and diligence exercised by the
Buyer historically with respect to Accounts Receivable (not to include the
institution of litigation or retention of any collection agency or person or
entity providing similar services), shall not have collected, on or prior to the
expiration of the Collection Period, any portion of the Accounts Receivable
outstanding as of and on the Closing Date less the Reserve (collectively, the
"Uncollected Accounts"), the Seller shall be liable to the Buyer for the full
amount of the Uncollected Accounts, provided, however, that (a) the Buyer shall
subsequently assign to the Seller all of the Buyer's right, title and interest
in and to any and all Uncollected Accounts, including all of the Buyer's right
in any action or cause of action against any account debtor for collection of
any Uncollected Accounts, and (b) as of the date that the Buyer shall have
effected and notified the Seller of its assignment of the Uncollected Accounts,
the Buyer shall not have agreed to forgive, redeem, offset or otherwise permit
alternative payment arrangements for Uncollected Accounts with any account
debtor. Such assignment must occur within forty-five (45) days after the
expiration of the Collection Period by written notice to Sellers, including the
name of the account debtor, the face amount of the receivable, the date of
invoice, and copies of all documentation supporting such receivable. All
Uncollected Accounts assigned in accordance with the procedure set forth above
shall be an "Assigned Receivable." In the event that the Buyer provides products
or services to a customer of the Company after the execution of this Agreement,
the revenue received by the Buyer from such customer shall first be applied to
the satisfaction of any Uncollected Accounts for such customer that antedate the
Closing and which have not been disputed by such customer, and then to the
receivable corresponding to such post-Closing products or services. The Sellers
shall have the right to use commercially reasonable efforts to collect any
Uncollected Accounts assigned to them; provided, that the Sellers shall not
institute litigation to collect any Uncollected Account without prior written
notice to the Buyer. Notwithstanding anything contained herein to the contrary,
Assigned Receivables shall be satisfied solely from the Escrow Fund in
accordance with the provisions of Article 4.
Stock Purchase Agreement -- Page 19
<PAGE>
2.29. Affiliated Transactions. Except as set forth on Schedule
2.29, neither Seller is an owner, partner, officer, director, employee, agent,
investor or consultant in any business competitive with that of the Company.
Except as set forth on Schedule 2.29, there are no loans, guarantees, leases or
commitments from or to the Sellers or any Affiliate thereof, on the one hand,
and the Company, on the other hand. Except as set forth in Schedule 2.29, there
are no outstanding transactions between the Sellers or any Affiliate thereof and
the Company, nor do the Sellers or Affiliates have any interest in any property
(whether real, personal or mixed, tangible or intangible), used in or pertaining
to the Business. Except as set forth in Schedule 2.29, the Company has at all
times been operated as a separate business and not as a division, subsidiary or
affiliate of any other entity.
2.30. Disclosure. No representation or warranty of the Sellers
herein and no information disclosed by the Sellers to the Buyer in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. Except as otherwise disclosed in this Agreement or the Schedules to
this Agreement, there is no fact presently known to the Sellers that would or
could reasonably be expected to have a material adverse effect on the financial
condition of the Company.
2.31. No Distribution. The Sellers are acquiring the Guardian
Shares for their own account with the present intention of holding such
securities for purposes of investment, and they have no intention of selling
such securities in a public distribution in violation of the federal securities
laws or any applicable state securities laws. The Sellers understand that the
Guardian Shares are "restricted securities" as defined in Rule 144 under 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 Guardian Shares is
taking place in a transaction not involving any public offering.
2.32. Sophistication. The Sellers are knowledgeable,
experienced and sophisticated in financial and business matters and are able to
evaluate the risks and benefits of the investment in the Guardian Shares.
2.33. Economic Risk. The Sellers are able to bear the economic
risk of their investment in the Guardian Shares for an indefinite period of time
because the Guardian 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.
Stock Purchase Agreement -- Page 20
<PAGE>
2.34. Access to Information. The Sellers have been furnished
or otherwise had full access to such other information concerning Guardian and
its subsidiaries as they have requested and that was necessary to enable the
Sellers to evaluate the merits and risks of an investment in Guardian, and after
a review of this information, have had an opportunity to ask questions and
receive answers concerning the financial condition and business of Guardian and
the terms and conditions of the securities purchased hereunder, and have had
access to and have obtained such additional information concerning Guardian and
the securities as they deemed necessary.
2.35. Accredited Investor. The Sellers represent and warrant
that each is an "accredited investor" as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
3. Representations and Warranties of the Buyer.
3.1. Corporate Organization. The Buyer is an organization duly
organized, validly existing and in good standing under the laws of the State of
New York. The Buyer has full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors of the Buyer has duly authorized the execution and delivery of this
Agreement and the performance by the Buyer of its obligations hereunder and this
Agreement constitutes the legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms, except to the extent
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights generally, and
(ii) is subject to general principals of equity. No other corporate proceedings
on the part of the Buyer are necessary to authorize the execution and delivery
of this Agreement and the performance by the Buyer of its obligations hereunder.
3.2. No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
violate any provisions of the Certificate of Incorporation or Bylaws of the
Buyer, (b) violate or be in conflict with, or constitute a default under, or
require the consent of any other party to, any agreement or commitment to which
the Buyer is a party or by which the Buyer or any of its businesses or
properties is bound, or (c) violate any statute or law or any judgment, decree,
order, regulation or rule of any court or Governmental Authority to which the
Buyer is subject.
3.3. No Pending Litigation or Proceedings. There are no
actions, suits, investigations or proceedings of any nature pending, or to the
Buyer's knowledge, threatened, at law or in equity, by or before any court of
governmental department, agency or instrumentality, with respect to which there
is the possibility of a determination which would prevent the Buyer from
consummating the transaction contemplated hereby or which seeks to enjoin or
obtain damages in respect of the transactions contemplated hereby.
Stock Purchase Agreement -- Page 21
<PAGE>
3.4. Brokers. No broker, finder or other similar intermediary
has been engaged by the Buyer in connection with the transaction contemplated by
this Agreement.
3.5. Consent and Approvals. The Buyer has obtained each
consent, approval or authorization of and has made each declaration, filing or
registration with all Persons, including any Governmental Authority (including,
based in part upon representations of the Sellers, the Federal Trade Commission
and the Antitrust Division of the Department of Justice pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) required to be
made or obtained by the Buyer in connection with the execution, delivery and
performance of this Agreement.
3.6. No Distribution. The Buyer is acquiring the STAT-LAND
Shares for its own account with the present intention of holding such securities
for purposes of investment, and it 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 Buyer understands that the STAT-LAND
Shares are "restricted securities" as defined in Rule 144 under 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 STAT-LAND Shares is taking place
in a transaction not involving any public offering.
3.7. Sophistication. The Buyer is knowledgeable, experienced
and sophisticated in financial and business matters and is able to evaluate the
risks and benefits of the investment in the STAT-LAND Shares.
3.8. Economic Risk. The Buyer is able to bear the economic
risk of its investment in the STAT-LAND Shares for an indefinite period of time
because the STAT-LAND 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.
3.9. Access to Information. The Buyer 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 Buyer
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.
3.10. Accredited Investor. The Buyer is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
Stock Purchase Agreement -- Page 22
<PAGE>
3A. Representations and Warranties of Guardian.
3.1A Corporate Organization. Guardian is an organization duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Guardian has full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors of Guardian has duly authorized the execution and delivery of this
Agreement and the performance by Guardian of its obligations hereunder and this
Agreement constitutes the legal, valid and binding obligation of Guardian,
enforceable against Guardian in accordance with its terms, except to the extent
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights generally, and
(ii) is subject to general principals of equity. No other corporate proceedings
on the part of Guardian are necessary to authorize the execution and delivery of
this Agreement and the performance by Guardian of its obligations hereunder.
3.2A No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
violate any provisions of the Certificate of Incorporation or Bylaws of
Guardian, (b) violate or be in conflict with, or constitute a default under, or
require the consent of any other party to, any agreement or commitment to which
Guardian is a party or by which the Buyer is bound, or (c) violate any statute
or law or any judgment, decree, order, regulation or rule of any court or
Governmental Authority to which Guardian is subject.
3.3A No Pending Litigation or Proceedings. There are no
actions, suits, investigations or proceedings of any nature pending, or to
Guardian's knowledge, threatened, at law or in equity, by or before any court of
governmental department, agency or instrumentality, with respect to which there
is the possibility of a determination which would prevent Guardian from
consummating the transaction contemplated hereby or which seeks to enjoin or
obtain damages in respect of the transactions contemplated hereby.
3.4A Financial Statements. The audited financial statements of
Guardian for the calendar year ending December 1995 through December 1997,
including, without limitation, the balance sheets, statements of income, changes
in financial position and shareholders equity of Guardian, including related
notes, if any, and the unaudited financial statements of Guardian for the
calendar quarter ended March 31, 1998 were prepared in accordance with generally
accepted accounting principals consistently applied and fairly present the
financial condition of Guardian and the results of its operations for the
periods ending on such dates, respectively.
3.5A Accuracy of SEC Filings. All information previously filed
and currently being filed with the Securities and Exchange Commission (the
"SEC") by Guardian is complete and accurate, and no such information contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained therein not misleading. There has
been no material change to the business or properties of Guardian since the date
of the most current filed document of Guardian with the SEC.
Stock Purchase Agreement -- Page 23
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3.6A Brokers. No broker, finder or other similar intermediary
has been engaged by Guardian in connection with the transaction contemplated by
this Agreement.
3.7A Consent and Approvals. Guardian has obtained each
consent, approval or authorization of and has obtained each declaration, filing
or registration with all Persons, including any Governmental Authority
(including, based in part upon representations of the Sellers, the Federal Trade
Commission and the Antitrust Division of the Department of Justice pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) required
to be made or obtained by Guardian in connection with the execution, delivery
and performance of this Agreement, other than the approvals required for the
establishment of the Stock Option Plan and the grants contemplated in Section
5.3 hereof.
3.8A Title to Guardian Shares. Upon consummation of the
transactions contemplated by this Agreement, the Sellers will acquire good,
valid and indefeasible title to the Guardian Shares, free and clear of any and
all Liens except for those Liens contemplated by this Agreement or those
resulting from the consummation of the transactions contemplated hereby. Upon
consummation of the transactions contemplated hereby, the Guardian Shares will
be validly issued, fully paid and non-assessable.
4. Survival and Indemnification.
4.1. Survival. All representations, warranties, covenants and
agreements contained in this Agreement, and in any certificate, schedule,
document or other writing delivered pursuant hereto or in connection with the
transactions contemplated herein shall be in all cases deemed to have been
relied upon by the parties hereto, and shall (other than with respect to
representations and warranties set forth in Sections 2.13 (Taxes; Tax Elections)
and 2.27 (Environmental Matters)) survive the Closing for a period of two (2)
years thereafter, except that any breaches of representations or warranties
arising out of the Sellers' willful bad faith, willful misconduct or gross
negligence with an intent to defraud, the representations and warranties
contained in Sections 2.13 and 2.27 and the Seller's obligation to indemnify the
Buyer for any Liabilities arising from or in connection with a Ferrara Claim (as
herein defined) shall survive the Closing for a period ending sixty (60) days
following the expiration of the applicable statute of limitations and all
extensions thereof. Notwithstanding the foregoing, if prior to the expiration of
the survival period for any representation, warranty, covenant or agreement, a
claim for indemnification is delivered by a party in the manner required herein,
the rights under this Section 4 of such party providing such notice, with
respect to the subject matter thereof, shall continue in full force and effect
until the subject matter of such notice has been fully determined and disposed
of. The representations, warranties, covenants and agreements contained in this
Agreement or any certificate, schedule, document or other writing delivered
pursuant hereto shall not be affected by any investigation, verification or
examination by any party hereto or by any Person acting on behalf of any such
party prior to or after the Closing.
Stock Purchase Agreement -- Page 24
<PAGE>
4.2. Indemnification of the Buyer.
(a) The Sellers, jointly and severally agree to
indemnify and hold harmless the Buyer and its directors, officers, employees,
owners, agents and affiliates from and against any and all liabilities, damages,
claims, deficiencies, assessments, losses, suits, proceedings, actions,
investigations, penalties, interest, costs and expenses, including without
limitation, reasonable fees and expenses of counsel, amounts paid in settlement
and reasonable costs of investigation (whether suit is instituted or not and, if
instituted, whether at the trial or appellate level) (collectively, the
"Liabilities"), but solely to the extent that such Liabilities have not been
reflected on the Audit Report, whether in law or equity, arising from or in
connection with (i) the failure of any representation of the Sellers contained
in this Agreement or in any document delivered in connection herewith to be true
and correct; (ii) any breach or violation of any of the warranties, covenants or
agreements of the Sellers contained in this Agreement or in any document
delivered in connection herewith; (iii) the amount of the MRI Shortfall and Bank
MRI Shortfall (as defined in Section 5.1); or (iv) the record or beneficial
ownership by Thomas Ferrara at any time of any equity interest in the Company,
including, without limitation, the disposition or redemption of any such equity
interest, and all transactions arising out of, in connection with, or in any way
relating to any such equity interest or the disposition or redemption thereof
and Thomas Ferrara's dissassociation with the Company (a "Ferrara Claim");
provided, however, that any and all Liabilities of the Sellers under this
Section 4.2(a) shall be satisfied solely from the Escrow Fund (the "Cap"),
provided further, however, that the Cap shall not apply to (A) any Liabilities
arising from or relating to Taxes or violations of Environmental Laws; (B) the
extent that any such Liability is found, in a final unappealable judgment by a
court of competent jurisdiction to have arisen from or related to the Sellers'
willful bad faith, willful misconduct or gross negligence with an intent to
defraud; and (C) any Liabilities arising from or relating to a Ferrara Claim.
For purposes of valuing the Guardian Shares comprising the Escrow Fund in
respect of an indemnity claim hereunder, each Guardian Share shall now and
hereafter be valued at the Guardian Market Value as determined at the time of
the Closing.
(b) Limitations on Liabilities. The Sellers shall
have no obligations to indemnify the Buyer for any Liabilities, Bank MRI
Shortfall or MRI Shortfall incurred or suffered by Buyer, or for the value of
the Bank MRI Shortfall or the MRI Shortfall, except to the extent that such
Liabilities, Bank MRI Shortfall or MRI Shortfall, taken together, exceed eighty
thousand dollars ($80,000) (the "Basket") and then only to the extent of such
excess, provided, however, that any Liability arising from or relating to a
Ferrara Claim or which is found, in a final unappealable judgment by a court of
competent jurisdiction to have arisen from or related to the Sellers' willful
bad faith, willful misconduct or gross negligence with an intent to defraud
shall not be subject to the Basket.
Stock Purchase Agreement -- Page 25
<PAGE>
4.3. Indemnification of the Sellers. The Buyer and Guardian,
jointly and severally agree to indemnify and hold harmless the Sellers from and
against any and all Liabilities, whether in law or equity, arising from or in
connection with (a) the failure of any representation of the Buyer and/or
Guardian contained in this Agreement or in any document delivered in connection
herewith to be true and correct and (b) any breach or violation of any of the
warranties, covenants or agreements of the Buyer and/or Guardian contained in
this Agreement or in any document delivered in connection herewith; provided,
however, that notwithstanding anything to the contrary contained herein, any and
all Liabilities of the Buyer and Guardian under this Section 4.3 shall be
limited in the aggregate to fifteen percent (15%) of the Purchase Price (the
"Buyer's Cap").
4.4. Procedure.
(a) In the event any Person or entity not a party to
this Agreement shall make any demand or claim or file or threaten to file or
continue any lawsuit (a "Claim"), which Claim may result in Liabilities to an
indemnified person, then, in any such event, within ten (10) business days after
notice (the "Notice") by the party seeking indemnification (the "Indemnified
Party") to the party it is seeking indemnification from (the "Indemnifying
Party") of such Claim (provided, however, that the failure to give such Notice
shall not relieve the Indemnifying Party of its obligations hereunder unless,
and only to the extent that, such failure caused the damages for which the
Indemnifying Party is obligated for hereunder to be greater than they would
otherwise have been had the Indemnified Party given prompt notice hereunder),
the Indemnifying Party shall have the option, at its cost and expense, to retain
counsel for the Indemnified Party (which counsel shall be selected by or be
reasonably satisfactory to the Indemnified Party), to defend any such Claim;
provided, however, that if the amount of such Claim is expressly in excess of
the net amount available from the Cap for payment of such Claim and the Sellers
are the Indemnifying Party, the parties will attempt to amicably determine which
party will have the right to defend such Claim. In the event that parties cannot
so agree prior to the time to answer, the attorneys for the parties shall choose
attorneys to defend such Claim. Thereafter, the Indemnified Party shall be
permitted to participate in such defense at its own expense, provided that, if
the named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party or if the
Indemnifying Party proposes that the same counsel represent both the Indemnified
Party and the Indemnifying Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them, then the Indemnified Party shall have the right to retain its own
counsel at the cost and expense of the Indemnifying Party. In the event that the
Indemnifying Party shall fail to respond within ten (10) days after receipt of
the Notice, the Indemnified Party may retain counsel and conduct the defense of
such demand, claim or lawsuit as it may in its sole discretion deem proper, at
the sole cost and expense of the Indemnifying Party.
(b) In the event that the Indemnifying Party shall
fail to give the Notice within the time prescribed herein, or shall elect not to
defend, then the Indemnified Party shall have the right to conduct such defense
Stock Purchase Agreement -- Page 26
<PAGE>
with its counsel, and the Indemnified Party shall be permitted to compromise or
settle any such claim without the prior written consent of the Indemnifying
Party on such terms as the Indemnified Party deems appropriate in its judgment.
(c) In the event that the Indemnifying Party does
deliver a Notice to defend on a timely basis and thereby elects to conduct the
defense, the Indemnified Party will cooperate with and make available to the
Indemnifying Party such assistance and materials as the Indemnifying Party may
reasonably request, all at the sole cost and expense of the Indemnifying Party.
Without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld, the Indemnifying Party will not enter into any
settlement of any claim if pursuant to or as a result of such settlement, such
settlement could lead to liability, may not fully relieve the Indemnified Party
of liability or create any financial or other obligation on the part of the
Indemnified Party.
(d) Any judgment entered or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party, and
shall be conclusively deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder, subject to
the Indemnifying Party's right to appeal an appealable judgment or order. Such
indemnification shall be required to be made not later than the tenth (10th) day
following the expiration of any period in which an appeal may be taken, and, if
the Indemnifying Party is the Sellers, shall be satisfied by payment of the
amount thereof in Escrow Shares from the Escrow Fund, in accordance with the
terms of the Escrow Agreement, which provides that, upon submission to the
Escrow Agent of a copy of any such settlement agreement, or of such judgment,
together with an opinion of counsel that all appeals have been taken or the time
for taking appeals has expired, then the Escrow Agent shall promptly distribute
to the Buyer the amount established by such judgment or settlement, plus all
other Liabilities incurred in respect thereof, as set forth in an officer's
certificate duly acknowledged by an officer or authorized representative of the
Buyer, which certificate shall be in the form required by the Escrow Agreement.
All other indemnification claims subject to this Section 4.4 shall be required
to be made no later than the tenth (10th) day following the expiration of any
period in which an appeal may be taken by the payment of cash.
4.5. Notice of Claims. In the case of a claim for
indemnification by an Indemnified Party, such Indemnified Party shall deliver
notice of such claim to the Indemnifying Party (and to the Escrow Agent, in the
case of a claim for indemnification against the Sellers), setting forth in
reasonable detail the basis of such claim for indemnification (each, an
"Indemnification Notice"). Upon the Indemnification Notice having been given to
the Indemnifying Party, the Indemnifying Party shall have a period of thirty
(30) days after (a "Dispute Period") to notify in writing the Indemnified Party
(and the Escrow Agent, in the case of a claim for indemnification against the
Sellers) (a "Dispute Notice") that the claim for indemnification is in dispute,
setting forth in reasonable detail the basis of such dispute. In the event that
a Dispute Notice is not given to the Indemnified Party before the expiration of
the Dispute Period, the Indemnifying Party shall be liable for all Liabilities
suffered by the Indemnified Party with respect to such claim for
Indemnification.
Stock Purchase Agreement -- Page 27
<PAGE>
In the event a Dispute Notice is timely given to an
Indemnified Party, the parties shall have thirty (30) days to resolve the
dispute. In the event the dispute is not resolved by the parties within the
required period, the parties shall have the right to pursue all available legal
remedies to resolve such dispute.
5. Further Covenants and Obligations.
5.1. Monthly Recurring Income.
(a) The Sellers hereby covenant and agree, subject to
the Basket and the Cap, that if any Qualified Customer Accounts (as hereinafter
defined) of the Sellers as of the date of this Agreement are canceled or
terminated on or prior to September 1, 1999 (the "First Anniversary"), or, in
the case of any Bank Customer Accounts (as hereinafter defined), on or prior to
September 1, 2001 (the "Third Anniversary"), the Sellers shall be required to
refund a portion of the Purchase Price as determined below.
(b) Not later than thirty (30) days after the date of
the First Anniversary, the Buyer shall notify the Sellers of any Qualified
Customer Accounts that have been canceled or terminated on or prior to the First
Anniversary (the "Terminated Accounts"). The Buyer shall calculate the shortfall
in the MRI (as hereinafter defined) by adding together the amounts for monthly
recurring income set forth on Schedule 5.1 for each Terminated Account and
multiplying that amount by 45. The Buyer shall subtract from such amount the
cash, if any, actually collected from any Terminated Account for services
rendered after the Closing and the Sellers shall be liable to the Buyer for the
resulting amount (the "MRI Shortfall"). Notwithstanding anything contained
herein to the contrary, the MRI Shortfall shall be satisfied solely from the
Escrow Fund in accordance with the provisions of the Escrow Agreement and
Section 4.5 of this Agreement. In the event that the amounts remaining in the
Escrow Fund are insufficient to satisfy the MRI Shortfall, the Sellers shall
have no obligation for the payment of any remaining amounts owed to the Buyer.
(c) Within thirty (30) days of notification from the
President of the Company to the Buyer of cancellation or termination, and not
later than thirty (30) days after the date of the Third Anniversary, the Buyer
shall notify the Sellers of any Bank Customer Accounts that are not Terminated
Accounts and that have been canceled or terminated on or prior to the Third
Anniversary (the "Terminated Bank Customers"). The Buyer shall calculate the
shortfall in the MRI (as hereinafter defined) by adding together the amounts for
monthly recurring income set forth on Schedule 5.1 for each Terminated Bank
Customer and multiplying that amount by 36. The Buyer shall subtract from such
amount the cash, if any, actually collected from any Terminated Bank Customer
for services rendered after the Closing and the Sellers shall be liable to the
Buyer for the resulting amount (the "Bank MRI Shortfall"). Notwithstanding
anything contained herein to the contrary, the Bank MRI Shortfall shall be
satisfied solely from the Escrow Fund in accordance with the provisions of the
Stock Purchase Agreement -- Page 28
<PAGE>
Escrow Agreement and Section 4.5 of this Agreement. In the event that the
amounts remaining in the Escrow Fund are insufficient to satisfy the Bank MRI
Shortfall, the Sellers shall have no obligation for the payment of any remaining
amounts owed to the Buyer.
(d) As used in this Section 5.1, the term "Qualified
Customer Accounts" means the alarm system customers listed on Schedule 5.1
hereto, each of which is billed on a recurring basis (monthly, quarterly,
semiannually, or annually) by the Company under written and fully executed
customer contracts for the provision of Services (as defined below) with
original terms of not less than three years containing annual renewal provisions
and that meet the following criteria determined as of the Closing Date: (i) the
customer account does not have a receivable balance in excess of 90 days (or,
with respect to those accounts designated as 120-day accounts on Schedule 2.28,
120 days) past due as of the applicable Service Date (as defined below) for such
account, and (ii) the account has not canceled or provided notice of
cancellation (whether orally or in writing), and the Sellers have no knowledge
that the account will be canceled prior to, at, or subsequent to the Closing
Date. The term "Bank Customer Accounts" means the Qualified Customer Accounts
identified with an asterisk on Schedule 5.1. Also listed on Schedule 5.1 shall
be the monthly recurring income ("MRI") for each Qualified Customer Account. In
determining MRI, monthly recurring income shall not include installation or
other one time charges that are not of a regular and recurring nature. As used
in this Section 5.1, the term "Services" means burglar alarm services, fire
alarm services, closed circuit television and electronic access control
services, all central station monitoring services, maintenance services, leases,
fire testing and all other services provided to commercial, residential and
other customers of the Company. "Service Date" means the first day of any
calendar month in which Services are provided.
5.2. Stock Option Plan. Guardian hereby covenants and agrees
that, within ninety (90) days following the Closing, it shall establish a stock
option plan (the "Stock Option Plan") and grant options pursuant to such plan to
purchase that number of shares of Guardian Common Stock (rounded up or down to
the nearest whole number of shares of Guardian Common Stock) having an aggregate
Guardian Market Value as determined at the time of the Closing of Fifty Thousand
Dollars ($50,000) as follows: (i) Michael Assenza - $25,000; (ii) Vincent
Monardo - $20,000; and (iii) Kevin Killea - $5,000. In addition, Guardian shall
grant options to Paul Ferrara pursuant to the terms of the Stock Option Plan and
the Employment Agreement.
6. Restriction on Transfer of Shares. The Sellers shall not sell,
transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily) any interest in his
Guardian Shares (which shall include any additional shares issued by dividend,
Stock Purchase Agreement -- Page 29
<PAGE>
stock split, conversion or otherwise of the Guardian Shares) to a third party (a
"Transfer"), except in compliance with the provisions of this Section 10 and any
other restrictions on Transfer contained in this Agreement.
6.1. First Refusal Right of Guardian.
(a) At least fifteen (15) days prior to effecting a
Private Sale (defined as any sale of Guardian Shares other than to the public
pursuant to an offering registered under the Securities Act or to the Public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
promulgated under the Securities Act) of any Guardian Shares to a third party,
the Sellers shall deliver a written notice (an "Offer Notice") to the President
of Guardian. The Offer Notice shall disclose in reasonable detail the third
party's bona fide offer, including the proposed number of Guardian Shares to be
transferred, the proposed terms and conditions of the Transfer and the identity
of the prospective transferee(s) (if known).
(b) Guardian may elect to purchase all, but not less
than all, of the number of Guardian Shares specified in the Offer Notice at the
price and on the terms specified therein by delivering written notice of such
election to the Sellers as soon as practical but in any event within fifteen
(15) days after the delivery of the Offer Notice (the "Election Period").
6.2. Transfer to Third Parties.
(a) If Guardian has not elected to purchase all of
such Guardian Shares being offered, the Sellers may, within ninety (90) days
after the expiration of the Election Period, Transfer all such Guardian Shares
to the identified prospective transferee(s) at a price not less than one hundred
percent (100%) of the price offered to Guardian and on other terms no more
favorable to the transferees thereof than offered to Guardian in the Offer
Notice.
(b) Any Guardian Shares not transferred within such
90-day period shall be re-offered to Guardian under this Section 10 prior to any
subsequent Transfer.
6.3. Purchase Price. The purchase price specified in any Offer
Notice shall be payable solely in cash at the closing of the transaction or, if
provided in the Offer Notice, in installments over time.
6.4. Permitted Transfers. The restrictions set forth in this
Section 10 shall not apply with respect to any Transfer of Guardian Shares by
the Sellers pursuant to applicable laws of descent and distribution or among the
Sellers' Family Group ("Permitted Transferees"). For purposes of this Agreement,
"Family Group" means an individual's spouse and descendants (whether natural or
adopted) and spouses of descendants and any trust, family limited partnership or
similar entity solely for the benefit of the individual and/or the individual's
spouse and/or descendants and/or spouses of their descendants.
Stock Purchase Agreement -- Page 30
<PAGE>
7. Legends.
7.1. Restrictive Legend. Each certificate evidencing Guardian
Shares or securities convertible into Guardian Shares and each certificate
issued in exchange for or upon the Transfer of any such securities (a
"Certificate" or "Certificates") (if such securities remain Guardian Shares or
remain convertible into Guardian Shares after such Transfer) shall be stamped or
otherwise imprinted with a legend in substantially the following form (the
"Restrictive Legend"):
The securities presented by this certificate may be subject to
transfer restrictions, escrow provisions and/or certain other
restrictions and obligations set forth in a Stock Purchase
Agreement dated August 13, 1998, and by and among the issuer
of such securities (the "Company"), Mutual Central Alarm
Services, Inc. and Paul Ferrara and Stella Ferrara, as amended
and modified from time to time. A copy of such Stock Purchase
Agreement shall be furnished without charge by the Company to
the holder hereof upon written request to the Company at its
principal executive office.
Guardian shall imprint the Restrictive Legend on Certificates outstanding as of
the Closing Date, in addition to imprinting on such Certificates a legend
stating that the Guardian Shares evidenced by such Certificate are not
registered under the Securities Act (the "Securities Law Legend").
7.2. Transfer of Unregistered Guardian Shares. Subject to the
provisions governing the Escrow Shares, Guardian Shares are transferable in (i)
a public offering registered under the Securities Act or (ii) in a transaction
pursuant to Rule 144 or any other legally available means of Transfer after the
Transferring holder of Guardian Shares (the "Transferring Shareholder") has
satisfied the conditions specified in Section 7.3 below.
7.3. Removal of Securities Law Legend. In connection with the
Transfer of any Guardian Shares (other than a Transfer in a public offering
registered under the Securities Act), a Transferring Shareholder shall deliver
(a) written notice to Guardian describing in reasonable detail the Transfer or
proposed Transfer (the "Notice of Transfer") and (b) an opinion (the "Opinion")
of counsel, which (to Guardian's reasonable satisfaction) is knowledgeable in
securities laws matters, to the effect that such Transfer of Guardian Shares may
be effected without registration of such Guardian Shares under the Securities
Act.
7.4. Removal of Restrictive Legend. Removal of the Restrictive
Legend shall be governed in accordance with the terms of this Agreement.
Stock Purchase Agreement -- Page 31
<PAGE>
7.5. Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Guardian Shares in violation of any provision of this
Agreement shall be void, and Guardian shall not record such Transfer on its
books or treat any purported Transferee of such Guardian Shares as the owner of
such Guardian Shares for any purpose.
8. Piggyback Registration Rights.
8.1. Definitions
(a) Piggyback Registration. The term "Piggyback
Registration" shall have the meaning set forth in Section 8.2 hereof.
(b) Registrable Securities. The term "Registrable
Securities" means any Guardian Common Stock registered in the names of the
Sellers from time to time and any securities issued or to be issued with respect
to such securities by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. Registrable Securities shall not include any Escrow Shares until
such time that such shares are released from escrow to the Sellers. As to any
particular Registrable Securities, such securities will cease to be Registrable
Securities at such time as: (i) they have been effectively registered under the
Securities Act or disposed of in accordance with the registration statement
covering them or (ii) the Seller registered as the owner of such securities is
entitled to transfer such securities within one (1) calendar quarter under Rule
144 under the Securities Act (or any similar rule then in force).
(c) Registration Expenses. The term "Registration
Expenses" means all expenses incident to Guardian's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, expenses and fees for listing the
securities to be registered on exchanges or trading system on which similar
securities issued by Guardian are then listed or included, and fees and
disbursements of counsel for Guardian.
(d) Restricted Form. The term "Restricted Form" shall
mean a form of registration statement under the Securities Act that imposes for
its use a limitation on the maximum value or number of securities to be included
therein.
(e) Securities Act. The term "Securities Act" shall
mean the Securities Act of 1933, as amended.
(f) Selling Stockholder. The term "Selling
Stockholder" means a Seller who requests inclusion of all or a portion of
his/her shares of Registrable Securities in a Piggyback Registration pursuant to
Section 8.2.
Stock Purchase Agreement -- Page 32
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(g) Underwriting Commissions. The term "Underwriting
Commissions" means all underwriting discounts or commissions relating to the
sale of securities of Guardian, but excludes any expenses reimbursed to
underwriters.
8.2. Piggyback Registrations.
(a) Right to Piggyback. Whenever Guardian proposes to
register the offer, sale or offer and sale of any of its securities for its own
behalf under the Securities Act, and the registration form to be used may be
used for the registrations of Registrable Securities (a "Piggyback
Registration"), Guardian will give prompt written notice to all Sellers and will
include in such Piggyback Registration, subject to the allocation provisions
below, all Registrable Securities with respect to which Guardian has received
written requests for inclusion within twenty (20) days after Guardian's mailing
of such notice. Guardian shall not select a Restricted Form that would preclude
registration of the Registrable Securities that Guardian has been requested to
include in such registration if Guardian could use another available form of
registration statement that is not a Restricted Form and the use of which would
not give rise to added Registration Expenses.
(b) Piggyback Expenses. In all Piggyback
Registrations, Guardian will pay the Registration Expenses related to the
Registrable Securities of the Selling Stockholders, but the Underwriting
Commissions will be paid by the Selling Stockholders in proportion to any
Registrable Securities included on their behalf.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten registration on behalf of Guardian, and the
managing underwriters advise Guardian in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering, at a price reasonably related to fair
value, Guardian will allocate the securities to be included as follows: first,
the securities Guardian proposes to sell on its own behalf; second, the
securities of those holders exercising their demand registration rights; and
third, Registrable Securities requested to be included in such registration and
securities requested to be included in such registration by any stockholders of
Guardian other than the Selling Stockholders and stockholders exercising their
demand registration rights, in proportion, as nearly as practicable, as such
holders' shares bear to the aggregate number of securities proposed to be
registered by all holders thereof.
(d) Withdrawal or Abandonment. Nothing contained in
this Section 8.2 shall be construed as limiting or otherwise interfering with
the right of Guardian to withdraw or abandon in its sole discretion any
registration statement filed by it in connection with a Piggyback Registration
notwithstanding the inclusion therein of Registrable Securities.
8.3. Holdback Agreements. Each Seller and Guardian agree not
to effect any public sale or distribution of equity securities of Guardian or of
Stock Purchase Agreement -- Page 33
<PAGE>
any securities convertible into or exchangeable or exercisable for such
securities during the seven (7) days prior to and the 90 days after any
underwritten registration of equity securities of Guardian becomes effective or
such longer period as may be required by the managing underwriter (except as
part of such underwritten registration or except in connection with obligations
of Guardian existing on the effective date of the registration statement
relating to such underwritten offering).
8.4. Registration Procedures. Whenever the Selling
Stockholders have requested that any Registrable Securities be registered
pursuant to Section 8.2 of this Agreement, Guardian will, to the extent required
by Section 8.2:
(a) Preparation and Filing of Registration Statement.
Prepare and file with the Securities and Exchange Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, Guardian will furnish each Selling Stockholder with copies of all such
documents proposed to be filed).
(b) Preparation and Filing of Amendments and
Supplements. Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than one hundred twenty (120) days
or until the Registrable Securities included therein have been sold.
(c) Copies of Documents. Furnish to each Selling
Stockholder such number of copies of such registration statement, each amendment
and supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus), and such other documents as
such Selling Stockholder may reasonably request in order to facilitate the
disposition of the Registrable Securities included therein owned by such Selling
Stockholder.
(d) Blue Sky Qualifications. Use its best efforts to
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions as the managing underwriters may reasonably
request; provided, however, that in connection with any such registration or
qualification Guardian shall not be obligated to file a general consent to
service of process, or to qualify to do business as a foreign corporation, or
otherwise subject itself to taxation in connection with such qualification or
compliance.
(e) Notification of Effectiveness; Amendments. Notify
each Selling Stockholder at any time when a prospectus relating to the
Registrable Securities included therein is required to be delivered under the
Securities Act within the period that Guardian is required to keep the
registration statement effective of the happening of any event as a result of
Stock Purchase Agreement -- Page 34
<PAGE>
which the prospectus included in such registration statement as theretofore
amended or supplemented contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such Selling Stockholder, Guardian will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(f) Listing. Cause all such Registrable Securities to
be listed or included on securities exchanges on which similar securities issued
by Guardian are then listed or included.
(g) Transfer Agent and Registrar. Provide a transfer
agent and registrar for all such Registrable Securities not later than the
effective date of such registration statement.
(h) Other Agreements. Enter into such customary
agreement (including an underwriting agreement in form reasonably acceptable to
Guardian) and take such other customary actions as may be reasonably necessary
to expedite or facilitate the disposition of such Registrable Securities.
(i) Letters from Independent Accountants. Obtain a
"cold comfort" letter addressed to Guardian from its independent accountants in
such form and covering such matters of the type customarily covered by "cold
comfort" letters delivered by such public accountants.
(j) Inspection of Records. Make available for
inspection upon reasonable notice by any Selling Stockholder, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of Guardian, and cause Guardian's officers, directors and employees
to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
8.5. Information Regarding Selling Stockholders. Each Selling
Stockholder shall provide to Guardian such information as may be reasonably
requested by Guardian for use in the preparation and filing of any registration
statement covering Registrable Securities owned by such Selling Stockholder, and
the obligation of Guardian to include Registrable Securities in any registration
statement on behalf of any Selling Stockholder shall be subject to such Selling
Stockholder's providing such information as promptly as practicable.
8.6. Indemnification.
Stock Purchase Agreement -- Page 35
<PAGE>
(a) Indemnification by Guardian. Guardian hereby
indemnifies, to the extent permitted by law, each Selling Stockholder, its
officers and directors, and each person who controls such holder (within the
meaning of the Securities Act), against all losses, claims, damages, liabilities
and expenses arising out of or resulting from any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
any information furnished in writing to Guardian by any Selling Stockholder
expressly for use therein or by any such Selling Stockholder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after Guardian has furnished such Selling Stockholder with
copies of the same. In connection with any underwritten offering, Guardian will
indemnify the underwriters, their officers and directors, and each person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the Selling
Stockholders.
(b) Indemnification by the Selling Stockholders. In
connection with any registration statement in which a Selling Stockholder is
participating, each such Selling Stockholder will furnish to Guardian in writing
such information as is reasonably requested by Guardian for use in such
registration statement or prospectus and will indemnify, to the extent permitted
by law, Guardian, its directors and officers and each person who controls
Guardian (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses arising out of or resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission or such alleged untrue statement or alleged omission is
contained in information so furnished in writing by such Selling Stockholder
specifically for use in preparation of the registration statement.
(c) Procedures as to Indemnification. Any person
entitled to indemnification hereunder shall (i) give prompt notice to the
indemnifying party of any claim with respect to which it may seek
indemnification and (ii) unless in such indemnified party's reasonable judgment
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). An indemnifying party who is not entitled, or
elects not, to assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, 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
claim.
Stock Purchase Agreement -- Page 36
<PAGE>
8.7. Condition to Guardian's Obligations. In connection with
an underwritten offering, it shall be a condition to Guardian's obligations to
include Registrable Securities on behalf of any Selling Stockholder that the
underwriters agree to indemnify Guardian, its directors and officers and each
person who controls Guardian (within the meaning of the Securities Act) against
any losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact or any
omission or alleged omission of a material fact required to be stated in the
registration statement or prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein not misleading, but only to
the extent that such untrue statement or omission or such alleged untrue
statement or alleged omission is contained in information furnished in writing
by such underwriters on their own behalf specifically for use in preparing the
registration statement.
8.8. Termination. The Registration Rights granted pursuant to
this Agreement shall terminate as to any Seller upon the earlier to occur of (i)
when there have become effective one or more registration statement(s) in which
such Seller has had the opportunity to participate and through which, if fully
utilized, all of its Registrable Securities could have been registered or (ii)
when all Registrable Securities held by such Seller are eligible for sale under
Rule 144.
9. Miscellaneous Provisions.
9.1. Fees and Expenses. Except in the event of a default,
and/or as otherwise set forth herein, each party will pay its own expenses in
connection with the execution and delivery of this Agreement and the performance
of such party's obligations hereunder, including attorneys' fees whether or not
the transactions contemplated hereby are consummated.
9.2. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by certified mail, return receipt
requested with postage prepaid, or by overnight guaranteed delivery service, or
by facsimile (upon confirmation of receipt):
(a) if to the Sellers, to:
Mr. Paul Ferrara
186 Crowell Avenue
Staten Island, New York 10314
Phone: 718-447-4110
Fax: n/a
Stock Purchase Agreement -- Page 37
<PAGE>
with a copy to:
Richard A. Lepowsky
Amabile & Erman, P.C.
One Penn Plaza - Suite 4501
New York, NY 10019
Phone: 212-629-3310
Fax: 212-629-3312
(b) if to the Buyer or Guardian, to:
Guardian International, Inc.
3880 N. 28th Terrace
Hollywood, Florida 33020-1118
Attention: Richard Ginsburg
Phone: 954-926-5200
Fax: 954-926-1822
with a copy to:
Mutual Central Alarm Services, Inc.
10 West 46th Street
New York, New York 10036
Attention: Joel Cohen
Phone: 212-768-0808
Fax: 212-768-9629
and
Vincent M. Kiernan, Esq.
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Phone: 203-351-4538
Fax: 203-351-4499
9.3. Succession of Agreement. This Agreement and the rights
and obligations contained herein shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
9.4. Time is of the Essence. For purposes herein, the parties
agree that time shall be of the essence of this Agreement and the
representations and warranties made are all material and of the essence of this
Agreement.
Stock Purchase Agreement -- Page 38
<PAGE>
9.5. Captions and Paragraph Headings. Captions and paragraph
headings contained in this Agreement are for convenience and reference only and
in no way define, describe, extend or limit the scope or intent of this
Agreement, nor the intent of any provision hereof.
9.6. No Waiver. No waiver of any provision of this Agreement
shall be effective unless it is in writhing, signed by the party against whom it
is asserted and any such written waiver shall only be applicable to the specific
instance to which it relates and shall not be deemed to be a continuing or
future waiver.
9.7. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same Agreement.
9.8. Gender. All terms and words used in this Agreement
regardless of the number and gender in which used, shall be deemed to include
any other gender or number as the context or the use thereof may require.
9.9. Entire Agreement and Modification. This Agreement and the
exhibits and schedules constitute the entire understanding and agreement between
the parties and may not be changed, altered or modified except by an instrument
in writing signed by all parties against whom enforcement of such change would
be sought. In the event any term or provision of this Agreement be determined by
appropriate judicial authority to be illegal or otherwise invalid, such
provision shall be given its nearest legal meaning or be construed as deleted as
such authority determines, and the remainder of this Agreement shall be
construed to be in full force and effect.
9.10. Exhibits. All Exhibits and schedules attached hereto
contain additional terms of this Agreement. Typewritten or handwritten
provisions inserted in this form or attached hereto shall control all printed
provisions in conflict therewith.
9.11. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New York (conflict of laws
provisions notwithstanding), and venue with respect to any litigation shall be
New York, New York.
9.12. Further Assurances. Each of the parties shall execute
all documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
9.13. Public Announcements. On the date of execution of this
Agreement, the Buyer and the Sellers shall issue a press release with respect to
the execution of this Agreement in a mutually acceptable form. Except with
respect to such press release and the information contained therein, each of the
Sellers and the Buyer, on the other hand, will consult with the other before
issuing any press release or otherwise making any public statements with respect
to this Agreement and the transactions contemplated hereby, and shall not issue
Stock Purchase Agreement -- Page 39
<PAGE>
any such press release or make any such public statement prior to such
consultation. Notwithstanding the above, any party required by law to disclose
the existence or the terms of his Agreement shall use its best efforts to
provide prior notice to the other party giving such other party an opportunity
to comment on the content of such disclosure, but shall in any event be
permitted to make such disclosure.
9.14. Remedies. The parties hereto shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief (without posting a bond or other security) in order to
enforce or prevent any violation of the provisions of this Agreement.
[SIGNATURE PAGE FOLLOWS]
Stock Purchase Agreement -- Page 40
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be duly executed as of the 13th day of August, 1998.
/s/PAUL FERRARA
--------------------------------
Paul Ferrara
/s/PAUL FERRARA *
--------------------------------
Stella Ferrara
GUARDIAN INTERNATIONAL, INC.
By: /s/DARIUS G. NEVIN
--------------------------------
Darius G. Nevin
Title: Vice President
MUTUAL CENTRAL ALARM SERVICES, INC.
By: /s/JOEL A. COHEN
--------------------------------
Name: Joel A. Cohen
Title: President
* Signed by Paul Ferrara, pursuant to a
power of attorney
Stock Purchase Agreement -- Page 41
<PAGE>
EXHIBIT A
Escrow Agreement
----------------
<PAGE>
EXHIBIT B
Employment Agreement
--------------------
<PAGE>
EXHIBIT C
Investor Questionnaire
----------------------
<PAGE>
EXHIBIT D
Representations and Warranties of Shareholder
---------------------------------------------
<PAGE>
EXHIBIT E
At Will Employment Agreement
----------------------------
Escrow Agreement
ESCROW AGREEMENT, dated as of August 13, 1998, by and between
Guardian International, Inc., a Nevada corporation ("Guardian"); Mutual Central
Alarm Services, Inc. a New York corporation and a wholly owned subsidiary of
Guardian ("Mutual"); Paul and Stella Ferrara (each individually a "Seller" and
collectively the "Sellers"); and Amabile & Erman, P.C., as Escrow Agent
hereunder (the "Escrow Agent").
WHEREAS, Mutual and Sellers have entered into a Stock Purchase
Agreement (the "Purchase Agreement") whereby Mutual has agreed to buy and
Sellers have agreed to sell, all of the authorized shares of Stat-Land Burglar
Alarm Systems & Devices, Inc., a New York corporation (the "Company") (all
capitalized terms not otherwise defined herein shall have the meaning as defined
in the Purchase Agreement); and
WHEREAS, Guardian, Mutual and Sellers have agreed pursuant to
the terms of the Purchase Agreement that Guardian shall deposit certain funds
into escrow and that the Escrow Agent hold and dispose of the amounts in escrow
in accordance with the terms and conditions described herein.
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. Appointment of the Escrow Agent. Guardian, Mutual and
Sellers hereby appoint Amabile Erman, P.C. as the Escrow Agent under this Escrow
Agreement, and the Escrow Agent hereby accepts such appointment on the terms and
conditions set forth herein.
2. Effective Date. This Escrow Agreement (the "Agreement")
will take effect as at the execution of this Agreement (the "Effective Date").
Escrow Agreement -- Page 1
<PAGE>
3. Escrow Amount.
a) Simultaneously with the execution and delivery of
this Agreement, Guardian is depositing with the Escrow Agent, and the Escrow
Agent hereby acknowledges the receipt from Guardian, of restricted shares of
Guardians Class A Voting Stock valued at four hundred thirty-five thousand
dollars ($435,000), the exact number of shares to be determined pursuant to
Section 1.5(a) of the Purchase Agreement (together with any Guardian Shares
delivered upon an Upward Adjustment pursuant to Section 1.9 of the Purchase
Agreement, the "Escrow Shares"). The Escrow Agent shall hold the Escrow Shares
for the purposes and upon the terms and conditions hereinafter set forth. The
Escrow Shares shall now and hereafter be valued at the Guardian Market Value as
determined at the time of Closing.
b) The Escrow Agent shall maintain the Escrow Shares
in a safety-deposit box at any commercial bank, said bank to be determined in
the sole discretion of the Escrow Agent. Unless and until all of the Escrow
Shares are released pursuant to Section 6 of this Escrow Agreement, the Escrow
Agent shall at all times hold and maintain the Escrow Shares in a segregated
manner for the benefit of Mutual and the Sellers.
4. Conditions for Holding and Release of Funds from Escrow.
The Escrow Shares shall be held, released and distributed in accordance with the
following:
a) No portion of the Escrow Shares shall be paid to
Mutual unless and until Liabilities, Bank MRI Shortfall and MRI Shortfall (each
as defined in the Purchase Agreement and collectively the "Liabilities") exceed
eighty thousand dollars ($80,000) in the aggregate (the "Basket"), provided,
however, that any Liability that arises from or is related to a Ferrara Claim or
is found in a final unappealable judgment by a court of competent jurisdiction
to have arisen from or related to the Sellers' willful bad faith, willful
Escrow Agreement -- Page 2
<PAGE>
misconduct or gross negligence with an intent to defraud (each a "First Dollar
Liability") shall not be subject to the Basket.
b) Mutual shall be entitled to receive from the
Escrow Shares funds equal to the full amount of the First Dollar Liabilities
irrespective of the Basket, and from and after the time Liabilities in the
aggregate exceed the Basket, Mutual shall be entitled to receive from the Escrow
Shares funds equal to the amount of Liabilities in excess of the Basket.
c) Notwithstanding anything to the contrary contained
herein, in the event of a Downward Adjustment (as defined in the Purchase
Agreement), the Escrow Agent shall deliver to the Buyer that number of Escrow
Shares having an aggregate Guardian Market Value equal to fifteen percent (15%)
of the amount of such Downward Adjustment pursuant to Section 1.9(c) of the
Purchase Agreement.
5. Notice of Claim. Mutual shall notify Escrow Agent and
Sellers, in writing, of any claim of Liabilities (the "Notice of Claim"). Each
Notice of Claim shall describe in reasonable detail the basis of the Claim, and
to the extent reasonably practicable shall indicate the amount of the loss,
cost, expense, Liability and/or damage claimed to have been or which may be
suffered by Mutual. Sellers shall have ten (10) days upon receipt of the Notice
of Claim by the Escrow Agent to Object to the Claim in a written notice to
Mutual ("Objection Notice"). Provided there is no Objection Notice, an amount
equal to the Claim shall be deducted from the Escrow Shares. The Escrow Agent
shall have an amount of Escrow Shares equal to the Claim returned to Mutual. A
Claim shall be considered outstanding unless (i) it has been withdrawn by Mutual
by written notice hereunder or (ii) there has been a Final Determination (as
defined in Section 7) with respect to such Claim and any amounts to which Mutual
is entitled pursuant to such Final Determination have been distributed to
Mutual.
Escrow Agreement -- Page 3
<PAGE>
6. Release of Funds. The Escrow Agent will hold the Escrow
Shares in its possession until authorized hereunder to distribute the Escrow
Shares or any specified portion thereof, as follows:
a) If on the thirtieth (30th) day following the First
Anniversary, there is no outstanding Claim, the Escrow Agent shall distribute
one-third (1/3) of the Escrow Shares less the amount of all Claims previously
deducted from the Escrow Shares ("First Year Shares") to the Sellers.
b) If on the thirtieth (30th) day following the First
Anniversary, one or more Claims is outstanding, the Escrow Agent shall
distribute to the Sellers that portion of the First Year Shares which remains
after subtraction of the aggregate amount of all outstanding Claims asserted by
the Mutual.
c) If on the second anniversary of the Effective
Date, there is no outstanding Claim, the Escrow Agent shall distribute
two-thirds (2/3) of the Escrow Shares less the First Year Shares and the amount
of all Claims previously deducted from the Escrow Shares (the "Second Year
Shares").
d) If on the second anniversary of the Effective
Date, one or more Claims is outstanding, the Escrow Agent shall distribute to
the Sellers that portion of the Second Year Shares which remains after
subtraction of the aggregate amount of all outstanding Claims asserted by
Mutual.
e) If on the thirtieth (30th) day following the Third
Anniversary, there is no outstanding Claim, the Escrow Agent shall distribute
all remaining Escrow Shares to the Sellers.
f) If on the thirtieth (30th) day following the Third
Anniversary, one or more Claims is outstanding, the Escrow Agent will distribute
to the Sellers that portion of the Escrow Shares which remains after subtraction
of the aggregate amount of all outstanding Claims asserted by the Mutual.
Escrow Agreement -- Page 4
<PAGE>
g) The Escrow Agent shall distribute all or part of
the Escrow Shares, as the case may be, promptly upon the receipt of, and in
accordance with, (i) a Notice of Claim that is received by the Escrow Agent and
subsequent to the expiration of the 10 day period provided for in Section 5, no
Notice of Objection is received by the Escrow Agent or (ii) any Final
Determination of any Claim.
7. Final Determination. For the purposes of this Escrow
Agreement, a "Final Determination" shall mean, with respect to any Claim, (a)
written compromise or settlement signed by (i) Sellers, and (ii) Mutual, or (b)
a final order, decree or judgment of a court or agency of competent jurisdiction
in the United States of America (the time for appeal having expired and no
appeal having been taken) directing as to the disposition of such Claim.
8. Termination of the Escrow Agreement. This Escrow Agreement
shall terminate, and the Escrow Agent's duties and obligations hereunder shall
cease and terminate, upon the distribution of all of the Escrow Shares pursuant
to the terms and conditions of this Agreement.
9. Duties and Liabilities of the Escrow Agent;
Indemnification.
a) Duties. It is agreed that the duties and
obligations of the Escrow Agent are those herein specifically provided and no
other. The Escrow Agent shall not have any liability under, nor duty to inquire
into, the terms and provisions of any agreement or instrument, other than this
Escrow Agreement. Its duties are ministerial in nature and the Escrow Agent
shall not incur any liability whatsoever other than for its own willful
misconduct or gross negligence.
Escrow Agreement -- Page 5
<PAGE>
b) Right to Follow Instructions. The Escrow Agent
shall not incur any liability for following the instructions herein contained or
expressly provided for, or written instructions given jointly by Mutual and
Sellers.
c) No Duty to Verify. The Escrow Agent shall not have
any responsibility for the genuineness or validity of any document or other
material presented to or deposited with it nor any liability for any action
taken, suffered or omitted in accordance with any written instructions or
certificates given to it hereunder and believed by it to be signed by the proper
party or parties.
d) Consultation with Counsel. The Escrow Agent may
consult with counsel of its choice and shall not be liable for any action taken,
suffered or omitted by it in accordance with the advice of such counsel.
e) Conflicting Instructions. In the event that the
Escrow Agent shall be uncertain as to its duties or rights hereunder or shall
receive instructions, claims or demands from any party hereto which, in its
opinion, conflict with any of the provisions of this Escrow Agreement, it shall
be entitled to refrain from taking any action and its sole obligation shall be
to keep safely all property held in escrow until it shall be directed otherwise
in writing jointly by Mutual and Sellers or by a final order or judgment of a
court of competent jurisdiction.
f) Legal Proceedings. The Escrow Agent shall not be
required to institute legal proceedings of any kind and shall not be required to
initiate or defend any legal proceedings which may be instituted against it in
respect of the subject matter of this Escrow Agreement. If the Escrow Agent does
elect to act it will do so only to the extent that it is indemnified to its
satisfaction against the cost and expense of such defense or initiation.
Escrow Agreement -- Page 6
<PAGE>
g) Changes to the Agreement. The Escrow Agent shall
not be bound by any modification, amendment, termination, cancellation,
rescission or supersession of this Escrow Agreement unless the same shall be in
writing and signed by all of the other parties hereto and, if its rights,
duties, immunities or indemnities as Escrow Agent are affected thereby, unless
it shall have given its prior written consent thereto.
h) Indemnification of Escrow Agent. The parties
hereto jointly and severally agree to indemnify, defend and hold the Escrow
Agent harmless from and against any and all loss, damage, tax, liability and
expense, including the reasonable legal costs and expenses of defending itself
against any claim or liability in connection with its performance hereunder,
that may be incurred by the Escrow Agent arising out of or in connection with
its duties, obligations or performance as Escrow Agent hereunder, except as
caused by its gross negligence or willful misconduct. The terms of this
subsection 10(h) shall survive the termination of this Escrow Agreement and,
with respect to claims arising in connection with the Escrow Agents, duties
while acting as such, the resignation or removal of the Escrow Agent.
(i) Liability for Investment. The Escrow Agent shall
not have any liability for any loss sustained as a result of any investment made
or as a result of any liquidation of any such investment prior to its maturity
pursuant to the instructions of the parties as provided for herein or for the
failure of the parties to give the Escrow Agent any instruction to invest or
reinvest the Escrow Shares. The Escrow Agent further agrees that the Escrow
Shares shall be available for withdrawal on not less than five (5) days, prior
written notice.
Escrow Agreement -- Page 7
<PAGE>
10. Resignation or Removal of the Escrow Agent.
10.1. Resignation. The Escrow Agent may at any time resign by
giving written notice of its resignation to the parties hereto at their
respective addresses set forth in this Agreement, at least ten (10) days prior
to the date specified for such resignation to take effect, and upon the
effective date of such resignation, all property then held by the Escrow Agent
shall be delivered by it to such person as may be designated in writing,
whereupon all of the Escrow Agent's duties and obligations hereunder shall cease
and terminate. If no such person shall have been designated by such time, all
duties and obligations of the Escrow Agent shall nevertheless cease and
terminate. The Escrow Agent's sole responsibility thereafter shall be to keep
safely all property then held by it pursuant to this Escrow Agreement and to
deliver the same to a person or persons designated by all of the other parties
hereto or in accordance with the directions of a final order or judgment of a
court of competent jurisdiction.
10.2. Removal of the Escrow Agent. Mutual and Sellers together
shall have the right to terminate the appointment of the Escrow Agent hereunder
(effective upon the appointment of a successor escrow agent) by giving notice in
writing, signed by mutual and Sellers, of such termination to the Escrow Agent.
In the event of such termination, the Escrow Agent shall turn over and deliver
the Escrow Shares and/or Stock Option Shares in accordance with the instructions
contained in such notice of termination, whereupon all of the Escrow Agent's
duties and obligations hereunder shall terminate.
10.3. Successor Escrow Agent Bound. Any successor escrow agent
appointed by Sellers and Mutual shall assume and be bound by the provisions of
this Agreement.
Escrow Agreement -- Page 8
<PAGE>
11. Waiver. The waiver, or repeated waiver, by any party
hereto of compliance by the other party with any provision of this Agreement
shall not be deemed a waiver of compliance with such provision on a subsequent
occasion, nor shall any such waiver imply the waiver of any other provision of
this Agreement. No provision of this Agreement may be waived, nor may this
Agreement be modified. or amended, except by a writing signed by the party to be
bound thereby.
12. Notices. Any notice or other communication required or
permitted to be given hereunder will be in writing and will be mailed by prepaid
registered or certified mail, or delivery against receipt (including by
confirmed facsimile transmission), as follows:
a) In the case of Guardian or Mutual, to:
Guardian International, Inc.
3880 N 28 Terrace
Hollywood, FL 33020-1118
Facsimile: 954-926-1822
Attn: Richard Ginsburg
with a copy to:
Mutual Central Alarm Services, Inc.
10 West 46th Street
New York, New York 10036
Facsimile: 212-768-9629
Attn: Joel Cohen
and with a copy to:
Cummings & Lockwood
4 Stamford Plaza
Stamford, CT 06904
Facsimile: 203-351-4499
Attn: Vincent M. Kiernan, Esq.
b) In the case of Sellers to:
Escrow Agreement -- Page 9
<PAGE>
Paul and Stella Ferrara
186 Crowell Avenue
Staten Island, New York 10314
with a copy to:
Amabile & Erman, P.C.
One Penn Plaza, Suite 4501
New York, New York 10119
Facsimile: 212-629-3312
Attn: Richard Lepowsky
c) In the case of the Escrow Agent to:
Amabile & Erman, P.C.
One Penn Plaza, Suite 4501
New York, New York 10119
Facsimile: 212-629-3312
Attn: Richard Lepowsky
or to such other address as the party may have furnished in writing in
accordance with the provisions of this Section. Any notice or other
communication shall be deemed to have been given, made and received (i) five
days following the day when mailed by prepaid registered or certified mail,
return-receipt requested or (ii) otherwise (or if earlier), upon receipt. All
notices delivered hereunder shall be marked "PERSONAL AND CONFIDENTIAL." Either
party may change the address to which notices are to be addressed by giving the
other party notice in the manner herein set forth.
13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to its conflict of law rules and any action brought hereunder shall be
brought in the courts of the State of New York, located in the County of New
York. The parties-hereto irrevocably consent to the jurisdiction of said courts.
Escrow Agreement -- Page 10
<PAGE>
14. Assigns. This Agreement shall be binding upon the
successors and assigns of the parties hereto. No assignment of any right or
delegation of any obligations provided for herein may be made by Guardian,
Mutual, Sellers or the Escrow Agent without the express written consent of the
other parties (provided that the consent of the Escrow Agent shall not be
required for an assignment or delegation by Guardian, Mutual or Sellers).
15. Attorneys' Fees. In the event of any legal action to
enforce the provisions of this Agreement (including without limitation an action
for a declaratory judgment) the prevailing party shall be entitled to an award
of its reasonable attorneys' fees therein.
16. Entire Agreement. This Agreement contains the entire
agreement among all of the parties hereto with respect to the subject matter
hereof, and there are no representations, warranties, understandings or
agreements other than those expressly set forth herein. It is expressly
understood and agreed by the parties hereto that all references in this
Agreement to the Purchase Agreement are for the convenience of the parties
hereto other than the Escrow Agent and the Escrow Agent shall have no
obligations or duties with respect thereto.
17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
18. Section Headings. The section headings contained in this
Escrow Agreement are inserted for purposes of convenience of reference only and
shall not affect the meaning or interpretation hereof.
Escrow Agreement -- Page 11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Escrow Agreement as of the date first above written.
GUARDIAN INTERNATIONAL, INC.
By:/s/DARIUS G. NEVIN
---------------------------------
Name: Darius G. Nevin
Title: Vice President
MUTUAL CENTRAL ALARM SERVICES, INC.
By:/s/JOEL A. COHEN
---------------------------------
Name: Joel A. Cohen
Title: President
/s/PAUL FERRARA
---------------------------------
Paul Ferrara
/s/PAUL FERRARA *
---------------------------------
STELLA FERRARA
AMABILE & ERMAN, P.C., as Escrow Agent
By: /s/PAUL M. DE CARLO
---------------------------------
Name: Paul M. DeCarlo
Title: Partner
* Signed by Paul Ferrara, pursuant to a power of attorney
Escrow Agreement -- Page 12
AT-WILL EMPLOYMENT AGREEMENT
----------------------------
This AT-WILL EMPLOYMENT AGREEMENT (this "Agreement"), dated
August 13, 1998 (the "Effective Date"), is by and among Guardian International,
Inc., a Nevada corporation ("Guardian"), Mutual Central Alarm Services, Inc., a
New York corporation ("Mutual"), Stat-Land Burglar Alarm Systems & Devices,
Inc., a New York Corporation (the "Employer") and Vincent Monardo (the
"Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Mutual is a wholly-owned subsidiary of Guardian; and
WHEREAS, effective as of the date hereof, Mutual acquired all
of the issued and outstanding capital stock of the Employer under the terms of
that certain Stock Purchase Agreement, dated the date hereof, by and between
Guardian, Mutual, and Paul Ferrara and Stella Ferrara (the "Purchase
Agreement"). Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Purchase Agreement; and
WHEREAS, it is a condition to the Purchase Agreement that
Guardian, Mutual, the Employer and the Employee execute this Agreement;
WHEREAS, Mutual and Guardian recognize that the Employee will
contribute to the future growth and success of the security business of the
Employer as well as Mutual and Guardian, consisting of burglar and fire alarm,
closed circuit television and electronic access and control , and central
station monitoring services to residential and commercial customers (the
"Business"), and therefore desire to induce the Employee to remain an employee
of the Employer, subsequent to the transactions contemplated by the Purchase
Agreement; and
WHEREAS, the Employee desires to remain an employee of the
Employer subsequent to the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements contained herein, the receipt and
sufficiency of which are mutually acknowledged, the parties hereto hereby agree
as follows:
1
<PAGE>
1. Employment. The Employer hereby agrees to employ
the Employee and the Employee hereby agrees to serve the Employer, on the terms
and conditions hereinafter set forth in this Agreement.
2. At Will Employment. This Agreement shall be
effective as of the day and year first written above. THE EMPLOYEE AND THE
EMPLOYER ACKNOWLEDGE AND AGREE THAT THE EMPLOYEE IS AN EMPLOYEE "AT WILL" AND
THAT EITHER THE EMPLOYEE OR THE EMPLOYER REMAIN FREE TO TERMINATE THE EMPLOYMENT
RELATIONSHIP AT ANY TIME FOR ANY REASON.
3. Position and Duties. During the Employee's
employment with the Employer and subject to the provisions of this Section 3,
the Employee shall serve as Vice-President of Sales and Service and shall
faithfully perform all duties and responsibilities as the President of the
Employer or his designee may direct from time to time.
4. Best Efforts. The Employee's employment with the
Employer shall be full time and the Employee shall devote his best efforts and
business time exclusively to the performance of his duties and responsibilities
as set forth in this Agreement, which duties and responsibilities shall be
performed competently, carefully and faithfully. The Employee shall not, while
an employee of the Employer and without the prior approval of the Employer,
engage in any other gainful occupation or activity which conflicts with or
impinges upon the full and faithful performance of the Employee's duties, or
otherwise violates any term or provision of this Agreement. It is expressly
understood and agreed, however, that the provisions of this Section 4 shall not
be construed to prevent the Employee from investing or trading for his own
account provided that such investment activity does not impair the full and
faithful performance by the Employee of his duties and responsibilities
hereunder, or otherwise violate any provision of this Agreement.
5. The Employee's Compensation.
a) Salary. During the term of the Employee's
employment with the Employer, the Employer shall pay to the Employee an annual
base salary as determined from time to time by the President of Employer, in
accordance with the normal payroll schedules of the Employer in effect from time
to time, less all appropriate withholdings for federal, state and local taxes
and unemployment insurance. The Employee's current base salary is $32,500.
b) Commissions. In addition to the
Employee's annual base salary, during the term of the Employee's employment with
2
<PAGE>
the Employer, in consideration of the timely and proper performance by the
Employee of his obligations in accordance with this Agreement, the Employer
shall pay the Employee sales commissions in accordance with the Employer's sales
plan in effect from time to time.
6. The Employee's Benefits. As an employee of the
Employer, during the term of the Employee's employment with the Employer, the
Employee shall be entitled to receive and enjoy such employee plans and benefits
as are generally made available by the Employer to similarly situated employees.
7. Guardian Shares. As additional consideration for
executing this Agreement, upon execution of this Agreement, Guardian shall issue
to the Employee a Guardian Common Stock certificate having an aggregate Guardian
Market Value as determined at the time of the Closing equal to Twenty Thousand
Dollars ($20,000).
8. Stock Options. As additional consideration for
executing this Agreement, the Employee shall receive the option to purchase that
number of shares of Guardian Common Stock having an aggregate Guardian Market
Value as determined at the time of the Closing equal to Twenty Thousand Dollars
($20,000) (the "Options"), subject to the terms and conditions of the stock
option plan to be established by Guardian (the "Stock Option Plan") and a grant
agreement granting such Options (the "Grant Agreement"). The exercise price of
the Options shall be equal to the exercise price equal to the five-day average
closing price of the Common Stock for the five days prior to the grant thereof..
The Options will vest at the rate of one-fifth per year commencing with the
Effective Date. Vested Options shall be exercisable on each anniversary of the
date of the grant of such Options. If the Employee does not exercise all of the
vested Options in any given year, such vested Options may be exercised in
subsequent years but in no event later than ten years from the date of the grant
thereof. In the event that the Employee's employment hereunder is terminated by
Employer "without cause" prior to the vesting of all Options, any such unvested
Options shall vest automatically as of the date of termination. For purposes for
this Agreement, "without cause" shall mean termination of the Employee's
employment hereunder for reasons other than: (i) any conviction of the Employee
of a felony or any conduct which if proved would support conviction of a felony;
(ii) conduct amounting to a material act of fraud, gross misconduct or
dishonesty involving the Employer; (iii) a material act of fraud or dishonesty
not involving the Employer which has a material adverse effect upon the Business
or reputation of Employer; (iv) continuing material violation by the Employee of
his obligations under this Agreement after written notice thereof to the
Employee and failure to cure such violation within fifteen (15) days following
such notice; (v) misuse of alcohol or controlled substance that materially
impairs the Employee's ability to perform the duties of his employment as
determined by a physician retained by the Employer or, if the Employee refuses
to submit to appropriate examinations by such physician at the request of the
3
<PAGE>
Board of Directors of the Employer, then by at least three members of the Board
of Directors; (vi) the unlawful use of drugs or other controlled substances;
(vii) death; or (viii) disability. In the event that Employee's employment
hereunder is terminated for any reason other than without cause prior to the
vesting of all Options, any such unvested Options shall be forfeited, unless
otherwise provided in the Stock Option Plan or Grant Agreement.
9. Confidentiality.
a) For good consideration and as an
inducement for the Employer to employ the Employee, the Employee agrees that,
both during the period of the Employee's employment with the Employer and after
the termination of this Agreement and his employment with the Employer, for any
reason or no reason, the Employee will hold in a fiduciary capacity for the
benefit of the Employer, and shall not, directly or indirectly, use or disclose,
except as authorized by the Employer in connection with the performance of his
duties hereunder, any Confidential Information (as defined below) that the
Employee may have or acquire (whether or not developed or compiled by the
Employee or whether or not the Employee has been authorized to have access to
such Confidential information) prior to or during the Term. As used in this
Agreement, the term "Confidential Information" means and includes any and all
information, data and know-how specific to the Business of the Employer or its
affiliates, Parent or Subsidiaries, and not generally known in the industry that
is disclosed to the Employee by the Employer or known by him or her as a result
of his relationship with the Employer (or a company acquired by the Employer)
and not generally within the public domain (whether or not constituting a Trade
Secret), 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
the Employer treats as confidential.
The term "Confidential Information" does not include
information that has become generally available to the public by the act of the
Employer or by the act of one who has the right to disclose such information
without violating any right of confidentiality to the Employer or the customer
to which such information pertains.
Nothing in this Section 9 shall prevent the 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; provided, however, that the Employee agrees to give the Employer
advance written notice as soon as possible of the Confidential Information
required to be disclosed, and at the Employer's request, to use his best efforts
to obtain assurances that the Confidential Information required to be disclosed
will be maintained on a confidential basis and will not be disclosed to a
greater degree than required by law.
4
<PAGE>
b) The covenant contained in this Section 9
shall survive the termination of the Employee's employment with the Employer for
any reason or no 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, the Employee's obligations of confidentiality and
non-disclosure as set forth in this Section 8 shall continue to survive after
said two (2) year period to the greatest extent permitted by applicable law.
These rights of the Employer are in addition to those rights the Employer has
under the common law or applicable statutes for the protection of trade secrets.
10. Covenant Not to Compete. For good consideration
and as an inducement for the Employer to employ the Employee, the Employee
agrees that he will not engage or participate, directly or indirectly, in any
business that competes with the Business, whether as employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or other representative capacity, at any time during the Employee's employment
with the Employer. Nothing in this Section 10 shall prevent the Employee from
owning less than 5% of the shares of any company which has shares registered on
any stock exchange or with shares traded in the OTC market. In the event any
court shall refuse to enforce any portion of the covenant set forth in this
Section 10, 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.
11. Covenants Against Other Actions Damaging
Employer. The Employee agrees that he shall not, at any time during his
employment with the Employer and for the two (2) year period following the
termination of this Agreement and his employment with the Employer, for any
reason or no reason, (the "Non-Solicitation Period"), for himself or on behalf
of or in conjunction with any third party, solicit any employee of the Employer
its affiliates or subsidiaries to leave such employment. The Employee further
agrees that during the Non-Solicitation 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 business, any customers of the Employer who are customers as of
the date of termination of the Employee's employment with the Employer. If,
during the period of the Employee's employment with the Employer, the Employee
is engaged in or associated with the planning or implementing of any project,
program or venture involving the 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"), 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 the Employer and shall
constitute a corporate opportunity belonging exclusively to the Employer. Except
as approved by the Board, the 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
5
<PAGE>
consummate the Acquisition, or to any commission, finder's fee or other
compensation in connection therewith other than any Salary paid to the 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 12, 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.
12. Release.
(a) The Employee, for himself, his heirs,
executors, administrators and assigns, hereby knowingly and voluntarily releases
and discharges the Employer and all of its present or former parents,
subsidiaries and affiliates, including, without limitation, their respective
directors, stockholders, officers, employees and agents (the "Employer
Releasees") from all actions, causes of actions, suits, debts, dues, sums of
money, accounts, reckonings, attorneys' fees, costs, disbursements, bonds,
bills, specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims and
demands, whatsoever, at law, or in equity which the Employee ever had, now has
or hereafter can, shall or may have against the Employer for, upon or by reason
of those matters related to or arising out of the Employee's employment with the
Employer through the date hereof.
(b) The Employee acknowledges that he has
had an opportunity to consult with his attorney and other advisors regarding the
form, content, meaning and effect of this Agreement and has been advised as to
the implications thereof and is entering into this Agreement of his own free
will and concern.
(c) The Employee hereby waives any rights
that he has to rescind any release and discharge pursuant to this Section.
13. Arbitration. All disputes or controversies
between the parties arising from or related to any matter that pertains to this
Agreement, to the employment of the Employee by the Employer, or to the
termination the Employee's employment which otherwise would allow or require
resort to a court, administrative, or other governmental dispute resolution
forum (whether the claim is legal or equitable in nature, whether it is based on
any tort, contract, or common law theory of recovery, or whether it is based on
any federal, state, or local employment discrimination or civil rights statute,
executive order, law, regulation, or ordinance, including without limitation the
Age Discrimination in Employment Act of 1967, the Americans with Disabilities
Act, Title VII of the Civil Rights Act of 1964, the New York State Human Rights
Law, and the New York City Humans Rights Law) shall be referred to binding,
non-appealable arbitration in accordance with the procedures set forth in
Exhibit A annexed hereto and without recourse any litigation except as set forth
6
<PAGE>
in Exhibit A. Each party hereby submits to personal jurisdiction in New York,
New York for the purpose of such arbitration proceedings, and/or any suits to
confirm same. Pending completion of any arbitration proceedings, payments not in
dispute shall continue to be made and obligations not in dispute shall continue
to be performed.
14. Assignment. This Agreement is personal to the
Employee and the Employee may not assign or transfer any of its benefits or
obligations hereunder. Upon written notice by the Employer to the Employee, the
Employer may assign its rights under this Agreement to any entity (i) that
controls or acquires control of the Employer, (ii) that is controlled by, is
under common control with, or acquires an interest in the Employer, or (iii) in
which the Employer acquires a financial interest, provided that such entity
assumes the Employer's obligations under this Agreement or that the Employer
remains liable for its obligations under the Agreement. Upon written notice by
the Employer to the Employee, the Employer may assign its rights to any entity
that acquires substantially all of the Employer's assets provided that such
entity assumes the Employer's obligations under this Agreement.
15. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to the conflicts of laws principles thereof.
16. 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 the Employer and the
Employee.
17. 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 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 the Employer:
Mutual Central Alarm Services, Inc.
New York, New York 10036
Attention: Joel Cohen
Phone: 212-768-0808
Fax: 212-768-9629
7
<PAGE>
with a copy to:
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Vincent M. Kiernan, Esq.
Phone: 203-351-4538
Fax: 203-351-4499
If to the Employee:
Mr. Vincent Monardo
254 Demorest Avenue
Staten Island, NY 10314
18. 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.
19. 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 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.
20. Modification; Waiver; Discharge. No provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the Employee and
a duly authorized representative of the Employer. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
21. 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.
8
<PAGE>
22. Equitable Remedies. The Employee acknowledges
that the Employer would not have an adequate remedy at law for money damages if
the Employee breaches Sections 9, 10 or 11. Therefore, in addition to all other
remedies to which the Employer may be entitled for a breach or threatened breach
of this Agreement, the Employer will be entitled to specific enforcement of this
Agreement and to injunctive or other equitable relief as a remedy for a breach
or threatened breach. In the event of legal proceedings in connection with this
Agreement, the non-prevailing entity shall pay all reasonable attorneys' fees
and costs of the prevailing party at trial and on appeal.
[Signature Pages Follow]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the day and year first above written.
EMPLOYER:
STAT-LAND BURGLAR ALARM SYSTEMS & DEVICES, INC.
a New York corporation
By: /s/PAUL FERRARA
----------------------
Name: Paul Ferrara
Title: President
MUTUAL:
MUTUAL CENTRAL ALARM SERVICES, INC.
a New York corporation
By: /s/JOEL A. COHEN
----------------------
Name: Joel A. Cohen
Title: President
GUARDIAN:
GUARDIAN INTERNATIONAL, INC.
a Nevada corporation
By: /s/DARIUS G. NEVIN
----------------------
Name: Darius G. Nevin
Title: Vice President
[Employee's Signature Follows]
10
<PAGE>
EMPLOYEE:
/s/VINCENT MONARDO
----------------------
Vincent Monardo
STATE OF NEW YORK )
-------- ) ss.
COUNTY OF RICHMOND )
--------
The foregoing instrument and signature was acknowledged before
me on this 13th day of August, 1998, by VINCENT MONARDO.
/s/GINA VACATELLO
----------------------------------
Gina Vacatello
Notary Public
Commissioner of the Superior Court
[NOTARIAL SEAL]
11
<PAGE>
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 New York, New York 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 New York (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 an injunction or other provisional
judicial relief if in its sole judgment such action is necessary to avoid
irreparable damage or to present the status quo. Despite any such action, the
parties shall continue to participate in good faith in the procedures specified
herein.
AT-WILL EMPLOYMENT AGREEMENT
----------------------------
This AT-WILL EMPLOYMENT AGREEMENT (this "Agreement"), dated
August 13, 1998 (the "Effective Date"), is by and among Guardian International,
Inc., a Nevada corporation ("Guardian"), Mutual Central Alarm Services, Inc., a
New York corporation ("Mutual"), Stat-Land Burglar Alarm Systems & Devices,
Inc., a New York Corporation (the "Employer") and Kevin Killea (the "Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Mutual is a wholly-owned subsidiary of Guardian; and
WHEREAS, effective as of the date hereof, Mutual acquired all
of the issued and outstanding capital stock of the Employer under the terms of
that certain Stock Purchase Agreement, dated the date hereof, by and between
Guardian, Mutual, and Paul Ferrara and Stella Ferrara (the "Purchase
Agreement"). Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Purchase Agreement; and
WHEREAS, it is a condition to the Purchase Agreement that
Guardian, Mutual, the Employer and the Employee execute this Agreement;
WHEREAS, Mutual and Guardian recognize that the Employee will
contribute to the future growth and success of the security business of the
Employer as well as Mutual and Guardian, consisting of burglar and fire alarm,
closed circuit television and electronic access and control , and central
station monitoring services to residential and commercial customers (the
"Business"), and therefore desire to induce the Employee to remain an employee
of the Employer, subsequent to the transactions contemplated by the Purchase
Agreement; and
WHEREAS, the Employee desires to remain an employee of the
Employer subsequent to the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements contained herein, the receipt and
sufficiency of which are mutually acknowledged, the parties hereto hereby agree
as follows:
1
<PAGE>
1. Employment. The Employer hereby agrees to employ
the Employee and the Employee hereby agrees to serve the Employer, on the terms
and conditions hereinafter set forth in this Agreement.
2. At Will Employment. This Agreement shall be
effective as of the day and year first written above. THE EMPLOYEE AND THE
EMPLOYER ACKNOWLEDGE AND AGREE THAT THE EMPLOYEE IS AN EMPLOYEE "AT WILL" AND
THAT EITHER THE EMPLOYEE OR THE EMPLOYER REMAIN FREE TO TERMINATE THE EMPLOYMENT
RELATIONSHIP AT ANY TIME FOR ANY REASON.
3. Position and Duties. During the Employee's
employment with the Employer and subject to the provisions of this Section 3,
the Employee shall serve as Service and Installation Manager and shall
faithfully perform all duties and responsibilities as the President of the
Employer or his designee may direct from time to time.
4. Best Efforts. The Employee's employment with the
Employer shall be full time and the Employee shall devote his best efforts and
business time exclusively to the performance of his duties and responsibilities
as set forth in this Agreement, which duties and responsibilities shall be
performed competently, carefully and faithfully. The Employee shall not, while
an employee of the Employer and without the prior approval of the Employer,
engage in any other gainful occupation or activity which conflicts with or
impinges upon the full and faithful performance of the Employee's duties, or
otherwise violates any term or provision of this Agreement. It is expressly
understood and agreed, however, that the provisions of this Section 4 shall not
be construed to prevent the Employee from investing or trading for his own
account provided that such investment activity does not impair the full and
faithful performance by the Employee of his duties and responsibilities
hereunder, or otherwise violate any provision of this Agreement.
5. The Employee's Compensation.
a) Salary. During the term of the Employee's
employment with the Employer, the Employer shall pay to the Employee an annual
base salary as determined from time to time by the President of Employer, in
accordance with the normal payroll schedules of the Employer in effect from time
to time, less all appropriate withholdings for federal, state and local taxes
and unemployment insurance. The Employee's current base salary is $50,000.
b) Commissions. In addition to the
Employee's annual base salary, during the term of the Employee's employment with
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the Employer, in consideration of the timely and proper performance by the
Employee of his obligations in accordance with this Agreement, the Employer
shall pay the Employee sales commissions in accordance with the Employer's sales
plan in effect from time to time.
6. The Employee's Benefits. As an employee of the
Employer, during the term of the Employee's employment with the Employer, the
Employee shall be entitled to receive and enjoy such employee plans and benefits
as are generally made available by the Employer to similarly situated employees.
7. Guardian Shares. As additional consideration for
executing this Agreement, upon execution of this Agreement, Guardian shall issue
to the Employee a Guardian Common Stock certificate having an aggregate Guardian
Market Value as determined at the time of the Closing equal to Five Thousand
Dollars ($5,000).
8. Stock Options. As additional consideration for
executing this Agreement, the Employee shall receive the option to purchase that
number of shares of Guardian Common Stock having an aggregate Guardian Market
Value as determined at the time of the Closing equal to Five Thousand Dollars
($5,000) (the "Options"), subject to the terms and conditions of the stock
option plan to be established by Guardian (the "Stock Option Plan") and a grant
agreement granting such Options (the "Grant Agreement"). The exercise price of
the Options shall be equal to the exercise price equal to the five-day average
closing price of the Common Stock for the five days prior to the grant thereof..
The Options will vest at the rate of one-fifth per year commencing with the
Effective Date. Vested Options shall be exercisable on each anniversary of the
date of the grant of such Options. If the Employee does not exercise all of the
vested Options in any given year, such vested Options may be exercised in
subsequent years but in no event later than ten years from the date of the grant
thereof. In the event that the Employee's employment hereunder is terminated by
Employer "without cause" prior to the vesting of all Options, any such unvested
Options shall vest automatically as of the date of termination. For purposes for
this Agreement, "without cause" shall mean termination of the Employee's
employment hereunder for reasons other than: (i) any conviction of the Employee
of a felony or any conduct which if proved would support conviction of a felony;
(ii) conduct amounting to a material act of fraud, gross misconduct or
dishonesty involving the Employer; (iii) a material act of fraud or dishonesty
not involving the Employer which has a material adverse effect upon the Business
or reputation of Employer; (iv) continuing material violation by the Employee of
his obligations under this Agreement after written notice thereof to the
Employee and failure to cure such violation within fifteen (15) days following
such notice; (v) misuse of alcohol or controlled substance that materially
impairs the Employee's ability to perform the duties of his employment as
determined by a physician retained by the Employer or, if the Employee refuses
to submit to appropriate examinations by such physician at the request of the
Board of Directors of the Employer, then by at least three members of the Board
3
<PAGE>
of Directors; (vi) the unlawful use of drugs or other controlled substances;
(vii) death; or (viii) disability. In the event that Employee's employment
hereunder is terminated for any reason other than without cause prior to the
vesting of all Options, any such unvested Options shall be forfeited, unless
otherwise provided in the Stock Option Plan or Grant Agreement.
9. Confidentiality.
a) For good consideration and as an
inducement for the Employer to employ the Employee, the Employee agrees that,
both during the period of the Employee's employment with the Employer and after
the termination of this Agreement and his employment with the Employer, for any
reason or no reason, the Employee will hold in a fiduciary capacity for the
benefit of the Employer, and shall not, directly or indirectly, use or disclose,
except as authorized by the Employer in connection with the performance of his
duties hereunder, any Confidential Information (as defined below) that the
Employee may have or acquire (whether or not developed or compiled by the
Employee or whether or not the Employee has been authorized to have access to
such Confidential information) prior to or during the Term. As used in this
Agreement, the term "Confidential Information" means and includes any and all
information, data and know-how specific to the Business of the Employer or its
affiliates, Parent or Subsidiaries, and not generally known in the industry that
is disclosed to the Employee by the Employer or known by him or her as a result
of his relationship with the Employer (or a company acquired by the Employer)
and not generally within the public domain (whether or not constituting a Trade
Secret), 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
the Employer treats as confidential.
The term "Confidential Information" does not include
information that has become generally available to the public by the act of the
Employer or by the act of one who has the right to disclose such information
without violating any right of confidentiality to the Employer or the customer
to which such information pertains.
Nothing in this Section 9 shall prevent the 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; provided, however, that the Employee agrees to give the Employer
advance written notice as soon as possible of the Confidential Information
required to be disclosed, and at the Employer's request, to use his best efforts
to obtain assurances that the Confidential Information required to be disclosed
will be maintained on a confidential basis and will not be disclosed to a
greater degree than required by law.
4
<PAGE>
b) The covenant contained in this Section 9
shall survive the termination of the Employee's employment with the Employer for
any reason or no 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, the Employee's obligations of confidentiality and
non-disclosure as set forth in this Section 8 shall continue to survive after
said two (2) year period to the greatest extent permitted by applicable law.
These rights of the Employer are in addition to those rights the Employer has
under the common law or applicable statutes for the protection of trade secrets.
10. Covenant Not to Compete. For good consideration
and as an inducement for the Employer to employ the Employee, the Employee
agrees that he will not engage or participate, directly or indirectly, in any
business that competes with the Business, whether as employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director,
or other representative capacity, at any time during the Employee's employment
with the Employer. Nothing in this Section 10 shall prevent the Employee from
owning less than 5% of the shares of any company which has shares registered on
any stock exchange or with shares traded in the OTC market. In the event any
court shall refuse to enforce any portion of the covenant set forth in this
Section 10, 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.
11. Covenants Against Other Actions Damaging
Employer. The Employee agrees that he shall not, at any time during his
employment with the Employer and for the two (2) year period following the
termination of this Agreement and his employment with the Employer, for any
reason or no reason, (the "Non-Solicitation Period"), for himself or on behalf
of or in conjunction with any third party, solicit any employee of the Employer
its affiliates or subsidiaries to leave such employment. The Employee further
agrees that during the Non-Solicitation 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 business, any customers of the Employer who are customers as of
the date of termination of the Employee's employment with the Employer. If,
during the period of the Employee's employment with the Employer, the Employee
is engaged in or associated with the planning or implementing of any project,
program or venture involving the 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"), 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 the Employer and shall
5
<PAGE>
constitute a corporate opportunity belonging exclusively to the Employer. Except
as approved by the Board, the 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 the 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 12, 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.
12. Release.
(a) The Employee, for himself, his heirs,
executors,
administrators and assigns, hereby knowingly and voluntarily releases and
discharges the Employer and all of its present or former parents, subsidiaries
and affiliates, including, without limitation, their respective directors,
stockholders, officers, employees and agents (the "Employer Releasees") from all
actions, causes of actions, suits, debts, dues, sums of money, accounts,
reckonings, attorneys' fees, costs, disbursements, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, extents, executions, claims and demands,
whatsoever, at law, or in equity which the Employee ever had, now has or
hereafter can, shall or may have against the Employer for, upon or by reason of
those matters related to or arising out of the Employee's employment with the
Employer through the date hereof.
(b) The Employee acknowledges that he has
had an opportunity to consult with his attorney and other advisors regarding the
form, content, meaning and effect of this Agreement and has been advised as to
the implications thereof and is entering into this Agreement of his own free
will and concern.
(c) The Employee hereby waives any rights
that he has to rescind any release and discharge pursuant to this Section.
13. Arbitration. All disputes or controversies
between the parties arising from or related to any matter that pertains to this
Agreement, to the employment of the Employee by the Employer, or to the
termination the Employee's employment which otherwise would allow or require
resort to a court, administrative, or other governmental dispute resolution
forum (whether the claim is legal or equitable in nature, whether it is based on
any tort, contract, or common law theory of recovery, or whether it is based on
any federal, state, or local employment discrimination or civil rights statute,
executive order, law, regulation, or ordinance, including without limitation the
Age Discrimination in Employment Act of 1967, the Americans with Disabilities
Act, Title VII of the Civil Rights Act of 1964, the New York State Human Rights
Law, and the New York City Humans Rights Law) shall be referred to binding,
non-appealable arbitration in accordance with the procedures set forth in
Exhibit A annexed hereto and without recourse any litigation except as set forth
6
<PAGE>
in Exhibit A. Each party hereby submits to personal jurisdiction in New York,
New York for the purpose of such arbitration proceedings, and/or any suits to
confirm same. Pending completion of any arbitration proceedings, payments not in
dispute shall continue to be made and obligations not in dispute shall continue
to be performed.
14. Assignment. This Agreement is personal to the
Employee and the Employee may not assign or transfer any of its benefits or
obligations hereunder. Upon written notice by the Employer to the Employee, the
Employer may assign its rights under this Agreement to any entity (i) that
controls or acquires control of the Employer, (ii) that is controlled by, is
under common control with, or acquires an interest in the Employer, or (iii) in
which the Employer acquires a financial interest, provided that such entity
assumes the Employer's obligations under this Agreement or that the Employer
remains liable for its obligations under the Agreement. Upon written notice by
the Employer to the Employee, the Employer may assign its rights to any entity
that acquires substantially all of the Employer's assets provided that such
entity assumes the Employer's obligations under this Agreement.
15. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to the conflicts of laws principles thereof.
16. 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 the Employer and the
Employee.
17. 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 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 the Employer:
Mutual Central Alarm Services, Inc.
New York, New York 10036
Attention: Joel Cohen
Phone: 212-768-0808
Fax: 212-768-9629
with a copy to:
7
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Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Vincent M. Kiernan, Esq.
Phone: 203-351-4538
Fax: 203-351-4499
If to the Employee:
Mr. Kevin Killea
80 Clinton Avenue
Staten Island, NY 10301
18. 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.
19. 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 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.
20. Modification; Waiver; Discharge. No provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the Employee and
a duly authorized representative of the Employer. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
21. 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.
22. Equitable Remedies. The Employee acknowledges
that the Employer would not have an adequate remedy at law for money damages if
8
<PAGE>
the Employee breaches Sections 9, 10 or 11. Therefore, in addition to all other
remedies to which the Employer may be entitled for a breach or threatened breach
of this Agreement, the Employer will be entitled to specific enforcement of this
Agreement and to injunctive or other equitable relief as a remedy for a breach
or threatened breach. In the event of legal proceedings in connection with this
Agreement, the non-prevailing entity shall pay all reasonable attorneys' fees
and costs of the prevailing party at trial and on appeal.
[Signature Pages Follow]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the day and year first above written.
EMPLOYER:
STAT-LAND BURGLAR ALARM SYSTEMS & DEVICES, INC.
a New York corporation
By: /s/PAUL FERRARA
-------------------
Name: Paul Ferrara
Title: President
MUTUAL:
MUTUAL CENTRAL ALARM SERVICES, INC.
a New York corporation
By: /s/JOEL A. COHEN
--------------------
Name: Joel A. Cohen
Title: President
GUARDIAN:
GUARDIAN INTERNATIONAL, INC.
a Nevada corporation
By: /s/DARIUS G. NEVIN
Name: Darius G. Nevin
Title: Vice President
[Employee's Signature Follows]
10
<PAGE>
EMPLOYEE:
/s/KEVIN KILLEA
---------------------
Kevin Killea
STATE OF NEW YORK
-------- ) ss.
COUNTY OF RICHMOND
--------
The foregoing instrument and signature was acknowledged before
me on this 13th day of August, 1998, by KEVIN KILLEA.
/s/GINA VACATELLO
----------------------------------
Gina Vacatello
Notary Public
Commissioner of the Superior Court
[NOTARIAL SEAL]
11
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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 New York, New York 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 New York (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 an injunction or other provisional
judicial relief if in its sole judgment such action is necessary to avoid
irreparable damage or to present the status quo. Despite any such action, the
parties shall continue to participate in good faith in the procedures specified
herein.
AT-WILL EMPLOYMENT AGREEMENT
----------------------------
This AT-WILL EMPLOYMENT AGREEMENT (this "Agreement"), dated
August 13, 1998 (the "Effective Date"), is by and among Guardian International,
Inc., a Nevada corporation ("Guardian"), Mutual Central Alarm Services, Inc., a
New York corporation ("Mutual"), Stat-Land Burglar Alarm Systems & Devices,
Inc., a New York Corporation (the "Employer") and Michael Assenza (the
"Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Mutual is a wholly-owned subsidiary of Guardian; and
WHEREAS, effective as of the date hereof, Mutual acquired all
of the issued and outstanding capital stock of the Employer under the terms of
that certain Stock Purchase Agreement, dated the date hereof, by and between
Guardian, Mutual, and Paul Ferrara and Stella Ferrara (the "Purchase
Agreement"). Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Purchase Agreement; and
WHEREAS, it is a condition to the Purchase Agreement that
Guardian, Mutual, the Employer and the Employee execute this Agreement;
WHEREAS, Mutual and Guardian recognize that the Employee will
contribute to the future growth and success of the security business of the
Employer as well as Mutual and Guardian, consisting of burglar and fire alarm,
closed circuit television and electronic access and control , and central
station monitoring services to residential and commercial customers (the
"Business"), and therefore desire to induce the Employee to remain an employee
of the Employer, subsequent to the transactions contemplated by the Purchase
Agreement; and
WHEREAS, the Employee desires to remain an employee of the
Employer subsequent to the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements contained herein, the receipt and
sufficiency of which are mutually acknowledged, the parties hereto hereby agree
as follows:
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1. Employment. The Employer hereby agrees to employ the
Employee and the Employee hereby agrees to serve the Employer, on the terms and
conditions hereinafter set forth in this Agreement.
2. At Will Employment. This Agreement shall be effective as of
the day and year first written above. THE EMPLOYEE AND THE EMPLOYER ACKNOWLEDGE
AND AGREE THAT THE EMPLOYEE IS AN EMPLOYEE "AT WILL" AND THAT EITHER THE
EMPLOYEE OR THE EMPLOYER REMAIN FREE TO TERMINATE THE EMPLOYMENT RELATIONSHIP AT
ANY TIME FOR ANY REASON.
3. Position and Duties. During the Employee's employment with
the Employer and subject to the provisions of this Section 3, the Employee shall
serve as Vice-President of Operations and shall faithfully perform all duties
and responsibilities as the President of the Employer or his designee may direct
from time to time.
4. Best Efforts. The Employee's employment with the Employer
shall be full time and the Employee shall devote his best efforts and business
time exclusively to the performance of his duties and responsibilities as set
forth in this Agreement, which duties and responsibilities shall be performed
competently, carefully and faithfully. The Employee shall not, while an employee
of the Employer and without the prior approval of the Employer, engage in any
other gainful occupation or activity which conflicts with or impinges upon the
full and faithful performance of the Employee's duties, or otherwise violates
any term or provision of this Agreement. It is expressly understood and agreed,
however, that the provisions of this Section 4 shall not be construed to prevent
the Employee from investing or trading for his own account provided that such
investment activity does not impair the full and faithful performance by the
Employee of his duties and responsibilities hereunder, or otherwise violate any
provision of this Agreement.
5. The Employee's Compensation.
a) Salary. During the term of the Employee's
employment with the Employer, the Employer shall pay to the Employee an annual
base salary as determined from time to time by the President of Employer, in
accordance with the normal payroll schedules of the Employer in effect from time
to time, less all appropriate withholdings for federal, state and local taxes
and unemployment insurance. The Employee's current base salary is $32,500.
b) Commissions. In addition to the Employee's annual
base salary, during the term of the Employee's employment with the Employer, in
consideration of the timely and proper performance by the Employee of his
obligations in accordance with this Agreement, the Employer shall pay the
Employee sales commissions in accordance with the Employer's sales plan in
effect from time to time.
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6. The Employee's Benefits. As an employee of the Employer,
during the term of the Employee's employment with the Employer, the Employee
shall be entitled to receive and enjoy such employee plans and benefits as are
generally made available by the Employer to similarly situated employees.
7. Guardian Shares. As additional consideration for executing
this Agreement, upon execution of this Agreement, Guardian shall issue to the
Employee a Guardian Common Stock certificate having an aggregate Guardian Market
Value as determined at the time of the Closing equal to Twenty Five Thousand
Dollars ($25,000).
8. Stock Options. As additional consideration for executing
this Agreement, the Employee shall receive the option to purchase that number of
shares of Guardian Common Stock having an aggregate Guardian Market Value as
determined at the time of the Closing equal to Twenty Five Thousand Dollars
($25,000) (the "Options"), subject to the terms and conditions of the stock
option plan to be established by Guardian (the "Stock Option Plan") and a grant
agreement granting such Options (the "Grant Agreement"). The exercise price of
the Options shall be equal to the exercise price equal to the five-day average
closing price of the Common Stock for the five days prior to the grant thereof..
The Options will vest at the rate of one-fifth per year commencing with the
Effective Date. Vested Options shall be exercisable on each anniversary of the
date of the grant of such Options. If the Employee does not exercise all of the
vested Options in any given year, such vested Options may be exercised in
subsequent years but in no event later than ten years from the date of the grant
thereof. In the event that the Employee's employment hereunder is terminated by
Employer "without cause" prior to the vesting of all Options, any such unvested
Options shall vest automatically as of the date of termination. For purposes for
this Agreement, "without cause" shall mean termination of the Employee's
employment hereunder for reasons other than: (i) any conviction of the Employee
of a felony or any conduct which if proved would support conviction of a felony;
(ii) conduct amounting to a material act of fraud, gross misconduct or
dishonesty involving the Employer; (iii) a material act of fraud or dishonesty
not involving the Employer which has a material adverse effect upon the Business
or reputation of Employer; (iv) continuing material violation by the Employee of
his obligations under this Agreement after written notice thereof to the
Employee and failure to cure such violation within fifteen (15) days following
such notice; (v) misuse of alcohol or controlled substance that materially
impairs the Employee's ability to perform the duties of his employment as
determined by a physician retained by the Employer or, if the Employee refuses
to submit to appropriate examinations by such physician at the request of the
Board of Directors of the Employer, then by at least three members of the Board
of Directors; (vi) the unlawful use of drugs or other controlled substances;
(vii) death; or (viii) disability. In the event that Employee's employment
hereunder is terminated for any reason other than without cause prior to the
vesting of all Options, any such unvested Options shall be forfeited, unless
otherwise provided in the Stock Option Plan or Grant Agreement.
3
<PAGE>
9. Confidentiality.
a) For good consideration and as an inducement for
the Employer to employ the Employee, the Employee agrees that, both during the
period of the Employee's employment with the Employer and after the termination
of this Agreement and his employment with the Employer, for any reason or no
reason, the Employee will hold in a fiduciary capacity for the benefit of the
Employer, and shall not, directly or indirectly, use or disclose, except as
authorized by the Employer in connection with the performance of his duties
hereunder, any Confidential Information (as defined below) that the Employee may
have or acquire (whether or not developed or compiled by the Employee or whether
or not the Employee has been authorized to have access to such Confidential
information) prior to or during the Term. As used in this Agreement, the term
"Confidential Information" means and includes any and all information, data and
know-how specific to the Business of the Employer or its affiliates, Parent or
Subsidiaries, and not generally known in the industry that is disclosed to the
Employee by the Employer or known by him or her as a result of his relationship
with the Employer (or a company acquired by the Employer) and not generally
within the public domain (whether or not constituting a Trade Secret), 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 the Employer treats
as confidential.
The term "Confidential Information" does not include
information that has become generally available to the public by the act of the
Employer or by the act of one who has the right to disclose such information
without violating any right of confidentiality to the Employer or the customer
to which such information pertains.
Nothing in this Section 9 shall prevent the 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; provided, however, that the Employee agrees to give the Employer
advance written notice as soon as possible of the Confidential Information
required to be disclosed, and at the Employer's request, to use his best efforts
to obtain assurances that the Confidential Information required to be disclosed
will be maintained on a confidential basis and will not be disclosed to a
greater degree than required by law.
4
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b) The covenant contained in this Section 9 shall
survive the termination of the Employee's employment with the Employer for any
reason or no 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, the Employee's obligations of confidentiality and
non-disclosure as set forth in this Section 8 shall continue to survive after
said two (2) year period to the greatest extent permitted by applicable law.
These rights of the Employer are in addition to those rights the Employer has
under the common law or applicable statutes for the protection of trade secrets.
10. Covenant Not to Compete. For good consideration and as an
inducement for the Employer to employ the Employee, the Employee agrees that he
will not engage or participate, directly or indirectly, in any business that
competes with the Business, whether as employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or other
representative capacity, at any time during the Employee's employment with the
Employer. Nothing in this Section 10 shall prevent the Employee from owning less
than 5% of the shares of any company which has shares registered on any stock
exchange or with shares traded in the OTC market. In the event any court shall
refuse to enforce any portion of the covenant set forth in this Section 10, 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.
11. Covenants Against Other Actions Damaging Employer. The
Employee agrees that he shall not, at any time during his employment with the
Employer and for the two (2) year period following the termination of this
Agreement and his employment with the Employer, for any reason or no reason,
(the "Non-Solicitation Period"), for himself or on behalf of or in conjunction
with any third party, solicit any employee of the Employer its affiliates or
subsidiaries to leave such employment. The Employee further agrees that during
the Non-Solicitation 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
business, any customers of the Employer who are customers as of the date of
termination of the Employee's employment with the Employer. If, during the
period of the Employee's employment with the Employer, the Employee is engaged
in or associated with the planning or implementing of any project, program or
venture involving the 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"), 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 the Employer and shall constitute a
corporate opportunity belonging exclusively to the Employer. Except as approved
by the Board, the 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 the 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 12, 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.
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12. Release.
(a) The Employee, for himself, his heirs, executors,
administrators and assigns, hereby knowingly and voluntarily releases and
discharges the Employer and all of its present or former parents, subsidiaries
and affiliates, including, without limitation, their respective directors,
stockholders, officers, employees and agents (the "Employer Releasees") from all
actions, causes of actions, suits, debts, dues, sums of money, accounts,
reckonings, attorneys' fees, costs, disbursements, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, extents, executions, claims and demands,
whatsoever, at law, or in equity which the Employee ever had, now has or
hereafter can, shall or may have against the Employer for, upon or by reason of
those matters related to or arising out of the Employee's employment with the
Employer through the date hereof.
(b) The Employee acknowledges that he has had an
opportunity to consult with his attorney and other advisors regarding the form,
content, meaning and effect of this Agreement and has been advised as to the
implications thereof and is entering into this Agreement of his own free will
and concern.
(c) The Employee hereby waives any rights that he has
to rescind any release and discharge pursuant to this Section.
13. Arbitration. All disputes or controversies between the
parties arising from or related to any matter that pertains to this Agreement,
to the employment of the Employee by the Employer, or to the termination the
Employee's employment which otherwise would allow or require resort to a court,
administrative, or other governmental dispute resolution forum (whether the
claim is legal or equitable in nature, whether it is based on any tort,
contract, or common law theory of recovery, or whether it is based on any
federal, state, or local employment discrimination or civil rights statute,
executive order, law, regulation, or ordinance, including without limitation the
Age Discrimination in Employment Act of 1967, the Americans with Disabilities
Act, Title VII of the Civil Rights Act of 1964, the New York State Human Rights
Law, and the New York City Humans Rights Law) shall be referred to binding,
non-appealable arbitration in accordance with the procedures set forth in
Exhibit A annexed hereto and without recourse any litigation except as set forth
in Exhibit A. Each party hereby submits to personal jurisdiction in New York,
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New York for the purpose of such arbitration proceedings, and/or any suits to
confirm same. Pending completion of any arbitration proceedings, payments not in
dispute shall continue to be made and obligations not in dispute shall continue
to be performed.
14. Assignment. This Agreement is personal to the Employee and
the Employee may not assign or transfer any of its benefits or obligations
hereunder. Upon written notice by the Employer to the Employee, the Employer may
assign its rights under this Agreement to any entity (i) that controls or
acquires control of the Employer, (ii) that is controlled by, is under common
control with, or acquires an interest in the Employer, or (iii) in which the
Employer acquires a financial interest, provided that such entity assumes the
Employer's obligations under this Agreement or that the Employer remains liable
for its obligations under the Agreement. Upon written notice by the Employer to
the Employee, the Employer may assign its rights to any entity that acquires
substantially all of the Employer's assets provided that such entity assumes the
Employer's obligations under this Agreement.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to the conflicts of laws principles thereof.
16. 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 the Employer and the
Employee.
17. 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 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 the Employer:
Mutual Central Alarm Services, Inc.
New York, New York 10036
Attention: Joel Cohen
Phone: 212-768-0808
Fax: 212-768-9629
with a copy to:
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Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Vincent M. Kiernan, Esq.
Phone: 203-351-4538
Fax: 203-351-4499
If to the Employee:
Mr. Michael Assenza
80 Richmond Hill Road
Staten Island, NY 10314
18. 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.
19. 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 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.
20. Modification; Waiver; Discharge. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Employee and a duly
authorized representative of the Employer. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
21. 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.
22. Equitable Remedies. The Employee acknowledges that the
Employer would not have an adequate remedy at law for money damages if the
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Employee breaches Sections 9, 10 or 11. Therefore, in addition to all other
remedies to which the Employer may be entitled for a breach or threatened breach
of this Agreement, the Employer will be entitled to specific enforcement of this
Agreement and to injunctive or other equitable relief as a remedy for a breach
or threatened breach. In the event of legal proceedings in connection with this
Agreement, the non-prevailing entity shall pay all reasonable attorneys' fees
and costs of the prevailing party at trial and on appeal.
[Signature Pages Follow]
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:
STAT-LAND BURGLAR ALARM SYSTEMS & DEVICES, INC.
a New York corporation
By: /s/PAUL FERRARA
------------------------
Name: Paul Ferrara
Title: President
MUTUAL:
MUTUAL CENTRAL ALARM SERVICES, INC.
a New York corporation
By: /s/JOEL A. COHEN
------------------------
Name: Joel A. Cohen
Title: President
GUARDIAN:
GUARDIAN INTERNATIONAL, INC.
a Nevada corporation
By: /s/DARIUS G. NEVIN
------------------------
Name: Darius G. Nevin
Title: Vice President
[Employee's Signature Follows]
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EMPLOYEE:
/s/MICHAEL ASSENZA
------------------------
Michael Assenza
STATE OF NEW YORK )
-------- ) ss.
COUNTY OF STATEN ISLAND )
-------------
The foregoing instrument and signature was acknowledged before
me on this 13th day of August, 1998, by MICHAEL ASSENZA.
/s/JOSEPH V. YGLESIAS, III
----------------------------------
Joseph V. Yslesias, III
Notary Public
Commissioner of the Superior Court
[NOTARIAL SEAL]
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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 New York, New York 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 New York (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 an injunction or other provisional
judicial relief if in its sole judgment such action is necessary to avoid
irreparable damage or to present the status quo. Despite any such action, the
parties shall continue to participate in good faith in the procedures specified
herein.
EXHIBIT 10(f)
Exhibit B
---------
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement"), dated August 13
, 1998 (the "Effective Date"), is by and among STAT-LAND Burglar Alarm Systems &
Devices, Inc., a New York corporation (the "Employer"), Mutual Central Alarm
Services, Inc., a New York corporation and an affiliate of the Employer
("Mutual"), Guardian International, Inc., a Nevada corporation and the parent of
Employer and Mutual ("Parent"), and Paul Ferrara, an individual ("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of Employer (the "Board")
recognizes that Executive will contribute to the future growth and success of
the security business of Employer and its affiliates (including Mutual and
Parent), consisting of burglar and fire alarm, closed circuit television and
electronic access and control, and central station monitoring services to
residential and commercial customers (the "Business"), and the Board therefore
desires to assure Employer of Executive's services as an employee of, and for
the benefit of, Employer; and
WHEREAS, effective as of the date hereof, Parent acquired all
of the issued and outstanding capital stock of Employer from Executive under the
terms of that certain Stock Purchase Agreement, dated as of the date hereof, by
and between Parent and Employer (the "Purchase Agreement"); and
WHEREAS, prior to consummating the transactions contemplated
by the Purchase Agreement, Executive was employed by and served as the President
of Employer; and
WHEREAS, Employer desires to continue to retain the services
of Executive, and the Executive desires to accept such employment, in each case
subject to the terms and conditions set forth in this Agreement.
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:
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1. Employment Employer hereby employs Executive, and
Executive hereby accepts such employment, upon the terms and conditions set
forth in this Agreement.
2. Term. Subject to the termination provisions of Section 11
hereof, the employment of Executive hereunder shall commence on the date hereof
shall continue for a three-year period ending on August 13, 2001. Thereafter,
this Agreement shall renew automatically for one-year terms unless six (6)
months advance written notice of termination is given by either party. The
actual term of this Agreement, with renewals, if any, is hereinafter referred to
as the "Term".
3. Duties During the Term, Executive shall serve as the
President of Employer and/or the Branch Manager of Mutual or Parent. In such
capacity, Executive shall (i) supervise and administer the day to day
operations, business and affairs of Employer, (ii) 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, (iii)
regularly (not less than weekly) report to the President of Mutual as to the
current business activities of the Employer and as to any other matters
requested from time to time by the President of Mutual, and (iv) perform such
other duties as reasonably requested by the President of Mutual or the Board of
Employer, or as are usual and customary for the President and/or Branch Manager
of Employer under the Bylaws of Employer as amended from time to time. The place
of employment shall be New York City, New York. Executive will travel from time
to time as may be necessary in furtherance of the business of Employer and the
Business generally.
4. Exclusivity of Services. Executive shall devote his full
business time, energy, ability and attention exclusively to the business,
affairs and interests of Employer and matters related thereto, shall use
Executive'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, Executive 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). Executive
may (i) make and manage personal business investments of his choice provided
that Executive shall hold no investment in any entity which competes in any way
with the business of Employer or the business of Mutual, Parent and/or any of
their respective affiliates, other than an investment representing less than a
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) (ii) (collectively, the "Permitted Activities") do not interfere or
conflict with, or detract from, the performance of Executives duties hereunder
or create any conflict of
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interest with such duties. Executive hereby confirms he is under no contractual
commitments inconsistent with his obligations as set forth in this Agreement.
5. Compensation.
a) During the Term, Executive shall receive a base
salary of Eighty-five Thousand Dollars ($85,000) per year (the "Salary"),
payable in equal installments no less frequently than semi-monthly.
b) Subject to the terms and conditions of Parent's
Stock Option Plan, Parent shall grant to Executive options to purchase 25,000
shares (the "Options") of Parent's Class A Common stock, par value $.001 per
share (the "Common Stock"), with an exercise price equal to the five-day average
closing price of the Common Stock for the five days prior to the grant thereof.
The options will vest at the rate of one-third per year commencing with the date
hereof and will, subject to the provisions of this Section 5(b), be fully vested
on August 13, 2001. Vested Options shall be exercisable on each anniversary of
the execution of this Agreement. If the Executive does not exercise all vested
Options in any given year, such vested Options may be exercised in subsequent
years but in no event later than August 13, 2008. In the event that Executive's
employment hereunder is terminated pursuant to Section 11(a) prior to the
vesting of all Options, any such unvested Options shall be forfeited. In the
event that Executive's employment hereunder is terminated pursuant to Sections
11(b) or (c) prior to the vesting of all Options, any such unvested Options
shall vest automatically as of the date of termination, provided that Executive
has been employed with Employer at least thirty (30) consecutive months from the
date of execution of this Agreement. In the event that Executive's employment
hereunder is terminated pursuant to Sections 11(d) prior to the vesting of all
Options, any such unvested Options shall vest automatically as of the date of
termination.
6. Incentive Bonus Plan. During the Term, Executive shall be
eligible to receive additional incentive bonus compensation in accordance with
and subject to the terms and conditions set forth on Schedule A annexed hereto
and made a part hereof.
7. Automobile. During the Term, the Employer shall lease an
automobile for Executive's use. The Company shall be responsible for all lease
payments (not to exceed $500.00 per month), maintenance costs and insurance
premiums on the automobile during the Term.
8. Expense Reimbursement. During the Term, Employer, upon the
submission of proper proof by Executive, shall promptly reimburse Executive for
reasonable business expenses actually and necessarily paid or incurred by him in
connection with the discharge of Executive's duties hereunder.
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9. Vacation. During each full twelve month period of the Term
commencing on the date hereof, Executive shall be entitled to three (3) weeks of
vacation time as selected in consecutive or non consecutive periods or any
combination thereof by Executive in his reasonable discretion consistent with
his duties and responsibilities hereunder, during which vacation time Executive
shall be paid the applicable portion of his Salary; provided, however, Executive
shall not take a vacation for longer than two weeks without the prior consent of
the Board. Vacation shall not accumulate or carry over from year to year and
Employee shall not be entitled to payment for unused vacation.
10. Medical and Other Insurance. During the Term, Employer
shall at all times pay the reasonable premiums of medical insurance policies for
Executive and his immediate family and shall further provide and pay the
premiums of, group life insurance, group disability insurance and such other
insurance as is from time to time provided to Executives of Mutual.
11. Termination.
a) Notwithstanding anything contained in this
Agreement, Employer by written notice to Executive shall at all times in its
sole discretion have the right to terminate this Agreement, and Executive's
employment hereunder, "for cause" effective upon delivery of notice to
Executive. For purposes for this Agreement, "for cause" shall mean: (i) any
conviction of Executive of a felony or any conduct which if proved would support
conviction of a felony; (ii) conduct amounting to a material act of fraud, gross
misconduct 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
Executive of his obligations under this Agreement after written notice thereof
to Executive and failure to cure such violation within fifteen (15) days
following such notice; (v) misuse of alcohol or controlled substance that
materially impairs Executive's ability to perform the duties of his Employment
as determined by a physician retained by Employer or, if Executive refuses to
submit to appropriate examinations by such physician at the request of the Board
of Directors, then by at least three members of the Board of Directors; or (vi)
the unlawful use of drugs or other controlled substances.
b) Employer, by written notice to Executive, shall
have the right to terminate this Agreement and Executive's employment upon
Executive's lack of capacity to perform the essential functions of duties under
this Agreement, with or without reasonable accommodation, because of physical or
mental disability ("Disability") of Executive, for a period of one hundred
twenty (120) or more days, either consecutively or in the aggregate during any
six-month period, as determined by an impartial reputable physician agreed upon
by the Board and Executive or his representative, as the case may be).
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<PAGE>
c) If Executive dies during the term of his
employment hereunder, this Agreement shall terminate automatically upon the date
of Executive's death.
d) Employer, by written notice to Executive, shall
have the right to terminate this Agreement, and Executive's employment
hereunder, "without cause", effective upon delivery of notice to Executive. For
purposes for this Agreement, termination "without cause" shall mean termination
by Employer other than pursuant to Sections 2, 11(a), 11(b) or 11(c). Executive
shall have the right to 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 executive to Employer
specifying the nature of such breach
12. Termination.
a) In the event that this Agreement, and Executive's
employment hereunder, is terminated for cause pursuant to Section 11(a) hereof,
or by Executive (other than pursuant to Section 11(d) hereof, then, in such
event: (i) Employer shall have no obligation whatsoever to make any payment,
including, without limitation, any payment of Salary, incentive bonus
compensation, automobile expense reimbursement or any insurance premium, to or
on behalf of Executive for any period subsequent to the date of such
termination; (ii) Employer may, subject to the terms of such plans and
applicable law, remove Executive from coverage under any medical or other
insurance plans or programs made available to Executive by Employer; and (iii)
Executive shall, upon such termination, return the automobile provided pursuant
to Section 7.
b) In the event that this Agreement, and Executive's
employment hereunder, is terminated for death or Disability of Executive
pursuant to Section 11(b) or l1(c) hereof, then, any such event, Employer shall
have no obligation whatsoever to make any payment, including without limitation,
any payment of Salary, incentive bonus compensation, automobile expense
reimbursement or any such insurance premium, to or on behalf of Executive for
any period subsequent to the date of such termination or expiration and
Executive shall, upon such termination, return the automobile provided pursuant
to Section 7. Notwithstanding the above, in the event this Agreement is
terminated for Disability of Executive pursuant to Section 11(b) hereof,
Executive 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, that Executive's own expense, to
continue any group medical insurance then provided to Executive and to such
other benefits as he is then entitled under such insurance and any disability
plan or program of Employer.
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c) In the event that this Agreement, and Executive's
employment hereunder, is terminated by Employer or Executive pursuant to Section
11(d) during the Term, then, in such event, any unvested Options shall vest
automatically as of the date of termination, and, 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 Executive,
payable at such time as such payments would otherwise be payable hereunder,
Executive's Salary and benefits that would have accrued to him for the remaining
Term of this Agreement, and any bonus pursuant to Schedule A prorated to the
date of termination, in addition to any other rights to which Executive may be
entitled at law or in equity.
13. Confidentiality.
a) For good consideration and as an inducement for
Employer to employ Executive, Executive agrees that, both during the Term and
after the termination of this Agreement for any reason or no reason, Executive
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 hereunder, any Confidential
Information (as defined below) that Executive may have or acquire (whether or
not developed or compiled by Executive or whether or not Executive has been
authorized to have access to such Confidential information) prior to or during
the Term. As used in this Agreement, the term "Confidential Information" means
and includes any and all information, data and know-how specific to the Business
of Employer and not generally known in the industry that is disclosed to
Executive by Employer or known by him as a result of his relationship with
Employer (or a company acquired by Employer) and not generally within the public
domain (whether or not constituting a Trade Secret), 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 confidentiality to Employer or the customer to
which such information pertains.
Nothing in this Section 13 shall prevent Executive 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; provided, however, that Executive agrees to give Employer advance
written notice as soon as possible of the Confidential Information required to
be disclosed, and at Employer's request, to use his best efforts to obtain
assurances that the Confidential Information required to be disclosed will be
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<PAGE>
maintained on a confidential basis and will not be disclosed to a greater degree
than required by law.
b) The covenant contained in this Section 13 shall
survive the termination of Executive's employment with Employer for any reason
or no 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, Executive'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. For good consideration and as an
inducement for Employer to employ Executive, Executive agrees that he will not
engage or participate, directly or indirectly, in any business that competes
with the Business, whether as employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or other representative
capacity, at any time during Executive's employment with Employer, and the
longer of (i) three (3) years from the date hereof or (ii) one (1) year from the
date of termination (for any reason or no reason) or expiration of this
Agreement (the "Non-Compete Period"), in the states of New York, New Jersey and
Connecticut. Nothing in this Section 14 shall prevent Executive from owning less
than 5% of the shares of any company which has shares registered on any stock
exchange or with shares traded in the OTC market. 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.
Executive agrees that he shall not, at any time during the Non-Compete Period,
for himself or on behalf of or in conjunction with any third party, solicit any
employee of Employer its affiliates or subsidiaries to leave such employment.
Executive further agrees that during his employment with Employer and for the
period set forth in Section 14 as applicable, 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 business, any customers of Employer who are customers as of the
date of termination. If, during the Term, Executive 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"), 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
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Employer. Except as approved by the Board or contemplated on Schedule A annexed
hereto, Executive 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 Executive 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. All disputes or controversies between the
parties arising from or related to any matter that pertains to this Agreement,
to the employment of Executive by Employer, or to the termination of Executive's
employment that otherwise would allow or require resort to a court,
administrative, or other governmental dispute resolution forum (whether the
claim is legal or equitable in nature, whether it is based on any tort,
contract, or common law theory of recovery, or whether it is based on any
federal, state, or local employment discrimination or civil rights statute,
executive order, law, regulation, or ordinance, including without limitation the
Age Discrimination in Employment Act of 1967, the Americans with Disabilities
Act, Title VII of the Civil Rights Act of 1964, the New York State Human Rights
Law, and the New York City Humans Rights Law) shall be referred to binding,
non-appealable arbitration in accordance with the procedures set forth in
Exhibit A annexed hereto and without recourse any litigation except as set forth
in Exhibit A. Each party hereby submits to personal jurisdiction in New York,
New York for the purpose of such arbitration proceedings, and/or any suits to
confirm same. Pending 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. Assignment. This Agreement is personal to Executive and
Executive may not assign or transfer any of its benefits or obligations
hereunder. Upon written notice by Employer to Executive, Employer may assign its
rights under this Agreement to any entity (i) that controls or acquires control
of Employer, (ii) that is controlled by, is under common control with, or
acquires an interest in Employer, or (iii) in which Employer acquires a
financial interest, provided that such entity assumes Employer's obligations
under this Agreement or that Employer remains liable for its obligations under
the Agreement. Upon written notice by Employer to Executive, Employer may assign
its rights to any entity that acquires substantially all of Employer's assets
provided that such entity assumes Employer's obligations under this Agreement.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to the conflicts of laws principles thereof.
8
<PAGE>
19. 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 Executive.
20. 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 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:
Mutual Central Alarm Services, Inc.
10 West 46th Street
New York, New York 10036
Attention: Joel Cohen
Phone: 212-768-0808
Fax: 212-768-9629
with a copy to:
Guardian International, Inc.
3880 N. 28th Terrace
Hollywood, Florida 33020-1118
Attention: Richard Ginsburg
Phone: 954-926-5200
Fax: 954-926-1822
and with a copy to:
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Vincent M. Kiernan, Esq.
Phone: 203-351-4538
Fax: 203-351-4499
9
<PAGE>
If to Executive:
Paul Ferrara
186 Crowell Avenue
Staten Island, New York 10314
Phone: 718-447-4110
Fax: n/a
with a copy to:
Richard A. Lepowsky
Amabile & Erman, P.C.
One Penn Plaza - Suite 4501
New York, NY 10019
Phone: 212-629-3310
Fax: 212-629-3312
21. 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.
22. 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 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.
23. 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.
24. 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.
25. Equitable Remedies. Executive acknowledges that Employer
would not have an adequate remedy at law for money damages if Executive breaches
Sections 13, 14 or 15. Therefore, in addition to all other remedies to which
Employer may be entitled for a breach or threatened breach of this Agreement,
Employer will be entitled to specific enforcement of this Agreement and to
injunctive or other equitable relief as a remedy for a breach or threatened
breach. In the event of legal proceedings in connection with this Agreement, the
non-prevailing entity shall pay all reasonable attorneys' fees and costs of the
prevailing party at trial and on appeal.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the day and year first above written.
EMPLOYER:
STAT-LAND BURGLAR ALARM SYSTEMS & DEVICES, INC.
a New York corporation
By: /s/JOEL A. COHEN
----------------
Name: Joel A. Cohen
Title: Vice President
MUTUAL:
MUTUAL CENTRAL ALARM SERVICES, INC.
a New York corporation
By: /s/JOEL A. COHEN
----------------
Name: Joel A. Cohen
Title: President
GUARDIAN:
GUARDIAN INTERNATIONAL, INC.
a Nevada corporation
By: /s/DARIUS G. NEVIN
------------------
Name: Darius G. Nevin
Title: Vice President
EXECUTIVE:
/s/PAUL FERRARA
---------------
Paul Ferrara
11
<PAGE>
Schedule A
----------
Incentive Bonus Plan
--------------------
ALL BASE AMOUNTS WILL BE ADJUSTED EACH YEAR
-------------------------------------------
ATTRITION
- ---------
Total MRI (adjusted for acquisitions) canceled during each one year period
(January 1 - December 31) divided by the Average MRI for each such one year
period. Average MRI is equal to the quotient of:
(MRI as of 12/31 of the performance year + MRI as of 12/31 of the prior year)/2
Overall Performance Goal - maintain or reduce attrition
- ------------------------
Attrition for calendar year 1996 __________*
Attrition for calendar year 1997 __________*
MRI as of December 31, 1996 __________*
MRI as of December 31, 1997 __________*
Attrition % for calendar year 1996 5.0%*
Attrition % for calendar year 1997 5.50%*
Base Line
- ---------
Base Line Attrition % - Avg. '96-'97 5.25%*
*If numbers are given, they are for example only. Actual #'s will
be inserted post-closing subsequent to receipt of the Audit Report
required under Section 1.7 of the Purchase Agreement.
Specific Targets and Annual Bonus Amounts
- -----------------------------------------
Attrition % Range Bonus
----------------- -----
5.25% - 4.75% $2500.00
-------------
4.75% - 4.25% $5000.00
-------------
4.25% - 3.75% $7500.00
-------------
Payable - Annually by January 31st.
- -------
1
<PAGE>
ACQUISITIONS
- ------------
For those transactions introduced to the Company solely through the efforts of
Executive
Overall Performance Goal - Provide introductions to as many third party
companies as is feasible.
Base Line - N/A
Specific Target - Acquire additional MRI per quarter
Annual Bonus Amount - With respect to each transaction, the following formula
will be employed:
1.5% of the Net Acquisition Purchase Price (less third party charges)
Payable - In cash in the same proportions and at the same times as seller
receives consideration from the Company.
MRI
- ---
The method for calculating MRI each year shall be consistent with the method
used each of the prior years, including the year of initial baseline MRI.
Overall Performance Goal - Increase MRI (adjusted for acquisitions) more
rapidly than historically, yet prudently by maintaining paybacks on
customer premise equipment.
Base Line - July 1, 1998 MRI $76,000.
Specific Target - N/A
Annual Bonus Amount - 100% of the increase in MRI for each year commencing
December 31, 1998 and each year thereafter.
Payable - Annually by February 28th.
2
<PAGE>
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 that 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 New York, New York 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 New York (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.
1
<PAGE>
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 an injunction or other provisional
judicial relief if in its sole judgment such action is 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.
2
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<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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