SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997 Commission File Number 1-8138
OR
__ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
ALARMGUARD HOLDINGS, INC.
Incorporated in Delaware IRS Employer Identification
No: 33-0318116
Principal Executive Offices: Telephone :(203) 795-9000
125 Frontage Road
Orange, Connecticut 06477
Securities registered pursuant to Section 12(b) of the Act:
_____Title of Class______ Exchange on Which Registered
Common Stock, $0.0001 Par Value American Stock Exchange
Warrants American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes x_ No ____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
The aggregate market value of voting stock held by non-affiliates
of the Registrant as of March 20, 1998 (based on the closing
price of such stock as reported by the American Stock Exchange on
such date) was $25.9 million.
The number of shares of the Registrant's $0.0001 par value common
stock outstanding as of March 20, 1998 was 5,593,396.
PART 1
ITEM 1. BUSINESS
Alarmguard Holdings, Inc. ("Alarmguard" or the "Company")
sells and installs burglar and fire systems and provides security
monitoring, repair and maintenance services for residential and
business subscribers located primarily in the Northeast and Mid-
Atlantic regions of the United States. Alarmguard provides such
security alarm systems and services primarily under its trademark
"Alarmguard". Alarmguard also sells, installs and services
Sonitrol audio-based security systems in New Haven County,
Connecticut as a Sonitrol franchisee. Alarmguard had
approximately 64,000 monitored subscriber accounts for its alarm
monitoring services as of December 31, 1997 (approximately 68% of
which were residential) with Monthly Recurring Revenue ("MRR"FN1)
of approximately $2.1 million. Upon completion of the
acquisitions announced in the first quarter of 1998 (see "Recent
Developments"), Alarmguard had MRR of approximately $2.9 million
serving approximately 100,000 subscribers. Alarmguard management
believes that it is currently the ninth largest residential and
commercial security alarm monitoring company in the United States
based on MRR.
Alarmguard's revenues consist primarily of recurring
payments under written contracts for the monitoring, leasing and
servicing of security systems and the provision of additional
enhanced security services. For the year ended December 31,
1997, monitoring and service revenues represented 69% of total
revenues. Alarmguard monitors digital signals arising from
burglaries, fires and other monitored activities such as
temperature and water levels through monitoring systems installed
at subscribers' premises. These signals are received and
processed primarily at Alarmguard's central monitoring station
located in Orange, Connecticut, which, as currently configured,
has the capacity to monitor up to approximately 250,000
subscribers following a March 1998 expansion of this facility at
a cost of approximately $800,000. Alarmguard also provides
enhanced security services including, among others, two-way voice
communication, supervised monitoring services, pager service,
wireless backup service and extended warranty plans, as well as
local field repair services through its ten branch offices.
Since its 1991 inception, Alarmguard has grown rapidly,
primarily through the acquisition of 32 portfolios of subscriber
accounts (approximately $1.8 million of MRR) and internal growth
through direct marketing (primarily by means of outbound
telemarketing) to obtain new subscribers (the "Direct Marketing
Program"). Alarmguard's management believes that numerous
acquisition opportunities are still available as there are
approximately 3,000 alarm monitoring companies in its markets.
Alarmguard intends to make acquisitions and open branches in
contiguous geographic markets in the Northeast and Mid-Atlantic
states in which the Company operates and does not presently have
subscribers. Alarmguard intends to then implement plans to
increase the number of subscriber accounts in such markets
through the Direct Marketing Program, its recently launched
Dealer Program and subsequent acquisitions, all of which have the
effect of increasing subscriber density in the area, and thereby
improving operating efficiency. Alarmguard continuously pursues
acquisition opportunities from a number of sources.
- ----------------------
FN1
MRR means monthly recurring revenue that Alarmguard (or, if the
context requires, another company in the security alarm industry)
is entitled to receive under contracts in effects at the end of
such period. MRR is a term commonly used in the security alarm
industry as a measure of the size of a company. It does not
measure profitability or performance, and does not include
any allowance for future subscriber attrition or for uncollectible
accounts receivable.
- ----------------------
In 1997, Alarmguard maintained the Direct Marketing Program
at a relatively constant level of monthly sales and installation
of residential and small commercial security alarm monitoring
systems. Alarmguard believes it can access a broader demographic
market with the Direct Marketing Program than is presently being
accessed by it and other companies providing traditional high-end
residential and commercial alarm service. The cost of creating a
customer through the Direct Marketing Program remains
substantially lower than the amount required to acquire a
customer through an acquisition.
In late 1997, Alarmguard launched its Dealer Program which
is an externally driven growth program which augments the Direct
Marketing Program. The characteristics of the subscribers
purchased through the Dealer Program are similar to those of
Direct Marketing Program subscribers. Under this program,
Alarmguard purchases credit-approved monitoring contracts from
Alarmguard authorized dealers. In most cases, Alarmguard
installs the systems and deducts the cost of the installation
from the amount paid to the dealer. As of December 31, 1997, the
Dealer Program had 4 authorized dealers and 12 dealers as of
March 20, 1998.
In mid 1996, Alarmguard began its National Accounts program
which provides security services to multi-location commercial
accounts. This program was further expanded in 1997 with the
acquisition of Protective Alarms, Inc. ("Protective Alarms"),
which had a well-established national accounts program serving
numerous retailers. As of December 31, 1997, the National
Accounts Program had 24 accounts with approximately $100,000 of
MRR, which represented approximately 5% of Alarmguard's total
MRR.
Forward Looking Disclosures
Certain statements in this Form 10-K that are not
historical facts constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual
results of Alarmguard to be materially different from historical
results or from any results expressed or implied by such forward-
looking statements, These factors are discussed under the
caption "Risk Factors" in a Registration Statement on Form S-4
(File No 333-23307) filed with the Securities and Exchange
Commission on March 14, 1997 and in other filings with the
Securities and Exchange Commission.
Major Developments During 1997
Merger with Triton Group Ltd.
On April 15, 1997, Triton Acquisition Corp. ("Merger Sub"),
a wholly-owned subsidiary of Triton Group Ltd. ("Triton"),
consummated a merger (the "Merger") with Security Systems
Holdings, Inc. ("SSH") pursuant to an Agreement and Plan of
Merger dated December 23, 1996, as amended March 6, 1997 (the
"Merger Agreement"), by and among Triton, Merger Sub and SSH. As
a result of the Merger, Merger Sub ceased to exist and SSH has
continued as the surviving corporation and a wholly-owned
subsidiary of the Company. In connection with the Merger, the
Company effected a one-for-ten reverse stock split (the "Reverse
Stock Split").
Pursuant to the Merger Agreement and in consideration of the
Merger, SSH's preferred and common stockholders received an
aggregate of 2,877,321 new shares of common stock of the Company,
representing approximately 57% of the common stock outstanding
upon consummation of the Reverse Stock Split and the Merger.
Concurrent with the merger, the Company was renamed Alarmguard
Holdings, Inc., and the common shares were listed for trading on
the American Stock Exchange ("AMEX") under the symbol "AGD". The
Company also has warrants to purchase shares of common stock of
the Company which are listed for trading on the AMEX under the
symbol "AGDW". As a result of the Merger, the Company's fiscal
year end was changed to December 31 and the Board of Directors
was reconstituted to include five representatives from SSH's
Board of Directors and two representatives from Triton's Board of
Directors.
The Merger was accounted for as a "reverse acquisition" such
that Triton was designated the accounting acquiree and SSH the
accounting acquiror. As such, the net assets of Triton
(principally cash of approximately $15.0 million plus other
investments) were recorded at fair value and the pre-Merger
financial statements of SSH became the historical financial
statements of Alarmguard.
Prior to September 2, 1997, Alarmguard owned approximately
44% of Mission West Properties ("Mission West"), a real estate
company whose shares were listed for trading on the AMEX under
the trading symbol "MSW". On September 2, 1997, Mission West
completed the sale of six million shares of newly issued common
stock to a group of private investors and Alarmguard's ownership
percentage was reduced to approximately 9%. On October 21, 1997,
Mission West paid a $3.30 per share cash distribution to its
shareholders. Alarmguard's share of this cash distribution
amounted to approximately $2.2 million.
Acquisition of Protective Alarms, Inc.
On May 1,1997, Alarmguard purchased all of the issued and
outstanding shares of capital stock of Protective Alarms, a
company with approximately 9,000 subscribers and aggregate MRR of
approximately $0.5 million, including its National Accounts MRR,
for a total purchase price of approximately $19.7 million. As of
December 31, 1997, Alarmguard owed $2.6 million of the purchase
price to the sellers of Protective Alarms, of which approximately
$1.9 million was secured by a cash collateralized letter of
credit and is classified as restricted cash in the consolidated
balance sheet at December 31, 1997. The acquisition was
accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair
values at the date of acquisition. Protective Alarms was a
security alarm system company doing business primarily in
Connecticut and Westchester County, New York, that provided
security equipment and monitoring services to homeowners and
businesses. In addition, Protective Alarms engaged in national
account sales under the name "Pro National", primarily in the
Northeastern United States.
Other Acquisitions
During the year ended December 31, 1997, Alarmguard acquired
certain operating assets of five additional companies in the
security alarm installation and monitoring business for an
aggregate of $2.0 million in cash and up to 568,000 shares of
Alarmguard common stock valued for the purposes of the
acquisitions at $3.8 million. The acquisitions added
approximately $.2 million of MRR and 3,400 customers. These
acquisitions were accounted for under the purchase method of
accounting and, accordingly, the purchase price has been
preliminarily allocated to the assets acquired and liabilities
assumed based on their estimated fair value at the respective
dates of acquisition.
Recent Developments
The Company completed an offering of 40,000 shares of
Cumulative Convertible Preferred Stock (35,000 shares of Series A
and 5,000 shares of Series B) at $1,000 per share in February
1998 yielding gross proceeds totaling $40 million. Concurrently,
the Company issued 700 additional shares of the Series A
Preferred in exchange for $.7 million of the Company's
subordinated debt. The Series A Preferred Stock pays quarterly
dividends at 5% per annum. Under the terms of the security, each
holder of the Series A and Series B Preferred Stock has the right
to convert its shares, at the option of the holder, at any time,
into shares of the Company's common stock at the conversion price
of $8.25 per share and $7.75 per share, respectively, subject to
certain anti-dilution provisions. The holders of the newly
issued preferred stock will elect two members to the Company's
expanded Board of Directors. Concurrent with the offering, the
Company increased its credit facility from $60 million to $90
million. The proceeds from the offering and borrowings from the
expanded credit facility are intended to finance acquisitions and
expand the Company's Direct Marketing and Dealer Programs.
In February 1998, the Company purchased all of the
outstanding shares of Detect, Inc., (dba "Pelletier"),
headquartered in Danbury, Connecticut, for cash consideration of
approximately $10.9 million, including a one-year holdback
subject to certain working capital adjustments. The acquisition
added over 7,200 accounts and MRR of approximately $210,000 to
the Company's subscriber base.
In March 1998, Alarmguard completed the acquisition of
certain assets of Security Systems, Inc. (dba "Sentry"),
headquartered in Malden, Massachusetts, with an office in
Portland, Maine. The acquisition added approximately 26,000
subscribers and MRR of approximately $.6 million. The purchase
price for the Company was approximately $26.5 million and is
subject to certain agreed upon post-closing adjustments based on
a subsequent performance review of the acquired subscriber base.
Both of the 1998 acquisitions will be accounted for under
the purchase method of accounting.
Market Overview and Trends
The security industry is highly competitive and highly
fragmented. Alarmguard competes with major firms which have
substantial financial resources. Other alarm service companies
have adopted a strategy similar to Alarmguard's that entails the
aggressive purchase of alarm monitoring accounts both through
acquisitions of account portfolios and through dealer programs
and through internal growth programs similar to Alarmguard's.
Alarmguard's target market consists of owners of single family
residences and businesses.
The security alarm industry is characterized by the
following attributes:
High Degree of Fragmentation. The security alarm industry
is primarily comprised of a large number of small providers of
alarm systems and services. According to the publicly-available
Lehman Brothers 1996 Year-End Security Industry Review, there are
approximately 11,000 security alarm companies nationally. These
companies generate approximately $13.2 billion of gross revenues
from alarm system sales, installation, service and monitoring
according to a survey published in May 1997 by SDM, a security
alarm industry publication. Alarmguard estimates that
approximately 3,000 such companies operate in the territories
Alarmguard currently serves. Alarmguard believes that most of
such companies are small regional firms and that no one firm
dominates the market. The SDM survey reported that in 1996,
based upon information provided by the respondents, the 100
largest companies in the industry accounted for approximately 25%
of alarm industry revenues. Based upon its acquisition
experience, Alarmguard believes that many smaller alarm
companies, due to their size, have higher overhead expenses as a
percentage of revenues than Alarmguard and lack access to capital
on terms as attractive as those available to Alarmguard.
Rapid Growth and Low Penetration. The residential security
alarm market is growing but is still characterized by a low level
of market penetration. An industry trend toward subsidizing
installation costs to increase affordability, combined with other
factors such as heightened concern about crime and favorable
demographic trends, have resulted in increased demand for
residential security alarm services. The 1997 SDM survey
reported that in 1996 the 25 largest firms in the industry
experienced a 21.5% growth rate, as opposed to only a 2.2% growth
rate for the industry as a whole. The percentage of the
estimated 100 million households in the United States with
monitored alarm systems is approximately 11% and it is estimated
that 20% of households will have monitored systems by the year
2000.
Advances in Digital Communications Technology. Prior to the
development of digital communications technology, alarm
monitoring required a dedicated telephone line, which made long-
distance monitoring uneconomic. Consequently, in order to
achieve a national or regional presence, alarm monitoring
companies were required to maintain a large number of
geographically dispersed monitoring stations. The development of
digital communications technology eliminated the need for
dedicated telephone lines, reducing the cost of monitoring
services to the subscriber and permitting the monitoring of
subscriber accounts over a wide geographic area from a central
monitoring station. The elimination of local monitoring stations
has decreased the cost of providing alarm monitoring services and
has substantially increased the economies of scale for larger
alarm service companies. In addition, the concurrent development
of microprocessor-based control panels has substantially reduced
the cost of the equipment available to subscribers in the
residential and small business markets.
Alarmguard believes that several factors contribute to a
favorable market for security alarm services both generally in
the United States and specifically in the Northeastern and Mid-
Atlantic portions of the country:
Concern about Crime. According to Uniform Crime Report (the
"UCR") published by the Federal Bureau of Investigation in
October 1996, between 1986 and 1995 the number of violent crimes
reported in the United States increased by more than 21% and the
total number of criminal offenses increased by over 5% for the
same period. The UCR also found that a property crime was
committed in the United States in 1995 once every three seconds,
one burglary was committed every twelve seconds, and one larceny
theft committed every four seconds. The 1995 property crime rate
was 4,593 offenses per 100,000 population. The UCR also found
that larceny theft increased by more than 2% from 1994 to 1995
representing over 66% of property crimes reported and 58% of the
UCR's Crime Index total. The value of property stolen in
connection with property was estimated at $15.1 billion for 1995.
In the Northeastern and Mid-Atlantic states in which Alarmguard
operates, the overall Crime Index Rate is 10% higher than the
national average in the Metropolitan Statistical Areas (MSA's)
that constitute over 90% of Alarmguard's subscriber base. While
the UCR found that the number of criminal offenses reported have
declined over the last four years, a recent survey with respect
to America's perception of crime showed that 78% of those
surveyed believed that crime is worse compared to 11% who
reported that crime in America has decreased.
Demographic Trends. According to the U.S. Bureau of Census
1995 Statistical Abstract of the United States, resident
population in the territories in which Alarmguard operates
accounts for approximately one-quarter of the total U.S.
population. Population growth is projected to increase by more
than 6% from 1994 to 2010. According to that same 1995 report,
median household income in the territories in which Alarmguard
operates is approximately 15% higher than the national average.
The report also found that disposable personal income in these
states is as high as 30% over the national average, with the
states of Connecticut, New Jersey, New York, and Massachusetts
ranking as the top four states, respectively, in the nation in
this category. According to a privately-commissioned study
presented at a national dealer convention sponsored by ITI
Technologies Inc., the following trends and factors will drive
increased alarm business penetration: (i) alarm installation
will more than double to 48% for all new home construction by the
year 2005; (ii) the increase in the number of households headed
by a single parent in the workforce and the estimated 40 million
households with two parents working outside the home resulting in
more children at home alone; (iii) the aging of the population in
general, as older people tend to be more concerned about
security; and (iv) the increase in people working at home
resulting in increasing demand for security services to protect
home office equipment.
Insurance Discounts. The increase in demand for security
systems may also be attributable in part to the practice of
certain insurance companies to grant discounts to homeowners who
install alarm systems. Such discounts are typically greater when
systems are monitored by a central station. In addition,
insurance companies may require that businesses install an alarm
system as a condition of insurance coverage.
Security Alarm Effectiveness. The National Burglar and Fire
Alarm Association ("NBFAA") reports that homes without security
systems are about three times more likely to be broken into than
homes with security systems. Businesses without alarm systems
are 4.5 times more likely to be burglarized than commercial
locations with alarm systems.
Business Strategy
Alarmguard's primary objective is to provide residential and
commercial security services to an increasing number of new
subscribers by making such services affordable and by focusing on
markets with attractive demographics. Alarmguard's strategy is
to enhance its position in the security alarm monitoring industry
in the Northeastern and Mid-Atlantic regions of the United States
by increasing the number and density of subscribers for whom it
provides services. Alarmguard is pursuing this strategy through
a growth plan incorporating acquisitions of portfolios of
subscriber accounts in existing and contiguous markets and
internal growth of Alarmguard's core business utilizing direct
marketing and authorized dealer programs and through referrals
and traditional local marketing. Alarmguard believes that
increasing the number and density of subscribers will help it to
achieve economies of scale resulting in improved results of
operations.
Alarmguard's revenue has increased from $10.7 million in
1993 to $34.3 million in 1997, or 34% per year. Alarmguard's
historical growth has enabled it to realize economies of scale in
its central monitoring station, branch operations and its
corporate office. As the number of subscribers monitored by
Alarmguard has increased from approximately 49,000 monitored
subscribers at December 31, 1996 to approximately 64,000 at
December 31, 1997, the costs of the central monitoring
station have been spread over a larger base. As of March 20,
1998, the number of subscribers has increased to approximately
100,000 following the two acquisitions completed in the first
quarter of 1998 (see "Recent Developments"). Additionally,
subscribers have been added in areas surrounding Alarmguard's
branch offices, allowing Alarmguard to spread the branch office
costs over a larger base and increasing the productivity of
field service technicians through more efficient scheduling and
dispatching. Finally, Alarmguard's revenue growth has exceeded
the growth of its selling, general and administrative expenses,
allowing Alarmguard to realize further operating efficiencies.
The Acquisition Program
Alarmguard seeks to grow by acquiring portfolios of
subscriber accounts from other alarm companies. Alarmguard
focuses on acquisitions that allow it to "fill-in" areas
surrounding branch operations, which in turn lead to greater central
station efficiencies and field maintenance efficiencies. Alarmguard
estimates there are approximately 3,000 alarm companies in its markets,
most of which are independently owned and may, from time to time,
become acquisition opportunities. Alarmguard believes that it is
an effective competitor in the acquisition market because of the
substantial experience of its management in acquiring alarm
companies and subscriber accounts as a result of the 32
acquisitions made by Alarmguard from inception through December
31, 1997. Alarmguard also believes that, through its acquisition
activities, it has developed a reputation in the alarm service
industry as an active purchaser of subscriber accounts.
Historically, Alarmguard has offered sellers cash and promissory
notes, subject to holdbacks with respect to purchase price
adjustments. In 1997, Alarmguard paid for such acquisitions with
a combination of cash, promissory notes and common stock.
Because Alarmguard's primary consideration in acquiring a
portfolio of subscriber accounts is the amount of cash flow that
can be derived from the associated MRR, the price paid by
Alarmguard is directly tied to such MRR. To protect Alarmguard
against the loss of acquired accounts and to encourage the seller
of such accounts to facilitate the transfer of subscribers,
management typically requires the seller to provide guarantees
against account cancellations for a period following the
acquisition. Alarmguard usually holds back a portion of the
acquisition price, and has the contractual right to utilize such
holdback to recapture a portion of the purchase price based on
the lost MRR arising from the cancellation of acquired accounts
in excess of the seller's guarantee.
In evaluating the quality of the accounts acquired,
Alarmguard relies primarily on management's knowledge of the
industry, its due diligence procedures, its experience
integrating accounts into the company's operations, the history
of attrition rates for the acquired accounts and the
representations and warranties provided by the sellers. If the
actual financial condition or operations of a seller were
inaccurately represented to Alarmguard in connection with an
acquisition or the actual attrition rate for the accounts
acquired is greater than the rate assumed by Alarmguard at the
time of the acquisition, and if Alarmguard is unable to recoup
its damages from the portion of the purchase price held back from
the seller, such acquisition could have an adverse effect on
Alarmguard's financial condition or results of operations.
Alarmguard actively seeks to identify prospective companies
in the areas in which it operates through senior management's
contacts in the industry. The extensive experience of
Alarmguard's management in identifying and negotiating
acquisitions, and Alarmguard's use of standard form agreements
for smaller acquisitions, help to facilitate the successful
negotiation and execution of acquisitions in a timely manner.
Alarmguard conducts an extensive pre-closing review and
analysis of all facets of the seller's operations. The process
includes, but is not limited to, a combination of selective field
equipment inspections, review of substantially all subscriber
contracts, an analysis of the rights and obligations under such
contracts, telephone surveys of a representative sample of
subscribers, review of customer billing records and accounts
receivable aging reports, review of the seller's telephone
traffic and signal activity and other types of verification of
the seller's operations.
Alarmguard develops a specific integration plan for each
acquisition in conjunction with the seller. Integration efforts
typically include an Alarmguard approved letter from the seller
to its subscribers explaining the sale, and a personal visit by
an Alarmguard representative or mailing from Alarmguard to
provide the subscriber with service brochures, field service and
monitoring phone number stickers, yard signs and window decals.
Each new subscriber is contacted individually by telephone by a
member of Alarmguard's customer care group to solicit certain
information and address the subscriber's questions or concerns.
The plan's goal is to enhance new subscriber identification with
Alarmguard as the service provider and to promote subscriber
satisfaction to maximize the potential value of the MRR generated
by purchased subscriber accounts.
The Direct Marketing, Dealer and National Accounts Programs
Alarmguard employs a sales force of approximately 22
employees in its Direct Marketing Program which generates new
subscriber accounts through direct telemarketing. The Direct
Marketing Program offers potential subscribers security alarm
systems and services primarily under the "Alarmguard" trademark.
Alarmguard uses a 24-seat predictive dialer which is expandable
to 120 seats.
In 1997, Alarmguard maintained the Direct Marketing Program
at a relatively constant level of monthly sales and installation
of residential and small commercial security alarm monitoring
systems. Alarmguard believes it can access a broader demographic
market with the Direct Marketing Program than is presently being
accessed by it and other companies providing traditional high-end
residential and commercial alarm service. The cost of creating a
customer through the Direct Marketing Program remains
substantially lower than the amount required to acquire a
customer through an acquisition transaction.
In late 1997, Alarmguard launched its Dealer Program which
represents an externally driven growth program which augments the
Direct Marketing Program. The characteristics of the subscriber
purchased through the Dealer Program are similar to those of
Direct Marketing Program subscribers. Under this program,
Alarmguard purchases credit-approved monitoring contracts from
Alarmguard authorized dealers. In most cases, Alarmguard
installs the systems and deducts the cost of the installation
from the amount paid to the dealer. As of December 31, 1997, the
Dealer Program had 4 authorized dealers and 12 dealers as of
March 20, 1998.
Alarmguard plans to continue to emphasize the Direct
Marketing and Dealer Programs because of the predictability and
cost efficiency in adding new subscribers. Accounts generated
under these programs often have a service advantage as compared
to acquired accounts which may have older equipment that is less
easily serviced. In addition, these programs generate a
comparatively steady flow of new subscribers spread more evenly
over Alarmguard's ten branch offices, making it easier for
Alarmguard's branch operations to successfully assimilate these
accounts.
In mid 1996, Alarmguard began its National Accounts program
which provides security services to multi-location commercial
accounts. This program was further expanded in 1997 with the
acquisition of Protective Alarms, which had a well-established
national accounts program serving numerous retailers. As of
December 31, 1997, the National Accounts Program had 24 accounts
with approximately $100,000 of MRR, representing approximately 5%
of Alarmguard's total MRR.
Traditional Sales and Marketing
Alarmguard believes that increasing density of its
subscriber base (i.e., increasing concentration of subscribers)
increases the overall presence and visibility of Alarmguard. New
subscribers, whether internally developed or acquired, are
provided with highly visible reflective "Alarmguard" yard signs
placed prominently in front of their homes or businesses. The
presence of these signs develops greater awareness in a
neighborhood and leads to more inbound telephone inquiries and
referral business. Alarmguard encourages referrals from existing
subscribers through an incentive program promoted through billing
inserts and employee contacts.
Each of Alarmguard's ten branch offices employs sales
representatives who sell new systems, equipment additions and
upgrades and enhanced services to residential and commercial
subscribers. In addition to the Direct Marketing and Dealer
Programs, Alarmguard receives in-bound telephone requests for
security alarm systems, primarily the result of subscriber
referrals, local crime activity and responses to yellow pages
advertising. Such inquiries are pursued by Alarmguard's sales
representatives. Alarm sales are made at the subscriber's home
or place of business. Alarmguard seeks to increase revenues from
current and newly added subscribers by actively marketing
enhanced services to such subscribers. These services include
extended service protection, two-way voice communication,
supervised monitoring services, pager service, remote audio
verification and wireless back-up.
Alarmguard also generates new subscriber accounts by signing
monitoring contracts with new owners of residences previously
occupied by Alarmguard subscribers. Alarmguard supports its
traditional sales and marketing programs with direct sales
collateral materials. In 1997, the Company also created an
Internet website, www.alarmguard.com, where interested parties
can obtain information on the Company.
Sonitrol Franchise
Alarmguard also sells, installs and services Sonitrol audio-
based security systems in New Haven County, Connecticut as a
Sonitrol franchisee. The Sonitrol system is an audio-based
monitoring system designed primarily for commercial customers.
As of December 31, 1997, Sonitrol represented approximately 2.5%
of Alarmguard's MRR.
Description of Operations
Alarmguard's operations consist principally of alarm
monitoring services, enhanced security services, and the
installation of new subscriber equipment and field service and
repair.
Alarm Monitoring Services
Subscriber Security Alarm Systems. Security alarm systems
include devices installed at the subscriber's premises designed
to detect or react to various occurrences or conditions, such as
intrusion or the presence of fire or smoke. These devices are
connected to a control panel that communicates primarily through
telephone lines to the central monitoring station. Other
transmission methodologies include cellular, long range RF and
derived channel. Subscribers may also initiate an emergency
signal from a device such as a "panic button." In most systems,
control panels can identify the nature of the alarm and the areas
within a building where the sensor was activated, and can
transmit that information to the central monitoring station.
The Central Monitoring Station. Alarmguard monitors
substantially all of its subscriber accounts, including acquired
accounts, at its central monitoring station in Orange,
Connecticut. The central monitoring station incorporates the use
of advanced telecommunications and computer systems that route
incoming alarm signals and telephone calls to operators. Each
operator is situated at a computer station that provides
immediate information concerning the nature of the alarm signal,
the subscriber whose alarm has been activated and the premises on
which such alarm is located. All telephone conversations are
automatically recorded.
In March 1998, Alarmguard completed an expansion of its
central monitoring station at a cost of approximately $800,000,
increasing monitoring capacity to approximately 250,000
subscribers. The equipment at the central monitoring station
includes: sophisticated and redundant phone switching equipment;
digital receivers that process the incoming signals; a fault-
tolerant mainframe computer system; a network of computer
terminals; a multi-channel, voice-activated recording system;
uninterruptable power supply; and two backup generators.
Alarmguard's central monitoring station is listed by
Underwriters Laboratory ("UL") as a protective signaling services
station. The UL burglar and fire certificates were developed in
response to the needs of the insurance industry as a means to
verify proper installation and maintenance of burglar and fire
alarm systems. To issue a UL certificate, which describes
varying levels of response and protection, a central monitoring
station must earn the UL listing through a series of ongoing
inspections and operational tests. UL specifications for central
monitoring stations include building integrity, back-up systems,
staffing and standard operating procedures. In many
jurisdictions, applicable law requires that security alarms for
certain buildings be monitored by UL-listed facilities. In
addition, such listing is required for certain commercial
subscribers by insurance companies as a condition of insurance
coverage. Of the estimated 11,000 companies in the security
alarm industry, approximately 400 carry the UL approval.
Additional listings carried by Alarmguard's central monitoring
station include FM (Factory Mutual), which has more stringent
procedural and equipment requirements than UL, and the Central
Station Signaling Unit of the Fire Department of New York City.
Alarmguard is one of only 19 central monitoring stations approved
to monitor commercial fire systems in New York City.
Operation of the Central Monitoring Station. Depending on
the type of service provided to the subscriber, central
monitoring station personnel respond to alarms by relaying
information to the local fire or police departments, notifying
the subscriber or taking other appropriate action, such as
dispatching alarm response personnel to the subscriber's premises
where this service is available. Alarmguard also provides
certain subscribers with a remote audio verification capability
that enables the central monitoring station to listen and speak
directly into the subscriber's premises in the event of an alarm
activation. This feature allows Alarmguard's personnel to verify
that an emergency exists, to reassure the subscriber and to
expedite emergency response, even if the subscriber is unable to
reach a telephone. Remote audio verification capability also
assists Alarmguard in quickly determining if the alarm was
activated inadvertently, and thus whether a response is required.
Alarmguard's central monitoring station operates 24 hours a
day, seven days a week, including all holidays. Each operator
receives training that includes familiarization with the various
types of alarm systems in Alarmguard's subscriber base. This
enables the operator to tell subscribers how to turn off their
systems in the event of a false alarm, thus reducing the
instances in which a field service person must be dispatched.
Other non-emergency administrative signals are generated by low
battery status, deactivation and reactivation of the alarm
monitoring system and test signals, and are processed
automatically by computer.
All of Alarmguard's central monitoring station operators
have received operator certificates from the Security Industry
Association ("SIA"). Founded in 1969, SIA is a security alarm
industry trade organization that promotes growth and
professionalism in the alarm industry. SIA developed the first
industry-wide training program for central station operators,
which has been offered since 1995. This training program
provides a standard orientation, introduction and procedural
foundation for operators which is based on UL policies as well as
input from numerous security alarm monitoring companies that
operate central stations. The program consists of classroom
instruction followed by a comprehensive written examination. The
SIA operator certificate is issued to those operators who pass
such examination. The NBFAA has endorsed and approved the SIA
program, adding it to the NBFAA National Training School.
Alarmguard was the first security alarm company in the United
States to have all its central monitoring station operators
trained and tested in the SIA program. As of March 20, 1998,
there have been approximately 1,200 SIA certified central
monitoring station operators granted certificates. Of these, 77,
or approximately 7% have been Alarmguard employees, representing
one of the highest number of certificates granted to any one SIA
approved company.
Subscriber Contracts. Alarmguard's monitoring/equipment
lease contracts generally have initial terms of 60 months in
duration, and provide for automatic renewal for a fixed period
(typically one year) unless Alarmguard or the subscriber elects
to cancel the contract 90 days in advance of the end of its term.
Alarmguard maintains individual files with a signed copy of the
contract for each of its subscribers and a computerized customer
data base.
Substantially all of Alarmguard's monitoring/equipment lease
contracts for Alarmguard's residential subscribers provide for
subscriber payments of between $25 and $40 per month.
Alarmguard's commercial subscribers typically pay from $25 to
$150 per month. At December 31, 1997, Alarmguard's average MRR
per subscriber was approximately $32.00.
Enhanced Security Services
Additional MRR is generated by providing enhanced security
services that Alarmguard offers to both its existing subscribers
and in conjunction with the sales of new systems. These enhanced
security services include:
Extended Warranty Plans, which cover the normal costs of
repair of the system during normal business hours, after
the expiration of the initial warranty period.
Two-Way Voice Communication (Remote Audio Verification),
which consists of the ability, in the event of an alarm
activation, to listen and talk to persons at the
monitored premises from the central monitoring station
through the monitoring panel located within the
premises. Among other things, such remote audio
verification helps Alarmguard determine if an alarm
activation is a false alarm.
Supervised Monitoring Service, which allows the alarm
system to send various types of signals containing
information on the use of the system, such as the
identity of users arming or disarming the system and at
what time of day. This information is supplied to
subscribers for use in connection with the management of
their households or businesses. Supervised monitoring
service can also include a daily automatic test feature
and opening and closing reports on the number of persons
entering or leaving a location.
Pager Service, which provides the subscriber, at
discounted rates, with standard pager services that also
enable Alarmguard to reach the subscriber in the event of an
alarm activation.
Wireless Back-Up, which permits the alarm system to send
signals over a dedicated radio system in the event that
regular telephone service is interrupted.
Installation and Field Repair Services
Alarmguard hires and maintains installation and field
service personnel in each of its branch offices. Alarmguard
trains its employees to install and maintain the various types
of security systems marketed and serviced by Alarmguard, and
those typically marketed by other dealers and found in the
households of acquired subscriber accounts. The primary alarm
systems that Alarmguard currently installs are manufactured by
ITI (wireless) and Ademco (hard-wired). Alarmguard has
purchased alarm systems from other manufacturers and believes
that it can readily do so in the future if necessary.
Alarmguard believes that the majority of installed alarm systems
monitored in the United States was manufactured by a limited
number of manufacturers. Accordingly, Alarmguard believes that
it can readily train service personnel to service these systems.
Installation of new alarm systems are performed on a timely
basis after the completion of the sale. After completing an
installation, the technician instructs the subscriber on the use
of the system and furnishes a written manual and, in many
instances, an instruction video. Additional follow-up
instruction is provided by sales consultants in the branch
office on an as-needed basis.
Alarmguard believes one of the most effective ways of
improving customer retention is to provide high-quality,
responsive field repair service. Field service personnel are
trained by Alarmguard to service the various types of security
systems owned by Alarmguard's subscribers. Field service
personnel also inspect installations performed by Alarmguard's
installation subcontractors.
Repair services generate revenues primarily through
billable field service calls or contractual payments under
Alarmguard's extended warranty plans. The increased density of
Alarmguard's subscriber base, the result of Alarmguard's
continuing effort to fill in areas surrounding its branch
operations with new subscribers, permits more efficient
scheduling and routing of field service technicians, and results
in economies of scale at the branch level. The increased
efficiency in scheduling and routing allows Alarmguard to
provide faster field service response and support, which leads
to a higher level of subscriber satisfaction.
Customer Retention
Alarmguard believes that customer satisfaction is an
important factor in the retention of subscriber accounts.
Alarmguard has implemented a number of measures intended to
maximize customer satisfaction, including a phone survey of
every subscriber receiving a field service visit. The survey
consists of questions about the service visit and overall
subscriber satisfaction with Alarmguard as a service provider.
Periodic awards are given to the branches and individuals that
maintain superior customer satisfaction. To further enhance
customer satisfaction, each branch is on-line with Alarmguard's
central computer in Orange, Connecticut so that employees of any
branch can immediately access subscriber account information and
respond promptly to questions or complaints. A history of each
customer's alarm, repair and payment activities is maintained in
the central computer, which enables customer representatives to
promptly and effectively respond to customer inquiries.
Alarmguard experiences customer cancellations of monitoring
and related services as a result of subscriber relocation, the
cancellation of acquired accounts during the process of
integrating such accounts into Alarmguard'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. Alarmguard experienced gross MRR attrition of 12.3%,
11.9% and 11.8% in 1995, 1996 and 1997, respectively. Gross MRR
attrition is defined by Alarmguard for a particular period as a
quotient, the numerator of which is equal to gross MRR lost as
the result of canceled subscriber accounts, including the MRR of
subscribers who have moved from homes or businesses in which an
existing alarm system was installed ("Transfers"), and the
denominator of which is the average month-end MRR during such
period.
Competition
The security alarm industry is highly competitive and
highly fragmented. Alarmguard competes with major national
firms with substantial financial resources, including Tyco
International (ADT), Ameritech Corporation, Wells Fargo,
Honeywell, Inc., Westec, The Pittston Brinks Group, Protection
One, as well as strong regional providers. Other alarm service
companies have adopted a strategy similar to Alarmguard's that
entails the aggressive purchase of alarm monitoring accounts
both through acquisitions of account portfolios and through
dealer programs and internal growth programs. Some competitors
have greater financial resources than Alarmguard, or may be
willing to offer higher prices than Alarmguard is prepared to
offer to purchase subscriber accounts. Utility companies and
cable television companies also have recently entered the alarm
monitoring business and will likely compete with Alarmguard for
new accounts and for acquisitions.
Competition in the security alarm industry is based
primarily on reliability of equipment, market visibility,
services offered and reputation for quality of service.
Alarmguard believes it competes effectively with national, other
regional and local security alarm companies in the Northeastern
and Mid-Atlantic United States because of Alarmguard's
reputation for reliable equipment and services, its concentrated
presence in the areas surrounding its branch offices, its
ability to bundle monitoring, maintenance and repair and
enhanced services and its low cost structure.
Regulatory Matters
Recently, certain local government authorities have
considered or adopted various measures aimed at reducing the
number of false alarms. Such measures include: (i) subjecting
alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm
systems and the revocation of such licenses following a
specified number of false alarms, (iii) imposing fines on alarm
subscribers for false alarms (iv) imposing limitations on the
number of times the police will respond to alarms at a
particular location and (v) requiring further verification of an
alarm signal before the police will respond.
Alarmguard's operations are subject to a variety of other
laws, regulations and licensing requirements of federal, state
and local authorities. In certain jurisdictions, Alarmguard is
required to obtain licenses or permits, to comply with standards
governing employee selection and training and to meet certain
standards in the conduct of its business. Many jurisdictions
also require certain of Alarmguard's employees to obtain
licenses or permits.
Alarmguard and its individual installers are required to
hold licenses which, depending on the state, may include an
electrical contractor's license and a journeyman's license.
Such states may also require, as part of the licensing process,
a security clearance or background check issued by the state's
department of public safety or similar governmental authority.
In the states where Alarmguard is required to have a single
license holder, under whose license the individual installers
may operate, Alarmguard generally has two or three license
holders in order to ensure continuity in the event a licensed
employee is transferred or leaves Alarmguard's employment.
Local authorities generally require permits for large or complex
fire system installations. Such permits are generally specific
to the installation site and are obtained in advance of the
commencement of work.
The alarm industry is also subject to requirements imposed
by various insurance, approval, listings and standards
organizations depending upon the type of subscriber served, the
type of security service provided, and the requirements of the
applicable local governmental jurisdiction.
Alarmguard's advertising and sales practices are regulated
by both the FTC and state consumer protection laws. Such laws
and regulations include restrictions on the manner in which
Alarmguard promotes the sale of its security alarm systems and
the obligation of Alarmguard to provide purchasers of its alarm
systems with certain rescission rights.
Alarmguard markets some of its products and services
through telemarketing, which is regulated on the state and
federal level. Alarmguard believes that these activities will
increasingly be subject to such regulation. Such regulation may
limit Alarmguard's ability to solicit new subscribers or to
offer one or more products and services to existing subscribers
and may materially affect Alarmguard's business and revenues.
Alarmguard's alarm monitoring business utilizes telephone
lines and radio frequencies to transmit alarm signals. The cost
of telephone lines and the type of equipment which may be used
in telephone line transmission are currently regulated by both
federal and state governments. The operations and utilization
of radio frequencies are regulated by the Federal Communications
Commission and state public utilities commissions.
Risk Management
The nature of the services provided by Alarmguard
potentially exposes it to greater risks of liability for
employee acts or omissions or system failure than may be
inherent in other businesses. Most of Alarmguard's alarm
monitoring agreements and other agreements pursuant to which it
sells its products and services include certain provisions
limiting Alarmguard's liability to subscribers in an attempt to
reduce this risk.
Alarmguard carries insurance of various types, including
general liability and errors and omissions insurance. The loss
experience of Alarmguard and other security service companies
may affect the availability and cost of such insurance. Certain
of Alarmguard's insurance policies, and the laws of some states,
may limit or prohibit insurance coverage for punitive or certain
other types of damages, or liability of Alarmguard arising from
gross negligence or wanton behavior. Alarmguard experiences
insurance claims in the ordinary course of its business.
Alarmguard does not believe that any of such pending claims will
have a material adverse effect on the financial condition or
results of operations of Alarmguard or Alarmguard's ability to
obtain insurance coverage in the future.
Trademarks
Alarmguard operates under the trademark "Alarmguard" and
certain other trademarks.
Employees
At December 31, 1997, Alarmguard employed approximately 450
individuals on a full-time basis. Currently, none of
Alarmguard's employees is represented by a labor union or covered
by a collective bargaining agreement. Alarmguard believes that
its relations with its employees are good.
ITEM 2. PROPERTIES
Alarmguard's executive offices, central monitoring station
and administrative offices constitute 20,000 square feet and are
located at 125 Frontage Road, Orange, Connecticut (the
"Headquarters"). Alarmguard has entered into a lease with
respect to the Headquarters with 125 Frontage Road LLC, a company
controlled by Russell R. MacDonnell, Chairman, President and
Chief Executive Officer of Alarmguard. This lease expires on
June 30, 2005. Alarmguard also leases office space in
Piscataway, New Jersey; Cos Cob, Meriden and Darien, Connecticut;
Plainview, New York; Woodlyn, Pennsylvania; Seaford, Delaware;
Salisbury, Maryland.; Malden, Massachusetts; and Portland, Maine.
The leases of these properties expire on various dates through
2005, and in some cases are renewable at the option of
Alarmguard.
ITEM 3. LEGAL PROCEEDINGS
Alarmguard experiences routine litigation in the normal
course of its business. Alarmguard does not believe that any
pending or threatened litigation will have a material adverse
effect on the financial condition, results of operations or cash
flows of Alarmguard.
In May 1995, a stockholder of Ridgewood Hotels, Inc.
commenced a derivative and class action lawsuit in Delaware
Chancery Court against Ridgewood, its directors and Triton
(Alarmguard's predecessor) entitled Strassburger v. Early, et al.
(C.A. No. 14267). The lawsuit concerns a transaction entered
into in August 1994 in which Ridgewood purchased from Triton all
of the Ridgewood common stock owned by Triton (which consisted of
approximately 75% of Ridgewood's then outstanding common stock)
for $8 million in cash and newly-issued Ridgewood preferred stock
with a face value of $3.6 million. The complaint alleges that
such transaction constituted a corporate waste and a breach by
Triton of its alleged duties of loyalty and good faith as a
majority stockholder to Ridgewood's other stockholders. The
complaint seeks a rescission of the transaction and other
unspecified monetary relief. The class action lawsuit was
dismissed in March 1998. Alarmguard intends to defend vigorously
against the remaining lawsuit. It is the opinion of Alarmguard's
management that the ultimate resolution of such litigation will
not have a material adverse effect on Alarmguard's financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Registrant's
security holders during the quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(A) Market Information
Alarmguard's Common Stock, par value $.0001 per share, and
its warrants have been traded on the AMEX since April 16, 1997
under the symbols "AGD" and "AGDW", respectively. Prior to April
16, 1997, the date of the Merger with Triton, the common stock
and warrants of Alarmguard's predecessor, Triton, were traded on
the AMEX under the trading symbols "TGL" and "TGLW",
respectively. The stock prices prior to April 16, 1997 listed
below have been adjusted to reflect the one-for-ten reverse stock
split completed on such date.
Market Price of Common
Stock
1997 1996
Quarters Ended High Low High Low
1st Quarter 10 7 1/2 5 9/16 3 3/4
2nd Quarter 9 1/4 5 13/16 5 9/16 3 3/4
3rd Quarter 9 5/8 8 5/16 7 1/2 6 1/4
4th Quarter 10 7/8 8 10 5/8 6 7/8
Market Price of Warrants
1997 1996
Quarters Ended High Low High Low
1stt Quarter 1/8 1/8 1/4 1/8
2nd Quarter 9/16 3/16 1/4 1/8
3rd Quarter 1/2 1/8 3/16 1/16
4th Quarter 3/8 3/16 1/4 1/8
(B) Holders
At March 26, 1998, there were 328 and 403 holders of record
of the Company's common stock and warrants, respectively.
(C) Dividends
The Company did not pay cash dividends on its common stock
in 1996 and 1997 and is not expected to pay cash dividends in the
foreseeable future.
(D) Recent Sales of Unregistered Securities
During 1997, the Company issued unregistered shares of its
common stock in connection with certain acquisitions (see "Major
Developments During 1997 - Other Acquisitions").
In February 1998, the Company sold unregistered shares of
Convertible Preferred Stock (see "Recent Developments"). Lehman
Brothers represented the Company in connection with the issuance
of the Preferred Stock and was paid a cash fee of $1.8 million,
plus a commitment from Alarmguard to issue warrants to purchase
80,000 shares of common stock of the Company at $8.66 per share.
The Common and Preferred securities discussed herein were
sold pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated
financial and operating data of Alarmguard. The selected
consolidated balance sheet data as of December 31, 1993, 1994,
1995, 1996, and 1997 and the selected consolidated statement of
operations data for the five years then ended have been derived
from the audited consolidated financial statements of SSH
(referred to herein as "Alarmguard"). The selected consolidated
financial data should be read in conjunction with Alarmguard's
consolidated financial statements and related notes and with the
Company's Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
As of and for the Years Ended
December 31,
1993 1994 1995 1996 1997
(in thousands, except per share data)
Statement of Operations
Data:
Total revenue $10,718 $17,075 $20,200 $24,152 $34,260
Gross profit 6,539 9,710 11,926 14,372 19,849
Selling, general and
administrative
expense 4,502 7,200 9,487 12,167 16,258
Amortization and
depreciation expense 3,255 4,617 6,786 8,142 11,386
expense
Operating loss (1,218) (2,107) (4,347) (5,937) (7,795)
Interest and other expense,
net (1,068) (1,510) (2,300) (3,051) (4,541)
Loss before extraordinary
item (2,286) (3,617) (6,647) (8,988) (12,336)
Extraordinary loss - (218) - - (813)
Net loss $(2,286)$(3,835)$(6,647)$(8,988)$(13,149)
Basic and diluted per share
data: (1)
Loss before extraordinary item $(3.12) $(2.61)
Extraordinary loss - (.17)
Net loss $(3.12) $(2.78)
Basic and diluted weighted
average shares 2,877 4,726
Cash Flow Data:
Net cash used in
operating activities $(77)$(1,997)$(5,001)$(6,984) $ (5,715)
Net cash used in
investing activities (5,665) (3,147) (2,879) (1,623) (6,606)
Net cash provided by
financing activities 8,282 2,538 8,640 7,276 12,789
Other Data:
Certain subscriber data:
MRR at end of period (2) $822 $956 $1,129 $1,392 $2,087
Number of subscribers at
end of period 25 29 36 49 64
Adjusted EBITDA:
EBITDA (3) $2,037 $2,510 $2,439 $2,205 $3,591
Less Direct Marketing
Program revenue (4) - (279) (1,249)(2,166) (1,265)
Plus Direct Marketing
Program expenses (4) 656 2,084 4,351 3,946
Plus acquisition
integration expenses (4) - - - - 34
Adjusted EBITDA (5) $2,037 $2,887 $3,274 $4,390 $6,621
Balance Sheet Data:
Intangible assets, net(6) $22,499 $23,517 $23,223$21,430 $43,027
Total assets 32,369 33,484 38,113 39,131 69,850
Total obligations (7) 16,162 20,735 30,776 39,775 54,789
Total stockholders'
deficiency (3,473) (7,992)(15,264)(24,898)(3,197)
(1) Basic and diluted per share information gives effect to the
conversion of all SSH preferred and common stock into
Common Stock of the Company as if it occurred at the beginning
of 1996, resulting in a consistent pro forma number of common
shares of 2,877,368. Actual shares outstanding are used for
the weighted average share calculation for the period
subsequent to the Merger with Triton.
(2) "MRR" means monthly recurring revenue that Alarmguard is
entitled to receive under contracts in effect at the end of such
period. MRR is a term commonly used in the security alarm
industry as a measure of the size of a company. It does not
measure profitability or performance, and does not include any
allowance for future subscriber attrition or for uncollectible
accounts receivable.
(3) "EBITDA" means earnings before interest, taxes, depreciation
and amortization. EBITDA is derived by adding to the loss before
income taxes and extraordinary items, the sum of (i) amortization
of debt issuance costs, acquired customer accounts, covenants not
to compete and goodwill; (ii) interest and other expense, net;
and (iii) depreciation expense. EBITDA does not represent cash
flows available to fund Alarmguard's cash needs. Items excluded
from EBITDA are significant components in understanding and
assessing Alarmguard's financial performance. Alarmguard's
management believes presentation of EBITDA enhances an
understanding of Alarmguard's financial condition, results of
operations and cash flows because EBITDA is used by Alarmguard to
measure its ability to meet its debt service obligations and its
capital expenditures and other operational needs as well as to
provide funds for growth. In addition, EBITDA has been used by
Alarmguard's lenders and the investment community to determine
current borrowing capacity and to estimate the value of companies
with recurring revenues.
(4) Direct Marketing Program amounts are not reportable for 1993
as the program did not commence until 1994. Acquisition
integration expenses incurred prior to 1997 were not material.
(5) "Adjusted" EBITDA is derived by adding to EBITDA, Direct
Marketing Program and acquisition integration expenses incurred,
net of Direct Marketing Program revenues earned, during the
period. Adjusted EBITDA does not represent cash flow from
operations as defined by generally accepted accounting
principles, should not be construed as an alternative to net
income, and is not indicative of Alarmguard's operating
performance or of cash flows available to fund Alarmguard's cash
needs. Alarmguard's management believes presentation of Adjusted
EBITDA enhances an understanding of Alarmguard's operating
results, particularly in comparison to other security alarm
companies that grow substantially through acquisitions of
subscriber accounts. Additionally, an amount similar to Adjusted
EBITDA is used by lenders in extending credit to Alarmguard.
(6) Includes acquired customer contracts, covenants not to
compete and goodwill.
(7) Total obligations includes the current and non-current
portion of: the credit facility, subordinated debt, capital
leases (included in other liabilities) and notes payable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical financial
condition and results of operations of Alarmguard for each of the
three years in the period ended December 31, 1997. The financial
information, discussion and analysis which follow are based upon
and should be read in conjunction with Alarmguard's consolidated
financial statements and the notes thereto, included elsewhere
herein.
General
Alarmguard sells, installs, services and monitors security
alarm systems for residential and commercial subscribers,
principally in the Northeastern and Mid-Atlantic regions of the
United States. At December 31, 1997, Alarmguard had MRR of $2.1
million serving approximately 64,000 subscribers accounts for its
alarm monitoring services, approximately 68% of which were
residential.
Since January 1, 1995, Alarmguard has added approximately
$748,000 of MRR through 17 separate acquisitions, $586,000 of
which was acquired during 1997. Acquisitions consummated by
Alarmguard typically contain contractual provisions providing for
(i) a guarantee by the seller with respect to the rate of
attrition measured in terms of MRR, generally for a period of 6-
12 months following the closing of such transaction, and (ii) a
holdback from the seller of a portion of the purchase price
which, if the actual attrition rate exceeds the guaranteed rate
at the end of such 6-12 month holdback period, is applied to
adjust the effective purchase price downward. No acquisition
consummated by Alarmguard during such period included an acquired
account which was of such a size that the loss of such account
would have had a material adverse effect on the benefits to
Alarmguard of such acquisition.
From January 1, 1995 to December 31, 1997, Alarmguard added
approximately $567,000 of MRR through the Direct Marketing
Program, including $193,000 of MRR during the year ended December
31, 1997. The total MRR added during the same periods (before
cancellations) was $1.6 million and $913,000, respectively.
Alarmguard continually pursues numerous acquisition
opportunities. Generally, acquisitions involve cash, promissory
notes and common stock. To the extent that a transaction requires
payment of the entire purchase price in cash, the capital
available to support other direct marketing growth initiatives
will be reduced, which may in turn adversely impact Alarmguard's
overall liquidity. Alarmguard increased its MRR from
approximately $1.0 million at January 1, 1995 to approximately
$2.1 million at December 31, 1997.
Alarmguard internally generates two different types of new
subscriber accounts, accounts generated through the Direct
Marketing Program and accounts generated through traditional
sales efforts at its ten branch offices. In the Direct Marketing
Program, Alarmguard utilizes outbound telemarketing and other
high volume sales approaches, to offer a basic alarm system for a
low downpayment. New subscribers are generally required to enter
into noncancellable monitoring/equipment lease contracts which
have a term of 60 months. Alarmguard retains ownership of the
alarm system hardware installed for the new subscriber.
Alarmguard's costs associated with generating a new account
substantially exceed the installation fee received from the
customer. However, these costs are significantly less than the
monitoring revenues to be realized over the life of the
monitoring/equipment lease contract. Each new subscriber is
subject to credit approval prior to entering into a monitoring
contract under the Direct Marketing Program.
In late 1997, Alarmguard launched its Dealer Program. Under
this program, Alarmguard purchases credit-approved monitoring
contracts from Alarmguard authorized dealers. In most cases,
Alarmguard installs the systems and charges back the dealer for
the cost of the installation. The subscriber profile is similar
to accounts generated through the Direct Marketing Program.
Alarmguard also markets traditional alarm systems through its
branch offices, which are characterized by the sale of the alarm
system by Alarmguard to the subscriber at a non-subsidized price.
A majority of Alarmguard's revenues are derived from recurring
payments for the monitoring, maintenance and leasing of
subscribers' security systems. The remainder of Alarmguard's
revenues include revenues for installing Direct Marketing Program
alarm systems, revenues derived from the sale and installation of
traditional alarm systems, revenues from installing and/or
selling add-ons and upgrades to alarm systems, and revenues
derived from payments for service calls performed based on time
incurred and materials used. Monitoring and service revenues are
recognized as the monitoring or service is provided. Selling and
marketing costs, excluding commissions on the generation of
Direct Marketing Program accounts, are generally expensed in the
period incurred. With respect to the Direct Marketing Program,
Alarmguard defers all direct costs (principally equipment, labor
and direct sales commissions) incurred in connection with
installing and activating new subscriber accounts. Such direct
costs are amortized over a period of 48 months, which reflects
the life of the contract adjusted for estimated subscriber
attrition. It is Alarmguard's policy to review actual account
attrition on a quarterly basis and, when an installation is
identified for disconnection, to fully write off and charge to
amortization expense the remaining net book value of the
installation costs. Substantially all other costs associated with
the Direct Marketing Program (principally telemarketing and
overhead) are expensed as incurred.
Alarmguard grew rapidly in the year ended December 31, 1997,
realizing a 30.6% increase in the number of monitored subscriber
accounts, from approximately 49,000 at December 31, 1996 to
approximately 64,000 at December 31, 1997, and a 49.9% increase
in MRR, from $1.4 million at December 31, 1996 to $2.1 million at
December 31, 1997.
Total revenues increased by 41.9% from $24.2 million in 1996
to $34.3 million in 1997. Adjusted EBITDA as a percentage of
total revenue less Direct Marketing Program installation revenues
was 20.0% in 1997 and 20.0% in 1996. Alarmguard's operating loss
increased from $5.9 million in 1996 to $7.8 million in 1997.
Alarmguard's net loss increased from $9.0 million in 1996 to
$13.1 million in 1997. The increased operating loss in 1997
reflects primarily the increase in amortization expense
associated with the acquisition of subscriber accounts during the
year. The increased net loss in 1997 reflects the increased
amortization expense discussed above combined with an increase in
net interest expense as a result of a higher level of borrowings
in 1997.
Accounting Policies for Direct Marketing Program Installations
and Subscriber Account Purchases. The difference between
Alarmguard's accounting policy for the generation of subscriber
accounts through the Direct Marketing Program and its accounting
policy for the acquisition of subscriber account portfolios has a
significant impact on Alarmguard's results of operations.
Substantially all telemarketing and overhead costs related to the
generation of subscriber accounts under the Direct Marketing
Program are expensed in the period in which such costs are
incurred. During 1997, the costs of the Direct Marketing Program
which were expensed relating to an average Direct Marketing
Program installation exceeded the amount of installation revenues
recognized. Accordingly, new Direct Marketing Program accounts
adversely affect operating results for the period in which the
associated marketing expenses are incurred. In contrast to the
accounting policy for the Direct Marketing Program expenses,
costs associated with acquisitions of subscriber accounts are
capitalized and amortized over six to ten years, the estimated
average life of an acquired account, on a straight-line basis.
Alarmguard personnel and related support costs incurred solely in
connection with subscriber account acquisitions and transitions
are generally expensed as incurred. As a result of these
accounting policies, Alarmguard's results of operations may vary
in any period depending on the relative contribution to growth in
subscriber accounts from internal generation of Direct Marketing
Program accounts and from acquisitions of subscriber account
portfolios.
Gross MRR Attrition: Gross MRR attrition has an adverse effect
on the Company's financial position and results of operations,
since if affects the Company's recurring revenues. Gross MRR
attrition, generally expressed on an annualized basis, can be
measured in terms of decreased MRR resulting from canceled
subscriber accounts. Gross MRR attrition is defined by the
Company for a particular period as a quotient, the numerator of
which is equal to gross MRR lost as the result of canceled
subscriber accounts during a period and the denominator of which
is the average month-end MRR during the period. The following
table sets forth the Company's MRR additions, cancellations, and
gross MRR attrition for the periods indicated:
Years Ended December 31,
1995 1996 1997
MRR:
Beginning of period $956 $1,129 $1,392
Direct Marketing Program
additions 110 264 193
Additions through acquisitions 82 80 586
Other additions (1) 109 73 134
Canceled MRR (2) (128) (154) (218)
End of period $1,12 $1,39 $2,08
9 2 7
Annual attrition 12.3% 11.9% 11.8%
(1) MRR primarily generated through traditional sales
programs and the National Accounts Program.
(2) Includes canceled MRR of subscribers who have moved from
homes or businesses in which an existing alarm system has
already been installed ("Transfers").
Average MRR per Subscriber. Alarmguard's average MRR per
existing subscriber was approximately $32.00 at December 31,
1997.
Future Net Losses. Alarmguard expects to incur net losses
for the foreseeable future. Factors contributing to Alarmguard's
net losses included the initial excess of expenses over revenues
generated by the Direct Marketing Program and the charges
incurred by Alarmguard for amortization of purchased subscriber
accounts and capitalized costs (materials, labor and direct sales
commissions) associated with the Direct Marketing Program,
interest expense incurred on its indebtedness. Although the
Direct Marketing Program adversely impacts current period
results, Alarmguard believes the Direct Marketing Program will
benefit operating results in the future years because of the
ongoing monitoring revenues associated with such accounts.
Certain Potential Environmental Liabilities. In the past,
Triton, through certain divisions and wholly-owned subsidiaries,
owned and operated businesses that conducted operations that
included the use, generation and disposal of hazardous waste and
hazardous substances. Certain potential environmental
liabilities exist associated with these former operations,
including potential contamination at, or migrating from, certain
properties historically owned or operated by these former
divisions and subsidiaries. Triton also has limited contractual
indemnification obligations relating to certain of these matters.
With respect to these potential environmental liabilities,
management believes that most of these liabilities were
discharged in Triton's 1993 bankruptcy proceedings or, if a
matter were to circumvent the bankruptcy discharge, would be
covered by insurance. Historically, these environmental matters
have not had a material adverse effect on the Company's financial
condition and, although there can be no assurance, management
does not expect such matters to have a material adverse effect
on the Company's financial condition, results of operations or
cash flows in the future.
Year 2000 issues. The year 2000 issue relates to computer
system programs which may not properly recognize the change in
date years from 1999 to 2000. As a result of this sensitivity of
existing software, any business entity is at risk for possible
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar
normal business activities.
Based on a risk assessment, the Company has utilized both
internal and external resources to reprogram or replace and test
software for year 2000 modifications. The total cost of the year
2000 project has not been and is not expected to be material to
the results of operations or cash flows of the Company. The
Company presently believes that with these modifications to its
software the year 2000 issue does not pose a significant
operational problem.
Subscriber systems are generally not date dependent, except
in the case of certain access control systems installed at
subscribers' premises. These systems have been identified and
are currently being upgraded. The cost of these upgrades will
not be material to the Company.
The Company intends to initiate formal communications with
all of its significant suppliers to determine the extent to which
the Company is vulnerable to suppliers' failure to remediate
their own Year 2000 issues.
Results of Operations
The following table sets forth certain operating data as a
percentage of total revenues, other than Adjusted EBITDA which is
a percentage of total revenue less Direct Marketing Program
installation revenue for the periods indicated:
Year ended December 31,
1995 1996 1997
Recurring revenue 59.8% 62.2% 62.9%
Installation revenue 34.1% 31.5% 30.6%
Service revenue 6.1% 6.3% 6.5%
Total Revenue 100.0% 100.0% 100.0%
Monitoring expense 8.4% 9.3% 7.9%
Installation expense 20.8% 19.4% 22.0%
Service expense 11.8% 11.8% 12.2%
Total cost of revenue 41.0% 40.5% 42.1%
Gross profit 59.0% 59.5% 57.9%
Sales and marketing expense 15.0% 15.5% 13.6%
General and administrative expense 32.0% 34.9% 32.8%
Acquisition integration expense - - 1.0%
Amortization and depreciation
expense 33.5% 33.8% 33.2%
Total operating expense 80.5% 84.2% 80.6%
Operating loss (21.5%) (24.7%) (22.7%)
Other operating data:
EBITDA 12.1% 9.1% 10.5%
Direct Marketing Program installation
revenue (6.2%) (9.0%) (3.7%)
Direct Marketing Program and acquisition
integration expenses 10.3% 18.0% 12.5%
Adjusted EBITDA 17.3% 20.0% 20.1%
1997 Compared to 1996
Revenue. Revenues for 1997 increased by $10.1 million, or
41.9%, to $34.3 million from $24.2 million for 1996. Recurring
revenue increased by $6.5 million, or 43.5%, from $15 million in
1996 to $21.5 million in 1997, which was primarily the result of
an increase in the number of monitored accounts generated
primarily due to the acquisition of portfolios of subscriber
accounts in 1997 as well as accounts generated through the Direct
Marketing Program. Installation revenue, which includes revenues
from the installation of Direct Marketing Program systems and
from sales of traditional systems, increased by 37.5% to $10.5
million in 1997 from $7.6 million in 1996, due to the growth in
system sales as a result of a larger account base in a larger
territory. Service revenue increased by 47.3% to $2.3 million in
1997 from $1.5 million in 1996, due primarily to the growth in
the account base.
Gross Profit. Gross profit in 1997 increased by $5.5
million, or 38.1%, to $19.9 million from $14.4 million in 1996.
This increase was due to the growth in MRR as a result of the
addition of acquired account portfolios and growth related to the
Direct Marketing Program. As a percentage of total revenues,
gross profit declined from 59.5% in 1996 to 57.9% in 1997. The
decrease of gross profit as a percentage of total revenue was
primarily the result of several larger commercial installations
which had lower gross profit margins than the Company's
traditional business as well as lower per-unit revenue for
installations through the Direct Marketing Program.
Sales and Marketing. Sales and marketing expenses for 1997
increased by $1.0 million, or 25.1%, to $4.7 million from $3.7
million in 1996. This increase was primarily the result of
greater marketing efforts directed at adding new subscriber
accounts through traditional sales and the Direct Marketing
Program.
Acquisition Integration Expense. In 1997 the Company
incurred $349,000 of costs associated with the integration of
acquired subscriber accounts into the Company's system. These
costs were not material in 1996 and 1995. Management expects to
incur such costs in the future, principally relating to the
acquisition and integration of larger subscriber account
portfolios.
General and Administrative Expenses. General and
administrative expenses for 1997 increased $2.8 million, or
33.3%, to $11.2 million from $8.4 million in 1996. The increase
was primarily the result of staffing requirements at both the
operating and corporate level required to facilitate the
Company's growth plan and additional expenses of operating as a
public company, costs which were not incurred in 1996. As a
percent of total revenue, general and administrative expense
decreased to 32.8% in 1997 from 34.9% in the comparable 1996
period, reflecting economies of scale resulting from incremental
revenue growth.
Amortization and Depreciation. Amortization and
depreciation expenses increased in 1997 by $3.2 million, or
39.8%, to $11.4 million from $8.1 million in 1996. This increase
was primarily the result of Alarmguard's acquisition of
approximately 12,400 subscriber accounts in 1997 as well as the
addition of approximately 7,000 monitored subscriber accounts
through the Direct Marketing Program.
Net Interest Expense. Net interest expense for 1997
increased by $1.7 million, or 55.4%, to $4.7 million from $3.0
million in 1996. This increase was primarily the result of
higher weighted average debt outstanding under the Credit
Facility, as well as a higher interest rate on its subordinated
debt. Alarmguard increased its borrowing during this period to
fund the acquisition of subscriber portfolios and Direct
Marketing Program account growth.
1996 Compared to 1995
Revenue. Revenue for 1996 increased by $4.0 million, or
19.6%, to $24.2 million from $20.2 million for 1995. Recurring
revenue increased by $3.0 million, or 24.3%, which was primarily
the result of an increase in the number of monitored accounts
generated by the Direct Marketing Program and the acquisition of
portfolios of subscriber accounts. Installation revenue
increased by 10.6% to $7.6 million in 1996 from $6.9 million in
1995. Service revenue increased by 22.9% to $1.5 million in 1996
from $1.2 million in 1995.
Gross Profit. Gross profit in 1996 increased by $2.5 million,
or 20.5%, to $14.4 million from $11.9 million in 1995. This
increase was due to the growth in MRR as a result of the addition
of acquired account portfolios and growth related to the Direct
Marketing Program. As a percentage of total revenues, gross
profit rose from 59.0% in 1995 to 59.5% in 1996.
Sales and Marketing. Sales and marketing expenses for 1996
increased by $0.7 million, or 23.6%, to $3.7 million from $3.0
million in 1995. This increase was primarily the result of
greater marketing efforts directed at adding new subscriber
accounts through traditional sales and the Direct Marketing
Program. The Direct Marketing Program added 10,000 and 5,000
monitored subscriber accounts in 1996 and 1995, respectively.
General and Administrative Expenses. General and
administrative expenses for 1996 increased $1.9 million, or
30.4%, to $8.4 million from $6.5 million in 1995. This increase
was due to the significant growth associated with the Direct
Marketing Program during 1996.
Amortization and Depreciation. Amortization and depreciation
expenses increased in 1996 by $1.3 million, or 20.0%, to $8.1
million from $6.8 million in 1995. This increase was primarily
the result of Alarmguard's acquisition of approximately 3,800
subscriber accounts and the addition of approximately 10,000
monitored subscriber accounts from the Direct Marketing Program
during 1996.
Net Interest Expense. Net interest expense for 1996 increased
by $0.7 million, or 30.8%, to $3.0 million from $2.3 million in
1995. This increase was the result of higher weighted average
debt outstanding under the Credit Facility. Alarmguard increased
its borrowing during this period to fund Direct Marketing Program
account growth and the acquisition of subscriber account
portfolios.
Liquidity and Capital Resources
General. Since May 1992, Alarmguard has financed its
operations and growth from a combination of borrowings under
credit facilities, sales of its capital stock, the 1997 Merger
with Triton Group Ltd and the cash realization of certain non-
strategic assets. Alarmguard's principal uses of cash have
historically been and are expected to continue to be for
acquisitions of subscriber account portfolios, interest payments
on borrowings under the credit facility and the costs associated
with marketing and installing Direct Marketing and Dealer Program
systems. A substantial portion of Alarmguard's future operating
cash flow will be used to fund these initiatives and
requirements.
As of December 31, 1997, a lending group provided term loans
to Alarmguard, Inc., a wholly owned subsidiary of the Company
(the "Borrower") under a $60 million Restated Term Loan and
Acquisition Credit Agreement (the "Credit Facility") in an
aggregate principal amount of approximately $46.7 million. The
Credit Facility is a senior secured term credit facility. Loans
outstanding under the Credit Facility bear interest based, at the
option of the Borrower, at a floating rate equal to either (i)
the greater of (x) a base rate and (y) the Federal Funds
effective rate plus 0.5% per annum, plus, in either case, the
applicable margin of 1.5%, or (ii) the Eurodollar rate, plus the
applicable margin of 3%. At December 31, 1997, availability
under the Credit Facility was approximately $2.3 million. The
Credit Facility is a two-year non-amortizing loan which converts
to an amortizing five-year term loan on April 30, 1999.
On October 29, 1997, the Borrower entered into a three-year
interest rate swap agreement at 6.09% (LIBOR) plus the
applicable margin of 3.0%, or a fixed rate of 9.09%. The fixed
rate based on the current Credit Facility is 8.84%. As a result
of the swap agreement, the Borrower has fixed the interest rate
on $40 million out of $46.7 million outstanding at December 31,
1997.
The loans and other obligations under the Credit Facility are
secured by a first lien on all the tangible and intangible
personal property of the Borrower and its subsidiaries, a pledge
of the capital stock of all of the Company's existing or future
subsidiaries and is guaranteed by Alarmguard and a subsidiary.
The Credit Facility contains covenants which, among other
matters, (i) limit indebtedness, (ii) limit capital expenditures,
(iii) require the satisfaction of certain financial ratios and
(iv) limit the declaration of dividends. As of December 31, 1996
the restricted net assets of the Borrower were approximately
$1.1 million. As of December 31, 1997, the Borrower's
liabilities exceeded its assets by $10.2 million.
The Credit Facility provides for the following material events
of default: (i) nonpayment of principal or interest; (ii) breach
by the Borrower of any affirmative or negative covenants; (iii)
any misrepresentation by the Borrower; (iv) cross default with
respect to other agreements or obligations of the Borrower; (v)
incurrence of additional indebtedness by Alarmguard, except for
certain permitted indebtedness; (vi) creation of any liens on
Alarmguard's property, assets or revenues other than certain
permitted liens; and (vii) certain defaults relating to
bankruptcy, insolvency, ERISA and judgments, with customary
limitations and time periods.
On February 3, 1998, the Company completed an offering of
40,000 shares of Cumulative Convertible Preferred Stock at $1,000
per share yielding gross proceeds totaling $40 million. The
offering was comprised of 35,000 shares of Series A Convertible
Preferred Stock and 5,000 shares of Series B Convertible
Preferred Stock. The Series A Preferred Stock pays quarterly
dividends at 5% per annum. Concurrently, the Company issued 700
additional shares of the Series A Preferred Stock in exchange for
$.7 million of the Company's subordinated debt. Net proceeds of
the total offering, after the payment of investment banking fees
and legal expenses, amounted to approximately $38.0 million.
Under the terms of the securities, each holder of the Series A
and Series B Preferred has the right to convert its shares, at
the option of the holder, at any time, into shares of the
Company's common stock at the conversion price of $8.25 per share
and $7.75 per share, respectively, subject to certain anti-
dilution provisions. Concurrent with the offering, the Borrower
increased its Credit Facility discussed above from $60 million to
$90 million with an expanded lending group. The net proceeds
from the offering and the additional Credit Facility are intended
to finance acquisitions and expand the Company's Direct Marketing
and Dealer Programs.
On February 5, 1998, the Company completed the acquisition of
all of the common stock of Pelletier, headquartered in Danbury,
Connecticut, for cash consideration of approximately $10.9
million, including a one-year holdback subject to certain revenue
guarantees. The acquisition added over 7,200 accounts and MRR of
approximately $210,000 to the Company's subscriber base.
On March 17, 1998, Alarmguard completed the acquisition of
certain assets of Sentry headquartered in Malden, Massachusetts
with an office in Portland, Maine. This acquisition added
approximately 26,000 subscribers and MRR of approximately $.6
million. The purchase price for Sentry company was approximately
$26.5 million.
The Company believes its current sources of funds will be
sufficient to satisfy its requirements for at least the next
twelve months. The Company, depending on future needs and the
cost and availability of various financing alternatives, may from
time to time seek additional debt or equity financing in the
public or private markets in order to support the growth of
subscriber accounts through acquisitions and the Direct Marketing
and Dealer Programs.
During 1997, 1996 and 1995, Alarmguard's net cash used in its
operating activities was $5.7 million, $7.0 million and $5.0
million, respectively. These uses of cash were primarily the
result of capitalized Direct Marketing Program installation
costs.
During 1997, 1996 and 1995, Alarmguard's net cash used in its
investing activities was $6.6 million, $1.6 million and $2.9
million, respectively. These uses primarily represent the
acquisition of subscriber account portfolios in all three years,
net of cash acquired in 1997 from the Merger with Triton.
During 1997, 1996 and 1995, Alarmguard's net cash provided by
financing activities was $12.8 million, $7.3 million and $8.6
million, respectively. Financing activities were principally the
result of the restructuring and extension of the Credit Facility
in all three years to fund acquisitions and the Direct Marketing
and Dealer Programs.
Capital Expenditures. Alarmguard requires capital
expenditures for its core operations, including central
monitoring station equipment, phone systems and the refurbishment
of offices, which have historically totaled less than $1.0
million annually. This amount will vary based on the growth of
subscriber accounts and significant acquisitions of subscriber
accounts. In March 1998, Alarmguard completed an expansion of
its central monitoring facility, increasing its capacity to
approximately 250,000 subscribers at a cost of approximately
$800,000.
Adoption of Recent Accounting Standards
In 1997, the Financial Accounting Standards Board (FASB)
issued SFAS NO. 128. "Earnings per Share," which was adopted in
the fourth quarter of 1997. This new rule changes the way
earnings per share is calculated and requires restatement of all
reported prior period amounts. Under the new requirements, basic
earnings per share is calculated by dividing net earnings by the
weighted average number of common shares outstanding during the
period. The diluted earnings per share computation includes the
effect of shares, if dilutive, which would be issuable upon the
exercise of outstanding stock options, reduced by the number of
shares which are assumed to be purchased by the Company from the
resulting proceeds at the average market price during the period.
During 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 130
is effective for the first quarter of 1998, while SFAS 131 is
effective for year end financial reporting in 1998 and on an
interim basis thereafter. Both of these pronouncements require
additional disclosure and the company expects no material impact
upon adoption.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and
supplementary data, together with the report of Ernst & Young
LLP, independent auditors, are included elsewhere herein. See
"Index to Consolidated Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
The information to be set forth herein, Item 10, "Directors
and Executive Officers of the Registrant," Item 11, "Executive
Compensation," Item 12, "Security Ownership of Certain Beneficial
Owners and Management," and Item 13, "Certain Relationships and
Related Transactions," will be included in a definitive Proxy
Statement pursuant to Regulation 14A, which is incorporated
herein by reference. It is anticipated that copies of such Proxy
Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal
year ended December 31,1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Documents filed as a part of this Form 10-K
a. Consolidated Financial Statements and Schedules.
The following consolidated financial statements and
schedules are included in this Annual Report on Form 10-K on the
pages listed below.
Page Consolidated Financial Statements
F-1 Report of Independent Auditors
F-2 Consolidated Balance Sheets as of December 31, 1996 and
1997
F-4 Consolidated Statements of Operations for the years ended
December 31, 1995, 1996, and 1997.
F-5 Consolidated Statements of Stockholders' Deficiency
for the years ended December 31, 1995, 1996 and 1997.
F-6 Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997.
F-7 Notes to Consolidated Financial Statements
Page Schedule
S-1 Schedule I - Condensed Financial Information of
Alarmguard Holdings, Inc. (Parent
Company)
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
b. Exhibits.
Exhibit
Number Exhibit Description
2.01 Agreement and Plan of Merger, dated December 23, 1996,
among Triton Group Ltd., Triton Acquisition Corp. and
Security Systems Holdings, Inc. (restated to reflect
Amendment No. 1 to Agreement and Plan of Merger dated as
of March 6, 1997), incorporated herein by reference to
File No. 333-23307, Registration Statement on Form S-4,
filed March 14, 1997.
3.01 Second Amended and Restated Certificate of
Incorporation, incorporated herein by reference to File
No. 333-23307, Registration Statement on Form S-4, filed
March 14, 1997.
3.02 Second Amended and Restated By-Laws, incorporated herein
by reference to File No. 333-23307, Registration
Statement on Form S-4, filed March 14, 1997.
3.03 Form of Second Amended and Restated Certificate of
Incorporation of Security Systems Holdings, Inc.,
incorporated herein by reference to File No. 333-23307,
Registration Statement on Form S-4, filed March 14,
1997.
3.04 Form of Second Amended and Restated By-Laws of Security
Systems Holdings, Inc., incorporated herein by reference
to File No. 333-23307. Registration Statement on Form S-
4, filed March 14, 1997.
3.05 Certificate of Designations, Preferences and Rights of
Series A Preferred Stock and Series B Preferred Stock
dated February 2, 1998.
4.01 Warrant Agreement and Form of Warrant, incorporated
herein by reference to file No. 1-8592, Exhibit 4 to
Interim Report on Form 8-K dated July 12, 1993.
4.02 Warrant Agreement in favor of Patricof & Co. Capital
Corp., dated January 1, 1996, incorporated herein by
reference to file No. 0-8138, Annual Report on Form 10-K
for the year ended March 31, 1996.
4.03 Form of Alarmguard Common Stock Certificate,
incorporated herein by reference to File No. 333-23307,
Registration Statement on Form S-4, filed March 14, 1997.
4.04 Form of Alarmguard Warrant Certificate, incorporated
herein by reference to File No. 333-23307, Registration
Statement on Form S-4, filed March 14, 1997.
4.05 Registration Rights Agreement, incorporated herein by
reference to File No. 333-23307, Registration Statement
on Form S-4, filed March 14, 1997.
4.06 Registration Rights Agreement dated February 2, 1998,
with Series A and B Preferred Stock holder.
10.01Note Payable Agreement, incorporated herein by reference
to File No.1-8138, Interim Report on Form 10-Q, filed
August 14, 1997.
10.02Protective Alarms, Inc. Stock Purchase and Sale
Agreement, as amended, incorporated herein by reference
to File No. 1-8138, Interim Report on Form 8-K, filed
May 1, 1997.
10.031997 Long Term Stock Incentive Plan, incorporated herein
by reference to File No. 333-23307, Registration
Statement on Form S-4, filed March 14, 1997.
10.04 Stock Purchase Agreement between Ridgewood
Properties, Inc. and Triton Group Ltd., dated August 15,
1994, incorporated herein by reference to File No. 1-
8138, Interim Report on Form 8-K/A, filed September 2,
1994.
10.05 Severance Agreement of Russell R. MacDonnell,
incorporated herein by reference to File No. 333-23307,
Registration Statement of Form S-4, filed March 14,
1997.
10.06 Severance Agreement of David Heidecorn,
incorporated herein by reference to File No. 333-23307,
Registration Statement of Form S-4, filed March 14,
1997.
10.07 Severance Agreement of Gregory J. Westhoff,
incorporated herein by reference to File No. 333-23307,
Registration Statement of Form S-4, filed March 14,
1997.
10.08 Management Agreement with Triton Group Management,
Inc., incorporated herein by reference to File No. 333-
23307, Registration Statement of Form S-4, filed March
14, 1997.
10.09 Stock Option and Conversion Agreement, incorporated
herein by reference to File No. 333-23307, Registration
Statement of Form S-4, filed March 14, 1997.
10.10 Preferred Stock Purchase Agreement, dated February
2, 1998.
10.11 Third Amended and Restated Term Loan and
Acquisition Credit Agreement, dated as of February 2,
1998.
10.12 Asset Purchase and Sale Agreement, dated as of
March 5, 1998, with Security Systems, Inc., James W.
Lees and Edward A. Silvey.
21.1 Listing of Subsidiaries of Alarmguard Holdings, Inc.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedules.
(a) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, each of the registrants has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALARMGUARD HOLDINGS, INC.
By: /s/ David Heidecorn
Director, Executive Vice
President and Chief
Financial Officer
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of each of the registrants and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Russell R. MacDonnell President, Chief Executive March 30, 1998
Russell R. MacDonnell Officer and Chairman of
the Board
/s/ David Heidecorn Executive Vice President, March 30, 1998
David Heidecorn Chief Financial Officer and
Director
/s/ Stuart L. Bell Director March 30,1998
Stuart L. Bell
/s/ Michael E. Cahr Director March 30, 1998
Michael E. Cahr
/s/ Michael M. Earley Director March 30, 1998
Michael M. Earley
/s/ Stephen L. Green Director March 30, 1998
Stephen L. Green
/s/Thomas W. Janes Director March 30, 1998
Thomas W. Janes
Report of Independent Auditors
The Board of Directors and Stockholders
Alarmguard Holdings, Inc.
We have audited the accompanying consolidated balance sheets of
Alarmguard Holdings, Inc. (formerly Security Systems Holdings
Inc.) as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' deficiency
and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Alarmguard Holdings, Inc. at December 31,
1996 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
/s/Ernst & Young LLP
Stamford, Connecticut
March 18, 1998
Alarmguard Holdings, Inc.
Consolidated Balance Sheets
December 31,
1996 1997
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 230 $ 698
Restricted cash - 1,931
Accounts receivable, less allowance for doubtful
accounts of $298
and $1,003, respectively 3,791 5,558
Inventories 1,698 3,065
Prepaid expenses 332 343
Other current assets 250 -
Total current assets 6,301 11,595
Property and equipment, net 2,478 2,133
Customer installation costs, net of accumulated
amortization of $2,383 7,531 8,868
and $5,354, respectively
Customer contracts and intangibles, net of
accumulated amortization 21,430 43,027
of $15,854 and $22,217, respectively
Other investments - 2,245
Other assets 1,391 1,982
Total assets $39,131 $69,850
Alarmguard Holdings, Inc.
Consolidated Balance Sheets (continued)
December 31,
1996 1997
(In thousands)
Liabilities and stockholders' deficiency
Current liabilities:
Accounts payable $1,469 $ 2,659
Accrued expenses 1,390 5,675
Current portion of notes payable 696 2,462
Current portion of credit facility 4,169 -
Deferred revenue 4,621 6,231
Other current liabilities 1,008 4,061
Total current liabilities 13,353 21,088
Notes payable, less current portion 2,563 549
Credit facility 26,467 46,700
Subordinated debt 4,951 4,389
Other liabilities 422 321
Commitments and Contingencies - Note 15
Redeemable preferred stock, $100 par value;
Series A, 5% cumulative dividends, 50,000 shares
authorized, issued and outstanding at December
31, 1996 5,994 -
Redeemable preferred stock, $120 par value;
Series B, 5% cumulative dividends, 72,500 shares
authorized, issued and outstanding at December 10,279 -
31, 1996
Stockholders' deficiency:
Common stock, $1.00 par value; 256,500 shares
authorized 237,671
shares (including 33,748 shares of Class B non-
voting shares) issued and outstanding
at December 31, 1996 237 -
Common stock, $0.0001 par value, 25,000,000 shares
authorized,
5,593,396 shares issued and outstanding at
December 31, 1997, including 361,238 shares held
in escrow pursuant to holdback provisions
in acquisition agreements - 1
Additional paid in capital 35 35,286
Accumulated deficit (25,135) (38,484)
Notes receivable from officers (35) -
Total stockholders' deficiency (24,898) (3,197)
Total liabilities and stockholders' deficiency $ 39,131 $ 69,850
See accompanying notes to consolidated financial statements.
Alarmguard Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per-share data)
Years ended December 31,
1995 1996 1997
Recurring revenue $12,072 $15,011 $21,540
Installation revenue 6,885 7,613 10,470
Service revenue 1,243 1,528 2,250
Total revenue 20,200 24,152 34,260
Monitoring expense 1,691 2,258 2,692
Installation expense 4,196 4,685 7,543
Service expense 2,387 2,837 4,176
Total cost of revenue 8,274 9,780 14,411
Gross profit 11,926 14,372 19,849
Sales and marketing expense 3,020 3,732 4,669
General and administrative expense 6,467 8,435 11,240
Acquisition integration expense - - 349
Amortization and depreciation expense 6,786 8,142 11,386
Total operating expenses 16,273 20,309 27,644
Operating loss (4,347) (5,937) (7,795)
Other income (expense):
Interest expense, net (2,278) (3,014) (4,683)
Other, net (22) (37) 142
Loss before extraordinary items (6,647) (8,988) (12,336)
Loss on refinancing of debt - - (813)
Net loss (6,647) (8,988) (13,149)
Dividend requirement on preferred (685) (685) (200)
stock
Loss applicable to common shares $(7,332) $(9,673) $(13,349)
Basic and diluted loss per share:
Loss before extraordinary item $(3.12) $(2.61)
Loss on refinancing of debt - (.17)
Net loss $(3.12) $(2.78)
Weighted average number of basic and
diluted shares 2,877 4,726
See accompanying notes to consolidated financial statements.
Alarmguard Holdings, Inc.
Consolidated Statements of Stockholders' Deficiency
For the years ended December 31, 1995, 1996 and 1997
Notes
Receiva Total
Common Paid Accumula ble Stockhol
Stock in ted from ders'
Capital Deficit Officers Deficiency
(In thousands)
Balance at January 1, 1995 $154 $18 $ (8,130) $(34) $(7,992)
Issuance of 49,753 shares of
common stock (including
20,249 shares of Class B
non-voting shares),
$1.00 par value 49 11 - - 60
Exercise of stock options 1 - - (1) -
Preferred stock dividends - - (685) - (685)
Net loss - - (6,647) - (6,647)
Balance at December 31, 1995 204 29 (15,462) (35) (15,264)
Issuance of 33,168 shares of
common stock (including
13,499 shares of Class B
non-voting shares),
$1.00 par value 33 6 - - 39
Preferred stock dividends - - (685) - (685)
Net loss - - (8,988) - (8,988)
Balance at December 31, 1996 237 35 (25,135) (35) (24,898)
Conversion of redeemable
preferred stock - 16,273 - - 16,273
Merger with Triton Group Ltd (236) 15,166 - 35 14,965
Issuance of 567,890 shares of
common stock, $0.0001 par value,
issued in connection with
acquisitions, including
361,238 shares held in escrow - 3,812 - - 3,812
Preferred stock dividends - - (200) - (200)
Net loss - - (13,149) - (13,149)
Balance at December 31, 1997 $1 $35,286 $(38,484) $ - $(3,197)
See accompanying notes to consolidated financial statements.
Alarmguard Holdings, Inc.
Consolidated Statements of Cash Flows
Years ended December 31,
1995 1996 1997
(In thousands)
Operating activities:
Net loss $(6,647) $(8,988) $(13,149)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on refinancing of debt - - 813
Amortization and depreciation 6,786 8,142 11,386
Customer installation costs incurred (3,445) (5,812) (4,098)
Changes in operating assets and
liabilities, net of effects
of acquisitions:
Accounts receivable (284) 7 (243)
Inventories (377) (444) (998)
Prepaid expenses 48 94 233
Other current assets (8) (131) 371
Other assets (610) (155) (285)
Accounts payable 149 (18) 319
Accrued expenses (736) 286 (995)
Deferred revenue 235 307 294
Other current liabilities (36) (326) 637
Other liabilities (76) 54 -
Net cash used in operating activities (5,001) (6,984) (5,715)
Investing activities:
Acquisitions of businesses, net of cash
acquired (2,229) (1,221) (6,477)
Increase in restricted cash - - (1,931)
Purchases of property and equipment (650) (402) (429)
Cash distribution from Mission West - - 2,231
Net cash used in investing activities (2,879) (1,623) (6,606)
Financing activities:
Proceeds from issuances of common stock 60 39 -
Proceeds from term loan 7,400 8,100 48,100
Proceeds from issuance of subordinated
debt 2,970 1,981 4,600
Payments of notes payable (36) (170) (1,243)
Payments of term loan (1,357) (1,907) (32,036)
Payments of subordinated debt - - (4,950)
Financing fees paid - (277) (1,047)
Payments of capital leases (397) (490) (635)
Net cash provided by financing
activities 8,640 7,276 12,789
Increase (decrease) in cash and cash
equivalents 760 (1,331) 468
Cash and cash equivalents at beginning
of year 801 1,561 230
Cash and cash equivalents at end of year $ 1,561 $ 230 $ 698
See accompanying notes to consolidated financial statements.
Alarmguard Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
1. Basis of Presentation and Merger
Alarmguard Holdings, Inc. ("Alarmguard" or the "Company") is
the successor-in-interest to Security Systems Holdings, Inc.
("SSH") and Triton Group Ltd. ("Triton"), following the merger
("Merger") of SSH and Triton on April 15, 1997. The Merger was
pursuant to an Agreement and Plan of Merger dated December 23,
1996, as amended March 6, 1997 (the "Merger Agreement") by and
among SSH and Triton. Alarmguard, through its wholly-owned
subsidiaries, sells and installs burglar and fire alarm systems
and provides monitoring and security system repair and
maintenance services to homeowners and businesses, principally in
the Northeast and Mid-Atlantic regions of the United States.
Management believes it operates in one industry segment.
SSH was formed on December 4, 1991 to acquire and manage
companies in the security alarm installation and monitoring
business. Triton was a diversified holding company whose shares
were traded on the American Stock Exchange ("AMEX") prior to the
Merger. At the time of the Merger, Triton held approximately $15
million in cash and certain other investments.
Pursuant to the Merger Agreement and in consideration of
the Merger, SSH's preferred and common stockholders received an
aggregate of 2,877,321 new shares of common stock of Triton,
representing approximately 57% of the common stock outstanding
upon consummation of the Merger and a one-for-ten reverse stock
split ("Reverse Stock Split") effected in connection with the
Merger. Additionally, post-Merger, the combined Company was
renamed Alarmguard Holdings, Inc., the common shares of which are
listed for trading on the AMEX under the symbol "AGD". As a
result of the Merger, Alarmguard's fiscal year end was changed to
December 31 and the Board of Directors of the Company was
reconstituted to include five representatives from SSH's Board of
Directors and two representatives from Triton's Board of
Directors.
The Merger was accounted for as a "reverse acquisition"
such that Triton was designated the accounting acquiree and SSH
the accounting acquiror. As such, the net assets of Triton
(principally cash of approximately $15 million plus certain other
investments) were recorded at fair value and the pre-Merger
financial statements of SSH became the historical financial
statements of Alarmguard. The fair value of the net assets of
Triton was recorded as a direct credit to additional paid-in
capital. The differences between the par values of Triton's
common stock and SSH's common stock was also recorded as an
adjustment to additional paid-in capital.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries (SSH, Alarmguard Inc. and
Protective Alarms of Canada, Inc.) which are all wholly-owned. All
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers financial instruments with original
maturities of three months or less from the date of purchase to
be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Accounts Receivable
Accounts receivable consist primarily of amounts due from
customers in the Mid-Atlantic and Northeastern United States.
Credit is extended based on an evaluation of the customer's
financial condition; collateral is not required. The Company
maintains an allowance for doubtful accounts at a level which
management believes is sufficient to cover potential losses.
During the years ended December 31, 1995, 1996 and 1997, the
Company recorded a provision for uncollectible accounts of $0.3,
$0.7 and $1.3 million, respectively. The Company wrote off $0.3,
$0.5 and $0.9 million of accounts receivable as uncollectible
during the years ended December 31, 1995, 1996 and 1997,
respectively. Additionally, in 1997, the Company increased its
provision by $0.3 million through purchase accounting as a result
of certain acquisitions consummated during the year.
Inventories
Inventories consist principally of alarm components and
supplies. Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property and Equipment
Property and equipment is stated at cost. Costs of
maintenance and repairs are charged to expense when incurred and
costs of improvements are capitalized. Depreciation is computed
using the straight-line method based on estimated useful lives of
the respective assets.
Customer Installation Costs
Customer installation costs consist of materials, labor
and direct sales commissions incurred in connection with
installing and activating new subscriber accounts under the
Company's direct marketing and other leasing programs.
Amortization is provided on a straight-line basis over the term
of the initial monitoring/ equipment lease contract (5 years),
adjusted to reflect estimated subscriber attrition. When an
installation is identified for disconnection, the remaining net
book value of the installation costs are fully written-off and
charged to amortization expense.
Intangible Assets
Intangible assets, recorded at cost, represent the value
assigned to acquired customer contracts and covenants not-to-
compete. Acquired customer contracts are being amortized over
their estimated useful lives (6 to 10 years) using the straight-
line method. Covenants not-to-compete are being amortized over
the lives (5 years) of the respective agreements using the
straight-line method. The cost in excess of fair value of the
net assets of companies acquired in purchase business
combinations (goodwill) is being amortized using the straight-
line method over its estimated useful life (20 years). The
Company periodically reviews its intangible assets to assess
recoverability. Assets in excess of associated expected cash
flows are considered impaired and accordingly, a charge to
operating results would be recognized.
Deferred Financing Costs
Deferred financing costs, included in other assets,
consisting primarily of bank and legal fees and are being
amortized on a straight-line basis over the term of the
underlying debt instrument. In conjunction with the refinancing
during 1997 (see Note 10), $813,000 of unamortized deferred financing
costs were written off as a loss on refinancing as an extraordinary
item.
Derivative Financial Instruments
The Company enters into interest-rate swap agreements to
manage its exposure to the fluctuations of interest rates. Each
interest-rate swap agreement is designated with all or a portion
of the principal balance and term of a specific debt obligation.
These agreements involve the exchange of amounts based on a fixed
interest rate for amounts based on variable interest rates over
the life of the agreement without an exchange of the notional
amount upon which the payments are based. The differential to be
paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the
debt (the accrual accounting method). The related amount payable
to or receivable from counterparties is included as an adjustment
to accrued interest expense. The fair value of the swap
agreements and changes in the fair value as a result of changes
in market interest rates are not recognized in the financial
statements.
Gains and losses on termination of interest-rate swap
agreements are deferred as an adjustment to the carrying amount
of the outstanding debt and amortized as an adjustment to
interest expense related to the debt over the remaining term of
the original contract life of the terminated swap agreement. In
the event of the early extinguishment of a designated debt
obligation, any realized or unrealized gain or loss from the swap
would be recognized in income coincident with the extinguishment
gain or loss.
Revenue Recognition
Revenue from installations relating to new subscriber
accounts generated under the Company's direct marketing program
is recognized at the time the installation is completed to the
extent that related direct selling costs are charged to expense.
Any excess installation revenue is deferred and amortized to
income over the initial term of the related noncancelable
monitoring/equipment lease contract (5 years), adjusted to
reflect estimated subscriber attrition.
The Company recognizes revenue, together with related
costs, from traditional installation contracts and the sale of
additional equipment to existing customers when the installation
is completed. Recurring fees are generally billed to customers
in advance of the period for which the services are to be
provided. Deferred revenue is recorded when billed and is
recognized ratably over the period the service is performed.
Monthly recurring revenue ("MRR") is recurring revenue that
the Company is entitled to receive under contracts in effect at
the end of such period. MRR is a term commonly used in the
security alarm industry as a measure of the size of the company.
It does not measure profitability or performance, and does not
include any allowance for future subscriber attrition or for
uncollectible accounts receivable.
Advertising Costs
Advertising costs are generally expensed as incurred.
Amounts charged to expense for advertising were approximately
$414,000, $623,000 and $776,000 in 1995, 1996 and 1997,
respectively.
Income Taxes
Income taxes are determined under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred taxes result from temporary
differences in the recognition of revenues and expenses for tax
and financial reporting purposes.
Loss Per Share
In 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings per Share," which was adopted in
the fourth quarter of 1997. This new rule changes the way
earnings per share is calculated and requires restatement of all
reported prior period amounts. Under the new requirements, basic
earnings per share is calculated by dividing net earnings by the
weighted average number of common shares outstanding during the
period. The basic and diluted loss before extraordinary item per
share and the basic and diluted net loss per share for the years
ended December 31, 1996 and 1997 give effect to the conversion of
all common and preferred stock of SSH (the predecessor company)
to common stock of the Company, as if the conversion occurred on
January 1, 1996. In the diluted calculations, the net shares
issuable pursuant to outstanding stock options and warrants have
been excluded from the denominator due to their antidilutive
effect.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable, and accrued
expenses are carried at cost, which approximates fair value, due
to the short-term nature of these accounts. At December 31,
1997, the fair value of the Company's long-term debt approximates
its carrying value as the interest rate, taking into account the
interest rate swap, approximates the rate the Company would have
to pay for similar debt at such date. The fair value of interest
rate instruments are the estimated amounts that the Company would
receive or pay to terminate the agreements at the reporting date,
taking into account current interest rates and the current credit
worthiness of the counterparties. At December 31, 1997, the
Company estimates it would have paid approximately $220,000 to
terminate the swap agreement.
Stock Based Compensation
The Company generally grants stock options for a fixed
number of shares to employees with an exercise price equal to the
fair value on the date of grant. The Company has elected to
continue to account for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees"
and, accordingly, recognizes no compensation expense for stock
option grants.
New Accounting Pronouncements
During 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 130
is effective for the first quarter of 1998, while SFAS No. 131 is
effective for year end financial reporting in 1998 and on an
interim basis thereafter. Both of these pronouncements require
additional disclosure and the Company expects no material impact
upon adoption.
Reclassifications
Certain amounts from the prior years have been
reclassified to conform with the current year's financial
statement presentation.
3. Acquisitions
During 1995, the Company acquired certain operating assets
of seven companies in the security alarm installation and
monitoring business for $2.2 million in cash and $534,000 in
notes. In the aggregate, the acquisitions added approximately
$95,000 of MRR and 3,800 customers. The acquisitions were
accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair
values at the respective dates of acquisition. In connection with
the acquisitions, the Company received current assets of $67,000,
property and equipment of $90,000, customer contracts of $2.5
million, intangibles and other assets of $1.8 million and
assumed current liabilities of $1.6 million.
During 1996, the Company acquired certain operating assets
of four companies in the security alarm installation and
monitoring business for $1.2 million in cash and $1.2 million in
notes. In the aggregate, the acquisitions added approximately
$80,000 of MRR and 3,800 customers. The acquisitions were
accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair
values at the respective dates of acquisition. In connection
with the acquisitions, the Company received current assets of
$112,000, customer contracts of $1.9 million, intangibles and
other assets of $1.1 million and assumed current liabilities of
$651,000.
On May 1, 1997, Alarmguard purchased all of the issued and
outstanding shares of capital stock of Protective Alarms, Inc.,
("Protective Alarms"), a company with approximately 9,000
subscribers and MRR of approximately $0.5 million, for a total
purchase price of approximately $19.7 million, including $17.1
million paid at closing. As of December 31, 1997, Alarmguard
owed $2.6 million of the purchase price to the sellers of
Protective Alarms, of which approximately $1.9 million was
secured by a cash collateralized letter of credit which was
included in the purchase price and is classified as restricted
cash in the consolidated balance sheet at December 31, 1997. The
acquisition was accounted for under the purchase method of
accounting and, accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. Protective
Alarms was a security alarm system company doing business
primarily in Connecticut and Westchester County, New York, that
provided security equipment and monitoring services to homeowners
and businesses. In addition, Protective Alarms engaged in
national account sales under the name "Pro National". In
connection with this acquisition, the Company received current
assets of $1.7 million, property and equipment of $208,000,
customer contracts of $16.0 million, other intangibles of $5.0
million and assumed current liabilities of $3.2 million.
During 1997, Alarmguard also acquired certain operating
assets of five companies in the security alarm installation and
monitoring business for an aggregate of $2.0 million in cash and
up to 568,000 shares of Alarmguard common stock (361,000 of which
are currently held in escrow pursuant to holdback provisions in
the contracts) valued for the purposes of the acquisitions at
$3.8 million. The acquisitions added approximately $200,000 of
MRR and 3,400 customers. The acquisitions were accounted for
under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the
respective dates of acquisition. In connection with the
acquisitions, Alarmguard received customer contracts of $6.6
million, other assets of $1.0 million and assumed current
liabilities of $1.8 million.
Accrued expenses at December 31, 1997 include $1.3 million
of estimated costs expected to be incurred relating to the
integration of all of the 1997 acquisitions. The results of
operations of the acquired companies have been included in the
consolidated statements of operations from the respective dates
of acquisition.
The following unaudited proforma information shows the
results of the Company's operations as though the 1995
acquisitions had been made as of January 1, 1995, the 1996
acquisitions had been made as of January 1, 1995 and 1996 and the
1997 acquisitions had been made as of January 1, 1996 and 1997:
Years ended December 31,
1995 1996 1997
(In thousands, except per
share data)
Pro forma revenue $23,105 $35,232 $38,065
Pro forma loss before extraordinary
item $(6,612) $(14,497) $(15,145)
Pro forma net loss $(6,612) $(14,497) $(15,958)
Pro forma basic and diluted per share:
Loss before extraordinary item $(2.59) $(2.71)
Net loss (2.59) (2.85)
Shares used in computations 5,593 5,593
The 5,593,000 shares of Common Stock reflect the 1 for 10
reverse stock split at the time of the Merger and 568,000 shares
issued in connection with two acquisitions in 1997.
The pro forma results are not necessarily indicative of
the actual results of operations that would have been obtained
had the acquisitions taken place at the beginning of the
respective periods or the results that may occur in the future
and do not give effect to cost savings which are expected to
occur as a result of the consolidation of the acquired companies.
4. Property and Equipment
Property and equipment consists of the following:
Estimated December 31,
Useful 1996 1997
Life
(In thousands)
Leasehold improvements 5 to 10 $ 876 $ 1,044
(lease terms)
Furniture, fixtures and equipment 3 to7 years 6,027 6,683
Less accumulated depreciation (4,425) (5,594)
$ 2,478 $2,133
Equipment additions of $264,000 and $395,000 were financed
through capital leases or notes payable during 1996 and 1997,
respectively. The related accumulated depreciation on total
financed assets is $1,476,000 and $1,910,000 as of December 31,
1996 and 1997, respectively.
5. Customer Installation Costs
During the years ended December 31, 1995, 1996 and 1997,
Alarmguard incurred approximately $3.4 million, $5.8 million and
$4.1 million, respectively, in customer installation costs
primarily attributable to the operations of its direct marketing
program. Alarmguard added approximately 5,000, 10,000 and 7,000
customers, respectively, through this program during these
periods.
6. Customer Contracts and Intangibles
Customer contracts and intangibles (at cost) consist of
the following:
December 31,
1996 1997
(in thousands)
Acquired customer contracts $27,520 $49,807
Covenants not to compete 7,271 12,944
Goodwill 2,493 2,493
37,284 65,244
Less accumulated amortization (15,854) (22,217)
$21,430 $43,027
7. Other Investments
Other investments at December 31, 1997 are comprised of
certain assets held by Triton at the time of the Merger, which
are in the process of being liquidated (in thousands):
Ridgewood Hotels, Inc., Series A $2,009
Preferred Stock
Other 236
$2,245
Alarmguard owns 450,000 shares of Series A Preferred Stock
of Ridgewood Hotels, Inc. ("Ridgewood") with a face value of $3.6
million. Alarmguard currently receives a 10% quarterly dividend
of $90,000 on this investment and the preferred stock is
redeemable at any time by Ridgewood at its face value plus
accrued dividends. The preferred stock is convertible by
Alarmguard at any time into 1,350,000 Ridgewood common shares,
which would represent approximately 47% of the Ridgewood common
shares then outstanding, or 40% fully diluted. Alarmguard
accounts for the Ridgewood investment using the cost method of
accounting. Alarmguard management estimates the fair value of
this investment to be approximately $2.5 million at December 31,
1997, determined using a discounted cash flow analysis.
Prior to September 1997, Alarmguard owned approximately
44% of Mission West Properties ("Mission West") , a real estate
company listed on the AMEX under the symbol "MSW". On August 5,
1997, the Mission West shareholders approved the sale of 6
million shares of newly issued common stock at $0.15 per share,
to a group of private investors, which transaction closed on
September 2, 1997, resulting in a decrease in the Company's
ownership level to approximately 9%. Additionally, Mission West
made a $3.30 per share cash distribution on October 21, 1997.
Alarmguard's share of the distribution amounted to approximately
$2.2 million. The $0.9 million difference between the carrying
amount at that time (approximately $1.3 million) and the
distribution amount was recorded as a direct credit to additional
paid-in capital as an adjustment of the purchase accounting value
established for this investment at the time of the Merger. Prior
to the sale of the new shares by Mission West, Alarmguard
accounted for this investment using the equity method of
accounting. Subsequent to such time, the cost method was
adopted.
8. Notes Payable
December 31,
1996 1997
(in thousands)
Various notes, each collateralized by a vehicle
(aggregate net book
value of approximately $178,000 and $153,000
at December 31, 1996 $ 330 $ 293
and 1997, respectively), with interest rates
varying from 5.9% to 12%
and final payment dates ranging from January
1998 to December 2000
Various notes issued primarily in connection
with acquisitions made in
1995, 1996 and 1997. The notes bear interest
at rates varying from 5.86% to 10%
per annum with maturities
ranging from January 1997 to February 2004 2,929 2,718
Total notes payable 3,259 3,011
Less current portion 696 2,462
Long term portion $2,563 $ 549
On March 5, 1997, certain notes with an aggregate
principal amount of approximately $1.6 million due in 1997 were
extended to March 31, 1998 and were subsequently paid in the
first quarter of 1998.
Maturities of notes payable subsequent to December 31,
1997 are as follows: $2.5 million in 1998, $421,000 in 1999,
$124,000 in 2000 and $4,000 in 2001.
During the years ended December 31, 1995, 1996 and 1997
the company paid interest aggregating $71,000, $166,000 and
$186,000, respectively, in connection with these notes.
9. Subordinated Debt
On November 17, 1995, the Company entered into an
agreement with various existing stockholders at that time and a
third party. The agreement called for the sale of 41,254 shares
of common stock of SSH at $1.20 a share, and the issuance of $4.9
million of subordinated debt, bearing interest at 8%. The stock
and debt were offered in tandem with each share of stock
purchased requiring a loan of $120 to the Company. At the closing
of the transaction, the purchasers had acquired stock and debt of
24,753 shares and $3 million, respectively, representing 60% of
the total amount offered by the Company. On April 16, 1996 and
May 1, 1996, the purchasers acquired, in the aggregate, stock and
debt of 16,501 shares and $2 million, respectively, representing
the remaining 40% of the agreement. The debt is subordinated to
certain senior obligations of the Company and was originally
payable in four equal installments commencing on September 30,
1996, with final payment to be on June 30, 1997. On March 1,
1996, the principal repayment schedule was renegotiated such
that, 75% of the principal balance was due on March 31, 1997, the
remaining 25% was due on June 30, 1997 and the interest rate was
to increase to 10% on October 1, 1996. On March 5, 1997, the
Agreement was further amended such that all principal was to be
due on March 31, 1998.
In connection with the Merger, Alarmguard refinanced the
subordinated debt with $4.6 million of newly issued subordinated
debt, of which $200,000 is held by certain Executive Officers of
the Company, bearing interest at 15%. In addition, Alarmguard
issued warrants to purchase 215,939 shares of Alarmguard Common
Stock at an exercise price of $11.11 per share. The estimated
fair value of these warrants has been accounted for as a discount
to the new subordinated debt and is being amortized over the two
year life of the underlying debt instrument.
During the years ended December 31, 1996 and 1997, the
Company made interest payments of $310,000 and $716,000,
respectively, in connection with this debt. No interest payments
were made during 1995.
10. Credit Facility
On April 15, 1997, concurrent with the Merger, Alarmguard,
Inc., (the "Borrower"), a wholly owned subsidiary of the Company,
entered into the Second Amended and Restated Term Loan and
Acquisition Credit Agreement (the "Credit Facility") which
refinanced all the existing senior secured indebtedness of the
Borrower. The Credit Facility provides for a two year, $60
million non-amortizing revolving loan which converts to a five
year amortizing term loan on April 30, 1999. Borrowings under
the Credit Facility are secured by substantially all of the
properties and assets of the Borrower including accounts
receivable, inventory, leasehold interests, customer contracts
and the capital stock of all of the subsidiaries of the Company.
Interest on the Credit Facility accrues and is payable monthly in
arrears at the option of the Borrower at either prime plus 1 1/2%
or LIBOR plus 3% (approximately 8.6875% at December 31, 1997).
On December 31, 1997, outstanding borrowings under the Credit
Facility were $46.7 million. During 1997, the Company recognized
an extraordinary loss of $813,000 resulting from the write-off of
unamortized financing costs from the former credit agreement and
subordinated debt.
The Credit Facility replaced a combined credit facility of
approximately $31.4 million, which included a term loan
component, an acquisition loan component and a component to fund
the Borrower's direct marketing program. Total borrowings under
this prior credit facility amounted to $30.6 million at December
31, 1996.
The Credit Facility contains covenants which, among other
matters; i) limit indebtedness, ii) limit capital expenditures,
iii) require the Borrower to satisfy certain financial ratios
and, iv) limit the declaration of dividends by the Borrower. As
of December 31, 1996, the restricted net assets of the Borrower
were $1.1 million. As of December 31, 1997, the Borrower's
liabilities exceeded its assets by $10.2 million.
On January 15, 1997, subject to the execution of a bridge
loan with Triton, the Borrower amended its prior credit facility
to provide for $1.5 million of additional borrowings. In
addition, the principal repayment schedules were adjusted whereby
the January and February 1997 principal payments were deferred
and were paid in conjunction with the execution of the Credit
Facility on April 15, 1997.
On August 22, 1997, the Borrower entered into an amendment
to the Credit Facility which allowed the Borrower to increase its
borrowing availability by $2.1 million in anticipation of the
Mission West cash distribution of $2.2 million. The amendment
terminated upon receipt of the cash distribution from Mission
West on October 21, 1997.
On October 29, 1997, the Borrower entered into a three-
year interest rate swap agreement with the Agent of its Credit
Facility. The agreement fixed the interest rate on $40.0 million
of the Borrower's floating rate debt at a rate of 6.09% plus the
applicable interest rate margin of 300 basis points as of
December 31, 1997, effectively 9.09%. In February 1998, the
margin was reduced to 275 basis points and the cost on such debt
was reduced to 8.84%.
The amounts to be repaid under the Credit Facility for the
five years ended December 31 are as follows (in thousands):
1998 $ -
1999 5,254
2000 8,756
2001 9,340
2002 9,340
Thereafter 14,010
$46,700
During the years ended December 31, 1995, 1996 and 1997,
the Company paid interest aggregating $2.0 million, $2.4 million
and $3.0 million, respectively, in connection with the Credit
Facility and various other credit facilities.
11. Redeemable Preferred Stock
Prior to April 15, 1997, dividends on the redeemable
preferred stock were cumulative, accrued 5% annually
(noncompounded) and were payable upon liquidation, redemption or
a public offering. Liquidation preferences included the cost of
the preferred stock plus accrued but unpaid dividends at the
redemption date. As of December 31, 1996, accrued but unpaid
dividends aggregated $2.7 million. Such amounts are included in
their respective redeemable preferred stock accounts in the
consolidated balance sheet at December 31, 1996. In connection
with the Merger, the redeemable preferred stock was exchanged for
2,002,685 shares of Common Stock, $0.0001 par value, of the
Company.
12. Stockholders' Deficiency
Stock Options: In connection with the Merger, the Company adopted
the 1997 Long Term Stock Incentive Plan (the "Option Plan"). The
Option Plan provides for the issuance of stock options to
directors, officers and other key employees of the Company to
purchase the greater of 770,000 shares of common stock or 10% of
the total number of shares of common stock of the Company (on a
fully diluted basis assuming the conversion of all warrants and
other convertible securities). In April 1997, 369,000 options
were issued pursuant to the Option Plan.
A summary of stock option activity for the three years ended
December 31, 1997 is as follows:
Number of Option
Price
Shares Per Share
Outstanding at January 1, 1995 26,498 $.27
Granted in 1995 23,185 .33
Exercised in 1995 (3,680) .27
Outstanding at December 31, 1995
and 1996 46,003 .27 - .33
Granted in 1997 369,000 7.50
Exercised in 1997 (920) .27-.33
Outstanding at December 31, 1997 414,083 $.27-$7.50
Exercisable at December 31, 1997 28,337 $.27- $.33
Available for grant at December 31, 1997 401,000
During 1996, no stock options were either granted or
exercised.
The table below summarizes information about the stock
options outstanding as of December 31, 1997:
Options
Exercisable
Weighted- Weighted Weighted
Range Average Average Number Average
of Number Remaining Exercise Exercis Exercise
Description Exercise Outstanding Contractual Price able Price
Price Life
1995 and
prior options $.27 - 45,083 7.0 years $.30 28,337 $.30
$.33
1997 Options $7.50 369,000 9.5 years $7.50 - -
The Company has elected to continue to use the intrinsic
value based method in accordance with APB No. 25. Accordingly,
no compensation cost has been recorded. Had the fair value based
method been adopted consistent with the provisions of SFAS 123,
the Company's pro forma net loss and pro forma basic and diluted
net loss per common share for the year ended December 31, 1997
would have increased by $202,000 and $.04, respectively.
For the purposes of this pro forma calculation, the fair
value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 5.0%;
expected life of options of 4 years; an expected stock price
volatility of 45.0% and dividend yield of zero.
Warrants to Purchase Common Stock: The Company has various
warrants outstanding which enable the warrant holders to purchase
common stock of the Company. In December, 1995, the Company
issued a warrant to a financial advisor to purchase 50,000 shares
of common stock of the Company at $5.00 per share, the quoted
market value at the date of the issuance. The warrant expires in
December 2000. The Company determined that the value of these
warrants at the date of issuance was not material.
The Company also has 77,303 warrants outstanding which
were issued in June 1993. Each warrant enables the holder to
purchase 1.84 shares of common stock of the Company at a price of
$20.40 (effectively $11.09 per share of common stock). The
warrants expire in June 1998.
In April 1997, the Company issued 215,939 warrants to
purchase the same number of shares of common stock of the Company
at $11.11 per share. The warrants were issued to certain holders
of subordinated debt in connection with the refinancing of the
terms of such debt (see Note 9).
Other Equity Items: In connection with the issuance of the
subordinated debt (see Note 9) during 1995, the Company issued
24,753 shares of SSH common stock, $1.00 par value, for total
proceeds of $30,000. During 1996, in connection with the
issuance of the remaining portion of the subordinated debt, the
Company issued 16,501 shares of SSH common stock, $1.00 par
value, for total proceeds of $20,000. In addition, the purchasers
received 25,000 and 16,667 shares of SSH common stock in 1995 and
1996, respectively, (valued at $1.20 a share) as a fee for their
participation in the transaction, which amount has been treated
as a deferred financing fee. In connection with the Refinancing
and Merger, this asset was written off and included
in the extraordinary loss (See Note 1).
13. Employee Savings Plan
The Company established a voluntary 401(k) Savings Plan
("the Plan") effective January 1, 1994. Employees working a
minimum of 20 hours per week who are 21 years of age with one
year of service are eligible to participate in the Plan. The
Company matches 25% of the first 6% of each employee's
contributions. Contributions to the Plan are invested in a wide
range of traditional 401(k) investment funds, as well as the
common stock of the Company, as directed solely by the
participants. The Company's contributions to the Plan were
approximately $41,000, $55,000 and $90,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
14. Income Taxes
Net deferred tax assets of approximately $8.6 million and
$27.9 million at December 31, 1996 and 1997, respectively, have
been offset in full by valuation allowances as the Company has
continually generated net losses from its inception and is
expected to continue to do so in the near future.
Differences between the tax basis of assets and
liabilities and their financial reporting amounts that give rise
to significant portions of deferred income taxes are as follows:
December 31,
1996 1997
Deferred tax assets (liabilities):
Net operating losses $ 7,133 $30,683
Intangible assets 880 (4,241)
Property and equipment 267 853
Other 311 626
8,591 27,921
Valuation allowances (8,591) (27,921)
Net deferred tax assets $ - $ -
The Company has net operating loss carryforwards, subject
to certain limitations, for federal income tax purposes of
approximately $17 million and $73 million at December 31, 1996
and 1997, respectively, which expire from 2006 to 2012. In
connection with the Triton Merger, the Company acquired
approximately $48 million of net operating losses. Utilization
of the net operating losses are subject to a substantial annual
limitation due to the ownership change provisions of Internal
Revenue Code Section 382. The valuation allowances have been
established until it is more likely than not that the deferred
tax assets will be realized.
15. Commitments and Contingencies
In connection with various acquisitions, the Company
assumed noncancelable operating leases for the operating
facilities of the acquired companies, as well as various
operating and capital leases for office and central station
equipment and agreements for wholesale monitoring services.
At December 31, 1997, the minimum annual rental payments
under all of these lease agreements (including approximately
$300,000 per annum payable to a corporation whose principal
stockholder is the Chief Executive Officer of the Company on
terms no less favorable than are available from an unaffiliated
third party) are as follows:
Capital Operatin
Leases g
Leases
(in thousands)
1998 $418 $850
1999 241 783
2000 103 719
2001 - 6616
2002 - 463
Thereafter - 835
$762 $4,266
Less interest portion 73
Present value of net minimum rentals $689
Rent expense was $608,000, $710,000 and $820,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
In conjunction with an acquisition, the Company entered
into an employment agreement with the former owner. Under the
agreement, the employee is entitled to a minimum annual salary of
$150,000 for a term of six years expiring September 10, 1998.
Additionally, the redeemable common stock issued to the former
owner was converted to a promissory note with a face value of
$1.25 million due September 29, 1997. In March 1997, the due
date of this note was extended to March 1998. The note was
repaid in full in February 1998.
The Company has entered into severance agreements with
three key executives which provide for termination benefits under
certain circumstances, including a termination without cause or
the termination or resignation in connection with a change in
control of the Company. The termination benefits include one-
year's annual salary, an amount representing the average annual
bonus amount paid over the last three years and the continuation
of certain health and welfare plan benefits for up to one year.
In 1997, the annual salaries of the three executives amounted to
$625,000. In addition, on March 10, 1998, the Board of Directors
approved a one year severance agreement for four other executives
based on certain other conditions. In 1997, the annual salaries
of the four executives amounted to $354,000.
In May 1995, a stockholder of Ridgewood Hotels, Inc.
commenced a derivative and class action lawsuit in Delaware
Chancery Court against Ridgewood, its directors and Triton
(Alarmguard's predecessor) entitled Strassburger v. Early, et al.
(C.A. No. 14267). The lawsuit concerns a transaction entered
into in August 1994 in which Ridgewood purchased from Triton all
of the Ridgewood common stock owned by Triton (which consisted of
approximately 75% of Ridgewood's then outstanding common stock)
for $8 million in cash and newly issued Ridgewood preferred stock
with a face value of $3.6 million. The complaint alleges that
such transaction constituted a corporate waste and a breach by
Triton of its alleged duties of loyalty and good faith as a
majority stockholder to Ridgewood's other stockholders. The
complaint seeks a rescission of the transaction and other
unspecified monetary relief. The class action lawsuit was
dismissed in March 1998. Alarmguard intends to defend vigorously
against the remaining lawsuit. It is the opinion of Alarmguard's
management that the ultimate resolution of such litigation will
not have a material adverse effect on Alarmguard's financial
position, results of operations or cash flows.
The Company experiences routine litigation in the normal
course of its business. Management does not believe that any
pending or threatened litigation will have a material adverse
effect on the financial condition, results of operations or cash
flows of the Company.
In the past, Triton, through certain divisions and wholly-
owned subsidiaries, owned and operated businesses that conducted
operations that included the use, generation and disposal of
hazardous waste and hazardous substances. Certain potential
environmental liabilities exist associated with these former
operations, including potential contamination at, or migrating
from, certain properties historically owned or operated by these
former divisions and subsidiaries. The Company also has limited
contractual indemnification obligations relating to certain of
these matters. With respect to these potential environmental
liabilities, management believes that most of these liabilities
were discharged in Triton's 1993 bankruptcy proceedings or, if a
matter were to circumvent the bankruptcy discharge, would be
covered by insurance. Historically, these environmental matters
have not had a material adverse effect on the Company's financial
condition and, although there can be no assurance, management
does not expect such matters to have a material adverse effect
on the Company's financial condition, results of operations or
cash flows in the future.
16. Licensing Agreements
On August 7, 1995, the Company entered into regional and
national licensing agreements ("the SNET Agreements") with
Southern New England Telephone ("SNET") for the exclusive right
to market security systems and monitoring services utilizing the
SNET, Bell Equipment Security Systems and Southern New England
Bell ("Bell") tradenames and trademarks. The Company was
required to pay a monthly royalty based on a percentage of the
total net MRR generated under the SNET and Bell tradenames and
trademarks. In addition, annual minimum royalty payments were
paid to SNET on a per region basis, as defined, to maintain the
exclusivity of the SNET Agreements. In 1995, royalties incurred
were insignificant. During 1996, royalties incurred pursuant to
these Agreements were approximately $180,000. The Company
terminated the SNET regional licensing agreement as of January
31, 1997 and settled all outstanding matters with SNET for
$90,000.
17. Subsequent Events
On February 3, 1998, the Company completed an offering of
40,000 shares of Cumulative Convertible Preferred Stock (Series A
Preferred of 35,000 shares and Series B Preferred of 5,000
shares) at $1,000 per share yielding gross proceeds totaling $40
million. The Company issued 700 additional shares of the Series
A Preferred in exchange for $.7 million of the Company's
subordinated debt. Net proceeds of the offering, after the
payment of investment banking fees and legal expenses, amounted
to approximately $38.2 million. The Series A Preferred Stock pays
quarterly dividends at 5% per annum. Under the terms of the
securities, each holder of the Series A and Series B Preferred
Stock has the right to convert its shares, at the option of the
holder, at any time, into shares of the Company's common stock at
the conversion price of $8.25 per share and $7.75 per share,
respectively, subject to certain anti-dilution provisions. The
holders of the newly issued preferred stock will elect two
members to the Company's Board of Directors. Concurrent with the
offering, the Company increased its Credit Facility from $60
million to $90 million with an expanded lending group. The net
proceeds from the offering and the additional credit facility are
intended to finance acquisitions and expand the Company's dealer
and direct marketing programs.
On February 5, 1998, the Company completed the acquisition
of Detect, Inc., headquartered in Danbury, Connecticut, for cash
consideration of approximately $10.4 million, including a one-
year holdback subject to certain revenue guarantees. The
acquisition added over 7,200 accounts and MRR of approximately
$210,000 to the Company's subscriber base.
On March 17, 1998, Alarmguard completed the acquisition of
Sentry Protective Systems, headquartered in Malden,
Massachusetts, with an office in Portland, Maine. Sentry has
approximately 26,000 subscribers and MRR of approximately $.6
million. The purchase price for the company was approximately
$26.5 million and is subject to certain agreed upon post-closing
adjustments based on a subsequent performance review of the
acquired subscriber base.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
ALARMGUARD HOLDINGS, INC. (PARENT COMPANY) AND
SECURITY SYSTEMS HOLDINGS, INC. (PREDECESSOR COMPANY)
Condensed Balance Sheets
(In Thousands)
Predecessor Alarmguard
Company Holdings, Inc.
December 31, December 31,
1996 1997
Assets
Current assets:
Cash and cash equivalents $ 147 $ ---
Accounts receivable 1,348 ---
Other current assets 907 100
Total current assets 2,402 100
Property and equipment, net 818 110
Customer installation costs, net 6,728 ---
Other investments --- 2,245
Other assets (principally investment
in and amounts due from wholly-owned 1,707 67,395
subsidiaries)
Total assets $ 11,655 $ 69,850
Liabilities and stockholder's deficiency
Current liabilities:
Due to affiliate $ 11,945 $70,259
Other current liabilities 2,009 2,256
Total current liabilities 13,954 72,515
Subordinated debt 4,951 ---
Other liabilities 1,375 532
Redeemable preferred stock, series A 5,994 ---
Redeemable preferred stock, series B 10,279 ---
Stockholders' deficiency:
Other stockholders' equity 237 35,287
Accumulated deficit (25,135) (38,484)
Total stockholders' deficiency (24,898) (3,197)
Total liabilities and stockholders'
deficiency $ 11,655 $69,850
See accompanying notes to condensed financial information.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
ALARMGUARD HOLDINGS, INC. (PARENT COMPANY) AND
SECURITY SYSTEMS HOLDINGS, INC. (PREDECESSOR COMPANY)
Condensed Statements of Operations
For the years ended December 31, 1995, 1996 and 1997
Alarmguard
Holdings,
Predecessor Inc. and
Company Predecessor
Company
Combined
Years ended
Years ended December 31, December 31, 1997
1995 1996
Revenues $ 1,249 $ 3,376 $ -
Cost of sales (190) (1,584) -
Selling, general and (3,390) (5,664) (618)
administrative expense
Amortization and
depreciation expense (672) (2,007) (76)
Interest expense (85) (536) (220)
Other income (expense) 724 (573) (11)
Share of subsidiaries
loss (4,283) (2,000) (12,224)
Net loss (6,647) (8,998) (13,149)
Dividend requirement on
preferred stock (685) (685) (200)
Loss applicable to common
shares $(7,332) $(9,673) $(13,349)
See accompanying notes to condensed financial information.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
ALARMGUARD HOLDINGS, INC. (PARENT COMPANY) AND
SECURITY SYSTEMS HOLDINGS, INC. (PREDECESSOR COMPANY)
Condensed Statements of Cash Flows
For the years ended December 31, 1995, 1996 and 1997
(In Thousands)
Alarmguard
Holdings,
Predecessor Inc. and
Company Predecessor
Company
Combined
Years ended December 31, Year ended
December 31, 1997
1995 1996
Cash used in operating $(1,259) $(2,569) $(415)
activities
Investing activities:
Capital contributed to
subsidiaries --- (1,577) (1,574)
Acquisition of business,
net of cash acquired (205) --- ---
Purchases of property and
equipment (333) (153) (132)
Net cash used in investing
activities (538) (1,730) (1,706)
Financing activities:
Proceeds from sales of
other investments --- --- 2,099
Proceeds from issuance of
common stock 60 39 ---
Proceeds from issuance of
subordinated debt 2,970 1,981 ---
Proceeds from issuance of
notes payable --- 1,235 ---
Financing fees paid (230) (25) ---
Other financing activities (177) (239) (125)
Net cash provided by
financing activities 2,623 2,991 1,974
Increase (decrease) in
cash anc cash equivalents 826 (1,308) (147)
Cash and cash equivalents
at beginning of period 629 1,455 147
Cash and cash equivalents
at end of period $ 1,455 $ 147 $---
See accompanying notes to condensed financial information.
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF
ALARMGUARD HOLDINGS, INC. (PARENT COMPANY) AND
SECURITY SYSTEMS HOLDINGS, INC. (PREDECESSOR COMPANY)
Notes to Condensed Financial Statements
December 31, 1997
NOTE A--BASIS OF PRESENTATION
Alarmguard Holdings, Inc. (the "Company") is the successor-in-
interest to Security Systems Holdings, Inc. (the "Predecessor
Company") and Triton Group Ltd ("Triton"), following the merger
of SSH and Triton on April 15, 1997. The condensed balance sheet
as of December 31, 1996 and the condensed statements of
operations and cash flows for the years ended December 31, 1995 and
1996 are the historical information of the Predecessor Company.
The condensed balance sheet as of December 31, 1997 is the historical
information of the Company. The condensed statement of operations
and cash flows for the year ended December 31,1997 are the combined
historical information of the Predecessor Company for the period
from January 1, 1997 to April 15, 1997 (the date of the Merger),
and the Company for the period from April 16, 1997 to December
31, 1997.
In the parent company only financial statements, the Company's
investment in subsidiaries is stated at cost plus its share of
the undistributed earnings/losses of subsidiaries since the
respective dates of acquisition. The parent-company only
financial statements should be read in conjunction with the
Company's consolidated financial statements.
NOTE B--GUARANTEE OF DEBT
Alarmguard, Inc. has $30,636,000 and $46,700,000 of debt
outstanding at December 31, 1996 and 1997, respectively. Under
the terms of the debt agreement, the Company has guaranteed the
payment of all principal and interest.
I:\ADVANCE\ALARM\MAIN\PREFERED.007
- 13 -
ALARMGUARD HOLDINGS, INC. (THE "CORPORATION")
PREFERRED STOCK TERMS
Section 1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted
under the General Corporation Law of Delaware, the Corporation
shall pay preferential dividends in cash to the holders of the
Series A Preferred Stock (the "Series A Preferred") as provided
in this Section 1. No preferential dividends shall be paid to
the holders of the Series B Preferred Stock (the "Series B
Preferred"). Except as otherwise provided herein, dividends on
each share of the Series A Preferred (a "Series A Share", and,
collectively with each share of the Series B Preferred, a
"Share") shall accrue, whether or not declared or paid, on a
daily basis at the rate of 5% per annum of the sum of the
Liquidation Value thereof plus all accumulated and unpaid
dividends thereon from and including the date of issuance of such
Share to and including the first to occur of (i) the date on
which the Liquidation Value of such Share (plus all accrued and
unpaid dividends thereon) is paid to the holder thereof in
connection with the liquidation of the Corporation or the
redemption of such Share by the Corporation, (ii) the date on
which such Share is converted into shares of Conversion Stock
hereunder or (iii) the date on which such Share is otherwise
acquired by the Corporation. Such dividends shall accrue whether
or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally
available for the payment of dividends, and such dividends shall
be cumulative such that all accrued and unpaid dividends shall be
fully paid before any dividends, distributions, redemptions or
other payments may be made with respect to any Junior Securities.
The date on which the Corporation initially issues any Share
shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such Share is made on the stock
records maintained by or for the Corporation and regardless of
the number of certificates which may be issued to evidence such
Share.
1B. Dividend Payment Dates. All dividends which have
accrued on the Series A Preferred shall be payable on January 1,
April 1, July 1 and October 1 of each year, beginning April 1,
1998 (the "Dividend Payment Dates"); provided, however, that
incremental dividends over and above the rate of 5% per annum
payable pursuant to clause (i) of Paragraph 9B hereof need not be
paid on the Dividend Payment Dates and shall accrue until
otherwise payable pursuant to the terms hereof.
1C. Distribution of Partial Dividend Payments. Except
as otherwise provided herein, if at any time the Corporation pays
less than the total amount of dividends then accrued with respect
to the Series A Preferred, such payment shall be distributed pro
rata among the holders thereof based upon the aggregate accrued
but unpaid dividends on the Shares held by each such holder.
1D. Participating Dividends. In the event that the
Corporation declares or pays any dividends upon the Common Stock
(whether payable in cash, securities or other property) other
than dividends payable solely in shares of Common Stock, the
Corporation shall also declare and pay to the holders of the
Series A Preferred and the Series B Preferred at the same time
that it declares and pays such dividends to the holders of the
Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of
the Series A Preferred and Series B Preferred had all of the
outstanding Series A Preferred and Series B Preferred been
converted immediately prior to the record date for such dividend,
or if no record date is fixed, the date as of which the record
holders of Common Stock entitled to such dividends are to be
determined.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation (whether voluntary or involuntary), each holder of
Series A Preferred or Series B Preferred (collectively referred
to herein as the "Preferred Stock") shall be entitled to be paid,
before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the aggregate Liquidation
Value of all Shares held by such holder (plus all accrued and
unpaid dividends thereon), and the holders of Preferred Stock
shall not be entitled to any further payment. If upon any such
liquidation, dissolution or winding up of the Corporation the
Corporation's assets to be distributed among the holders of the
Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be
paid under this Section 2, then the entire assets available to be
distributed to the Corporation's stockholders shall be
distributed pro rata among such holders based upon the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of the
Preferred Stock held by each such holder. Prior to the
liquidation, dissolution or winding up of the Corporation, the
Corporation shall declare for payment all accrued and unpaid
dividends with respect to the Preferred Stock, but only to the
extent of funds of the Corporation legally available for the
payment of dividends. Not less than 60 days prior to the payment
date stated therein, the Corporation shall mail written notice of
any such liquidation, dissolution or winding up to each record
holder of Preferred Stock, setting forth in reasonable detail the
amount of proceeds to be paid with respect to each Share and each
share of Common Stock in connection with such liquidation,
dissolution or winding up.
Section 3. Priority of Preferred Stock on Dividends
and Redemptions.
3A. No Payments With Respect to Junior Securities.
So long as any Preferred Stock remains outstanding,
without the prior written consent of the holders of two-thirds of
the outstanding shares of Preferred Stock, taken together as a
single series, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or
indirectly any Junior Securities, nor shall the Corporation
directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Securities.
3B. No Issuance of Senior or pari passu Securities.
For so long as any Preferred Stock remains outstanding,
without the prior written consent of the holders of two-thirds of
the outstanding shares of the Preferred Stock, taken together as
a single series, the Company shall not amend its Restated
Certificate of Incorporation or take any other action to approve
or issue any capital stock (including increasing the number of
authorized shares of Series A Preferred or Series B Preferred) of
the Company that is senior or pari passu in right to the payment
of dividends, payment upon liquidation, redemption or otherwise
to the Preferred Stock. Additionally, so long as any Preferred
Stock remains outstanding, without the prior written consent of
the holders of two-thirds of the outstanding shares of Preferred
Stock, taken together as a single series, the Company shall not
amend its Restated Certificate of Incorporation or take any other
action that would alter the rights, preferences or privileges of
the Preferred Stock as in effect on the date of the original
issuance of the Preferred Stock.
Section 4. Redemptions.
4A. Scheduled Redemption. On February 2, 2003 (the
"Scheduled Redemption Date"), the Corporation shall redeem all
outstanding Preferred Stock at a price per Share equal to the
Liquidation Value thereof (plus accrued and unpaid dividends
thereon).
4B. Redemption Payments. For each Share which is to
be redeemed hereunder, the Corporation shall be obligated on the
Redemption Date to pay to the holder thereof (upon surrender by
such holder at the Corporation's principal office of the certifi
cate representing such Share) an amount in cash in immediately
available funds equal to the Liquidation Value of such Share
(plus all accrued and unpaid dividends thereon and any premium
payable with respect thereto). If the funds of the Corporation
legally available for redemption of Shares on any Redemption Date
are insufficient to redeem the total number of Shares to be
redeemed on such date, those funds which are legally available
shall be used to redeem the maximum possible number of Shares pro
rata among the holders of the Shares to be redeemed based upon
the aggregate Liquidation Value of such Shares held by each such
holder (plus all accrued and unpaid dividends thereon and any
premium payable with respect thereto). At any time thereafter
when additional funds of the Corporation are legally available
for the redemption of Shares, such funds shall immediately be
used to redeem the balance of the Shares which the Corporation
has become obligated to redeem on any Redemption Date but which
it has not redeemed. Prior to any redemption of Preferred Stock,
the Corporation shall declare for payment all accrued and unpaid
dividends with respect to the Shares which are to be redeemed,
but only to the extent of funds of the Corporation legally
available for the payment of dividends.
4C. Notice of Redemption. The Corporation shall mail
written notice of each redemption of any Preferred Stock (other
than a redemption at the request of a holder or holders of
Preferred Stock) to each record holder thereof not more than 60
nor less than 30 days prior to the date on which such redemption
is to be made. In case fewer than the total number of Shares
represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares shall be issued to
the holder thereof without cost to such holder within five
business days after surrender of the certificate representing the
redeemed Shares.
4D. Dividends After Redemption Date. No Share shall
be entitled to any dividends accruing after the date on which the
Liquidation Value of such Share (plus all accrued and unpaid
dividends thereon) is paid to the holder of such Share. On such
date, all rights of the holder of such Share shall cease, and
such Share shall no longer be deemed to be issued and
outstanding.
4E. Redeemed or Otherwise Acquired Shares. Any Shares
which are redeemed or otherwise acquired by the Corporation shall
be canceled and retired to authorized but unissued shares and
shall not be reissued, sold or transferred.
4F. Other Redemptions or Acquisitions. The
Corporation shall not, nor shall it permit any Subsidiary to,
redeem or otherwise acquire any Shares of Preferred Stock, except
as expressly authorized herein or pursuant to a purchase offer
made pro rata to all holders of Preferred Stock on the basis of
the number of Shares owned by each such holder.
4G. Payment of Accrued Dividends. The Corporation may
not redeem any Series A Preferred, unless all dividends accrued
on the outstanding Series A Preferred through the immediately
preceding Dividend Payment Date have been declared and paid in
full.
4H. Change of Control.
(i) If a Change of Control has occurred or the
Corporation obtains knowledge that a Change of Control is
proposed to occur, the Corporation shall give prompt written
notice of such Change of Control describing in reasonable detail
the material terms and date of consummation thereof to each
holder of Preferred Stock, but in any event such notice shall not
be given later than five days after the occurrence of such Change
of Control, and the Corporation shall give each holder of
Preferred Stock prompt written notice of any material change in
the terms or timing of such transaction. Any holder of Preferred
Stock may require the Corporation to redeem all or any portion of
the Preferred Stock owned by such holder at a price per Share
equal to the greater of (a) $1,300 if the Change of Control
occurs prior to February 2, 1999 or $1,500 if the Change of
Control occurs thereafter or (b) the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon) by giving written
notice to the Corporation of such election prior to the later of
(a) 21 days after receipt of the Corporation's notice and (b)
five days prior to the consummation of the Change of Control (the
"Expiration Date"). The Corporation shall give prompt written
notice of any such election to all other holders of Preferred
Stock within five days after the receipt thereof, and each such
holder shall have until the later of (a) the Expiration Date or
(b) ten days after receipt of such second notice to request
redemption hereunder (by giving written notice to the
Corporation) of all or any portion of the Preferred Stock owned
by such holder.
Upon receipt of such election(s), the Corporation shall
be obligated to redeem the aggregate number of Shares specified
therein on the occurrence of the Change of Control. If any
proposed Change of Control does not occur, all requests for
redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or
the timing of the transaction, any holder of Preferred Stock may
rescind such holder's request for redemption by giving written
notice of such rescission to the Corporation.
The term "Change of Control" means (a) any sale,
transfer or issuance or series of sales, transfers and/or
issuances of Common Stock by the Corporation or any holders
thereof which results in any Person or group of Persons (as the
term "group" is used under the Securities Exchange Act of 1934),
other than the holders of Preferred Stock as of the date of
issuance of such Shares, beneficially owning (as such term is
used in the Securities Exchange Act of 1934) more than 50% of the
Common Stock outstanding at the time of such sale, transfer or
issuance or series of sales, transfers and/or issuances, (b) any
sale or transfer of more than 50% of the assets of the
Corporation and its Subsidiaries on a consolidated basis
(measured either by book value in accordance with generally
accepted accounting principles consistently applied or by fair
market value determined in the reasonable good faith judgment of
the Corporation's Board of Directors) in any transaction or
series of transactions (other than sales in the ordinary course
of business) and (c) any merger or consolidation to which the
Corporation is a party, except for a merger in which the Corpora
tion is the surviving corporation, the terms of the Preferred
Stock are not changed and the Preferred Stock is not exchanged
for cash, securities or other property, and after giving effect
to such merger, the holders of the Corporation's outstanding
capital stock possessing a majority of the voting power (under
ordinary circumstances) to elect a majority of the Corporation's
Board of Directors immediately prior to the merger shall continue
to own the Corporation's outstanding capital stock possessing the
voting power (under ordinary circumstances) to elect a majority
of the Corporation's Board of Directors.
(ii) Redemptions made pursuant to this paragraph 4H
shall not relieve the Corporation of its obligation to redeem the
Preferred Stock on the Scheduled Redemption Date pursuant to para
graph 4A above.
Section 5. Voting Rights.
5A. Election of Directors. In the election of
directors of the Corporation, the holders of the Preferred Stock,
voting separately as a single class to the exclusion of all other
classes of the Corporation's capital stock and with each Share of
Preferred Stock entitled to one vote, shall be entitled to elect
two directors to serve on the Corporation's Board of Directors
until their successors are duly elected by the holders of the
Preferred Stock or they are removed from office by the holders of
the Preferred Stock. If the holders of the Preferred Stock for
any reason fail to elect anyone to fill any such directorship,
such position shall remain vacant until such time as the holders
of the Preferred Stock elect a director to fill such position and
shall not be filled by resolution or vote of the Corporation's
Board of Directors or the Corporation's other stockholders.
5B. Other Voting Rights. The holders of the Preferred
Stock shall be entitled to notice of all stockholders meetings in
accordance with the Corporation's bylaws, and except as otherwise
required by applicable law, the holders of the Preferred Stock
shall be entitled to vote on all matters submitted to the
stockholders for a vote together with the holders of the Common
Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Share of Preferred
Stock entitled to one vote for each share of Common Stock
issuable upon conversion of such Share of Preferred Stock as of
the record date for such vote or, if no record date is specified,
as of the date of such vote.
Section 6. Conversion.
6A. Conversion Procedure.
(i) At any time and from time to time, any holder of
Series A Preferred may convert all or any portion of the Series A
Preferred (including any fraction of a Series A Share) held by
such holder into a number of shares of Conversion Stock computed
by multiplying the number of Series A Shares to be converted by
$1,000 and dividing the result by the Series A Conversion Price
then in effect and any holder of Series B Preferred may convert
all or any portion of the Series B Preferred (including any
fraction of a Series B Share) held by such holder into a number
of shares of Conversion Stock computed by multiplying the number
of Series B Shares to be converted by $1,000 and dividing the
result by the Series B Conversion Price then in effect.
(ii) Except as otherwise provided herein, each
conversion of Preferred Stock shall be deemed to have been
effected as of the close of business on the date on which the
certificate or certificates representing the Preferred Stock to
be converted have been surrendered for conversion at the
principal office of the Corporation. At the time any such
conversion has been effected, the rights of the holder of the
Shares converted as a holder of Preferred Stock shall cease and
the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or
holders of record of the shares of Conversion Stock represented
thereby.
(iii) The conversion rights of any Share subject to
redemption hereunder shall terminate on the Redemption Date for
such Share unless the Corporation has failed to pay to the holder
thereof the Liquidation Value of such Share (plus all accrued and
unpaid dividends thereon and any premium payable with respect
thereto).
(iv) Notwithstanding any other provision hereof, if a
conversion of Preferred Stock is to be made in connection with a
Change of Control or other transaction affecting the Corporation,
the conversion of any Shares of Preferred Stock may, at the
election of the holder thereof, be conditioned upon the
consummation of such transaction, in which case such conversion
shall not be deemed to be effective until such transaction has
been consummated.
(v) As soon as possible after a conversion has been
effected (but in any event within three (3) business days after
notice of such conversion has been delivered to the Corporation,
provided that such conversion has been effected by such date, in
the case of subparagraph (a) below), the Corporation shall
deliver to the converting holder:
(a) a certificate or certificates representing
the number of shares of Conversion Stock issuable by reason
of such conversion in such name or names and such denomina
tion or denominations as the converting holder has
specified;
(b) payment in an amount equal to all accrued
dividends with respect to each Share converted which have
not been paid prior thereto, plus the amount payable under
subparagraph (x) below with respect to such conversion; and
(c) a certificate representing any Shares which
were represented by the certificate or certificates deliv
ered to the Corporation in connection with such conversion
but which were not converted.
(vi) The Corporation shall declare the payment of all
dividends payable under subparagraph (v)(b) above. If the
Corporation is not permitted under applicable law to pay any
portion of the accrued and unpaid dividends on the Preferred
Stock being converted, the Corporation shall pay such dividends
to the converting holder as soon thereafter as funds of the
Corporation are legally available for such payment. At the
request of any such converting holder, the Corporation shall
provide such holder with written evidence of its obligation to
such holder. If for any reason the Corporation is unable to pay
any portion of the accrued and unpaid dividends on Preferred
Stock being converted, such dividends may, at the converting
holder's option, be converted into an additional number of shares
of Conversion Stock determined by dividing the amount of the
unpaid dividends to be applied for such purpose, by the lesser of
(a) the Conversion Price then in effect and (b) the Market Price
of a share of Common Stock.
(vii) The issuance of certificates for shares of Conver
sion Stock upon conversion of the Preferred Stock shall be made
without charge to the holders of such Preferred Stock for any
issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related
issuance of shares of Conversion Stock. Upon conversion of each
Share, the Corporation shall take all such actions as are
necessary in order to insure that the Conversion Stock issuable
with respect to such conversion shall be validly issued, fully
paid and nonassessable, free and clear of all taxes, liens,
charges and encumbrances with respect to the issuance thereof.
(viii) The Corporation shall not close its books against
the transfer of Preferred Stock or of Conversion Stock issued or
issuable upon conversion of Preferred Stock in any manner which
interferes with the timely conversion of Preferred Stock. The
Corporation shall assist and cooperate with any holder of Shares
required to make any governmental filings or obtain any governmen
tal approval prior to or in connection with any conversion of
Shares hereunder (including, without limitation, making any
filings required to be made by the Corporation).
(ix) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of
Conversion Stock, solely for the purpose of issuance upon the
conversion of Preferred Stock, such number of shares of
Conversion Stock issuable upon the conversion of all outstanding
Preferred Stock. All shares of Conversion Stock which are so
issuable shall, when issued, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and
charges. The Corporation shall take all such actions as may be
necessary to assure that all such shares of Conversion Stock may
be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic
securities exchange upon which shares of Conversion Stock may be
listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such
issuance). The Corporation shall not take any action which would
cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon conversion of Preferred
Stock.
(x) If any fractional interest in a share of
Conversion Stock would, except for the provisions of this
subparagraph, be delivered upon any conversion of Preferred
Stock, the Corporation, in lieu of delivering the fractional
share therefor, shall pay an amount to the holder thereof equal
to the Market Price of such fractional interest as of the date of
conversion.
(xi) If the shares of Conversion Stock issuable by
reason of conversion of Preferred Stock are convertible into or
exchangeable for any other stock or securities of the
Corporation, the Corporation shall, at the converting holder's
option, upon surrender of the Shares to be converted by such
holder as provided herein together with any notice, statement or
payment required to effect such conversion or exchange of
Conversion Stock, deliver to such holder or as otherwise
specified by such holder a certificate or certificates
representing the stock or securities into which the shares of
Conversion Stock issuable by reason of such conversion are so
convertible or exchangeable, registered in such name or names and
in such denomination or denominations as such holder has
specified.
6B. Conversion Price.
(i) The initial Series A Conversion Price shall be
$8.25 and the initial Series B Conversion Price shall be $7.75.
As used herein, the term "Conversion Price" shall refer to the
Series A Conversion Price and/or the Series B Conversion Price,
as applicable. In order to prevent dilution of the conversion
rights granted under this Section 6, the Conversion Price shall
be subject to adjustment from time to time pursuant to this
paragraph 6B.
(ii) If and whenever on or after the original date of
issuance of the Preferred Stock the Corporation issues or sells,
or in accordance with paragraph 6C is deemed to have issued or
sold, any shares of its Common Stock for a consideration per
share less than the Series A Conversion Price in effect
immediately prior to the time of such issue or sale, then
immediately upon such issue or sale or deemed issue or sale the
Series A Conversion Price shall be reduced to the Series A
Conversion Price determined by dividing (a) the sum of (1) the
product derived by multiplying the Series A Conversion Price in
effect immediately prior to such issue or sale by the number of
shares of Common Stock Deemed Outstanding immediately prior to
such issue or sale, plus (2) the consideration, if any, received
by the Corporation upon such issue or sale, by (b) the number of
shares of Common Stock Deemed Outstanding immediately after such
issue or sale.
(iii) Notwithstanding the foregoing, there shall be no
adjustment in the Series A Conversion Price as a result of any
issue or sale (or deemed issue or sale) of up to an aggregate of
770,000 shares of Common Stock to employees of the Corporation
and its Subsidiaries pursuant to stock option plans and stock
ownership plans approved by the Corporation's Board of Directors
(as such number of shares is proportionately adjusted for
subsequent stock splits, combinations and dividends affecting the
Common Stock and as such number includes all such stock options
and purchase rights outstanding at the time of the issuance of
the Preferred Stock).
(iv) Whenever the Series A Conversion Price is adjusted
pursuant to this paragraph 6B, the Series B Conversion Price
shall be reduced to the Series B Conversion Price determined by
multiplying (a) the Series B Conversion Price in effect
immediately prior to such adjustment by (b) a fraction the
numerator of which is the Series A Conversion Price in effect
immediately following such adjustment and the denominator of
which is the Series A Conversion Price in effect immediately
prior to such adjustment.
6C. Effect on Conversion Price of Certain Events. For
purposes of determining the adjusted Series A Conversion Price
under paragraph 6B, the following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation
in any manner grants or sells any Options and the price per share
for which Common Stock is issuable upon the exercise of such
Options, or upon conversion or exchange of any Convertible
Securities issuable upon exercise of such Options, is less than
the Series A Conversion Price in effect immediately prior to the
time of the granting or sale of such Options, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Corporation at the time
of the granting or sale of such Options for such price per share.
For purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (A) the
total amount, if any, received or receivable by the Corporation
as consideration for the granting or sale of such Options, plus
the minimum aggregate amount of additional consideration payable
to the Corporation upon exercise of all such Options, plus in the
case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the Series A
Conversion Price shall be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common
Stock is actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible Securi
ties and the price per share for which Common Stock is issuable
upon conversion or exchange thereof is less than the Series A
Conversion Price in effect immediately prior to the time of such
issue or sale, then the maximum number of shares of Common Stock
issuable upon conversion or exchange of such Convertible
Securities shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for
which Common Stock is issuable" shall be determined by dividing
(A) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further
adjustment of the Series A Conversion Price shall be made when
Common Stock is actually issued upon the conversion or exchange
of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options
for which adjustments of the Conversion Price had been or are to
be made pursuant to other provisions of this Section 6, no
further adjustment of the Series A Conversion Price shall be made
by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the conversion or exchange of
any Convertible Securities or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
changes at any time, the Series A Conversion Price in effect at
the time of such change shall be immediately adjusted to the
Series A Conversion Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that if such
adjustment would result in an increase of the Series A Conversion
Price then in effect, such adjustment shall not be effective
until 30 days after written notice thereof has been given by the
Corporation to all holders of the Preferred Stock. For purposes
of paragraph 6C, if the terms of any Option or Convertible
Security which was outstanding as of the date of issuance of the
Preferred Stock are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been
issued as of the date of such change; provided that no such
change shall at any time cause the Series A Conversion Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the
Series A Conversion Price then in effect hereunder shall be
adjusted immediately to the Series A Conversion Price which would
have been in effect at the time of such expiration or termination
had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination,
never been issued; provided that if such expiration or
termination would result in an increase in the Series A
Conversion Price then in effect, such increase shall not be
effective until 30 days after written notice thereof has been
given to all holders of the Preferred Stock. For purposes of
paragraph 6C, the expiration or termination of any Option or
Convertible Security which was outstanding as of the date of
issuance of the Preferred Stock shall not cause the Series A
Conversion Price hereunder to be adjusted unless, and only to the
extent that, a change in the terms of such Option or Convertible
Security caused it to be deemed to have been issued after the
date of issuance of the Preferred Stock.
(v) Calculation of Consideration Received. If any
Common Stock, Option or Convertible Security is issued or sold or
deemed to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by
the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible
Security is issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except
where such consideration consists of securities, in which case
the amount of consideration received by the Corporation shall be
the Market Price thereof as of the date of receipt. If any
Common Stock, Option or Convertible Security is issued to the
owners of the non-surviving entity in connection with any merger
in which the Corporation is the surviving corporation, the amount
of consideration therefor shall be deemed to be the fair value of
such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Option or
Convertible Security, as the case may be. The fair value of any
consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of a majority of the
outstanding Preferred Stock. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of
such consideration shall be determined by an independent
appraiser experienced in valuing such type of consideration
jointly selected by the Corporation and the holders of a majority
of the outstanding Preferred Stock. The determination of such
appraiser shall be final and binding upon the parties, and the
fees and expenses of such appraiser shall be borne by the
Corporation.
(vi) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities
of the Corporation, together comprising one integrated
transaction in which no specific consideration is allocated to
such Option by the parties thereto, the Option shall be deemed to
have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Corporation or
any Subsidiary, and the disposition of any shares so owned or
held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a
record of the holders of Common Stock for the purpose of
entitling them (a) to receive a dividend or other distribution
payable in Common Stock, Options or in Convertible Securities or
(b) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to
be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or the
date of the granting of such right of subscription or purchase,
as the case may be.
6D. Subdivision or Combination of Common Stock. If
the Corporation at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of
its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Corpora
tion at any time combines (by reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
6E. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassifi
cation, consolidation, merger, sale of all or substantially all
of the Corporation's assets or other transaction, in each case
which is effected in such a manner that the holders of Common
Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, is referred to herein as an "Organic
Change". Prior to the consummation of any Organic Change, the
Corporation shall make appropriate provisions (in form and sub
stance satisfactory to the holders of a majority of the Preferred
Stock then outstanding) to insure that each of the holders of
Preferred Stock shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the
shares of Conversion Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Preferred Stock,
such shares of stock, securities or assets as such holder would
have received in connection with such Organic Change if such
holder had converted its Preferred Stock immediately prior to
such Organic Change. In each such case, the Corporation shall
also make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the Preferred Stock
then outstanding) to insure that the provisions of this Section 6
and Sections 7 and 8 hereof shall thereafter be applicable to the
Preferred Stock (including, in the case of any such
consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Corporation, an immediate
adjustment of the Conversion Price to the value for the Common
Stock reflected by the terms of such consolidation, merger or
sale, and a corresponding immediate adjustment in the number of
shares of Conversion Stock acquirable and receivable upon
conversion of Preferred Stock, if the value so reflected is less
than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). The Corporation shall not effect
any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the
Corporation) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and
substance satisfactory to the holders of a majority of the
Preferred Stock then outstanding), the obligation to deliver to
each such holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be
entitled to acquire.
6F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 6 but not
expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate
adjustment in the Conversion Price so as to protect the rights of
the holders of Preferred Stock; provided that no such adjustment
shall increase the Conversion Price as otherwise determined
pursuant to this Section 6 or decrease the number of shares of
Conversion Stock issuable upon conversion of each Share.
6G. Notices.
(i) Immediately upon any adjustment of the Conversion
Price, the Corporation shall give written notice thereof to all
holders of Preferred Stock, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all
holders of Preferred Stock at least 20 days prior to the date on
which the Corporation closes its books or takes a record (a) with
respect to any dividend or distribution upon Common Stock,
(b) with respect to any pro rata subscription offer to holders of
Common Stock or (c) for determining rights to vote with respect
to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to
the holders of Preferred Stock at least 20 days prior to the date
on which any Organic Change shall take place.
Section 7. Liquidating Dividends.
If the Corporation declares or pays a dividend upon the
Common Stock payable otherwise than in cash out of earnings or
earned surplus (determined in accordance with generally accepted
accounting principles, consistently applied) except for a stock
dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Corporation shall pay to the holders of
Preferred Stock at the time of payment thereof the Liquidating
Dividends which would have been paid on the shares of Conversion
Stock had such Preferred Stock been converted immediately prior
to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends are to
be determined.
Section 8. Purchase Rights.
If at any time the Corporation grants, issues or sells
any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"),
then each holder of Preferred Stock shall be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock
acquirable upon conversion of such holder's Preferred Stock
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or if no such
record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
Section 9. Events of Noncompliance.
9A. Definition. An Event of Noncompliance shall have
occurred if:
(i) the Corporation fails to pay on any two
consecutive Dividend Payment Dates the full amount of dividends
then accrued on the Series A Preferred, whether or not such
payments are legally permissible or are prohibited by any
agreement to which the Corporation is subject;
(ii) the Corporation fails to make any redemption
payment with respect to the Preferred Stock which it is required
to make hereunder, whether or not such payment is legally
permissible or is prohibited by any agreement to which the
Corporation is subject;
(iii) the Corporation breaches or otherwise fails to
perform or observe the covenants set forth in Section 8.2(j) and
(k) of the Purchase Agreement;
(iv) the Corporation or any material Subsidiary makes
an assignment for the benefit of creditors or admits in writing
its inability to pay its debts generally as they become due; or
an order, judgment or decree is entered adjudicating the
Corporation or any material Subsidiary bankrupt or insolvent; or
any order for relief with respect to the Corporation or any
material Subsidiary is entered under the Federal Bankruptcy Code;
or the Corporation or any material Subsidiary petitions or
applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any
material Subsidiary or of any substantial part of the assets of
the Corporation or any material Subsidiary, or commences any
proceeding (other than a proceeding for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Corporation or
any material Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced,
against the Corporation or any material Subsidiary and either
(a) the Corporation or any such Subsidiary by any act indicates
its approval thereof, consent thereto or acquiescence therein or
(b) such petition, application or proceeding is not dismissed
within 60 days;
(v) a judgment in excess of $5,000,000 is rendered
against the Corporation or any material Subsidiary and, such
judgment is not (a) discharged, bonded or otherwise satisfied
within 60 days from the entry thereof, (b) covered by adequate
insurance, or (c) the execution of such judgment is not stayed
pending appeal or, within 60 days after the expiration of such
stay, discharged or otherwise satisfied; or
(vi) the Corporation or any material Subsidiary
defaults in the performance of any obligation or agreement if the
effect of such default is to cause an amount exceeding
$10,000,000 to become due prior to its stated maturity or the
holder or holders of any obligation causes an amount exceeding
$10,000,000 to become due prior to its stated maturity.
9B. Consequences of Events of Noncompliance.
(i) If an Event of Noncompliance has occurred and is
continuing, the dividend rate on the Series A Preferred shall
increase immediately by an increment of two percentage point(s).
Thereafter, until such time as no Event of Noncompliance exists,
the dividend rate shall increase automatically at the end of each
succeeding 90-day period by an additional increment of two
percentage point(s) (but in no event shall the dividend rate
exceed 13%). Any increase of the dividend rate resulting from
the operation of this subparagraph shall terminate as of the
close of business on the date on which no Event of Noncompliance
exists, subject to subsequent increases pursuant to this
paragraph.
(ii) If an Event of Noncompliance other than an Event
of Noncompliance of the type described in subparagraphs 9A(i) or
9A(iv) has occurred and is continuing, the holders of a majority
of the Preferred Stock then outstanding may demand (by written
notice delivered to the Corporation) immediate redemption of all
or any portion of the Preferred Stock owned by such holder or
holders at a price per Share equal to the Liquidation Value
thereof (plus all accrued and unpaid dividends thereon). The
Corporation shall give prompt written notice of such election to
the other holders of Preferred Stock (but in any event within
five days after receipt of the initial demand for redemption),
and each such other holder may demand immediate redemption of all
or any portion of such holder's Preferred Stock by giving written
notice thereof to the Corporation within seven days after receipt
of the Corporation's notice. The Corporation shall redeem all
Preferred Stock as to which rights under this paragraph have been
exercised within 15 days after receipt of the initial demand for
redemption.
(iii) If an Event of Noncompliance of the type described
in subparagraph 9A(iv) has occurred, all of the Preferred Stock
then outstanding shall be subject to immediate redemption by the
Corporation (without any action on the part of the holders of the
Preferred Stock) at a price per Share equal to the Liquidation
Value thereof (plus all accrued and unpaid dividends thereon).
The Corporation shall immediately redeem all Preferred Stock upon
the occurrence of such Event of Noncompliance.
(iv) If any Event of Noncompliance of the type
described in subparagraph 9A(i) has occurred, for each such
occurrence of the failure to pay on any two consecutive Dividend
Payment Dates the full amount of dividends then accrued on the
Series A Preferred, whether or not such payments are legally
permissible or are prohibited by any agreement to which the
Corporation is subject, the Series A Conversion Price shall be
reduced immediately by $0.50 from the Series A Conversion Price
in effect immediately prior to such adjustment. In no event
shall any Series A Conversion Price adjustment be rescinded.
(v) If any Event of Noncompliance of the type
described in subparagraph 9A(ii) has occurred, the Series A
Conversion Price and Series B Conversion Price shall be reduced
immediately to 75% of the lesser of (a) the applicable
Conversion Price in effect immediately prior to such adjustment
and (b) the Market Price of a share of Common Stock. Thereafter,
until such time as no Event of Noncompliance exists, the Series A
Conversion Price and Series B Conversion Price shall be
automatically reduced at the end of each succeeding 90-day period
to 75% of the lesser of (a) the applicable Conversion Price in
effect immediately prior to such adjustment and (b) the Market
Price of a share of Common Stock. In no event shall any
Conversion Price adjustment be rescinded.
For example, assume that the initial Series A Conversion
Price is $8.25. If an Event of Noncompliance of the type
described in subparagraph 9A(ii) has occurred, and the
Market Price of a share of Common Stock exceeds $8.25, the
Series A Conversion Price would be reduced immediately to
75% of $8.25, or $6.1875. If an Event of Noncompliance
exists for an additional 90 days, and the Market Price of a
share of Common Stock exceeds $6.1875, the existing Series A
Conversion Price would be reduced to 75% of $6.1875, or
$4.640625. Then assume that there is a two-for-one stock
split, in which case the Conversion Price would be decreased
hereunder from $4.640625 to $2.3203125, and assume that an
Event of Noncompliance exists for an additional 90 days and
that the Market Price of a share of Common Stock exceeds
$2.3203125. In this case, the Series A Conversion Price
would be reduced to 75% of $2.3203125, or $1.740234375.
(vi) If any Event of Noncompliance of the type
described in subparagraph 9A(v) has occurred, for each such
occurrence the Series A Conversion Price and Series B Conversion
Price shall be reduced immediately by an amount equal to the
quotient of (a) the amount of the judgment referred to in
subparagraph 9A(v) divided by (b) the number of shares of Common
Stock Deemed Outstanding.
(vii) If any Event of Noncompliance exists, each holder
of Preferred Stock shall also have any other rights which such
holder is entitled to under the Purchase Agreement or any other
contract or agreement with such holder at any time and any other
rights which such holder may have pursuant to applicable law.
Section 10. Registration of Transfer.
The Corporation shall keep at its principal office a
register for the registration of Preferred Stock. Upon the
surrender of any certificate representing Preferred Stock at such
place, the Corporation shall, at the request of the record holder
of such certificate, execute and deliver (at the Corporation's
expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Shares represented by
the surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of Shares
as is requested by the holder of the surrendered certificate and
shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Preferred Stock
represented by such new certificate from the date to which
dividends have been fully paid on such Preferred Stock repre
sented by the surrendered certificate.
Section 11. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing Preferred Stock, and
in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Corporation (provided
that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory),
or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like
kind representing the number of Shares of such class represented
by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Preferred Stock
represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
Section 12. Definitions.
"Change of Control" has the meaning set forth in
paragraph 4H hereof.
"Common Stock" means, collectively, the Corporation's
Common Stock, $0.0001 par value per share, and any capital stock
of any class of the Corporation hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Corporation.
"Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding
at such time, plus the number of shares of Common Stock deemed to
be outstanding pursuant to subparagraphs 6C(i) and 6C(ii) hereof
whether or not the Options or Convertible Securities are actually
exercisable at such time.
"Conversion Stock" means shares of the Corporation's
Common Stock, par value $0.0001 per share; provided that if there
is a change such that the securities issuable upon conversion of
Preferred Stock are issued by an entity other than the Corpora
tion or there is a change in the type or class of securities so
issuable, then the term "Conversion Stock" shall mean one share
of the security issuable upon conversion of Preferred Stock if
such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not
issuable in shares.
"Convertible Securities" means any stock or securities
directly or indirectly convertible into or exchangeable for
Common Stock.
"Junior Securities" means any capital stock or other
equity securities of the Corporation, except for the Preferred
Stock.
"Liquidation Value" of any Share as of any particular
date shall be equal to $1,000.
"Market Price" of any security means the average of the
closing prices of such security's sales on all securities
exchanges on which such security may at the time be listed, or,
if there has been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York
time, or, if on any day such security is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period
of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to
such day. If at any time such security is not listed on any secu
rities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair
value thereof determined jointly by the Corporation and the
holders of a majority of the Series A Preferred. If such parties
are unable to reach agreement within a reasonable period of time,
such fair value shall be determined by an independent appraiser
experienced in valuing securities jointly selected by the
Corporation and the holders of a majority of the Preferred Stock.
The determination of such appraiser shall be final and binding
upon the parties, and the Corporation shall pay the fees and
expenses of such appraiser.
"Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corpora
tion, a limited liability company, a limited liability
partnership, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision
thereof.
"Preferred Stock" means collectively the Series A
Preferred and Series B Preferred.
"Purchase Agreement" means the Purchase Agreement,
dated as of February 2, 1998, by and among the Corporation and
certain investors, as such agreement may from time to time be
amended in accordance with its terms.
"Redemption Date" as to any Share means the date
specified in the notice of any redemption at the Corporation's
option or at the holder's option or the applicable date specified
herein in the case of any other redemption; provided that no such
date shall be a Redemption Date unless the Liquidation Value of
such Share (plus all accrued and unpaid dividends thereon and any
required premium with respect thereto) is actually paid in full
on such date, and if not so paid in full, the Redemption Date
shall be the date on which such amount is fully paid.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association
or other business entity of which (i) if a corporation, a
majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by that Person
or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that person or a
combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a
majority of limited liability company, partnership, association
or other business entity gains or losses or shall be or control
the managing general partner of such limited liability company,
partnership, association or other business entity.
Section 13. Amendment and Waiver.
No amendment, modification or waiver shall be binding
or effective with respect to any provision of Sections 1 to 14
hereof without the prior written consent of the holders of 66.67%
of the Preferred Stock outstanding at the time such action is
taken; provided that no such action shall change (a) the rate at
which or the manner in which dividends on the Preferred Stock
accrue or the times at which such dividends become payable or the
amount payable on redemption of the Preferred Stock or the times
at which redemption of Preferred Stock is to occur, without the
prior written consent of the holders of at least 75% of the
Preferred Stock then outstanding, (b) the Conversion Price of the
Preferred Stock or the number of shares or class of stock into
which the Preferred Stock is convertible, without the prior
written consent of the holders of at least 75% of the Preferred
Stock then outstanding, or (c) the percentage required to approve
any change described in clauses (a) and (b) above, without the
prior written consent of the holders of at least 75% of the
Preferred Stock then outstanding; and provided further that no
change in the terms hereof may be accomplished by merger or
consolidation of the Corporation with another corporation or
entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the
Preferred Stock then outstanding.
Section 14. Notices.
Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt
requested and postage prepaid, or by reputable overnight courier
service, charges prepaid, and shall be deemed to have been given
when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder).
I:\ADVANCE\ALARM\MAIN\REGRIGHT.006
14
3/31/98 09:18
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated
as of February 2, 1998, between Alarmguard Holdings, Inc., a
Delaware corporation (the "Company"), and the Purchasers listed
on Schedule I hereto (each a "Purchaser" and collectively, the
"Purchasers").
RECITALS:
(a) The Purchasers and the Company have entered into a
Preferred Stock Purchase Agreement, dated as of the date hereof
(the "Stock Purchase Agreement") (each capitalized term used
herein and not otherwise defined shall have the meaning ascribed
to such term in the Stock Purchase Agreement), pursuant to which
the Purchasers are simultaneously with the execution hereof
purchasing from the Company the number of shares of Series A
Preferred or Series B Preferred (collectively referred to herein
as the "Preferred Shares") of the Company set forth opposite its
name on Schedule I hereto except that Advance will purchase the
Preferred Shares to be purchased by it as of the Advance Closing
Date.
(b) As of the date hereof, the Preferred Shares
purchased by the Purchasers pursuant to the Stock Purchase
Agreement entitles the holder thereof to receive, upon the
conversion thereof, the number of shares of Common Stock as are
set forth opposite its name on Schedule I, which number of shares
are subject to adjustment as set forth in the provisions of the
Certificate of Amendment to the Second Amended and Restated
Certificate of Incorporation (the "Certificate of
Incorporation").
(c) The Company desires to grant the Purchasers
certain registration rights with respect to the Common Stock.
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Subject to paragraph
1(b) below, the holders at any time of at least 50% of the
Registrable Securities may request at any time registration under
the Securities Act of 1933, as amended (the "Securities Act"), of
all or part of their Registrable Securities on Form S-1 or any
similar long-form registration ("Long-Form Registrations"), and
each holder of Registrable Securities may request registration
under the Securities Act of all or part of their Registrable
Securities on Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registrations") if available. Each
request for a Demand Registration shall specify the approximate
number of Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within
ten days after receipt of any such request, the Company will give
written notice of such requested registration to all other
holders of Registrable Securities and will include in such
registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein
within 15 days after the receipt of the Company's notice. All
registrations requested pursuant to this paragraph 1(a) are
referred to herein as "Demand Registrations".
(b) Long-Form Registrations. Subject to paragraph
1(a), the holders of Registrable Securities will be entitled at
any time to request Long-Form Registrations in which (subject to
Section 5(b)) the Company will pay all Registration Expenses
("Company-paid Long-Form Registrations"); provided that the
holders of Registrable Securities may not request more than two
(2) Long-Form Registrations (each a "Demand Long-Form
Registration," and each of which shall be a Company-paid Long-
Form Registration), such number to be reduced by the number of
previously consummated Demand Long-Form Registrations. A
registration will not count as one of the permitted Demand
Long-Form Registrations until it has become effective, and no
Company-paid Long-Form Registration will count as one of the
permitted Demand Long-Form Registrations unless the holders of
Registrable Securities are able to register and sell at least 85%
of the Registrable Securities requested to be included in such
registration; provided that in any event the Company will pay all
Registration Expenses in connection with any registration initi
ated as a Company-paid Long-Form Registration whether or not it
has become effective.
(c) Short-Form Registrations. In addition to the
Long-Form Registrations provided pursuant to paragraph 1(b), each
holder of Registrable Securities will be entitled to request a
Short Form Registration (provided that the holders may only
request up to two (2) Short-Form Registrations in any twelve-
month period, which number shall be reduced by the number of
previously consummated Demand Short-Form Registrations in such
twelve-month period) in which the Company will pay all
Registration Expenses. Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any
applicable short form. The Company will use its best efforts to
make Short-Form Registrations on Form S-3 available for the sale
of Registrable Securities. The holders of Registrable Securities
agree that they will not request a Long-Form Registration when
the Company is eligible to use a Short-Form Registration;
provided that the Company agrees to include in the prospectus
included in any Short-Form Registration Statement, such material
describing the Company and intended to facilitate the sale of
securities being so registered as is reasonably requested for
inclusion therein by any of the shareholders selling securities
pursuant to such registration statement, whether or not the form
used for such registration statement requires the inclusion of
such information.
(d) Priority on Demand Registrations. The Company
will not include in any Demand Registration any securities which
are not Registrable Securities without the prior written consent
of the holders of at least 50.1% of the Registrable Securities
included in such registration. If a Demand Registration is an
underwritten offering and the managing underwriters advise the
Company in writing that in their opinion the number of Registra
ble Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be
sold therein without adversely affecting the marketability of the
offering, the Company will include in such registration prior to
the inclusion of any securities which are not Registrable
Securities the number of Registrable Securities requested to be
included which in the opinion of such underwriters can be sold
without adversely affecting the marketability of the offering,
pro rata among the respective holders thereof on the basis of the
number of Registrable Securities owned by each holder
participating in such offering.
(e) Restrictions on Long-Form Registrations and Demand
Registrations. The Company will not be obligated to effect any
Demand Long-Form Registration during the period starting with the
date thirty (30) days prior to the Company's good faith estimate
of the date of filing of, and ending on a date one hundred and
twenty (120) days after the effective date of, a Company-
initiated registration; provided that the Company is actively
employing in good faith all reasonable efforts to cause such
registration statement to become and remain effective. The
Company will not be obligated to effect any Demand Long-Form
Registration within six (6) months after the effective date of a
previous Long-Form Registration. The Company may postpone for up
to six (6) months the filing or the effectiveness of a
registration statement for a Demand Registration if the Company
and the holders of at least 66.67% of the Registrable Securities
to be covered thereby agree that such Demand Registration would
reasonably be expected to have an adverse effect on any proposal
or plan by the Company or any of its subsidiaries to engage in
any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or similar
transaction; provided that in such event, the holders of
Registrable Securities initially requesting such Demand Regis
tration will be entitled to withdraw such request and such Demand
Registration will not count as one of the permitted Demand
Registrations hereunder and the Company will pay all Registration
Expenses in connection with such registration. The Company will
not be obligated to effect any Demand Long-Form Registration
unless the anticipated aggregate offering price, net of
underwriting discounts and commissions, of the Common Stock to be
included in such Demand Long-Form Registration equals more than
ten million dollars ($10,000,000).
(f) Other Registration Rights. Except as provided in
this Agreement, the Company shall not grant to any Persons the
right to request the Company to register any equity securities of
the Company, or any securities convertible or exchangeable into
or exercisable for such securities, without the prior written
consent of the holders of at least 66.67% of the Registrable
Securities; provided that the Company may grant rights to em
ployees of the Company and its Subsidiaries to participate in
Piggyback Registrations so long as such rights are subordinate to
the rights of the holders of Registrable Securities with respect
to such Piggyback Registrations as provided in paragraphs 2(c)
and 2(d) below.
(g) Selections of Underwriters. If any Demand
Registration is an underwritten offering, the selection by the
Company of investment banker(s) and manager(s) for the Offering
must be approved by the holders of a majority of the Registrable
Securities included in such Demand Registration. Such approval
will not be unreasonably withheld.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes
to register any of its securities under the Securities Act (other
than pursuant to (i) a Demand Registration, (ii) a registration
in connection with shares issued by the Company in connection
with the acquisition of any company or companies or (iii) a
registration solely of shares that have been issued pursuant to
the Company's employee benefit plans) and the registration form
to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company will give
prompt written notice to all holders of Registrable Securities of
its intention to effect such a registration and will include in
such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion
therein within 15 days after the receipt of the Company's notice.
(b) Piggyback Expenses. Subject to Section 5(b), the
Registration Expenses of the holders of Registrable Securities
will be paid by the Company in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of
the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested
to be included in such registration exceeds the number which can
be sold in such offering without adversely affecting the
marketability of the offering, the Company will include in such
registration (i) first, the securities the Company proposes to
sell, (ii) second, the Registrable Securities requested to be
included in such registration, pro rata among the holders of such
Registrable Securities on the basis of the number of Registrable
Securities owned by each holder of Registrable Securities
participating in such offering, and (iii) third, other securities
requested to be included in such registration; provided that in
any event the holders of Registrable Securities shall be entitled
to register at least 20% of the securities to be included in any
such registration.
(d) Priority on Secondary Registrations. If a
Piggyback Registration is an underwritten secondary registration
on behalf of holders of the Company's securities, and the
managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the
offering, the Company will include in such registration
(i) first, the Registrable Securities requested to be included in
such registration, pro rata among the holders of such Registrable
Securities on the basis of the number of Registrable Securities
owned by each holder of Registrable Securities participating in
such offering, and (ii) second other securities requested to be
included in such registration.
(e) Selection of Underwriters. If any Piggyback
Registration is an underwritten offering, the selection by the
Company of investment banker(s) and manager(s) for the offering
must be approved by the holders of a majority of the Registrable
Securities included in such Piggyback Registration. Such
approval will not be unreasonably withheld.
(f) Other Registrations. If the Company has
previously filed a registration statement with respect to
Registrable Securities pursuant to Paragraph 1 or pursuant to
this Paragraph 3, and if such previous registration has not been
withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities
or securities convertible or exchangeable into or exercisable for
its equity securities under the Securities Act (except on
Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a
period of at least six months has elapsed from the effective date
of such previous registration.
3. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not
to effect any public sale or distribution (including sales
pursuant to Rule 144) of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and the ninety
(90)-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback
Registration in which Registrable Securities are included (except
as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise
agree.
(b) The Company agrees (i) not to effect any public
sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securi
ties, during the seven days prior to and during the ninety
(90)-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form),
unless the underwriters managing the registered public offering
otherwise agree, and (ii) to cause each holder of at least 5% (on
a fully-diluted basis) of its Common Stock, or any securities
convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree
not to effect any public sale or distribution (including sales
pursuant to Rule 144) of any such securities during such period
(except as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the registered
public offering otherwise agree.
4. Registration Procedures. Whenever the holders of
Registrable Securities have requested that any Registrable
Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale
of such Registrable Securities in accordance with the intended
method of disposition thereof including the registration of
common stock that may be obtained upon conversion of Preferred
Shares held by a holder of Registrable Securities requesting
registration as to which the Company has received reasonable
assurances that only Registrable Securities will be distributed
to the public, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file (in the case of a Demand
Registration not more than sixty (60) days after request
therefor) 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 as far in advance as
practicable before filing a registration statement or prospectus
or any amendments or supplements thereto, the Company will
furnish to the counsel selected by the holders of a majority of
the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel);
(b) 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 and eighty (180) days
(subject to Paragraph (a) above) and comply with the provisions
of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such
period in accordance with the intended methods of disposition by
the sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities
such number of copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus)
and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests and
do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities
owned by such seller (provided that the Company will not be
required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process
in any such jurisdiction);
(e) notify each seller of such Registrable Securities,
at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or
omits any fact necessary to make the statements therein not
misleading, and, at the request of any such seller, the Company
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 fact
necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by
the Company are then listed and, if not so listed, to be listed
on the National Association of Securities Dealers automated
quotation system;
(g) provide a transfer agent and registrar for all
such Registrable Securities not later than the effective date of
such registration statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such
other actions as the holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of
such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of
Registrable Securities, 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 the Company, and cause the
Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(j) permit any holder of Registrable Securities which
holder, in its sole and exclusive judgment, might be deemed to be
an underwriter or a controlling person of the Company, to partici
pate in the preparation of such registration or comparable
statement and to require the insertion therein of material,
furnished to the Company in writing, which in the reasonable
judgment of such holder and its counsel should be included;
(k) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of
any order suspending or preventing the use of any related
prospectus or suspending the qualification of any common stock
included in such registration statement for sale in any
jurisdiction, the Company will promptly notify the holders of
Registrable Securities and will use its reasonable best efforts
promptly to obtain the withdrawal of such order; and
(l) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering
such matters of the type customarily covered by cold comfort
letters as the holders of a majority of the Registrable
Securities being sold reasonably request; and
(m) in connection with an underwritten public
offering, (i) cooperate with the selling holders of Registrable
Securities, the underwriters participating in the offering and
their counsel in any due diligence investigation reasonably
requested by the selling holders or the underwriters in
connection therewith and (ii) participate, to the extent
reasonably requested by the managing underwriter for the offering
or the selling holder, in efforts to sell the Registrable
Securities under the offering (including, without limitation,
participating in "roadshow" meetings with prospective investors)
that would be customary for underwritten primary offerings of a
comparable amount of equity securities by the Company.
5. Registration Expenses.
(a) All expenses incident to the Company'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, and fees and disbursements of
counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions)
and other Persons retained by the Company (all such expenses
being herein called "Registration Expenses"), will be borne as
provided in this Agreement, except that the Company will, in any
event, pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees perform
ing legal or accounting duties), the expense of any annual audit
or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered
on each securities exchange on which similar securities issued by
the Company are then listed or on the National Association of
Securities Dealers automated quotation system. The Company shall
not be required to pay an underwriting discount with respect to
any shares being sold by any party other than the Company in
connection with an underwritten public offering of any of the
Company's securities pursuant to this Agreement.
(b) In connection with each Company-paid Demand
Registration, the Company will reimburse the holders of
Registrable Securities covered by such registration for the
reasonable fees and expenses (including the fees and expenses of
counsel chosen by the holders of a majority of the Registrable
Securities initially requesting such registration) incurred by
such holders in connection with such registration. To the extent
that there are any unreimbursed expenses incurred by the holders
of Registrable Securities, each holder shall bear his or her pro
rata share of such expenses based upon the number of shares of
Registrable Securities held by such holder that are included in
such registration relative to the number of all Registrable
Securities included in such registration.
(c) The Company will reimburse the holders of
Registrable Securities for the reasonable fees and expenses
(including the fees and expenses of counsel chosen by the holders
of a majority of the Registrable Securities) incurred by such
holders in enforcing any of their rights under this Agreement.
6. Indemnification.
(a) Indemnification of Selling Stockholders by the
Company. The Company agrees to indemnify and hold harmless each
holder of Registrable Securities which are registered pursuant
hereto (each a "Selling Stockholder") and each person, if any,
who controls any Selling Stockholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as
follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact
contained in the registration statement (or any amendment
thereto), or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the prospectus (or any
amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission; provided, that subject to Section 6(c)
below any such settlement is effected with the prior written
consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen
by such Selling Stockholder), reasonably incurred in
investigating, preparing or defending against any litigation, or
any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not
paid under (i) or (ii) above; provided, that this indemnity
agreement shall not apply to any loss, liability, claim, damage
or expense to the extent arising out of any untrue statement or
omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the
Company by the Selling Stockholder expressly for use in the
registration statement (or any amendment thereto), or any
preliminary prospectus or the prospectus (or any amendment or
supplement thereto).
(b) Indemnification of Company by the Selling
Stockholders. Each Selling Stockholder, severally and not
jointly, agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the registration
statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in
Section 6(a) above, as incurred, but only with respect to untrue
or alleged untrue statements or omissions made in the
registration statement (or any amendment thereto), or any
preliminary prospectus or any prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by or on behalf of
such Selling Stockholder with respect to such Selling Stockholder
expressly for use in the registration statement (or any amendment
or supplement thereto); provided, that such Selling Stockholder's
aggregate liability under this Section 6 shall be limited to an
amount equal to the net proceeds (after deducting the
underwriting discount, but before deducting expenses) received by
such Selling Stockholder from the sale of Registrable Securities
pursuant to a registration statement filed pursuant to this
Agreement.
(c) Actions against Parties; Notification. Each
indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder,
but failure to so notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in
any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. In
the case of parties indemnified pursuant to Section 6(a), counsel
to the indemnified parties shall be selected by the Selling
Stockholders (by majority vote based on the number of Registrable
Securities included in a registration hereunder) and, in the case
of parties indemnified pursuant to Section 6(b), counsel to the
indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the
defense of any such action; provided, that counsel to the
indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the
same general allegations or circumstances. No indemnifying party
shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this
Section 6 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to
Reimburse. If at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a)(ii) effected without its written
consent if (i) such settlement is entered into more than 45 days
after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such
settlement being entered into and (iii) such indemnifying party
shall not have reimbursed such indemnified party in accordance
with such request prior to the date of such settlement.
(e) Contribution. (i) If a claim for indemnification
under Section 6(a) or 6(b) is unavailable to an indemnified party
because of a failure or refusal of a governmental authority to
enforce such indemnification in accordance with its terms (by
reason of public policy or otherwise), then each indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party and the indemnified party in connection with the actions,
statements or omissions that resulted in such losses as well as
any other relevant equitable considerations. The relative fault
of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action,
statement or omission. The amount paid or payable by a party as
a result of any losses shall be deemed to include, subject to the
limitations set forth in this Section, any reasonable attorneys'
or other reasonable fees or expenses incurred by such party in
connection with any proceeding to the extent such party would
have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to
such party in accordance with its terms.
(ii) The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(f) were
determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable
considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6(f),
a holder shall not be required to contribute, in the aggregate,
any amount in excess of the amount by which the proceeds actually
received by such holder from the sale of the Registrable
Securities subject to the proceeding exceeds the amount of any
damages that the holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(iii) The indemnity and contribution agreements
contained in this Section are in addition to any liability that
the indemnifying parties may have to the indemnified parties.
7. Participation in Underwritten Registrations. No
Person may participate in any registration hereunder which is
underwritten unless such Person (a) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements
approved by the Person or Persons entitled hereunder to approve
such arrangements and (b) completes and executes all question
naires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting
arrangements.
8. Definitions.
"Common Stock" means the Common Stock of the Company,
par value $0.0001 per share.
"Registrable Securities" means (i) any Common Stock
issued upon the conversion of any Preferred Shares issued pur
suant to the Stock Purchase Agreement (whether held by a
Purchaser or any successor or assignee of a Purchaser), and
(ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) by way of a stock dividend
or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
As to any particular Registrable Securities, such securities will
cease to be Registrable Securities when they have been
distributed to the public pursuant to an offering registered
under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the
Securities Act (or any similar rule then in force). For purposes
of this Agreement, a Person will be deemed to be a holder of
Registrable Securities whenever such Person has the right to
acquire directly or indirectly such Registrable Securities (upon
conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such
acquisition has actually been effected. For purposes of
calculating the percentage of Registrable Securities for voting
purposes, the Preferred Shares shall be deemed to have been
converted at the then applicable conversion price.
"Registration Expenses" has the meaning set forth in
Section 5(a) hereof.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not
entered and will not hereafter enter into any agreement with
respect to its securities which is inconsistent with or violates
the rights granted to the holders of Registrable Securities in
this Agreement.
(b) Adjustments Affecting Registrable Securities. The
Company will not take any action, or permit any change to occur,
with respect to its securities which would adversely affect the
ability of the holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to
this Agreement or which would adversely affect the marketability
of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a
combination of shares).
(c) Remedies. Any Person having rights under any
provision of this Agreement will be entitled to enforce such
rights specifically to recover damages caused by reason of any
breach of any provision of this Agreement and to exercise all
other rights granted by law. The parties hereto agree and
acknowledge that money damages may 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 (without posting any bond or other
security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions
of this Agreement.
(d) Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may be amended
or waived only upon the prior written consent of the Company and
holders of at least 66.67% of the Registrable Securities.
(e) Successors and Assigns. All covenants and agree
ments in this Agreement by or on behalf of any of the parties
hereto will bind and inure to the benefit of the permitted
respective successors and assigns of the parties hereto whether
so expressed or not.
(f) Notices. Except as otherwise expressly provided
herein, any and all notices, designations, consents, offers,
acceptances or other communications provided for herein shall be
given in writing and shall be mailed by first class registered or
certified mail, postage prepaid, sent by a nationally recognized
overnight courier service or transmitted via telecopier as
follows:
If to the Company:
Alarmguard Holdings, Inc.
125 Frontage Road
Orange, Connecticut 06477
Telecopy: (203) 799-9636
Attention: Russell R. MacDonnell
with a copy to:
Robinson & Cole LLP
695 East Main Street
Stamford, Connecticut 06904
Telecopy: (203) 462-7599
Attention: Richard A. Krantz, Esq.
If to Advance:
Advance Capital Partners, L.P.
660 Madison Avenue
15th Floor
New York, New York 10021
Telecopy: (212) 835-2020
Attention: Robert A. Bernstein
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 446-4900
Attention: Joshua N. Korff, Esq.
If to any other Purchaser to the address set forth opposite such
Purchaser's name on Schedule I hereto.
Notice shall be deemed given, for all purposes, when deposited in
the United States mail as registered or certified mail, in which
event the fifth day following the date of postmark on the receipt
of such registered or certified mail shall conclusively be deemed
the date of giving of such notice, on the first Business Day
following collection by the courier service or when acknowledged
by the receiving telecopier.
(g) Interpretation of Agreement; Severability. The
provisions of this Agreement shall be applied and interpreted in
a manner consistent with each other so as to carry out the
purposes and intent of the parties hereto, but if for any reason
any provision hereof is determined to be unenforceable or
invalid, such provision or such part thereof as may be
unenforceable or invalid shall be deemed severed from the
Agreement and the remaining provisions carried out with the same
force and effect as if the severed provision or part thereof had
not been a part of this Agreement.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS
(AND NOT THE CONFLICTS OF LAW) OF THE STATE OF NEW YORK.
(i) 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 taken together shall constitute one
and the same Agreement.
(j) Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the subject
matter hereof, and supersedes all previous agreements.
* * * * *
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Agreement as of the date first
written above.
ALARMGUARD HOLDINGS, INC.
By:
Name:
Title:
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates,
L.P.,
its General Partner
By:Advance Capital Management,
LLC,
its General Partner
By:
Name: Robert A. Bernstein
Title: Principal
ADVANCE CAPITAL OFFSHORE
PARTNERS, L.P.
By:Advance Capital Offshore
Associates, LDC,
its General Partner
By:Advance Capital Associates,
L.P.,
its Sole Director
By:Advance Capital Management,
LLC,
its General Partner
By:
Name: Robert A. Bernstein
Title: Principal
CANAAN EQUITY, L.P.
By: Canaan Equity Partners,
L.L.C.
By:
Name: Stephen L. Green
Title: Member/Manager
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
its General Partner
By: Exeter IV Advisors, Inc.,
its General Partner
By:
Name: Keith R. Fox
Title: President
LB I GROUP INC.
By:
Name: Alan H. Washkowitz
Title: Senior Vice
President
ELLIOTT ASSOCIATES, L.P.
By:
Name: Paul E. Singer
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International,
Inc.
as Attorney-in-Fact
By:
Name: Paul E. Singer
Title: President
ZIFF ASSET MANAGEMENT, L.P.
By:
Name: Philip B. Korsant
Title: President
OZ MASTER FUND, LTD.
By:
Name: Daniel S. Och
Title: Managing Member
OZ Management, L.L.C.
IBJS CAPITAL CORPORATION
By:
Name: Kevin P. Falvey
Title: Director
CREDIT SUISSE (GUERNSEY) LIMITED
as trustee of the Dynamic
Growth Fund II
By:
Name: M.E. Zunino
Title: Associate
AETNA LIFE INSURANCE COMPANY
By:
Name: Alan Vartelas
Title: Assistant Vice
President
GRANITE PROPERTIES MANAGEMENT
CORP.
By:
Name: Daren J. Wells
Title: Director, Private
Equity
By:
Name: Paul Finkelstein
SCHEDULE I
Shares of
Common
Stock
initially
issuable
upon
Shares of Conversion of
Shares of Series B Convertible
Series A Convertible Preferred
Name, Address and Convertible Preferred Stock
Telecopier Number Preferred Stock
Stock
Advance Capital 5,524 -- 669,575.76
Partners, L.P.
660 Madison Avenue,
15th Floor
New York, NY 10021
(212) 835-2020
Attn: Robert
Bernstein
Advance Capital 1,726 -- 209,212.12
Offshore
Partners, L.P.
c/o CITCO Fund
Services (Cayman
Islands) Limited
Safehaven Corporate
Centre
Leward Building
P.O. Box 31106 SMB
West Bay Road
Grand Cayman
Cayman Islands B.W.I.
345-949-3877
Attn: Robert
Bernstein
Elliott Associates, 2,000 -- 242,424.24
L.P.
712 Fifth Avenue,
35th Floor
New York, NY 10019
(212) 974-2092
Attn: Jeffrey Kaplan
Westgate 2,000 -- 242,424.24
International, L.P.
c/o Stonington
Management Corp.
712 Fifth Avenue,
36th Floor
New York, NY 10019
(212) 974-2092
Attn: Jeffrey Kaplan
Exeter Capital 2,500 -- 303,030.30
Partners IV, L.P.
10 E. 53rd Street,
32nd Floor
New York, NY 10022
(212) 872-1198
Attn: Keith Fox
Aetna Life Insurance 5,000 -- 606,060.60
Company
151 Farmington Avenue
RC21
Hartford, CT 06516
(860) 273-8650
Attention: Private
Equity Group
Ziff Asset 7,250 --- 878,787.88
Management, L.P.
c/o Och-Ziff
Management, L.L.C.
153 E. 53rd Street,
43rd Floor
New York, NY 10022
(212) 292-5950
Attn: Danny Och/Joel
Frank
Oz Master Fund, Ltd. 2,000 --- 242,424.24
c/o Och-Ziff
Management, L.L.C.
153 E. 53rd Street,
43rd Floor
New York, NY 10022
(212) 292-5950
Attn: Danny Och/Joel
Frank
Canaan Equity L.P. -- 5,000 645,161.29
105 Rowayton Avenue
Rowayton, CT 06853
(203) 854-9117
Attn: Stephen Green
LB I Group Inc. 5,000 --- 606,060.60
c/o Lehman Brothers
3 World Financial
Center
6th Floor
New York, NY 10285
(212) 528-8821
Attn: Stephen
Berkenfeld
IBJS Capital 200 --- 24,242.42
Corporation
One State Street
New York, NY 10004
(212) 858-2768
Attn: Kevin Falvey
Granite Properties 1,500 --- 181,818.18
Management Corp.
1 Cablevision Center
P.O. Box 311
Liberty, NY 12754
(914) 295-2741
Attn: Daren Wells
Credit Suisse 200 --- 24,242.42
(Guernsey) Limited
as trustee for
the Dynamic
Growth Fund II
P.O. Box 122,
Helvetia Court
South Esplanade, St.
Peter Port
Guernsey Channel
Islands
GY1 4EE
###-##-#### 710934
Attn: David Preston
Paul Finkelstein 100 --- 12,121.21
()
ALARMGUARD HOLDINGS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
Dated as of February 2, 1998
TABLE OF CONTENTS
Page
Article IDEFINITIONS 1
1.1 Definitions; Interpretation 1
Article IIISSUANCE AND SALE OF PREFERRED STOCK 6
2.1 Number of Shares and Price 6
Article IIICLOSING; CLOSING DELIVERIES 6
3.1 Closing 6
3.2 Payment for and Delivery of Preferred Shares 6
Article IVREPRESENTATIONS AND WARRANTIES OF THE COMPANY 7
4.1 Existence; Qualification; Subsidiaries 7
4.2 Authorization and Enforceability; Issuance of Shares 7
4.3 Capitalization 8
4.4 Private Sale; Voting Agreements 8
4.5 Financial Statements; Disclosure 8
4.6 Absence of Certain Changes 9
4.7 Litigation 10
4.8 Licenses, Compliance with Law, Other Agreements, Etc. 11
4.9 Third-Party Approvals 11
4.10 No Undisclosed Liabilities 11
4.11 Tangible Assets 11
4.12 Inventory 11
4.13 Owned Real Property 11
4.14 Real Property Leases 12
4.15 Agreements 12
4.16 Intellectual Property 12
4.17 Employees 12
4.18 ERISA; Employee Benefits 13
4.19 Environment, Health and Safety 13
4.20 Transactions With Affiliates 14
4.21 Taxes 14
4.22 Other Investors 14
4.23 Year 2000 Representations 14
4.24 Seniority 15
4.25 Investment Company 15
4.26 Certain Fees 15
4.27 Solicitation Materials 15
4.28 Form S-3 Eligibility 16
4.29 Listing and Maintenance Requirements Compliance 16
4.30 Registration Rights; Rights of Participation 16
4.31 Recent Results of Operations 16
4.32 Small Business Matters 16
Article VREPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 17
5.1 Authorization and Enforceability 17
5.2 Government Approvals 17
Article VICOMPLIANCE WITH SECURITIES LAWS 17
6.1 Investment Intent of Purchaser 17
6.2 Status of Preferred Shares 17
6.3 Sophistication and Financial Condition of Purchaser 17
6.4 Transfer of Preferred Shares and Conversion Shares 17
6.5 Exculpation Among Purchasers. 19
Article VIICONDITIONS PRECEDENT 19
7.1 Closing Deliveries to the Purchasers 19
7.2 Closing Deliveries to the Company 20
Article VIIICOVENANTS OF THE COMPANY 20
8.1 Restricted Actions 20
8.2 Required Actions 21
8.3 Reservation of Common Stock 23
8.4 Purchasers' Rights if Trading in Common Stock is Suspended
or Delisted. 23
8.5 Use of Proceeds 23
Article IXSURVIVAL 24
9.1 Survival 24
Article XINDEMNIFICATION 24
10.1 Indemnification 24
Article XIGENERAL PROVISIONS 25
11.1 Successors and Assigns 25
11.2 Entire Agreement 25
11.3 Notices 25
11.4 Purchasers Fees and Expenses 26
11.5 Amendment and Waiver 26
11.7 Counterparts 27
11.8 Headings 27
11.9 Specific Performance 27
11.10 Remedies Cumulative 27
11.11 GOVERNING LAW 27
11.12 No Third Party Beneficiaries 27
11.13 Severability 27
Schedule I Purchasers
Exhibit A Amendment to the Certificate of Designations.
Exhibit B Financial Statements
Exhibit C Registration Rights Agreement
Exhibit D Opinion of Counsel
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") dated
as of February 2, 1998 between Alarmguard Holdings, Inc., a
Delaware corporation (the "Company"), Advance Capital Partners,
L.P., a Delaware limited partnership, Advance Capital Offshore
Partners, L.P., a Cayman Islands limited partnership
(collectively, "Advance"), and each of the other purchasers set
forth on Schedule I hereto (with Advance, each a "Purchaser" and
collectively the "Purchasers").
The Purchasers desire to purchase from the Company, and the
Company desires to issue to the Purchasers, shares of Series A
Convertible Preferred Stock $.0001 par value per share of the
Company (the "Series A Preferred") and Series B Convertible
Preferred Stock $.0001 par value per share of the Company (the
"Series B Preferred").
In consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement,
the parties hereto agree as follows:
Article I
DEFINITIONS
I.1 Definitions; Interpretation.
(a) For purposes of this Agreement, the following
terms have the indicated meanings:
"Advance" has the meaning set forth in the recitals
hereof.
"Advance Closing" has the meaning set forth in Section
3.1.
"Advance Closing Date" has the meaning set forth in
Section 3.1.
"Affiliate" of a person means any other person that
directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with such
person.
"Certificate of Designations" means the Certificate of
Designations designating the rights and preferences of the Series
A Preferred and Series B Preferred adopted by the Board of
Directors of the Company and set forth as Exhibit A hereto.
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section
3.1.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Common Stock" means the common stock of the Company,
par value $.0001 per share.
"Company" has the meaning set forth in the recitals
hereof.
"Confidential Information" means any information
concerning the Company's business other than information that (i)
was already known to the Person having a duty to keep
confidential such information on a nonconfidential basis prior to
the time of disclosure, (ii) is or becomes generally available to
the public through no act or omission of such Person or (iii)
becomes available to such Person on a nonconfidential basis from
a source other than any party hereto (or any agent or
representative thereof) if such source was not under a
prohibition against disclosing the information to such Person.
"Conversion Shares" means shares of Common Stock
issued or issuable upon conversion of Preferred Shares.
"Credit Agreement" means that certain Third Amended
and Restated Acquisition Credit and Term Loan Agreement by and
among the Company, certain Subsidiaries of the Company,
BankBoston, N.A. as Administrative Agent, General Electric
Capital Corporation as Documentation Agent and the lenders party
thereto, as the same may be amended, restated, modified or
supplemented from time to time.
"Current Balance Sheet" means the unaudited balance
sheet of the Company dated September 30, 1997.
"Environmental and Safety Requirements" means all
federal, state, local and foreign statutes, regulations,
ordinances and other provisions having the force or effect of
law, all judicial and administrative orders and determinations,
all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all
those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or by-products, asbestos, polychlorinated biphenyls,
noise or radiation.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Financial Statements" means (i) the unaudited balance
sheets of the Company for the quarterly periods ended June 30,
1997 and September 30, 1997, each as included in a quarterly
report of the Company on Form 10-Q as filed with the SEC pursuant
to the Exchange Act and the audited balance sheet of Triton Group
Ltd. dated March 31, 1997 as included in the annual report of
Triton Group Ltd. (a predecessor to the Company) on Form 10-K as
filed with the SEC pursuant to the Exchange Act and the related
unaudited and audited, as applicable, statements of income and
consolidated cash flow for the quarterly and fiscal year-to-date
periods then ended, each as included in the Company's applicable
quarterly report or annual report on Form 10-Q and Form 10-K, as
applicable, as filed with the SEC pursuant to the Exchange Act,
and (ii) the unaudited balance sheet of Security Systems
Holdings, Inc. for the quarterly period ended March 31, 1997 and
the audited balance sheet of Security Systems Holdings, Inc.
dated December 31, 1996 and the related unaudited and audited, as
applicable, statements of income and consolidated cash flow for
the quarterly and fiscal year-to-date periods then ended, all of
which are attached as Exhibit B hereto.
"Financing" means the purchase of Preferred Shares by
the SBIC Holders hereunder.
"GAAP" means United States generally accepted
accounting principles as in effect from time to time,
consistently applied.
"Governmental Agency" means any federal, state, local,
foreign or other governmental agency, instrumentality,
commission, authority, board or body and the American Stock
Exchange.
"includes" and "including" mean includes and including,
without limitation.
"Intellectual Property" means all patents, patent
applications and inventions; all trademarks, service marks, trade
dress, trade names and corporate names and all goodwill
associated therewith; all copyrights; all registrations,
applications and renewals for any of the foregoing; all trade
secrets, Confidential Information, know-how, technical and
computer data, documentation and software, financial, business
and marketing plans, customer and supplier lists and all other
intellectual property rights; and all copies and tangible
embodiments of the foregoing.
"IRS" means the Internal Revenue Service.
"knowledge" or "know" when used with respect to the
Company means the knowledge of the senior management of the
Company, or any other management personnel that has had
significant involvement in the business and affairs of the
Company.
"Liability" means any liability or obligation (whether
absolute or contingent, liquidated or unliquidated or due or to
become due).
"Lien" means any lien, mortgage, pledge, security
interest, restriction, charge or other encumbrance.
"Material Adverse Change" means any material adverse
change in the business, condition (financial or otherwise),
prospects or results of operations of the Company and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means any material adverse
effect on (i) the business, condition (financial or otherwise),
prospects or results of operations of the Company and its
Subsidiaries taken as a whole, or (ii) the transactions
contemplated hereby or by the Related Documents.
"Ordinary Course of Business" means the ordinary course
of business consistent with past practice (including with respect
to quantity, quality and frequency).
"Permitted Liens" means (i) liens for taxes not yet due
and taxes for which adequate provision is made in the Current
Balance Sheet, (ii) purchase money security interests in supplies
and equipment, (iii) precautionary liens filed by lessors with
respect to leased equipment, (iv) encumbrances which are not
substantial in amount, do not materially detract from the value
of the property subject thereto and do not materially impair the
use of the property subject thereto or the operation of the
Company's business, and (v) liens securing the obligations under
the Credit Agreement and the other documents, agreements and
instruments executed in connection therewith.
"Person" means any individual, partnership, joint
venture, corporation, trust, unincorporated organization or other
entity.
"Plan" means any employee benefit plan (as defined in
Section 3(3) of ERISA), subject to Title IV of ERISA or the
minimum funding requirements of Section 412 of the Code,
maintained or contributed to by the Company, its predecessor or
any Subsidiary at any time during the 5-calendar years
immediately preceding the date of this Agreement.
"Preferred Shares" has the meaning set forth in Section
2.1.
"Registration Rights Agreement" means the Registration
Rights Agreement between the Company and the Purchasers in the
form of Exhibit C hereto.
"Related Documents" means all documents and instruments
to be executed or adopted by the Company in connection herewith,
including the Certificate of Designations, the Preferred Shares
and the Registration Rights Agreement.
"SBA" means the United States Small Business
Administration, and any successor agency performing the functions
thereof.
"SBIC" means a Small Business Investment Company
licensed by the SBA under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of
1958, as amended.
"SBIC Holders" means IBJS Capital Corporation and
Exeter Capital Partners IV, L.P.
"SBIC Regulations" means the SBIC Act and the
regulations issued by the SBA thereunder, codified at Title 13 of
the Code of Federal Regulations ("13 CFR"), Parts 107 and 121.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Series A Preferred" has the meaning set forth in the
recitals hereof.
"Series B Preferred" has the meaning set forth in the
recitals hereof.
"Subsidiary" means any corporation, partnership,
association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by the Company or (ii) if a partnership, association
or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by the Company. For purposes
hereof, the Company shall be deemed to have a majority ownership
interest in a partnership, association or other business entity
if the Company, directly or indirectly, is allocated a majority
of partnership, association or other business entity gains or
losses, or is or controls the managing director or general
partner of such partnership, association or other business
entity.
"Tax" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code 59A), customs duties,
capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any
kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report,
claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) The words "herein", "hereof" and "hereunder" refer
to this Agreement as a whole and not to any particular
article, section or other subdivision of this Agreement.
Article II
ISSUANCE AND SALE OF PREFERRED STOCK
II.1 Number of Shares and Price. On the terms and
subject to the conditions of this Agreement, at the Closing, the
Company shall issue to the Purchasers, 27,750 shares of Series A
Preferred and 5,000 shares of Series B Preferred (collectively,
with the Shares of Series A Preferred to be issued to Advance at
the Advance Closing, the "Preferred Shares") for a purchase price
of $1,000 per share. On the terms and subject to the conditions
of this Agreement, at the Advance Closing, the Company shall
issue to Advance, 7,250 shares of Series A Preferred for a
purchase price of $1,000 per share. Each Purchaser's obligation
to purchase the number of Preferred Shares opposite such
Purchaser's name on Schedule I hereto shall be subject to the
prior or simultaneous purchase by each other Purchaser (other
than Advance) of the number of Preferred Shares opposite such
Purchaser's name on Schedule I hereto.
Article III
CLOSING; CLOSING DELIVERIES
III.1 Closing. The closing of the transactions
contemplated hereby (the "Closing") shall take place at 10:00
a.m. on February 2, 1998, at the offices of Kirkland & Ellis, New
York, New York or at such other time, place and/or date as shall
be agreed upon by the parties hereto except that the closing of
the issuance and sale of Preferred Shares to Advance (the
"Advance Closing") shall take place at 10:00 a.m. on February 13,
1998 or on such other date as shall be agreed upon by the Company
and Advance. The date upon which the Closing occurs is referred
to herein as the "Closing Date" and the date upon which the
Advance Closing occurs is referred to herein as the "Advance
Closing Date".
III.2 Payment for and Delivery of Preferred Shares.
At the Closing, the Company shall issue and deliver to the
Purchasers, stock certificates for the Preferred Shares duly
registered in the name of each Purchaser, against payment by such
Purchaser, by wire transfer of immediately-available funds to the
account designated by the Company, of the purchase price therefor
set forth in Section 2.1. At the Advance Closing, the Company
shall issue and deliver to Advance stock certificates for the
Preferred Shares duly registered in the name of Advance, against
payment by Advance, by wire transfer of immediately-available
funds to the account designated by the Company, of the purchase
price therefor set forth in Section 2.1.
Article IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each
Purchaser as follows:
IV.1 Existence; Qualification; Subsidiaries. The
Company and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state
of its incorporation and has full corporate power and authority
to conduct its business and own and operate its properties as now
conducted, owned and operated. The copies of the Restated
Certificate of Incorporation and By-Laws of the Company and all
amendments thereto previously delivered to the Purchasers are
true, correct and complete copies of such documents. The Company
and each Subsidiary is licensed or qualified as a foreign
corporation and is in good standing in all jurisdictions where
such person is required to be so licensed or qualified, except
where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect. Except as set
forth on Schedule 4.1, the Company has no Subsidiaries and owns
no capital stock or other securities of, and has not made any
other investment in, any other entity. All of the issued shares
of capital stock of each Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable and are
owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or adverse claims other than
liens securing the obligations under the Credit Agreement.
IV.2 Authorization and Enforceability; Issuance of
Shares.
(a) The Company has full power and authority and has
taken all required corporate and other action necessary to permit
it to execute and deliver this Agreement and the Related
Documents and to carry out the terms hereof and thereof and to
issue and deliver the Preferred Shares and the Conversion Shares
(including adoption of the Certificate of Designations), and none
of such actions will violate any provision of the Restated
Certificate of Incorporation of the Company, the By-Laws of the
Company or of any applicable law, regulation, order, judgment or
decree or rule of the stock exchange where the Company's Common
Stock is listed, or result in the breach of or constitute a
default (or an event which, with notice or lapse of time or both
would constitute a default) under any material agreement,
instrument or understanding to which the Company is a party or by
which it is bound or by which it will become bound as a result of
the transaction contemplated by this Agreement. This Agreement
and each of the Related Documents constitutes a legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application related to the
enforcement of creditor's rights generally and (ii) general
principles of equity.
(b) The Preferred Shares have been duly authorized
and, when issued and delivered in accordance with this Agreement,
will be validly issued and outstanding. The Preferred Shares
and, when issued, the Conversion Shares, will be fully paid and
nonassessable. The Conversion Shares have been duly reserved for
issuance upon conversion of the Preferred Shares and, when so
issued, will be duly authorized, validly issued and outstanding,
fully paid and nonassessable shares of Series A Preferred, Series
B Preferred or Common Stock, as the case may be. Neither the
issuance and delivery of the Preferred Shares nor the issuance
and delivery of any Conversion Shares upon conversion of any
Preferred Shares is subject to any preemptive right of any
stockholder of the Company or to any right of first refusal or
other similar right in favor of any Person which has not been
waived.
IV.3 Capitalization. As of the Closing, the authorized
capital stock of the Company shall consist of (i) 25,000,000
shares of Common Stock, par value $.0001 per share, of which
5,592,476 shares are outstanding, 4,972,434 shares are reserved
for issuance upon conversion of Preferred Shares and 770,000
shares are reserved for issuance upon the exercise of certain
stock options, and (ii) 5,000,000 shares of Preferred Stock, par
value $.0001 per share, of which 35,700 shares have been
designated Series A Preferred and 5,000 shares have been
designated Series B Preferred, of which 40,000 shares will be
sold to the Purchasers pursuant to this Agreement. At the time
of the Closing, all of the outstanding capital stock will be
validly issued, fully paid and nonassessable and will have been
issued in compliance with all applicable securities laws
(including the provisions of the Securities Act and the rules and
regulations promulgated thereunder). Except as set forth on
Schedule 4.3, as of the Closing, the Company has not granted or
issued any options, convertible securities, warrants, calls,
pledges, transfer restrictions (except restrictions imposed by
federal and state securities laws), liens, rights of first offer,
rights of first refusal, antidilution provisions or commitments
of any character relating to any issued or unissued shares of
capital stock of the Company other than as contemplated in the
Related Documents. Except as contemplated by this Agreement and
the Related Documents or as set forth in Schedule 4.3, there are
no preemptive or other preferential rights applicable to the
issuance and sale of securities of the Company, including the
Preferred Shares.
IV.4 Private Sale; Voting Agreements. Assuming the
accuracy of the representations and warranties made by recipients
of the Company's capital stock made in connection with the
acquisition of such capital stock, the Company has not violated
any applicable federal or state securities laws in connection
with the offer, sale and issuance of any of its capital stock.
Subject to the accuracy of the Purchaser's representations
contained herein, neither the offer, sale and issuance of the
Preferred Shares hereunder nor the issuance and delivery of any
Preferred Shares or Conversion Shares upon conversion of any
Preferred Shares requires registration under the Securities Act
or any state securities laws.
IV.5 Financial Statements; Disclosure.
(a) The Financial Statements (together with the notes
thereto, as applicable), (i) are true, correct and complete
in all material respects, (ii) are in accordance with the
books and records of the Company and (iii) fairly present
the financial condition and results of operations of the
Company as of the dates and for the periods indicated, in
accordance with GAAP except that the unaudited balance
sheets and related financial statements do not contain an
auditors' opinion and do not contain footnotes and are
subject to normal year-end audit adjustments.
(b) This Agreement together with the schedules,
attachments, exhibits, written statements and certificates
supplied to the Purchasers by or on behalf of the Company
with respect to the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances
in which they were made, not misleading. There is no fact
which has not been disclosed to the Purchasers in writing of
which the Company has knowledge, and which has had or would
reasonably be anticipated to have a Material Adverse Effect.
(c) As of its filing date, each document filed with
the SEC by the Company, as amended or supplemented prior to
the Closing Date, if applicable, pursuant to the Securities
Act and/or the Exchange Act (i) complied in all material
respects with the applicable requirements of the Securities
Act and/or Exchange Act and (ii) did not contain any untrue
statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were
made, not misleading. Each final registration statement
filed with the SEC by the Company pursuant to the Securities
Act, as of the date such statement became effective (i)
complied in all material respects with the applicable
requirements of the Securities Act and (ii) did not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading (in the case of
any prospectus, in light of the circumstances under which
they were made).
IV.6 Absence of Certain Changes.
(a) Except as set forth on Schedule 4.6 since the date
of the Current Balance Sheet, neither the Company
nor any Subsidiary has:
(i) incurred any Liabilities other than current
Liabilities incurred, or obligations under contracts
entered into, in the Ordinary Course of Business and for
individual amounts not greater than $250,000;
(ii) paid, discharged or satisfied any claim, Lien or
Liability, other than any claim, Lien or Liability (A)
reflected or reserved against on the Current Balance
Sheet and paid, discharged or satisfied in the Ordinary
Course of Business since the date of the Current Balance
Sheet or (B) incurred and paid, discharged or satisfied
since the date of the Current Balance Sheet, in each case
in the Ordinary Course of Business;
(iii) sold, leased, assigned or otherwise transferred
any of its assets, tangible or intangible (other than
sales of inventory in the Ordinary Course of Business and
use of supplies in the Ordinary Course of Business);
(iv) permitted any of its assets, tangible or
intangible, to become subject to any Lien (other than any
Permitted Lien);
(v) written off as uncollectible any accounts
receivable other than (1) in the Ordinary Course of
Business, or (2) for amounts not greater than $100,000;
(vi) terminated or amended or suffered the termination
or amendment of, other than in the Ordinary Course of
Business, failed to perform in all material respects all
of its obligations or suffered or permitted any material
default to exist under, any material agreement, license
or permit;
(vii) suffered any damage, destruction or loss of
tangible property (whether or not covered by insurance)
which in the aggregate exceeds $100,000;
(viii) made any loan (other than intercompany advances)
to any other Person (other than advances to employees in
the Ordinary Course of Business which do not exceed
$5,000 individually or $25,000 in the aggregate);
(ix) canceled, waived or released any debt, claim or
right in an amount or having a value exceeding $100,000;
(x) paid any amount to or entered into any agreement,
arrangement or transaction with any Affiliate (including
its officers, directors and employees) outside the
Ordinary Course of Business and which was not approved by
a majority of the Company's disinterested directors;
(xi) declared, set aside, or paid any dividend or
distribution with respect to its capital stock or
redeemed, purchased or otherwise acquired any of its
capital stock;
(xii) other than in the Ordinary Course of Business,
granted any increase in the compensation of any officer
or employee or made any other change in employment terms
of any officer or employee;
(xiii) made any change in any method of accounting or
accounting practice;
(xiv) suffered or caused any other occurrence, event or
transaction outside the Ordinary Course of Business which
could have a Material Adverse Effect; or
(xv) agreed, in writing or otherwise, to any of the
foregoing.
(b) Since the date of the Current Balance Sheet there has
been no Material Adverse Change.
IV.7 Litigation. As of the date hereof no claim,
suit, proceeding or investigation is pending or, to the knowledge
of the Company, threatened against or affecting the Company or
any Subsidiary or any officer or director thereof or the
Company's and the Subsidiaries' business which if decided
adversely to any such person could have a Material Adverse
Effect.
IV.8 Licenses, Compliance with Law, Other Agreements,
Etc. The Company and each Subsidiary have all material
franchises, permits, licenses and other rights to allow it to
conduct its business and is not in violation, in any material
respects of any order or decree of any court, or of any law,
order or regulation of any Governmental Agency, or of the
provisions of any material contract or agreement to which it is a
party or by which it is bound, and neither this Agreement nor the
Related Documents nor the transactions contemplated hereby or
thereby will result in any such violation except where the
failure to have any such franchise permit or license or any such
violation could not be expected to have a Material Adverse
Effect. The Company's and the Subsidiaries' business has been
conducted in all material respects in compliance with all
federal, state and local laws, ordinances, rules and regulations,
except where such violations, defaults or noncompliance would not
have a Material Adverse Effect.
IV.9 Third-Party Approvals. Assuming the accuracy of
the representations and warranties of the Purchasers contained in
this Agreement, the Company is not required to obtain any order,
consent, approval or authorization of, or to make any declaration
or filing with, any Governmental Agency or other third party
(including under any state securities or "blue sky" laws) in
connection with the execution and delivery of this Agreement or
the Related Documents, or the consummation of the transactions
contemplated hereby or thereby to occur on the Closing Date or
the Advance Closing Date, except for any consents, approvals or
authorizations the failure to obtain which could not have a
Material Adverse Effect.
IV.10 No Undisclosed Liabilities. Neither the Company
nor any of its Subsidiaries has any Liabilities except (i) as and
to the extent of the amounts reflected or reserved against on the
Current Balance Sheet (excluding the footnotes thereto), (ii)
liabilities and obligations incurred in the Ordinary Course of
Business since the date thereof, (iii) such other liabilities
that in the aggregate will not result in a Material Adverse
Effect, and (iv) Liabilities under the Credit Agreement (as
defined therein).
IV.11 Tangible Assets. The Company and its
Subsidiaries own or lease all tangible assets used or reasonably
necessary in connection with the conduct of its business. All
material tangible assets are free from any Liens (other than
Permitted Liens), are free from any material defects, have been
maintained in accordance with normal industry practice and any
regulatory standard or procedure to which such assets are
subject, are in good operating condition and repair (subject to
normal wear and tear) and are suitable for the purposes for which
such assets are used or proposed to be used, other than liens,
defects and wear and tear which in the aggregate could not be
expected to have a Material Adverse Effect.
IV.12 Inventory. All inventory of the Company and its
Subsidiaries, whether reflected on the Current Balance Sheet or
otherwise, consists of a quality and quantity usable or salable
in the Ordinary Course of Business, subject to normal rates of
defect or obsolescence not inconsistent with the Company's
historical experience.
IV.13 Owned Real Property. The Company and its
Subsidiaries own no real property.
IV.14 Real Property Leases. There exists no event of
default (nor any event which with notice or lapse of time would
constitute an event of default) with respect to the Company, any
Subsidiary and, to the Company's knowledge, with respect to any
other party thereto under any agreement pursuant to which the
Company is the lessee or lessor of any real property, except for
such defaults and defects in enforceability as could not in the
aggregate be expected to have a Material Adverse Effect, and all
such agreements are in full force and effect and enforceable
against the lessor or lessee in accordance with their terms
except for such defaults and defects in enforceability as could
not in the aggregate be expected to have a Material Adverse
Effect.
IV.15 Agreements. Neither the Company nor any
Subsidiary is in default, nor to the knowledge of the Company is
there any basis for a valid claim of default, and to the
Company's knowledge no event has occurred which, with notice or
lapse of time, would constitute a default, under any agreement,
arrangement or understanding to which the Company or any
Subsidiary is a party, and to the knowledge of the Company no
other Person is in default under any such agreement, in each case
other than defaults which in the aggregate could not be expected
to have a Material Adverse Effect. Additionally, neither the
Company nor any Subsidiary is party to any agreement the
performance of which in accordance with its terms (including any
termination provision thereof) could be expected to have a
Material Adverse Effect.
IV.16 Intellectual Property. Schedule 4.16 sets forth
a complete list of (i) all patented, registered or applied for
Intellectual Property owned or filed by the Company; and (ii) all
trade names and material unregistered trademarks used by the
Company in connection with its business. The Company owns and
possesses all right, title and interest in and to, or has a valid
and enforceable license to use, the Intellectual Property
necessary for the operation of its business as currently
conducted and as currently proposed to be conducted, and no claim
by any third party contesting the validity, enforceability, use
or ownership of such Intellectual Property has been made or, to
the knowledge of the Company, is threatened. The Company has not
infringed or misappropriated the Intellectual Property of any
third party.
IV.17 Employees. Except as set forth on Schedule 4.17,
since the date of the Current Balance Sheet, no key employees and
no group of employees has terminated, or to the knowledge of the
Company plans to terminate, employment with the Company or any
Subsidiary, as applicable. Except as set forth on Schedule 4.17,
the Company is not a party to or bound by any collective
bargaining agreement, nor has it experienced any strike, material
grievance, material claim of unfair labor practice or other
collective bargaining dispute. Except as set forth on Schedule
4.17, to the knowledge of the Company there is no organizational
effort being made or threatened by or on behalf of any labor
union with respect to its employees. The Company has not
committed any unfair labor practice or materially violated any
federal, state or local law or regulation regulating employers or
the terms and conditions of its employees' employment, including
laws regulating employee wages and hours, employment
discrimination, employee civil rights, equal employment
opportunity and employment of foreign nationals, except for such
violations as could not be expected to have a Material Adverse
Effect.
IV.18 ERISA; Employee Benefits. Each Plan (other than
a Plan which is a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA) that is intended to be qualified
under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service or has
timely filed for a favorable determination letter from the
Internal Revenue Service and no event has occurred since the date
of the last determination letter that could reasonably be
expected to materially adversely affect the qualified status of
such Plan. Each Plan (other than a Plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA) is in full force and effect and has been administered in
all material respects in accordance with its terms and is and has
been, and each plan administrator and fiduciary of a Plan is
acting and has been acting, in compliance in all material
respects with all applicable requirements of the Code and ERISA
(including the funding, reporting and disclosure and prohibited
transaction provisions thereof) and other applicable laws,
regulations and rulings in connection with each such Plan. No
Plan has been terminated or partially terminated. With respect
to each Plan which is a "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA, no complete or partial withdrawal
(within the meaning of Sections 4203 and 4205 of ERISA) has
occurred, no such Plan is in reorganization or insolvency
(within the meaning of Title IV of ERISA) and no material
withdrawal liability has been assessed against the Company. The
Company or one of its Subsidiaries has made, accrued or provided
for all contributions required under each Plan. To the knowledge
of the Company, no event has occurred or is reasonably expected
to occur with respect to any employee pension benefit plan of the
Company or any member of the Company's controlled group (within
the meaning of Section 414 of the Code), which could reasonably
be expected to directly or indirectly result in any material
liability (other than liability arising in the ordinary course)
to the Company or any member of its controlled group pursuant to
Title IV of ERISA or Section 412 of the Code. No Plan (other
than a Plan which is a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA) has incurred an "accumulated funding
deficiency" within the meaning of Section 412 of the Code or
Section 302 of ERISA.
IV.19 Environment, Health and Safety.
(a) The Company (as used in this Section 4.19, Company
shall include the Company's Subsidiaries and its predecessor)
has complied and is in compliance in all material respects
with all Environmental and Safety Requirements that are
applicable to the Company's business.
(b) The Company has not received any written notice,
report or other information regarding any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to the Company
or its facilities and arising under Environmental and Safety
Requirements.
(c) The Company has not, either expressly or by operation
of law, assumed or undertaken any liability, including
without limitation any obligation for corrective or remedial
action, of any other person relating to Environmental and
Safety Requirements.
IV.20 Transactions With Affiliates. Except as
disclosed in filings made by the Company with the SEC pursuant to
the Securities Act and the Exchange Act, neither the Company nor
any Subsidiary is party to any agreement, arrangement or
transaction with any Affiliate which is material to the Company's
and its Subsidiaries business, taken as a whole.
IV.21 Taxes.
(a) Each of the Company, its predecessor and its
Subsidiaries has filed all Tax Returns that it was required
to file, and has paid all Taxes shown thereon as owing,
except where the failure to file Tax Returns or to pay Taxes
would not have a Material Adverse Effect on the financial
condition of the Company and its Subsidiaries taken as a
whole.
(b) None of the Company and its Subsidiaries (A) has been
a member of an affiliated group filing a consolidated federal
Tax Return (other than a group the common parent of which was
the Company) or (B) has any Liability for the Taxes of any
Person (other than any of the Company and its Subsidiaries)
under Treas. Reg. 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(c) Each of the Company, its predecessor and its
Subsidiaries has withheld and paid all taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax
Liability of any of the Company and its Subsidiaries either
(A) claimed or raised by any authority in writing or (B) as
to which any of the directors and officers (and employees
responsible for Tax matters) of the Company and its
Subsidiaries has knowledge based upon personal contact with
any agent of such authority and which is material to the
Company and its Subsidiaries taken as a whole.
IV.22 Other Investors. Set forth on Schedule 4.22 is a
list of all shareholders of the Company who as of the date
hereof, based upon Schedule I hereto and SEC filings of
shareholders, after giving effect to the terms hereof, own more
than 5% of the fully diluted common equity of the Company and
sets forth such percentage ownership.
IV.23 Year 2000 Representations.
(a) None of the computer software, computer firmware,
computer hardware (whether general or special purpose) or
other similar or related items of automated, computerized or
software systems that are used or relied on by Company or by
any of its Subsidiaries in the conduct of their respective
businesses will malfunction, will cease to function, will
generate incorrect data or will produce incorrect results
when processing, providing or receiving (i) date-related data
from, into and between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries.
(b) None of the products and services sold, licensed,
rendered, or otherwise provided by the Company or by any of
its Subsidiaries in the conduct of their respective
businesses will malfunction, will cease to function, will
generate incorrect data or will produce incorrect results
when processing, providing or receiving (i) date-related data
from, into and between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries; and,
accordingly, neither the Company nor any of its Subsidiaries
is or will be subject to any claim, demand, action, suit,
liability, damage, material loss, or material expense arising
from, or related to, circumstances where such products and
services malfunction, cease to function, generate incorrect
data, or produce incorrect results when processing, providing
or receiving (i) date-related data from, into and between the
twentieth and twenty-first centuries or (ii) date-related
data in connection with any valid date in the twentieth and
twenty-first centuries.
(c) Neither the Company nor any of its Subsidiaries has
made any other representations or warranties regarding the
ability of any product or service sold, licensed, rendered,
or otherwise provided by the Company or by any of its
Subsidiaries in the conduct of their respective businesses to
operate without malfunction, to operate without ceasing to
function, to generate correct data or to produce correct
results when processing, providing or receiving (i) date-
related data from, into and between the twentieth and twenty-
first centuries and (ii) date-related data in connection with
any valid date in the twentieth and twenty-first centuries.
IV.24 Seniority. No class of equity securities of the
Company is senior to the Preferred Shares in right of payment,
whether upon liquidation, dissolution or otherwise.
IV.25 Investment Company. The Company is not, and is
not controlled by or under common control with an affiliate of,
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
IV.26 Certain Fees. Other than fees and expenses due
and payable to Lehman Brothers, no fees or commissions will be
payable by the Company to any broker, financial advisor, finder,
investment banker, or bank with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims
made by or on behalf of Lehman Brothers or other Persons for fees
of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
The Company shall indemnify and hold harmless each of the
Purchasers, its employees, officers, directors, agents and
partners, and their respective affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act),
from and against all claims, losses, damages, costs (including
the costs of preparation and attorney's fees) and expenses
suffered in respect to any such claimed or existing fees.
IV.27 Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the
offering and sale of the Preferred Shares other than the
disclosure materials delivered to Purchasers (the "Disclosure
Materials") or (ii) solicited any offer to buy or sell the
Preferred Shares by means of any form of general solicitation or
advertising. None of the Disclosure Materials or any other
information provided to the Purchasers by or on behalf of the
Company contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
IV.28 Form S-3 Eligibility. No later than May 1, 1998,
the Company will be eligible to register securities for resale
with the SEC under Form S-3 promulgated under the Securities Act.
IV.29 Listing and Maintenance Requirements Compliance.
(i) The Company has not received notice (written or oral) from
the American Stock Exchange that the Company is not in compliance
with the listings or maintenance requirements of such Exchange.
(ii) Upon conversion of the Preferred Shares into shares of
Common Stock and upon the affirmative vote of the Company's
shareholders approving the issuance of the Preferred Shares and
the Conversion Shares, which vote shall occur not later than July
31, 1998, all Conversion Shares shall be listed on the American
Stock Exchange.
IV.30 Registration Rights; Rights of Participation.
Except as described on Schedule 4.30 hereto, (A) the Company has
not granted or agreed to grant to any Person any rights
(including "piggy-back" registration rights) to have any
securities of the Company registered with the SEC or any other
governmental authority which has not been satisfied and (B) no
Person, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers or agents, has
any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other related
document which has not been waived.
IV.31 Recent Results of Operations. Set forth on
Schedule 4.31 is (i) the Company's monthly recurring revenues for
the month of December 1997 and (ii) the Company's number of
subscribers as of December 31, 1997, each as prepared and
calculated in the Ordinary Course of Business.
IV.32 Small Business Matters. The Company acknowledges
that each SBIC Holder is a federally licensed SBIC under the SBIC
Act. The Company, together with its "affiliates" (as that term
is defined in 13 CFR 121.103), is a "small business concern"
within the meaning of the SBIC Regulations, including 13 CFR
121.301. The information regarding the Company and its
affiliates set forth in SBA Form 480, Form 652 and Parts A and B
of Form 1031 delivered at the Closing will be accurate and
complete. Neither the Company nor any of its subsidiaries will
use the proceeds of the Financing directly or indirectly for any
purpose, for which an SBIC is prohibited from providing funds by
SBIC Regulations (including 13 CFR 107.720).
Article V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the
Company as follows:
V.1 Authorization and Enforceability. Such Purchaser has
taken all action necessary to permit it to execute and deliver
this Agreement and the other documents and instruments to be
executed by it pursuant hereto and to carry out the terms hereof
and thereof. This Agreement and each such other document and
instrument, when duly executed and delivered by such Purchaser,
will constitute a valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms.
V.2 Government Approvals. Such Purchaser is not required
to obtain any order, consent, approval or authorization of, or to
make any declaration or filing with, any Governmental Agency in
connection with the execution and delivery of this Agreement and
the other documents and instruments to be executed by it pursuant
hereto or the consummation of the transactions contemplated
hereby and thereby, except for such order, consent, approval,
authorization, declaration or filing as which has been or will be
obtained or made.
Article VI
COMPLIANCE WITH SECURITIES LAWS
VI.1 Investment Intent of Purchasers. Each Purchaser
represents and warrants to the Company that it is acquiring the
Preferred Shares for its own account, with no present intention
of selling or otherwise distributing the same to the public.
VI.2 Status of Preferred Shares. Each Purchaser has
been informed by the Company that the Preferred Shares have not
been and will not be registered under the Securities Act or under
any state securities laws and are being offered and sold in
reliance upon federal and state exemptions for transactions not
involving any public offering.
VI.3 Sophistication and Financial Condition of
Purchaser. Each Purchaser represents and warrants to the Company
that it is an "Accredited Investor" as defined in Regulation D
under the Securities Act and that it considers itself to be an
experienced and sophisticated investor and to have such knowledge
and experience in financial and business matters as are necessary
to evaluate the merits and risks of an investment in the
Preferred Shares.
VI.4 Transfer of Preferred Shares and Conversion
Shares.
(a) Preferred Shares and Conversion Shares may be
transferred pursuant to (i) public offerings registered under
the Securities Act, (ii) Rule 144 of the SEC (or any similar
rule then in force), (iii) to an Affiliate of the
transferor, or (iv) subject to the conditions set forth in
Section 6.4(b), any other legally-available means of
transfer.
(b) In connection with any transfer of any Preferred
Shares or Conversion Shares (other than a transfer described
in Section 6.4(a)(i), (ii) or (iii)), the holder of such
shares shall deliver written notice to the Company describing
in reasonable detail the proposed transfer, together with an
opinion of counsel (Kirkland & Ellis or such other counsel
which, to the Company's reasonable satisfaction, is
knowledgeable in securities law matters) to the effect that
such transfer may be effected without registration of such
shares under the Securities Act. The holder of the shares
being transferred shall not consummate the transfer until (i)
the prospective transferee has confirmed to the Company in
writing its agreement to be bound by the provisions of this
Section 6.4 or (ii) such holder shall have delivered to the
Company an opinion of such counsel that no subsequent
transfer of such Preferred Shares or Conversion Shares shall
require registration under the Securities Act. Promptly upon
receipt of any opinion described in clause (ii) of the
preceding sentence, the Company shall prepare and deliver in
connection with the consummation of the proposed transfer,
new certificates for the Preferred Shares or Conversion
Shares being transferred that do not bear the legend set
forth in Section 6.4(c). Notwithstanding anything to the
contrary contained herein, Preferred Shares may not be
transferred to any of the Company's competitors listed on
Schedule 6.4(b) hereto without the Company's written consent
(other than pursuant to clauses (a)(i) or (a)(ii) above or a
tender offer made to each holder of the Company's Common
Stock).
(c) Except as provided in Section 6.4(b), until
transferred pursuant to clauses (a)(i) or (a)(ii) above, each
certificate for Preferred Shares or Conversion Shares shall
be imprinted with a legend substantially in the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
WERE ORIGINALLY ISSUED ON FEBRUARY 2, 1998 [OR
FEBRUARY 13, 1998 IN THE CASE OF PREFERRED SHARES
ISSUED ON THE ADVANCE CLOSING DATE] AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY APPLICABLE STATE SECURITIES
LAW. THE TRANSFER OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS
SET FORTH IN THE PREFERRED STOCK PURCHASE
AGREEMENT DATED AS OF FEBRUARY 2, 1998 BETWEEN
THE ISSUER (THE "COMPANY") AND THE PURCHASERS
LISTED ON SCHEDULE I THERETO. THE COMPANY
RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY
OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST
TO THE COMPANY.
VI.5 Exculpation Among Purchasers. Each Purchaser
acknowledges that it is not relying upon any person, firm or
corporation (including without limitation any other Purchaser),
other than the Company and its officers and directors, in making
its investment or decision to invest in the Company. Each
Purchaser agrees that no other Purchaser (acting in such
capacity) nor the respective controlling persons, officers,
directors, partners, agents or employees of any such other
Purchaser shall be liable to any other Purchaser in connection
with this investment for any action taken or omitted to be taken
by any of them prior to the date hereof in connection with the
Preferred Shares.
Article VII
CONDITIONS PRECEDENT
VII.1 Closing Deliveries to the Purchasers. The
following documents and items shall be delivered to the
Purchasers at or prior to the Closing:
(a) Evidence acceptable to the Purchasers of adoption by
the Company of the Certificate of Designations;
(b) A fully executed and delivered counterpart of the
Registration Rights Agreement;
(c) The written opinion of Robinson & Cole LLP, counsel
for the Company, in the form of Exhibit D hereto dated as of
the Closing Date;
(d) certificates of a duly authorized officer of the
Company dated as of the Closing Date:
(A) stating that the following conditions have been
satisfied as of the Closing Date,
(i) the representations and warranties of the Company
contained herein and in any writing delivered pursuant
hereto shall be true and correct when made and at and as
of the time of the Closing;
(ii) No action, suit, investigation or proceeding
shall be pending or threatened before any court or
Governmental Agency to restrain, prohibit, collect
damages as a result of or otherwise challenge this
Agreement or any Related Document or any transaction
contemplated hereby or thereby;
(iii) All acts or covenants required hereunder to
be performed by the Company prior to the Closing shall
have been fully performed by it;
(iv) No Material Adverse Change shall have
occurred between the date of the Current Balance Sheet
and the Closing Date; and
(B) setting forth the resolutions of the board of
directors of the Company authorizing the execution and
delivery of this Agreement and the Related Documents
(including the Certificate of Designations) and the
consummation of the transactions contemplated hereby and
thereby and certifying that such resolutions were duly
adopted and have not been rescinded or amended;
(e) such other documents relating to the transactions
contemplated hereby as Advance or other Purchasers may
reasonably request; and
(f) to each SBIC Holder,
(i) duly completed and executed SBA Forms 480, 652
and Parts A and B of 1031, and
(ii) a written certification from the Company
regarding its intended use of the proceeds of the
Financing.
VII.2 Closing Deliveries to the Company. At Closing,
each Purchaser other than Advance will deliver to the Company the
aggregate purchase price for the Preferred Shares purchased by
it. At the Advance Closing, Advance will deliver to the Company
the aggregate purchase price for the Preferred Shares purchased
by it.
Article VIII
COVENANTS OF THE COMPANY
VIII.1 Restricted Actions. Without the prior written
consent of the holders of two-thirds of the then outstanding
Preferred Shares the Company shall not, and shall not permit any
Subsidiary to:
(a) become subject to any agreement or instrument which
by its terms would (under any circumstances) restrict the
Company's right to comply with the terms of this Agreement or
any of the Related Documents;
(b) use the proceeds from the sale of the Preferred
Shares other than (i) primarily for acquisitions of assets or
businesses reasonably related to the Company's existing
business, and repayment of indebtedness, and (ii) the
remainder for other working capital purposes of the Company;
(c) enter into any transaction or series of transactions
with any stockholder, director, officer, employee or
Affiliate which would require disclosure pursuant to Rule 404
of Regulation S-K under the Securities Act unless such
transaction is approved by the Company's disinterested
directors; or
(e) expand the Company's Board of Directors to
greater than nine members.
VIII.2 Required Actions. For so long as at least 20% of
the Preferred Shares remain outstanding, the Company shall, and
shall cause each Subsidiary to:
(a) cause all properties owned by the Company or any
of its Subsidiaries or used or held for use in the conduct of
its business or the business of any of its Subsidiaries to be
maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and supplied with
all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Board of
Directors may be necessary so that the business carried on in
connection therewith may be properly and advantageously
conducted at all times; provided, however, that the foregoing
shall not prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance
is, in the judgment of the management of the Company,
desirable in the conduct of its business or the business of
any of its Subsidiaries and is not disadvantageous in any
material respect to the holders of Preferred Shares;
(b) preserve and keep in full force and effect the
corporate existence, rights (charter and statutory), licenses
and franchises of the Company and each of its Subsidiaries;
provided, however, that the Company shall not be required to
preserve any such right, license or franchise if the Board of
Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the
Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the
holders of Preferred Shares;
(c) maintain the books, accounts and records of the
Company and its Subsidiaries in accordance with past custom
and practice as used in the preparation of the Financial
Statements except to the extent permitted or required by
GAAP;
(d) keep all of its and its Subsidiaries' properties
which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound
and responsible, against loss or damage to the extent that
property of similar character is usually so insured by
corporations similarly situated and owning like properties
(which may include self-insurance, if reasonable and in
comparable form to that maintained by companies similarly
situated);
(e) comply with all material legal requirements and
material contractual obligations applicable to the operations
and business of the Company and its Subsidiaries and pay all
applicable Taxes as they become due and payable;
(f) permit representatives of the holders of
Preferred Shares (upon the request of holders of Preferred
Shares aggregating 12.5% or more of the Preferred Shares
originally issued hereunder) and their agents (including
their counsel, accountants and consultants) to have
reasonable access during business hours to the Company's
books, records, facilities, key personnel, officers,
directors, customers, independent accountants and legal
counsel;
(g) at all times file all reports (including annual
reports, quarterly reports and the information, documentation
and other reports) required to be filed by the Company under
the Exchange Act and Sections 13 and 15 of the rules and
regulations adopted by the SEC thereunder, and the Company
shall use its best efforts to file each of such reports on a
timely basis, and take such further action as any holder or
holders of Securities may reasonably request, all to the
extent required to enable such holders to sell Securities
pursuant to Rule 144 adopted by the SEC under the Securities
Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the SEC and
to enable the Company to register securities with the SEC on
Form S-3 or any similar short-form registration statement and
upon the filing of each such report deliver a copy thereof to
each holder of the Preferred Shares (or, if the Company is no
longer subject to the requirements of the Exchange Act,
provide reports in substantially the same form and at the
same times as would be required if it were subject to the
Exchange Act);
(h) maintain at all times a valid listing for the
Common Stock on a national securities exchange or the Nasdaq
National Market System;
(i) maintain all material Intellectual Property
Rights necessary to the conduct of its business and own or
have a valid license to use all right, title and interest in
and to, such material Intellectual Property Rights;
(j) within fifteen (15) days after the Advance
Closing Date (but not before) and at each subsequent election
of directors, (and each Purchaser agrees to use its best
efforts) elect to the Board of Directors of the Company
pursuant to Section 5A of the Certificate of Designations (x)
one individual designated by Advance as long as Advance owns
any Preferred Shares and (y) one individual elected by the
holders of a plurality of the Series A Preferred and Series B
Preferred, voting together as a single class; and
(k) on the Closing Date, have executed and delivered
the Credit Agreement on substantially the same principal
terms and conditions as set forth in the commitment letter
issued by the lenders a party thereto dated January 7, 1998;
and
(l) deliver Conversion Shares in accordance with the
terms and conditions, and time periods, set forth in the
Certificate of Designations.
VIII.3 Reservation of Common Stock. The Company shall
at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purposes of
issuance upon conversion of the Preferred Shares, such number of
shares of Common Stock as are issuable upon the conversion of all
outstanding shares of the Preferred Shares. All shares of Common
Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all
Taxes, liens and charges. The Company shall take all such
actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock
may be listed (except for official notice of issuance which shall
be immediately transmitted by the Company upon issuance).
VIII.4 Purchasers' Rights if Trading in Common Stock is
Suspended or Delisted. If at any time while any Purchaser (or
any assignee thereof) owns any Preferred Shares or Conversion
Shares, trading in the shares of the Common Stock is suspended on
or delisted from the American Stock Exchange or any other
principal market or exchange for such shares (other than as a
result of the suspension of trading in securities on such market
or exchange generally or temporary suspensions pending the
release of material information) for more than five business days
in the aggregate, at the option of any Purchaser exercisable by
written notice to the Company delivered after such suspension or
delisting, the Company shall redeem, in cash, one-twentieth of
the Preferred Shares and Conversion Shares then held by such
Purchaser, at an aggregate purchase price equal to the sum of (i)
the number of Preferred Shares to be redeemed multiplied by the
product of (1) the average per share market value for the five
(5) business days immediately preceding (a) the day of such
notice or (b) the date of payment in full of the redemption price
calculated under this Section, whichever is greater and (2) a
fraction, the numerator of which is 1,000 and the denominator of
which is the Conversion Price on (a) the date of the repurchase
notice, or (b) the date of payment in full of the redemption
price pursuant to this Section, whichever is lower, (ii) the
aggregate of all accrued but unpaid dividends payable in respect
of all Preferred Shares to be redeemed, (iii) the number of
Conversion Shares then held by such Purchaser multiplied by the
average per share market value for the five (5) business days
immediately preceding (A) the date of the notice or (B) the date
of payment in full by the Company of the redemption price
calculated under this Section, whichever is greater, and (iv)
interest on the amounts set forth in (i) - (iii) above accruing
from the 5th business day after such notice until the repurchase
price under this Section is paid in full at the rate of 14% per
annum. The Company shall provide written notice of any
redemption demand made pursuant to this Section to each other
holder of Preferred Shares or Conversion Shares within 24 hours
of its receipt thereof.
VIII.5 Use of Proceeds. At the same time the Company
files its annual report on Form 10-K and at such other times as
any SBIC Holder reasonably requests, the Company shall deliver to
each SBIC Holder a written statement certified by the Company's
president or chief financial officer describing in reasonable
detail the use of the proceeds of the Financing hereunder by the
Company and its Subsidiaries. In addition to any other rights
granted hereunder, the Company shall grant such SBIC Holder and
the SBA access to the Company's books and records for the purpose
of verifying the use of such proceeds and verifying the
certifications made by the Company in SBA Forms 480 and 652
delivered pursuant to Section 7.1(f) above and for the purpose
of determining whether the principal business activity of the
Company and its Subsidiaries continues to constitute an eligible
business activity (within the meaning of the SBIC Regulations).
Article IX
SURVIVAL
IX.1 Survival. The representations and warranties of
the parties hereto contained herein, or in any writing delivered
pursuant hereto, shall survive the Closing and expire 30 days
following the filing of the Company's annual report on Form 10-K
with the SEC for the Company's fiscal year that ends in 1999,
except that, notwithstanding anything to the contrary contained
herein, the representations of the Company contained in Section
4.23 hereof shall survive the Closing and expire on December 31,
2001.
Article X
INDEMNIFICATION
X.1 Indemnification. In consideration of each
Purchaser's execution and delivery of this Agreement and
acquiring the Preferred Stock hereunder and in addition to all of
the Company's other obligations under this Agreement, the Company
shall defend, protect, indemnify and hold harmless each Purchaser
and each other holder of Preferred Stock and all of their
officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages,
and expenses (including, without limitation, costs of suit and
attorneys' fees and expenses) in connection therewith
(irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought) (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of
them as a result of, or arising out of, or relating to (a) the
breach of any representation of warranty contained in any
agreement relating to any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Preferred Stock, (b) the execution, delivery,
performance or enforcement of this Agreement and any other
instrument, document or agreement executed pursuant hereto by any
of the Indemnitees or (c) resulting from any breach of any
representation, warranty, covenant or agreement made by the
Company herein or in any Related Document. The Company shall
reimburse the Indemnitees for the Indemnified Liabilities as such
Indemnified Liabilities are incurred. To the extent that the
foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities
which is permissible under applicable law.
Article XI
GENERAL PROVISIONS
XI.1 Successors and Assigns. This Agreement shall
bind and inure to the benefit of the parties hereto and their
respective successors and assigns, including each subsequent
holder of Preferred Shares or Conversion Shares. Except as
otherwise specifically provided herein, this Agreement shall not
be assignable by any party without the prior written consent of
the other parties hereto.
XI.2 Entire Agreement. This Agreement and the other
writings referred to herein or delivered pursuant hereto
constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior arrangements or
understandings.
XI.3 Notices. All notices, requests, consents and
other communications provided for herein shall be in writing and
shall be (i) delivered in person, (ii) transmitted by telecopy,
(iii) sent by first-class, registered or certified mail, postage
prepaid, or (iv) sent by reputable overnight courier service,
fees prepaid, to the recipient at the address or telecopy number
set forth below, or such other address or telecopy number as may
hereafter be designated in writing by such recipient. Notices
shall be deemed given upon personal delivery, seven days
following deposit in the mail as set forth above, upon
acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
(a) If to the Company:
Alarmguard Holdings, Inc.
125 Frontage Road
Orange, Connecticut 06477
Telecopy: (203) 799-9636
Attention: Russell R. MacDonnell
with a copy to:
Robinson & Cole LLP
695 East Main Street
Stamford, Connecticut 06904
Telecopy: (203) 462-7599
Attention: Richard A. Krantz, Esq.
(b) If to Advance:
Advance Capital Partners, L.P.
660 Madison Avenue
15th Floor
New York, New York 10021
Telecopy: (212) 835-2020
Attention: Robert A. Bernstein
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 446-4900
Attention: Joshua N. Korff, Esq.
(c) If to any other Purchaser to the address set forth
opposite such Purchaser's name on Schedule I hereto.
XI.4 Purchasers Fees and Expenses. The Company shall
reimburse the Purchasers for the reasonable fees and expenses of
Kirkland & Ellis incurred in connection with the documentation,
negotiation and consummation of the transactions contemplated by
this Agreement and the Related Documents (including any future
amendments or waivers thereto) and for reasonable due diligence
expenses incurred by the Purchasers.
XI.5 Amendment and Waiver. No amendment of any
provision of this Agreement shall be effective, unless the same
shall be in writing and signed by the Company and the holders of
two-thirds of the Preferred Shares and Conversion Shares held by
holders of Series A Preferred and Series B Preferred, taken
together. Any failure of the Company to comply with any
provision hereof may only be waived in writing by the holders of
two-thirds of the Preferred Shares and Conversion Shares held by
holders of Series A Preferred and Series B Preferred, taken
together, and any failure of any holder of Preferred Shares or
Conversion Shares to comply with any provision hereof may only be
waived in writing by the Company. No such waiver shall operate
as a waiver of, or estoppel with respect to, any subsequent or
other failure. No failure by any party to take any action
against any breach of this Agreement or default by any other
party shall constitute a waiver of such party's right to enforce
any provision hereof or to take any such action. Notwithstanding
anything to the contrary contained herein, no amendment to or
waiver of Section 8.2(j) without the prior written consent of
Advance shall be permitted. No amendment of any provision of
this Agreement shall be effective prior to the Advance Closing.
11.6 Like Treatment of Holders. Neither the Company
nor any of its affiliates shall, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest,
fee, payment for the redemptions or exchange of Preferred Shares,
or otherwise, to any holder of Preferred Shares, for or as an
inducement to, or in connection with the solicitation of, any
consent, waiver or amendment of any terms or provisions of the
Preferred Shares or this Agreement or the Registration Rights
Agreement, unless such consideration is required to be paid to
all holders of Preferred Shares bound by such consent, waiver or
amendment whether or not such holders so consent, waive or agree
to amend and whether or not such holders tender their Preferred
Shares for redemption or exchange. The Company shall not,
directly or indirectly, redeem any Preferred Shares unless such
offer of redemption is made pro rata to all holders of Preferred
Shares on identical terms.
11.7 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one
agreement.
11.8 Headings. The headings of the various sections
of this Agreement have been inserted for reference only and shall
not be deemed to be a part of this Agreement.
11.9 Specific Performance. The Company, on the one
hand, and the Purchasers, on the other hand, acknowledge that
money damages would not be a sufficient remedy for any breach of
this Agreement. It is accordingly agreed that the parties shall
be entitled to specific performance and injunctive relief as
remedies for any such breach, these remedies being in addition to
any of the remedies to which they may be entitled at law or
equity.
11.10 Remedies Cumulative. Except as otherwise
provided herein, the remedies provided herein shall be cumulative
and shall not preclude the assertion by any party hereto of any
other rights or the seeking of any other remedies against any
other party hereto.
11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE LAWS OF
CONFLICT OR CHOICE OF LAWS OF THE STATE OF NEW YORK OR OF ANY
OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF ANY
LAWS OTHER THAN THOSE OF THE STATE OF NEW YORK.
11.12 No Third Party Beneficiaries. Except as
specifically set forth or referred to herein, nothing herein is
intended or shall be construed to confer upon any person or
entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this
Agreement.
11.13 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
* * * * *
IN WITNESS WHEREOF, the parties have caused their duly
authorized officers to execute this Agreement as of the date
first above written.
ALARMGUARD HOLDINGS, INC.
By:
Name:
Title:
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.,
its General Partner
By:Advance Capital Management,LLC,
its General Partner
By:
Name: Robert A. Bernstein
Title: Principal
ADVANCE CAPITAL OFFSHORE
PARTNERS, L.P.
By:Advance Capital Offshore
Associates, LDC,
its General Partner
By:Advance Capital Associates,
L.P.,
its Sole Director
By:Advance Capital Management,
LLC,
its General Partner
By:
Name: Robert A. Bernstein
Title: Principal
CANAAN EQUITY, L.P.
By: Canaan Equity Partners, L.L.C.
By:
Name: Stephen L. Green
Title: Member/Manager
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
its General Partner
By: Exeter IV Advisors, Inc.,
its General Partner
By:
Name: Keith R. Fox
Title: President
LB I GROUP INC.
By:
Name: Alan H. Washkowitz
Title: Senior Vice President
ELLIOTT ASSOCIATES, L.P.
By:
Name: Paul E. Singer
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
as Attorney-in-Fact
By:
Name: Paul E. Singer
Title: President
ZIFF ASSET MANAGEMENT, L.P.
By:
Name: Philip B. Korsant
Title: President
OZ MASTER FUND, LTD.
By:
Name: Daniel S. Och
Title: Managing Member
OZ Management, L.L.C.
IBJS CAPITAL CORPORATION
By:
Name: Kevin P. Falvey
Title: Director
CREDIT SUISSE (GUERNSEY) LIMITED
as trustee of the Dynamic
Growth Fund II
By:
Name: M. E. Zunino
Title: Associate
AETNA LIFE INSURANCE COMPANY
By:
Name: Alan Vartelas
Title: Assistant Vice President
GRANITE PROPERTIES MANAGEMENT CORP.
By:
Name: Daren J. Wells
Title: Director, Private Equity
By:
Name: Paul Finkelstein
101
108723 BANKBOSTON, N.A. UPDIKE, KELLY & SPELLACY, P.C.
(Hartford/New Haven, Connecticut)
THIRD AMENDED AND RESTATED TERM LOAN AND
ACQUISITION CREDIT AGREEMENT
by and among
ALARMGUARD, INC.,
as Borrower,
SECURITY SYSTEMS HOLDINGS, INC., AND ALARMGUARD HOLDINGS, INC.,
AND PROTECTIVE ALARMS OF CANADA, INC.
as the Guarantors,
BANKBOSTON, N.A. (successor by merger to Bank of Boston
Connecticut),
GENERAL ELECTRIC CAPITAL CORPORATION,
IBJ SCHRODER BANK & TRUST COMPANY,
CIBC INC.
AND
THE OTHER BANKS AND LENDERS WHICH MAY BECOME A PARTY TO THIS
AGREEMENT,
as the Lenders,
BANKBOSTON, N.A. (successor by merger to Bank of Boston
Connecticut)
as the Administrative Agent,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as the Documentation Agent.
AS OF FEBRUARY 2,JANUARY __, 1998
THIRD AMENDED AND RESTATED TERM LOAN AND
ACQUISITION CREDIT AGREEMENT
This THIRD AMENDED AND RESTATED TERM LOAN AND ACQUISITION
CREDIT AGREEMENT (the "Agreement") is made as of this 2nd__ day
of FebruaryJanuary, 1998 by and among ALARMGUARD, INC., a
Delaware corporation, with its chief executive office located at
125 Frontage Road, Orange, Connecticut 06477 ("Borrower"), the
Guarantors which are or may become parties to this Agreement, the
banks, financial institutions and other lenders which are or may
become parties to this Agreement (individually, a "Lender" and
collectively, the "Lenders"), BANKBOSTON, N.A. (successor by
merger to Bank of Boston Connecticut), a national banking
association, with an office located at 100 Pearl Street,
Hartford, Connecticut 06103 as the Administrative Agent for the
Lenders (in such capacity, the "Administrative Agent"), and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation,
with an office located at 201 High Ridge Road, Stamford,
Connecticut 06927-5100 335 Madison Avenue, 12th Floor, New York,
New York 10017 as the Documentation Agent for the Lenders (in
such capacity, the "Documentation Agent").
W I T N E S S E T H:
Borrower is currently a direct wholly-owned subsidiary of
Security Systems Holdings, Inc., a Delaware corporation ("SSH"),
and SSH is currently a direct wholly-owned subsidiary of
Alarmguard Holdings, Inc. ("Alarmguard Holdings").
Borrower, SSH, Alarmguard Holdings, Bank of Boston
Connecticut, General Electric Capital Corporation and IBJ
Schroder Bank & Trust Company entered into a certain Second
Amended and Restated Term Loan and Acquisition Credit Agreement
dated as of April 15, 1997 (the "Original Closing Date") and
amended from time to time thereafter (as amended and in effect
from time to time, the "Original Credit Agreement") pursuant to
which Bank of Boston Connecticut, General Electric Capital
Corporation and IBJ Schroder Bank & Trust Company (such Lenders
being referred to in such capacity, the "Existing Lenders")
agreed to make loans and advances to Borrower. Upon the
execution of this Agreement, Borrower is currently indebted to
the Existing Lenders in the aggregate principal amount of
$46,900,000.00 (the "Existing Loans"), exclusive of accrued and
unpaid interest and other amounts due and payable under the
Original Credit Agreement.
Borrower has requested that the Lenders amend and restate the
terms and conditions of the Original Credit Agreement, inter
alia, to continue the Existing Loans, to increase the amount of
credit available to Borrower thereunder, to amend the purposes
for which Borrower is permitted to use the proceeds of loans and
advances thereunder, to make Protective Alarms of Canada, Inc., a
direct wholly-owned subsidiary of Borrower, a party thereto, and
to make CIBC Inc. a party thereto and a lender thereunder (CIBC
Inc. being referred to in such capacity as the "Additional
Lender") and to provide for the consent of the Administrative
Agents, the Documentation Agent and the Lenders to the
acquisition by Borrower of the capital stock of Detect, Inc.
BankBoston, N.A. has succeeded to the rights and obligations
of Bank of Boston Connecticut as a Lender and as the
Administrative Agent for the Lenders by virtue of the merger of
Bank of Boston Connecticut with and into BankBoston, N.A.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, Borrower, the Guarantors, the
Lenders, the Administrative Agent and the Documentation Agent
hereby agree that the Original Credit Agreement shall (subject to
the satisfaction of the conditions set forth in Section 5 hereof)
be amended and restated as follows:
SECTION 1. DEFINITIONS
All capitalized terms used in this Agreement, the Notes or the
Other Documents, or in any certificate, report or other document,
instrument or agreement executed or delivered pursuant hereto and
thereto (unless otherwise indicated therein) shall have the
meanings ascribed to such terms below.
Section 1.1. "Acquisition" means the Detect Acquisition and
each other acquisition of the assets or Capital Stock of a Person
made by Borrower or a Subsidiary of Borrower as permitted under
Section 6.32. hereof.
Section 1.2. "Acquisition Documents" means the documents,
agreements and instruments executed and delivered in connection
with an Acquisition.
Section 1.3. "Acquisition Loan" means each Revolving Loan
obtained by Borrower to finance the purchase price for, and the
reasonable fees, expenses and costs, including integration costs,
incurred by Borrower in connection with, an Acquisition.
Section 1.4. "Additional Lender" shall have the
meaning set forth in the Preamble hereof.
Section 1.5. "Adjusted Eurodollar Rate" means, as applied to
any Interest Period for a Eurodollar Loan, a rate per annum
determined by the Administrative Agent pursuant to the following
formula:
AER = [ IOR ] *
[1.00 - RP]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
* The amount in brackets shall be rounded upwards, if
necessary to the next higher 1/100 of 1%.
Where:
"Interbank Offered Rate" applicable to any Eurodollar
Loan for any Interest Period means the rate of interest
determined by the Administrative Agent to be the prevailing rate
per annum at which deposits in U.S. dollars are offered to the
Administrative Agent by first-class banks in the interbank
Eurodollar market in which it regularly participates on or about
10:00 a.m. (Boston, Massachusetts time) two (2) Business Days
before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Eurodollar
Loan to which such Interest Period is to apply for a period of
time approximately equal to such Interest Period.
"Reserve Percentage" applicable to any Interest Period
means the rate (expressed as a decimal) applicable to any member
bank of the Federal Reserve System during such Interest Period
under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the
maximum reserve requirement (including, without limitation, any
basic, supplemental, emergency or marginal reserve requirement)
of such member bank with respect to "Eurocurrency liabilities" as
that terms is defined under such regulations.
Section 1.6. "Administrative Agent" shall have the meaning
set forth in the Preamble hereof and shall include any successor
to the Administrative Agent appointed pursuant to Section 10.10.
hereof.
Section 1.7. "Administrative Questionnaire" shall have the
meaning set forth in Section 10.17. hereof.
Section 1.8. "Affiliate" means any Person (i) which directly
or indirectly controls, or is controlled by, or is under common
control with, Borrower or any Subsidiary of Borrower; (ii) which
directly or indirectly beneficially owns or holds ten percent
(10%) or more of any class of voting stock of Borrower or any
Subsidiary of Borrower or ten percent (10%) or more of the voting
stock of which is directly or indirectly beneficially owned or
held by Borrower or any Subsidiary of Borrower; or (iii) which is
an officer, director, joint venturer or partner of any Person
referred to in clause (i) or (ii) above. The term "control" (and
its correlative meanings "controlled by" and "under common
control with") as used in this Section 1.8. means the possession,
directly or indirectly, of the power to direct, or cause the
direction of, the management and policies of a Person, whether
through ownership of voting stock, by contract or otherwise.
Notwithstanding any provision of this Section 1.8. to the
contrary, the Administrative Agent, the Documentation Agent and
the Lenders shall not be considered an Affiliate of any Credit
Party for purposes of this Agreement.
Section 1.9. "Affiliate Subordination Agreement" means each
subordination agreement executed by an Affiliate of Borrower in
favor of the Administrative Agent and the Lenders with respect to
any Indebtedness due by Borrower to such Affiliate in
substantially the form of Exhibit F-1 attached hereto by SSH, as
any such Affiliate Subordination Agreement may be amended,
supplemented, modified or confirmed from time to time.
Section 1.10. "Agreement" means this Third Amended and
Restated Term Loan and Acquisition Credit Agreement, including
all schedules and exhibits attached hereto, and any and all
amendments, modifications and supplements hereto.
Section 1.11. "Alarmguard Holdings" shall have the meaning
set forth in the Preamble hereof.
Section 1.12. "Alarmguard Holdings Guarantee" means the
Guarantee Agreement executed by Alarmguard Holdings in favor of
the Administrative Agent for the ratable benefit of the Lenders
on the Original Closing Date, as such Alarmguard Holdings
Guarantee may be amended, supplemented, modified or confirmed on
the Closing Date and from time to time thereafter.
Section 1.13. "Alarmguard Holdings Pledge" means the Pledge
Agreement executed by Alarmguard Holdings in favor of the
Administrative Agent for the ratable benefit of the Lenders as of
the Original Closing Date, as such Alarmguard Holdings Pledge may
be amended, supplemented, modified or confirmed on the Closing
Date and from time to time thereafter.
Section 1.14. "Applicable Lending Office" means, for each
Lender and for each type of Loan, the lending office of such
Lender designated for such type of Loan as set forth on Schedule
1.14. attached hereto, as said Schedule 1.14. is amended,
supplemented or modified from time to time, as the office by
which its Loans of such type are to be made and maintained.
Section 1.15. "Asset Sale" means any sale, transfer or other
disposition by Borrower or any of its Subsidiaries to any Person
(other than to Borrower or a Subsidiary) of any asset (including,
without limitation, any Capital Stock of another Person, but
excluding the sale by such Person of its own Capital Stock) of
Borrower or such Subsidiary.
Section 1.16. "Assignment and Acceptance" shall have the
meaning set forth in Section 13.1. hereof.
Section 1.17. "Bankruptcy Code" means Title 11 of the United
States Code, entitled "Bankruptcy", as amended from time to time,
and all rules and regulations promulgated thereunder.
Section 1.18. "Base Rate" means the greater of (i) the rate
of interest announced from time to time by BankBoston, N.A. at
its head office located at 100 Federal Street, Boston,
Massachusetts 02100 as its "Base Rate", or (ii) the Federal Funds
Effective Rate plus 1/2 of 1% per annum (rounded upwards, if
necessary, to the next 1/16 of 1%).
Section 1.19. "Base Rate Loan" means any Loan bearing
interest at a rate determined by reference to the Base Rate.
Section 1.20. "Base Rate Margin" means a percentage per annum
determined as set forth in Section 2.3.5. hereof.
Section 1.21. "Borrower" shall have the meaning set forth in
the Preamble hereof.
Section 1.22. "Borrower Pledge Agreement" means the Pledge
Agreement executed by Borrower in favor of the Administrative
Agent for the ratable benefit of the Lenders on the Original
Closing Date, as such Borrower Pledge Agreement may be amended,
supplemented, modified or confirmed on the Closing Date and from
time to time thereafter.
Section 1.23. "Borrower Security Agreement" means the
Amended and Restated Security Agreement executed by Borrower in
favor of the Administrative Agent for the ratable benefit of the
Lenders on the Original Closing Date, as such Borrower Security
Agreement may be amended, supplemented, modified or confirmed on
the Closing Date and from time to time thereafter.
Section 1.24. "Borrowing Base" means, as of any date as of
which the amount thereof shall be determined, an amount which is
equal to RMR as of such date multiplied by 22.5.
Section 1.25. "Business Day" means, in the case of a
Eurodollar Loan, any day in which dealings in foreign currencies
and exchange between lenders may be carried on in the place where
the Eurodollar Office is located and in Boston, Massachusetts and
Hartford, Connecticut and, in all other cases, any day other than
a Saturday, Sunday, legal holiday or other day on which lenders
in the State of Connecticut or the Commonwealth of Massachusetts
are required or permitted by law to close.
Section 1.26. "Capital Expenditures" means, without
duplication, for any period, the aggregate of all expenditures
made by Borrower and its Subsidiaries that, in conformity with
GAAP, are required to be included in the "additions to property,
plant, equipment" or similar fixed asset account reflected within
the consolidated Financial Statements of Borrower and its
Subsidiaries.
Section 1.27. "Capital Lease" means any lease of any property
(whether real, personal or mixed) that, in conformity with GAAP,
should be accounted for as a capital lease.
Section 1.28. "Capital Stock" means any and all shares,
interests, participations or other equivalents, however
designated, of the capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any
of the foregoing.
Section 1.29. "Cash Proceeds" means, with respect to any
Asset Sale, the aggregate cash payments (including any cash
received by way of deferred payment pursuant to a note receivable
issued in connection with such Asset Sale, other than the portion
of such deferred payment constituting interest, but only as and
when so received) received by Borrower and/or any of its
Subsidiaries from such Asset Sale.
Section 1.30. "Change in Control Event" means any event which
results in (i) Alarmguard Holdings ceasing to own directly 100%
on a fully diluted basis of the Capital Stock of SSH (other than
as a result of the consolidation of Alarmguard Holdings with
SSH), (ii) SSH or Alarmguard Holdings ceasing to own directly
100% on a fully diluted basis of the Capital Stock of the
Borrower, or (iii) any Person (other than a Continuing
Shareholder) or "group" (within the meaning of Rules 13d-3 and
13d-5 under the Exchange Act) (other than a group of the
Continuing Shareholders) directly or indirectly having directly
or indirectly acquired beneficial or record ownership of more
than 20% of the aggregate ordinary voting power represented by
the issued and outstanding shares of the Capital Stock of
Alarmguard Holdings (including, but not being limited to, the
acquisition of such beneficial or record ownership by way of
proxy, voting trust, voting agreement or stock pledge) or (iv)
the board of directors of Alarmguard Holdings ceasing to consist
of a majority of Continuing Directors.
Section 1.31. "Closing Date" means the date hereof or, if
later, the date on which all conditions precedent to the
amendment and restatement of the Original Credit Agreement and
the making of the initial Extension of Credit hereunder are
satisfied or waived.
Section 1.32. "Code" means the Internal Revenue Code of 1986
and the rules and regulations promulgated thereunder,
collectively, as the same may from time to time be supplemented
or amended and remain in effect.
Section 1.33. "Collateral" means all collateral received or
delivered as security for the Obligations pursuant to the
Security Documents, and any properties and interests provided in
addition to or in substitution for any of the foregoing.
Section 1.34. "Collateral Disclosure List" means each list
completed by Borrower for the purpose of disclosing certain
information with respect to the Collateral in substantially the
form attached hereto as Exhibit F-2, as any such Collateral
Disclosure List may be amended, supplemented or modified from
time to time.
Section 1.35. "Commitment" means, with respect to each
Lender, at any time, such Lender's several obligation to make
Revolving Loans, which obligation shall not exceed, in the case
of each Lender, the amount set forth next to its name on Schedule
1.35. attached hereto, as such Schedule 1.35. may be amended,
modified and/or substituted from time to time by the
Administrative Agent in accordance with Section 13.2. hereof.
Section 1.36. "Commitment Percentage" means, with respect to
each Lender, the percentage set forth opposite such Lender's name
on Schedule 1.36. attached hereto, as such Schedule 1.36. may be
amended, modified and/or substituted from time to time by the
Administrative Agent in accordance with Section 13.2. hereof.
Section 1.37. "Consolidated Current Assets" means, as of any
date as of which the amount thereof shall be determined, all
amounts that should, in accordance with GAAP, be included as
current assets on a consolidated balance sheet of Borrower and
its Subsidiaries prepared as of such date; provided, however,
that such amounts shall not include (a) cash or cash equivalents,
(b) any amounts for any Indebtedness owing by an Affiliate of
Borrower, unless such Indebtedness arose in connection with the
sale of goods or other property in the ordinary course of
business and would otherwise constitute current assets in
conformity with GAAP, (c) any Capital Stock issued by an
Affiliate of Borrower, (d) the cash surrender value of any life
insurance policy or (e) any Consolidated Intangibles.
Section 1.38. "Consolidated Current Liabilities" means, as of
any date as of which the amount thereof shall be determined, all
amounts that should, in accordance with GAAP, be included as
current liabilities (inclusive of deferred revenue) on the
consolidated balance sheet of Borrower and its Subsidiaries
prepared as of such date, plus, to the extent not already
included therein, (a) all Indebtedness of any such Person that is
payable upon demand or within one (1) year from such date of
determination unless such Indebtedness is renewable or extendable
at the option of Borrower or any Subsidiary to a date more than
one (1) year from such date of determination and (b) all reserves
in respect of liabilities or Indebtedness payable on demand or,
at the option of the Person to whom such Indebtedness is owed,
within one (1) year from such date of determination, the validity
of which is contested at such date, but excluding any payments in
respect of any Indebtedness of any such Person (whether
installment, serial maturity or sinking fund payments or
otherwise) having an original term of more than one (1) year
required to be made not more than one (1) year after such date of
determination.
Section 1.39. "Consolidated EBITDA" means, in respect of
Borrower and its consolidated Subsidiaries, for any period, the
sum for such period of (a) Consolidated Net Income, (b) the sum
of provisions for taxes, interest expense and depreciation and
amortization expense used in determining such Consolidated Net
Income and (c), without duplication of any amounts set forth in
subsection (b) hereof, the Direct Marketing Program Net Loss for
such period.
Section 1.40. "Consolidated Intangibles" means, as of any
date as of which the amount thereof shall be determined, all
assets of Borrower and its Subsidiaries, determined on a
consolidated basis as of such date, that would be classified as
intangible assets in accordance with GAAP, but in any event
including, without limitation, items such as (a) unamortized debt
discount and expense, (b) unamortized organization and
reorganization expense, (c) costs in excess of the net asset
value of acquired companies, (d) patents, trade and service marks
and names, copyrights, (e) research and development expenses
except prepaid expenses, (f) all reserves not already deducted
from assets; (g) any write-up in the book value of assets
resulting from any reevaluation thereof (other than revaluations
arising out of foreign currency valuations in accordance with
GAAP) subsequent to the date of the Financial Statements referred
to in Section 4.7 hereof, and (h) the value of any minority
interests in any Person.
Section 1.41. "Consolidated Net Income" means, for any
period, the consolidated net income (or deficit) of Borrower and
its consolidated Subsidiaries for such period, determined in
accordance with GAAP but excluding (a) the income (or deficit) of
any Person accrued prior to the date on which it becomes a
Subsidiary or is merged into or consolidated with Borrower or any
Subsidiary, (b) the income (or deficit) of any Person (other than
a Subsidiary) in which Borrower or any Subsidiary has an
ownership interest, except to the extent that any such income has
been actually received by Borrower or such Subsidiary in the form
of dividends or similar distributions, (c) the undistributed
earnings of any Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any Contractual
Obligation or Requirement of Law applicable to such Subsidiary,
(d) any restoration to income of any contingency reserve, except
to the extent that provision for such reserve was made out of
income accrued during such period, (e) any aggregate net gain
(but not aggregate net loss) during such period arising from the
sale, exchange or other disposition of capital assets (such term
to include all fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed
assets and all securities), (f) any write-up of any asset, (g)
any net gain from the collection of the proceeds of life
insurance policies, (h) any gain arising from the acquisition of
any securities, or the extinguishment, under GAAP, of any
Indebtedness, of Borrower or any Subsidiary, (i) in the case of a
successor to Borrower by merger or consolidation or as a
transferee of its assets, any earnings of the successor
corporation prior to such merger, consolidation or transfer of
assets, (j) any deferred credit representing the excess of equity
in any Subsidiary at the date of acquisition over the cost of the
investment in such Subsidiary and (k) any extraordinary gains or
losses other than those described in (a) through (j) above.
Section 1.42. "Consolidated Senior Debt" means, as of any
date or for any period as of which the amount thereof shall be
determined, the aggregate Indebtedness of Borrower and its
Subsidiaries to the Lenders under this Agreement as of such date
or during such period determined on a consolidated basis.
Section 1.43. "Consolidated Total Debt Service" means, for
any period, the sum of (a) the amounts deducted for Consolidated
Total Interest in determining Consolidated Net Income for such
period and (b) the amounts of scheduled payments of principal of
Indebtedness of Borrower and its consolidated Subsidiaries during
such period.
Section 1.44. "Consolidated Total Debt" means, as of any date
or for any period as of which the amount thereof shall be
determined, the aggregate Indebtedness of any Person and its
Subsidiaries as of such date or during such period determined on
a consolidated basis but excluding, in the case of Borrower and
its consolidated Subsidiaries, Indebtedness evidenced by the
Steffanato Note.
Section 1.45. "Consolidated Total Interest" means, for any
period, the amount of interest which, in conformity with GAAP,
would be set forth opposite the caption "interest expense" or
similar caption (including without limitation, imputed interest
included in payment under Capital Leases) on a consolidated
income statement of Borrower and its consolidated Subsidiaries
for such period, less the amount of any interest earned during
such period but excluding interest accreted in respect of the
Steffanato Note.
Section 1.46. "Contingent Obligation" means, as applied to
any Credit Party or any of its Subsidiaries, any guarantee,
endorsement or other contingent or surety obligation with respect
to obligations of any other Person, whether or not reflected on
the consolidated balance sheet of such Credit Party and its
Subsidiaries, including any obligation to furnish funds, directly
or indirectly (whether by virtue of partnership arrangements, by
agreement to keep-well or otherwise), through the purchase of
goods, supplies or services, or by way of stock purchase, capital
contribution, advance or loan, or to enter into a contract for
any of the foregoing, for the purpose of payment of obligations
of any other Person.
Section 1.47. "Continuing Directors" means the directors of
Alarmguard Holdings on the Closing Date as set forth on Schedule
1.47. attached hereto and each other director elected or
appointed after the Closing Date if such director's nomination or
appointment to the board of directors is recommended by a
majority of the then Continuing Directors.
Section 1.48. "Continuing Shareholders" means the Persons
possessing shares of the Capital Stock of Alarmguard Holdings as
of the Closing Date and listed on Schedule 1.48. attached hereto.
Section 1.49. "Contractual Obligation" means, as applied to
any Person, any indenture, mortgage, deed of trust, contract,
undertaking, agreement or other instrument to which that Person
is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
Section 1.50. "Control" means the possession, directly or
indirectly, of the power to direct, or cause the direction of,
the management and policies of a Person, whether through
ownership of voting stock, by contract or otherwise.
"Controlling" and "Controlled" shall have meanings correlative
thereto.
Section 1.51. "Controlled Group" means all trades or
businesses (whether or not incorporated) under common control
that together with Borrower or any Subsidiary, are treated as a
single employer under Section 413(b) or 413(c) of the Code or
Section 4001 of ERISA.
Section 1.52. "Credit Parties" means Borrower, each of its
Subsidiaries, SSH and Alarmguard Holdings, collectively.
Section 1.53. "Credit Party" means Borrower, each of its
Subsidiaries, SSH or Alarmguard Holdings, individually.
Section 1.54. "Customer Contracts" means contracts and
agreements (x) which have been duly executed by and between
Borrower and its customers, or any Subsidiary of Borrower and its
customers (other than customers now or formerly of Protective
Alarms of Canada, Inc.), , for regular and ongoing electrical
protection, monitoring, closed circuit television and access
control services and maintenance, fire and sprinkler inspection
and testing and other related services and (y) which (i) have not
been canceled by Borrower or any Subsidiary of Borrower in
accordance with Borrower's cancellation policies and procedures
in effect on the Original Closing Date as set forth in the Price
Waterhouse Report, (ii) are not subject to cancellation in
accordance with such policies and procedures or (iii) have not
otherwise been canceled or terminated by Borrower or a customer.
Section 1.54.a. "Dealer Program" means an internal marketing
program conducted by Borrower, the costs and expenses of which
are separately identified and segregated for accounting purposes
in a manner satisfactory to the Administrative Agent and the
Lenders, for the purpose of generating new Customer Contracts
through authorized dealers and independent sales agents.
Section 1.54.b. "Dealer Program Costs" means, as of any date
as of which the amount thereof shall be determined, the aggregate
amount of all Program Capital Expenditures which relate to the
Dealer Program as of such date plus the Dealer Program Net Loss
as of such date.
Section 1.54.c. "Dealer Program Net Loss" means, for any
period, the difference between (i) the revenue derived from the
Dealer Program during such period less (ii) all expenses
(excluding depreciation and amortization for such period relating
to the Dealer Program) incurred by Borrower in connection with
the Dealer Program during such period, all of the foregoing being
calculated in accordance with GAAP.
Section 1.55. "Default" means an event or condition that, but
for the lapse of time, the giving of notice, or both, would
constitute an Event of Default if that event or condition was not
cured or removed within any applicable grace or cure period.
Section 1.56. "Default Rate" means the rate of interest
determined by increasing the rate of interest otherwise
chargeable under this Agreement to a rate which shall be the
lower of (i) the highest rate allowed by law or (ii) two
percentage points (2.0%) above the rate of interest which would
otherwise be in effect under this Agreement.
Section 1.57. "Defaulting Lender" shall have the meaning set
forth in Section 2.6.2. hereof.
Section 1.58. "Deferred Purchase Price Obligations" means any
and all obligations of any Credit Party other than Borrower or a
Subsidiary of Borrower incurred as permitted under Section
8.1.(g) hereof for amounts deferred or withheld in respect of the
purchase price for any Acquisition, including amounts withheld as
potential set-offs against Customer Contract terminations,
purchase price adjustments or otherwise.
Section 1.59. "Detect" means Detect, Inc., a Connecticut
corporation, having a chief executive office located at,
following the consummation of the Detect Acquisition, 125
Frontage Road, Orange, Connecticut 06477.
Section 1.59.ab. "Detect Acquisition" means the acquisition
of the Capital Stock of Detect by Borrower as contemplated by,
and in accordance with the terms and conditions of, the Detect
Acquisition Documents.
Section 1.59.bca. "Detect Acquisition Documents" means that
certain Stock Purchase and Sale Agreement made as of December 10,
1997 by and among SSH and the stockholders of Detect and assigned
by SSH to Borrower and all other documents, agreements,
instruments and certificates executed and delivered in connection
therewith.
Section 1.59. "Direct Marketing Capital Expenditures" means,
without duplication, for any period, the aggregate of all Capital
Expenditures made by Borrower in connection with the Direct
Marketing Program.
Section 1.60. "Direct Marketing Program" means anthe internal
marketing programs conducted by Borrower, the costs and expenses
of which are separately identified and segregated for accounting
purposes in a manner satisfactory to the Administrative Agent and
the Lenders for the purpose of generating new Customer Contracts
through telemarketing. dealer or other marketing techniques by
making an investment in the initial installation of a residential
or small commercial security alarm monitoring system .[add Dealer
Program].
Section 1.61. "Direct Marketing Program Costs" means, as of
any date as of which the amount thereof shall be determined, the
aggregate amount of all Direct Marketing Program Capital
Expenditures which relate to the Direct Marketing Program as of
such date plus the Direct Marketing Program Net Loss as of such
date.
Section 1.62. "Direct Marketing Program Net Loss" means, for
any period, the difference between (i) the revenue derived from
the Direct Marketing Program during such period less (ii) all
expenses (excluding depreciation and amortization for such period
relating to the Direct Marketing Program) incurred by Borrower in
connection with the Direct Marketing Program during such period,
all of the foregoing being calculated in accordance with GAAP.
Section 1.63. "Dividend" or "Dividends" means the payment of
any dividend or other distribution in respect of the Capital
Stock of a Person in cash or other property (excepting
distribution in the form of such Capital Stock) or the redemption
or acquisition of any Capital Stock or security of a Person.
Section 1.64. "Documentation Agent" shall have the meaning
set forth in the Preamble hereof.
Section 1.65. "Dollars" and "$" means dollars in the lawful
currency of the United States of America.
Section 1.66. "Encumbrance or "Encumbrances" means any
security interest, mortgage, pledge, lien, claim, charge,
encumbrance, title retention agreement, lessor's interest under a
financing lease or any analogous arrangements in any Credit
Party's properties or assets, intended as, or having the effect
of, security.
Section 1.67. "Environmental Certificate" shall have the
meaning set forth in Section 5.2.11. hereof.
Section 1.68. "Environmental Laws" means any and all
applicable laws, statutes, ordinances, rules, regulations,
orders, or determinations of any Governmental Authority
pertaining to the environment, including without limitation, the
Clean Water Act, the Clean Air Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), and as may be further amended (all together herein
called "CERCLA"), the Federal Water Pollution Control Amendments,
the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Hazardous Materials Transportation Act of 1975, as
amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, and any comparable or similar
applicable environmental laws of the State of Connecticut and any
other state in which Borrower maintains business premises.
Likewise, the terms "hazardous substance," "release," and
"threatened release" herein referenced in connection with
Environmental Laws shall have the meanings specified in CERCLA
and the terms "solid waste" and "dispose" (or "disposed") shall
have the meanings specified in RCRA; provided, however, in the
event either CERCLA or RCRA is amended so as to broaden the
meaning of any term defined therein, such broader meaning shall
apply subsequent to the effective date of such amendment, and
provided further that, to the extent the laws of any state which
establish a meaning for "hazardous substance," "release," "solid
waste" or "disposal" which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply to
business operations conducted in that particular state.
Section 1.69. "ERISA" means the Employee Retirement Income
Security Act of 1974 and the rules and regulations promulgated
thereunder; collectively, as the same may from time to time be
supplemented or amended and remain in effect.
Section 1.70. "Eurodollar Loan" means any Loan which is
bearing interest at a rate determined by reference to the
Adjusted Eurodollar Rate.
Section 1.71. "Eurodollar Margin" means a per annum
percentage determined in the manner set forth in Section 2.3.5.
hereof.
Section 1.72. "Eurodollar Tranche" means all Eurodollar Loans
with respect to which the Interest Periods applicable thereto
begin on the same date and end on the same later date (whether or
not such Loans were originally made on the same day).
Section 1.73. "Event of Default" shall have the meaning set
forth in Section 11.1. hereof.
Section 1.74. "Excess Cash Flow" means, for any Fiscal Year,
all amounts which would be included in Consolidated Net Income of
Borrower and its Subsidiaries during such Fiscal Year,
plus, (a) the sum of (i) to the extent that such amounts have
been deducted in determining Consolidated Net Income
for such fiscal period, all amounts attributable to
depreciation and/or amortization and other non-cash charges
to Consolidated Net Income and (ii) the decrease, if any, in
the amount of the excess of Consolidated Current Assets over
Consolidated Current Liabilities at the end of such Fiscal
Year compared to the amount of the excess of Consolidated
Current Assets over Consolidated Current Liabilities at the
end of the immediately preceding Fiscal Year,
minus, (b) the sum of (i) the amount of all regularly
scheduled payments of principal of the Loans actually made
during such Fiscal Year and the amount of any voluntary
prepayment of principal of the Loans made during such Fiscal
Year, (ii) the amount of Capital Expenditures permitted by
Section 8.9. actually made during such Fiscal Year, (iii) the
amount of payments made in respect of Capital Leases actually
made during such Fiscal Year and (iv) the increase, if any,
in the amount of the excess of Current Consolidated Assets
over Consolidated Current Liabilities at the end of such
Fiscal Year compared to the amount of the excess of
Consolidated Current Assets over Current Consolidated
Liabilities at the end of the immediately preceding Fiscal
Year.
Section 1.75. "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
Section 1.76. "Existing Lenders" shall have the meaning set
forth in the Preamble hereof.
Section 1.77. "Existing Loans" shall have the meaning set
forth in the Preamble hereof.
Section 1.78. "Extension of Credit" means any Loan or other
extension of credit made by the Lenders to Borrower under this
Agreement.
Section 1.79. "Facility Fee" shall have the meaning set forth
in Section 2.4.1. hereof.
Section 1.80. "Federal Funds Effective Rate" means for any
day, a fluctuating interest rate per annum equal to the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative
Agent from three (3) Federal funds brokers of recognized standing
selected by the Administrative Agent.
Section 1.81. "Fees" means the Facility Fee and any other
fees payable under this Agreement to the Lenders, including, but
not being limited to, any fees payable under Section 2.3.7. and
Section 2.5.2., but excluding any fees payable to the
Administrative Agent for its own account.
Section 1.82. "Financial Statement" or "Financial Statements"
means, as of any date, or with respect to any period, as
applicable, a financial report or reports consisting of (i) a
balance sheet; (ii) an income statement; (iii) a statement of
cash flow; and (iv) a statement of changes in stockholders'
equity.
Section 1.83. "Fiscal Quarter" means each fiscal period of
Borrower and its Subsidiaries ending on each March 31, June 30,
September 30 and December 31 in each Fiscal Year.
Section 1.84. "Fiscal Year" means each fiscal period of
Borrower and its Subsidiaries commencing on January 1 in each
calendar year and ending on December 31 in such year.
Section 1.85. "Forecasts" shall have the meaning set forth in
Section 4.8. hereof.
Section 1.86. "GAAP" means generally accepted accounting
principles in the United States of America as in effect on the
Closing Date, consistently applied but subject to adjustment in
accordance with Section 14.20. hereof.
Section 1.87. "Governing Documents" means, as to any Person,
the articles or certificate of incorporation and by-laws or other
organic organizational or governing documents of such Person.
Section 1.88. "Governmental Authority" means any Federal,
state, local or foreign court, commission or tribunal, or
governmental, administrative or regulatory agency, department,
authority, instrumentality or other body exercising executive,
legislative, judicial, regulatory or administrative functions of,
or pertaining to, government.
Section 1.89. "Government Obligations" means securities which
are general obligations of the United States of America or which
are unconditionally guaranteed by the United States of America as
to timely payment of principal and interest.
Section 1.90. "Guarantee" means the Alarmguard Holdings
Guarantee, the SSH Guarantee or any Subsidiary Guarantee,
individually.
Section 1.91. "Guarantees" means the Alarmguard Holdings
Guarantee, the SSH Guarantee and each Subsidiary Guarantee,
collectively.
Section 1.92. "Guarantor" means Alarmguard Holdings, SSH or
any Subsidiary of Borrower, individually.
Section 1.93. "Guarantors" means Alarmguard Holdings, SSH and
the Subsidiaries of Borrower, collectively.
Section 1.94. "Hazardous Materials" means (i) any chemical,
compound, material, mixture or substance that is now or hereafter
defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials",
"extremely hazardous waste", "restricted hazardous waste", or
"toxic substances" or terms of similar import under any
applicable Federal, state or local law or under the regulations
adopted or promulgated pursuant thereto, including, without
limitation, Environmental Laws; (ii) any oil, petroleum or
petroleum derived substance, any drilling fluids, produced waters
and other wastes associated with the exploration, development or
production of crude oil, any flammable substances or explosives,
any radioactive materials, any hazardous wastes or substances,
any toxic wastes or substances or any other materials or
pollutants which (a) could pose a hazard to any properties or
assets of Borrower or its Subsidiaries or (b) could cause any of
such properties or assets to be in violation of any Environmental
Laws; (iii) asbestos in any form, urea formaldehyde foam
insulation, electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls
in excess of fifty (50) parts per million; and (iv) any other
chemical, material or substance, exposure to, or disposal of,
which is now or hereafter prohibited, limited or regulated by any
Federal, state or local governmental body, instrumentality or
agency.
Section 1.95. "Indebtedness" means, as of any date as applied
to any Person, without duplication: (a) all indebtedness for
borrowed money (whether by loan or the issuance and sale of debt
securities); (b) that portion of obligations with respect to
Capital Leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (c) notes payable and
drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money; (d) any obligation
owed for all or any part of the deferred purchase price of
property or services if the purchase price is due more than six
(6) months from the date the obligation is incurred or is
evidenced by a note or similar written instrument; (e)
obligations of such Person under interest rate swaps, caps,
collars and similar arrangements and (f) all indebtedness secured
by any Encumbrance on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is nonrecourse to the
credit of that Person but Indebtedness shall not include Deferred
Purchase Price Obligations or amounts payable by Alarmguard
Holdings to the Internal Revenue Service in an aggregate amount
not to exceed NINE HUNDRED SEVENTY-SEVEN THOUSAND AND N0/100
DOLLARS ($977,000.00) minus any amortization thereof since the
Original Closing Date.
Section 1.96. "Interest Period" means,
(a) with respect to each Eurodollar Loan, the period
commencing on the date of the making or continuation of, or
conversion to, such Eurodollar Loan and ending one (1), two (2),
three (3) or six (6) months thereafter, as Borrower may elect in
the applicable Notice; and
(b) with respect to each Base Rate Loan, the period
commencing on the date of the making or continuation of, or
conversion to, such Base Rate Loan and ending on the Maturity
Date or such earlier date as the Borrower may elect in the
applicable Notice;
provided, however, that:
(i) any Interest Period (other
than an Interest Period determined pursuant to
clause (iii) below) that would otherwise end on a
day that is not a Business Day shall be extended
to the next succeeding Business Day unless, in
the case of Eurodollar Loans, such Business Day
falls in the next calendar month, in which case
such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period
applicable to a Eurodollar Loan that begins on
the last Business Day of a calendar month (or on
a day for which there is no numerically
corresponding day in the calendar month at the
end of such Interest Period) shall, subject to
clause (iii) below, end on the last Business Day
of a calendar month;
(iii) any Interest Period that
would otherwise end after the Maturity Date shall
end on the Maturity Date; and
(iv) notwithstanding clause (iii)
above, no Interest Period applicable to a
Eurodollar Loan shall have a duration of less
than one (1) month and if any Interest Period
applicable to such Loan would be for a shorter
Interest Period, such Interest Period shall not
be available hereunder.
Section 1.97. "Interest Protection Arrangement" means any
interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate hedging agreement
or other similar interest rate protection agreement or
arrangement.
Section 1.98. "Investment" means, as applied to any Credit
Party and its Subsidiaries, (i) the purchase or acquisition of
(x) any share of Capital Stock, indebtedness or other equity
security of any other Person, or (y) all or any material portion
of the properties and assets of any Person, (ii) any loan,
advance or extension of credit to, or contribution to the capital
of, any other Person, (iii) any real estate held for sale or
investment, (iv) any commodities futures contracts held other
than in connection with bona fide hedging transactions permitted
under this Agreement, (v) any other investment in any other
Person, and (vi) the making of any commitment or acquisition of
any option to make an Investment.
Section 1.99. "Lease Assignment" means each Collateral
Assignment of Lease executed by Borrower in favor of the
Administrative Agent for the ratable benefit of the Lenders,
substantially in the form of Exhibit F-3 attached hereto, as any
such Lease Assignment may be amended, supplemented, modified or
confirmed from time to time.
Section 1.100. "Lease Obligations" means, for any period, the
aggregate rental obligation of Borrower and its Subsidiaries
payable during such period in respect of real and/or personal
property (net of income from subleases thereof, but including
taxes, insurance, maintenance and similar expenses which the
lessee is obligated to pay under the terms of such leases),
whether or not such obligations are reflected as liabilities or
commitments on a consolidated balance sheet of Borrower and its
Subsidiaries or in the notes thereto but excluding obligations
under Capital Leases.
Section 1.101. "Leasehold Mortgage" means each leasehold
mortgage or deed of trust executed or amended and confirmed by
Borrower in favor of the Administrative Agent for the ratable
benefit of the Lenders, substantially in the form of Exhibit F-4
attached hereto, individually or collectively, as the case may
be, as any such Leasehold Mortgage may be amended, supplemented,
modified or confirmed from time to time.
Section 1.102. "Lender" shall have the meaning set forth in the
Preamble hereof, and shall specifically refer to any Existing
Lender or the Additional Lender.
Section 1.103. "Lenders" shall have the meaning set forth in
the Preamble hereof, and shall specifically refer to the Existing
Lenders and the Additional Lender.
Section 1.104. "Lender Affiliate" or "Lender Affiliates"
means any affiliate of the Administrative Agent, the
Documentation Agent, the Lenders or their parent holding
companies.
Section 1.105. "Lender Agents" means the Administrative
Agent, the Documentation Agent, any Lender and any Lender
Affiliate, and any of their directors, officers, employees,
counsel, accountants, consultants and agents.
Section 1.106. "Leverage Ratio" means, for any period with
respect to Borrower and its Subsidiaries, the ratio of
Consolidated Total Debt as of the last day of such period to
Consolidated EBITDA for such period.
Section 1.107. "Line of Credit" shall have the meaning set
forth in Section 2.1.1. hereof.
Section 1.108. "Loan" means each Existing Loan, Revolving
Loan and each Swingline Loan.
Section 1.109. "Loan Account" means the account established
by Borrower with the Administrative Agent for purposes of
administering the Line of Credit.
Section 1.110. "Mandatory Borrowing" shall have the meaning
set forth in Section 2.2.4. hereof.
Section 1.111. "Margin Change" shall have the meaning set
forth in Section 2.3.5. hereof.
Section 1.112. "Material Adverse Effect" means a material
adverse effect upon the (i) business, operations, assets or
financial condition or prospects of any Credit Party and its
Subsidiaries, taken as a whole, or (ii) the enforceability of
this Agreement, the Notes or the Other Documents or the rights or
remedies of the Administrative Agent, the Documentation Agent or
any Lender hereunder or thereunder or (iii) the ability of the
Administrative Agent, the Documentation Agent or any Lender to
enforce or collect any of the Obligations including the
obligations of any Guarantor to perform, or of the Administrative
Agent, the Documentation Agent or any Lender to enforce, any
Guarantee. In determining whether any individual event would
result in a Material Adverse Effect, notwithstanding that such
event does not of itself have such an effect, a Material Adverse
Effect shall be deemed to have occurred if the cumulative effect
of such event and all other then existing events would result in
a Material Adverse Effect.
Section 1.113. "Maturity Date" means January 31, 2005.
Section 1.114. "Net Proceeds" means the excess of (i) Cash
Proceeds received by Borrower or any Subsidiary in connection
with any Asset Sale over (ii) the out-of-pocket expenses incurred
by Borrower or such Subsidiary (other than any expenses paid to
any Affiliate of Borrower or such Subsidiary) in connection with
such Asset Sale and the amounts of any taxes incurred in
connection with such Asset Sale, in each case as certified by a
Responsible Officer to the Administrative Agent at the time of
such Asset Sale.
Section 1.115. "Non-Defaulting Lender" means each Lender
which is not a Defaulting Lender.
Section 1.116. "Note" means any Revolving Credit Note or the
Swingline Note.
Section 1.117. "Notes" means the Revolving Credit Notes and
the Swingline Note.
Section 1.118. "Notice" means a Notice of Borrowing, a Notice
of Continuation or Conversion or a Swingline Notice.
Section 1.119. "Notice of Borrowing" shall have the meaning
set forth in Section 2.1.3. hereof.
Section 1.120. "Notice of Continuation or Conversion" shall
have the meaning set forth in Section 2.3.2. hereof.
Section 1.121. "Notice Office" means the office of the
Administrative Agent located at 100 Pearl Street, Hartford,
Connecticut 06103 or such other office as the Administrative
Agent may designate for such purpose to Borrower and the Lenders
from time to time.
Section 1.122. "Obligations" means any and all loans,
advances, indebtedness, liabilities, obligations, covenants or
duties of any Credit PartyBorrower to the Administrative Agent,
the Documentation Agent or the Lenders of any kind or nature,
including obligations to pay money and to perform acts or refrain
from taking action, arising under or pursuant to this Agreement,
the Notes or the Other Documents, and any and all extensions and
renewals thereof, and modifications and amendments thereto,
whether in whole or in part, whether created directly or acquired
by assignment, purchase, discount or otherwise, whether any of
the foregoing are direct or indirect, joint or several, absolute
or contingent under, due or to become due, now existing or
hereafter arising, and whether or not evidenced by a writing and
specifically including but not being limited to (i) the unpaid
principal amount outstanding at any time under the Notes, plus
all accrued and unpaid interest thereon, together with all fees,
expenses, including attorneys' fees, penalties, and other amounts
owing by or chargeable to any Credit Partythe Borrower under this
Agreement, the Notes or the Other Documents and (ii) interest
which accrues after the commencement of any case or proceeding in
bankruptcy after the insolvency of, or for the reorganization of,
any Credit Party, whether or not allowed in such case or
proceeding.
Section 1.123. "Original Closing Date" has the meaning set
forth in the Preamble hereof.
Section 1.124. "Original Credit Agreement" has the meaning
set forth in the Preamble hereof.
Section 1.125. "Other Documents" means the Collateral
Disclosure List, the Guarantees, the Security Documents, the
Affiliate Subordination Agreement and any other document,
agreement or instrument executed by any Credit Party in
connection with any Extension of Credit and any and all
amendments, modifications and supplements thereto.
Section 1.126. "Outstanding Amount" means, as of any date as
of which the amount thereof shall be determined, the outstanding
principal amount of all Revolving Loans as of the date of
determination.
Section 1.127. "PBGC" means the Pension Benefit Guaranty
Corporation or any entity succeeding to all or part of its
functions under ERISA.
Section 1.128. "Permitted Acquisition" means any Acquisition
as to which all of the applicable conditions precedent set forth
in Section 6.32. hereof have been satisfied.
Section 1.129. "Permitted Encumbrance" shall have the meaning
set forth in Section 8.5. hereof.
Section 1.130. "Permitted Indebtedness" shall have the
meaning set forth in Section 8.1. hereof.
Section 1.131. "Permitted SSH Activities" means holding the
Capital Stock of Borrower, guaranteeing the Loans and granting
security therefor under the Security Documents, serving as the
maker of any Indebtedness permitted to be incurred under Section
8.1. hereof, and employing corporate staff.
Section 1.132. "Person" means an individual, partnership,
corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association, joint venture
or other entity of whatever nature, whether public or private.
Section 1.133. "Plan" means, at any time, an employee pension
or other benefit plan that is subject to Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the
Code and is either (i) maintained by Borrower or any member of
the Controlled Group for employees of Borrower or any member of
the Controlled Group or (ii) if such plan is established,
maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one (1) employer makes
contributions and to which Borrower or any member of the
Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five (5) plan years
made contributions.
Section 1.134. "Post Closing Matters" shall have the meaning
set forth on Section 11.1. hereof.
Section 1.135. "Preferred Stock Offering" means the offering
of Series A Cumulative Convertible Preferred Stock and Series B
Convertible Preferred Stock by Alarmguard Holdings pursuant to
and in accordance withunder the Transaction
Documents.[__________].
Section 1.136. "Price Waterhouse Report" means that certain
Limited Collateral Analysis report dated November 8, 1996
delivered by Price Waterhouse LLP to the Administrative Agent
with respect to the procedures performed by Price Waterhouse LLP
related to the Customer Contracts and management information
system environment of the Borrower and supplemented by that
certain letter dated as of April 15, 1997.
Section 1.137. "Program Capital Expenditures" means, without
duplication, for any period, the aggregate of all Capital
Expenditures made by Borrower in connection with the Direct
Marketing Program and the Dealer Program.
Section 1.1387. "Prohibited Transaction" shall have the
definition set forth in Section 406 of ERISA and Section 4975 of
the Code, other than those transactions in which an exemption
from the prohibited transaction rules apply under Section 408 of
ERISA and Section 4975(d) of the Code and applicable regulations
thereunder, including prohibited transaction class exemptions.
Section 1.1398. "Qualification" means, with respect to any
report of independent public accountants covering any Financial
Statements of Borrower and its Subsidiaries, a qualification to
such report (such as a "subject to" or "except for" statement
therein) (i) resulting from a limitation on the scope of
examination of the Financial Statements or the underlying data;
(ii) as to the capability of the Person whose Financial
Statements are certified to continue operations as a going
concern; or (iii) which could be eliminated by changes in the
Financial Statements or notes thereto covered by such report
(such as, by the creation of or increase in a reserve or a
decrease in the carrying value of assets) and which if so
eliminated by the making of any such change and after giving
effect thereto would constitute an Event of Default; provided
that the following shall not constitute a Qualification: a
consistency exception relating to a change in accounting
principles with which the independent public accountants for the
Person whose Financial Statements are being examined have
concurred.
Section 1.14039. "Qualified Investments" means, as applied to
Borrower and its Subsidiaries, investments in (i) Governmental
Obligations; (ii) certificates of deposit or other deposit
instruments or accounts of Lenders or trust companies organized
under the laws of the United States or any state thereof that
have capital and surplus of at least FIVE HUNDRED MILLION AND
NO/100 DOLLARS ($500,000,000.00) having maturities of not more
than ninety (90) days from the date of acquisition; (iii)
commercial paper that is rated not less than prime-one or A-1 or
their equivalents by Moody's Investors Service, Inc. or Standard
& Poor's Corporation, respectively, or their successors having
maturities of not more than ninety (90) days from the date of
acquisition; and (iv) any repurchase agreement secured by any one
(1) or more of the foregoing with a term of not more than seven
(7) days.
Section 1.1410. "Recurring Monthly Revenue" or "RMR" means,
for any calendar month, the aggregate recurring regular monthly
amount billed under Customer Contracts for a one-month period
(regardless of whether billed monthly or less frequently with
billings made other than on a monthly basis being adjusted to the
equivalent monthly amount) for electrical protection, monitoring,
maintenance, closed circuit television and access control service
charges, fire and police panel charges, equipment lease rental
charges relating to Customer Contracts derived from the Direct
Marketing Program, the Dealer Program and fire and sprinkler
inspection and testing charges (but excluding revenues from any
Customer Contracts relating to any non-recurring, special or
other one-time charges) as such RMR is calculated by Borrower in
accordance with the practices, policies and procedures followed
by Borrower therefor on the Original Closing Date as set forth in
the Price Waterhouse Report and reflected in the RMR Report.
Section 1.1421. "Register" shall have the meaning set forth
in Section 13.2. hereof.
Section 1.1432. "Release" means any release, emission,
disposal, leaching, or migration into the environment (including,
without limitation, the abandonment or disposal of any barrels,
containers, or other closed receptacles containing any Hazardous
Materials), or into or out of any property owned, occupied or
used by Borrower.
Section 1.1443. "Replacement Lender" shall have the meaning
set forth in Section 2.5.6. hereof.
Section 1.1454. "Reportable Event" means any of the events
described in Section 4043(b) of ERISA, other than those events as
to which the thirty day notice period is waived under applicable
regulations issued by PBGC.
Section 1.1465. "Required Lenders" means collectively (and
not individually) Non-Defaulting Lenders the sum of whose
Commitments (or if after the Total Commitment Amount has been
terminated, outstanding Loans and percentages of outstanding
Swingline Loans) constitute at least 66.66% of the Total
Commitment Amount less the aggregate Commitments of Defaulting
Lenders (or if after the Total Commitment Amount has been
terminated, outstanding Loans and percentages of outstanding
Swingline Loans).
Section 1.1476. "Requirement of Law" means any laws,
ordinances, rules regulations and orders of any Governmental
Authority applicable to any Credit Party or its Subsidiaries or
their business, properties and assets.
Section 1.1487. "Responsible Officer" means David Heidecorn,
John Scerbo or any other senior officer of Borrower or any other
Credit Party, as the case may be, designated as such by written
notice to the Administrative Agent and acceptable to the
Administrative Agent in its sole and absolute discretion.
Section 1.1498. "Revolving Credit Note" or "Revolving Credit
Notes" shall have the meaning set forth in Section 2.1.9. hereof.
Section 1.15049. "Revolving Credit Period" means the period
beginning on the Closing Date and extending through and including
the Revolving Credit Termination Date or such earlier date on
which the obligation of the Lenders to make Revolving Loans is
terminated or the Commitment Amount is reduced to zero (0) in
accordance with the terms hereof.
Section 1.1510. "Revolving Credit Termination Date" means
January 31, 2000.
Section 1.1521. "Revolving Loans" shall have the meaning set
forth in Section 2.1.1. hereof, and shall in any event include
any loan(s) or advance(s) deemed made pursuant to said Section
2.1.1.
Section 1.1532. "RMR Report" shall have the meaning set
forth in Section 7.2.3. hereof.
Section 1.1543. "Security Documents" means the Borrower
Pledge Agreement, the Borrower Security Agreement, each Lease
Assignment, each Leasehold Mortgage, the Alarmguard Holdings
Pledge Agreement, the SSH Pledge Agreement, each Subsidiary
Pledge Agreement and each Subsidiary Security Agreement.
Section 1.1554. "Solvent" means, when used with respect to
any Person, that as of the date as to which the Person's solvency
is to be determined:
(a) the fair value of such Person's properties and
assets is in excess of the total amount of the liabilities
(including contingent liabilities) of such Person;
(b) the fair salable value of the properties and assets of
such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they
become absolute and matured;
(c) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature; and
(d) such Person is not engaged in a business or
transaction, and is not about to engage in a business or
transaction, for which such Person's properties and assets would
constitute an unreasonably small capital.
The amount of contingent liabilities (such as litigation,
Guarantees and pension plan liabilities) at any time shall be
computed as the amount which, in light of all the facts and
circumstances existing at the time, represents an amount which
can be reasonably expected to become an actual or matured
liability.
Section 1.1565. "SSH" shall have the meaning set forth in the
Preamble hereof.
Section 1.1576. "SSH Guarantee" means the Amended and
Restated Guarantee Agreement executed by SSH in favor of the
Administrative Agent for the ratable benefit of the Lenders on
the Original Closing Date, as such SSH Guarantee may be amended,
supplemented, modified or confirmed on the Closing Date and from
time to time thereafter.
Section 1.1587. "SSH Pledge" means the Amended and Restated
Pledge Agreement executed by SSH in favor of the Administrative
Agent for the ratable benefit of the Lenders on the Original
Closing Date, as such SSH Pledge may be amended, supplemented,
modified or confirmed on the Closing Date and from time to time
thereafter.
Section 1.1598. "Steffanato Note" means that certain
promissory note, dated September 29, 1994, made by Borrower in
favor of Alarmguard of New York, Inc. (succeeded to by Borrower),
in the original principal amount of ONE MILLION ONE HUNDRED
THIRTY-TWO THOUSAND TWO HUNDRED SIXTEEN AND NO/00 DOLLARS
($1,132,216.00), which promissory note was thereafter endorsed to
John Steffanato, Sr.
Section 1.16059. "Subordinated Indebtedness" means
Indebtedness, whether now existing or hereafter arising, with
respect to which the payment of the principal of and interest on
is expressly subordinated and junior in right of payment as set
forth on Exhibit L attached hereto or in such other form and on
terms approved by the Administrative Agent and the Lenders in
writing to the prior indefeasible payment in full of the
Obligations and which is not subject to terms, conditions, rights
or remedies, including but not limited to, events of default,
affirmative and negative covenants and otherwise, which are
either (i) more restrictive upon any Credit Party than those set
forth in this Agreement or (ii) more favorable to the holders of
any such Subordinate Indebtedness than those possessed by the
Lenders under this Agreement. Notwithstanding any provision of
this Section 1.160161. to the contrary, no Subordinated
Indebtedness shall contain or be subject to any covenant with
respect to which the compliance by any Credit Party therewith is
determined by reference to the financial performance or financial
condition of such Credit Party.
Section 1.1610. "Subsidiary" means any Person of which more
than fifty percent (50%) or more of the ordinary voting power for
the election of a majority of the members of the board of
directors or other governing body of such Person is held or
Controlled by Borrower or a Subsidiary of Borrower; or any other
such organization the management of which is Controlled by
Borrower or a Subsidiary of Borrower; or any joint venture,
whether incorporated or not, in which Borrower has more than
fifty percent (50%) ownership interest.
Section 1.1621. "Subsidiary Guarantee" means each Guarantee
Agreement executed by a Subsidiary of Borrower in favor of the
Administrative Agent for the ratable benefit of the Lenders,
substantially in the form of Exhibit F-53 attached hereto, as any
such Subsidiary Guarantee may be amended, supplemented, modified
or confirmed from time to time.
Section 1.1632. "Subsidiary Pledge Agreement" means each
Pledge Agreement executed by a Subsidiary of Borrower in favor of
the Administrative Agent for the ratable benefit of the Lenders,
substantially in the form of Exhibit F-64 attached hereto, as any
such Subsidiary Pledge Agreement may be amended, supplemented,
modified or confirmed from time to time.
Section 1.1643. "Subsidiary Security Agreement" means each
Security Agreement executed by a Subsidiary of Borrower in favor
of the Administrative Agent for the ratable benefit of the
Lenders, substantially in the form of Exhibit F-75 attached
hereto, as any such Subsidiary Security Agreement may be amended,
supplemented, modified or confirmed from time to time.
Section 1.1654. "Swingline" shall have the meaning set forth
in Section 2.2.1. hereof.
Section 1.1665. "Swingline Commitment" means the amount of
TWO MILLION AND NO/100 DOLLARS ($2,000,000.00).
Section 1.1676. "Swingline Loans" means each loan and advance
made by the Administrative Agent to Borrower under the Swingline.
Section 1.1687. "Swingline Note" shall have the meaning set
forth in Section 2.2.3. hereof.
Section 1.1698. "Swingline Notice" shall have the meaning set
forth in Section 2.2.2. hereof.
Section 1.17069. "Total Commitment Amount" means, as of any
date as of which the amount thereof shall be determined, (a) if
such date is prior to the Revolving Credit Termination Date, the
amount of NINETY MILLION AND NO/100 DOLLARS ($90,000,000.00) or
any lesser amount, including zero (0), resulting from a
termination or reduction of such amount in accordance with
Section 2.1.12. or Section 12.1. hereof and (b) if such date is
on or after the Revolving Credit Termination Date, the
outstanding principal amount of the Loans as of such date.
Section 1.1710. "Transaction Documents" means any and all
documents, agreements, certificates and instruments executed
and/or delivered by any Credit Party in connection with the
Preferred Stock Offering or any transactions associated
therewith, including, without limitation, the documents and
agreements listed and described on Schedule 1.171. attached
hereto.
Section 1.1721. "Type" means, as to any Loan, such Loan's
characterization as either a Base Rate Loan or a Eurodollar Loan.
Section 1.1732. "Unused Commitment" means, in the case of
each Lender, as of the date as of which the amount thereof shall
be determined, the positive difference, if any, between (i) the
amount of such Lender's Commitment as of such date and (ii) such
Lender's Commitment Percentage of the Outstanding Amount as of
such date.
Section 1.1743. "Unused Total Commitment Amount" means, as of
any date as of which the amount thereof shall be determined, the
positive difference, if any, between (i) the Total Commitment
Amount as of such date and (ii) the Outstanding Amount as of such
date.
Section 2. THE CREDIT FACILITIES
Section 2.1. The Line of Credit.
Section 2.1.1. Revolving Loans. Upon the execution of
this Agreement, the Lenders agree to extend to Borrower a line of
credit, so that as long as no Default or Event of Default has
occurred and is continuing and all conditions precedent to the
making of any Extension of Credit have been satisfied, the
Existing Lenders agree, subject to the provisions of Section
2.1.4.(b) hereof, to continue the Existing Loans and each Lender
severally agrees to make revolving credit loans ("Revolving
Loans") from time to time during the Revolving Credit Period in
an aggregate principal amount at any one time not to exceed the
lesser of (i) such Lender's Unused Commitment, and (ii) such
Lender's Commitment Percentage of the Borrowing Base then in
effect; provided, that in no event shall any Revolving Loan be
made if, after giving effect to such Revolving Loan, the sum of
the Unused Total Commitment Amount and the aggregate amount of
Swingline Loans then outstanding would exceed the Total
Commitment Amount (the "Line of Credit"). During the Revolving
Credit Period, the Borrower may use the Commitments by borrowing,
prepaying Existing Loans and Revolving Loans in whole or in part,
and reborrowing, all in accordance with the terms and conditions
hereof.
Section 2.1.2. Requirements for Revolving Loans. Except
as otherwise provided in this Agreement or permitted by the
Lenders, Revolving Loans shall be (i) designated in U.S. Dollars,
(ii) in an amount which is at least, in the case of Base Rate
Loans, THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($300,000.00)
and, in the case of Eurodollar Loans, ONE MILLION AND NO/100
DOLLARS ($1,000,000.00), (iii) in an amount which is an integral
multiple of ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($100,000.00), (iv) at the option of Borrower, obtained and
maintained as, or continued or converted into, Base Rate Loans or
Eurodollar Loans, and (v) limited, in the case of Eurodollar
Loans, to no more than five (5) Eurodollar Tranches.
Section 2.1.3. Notice of Borrowing. Except as provided
in Section 2.3.6. hereof, whenever Borrower desires to obtain a
Revolving Loan (excluding Revolving Loans incurred pursuant to a
Mandatory Borrowing or under Section 2.1.4.(b) hereof), Borrower
shall provide the Administrative Agent with written notice (or
telephonic notice promptly confirmed in writing) received at its
Notice Office no later than 12:00 noon (Boston, Massachusetts
time) on the date one (1) Business Day before the day on which
the requested Revolving Loan is to be made as a Base Rate Loan,
and received no later than 12:00 noon (Boston, Massachusetts
time) on the date three (3) Business Days before the day on which
the requested Revolving Loan is to be made as a Eurodollar Loan.
Each such notice (a "Notice of Borrowing") shall, except as
provided in Section 2.3.6. hereof, be irrevocable, be in the form
of Exhibit A attached hereto and be appropriately completed to
specify: (i) the amount of the requested Revolving Loan; (ii) the
effective date of such Revolving Loan, (iii) the Type of Loan to
be applicable thereto; (iv) whether such Revolving Loan is to be
an Acquisition Loan and (v) the duration of the Interest Period,
if any (subject to the provisions of the definition of Interest
Period). The Administrative Agent shall, except as provided in
Section 2.2.4. hereof, promptly (and in no event later than 1:00
p.m. (Boston, Massachusetts time)) give each Lender written
notice (or telephonic notice promptly confirmed in writing) of
each requested Revolving Loan, such Lender's proportionate share
thereof and such other matters covered by the Notice of
Borrowing. Borrower hereby acknowledges and agrees that the
Administrative Agent may, prior to the receipt of written
confirmation, act without liability upon the basis of any
telephonic notice provided under this Section 2.1.3., believed by
the Administrative Agent, in good faith, to be from a Responsible
Officer of Borrower and Borrower hereby waives the right to
dispute the Administrative Agent's record of the terms of such
telephonic notice. Revolving Loans which relate to Mandatory
Borrowings shall be made upon the delivery of the notice
specified in Section 2.2.4. hereof with Borrower hereby
irrevocably agreeing, by its incurrence of any Swingline Loan to
the making of Mandatory Borrowings as set forth in such Section
2.2.4. hereof.
Section 2.1.4. Funding of Loans.
(a) Except as set forth in subsection (b) below and
Section 2.2. hereof, not later than 2:00 p.m. (Boston,
Massachusetts time) on the date of the making of each Revolving
Loan, each Lender shall make available to the Administrative
Agent, at the office designated by the Administrative Agent for
payment on the Administrative Questionnaire, in U.S. Dollars and
in immediately available funds, such Lender's pro rata share of
the requested Revolving Loan. The Administrative Agent will,
except as set forth in subsection (b) below, promptly make such
amounts available to Borrower by depositing to the Loan Account
the aggregate of such amounts so made available to the
Administrative Agent in the type of funds received.
(b) Notwithstanding any provision of this Agreement to
the contrary, on the Closing Date the Additional Lender and each
Existing Lender that is making Revolving Loans in an amount in
excess of the then outstanding Existing Loans of such Existing
Lender shall make a Revolving Loan at the place and in the manner
set forth in subsection (a) above in the amount which is
necessary to cause the Loans made or continued by any such Lender
as of the Closing Date (after taking into account any Revolving
Loan requested by Borrower as of the Closing Date) to be in the
proportion that such Lender's Commitment bears to the Total
Commitment Amount as set forth in Section 2.1.5. hereof.
Notwithstanding any provision of subsection (a) above to the
contrary, the Administrative Agent shall pay any proceeds of any
such Revolving Loans pro rata to each Existing Lender to reduce
the outstanding Existing Loans of such Existing Lender as of the
Closing Date to an amount which is equal to the proportion which
such Existing Lender's Commitment bears to the Total Commitment
Amount as of the Closing Date. The Administrative Agent shall
pay any such amounts in immediately available funds to such
Existing Lenders by wire transfer on the Closing Date (subject to
the receipt of any such amounts from the Additional Lender and
any Existing Lender providing the same). Any part of any
Existing Loan refinanced between the Lenders as aforesaid shall
be deemed to be repaid in accordance with the terms of this
Agreement with the proceeds of the aforementioned Revolving
Loans.
Section 2.1.5. Relationship of Revolving Loans to Total
Commitment Amount. Each Loan shall consist of either an Existing
Loan continued by or a Revolving Loan made by each Lender in
respect of its Commitment, which Loan shall be continued or made
by each Lender in the proportion that such Lender's Commitment
bears to the Total Commitment Amount; provided, however, that,
except as provided in Section 2.2. hereof, if at any time, for
any reason, the proportion that any Lender's Unused Commitment
bears to the Unused Total Commitment Amount is not equal to the
proportion that the Commitment of such Lender bears to the Total
Commitment Amount, then, each such Lender shall promptly purchase
or sell, as may be necessary, participations in the Loans held by
the other Lenders in such amounts as will (but only if and to the
extent that the purchase of such participations would not cause
any Lender to have outstanding Loans in an amount in excess of
its Commitment and would not cause any Lender to exceed its
lending limit or to violate any other legal requirement to which
it is subject), and make such other adjustments from time to time
as shall be necessary to, cause the proportion that such Lender's
Unused Commitment bears to the Unused Total Commitment Amount to
be equal to the proportion that such Lender's Commitment bears to
the Total Commitment Amount.
Section 2.1.6. Loan Account. Each Loan shall be recorded
in the Loan Account. There shall also be recorded in the Loan
Account all prepayments and payments made by Borrower in respect
of the Line of Credit and other appropriate debits and credits as
herein provided. The Administrative Agent shall from time to
time, but at least monthly, and upon Borrower's reasonable
request, render and send to Borrower a statement of the Loan
Account showing the respective outstanding principal balance of
the Line of Credit, together with interest and other appropriate
debits and credits as of the date of the statement. The
statement of the Loan Account shall be considered correct in all
respects and accepted by and be conclusively binding upon
Borrower absent manifest error unless Borrower makes specific
written objection thereto within sixty (60) days after the date
the statement of the Loan Account is sent.
Section 2.1.7. Several Obligations. The failure of any
Lender to make available its proportionate share of any Revolving
Loan on the date specified therefor shall not relieve any other
Lender of its obligation to make available its proportionate
share of such Revolving Loans on such date, but no Lender shall
be responsible for the failure of any other Lender to make
available such other Lender's proportionate share of the
Revolving Loan.
Section 2.1.8. Calculation of Borrowing Base. The
Borrowing Base as of any time shall be calculated by reference to
the most recent RMR Report and other financial reports delivered
by Borrower under Sections 6.1.2. or 7.2.3. hereof and such other
information as may be available to the Administrative Agent, the
Documentation Agent or the Lenders from time to time.
Section 2.1.9. Revolving Credit Notes. On the Closing
Date, Borrower shall issue to each of the Lenders a promissory
note executed by Borrower in substantially the form attached
hereto as Exhibit B with all blanks appropriately completed in
conformity with this Agreement (each a "Revolving Credit Note"
and, collectively, the "Revolving Credit Notes"), with all blanks
therein appropriately completed. The Revolving Credit Notes
shall evidence the obligation of Borrower to repay to the Lender
to which it is issued all Loans continued or made by such Lender
to Borrower on account of such Lender's Commitment, including all
Revolving Loans made by any Lender under Section 2.1.4.(b)
hereof. Each Revolving Credit Note shall (i) be payable to the
Lender to which it is issued or its registered assigns, (ii) be
dated as of the Closing Date, (iii) be in a stated principal
amount equal to the Commitment of such Lender, (iv) be payable in
the principal amount of such Lender's pro rata percentage of the
Loans evidenced thereby, (v) mature on the Maturity Date, (vi)
bear interest as provided in Section 2.3.4. hereof, (vii) be
subject to voluntary prepayments as provided in Section 2.1.13.
hereof and mandatory prepayments as provided in Section 2.1.14.
hereof and (viii) be entitled to the benefit of this Agreement
and the Other Documents, and all security granted or provided to
the Administrative Agent for the ratable benefit of the Lenders
thereunder. Each Lender shall prior to any transfer or
assignment of its Revolving Credit Note endorse on the reverse
side thereof the outstanding principal amounts of the Loans
evidenced thereby; provided, however, that such Lender's failure
to make any such record or endorsement shall not affect
Borrower's obligations in respect thereof. In addition,
following the effectiveness of this Agreement, and, if possible,
on the Closing Date, each of the Existing Lenders shall deliver
to the Administrative Agent the notes or promptly thereafter an
affidavit of lost note then held by such Existing Lender
evidencing loans and advances under the Original Credit Agreement
for delivery to and cancellation by the Borrower.
Section 2.1.10. Payment of Principal. The aggregate
unpaid principal amount of all Loans, together with accrued and
unpaid interest thereon, as evidenced by the Revolving Credit
Notes, shall, unless sooner accelerated by the Lenders following
the occurrence of an Event of Default, be repaid by Borrower in
twenty (20) consecutive quarterly installments in an amount equal
to the following percentages of the outstanding principal amount
of the Loans on the Revolving Credit Termination Date commencing
on April 30, 2000 and continuing on the last day of each
succeeding calendar quarter thereafter as follows:
DATE OF PAYMENT PERCENTAGE OF OUTSTANDING
PRINCIPAL AMOUNT
April 30, 2000 3.75%
July 31, 2000 3.75%
October 31, 2000 3.75%
January 31, 2001 3.75%
April 30, 2001 5%
July 31, 2001 5%
October 31, 2001 5%
January 31, 2002 5%
April 30, 2002 5%
July 31, 2002 5%
October 31, 2002 5%
January 31, 2003 5%
April 30, 2003 5%
July 31, 2003 5%
October 31, 2003 5%
January 31, 2004 5%
April 30, 2004 6.25%
July 31, 2004 6.25%
October 31, 2004 6.25%
January 31, 2005 6.25%
Section 2.1.11. Use of Proceeds. Revolving Loans shall
be used solely for the working capital needs and general
corporate purposes of Borrower, for Permitted Acquisitions, for
Direct Marketing Program Costs, for Dealer Program Costs, to
refinance the existing Indebtedness of Borrower set forth on
Schedule 2.1.11. attached hereto and to pay expenses associated
with the consummation of the transactions contemplated by this
Agreement and, as long as no Default or Event of Default shall
have occurred and be continuing, or occur as a result thereof, to
pay amounts to SSH to pay, at the scheduled maturity date
thereof, certain Subordinated Indebtedness as set forth in item 1
on said Schedule 8.1. attached hereto.2.1.11.
Section 2.1.12. Reduction of Total Commitment Amount.
Borrower may from time to time, by written notice delivered to
the Administrative Agent at least five (5) Business Days prior to
the date of the requested reduction, reduce the Unused Total
Commitment Amount by integral multiples of ONE MILLION AND NO/100
DOLLARS ($1,000,000.00). No reduction of the Total Commitment
Amount shall be subject to reinstatement.
Section 2.1.13. Voluntary Prepayments. Borrower shall
have the right to prepay the Loans, in whole or in part, without
penalty or premium except as otherwise provided in this Agreement
from time to time on the following terms and conditions: (i)
Borrower shall provide written notice to the Administrative Agent
at its Notice Office (or telephonic notice promptly confirmed in
writing) of its intent to prepay the Loans, whether such Loans
are Existing Loans, Revolving Loans or Swingline Loans, the
amount of such prepayment and, in the case of Eurodollar Loans,
the specific Loans to which such prepayment is to be made, which
notice shall be provided prior to 12:00 noon (Boston,
Massachusetts time) (x) at least one (1) Business Day prior to
the date of such prepayment in the case of Base Rate Loans, (y)
on the date of such prepayment in the case of Swingline Loans and
(z) at least three (3) Business Days prior to the date of such
prepayment in the case of Eurodollar Loans and (ii) each
prepayment shall be in an aggregate principal amount of at least
ONE MILLION AND NO/100 DOLLARS ($1,000,000.00)(or ONE HUNDRED
THOUSAND AND NO/100 DOLLARS ($100,000.00) in the case of
Swingline Loans); provided, that no partial prepayment of any
Eurodollar Loan shall reduce the remaining aggregate outstanding
principal amount of such Eurodollar Loan to an amount which is
less than the minimum borrowing amount applicable under this
Agreement for Eurodollar Loans. Except with respect to
prepayments of Swingline Loans, the Administrative Agent shall
promptly notify each Lender of any such intended prepayment.
Upon receipt by the Administrative Agent, any such prepayment
shall be applied pro rata among the Loans of each of the Lenders;
provided, however, that such prepayment shall not be applied to
any Loans of a Defaulting Lender, until such time as the
proportion that such Lender's Unused Commitment bears to the
Total Commitment Amount is equal to the proportion that such
Lender's Commitment bears to the Total Commitment Amount.
Section 2.1.14. Mandatory Prepayments.
(a) If, at any time, the Outstanding Amount, together
with the amount of the Swingline Loans, shall exceed the
Borrowing Base in effect from time to time then any such excess
amount shall be immediately due and payable without notice or
demand by the Administrative Agent or the Lenders. Any payments
made by Borrower under this subsection (a) shall be applied first
to any outstanding Swingline Loans and then to outstanding
Revolving Loans.
(b) Borrower shall prepay the Loans in an amount equal
to the Net Proceeds from any Asset Sale in excess of ONE HUNDRED
THOUSAND AND NO/100 DOLLARS ($100,000.00). Notwithstanding the
foregoing proviso, any Asset Sale of Borrower's "Sonitrol" assets
shall be subject to subsection (a) above if any such Asset Sale
results in the applicability of such subsection (a). Any
amounts payable under this subsection (b) shall be payable
concurrently with Borrower's receipt of any such Net Proceeds.
(c) Borrower shall prepay the Loans in an amount equal
to fifty percent (50%) of Excess Cash Flow for each Fiscal Year
commencing with the Fiscal Year ending December 31, 20001999,
together with interest on the amount being prepaid. Any amounts
payable under this subsection (c) shall be payable on or before
the earlier of (i) the date on which the Financial Statements
required to be delivered under Section 7.1.1. hereof in respect
of such Fiscal Year are required to be delivered or (ii) the date
on which such Financial Statements are actually delivered.
(d) Any amounts payable under this Section 2.1.14.
shall be applied prior to the Revolving Credit Termination Date
to Swingline Loans and then to all other Loans outstanding under
the Line of Credit and following the Revolving Credit Termination
Date to installments of principal due on the Loans in inverse
order of maturity.
Section 2.2. Swingline Loans.
Section 2.2.1. The Swingline. Upon the execution of
this Agreement, the Administrative Agent in its individual
capacity hereby agrees to extend to Borrower a line of credit, so
that as long as no Default or Event of Default has occurred and
is continuing, the Administrative Agent agrees to lend to
Borrower, and Borrower may borrow, repay and reborrow, on a
revolving basis, in one (1) or more Swingline Loans from time to
time during the period commencing on the Closing Date and
continuing through the close of business on the Revolving Credit
Termination Date, amounts which do not exceed at any one time
outstanding the Swingline Commitment (the "Swingline"). All
Swingline Loans shall constitute usage of the Administrative
Agent's Commitment under this Agreement. Notwithstanding any
provision of this Agreement to the contrary, Swingline Loans (i)
shall be made and maintained as Base Rate Loans, (ii) shall be
denominated in U.S. Dollars, (iii) may be repaid and reborrowed
in accordance with the provisions of this Agreement, (iv) shall
not exceed in the aggregate at any one time outstanding the
Swingline Commitment and (v) shall not, together with all
Revolving Loans, exceed in the aggregate at any one time
outstanding the lesser of the Borrowing Base or the Total
Commitment Amount.
Section 2.2.2. Notice for Swingline Loans. Except as
provided in Section 2.2.4. hereof, whenever Borrower desires to
obtain a Swingline Loan, Borrower shall provide the
Administrative Agent with written notice (or telephonic notice
promptly confirmed in writing) received at its Notice Office no
later than 12:00 noon (Boston, Massachusetts time) on the day on
which the requested Swingline Loan is to be made. Each such
notice (a "Swingline Notice") shall be irrevocable, be in
substantially the form of Exhibit C attached hereto and be
appropriately completed to specify: (i) the amount of the
requested Swingline Loan and (ii) the effective date of such
Swingline Loan. Borrower hereby acknowledges and agrees that the
Administrative Agent may, prior to the receipt of written
confirmation act without liability upon the basis of any
telephonic notice provided under this Section 2.2.2., believed by
the Administrative Agent, in good faith, to be from a Responsible
Officer of Borrower and Borrower hereby waives the right to
dispute the Administrative Agent's record of the terms of such
telephonic notice. Notwithstanding the foregoing, the
Administrative Agent shall not make any Swingline Loans if the
Administrative Agent has received prior to the making of the
requested Swingline Loan a certificate or notice from Borrower or
any Lender stating the existence of Default or Event of Default
or that any conditions to the making of such Swingline Loan have
not been satisfied.
Section 2.2.3. Swingline Note. On the Closing Date,
Borrower shall issue to the Administrative Agent a promissory
note executed by Borrower in substantially the form attached
hereto as Exhibit D with all blanks appropriately completed in
conformity with this Agreement (the "Swingline Note"). The
Swingline Note shall evidence the obligation of Borrower to repay
to the Administrative Agent all Swingline Loans by the
Administrative Agent to Borrower. The Swingline Note shall (i)
be payable to the Administrative Agent or its registered assigns,
(ii) be dated as of the Closing Date, (iii) be in a stated
principal amount equal to the Swingline Commitment, (iv) be
payable in the principal amount of the Swingline Loans evidenced
thereby, (v) mature on the Revolving Credit Termination Date,
(vi) bear interest as provided in Section 2.3.4. hereof, (vii)
be subject to voluntary prepayments as provided in Section
2.1.13. hereof and mandatory prepayments as provided in Section
2.1.14. hereof and (viii) be entitled to the benefit of this
Agreement and the Other Documents, and all security granted or
provided to the Administrative Agent for the ratable benefit of
the Lenders thereunder. The Administrative Agent shall record on
its internal records the amount of each Swingline Loan made by it
and each payment received by it in respect thereof and will prior
to any transfer or assignment of the Swingline Note endorse on
the reverse side thereof the outstanding principal amount of the
Swingline Loan evidenced thereby; provided, however, that the
Administrative Agent's failure to make any such record or
endorsement shall not affect Borrower's obligations in respect
thereof.
Section 2.2.4. Mandatory Borrowings. On any Business
Day, the Administrative Agent may, in its sole discretion, and,
in any event, upon the day which is seven (7) days after the
borrowing of a Swingline Loan (or if such day is not a Business
Day, the next succeeding Business Day) shall provide notice
(which notice shall be deemed to have been automatically provided
upon the occurrence of a Default or Event of Default under
Section 11.1.(g) or 11.1.(h)) to the Lenders that all outstanding
Swingline Loans shall be repaid pursuant to Revolving Loans to be
made by the Lenders as Base Rate Loans on the immediately
succeeding Business Day (such Revolving Loans, a "Mandatory
Borrowing") pro rata based upon each Lender's Commitment
Percentage, and the proceeds of such Revolving Loans shall be
applied directly to repay the Administrative Agent for such
outstanding Swingline Loans. Each Lender hereby irrevocably
agrees to make Base Rate Loans upon one (1) Business Day's notice
pursuant to each Mandatory Borrowing in the amount and in the
manner provided in the foregoing sentence and on the date
specified by the Administrative Agent notwithstanding (i) that
the amount of the Mandatory Borrowing may not comply with the
minimum borrowing amount otherwise required under this Agreement,
(ii) whether any of the conditions precedent in Section 6 of this
Agreement shall have been satisfied, (iii) whether a Default or
Event of Default shall have occurred and be continuing, (iv) the
date of such Mandatory Borrowing and (v) any reduction in the
Total Commitment Amount after such Swingline Loans were made. In
the event that any Mandatory Borrowing cannot be made as set
forth above for any reason, including, without limitation, the
commencement of a proceeding under the Bankruptcy Code with
respect to Borrower), each Lender (other than the Administrative
Agent) hereby agrees that it shall forthwith purchase from the
Administrative Agent (without recourse or warranty) an assignment
of such outstanding Swingline Loans as shall be necessary to
cause the Lenders to share in such Swingline Loans ratably based
upon their respective Commitment Percentages; provided, however,
that all interest payable on the Swingline Loans shall be for the
account of the Administrative Agent until the effective date of
the purchase of each respective assignment and, to the extent
attributable to the purchased assignment, shall be payable to the
Lender purchasing the same from and after such effective date.
Section 2.3. Interest on the Loans.
Section 2.3.1. Base Rate. Each adjustment in the Base
Rate shall result immediately, without notice or demand of any
kind, in a new rate of interest effective with respect to periods
on and after the date of such adjustment. The Base Rate is a
base interest rate for loans making reference thereto and is not
necessarily the lowest rate at which any Lender may lend money.
The Base Rate is neither tied to any external rate of interest
nor is it a rate charged by any Lender to any particular class or
category of customer. If the Base Rate shall be discontinued or
for any other reason not be available for determining the rate of
interest chargeable under this Agreement, then the Administrative
Agent (with the consent of the Required Lenders) shall select a
substitute method of determining the rate of interest chargeable
under this Agreement and shall notify Borrower of such selection,
which method shall, in the Administrative Agent's estimation,
yield a rate of return to each Lender substantially equivalent to
the rate of return that such Lender would have expected to
receive if the Base Rate remained available for that purpose.
Section 2.3.2. Continuation or Conversion of Loans. As
long as no Default or Event of Default shall have occurred and be
continuing, Borrower may continue or convert all or any part (in
integral multiples of ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($100,000.00)) of any outstanding Loan as a Loan of the same Type
or into a Loan of any other Type provided for in this Agreement.
If Borrower wishes to continue or convert a Loan as aforesaid,
Borrower shall provide the Administrative Agent with written
notice (or telephonic notice promptly confirmed in writing)
received at its Notice Office no later than 10:00 a.m. (Boston,
Massachusetts time) on the date one (1) Business Day before the
day on which the requested Loan is to be continued as or
converted to a Base Rate Loan, and received no later than 10:00
a.m. (Boston, Massachusetts time) on the date three (3) Business
Days before the day on which the requested Loan is to be
continued as or converted to a Eurodollar Loan. Each such notice
(a "Notice of Continuation or Conversion") shall, except as
provided in Section 2.3.6. hereof, be irrevocable, be in the form
of Exhibit E attached hereto and be appropriately completed to
specify: (i) the amount of the Loan to be continued or converted,
(ii) the effective date of such continuation or conversion which
shall, in the case of Eurodollar Loan, be the last day of the
Interest Period applicable thereto, (iii) the Type or Types of
Loans to be applicable thereto; and (iv) the duration of the
Interest Period, if any (subject to the provisions of the
definition of Interest Period). The Administrative Agent shall
promptly give each Lender written notice (or telephonic notice
promptly confirmed in writing) of each requested continuation or
conversion of a Loan, such Lender's proportionate share thereof
and such other matters covered by the Notice of Conversion or
Continuation. Borrower hereby acknowledges and agrees that the
Administrative Agent may, prior to the receipt of written
confirmation act without liability upon the basis of any
telephonic notice provided under this Section 2.3.2. believed by
the Administrative Agent, in good faith, to be from a Responsible
Officer of Borrower and Borrower hereby waives the right to
dispute the Administrative Agent's record of the terms of such
telephonic notice.
Section 2.3.3. Duration of Interest Periods.
(a) Subject to the provisions of the definition of
Interest Period, the duration of each Interest Period applicable
to a Loan shall be as specified in the applicable Notice.
(b) If the Administrative Agent does not receive a
Notice for a Eurodollar Loan pursuant to subsection (a) above
within the applicable time limits specified therein, or if, when
such notice must be given, a Default or Event of Default shall
have occurred and be continuing, Borrower shall be deemed to have
elected to convert such Loan in whole into a Base Rate Loan on
the last day of the then current Interest Period with respect
thereto.
(c) Notwithstanding the foregoing, Borrower may not
select an Interest Period that would end, but for the provisions
of the definition of Interest Period, after the Maturity Date.
Section 2.3.4. Interest Rates and Payments of Interest.
(a) Each Base Rate Loan shall bear interest on the
outstanding principal amount thereof at a rate per annum equal to
the Base Rate in effect from time to time plus the Base Rate
Margin. Interest accruing in respect of each Base Rate Loan
shall be payable on the last day of each month commencing
February 28, 1998May 31, 1997 and continuing until such Base Rate
Loan is due (whether at maturity, by reason of acceleration,
prepayment or otherwise).
(b) Each Eurodollar Loan shall bear interest on the
outstanding principal amount thereof, for each Interest Period
applicable thereto, at a rate per annum equal to the Adjusted
Eurodollar Rate plus the Eurodollar Margin, which interest shall
be payable on the last day of each Interest Period (but, in the
case of Interest Periods having a duration of six (6) months or
greater, if available, at least quarterly) and when such
Eurodollar Loan is due (whether at maturity, by reason of
acceleration or otherwise).
(c) Interest shall be computed daily on the basis of a
year of three hundred sixty (360) days and paid for the actual
number of days elapsed during each Interest Period. If the due
date for any payment of principal is extended by operation of
law, interest shall be payable for such extended time. If any
payment required by this Agreement becomes due on a day that is
not a Business Day such payment may be made on the next
succeeding Business Day (subject to clause (i) of the definition
of Interest Period), and such extension shall be included in
computing interest in connection with such payment.
Section 2.3.5. Interest Rate Margins. As of the Closing
Date and during any period in which a Default or Event of Default
shall have occurred and be continuing, the Base Rate Margin shall
be 1.50% and the Eurodollar Margin shall be 2.75%. Commencing
with the end of the first Fiscal Quarter following the Closing
Date and continuing on the last day of each succeeding Fiscal
Quarter, and as long as no Default or Event of Default shall have
occurred and be continuing, the Base Rate Margin and the
Eurodollar Margin shall be subject to change (each such change, a
"Margin Change") by reference to Borrower's Leverage Ratio as of
the last day of any such Fiscal Quarter as follows:
LEVERAGE RATIO BASE RATE MARGIN EURODOLLAR MARGIN
Equal to or greater 1.50% 2.75%
than
3.75 to 1.0 (or if
a Default or Event
of Default
shall exist)
Equal to or greater 1.25% 2.50%
than
3.50 to 1.0 but
less than 3.75 to
1.0
Equal to or greater 1.00% 2.25%
than
3.00 to 1.0 but
less than 3.50 to
1.0
Less than 3.0 to .75% 2.00%
1.0
The calculation of the Leverage Ratio for purposes of a Margin
Change shall be reviewed and verified by the Administrative
Agent, in its sole and absolute discretion, by reference to the
Financial Statements to be provided by Borrower under Section
7.1. hereof. In making such calculation, and for purposes of the
determination of any Margin Change only, Consolidated EBITDA
shall be calculated on an annualized basis by reference to the
most recent Fiscal Quarter then ending multiplied by four (4).
Each Margin Change shall be effective, including with respect to
Loans which are then outstanding, as of the date on which the
Financial Statements referred to in Section 7.1. hereof are
provided to the Administrative Agent (notwithstanding the fact
that the calculation of the Leverage Ratio associated with such
Margin Change is reviewed and verified by the Administrative
Agent at a later date). The Administrative Agent shall review
and verify the Borrower's calculation of the Leverage Ratio no
later than three (3) Business Days after its receipt of such
Financial Statements. The Administrative Agent shall, as soon as
practicable, promptly notify each Lender of the occurrence of any
Margin Change.
Section 2.3.6. Changed Circumstances. In the event that
(x) in the case of clause (i) below, the Administrative Agent or
(y) in the case of clause (ii) below, any Lender, shall have
determined in a commercially reasonable manner (which
determination shall, absent manifest error, be final and
conclusive and binding upon all parties hereto):
(i) on any date on which the
Eurodollar Rate would otherwise be set the
Administrative Agent shall have determined in
good faith (which determination shall be
final and conclusive) that adequate and fair
means do not exist for ascertaining the
Interbank Offered Rate, or
(ii) at any time such Lender shall
have determined in good faith that:
(A) the making or
continuation of or conversion of any
Loan to a Eurodollar Loan has been made
impracticable or unlawful by (1) the
occurrence of a contingency that
materially and adversely affect the
interbank Eurodollar market or (2)
compliance by such Lender in good faith
with any Requirement of Law enacted
after the date hereof or interpretation
or change thereof after the date hereof
by any Governmental Authority charged
with the interpretation or
administration thereof or with any
request or directive of any such
Governmental Authority (whether or not
having the force of law); or
(B) the Adjusted
Eurodollar Rate shall, after the date
hereof, no longer represent the
effective cost to such Lender for U.S.
dollar deposits in the interbank
Eurodollar market for deposits in which
it regularly participates;
then, and in any such event, such Lender (or the Administrative
Agent in the case of clause (i) above) shall (x) within five (5)
Business Days after any such event and (y) within five (5)
Business Days of the date on which such event no longer exists
give notice (in writing or by telephone confirmed in writing) to
Borrower and (except in the case of clause (i) above) to the
Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to the other
Lenders). Thereafter, (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as
the Administrative Agent notifies Borrower and the Lenders that
the circumstances giving rise to such notice by the
Administrative Agent no longer apply, and any Notice given by
Borrower with respect to Eurodollar Loans which have not yet been
incurred shall be deemed rescinded by Borrower and (y) in the
case of clause (ii) above, Borrower shall, as applicable, either
(a) pay to such Lender, upon written demand therefor (accompanied
by the written notice referred to below), any such additional
amounts (in the form of an increased rate of, or a different
method of calculating, interest or otherwise as such Lender may
determine in its sole discretion) as shall be required to
compensate such Lender for any increased costs or reductions in
amounts received or receivable under this Agreement (a written
notice as to the additional amounts owed to such Lender showing
the basis for the calculation thereof, submitted to Borrower by
such Lender, shall, absent manifest error, be final and
conclusive and binding upon all parties hereto) or (b), as
promptly as possible, and, in any event, with the time period
required by law, either (A), if any affected Eurodollar Loan has
not yet been made, continued or converted, cancel any such Notice
by giving the Administrative Agent a telephonic notice (confirmed
promptly in writing) thereof on the same date that Borrower was
notified by a Lender as aforesaid or (B), if any affected
Eurodollar Loan has been made, continued or converted, upon at
least three (3) Business Days' notice to the Administrative
Agent, require the affected Lender (and any other similarly
affected Lender) to convert each such affected Eurodollar Loan
into a Base Rate Loan (which conversion shall occur no later than
the last day of the Interest Period then applicable to such
Eurodollar Loan (or such earlier date if required by any
Requirement of Law).
Section 2.3.7. Compensation. Borrower shall compensate
each Lender, promptly upon its written request (which request
shall be accompanied by a notice setting forth the basis for such
compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any such loss,
expense or liability incurred by reason of the liquidation or
reemployment of deposits or other funds required by such Lender
to fund its Eurodollar Loans but excluding loss of anticipated
profit with respect to any Eurodollar Loans) which such Lender
may sustain: (i) if for any reason (other than a default by the
Administrative Agent or such Lender) a Eurodollar Loan is not
made, continued or converted on the date specified therefor in a
Notice (whether or not withdrawn by Borrower or deemed withdrawn
under Section 2.3.6. hereof), (ii) if any repayment (including
any voluntary or mandatory repayment under Sections 2.1.13. and
2.1.14. hereof or as the result of the acceleration of the Loans)
or conversion of Eurodollar Loan occurs on a date which is not
the last day of the Interest Period applicable thereto, (iii) if
any prepayment of any Eurodollar Loans is not made on any date
specified in a notice of prepayment given by Borrower, (iv) as a
consequence of (x) any other failure or default by Borrower to
repay Eurodollar Loans when required by this Agreement or (y) any
election by Borrower under Section 2.3.6. hereof. The
calculation of all amounts payable to a Lender under this Section
2.3.7. shall be made as though that Lender has actually funded
its relevant Eurodollar Loan through the purchase of a Eurodollar
deposit bearing interest at the Adjusted Eurodollar Rate in an
amount equal to the amount of such Eurodollar Loan, having a
maturity comparable to the relevant Interest Period and through
the transfer of such Eurodollar deposit from an offshore office
of such Lender to a domestic office of such Lender; provided,
however, that each Lender may fund each of its Eurodollar Loans
in any manner which it elects in its sole and absolute
discretion. It is further understood and agreed by Borrower that
if any repayment of Eurodollar Loans pursuant to Sections 2.1.13.
or 2.1.14. or any conversion of Eurodollar Loans shall occur on a
day which is not the last day of an Interest Period applicable
thereto, such repayment or conversion shall be accompanied by any
amounts owing to any Lender under this Section 2.3.7.
Section 2.3.8. Interest under the Original Credit
Agreement. On the Closing Date, the Borrower shall pay or cause
to be paid to the Administrative Agent for the account of the
Existing Lenders all interest accrued but unpaid in respect of
the Existing Loans as of the Closing Date (calculated at the
rates and in the manner set forth in the Original Credit
Agreement as of the close of business on the day immediately
preceding the Closing Date).
Section 2.4. Fees Applicable to this Agreement and Extensions
of Credit.
Section 2.4.1. Facility Fee. Borrower shall pay to the
Administrative Agent for the account of the Lenders during the
Revolving Credit Period a facility fee (the "Facility Fee")
computed at the rate of .375% per annum on the average daily
amount of the Unused Total Commitment Amount in effect during the
period for which payment is made. The Facility Fee shall be
payable quarterly in arrears commencing April 30, 1998 and
continuing on the last day of each quarter thereafter during the
Revolving Credit Period and on the Revolving Credit Termination
Date.
Section 2.4.2. Agency Fee. Borrower shall pay to the
Administrative Agent for its own account an agency fee in the
amount of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) for each
year or portion thereof in which the Obligations remain
outstanding in consideration of its service as the Administrative
Agent for the Lenders under this Agreement (the "Agency Fee").
The Agency Fee shall be payable in advance on the Closing Date
and on each anniversary thereof; provided, however, that the
Agency Fee payable on the Closing Date shall be reduced by TEN
THOUSAND AND NO/100 DOLLARS ($10,000.00)pro rated to account for
payments made by Borrower in respect of the Agency Fee under the
Original Credit Agreement.
Section 2.4.3. Calculation of Fees. Any Fees due and
payable under this Section 2.4. (excluding fees payable under
Section 2.4.4.) to the Administrative Agent for the account of
the Lenders shall be calculated on the basis of a year of 360
days and according to the actual number of days elapsed in each
accrual period.
Section 2.4.4. Fees under the Original Credit Agreement.
On the Closing Date, the Borrower shall pay or cause to be paid
to the Administrative Agent for the account of the Existing
Lenders all fees, charges and other amounts due and owing to such
Existing Lenders under the Original Credit Agreement as of the
Closing Date (calculated at the rates and in the manner set forth
in the Original Credit Agreement as of the close of business on
the day immediately preceding the Closing Date).
Section 2.5. General Terms Applicable to Any Extension of
Credit
Section 2.5.1. Increased Costs and Capital Adequacy.
(a) If the Administrative Agent, the Documentation
Agent or any Lender determines that any change in any law or
regulation or directive or bulletin or in the interpretation
thereof after the Closing Date by any court or administrative or
governmental authority charged with the administration thereof
shall either (i) impose, modify or deem applicable any reserve,
special deposit or similar requirement against any credit
extended by the Administrative Agent, the Documentation Agent or
any Lender under this Agreement, or (ii) impose on the
Administrative Agent, the Documentation Agent, any Lender or
their parent holding company any other condition regarding this
Agreement and the result of any event referred to in the
preceding clause (i) or (ii) above shall be to increase the cost
to the Administrative Agent, the Documentation Agent, any Lender
or such holding company of issuing, funding or maintaining any
Extension of Credit (which increase in cost shall be determined
by the Administrative Agent's, the Documentation Agent's or such
Lender's reasonable allocation of the aggregate of such cost
increases resulting from such event), then, upon written demand
by the Administrative Agent, the Documentation Agent or any such
Lender, Borrower shall pay to the Administrative Agent, the
Documentation Agent or such Lender from time to time as specified
by the Administrative Agent, the Documentation Agent or any such
Lender, additional amounts which shall be sufficient to
compensate the Administrative Agent, the Documentation Agent or
any such Lender for such increased cost from the date of such
change. A certificate as to such increased cost incurred by the
Administrative Agent, the Documentation Agent or any Lender as a
result of any event mentioned in clause (i) or (ii) above
prepared in reasonable detail (which shall include the method
employed by the Administrative Agent, the Documentation Agent or
any such Lender in determining the allocation of such costs to
Borrower) and otherwise in accordance with this subsection (a),
submitted by the Administrative Agent, the Documentation Agent or
any such Lender to Borrower, shall be conclusive evidence, absent
manifest error, as to the amount thereof.
(b) If the Administrative Agent, the Documentation
Agent or any Lender shall determine that the adoption after the
Closing Date of any applicable law, rule or regulation pursuant
to or arising out of the July 1988 report of the Basle Committee
on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other
law, rule, or regulation regarding capital adequacy, or any
change therein, or any change after the date hereof in the
interpretation or administration thereof, or compliance by the
Administrative Agent, the Documentation Agent, any Lender or
their parent holding company with any requirement or directive
regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency,
except any such adoption or change or any such compliance with a
request or directive which applies or has been applied solely to
the Administrative Agent, the Documentation Agent, any such
Lender or such parent holding company by reason of events or
conditions relating solely to the Administrative Agent, the
Documentation Agent or any such Lender, has the effect of
reducing the rate of return on the Administrative Agent's, the
Documentation Agent's, any Lender's or their parent holding
company's capital as a consequence of its commitment hereunder or
to a level below that which the Administrative Agent, the
Documentation Agent, any such Lender or such holding company
could have achieved but for such adoption, change or compliance
by an amount deemed by the Administrative Agent, the
Documentation Agent or any such Lender to be material (for which
reduction of the rate of return shall be determined by the
Administrative Agent's, the Documentation Agent's, any such
Lender's or such holding company's reasonable allocation of such
reduction of the rate of return resulting from such event) then,
upon written demand by the Administrative Agent, the
Documentation Agent or any such Lender, Borrower shall pay to the
Administrative Agent, the Documentation Agent or such Lender,
from time to time as specified by the Administrative Agent, the
Documentation Agent or any such Lender, such additional amount or
amounts which shall be sufficient to compensate the
Administrative Agent, the Documentation Agent or any such Lender
for such reduction. A certificate as to such increased cost
incurred by the Administrative Agent, the Documentation Agent or
any such Lender as a result of any event mentioned in this
subsection (b), prepared in reasonable detail (which shall
include the method employed by the Administrative Agent, the
Documentation Agent or any such Lender in determining the
allocation of such costs to Borrower) and otherwise in accordance
with this subsection (b) submitted by the Administrative Agent,
the Documentation Agent or any such Lender to Borrower, shall be
conclusive evidence, absent manifest error, as to the amount
thereof.
(c) Amounts payable by Borrower pursuant to this
Section 2.5.1. shall be payable within ten (10) Business Days of
receipt by Borrower of a certificate described in subsection (a)
or (b) of this Section 2.5.1.
Section 2.5.2. Method of Payment. All payments and
prepayments of principal and all payments of Fees and interest
shall be made by Borrower to the Administrative Agent for the
ratable account of the Lenders at the head office of the
Administrative Agent (or such other place specified by the
Administrative Agent for such purpose) in immediately available
funds and in U.S. Dollars, on or before 12:00 noon (Boston,
Massachusetts time) on the due date thereof, free and clear of,
and without any deduction or withholding for, any taxes or other
payments. Any payments which are made later than 12:00 noon
(Boston, Massachusetts time) shall be deemed to have been made on
the next Business Day. Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Business Day
(unless otherwise provided herein), the due date thereof shall be
extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such
extension as the applicable rate in effect immediately prior to
such extension of time.
Section 2.5.3. Taxes. All payments by Borrower under
this Agreement shall be made without set-off, counterclaim or
other claim or defense. Except as otherwise provided herein, all
payments by or on behalf of Borrower hereunder shall be made free
and clear of, and without deduction or withholding for, any and
all current or future taxes, levies, imposts, duties, fees,
assessments or other charges of any kind or nature now or
hereinafter imposed by a Governmental Authority with respect to
any such payment but excluding, except as provided below, (i) any
tax imposed on or measured by the net income or net profits of
any Lender or transferee or assignee thereof (a "Transferee")
pursuant to any Requirement of Law, or (ii) or franchise taxes
imposed on net income or in lieu thereof on any Lender or
Transferee or (iii) any tax imposed by reason of any connection
between the jurisdiction imposing such tax and any Lender or
Transferee (other than a connection arising solely by virtue of
the making of any Extension of Credit under this Agreement) and
all interest, penalties or similar liabilities (all such non-
excluded taxes, levies, imposts, duties, fees, assessments or
other charges being referred to as "Taxes"). If any Taxes are
required to be withheld or deducted from any payment under this
Agreement, Borrower agrees to pay the full amount of such Taxes
deducted to the relevant Government Authority in accordance with
applicable law, and the payments under this Agreement shall be
increased by such additional amounts as may be necessary so that
every payment under this Agreement, after required withholding or
deduction on account of any Taxes, will not be less than the
amount otherwise required to be paid under this Agreement.
Borrower shall furnish to the Administrative Agent within thirty
(30) days after the date the payment of any Taxes is due
certified copies of any tax receipts evidencing such payment by
Borrower. Borrower agrees to indemnify and hold harmless the
Administrative Agent, the Documentation Agent and each Lender,
and reimburse the Administrative Agent, the Documentation Agent
and each Lender upon its written request, for the amount of any
Taxes specified in this Section 2.5.3. as are paid by such
Lender, the Administrative Agent or the Documentation Agent. A
certificate as to the amount of any such indemnification prepared
by such Lender, the Administrative Agent or the Documentation
Agent shall, absent manifest error, be final, conclusive and
binding for all purposes.
Section 2.5.4. Withholding Tax Exemption. Each Lender
which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) agrees to deliver to Borrower
and the Administrative Agent on or prior to the Closing Date (i)
two complete executed copies of Internal Revenue Service Form
4224 or Form 1001 (or successor forms thereto) certifying such
Lender's entitlement to an exemption from United States
withholding tax with respect to payment to be made under this
Agreement or (ii) if the Lender is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and cannot deliver
either Form 4224 or Form 1001, a certificate in a form approved
by the Administrative Agent and two complete executed copies of
Internal Revenue Service Form W-8 (or successor form thereto)
certifying such Lender's entitlement to exemption from such
withholding. In addition, each Lender agrees to deliver to
Borrower and the Administrative Agent updates or replacements to
the foregoing forms and certificates from time to time when due
to the lapse of time, the change in circumstances or otherwise,
any such form or certificate previously provided under this
Section 2.5.4. shall become obsolete or inaccurate. Each Lender
agrees to immediately notify Borrower and the Administrative
Agent in the event that it is unable to certify that it is
entitled to an exemption from withholding as aforesaid.
Notwithstanding any provision of Section 2.5.3 or this Section
2.5.4. to the contrary, Borrower shall be entitled, to the extent
required by any Requirement of Law, to deduct and withhold income
or similar taxes imposed by the United States (or any other
Governmental Authority) from interest, fees or other amounts
payable hereunder for the account of any Lender which is not a
United States person (as defined above) for U.S. Federal income
tax purposes to the extent that such Lender has not provided to
Borrower forms establishing an exemption therefrom as aforesaid
and Borrower shall not be obligated to pay any amounts under this
Section 2.5.4. hereof in respect of income or withholding taxes
imposed by the United States if any Lender has not provided the
forms required to be provided pursuant to this Section 2.5.4.
hereof or, in the case of a payment, other than interest, to a
Lender to the extent that any such forms do not establish a
complete exemption from withholding of such taxes.
Section 2.5.5. Lending Offices. Loans of each Type made
by any Lender shall be made and maintained at such Lender's
Applicable Lending Office for Loans of such Type. Each Lender
agrees that, upon the occurrence of any event giving rise to the
operation of Section 2.3.6., 2.5.1. or 2.5.3. hereof with respect
to such Lender, it will, if requested by Borrower, use reasonable
efforts (subject to overall policy considerations of such Lender)
to designate another lending office for any Extension of Credit
affected by such event; provided that in the sole judgment of
such Lender, such Lender and its lending office suffer no
economic, legal or regulatory disadvantage, with the object of
avoiding the consequences of the event giving rise to the
operation of any of the foregoing Sections. Nothing in this
Section 2.5.5. shall affect or postpone any of the obligations of
Borrower or the rights of any Lender under said Sections 2.3.6.,
2.5.1. or 2.5.3.
Section 2.5.6. Replacement of Lenders. (x) If any Lender
becomes a Defaulting Lender, (y) upon the occurrence of any event
giving rise to the operation of Sections 2.3.6., 2.5.1. or 2.5.3.
with respect to any Lender which results in such Lender charging
to Borrower increased costs in excess of those being generally
charged by the other Lenders or (z) in the case of a refusal by a
Lender to consent to a proposed change, waiver, discharge or
termination with respect to this Agreement which has been
approved by the Required Lenders as provided in Section 10.14.
hereof Borrower shall have the right, if no Default or Event of
Default then exists or, in the case of clause (z) above, would
exist after giving effect to such replacement, to replace such
Lender (the "Replaced Lender") with one or more other lenders,
none of whom shall constitute a Defaulting Lender at the time of
such replacement (collectively, the "Replacement Lender") and
each of whom shall be acceptable to the Administrative Agent;
provided that (i) at the time of any replacement pursuant to this
Section 2.5.6., the Replacement Lender shall enter into an
Assignment and Acceptance pursuant to Section 13.1. (and with all
fees payable pursuant to said Section 13.1 to be paid by the
Replacement Lender) pursuant to which the Replacement Lender
shall acquire the Commitment and the Loans of the Replaced Lender
and, in connection therewith, shall pay to (x) the Replaced
Lender in respect thereof an amount equal to the sum of (A) an
amount equal to the principal of, and all accrued interest on,
all outstanding Loans of the Replaced Lender and (B) an amount
equal to all accrued, but theretofore unpaid, Fees owing to the
Replaced Lender and (y) the Administrative Agent an amount equal
to such Replaced Lender's pro rata share of any Mandatory
Borrowing to the extent such amount was not theretofore funded by
such Replaced Lender, and (ii) all obligations of Borrower then
owing to the Replaced Lender (other than those specifically
described in clause (i) above in respect of which the assignment
purchase price has been, or is concurrently being, paid, but
including all amounts, if any, owing under Section 2.3.6.) shall
be paid in full to such Replaced Lender concurrently with such
replacement. Upon the execution of the respective Assignment and
Acceptance, the payment of amounts referred to in clauses (i) and
(ii) above, recordation of the assignment on the Register by the
Administrative Agent pursuant to Section 13.2. and, if so
requested by the Replacement Lender of the appropriate Note or
Notes executed by Borrower, the Replacement Lender shall become a
Lender hereunder and the Replaced Lender shall cease to
constitute a Lender hereunder, except with respect to
indemnification provisions under this Agreement, which shall
survive as to such Replaced Lender.
Section 2.6. Payments among the Administrative Agent and the
Lenders.
Section 2.6.1. Pro Rata Treatment. Except as otherwise
provided herein: (A) each borrowing from the Lenders pursuant to
Section 2.1.1. hereof will be made from the Lenders pro rata in
accordance with the amounts of their respective Commitment
Percentages, (B) payments and prepayments of principal or
interest will be made to the Administrative Agent for the account
of the Lenders pro rata in accordance with the unpaid principal
amount of the Line of Credit, (C) any reduction in the Total
Commitment Amount shall reduce each Lender's Commitment
Percentage pro rata based upon their then respective Commitment
Percentages and (D) all payments of Fees made to the
Administrative Agent for the account of the Lenders shall be made
pro rata based upon their then respective Commitment Percentages.
Section 2.6.2. Non-Receipt of Funds by the Administrative
Agent.
(a) Unless the Administrative Agent shall have
received notice from a Lender prior to the date on which such
Lender is to provide funds to the Administrative Agent for a
Revolving Loan under such Lender's Commitment (including
Revolving Loans required to be made under Section 2.1.4.(b)
hereof) that such Lender will not make available to the
Administrative Agent such funds, the Administrative Agent may
assume that such Lender has made such funds available to the
Administrative Agent on such date, and the Administrative Agent,
in its sole discretion, may, but shall not be obligated to, in
reliance upon such assumption, make available to Borrower on such
date a corresponding amount. If and to the extent such Lender
shall not have so made such funds available to the Administrative
Agent, such Lender (a "Defaulting Lender") agrees to repay to the
Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date
such amount is made available to Borrower until the date such
amount is repaid to the Administrative Agent, at the Federal
Funds Effective Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so
repaid shall constitute such Lender's Revolving Loan under its
Commitment for purposes of this Agreement. If such Lender does
not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent
shall be entitled to all interest earned thereon or Fees earned
in respect thereof through the date of the payment of any such
amount by such Lender. A Defaulting Lender (regardless of
whether such Lender serves as the Administrative Agent) shall be
deemed to have assigned to the extent of the delinquency any and
all payments due to it from Borrower, whether on account of
outstanding Loans, interest, fees or otherwise, to the remaining
Non-Defaulting Lenders for application to, and reduction of,
their respective pro rata shares of all outstanding Loans. The
Defaulting Lender hereby authorizes the Administrative Agent to
distribute such payments to the Non-Defaulting Lenders in
proportion to their respective pro rata shares of all outstanding
Loans. A Defaulting Lender shall be deemed to have satisfied in
full a delinquency when and if, as a result of application of the
assigned payments to all outstanding Loans of the Non-Defaulting
Lenders, the Lenders' respective pro rata shares of all
outstanding Loans have returned to those in effect immediately
prior to such delinquency and without giving effect to the
nonpayment causing such delinquency.
(b) Unless the Administrative Agent shall have
received notice from the Borrower prior to the date on which any
payment is due to the Lenders hereunder that the Borrower will
not make such payment in full, the Administrative Agent may
assume that the Borrower has made such payment in full to the
Administrative Agent on such date, and the Administrative Agent
in its sole discretion may, but shall not be obligated to, in
reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due
such Lender. If and to the extent that the Borrower shall not
have so made such payment in full to the Administrative Agent,
each Lender shall repay to the Administrative Agent forthwith on
demand, which shall be made promptly after discovery thereof,
such amount distributed to such Lender together with interest
thereon, for each day from the date such amount is distributed to
such Lender until the date such Lender repays such amount to the
Administrative Agent, at the Federal Funds Effective Rate.
(c) Nothing contained in this Section 2.6.2. shall be
construed to relieve any Lender of its obligation to make funds
available to the Administrative Agent under this Agreement except
as otherwise expressly provided herein, nor to relieve the
Borrower of its obligations to make any payment when due.
(d) The Administrative Agent shall have no
obligation to remit to the Lenders any amounts under this
Agreement not actually collected from the Borrower. In addition,
in the event that any payment received by the Administrative
Agent is rescinded or must otherwise be restored or returned upon
the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or upon the appointment of any
intervenor or conservator of, or trustee or similar official for,
the Borrower or any substantial part of its properties or assets,
or otherwise, and if the Administrative Agent paid any Lender its
pro rata share of such payment, then such Lender shall, on demand
from the Administrative Agent, immediately pay to the
Administrative Agent an amount equal to such Lender's pro rata
share of any such payment which must be rescinded, restored or
returned by the Administrative Agent. Any such amount shall be
paid no later than 3:00 p.m. (Boston, Massachusetts time) on the
Business Day following the date of demand for payment by the
Administrative Agent and shall bear interest at the rate and in
the manner set forth in Section 2.6.2.(b) hereof.
Section 2.6.3. Sharing of Payments, Etc. Borrower hereby
agrees that, in addition to (and without limitation of) any right
of set-off, banker's lien or counterclaim a Lender may have
hereunder or otherwise, each Lender and Lender Affiliate shall be
entitled at its option, to offset balances held by it at any of
its offices against any principal of or interest on any Revolving
Loans, or any fee or expense payable to the Administrative Agent,
the Documentation Agent or the Lenders that is not paid when due
(regardless of whether such balances are then due to Borrower),
in which case it shall promptly notify Borrower and the
Administrative Agent thereof; provided, that its failure to give
such notice shall not affect the validity thereof. If a Lender
shall effect payment of any principal, interest, fee or expense
under this Agreement through the exercise of any right of
set-off, banker's lien, counterclaim or similar right, it shall
be deemed to have purchased from each of the other Lenders
participations in the Loans made by the other Lenders in such
amounts, and make such other adjustments from time to time as
shall be equitable, to the end that the Lenders shall share the
benefit of such payment pro rata in accordance with the
respective amounts of unpaid principal of and interest on the
Revolving Loans made by each of them. To such end, the Lenders
shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is
rescinded or must otherwise be restored. Borrower agrees that
any Lender so purchasing a participation in the Revolving Loans
made by the other Lenders may exercise all rights of set-off,
banker's lien, counterclaim or similar rights with respect to
such participation as fully as if such Lender were a direct
holder of the Revolving Loans in the amount of such
participation. Nothing contained herein shall require any Lender
to exercise any such right or shall affect the right of any
Lender to exercise, and retain the benefits of exercising, any
such right with respect to any other indebtedness or obligation
of Borrower to such Lender.
SECTION 3. SECURITY FOR THE OBLIGATIONS
Section 3.1. Collateral Disclosure List. Borrower shall
deliver to the Administrative Agent and the Documentation Agent
on or prior to the Closing Date a completed Collateral Disclosure
List certified by a Responsible Officer.
Section 3.2. Security. The Obligations shall be secured by:
Section 3.2.1. All properties and assets of Borrower,
including goods, accounts receivable, inventory, contract rights,
accounts, documents, instruments and chattel paper, business and
financial records and general intangible assets of Borrower
(including all Capital Stock of each Subsidiary of Borrower),
(other than, unless otherwise required by the Lenders, Protective
Alarms of Canada, Inc.)), and all proceeds thereof, as more
particularly defined in and pursuant to the Borrower Pledge
Agreement and the Borrower Security Agreement.
Section 3.2.2. The guarantee of Alarmguard Holdings and
SSH pursuant to the Alarmguard Holdings Guarantee and the SSH
Guarantee, respectively.
Section 3.2.3. A pledge of all of SSH's right, title and
interest in and to all shares of Capital Stock of Borrower
pursuant to the SSH Pledge Agreement.
Section 3.2.4. A pledge of all of Alarmguard Holding's
right, title and interest in and to all shares of Capital Stock
of SSH pursuant to the Alarmguard Holdings Pledge Agreement.
Section 3.2.5. A leasehold mortgage, deed of trust or
collateral assignment with respect to all of Borrower's right,
title and interest, as lessee, in, to and under leases for the
premises listed and described on Schedule 3.2.5. attached hereto
pursuant to a Leasehold Mortgage or a Lease Assignment,
respectively.
Section 3.2.6. The guarantee of each Subsidiary of
Borrower (excluding, unless otherwise required by the Lenders,
Protective Alarms of Canada, Inc.) pursuant to a Subsidiary
Guarantee.
Section 3.2.7. All properties and assets of each
Subsidiary of Borrower which has executed a Subsidiary Guarantee,
including goods, accounts receivable, inventory, contract rights,
accounts, documents, instruments and chattel paper, business and
financial records and general intangible assets of each such
Subsidiary (including all Capital Stock of any Subsidiaries of
any such Subsidiary), and all proceeds thereof, as more
particularly defined in or pursuant to a Subsidiary Pledge
Agreement and a Subsidiary Security Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent, the Documentation
Agent and the Lenders to enter into this Agreement and to make
any Extension of Credit, each Credit Party, as applicable, makes
the following representations and warranties to the
Administrative Agent, the Documentation Agent and the Lenders,
which shall be deemed made both before and after giving effect to
the Preferred Stock Offering as of the date hereof and, except as
otherwise provided in this Section 4., on the date of each
Extension of Credit. Any knowledge acquired by the
Administrative Agent, the Documentation Agent or the Lenders
shall not diminish their rights to rely upon such representations
and warranties.
Section 4.1. Corporate Existence. Each Credit Party is a
corporation duly incorporated, validly existing and in good
standing under the laws of its respective state of incorporation
and is duly qualified in all other jurisdictions in which the
properties and assets owned, leased or operated by it, or the
nature of the business conducted by it, make such qualification
necessary and where failure to so qualify could reasonably be
expected to have a Material Adverse Effect.
Section 4.2. Corporate Authority. The execution, delivery
and performance of this Agreement, the Notes, the Other Documents
and the Transaction Documents, the consummation of the
transactions herein and therein contemplated, the fulfillment of
and compliance with the terms and provisions hereof and thereof
have been duly authorized by all necessary corporate action of
each Credit Party and are within its corporate power and will not
result in a violation of its Governing Documents.
Section 4.3. Binding Obligations. This Agreement, the Notes,
the Other Documents and the Transaction Documents constitute the
legal, valid and binding obligations of each Credit Party which
is a party thereto, enforceable against it in accordance with
their respective terms.
Section 4.4. Noncontravention. The execution, delivery and
performance by each Credit Party of this Agreement, the Notes,
the Other Documents and the Transaction Documents will not
violate any existing law, ordinance, rule, regulation or order of
any Governmental Authority or result in a breach of any of the
terms of, or constitute a default under, any Contractual
Obligation to which any such Credit Party is a party or by which
it or any of its properties or assets are bound or result in or
require the imposition of any Encumbrance on any of such Credit
Party's properties or assets except to the extent that such
violation or breach could not reasonably be expected to have a
Material Adverse Effect.
Section 4.5. Permits. Each Credit Party possesses all
material permits, authorizations, licenses, approvals, waivers
and consents, without unusual restrictions or limitations, the
failure of which to possess could not reasonably be expected to
have a Material Adverse Effect, all of which are in full force
and effect.
Section 4.6. No Consents. The execution, delivery and
performance of this Agreement, the Notes, the Other Documents and
the Transaction Documents does not require any approval, consent
or waiver under any Contractual Obligation except where the
absence thereof could not reasonably be expected to have a
Material Adverse Effect. No approval, authorization, consent,
waiver or order of, or registration, application or filing with,
any Governmental Authority is required in connection with the
transactions contemplated by this Agreement, the Notes, the Other
Documents and the Transaction Documents except where the absence
thereof could not reasonably be expected to have a Material
Adverse Effect.
Section 4.7. Financial Statements. Borrower has provided to
the Administrative Agent and the Documentation Agent the
consolidated Financial Statements of SSH(i) Alarmguard Holdings
and its Subsidiaries and (ii) Borrower and its Subsidiaries, each
dated as of December 31, 1996, and related footnotes, audited and
certified by Ernst & Young, LLP. Borrower has also provided to
the Administrative Agent and the Documentation Agent the
internally prepared consolidated Financial Statements of (i)
Borrower and its Subsidiaries and (ii) the Direct Marketing
Program and the Dealer Program, each dated as of
November_________ __,30, 1997, certified by a Responsible Officer
but subject, however, to normal, recurring year-end adjustments
that shall not in the aggregate be material in amount. All
Financial Statements of any Credit PartyBorrower heretofore
provided to the Administrative Agent and the Documentation Agent
present fairly the financial condition and results of business
operations of the Persons covered thereby for the periods
indicated in accordance with GAAP. Neither Alarmguard Holdings,
Borrower nor any of their Subsidiaries has any material direct or
contingent liabilities, liabilities for taxes, unusual
commitments or unrealized or unanticipated losses not disclosed
in such Financial Statements. Since the date of the latest dated
consolidated balance sheet included in the Financial Statements
specified in this Section 4.7., there has been no development or
event which could reasonably be expected to have a Material
Adverse Effect and no Dividends have been declared or made to
stockholders, nor has any of its Capital Stock been purchased or
acquired by any Person in any manner nor has Alarmguard Holdings,
SSH, Borrower or any of their Subsidiaries made any Investment
except as set forth on Schedule 4.7 attached hereto.
Section 4.8. Financial Forecasts. Borrower has provided to
the Administrative Agent and the Documentation Agent forecasted
Financial Statements together with appropriate supporting details
and a statement of the underlying assumptions, prepared on a
monthly basis covering the fiveone (51) year period commencing on
January 1, 1998 (the "Forecasts"). The Forecasts have been
prepared in good faith and have a reasonable basis.
Section 4.9. Financial Information. All written data,
reports and information which any Credit Party has supplied to
the Administrative Agent, the Documentation Agent or the Lenders
or caused to be so supplied by a third party on its behalf in
connection with this Agreement, was, at the time so supplied,
when taken as a whole, true and accurate in all material respects
on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact
necessary to make such information at such time in light of the
circumstances under which such information was provided.
Section 4.10. Business Relationships. There exists no actual
or, to any Credit Party's knowledge threatened, termination,
cancellation or limitation of, or any modification or change in,
the business relationship of any Credit Party with any customer
or group of customers, or with any supplier (other than in the
ordinary course of business where one supplier is replaced by
another offering terms which are no less favorable to such Credit
Party) which could reasonably be expected to have a Material
Adverse Effect.
Section 4.11. Brokers. No broker or finder has brought about
the obtaining, making or closing of, and no broker's or finder's
fees or commissions will be payable by any Credit Party or its
Affiliates to any Person in connection with, the transactions
contemplated by this Agreement.
Section 4.12. Use of Proceeds. Borrower is not an
"investment company," or a company "controlled by" an "investment
company," as such terms are defined in the Investment Company Act
of 1940, as amended (14 U.S.C. 80(a)(1) et seq.). No Extension
of Credit, the application of the proceeds and repayment thereof
by Borrower or the performance of the transactions contemplated
by this Agreement will violate any provision of said Act, or any
rule, regulation or order issued by the Securities and Exchange
Commission thereunder. The proceeds of each Extension of Credit
will be used only for the purposes set forth in this Agreement.
None of the proceeds of any Extension of Credit will be used, or
have been used, directly or indirectly, for the purpose of
purchasing or carrying any "margin stock" or for the purpose of
reducing or retiring any Indebtedness which was originally
incurred to purchase or carry any "margin stock" or for any other
purpose which might constitute such Extension of Credit a
"purpose credit" within the meaning of said Regulation U or
Regulations G or X of the Federal Reserve Board. Borrower will
not take, or permit any Person acting on its behalf to take, any
action which might cause this Agreement or any document or
instrument delivered pursuant hereto to violate any regulation of
the Federal Reserve Board.
Section 4.13. Statutory Compliance. Each Credit Party is in
compliance with all material laws, ordinances, rules, regulations
and orders of any Governmental Authority applicable to it, its
properties or assets or the business conducted by it (excepting
ERISA and Environmental Laws which are the subject of other
provisions of this Agreement), except where non-compliance could
not reasonably be expected to have a Material Adverse Effect.
Section 4.14. Commitments. No Credit Party has any fixed,
contingent or other obligations to issue any of its Capital Stock
except as set forth on Schedule 4.14. attached hereto.
Section 4.15. Events of Default. No Default or Event of
Default has occurred and is continuing.
Section 4.16. Other Defaults. No Credit Party is in default
in the performance, observance or fulfillment of any Contractual
Obligation which could reasonably be expected to have a Material
Adverse Effect.
Section 4.17. Taxes. Each Credit Party has filed all tax
returns and reports required to be filed by it with any
Governmental Authority and has paid in full, or made adequate
provisions or established adequate reserves in accordance with
GAAP for, the payment of all taxes, interest, penalties,
assessments or deficiencies shown to be due or claimed to be due
on or in respect to such tax returns and reports.
Section 4.18. Ownership of Borrower. SSH is the holder of
all of the issued and outstanding shares of capital stock of
Borrower, and no other Person has any rights and/or claim to any
issued or unissued shares of such capital stock.
Section 4.19. Solvency. Both before and after giving effect
to (a) any Extension of Credit to be made on the Closing Date or
such other date on which any Extension of Credit requested
hereunder is made, (b) the disbursement of the proceeds of any
such Extension of Credit pursuant to the instructions of
Borrower, (c) the Preferred Stock Offering and the other
transactions contemplated by this Agreement, the Other Documents
and the Transaction Documents and (d) the payment and accrual of
costs and expenses incurred in connection with the foregoing,
each Credit Party is Solvent. No Credit Party is contemplating
either the filing of a petition by it under Bankruptcy Code or
any state bankruptcy or insolvency law or the liquidating of all
or a major portion of its properties and assets, and no Credit
Party has any knowledge of any Person contemplating the filing of
any such petition against it.
Section 4.20. Business Name. Each of Borrower and its
Subsidiaries conducts its business solely through the names set
forth on Schedule 11 of the Collateral Disclosure List, without
the use of any trade name, or the intervention of or through any
other Person. Neither Borrower nor any of its Subsidiaries has,
except as set forth in the Collateral Disclosure List, during the
preceding five (5) years, conducted its business through any
other name or trade name or been the surviving corporation in a
merger or consolidation or acquired all or substantially all of
the assets of any other Person.
Section 4.21. Affiliate Contracts. Except as otherwise
provided in this Agreement or as set forth on Schedule 4.21.
hereof, all contracts and transactions between any Credit Party
and any Affiliate or Subsidiary of such Credit Party have been
executed or will be executed on such terms as would be contained
in an agreement executed at arms' length with an unrelated third
party.
Section 4.22. Capitalization. The outstanding shares of
Capital Stock of each Credit Party which have been pledged to the
Administrative Agent for the ratable benefit of the Lenders under
the Security Documents have been duly issued and are fully paid
and non-assessable.
Section 4.23. Litigation. Except as set forth on Schedule
4.23. attached hereto, there are no actions, suits or proceedings
by or before any Governmental Authority or any arbitration or
alternate dispute resolution proceeding, pending or, to the
knowledge of any Credit Party or any of its officers, threatened,
against any Credit Party or its properties and assets, which if
adversely determined, could reasonably be expected to have a
Material Adverse Effect.
Section 4.24. Title to Properties. Each of Borrower and its
Subsidiaries has good and marketable title to all of its
properties and assets as are reflected in the Financial
Statements referred to in Section 4.7. (except such properties,
assets or rights as have been disposed of in the ordinary course
of business since the date thereof), free from all Encumbrances
except Permitted Encumbrances or those Encumbrances disclosed in
Schedule 4.24. attached hereto, and, free from all defects of
title that could reasonably be expected to have a Material
Adverse Effect. The properties, assets and rights of Borrower
and its Subsidiaries are sufficient to permit Borrower and such
Subsidiaries to conduct the business in which it is presently
engaged. Borrower and its Subsidiaries possess all trademarks,
service marks, trade names, trade service styles, copyrights and
patents that may be necessary to own their properties and assets,
and to conduct their business as it is presently conducted or as
intended to be conducted hereafter, without any infringement or
conflict with the rights of any other Person or any violation of
law which could reasonably be expected to have a Material Adverse
Effect.
Section 4.25. Labor Relations. No Credit Party is a party to
any collective bargaining or other agreement with any union and
there are no material grievances, disputes or controversies with
any union or other organization of such Credit Party's employees,
or threats of strikes, work stoppages or demands by any union or
such other organization.
Section 4.26. Contingent Obligations. No Credit Party is a
party to any Guarantee or other similar type of agreement, and it
has not offered its endorsement to any Person which would in any
way create a contingent liability (except by endorsement of
negotiable instruments payable at sight for deposit or collection
or similar banking transactions in the ordinary course of
business).
Section 4.27. Subsidiaries. As of the date of this
Agreement, all of the Subsidiaries and Affiliates of Borrower are
set forth on Schedule 13 of the Collateral Disclosure List.
Borrower or a Subsidiary of Borrower is the owner free and clear
of all Encumbrances, of all of the issued and outstanding Capital
Stock of each Subsidiary. Neither Borrower nor any of its
Subsidiaries is engaged in any joint venture, partnership or
other business arrangement with any other Person except as
described on said Schedule 13.
Section 4.28. ERISA. Each Credit Party and each member of
the Controlled Group have fulfilled their obligations under the
minimum funding standards of ERISA and the Code with respect to
each Plan and are in substantial compliance in all material
respects with the applicable provisions of ERISA and the Code,
and have not incurred any liability to the PBGC or a Plan under
Title IV of ERISA except where non-compliance or liability could
not reasonably be expected to have a Material Adverse Effect; and
no Prohibited Transaction or Reportable Event has occurred with
respect to any Plan.
Section 4.29. Environmental Protection. Except as set forth
on Schedule 4.29. attached hereto:
(a) The business operations of each of Borrower and
its Subsidiaries comply in all material respects with all
Environmental Laws except where non-compliance could not
reasonably be expected to have a Material Adverse Effect.
(b) Neither Borrower nor any of its Subsidiaries has
received (i) any notice or claim to the effect that it is or may
be liable to any Person as a result of the Release or threatened
Release of any Hazardous Materials or (ii) any letter or request
for information under CERCLA or any other Environmental Laws,
and, to the best of Borrower's or any such Subsidiaries' actual
knowledge, based upon reasonable investigation, the business
operations of Borrower and such Subsidiaries are not the subject
of any investigation by any Governmental Authority evaluating
whether any remedial action is needed to respond to a Release or
threatened Release of any Hazardous Material or claim, or
threatened lawsuit or claim arising under or related to any
Environmental Law except, in each case, where non-compliance
could not reasonably be expected to have a Material Adverse
Effect.
(c) Borrower, its Subsidiaries and their properties,
assets and operations are not subject to any outstanding written
order or agreement with any Governmental Authority or private
party respecting any Environmental Laws except for any such
written order or agreement which could not reasonably be expected
to have a Material Adverse Effect.
(d) Neither Borrower nor any of its Subsidiaries has
filed any notice under any Environmental Law indicating past or
present treatment or disposal of Hazardous Materials, and none of
the operations of Borrower or any such Subsidiaries involve the
generation, transportation, treatment, storage or disposal of
Hazardous Materials except where such activity could not
reasonably be expected to have a Material Adverse Effect.
(e) To the best of Borrower's and its Subsidiaries'
actual knowledge, based upon reasonable investigation, no
Hazardous Material exists on, under or about any of the
properties or assets of Borrower or any such Subsidiaries, real
or personal, in a manner that is likely to give rise to any claim
or suit against Borrower or any such Subsidiaries, and neither
Borrower nor any Subsidiary of Borrower has filed any notice or
report of a Release of any Hazardous Materials that could give
rise to any such claim or suit against Borrower except, in each
case, where such claim or suit or filing could not reasonably be
expected to have a Material Adverse Effect.
Section 4.30. Investments. Except as set forth on Schedule
4.30., attached hereto no Credit Party has an Investment in any
Person other than existing Investments in Subsidiaries and
Qualified Investments.
Section 4.31. Security Documents.
(a) The provisions of each Security Document are
effective to create in favor of the Administrative Agent for the
ratable benefit of the Lenders, a legal, valid and enforceable
lien or security interest in all right, title and interest of the
Credit Party which is a party thereto in the Collateral described
therein.
(b) (i) When UCC financing statements, assignment and/or
amendments have been filed in the offices in the jurisdictions
listed in Schedule 3 of the Collateral Disclosure List, the
Borrower Security Agreement and each Subsidiary Security
Agreement, as applicable, shall constitute a fully perfected
first lien on, and security interest in, all right, title and
interest of the applicable Credit PartyBorrower in the Collateral
described therein, which can be perfected by such filing.
(ii) When certificates representing the Pledged Stock
(as such term is defined in the Borrower Pledge Agreement) are
delivered to the Administrative Agent, together with stock powers
endorsed in blank by a duly authorized officer of Borrower, the
Borrower Pledge Agreement shall constitute a fully perfected
first lien on, and security interest in, all right, title and
interest of Borrower in the Collateral described therein.
(iii) When certificates representing the Pledged
Stock (as such term is defined in the SSH Pledge Agreement) are
delivered to the Administrative Agent, together with stock powers
endorsed in blank by a duly authorized officer of SSH, the SSH
Pledge Agreement shall constitute a fully perfected first lien
on, and security interest in, all right, title and interest of
SSH in the Collateral described therein.
(iviii) When certificates representing the Pledged
Stock (as such term is defined in the Alarmguard Holdings Pledge
Agreement) are delivered to the Administrative Agent, together
with stock powers endorsed in blank by a duly authorized officer
of Alarmguard Holdings, the Alarmguard Holdings Pledge Agreement
shall constitute a fully perfected first lien on, and security
interest in, all right, title and interest of Alarmguard Holdings
in the Collateral described therein.
(iv) When the Leasehold Mortgage, or assignments and
amendments thereto, have been filed in the offices and
jurisdictions listed in Schedule 2 of the Collateral Disclosure
List, each Leasehold Mortgage shall constitute a fully perfected
first lien on all right, title and interest of Borrower in the
Collateral described therein.
(c) Borrower does not own any properties or assets, or
have any interest in any properties or assets, that is not
subject to a fully perfected first priority lien on, or security
interest in, such properties or assets in favor of the
Administrative Agent, other than properties or assets having an
aggregate fair market value at any one time not exceeding
$50,000.00.
Section 4.32. Insurance. Each of Borrower and its
Subsidiaries maintains its properties and assets insured against
fire and other hazards (so called "All Risk Coverage") in amounts
and with companies set forth on Schedule 4.32. attached hereto
covering such risks as is customary in such Credit Party's line
of business. Borrower and each of its Subsidiaries also maintain
public liability coverage against claims for personal injuries or
death, errors and omissions, directors and officers coverage,
business interruption, worker's compensation, employment or
similar insurance with coverages and in amounts as set forth on
Schedule 4.32.
Section 4.33. Year 2000 Compatibility. All of the Borrower's
and its Subsidiaries' computer-based systems are able to operate
and effectively process data including dates on or after January
1, 2000, and none of the products and services sold, licensed,
rendered, or otherwise provided by Borrower or its Subsidiaries
will malfunction or will cease to function as a result of the
Year 2000.
SECTION 5. CONDITIONS TO OBLIGATION OF THE LENDERS
The Administrative Agent, the Documentation Agent and the
Lenders shall have no obligation under this Agreement to amend
and restate the Original Credit Agreement or to continue or make
any Extension of Credit unless and until they are satisfied, in
their sole and absolute discretion, that all of the following
conditions shall have been satisfied prior to or on the Closing
Date:
Section 5.1. Representations and Warranties True. The
representations and warranties contained in Section 4 are true
and correct, and each Credit Party, by a Responsible Officer,
shall have so certified to the Administrative Agent, the
Documentation Agent and the Lenders.
Section 5.2. Delivery of Documents. Each Credit Party shall
have duly executed and delivered to the Administrative Agent, the
Documentation Agent and the Lenders, in form and substance
satisfactory to the Administrative Agent, the Documentation
Agent, the Lenders and their legal counsel, this Agreement, the
Notes, the Other Documents and all further documents as the
Administrative Agent, the Documentation Agent and the Lenders may
request to evidence the Obligations or to create, perfect or
continue any security interest or lien contemplated by this
Agreement and the Other Documents. In addition, the
Administrative Agent, the Documentation Agent and the Lenders
shall have received or agreed in writing to waive or delay the
receipt of:
Section 5.2.1. Copies of all corporate action taken by
each Credit Party to authorize the execution and delivery of this
Agreement, the Notes, the Other Documents and the Transaction
Documents, together with a certificate of the corporate secretary
of such Credit Party certifying that the same are true, correct
and complete as of the Closing Date.
Section 5.2.2. Copies of each Credit Party's Governing
Documents, together with a certificate of the corporate secretary
of such Credit Party certifying that the same are true, correct
and complete as of the Closing Date.
Section 5.2.3. A certificate issued by the office of the
Secretary of State of the state of each Credit Party's
incorporation to the effect that each such Credit Party is
legally existing and in good standing under the laws of such
states.
Section 5.2.4 A certificate issued by the office of the
Secretary of State of each state in which each Credit Party is
qualified as a foreign corporation to the effect that each such
Credit Party is duly qualified and in good standing as a foreign
corporation under the laws of such states.
Section 5.2.5. A certificate of the corporate secretary
of each Credit Party certifying to the incumbency and signatures
of all officers of such Credit Party who are authorized to
execute this Agreement, the Notes, the Other Documents and the
Transaction Documents.
Section 5.2.6. An ALTA title insurance policy or
endorsement with respect to the Leasehold Mortgages satisfactory
in form and substance to the Administrative Agent, the
Documentation Agent, the Lenders and their legal counsel.
Section 5.2.7. UCC and land record searches conducted by
a Person satisfactory to the Administrative Agent and the
Documentation Agent for each Credit Party under each name set
forth on the Collateral Disclosure List listing the filings
against each such Credit Party as debtor under such names at each
filing office in each jurisdiction in which any Collateral or
Credit Party is located.
Section 5.2.8. Objective evidence satisfactory to the
Administrative Agent, the Documentation Agent, the Lenders and
their legal counsel that the Indebtedness (other than
Indebtedness under this Agreement and the Steffanato Note) of
each Credit Party to any Person in excess of $600,000 as of the
Closing Date constitutes Subordinated Indebtedness.
Section 5.2.9. Such UCC financing statements, assignments
and amendments as the Administrative Agent, the Documentation
Agent and the Lenders deem necessary to perfect any security
interests contemplated by this Agreement or the Other Documents.
Section 5.2.10. Insurance policies and certificates
evidencing adequate insurance coverage in amounts satisfactory to
the Administrative Agent and the Documentation Agent on the
Credit Parties' properties and assets which insurance policies
shall name the Administrative Agent as an additional insured/loss
payee.
Section 5.2.11. A confirmation of the environmental
certificate and indemnity agreement executed by Borrower on the
Original Closing Date, satisfactory in form and substance to the
Administrative Agent, the Documentation Agent, the Lenders and
their legal counsel (as confirmed, the "Environmental
Certificate").
Section 5.2.12. True and correct copies of the
employment agreements by and between any Credit Party and Russell
MacDonnell and David Heidecorn.
Section 5.2.13. Such further documents, instruments and
agreements as the Administrative Agent, the Documentation Agent
and the Lenders shall reasonably request, all satisfactory in
form and substance satisfactory to the Administrative Agent, the
Documentation Agent, the Lenders and their legal counsel.
Section 5.3. Validity of Liens. All Encumbrances in the
Collateral shall have been created or maintained in favor of the
Administrative Agent for the benefit of the Lenders, which
Encumbrances shall constitute legal, valid and enforceable and,
unless otherwise consented to by the Administrative Agent, the
Documentation Agent and the Lenders, first security interests in
and liens upon the Collateral. All filings, recordings,
deliveries of instruments and other actions necessary or
desirable in the sole and absolute discretion of the
Administrative Agent, the Documentation Agent, the Lenders and
their legal counsel to create said Encumbrances shall have been
made, taken and/or effected.
Section 5.4. Transaction Documents. The Administrative Agent
and the Documentation Agent shall have received, with a copy for
each Lender, a true and correct copy of the Transaction
Documents, including all schedules and exhibits thereto, and such
other documents, agreements and instruments executed and
delivered in connection therewith or otherwise affecting the
terms thereof. The terms and conditions of the transactions
contemplated by the Transaction Documents shall have not been
amended, modified or supplemented in any manner from those
principal terms and conditions set forth in the term sheet dated
December 19, 1997 issued by Advanced
Capital______________________.
Section 5.5. Preferred Stock Offering. The Preferred Stock
Offering shall have been consummated in all material respects in
accordance with the terms and conditions of the Transaction
Documents, shall have resulted in gross proceeds to Alarmguard
Holdings of at least THIRTY MILLION AND NO/100 DOLLARS
($30,000,000.00), and the Administrative Agent and the
Documentation Agent shall have received objective evidence
satisfactory to it as to the consummation thereof as aforesaid.
Section 5.6. Capitalization. The Administrative Agent, the
Documentation Agent and the Lenders shall have received objective
evidence satisfactory to it that, immediately after the
consummation of the Preferred Stock Offering and any Extension of
Credit to be made on the Closing Date, that the capitalization of
Borrower, SSH, and Alarmguard Holdings shall be as set forth on
Schedule 5.6 attached hereto, the terms and conditions, and
documentation, of all matters relating to such capitalization
shall be in form and substance satisfactory to the Administrative
Agent, the Documentation Agent and the Lenders. In addition,
Borrower or SSH shall have redeemed at no more than par TWO
MILLION AND NO/100 DOLLARS ($2,000,000.00) in respect of
outstanding Deferred Purchase Price Obligations with proceeds
from the Preferred Stock Offering.
Section 5.7. RMR. The Administrative Agent, the
Documentation Agent and the Lenders shall have received a
certificate of a Responsible Officer of Borrower, satisfactory in
form and substance to the Administrative Agent and the
Documentation Agent, certifying that RMR as of December 31,
1997the Closing Date is at least $2,085,000.00.[$1,400,000.00].
The Administrative Agent, the Documentation Agent and the Lenders
shall have received the Price Waterhouse Report.
Section 5.8. Opinions of Counsel. The Administrative Agent,
the Documentation Agent and the Lenders shall have received from
legal counsel for the Credit Parties a written opinion, in the
substantially the form of Exhibit G-1 attached hereto,
satisfactory in form and substance to the Administrative Agent,
the Documentation Agent, the Lenders and their legal counsel.
Section 5.9. Payment of Fees. Borrower shall have paid any
applicable fees and expenses due to the Administrative Agent, the
Documentation Agent and the Lenders at closing, including the
fees and expenses of their legal counsel.
Section 5.10. Legal Matters. All legal matters incident to
the transactions hereby contemplated shall be satisfactory to the
Administrative Agent, the Documentation Agent, the Lenders and
their legal counsel.
SECTION 6. CONDITIONS TO EXTENSION OF CREDIT
The Administrative Agent, the Documentation Agent and the
Lenders shall have no obligation to make any Extension of Credit,
including the initial Extension of Credit, unless and until, they
are satisfied, in their sole and absolute discretion, that all of
the following conditions shall have been fulfilled prior to or
contemporaneously with the making of such Extension of Credit.
Section 6.1. In General.
Section 6.1.1. Notice of Borrowing. The Administrative
Agent shall have received, in a timely manner, a Notice of
Borrowing in a form satisfactory to the Administrative Agent.
Section 6.1.2. RMR Report. The Administrative Agent and
the Documentation Agent shall have received a RMR Report, in a
timely manner, as required under Section 7.2.3. hereof,
satisfactory in form and substance to the Administrative Agent
and the Documentation Agent showing that the Borrowing Base is
sufficient to permit the Lenders to make the requested Extension
of Credit.
Section 6.1.3. Truth of Representations and Warranties.
All of the representations and warranties set forth in Section 4
of this Agreement (with the exception of representations and
warranties which, by their terms, are limited to an earlier date)
are true and correct as of the date on which the requested
Extension of Credit is made.
Section 6.1.4. No Default. No Default or Event of
Default shall have occurred and be continuing or shall occur as a
result of the requested Extension of Credit or the application of
the proceeds of such Extension of Credit.
Section 6.1.5. Payment of Fees. Borrower shall have paid
any applicable fees and expenses due to the Administrative Agent,
the Documentation Agent and the Lenders including any fees and
expenses of their legal counsel.
Section 6.1.6. Corporate Action. The corporate action of
each Credit Party referred to in Section 5.2.1. continues to be
in full force and effect and the incumbency of officers continues
to be as stated in the certificates of incumbency delivered
pursuant to Section 5.2.5. or as subsequently reflected in a new
certificate of incumbency delivered to the Administrative Agent
in connection with the requested Extension of Credit.
Section 6.1.7. Legal Matters. All legal matters incident
to the transactions contemplated by the requested Extension of
Credit shall be satisfactory to the Administrative Agent, the
Documentation Agent and their legal counsel and no change shall
have occurred in any law or regulation or interpretation thereof,
which, in the opinion of either the Administrative Agent or, the
Documentation Agent and their respective legal counsel, would
make it illegal or against the policy of any Governmental
Authority for the Lenders to make the requested Extension of
Credit.
Section 6.2. Detect Acquisition. In addition to the
satisfaction of the conditions set forth in Section 6.1. hereof,
the obligation of the Lenders to make any Acquisition Loan in
connection with the Detect Acquisition is subject to the
satisfaction of the following conditions precedent:
Section 6.2.1. Detect Acquisition Documents. The
Administrative Agent, the Documentation Agent and the Lenders
shall have received the proposed form of Detect Acquisition
Documents and any amendments thereto as in effect on the Closing
Date.
Section 6.2.2. Financial Information. The Administrative
Agent, the Documentation Agent and the Lenders shall have
received:
(i) a copy of Detect's most recent compiled Financial
Statements and internally prepared Financial Statements;
(ii)a forecasted RMR Report reflecting the consummation of
the Detect Acquisition;
(iii)an estimated analysis of the purchase price for the
Detect Acquisition and the sources of funds to be used for the
payment thereof;
(iv)a summary analysis of the RMR being acquired in
connection with the Detect Acquisition; and
(v) such further financial and related information as the
Administrative Agent, the Documentation Agent and the Lenders may
request in connection with the Detect Acquisition,
all of the foregoing items set forth in subsections (i) through
(v) above to be satisfactory in form and substance to the
Administrative Agent, the Documentation Agent and the Lenders.
Section 6.2.3. Liabilities. Borrower shall not incur or
assume any Indebtedness, Contractual Obligations, Contingent
Liabilities or other liabilities in connection with the Detect
Acquisition except for Acquisition Loans necessary to pay all or
a portion of the purchase price relating thereto or as set forth
in the Detect Acquisition Documents.
Section 6.2.4. Collateral. Borrower shall have delivered
an updated Collateral Disclosure List reflecting the proposed
consummation of the Detect Acquisition. Borrower and each other
Credit Party shall take such actions, and execute and deliver
such documents, agreements and instruments as the Administrative
Agent and the Documentation Agent and their respective legal
counsel shall require to insure that the Administrative Agent
obtains, subject to the provisions of Sectionno 6.2.5. hereof, a
first priority perfected lien on, and the right to access any of
the properties and assets acquired by Borrower or such other
Credit Party in connection with the Detect Acquisition, including
but not being limited to uniform commercial code financing
statements and termination statements, all of the foregoing to be
acceptable to the Administrative Agent, the Documentation Agent,
the Lenders and their respective legal counsel.
Section 6.2.5. Structure and Subsidiaries. The proposed
Acquisition will be effected through the purchase bymerger of
Protective Alarms, Inc. with and into Borrower of all of the
outstanding shares of Capital Stock of Detect, with Detect being
maintained following the consummation of the Detect Acquisition
as a direct wholly-owned Subsidiary of Borrower (although
Borrower shall have the right to subsequently merge Detect with
and into Borrower as permitted under this Agreement).
concurrently with the consummation of the Detect Acquisition.
DetectInterstate Central Systems, Inc. shall, if required by the
Lenders, become a party to this Agreement by executing a joinder
agreement in a form satisfactory to the Administrative Agent and
its legal counsel, shall guarantee the Obligations pursuant to a
Subsidiary Guarantee, shall grant a lien and security interest in
all of its properties and assets to the Administrative Agent for
the ratable benefit of the Lenders pursuant to a Subsidiary
Security Agreement and Borrower shall pledge all of the Capital
Stock of Detectsuch to the Administrative Agent for the ratable
benefit of the Lenders, all in a manner satisfactory to the
Administrative Agent, the Documentation Agent, the Lenders and
their respective legal counsel.
Section 6.2.6. No Default. Borrower shall have certified
by a Responsible Officer that no Default or Event of Default
exists as of the date on which the Detect Acquisition shall be
consummated, or would result as a result of the making of any
Acquisition Loan in connection therewith, the consummation of the
Detect Acquisition or the application of the proceeds of such
Acquisition Loan.
Section 6.2.7. Certificate as to the Detect Acquisition.
Borrower shall deliver a certificate to the Administrative Agent,
the Documentation Agent and the Lenders stating that (i) the
Detect Acquisition shall have been consummated in accordance with
the terms and conditions of the Detect Acquisition Documents in
effect on the Closing Date without material amendment,
modification or revision and (ii) none of the parties to the
Detect Acquisition shall have failed to perform any material
agreement, obligation or covenant or make any representation or
warranty required to be performed or made by such party, as
applicable, in connection therewith.
Section 6.2.8. Legal Opinions. The Administrative Agent,
the Documentation Agent and the Lenders shall have received from
legal counsel for the Credit Parties a written opinion
satisfactory in form and substance to the Administrative Agent,
the Documentation Agent, the Lenders and their legal counsel as
to certain matters relating to the Detect Acquisition. The
Administrative Agent, the Documentation Agent and the Lenders
shall have received, and be entitled to rely upon, from legal
counsel to DetectProtective Alarms the written opinion to be
delivered to BorrowerSSH in connection with the Detect
Acquisition.
Section 6.2.9. Detect RMR. Borrower shall not include
any RMR resulting from the Detect Acquisition within the
Borrowing Base unless and until Borrower has delivered to the
Administrative Agent a Notice of Borrowing with respect to the
Detect Acquisition. Borrower shall not include any RMR resulting
from the Detect Acquisition unless and until Borrower has
satisfied (i) any and all terms and conditions imposed by the
Lenders in connection with the Detect Acquisition and (ii) all of
the legal matters associated with the Detect Acquisition have
been satisfied to the satisfaction of the Administrative Agent
and its legal counsel.
Section 6.32. Subsequent Acquisition Loans. In addition to
the satisfaction of the conditions set forth in Section 6.1.
hereof, the obligation of the Lenders to make any Acquisition
Loan (other than in connection with the Detect Acquisition) is
subject to the satisfaction of the following conditions
precedent:
Section 6.32.1. Consent of Lenders. The Administrative
Agent, the Documentation Agent and the Lenders shall have
consented to the proposed Acquisition in writing; provided,
however, that the consent of the Administrative Agent, the
Documentation Agent and the Lenders shall not be required if:
(i) the proposed Acquisition involves a purchase price
(including any Deferred Purchase Price Obligations) which does
not exceed (x) $5,000,000.00 or (y) $10,000,000.00 if
$5,000,000.00 or more of the purchase price paid in connection
with such Acquisition consists of the capital stock of Alarmguard
Holdings; and
(ii)the purchase price (including any Deferred Purchase
Price Obligations) for the proposed Acquisition, when aggregated
with the purchase price (including Deferred Purchase Price
Obligations) of all other Acquisitions completed by Borrower
(other than the DetectPro Acquisition) since the Closing Date,
does not exceed $15,000,000; and
(iii)the proposed Acquisition consists solely of, and is
structured as, the acquisition by Borrower of assets which
consist of, Customer Contracts (and, in each case, inventory and
vehicles not to exceed $100,000 of the purchase price thereof)
and will not result in the creation of a new Subsidiary of
Borrower; and
(iv)the proposed Acquisition will not result in an
expansion of Borrower's business outside of the geographic areas
set forth on Schedule 6.32. attached hereto.
Section 6.32.2. Liabilities. Neither Borrower nor any
Subsidiary of Borrower shall incur or assume any Indebtedness,
Contractual Obligations, Contingent Liabilities or other
liabilities in connection with the proposed Acquisition except
for Acquisition Loans necessary to pay all or a portion of the
purchase price relating thereto.
Section 6.32.3. Subordination of Deferred Purchase Price
Obligations. Any Deferred Purchase Price Obligations shall
comply with the terms of Section 8.1.(g) hereof.
Section 6.32.4. Collateral. Borrower and each other
Credit Party shall promptly take such actions, and execute and
deliver such documents, agreements and instruments as the
Administrative Agent and the Documentation Agent and their
respective legal counsel shall require to insure that the
Administrative Agent obtains a first priority perfected lien on
any of the properties and assets acquired by Borrower or such
other Credit Party in connection with the proposed Acquisition,
including but not being limited to uniform commercial code
financing statements and termination statements, all of the
foregoing to be acceptable to the Administrative Agent, the
Documentation Agent, the Lenders and their respective legal
counsel.
Section 6.32.5. Subsidiaries. If the proposed
Acquisition will be effected by Borrower through the
establishment of a new Subsidiary or the acquisition of the
Capital Stock of a Person with the effect of establishing such
Person as a new Subsidiary of Borrower, such Subsidiary shall
become a party to this Agreement by executing a joinder agreement
in a form satisfactory to the Administrative Agent and its legal
counsel, shall guarantee the Obligations pursuant to a Subsidiary
Guarantee, shall grant a lien and security interest in all of its
properties and assets to the Administrative Agent for the ratable
benefit of the Lenders pursuant to a Subsidiary Security
Agreement and/or Subsidiary Pledge Agreement and Borrower shall
pledge all of the Capital Stock of such Subsidiary to the
Administrative Agent for the ratable benefit of the Lenders, all
in a manner satisfactory to the Administrative Agent, the
Documentation Agent, the Lenders and their respective legal
counsel.
Section 6.32.6. No Default. Borrower shall have
certified by a Responsible Officer that no Default or Event of
Default exists as of the date of the requested Acquisition Loan,
or would result as a result of the making of such Acquisition
Loan, the consummation of the proposed Acquisition or the
application of the proceeds of such Acquisition Loan.
Section 6.32.7. Hostile Acquisitions. The proposed
Acquisition shall not be considered by the Administrative Agent,
the Documentation Agent and the Lenders, in their sole and
absolute discretion, to be a so-called "hostile acquisition."
Section 6.32.8. RMR From Permitted Acquisitions.
Borrower shall not include any RMR resulting from an Acquisition
which does not require the consent of the Lenders under Section
6.32.1. hereof within the Borrowing Base unless and until
Borrower has delivered to the Administrative Agent a Notice of
Borrowing with respect to the pProposed Acquisition, accompanied
by a true and correct copy of the proposed draft purchase and
sale agreement relating to the Acquisition. Borrower shall not
include any RMR resulting from any Acquisition requiring the
consent of the Lenders unless and until Borrower has satisfied
(i) any and all terms and conditions imposed by the Lenders in
connection with the provision of such consent and (ii) all of the
legal matters associated with such Acquisition have been
satisfied to the satisfaction of the Administrative Agent and its
legal counsel, including, but not being limited to, the
confirmation of the filing of any and all documents, agreements
and instruments required under Section 6.32.4. hereof and the
receipt of opinions from legal counsel to Borrower as to certain
matters relating to the proposed Acquisition satisfactory in form
and substance to the Administrative Agent, the Lenders and their
legal counsel.
Section 6.32.9. Certificate as to the Proposed
Acquisition. Within three (3) Business Days following the
consummation of any Permitted Acquisition, Borrower shall deliver
a certificate to the Administrative Agent, the Documentation
Agent and the Lenders stating that (i) the proposed Acquisition
shall have been consummated in accordance with (x) the terms and
conditions of the Acquisition Documents relating thereto and (y),
in the case of Acquisitions requiring the prior consent of the
Lenders, the terms and conditions approved by the Lenders without
material amendment, modification or revision, (ii) none of the
parties to the proposed Acquisition shall have failed to perform
any material agreement, obligation or covenant or make any
representation or warranty required to be performed or made by
such party, as applicable, in connection therewith and (iii) the
Administration Agent has a first priority Encumbrance in the
Collateral acquired. If Borrower fails to deliver such
certificate within such three (3) Business Day period, then any
RMR purchased in connection with such Acquisition shall be
immediately deleted from the Borrowing Base and Borrower shall,
if necessary comply with the requirements of Section 2.1.14.(a)
hereof.
SECTION 7. AFFIRMATIVE COVENANTS
Borrower and each of the other Credit Parties, as applicable,
covenant and agree that from the date hereof until the payment
and performance in full of the Obligations and the termination of
the Commitments:
Section 7.1. Financial Statements and Reporting Requirements.
Borrower shall furnish to the Administrative Agent, the
Documentation Agent and the Lenders:
Section 7.1.1. Annual Reports. As soon as available, but
in no event later than ninety (90) days after the end of each
Fiscal Year of Borrower, consolidated Financial Statements for
such Fiscal Year of (i) Alarmguard Holdings and its Subsidiaries
and (ii) Borrower and its Subsidiaries, in each case audited and
certified by Ernst & Young (or other independent certified public
accountants of nationally recognized standing) and consisting of
a consolidated balance sheet as of the end of such Fiscal Year
and the related statements of income and statements of cash flows
for such Fiscal Year, setting forth in each case in comparative
form the figures for the previous Fiscal Year, and reported on
without a Qualification.
Section 7.1.2. Monthly Reports. As soon as available,
but in no event later than thirty (30) days after the end of each
calendar month (forty-five (45) days if the end of such calendar
quarter coincides with the end of a Fiscal Quarter), an
unaudited, internally prepared consolidated and consolidating
balance sheet of Borrower, the Direct Marketing Program, the
Dealer Program and the consolidated Subsidiaries of Borrower as
of the end of such calendar month, and the related unaudited,
internally prepared consolidated and, if applicable,
consolidating statements of income and statements of cash flows
for such calendar month and the portion of the Fiscal Year
through such calendar month, all in form and substance
satisfactory to the Administrative Agent, the Documentation Agent
and the Required Lenders and setting forth in each case in
comparative form the figures for the previous Fiscal Year and the
Forecasts, certified by a Responsible Officer as being fairly
stated in all material respects when considered in relation to
the consolidated Financial Statements of Borrower and its
consolidated Subsidiaries but subject, however, to normal,
recurring year-end adjustments that shall not in the aggregate be
material in amount and the absence of footnotes.
Section 7.1.3. GAAP Compliance. All Financial Statements
provided under this Section 7.1. shall fairly present the
financial conditions and results of business operations for the
periods indicated in accordance with GAAP (but subject, in the
case of monthly or other interim Financial Statements, to the
absence of footnotes and year-end adjustments).
Section 7.2. Certificates and Other Information. Borrower
shall furnish to the Administrative Agent, the Documentation
Agent and the Lenders:
Section 7.2.1. Default Certificate. Concurrently with the
delivery of the Financial Statements referred to in Section
7.1.1. above, a certificate of Ernst & Young, LLP (or such other
independent certified public accountant) reporting on such
Financial Statements stating that in making the examination
necessary therefor no knowledge was obtained of the existence of
any Default or Event of Default as a result of non-compliance by
any Credit Party with any of the financial covenants set forth in
Section 9 hereof except as set forth in such certificate.
Section 7.2.2. Officer's Certificate. Concurrently with
the delivery of the Financial Statements referred to in Section
7.1.1. and 7.1.2. above, a certificate of a Responsible Officer
substantially in the form of Exhibit H attached hereto, (i)
stating that, to the best of such officer's knowledge, Borrower
and each other Credit Party, as applicable, during the period
covered by any such Financial Statements has observed or
performed all of its covenants, obligations and other
agreements, and satisfied the terms and conditions, contained in
this Agreement to be observed, performed or satisfied by Borrower
or such Credit Party, and that such Responsible Officer has
obtained no knowledge of the occurrence or continuance of any
Default or Event of Default except as set forth in such
certificate and (ii) showing in detail the breakdown and
calculation of Borrower's compliance with the financial covenants
set forth in Section 9 of this Agreement.
Section 7.2.3. RMR Report. Concurrently with the delivery
of the Financial Statements referred to in Section 7.1.2. above,
a report setting forth RMR for the month covered by such
Financial Statements and such other information in respect of
RMR, any component thereof and the calculation thereof as the
Administrative Agent or the Documentation Agent may require, and
being accompanied by an internally prepared report reconciling
said report and the information set forth thereon to such
Financial Statements, all of the foregoing being in substantially
the form of Exhibit I attached hereto, and being certified as
being true, correct, complete, and calculated in accordance with
the requirements of Section 1.1410. hereof by a Responsible
Officer (the "RMR Report").
Section 7.2.4. Forecasts. As soon as available, but in no
event later than thirty (30) days after the end of each Fiscal
Year, forecasts as to the operating budget and cash flow of
Borrower and its Subsidiaries for the next succeeding Fiscal
Year, and including a forecasted consolidated balance sheet and
the related statement of income and statement of cash flow, and
accompanied by a certificate of a Responsible Officer to the
effect that such forecasts have been prepared in accordance with
the standards set forth in Section 4.8. hereof and that such
officer has no reason to believe that the same are false or
misleading in any material respect.
Section 7.2.5. Management and Other Reports. Within five
(5) days following the receipt thereof, copies of any and all
reports or similar documents submitted to any Credit Party by
Ernst & Young, including, without limitation, any formally issued
management letter commenting upon any Credit Party's internal
controls, submitted by such accountants to management in
connection with their annual audit report.
Section 7.2.6. Shareholder and SEC Reports. Within ten
(10) days after the same are sent, copies of all financial
statements and financial and other reports which any Credit Party
sends to its shareholders or which any such Credit Party makes or
files with any securities exchange or the United States
Securities and Exchange Commission (or any successor or analogous
Governmental Authority), and promptly upon the availability of
the same, copies of all other notices and proxy statements sent
or made available and all final registration and prospectuses, if
any, filed by any such Credit Party with any such securities
exchange or Governmental Authority.
Section 7.2.7. Insurance. During the month of
September in each calendar year, a report of a reputable
insurance broker with respect to the insurance maintained by
Borrower and its Subsidiaries in accordance with the provisions
of this Agreement and the Security Documents and such other
supplemental reports relating thereto as the Administrative Agent
and the Documentation Agent may reasonably request from time to
time.
Section 7.2.8. Acquisition Information. As soon as
available, but in no event later than thirty (30) days following
the consummation thereof, the following documents, agreements,
reports and other information with respect to each Acquisition:
(a) True and correct copies of any and all documents,
agreements and instruments executed and delivered in connection
with the Acquisition, together with all schedules and exhibits
thereto, certified as true, correct and complete by a Responsible
Officer of Borrower;
(b) An updated Collateral Disclosure List reflecting
the consummation of the Acquisition if the proposed Acquisition
requires the consent of the Lenders under Section 6.3.1. hereof;
(c) A pro forma consolidated balance sheet for
Borrower reflecting the consummation of the Acquisition if the
purchase price for the proposed Acquisition is greater than FIVE
MILLION AND N0/100 DOLLARS ($55,0000,000.00); and
(d) Such other information as the Administrative
Agent, the Documentation Agent or the Lenders may reasonably
request relating to any such Acquisition.
Section 7.2.9. Other Information. Promptly following any
request therefor, such additional financial and other operating
information in respect of the Credit Parties which the
Administrative Agent, the Documentation Agent or any Lender may
reasonably request from time to time.
Section 7.3. Fire and Hazard Insurance. Each of Borrower and
its Subsidiaries shall keep its properties and assets insured
against fire and other hazards (so called "All Risk Coverage") in
amounts and with companies reasonably satisfactory to the
Administrative Agent and the Documentation Agent to the same
extent and covering such risks as is customary in such Credit
Party's line of business (but in no event shall such insurance
fail to cover such risks or be in amounts less than the insurance
coverages in effect on the Closing Date as set forth on Schedule
4.32. attached hereto) which policies shall name the
Administrative Agent as first loss payee for the ratable benefit
of the Lenders as its interest may appear. Borrower and each of
its Subsidiaries shall also maintain public liability coverage
against claims for personal injuries or death, errors and
omissions, business interruption, worker's compensation,
employment or similar insurance with coverage and in amounts
satisfactory to the Administrative Agent and the Documentation
Agent and as may be required by applicable law (but in no event
shall such insurance fail to cover such risks or be in amounts
less than the insurance coverages in effect on the Closing Date
as set forth on Schedule 4.32. attached hereto). Such all risk
policy shall name the Administrative Agent as an additional
insured and provide for a minimum of thirty (30) days' written
cancellation or material change notice to the Administrative
Agent. Borrower agrees to deliver full information as to all of
the aforesaid insurance policies to the Administrative Agent, the
Documentation Agent and the Lenders upon request therefor. In
the event of any loss or damage to the Collateral, Borrower shall
give immediate written notice to the Administrative Agent and to
its insurers of such loss or damage and shall promptly file proof
of loss with its insurers. Borrower also agrees to review the
foregoing insurance in connection with each Acquisition and
increase the amount of coverage thereunder as a result of any
such Acquisition if requested by the Required Lenders.
Section 7.4. Maintenance of Existence. Except as otherwise
permitted under Section 8 of this Agreement, each Credit Party
shall preserve and maintain its corporate existence and its
material rights, franchises and privileges, including its
corporate name, in the jurisdiction of its incorporation, and
qualify and remain qualified as a foreign corporation in each
jurisdiction in which such qualification is necessary or
desirable.
Section 7.5. Preservation of Collateral. Each Credit Party
shall preserve and maintain the Collateral in good repair,
working order and operating condition (ordinary wear and tear
excepted) and shall promptly notify the Administrative Agent of
any event causing material loss in the value of the Collateral.
Section 7.6. Taxes and Other Assessments. Each Credit Party
shall pay and discharge, and maintain adequate reserves for the
payment and discharge of, all taxes, assessments, government
charges or levies, or claims for labor, supplies, rent or other
obligations made against it or its properties and assets which,
if unpaid, might become an Encumbrance against such Credit Party
or its properties and assets, except liabilities which are being
contested in good faith in appropriate proceedings. Each Credit
Party shall file all Federal, state and local tax returns and
other reports that it is required by law to file and shall
promptly notify or cause notice to be given to the Administrative
Agent of any pending or future audits of its income tax returns
by the Internal Revenue Service or by any state in which any such
Credit Party conducts business operations and the results of each
such audit.
Section 7.7. Books and Records; Inspection Rights. Each
Credit Party will, and will cause each of its Subsidiaries to,
keep proper books of record and account, in which full, true and
complete entries are made of all dealings and transactions in all
material respects in relation to its business and activities.
Each Credit Party will, and will cause each of its Subsidiaries
to, permit any representatives designated by the Administrative
Agent or the Documentation Agent (upon prior notice to the
Administrative Agent), and as long as no Default or Event of
Default shall have occurred, upon reasonable prior notice to
Borrower, to visit and inspect its properties, to examine and
make abstracts of its books and records, and to discuss its
affairs, finances and condition with its officers and, subject to
a representative of any such Credit Party being provided the
opportunity to be present, independent accountants, all at such
reasonable times and as often as reasonably requested. In
handling any information obtained in connection with any of the
foregoing, the Administrative Agent, the Documentation Agent, the
Lenders or their respective designees shall exercise the same
degree of care that it exercises with respect to its own
proprietary information of the same types, to maintain the
confidentiality of any non-public information thereby received or
received pursuant to Section 7.1. or Section 7.2. hereof except
that disclosure of such information may be made (i) to Lender
Affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees
or purchasers of an interest in the Obligations; (iii) as, in the
opinion of Lender's legal counsel, required by law, regulation,
rule or order, subpoena, judicial order or similar order; (iv)
as may be requested or required in connection with the
examination, audit or similar investigation of any Lender, (v) to
any legal counsel or other professional advisors of the
Administrative Agent, the Documentation Agent or any Lender, (vi)
in connection with the exercise of any rights and remedies under
this Agreement, the Notes or the Other Documents or any other
litigation or proceeding to which the Administrative Agent, the
Documentation Agent or any Lender is a party or (vii) to the
extent that any such information ceases to be confidential
through no fault of the Administrative Agent, the Documentation
Agent or the Lenders.
Section 7.8. Notices. Borrower shall promptly upon becoming
aware of the occurrence of a Default or Event of Default notify
the Administrative Agent and the Lenders thereof in writing.
Borrower shall also advise the Administrative Agent and the
Lenders as soon as practicable:
(a) of any action, suit, or proceeding by or before any
Government Authority or arbitration or alternate dispute
resolution proceeding, which could reasonably be expected to have
a Material Adverse Effect;
(b) of any change in Borrower's independent certified
public accountants from Ernst & Young;
or
(c) of the occurrence of an "Event of Noncompliance" as
defined in the Transaction Documents; or
(dc)of any other matter which could be reasonably
expected to have aother matter which could be reasonably expected
to have a Material Adverse Effect under the Transaction
Documents.
Each notice pursuant to this Section 7.8. shall be accompanied by
a statement of a Responsible Officer setting forth details
relating to the matters reported therein and the action which
Borrower or any other Credit Party proposes to take with respect
thereto.
Section 7.9. Maintenance of Permits. Except as otherwise
permitted under this Section 7, Borrower and its Subsidiaries
shall obtain and/or maintain in full force and effect all
material permits, authorizations, licenses, approvals, waivers
and consents which it presently possesses or which may become
necessary in the future to conduct its business operations.
Section 7.10. Use of Proceeds. Borrower will use the
proceeds of any Extension of Credit solely for the purposes set
forth in Section 2.1.11. hereof.
Section 7.11. INTENTIONALLY OMITTED.
Section 7.12. Additional Offices. Borrower shall give the
Administrative Agent written notice of each additional facility
or office of Borrower or its Subsidiaries to be opened after the
Closing Date. Except to the extent set forth in any such notice,
the chief executive office of Borrower and all records relating
to the Collateral shall be located at the locations set forth in
the Collateral Disclosure List.
Section 7.13. Access to Collateral. With respect to each
location at which the Collateral is now or hereafter located,
Borrower will obtain such lien waivers, estoppel certificates or
subordination agreements as the Administrative Agent, the
Documentation Agent or the Lenders may reasonably require to
insure the priority and perfection of their security interest in,
and their ability to take possession of, the Collateral situated
at such locations.
Section 7.14. Compliance with Laws. Each Credit Party shall
comply with all Requirements of Law applicable to it and its
Subsidiaries in all material respects except where non-compliance
is being contested in good faith and in accordance with
applicable procedures therefor.
Section 7.15. ERISA. The Credit Parties shall: (i) make
prompt payments of contributions required to meet the minimum
funding standards set forth under ERISA with respect to each and
every Plan and, promptly after the filing thereof, furnish to the
Administrative Agent copies of each annual report required to be
filed under ERISA in connection with each and every Plan for each
and every Plan year; (ii) notify the Administrative Agent
immediately of any fact, including, but not limited to, any
Reportable Event, arising in connection with any Plan which might
constitute grounds for the termination thereof by the PBGC or for
the appointment by the appropriate United States district court
of a trustee to administer the Plan; (iii) promptly after the
issuance thereof, furnish to the Administrative Agent a copy of
any notice of any Reportable Event given to the PBGC with respect
to any Plan; (iv) promptly after receipt thereof, furnish to the
Administrative Agent a copy of any notice received from the PBGC
relating to the intention of the PBGC to terminate any Plan or to
appoint a trustee to administer any Plan; and (v) furnish to the
Administrative Agent, promptly upon its request therefor, such
additional information concerning each and every Plan as may be
reasonably requested.
Section 7.16. Compliance with Environmental Laws.
(a) Borrower shall, from time to time, if requested by the
Administrative Agent or the Required Lenders, upon reasonable
cause, retain, at Borrower's expense, an independent professional
consultant to prepare a report relating to Hazardous Materials at
any or all of the properties and assets of Borrower or any of its
Subsidiaries and to conduct an investigation of any or all of the
properties and assets of Borrower or any of its Subsidiaries.
Borrower agrees also that the Administrative Agent (or its
agentsAdministrative Agents) may, from time to time retain, an
independent professional consultant to advise the Administrative
Agent as to any such report relating to Hazardous Materials and
Borrower shall be responsible for the reasonable fees and
expenses of such consultant. Borrower hereby grants to the
Administrative Agent, its Administrative Agents, employees,
consultants and contractors the right to enter into or onto
Borrower's or its Subsidiaries' business premises to view the
premises as is reasonably necessary to provide such advice,
provided, however, that the Administrative Agent shall provide
reasonable prior notice of such visit and not unreasonably
interfere with operations at such premises.
(b) Borrower shall promptly advise the Administrative
Agent and the Lenders in writing and in reasonable detail of any
of the following to the extent that the occurrence thereof could
reasonably be expected to have a Material Adverse Effect: (i) any
Release of any Hazardous Material required to be reported to any
Governmental Authority under any applicable Environmental Laws;
(ii) any and all written communications with respect to claims or
suits under such laws or any Release of Hazardous Materials
required to be reported to any Governmental Authority; (iii) any
remedial action taken by Borrower, any of its Subsidiaries or any
other Person in response to (A) any Hazardous Materials on, under
or about the properties or assets of Borrower or any of its
Subsidiaries or (B) any claim or suit arising under Environmental
Laws; (iv) Borrower's discovery of any occurrence or condition on
any real property adjoining or in the vicinity of Borrower's or
any of its Subsidiaries' business premises that could reasonably
be expected to cause such premises or any part thereof to be
classified as "border-zone property" or to be otherwise subject
to any restrictions on the ownership, occupancy, transferability
or use thereof under any Environmental Laws; and (v) any request
for information from any Governmental Authority that indicates
such authority, instrumentality or agency is investigating
whether Borrower or any of its Subsidiaries may be potentially
responsible for a Release of Hazardous Materials.
(c) Borrower shall, at its own expense, provide copies of
such documents or information as the Administrative Agent, the
Documentation Agent or any Lender may reasonably request in
relation to any matters disclosed pursuant to this Section 7.16.
(d) Borrower and its Subsidiaries shall comply with all
Environmental Laws in all material respects. Borrower and its
Subsidiaries shall promptly take any and all necessary remedial
action in connection with the presence, storage, use, disposal,
transportation or Release of any Hazardous Materials on, under or
about its business premises. If Borrower or any of its
Subsidiaries undertakes any remedial action with respect to any
Hazardous Materials on, under or about its business premises,
Borrower or such Subsidiary shall conduct and complete such
remedial action in compliance with the policies, orders and
directives of any Governmental Authority except when and only to
the extent that Borrower's or such Subsidiary's liability for
such presence, storage, use, disposal, transportation or
discharge of any Hazardous Material, or such policies, orders or
directives, are being contested in good faith by Borrower or such
Subsidiary.
Section 7.17. Interest Rate Protection. Borrower shall
obtain no later than one (1) year following the Closing Date and
thereafter maintain at all times an Interest Protection
Arrangement in respect of a minimum of thirty percent (30%) of
the Total Commitment Amount, the terms and conditions of said
Interest Protection Arrangement to be satisfactory to the
Required Lenders.
Section 7.18. Use of Proceeds for Direct Marketing Program
and Dealer Program. The proceeds of any Revolving Loan requested
with respect to the Direct Marketing Program or the Dealer
Program shall be used solely to finance Direct Marketing Program
Costs and Dealer Program Costs, as applicable.
Section 7.19. Year 2000 Compatibility. On or before December
31, 1998, Borrower shall take all action necessary to ensure that
the Borrower's and its Subsidiaries' computer-based systems are
able to operate and effectively process data including dates on
or after January 1, 2000, and that none of the products and
services sold, licensed, rendered, or otherwise provided by
Borrower or its Subsidiaries will malfunction or will cease to
function as a result of the Year 2000. At the request of the
Administrative Agent, the Borrower and its Subsidiaries shall
provide the Administrative Agent reasonable assurance of such
"Year 2000 Compatibility."
SECTION 8. NEGATIVE COVENANTS
Borrower and each other Credit Party, as applicable, covenants
and agrees that from the date hereof until the payment and
performance in full of the Obligations and the termination of the
Commitments:
Section 8.1. Limitation on Indebtedness. Neither any Credit
Party nor any of its Subsidiaries shall create, incur, assume,
guarantee or be or remain liable with respect to any Indebtedness
other than the following ("Permitted Indebtedness"):
(a) Indebtedness of Borrower or any of its Subsidiaries
incurred in respect of any Extension of Credit under this
Agreement;
(b) Indebtedness existing as of the date of this Agreement
and disclosed on Schedule 8.1. attached hereto or in the
Financial Statements referred to in Section 4.7. hereof and any
refinancings or refundings of such Indebtedness which will not
increase the principal amount of such Indebtedness being
refinanced or refunded or change the amortization thereof (other
than to extend the same) and otherwise be on terms and conditions
no less favorable to any Credit Party or the Lenders, as
determined by the Required Lenders, than the Indebtedness being
refinanced or refunded;
(c) Indebtedness consisting of Capital Leases and motor
vehicle and office equipment and furnishings installment sales
contracts permitted under Section 8.9. hereof;
(d) Subordinated Indebtedness due to SSH, Alarmguard
Holdings or any other Affiliate of Borrower covered by the
Affiliate Subordination Agreement or otherwise incurred with the
prior consent of the Required Lenders;
(e) Subordinated Indebtedness due to any Person other than
an Affiliate of Borrower and not incurred in connection with an
Acquisition existing on the date hereof or otherwise incurred
with the prior consent of the Required Lenders;
(f) Indebtedness consisting of an Interest Rate Protection
Arrangement having terms acceptable to the Required Lenders and
entered into solely in respect of all or a portion of the Loans
and other Extensions of Credit under this Agreement as required
by Section 7.17. hereof and as such Interest Rate Protection
Arrangement may be amended, modified or supplemented from time to
time with the prior consent of the Required Lenders;
(g) Indebtedness constituting Deferred Purchase Price
Obligations; provided, that (A) the aggregate unpaid principal
amount of all such Indebtedness shall not exceed TEN MILLION AND
NO/100 DOLLARS ($10,000,000.00) at any time and (B) such
Indebtedness shall be unsecured; and
(h) other Indebtedness of Borrower and its Subsidiaries in
an aggregate outstanding principal amount not exceeding FIVETWO
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($500250,000.00) in the
aggregate at any time.
Section 8.2. Contingent Liabilities. Neither any Credit
Party nor any of its Subsidiaries shall create, incur, assume,
guarantee or remain liable with respect to any Contingent
Obligations other than the following:
(a) The Guarantees;
(b) Contingent Obligations existing on the date of this
Agreement and disclosed on Schedule 8.2. attached hereto;
(c) Contingent Obligations resulting from the endorsement
of negotiable instruments for collection in the ordinary course
of business;
(d) Contingent Obligations with respect to surety, appeal
performance and return-of-money and other similar obligations
incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money) not exceeding TWO
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) in any
one (1) instance of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($500,000.00) in the aggregate at any time;
(e) Contingent Obligations of normal trade debt relating
to the acquisition of goods and supplies; and
(f) Contingent Obligations which consist of normal and
customary buyer indemnification obligations incurred by SSH or
Alarmguard Holdings in connection with Permitted Acquisitions.
Section 8.3. Leases. No Credit Party shall during any Fiscal
Year enter into any agreement in respect of, or become liable
for, Lease Obligations except that any Credit Party or its
Subsidiaries may enter into any such agreement in respect of, or
become liable for, Lease Obligations which do not increase the
aggregate amount of Lease Obligations of such Credit Party and
its Subsidiaries in excess of FIVETWO HUNDRED THOUSAND AND NO/100
DOLLARS ($5200,000.00) in any Fiscal Year.
Section 8.4. Sale and Leaseback. Neither any Credit Party
nor any of its Subsidiaries shall enter into any arrangement,
directly or indirectly, whereby it shall sell or transfer any
property owned by it in order to lease such property or lease
other property that any such Credit Party or Subsidiary intends
to use for substantially the same purpose as the property being
sold or transferred.
Section 8.5. Encumbrances. Neither any Credit Party nor any
of its Subsidiaries shall create, incur, assume or suffer to
exist any Encumbrance upon any of its properties and assets, or
assign or otherwise convey any right to receive income, with or
without recourse, except the following ("Permitted
Encumbrances"):
(a) Encumbrances in favor of the Administrative Agent
under the Security Documents for the ratable benefit of the
Lenders;
(b) Encumbrances existing as of the date of this
Agreement, consented to by the Required Lenders and disclosed in
Schedule 4.24. attached hereto;
(c) liens for taxes, fees, assessments and other
governmental charges to the extent that payment of the same may
be postponed, is being contested and is otherwise not required to
be paid in accordance with the provisions of Section 7.6. hereof;
(d) landlords' and lessors' liens in respect of rent not
in default or liens in respect of pledges or deposits under
worker's compensation, unemployment insurance, social security
laws, or similar legislation (other than ERISA) or in connection
with appeal and similar bonds incidental to litigation;
mechanics', laborers' and materialmen's and similar liens, if the
obligations secured by such liens are not then delinquent; liens
securing the performance of bids, tenders, contracts (other than
for the payment of money); and statutory obligations incidental
to the conduct of its business and that do not in the aggregate
materially detract from the value of its property or materially
impair the use thereof in the operation of its business;
(e) attachments, garnishments and judgment liens not
constituting an Event of Default;
(f) liens in favor of lessors under Capital Leases and
sellers under motor vehicles installment sales contracts
permitted under Section 8.9. hereof as long as the collateral
subject thereto is limited solely to the property that is the
subject of such Capital Leases or sales contracts and secures
only the amounts owing in respect of such leases and contracts;
(g) easements, rights of way, restrictions and other
similar charges or Encumbrances relating to real property and not
interfering in a material way with the ordinary conduct of its
business;
(h) Encumbrances on property or assets created in
connection with the refinancing or refunding of Indebtedness
referred to in Section 8.1.(b) hereof; provided, however, that
the amount of Indebtedness secured by any such Encumbrance shall
not be increased as a result of such refinancing or refunding and
no such Encumbrance shall extend to property and assets of any
such Credit Party or Subsidiary not encumbered prior to any such
refinancing or refunding; and
(i) Encumbrances securing Indebtedness for Capital
Expenditures to the extent such Indebtedness is permitted under
Section 8.1 hereof, provided, that (i) each such Encumbrance is
given solely to secure the purchase price of such property, does
not extend to any other property and is given at the time of
acquisition of the property, and (ii) the Indebtedness secured
thereby does not exceed the lesser of the cost of such property
or its fair market value at the time of acquisition.
Section 8.6. Sale or Lease of Assets; Merger; Consolidation.
Neither Borrower nor any of its Subsidiaries shall sell, lease or
otherwise dispose of properties or assets (valued at the lower of
cost or market); provided, however, that subject to the
requirements of Section 2.1.14. hereof, Borrower may effect (a)
the sale of any asset for cash, for aggregate consideration not
exceeding FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in any
calendar year, the Net Proceeds of which are intended to be
invested in the acquisition of new RMR or applied to repay the
Loans in accordance with Section 2.1.14. hereof, (b) the sale of
any obsolete or worn out tangible asset for cash the Net Proceeds
of which are to be reinvested in replacement tangible assets;
provided, however, that if such Net Proceeds are not reinvested
in the acquisition of tangible assets replacing the obsolete or
worn out assets being sold by Borrower within three (3) months
following the date of sale, such Net Proceeds shall be
automatically applied to repay the Loans under Section 2.1.14.
hereof and (c) the leasing of commercial or residential systems
to customers, for aggregate consideration not exceeding ONE
MILLIONTHREE HUNDRED THOUSAND AND NO/100 DOLLARS
($1,000300,000.00) in any calendar year, in connection with the
provision of monitoring services under Customer Contracts.
Neither Borrower nor any Subsidiary of Borrower may merge or
consolidate into or with any other Person; provided, however,
that any Subsidiary of Borrower may merge or consolidate into or
with (i) Borrower if no Default or Event of Default has occurred
and is continuing or would result from such merger and if
Borrower is the surviving company, or (ii) any other wholly-owned
Subsidiary of Borrower.
Section 8.7. Additional Stock Issuance. Borrower shall not
permit any of its Subsidiaries to issue any additional shares of
its Capital Stock or any securities convertible thereto other
than to Borrower. Neither Borrower nor any of its Subsidiaries
shall sell, transfer or otherwise dispose of any of the Capital
Stock of a Subsidiary, except (i) to Borrower or any of its
wholly-owned Subsidiaries, or (ii) in connection with a
transaction permitted by Section 8.6.
Section 8.8. Dividends. Borrower shall not pay any Dividends
on any class of its Capital Stock or make any other distribution
or payment on account of or in redemption, retirement or purchase
of such Capital Stock. This Section 8.8 shall not apply to (i)
the issuance, delivery or distribution by Borrower of shares of
its Capital Stock pro rata to its existing shareholders, (ii) the
purchase or redemption by Borrower of its Capital Stock solely
with the proceeds of the issuance of additional shares of Capital
Stock or (iii) payments permitted under Section 8.14.(d) hereof.
Alarmguard Holdings shall not redeem any shares of the Capital
Stock issued pursuant to the Preferred Stock Offering except in
accordance withas set forth in the Transaction Documents.
Section 8.9. Capital Expenditures. Neither Borrower nor any
of its Subsidiaries shall make or commit to make any Capital
Expenditures (excluding ProgramDirect Marketing Capital
Expenditures and normal replacements and maintenance which are
properly charged to current operations and excluding replacements
of obsolete or used equipment involving expenditures in an amount
in any Fiscal Year not exceeding the lesser of (i) the Net
Proceeds of the sale of any obsolete or used equipment and (ii)
ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00)) except for
Capital Expenditures in the ordinary course of business not
exceeding, in the aggregate, during any Fiscal Year, the
following amounts:
Fiscal Year Ending Amount
December 31, 1997 $600,000.00 (calculated from
the Original Closing Date)
December 31, 1998 $1,200,000.00
December 31, 1999 and $1,500,000.00
thereafter
If during any Fiscal Year the amount of Capital Expenditures
permitted during such Fiscal Year (exclusive of any carryover
from a preceding Fiscal Year) is not so utilized, such unutilized
amount may be carried over and made in the immediately following
Fiscal Year (but not in any subsequent Fiscal Year). In
addition, during the Fiscal Year ending December 31, 1998,
Borrower may make Capital Expenditures (which may not be carried
over as set forth in the preceding sentence) in an amount not to
exceed ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) in
connection with the renovation and upgrade of its central station
located in Orange, Connecticut and its Cos Cob, Connecticut
office.
Section 8.10. Investments. Neither Borrower nor any of its
Subsidiaries shall make or maintain any Investments other than
(i) existing Investments in Subsidiaries, (ii) Permitted
Acquisitions, (iii) extensions of trade credit in the ordinary
course of business in accordance with Borrower's historic
business practices; (iv) advances to employees in accordance with
Borrower's historic practices thereof in an amount not to exceed
ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) in the
aggregate at any time or (v) Qualified Investments.
Section 8.11. ERISA. Neither Borrower nor any member of the
Controlled Group shall permit any Plan maintained by it to (i)
engage in any Prohibited Transaction; (ii) incur any "accumulated
funding deficiency" (as defined in Section 302 of ERISA) whether
or not waived which could reasonably be expected to have a
Material Adverse Effect; or (iii) terminate any Plan in a manner
that could result in the imposition of an Encumbrance on the
property and assets of Borrower or any of its Subsidiaries
pursuant to Section 4068 of ERISA.
Section 8.12. Change in Terms and Prepayment of Subordinated
Indebtedness. Borrower shall not, except as provided in Section
8.1.(b) hereof:
(a) effect or permit any change in or amendment to (i) the
terms by which any Subordinated Indebtedness purports to be
subordinated to the payment and performance of the Obligations,
(ii) the terms relating to the repayment (other than extensions
of the time during which payment is due) of any Subordinated
Indebtedness or (iii) increase the rate of interest applicable
thereto; or
(b) directly or indirectly, make any payment of any
principal of or in redemption, retirement or repurchase of
Subordinated Indebtedness except payments required by the
instruments evidencing such Indebtedness.
Section 8.13. Change Name or Location. Neither Borrower nor
any of its Subsidiaries shall change its corporate name or
conduct its business under any name other than those set forth in
the Collateral Disclosure List or change its chief executive
office, place of business or location of the Collateral or
records relating to the Collateral from the locations set forth
in the Collateral Disclosure List unless it has given the
Administrative Agent at least thirty (30) days prior written
notice.
Section 8.14. Affiliate Transactions. Borrower will not, and
will not permit any of its Subsidiaries to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease
or otherwise acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates,
except (a) on terms and conditions not less favorable to Borrower
or such Subsidiary than could be obtained on an arm's length
basis from unrelated third parties, (b) transactions between or
among Borrower and/or its wholly owned Subsidiaries (other than
Protective Alarms of Canada, Inc.) not involving any other
Affiliate, (c) the transactions listed and described on Schedule
8.14. attached hereto and (d) following the end of each Fiscal
Quarter (i) for which Borrower shall have delivered the monthly
Financial Statements required by Section 7.1.2. hereof which
coincide with the end of such Fiscal Quarter and (ii) during or
in respect of which no Default or Event of Default shall have
occurred and be continuing (or result from the payment of any
amount permitted under this subsection (d)), Borrower may pay to
SSH a management fee in an amount not to exceed the amount of
FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) in any
Fiscal Year to reimburse SSH and Alarmguard Holdings for amounts
actually expended by SSH in respect of normal and customary fees,
expenses, franchise tax and similar obligations and filing fees.
Any management fee permitted to be paid by Borrower under this
subsection (d) shall be payable as of the end of each Fiscal
Quarter only following payment by Borrower of any principal,
interest, Fees and other amounts due under this Agreement and for
amounts actually paid during such Fiscal Quarter (or previously
due but not paid by Borrower) and the submission to the
Administrative Agent of a certificate setting forth the fees,
expenses or obligations for which reimbursement is sought and
demonstrating the making of any such payment shall not result in
the occurrence of a Default or Event of Default. With respect to
any Fiscal Quarter during or in respect of which a Default or
Event of Default shall have occurred, such management fee shall
accrue (without interest thereon) but may not be paid; provided,
however, that if (i) such Default or Event of Default shall have
been cured by Borrower, and for so long as no other Default or
Event of Default shall have occurred and be continuing, any such
accrued management fees may be paid by Borrower to SSH or
Alarmguard Holdings in quarterly installments not to exceed ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00), commencing
with the end of the Fiscal Quarter next following the calendar
month in which such Event of Default shall have been cured and
(ii) if such Default or Event of Default shall have been waived
by the requisite percentage of Lenders, such accrued and unpaid
management fees may not be paid by Borrower to SSH unless and
until the Required Lenders shall consent to such payment.
Section 8.15. Lines of Business. No Credit Party shall make
a material change in or discontinue its existing lines of
business nor enter into any new line or lines of business except
for the possible discontinuance of the Direct Marketing Program,
the Dealer Program or the Borrower's integrated systems, i.e.,
"Sonitrol", business. In addition, Borrower shall not materially
alter or changeamend, in a material way, the existing role and
purposeoperations of Protective Alarms of Canada, Inc. from that
in effect on the Closing Date, i.e., as a adjunct to Borrower's
national accounts business.
Section 8.16. Fiscal Year. Borrower shall not change the end
of its Fiscal Year from December 31.
Section 8.17. Governing Documents
. Borrower shall not amend its Governing Documents in any
manner which could be reasonably expected to have a Material
Adverse Effect; provided, however, that in no event may any such
amendment establish or authorize a new series or other issue of
its Capital Stock or change the rights, powers or preferences of
an existing series or other issue of its Capital Stock.
Alarmguard Holdings shall not amend its Governing Documents in
any manner which could be reasonably expected to have a Material
Adverse Effect; provided, however, that in no event may any such
amendment establish or authorize a new series or other issue of
its Capital Stock or change the rights, powers or preferences of
an existing series or other issue of its Capital Stock.
Section 8.18. RMR Policies and Procedures. Borrower shall
not change, amend, revise or otherwise modify the practices,
policies and procedures followed by Borrower for the calculation
of RMR or any component thereof from those practices, policies
and procedures in effect on the Original Closing Date. In
addition, Borrower shall not change, amend, revise or otherwise
modify Borrower's policies and procedures for the cancellation of
Customer Contracts from those in effect on the Original Closing
Date.
Section 8.19. Acquisitions. No Credit Party shall make an
Acquisition except for Permitted Acquisitions.
Section 8.20. Subsidiaries. Borrower shall not create any
Subsidiaries except for Subsidiaries created with the prior
consent of the Lenders in connection with Permitted Acquisitions.
Section 8.21. Transaction Documents. No Credit PartyBorrower
shall not amend the Transaction Documents. In addition, no
Credit Party shall amend the Transaction Documents to which it is
a party.
SECTION 9. FINANCIAL COVENANTS.
Borrower covenants and agrees that from the date hereof, until
the payment and performance in full of the Obligations and the
termination of the Commitments:
Section 9.1. RMR. Alarmguard Holdings shall not permit the
ratio of Consolidated Total Debt of Alarmguard Holdings to RMR to
exceed 30 to 1 at any time.
Section 9.2. Adjusted RMR. Borrower shall not permit the
ratio of its Consolidated Senior Debt to RMR to exceed 22.5 to 1
at any time.
Section 9.3. Interest Coverage. Borrower shall not permit
the ratio of its Consolidated EBITDA to its Consolidated Total
Interest to be less than 2.0 to 1.0 as of the end of each
calendar month. Borrower's compliance with this covenant shall
be determined on a rolling basis by reference to the month then
ending and the eleven (11) immediately preceding calendar months.
Section 9.4. Debt Service Coverage. Borrower shall not
permit the ratio of its Consolidated EBITDA to its Consolidated
Total Debt Service to be less than 1.20 to 1.0 as of the end of
each calendar month. Borrower's compliance with this covenant
shall be determined on a rolling basis by reference to the month
then ending and the eleven (11) immediately preceding calendar
months.
Section 9.5. Leverage Ratio. Borrower shall not permit the
ratio of its Consolidated Senior Debt to its Consolidated EBITDA
to exceed the following amount5.0 to 1.0 as of the end of each of
the following calendar months. For purposes of this covenant,
Consolidated EBITDA shall be calculated by multiplying
Consolidated EBITDA for the calendar month then ending and the
two (2) immediately preceding calendar months by 4.
LEVERAGE RATIO CALENDAR MONTH ENDING
6.0 to 1.0 (and 5.0 to 1.0 if January 31, 1998 through May
the Detect Acquisition is not 30, 1998
consummated)
5.0 to 1.0 June 30, 1998 and thereafter
For purposes of this covenant, Consolidated EBITDA shall be
calculated by multiplying Consolidated EBITDA for the calendar
month then ending and the two (2) immediately preceding calendar
months by 4.
Section 9.6. Adjusted Leverage Ratio. Borrower shall not
permit the ratio of its Consolidated Senior Debt to its
Consolidated EBITDA to exceed (i) 5.0 to 1.0 as of the end of the
calendar months ending January 31, 1998 and February 28, 1998 and
(ii) 4.50 to 1.0 as of the end of each calendar month
thereafter. For purposes of this covenant, (i) Consolidated
EBITDA shall be calculated by multiplying Consolidated EBITDA for
the calendar month then ending and the two (2) immediately
preceding calendar months by 4 and (ii) any Loans used in
connection with the Direct Marketing Program and the Dealer
Program and Acquisition Loans made to Borrower during the
calendar month then ending and the two (2) immediately preceding
calendar months shall be excluded from the calculation of
Consolidated Senior Debt.
Section 9.7. Direct Marketing Program Creation Multiples.
Borrower shall not permit (a) the multiple resulting from
dividing (x) the aggregate amount of Direct Marketing Program
Costs by (y) the amount of RMR created therebyby such Direct
Marketing Program Costs to exceed 35 or (b) the multiple
resulting from dividing (x) the aggregate amount of Dealer
Program Costs by (y) the amount of RMR created thereby to exceed
35. Borrower's compliance with this covenant shall be determined
as of the end of each calendar month and be calculated in the
manner set forth in Exhibit I attached hereto.
Section 9.8. Direct Marketing Program Costs. Borrower shall
not permit (i) the aggregate amount of Direct Marketing Program
Costs to exceed the amount of EIGHT MILLION AND NO/100 DOLLARS
($8,000,000.00) or (ii) the aggregate amount of Dealer Program
Costs to exceed the amount of TWELVE MILLION AND NO/100 DOLLARS
($12,000,000.00). Borrower's compliance with this covenant shall
be calculated as of the end of each calendar month on a
cumulative basis dating from the end of the calendar month
immediately preceding the Original Closing Date.
SECTION 10. THE AGENTS
Section 10.1. Appointment, Powers and Immunities. Each
Lender and each subsequent holder of the Notes hereby irrevocably
appoints and authorizes BankBoston, N.A.Bank of Boston
Connecticut to act as its Administrative Agent and General
Electric Capital Corporation to act as its Documentation Agent
under this Agreement and the Other Documents with such powers as
are specifically delegated to the Administrative Agent and the
Documentation Agent by the terms of this Agreement and the Other
Documents together with such other powers as are reasonably
incidental thereto. The Administrative Agent and the
Documentation Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other
Documents and shall not be a trustee for any Lender. The
Administrative Agent and the Documentation Agent shall not be
responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or the
Other Documents or in any certificate or other document referred
to or provided for in, or received by any of them under, this
Agreement or the Other Documents, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, the Other Documents or any other document referred to
or provided for herein or therein or for the collectibility of
the Loans or for any failure by the Borrower or any other Person
to perform any of its obligations under this Agreement, the Notes
or the Other Documents. The Administrative Agent and the
Documentation Agent may employ agentsAdministrative Agents and
attorneys-in-fact and shall not be answerable, except as to money
or securities received by it or its authorized
agentsAdministrative Agents, for the negligence or misconduct of
any such agentsAdministrative Agents or attorneys-in-fact
selected by it with reasonable care. Neither the Administrative
Agent, the Documentation Agent nor any of its directors,
officers, employees or agentsAdministrative Agents shall be
liable or responsible for any action taken or omitted to be taken
by it or them under this Agreement, or under the Other Documents
or in connection herewith or therewith, except for its or their
own gross negligence or willful misconduct.
Section 10.2. Reliance. The Administrative Agent and the
Documentation Agent shall be entitled to rely upon any
certification, notice or other communication (including any
thereof by telephone, telex, telegram or cable) believed by the
Administrative Agent and the Documentation Agent to be genuine
and correct and to have been signed or sent by or on behalf of
the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected
by the Administrative Agent and the Documentation Agent. As to
any matters not expressly provided for by this Agreement or the
Other Documents, the Administrative Agent and the Documentation
Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or the Other
Documents in accordance with instructions signed by the Required
Lenders, and such instructions of the Required Lenders and any
action taken or failure to act pursuant thereto shall be binding
on all of the Lenders. The Administrative Agent and the
Documentation Agent shall be entitled to take, and to rely on,
advice of counsel concerning all matters pertaining to its rights
and duties under this Agreement and the Other Documents. The
Administrative Agent and the Documentation Agent may utilize the
services of such Persons as the Administrative Agent or the
Documentation Agent in its sole discretion may reasonably
determine, and all reasonable fees and expenses of any such
Persons shall be paid by Borrower.
Section 10.3. Payments.
(a) A payment by the Borrower to the Administrative Agent
and the Documentation Agent under this Agreement, the Notes or
any of the Other Documents for the account of any Lender shall
constitute a payment to such Lender. Except as otherwise
provided in this Agreement, the Administrative Agent and the
Documentation Agent, as applicable, agree promptly to distribute
to each Lender such Lender's pro rata share of payments received
by the Administrative Agent or the Documentation Agent for the
account of the Lenders.
(b) If in the opinion of the Administrative Agent or the
Documentation Agent, the distribution of any amount received by
the Administrative Agent or the Documentation Agent in such
capacity hereunder, under this Agreement, the Notes or any of the
Other Documents could reasonably be expected to involve the
Administrative Agent or the Documentation Agent in liability, the
Administrative Agent or the Documentation Agent may refrain from
making distribution until the Administrative Agent's or the
Documentation Agent's right to make distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and
distributed by the Administrative Agent or the Documentation
Agent is to be repaid, each Person to whom any such distribution
shall have been made shall either repay to the Administrative
Agent or the Documentation Agent, as applicable, its
proportionate share of the amount so adjudged to be repaid or
shall pay over the same in such manner and to such Persons as
shall be determined by such court.
Section 10.4. Holders of Notes. The Administrative Agent and
the Documentation Agent may deem and treat the payee of any Note
as the absolute owner for all purposes hereof until the
Administrative Agent or the Documentation Agent, as applicable,
shall have been furnished in writing by the Lender with a
different name by such payee or be a subsequent holder, assignee
or transferee.
Section 10.5. Events of Default. Neither the Administrative
Agent or the Documentation Agent shall be deemed to have
knowledge of the occurrence of an Event of Default or the
occurrence of an event that, with the giving of notice, the lapse
of time or both, would constitute an Event of Default (other than
the nonpayment of principal of or interest on the Loans) unless
the Administrative Agent and the Documentation Agent has received
notice from a Lender or the Borrower specifying such Event of
Default or Default and stating that such notice is a "Notice of
Default." In the event that the Administrative Agent or the
Documentation Agent receives such a "Notice of Default" or in the
event of any nonpayment of principal or interest on the Loans,
the Administrative Agent and the Documentation Agent, as
applicable, shall give notice thereof to the Lenders and the
Administrative Agent shall take such action with respect to such
Event of Default or Default as shall be directed by such Lenders
as required under Section 10.14. hereof.
Section 10.6. Rights as a Lender. With respect to its
Commitment and the Loans made by it, each of the Administrative
Agent and the Documentation Agent in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any
other Lender and may exercise the same as though it were not
acting as the Administrative Agent or the Documentation Agent,
and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Administrative Agent and the
Documentation Agent, as applicable, in its individual capacity.
The Administrative Agent, the Documentation Agent and their
Lender Affiliates may (without having to account therefor to any
Lender) accept deposits from, lend money to and generally engage
in any kind of banking, trust or other business with any Credit
Party, as if it were not acting as the Administrative Agent or
the Documentation Agent, and the Administrative Agent and the
Documentation Agent may accept fees and other consideration from
any Credit Party Borrower for services in connection with this
Agreement or any of the Other Documents or otherwise without
having to account for the same to the Lenders.
Section 10.7. Indemnification. The Lenders shall indemnify
the Administrative Agent (to the extent not reimbursed by
Borrower under Section 13.4. hereof), ratably in accordance with
their respective Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent in its capacity as the
Administrative Agent, as applicable, under this Agreement in any
way relating to or arising out of this Agreement or any of the
Other Documents or any other document contemplated hereby or
thereby or referred to herein or therein (including, without
limitation, the costs and expenses which Borrower is obligated to
pay under Section 143.54. hereof, but excluding, unless an Event
of Default has occurred and is continuing, normal administrative
costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms of this
Agreement, the Other Documents or of any such other documents;
provided, however, that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or
willful misconduct of the Person to be indemnified.
Section 10.8. Non-Reliance on the Administrative Agent, the
Documentation Agent and other Lenders. Each Lender agrees that
it has, independently and without reliance on the Administrative
Agent, the Documentation Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made
its own credit analysis of Borrower and each other Credit Party
and of its decision to enter into this Agreement and that it
will, independently and without reliance upon the Administrative
Agent, the Documentation Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at
the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or the Other
Documents. Neither the Administrative Agent or the Documentation
Agent shall be required to keep itself informed as to the
performance or observance by any Credit Party of this Agreement
or the Other Documents or any other document referred to or
provided for herein or therein or to inspect the properties or
books of any Credit Party. Except for notices, reports and other
documents and written information delivered by any Credit Party
to the Administrative Agent or the Documentation Agent hereunder
or under the Other Documents, neither the Administrative Agent
nor the Documentation Agent shall have any duty or responsibility
to provide any Lender with any credit or other information
concerning the financial condition or business of any Credit
Party, which may come into the possession of the Administrative
Agent, the Documentation Agent or any of their Lender Affiliates.
Section 10.9. Failure to Act. Except for action expressly
required of the Administrative Agent or the Documentation Agent
hereunder or under the Other Documents, the Administrative Agent
and the Documentation Agent shall in all cases be fully justified
in failing or refusing to act hereunder or thereunder unless it
shall be indemnified to its satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by
reason of taking or continuing to take any such action.
Section 10.10. Resignation. The Administrative Agent or the
Documentation Agent may resign at any time by giving sixty (60)
days prior written notice thereof to the Lenders and Borrower;
provided, however, that such resignation shall not be effective
in the case of the Administrative Agent until the appointment of
a successor Administrative Agent as provided for herein. Upon
any such resignation, the Lenders shall have the right, upon
consultation with Borrower, to appoint a successor Administrative
Agent or successor Documentation Agent. Unless a Default or
Event of Default shall have occurred and be continuing, such
successor Administrative Agent or successor Documentation Agent
shall be reasonably acceptable to Borrower. If no successor
Administrative Agent shall have been so appointed by the Lenders
and shall have accepted such appointment within thirty (30) days
after the Administrative Agent's giving of notice of resignation,
then the retiring Administrative Agent may, on behalf of the
Lenders, appoint a successor Administrative Agent, which shall be
a Lender or financial institution having total assets in excess
of FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00).
In addition, the Administrative Agent or the Documentation Agent
may be removed by the Required Lenders at any time on not less
than thirty (30) days prior written notice to the Administrative
Agent, the Documentation Agent and the Lenders, as applicable.
Upon the acceptance of any appointment as the Administrative
Agent or the Documentation Agent hereunder by a successor
Administrative Agent or successor Documentation Agent, such
successor Administrative Agent or successor Documentation Agent
shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Administrative
Agent or retiring Documentation Agent, and the retiring
Administrative Agent or retiring Documentation Agent shall be
discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's or retiring Documentation Agent's
resignation, the provisions of this Agreement and the Other
Documents shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by the Administrative
Agent or the Documentation Agent while it was acting as the
Administrative Agent or the Documentation Agent.
Section 10.11. Cooperation of Lenders. The Administrative
Agent and the Documentation Agent shall provide the other Lenders
with such information and documentation as such other Lender
shall reasonably request relating to the performance of its
duties hereunder, including all information relative to the
outstanding balance of principal, interest and other sums owed to
such other Lenders by Borrower; and cooperate with the other
Lenders with respect to any and all collections and/or
foreclosure procedures at any time commenced against Borrower or
otherwise in respect of the Collateral on behalf of the Lenders.
Section 10.12. Actions by Administrative Agent. In case one
or more Events of Default have occurred and shall be continuing,
and whether or not acceleration of the Obligations shall have
occurred, the Administrative Agent shall, if (a) so requested by
the Required Lenders and (b) the Required Lenders have provided
to the Administrative Agent such additional indemnities and
assurances against expenses and liabilities as the Administrative
Agent may reasonably request, proceed to enforce the provisions
of any of the Other Documents authorizing the sale or other
disposition of all or any part of the Collateral and exercise all
or any such other legal and equitable and other rights or
remedies as it may have in respect of such Collateral. The
Required Lenders may direct the Administrative Agent in writing
as to the method and the extent of any such sale or other
disposition and exercise of such other rights or remedies as it
may have in respect of such Collateral, the Lenders hereby
agreeing to indemnify and hold the Administrative Agent, harmless
from all liabilities incurred in respect of all actions taken or
omitted in accordance with such directions; provided, however,
that the Administrative Agent need not comply with any such
direction to the extent that the Administrative Agent reasonably
believes the Administrative Agent's compliance with such
direction to be unlawful or commercially unreasonable in any
applicable jurisdiction. In any event, the Lenders agree, as
among themselves, that the Administrative Agent shall not,
without the consent or approval of the Required Lenders and
subject to Section 10.14. hereof, (i) make any sale or
disposition of the Collateral, (ii) release or subordinate the
security interest of the Lenders in any of the Collateral or
release or discharge any Person which is a party to this
Agreement or the Other Documents, (iii) consent or agree to any
amendment or waiver of any material provision of this Agreement
or the Other Documents, (iv) declare any Default, (v) exercise
any right or remedy with respect to the acceleration or
collection of the Obligations or (vi) take any other action which
requires the consent or approval of the Lenders under this
Agreement or the Other Documents.
Section 10.13. Security.
(a) The Administrative Agent acknowledges to the other
Lenders that it is acting in an agency capacity hereunder and
that the liens and security interests in the Collateral secures
the Obligations of Borrower owing to all of the Lenders. In the
event of any Default, the Administrative Agent will apply and/or
pay over to the Lenders any net proceeds derived from the
Collateral in the manner set forth in Section 10.3. hereof.
(b) Notwithstanding anything to the contrary set forth
herein, each of the parties hereto acknowledges and agrees that
the respective rights, benefits and privileges of the
Administrative Agent, the Documentation Agent and the Lenders
under each of the Other Documents and all other instruments,
documents and agreements providing the benefit of any collateral
security or guarantees for the prompt payment and performance of
the Obligations are for the ratable benefit of the Lenders, and
each of the rights, benefits and privileges thereunder shall be
exercised (or not exercised) solely by the Administrative Agent
but only at the direction and with the consent and approval of
such Lenders as are required by Section 10.14. hereof.
Section 10.14. Required Approval. Any action which requires
the consent or approval of the Lenders under this Agreement may
be taken upon the affirmative consent or approval of the Required
Lenders to be effective; provided, however, that the following
action shall require the unanimous affirmative approval of all of
the Lenders:
(a) any increase or decrease in the amount of the Total
Commitment Amount or the Swingline Commitment which can be issued
or created hereunder;
(b) any amendment of the Borrowing Base which would have
the effect of increasing credit availability thereunder;
(c) any extension of the Revolving Credit Termination Date
or the Maturity Date;
(d) any increase or decrease in any Lender's Commitment
Percentage, Commitment other than in connection with assignments
under Section 13 hereof or in any provision of this Agreement
providing for pro rata payments among the Lenders, the sharing of
payments of principal, interest, fees and any other amounts due
and payable under this Agreement and the sharing of any amounts
obtained by any Lender by set-off or otherwise;
(e) any decrease in the rate of interest applicable to the
Loans (other than as a result of fluctuations in the Base Rate)
or in any Fees (other than fees assessed for the account of the
Administrative Agent);
(f) the release of any Collateral (except for Collateral
having a de minimis value or as otherwise expressly provided in
this Agreement or in the Security Documents);
(g) any amendment of this Section 10.14. and Sections
10.15., 13., 14.11. or 14.12. of this Agreement and any provision
of this Agreement providing for the reimbursement of the Lenders
for any fees, costs or expenses or the indemnification of any
Lender;
(h) the release of any Credit Party under any Guarantee;
or
(i) the amendment or modification of the definition of the
term "Required Lenders"; or
(j) any amendment or waiver of the provisions of Section 5
or 6 of this Agreement, including, but not being limited to, the
provision of any consent of the Lenders in respect of Permitted
Acquisitions required under Section 6.2.1. hereof; or
(k) any deferral or postponement in the payment or accrual
of interest or Fees; or
(l) any amendment to the amortization schedule for the
Loans.
Section 10.15. Replacement of Non-Consenting Lenders. If,
in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as
contemplated by Section 10.14. hereof, the consent of the
Required Lenders is obtained but the consent of one or more other
Lenders whose consent is required is not obtained, then Borrower
shall have the right, so long as all non-consenting Lenders whose
individual consent is required are treated as described in either
clause (A) or (B) below, to either (A) replace each such non-
consenting Lender or Lenders with one or more Replacement Lenders
pursuant to Section 2.5.6. so long as at the time of such
replacement, each Replacement Lender consents to the proposed
change, waiver, discharge or termination or (B) terminate such
non-consenting Lender's Commitment and repay in full such
Lender's outstanding Loans; but only if, in each such case, such
Replacement Lender and such action is acceptable to the
Administrative Agent and the Documentation Agent provided that,
unless the Commitment which is terminated and Loans which are
repaid pursuant to the preceding clause (B) are immediately
replaced in full at such time through the addition of new Lenders
or the increase of the Commitments and/or outstanding Revolving
Loans of existing Lenders (who in each case must specifically
consent thereto), then in the case of any action pursuant to
preceding clause (B) the Required Lenders (determined before
giving effect to the proposed action) shall specifically consent
thereto.
Section 10.16. Amendment. Borrower hereby agrees that the
foregoing provisions of this Section 10 constitute an agreement
among, and solely for the benefit of, the Lenders, the
Administrative Agent and the Documentation Agent, and the Lenders
acknowledge that no Credit Party is a party to or bound by such
foregoing provisions and that any and all of the provisions of
this Section 10 may be amended at any time by the Lenders, with
the consent of the Administrative Agent and the Documentation
Agent, without the consent or approval of, or notice to, any
Credit Party (other than the requirement of notice to the
Borrower of the resignation of the Administrative Agent or the
Documentation Agent).
Section 10.17. Questionnaire. In order to assist the
Administrative Agent and the Documentation Agent in the
administration and performance of their duties under this
Agreement, each of the Lenders hereby agrees to complete and
deliver to the Administrative Agent and the Documentation Agent a
questionnaire in substantially the form of Exhibit J attached
hereto (an "Administrative Questionnaire").
SECTION 11. DEFAULT
Section 11.1. The occurrence of any of the following events
shall constitute a default under this Agreement, the Notes and
the Other Documents (an "Event of Default"):
(a) Borrower shall fail to pay (i) any outstanding
principal amount of the Loans when due, (ii) any accrued and
unpaid interest on the Loans within three (3) days of the due
date therefor or (iii) any fees or expenses payable under this
Agreement, the Notes or the Other Documents within five (5) days
of the due date therefor; or
(b) Any Credit Party shall fail to perform any term,
covenant or agreement contained in Sections 7.1., 7.2., 7.3.,
7.4., 7.5., 7.6., 7.7., 7.8., 7.12., 7.15., 7.17., 7.18. and 8.1.
through 8.210. of this Agreement; provided, however, that no
Event of Default shall occur under this subsection (b) by virtue
of Borrower's failure to timely deliver any financial statement
or report required to be delivered under any of the foregoing
sections until the lapse of a ten (10) day grace period; or
(c) Any Credit Party shall fail to perform any other term,
covenant or agreement (other than in respect of terms, covenants
and agreements which are the subject of Sections 11.1.(a) or
11.1.(b) and Section 11.1.(k) hereof) contained in this Agreement
and such default shall continue for thirty (30) days after notice
thereof has been sent to Borrower by the Administrative Agent; or
(d) any default or event of default shall occur under (i)
the Other Documents or (ii) the Transaction Documents which could
have a Material Adverse Effect; or
(e) any representation or warranty of any Credit Party
made in this Agreement, the Notes, the Other Documents or the
Transaction Documents or in any certificate or report delivered
hereunder or thereunder shall prove to have been false in any
material respect upon the date when made or deemed to have been
made; or
(f) Borrower or any of its Subsidiaries shall (i) default
in any payment of principal of or interest of any Indebtedness
(other than the Loans) or in the payment of any Contingent
Obligation or any Lease Obligation, beyond any period of grace
(not to exceed thirty (30) days), if any, provided in the
instrument or agreement under which such Indebtedness, Contingent
Obligation or Lease Obligation was created, if the aggregate
amount of the Indebtedness, Contingent Obligations or Lease
Obligations in respect of which such default or defaults shall
have occurred is at least FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($500,000.00) or (ii) default in the observance or
performance of any other agreement or condition relating to any
such Indebtedness, Contingent Obligation or Lease Obligation or
contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is
to permit the holder or holders of such Indebtedness, Contingent
Obligation or Lease Obligations to cause, with the giving of
notice if required, the same to become due prior to its stated
maturity, to become payable or to terminate Borrower or any
Subsidiary's use thereof prior to the specified term therefor; or
(g) Any Credit Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar official of itself or
of all or a substantial part of its properties and assets; (ii)
be generally not paying its debts as such debts become due; (iii)
make a general assignment for the benefit of its creditors; (iv)
commence a voluntary case under the Bankruptcy Code; (v) take any
action or commence any case or proceeding under any law relating
to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, or any other law providing
for the relief of debtors; (vi) fail to contest in a timely or
appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy Code
or other law; (vii) take any action under the laws of its
jurisdiction of incorporation or organization similar to any of
the foregoing; or (viii) take any corporate action for the
purpose of effecting any of the foregoing; or
(h) a proceeding or case shall be commenced, without the
application or consent of any Credit Party in any court of
competent jurisdiction, seeking (i) the liquidation,
reorganization, dissolution, winding up, or composition or
readjustment of its debts; (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all or
any substantial part of its properties and assets; or (iii)
similar relief in respect of it, under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition
or adjustment of debts or any other law providing for the relief
of debtors, or an order for relief shall be entered in an
involuntary case under the Bankruptcy Code, against any such
Credit Party; or action under the laws of the jurisdiction of
incorporation or organization of any such Person similar to any
of the foregoing shall be taken with respect to any such Credit
Party; or
(i) an uninsured or self-insured judgment or order for the
payment of money shall be entered against any Credit Party by any
court, or a warrant of attachment or execution or similar process
shall be issued or levied against property of any Credit Party,
that in the aggregate exceeds TWO HUNDRED FIFTY THOUSAND AND
NO/100 DOLLARS ($250,000.00) in value and such judgment, order,
warrant or process shall continue undischarged or unstayed for
sixty (60) days; or
(j) Any Credit Party or any member of the Controlled Group
shall fail to pay when due an amount or amounts aggregating in
excess of TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($250,000.00) that it shall have become liable to pay to the PBGC
or to a plan under Title IV of ERISA; intent to terminate a Plan
or Plans shall be filed under Title IV of ERISA by any Credit
Party, any member of the Controlled Group, any plan administrator
or any combination of the foregoing, other than in the case of a
"statutory termination" as defined in Title IV of ERISA, when the
amount of such liability to any Credit Party could reasonably be
expected to have a Material Adverse Effect; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any
such Plan or Plans against any Credit Party and such proceedings
shall not have been dismissed within thirty (30) days thereafter
where the liability to any Credit Party could have a Material
Adverse Effect; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any
such Plan or Plans must be terminated where the liability to any
Credit Party could have a Material Adverse Effect; or
(k) Borrower shall fail to meet any financial covenant set
forth in Section 9. hereof; or
(l) The failure of any Credit Party to execute, deliver or
address, or cause to be executed, delivered and addressed, the
matters set forth on Schedule 11.1. attached hereto within the
time periods set forth on said Schedule 11.1. (the "Post Closing
Matters"); or
(m) Any Governmental Authority shall condemn, seize or
otherwise appropriate, or take custody or control of, or file a
lien, levy or assessment in respect of, all or any substantial
portion of the properties or assets of any Credit Party or any of
its Subsidiaries; or
(n) Any Governmental Authority or other Person shall
garnish, seize or levy or execute upon any monies of Borrower or
any of its Subsidiaries on deposit with or otherwise in the
custody of the Administrative Agent, the Documentation Agent, the
Lenders or any Lender Affiliate; or
(o) This Agreement, the Notes or the Other Documents shall
cease to be in full force and effect in any material respect, or
any Credit Party shall so assert, or, except to the extent
resulting from the negligent or willful acts or omissions of the
Administrative Agent, the Encumbrances created by the Security
Documents shall cease to be fully perfected enforceable first
priority security interest on the Collateral as provided herein
and therein; or
(p) Any Guarantee shall cease to be in full force and
effect, or any Guarantor shall so assert; or
(q) SSH shall engage in any activity other than
Permitted SSH Activities; or
(r) a Change in Control Event shall have occurred; or
(s) an "Event of NoncomplianceAdvers Effect" (as defined
in the Transaction Documents) shall have occurred in connection
with the redemption of, or which otherwise requirespermits the
redemption of, the Capital Stock issued under the Transaction
Documents..
SECTION 12. REMEDIES
Section 12.1. Remedies. Upon the occurrence of an Event of
Default, and at any time thereafter while such Event of Default
is continuing, immediately and automatically in the case of an
Event of Default specified in Section 11.1(g) or 11.1.(h), and in
all other cases, upon the Administrative Agent's declaration at
the request or consent of the Required Lenders:
(a) The Administrative Agent's and the Lenders' obligation
to make any Extension of Credit shall terminate;
(b) the unpaid principal amount of the Loans, together
with accrued interest thereon, and all other Obligations shall
become immediately due and payable without presentment, demand,
protest or further notice of any kind, all of which are hereby
expressly waived;
(c) The Administrative Agent, the Documentation Agent, the
Lenders and any Lender Affiliate may exercise any right of setoff
granted to the Administrative Agent, the Documentation Agent, the
Lenders and any Lender Affiliate pursuant to Section 14.2.4.
hereof; and
(d) The Administrative Agent, the Documentation Agent and
the Lenders may exercise any and all other rights and remedies
they have under this Agreement, the Notes or the Other Documents
or at law or in equity, and proceed to protect and enforce their
rights by any action at law, in equity or other appropriate
proceeding.
Section 12.2. Default Interest Rate. Immediately upon the
occurrence of an Event of Default specified in Section 11.1.(a)
hereof, and in all other cases at the option of the Required
Lenders, which may be exercised following the occurrence of any
other Event of Default, and whether or not the Lenders exercise
any other right or remedy, the Obligations (including, to the
extent permitted by law, overdue interest and fees) shall bear
interest thereafter until paid in full at the Default Rate.
SECTION 13. ASSIGNMENT
Section 13.1. Assignment.
(a) Each Lender may assign to one or more Persons all or a
portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Commitment and the
same portion of the Loans at the time owing to it and the Notes
held by it); provided, however, that (i) except in the case of an
assignment to a Lender or a Lender Affiliate, the Administrative
Agent and, as long as no Default or Event of Default shall have
occurred or be continuing, the Borrower must give their prior
written consent to such assignment (which consent shall not be
unreasonably withheld or delayed); (ii) each such assignment
shall be of a constant, and not a varying, percentage of all the
assigning Lender's interests, rights and obligations under this
Agreement; (iii) the amount of the Commitment and the Loans of
the assigning Lender subject to each such assignment (determined
as of the date of the Assignment and Acceptance with respect to
such assignment is delivered to the Administrative Agent) shall
not be less than FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00)
or, if less, the entire remaining Commitment and all of the Loans
at the time owing to such assigning Lender; (iv) the parties to
each such assignment shall execute and deliver to the
Administrative Agent an assignment and acceptance in the form of
Exhibit K attached hereto (the "Assignment and Acceptance"),
together with the Note or Notes subject to such assignment and a
processing and recordation fee of TWO THOUSAND FIVE HUNDRED AND
NO/100 DOLLARS ($2,500.00); (v) the assignee shall be a Lender or
financial institution having total assets in excess of FIVE
HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00); (vi) the
assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; (vii) as
long as no Default or Event of Default shall have occurred or be
continuing, such assignment shall not result in increased costs
to any Credit Party by virtue of such assignment; and (viii), in
the case of BankBoston, N.A., no such assignment shall result,
unless otherwise agreed by Borrower, in a reduction of the amount
of the Commitment of BankBoston, N.A. to less than TWENTY MILLION
AND NO/100 DOLLARS ($20,000,000.00). Upon such execution,
delivery, acceptance and recording pursuant to Section 13.2.
hereof from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least
five (5) Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of
the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement; and (B)
the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's interests, rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of any indemnity,
waiver, release or limitation of liability contained herein, as
well as to any Fees accrued for its account and not yet paid).
(b) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each
other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial
owner of the interest being assigned thereby free and clear of
any adverse claim and that its Commitment and the outstanding
balances of its Loans, in each case without giving effect to
assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance; (ii) except as set forth
in subsection (i) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in
or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of
this Agreement, the Notes, the Other Documents or any other
agreement, document or instrument furnished pursuant hereto or
thereto; (iii) such assignee represents and warrants that it is
legally authorized to enter into such Assignment and Acceptance;
(iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent Financial
Statements delivered pursuant to Section 7.1. hereof and such
other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently
and without reliance upon the Administrative Agent or the
Documentation Agent, such assigning Lender or any other Lender
and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement;
(vi) such assignee appoints and authorizes the Administrative
Agent and the Documentation Agent to take such action as
Administrative Agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Administrative Agent
and the Documentation Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such
assignee agrees that it will perform in accordance with their
terms all the obligations which by the terms of this Agreement
are required to be performed by it as a Lender.
Section 13.2. Maintenance of a Register. The Administrative
Agent shall maintain at one of its principal offices a copy of
each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and
the Commitment and the Commitment Percentage, and principal
amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the
Register shall be conclusive in the absence of manifest error and
Borrower, the Administrative Agent, the Documentation Agent and
the Lenders may treat each person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available
for inspection by Borrower and any Lender, at any reasonable time
and from time to time upon reasonable prior notice. The
Administrative Agent shall also be authorized to amend, modify
and substitute Schedule 1.35. attached hereto and Schedule 1.36.
attached hereto from time to time to properly reflect the
Commitments and the Commitment Percentages of the Lenders under
this Agreement.
Section 13.3. Questionnaire. Upon its receipt of a duly
completed Assignment and Acceptance executed by an assigning
Lender and an assignee together with the Note subject to such
assignment, an Administrative Questionnaire completed in respect
of the assignee (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in
Section 13.1. above and, if required, the written consent of the
Administrative Agent and/or Borrower to such assignment, the
Administrative Agent shall (i) accept such Assignment and
Acceptance; (ii) record the information contained therein in the
Register; and (iii) give prompt notice thereof to the Lenders.
Within five (5) Business Days after receipt of notice, Borrower,
at its own expense, shall execute and deliver to the
Administrative Agent, in exchange for the surrendered Note, a new
Note to the order of such assignee in a principal amount equal to
the applicable Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has
retained a Commitment, a new Note to the order of such assigning
Lender in a principal amount equal to the applicable Commitment
retained by it. Such new Note shall be in an aggregate principal
amount equal to the aggregate principal amount of such
surrendered Note; shall be dated the date of the surrendered
Notes which they replace and shall otherwise be in substantially
the form of Exhibit B attached hereto, as applicable. Canceled
Notes shall be returned to the Borrower.
Section 13.4. Sale of Participations. Each Lender may
without the consent of the Borrower or the Administrative Agent
sell participations to one or more Lenders, financial
institutions or other entities in all or a portion of its rights
and obligations under this Agreement (including all or a portion
of its Commitment and the same portion of the Loans owing to
Lender and the Note held by it); provided, however, that (i) such
Lender's obligations under this Agreement shall remain unchanged;
(ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations; (iii) the
participating Lenders, financial institutions or other entities
shall be entitled to the benefit of the cost protection
provisions contained in this Agreement only to the extent the
Lender or Lenders selling a participation to them are entitled
thereto; (iv) Borrower, the Administrative Agent, the
Documentation Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such
Lender's rights, interests and obligations under this Agreement,
and such Lender shall retain the sole right to enforce the
obligations of Borrower relating to the Loans and to approve any
amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications or waivers
decreasing any Fees payable hereunder or the amount of principal
of or the rate at which interest is payable on the Loans,
extending any scheduled principal payment date or date fixed for
the payment of interest or other amounts on the Loans or changing
or extending the Commitments or Section 2.1.14. hereof) and (v)
such participation shall not result in increased costs to any
Credit Party by virtue of the sale of such participation.
Section 13.5. Disclosure of Information. Any Lender or
participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to
this Section 13, disclose to the assignee or participant or
proposed assignee or participant any information relating to
Borrower furnished to such Lender by or on behalf of Borrower;
provided, however, that, prior to any such disclosure of
information designated by Borrower as confidential, each such
assignee or participant or proposed assignee or participant shall
execute an agreement whereby such assignee or participant shall
agree (subject to customary exceptions) to preserve the
confidentiality of such confidential information in accordance
with Section 7.7. hereof.
Section 13.6. Assignee or Participant Affiliated with
Borrower. If any assignee Lender is an Affiliate of Borrower,
then any such assignee Lender shall have no right to vote as a
Lender hereunder or under any of the Other Documents for purposes
of granting consents or waivers or for purposes of agreeing to
amendments or other modifications to this Agreement or any of the
Other Documents or for purposes of making requests to the
Administrative Agent pursuant to Section 10 hereof, and the
determination of the Lenders shall for all purposes of this
Agreement and the Other Documents be made without regard to such
assignee Lender's interest in any of the Loans. If any Lender
sells a participating interest in any of the Loans to a
participant, and such participant is Borrower or an Affiliate of
the Borrower, then such transferor Lender shall promptly notify
the Administrative Agent of the sale of such participation. A
transferor Lender shall have no right to vote as a Lender under
this Agreement or any of the Other Documents for purposes of
granting consents or waivers or for purposes of agreeing to
amendments or modifications to this Agreement or any of the Other
Documents or for purposes of making requests to the
Administrative Agent pursuant to Section 10 hereof to the extent
that such participation is beneficially owned by Borrower or any
Affiliate of Borrower, and the determination of the Lender shall
for all purposes of this Agreement and the Other Documents be
made without regard to the interest of such transferor Lender in
the Loans to the extent of such participation.
Section 13.7. Miscellaneous Assignment Provisions. If any
assignee Lender is not incorporated under the laws of the United
States of America or any state thereof, it shall, prior to the
date on which any interest or fees are payable under this
Agreement or any of the Other Documents for its account, deliver
to Borrower and the Administrative Agent certification as to its
exemption from deduction or withholding of any United States
federal income taxes. Anything contained in this Section 13 to
the contrary notwithstanding, any Lender may at any time pledge
all or any portion of its interest and rights under this
Agreement (including all or any portion of its Note) to any of
the twelve (12) Federal Reserve Banks organized under Section 4
of the Federal Reserve Act. No such pledge or the enforcement
thereof shall release the pledgor Lender from its obligations
under this Agreement or any of the Other Documents.
Section 13.8. No Assignment or Delegation by Borrower.
Borrower shall not assign or delegate any of its rights or duties
under this Agreement.
SECTION 14. MISCELLANEOUS
Section 14.1. Cross Collateral. The security interests,
liens and other rights and interests in and relative to any
collateral now or hereafter granted to the Administrative Agent,
the Documentation Agent or the Lenders by Borrower by or in any
instrument or agreement, including but not limited to this
Agreement and the Other Documents, shall serve as security for
any and all obligations of Borrower or any other Credit Party to
the Administrative Agent, the Documentation Agent and the
Lenders, and, for the repayment thereof, the Administrative
Agent, the Documentation Agent or the Lenders may resort to any
security held by them in such order and manner as they may elect.
Section 14.2. Waivers.
Section 14.2.1. In General. Borrower waives presentment,
demand, notice, protest, notice of acceptance, notice of loans
made, credit extended, collateral received or delivered or other
action taken in reliance hereon and all other demands and notices
of any description. With respect both to the Obligations and the
Collateral, Borrower assents to any extension or postponement of
the time of payment or any other indulgence, to any substitution,
exchange or release of the Collateral, to the addition or release
of any party or Person primarily or secondarily liable therefor,
to the acceptance of partial payments thereon and the settlement,
compromising or adjusting of any thereof, all in such manner and
at such time or times as the Lenders may deem advisable in their
sole and absolute discretion. The Administrative Agent, the
Documentation Agent and the Lenders shall have no duty, other
than to act in a commercially reasonable manner, as to the
collection or protection of the Collateral or any income thereon,
as to the preservation of rights or remedies against prior
parties, or as to the preservation of any rights and remedies
pertaining thereto. The Administrative Agent, the Documentation
Agent and the Lenders may exercise their rights and remedies with
respect to the Collateral without resorting or regard to other
collateral or sources of reimbursement for liability. The
Administrative Agent, the Documentation Agent and the Lenders
shall not be deemed to have waived any of their rights and
remedies with respect to the Obligations or the Collateral unless
such waiver be in writing. No delay or omission on the part of
the Administrative Agent, the Documentation Agent or the Lenders
in exercising any right or remedy shall operate as a waiver of
such right or remedy or any other right or remedy. A waiver on
any one occasion shall not be construed as a bar to any
subsequent enforcement by the Administrative Agent, the
Documentation Agent or the Lenders. All rights and remedies of
the Administrative Agent, the Documentation Agent or the Lenders
with respect to the Obligations or the Collateral shall be
cumulative and may be exercised singularly or concurrently.
Section 14.2.2. PREJUDGMENT REMEDY. EACH CREDIT PARTY
ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS A
PART IS A COMMERCIAL TRANSACTION AND HEREBY WAIVES ITS RIGHT TO
NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL
STATUTES OR BY OTHER APPLICABLE LAW WITH RESPECT TO ANY
PREJUDGMENT REMEDY WHICH THE ADMINISTRATIVE AGENT, THE
DOCUMENTATION AGENT OR THE LENDERS MAY DESIRE TO USE.
Section 14.2.3. JURY TRIAL. EACH CREDIT PARTY HEREBY
WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART
AND/OR IN THE ENFORCEMENT BY THE ADMINISTRATIVE AGENT, THE
DOCUMENTATION AGENT OR THE LENDERS OF ANY OF THEIR RIGHTS AND
REMEDIES HEREUNDER OR UNDER APPLICABLE LAW. EACH CREDIT PARTY
ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND
ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH
ITS ATTORNEY.
Section 14.2.4. Lien and Setoff. Regardless of the
adequacy of any collateral or other means of obtaining repayment
of the Obligations, any deposits (general or special, time or
demand, the provisional or final), balances or other sums
credited by or due from the Administrative Agent, the
Documentation Agent, the Lenders, or any Lender Affiliate to any
Credit Party (other than payroll and payroll tax deposit
accounts) may, at any time and from time to time after the
occurrence of an Event of Default, without notice to any such
Credit Party or compliance with any other condition precedent now
or hereafter imposed by statute, rule of law, or otherwise (all
of which are hereby expressly waived) be setoff, appropriated,
and applied by the Administrative Agent, the Documentation Agent,
the Lenders or any Lender Affiliate against any and all
obligations of the Credit Parties to the Administrative Agent,
the Documentation Agent, the Lenders or any Lender Affiliate in
such manner as the Administrative Agent, the Documentation Agent,
the Lenders or any Lender Affiliate in their sole and absolute
discretion may determine, and each Credit Party hereby grants to
the Administrative Agent, the Documentation Agent and the Lenders
a continuing security interest in such deposits, balances or
other sums for the payment and performance of all such
obligations. The rights provided to the Administrative Agent,
the Documentation Agent, the Lenders and any Lender Affiliate in
this Section 14.2.4. shall be in addition to and shall not limit
any common law right of setoff available to the Administrative
Agent, the Documentation Agent, the Lenders or any Lender
Affiliate.
Section 14.2.5. Claims. Borrower does hereby (i) waive
any claim in tort, contract or otherwise which Borrower may have
against the Administrative Agent, the Documentation Agent, the
Lenders, any Lender Affiliate or any Lender Agents which may
arise out of the relationship between Borrower and the
Administrative Agent, the Documentation Agent, the Lenders or any
Lender Affiliate prior to the Closing Date; and (ii) absolutely
and unconditionally release and discharge the Administrative
Agent, the Documentation Agent, the Lenders and any Lender
Affiliate or Lender Agents from any and all claims, causes of
action, losses, damages or expenses which may arise out of any
relationship between it and the Administrative Agent, the
Documentation Agent, the Lenders or any Lender Affiliate which
Borrower may have as of the Closing Date. Borrower acknowledges
that it makes this waiver and release knowingly, voluntarily and
only after considering the ramifications of this waiver and
release with its attorney.
Section 14.3. Notices. All notices, requests, demands or
other communications required by this Agreement shall be made in
writing, and unless otherwise specifically provided herein, shall
be deemed to have been duly given when delivered by hand or
mailed, first class mail postage prepaid, or, in the case of
telecopy or facsimile notice, when transmitted, answer back
received, addressed as follows, or to such other address as
either party may designate in writing:
If to the Administrative Agent:
BankBoston, N.A.
100 Pearl Street
Hartford, CT 06103
Attn: Roger J. Roche, Jr., Director
Telephone: (860) 727-6567
Telecopier: (860) 727-6575
If to the Documentation Agent:
General Electric Capital Corporation
335 Madison Avenue, 12th Floor
New York, NY 10017
Attn: Daniel Gagliardo, AssociateAlarmguard Account Officer
Telephone: (212) -370-8085
Telecopier: (212) -983-8766
If to any Lender, at the address set forth on the Administrative
Questionnaire.
If to Borrower:
Alarmguard, Inc.
125 Frontage Road
Orange, CT 06477
Attn: David Heidecorn, Chief Financial Officer
Telephone: (203) 795-9000
Telecopier: (203) 7995-9636
Section 14.4. Retention of Documents. The Administrative
Agent, the Documentation Agent and any Lender may, in accordance
with the Administrative Agent's, the Documentation Agent's or
such Lender's customary practices, destroy or otherwise dispose
of all documents, schedules, invoices or other papers, delivered
by any Credit Party to the Administrative Agent, the
Documentation Agent or such Lender unless such Credit Party
requests in writing the same be returned. Upon any such request
and at such Credit Party's expense, the Administrative Agent, the
Documentation Agent or such Lender shall return such papers when
the Administrative Agent's, the Documentation Agent's or such
Lender's actual or anticipated need for same has terminated.
Section 14.5. Fees and Expenses; Indemnity.
(a) Whether or not the transactions contemplated hereby
shall be consummated, Borrower agrees to pay promptly all
reasonable out-of-pocket (unless otherwise specifically permitted
below) fees, costs and expenses incurred by the Administrative
Agent, the Documentation Agent and the Lenders in connection with
any matters contemplated by or arising out of this Agreement, the
Notes or the Other Documents as set forth below the following,
and all such fees, costs and expenses shall be part of the
Obligations, payable on demand and secured by the Collateral:
(a) reasonable out-of-pocket fees, costs and expenses (including
reasonable attorneys' fees) incurred by the Administrative Agent
in connection with the examination, review, due diligence
investigation, documentation and closing of the transactions
contemplated by this Agreement, the Notes and the Other
Documents; (b) reasonable fees, costs and expenses of the
Administrative Agent (including reasonable attorneys' fees,
allocated costs of internal counsel and fees and expenses of
accountants retained by the Administrative Agent) incurred in
connection with the administration of this Agreement and the
Other Documents and any amendments, modifications and waivers
relating thereto; (c) reasonable out-of-pocket fees, costs and
expenses (including reasonable attorneys' fees and allocated
costs of internal counsel) incurred by the Administrative Agent
within six (6) months after the Closing Date in connection with
the syndication of the Loans; (d) reasonable out-of-pocket fees,
costs and expenses incurred in creating, perfecting and
maintaining perfection of Encumbrances in favor of the
Administrative Agent on behalf of the Lenders, including lien
search fees, filing and recording fees, taxes and expenses, title
insurance policy fees, fees and expenses of attorneys for
providing such opinions as the Administrative Agent may
reasonably request and fees and expenses of attorneys to the
Administrative Agent; (e) reasonable fees, costs and expenses
(including attorneys' fees and allocated costs of internal
counsel) incurred in connection with the review, documentation,
negotiation, closing and administration of any subordination or
intercreditor agreements; (f) reasonable out-of-pocket fees,
costs and expenses incurred in connection with forwarding to
Borrower the proceeds of Loans including the Administrative
Agent's standard wire transfer fee; (g) reasonable out-of-pocket
fees, costs, expense and bank charges, including bank charges for
returned checks, incurred by the Administrative Agent in
establishing, maintaining and handling lock box accounts, blocked
accounts or other accounts for collection of the Collateral; and
(h) reasonable out-of-pocket fees, costs and expenses of the
Administrative Agent, the Documentation Agent and the Lenders
(including attorneys' fees, allocated costs of internal counsel
and fees of environmental consultants, industry consultants,
accountants and other professionals retained by the
Administrative Agent, the Documentation Agent or any Lender)
incurred in collecting upon or enforcing rights against the
Collateral after the occurrence and during the continuance of a
Default or an Event of Default or incurred in any action to
enforce this Agreement or the Other Documents or to collect any
payments due from any Credit Party under this Agreement, the
Notes or the Other Documents or incurred in connection with any
refinancing or restructuring of the credit arrangements provided
under this Agreement, whether in the nature of a "workout" or in
connection with any insolvency or bankruptcy proceedings or
otherwise.
(b) Each Credit Party shall, jointly and severally,
indemnify and hold the Administrative Agent, the Documentation
Agent, the Lenders, any Lender Affiliate and any Lender Agents
harmless from and against any and all losses, liabilities,
claims, damages or expenses incurred by any of them as a result
of, or arising out of, or in any way related to, or by reason of,
any suit, action, investigation, litigation or other proceeding
(whether or not any such Person is a party thereto and whether or
not any such suit, action, investigation, litigation or other
proceeding is between or among any such Person, or any third
Person or otherwise) related to the entering into and/or the
performance of (a) this Agreement, the Notes or the Other
Documents, the use of the proceeds of any Extension of Credit,
the consummation of any other transaction contemplated hereby and
thereby or the exercise of any rights or remedies under this
Agreement, the Notes or the Other Documents, (b) the Transaction
Documents, the Triton Merger or any other transaction
contemplated thereby or (c) any Acquisition (but excluding any
such losses, liabilities, claims, damages or expenses to the
extent solely incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified as finally
determined by a court of competent jurisdiction) and including,
in any case, and without limitation, the reasonable fees and
expenses of legal counsel and other professional advisors
incurred in connection with any such action, suit, investigation,
litigation or other proceeding. NO LENDER AGENT SHALL BE
RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO THIS AGREEMENT, THE
NOTES OR THE OTHER DOCUMENTS, ANY SUCCESSOR, ASSIGNEE OR THIRD
PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
UNDER THIS AGREEMENT, THE NOTES OR THE OTHER DOCUMENTS OR AS A
RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
Section 14.6. Term of Agreement. This Agreement shall
continue in force and effect so long as the Lenders have any
commitment to extend credit or any of the Obligations shall be
outstanding.
Section 14.7. Stamp Tax. Borrower will pay any stamp,
franchise or other recording tax which becomes payable in respect
of this Agreement, the Notes or the Other Documents.
Section 14.8. Schedules and Exhibits. The schedules and
exhibits which are attached hereto are and shall constitute a
part of this Agreement.
Section 14.9. Governing Law; Consent to Jurisdiction. This
Agreement, the Notes and the Other Documents, and the rights and
obligations of the parties hereunder and thereunder, shall be
governed by, and construed and interpreted in accordance with,
the laws of the State of Connecticut. Borrower agrees that any
suit for the enforcement of this Agreement, the Notes or the
Other Documents may be brought in the courts of the State of
Connecticut or any federal court sitting therein and consents to
the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon Borrower by mail at the
address referred to in Section 14.312.3. hereof. Borrower hereby
waives any objection that Borrower may now or hereafter have to
the venue of any such suit or any such court or that such suit is
brought in an inconvenient court.
Section 14.10. Survival of Representations. All
representations, warranties, covenants and agreements contained
in this Agreement, the Notes or the Other Documents shall survive
the Closing Date and continue in full force and effect until the
payment and the performance of the Obligations in full and the
termination of the Commitments.
Section 14.11. Amendments. No modification or amendment of
this Agreement, the Notes or the Other Documents shall be
effective unless the same shall be in writing and signed by
Borrower and the Required Lenders (or, if required by Section
10.14.,10.13., all of the Lenders) and, if the modification or
amendment relates to any duties, obligations or rights of the
Administrative Agent or the Documentation Agent, the
Administrative Agent and the Documentation Agent, as applicable.
Section 14.12. Binding Effect of Agreement. This Agreement
shall be binding upon and inure to the benefit of the
Administrative Agent, the Documentation Agent, the Lenders,
Borrower and their respective successors and assigns; provided,
however, that Borrower may not assign or transfer its rights or
obligations hereunder.
Section 14.13. Interest Rate. If the rate of interest
payable by Borrower under this Agreement, the Notes or the Other
Documents shall be or become usurious or otherwise unlawful under
laws applicable thereto, the interest rate shall be reduced to
the maximum lawful rate and any amount paid by Borrower in excess
of the maximum lawful rate shall be considered a payment in
reduction of principal or, at the sole election of the Lenders,
shall be returned to Borrower.
Section 14.14. Counterparts. This Agreement may be signed in
any number of counterparts with the same effect as if the
signatures hereto and thereto were upon one and the same
instrument.
Section 14.15. No Agency Relationship. Neither the
Administrative Agent, the Documentation Agent nor any Lender is
the agentAdministrative Agent, fiduciary or representative of
Borrower nor is Borrower the agentAdministrative Agent, fiduciary
or representative of the Administrative Agent, the Documentation
Agent or any Lender and this Agreement shall not make the
Administrative Agent, the Documentation Agent or any Lender
liable to any third party, including but not limited to,
Borrower's shareholders, directors, officers, creditors or any
other person.
Section 14.16. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
Section 14.17. Headings. All article, section and subsection
headings in this Agreement, the Notes and the Other Documents are
included for convenience of reference only and shall not
constitute a part of this Agreement, the Notes or the Other
Documents for any other purpose.
Section 14.18. Reinstatement. This Agreement shall continue
to be effective or be reinstated, as the case may be, if at any
time any amount received by the Administrative Agent, the
Documentation Agent or any Lender in respect of the Obligations
is rescinded or must otherwise be restored or returned by the
Administrative Agent, the Documentation Agent or any Lender upon
the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Credit Party or upon the appointment of any
intervenor or conservator of, or trustee or similar official for,
any Credit Party or any substantial part of its properties or
assets, or otherwise, all as though such payments had not been
made.
Section 14.19. Interpretation and Construction. The
following rules shall apply to the interpretation and
construction of this Agreement, the Notes and the Other Documents
unless the context requires otherwise: (a) the singular includes
the plural and the plural includes the singular; (b) words
importing any gender include the other gender; (c) references to
statutes are to be construed as including all statutory
provisions consolidating, amending or replacing the statute to
which reference is made and all regulations promulgated pursuant
to such statutes; (d) references to "writing" shall include
printing, photocopy, typing, lithography and other means of
reproducing words in a tangible, visible form; (e) the words
"including", "includes" and "include" shall be deemed to be
followed by the words "without limitation"; (f) references to the
introductory paragraph, preliminary statements, articles,
sections (or subdivisions of sections), exhibits or schedules are
to those of this Agreement unless otherwise indicated; (g)
references to agreements and other contractual instruments shall
be deemed to include all subsequent amendments and other
modifications to such instruments, but only to the extent that
such amendments and other modifications are permitted or not
prohibited by the terms of this Agreement; (h) references to
Persons include their respective permitted successors and
assigns; and (i) "or" is not exclusive.
Section 14.20. GAAP and Accounting Changes. Unless
otherwise specifically provided herein, any accounting term used
in the Agreement shall have the meaning customarily given such
term in accordance with GAAP, and all financial computations
thereunder shall be computed in accordance with GAAP consistently
applied. That certain items or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing. If any "Accounting Changes"
(as defined below) occur and such changes result in a change in
the calculation of the financial covenants, standards or terms
used in the Agreement or any of the Other Documents, then the
Credit Parties, the Administrative Agent, the Documentation Agent
and the Lenders agree to enter into negotiations in order to
amend such provisions of the Agreement so as to equitably reflect
such Accounting Changes with the desired result that the criteria
for evaluating any Credit Party's and its Subsidiaries' financial
condition shall be the same after such Accounting Changes as if
such Accounting Changes had not been made. "Accounting Changes"
means (a) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by
the Financial Accounting Standards Board of the American
Institute of Certified Public Accountants (or successor thereto
or any agency with similar functions); (b) changes in accounting
principals concurred in by any Credit Party's certified public
accountants; (c) purchase accounting adjustments under A.P.B. 16
and/or 17 and EITF 88-16, and the application of the accounting
principles set forth in FASB 109, including the establishment of
reserves pursuant thereto and any subsequent reversal (in whole
or in part) of such reserves; and (d) the reversal of any
reserves established as a result of purchase accounting
adjustments. All such adjustments resulting from expenditures
made subsequent to the Original Closing Date (including
capitalization of costs and expenses or payment of pre-Closing
Date liabilities) shall be treated as expenses in the period the
expenditures are made and deducted as part of the calculation of
Consolidated EBITDA in such period. If the Credit Parties, the
Administrative Agent, the Documentation Agent and the Lenders
agree upon the required amendments, then after appropriate
amendments have been executed and the underlying Accounting
Change with respect thereto has been implemented, any reference
to GAAP contained in this Agreement or in any of the Other
Documents shall, only to the extent of such Accounting Change,
refer to GAAP, consistently applied after giving effect to the
implementation of such Accounting Change. If the Credit Parties,
the Administrative Agent, the Documentation Agent and the Lenders
cannot agree upon the required amendments within thirty (30) days
following the date of implementation of any Accounting Change,
then all Financial Statements delivered and all calculations of
financial covenants and other standards and terms in accordance
with this Agreement and the Other Documents shall be prepared,
delivered and made without regard to the underlying Accounting
Change.
[SIGNATURE PAGE S-1 FOLLOWS NEXT]
IN WITNESS WHEREOF, Borrower, the Guarantors, the Lenders,
the Administrative Agent and the Documentation Agent have
executed this Agreement as of the date first above written.
THE BORROWER:
ALARMGUARD, INC.
By: ___________________________
Name:
Title:
THE GUARANTORS:
SECURITY SYSTEMS HOLDINGS, INC.
By: ___________________________
Name:
Title:
ALARMGUARD HOLDINGS, INC.
By: ___________________________
Name:
Title:
PROTECTIVE ALARMS OF CANADA, INC.
By: ____________________________
Name:
Title:
THE LENDERS:
BANKBOSTON, N.A.
(successor by merger to Bank of
Boston Connecticut)
By:___________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: __________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By: __________________________
Name:
Title:
CIBC INC.
By: __________________________
Name:
Title:
THE ADMINISTRATIVE AGENT:
BANKBOSTON, N.A.
(successor by merger to Bank of
Boston Connecticut)
By: ___________________________
Name:
Title:
THE DOCUMENTATION AGENT:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: ___________________________
Name:
Title:
STAM1-618313-11
03/30/98 6:49 PM
ASSET PURCHASE AND SALE AGREEMENT
DATED AS OF MARCH 5, 1998,
by and among
SECURITY SYSTEMS, INC.,
JAMES W. LEES,
EDWARD A. SILVEY
and
ALARMGUARD, INC.
TABLE OF CONTENTS
1. Assets to be Sold and Purchase Price 6
1.1 Assets 6
1.2 Excluded Assets 8
1.3 Assumed Obligations 8
1.4 Excluded Obligations 9
1.5 Purchase Price 9
1.6 Asset Transfer 9
1.7 Allocation of Purchase Price 10
1.8 Payments 10
1.9 Closing Revenue Adjustment 10
1.10 Revenue Guarantee Adjustment 12
1.11 Accounts Receivable 12
1.12 Best Efforts. 13
1.13 Taxes 13
2. Assumption of Liabilities 13
3. Representations and Warranties of Seller and Stockholders 13
3.1 Incorporation, Powers and Qualification 13
3.2 Authority 14
3.3 No Conflict 14
3.4 Financial Information 14
3.5 Ownership of Property 15
3.6 Litigation; Liabilities 15
3.7 Compliance; Hazardous Substances 15
3.8 Customer Lists 16
3.9 Parties 16
3.10 No Broker 16
3.11 Material Statements 16
3.12 Tax Matters 16
3.13 Alarm Systems 17
3.14 Condition of Assets Upon Transfer 17
3.15 Contracts and Commitments 17
3.16 Intellectual Property 18
3.17 Employee Benefit Plans; Wages and Benefits of
Seller Employees. 18
3.18 Labor and Employee Relations 19
3.19 Indebtedness 19
3.20 Books and Records 19
3.21 Powers of Attorney 19
3.22 Customer Claims Insurance 19
3.23 Non-Compete Agreements/Goodwill Rights 19
3.24 Limitations. 19
4. Representations and Warranties of Purchaser 20
4.1 Incorporation, Powers and Qualification 20
4.2 Authority 20
4.3 No Conflict 20
4.4 No Broker 20
4.5 Material Statements 20
5. Pre-Closing Covenants 21
5.1 Conduct of Business 21
5.2 Insurance 22
5.3 Employee Meetings 22
5.4 Access to Properties 23
5.5 Confidentiality; No Disclosure 23
6. Conditions Precedent to the Closing 23
6.1 Conditions Precedent to the Obligations of
Purchaser 23
6.2 Representations and Warranties True as of Closing 23
6.3 Obligations, Covenants, Agreement and Conditions
Performed 23
6.4 No Material Change 24
6.5 Delivery of Closing Documents 24
6.6 No Actions, etc. 24
6.7 Necessary Consents 24
7. Closing. 24
8. Post Closing 26
8.1 Warranties and Representations 26
8.2 Seller's Obligations 26
8.3 State Filings 26
8.4 Assumption of Obligations 26
8.5 Access to Information 26
8.6 Use of Trade Names 26
8.7 Mail and Communications 26
8.8 Telephone Numbers 27
8.9 Employee and Other Accounts 27
9. Indemnification 27
9.1 Indemnification by Seller and Stockholders 27
9.2 Indemnification by Purchaser 28
9.3 Limitation of Indemnity. 28
10. Miscellaneous 28
10.1 Notices 28
10.2 Expenses 30
10.3 Risk of Loss 30
10.4 Benefit and Burden 30
10.5 Governing Law 30
10.6 Assignment 30
10.7 Attorneys' Fees 31
10.8 Further Assurances 31
10.9 Severability 31
10.10 Jurisdiction; Waivers 31
10.11 Entire Agreement 31
10.12 Number and Gender 32
10.13 Headings for Convenience 32
10.14 Amendments 32
10.15 Execution of Counterparts 32
EXHIBITS AND SCHEDULES
Exhibit A-1: The Tangible Assets
Exhibit A-2: The Intangible Assets
Exhibit A-3: Service Contracts
Exhibit A-4: Leases of Real and Personal Property; Motor
Vehicles
Exhibit A-5: Telephone Numbers
Exhibit A-6: Intentionally Omitted
Exhibit A-7: Work in Process
Exhibit B-1: Excluded Assets
Exhibit B-2: Allocation of Aggregate Purchase Price
Exhibit C: Escrow Agreement
Exhibit D: Consulting Agreement
Exhibit E: Form of Non-Compete Agreement
Exhibit F: Form of Opinion of Seller's Counsel
SCHEDULE 3.1: Ownership of Securities
SCHEDULE 3.5: Title to Assets
SCHEDULE 3.6: Pending Litigation or Proceedings
Involving Seller
SCHEDULE 3.8: Increases in Rates
SCHEDULE 3.15: Contracts and Commitments
SCHEDULE 3.16: Seller's Intellectual Property
SCHEDULE 3.17(a): Seller's Employee Benefit
Plans
SCHEDULE 3.17(d): Seller's Employees
SCHEDULE 3.18: Labor and Employee Relations
SCHEDULE 3.19: Indebtedness
SCHEDULE 3.22: Material Customer Claims
SCHEDULE 3.23: Seller's Rights
Under Noncompetition Obligations
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (as amended and
supplemented from time to time, this "Agreement") is made as of
March 5, 1998, by and among SECURITY SYSTEMS, INC. d/b/a SENTRY
PROTECTIVE SYSTEMS, a Massachusetts corporation with its
principal place of business at 110 Florence Street, Malden,
Massachusetts 02148 ("Seller"), JAMES W. LEES ("Lees") and
EDWARD A. SILVEY ("Silvey"), each having an address in care of
Seller (Lees and Silvey, collectively, the "Stockholders"), and
ALARMGUARD, INC., a Delaware corporation with its principal place
of business at 125 Frontage Road, Orange, CT 06477 ("Purchaser").
WITNESSETH:
WHEREAS, Seller is engaged in the electronic security
(burglar and fire alarm) business primarily in New England under
the tradename "Sentry Protective Systems" and is also engaged in
the uniformed personnel security (guard and patrol) business
primarily in New England under the tradenames Security Systems,
Inc. and S.S.I.; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, certain of the assets used by
Seller in the burglar and fire alarm business primarily in New
England (the "Business"), which Business shall not include
Seller's uniformed guard and patrol business; and
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein, and for other good and valuable consideration
received or to be received as stated herein, the sufficiency of
which is hereby acknowledged, the parties hereto agree as
follows:
1. Assets to be Sold and Purchase Price.
1.1 Assets. Subject to the terms and conditions of this
Agreement and in reliance on the representations and warranties
set forth herein, on the Closing Date (as hereinafter defined),
Seller shall sell, assign and deliver to Purchaser, and Purchaser
shall purchase from Seller, free and clear of all Liens (as
hereinafter defined), all of the assets, properties and rights of
every kind, nature and description, whether tangible or
intangible, of the Business, excluding only the Excluded Assets
(as hereinafter defined), all as the same shall exist on the
Closing Date. Seller represents that all of Seller's tangible
assets used in the Business are set forth on Exhibit A-1 attached
hereto. Seller represents that all of Seller's intangible assets
used in the Business are set forth on Exhibit A-2 attached
hereto. Such assets, properties and rights used in the Business,
excluding only the Excluded Assets, as the same shall exist on
the Closing Date, are referred to herein as the "Assets", and
shall include without limitation the following:
(a) Seller's alarm system lease, monitoring, maintenance
and other service contracts described in Exhibit A-3 attached
hereto and made a part hereof; and
(b) all of Seller's trademarks, service marks associated
with the Business; and
(c) the motor vehicle leases used or usable in connection
with the Business, to the extent same can be assigned, and the
motor vehicles described in Exhibit A-4 and made a part hereof;
and
(d) all of Seller's goodwill associated with the Business,
including without limitation any non-compete agreements or
goodwill rights held by Seller as the result of business
acquisitions or from employment arrangements; and
(e) the use of the name "Sentry Protective Systems" in the
security and alarm industry at all times after the Closing Date;
and
(f) use of the telephone numbers listed in Exhibit A-5 and
made a part hereof and the advertisements used in connection with
the Business placed in the "Yellow Pages," "Yellow Book" or any
similar local periodical, to the extent Seller can confer such
right, including without limitation any contracts for telephone
service; and
(g) Seller's pending contracts for installation of alarm
systems listed on Exhibit A-7 attached hereto and made a part
hereof; and
(h) all central station equipment that is owned or leased
by Seller and utilized in connection with the Business; and
(i) all inventories and supplies of the Business; and
(j) all rights, claims and benefits of Seller under all
contracts, leases, service agreements, supply orders, purchase
orders, bids, quotations, understandings, commitments and other
agreements (including dealer agreements), whether or not written,
including without limitation all accounts receivable of Seller,
in each case in connection with the Business; and
(k) all of Seller's interest in and claims and rights with
respect to all of the copyrights, copyright renewal rights,
trademarks, service marks, logos and trade names (and, in each
case, any applications therefor) related to the Business,
including the name "Sentry Protective Systems" and the goodwill
appurtenant thereto; and
(l) all items of prepaid expense; and
(m) all rights of Seller under or pursuant to all
warranties, representations and guarantees made by suppliers or
other parties affecting the Assets, or by providers of services
furnished to Seller or affecting the Assets, in each case
relating to the Business; and
(n) all licenses, permits, or other authorizations for
operating the Business held by Seller to the extent assignable;
and
(o) all books, records, files and papers, whether in hard
copy or computer format, used in the Business, including without
limitation manuals and data, customer lists, credit files, sales
and advertising materials, promotional literature, market
information, marketing information, information systems, computer
programs and software, sales and purchase correspondence, lists
of present supplies, and copies of all personnel and employment
records for the Seller Employees (as hereinafter defined) used in
or relating to the Assets or the Business (collectively the
"Records"); and
(p) the trade secrets of Seller related to the Business.
1.2 Excluded Assets. The following assets of Seller
(collectively, the "Excluded Assets") are not included in the
Assets: (a) cash and cash equivalents; (b) deposits with third
parties (other than deposits in connection with Assumed
Obligations); (c) any agreement pursuant to which a third party
provides monitoring or maintenance services to customers of
Seller; (d) contracts with customers which are not Customer
Contracts (as defined below); (e) any leases of real or personal
property other than leases of personal property listed on
Exhibit A-4 hereto; (f) the assets (including any vehicles owned
by Seller which Purchaser has determined not to purchase) listed
on Exhibit B-1 hereto; (g) Seller's right to receive payments as
the result of litigation with former customers to which Seller is
not, as of the Closing Date, providing any services; (h) all
interests of Seller in, and all obligations of Seller under, any
Employee Benefit Plans (as hereinafter defined); (i) all assets
of Seller used solely in its uniformed personnel security (guard
and patrol) business, including its contracts, accounts
receivable, goodwill, inventory and other assets including the
corporate name Security Systems Inc. and its trade names
"Security Systems" and "SSI"; (j) all interests of Seller in the
Genesis software provided by ITI, provided, however, that Seller
shall permit Purchaser to utilize such software for a period of
up to one year from the Closing Date without charge or other fee,
except that Purchaser shall reimburse Seller for all fees and
other charges paid to ITI; (k) all interests of Seller in its
radio systems, provided, however, that Seller shall permit
Purchaser to utilize its radio system for a period of up to one
year from the Closing Date without charge, except that Purchaser
shall be liable for all costs of repairing or replacing equipment
used by, or under the control of, Purchaser from and after the
Closing Date; (l) the electrical generator of Seller located in
Malden, Massachusetts; and (m) any interest in the Class C
Contractors License held by Lees.
1.3 Assumed Obligations. At the Closing, Purchaser shall
assume and, subject to all rights of offset, defenses, causes of
action, counterclaims and claims of any nature against third
persons that may be available to Seller in respect of the Assumed
Obligations, agree to satisfy and discharge, as the same shall
become due, all of the liabilities and obligations of Seller (the
"Assumed Obligations") under the contracts, agreements,
commitments and leases of Seller, including but not limited to
the service and monitoring agreements between Seller and its
burglar and fire alarm customers, which are specifically
identified in Exhibit A-3, Exhibit A-4 and/or Exhibit A-2, and
are assigned to Purchaser at Closing, if and to the extent
assignable, but only to the extent any such liabilities and
obligations arise and accrue or are to be performed after the
Closing.
1.4 Excluded Obligations. Purchaser shall not assume or be
responsible for any liabilities, obligations, debts or
commitments of Seller other than the Assumed Obligations.
Without limiting the generality of the immediately preceding
sentence, Purchaser shall not have any obligation to any party to
this Agreement to hire any employee of Seller other than Lees as
a consultant or to pay any employment related expense of Seller.
1.5 Purchase Price. The total purchase price to be paid by
Purchaser to Seller for the Assets (the "Purchase Price") shall
be an amount equal to (i) 48 times Seller's Net Monthly Recurring
Revenue (as hereinafter defined) as of the Closing Date (ii) plus
12 times Seller's Wholesale NMRR (as hereinafter defined) as of
the Closing Date, (iii) plus 40 times Seller's Net Monthly
Recurring Revenue to be derived from the customers constituting
high volume Work in Process as set forth on Exhibit A-7(a) that
is installed within 60 days of the Closing Date, (iv) plus 40
times Seller's Net Monthly Recurring Revenue to be derived from
customers constituting custom Work in Process as set forth on
Exhibit A-7(b) installed by Purchaser or its agents or
representatives, and (v) less the amount of Seller's Deferred
Service Revenue (as hereinafter defined) as of the Closing Date,
plus the fair market value of Seller's inventory on the Closing
Date (valued at 100% of the cost of new and usable inventory and
50% of the cost of used and usable inventory), plus the amount of
Seller's accounts receivable as of the Closing Date as agreed on
prior to the Closing, minus a bad debt reserve for Seller's
uncollectible accounts receivable as of the Closing Date in an
amount agreed on prior to the Closing and minus all deposits held
by Seller for any work or services not yet completed other than
deposits for Work in Process (the aggregate of all additions to,
or deductions from, the Revenue Purchase Price set forth in (v)
shall be referred to herein as the "Working Capital Purchase
Price"). The sum of (i) and (ii) above is referred to herein as
the "Revenue Purchase Price". For purposes of this Agreement,
"Deferred Service Revenue" means amounts billed on or prior to
the Closing Date for prepaid services to be rendered on or after
the Closing Date. All costs of installation of Work in Process
set forth on Exhibit A-7(a) shall be borne solely by Seller. As
used herein, the term net gross margin of Purchaser shall mean
(i) the aggregate installation gross revenue actually billed and
received by the Purchaser less the applicable direct installation
labor cost calculated at the agreed-upon rate of $24.00 per hour,
less direct equipment costs, less the cost of any direct sales
commissions, in each case paid by Purchaser (ii) divided by the
aggregate gross revenue billed and received by Purchaser.
Notwithstanding any other provision herein, the net gross margin
for all installations referred to in Exhibit A-7(b) shall not be
less than 20% and to the extent a net gross margin is less than
20%, Seller will pay Purchaser on the Adjustment Date the
shortfall, if any, necessary to make the net gross margin on all
such installations not less than 20%. The Purchase Price
determined under this Section 1.5 shall be subject to adjustment
as provided in Sections 1.9, 1.10 and 1.11, but, not withstanding
any other provision of this Agreement, the Purchase Price shall
not be reduced to an amount less than $11,000,000.
1.6 Asset Transfer. At the Closing, upon Purchaser's
making of the payment required to be made at the Closing pursuant
to Section 1.8, Seller shall deliver to Purchaser possession of
the Assets and shall further deliver to Purchaser proper
assignments, conveyances and warranty bills of sale sufficient to
convey to Purchaser good and marketable title to the Assets, free
and clear of all liens, mortgages, leases, pledges, conditional
sales agreements, security interests, options, charges, claims,
restrictions and encumbrances of any kind ("Liens"), subject only
to the Assumed Liabilities, as well as such other instruments of
conveyance as may be necessary or appropriate to effect or
evidence the transfers contemplated hereby.
1.7 Allocation of Purchase Price. The Purchase Price
determined under Section 1.5 shall be allocated as set forth on
Exhibit B-2 hereto.
1.8 Payments. (a) Purchaser has previously paid $250,000
to Seller as a deposit on the Purchase Price and Purchaser is
paying Seller an additional $600,000 as additional deposit on the
date hereof. If the Closing fails to occur as a result of Seller
or Stockholder having failed to satisfy a condition set forth in
Section 6 hereof, Seller shall promptly return the full amount of
the deposit to Purchaser.
(b) Purchaser shall make the following payments to Seller
(subject to adjustment as provided herein) at the Closing or on
the Adjustment Date, as applicable, on account of the Purchase
Price determined in accordance with Section 1.5 using the amounts
of Net Monthly Recurring Revenue, Wholesale NMRR and Deferred
Service Revenue certified by Seller on the Closing Date, provided
that solely for purposes of calculating amounts payable on the
Closing Date, the amounts of Net Monthly Recurring Revenue and
Wholesale NMRR to be certified by Seller on the Closing Date
shall be reduced by (i) 50% of the Net Monthly Recurring Revenue
and Wholesale NMRR relating to customers whose oldest invoice
relating to recurring revenue is outstanding more than 90 days
but less than 121 days, and (ii) 100% of the Net Monthly
Recurring Revenue and Wholesale NMRR relating to customers whose
oldest invoice relating to recurring revenue is outstanding for
more than 120 days. The Purchase Price shall be adjusted as set
forth in this Agreement.
(c) On the Closing Date, Purchaser shall pay to Seller by
wire transfer (x) 90% of the Revenue Purchase Price, plus or
minus (y) 100% of the Working Capital Purchase Price, minus (z)
all amounts previously paid to Seller as a deposit.
(d) On the Closing Date, Purchaser shall pay the balance of
the Purchase Price, as adjusted herein to the Escrow Agent
specified in the Escrow Agreement attached hereto as Exhibit C.
On the Adjustment Date, the Seller shall be paid the balance of
the Purchase Price and the Escrow Agent shall pay the Seller and
the Purchaser, pursuant to the terms of the Escrow Agreement, the
amount then held in escrow. If the Purchase Price, as adjusted,
is less than the payment made to Seller pursuant to Section
1.8(c), Seller shall pay to Purchaser, on the Adjustment Date, by
certified or cashier's check or by wire transfer, the amount of
such excess.
1.9 Closing Revenue Adjustment.
(a) The Purchase Price determined under Section 1.5 shall
be adjusted upward or downward, as the case may be, on the date
that is nine months after the Closing Date (the "Adjustment
Date"), by (i) $48 for each dollar that Net Monthly Recurring
Revenue from active customers of Seller on the Closing Date was
greater than or less than the amount of Net Monthly Recurring
Revenue certified by Seller on the Closing Date, and (ii) $12 for
each dollar that Wholesale NMRR from active customers of Seller
on the Closing Date was greater than or less than the amount of
Wholesale NMRR certified by Seller on the Closing Date. Between
the Closing Date and the Adjustment Date, Purchaser shall
determine the Net Monthly Recurring Revenue and the Wholesale
NMRR from active customers on the Closing Date. A customer shall
be considered to be an "active customer" on the Closing Date if
(i) any invoice issued to it by Seller is less than 90 days
overdue and Seller has not received a notice of cancellation, or
(ii) on or before the Adjustment Date, the customer has paid any
invoice for recurring revenue issued by Purchaser after the
Closing Date, or (iii) the customer was not a party to a Customer
Contract (as hereinafter defined) on the Closing Date but has
signed a customer contract with Purchaser before the Adjustment
Date and the customer has paid any recurring revenue invoice
issued by Purchaser after the Closing Date by the Adjustment Date
or (iv) the Customer is at a location for which the Seller
previously provided service and the Customer reactivates such
service and has paid any recurring revenue invoices issued by the
Purchaser after the Closing Date by the Adjustment Date. A
customer shall only be considered other than an active customer
on the Closing Date if (i), on or before the Adjustment Date, the
Purchaser, as a result of non-payment, has canceled service in
writing or has given written notice of cancellation, or (ii), on
the Closing Date, Seller is not providing services for recurring
revenue, unless reactivated pursuant to clause (iv) above.
(b) The Purchase Price shall also be adjusted upward or
downward on the Adjustment Date by $1 for each $1 that Deferred
Service Revenue on the Closing Date was greater than or less than
the amount of Deferred Service Revenue certified by Seller on the
Closing Date. Purchaser shall have the right to verify Seller's
calculation of Deferred Service Revenue after the Closing Date.
(c) For purposes of this Agreement, "Net Monthly Recurring
Revenue" means, as of a given date, the total recurring regular
monthly amounts billed to Seller's commercial or residential
customers who have a direct account with Seller (which customers
shall not include any person or entity that resells any of
Seller's services) with installed systems (billings made other
than on a monthly basis shall be adjusted to the equivalent
monthly amount) under Customer Contracts for electrical
protection, monitoring, closed circuit television, access control
services, guard response services, fire and police panel charges
and equipment lease rental and charges and fire testing, less all
monthly charges incurred by Purchaser after the Closing Date
(charges billed to Purchaser other than on a monthly basis shall
be adjusted to the equivalent monthly amount) for direct wire
telephone lines used to transmit alarm signals, antenna rental
charges for radio frequency alarm systems, answering services,
sales taxes, false alarm charges not rebillable to customers,
guard response costs, city franchise and police panel fees and
charges paid by Purchaser for receiving alarms applicable to such
accounts, if any (collectively, "Charges"). For purposes of this
Agreement, "Wholesale NMRR" means, as of a given date, the total
recurring regular monthly amount billed to Seller's wholesale
accounts pursuant to which Seller provided monitoring services to
entities reselling Seller's services, less Charges. For purposes
of this Section 1.9, Charges shall be determined (A) under
contracts in existence at the Closing Date and (B) from invoices
to pay Charges received by Purchaser or Seller, as the case may
be, prior to the Adjustment Date for the monthly period (or
greater period including the monthly period) in which the Closing
Date occurs.
(d) For purposes of this Agreement, "Customer Contracts"
means valid contracts calling for recurring payments for alarm
system leasing, monitoring or maintenance or other services, at
least 90% of which are in writing and are duly executed by all
purported parties thereto (which, for residential customers shall
mean that at least one of the owners or lessees of the residence
has signed), have an original term of at least one year, and
contain provisions that state that unless either party shall give
the other written notice of intent to terminate, the agreement
shall renew for an additional term of one year, and which further
do not contain terms to the effect that same will terminate, give
rise to a right to terminate or otherwise be at all affected by
the sale of assets contemplated by this Agreement, and contain
clauses limiting the liability of the alarm company or companies
which installed and/or monitor said alarm systems or equipment
which are customary in the industry and which are valid and
enforceable in the jurisdiction whose law governs said contracts.
(e) Notwithstanding any of the foregoing provisions, the
Purchase Price shall not be reduced to an amount less than
$11,000,000.
1.10 Revenue Guarantee Adjustment. The Purchase Price
determined under Section 1.5 shall be further reduced by 48 times
the amount by which Net Monthly Recurring Revenue and by 12 times
the amount by which Wholesale NMRR as of the date that is six
months after the Closing Date (the "Calculation Date") from
active customers on the Closing Date is less than 94% of the Net
Monthly Recurring Revenue and Wholesale NMRR, respectively, from
active customers on the Closing Date, as finally determined under
Section 1.9. A Customer shall be considered an active customer
on the Calculation Date if (i) it was an active customer on the
Closing Date as provided in Section 1.9(a), (ii) any invoice for
recurring revenue is less than ninety days past due, (iii) it
continues to be provided services by Purchaser for which monthly
or recurring revenue is billable, and (iv) Purchaser has not been
given notice of cancellation by the customer. Notwithstanding
the foregoing, a customer whose invoice for recurring revenue is
over ninety days past due shall only be considered other than an
active customer on the Calculation Date if, on or before the
Adjustment Date, the Purchaser as a result of non-payment, has
canceled service in writing or has been given notice of
cancellation. There shall be excluded from such reduction any
account which is canceled due to (i) a notice from Purchaser of
an increase, or due to an actual increase, in rates by Purchaser,
or (ii) Purchaser failing to provide monitoring or other services
consistent with Seller's past practices and staffing levels for
any period of time, or (iii) a customer entering into an
equivalent contract with an affiliate (as hereinafter defined) of
Purchaser. There shall also be excluded from such reduction any
customer who ceases being an active customer of Purchaser but
again becomes an active customer of Purchaser or its affiliate
prior to the Adjustment Date (net of any costs or expenses of the
Purchaser or its affiliate entering into new contracts). Seller
shall make a payment in the amount of such adjustment, if any, on
the Adjustment Date in accordance with Section 1.8. As used
herein, an "affiliate" shall be defined as an entity controlling,
controlled by or under common control with another entity.
Purchaser shall provide Seller and Lees with reasonable notice of
each account for which Purchaser receives notice of intent to
cancel prior to the time Purchaser terminates service to that
account, and shall further cooperate with Lees in the timely
making of reasonable attempts to save any such accounts.
1.11 Accounts Receivable. Unless otherwise specified by the
Customer in writing, payments received from customers of Seller
by Purchaser after the Closing Date shall be applied to the
oldest invoice outstanding. Purchaser shall have the right to
verify the amounts of the accounts receivable of Seller as of the
Closing Date after the Closing Date. Each of Seller and
Purchaser shall have the right to verify amounts received by
Purchaser or Seller, respectively, for payment of Seller's
accounts receivable by audits conducted by Seller's or
Purchaser's respective accountants conducted at reasonable
intervals. Prior to the Adjustment Date, Purchaser shall provide
to Seller an accounting every week after the Closing as to the
accounts receivable received by Purchaser. On the Adjustment
Date, the Purchase Price shall be reduced to the extent of the
face value of any of the accounts receivable purchased by
Purchaser from Seller at Closing which are not collected by
Purchaser prior to the Adjustment Date, less the bad debt reserve
referred to in Section 1.5, and shall further cooperate with Lees
in the timely making of reasonable attempts to save any such
account.
1.12 Best Efforts. Purchaser shall use its best efforts to
provide monitoring and repair services to Seller's former
customers and collect its accounts receivable in accordance with
ordinary and customary practices in the alarm industry.
1.13 Taxes. Purchaser shall pay all sales, use, transfer,
conveyance, registration, stamp and VAT or other similar taxes or
duties (collectively "Transfer Taxes") arising out of or incurred
in connection with the transfer of the Assets pursuant to this
Agreement.
2. Assumption of Liabilities. Purchaser shall assume no
liabilities or obligations of Seller other than (x) the Assumed
Obligations; and (y) the liabilities and obligations arising out
of the operation of the Assets after the Closing Date ((x) and
(y) collectively, the "Assumed Liabilities"). On and after the
Closing Date, (a) Seller shall have no obligations or liabilities
with regard to Assumed Liabilities; (b) Seller shall discharge,
when and as they become due and payable, all liabilities and
obligations of Seller and/or the Business other than the Assumed
Liabilities; and (c) Purchaser shall have no obligations or
liabilities with regard to any obligations or liabilities of
Seller or the Business, whenever incurred or arising, other than
the Assumed Liabilities.
3. Representations and Warranties of Seller and
Stockholders. Subject to the limitations set forth in Sections
1.5, 1.9(e) and 9.1(a) hereof, in order to induce Purchaser to
enter into this Agreement and to consummate the transactions
contemplated hereby, Seller and each of the Stockholders, jointly
and severally, hereby represent and warrant the following to
Purchaser:
3.1 Incorporation, Powers and Qualification. Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Massachusetts and is qualified to
do business as a foreign corporation in those states in which
Seller is required to be so qualified. Seller has all requisite
corporate power to execute, deliver and perform this Agreement
and to own the Assets and to carry on its businesses as now being
conducted and to own, lease or operate the properties and assets
(including without limitation the Assets) it now owns, leases or
operates and holds all permits, licenses, orders and approvals of
all federal, state and local governmental or regulatory bodies
necessary or required therefor. Seller has no subsidiaries. The
ownership of all of the issued and outstanding securities of
Seller is as set forth on Schedule 3.1 hereto. Seller's
principal business is not the sale of merchandise from stock.
3.2 Authority. The execution and delivery of this
Agreement and each of the other documents contemplated hereby by
Seller and the performance by Seller of its obligations hereunder
and thereunder have been approved by all necessary corporate
action, and no other proceedings on the part of Seller or its
shareholders will be necessary to effect or approve the
transactions contemplated by this Agreement or any other document
contemplated hereby. Except with regard to the vehicle leases
described in Exhibit A-4, and the use of the telephone numbers,
facsimile number and advertising referred to in Section 1.1(f),
no filing, notice or recordation with, or consent or approval
from any governmental agency or any third party is required (a)
in order to permit Seller to enter, or as a result of Seller
entering, into this Agreement or (b) in order for Seller to
consummate, or as a result of Seller's consummation or
performance of, this Agreement or any transaction contemplated
hereby. This Agreement has been executed and delivered by
Seller. This Agreement and each of the other documents to be
delivered pursuant hereto are and will be the legal, valid and
binding obligations of Seller, enforceable against Seller in
accordance with their respective terms.
3.3 No Conflict. Neither Seller's execution or delivery of
this Agreement, nor Seller's consummation of the transactions
contemplated hereby, nor Seller's fulfillment of the terms
hereof, nor Seller's compliance with the terms and provisions
hereof, will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under or create
any liability under (a) Seller's certificate of incorporation or
by-laws, (b) any agreement or instrument to which Seller is a
party or by which it or any of its properties is bound or which
would in any way have an adverse effect on the Assets or
Purchaser's enjoyment of any of the Assets or (c) any law,
regulation or ordinance, injunction, decree, order or judgment
applicable to or binding upon Seller.
3.4 Financial Information. (a) To the best of Seller's or
Stockholders' knowledge, Seller has no liabilities or obligations
of any nature (contingent or otherwise) except those shown in the
Financial Statements (as defined below). Seller has delivered
to Purchaser (i) financial statements for Seller showing Seller's
balance sheets as of, and the results of operations and
statements of changes in equity and cash flows for the years
ended, December 31, 1994,1995, and 1996, each audited by Robert
Ercolini & Company, Boston, Massachusetts and (ii) additional
unaudited financial statements showing Seller's balance sheet as
of, and the results of operations and cash flows for the nine
months ended, September 30, 1997 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles
consistently applied and do not omit any information necessary to
make the information contained therein not misleading. Seller
has no undisclosed liabilities, fixed or contingent, matured or
unmatured, which individually or in the aggregate have or would
have a material adverse effect on the Business of Seller.
(b) To the best of Seller's or Stockholders' knowledge,
since the date of the latest Financial Statement, there has been
no material adverse change in the condition, financial or
otherwise, of Seller, or its assets, liabilities or business
prospects or any transaction outside the ordinary course of
business, any termination or waiver of rights material to the
conduct of Seller's business, any unpaid commitment to spend in
excess of $50,000 for capital improvements, any material increase
in employee wages or consulting fees, if any, or any change in
accounting methods.
(c) To the best of Seller's or Stockholders' knowledge, all
of the Records and information in Seller's possession which have
been or will be revealed to Purchaser for Purchaser's due
diligence purposes and for purposes of determining any
adjustments to the Aggregate Purchase Price or otherwise pursuant
to this Agreement are true, correct and complete in all material
respects.
(d) The amounts of Net Monthly Recurring Revenue, Wholesale
NMRR and Deferred Service Revenue as of the Closing Date
certified by Seller pursuant to Section 1.9(a) are true and
correct in all material respects.
3.5 Ownership of Property. Except as set forth on
Schedule 3.5 and attached hereto and made a part hereof, Seller
has, in all material respects, good and marketable title to the
Assets free and clear of all Liens of any nature whatsoever. All
of the property used in the conduct of the Business is owned by
Seller as an Asset. Except as set forth on Schedule 3.5, the
Seller does not own or use any Internet domain name. At the
Closing, Seller shall deliver to the Purchaser good and
marketable title to the Assets free and clear of all Liens of any
nature whatsoever. The Business has been conducted under the
names set forth on Schedule 3.5 and at the locations set forth on
Schedule 3.5 for the lesser of five years or since its dates of
incorporation. Except as set forth in Schedule 3.5, Seller has
not acquired the assets of another business during the last five
years. Seller does not own any real property.
3.6 Litigation; Liabilities.
(a) Except as set forth on Schedule 3.6 attached hereto and
made a part hereof, Seller is not a party to or threatened with,
nor is there any event which may give rise to, any litigation or
governmental or other proceeding relating to or in connection
with the Business in which any person or entity incurred any
Damages (as hereinafter defined) prior to the Closing Date.
(b) The amounts to be paid to Seller on the Closing Date
and thereafter under this Agreement are sufficient to satisfy in
full all of Seller's obligations to third parties, whether
currently liquidated or not.
(c) Seller is not in default of any agreement, nor will the
consummation of the transactions contemplated by this Agreement
result in such a default, the continued existence of which is
material to the continued operation of Seller's business
(including without limitation the Business).
3.7 Compliance; Hazardous Substances. (a) Seller is
operating and has operated the Business in compliance with all
federal, state and local laws (including alarm company licensing
or permit laws), ordinances, regulations and orders. Without
limiting the generality of the immediately preceding sentence,
Seller is in compliance with all employment and employee benefit
laws.
(a) Seller has not, nor has any third party, engaged in the
generation, use, manufacture, treatment, transportation, storage
or disposal of any Hazardous Substance (as defined below) on or
from any site owned or occupied (now or previously) by Seller.
Neither Seller nor any third party has received, nor is Seller
aware of any basis for, any notice of violation of any Applicable
Environmental Law (as defined below) with respect to any site
owned or operated, now or previously, by Seller.
(b) "Hazardous Substance" means any substance, chemical or
waste that is listed as hazardous, toxic or dangerous under any
Applicable Environmental Law, and any petroleum products.
(c) "Applicable Environmental Law" means any federal, state
or local law, regulation or ordinance which prohibits, regulates
or limits the use of hazardous, toxic or dangerous materials or
pollution of air or water or the destruction of natural
resources.
3.8 Customer Lists. Attached hereto as Exhibit A-3 is, to
the best of Seller's knowledge, a true and correct list of all
Seller's customers as of the date of this Agreement, representing
no less than $500,000 of Net Monthly Recurring Revenue, that are
parties to Customer Contracts. The list shows as to each
customer: name, billing address, recurring rate and billing
cycle. Except as set forth on Schedule 3.8, there has not been
any general increase in rates charged to customers by Seller
since January 1, 1997.
3.9 Parties. Except as set forth in Section 3.10, no
person other than Seller has any right to obtain any payment with
respect to the sale of Seller's Assets as contemplated herein.
3.10 No Broker. Except for the fee payable to Deerfield
Partners LLC, as to which Seller is solely liable, Seller
represents that it has not dealt with any broker in connection
with the transactions contemplated by this Agreement.
3.11 Material Statements. No representation or warranty
contained in this Agreement, or any document delivered to
Purchaser by Seller pursuant hereto or in connection herewith,
contains or will contain an untrue statement of material fact or
omits to state any material fact necessary to make any statement
of fact contained herein or therein not misleading, where a true
statement or accurate disclosure would have a material adverse
effect on the investment decision of the Purchaser to acquire the
Business.
3.12 Tax Matters. All federal, state, local and foreign tax
returns and tax reports required to be filed at any time with
respect to the business (including without limitation the
Business) and/or assets (including without limitation the Assets)
of Seller have been filed, all of the foregoing are true, correct
and complete, and all amounts shown as owing thereon have been
paid. Seller has delivered to Purchaser true and correct copies
of Seller's federal, state and local tax returns for the last two
years.
3.13 Alarm Systems. To the best of Seller's or
Stockholders' knowledge, each of the alarm systems of Seller's
customers designed, installed, partially installed, or contracted
for installation by Seller prior to the Closing Date, and each
supervisory alarm panel owned or operated by Seller as of the
Closing Date, has been, and will, as of the Closing Date (where
applicable), be in good working order and condition, ordinary
wear and tear, subscriber negligence and subscriber non-use
excepted, and (where applicable) will have been designed,
installed and maintained, and will be operating and operated in
accordance with good and workmanlike practices which are or were
customary in the industry in the locality where the installation
is located at the time of design, installation or maintenance.
With respect to those alarm systems and panels where the
applicable contract calls for it, each such alarm system will be
designed, installed, partially installed or contracted for
installation by Seller substantially in accordance with the
specifications or standards of Underwriters Laboratories, local
authorities and applicable telephone operating company
requirements. All alarm systems designed, installed or partially
installed by Seller prior to the Closing Date will conform in all
material respects to the contracts pursuant to which they were
designed or installed, and no design, installation or partial
installation will have been made by Seller which was in violation
of any applicable law, code or regulation when designed or
installed. Seller has not installed any alarm system or panel
where the applicable contract calls for specifications or
standards of the Insurance Services Office or Factory Mutual
Insurance Company.
3.14 Condition of Assets Upon Transfer. To the best of
Seller's or Stockholders' knowledge, all of the Assets, including
without limitation tangible personal property, and improvements,
fixtures and appurtenances on or to any real property leased by
Seller and included in the Assets, are in good operating
condition, order and repair, ordinary wear and tear and customer
abuse and/or neglect excepted, are suitable for the purposes for
which they are presently being used, and perform in all material
respects in accordance with the purposes for which they were
designed to be used. All the Assets have been operated and
maintained in conformity in all material respects with all
applicable laws, ordinances, regulations, warranties, orders and
other legal and safety requirements relating thereto. To the
best of Seller's or Stockholders' knowledge, the Assets have no
material defects, or needed material repairs, and are usable in
the ordinary course of the Business.
3.15 Contracts and Commitments. To the best of Seller's or
Stockholders' knowledge, each Assumed Obligation is valid and in
effect and no other party thereto is in default. To the best of
Seller's or Stockholders' knowledge, Seller is not in default
under any such Assumed Obligation, has received no notice of
default thereunder, and no event has occurred or is expected to
occur which (after notice and lapse of time or both) would become
a breach or default under, or otherwise permit modification,
cancellation, acceleration or termination of, any such Assumed
Obligation. Seller has delivered to Purchaser a true, complete
and correct copy of each written Assumed Obligation to which
Seller is a party and any amendments thereto and an accurate
description of every oral Assumed Obligation to which Seller is a
party. Attached hereto as Schedule 3.15 is a true and complete
copy of each form of customer contract used by Seller at any time
during the past ten years.
3.16 Intellectual Property. "Intellectual Property"
includes trademarks (whether or not registered), trade names,
service marks (whether or not registered), copyrights (whether or
not registered), trademark and service mark registrations (and
pending applications therefor), computer software (owned by
Seller, or authored or developed for Seller by any of its
employees or agents), licenses, sublicenses, and franchise
agreements of Seller, and all formulae, processes, techniques,
confidential business information, designs, trade secrets, and
other proprietary information and technology used in the
Business. Schedule 3.16 sets forth a complete list of all such
Intellectual Property. Except as disclosed in Schedule 3.16,
Seller has not granted any outstanding licenses or other rights
to Intellectual Property, and Seller is not liable, nor has
Seller made any contract or arrangement whereby Seller may become
liable, to any person or entity for any royalty or other
compensation for the use of any Intellectual Property. Except as
disclosed in Schedule 3.16, none of the rights of Seller in, to
or under any Intellectual Property will be adversely affected by
the consummation of the transactions contemplated hereby. Use of
the Intellectual Property in the Business in the manner conducted
by Seller prior to the Closing will not infringe any patent or
copyright of any third party, or constitute a misappropriation of
the trade secrets or other proprietary rights of any third party.
3.17 Employee Benefit Plans; Wages and Benefits of Seller
Employees. (a) All of the employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), multi-employer plans (as defined in
Section 4001(a)(3) of ERISA), and compensation programs and
employment arrangements which are maintained, or contributed to,
by Seller for the employees of the Business are listed in
Schedule 3.17(a) (collectively, "Employee Benefit Plans"). All
obligations of Seller to contribute to Employee Benefit Plans on
behalf of employees for all calendar years prior to 1997 have
been satisfied, and all obligations of Seller to contribute to
Employee Benefit Plans on behalf of such employees for the period
ending on the Closing Date will be satisfied by Seller.
(b) Except as listed in Schedule 3.17(a), Seller neither
maintains nor sponsors, and is not required to make contributions
to, any written or oral pension, profit sharing, thrift, deferred
compensation, bonus, incentive, stock purchase, severance,
hospitalization, insurance or other similar plan, agreement, or
arrangement relating to employee benefits for any employee or to
former employees of Seller who were employed in connection with
the Business.
(c) The Employee Benefit Plans conform to and have been
administered in material compliance with their terms and
applicable laws and regulations (including without limitation
ERISA), and no condition exists with respect to any Employee
Benefit Plan that could have a material adverse effect on the
Assets or Purchaser.
(d) Schedule 3.17(d) sets forth, for each Seller Employee,
his or her title, his or her current wages and benefits
(including current vacation time per year), his or her years of
service, and all other terms and conditions of his or her
employment.
3.18 Labor and Employee Relations. Seller is not a party to
any collective bargaining agreement nor are its employees members
of a collective bargaining unit or union, nor, to the best of
Seller's knowledge, has there been any recent unionization
activity, and Seller has complied with all laws relating to the
employment of labor, including provisions relating to wages,
hours, collective bargaining, health and safety, and the payment
of social security, withholding and similar taxes, and is not
liable for any arrears of wages or any taxes or penalties for
failure to comply with such laws, where, in any such case, the
violation of which or liability for which would have a material
adverse effect on the Assets. Except as described in
Schedule 3.18, no employee of the Business has given any notice
or made any threat, or otherwise revealed an intent, to cancel or
otherwise terminate his or her relationship with Seller and all
employees of the Business are terminable at will by Seller, and
all employees of the Business will be free of all employment
obligations to Seller and will be free to become at will
employees of Purchaser.
3.19 Indebtedness. Except as set forth in Schedule 3.19,
Seller does not have (a) any obligations, whether or not secured
by any or all of the Assets, for money borrowed or under any
guarantee, (b) any agreements or arrangements to borrow money or
to enter into any such guarantee, or (c) any agreements or
commitments to enter into any of the foregoing agreements or
guarantees.
3.20 Books and Records. The Records, including without
limitation the books of account and other financial corporate
records, relating to the Business that are not Excluded Assets
are complete and correct and are maintained in accordance with
good business practices or generally accepted accounting
principles, consistently applied, as applicable.
3.21 Powers of Attorney. No person has any power of
attorney to act on behalf of Seller in connection with any of the
Assets or the Business other than such powers to so act as
normally pertain to the officers of a corporation.
3.22 Customer Claims Insurance. Seller maintains in effect
insurance covering its assets and business (including without
limitation the Assets and the Business) and any liabilities
relating thereto in amounts customarily carried by persons or
organizations conducting similar businesses. Except as set forth
on Schedule 3.6 or Schedule 3.22, there have been no material
customer claims against Seller relating to or in connection with
the Business during the past six years, no such claim is
currently pending, and there is no basis for any such claim.
3.23 Non-Compete Agreements/Goodwill Rights. Except as set
forth on Schedule 3.23, Seller has not entered into or become
bound by any non-compete agreements or acquired any goodwill
rights as the result of business acquisitions or employment
agreements.
3.24 Limitations. Notwithstanding any of the foregoing
provisions, no warranty or representation of the Seller or the
Stockholders set forth herein shall be construed to have been
written, agreed to or paid for for the benefit of any third party
whatsoever, nor should any such warranty or representation be
construed as a waiver, abrogation or release of any limitation of
liability contained in any alarm monitoring, maintenance, repair,
service or installation contract entered into between Seller and
any customer of Seller prior to the Closing.
4. Representations and Warranties of Purchaser. Purchaser
hereby represents and warrants the following to Seller:
4.1 Incorporation, Powers and Qualification. Purchaser is
a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware, and Purchaser
is qualified to do business in the states of Rhode Island,
Massachusetts and Connecticut. Purchaser has all requisite
corporate power to carry on its business as it is now conducted
and to own, lease or operate the properties and assets it now
owns, leases or operates.
4.2 Authority. The execution and delivery of this
Agreement by Purchaser and the performance by Purchaser of its
obligations hereunder have been approved by all necessary
corporate action, and no other proceedings on the part of
Purchaser or Purchaser's stockholders will be necessary to effect
or approve the transactions contemplated by this Agreement. No
filing, notice or recordation with, or consent or approval from
any governmental agency or any third party is required (a) in
order to permit Purchaser to enter, or as a result of Purchaser
entering, into this Agreement or (b) in order for Purchaser to
consummate, or as a result of Purchaser's consummation or
performance of, this Agreement or any transaction contemplated
hereby. This Agreement has been executed and delivered by
Purchaser. This Agreement and each of the other documents to be
executed and delivered by Purchaser pursuant hereto are and will
be the legal, valid and binding obligations of Purchaser,
enforceable against Purchaser in accordance with their respective
terms subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally from time to time in effect, and subject to any general
principles of equity, including without limitation equitable
principles limiting the right to obtain specific performance of
Purchaser hereunder or thereunder.
4.3 No Conflict. Neither the execution nor the delivery of
this Agreement, nor Purchaser's consummation of the transactions
contemplated hereby, nor Purchaser's fulfillment of the terms
hereof, nor Purchaser's compliance with the terms and provisions
hereof, will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under or create
any liability under (a) Purchaser's certificate of incorporation
or by-laws, (b) any agreement or instrument to which Purchaser is
a party or by which it or any of its properties is bound, or (c)
any law, regulation or ordinance, injunction, decree, order or
judgment applicable to or binding upon Purchaser.
4.4 No Broker. Purchaser has not dealt with any broker in
connection with the transactions contemplated by this Agreement.
4.5 Material Statements. No representation or warranty
contained in this Agreement, or any document delivered to Seller
by Purchaser pursuant hereto or in connection herewith, contains
or will contain an untrue statement of material fact or omits to
state any material fact necessary to make any statement of fact
contained herein or therein not misleading.
5. Pre-Closing Covenants.
5.1 Conduct of Business. From the date of this Agreement
to the Closing, Seller will operate the Business only in the
ordinary course and substantially in the same manner as presently
conducted, maintain the Records in substantially the same manner
as presently maintained and preserve the relationships of the
Business with its material suppliers and customers, and, in
particular, Seller, without the prior written consent of
Purchaser, will not, with respect to the Business,:
(a) cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(b) be in default under any material contract, agreement,
commitment or undertaking of any kind to which any Seller is a
party or by which any of its assets or properties (including
without limitation any of the Assets) are bound, where such
default could have a material adverse effect on the Business or
the Assets;
(c) violate or fail to comply with all laws, regulations
and rules applicable to it or its properties or business
(including without limitation the Business), or fail to maintain
in effect or its good standing under all permits and licenses
necessary to conduct the Business, where such violation or
failure could have a material adverse effect on the Business or
the Assets;
(d) sell, transfer or otherwise dispose of, or agree to
sell, transfer or otherwise dispose of, any of its assets,
properties or rights, including without limitation inventories,
of the type to be included in the Assets or cancel or otherwise
terminate, or agree to cancel or otherwise terminate, any debts
or claims, except in the ordinary course of business;
(e) except in the ordinary course of its business, make or
permit any amendment or termination of any material contract,
agreement or license to which it is a party or by which it or any
of its assets or properties (including without limitation any of
the Assets) are subject;
(f) except in the ordinary course of business, increase or
agree to increase the rate of compensation payable or to become
payable to any of its employees, or adopt any new, or make any
increase in, any employee benefit plan, payment or arrangement
made to, for or with any Seller's employees;
(g) except for a capital expenditure made in the ordinary
course of Seller's dealer program, make any expenditure,
commitment or accrual for the purchase, acquisition, construction
or improvement of a capital asset related to the Business, which
in any event, equals or exceeds individually or in the aggregate
$50,000;
(h) make any change in the relationship or course of
dealing between Seller and its material suppliers or customers
which could have a material and adverse effect on the Business or
prospects of any Seller;
(i) increase or decrease any customer rates other than in
the ordinary course of the Business;
(j) enter into or assume any pledge or other title
retention agreement or permit any Lien to attach upon any of the
Assets;
(k) take any action that results in any of its
representations or warranties set forth in this Agreement
becoming untrue (including the accuracy of the Schedules hereto),
in Seller's inability to satisfy any of the conditions to
Closing, or in any of the Assets becoming materially less
valuable than on the date of this Agreement;
(l) fail promptly to advise Purchaser in writing of the
occurrence of any matter or event that is material to the
Business, the Assets, or to Seller's ability to satisfy any of
the conditions to Closing or the representations or warranties of
Seller in this Agreement;
(m) fail to maintain and/or repair any tangible assets
included in the Assets in accordance with good standards of
maintenance and as required in any leases or other agreements
pertaining thereto; and/or
(n) merge, consolidate or agree to merge or consolidate
with or into any other corporation or entity.
Notwithstanding the foregoing, Seller may acquire prior to
the Closing, on terms and conditions previously disclosed to
Purchaser, certain assets and alarm monitoring accounts from (i)
U.S. Protective Systems, Inc., (ii) McGinn Smith and (iii) JMS
Security Inc..
5.2 Insurance. Seller shall maintain or cause to be
maintained, in full force and effect, through the Closing Date,
all of its insurance policies unless replaced by substantially
comparable insurance coverage. Seller shall promptly advise
Purchaser of any fire, accident or other casualty occurring on or
before the Closing Date.
5.3 Employee Meetings. Prior to the Closing Date,
representatives of Purchaser shall be entitled to hold an initial
meeting with each employee of Seller (such employees being
referred to herein as the "Seller Employees"), upon reasonable
notice to Seller, to interview such Seller Employees and explain
and answer questions about the conditions, policies and benefits
of any potential employment by Purchaser at which a
representative of Seller shall be present. Thereafter, until the
Closing, Seller shall cooperate with Purchaser in communicating
to the Seller Employees any additional information concerning any
potential employment by Purchaser that the Seller Employees may
seek, or which Purchaser may desire to provide, and during normal
working hours shall allow such additional meetings by
representatives of Purchaser with the Seller Employees as
Purchaser may reasonably request. Seller shall be entitled to
have one or more representatives attend all such meetings.
Nothing contained in this Agreement shall indicate or in any way
be construed as an offer by Purchaser to employ or otherwise
retain the services of any Seller Employee at any time.
5.4 Access to Properties. Purchaser, by authorized
representatives designated by Purchaser, shall have the right to
examine the properties, books and accounts of Seller's Business
at any time prior to the Closing Date during regular business
hours upon twenty-four (24) hours' prior notice to the Seller.
5.5 Confidentiality; No Disclosure. Each party hereto
shall keep confidential and shall not divulge any data or
information it obtains regarding any other party hereto. No
party hereto will make any public announcement of the
negotiations among the parties related to this Agreement, or the
transactions contemplated hereby, except as may be required by
law. The parties agree that they shall each use best efforts to
advise and confer with each other prior to the issuance of any
reports, statements or press releases pertaining to this
Agreement or the transactions contemplated hereby.
6. Conditions Precedent to the Closing.
6.1 Conditions Precedent to the Obligations of Purchaser.
The obligations of Purchaser under this Agreement are subject to
the satisfaction of each of the following conditions except to
the extent that (i) the failure to satisfy any such condition
would not have a material adverse effect on the Business or the
Purchaser or (ii) any of such conditions are waived by Purchaser.
6.2 Representations and Warranties True as of Closing.
Each of the representations and warranties of Seller,
Stockholders and Purchaser contained in this Agreement shall be
materially true and correct when made and on and as of the
Closing Date as if then made, except to the extent that such
representations and warranties are expressly made as of a
specified date and, as to such representations and warranties,
the same shall be true and correct as of such specified date. At
the Closing, Purchaser shall have been furnished with a
certificate executed by Seller with respect to the accuracy of
such representations and warranties as of the Closing Date as if
then made and to the fulfillment of the conditions stated in this
Section 6 to the extent that such conditions are precedent to the
obligations of Purchaser.
6.3 Obligations, Covenants, Agreement and Conditions
Performed. Seller shall have performed all material obligations
required to be performed by it under this Agreement at or prior
to the Closing Date, and Purchaser shall have received a
certificate signed by the chief executive officer of Seller, to
that effect.
6.4 No Material Change. There shall have been no material
adverse change in the business (including without limitation the
Business), property or affairs of Seller between the date of this
Agreement and the Closing Date.
6.5 Delivery of Closing Documents. Purchaser shall have
received the documents described in Section 7.2.
6.6 No Actions, etc. There shall be no action pending or
threatened before any court or other governmental authority which
seeks to (i) invalidate or set aside, in whole or in part, this
Agreement or any of the agreements contemplated hereby, (ii)
restrain, prohibit, invalidate or set aside, in whole or in part,
the consummation of the transactions contemplated hereby or
thereby or (iii) obtain material damages in connection herewith
or therewith.
6.7 Necessary Consents. Seller shall have obtained the
consent in writing of all necessary persons to the transactions
contemplated by this Agreement, including without limitation the
Bill of Sale and/or such amendments or modifications of such
documents as may be required in order that the purchase of the
Assets hereunder will not result in the termination of, or any
default under, any contracts, agreements, obligations, leases,
permits or licenses transferred to Purchaser pursuant to this
Agreement, except such consents, amendments or modifications
which if not obtained will not have a material adverse effect on
Purchaser's ability to operate the Business after the Closing
Date, as determined in Purchaser's sole discretion.
7. Closing.
7.1 The closing of the purchase and sale of the Assets
provided for in this Agreement (the "Closing") shall take place
at the offices of Robinson & Cole LLP, Financial Centre,
Stamford, Connecticut, on or before March 16, 1998, at 10:00 A.M.
local time or at such other date, time and place as the parties
shall mutually agree.
7.2 At the Closing, the Purchaser shall (i) make the
payments required to be made on the Closing Date and (ii) deliver
to Seller evidence of insurance maintained by Purchaser to insure
personal injury and property damage claims arising from the
operation of the Business subsequent to the Closing, which
insurance shall provide coverage of at least $1,000,000 per
person for personal injury and an aggregate limit of not less
than $10,000,000 for personal injury or property damage. Seller
shall execute and deliver the items called for above and the
following:
(a) Non-Compete Agreements in the form of Exhibit E
attached hereto, signed by Seller, James Lees and Edward Silvey;
and
(b) An Assignment of all written contracts with customers,
customer orders and all other customer records in form acceptable
to Purchaser; and
(c) A General Bill of Sale and Assignment for the Assets in
form acceptable to Purchaser (the "Bill of Sale"); and
(d) a five year lease from Non Vista Mare Corp. to
Purchaser, in form and substance satisfactory to Purchaser, for
rental payments which do not exceed Seller's payments under its
existing lease of such premises, of Seller's premises located at
Malden, Massachusetts; and
(e) The Certificates of Net Monthly Recurring Revenue,
Wholesale NMRR and Deferred Service Revenue, as called for in
Section 1.9(a); and
(f) An opinion of counsel to Seller in the form of
Exhibit F attached hereto; and
(g) A good standing certificate regarding Seller of recent
date from the jurisdiction where it is incorporated and from each
other jurisdiction where Seller is qualified to do business; and
(h) An incumbency certificate of Seller; and
(i) A certified copy of the resolutions adopted at a
meeting or by written consent by the Board of Directors and, if
applicable, the shareholders of Seller authorizing the execution
and delivery by Seller of this Agreement and all related
agreements and the consummation of the transactions contemplated
hereby; and
(j) a certificate signed by James Lees, an authorized
officer of Seller, to the effect that the representations and
warranties of Seller made herein are true and correct as of the
Closing Date and that Seller has performed in all material
respects all of its pre-closing commitments hereunder; and
(k) All consents obtained by Seller pursuant to
Section 6.7; and
(l) Tax clearance letters for Seller from the Massachusetts
Department of Revenue Services with respect to the sales and use
tax and the corporation business tax; and
(m) Evidence of the repayment and termination of all
Seller's obligations to State Street Bank and all other lenders
holding a security interest in all or part of the Assets in form
and substance satisfactory to Purchaser in its sole discretion,
including without limitation UCC-3 termination statements with
respect thereto; and
(n) A consulting agreement between Lees and Purchaser in
the form of Exhibit D attached hereto and made a part hereof; and
(o) Updated Schedules and Exhibits to this Agreement dated
as of the Closing Date; and
(p) Such other documents as Purchaser reasonably requires
to consummate the transactions contemplated in this Agreement.
7.3 Liquidated Damages. Seller and the Stockholders
acknowledge and agree that its or their sole remedy arising out
of or related to Purchaser's failure or refusal to consummate the
transactions contemplated by this Agreement at the Closing will
be limited to the value of the deposit or deposits held by
Seller.
8. Post Closing.
8.1 Warranties and Representations. The respective
representations and warranties of Seller, the Stockholders and
Purchaser contained herein shall survive the Closing for a period
of one (1) year, except that all representations and warranties
of Seller relating in any way to taxes shall survive the Closing
for the longer of (a) five (5) years and (b) the last expiring
applicable statute of limitations.
8.2 Seller's Obligations. Seller will expeditiously after
the Closing pay or perform all liabilities and obligations of
Seller which are outstanding on the Closing Date and are not
Assumed Liabilities, including without limitation all liabilities
and obligations that arise after the Closing Date.
8.3 State Filings. Seller shall, to the extent not
completed prior to the Closing Date, file, or cooperate with
Purchaser in filing, any notices required under applicable state
law relating to the sale of Seller's assets and shall send a copy
of any response received from any state or any other governmental
authority to Purchaser upon receipt.
8.4 Assumption of Obligations. To the extent that any of
the Assumed Obligations are not assignable without the consent of
another party, Seller and Purchaser each agree to use reasonable
efforts to obtain such consent to the assignment thereof to
Purchaser. If such consent shall not be obtained for any Assumed
Obligation, Seller and Purchaser shall make suitable
arrangements, without cost to Purchaser, whereby Purchaser may
nevertheless enjoy the benefits and rights of Seller and perform
the obligations of Seller thereunder.
8.5 Access to Information. For a period of five (5) years
after the Closing Date, Seller shall afford to representatives of
Purchaser, including its counsel and auditors, upon reasonable
prior notice during normal business hours, access to any and all
information and written materials in the possession or control of
Seller relating to the Business and not in the possession of
Purchaser.
8.6 Use of Trade Names. From and after the Closing Date,
Seller shall not use the name "Sentry Protective Systems" or any
derivation thereof or any similar names in or in connection with
the security or alarm industry, without the prior written consent
of Purchaser.
8.7 Mail and Communications. After the Closing, Seller
will promptly deliver to Purchaser the original of any mail or
other communication received by Seller pertaining to the Assets
or the Business with respect to periods commencing on or after
the Closing Date.
8.8 Telephone Numbers. After the Closing, Seller waives
its rights to use the telephone and facsimile numbers and
advertising materials referred to in Section 1.1(g) and consents
to Purchaser's right to use such numbers and advertising in
connection with the Business, and Seller shall provide reasonable
assistance to Purchaser for it to retain the use of such numbers
and advertising.
8.9 Employee and Other Accounts. Purchaser shall make
available its standard employee discount in effect from time to
time to all employees of Seller employed by Purchaser. In
addition, Purchaser agrees to provide alarm monitoring service
without charge for a period of up to five years to twelve
customers to be specified by Lees; provided, however, that each
such customer enter into Purchaser's standard alarm monitoring
contract.
9. Indemnification.
9.1 Indemnification by Seller and Stockholders.
(a) Claims. Seller and each of the Stockholders hereby
severally and jointly agree to indemnify and defend Purchaser and
each of Purchaser's officers, directors, employees and agents
(individually and collectively, an "Indemnified Person") against,
and to hold each Indemnified Person harmless from, any and all
damages, losses, liabilities, costs and expenses, including
without limitation reasonable attorneys' fees and costs
(collectively "Damages"), incurred or suffered by any Indemnified
Person, arising out of or related to (i) subject to Section 8.1,
any misrepresentation or breach of any warranty, covenant or
agreement made or to be performed by Seller or the Stockholders
in or pursuant to this Agreement or any other document or
agreement delivered in connection herewith or (ii) the operation
of any of Seller's businesses (including without limitation the
Business) or any portion thereof prior to the Closing Date or
(iii) any obligations or liabilities of Seller (including those
arising pursuant to this Agreement) other than Assumed
Liabilities or (iv) any claim for a brokerage or similar
commission due from Seller arising out of the transactions
contemplated by this Agreement made against any Indemnified
Person for such a commission owed by Seller or (v) any liability
of Purchaser for Damages suffered by any person or entity prior
to the Closing Date in connection with the Business. Payments to
Seller otherwise due from Purchaser or the Stockholders after the
Closing Date may be withheld in reasonable amounts pending
resolution of any claims brought against any Indemnified Person
as to which this indemnity is or may be applicable; provided,
however, that Seller and Stockholders shall not be liable for any
Damages (other than Damages relating to a breach of
representations and warranties of Seller relating in any way to
taxes) to the extent that all such Damages do not exceed an
aggregate of $75,000; provided further, however, that Seller and
the Stockholders shall indemnify the Indemnified Persons from and
against all Damages (i) arising out of or relating to a
representation and warranty of Seller relating in any way to
taxes, or (ii) if such Damages exceed an aggregate of $75,000;
provided further, however, that the liability of Seller hereunder
shall not exceed $10,000,000; provided further, however, that the
liability of Silvey hereunder shall not exceed $1,000,000;
provided further, however, that the liability of Lees hereunder
shall not exceed $10,000,000.
(b) Notice. Purchaser agrees to give prompt notice to
Seller and the Stockholders of the assertion of any claim or the
commencement of any suit, action or proceeding in respect of
which indemnity may be sought hereunder. Seller and the
Stockholders may, in their sole discretion, assume the defense of
any such claim, suit, action, or proceeding at their own expense
and may dispose of any such claim, suit, action or proceeding in
their sole discretion without any liability or expense to any
Indemnified Person. In any event, each Indemnified Person shall
have the right to participate in or with respect to any such
claim, suit, action or proceeding with counsel of its own choice
and at its own expense.
9.2 Indemnification by Purchaser.
(a) Claims. Purchaser hereby agrees to indemnify Seller
and the Stockholders against, and to hold Seller and the
Stockholders harmless from, any and all Damages incurred or
suffered by Seller and the Stockholders in connection with any
claim, action, suit or proceeding arising out of or related to
(i) any misrepresentation or breach of any warranty, covenant or
agreement made or to be performed by Purchaser in or pursuant to
this Agreement or (ii) the operation of the Assets by Purchaser
from and after the Closing Date, or (iii) the Assumed Liabilities
or (iv) any claim for a brokerage or similar commission arising
out of the transactions contemplated by this Agreement made
against Seller for such a commission owed by Purchaser. In
connection with matters set forth in (ii) above, Purchaser shall
maintain no less than $10,000,000 of insurance coverage with
respect to such liabilities on terms and conditions either (i)
similar and customary to those prevailing in Purchaser's industry
or (ii) equivalent to those currently maintained by Purchaser.
(b) Notice. Seller and the Stockholders agree to give
prompt notice to Purchaser of the assertion of any claim or the
commencement of any suit, action or proceeding in respect of
which indemnity may be sought hereunder. Purchaser may, in its
sole discretion, assume the defense of any such claim, suit,
action or proceeding at its own expense and may dispose of any
such claim, suit, action or proceeding in its sole discretion
without any liability or expense to Seller and the Stockholders.
In any event, Seller and the Stockholders shall have the right to
participate in or with respect to any such claim, suit, action or
proceeding with counsel of its own choosing and at its own
expense.
9.3 Limitation of Indemnity. No claim for indemnification
pursuant to Sections 9.1 or 9.2 hereunder may be made for Damages
occurring more than two years after the Closing; provided,
however, that the obligations of Seller and the Stockholders to
indemnify Purchaser for the breach of any representation or
warranty relating to taxes shall survive for the periods set
forth in Section 8.1 hereunder.
10. Miscellaneous.
10.1 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given when sent
by overnight courier or by registered or certified mail,
deposited in the United States mail, postage prepaid, return
receipt requested, to the appropriate party at its or his address
below or at such other address for such party (as shall be
specified by written notice):
(a) If to Seller or the Stockholders, at:
Mr. James W. Lees
Security Systems, Inc.
110 Florence St.
Malden, Massachusetts 02148
and
Mr. Edward A. Silvey
Security Systems, Inc.
110 Florence St.
Malden, Massachusetts 02148
with a copy to:
Edward George & Associates
11 Beacon Street, Suite 1125
Boston, Massachusetts 02108
Attention: Edward George, Jr., Esq.
(b) If to Purchaser at:
Mr. Russell R. MacDonnell
Alarmguard, Inc.
125 Frontage Road
P.O. Box 1249
Orange, CT 06477-7249
with a copy to:
Robinson & Cole LLP
Financial Centre
P.O. Box 10305
695 East Main Street
Stamford, CT 06904
Attention: Richard A. Krantz, Esq.
10.2 Expenses. Each of the parties hereto shall bear its
own expenses in connection with the negotiation and consummation
of the transactions contemplated hereby.
10.3 Risk of Loss. The risk of loss, damage or destruction
to any of the Assets from fire or other casualty or cause shall
be borne by Seller at all times prior to the Closing. In the
event of any such loss, damage or destruction, the proceeds of
any claim for any loss payable under any insurance policy
covering such loss shall be payable to Seller. In the event of
any such material loss, damage or destruction, Seller shall
specify in writing to Purchaser with particularity the loss,
damage or destruction incurred, the cause thereof, if known or
reasonably ascertainable, and the extent to which restoration,
replacement and repair of the Assets lost, damaged or destroyed
will be reimbursed under any insurance policy with respect
thereto. If such insurance proceeds are not sufficient to
restore, replace or repair the lost or destroyed Assets, Seller
shall either (i) make any additional payments required to
restore, replace or repair the lost or destroyed Assets to their
condition immediately prior to such loss, damage or destruction,
or (ii) unless Purchaser is willing to forego any deficiency
between the value of the lost or destroyed Assets and the
insurance proceeds thereon, terminate this Agreement without
liability. If any such material loss or destruction shall occur
within thirty (30) days prior to the Closing, Seller shall have
the right, upon written notice, to postpone the Closing until
such time as the Assets have been completely restored, replaced
or repaired unless the same cannot be reasonably effected within
thirty (30) days of the original Closing Date. If such
restoration, replacement or repair cannot be effected within such
period, Purchaser shall have the option to elect in writing to
either: (a) terminate this Agreement and thereafter all
obligations of the parties shall cease without further liability
to conclude the sale; or (b) elect to consummate the Closing and
accept the property in its "then" condition, in which event
Seller shall assign to Purchaser all of Seller's rights under any
insurance claim covering the loss and pay over any insurance
proceeds received by Seller in connection therewith, and Seller
shall pay to Purchaser an amount equal to any additional amount
required to restore, replace or repair such property to its
condition immediately prior to such loss, damage or destruction.
10.4 Benefit and Burden. This Agreement shall be binding
upon, and shall inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors,
administrators and permitted assigns.
10.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut
(excluding application of any choice of law doctrines that would
make applicable the law of any other state.)
10.6 Assignment. This Agreement shall not be assignable by
any party hereto except with the written consent of the other
parties. Any other attempted assignment shall be void. The
foregoing notwithstanding, Purchaser may assign its rights
hereunder, and under any agreement or document entered into or
received hereunder, to any affiliated entity and/or as collateral
to any lender providing funds to be used in Purchaser's
acquisition or operation of the Assets. No such assignment shall
relieve the assignor of its obligations hereunder.
10.7 Attorneys' Fees. If any action or proceeding is
brought to enforce or interpret any provision of this Agreement,
each party shall bear its own attorney's fees.
10.8 Further Assurances. Before, during and after the
Closing Date, without further consideration, the parties hereto
shall each execute and deliver such further instruments and
documents and take such further actions as the other party shall
reasonably request to consummate, or in furtherance of, the
transactions contemplated by this Agreement and to perfect
Purchaser's title to the Assets. Without limiting the generality
of the preceding sentence, at any time and from time to time
after the Closing Date, at Purchaser's reasonable request and
without further consideration, Seller will execute and deliver
such other instruments of conveyance and transfer as Purchaser
reasonably may require more effectively to convey to, transfer
to, and vest in Purchaser, or to put Purchaser in possession of,
any or all of the Assets.
10.9 Severability. If any provision of this Agreement shall
be held invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision, only to the
extent and in the particular jurisdiction in which it is invalid
or unenforceable, and shall not in any manner affect or render
invalid or unenforceable any other provision of this Agreement,
and this Agreement shall be carried out as if any such invalid or
unenforceable provision were not contained herein.
10.10 Jurisdiction; Waivers. (a) Each party hereto
hereby irrevocably submits to the jurisdiction of any Connecticut
or United States Federal Court sitting in Fairfield County,
Connecticut, over any action or proceeding arising out of or
relating to this Agreement or any document or instrument executed
and/or delivered in connection herewith, and each party hereto
hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such
Connecticut or Federal court. Each party hereto irrevocably
consents to the service of any and all process in any such action
or proceeding by the mailing of copies of such process to such
party at its address specified in Section 10.1 hereof. Each
party hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by law. Each party hereto further waives any objection
to venue in such state and any objection to an action or
proceeding in such state on the basis of forum non conveniens.
Each party hereto further agrees that any action or proceeding
brought against any other party hereto shall be brought only in
Connecticut or United States Federal court sitting in Fairfield
County.
(b) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHTS ANY OF THEM MAY HAVE TO JURY TRIAL.
10.11 Entire Agreement. This Agreement and the
documents delivered in connection herewith constitute the entire
agreement of the parties hereto, and no oral statement or prior
written matter shall have any force or effect.
10.12 Number and Gender. Whenever the sense of this
Agreement requires, the use of the singular number shall include
the plural, and the use of the masculine gender shall include the
feminine and/or neuter genders.
10.13 Headings for Convenience. The titles of Sections
of this Agreement herein are for convenience of reference only,
are not a part of this Agreement, and shall not be deemed to
modify or affect the interpretation of this Agreement.
10.14 Amendments. This Agreement may not be modified
except by a writing signed by the party against whom the
enforcement of any modification is sought.
10.15 Execution of Counterparts. For the convenience of
the parties, this Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same document.
THE NEXT PAGE IS THE SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the date first above written.
PURCHASER:
ALARMGUARD, INC.
By__________________________
Name: Russell R. MacDonnell
Title: Chairman
Duly Authorized
SELLER:
SECURITY SYSTEMS, INC.
d/b/a SENTRY PROTECTIVE SYSTEMS
By____________________________
Name: James W. Lees
Title: Chief Executive Officer
Duly Authorized
_______________________________
James W. Lees
_______________________________
Edward A. Silvey
Exhibit 21.1
ALARMGUARD HOLDINGS, INC.
SUBSIDIARY CORPORATIONS
AS OF DECEMBER 31, 1997
State of
Name Incorporation
Security Systems Holdings, Inc. Delaware
Alarmguard, Inc. Delaware
Protective Alarms Canada, Inc. Ontario, Canada
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Post
Effective Amendment No.1 on Form S-8 to the Registration
Statement (Form S-4 No. 333-23307) pertaining to the 1994,
1995 and 1996 Stock Option Plans and the Registration
Statement (Form S-8 No. 333-30523) pertaining to the 1997
Long-Term Stock Incentive Plan of Alarmguard Holdings Inc.
of our report dated March 18, 1998, with respect to the
consolidated financial statements and schedule of Alarmguard
Holdings Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 1997.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 30, 1998
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The 1997 second and third quarter financial schedules are being resubmitted to
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