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As filed with the Securities and Exchange Commission on July 2, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report: May 8, 1998
(Date of earliest event reported)
SECURITY ASSOCIATES INTERNATIONAL, INC.
(Exact name of registrant as specified in the charter)
Delaware 000-20870 87-0467198
(State or other Jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2101 South Arlington Heights Road, Suite 100
Arlington Heights, Illinois 60005-4142
(Address of Principal Executive Offices)
(847) 956-8650
(Registrant's telephone number including area code)
n/a
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Acquisition of Texas Security Central, Inc.
On June 17, 1998, Security Associates International, Inc. ("SAI")
purchased all of the outstanding capital stock of Texas Security Central, Inc.,
a Texas corporation ("TSC") from The Willis Tate, Jr. Charitable Remainder
Unitrust for Southern Methodist University and Ray Hooker, who are unaffiliated
with SAI and were the sole stockholders of TSC.
The purchase price, which was based primarily on the recurring monthly
revenue and arrived at by arm's length negotiations between the parties, was
$6,846,000, which was paid in cash at closing. $4,450,000 of the purchase
price was financed by drawing on SAI's existing credit facility with FINOVA
Capital Corporation and the remainder of the purchase price was financed from
SAI's general corporate funds. The acquisition will be accounted for under the
purchase method for financial reporting purposes.
TSC is a third-party alarm monitoring company serving approximately 65,000
alarm monitoring subscribers and approximately 400 independent alarm dealers
from central monitoring stations located in Dallas, Texas, Houston, Texas and
San Antonio, Texas. The acquisition will allow SAI to offer central monitoring
services from a broader geographical base.
ITEM 5. OTHER EVENTS.
Acquisition of the Monitoring Business of Fire Protection Services
Corporation D/B/A Mountain Alarm
On May 8, 1998, SAI purchased the monitoring business of Fire Protection
Service Corporation, a Utah corporation, D/B/A Mountain Alarm ("Mountain").
The purchase price, which was based primarily on the recurring monthly
revenue and arrived at by arm's length negotiations between the parties, was
$944,875, $674,875 of which was paid in cash at closing with the remainder of
the purchase price paid in the form of 54,000 shares of SAI's Common Stock.
The purchase price was financed from SAI's general corporate funds. The
acquisition will be accounted for under the purchase method for financial
reporting purposes.
Mountain is a third-party alarm monitoring company serving approximately
7,800 alarm monitoring subscribers and approximately eight independent alarm
dealers from a central monitoring station located in Ogden, Utah. The
acquisition will allow SAI to offer central monitoring services from a broader
geographical base.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
(b) Pro forma financial information.
It is impracticable to provide the required financial statements and pro
forma financial information as of this date. The required financial statements
and pro forma financial information will be filed with the Commission on Form
8-K/A as soon as practicable, but not later than 60 days after the date of this
Current Report on Form 8-K, as required.
(c) Exhibits.
2.1 Stock Purchase Agreement between Security Associates International,
Inc., as Purchaser, and The Willis Tate, Jr. Charitable Remainder Unitrust for
Southern Methodist University and Ray Hooker, as Selling Stockholders, and
Willis Tate, Jr., dated June 17, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Security Associates International, Inc.
(Registrant)
By: /s/ Daniel S. Zittnan
Daniel S. Zittnan
Vice President, Chief Financial Officer
Date: July 2,1998
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BETWEEN
SECURITY ASSOCIATES INTERNATIONAL, INC.
AS
PURCHASER
AND
RAY HOOKER, AND
THE WILLIS TATE, JR. CHARITABLE REMAINDER UNITRUST FOR
SOUTHERN METHODIST UNIVERSITY
AS
SELLING STOCKHOLDERS
AND
WILLIS TATE, JR.
DATED: JUNE 17, 1998
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June 17,
1998, is entered into by and between Security Associates International, Inc, a
Delaware corporation (the "Purchaser") and Ray Hooker ("Hooker") The Willis
Tate, Jr. Charitable Remainder Unitrust for Southern Methodist University (the
"Trust") (collectively, the "Selling Stockholders") and Willis Tate, Jr.
("Tate") (together, the "Parties").
RECITALS
WHEREAS, the Selling Stockholders own all of the outstanding capital stock
of Texas Security Central, Inc., a Texas corporation (the "Company"); and
WHEREAS, the Company owns and operates the Monitoring Business; and
WHEREAS, the Selling Stockholders desire to sell to Purchaser, and
Purchaser desires to purchase from the Selling Stockholders all of the issued
and outstanding capital stock of the Company (the "Shares") in exchange for the
consideration set forth in this Agreement; and
WHEREAS, this Agreement requires the Selling Stockholders to make certain
representations and warranties with respect to the Shares and the Company; and
WHEREAS, the Trust only acquired the Shares of common stock in the Company
owned by Tate (the "Tate Shares") on or about June 2, 1998 and has no knowledge
with respect to the Company or the accuracy of the representations and
warranties to be made by the Selling Stockholders herein; and
WHEREAS, as Tate has been an officer, director and stockholder of the
Company with knowledge of the Company and its operations since its
incorporation through June 2, 1998 and an officer and director of the Company
through the Closing Date, Purchaser is requiring that Tate make the
representations and warranties of a Selling Stockholder along with Hooker and
the Trust and be available for indemnification of the Purchaser pursuant to
said Article X; and
WHEREAS, in order to further induce Purchaser to purchase the Shares, the
Selling Stockholders and Tate have agreed to be bound by the terms of the
noncompetition and nonsolicitation covenants and the indemnification provisions
of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein and other good and valuable consideration, the parties hereto, on
the basis of, and in reliance upon, the representations, warranties, covenants,
obligations, agreements and recitals set forth in this Agreement, and upon the
terms and subject to the conditions contained herein, agree as follows:
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ARTICLE I
DEFINITIONS
The following terms shall have the meanings assigned below when used in this
Agreement:
1.1 Intentionally Deleted;
1.2 "Agreement" shall mean this Stock Purchase Agreement;
1.3 "Antenna" means the radio antennae and antennae sites used by the
Company pursuant to two antennae site license agreements by and between the
Company and Spectrum Engineering Company and Nowlin/9311 Partnership,
respectively ("Antenna Leases");
1.4 "Assets" shall mean all of the Company's assets, including, but not
limited to the assets listed on Schedule 3.12;
1.5 Intentionally Deleted;
1.6 Intentionally Deleted;
1.7 "Central Stations" means the central monitoring stations owned and
operated by the Company which are located at 9750 Brockbank, Dallas, Texas
75220; 12610 Richmond Avenue, Houston, Texas 77082 and 14329 San Pedro, San
Antonio, Texas 78232;
1.8 "Closing" means the completion of the purchase and sale of the Shares
hereunder;
1.9 "Closing Date" means June 17, 1998 or at such other time and date to
which the parties may agree in writing;
1.10 "Closing Date Balance Sheet" means the document delivered on the
Closing Date showing the estimated assets and liabilities of the Company as of
April 30, 1998 and will include any expected expense over $5,000 and a $150,000
reserve for bad debts and accruals for bonuses and vacations. The Closing Date
Balance Sheet shall be attached hereto as part of Exhibit 3.7;
1.11 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute thereto, and the rules and any successor statute thereto,
and the rules and regulations issued and promulgated thereunder, as in effect
from time to time;
1.12 "Company" shall mean Texas Security Central, Inc., a Texas
corporation;
1.13 "Company Financial Statements" shall mean the balance sheets of the
Company as of December 31, 1997 and April 30, 1998 and the Company's statements
of operations for the
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periods ending December 31, 1997 and April 30, 1998. The Company Financial
Statements are attached hereto as part of Exhibit 3.7;
1.14 "Contracts" shall mean Dealer Monitoring Agreements, and all
agreements, contracts and arrangements related to item (c), (e), (f), (g), (k)
and (m) of Section 3.12;
1.15 "Dealer" means an individual or business entity that contracts in
writing to provide Monitoring Services to Subscribers, and which in turn
subcontracts the provision of the actual Monitoring Services from the Company;
1.16 "Dealer Monitoring Agreements" shall mean the written contracts
pursuant to which the Company has contracted to provide Monitoring Services to
Dealer Owned Accounts;
1.17 "Dealer Owned Account" shall mean any account owned by a Dealer
pursuant to which Monitoring Services are provided to a Subscriber;
1.18 "Employee Benefit Plan" shall mean any employee benefit plan within
the meaning of Section 3(3) of ERISA which is (i) maintained for employees of
the Company or any ERISA Affiliate or (ii) has at any time within the preceding
six years been maintained for the employees of the Company or any current or
former ERISA Affiliate;
1.19 "Environmental Laws" shall mean any and all federal, state and local
laws that relate to or impose liability or standards of conduct concerning
public or occupational health and safety or protection of the environment, as
now in effect and as have been amended or re-authorized, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Sec. 9601 et seq.), the Hazardous Materials
Transportation Act (42 U.S.C. Sec. 1802 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Sec. 6901, et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Sec. 1251 et seq. ), the Toxic Substances Control Act
(15 U.S.C. Sec. 2601 et seq.), the Clean Air Act (42 U.S.C. Sec. 7901 et seq.),
the National Environmental Policy Act (42 U.S.C. Sec. 4231 et seq.), the Refuse
Act (33 U.S.C. Sec. 407 et seq.), the Safe Drinking Water Act (42 U.S.C. Sec.
300(f) et seq.), the Occupational Safety and Health Act (29 U.S.C. Sec 651 et
seq.), and all rules, regulations, codes, ordinances and guidance documents
promulgated or published thereunder, and the provisions of any licenses,
permits, orders and decrees issued pursuant to any of the foregoing;
1.20 "Equipment" shall mean the tangible assets owned or leased by the
Company which are used or useful in connection with the Monitoring Business,
including, but not limited to the Equipment listed on Schedule 3.12(a);
1.21 "Equipment Lease" shall mean a lease pertaining to Equipment and
shall also include the Antenna Leases.
1.22 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations issued and promulgated
thereunder;
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1.23 "ERISA Affiliate" shall mean any person who is a member of a group
which is under common control with the Company, who together with the Company
is treated as a single employer within the meaning of Section 414(b), (c), and
(m) of the Code;
1.24 Intentionally Deleted;
1.25 "Form Contracts" shall have the meaning assigned in Section 3.13;
1.26 "Generally Accepted Accounting Principles" shall mean the accounting
rules, principles and conventions adopted by the American Institute of
Certified Public Accountants and referred to by that name;
1.27 "Hazardous Materials" shall mean any hazardous, toxic, dangerous or
other waste, substance or material defined as such in, regulated by or for the
purposes of any Environmental Law.
1.28 "Intellectual Property" shall mean all of the patents, trademarks,
trade names (including, but not limited to "Texas Security Central" and the
corporate name "Texas Security Central, Inc."), service marks, trade secrets,
designs, know-how, copyrights, computer programs and software and all rights,
licenses and contracts relating to any of the foregoing, and all other
proprietary rights and information of the Company;
1.29 "Leasehold Property" shall mean any real estate which is the subject
of a Lease under which the Company is or has been the lessee.
1.30 "Leases" shall have the meaning assigned in Section 3.11(a);
1.31 "Liabilities" shall have the meaning assigned under Generally
Accepted Accounting Principles;
1.32 "Material Contracts" shall have the meaning assigned in Section 3.10;
1.33 "Minimum RMR" shall have the meaning assigned in Section 2.8;
1.34 "Monitoring Business" shall mean the business of providing Monitoring
Services;
1.35 "Monitoring Services" shall mean the provision of remote alarm
monitoring services to Subscribers, including but not limited to, notification
and dispatch of emergency personnel, supervised openings and closings and
closed circuit and audio monitoring pursuant to Dealer Owned Accounts;
1.36 "Multiemployer Plan" shall mean any multiemployer plan as defined
pursuant to Section 3(37) of ERISA to which the Company or any ERISA Affiliate
makes, or accrues an obligation to make, contributions, or has made, or has
been obligated to make, contributions within the preceding six (6) years;
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1.37 "Pension Plan" shall mean any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Part 3 of Title I of
ERISA, or Section 412 of the Code and which (i) is maintained for employees of
the Company or any ERISA Affiliate, or (ii) has at any time within the
preceding six years been maintained for the employees of the Company or any of
its current or former ERISA Affiliates;
1.38 "Permits" shall mean all governmental licenses, registrations,
permits, approvals and applications therefor;
1.39 "Prebilled RMR" shall mean RMR billed by the Company to Dealers in
advance for Monitoring Services to be performed subsequent to the Closing Date;
1.40 "Purchase Price" shall have the meaning assigned in Section 2.2.2;
1.41 "RMR" shall mean the total regular recurring monthly amounts payable
by Dealers, as appropriate, for Monitoring Services. RMR shall exclude any
amounts due under Dealer Owned Accounts with receivable balances over one
hundred twenty (120) days past due. RMR includes all service charges,
including leased equipment revenue. RMR does not include any amounts derived
from:
(a) reimbursement for or payment of telephone line or other utility
charges associated with the installation, monitoring, maintenance,
or furnishing of the alarm services;
(b) reimbursement or payments of false alarm assessments;
(c) reimbursement or payment of taxes, fees or other charges
imposed by any governmental authority or utility relating to the
furnishing of alarm services;
(d) reimbursement or payment for time and materials charges that
are receivable from any seller or installer of monitoring equipment
for services which are not provided on a regular or recurring
basis; or
(e) charges incurred in connection with the maintenance of alarm
systems or the underlying equipment.
1.42 "SAI" shall mean Security Associates International, Inc., a Delaware
corporation;
1.43 "Selling Stockholders" shall mean Ray Hooker and The Willis Tate, Jr.
Charitable Remainder Unitrust for Southern Methodist University;
1.44 "Shares" shall mean all of the issued and outstanding capital stock
of the Company;
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1.45 "Subscriber" shall mean any individual or entity who has contracted
to obtain remote security system monitoring services for a security alarm
system installed on the premises of that individual or entity;
1.46 "Taxes" shall have the meaning assigned in Section 3.23;
1.47 "Termination Event" shall mean (1) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder; or (ii) the
withdrawal of the Company or any ERISA Affiliate from a Pension Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2); or (iii) the termination of a Pension Plan, the filing of a notice
of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a termination under Section 4041 of ERISA; or (iv) the institution
of proceedings to terminate, or the appointment of a trustee with respect to,
any Pension Plan by the PBGC; or (v) any other event or condition which would
constitute grounds under Section 4042(a) of ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan, or (vi) the
partial or complete withdrawal of the Company or any ERISA Affiliate from a
Multiemployer Plan or (vii) the imposition of a lien pursuant to Section 412 of
the Code or Section 302 of ERISA; or (viii) any event or condition which results
in the reorganization or insolvency of a Multiemployer Plan under Sections 4241
or 4245 of ERISA; or (ix) any event or condition which results in the
termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by the PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
1.48 Intentionally Deleted;
1.49 "Working Capital" shall have the meaning assigned under Generally
Accepted Accounting Principles;
1.50 Any representation or warranty made "to the knowledge" of a party or
"to the best of (a party's) knowledge" means that the representation represents
the actual knowledge of the Company's officers, directors, Selling
Stockholders, Rodney Hooker, Alice Gorman and the managers of the Central
Stations, in all events, after due inquiry; and
1.51 "Including" shall indicate examples of a foregoing general statement
and is not a limitation on that general statement.
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ARTICLE II
PURCHASE AND SALE OF THE SHARES
Purchaser and the Selling Stockholders hereby agree as follows:
2.1 Purchase and Sale of the Shares. The Selling Stockholders hereby
agree to sell, transfer and deliver to Purchaser, and Purchaser hereby agrees to
purchase and acquire from the Selling Stockholders, at the Closing, the Shares,
free and clear of any charges, liens, encumbrances or adverse claims of any
kind whatsoever. The Selling Stockholders are each selling the following
number of shares of the Company's common stock:
Ray Hooker 500 shares
Southern Methodist University
As Trustee for the Willis
Tate, Jr. Charitable Remainder
Unitrust for Southern Methodist
University 500 shares
2.2 Consideration for the Shares. Purchaser shall deliver to the Selling
Stockholders, in exchange, and as consideration for, the Shares:
2.2.1 Payment of the Purchase Price.
(a) Cash at Closing. At the Closing, Purchaser shall pay to the
Selling Stockholders and the Company an aggregate of six million
eight hundred forty-six thousand dollars ($6,846,000) in
immediately available United States funds by means of cashiers'
checks or wire transfer of federal funds to the accounts designated
by each Selling Stockholder, in accordance with the wire transfer
instructions to be provided by each Selling Stockholder and the
Company. Each Selling Stockholder and the Company will receive the
amount set forth opposite his or its name, below:
Ray Hooker $3,000,000
Southern Methodist University
As Trustee for the Willis
Tate, Jr. Charitable Remainder
Unitrust for Southern Methodist
University $3,000,000
The Company, to be paid to
Rodney L. Hooker, Nolen R. Russell,
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Thomas C. Russell, Ray Hooker, Willis
Tate, Jr. and Alice L. Gorman
(collectively, the "Management
Employees"), in the amounts set
forth in Schedule 2.2.1(b). $846,000
The payments due at Closing in consideration of the Shares have been
determined based on the RMR payable to the Company for the Dealer Owned
Accounts as of the Closing Date and the purchase multiple therefore, all as set
forth on Schedule 2.2.1 (a).
2.2.2 All of the payments made pursuant to Section 2.2.1 are collectively
referred to as the "Purchase Price" of the Shares.
2.3 Title. At Closing, the Selling Stockholders shall convey the Shares
to Purchaser free and clear of all liens, charges, claims and encumbrances.
2.5 Transfer Documentation. The transfer and sale of the Shares shall be
evidenced by delivery to the Purchaser of certificates for the Shares duly
endorsed to Purchaser or accompanied by duly executed stock powers. At any
time after the Closing, upon the request of Purchaser and without further
consideration, the Selling Stockholders shall do, execute, acknowledge and
deliver, all such further reasonable acts and documentation necessary to
effectuate the sale and transfer of the Shares to the Purchaser or to otherwise
carry out the purposes and consummate the transactions contemplated by this
Agreement.
2.6 Sales and Use Taxes. The Selling Stockholders shall be responsible
for any filings with state or local authorities required in connection with the
transactions contemplated by this Agreement and shall be solely responsible for
the payment of any sales, use or transfer taxes that imposed by reason thereof.
2.7 Consent to Assignment. To the extent that the continued effectiveness
following the Closing for the stated term of any Contract, Permit, item of
Intellectual Property or other Asset requires the consent of another person,
the Selling Stockholders have obtained such consent, except as disclosed on
Schedule 3.6.
2.8 Certain Adjustments after Closing.
(a) RMR Adjustment. The Parties agree that the Purchase Price was
determined based on the Selling Stockholders' representation that
immediately after Closing the Company would have the continuing
contractual right to provide Monitoring Services on the Closing
Date to no less than 56,500 Dealer Owned Accounts with RMR payable
to the Company of no less than Two Hundred Ninety-Three Thousand
Dollars ($293,000) ("Minimum RMR"). In the event that following the
Closing, Purchaser determines that the RMR of the Dealer Owned
Accounts that the Company has the right to provide Monitoring
Services on the Closing Date was less than the Minimum RMR, the
Purchase Price hereunder shall be reduced by an amount determined
by multiplying the purchase multiple as set forth on
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Schedule 2.2.1 by the RMR deficiency. Any claim for an adjustment to
the Purchase Price pursuant to this Section 2.8(a) must be made in
writing no later than the last day of the second full month after the
Closing Date.
(b) Undisclosed Liabilities Adjustments. By no later then the last
day of the second full month after the Closing Date, Purchaser at its
sole option may conduct an audit of the Company and verify the amount
of the Liabilities of the Company as of the Closing Date. If the
Liabilities of the Company as of the Closing Date, as determined by
the audit, are in excess of $100,000 more than that reflected on the
Closing Date Balance Sheet, the Purchase Price payable hereunder
shall be reduced dollar for dollar by said amount beginning with the
first dollar.
(c) Any adjustments to the Purchase Price required by this Section
2.8 shall be paid to Purchaser by wire transfer or by cashier's check
within fifteen (15) days of the Selling Stockholders' receipt of
Purchaser's written notice, unless a majority in interest of the
Selling Stockholders dispute Purchaser's calculation of the amount
due within the time and in the manner described in Subsection (d)
below. Purchaser's notice and adjustment claim shall be supported by
sufficient documentation to enable the Selling Stockholders to
evaluate its merits. All payments due from the Selling Stockholders
shall be made pro rata in accordance with their proportionate
interest in the Purchase Price, provided however, that if any Selling
Stockholder shall fail to make any payment when due the remaining
Selling Stockholders shall be jointly and severally responsible for
the unpaid amount.
(d) A majority in interest of the Selling Stockholders shall have the
right to dispute any claimed deficiency in RMR or the result of the
audit of the Company and the resulting Purchase Price adjustments
made by Purchaser by giving Purchaser written notice thereof stating
the reasons therefor within fifteen (15) days of the Selling
Stockholders' receipt of Purchaser's written notice pursuant to
Subsection (c) hereof. If the parties cannot reach a resolution with
respect to claimed RMR deficiency or the audit and the adjustments
within seven (7) days of the Selling Stockholders' notice, then the
Parties' exclusive remedy shall be to submit the dispute to binding
arbitration in Dallas, Texas by a nationally recognized accounting
firm engaged jointly by Purchaser and the Selling Stockholders for
that sole purpose, said arbitration to be conducted according to the
rules of the American Arbitration Association and the laws of
Illinois.
2.9 Special Provisions Regarding Southern Methodist University as
Trustee of the Trust. As a material inducement to Southern Methodist University
("SMU") to execute this Agreement as trustee of the Trust, and notwithstanding
any other provision of this Agreement or any document(s) incidental to this
Agreement, Purchaser, Hooker and Tate acknowledge and agree that:
(a) All representations, warranties, covenants, agreements and
obligations of the Trust in this Agreement or in any document(s)
incidental to this Agreement, or otherwise made or created in
connection with the transactions contemplated by
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this Agreement, are representations, warranties, covenants,
agreements and obligations of the Trust only and not of SMU
personally or individually.
(b) SMU, in executing this Agreement and taking the other actions
contemplated herein as Trustee of the Trust, is doing so solely in
its fiduciary capacity as Trustee, and SMU itself shall have no
liability of any nature for the accuracy or breach of any such
representations, warranties, covenants, agreements and obligations,
which liabilities shall be solely of the Trust and may be satisfied
solely from and to the extent of the assets of the Trust as may be
added to by Tate from time to time.
(c) Neither SMU nor any of its officers, trustees, agents or
employees shall ever be personally or individually liable to
Purchaser, any other Selling Stockholder, the Company, Purchaser's
lender(s) or any other person(s) by reason of the provisions of this
Agreement, or otherwise in connection with the transactions
contemplated by this Agreement.
(d) SMU shall not be required to execute any such incidental
document that does not contain a specific acknowledgement that it is
subject to the provisions of this Section 2.9.
ARTICLE III
REPRESENTATIONS, WARRANTIES, AND
ACKNOWLEDGEMENTS OF THE SELLING STOCKHOLDERS AND TATE
The Selling Stockholders and Tate, jointly and severally, represent,
warrant, and acknowledge that on the date of execution of this Agreement and on
the Closing Date:
3.1 Organization and Standing; Certificate of Incorporation and By-laws.
The Company is a corporation duly organized and validly existing under and by
virtue of, the laws of the State of Texas and is in good standing under such
laws. The Company has requisite corporate power and authority to own and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. Except as disclosed on Schedule 3.1,
the Company is duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction where the character of its properties or the
nature of the activities conducted by it makes such qualification or licensing
necessary. The Company does business under the names Texas Security Central or
TSC and does not conduct any business, and is not commonly known by any other
names. Except as disclosed on Schedule 3.1, the Company has complied with all
laws requiring the registration or other recording of such names in each
jurisdiction in which the Company does business. The certified copies of the
Company's Articles of Incorporation and By-laws attached to the Company's
Secretary's Certificate, are true, correct and complete and contain all
amendments through the Closing Date.
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3.2 Power and Authority. The Selling Stockholders have, and will have at
the Closing Date, all requisite legal power and authority to execute and
deliver this Agreement, to sell the Shares and to carry out and perform their
obligations under this Agreement. With respect to any Selling Stockholder which
is a corporation or other legally recognized business entity, all proceedings
and actions necessary to authorize the transactions contemplated by this
Agreement have been taken. None of the Company's stockholders has dissented
from the transactions contemplated by this Agreement and no stockholder has or
will have dissenter's rights as a result thereof. This Agreement has been duly
executed and delivered by each Selling Stockholder, and constitutes a legal,
valid and binding obligation of all of the Selling Stockholders. Attached as
Exhibit 3.2 are certified copies of the governing documents of the Trust and of
the documents authorizing the transactions contemplated hereby by Southern
Methodist University as Trustee of the Trust, which have not been amended or
revoked.
3.3 Subsidiaries. Except as listed on Schedule 3.3, the Company has no
subsidiaries or affiliated companies and does not otherwise own or control,
directly or indirectly, any equity interest in any corporation, association or
business entity. As used herein, a "subsidiary" is any corporation, limited
liability company, partnership, or other business entity with respect to which
the Company owns any equity interest, and includes any subsidiary of a
subsidiary.
3.4 Central Stations. The Company operates the Central Stations and owns
or leases all the Equipment which it uses to monitor security systems pursuant
to the Dealer Owned Accounts and the Dealer Monitoring Agreements.
3.5 Capitalization. The authorized capital stock of the Company will
consist at the Closing of 100,000 shares of common stock, $1.00 par value, of
which 1,000 of such shares are issued and outstanding, and all of which are
owned, beneficially and of record by the Selling Stockholders. All of the
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. There are no pre-emptive rights (except for those of the
Selling Stockholders), options, warrants, conversion rights, rights of exchange
or other rights, plans or agreements of any nature whatsoever providing for the
purchase, issuance or sale of any capital stock of the Company or of any
securities convertible into or exchangeable for any shares of the Company's
capital stock, and none of the Selling Stockholders is party to any agreement
or arrangement pursuant to which it is obligated to dispose of any of the
capital stock of the Company to any party other than the Purchaser. Other than
the Selling Stockholders there are no other holders of capital stock of the
Company. All securities of the Company were issued and transferred in
compliance with all applicable federal and state securities laws and
regulations. The sale of the Shares to the Company as contemplated by this
Agreement will be in compliance with all applicable federal and state
securities regulations.
3.6 Consents and Approvals. No approval or authorization of the
stockholders or the directors of the Company or of any governmental authority
or agency or any other third party is required for the sale of the Shares as
contemplated by this Agreement all of which have been obtained and copies of
which have been delivered to Purchaser, except those listed on Schedule 3.6.
Except as disclosed on Schedule 3.6, no filing or registration with, any court
or governmental or regulatory agency or board is required in connection with
the execution and
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delivery of this Agreement by the Selling Stockholders and Tate and the
consummation of the transactions contemplated hereby.
3.7 Company Financial Statements; Closing Date Balance Sheet. The Selling
Stockholders have delivered to Purchaser the Company Financial Statements and
the Closing Date Balance Sheet. The Company Financial Statements and the
Closing Date Balance Sheet are attached as Exhibit 3.7. The Company Financial
Statements and the Closing Date Balance Sheet are complete and correct in all
material respects, and do not contain any information which is false or
misleading. The Company Financial Statements and the Closing Date Balance Sheet
fairly and accurately set out and describe the financial condition and
operating results of the Company as of the dates, and during the periods,
indicated therein. Except as disclosed on Schedule 3.8, since December 31,
1997, there has not been any material adverse change, or any event or condition
which could reasonably be expected to result in any material adverse change, in
the financial condition, results or operations, business, prospects or
properties of the Company or the Monitoring Business.
3.8 Absence of Changes. Except as set forth in Schedule 3.8 attached
hereto, since December 31, 1997: (a) the Company has not entered into any
material agreement or transaction which was not in the ordinary course of
business; (b) there has been no material damage to, destruction of or loss of
physical property (whether or not covered by insurance) or any other material
adverse change in the Company, the Assets or the Monitoring Business; (c) the
Company has not declared or paid any dividend or made any distribution (in
cash, securities or other property) on its stock, or redeemed, purchased or
otherwise acquired any of its stock; (d) the Company has not increased the
compensation of its officers, or the rate of pay of its employees as a group,
other than those increases which occurred in April 1998 which were in the
ordinary course of business; and there are no impending resignations or
terminations of any officers or employees of the Company that would have an
adverse effect on its business; (e) there has been no labor dispute involving
the Company; (f) there has not been any material change in the contingent
obligations of the Company by way of guaranty, endorsement, indemnity, warranty
or otherwise; (g) there have not been any loans made by the Company to any of
its employees, officers or directors; (h) the Company has not borrowed any
amount or incurred or become subject to any liabilities (absolute or
contingent), except non-material expenses incurred in the ordinary course of
business; (i) the Company has not paid any material obligations or liabilities,
other than current liabilities paid in the ordinary course of business; (j) the
Company has not mortgaged, pledged or subjected to any lien, charge or any
other encumbrance, any of its properties or assets; (k) the Company has not
sold, assigned, transferred or leased any of its assets other than in the
ordinary course of business; (l) the Company has not made any material capital
expenditures or commitments therefor; (m) the Company has not changed its
accounting methods or practices, except at the specific request of Purchaser;
(n) there has been no other event or condition of any character pertaining to
and materially adversely affecting the Company, the Assets or the Monitoring
Business; (o) the Company has not changed the pricing for its services or
indicated that reduced pricing for the Company's services could be expected;
and (p) the Company has not received, verbally or in writing, any notice of
intent to cancel or reduce use of its services by any Dealer.
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3.9 Material Liabilities and Indebtedness. Schedule 3.9 contains a true
and complete list of each and every material liability and indebtedness not
disclosed elsewhere in this Agreement of the Company, including but not limited
to all prebilled RMR and unearned revenue and each and every agreement or other
instrument under or pursuant to which the Company has material outstanding
indebtedness. Schedule 3.9 includes a specific cross-reference to the Section or
Schedule of this Agreement where any material liability or indebtedness is
disclosed if not included on Schedule 3.9. The Selling Stockholders have
furnished Purchaser with true and correct copies of each such agreement and
instrument, including all amendments and copies of any guarantee security
agreements and/or financing statements executed by the Company relating to said
agreements. To the Selling Stockholders' and Tate's knowledge, the Company is
not in default in any material respect under any of its agreements or evidences
of indebtedness. Except as disclosed on Schedule 3.9 attached hereto, the
Company has no material (individually or in the aggregate) liabilities or
obligations, absolute or contingent.
3.10 Material Contracts. Schedule 3.10 contains a true and complete list
of each and every contract of the Company pursuant to which the Company is
obligated (or potentially obligated) to pay more than $1,000 or pursuant to
which the Company is obligated (or potentially obligated) to provide services
with a value in excess of $1,000 ("Material Contract"). Except as disclosed on
Schedule 3.10(a), to the Selling Stockholders' and Tate's knowledge, no party
(including the Company) to any Material Contract is in default in any material
respect under that contract. Except as set forth on Schedule 3.10, the Company
is not a party to any Material Contract.
3.11 Leases.
(a) Schedule 3.11(a) is a true and complete list of all real estate
leases of the Company (the "Leases") and sets forth a brief summary
of the principal terms of each. Purchaser will be able to utilize the
Central Stations under the terms of the lease agreements attached
hereto as Exhibit 3.11 except for the central station located in San
Antonio, Texas, which Purchaser will be able to utilize under the
existing month-to-month arrangement. The Selling Stockholders have
no knowledge of any intention on the part of any lessor to terminate
any lease or raise the rental rate or take any other action that
might make the Company's continued use of any of the facilities
housing the Central Stations more onerous.
(b) Schedule 3.11(b) is a true and complete list of every Equipment
Lease of the Company (including the Antenna Leases) and sets forth
a brief summary of the principal terms of each such lease. True and
complete copies of all such leases have been supplied to the
Purchaser, including all amendments thereto.
(c) To the Selling Stockholders' and Tate's knowledge, neither the
Company nor any other party is in default under the terms of any
Lease or Equipment Lease. Consummation of the transactions
contemplated hereby will not result in the cancellation of any of the
Leases or Equipment Leases or the acceleration of the obligations
thereunder. The Selling Stockholders have obtained and delivered to
Purchaser all necessary landlord and lessor consents necessary for
Purchaser to
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operate the Central Stations, and to assume the Company's rights
under the Equipment Leases.
3.12 Title to Properties and Assets; Liens, etc. Except as disclosed on
Schedule 3.12, the Company has good and marketable title to its properties and
assets, and has good title to all its leasehold interests, in each case subject
to no mortgage, pledge, lien, lease, encumbrance or charge. The Company owns or
leases all such Equipment and properties as are necessary to the Monitoring
Business. The Assets of the Company consist of:
(a) Cash and Securities;
(b) Bank Accounts;
(c) Contracts, including but not limited to, Material Contracts,
all of which are listed on Schedule 3.10;
(d) Equipment;
(e) Intellectual Property, all of which are listed on Schedule
3.17;
(f) Leasehold interest in Equipment Leases, all of which are listed
on Schedule 3.11(b);
(g) The rights to the telephone lines used in the Monitoring
Business, all of which are listed on Schedule 3.14;
(h) Accounts receivable, all of which are listed on Schedule 3.18;
(i) Prepaid expenses and deposits;
(j) All books and records of the Company, including without
limitation all financial, accounting and personnel records, all
original Contracts, monitoring and service records, lockout codes,
computer codes, up and download codes and information, and all
other documentation necessary or appropriate in order for Purchaser
to operate the Monitoring Business;
(k) All other contracts and commitments by which the Company is
bound;
(l) The goodwill of the Company;
(m) All contracts and policies of insurance; and
(n) All other assets and rights used in the operation of the
Monitoring Business.
Schedule 3.12(a) lists and describes all liens, charges and encumbrances
on the respective Assets. To the Selling Stockholders' and Tate's knowledge,
except as disclosed on Schedule
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3.12, all Equipment owned by the Company is, and at the time of Closing will
be, in good operating condition and repair. To the Selling Stockholders' and
Tate's knowledge, all of the Equipment is in compliance with all applicable
statutes, rules, regulations and ordinances. No asset of the Company has been
disposed of since December 31, 1997, other than in the ordinary course of
business. The Parties hereto agree that the accounting software used by the
Company is owned by Ray Hooker who will allow the Company to continue to use
said accounting software until the end of the calendar year 1998 at no charge.
3.13 Form Contracts. Attached hereto as Exhibit 3.13 are the forms of
agreements it uses with Dealers to document its arrangements for monitoring
Dealer Owned Accounts (collectively, the "Form Contracts"). The Form Contracts
include all contracts currently in use, and earlier forms of contracts that
were used for agreements that are still in effect. Except as disclosed on
Schedule 3.13 (which also contains a brief summary of the terms of any oral
contracts with Dealers) the Company has not entered into any oral agreements
with any Dealer. Except as disclosed on Schedule 3.13 there are no agreements
with any Dealer or Subscriber materially varying from the provisions of the
Form Contracts. The Company has delivered to Dealer all of the Company's Dealer
Monitoring Agreements. There are no agreements to provide monitoring services
other than the Dealer Monitoring Agreements or the aforementioned oral
agreements listed on Schedule 3.13.
3.14 Telephone Lines. Schedule 3.14 contains a true and complete list of
(i) each telephone line being used in the operations of the Company; (ii) the
name of the owner of the line if other than the Company, (iii) the name of the
telephone service supplier for each line; (iv) all charges associated with each
line, including without limitation, advertising and yellow pages charges, and
(v) the specific use to which each line is put. Where the use of a line is
dedicated to a particular Dealer or other entity, Schedule 3.14 also sets forth
a brief description of the agreement for dedication of that line. Except as
disclosed on Schedule 3.14, the Company has the exclusive right to use all the
telephone lines. Except those disclosed on Schedule 3.14, there are no charges
associated with the telephone lines. Immediately following the Closing the
Company will have all right, title, interest in and the right to use as
currently used all of said telephone lines. All of the Company's contract
rights and outstanding obligations with respect to any and all Yellow Page
listings and advertisements are set forth on Schedule 3.14. The Company will
provide Purchaser with the forms of any and all telephone agency and
supercession letters and will take such actions as are necessary for the
Company's continuing right to use of all such telephone lines after the
Closing.
3.15 Compliance with Other Instruments. The Company is not in violation of
any term of its Certificate of Incorporation or By-laws, or of any term or
provision of any mortgage, indebtedness, indenture, contract, agreement,
instrument, judgment or decree applicable to the Company. The execution,
delivery and performance of and compliance with this Agreement (i) have not
resulted and will not result in any violation of, or conflict with, or
constitute a default under, the Certificate of Incorporation or By-laws of the
Company or of the governing documents of any Selling Stockholder, (ii) have not
resulted and will not result in the creation of, any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or
any Selling Stockholder, (iii) except as disclosed on Schedule 3.6, have not
resulted and will not result in the loss of any license, permit, certificate,
legal privilege or legal right
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enjoyed or possessed by the Company; (iv) do not and will not give any party to
any agreement to which the Company is a party a right of termination; and (v)
except as disclosed on Schedule 3.6, do not and will not require the consent of
any other person or entity under any agreement, indenture, mortgage, lease or
other instrument or undertaking by which the Company or any Stockholder is
bound or to which any of their respective properties are subject.
3.16 Compliance with Laws.
(a) The Company has complied, and is currently in compliance, with
all laws, rules, regulations, and orders applicable to the
operation of its remote alarm monitoring business. The Company has
not taken any action, or, except as disclosed on Schedule 3.6,
failed to take any action which action or failure would in any way
preclude or prevent the Company from continuing to operate the
Monitoring Business following the Closing. The Company and its
employees have all Permits necessary for the conduct of the
Monitoring Business (including, if required separate licenses
required for the monitoring of burglar alarm systems, fire alarm
systems and combined systems) in all jurisdictions in which the
Company does business which require such permits, and all such
Permits are currently in effect. Following the Closing, except as
disclosed on Schedule 3.6, assuming the continued employment of Joe
Blaylock and Rodney Hooker, who will act as the qualifying license
holder of the Company for fire and burglary, respectively (it being
understood that Ray Hooker will remain the license holder of the
Company after the Closing Date, for a nominal fee to be mutually
agreed upon, until such time as Rodney Hooker obtains licensure),
the Company and its employees will continue to have all Permits
necessary for the conduct of the Monitoring Business in all
jurisdictions in which the Company does business which require such
permits.
(b) No violations are, or have been, recorded in respect of any
such Permits and no proceedings are pending, or to the Selling
Stockholder's and Tate's knowledge, threatened concerning
revocation or limitation of any such Permit. Except as disclosed on
Schedule 3.6, no such Permit will be revoked as a result of the
transactions contemplated by this Agreement. Copies of all Permits
used in the conduct of the Company's business are contained in
Exhibit 3.16.
(c) To the Selling Stockholders' and Tate's knowledge, all of the
Dealers for which the Company provides Monitoring Services are
licensed as installers of security systems by the appropriate
entities in the jurisdictions in which they conduct business and
the Company is not aware of any fact which could lead to the
revocation or suspension of any of such Dealer's licenses.
3.17 Intellectual Property. The Company owns or has the right to use and
following the Closing, the Company will continue to own or have the right to
use, free and clear of all liens, claims and restrictions, all Intellectual
Property used in the conduct of its business without infringing upon or
otherwise acting adversely to the right or claimed right of any person.
Schedule 3.17 is a true and complete list of the Company's Intellectual
Property and the
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owner(s), licensors, grantors and licensee(s) thereof. The Company is not, and
following the Closing will not be, obligated or under any liability to make any
payments for royalties, fees or otherwise to any owner of, licensor of, or
other claimant to, any Intellectual Property, with respect to the use thereof
or in connection with the conduct of its business or otherwise. The Company has
not granted any licenses allowing third parties to use any of the Company's
Intellectual Property. The conduct of the Monitoring Business does not, and
will not violate the Intellectual Property or any other proprietary interest of
any other person. The Company possesses, and after the Closing will possess,
ownership of or licenses to utilize all proprietary technology necessary for
the conduct of the Monitoring Business. To the Selling Stockholders' and Tate's
knowledge, the Company is not in default under any agreement governing its use
of any Intellectual Property.
3.18 Accounts; Receivables. Schedule 3.18 consists of the
following:
(a) Schedule 3.18(a) is a true and complete list of the Company's
Dealer Monitoring Agreements, and sets forth completely and
accurately, as of April 29, 1998 (i) the RMR due from each Dealer
under each such agreement; (ii) the agings of the amounts
receivable from each Dealer under each such agreement; and (iii)
the Company's method of billing such Dealers. On the Closing Date,
there will be Dealer Monitoring Agreements covering no less than,
56,500 Dealer Owned Accounts, with RMR payable to the Company of no
less than $293,000.
(b) The Dealer Monitoring Agreements arose in bona-fide arms length
transactions in the normal course of business and such agreements
are valid and binding obligations of the Dealers without any
counterclaims, set-offs or other defenses thereto, and the Company
has no basis to believe that the amounts payable under such Dealer
Monitoring Agreements are not collectible. The Company has no basis
to believe that any Dealer Owned Account or Dealer Monitoring
Agreement will not continue in existence after the Closing Date.
3.19 Litigation, etc. There are no actions, suits, proceedings or
investigations pending or threatened against the Company or its properties
before any court, arbitration panel or governmental agency (nor, to the best of
the Selling Stockholders' knowledge, is there any reasonable basis therefor),
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company or its assets or the Monitoring Business,
except as described on Schedule 3.19. Schedule 3.19 also contains a true and
complete list of every incident for the last (5) five years in which a
Subscriber or third party asserted that it experienced a loss related to any
failure or omission of the Company or its provision of Monitoring Services, a
short description of the claim and its current status or resolution.
3.20 Related Party Transactions. Except as disclosed on Schedule 3.20,
neither the Company nor any stockholder, officer, director, employee of the
Company, or any member of their immediate families, or any entity controlled by
any of the foregoing, is, directly or indirectly, interested in any contract
with the Company, including but not limited to any agreement, written or
unwritten, for employment or consulting, or any lease for real or personal
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property. No officer or, to the Selling Stockholders' and Tate's knowledge,
employee of the Company is a party to or bound by any agreement, contract or
commitment, or subject to any restrictions (including confidentiality or
non-compete restrictions) in connection with any previous or current employment
of any such person, which adversely affects, or in the future may adversely
affect, the business of the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
3.21 Securities Law Compliance. The offer and sale of the Shares
constitutes a transaction exempt from the registration requirements of the
Securities Act of 1933 and the state securities laws and regulations of the
State of Texas.
3.22 Brokers or Finders. The Selling Stockholders have not dealt with any
broker or finder, and have not incurred, and will not incur, directly or
indirectly, as a result of any action taken by the Selling Stockholders, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the transactions contemplated by this Agreement.
3.23 Tax Matters. The Company: (i) has timely filed all income, sales and
employment tax returns that are required to have been filed with all
appropriate federal, state, county and local governmental agencies that relate
to the Company or with respect to which the Company is liable or otherwise in
any way subject, including without limitation all tax returns due for the
period ending December 31, 1997, (and all such returns fairly reflect the
Company's operations for tax purposes), and all taxes, fees, assessments and
governmental charges of any nature ("Taxes") shown by such returns to be due
and payable have been paid; (ii) has timely paid all Taxes owed by it or which
it is obligated to withhold from amounts owing to any employee (including
without limitation social security taxes), creditor or third party and (iii)
has not waived any statute of limitations with respect to taxes or agreed to
any extension of time with respect to a tax assessment or deficiency. The
assessment of any additional Taxes for periods for which returns have been
filed does not exceed the liability appearing on the Closing Date Balance Sheet
therefor, and there are no material unresolved questions or claims concerning
the Company's tax liability. The Company's tax returns have not been reviewed
or audited by any federal, state, local or county taxing authority. To the best
of the Selling Stockholder's knowledge, there is no pending dispute with any
taxing authority relating to any of said tax returns. The Company's Financial
Statements and the Closing Date Balance Sheet accurately reflect all of the
Company's tax liability for Taxes as of their respective dates. All of the
Company's income, sales and employment-related tax returns for the years 1995,
1996 and 1997 are attached hereto as Exhibit 3.23. The Company's books will be
closed as of the Closing Date in order to properly determine the Taxes due for
the period ending on the Closing Date. The Selling Stockholders will fully
cooperate with the Company in preparing its tax returns, including but not
limited to those for the stub period ending on the Closing Date.
3.24 Insurance. The Company has valid workers' compensation, fire,
casualty, liability, and errors and omissions policies, in such amounts and
with such coverage as is reasonable in the industry, in each case with
reputable insurers. The Company has provided to Purchaser true and complete
copies of all such policies. All of the Company's fire, casualty, liability and
errors and omissions policies are "occurrence" policies not "claims made"
policies. The Company is
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not in default with respect to any provision contained in any such policy and
has not failed to give any notice or present any claim under any such policy in
due and timely fashion. The Company will not be placed in default, and its
coverage will not be canceled, as a result of the transactions contemplated by
this Agreement. Except as disclosed on Schedule 3.19, there are no outstanding
unpaid claims under any such policy. The Company has not received notice of,
nor has it knowledge of, any inaccuracy in any application for such policies,
any failure to pay premiums when due or any similar state of facts that might
form the basis for termination of any such insurance or rejection of any claim.
Within three years prior to the Closing Date, the Company has not canceled or
terminated any insurance policy, other than solely for the purpose of replacing
a policy, with one of another reputable insurance company, in order to receive
a lower rate, nor has any insurance company canceled or terminated any
insurance policy of the Company or rejected any claim under such policy. All
such policies will remain in full force and effect following the Closing Date.
Following the Closing, the Company will be able to cancel all such policies
upon no more than thirty (30) days written notice without payment of any
additional premium or any penalty.
3.25 Pension Plans. The Company does not maintain or contribute to, or has
no obligation under, any Employee Benefit Plan other than those identified on
Schedule 3.25. The Company has provided Purchaser with accurate and complete
copies of all contracts, agreements, and documents described in Exhibit 3.25.
(a) ERISA and Code Compliance and Liability. The Company and each
ERISA Affiliate is in compliance with all applicable provisions of
ERISA with respect to all Employee Benefit Plans except where
failure to comply would not result in a material liability to the
Company. Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code has been determined by
the Internal Revenue Service to be so qualified, and each trust
related to such plan has been determined to be exempt under Section
501(a) of the Code. Except as disclosed on Schedule 3.25, no
material liability has been incurred by the Company or any ERISA
Affiliate that remains unsatisfied for any taxes or penalties with
respect to any Employee Benefit Plan or any Multiemployer Plan.
(b) Funding. Except as disclosed on Schedule 3.25, no Pension Plan
has been terminated, other than in the ordinary course of business,
nor has any accumulated funding deficiency (as defined in Section
412 of the Code) occurred, nor has any funding waiver from the
Internal Revenue Service been received or requested with respect to
any Pension Plan, nor has the Company or any ERISA Affiliate failed
to make any contributions or to pay and amounts due and owing as
required by Section 412 of the Code, Section 302 of ERISA or the
terms of any Pension Plan prior to the due dates of such
contributions under Section 412 of the Code or Section 302 of
ERISA, nor has there been any event requiring any disclosure under
Section 4041[c][3][C], 4063(a) or 4068 of ERISA with respect to any
Pension Plan.
(c) Prohibited Transactions and Payments. Neither the Company nor
any ERISA Affiliate has (i) engaged in a non-exempt "prohibited
transaction" as such term is
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defined in Section 406 of ERISA or Section 4975 of the Code; (ii)
incurred any liability to the PBGC which remains outstanding other
than the payment of premiums and there are no premium payments
which are due and unpaid; (iii) failed to make a required
contribution or payment to a Multiemployer Plan; or (iv) failed to
make a required installment or other required payment under Section
412 of the code.
(d) No Termination Event. No Termination Event has occurred or is
reasonably expected to occur.
(e) ERISA Litigation. No material proceeding, claim, lawsuit
and/or investigation is existing or, to the best knowledge of the
Selling Stockholders, threatened concerning or involving any (i)
employee welfare benefit plan (as defined in Section 3(1) of ERISA)
currently maintained or contributed to by the Company, (ii) Pension
Plan or (iii) Multiemployer Plan.
3.26 Directors, Officers and Employees.
(a) Directors, Officers and Employees. Schedule 3.26 hereto sets
forth the names of each director, officer and employee of the
Company and states the current rate of compensation payable to
each. The Company does not have any written employment agreement
and noncompetition agreement with such directors, officers and
employees.
(b) Labor Matters. The Company has not been, and is not, a party to
any collective bargaining agreement with any union representing any
of its employees. The Company has been, and is, in compliance with
all applicable laws, rules and regulations relating to employment
and employment practices, immigration laws, terms and conditions of
employment, wages and hours. None of the Company's employees is
represented by a labor union. Except as disclosed on Schedule 3.8,
there has not been, and there are not presently pending any unfair
labor practice or discrimination charges or complaints against the
Company, or to the knowledge of the Selling Stockholders,
threatened, before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any similar national, state or
local body.
(c) Continued Service by Certain Employees. Rodney Hooker, Kathy
Catron, Joe Blaylock and Sandy Blevins have agreed to remain
employed by the Company after the Closing Date at such compensation
levels as the parties mutually agree. Ray Hooker will continue to
act as the Company's qualifying license holder, for a nominal fee
to be mutually agreed upon, after the Closing Date until such time
as Rodney Hooker shall have obtained licensure, at which time
Rodney Hooker shall become the Company's license holder. The
Selling Stockholder agree to have each such employee execute an
employment agreement with Purchaser providing
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for the following:
(i) Continued employment by the Company of Rodney Hooker for
three (3) years and for Kathy Catron, Joe Blaylock and Sandy
Blevins for one (1) year;
(ii) Continued compensation at levels to be mutually agreed
upon; and
(iii) Confidentiality and non-competition undertakings.
3.27 Environmental and Safety Regulations. The Company is in compliance
with all applicable Environmental Laws and to the Company's knowledge no
portion of the Leasehold Property has been used as a land fill. There
currently are not any Hazardous Materials generated, manufactured, released,
stored, or to the Selling Stockholders' and Tate's knowledge, buried or
deposited over, beneath, in or on (or used in the construction of or renovation
of) the Leasehold Property in violation of applicable Environmental Laws which
could have a material adverse effect on the business, operations, properties or
financial condition of the Company.
3.28 UL Compliance. The Central Stations are certified by Underwriters
Laboratories, Inc. ("U.L."). A copy of each U.L. listing of the Central
Stations is included in Exhibit 3.28. The Selling Stockholders are not aware of
any reason why the Central Stations would lose their U.L. certifications.
3.29 Ownership of Stock. The Selling Stockholders are the lawful
owners of the Shares, free and clear of all liens, encumbrances, restrictions
and claims of every kind. The Shares are fully paid and non-assessable and
have the rights set forth in the Company's Articles of Incorporation and
Bylaws.
3.30 Exhibits and Schedules. All of the exhibits and schedules to this
Agreement which refer to the Company, the Selling Stockholders, the Assets, the
Central Stations and the Monitoring Business are true accurate and complete as
of the Closing Date and have been prepared in conformance with the provisions
of this Agreement.
3.31 Representations and Warranties True on Closing Date. The
representations and warranties made by the Selling Stockholders herein, and all
statements made in any exhibit, schedule or certificate furnished pursuant to
this Agreement, do not contain, and on the Closing Date will not contain, any
untrue statement of a material fact, or omit to state any material fact
required to be stated therein, or necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
To the Selling Stockholders' and Tate's knowledge, except as disclosed herein,
there are no material facts concerning the Company necessary for Purchaser to
accurately evaluate its investment in the Company and its Monitoring Business
and Assets which have not been disclosed to Purchaser.
3.32 Liability of Tate. The liability of Tate under this Agreement
shall be limited to that set forth in Article X herein.
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ARTICLE IV
REPRESENTATIONS, WARRANTIES, AND
ACKNOWLEDGEMENTS OF PURCHASER
Purchaser hereby represents, warrants, and acknowledges to the Selling
Stockholders that:
4.1 Incorporation. Purchaser is a validly existing corporation in good
standing under the laws of the State of Delaware. Purchaser has the requisite
corporate power and authority to own and operate its properties and assets, and
to carry on its business as presently conducted and as proposed to be
conducted.
4.2 Power and Authority. Purchaser has all requisite power and authority
to execute and deliver this Agreement; to purchase the Shares and to carry out
and perform its obligations under the terms of this Agreement.
4.3 Authorization. All action on the part of Purchaser necessary for the
authorization, execution, delivery and performance of this Agreement and the
performance of all of the Purchaser's obligations hereunder have been taken or
will be taken prior to the Closing. This Agreement, when executed and delivered
by Purchaser including all documents incorporated herein by reference, shall
constitute its valid and binding obligation, enforceable in accordance with its
terms.
4.4 No Violation. Neither the execution and delivery by Purchaser of this
Agreement, the consummation of the transactions described in this Agreement by
Purchaser, nor compliance by Purchaser with any of the provisions of this
Agreement will conflict with, result in a breach of or constitute a default
under (a) the Articles of Incorporation and Bylaws of Purchaser, (b) any
contracts, commitments or agreements to which Purchaser is a party or by which
the assets of Purchaser are bound, or (c) any law, statue, ordinance,
regulation or court or administrative order by which Purchaser is subject or
bound.
4.5 Brokers or Finders. The Purchaser has dealt with a broker or finder in
connection with the transactions contemplated herein. All fees or commissions
due to such broker or finder are the sole responsibility of the Purchaser and
Purchaser shall indemnify the Selling Stockholders and Willis Tate for any such
brokerage or finders fees.
4.6 No Consents or Governmental Approvals. Except as disclosed on
Schedule 3.6, Purchaser is not required to submit any notice, report or other
filing (except for disclosures and filings related to state or federal
securities laws) with any governmental or regulatory authority or
instrumentality in connection with the execution, delivery or performance of
this Agreement by Purchaser and the consummation of the transactions described
in this Agreement.
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4.7 Securities Laws. Purchaser acknowledges and understands that the
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act") or under any state securities laws. Purchaser is an
accredited investor and is experienced in investment and business matters.
Purchaser acknowledges that (a) it has received from Selling Stockholders and
the Company all financial and other information that Purchaser has requested
about the Company, and (b) has been given the opportunity to ask questions
about the condition (financial and otherwise) of the Company and to obtain any
information (financial or otherwise) desired about the Company. Purchaser is
acquiring the Shares for its own account for the purpose of investment and not
with a view towards distribution or violation of any registration provision of
state or federal securities laws. Purchaser further acknowledges that the
Selling Stockholders and Tate are relying upon the representations and
warranties of Purchaser contained in this Article IV in concluding that the
sale of the Shares to Purchaser does not require compliance with the
registration provisions of the Securities Act.
4.8 Disclosure. The representations and warranties made by Purchaser
herein, and all statements made in any exhibit, schedule or certificate
furnished by Purchaser pursuant to this Agreement, do not contain, and on the
Closing Date will not contain, any untrue statement of a material fact, or omit
to state any material fact required to be stated therein, or necessary in order
to make the statements made, in light of the circumstances under which they
were made, not misleading.
ARTICLE V
COVENANTS OF THE SELLING STOCKHOLDERS
5.1 Intentionally Deleted.
5.2 Intentionally Deleted.
5.3 Intentionally Deleted.
5.4 Intentionally Deleted.
5.5 Intentionally Deleted.
5.6 Assistance in Transition. The Selling Stockholders shall provide
Purchaser all reasonable assistance in connection with the transition of
ownership and management of the Company.
5.7 Intentionally Deleted.
5.8 Assistance in Compliance with Loan Covenants. The Company and the
Selling Stockholders will cooperate with Purchaser in (i) Purchaser's
negotiating of all of the documentation to be entered into by the Company, the
Selling Stockholders, Purchaser, Purchaser's lenders, and any other party in
connection with obtaining financing for the
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acquisition of the Shares, (ii) any actions required of Purchaser, the Company
and the Selling Stockholders to comply with the covenants contained in the loan
agreement with Purchaser's lenders and (iii) closing the transactions
contemplated thereby. Each Selling Stockholder agrees to enter into a Consent
to Assignment of Acquisition Instruments, in the form of Exhibit 5.8(a) hereto,
pursuant to which such Selling Stockholder will agree that Purchaser's lenders
may enforce Purchaser's remedies under this Agreement in the event of
Purchaser's default under its loan agreements with such lenders. In addition,
the Selling Stockholders will cause each lessor under the Leases to enter into
an agreement, in the form of Exhibit 5.8(b), collaterally assigning the
Company's interests in each such lease to Purchaser's lenders.
5.9 Noncompetition and Nonsolicitation. Hooker and Tate each acknowledge
that but for their agreement to be bound by the terms of this Section 5.9,
Purchaser would not consummate the transactions contemplated by this Agreement.
From the date hereof until the fifth (5th) anniversary of the Closing Date
(unless otherwise provided), each Selling Stockholder and Tate agrees that they
will not:
(a) enter into competition with the Company or Purchaser, or its
subsidiaries by establishing a remote alarm system monitoring
center providing monitoring services to any location within twenty
five (25) miles of any location where the Company, Purchaser or its
subsidiaries provide such services;
(b) provide, or solicit any Dealer or Subscriber for the purposes
of providing, any services similar to those currently provided by
the Company, Purchaser or its subsidiaries, either directly or
through any other person or entity.
(c) reveal the customer list of the Company to any person; or
(d) for so long as the Company is engaged in the Monitoring
Business, take any other action which is intended to, or which
would reasonably be expected to:
(1) adversely affect the Company's, Purchaser's, or its
subsidiaries' interest in any Contract, provided, however, the
Selling Stockholders and Tate may take action with respect to
Contracts to which they are a party with Purchaser to the extent
that Purchaser is in default of such agreements, after providing
an opportunity to cure such default as provided in the
respective agreements or to the extent that Purchaser fails to
provide reasonably satisfactory service under the agreement to
provide monitoring services to GHT Alarm Systems, Inc.;
(2) adversely affect the Company's, Purchaser's, or its
subsidiaries' contractual relationship with any Dealer or
Subscriber; or
(3) discourage any Dealer, Subscriber or supplier from
continuing its business relationship with the Company,
Purchaser, or its subsidiaries after the Closing Date on the
same terms as were maintained prior to the Closing Date.
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In addition, from the date hereof until the first (1st) anniversary of the
Closing Date, the Selling Stockholders and Tate agree that they will not employ
any employee of the Company, Purchaser or its subsidiaries without the consent
of the Company, which consent will not be unreasonably withheld or solicit or
encourage any such employee to terminate his or her employment with any of the
foregoing, provided, however, Rodney Hooker shall not be employed or solicited
by the Selling Stockholders or Tate for three (3) years from the Closing Date.
Notwithstanding the foregoing, this provision shall not apply to employees who
are terminated by the Company, Purchaser or its subsidiaries due solely to
downsizing.
Notwithstanding the foregoing, Purchaser specifically acknowledges and
agrees that (a) Hooker and Tate's ownership in GHT Alarm Systems, Inc. ("GHT")
and the business currently conducted by GHT does not violate the provisions of
this Section 5.9; (b) the Hooker and/or Tate's ownership in Nova Internet
Services, Inc. ("Nova"), the business currently conducted by Nova and its
intention to provide internet-based audio and video surveillance services do
not and will not violate this Section 5.9; and (c) Alice L. Gorman may work for
a Selling Stockholder and/or Tate and the Company which will not violate this
Section 5.9. For purposes of this paragraph 5.9, the term "Selling Stockholder
and Tate" shall also include any corporation, partnership or other business
entity in which a Selling Stockholder or Tate now or in the future owns,
directly or indirectly, a controlling equity interest, and the parents, spouse,
children, brothers and/or sisters of a Selling Stockholder or Tate, or any
entity in which any of them own, directly or indirectly, a controlling
interest. Notwithstanding any other provision of this Agreement, each Selling
Stockholder and Tate agrees that money damages would not be a sufficient remedy
for breach of this Section 5.9 and that Purchaser shall be entitled to specific
performance, injunctive relief or other equitable relief as a remedy for breach
of this Section 5.9.
5.10 Confidentiality. The Selling Stockholders will treat as strictly
confidential all information covering Purchaser's business that is not part of
the public domain and shall not disclose any such information to any third
party.
5.11 Tax Returns. The Selling Stockholders hereby agrees to indemnify
Purchaser pursuant to Article X hereof for any costs incurred for any unpaid
tax liabilities related to the Company arising from any state of facts existing
prior to the Closing Date, including, but not limited to federal, state, and
local income taxes.
5.12 GHT Agreement. On or before the Closing Date, GHT will have entered
into an agreement for monitoring services with the Company on such terms as the
parties mutually agree.
5.13 Financial Statement Audits. In the event that Purchaser deems it
necessary or advisable to have an independent audit performed on the financial
statements of the Company, the Selling Stockholders will fully cooperate with
Purchaser and the independent auditors in the performance of the audit.
5.14 Disclosure to Texas Taxing Authorities. The Selling Stockholders have
made or shall timely make all necessary disclosures related to the purchase and
sale of the Shares as are
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required under the applicable laws of the State of Texas, and no amounts are
required to be withheld from the Purchase Price pursuant to such laws.
5.15 Intentionally Deleted.
ARTICLE VI
COVENANTS OF PURCHASER
6.1 Intentionally Deleted.
6.2. Offer of Employment. Purchaser agrees that the Company will offer
employment to each of the individuals listed on Schedule 3.26 at the annual
salary rates set forth on Schedule 3.26. Each such employee that accepts such
an offer will be an employee at will, except Rodney Hooker, who will have
executed a three-year employment agreement with the Company in the form of
Exhibit 6.2 and the employees who have executed one-year employment agreements
with the Company.
6.3. Confidentiality. Purchaser agrees to abide by the confidentiality
provisions of the letter of intent dated April 6, 1998; provided, however, that
Purchaser, as a reporting company under the Exchange Act of 1934 and as an
issuer of securities under the Securities Act of 1933, may make all disclosures
concerning this Agreement, the Selling Stockholders and the Company as are
required by federal and state securities laws, as determined by SAI and its
counsel.
6.4 Intentionally Deleted.
ARTICLE VII
PURCHASER'S CONDITIONS FOR CLOSING
Purchaser's obligation to consummate the transactions contemplated by this
Agreement is subject to the fulfillment, on or before the Closing, of all the
following conditions, unless waived in writing by Purchaser:
7.1 Representations True. The representations and warranties of the
Selling Stockholders in this Agreement shall be true and correct on the Closing
Date.
7.2 Covenants Performed. The Selling Stockholders shall, or shall have
caused the Company to, have performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied with at
or prior to the Closing Date.
7.3 No Violations; No Actions. Consummation of the transactions
contemplated by this Agreement shall not violate any order, decree or judgment
of any court or governmental
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entity and no action or proceeding shall have been instituted by any person or
entity or threatened by any governmental entity which, in either such case, in
the reasonable judgment of Purchaser, has a probability of resulting in an
order judgment or decree restraining, prohibiting or rendering unlawful the
consummation of the transactions contemplated by this Agreement.
7.4 Release of Lien. The Selling Stockholders shall have delivered to
Purchaser from The First National Bank of Van Alstyne a letter stating that
upon receipt of the payment set forth therein all liens with respect thereto
will be released and that said bank will forthwith deliver to purchaser all
outstanding notes of the Company marked "cancelled".
7.5 Opinions of Counsel for the Selling Stockholders. Purchaser shall have
received opinions from counsel for the Selling Stockholders, in form and
substance satisfactory to Purchaser.
7.6 Proceedings and Documents. All corporate, trust and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to Purchaser, and Purchaser shall have received all such originals
or certified or other copies of such documents as it may reasonably request.
7.7 Employment Agreements. The Company shall have entered into a written
employment agreements with Joe Blaylock and Rodney Hooker, in the form of
Exhibit of Exhibit 6.2.
7.8 Delivery of Documents. Purchaser shall have received all documents and
other items to be delivered by the Selling Stockholders under Section 9.2 of
this Agreement.
7.9 Exhibits. The Selling Stockholders shall have completed and attached
hereto all Exhibits and Schedules required by this Agreement, and all such
Schedules shall have been acceptable to Purchaser, in all reasonable respects.
7.10 Required Consents. Except as disclosed on Schedule 3.6, all
statutory, regulatory and third party consents and approvals which are required
under the laws or regulations of the United States and any other authority
shall have been obtained; and all other necessary consents and approvals of
third parties (including, but not limited to FINOVA Capital Corporation and
the lessors of the Central Stations to the continued use of those facilities
following the Closing) and to the transactions contemplated hereby and to the
continued uninterrupted operation of the business of the Company shall have
been obtained.
7.11 Officer's and Other Certificates. The Selling Stockholders shall, or
caused the Company to, have delivered to Purchaser the following:
(a) a certificate of each Selling Stockholder, stating that the
conditions specified in Article VII applicable to such Selling
Stockholder, has been fulfilled on or prior to the Closing Date;
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(b) an officer's certificate, dated the Closing Date, stating that
the conditions specified in this Article VII applicable to the
Company, have been fulfilled on or prior to the Closing Date; and
(c) a certificate of the Company's secretary, certifying as true,
accurate, and complete the Certificate of Incorporation and By-laws
of the Company attached as Exhibit 7.11(b).
ARTICLE VIII
SELLING STOCKHOLDER'S CONDITIONS FOR CLOSING
The obligation of the Selling Stockholders and Tate to consummate the
transactions contemplated by this Agreement are subject to the fulfillment, on
or before the date of Closing, of all the following conditions, unless waived
in writing by a majority in interest of the Selling Stockholders and Tate:
8.1 Representations True. The representations and warranties of Purchaser
set forth in Article IV shall be true and correct when made and true and
correct on the Closing Date.
8.2 Covenants Performed. Purchaser shall have performed or complied with
all of the terms, covenants and conditions of this Agreement to be performed or
complied with by Purchaser and shall have obtained all necessary consents on or
before the Closing Date.
8.3 No Violations; No Actions. Consummation of the transactions
contemplated by this Agreement shall not violate any order, decree or judgment
of any court or governmental body having competent jurisdiction and no action
or proceeding shall have been instituted by any person or entity or threatened
by any governmental agency which, in either such case, in the reasonable
judgment of the Selling Stockholders, has a probability of resulting in an
order judgment or decree restraining, prohibiting or rendering unlawful the
consummation of the transactions contemplated by this Agreement.
8.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to the Selling Stockholders, and they shall have received all such
counterpart originals or certified or other copies of such documents as they
may reasonably request.
8.5 Delivery of Documents. The Selling Stockholders shall have received
all documents and other items to be delivered by Purchaser under Section 9.3.
8.6 Required Consents. All statutory and regulatory consents and approvals
which are required under the laws or regulations of the United States and any
other authority shall have been obtained; and all other necessary consents and
approvals of third parties to the transactions contemplated hereby shall have
been obtained.
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8.7 Opinion of Counsel. The Selling Stockholders shall have received an
opinion of counsel for Purchaser in form and substance reasonably satisfactory
to the Selling Stockholders.
ARTICLE IX
CLOSING
9.1 Time and Place. The Closing shall occur at the offices of Purchaser,
or at any other place to which the Parties shall mutually agree, at 11 a.m. on
the Closing Date, but shall be effective as of 12:01 a.m. on the Closing Date.
9.2 Deliveries of the Selling Stockholders. At or prior to the Closing,
the Selling Stockholders will execute and deliver or cause to be executed and
delivered to Purchaser:
(a) Stock Certificates. Certificates representing the Shares
endorsed over to Purchaser or accompanied by duly executed stock
powers;
(b) Corporate Documents. The Articles of Incorporation of the
Company, certified by the Secretary of State of Texas as of a date
not more than twenty days prior to the Closing Date, and the
By-Laws of the Company certified by the secretary of the Company as
in effect at the Closing;
(c) Certificate of Good Standing. A Long-form Certificate of Good
Standing and a Certificate of Existence, dated not more than ten
days prior to the Closing Date, with respect to the Company, issued
by the Texas Comptroller of Public Accounts and the Secretary of
State of Texas and by the Secretary of State of each foreign
jurisdiction in which the Company is qualified to do business;
(d) Books and Records. All corporate records of the Company
relating to the Monitoring Business as set forth in Section
3.12(j).
(e) Consents. Evidence that all consents, approvals, or
authorizations of or notifications to any third parties (including
governmental agencies), if any, other than those disclosed on
Schedule 3.6, required to sell and assign the Shares and to
consummate the transactions contemplated hereby and to continue to
operate the business of the Company without interruption have been
obtained, including without limitation, any revenue notices
required by the State of Texas with any corresponding taxes due
paid by the Selling Stockholders, and the consent the lessors under
the Equipment Leases for the continued use of any leased equipment
following the Closing on the terms contained in the respective
leases.
(f) Opinions of Counsel. The opinions of counsel referred to in
Section 7.5 of this Agreement;
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(g) Certificates. The certificates dated the Closing Date, required
pursuant to Section 7.11 of this Agreement;
(h) Assignment of Acquisition Instruments. The Assignment of
Acquisition Instruments in the form of Exhibit 9.2(g);
(i) Collateral Assignment of Leases. The Collateral Assignment of
Leases for each of the Company's Leases and Equipment Leases in the
form of Exhibit 9.2(h);
(j) Employment Agreements. The executed employment agreements
between the Company and Rodney Hooker and Joe Blaylock, in the form
of Exhibit 6.12;
(k) Evidence of Release of Liens. Evidence, in form and substance
satisfactory to Purchaser that all liens, charges and encumbrances
on the Shares, the Company and its properties, have been fully
released prior to or concurrently with the Closing, or will be
released concurrently with the Closing;
(l) Resignations. The written resignations of Ray E. Hooker,
Willis M. Tate, Jr. and Nolen R. Russell as directors of the
Company; and the resignations of Ray E. Hooker, Willis M. Tate, Jr.
and Nolen R. Russell as officers of the Company, effective as of
the Closing Date;
(m) Signature Cards. Substitute signature cards for all of the
Company's bank accounts naming persons designated by the Purchaser
as the new signatories for said bank accounts;
(n) Credit Cards. All corporate credit cards of the Company;
(o) Miscellaneous. Prior to the Closing, the Selling Stockholders
will obtain written consents and take such other actions as may be
necessary or appropriate to allow the consummation of the
transactions contemplated hereby and to allow the continuation of
the Company's business and operations after the Closing, including
but not limited to, any consents required by any real and personal
property leases, other than those disclosed on Schedule 3.6.
(p) Other Documents. Such other documents and instruments as
Purchaser or its counsel reasonably shall deem necessary to
consummate the transactions contemplated hereby.
(q) Authority. A copy of the authority of the Trustee of the
Trust authorizing the execution and delivery of this Agreement and
the performance of the transactions contemplated hereby by the
Trust.
(r) Tax Returns. Filed 1997 tax returns of the Company.
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(s) Payoff Letter. The payoff letter referred to in Section 7.4 of
this Agreement.
All documents delivered to Purchaser shall be in form and substance
reasonably satisfactory to Purchaser's counsel.
9.3. Deliveries of Purchaser. At the Closing, Purchaser will execute and
deliver or cause to be executed and delivered to the Selling Stockholders
simultaneously with delivery of the items referred to in Section 9.2 above:
(a) Payment of the Consideration. Bank wire transfers as provided
in Section 2.2.1 for the Purchase Price payable in cash at Closing;
(b) payment to the Company of the amount set forth in Section
2.2.1(b);
(c) Resolutions. A copy of the resolution of the Board of Directors
of Purchaser, certified by Purchaser's secretary as having been
duly and validly adopted and being in full force and effect,
authorizing execution and delivery of this Agreement and
performance of the transactions contemplated hereby by Purchaser;
(d) Corporate Documents. The Articles of Incorporation of
Purchaser, certified by the Secretary of State of Delaware as of a
date not more than twenty days prior to the Closing Date, and the
By-Laws of Purchaser, certified by the secretary of Purchaser as in
effect at the Closing;
(e) Certificate of Good Standing. A Certificate of Good Standing
dated not more than twenty days prior to the Closing Date, with
respect to Purchaser, issued by the Secretary of State of Delaware;
(f) Officer's Certificate. A certificate from an officer of
Purchaser, dated the Closing Date, confirming the satisfaction of
the conditions required pursuant to Article 8;
(g) Other Documents. Such other documents and instruments as the
Selling Stockholders or their counsel reasonably shall deem
necessary to consummate the transactions contemplated hereby.
(h) Opinion of Counsel. The opinion of counsel referred to tin
Section 8.7 of this Agreement.
(i) Employment Agreements. The executed employment agreements for
those employees to be provided one-year employment contracts.
All documents delivered to the Selling Stockholders shall be in form and
substance reasonably satisfactory to their counsel.
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ARTICLE X
INDEMNIFICATION
10.1 Indemnification.
(a) The Selling Stockholders, jointly and severally, will indemnify
and hold harmless Purchaser, and each, officer, director or
employee of Purchaser against any losses, claims, damages or
liabilities, including reasonable attorneys' fees and other
reasonable defense costs (hereafter "Loss") to which Purchaser, or
any officer, director or employee thereof becomes subject in
connection with:
(1) finders' fees or brokerage commissions incurred or alleged
to have been incurred by the Selling Stockholders with respect
to the transactions contemplated by this Agreement;
(2) any liability of the Company not disclosed in writing prior
to the Closing Date and for which an adjustment has not been
made pursuant to Section 2.8;
(3) any misrepresentation of fact, or failure to disclose a
material fact, by the Selling Stockholders;
(4) any breach of any representation or warranty made by the
Selling Stockholders or Tate contained in this Agreement or in
any document delivered hereunder;
(5) any claims which have been or may be in the future asserted
arising out of the provision of Monitoring Services (or failure
to adequately provide such services) by the Company which
occurred prior to the Closing Date;
(6) any breach of any covenant or agreement by the Company or
the Selling Stockholders contained herein or in any document
delivered hereunder, to be performed prior to or after the
Closing Date;
(7) any other liability or expense resulting from a dispute or
cause of action relating to the business of the Company, arising
from an event, act, or omission occurring before the Closing
Date or related to the enforcement of the indemnification
provisions of this Agreement, if the Purchaser is successful in
prosecuting such claim.
(b) Purchaser will indemnify and hold harmless the Selling
Stockholders, Tate and each partner, trustee or employee of the
Selling Stockholders, against any Loss to which the Selling
Stockholders, Tate or any partner, trustee or employee
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becomes subject in connection with:
(1) finders' fees or brokerage commissions incurred or alleged
to have been incurred by Purchaser with respect to the purchase
transaction;
(2) any misrepresentation of fact, or failure to disclose a
material fact, by Purchaser;
(3) any breach of any representation or warranty by Purchaser
contained herein or in any document delivered hereunder;
(4) any claims which may in the future be asserted arising out
of the provision of Monitoring Services (or failure to
adequately provide such services) by the Company occurring on or
after the Closing Date;
(5) any breach of any covenant or agreement by Purchaser
contained herein or in any document delivered hereunder, to be
performed prior to or after the Closing Date;
(6) any liability or expense resulting from a dispute or cause
of action relating to the Company, arising from an event, act,
or omission occurring on or after the Closing Date.
(7) any other liability or expense resulting from a dispute or
cause of action relating to the business of the Company, arising
from an event, act, or omission occurring after the Closing Date
or related to the enforcement of the indemnification provisions
of this Agreement, if the Selling Stockholders are successful in
prosecuting such claim
(c) Such indemnification shall include any and all actions, suits,
proceedings, demands, assessments or judgments, costs and expenses
incidental to any of the foregoing matters set forth in Section
10.1(a) and (b) or enforcement of the indemnification provisions of
this Agreement.
10.2 Indemnification Procedures. For the purposes of this Section 10.2,
the term "Indemnitee" shall refer to the person or persons entitled, or
claiming to be entitled, to be indemnified, pursuant to the provisions of
Section 10.1. The term "Indemnitor" shall refer to the person or persons having
the obligation to indemnify pursuant to such provisions.
(a) Notice. An Indemnitee shall promptly give the Indemnitor
written notice of any matter which an Indemnitee has determined has
given or could give rise to a right of indemnification under this
Agreement, stating the amount of the Loss, if known, and method of
computation thereof, all with reasonable particularity and
containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed or
arises. If an Indemnitee shall receive notice of any claim by a
third party which is or may be subject to indemnification
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(a "Third Party Claim"), the Indemnitee shall give the Indemnitor
prompt written notice of such Third Party Claim and shall permit the
Indemnitor, at its option, to participate in the defense of such
Third Party Claim by counsel of its own choice (subject to
Indemnitee's approval, which shall not be unreasonably withheld) and
at its expense. If, however, the Indemnitor acknowledges in writing
its obligation to indemnify the Indemnitee hereunder against all
Losses that may result from such Third Party Claim (subject to the
limitations set forth herein), then the Indemnitor shall be
entitled, at its option, to assume and control the defense of such
Third Party Claim at its expense and through counsel of its choice,
provided however, that Indemnitee shall have the right to approve in
its sole reasonable discretion the choice of counsel. In the event
the Indemnitor exercises its right to undertake the defense of any
such Third Party Claim, the Indemnitee shall co-operate with the
Indemnitor in such defense and make available to the Indemnitor, at
the Indemnitor's expense, all witnesses, pertinent records,
materials and information in its possession or under its control
relating thereto as is reasonably required by the Indemnitor.
Similarly, in the event the Indemnitee is, directly or indirectly,
conducting the defense against any such Third Party Claim, the
Indemnitor shall co-operate with the Indemnitee in such defense and
make available to it all such witnesses, records, materials and
information in its possession or under its control relating thereto
as is reasonably required by the Indemnitee. In the event that the
Indemnitor fails to agree to undertake defense of the Third Party
Claim within thirty (30) days of receipt of notice of such claim
from the Indemnitee, the Indemnitee shall be entitled to undertake
such defense with counsel of its own choice, and the Indemnitor
shall promptly reimburse the Indemnitee for all reasonable expenses
incurred. The Indemnitor without the written consent of the
Indemnitee may settle no Third Party Claim, unless the settlement
involves only the payment of money by the Indemnitor. Similarly,
no Third Party Claim, which is being defended in good faith by the
Indemnitor, shall be settled by the Indemnitee without the written
consent of the Indemnitor.
(b) Calculation of Losses. Losses shall be determined after taking
into account any insurance proceeds received by an Indemnitee or its
affiliates from a non-affiliated insurance company on account of
such Losses (after taking into account any costs incurred in
obtaining such proceeds and any increase, determined in the
reasonable judgment of the Indemnitee and confirmed by the insurance
company, in insurance premiums as a result of the claim for which
such proceeds were paid). The Indemnitor shall not be liable for any
increase in Losses sustained by the Indemnitee, resulting from
Indemnitee's failure to give Indemnitor timely written notice of any
matter likely to give rise to a right of Indemnification hereunder.
10.3 Limitation on Indemnification of the Selling Stockholders and Tate.
The total indemnification to be paid by Hooker under Section 10.1 of this
Agreement shall not exceed three million four hundred twenty-three thousand
dollars ($3,423,000), and the total indemnification to be paid by the Trust
under Section 10.1 of this Agreement shall not exceed
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three million four hundred twenty-three thousand dollars ($3,423,000). The
assets of the Trust shall be subject to any indemnification obligations payable
to Purchaser by the Trust under this Agreement to the extent of the assets of
the Trust at the time such indemnification payment is required (the "Trust
Amount"). Notwithstanding any provision contained in this Agreement to the
contrary, in the event the Trust Amount is less than $3,423,000 and the
indemnification obligations owed to Purchaser hereunder by the Trust exceed the
Trust Amount, Tate shall pay into the Trust the difference between (i) the
Trust Amount, and (ii) the indemnification amount required to be paid by the
Trust by virtue of this Agreement, which amount shall be utilized solely to pay
the Trust's full indemnification obligations to Purchaser up to $3,423,000 in
the aggregate. Tate shall have no indemnification obligations other than as
set forth in the preceding sentence.
10.4 Limitation on Indemnification by Purchaser. The total
indemnification to be paid by Purchaser under Section 10.1 of this Agreement
shall not exceed six million eight hundred forty-six thousand dollars
($6,846,000).
10.5 Indemnification Threshold. Neither Purchaser nor the Selling
Stockholders shall otherwise be required to indemnify the other party or
parties pursuant to this Article 10 unless the aggregate amount of all claims
for indemnification against such party exceeds $100,000, and, in such event,
such indemnified party shall be entitled to indemnification from the first
dollar to the limitation of indemnification as set forth in Section 10.3 or
Section 10.4 of this Agreement.
10.6 Exclusivity of Indemnification. The indemnification provisions of
this Article X shall be the exclusive basis after the Closing Date for the
assertion of claims by the Purchaser or the Selling Stockholders and Tate for
monetary damages or relief, provided however, this Section 10.6 shall not apply
to the provisions of Section 2.8 and, further, shall not limit the equitable
remedies available to the Purchaser in the event of any breach by any of the
Selling Stockholders and Tate under any noncompetition or nonsolicitation
covenant contained herein.
10.7 Arbitration. In the event any claims are asserted under this Article
X, and the parties have been unable to agree upon a resolution of such claims,
such disputes shall be submitted to arbitration in Dallas, Texas, administered
by the American Arbitration Association under its commercial arbitration rules
applicable to three arbitrators. The Selling Stockholders shall select one
arbitrator, the Purchaser shall select one arbitrator, and the two arbitrators
shall select a third arbitrator. All parties hereto shall cooperate and
provide the arbitrators with such information as they may request. The parties
hereto agree to be bound by the findings made by the arbitrators and shall
share responsibility for the fees and expenses of arbitration as follows:
(a) if the arbitrators resolve all the disputes in favor of the
Indemnitee, the Indemnitor shall be responsible for all fees and expenses of
the arbitration;
(b) if the arbitrators resolve all the disputes in favor of the
Indemnitor, the Indemnitee shall be responsible for all the fees and expenses
of the arbitration; and
(c) if the arbitrators resolve some of the disputes in favor of the
Indemnitee and the rest of the disputes in favor of the Indemnitor, the
Indemnitee and the Indemnitor shall each
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be responsible for a proportionate amount of fees and expenses of the
arbitration based on the dollar amount of the disputes resolved against him or
it compared to the dollar amount of all disputes submitted to arbitration.
Judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
ARTICLE XI
MISCELLANEOUS
11.1 Survival. The representations, warranties, covenants and
indemnification obligations of the parties contained in this Agreement and
their respective obligations to be performed under the terms hereof at, prior
to or after the Closing hereunder, shall not expire with, or be terminated or
extinguished by, such Closing, but shall survive the Closing for a period of
four (4) years, except as to the provisions of Sections 3.23, 3.25, 3.26(b),
3.27 and 3.29 of this Agreement which shall survive until the expiration of the
applicable statute of limitations.
11.2 Further Assurances. At the request of a party to this Agreement, and
without further consideration, the other party agrees to execute such documents
and instruments and to do such further acts as may be necessary or desirable to
effectuate the transactions contemplated hereby.
11.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. THE SELLING
STOCKHOLDERS AGREE THAT THEY WILL NOT ASSERT ANY CLAIM AGAINST ANY OFFICER,
DIRECTOR, EMPLOYEE OR AGENT OF PURCHASER OR ANY OF ITS AFFILIATES, PURSUANT TO
ANY CLAIM THEY MAY HAVE UNDER THIS AGREEMENT BY REASON OF ANY FAILURE OR
ALLEGED FAILURE BY PURCHASER TO MEET ITS OBLIGATIONS HEREUNDER. THE PARTIES
HERETO AGREE AND INTEND THAT, EXCEPT WHERE THE PARTIES HAVE EXPRESSLY AGREED TO
ARBITRATE, THE PROPER AND EXCLUSIVE FORUM FOR THE LITIGATION OF ANY DISPUTES OR
CONTROVERSIES ARISING OUT OF, OR RELATED TO, THIS AGREEMENT SHALL BE THE COURTS
OF THE STATE OF ILLINOIS FOR THE COUNTY OF COOK. EACH PARTY AGREES THAT HE OR
IT WILL NOT COMMENCE OR MOVE TO TRANSFER ANY ACTION OR PROCEEDING, ARISING OUT
OF OR RELATING TO THIS AGREEMENT, IN OR TO ANY COURT OTHER THAN A STATE COURT
LOCATED IN THE COUNTY OF COOK IN THE STATE OF ILLINOIS. EACH PARTY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFORESAID COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESSES PROVIDED HEREIN, SUCH SERVICE
TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING CONTAINED IN
THIS SECTION SHALL AFFECT THE RIGHT TO SERVE
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PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. IN THE EVENT THAT ANY PARTY
SHOULD COMMENCE OR MAINTAIN ANY ACTION ARISING OUT OF OR RELATED TO THIS
AGREEMENT IN A FORUM OTHER THAN THE STATE COURTS LOCATED IN THE STATE OF
ILLINOIS, COUNTY OF COOK, THE OTHER PARTY SHALL BE ENTITLED TO MOVE FOR THE
DISMISSAL OF SUCH ACTION, AND THE NON-MOVING PARTY STIPULATES THAT SUCH ACTION
SHALL BE DISMISSED. THE PARTIES AGREE THAT PRIOR TO INSTITUTING ANY SUIT, THEY
WILL GIVE WRITTEN NOTICE OF THEIR INTENT TO DO SO AND MAKE A REASONABLE ATTEMPT
TO RESOLVE ANY DISPUTE BY NEGOTIATING WITH EACH OTHER IN GOOD FAITH.
11.4 Successors and Assigns. This Agreement shall be binding on, and inure
to the benefit of, the parties to it and their respective heirs, legal
representatives, successors, and assigns.
11.5 Each Party to Bear Own Costs. The Selling Stockholders and Purchaser
shall each bear its own legal and other expenses incurred on its behalf with
respect to the preparation of this Agreement, any related documents and the
transactions contemplated hereby, provided, however, that the Company shall pay
a maximum of $15,000 of the Selling Stockholders' legal expenses. The Purchaser
shall bear all costs related to the services of the broker in this transaction.
11.6 Entire Agreement; Amendment. This Agreement, its Exhibits and
Schedules and the other documents delivered pursuant hereto at the Closing
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
11.7 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed:
To Ray Hooker
at: 4432 Walnut Hill Lane
Dallas, Texas 75229
To Willis Tate
at: 7110 Forest Lane
Dallas, Texas 75230
To the Trust
at: S. Leon Bennett
205 Perkins
Administration Building/ SMU
Dallas, Texas 75275
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with a copy to: Joshua P. Oden
Passman & Jones
1201 Elm Street, Suite 2500
Dallas, Texas 75270
To Purchaser at: Security Associates International, Inc.
2101 South Arlington Heights Road
Arlington Heights, Illinois 60005-4142
ATTN: PRESIDENT
Any party may change its address for purposes of this paragraph by giving
notice of the new address to the other party in the manner set forth above.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
seventy-two (72) hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
11.8 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement, upon any breach or default by the other party under this Agreement,
shall impair any such party, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any party
of any breach or default under this Agreement, or any waiver on the part of any
party of any provisions or conditions of this agreement, must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
11.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
11.10 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
11.11 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and shall not be considered in
construing or interpreting this Agreement.
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11.12 Incorporation by Reference. The Schedules, Exhibits, certificates
and other documents attached hereto or referred to herein are deemed to be a
part of this Agreement and are incorporated herein by this reference.
11.13 Recitals. The Recitals of this Agreement are incorporated herein as
though fully set forth herein.
The foregoing Agreement is hereby executed as of the date first above written.
PURCHASER:
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: _________________________________________
Ronald Carr, its Vice President
SELLING STOCKHOLDERS:
By: _____________________________________________
Ray Hooker
THE WILLIS TATE, JR. CHARITABLE REMAINDER UNITRUST FOR
SOUTHERN METHODIST UNIVERSITY
By: SOUTERN METHODIST UNIVERSITY, TRUSTEE
By: _____________________________________________
Its: _______________________________________
________________________________________________
Willis Tate, Jr.
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