<PAGE> 1
As filed with the Securities and Exchange Commission on May 17, 2000
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: April 21, 2000
(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)
<PAGE> 2
ITEM 5. OTHER EVENTS.
LETTER OF INTENT AMONG SECURITYVILLAGE.COM INC., SECURITY ASSOCIATES
INTERNATIONAL, INC, KC ACQUISITION CORP. AND TJS PARTNERS, L.P.
On April 21, 2000, SAI entered into a letter of intent with KC
Acquisition Corp. (d/b/a King Central), TJS Partners, L.P. and
SecurityVillage.com Inc. which was subsequently amended. The letter of intent
provides for, among other things, KC Acquisition Corp., Monital Signal
Corporation, SAI and SecurityVillage joining forces, potentially as combined
entities. Each stage of the transactions contemplated in the letter of intent is
subject to contingencies that are detailed in the letter of intent and the
difinitive agreements.
The following transactions and events contemplated by the letter of
intent have been completed to date:
(i) on May 11, 2000, KC Acquisition Corp. directly and indirectly
purchased 99.2% of the capital stock of Monital Signal
Corporation for a cash purchase price of $12.5 million together
with the assumption of Monital's debt of approximately $1.4
million plus the assumption of certain liabilities of Monital,
and
(ii) on May 11, 2000, SAI signed a Plan and Agreement of Merger with
KC Acquisition Corp. and KC Acquisition Corp.'s shareholders,
which is subject to the approval of SAI's stockholders. Pursuant
to the merger agreement, SAI would merge with KC Acquisition
Corp. and the KC Acquisition shareholders will receive
consideration of $5 million payable in cash, plus shares of
senior preferred stock of SAI with an aggregate liquidation
preference of $22.5 million which are convertible into 4.5
million shares of common stock of SAI, subject to certain
contingencies, and
(iii) SecurityVillage will receive 300,000 shares of common stock of
SAI, through the conversion of its $1.5 million promissory note
from Monitoring Acquisition Corporation, a wholly owned
subsidiary of KC Acquisition Corp., in accordance with the
Investment Agreement.
Upon the actual closing of the KC Acquisition merger, SecurityVillage
will acquire 1,200,000 shares of common stock of SAI for $6.0 million.
Additionally, it is contemplated that SAI and SecurityVillage will enter into an
agreement whereby each will have the right to merge with the other upon certain
circumstances, subject to stockholder approval. In the event of any such merger,
assuming the consummation of all of the transactions and option exercises
referred to in the letter of intent the stockholders of SecurityVillage will
hold approximately 57% of the capital stock of the surviving entity.
2
<PAGE> 3
The letter of intent, amendment to the letter of intent, Investment
Agreement, Share Purchase Agreement and Plan and Agreement of Merger are
attached hereto, all of which should be read in their entirety for a complete
understanding of the transactions.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
Not required.
(b) Pro forma financial information
Not required.
(c) Exhibits.
10.1 Letter of Intent among SecurityVillage.com Inc., Security
Associates International, Inc, KC Acquisition Corp. and TJS
Partners. L.P. dated April 21, 2000.
10.2 Amendment to Letter of Intent among SecurityVillage.com
Inc., Security Associates International, Inc, KC Acquisition Corp.
and TJS Partners. L.P. dated April 21, 2000, dated May 10, 2000.
10.3 Investment Agreement by and among MTL Acquisition Corp., M
Finance Limited, Timesmaster Limited, LWG Holdings Limited,
Griptight Holdings, Inc. and Monitoring Acquisition Corporation,
dated May 11, 2000.
10.4 Share Purchase Agreement by and between the executors of
the United Kingdom estate of Eric Hurst (deceased), Robert Hurst,
Edward Hurst, Linda Hurst, Heather Hurst, First Court Limited,
Maygarden Limited, the temporary administrator of the United
States estate of Eric Hurst (deceased) and MTL Acquisition Corp.
dated May 11, 2000.
10.5 Plan and Agreement of Merger between Security Associates
International, Inc., King Acquisition Corp., KC Acquisition Corp.,
Thomas J. Few, David L. Smith and Timothy M. McGinn dated May 11,
2000.
3
<PAGE> 4
SIGNATURES
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
Senior Vice President, Chief Financial
Officer
Date: May 17, 2000
<PAGE> 1
Exhibit 10.1
April 21, 2000
Security Associates International, Inc.
2101 S. Arlington Heights Rd.
Suite 100
Arlington Heights, IL 60005-4142
KC Acquisition Corp.
P. O. Box 1943
South Hackensack, NJ 07606-0543
TJS Partners, L.P.
115 East Putnam Avenue
Greenwich, CT 06830
Ladies and Gentlemen:
This letter agreement will confirm our mutual understanding concerning the
transactions described herein (the "Transactions") by and among
SecurityVillage.com Inc. ("SecurityVillage"), Security Associates International,
Inc. ("SAI"), KC Acquisition Corp. ("King"),; TJS Partners. L.P. ("TJS") and
certain individuals whose names appear on the signature pages hereof.
SecurityVillage, King and SAI are referred to herein collectively as the
"Corporate Parties". The terms of the Transactions are as follows:
Monital Acquisition. (a) King shall be assigned all of SecurityVillage's rights
to acquire, directly or indirectly, Monital Signal Corporation ("Monital") as
set forth in the most current drafts of the share purchase agreement, investment
agreement and related documentation (the "Monital Documentation") subject to the
continued negotiations between SecurityVillage, King and the sellers of Monital.
The acquisition of Monital is referred to in this letter as the "Monital
Acquisition." This assignment of SecurityVillage's rights shall be subject to
the execution of the King Acquisition Agreement (as defined in Section 3(a)(i)
below) and SV/SAI Agreement (as defined in Section 3(a)(ii) below) and shall
become effective immediately prior to the closing of the Monital Acquisition,
which shall occur no later than May 2, 2000, for a cash purchase price of $12.5
million together with the assumption of Monital's debt of approximately $1.4
million (less the $450,000 to be received pursuant to Section 2(d) below and the
amount of certain incentive payments to employees of Monital and other amounts
Monital is obligated to pay pursuant to the Monital Documentation). The current
and proposed documentation negotiated by SecurityVillage with King (the "King
Documentation"), together with the Monital Documentation, shall be used to
effect the Monital Acquisition, subject to any adjustments that may be required
due to the substitution of SAI for SecurityVillage as the party acquiring King.
(b) Simultaneous with the consummation of the Monital Acquisition, (i)
each of the Corporate Parties shall be deemed to have satisfactorily completed
its due diligence referred to in Section 3(b) below in connection with the
Transactions (provided that each Corporate Party may continue to request
information from the other Corporate Parties relating to the Transactions
<PAGE> 2
following the consummation of the Monital Acquisition, and all such parties will
use their best commercial efforts to comply with such requests); (ii)
SecurityVillage (or a designee that will allow King to preserve its status as an
S Corporation) shall acquire 8% of the equity of King (on a fully diluted basis
after giving effect to the Monital Acquisition) for $1.5 million (or in lieu
thereof SecurityVillage shall acquire a call option for such 8% equity interest
or another investment vehicle that provides equivalent economic value to
SecurityVillage); (iii) SecurityVillage shall have the right to receive (subject
to and upon consummation of the closing of the King Acquisition referred to in
Section 2 below) one million shares of common stock of SAI in exchange for
SecurityVillage assigning its right to acquire Monital; and (iv) the parties
hereto shall be deemed to have irrevocably agreed that all of the other
Transactions shall be consummated.
King Acquisition and Investment in SAI. (a) Security Village, SAI and King shall
use best commercial efforts to close into escrow the acquisition by SAI of King
on or before June 30, 2000 by way of a nontaxable stock acquisition of King
except to the extent of cash received (the "King Acquisition"). The
consideration for the King Acquisition shall be (i) for King's equity holders
other than SecurityVillage, $5 million payable in cash, plus shares of senior
preferred stock of SAI (ranking senior to the outstanding preferred stock
currently held by TJS) -with an aggregate liquidation preference of $22.5
million and convertible into 4.5 million shares of common stock of SAI, and (ii)
for SecurityVillage through the conversion of its 8% equity holding in King,
300,000 shares of common stock of SAI. Upon the actual closing of the King
Acquisition, SecurityVillage shall acquire 1,200,000 shares of common stock of
SAI for $6.0 million (the "SAI Investment").
(b) The actual closing of the King Acquisition and the SAI Investment
shall be subject to the approval of the stockholders of SAI. SAI agrees to call
a meeting of its stockholders for the purpose of considering and voting on the
King Acquisition and the SAI Investment, and to promptly take all actions
necessary and desirable to obtain stockholder approval of the same. This
includes without limitation promptly filing and seeking approval of the
Securities Exchange Commission ("SEC") of the proxy statement soliciting such
stockholder approval.
(c) King represents and warrants to SAI that King will have a basis of
at least $18 million in depreciable assets for federal income tax purposes
immediately prior to the closing of the King Acquisition, it being understood
and agreed that SAI will not be making an election under Section 338 of the
Internal Revenue Code for a stepped-up basis in King's assets.
(d) Simultaneously with the consummation of the Monital Acquisition,
Palisades Partners, or its assignee, shall acquire the retail accounts of
Monital for a cash purchase price of $450,000, conditioned on the closing of the
Monital Acquisition, which payment shall be applied to the outstanding debt held
by Shrewsbury Bank. Palisades Partners reserves the right to provide a loan to
Monital in an amount sufficient to release any liens or encumbrances on said
retail accounts. Any such loan from Palisades or its successor shall be on
identical terms to the Shrewsbury Bank debt. Simultaneous with the King
Acquisition closing, any such "replacement debt" shall be discharged by SAI.
(e) SecurityVillage, together with SAI and King, shall make a public
announcement, as mutually agreed by SecurityVillage, SAI and King, of the SAI
Investment, the King
<PAGE> 3
Acquisition, the Monital Acquisition and the other Transactions at any time
after May 2, 2000. The announcement shall be made in compliance with applicable
SEC requirements.
Obligations with Respect to Certain Transactions. (a) The parties hereto agree
to negotiate in good faith and to use all commercially reasonable efforts to
cause by May 2, 2000: (i) SAI and King to have entered into a binding agreement
providing for the King Acquisition (the "King Acquisition Agreement"), (ii)
SecurityVillage and SAI to have entered into a binding agreement, subject to the
approval of the stockholders of each of SecurityVillage and SAI, setting forth
the definitive terms of the Transactions (the "SV/SAI Agreement"), and (iii)
King to have consummated the Monital Acquisition.
(b) The parties hereto acknowledge that this letter constitutes an
agreement in principle regarding the matters covered hereby and is subject to:
(i) execution and delivery of definitive documentation regarding
the Transactions;
(ii) completion by SAI, to its reasonable satisfaction, of its due
diligence investigation of SecurityVillage and King;
(iii) completion by King, to its reasonable satisfaction, of its due
diligence of Monital and SAI; and
(iv) completion by SecurityVillage, to its reasonable satisfaction,
of its due diligence of SAI, King and Monital;
provided that the respective obligations of the parties contained in Sections 3
and 8-19 and Exhibit A will be binding on the parties upon execution of this
letter. The parties shall negotiate in good faith the terms and conditions of
definitive documentation concerning the Transactions in order to execute and
deliver such documentation by May 2, 2000. Any attempt to negotiate terms which
would constitute a deviation in any material respect from those set forth herein
or to cease to expeditiously negotiate and execute the definitive agreements
shall constitute a breach of good faith, provided that a party may negotiate in
good faith additional terms that are intended to ensure the enforceability of,
and compliance by the parties with, the business principles and understandings
set forth in this letter. In the event of any such breach (i) by
SecurityVillage, SecurityVillage (and its affiliates and shareholders) shall be
precluded for a period of two (2) years thereafter from engaging in any
transactions with SAI or King, (ii) by SAI, SAI (and its affiliates and
shareholders) shall be precluded for a period of two (2) years thereafter from
engaging in any transactions with SecurityVillage or King, or (iii) by King,
King (and its affiliates and shareholders) shall be precluded for a period of
two (2) years thereafter from engaging in any transactions with SecurityVillage
or SAI.
(c) In the event that (i) SAI does not enter into a definitive
agreement with King providing for the King Acquisition by May 2, 2000; (ii) SAI
does not close into escrow the King Acquisition by June 30, 2000; or (iii) SAI
fails to enter into the SV/SAI Agreement by May 2, 2000 due to no failure on the
part of SecurityVillage to negotiate in good faith, then:
(x) SecurityVillage shall have the option to acquire King, and King
shall have the option to require SecurityVillage to acquire King, by way of a
stock purchase for the purchase price and upon the terms set forth in Exhibit A
(such options being referred to herein collectively as the "King Option"). The
King Option shall remain in effect through June 30, 2002;
<PAGE> 4
AND
(y) in the event of clauses (c)(i) or (c)(ii) only, SecurityVillage and
SAI shall nevertheless consummate the other Transactions, notwithstanding any
agreement between SAI and King to the contrary which may limit SAI from doing
so, including without limitation the letter of intent (the "SAI/King LOI")
between SAI and King dated April 5, 2000 (which SAI and King explicitly agree is
superceded by this letter).
This letter shall serve as the interim agreement among King, SecurityVillage,
Thomas Few and Timothy McGinn with respect to the exercise of the King Option.
Such parties shall convert the terms of the King Option as set forth in this
letter into a more formal option agreement by May 2, 2000. King, Thomas Few and
Timothy McGinn shall negotiate the terms of such option agreement in good faith
and use their best efforts to cause any other holders of equity interests in
King to enter into such option agreement. In the event that the parties do not
enter into such option agreement, the put and call option feature of the King
Option, as set forth in this Exhibit A, shall nevertheless be a binding and
enforceable obligation of King, Thomas Few and Timothy McGinn with respect to
the equity interests in King that Thomas Few and Timothy McGinn hold or
otherwise control (e.g., through trusts or other investment vehicles). King,
Thomas Few and Timothy McGinn represent and warrant to SecurityVillage that: (A)
Thomas Few and Timothy McGinn hold and control 80% and 20%, respectively, of the
stock of King on a fully diluted basis; (B) the entire capitalization of King
(including all outstanding shares of stock, warrants, options and other
securities or other rights to acquire equity of King) consists only of 200
shares of common stock, all of which are issued and outstanding; and (C) prior
to the execution and delivery of more formal documentation relating to the King
Option with all of the stockholders of King, no changes will be made to the
capitalization of King without the prior written consent of SecurityVillage
(which may be withheld in its sole discretion), including without limitation the
grant or issuance of any shares of stock or any warrants, options or other
securities (or other rights to acquire equity of King), unless the purchasers of
such securities agree in writing to be subject to the King Option as provided in
this letter.
(d) If SecurityVillage breaches its obligations hereunder or under the
SV/SAI Agreement to consummate the Transactions, neither King nor
SecurityVillage shall be entitled to exercise the King Option nor shall
SecurityVillage be entitled to engage in any other transaction with King for a
period of two (2) years thereafter. If King breaches its obligation hereunder to
consummate the King Acquisition under the King Acquisition Agreement or its
other obligations hereunder or in any documentation related to the Transactions,
it shall not be entitled to engage in any other transaction with SecurityVillage
or SAI for a period of two (2) years thereafter, and SecurityVillage and SAI
shall nevertheless consummate the other Transactions, notwithstanding any
agreement between SAI and King to the contrary which may limit SAI from doing
so, including without limitation the SAI/King LOI. If SAI breaches its
obligations hereunder, including but not limited to the failure to consummate
the Transactions under the SV/SAI Agreement, it shall be precluded for a period
of two (2) years thereafter from engaging in any transactions with
SecurityVillage or King, and SecurityVillage shall have the King Option.
(e) The parties hereto acknowledge that the consummation of the Monital
Acquisition is scheduled to take place on or prior to April 17, 2000.
SecurityVillage will negotiate in good faith to obtain an extension of the
closing date for the Monital Acquisition to May 2, 2000, and SecurityVillage
hereby represents that Monital has indicated a willingness to extend the closing
<PAGE> 5
date until May 2, 2000. If SecurityVillage is unable to obtain an extension to
May 2, 2000, then all of the Transactions (other than the Monital Acquisition)
shall nevertheless proceed.
(f) If the Monital Acquisition shall fail for any reason to close on
May 2, 2000, then all other Transactions shall nevertheless proceed and all
financial terms of the other Transactions shall remain unchanged, except as
provided elsewhere in this letter (including the exhibits hereto).
Equity and Other Arrangements between SAI and SecurityVillage.
(a) Simultaneously with the consummation of the King Acquisition,
SecurityVillage shall pay a premium of $1.00 per share multiplied by 3,000,000
shares, or $3,000,000, to the existing shareholders of King for an option to
acquire from such shareholders such number of shares of SAI preferred stock as
are convertible into 3,000,000 shares of SAI common stock. Such option will be
exercisable on or before January 2, 2002 at $5.00 per share..
(b) Simultaneously with the consummation of the King Acquisition,
SecurityVillage shall pay a premium of $0.30 per share multiplied by 250,000
shares, or $75,000, to the existing shareholders of King for a supplemental
option (i.e., supplemental to the option under Paragraph (a) above) to acquire
from such shareholders such number of shares of SAI preferred stock as are
convertible into up to 250,000 shares of SAI common stock. Such option will be
exercisable on or before January 2, 2002 at $6.20 per share.
(c) SecurityVillage shall have an option, for a period of six years
following the consummation of the King Acquisition, to acquire from SAI a
"Matching Number of Shares" of common stock of SAI at a price of $5.00 per
share. The term "Matching Number of Shares" shall mean a number of shares of SAI
common stock that is equal to the sum of: (i) the total number of shares of SAI
common stock that may be acquired upon the exercise of all stock options and
other equity participation rights that are outstanding as of the consummation of
the King Acquisition (including without limitation any options and rights
granted by the SAI Board of Directors that are subject to shareholder approval
at such time), and (ii) the total number of shares of SAI common stock issued in
connection with the exercise of any options and other equity participation
rights between the date of this letter and the consummation of the King
Acquisition; provided, however, that the "Matching Number of Shares" shall not
include the up to 300,000 shares that may be issued under employee stock
purchase, dealer incentive and middle management incentive plans referred to in
the last paragraph of Section 5(c). The parties estimate that there are
2,814,127 such shares as of the date of this letter.
(d) Simultaneously with the consummation of the King Acquisition,
Thomas Salvatore shall receive an option to acquire shares representing 1% of
the total outstanding common stock of Security Village at the next funding
round's strike price following the date of this letter. The option agreement
will contain usual and customary terms for options of this type.
(e) After a Qualifying IPO (as defined in Section 5(a) below) of
SecurityVillage, TJS and the holders of Preferred Stock in SecurityVillage shall
be entitled to participate in a registration of up to $30 million of
SecurityVillage equity on the basis of 75% to TJS and 25% to the Preferred Stock
holders of SecurityVillage; and in a registration in excess of $30 million of
<PAGE> 6
SecurityVillage equity, on a cumulative basis with all prior registrations, 50%
to TJS and 50% to the Preferred Stock holders of SecurityVillage with respect to
each dollar in excess of $30 million. Notwithstanding the foregoing, in the
event that SecurityVillage does not acquire from the existing King shareholders
at least 80% of the 3,250,000 shares of SAI preferred stock that SecurityVillage
has options to acquire pursuant to Sections 4(a) and 4(b) above prior to the
expiration date of such options, such existing King shareholders shall be
entitled to participate with TJS and Preferred Stock holders of SecurityVillage
in a registration in excess of $50 million of SecurityVillage equity, on a
cumulative basis with all prior registration, as follows with respect to each
dollar in excess of $50 million: 45% to TJS, 45% to Preferred Stock holders of
SecurityVillage, and 10% to the existing King shareholders.
(f) In consideration for the Transactions contemplated by this letter,
SAI and King shall enter into six-year agreements that provide SecurityVillage
the rights set forth in Exhibits B and C hereto (the "Dealer Agreements").
SecurityVillage, King and SAI shall enter into the Dealer Agreements by May 2,
2000.
(g) Appropriate investment documents will be negotiated and prepared as
part of the definitive agreements to be entered into by May 2, 2000 to effect
the options and equity investments to be made by the parties under this Section
4 and elsewhere in this letter.
Put/Call Arrangements; First Refusal Right. As used below, the term "IPO" refers
to a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of common stock for the account of SecurityVillage. A
"Qualifying IPO" refers to an IPO or private placement with an aggregate price
paid for shares of common stock offered and sold for the account of
SecurityVillage of not less than $35 million at a price per share that reflects
a valuation of the combined SecurityVillage and SAI entity of at least $400
million prior to SecurityVillage's receipt of the purchase price for the shares
offered and accepted in the IPO or private placement.
(b) SecurityVillage and SAI shall have the following "put" and "call"
options:
(i) In the event there is a Qualifying IPO of SecurityVillage on or
before December 31, 2001, SAI shall have a "put" option to require
SecurityVillage to consummate a merger, on the terms set forth in Paragraph
(c) below, of SAI into SecurityVillage with SecurityVillage as the
surviving entity immediately prior to the closing of the Qualifying IPO.
(ii) In the event there is a Qualifying IPO of SecurityVillage on or
before December 31, 2001, SecurityVillage shall have a "call" option to
require SAI to consummate a merger, on the terms set forth in Paragraph (c)
below, of SAI into SecurityVillage with SecurityVillage as the surviving
entity immediately prior to the closing of the Qualifying IPO.
(iii) In the event there is an IPO of SecurityVillage on or before
December 31, 2001 that does not constitute a Qualifying IPO,
SecurityVillage shall have a "call" option to require SAI to consummate a
merger, on the terms set forth in Paragraph (c) below, of SAI into
SecurityVillage immediately prior to the closing of the IPO, provided that
the price per share to the public in the IPO is such that the aggregate
value of the shares of
<PAGE> 7
SecurityVillage common stock received by SAI shareholders as a result of
the merger is the greater of:
(x) $5.00 per share; or
(y) the aggregate valuation of their SAI shares immediately prior to
the merger as determined based on the average trading price of SAI common stock
during the 20 trading days ending 10 days prior to the closing of the IPO
(subject to appropriate adjustment for stock splits, recapitalizations and the
like of SAI stock).
(iv) In the event that the average trading price of the SAI common
stock during any consecutive 20 trading days is equal to or greater than
$5.00 per share, SecurityVillage shall have a "put" option, exercisable at
any time on or before December 31, 2001, to require SAI to consummate a
merger, on the terms set forth in Paragraph (c) below, of SecurityVillage
into SAI with SAI as the surviving entity within 120 days after the
exercise of this option by SecurityVillage.
(v) If none of the options described in Subparagraphs (i) - (iv)
have been exercised on or before December 31, 2001, thereafter SAI shall
have a "call" option, for the duration of the term of the SAI Dealer
Agreement, to require SecurityVillage to consummate a merger, on the terms
set forth in Paragraph (c) below, of SecurityVillage into SAI with SAI as
the surviving entity within 120 days after the exercise of this option by
SAI, provided that (x) the average trading price of SAI common stock during
the 20 trading days ending 10 days immediately prior to the exercise of
this option is not less than $5.00 per share, and (y) the SecurityVillage
shareholders receive actual consideration paid per share at closing of the
merger of not less than $5.00 per share of SAI common stock based on the
average trading price of SAI common stock during the 20 day trading period
immediately prior to the closing of the merger.
(vi) The exercise by SecurityVillage of the "put" and "call" options
under Subparagraphs (ii) - (iv) above is conditional upon SecurityVillage or
investors solicited by SecurityVillage:
(x) investing at least $6 million in SAI common stock
at a minimum of $5.00 per share (provided that
SecurityVillage's obligation under this Subparagraph (x)
shall be fulfilled if it or any such investor offers to make
such an investment and SAI does not accept the offer);
(y) investing at least $1.5 million in King; and
(z) receiving at least $20 million of equity funding
for SecurityVillage at a minimum of an $95 million
post-money valuation.
(vii) In the case of paragraphs (i) through (v) above, no party
exercising one of the "put" or "call" options may exercise such option if
that party has had bankruptcy proceedings established.
<PAGE> 8
(c) In the event that either SecurityVillage or SAI exercises one of
the "put" or "call" options described in Subparagraphs (i) - (v) above or in
Paragraph (d)(i) below, the shareholders of each party will collectively hold
shares in the surviving entity immediately following the closing of the merger
in the proportions set forth below.
<TABLE>
<CAPTION>
SECURITYVILLAGE SHAREHOLDERS SHARES
- ---------------------------- --------------
<S> <C>
Base shares received by SecurityVillage (Section 5(b) 25,571,100
above)
Monital Acquisition and SAI Investment (Sections 1 and 2 2,500,000
above)
"Matching" option to SecurityVillage (Section 4(c) above) 2,814,127
Call option on King shares (Section 4(a) above) 3,000,000
Supplemental call option on King shares (Section 4(b) 250,000
above)
--------------
TOTAL: 34,135,227
SAI SHAREHOLDERS
Current number of outstanding shares 21,071,100
King shares (Section 2 above) 4,500,000
Subtotal 25,571,100
Outstanding options (excluding employee stock purchase, 2,814,127
dealer incentive and middle management incentive plans -
Section 4(c) above)
Less exercise of SecurityVillage call option on King
shares (Section 4(a) above) (3,000,000)
Less exercise of SecurityVillage supplemental call
option on King shares (Section 4(b) above) (250,000)
--------------
TOTAL 25,135,227
</TABLE>
The number of shares set forth in the capitalization table above are provided
for illustrative purposes. The capitalization shown above is based on a merger
of SecurityVillage into SAI which assumes all outstanding shares of preferred
stock have been converted into common stock, and SecurityVillage exercises all
of the options and warrants granted under this letter agreement.
<PAGE> 9
The actual number of shares of the surviving entity that are received by the
respective shareholders of SecurityVillage and SAI will vary depending on
whether SecurityVillage or SAI is the surviving entity and on any changes to the
capitalization of the surviving entity through the issuance of additional shares
of stock, stock splits, recapitalizations and the like.
The relative proportion of shares received according to the capitalization table
set forth above, directly or through the exercise of the warrants and options
granted hereunder, by SecurityVillage and SAI shareholders (the "Relative
Proportion"), however, shall remain unchanged regardless of:
(i) whether SecurityVillage or SAI is the surviving entity or the
companies are consolidated into a new entity;
(ii) stock splits, recapitalizations and the like; and
(iii) except as provided below, regardless of any new equity
investments in either company following the date of this letter or other
changes in their capitalization.
SAI represents and warrants that the information contained in the capitalization
table set forth above is accurate with respect to (i) the current number of
issued and outstanding shares of common stock of SAI on a fully diluted basis,
and (ii) the current number of shares of common stock of SAI that may be
acquired upon the exercise of outstanding options and other equity participation
rights under employee stock purchase, dealer incentive and middle management
incentive plans of SAI, no other options, warrants, convertible securities or
other rights to acquire equity interests in SAI existing or being considered. In
the event that the number in item (i) above is inaccurate, a share-for-share
adjustment (upward or downward) shall be made to the number of shares under the
"Value of SecurityVillage" category in the above capitalization table. In the
event that the number in item (ii) above is incorrect, a share-for-share
adjustment (upward or downward) shall be made pursuant to Section 4(c) above to
the "Matching Options to SecurityVillage" category under the above
capitalization table.
Changes will be made to the Relative Proportion only if:
(x) SecurityVillage does not exercise some or all of the warrants and
call options referred to above, in which case SecurityVillage shareholders
will not receive the Relative Proportion of shares in the surviving or new
entity represented by such warrants and call options as reflected in the
above illustration; or
(y) SecurityVillage, as a separate entity (i.e. not combined with
SAI), receives in excess of $20 million of equity capital, in which case
the Relative Proportion may be increased in SecurityVillage's favor based
on the amount of equity capital raised, subject to SAI and TJS approval.
No Corporate Party shall enter into any capital transaction through December 31,
2001, other than in the ordinary course of business or as contemplated in this
letter, without the consent of the other Corporate Parties hereto (which consent
shall not be unreasonably withheld). For clarification, SecurityVillage is
seeking to obtain up to $35 million in additional funding (including the
$20,000,000 contemplated in (y) above) through December 31, 2000, and
<PAGE> 10
additional capital thereafter to fund its business objectives. In recognition of
this, the definitive agreements to be entered into hereunder by the parties
will: (i) set forth mechanisms through which SAI and SecurityVillage may enter
into capital transactions, if necessary, in a manner consistent with Section
5(c)(iii)(y) above, and (ii) establish commercially reasonable standards by
which such capital transactions may occur.
SAI agrees that any issuance of shares of preferred or common stock, or the
grant or issuance of any security or other instrument that by its terms is
exercisable for or convertible into, directly or indirectly, equity of SAI under
any circumstances, shall be with the consent of SecurityVillage; provided,
however, that such consent shall not be required with respect to the issuance of
(i) up to 300,000 shares under existing employee stock purchase, dealer
incentive and middle management incentive plans, or (ii) shares issued upon the
exercise of currently outstanding stock options as well as options granted by
SAI's Board of Directors that are subject to shareholder approval as of the date
of this letter. SAI represents and warrants that the shares of common stock
issuable upon exercise of all options and other equity participation rights do
not exceed 2,814,127 shares (as reflected in the above capitalization table),
plus an additional allowance for the issuance of up to a maximum of 300,000
shares for employee stock purchase, dealer incentive and middle management plans
(for which matching shares under Section 4(c) will not be issued to
SecurityVillage)
(d) In addition to the "put" and "call" options described in Paragraph
(b) above, in the event of a proposed Sale (as defined below) of SAI to one or
more third parties on or before December 31, 2001 at a price that would result
in:
(i) the SAI shareholders participating in the Sale receiving
consideration valued at equal to or greater than $5.00 per share of SAI
stock, SecurityVillage shall have a "put" right to require SAI to
consummate a merger of SecurityVillage into SAI immediately prior to
the Sale; and
(ii) the SAI shareholders participating in the Sale receiving
consideration valued at less than or equal to $8.00 per share of SAI
stock, SecurityVillage shall have a right of first refusal to acquire
SAI (or shares of SAI stock) for cash consideration equal to the value
of the consideration offered by the third parties.
For clarification, if the consideration received is valued at between $5.00 and
$8.00 per share, SecurityVillage may elect either the put option under item (i)
above or the first refusal right under item (ii) above.
SAI shall provide SecurityVillage written notice of the terms offered by the
third parties, and SecurityVillage shall have: (i) 30 days to provide written
notice of its intent to exercise its right of first refusal; and (ii) an
additional 90 days in which to consummate the transaction. As used above, the
term "Sale" refers to any transaction or series of related transactions
involving the merger or consolidation of SAI into another entity (other than
SecurityVillage), any sale of at least 10% of the account base of SAI, or any
sale of a controlling interest in the voting securities of SAI.
In the event of a proposed sale of SecurityVillage to one or more third parties
on or before December 31, 2001, the same economic rights shall apply to SAI.
<PAGE> 11
(e) It is the intent of the parties to structure the "put" and "call"
transactions referred to in this Section 5 in a manner that would be tax-free to
the all parties.
Registration. The 2.5 million shares of SAI which SecurityVillage shall purchase
and receive pursuant to Sections 1(b)(iii) and 2(a) above shall be registered by
SAI within 6 months of obtaining shareholder approval of the SAI Investment as
provided in Section 2(b) above, and SAI shall use best efforts to cause such
registration to occur sooner if practicable. Should SAI merge into
SecurityVillage pursuant to any of the Transactions with SecurityVillage as the
surviving entity, then: (i) SAI shares that were freely tradable prior to the
merger shall be exchanged for shares of SecurityVillage that are registered and
freely tradable following its IPO; and (ii) SAI shares that were not freely
tradable prior to the merger shall be exchanged for shares of SecurityVillage
that are registered following its IPO, but will be subject to a 180-day lock-up.
Should SecurityVillage merge into SAI pursuant to any of the Transactions with
SAI as the surviving entity, then: (i) all registered SAI shares held by
SecurityVillage prior to the merger shall become freely tradable following the
merger; and (ii) all SecurityVillage shares shall be exchanged for registered
shares of SAI following the merger, but will be subject to a 180-day lock-up.
Board of Directors. (a) SAI, TJS and SecurityVillage shall take all necessary
action so that, after the execution and delivery of the SV/SAI Agreement and
prior to the actual closing of the King Acquisition (including the other
Transactions intended to occur at such time), one Board observer from each of
SAI and SecurityVillage will be permitted to serve on the other company's Board.
Such observers shall receive notice of and be included in all Board meetings and
in discussions of material matters involving Board decisions.
(b) After the actual closing of the King Acquisition (including the
other Transactions intended to occur at such time) and prior to the merger or
combination of SAI and SecurityVillage, the Board of Directors of
SecurityVillage will consist of seven members (i) three of whom shall be
designated by St. Martins Holdings II Limited, (ii) one of whom shall be
designated by SAI , and (iii) three of whom shall be designated by Audiogard
International. In addition, SecurityVillage shall be permitted to designate one
member to SAI's Board of Directors, and SAI and SecurityVillage shall continue
to have one outside Board observer from each of SAI and SecurityVillage on the
other company's Board. SecurityVillage shall have the right to expand its Board
to include additional members designated by any new investors or strategic
"partners" to the extent required by the terms of any agreements with them.
Moshe Cohen and Craig Marshak shall remain as co-chairmen of the Board of
Directors.
(c) Upon a merger or consolidation of SecurityVillage and SAI, the
Board of Directors of the surviving or new entity will consist of ten members
(i) two of whom shall be the co-chairmen referred to below, (ii) one of whom
shall be the chief executive officer of such entity, (iii) two of whom shall be
designated by Audiogard International, (iv) two of whom shall be designated by
St. Martins Holdings II Limited, (v) two of whom shall be designated by TJS, and
(vi) one of whom may be designated by any new investors or strategic "partners."
The Board of such surviving or new entity will have two co-chairmen, one of whom
shall be Moshe Cohen and the other shall be Ron Davis.
Non-Solicitation. None of the parties to this agreement nor any of their
respective representatives will assist or encourage others to, directly or
indirectly, for a period of one year
<PAGE> 12
from the date of this letter, induce or attempt to persuade any investor or
prospective investor of one of the parties to invest in another party or its
affiliates, where no prior relationship existed.
Media Releases. Except as explicitly contemplated herein and subject to Section
2(e), without the prior written consent of the other parties hereto, no party
will make any release to the press or other public disclosure with respect to
the Transactions, except for such public disclosure as may be necessary for the
party proposing to make the disclosure not to be in violation of or default
under any applicable law, regulation or governmental order. Notwithstanding
anything to the contrary herein, in the event that a party (the "Disclosing
Party") believes that it is necessary to make a public disclosure prior to the
parties entering into the definitive agreements referred to in Section 3(a)(i)
and (ii) above with respect to the existence or terms of this letter or any of
the Transactions contemplated hereby in order to avoid being in violation of or
default under any applicable law, regulation or governmental order, the
Disclosing Party shall so notify the other parties in writing at least ten (10)
days in advance of making such disclosure. In such event, SecurityVillage shall
have the option to terminate this letter and the Transactions contemplated
hereby in order to avoid such disclosure (in which case the Disclosing Party
shall not publicly disclose the existence of this letter or the Transactions
contemplated hereby). SecurityVillage shall exercise this option within seven
(7) days after receipt of written notice from the Disclosing Party.
Non-Disclosure. As used below, "Confidential Information" refers to any and all
oral, written, electronic or other information designated as confidential or
which ought to be considered as confidential from its nature or from the
circumstances surrounding its disclosure, regardless of whether such information
was disclosed before, on or after the date of this letter. Confidential
Information includes without limitation each party's business plans. Each
party's Confidential Information shall remain the property of that party and
shall be held in strict confidence by the other parties. In addition, as a
condition to being able to commence due diligence in connection with the
Transactions, each Corporate Party shall execute and deliver Confidentiality
Agreements to one another substantially in the form of Exhibit D hereto. Each
party may use Confidential Information of another party only as permitted by
this Agreement.
Compliance; Corporate Actions. SecurityVillage, SAI and King shall use their
best efforts to ensure that none of their respective affiliates or shareholders
take any action that would be inconsistent with the fulfillment of their
obligations under this letter. SecurityVillage, SAI and King shall deliver Board
resolutions approving all necessary corporate actions required to fulfill their
obligations under this letter (subject to stockholder approval where required).
It is intended that the definitive agreements shall contain provisions
irrevocably obligating the following shareholders to vote their shares of stock
in favor of all corporate actions required for the Corporate Parties to fulfill
their respective obligations under this letter: (a) with respect to
SecurityVillage: Moshe Cohen, Chris Dreyfus, Bernard Garbacz, Audiogard
International and St. Martins Holdings II Ltd.; (b) with respect to SAI: TJS,
James Brannen and Ron Davis; and (c) with respect to King: Thomas Few and
Timothy McGinn.
Expenses. Each of the parties shall pay its own expenses in connection with
this letter agreement.
Notices. All notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service, mailed by
certified or registered mail or sent
<PAGE> 13
by telecopy, to the parties at their addresses or facsimile numbers set forth
herein and shall be deemed to have been given on the date of receipt
Remedies. The parties hereto agree and acknowledge that money damages would not
be a sufficient remedy for any breach of any provision of this agreement by any
of the parties hereto and that any such breach would constitute immediate and
irreparable harm, and that in addition to all other remedies which any party
hereto may have, each party will be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach.
Entire Agreement. This letter, together with the exhibits hereto and the Monital
Documentation and King Documentation, supercedes all prior discussions and
agreements between the parties with respect to the subject matter hereof and
contains the sole and entire agreement between the parties hereto with respect
to the subject matter.
Exclusive Agreement. Except as expressly provided in this letter, without the
prior written consent of all of the other Corporate Parties hereto, no Corporate
Party shall enter into any transaction or agreement with any other Corporate
Party hereto. The preceding sentence shall not apply to ordinary course of
business between TJS and James Brannen or between TJS and SAI. Further,
SecurityVillage and SAI shall use reasonable efforts to disclose to each other,
and provide the other an opportunity to participate in negotiation and/or
discussions regarding, any prior, ongoing or future material corporate
development or discussions. Notwithstanding anything to the contrary herein, the
provisions of this Section 16 shall terminate in the event that SecurityVillage
and SAI do not enter into the SV/SAI Agreement on or before May 2, 2000.
Governing Law. This letter shall be governed by and construed in accordance with
the laws of the State of New York.
Counterparts. This letter may be executed in counterparts and delivered by
facsimile, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
Assignment. No party may assign or transfer this letter or any of its rights or
obligations hereunder without the prior written consent of the other parties.
Subject to the foregoing, this letter shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
If the foregoing terms and conditions are acceptable to you, please so indicate
by signing the enclosed copy of this letter and returning it to the attention of
the undersigned.
Very truly yours,
SecurityVillage.com Inc.
By:
-------------------------
Name:
--------------------
Title:
-------------------
<PAGE> 14
ACCEPTED AND AGREED TO AS OF THE DATE
OF THIS LETTER AGREEMENT:
SECURITY ASSOCIATES INTERNATIONAL, INC.
By:
------------------------------------
Name:
-----------------------------
Title:
----------------------------
Telecopy No. 847-956-9360
KC ACQUISITION CORP.
By:
------------------------------------
Name:
-----------------------------
Title:
----------------------------
Telecopy No. 201-488-5090
With respect to Sections 4(e), 5(c)(y), 7(a) and 8 - 19 only:
TJS PARTNERS. L.P.
By: TJS Management, L.P.
General Partner
By: TJS Corporation
General Partner
By:
--------------------
Thomas J. Salvatore
President
Telecopy No. 203-629-9594
With respect to Sections 11 and 8 - 19 only:
- -------------------------------------------
James S. Brannen
With respect to Sections 3(c),11 and 8 - 19 and Exhibit A only:
- -------------------------------------------
Thomas Few
- -------------------------------------------
Timothy McGinn
<PAGE> 15
Exhibit A
TERMS OF KING OPTION
Until June 30, 2002, SecurityVillage will be entitled, but not obligated, to
exercise its call option for all of the issued and outstanding shares of common
and preferred stock of King, and all rights to acquire, directly or indirectly,
any shares of common or preferred stock of King, including all securities and
other instruments that by their terms are exercisable for or convertible into
shares of stock of King (collectively, the "Shares"), upon payment of the
applicable purchase price. For clarification, the term "Shares" includes the 8%
equity interest to be taken by SecurityVillage in King pursuant to Section 1(b)
of this letter. Except as provided below, the purchase price shall be payable in
cash. SecurityVillage may exercise this call option by giving written notice to
the holders of the Shares being acquired by SecurityVillage.
Subject to the adjustments described below, the purchase price for all of the
Shares shall be the greater of (i) $48,600,000 less existing indebtedness of
King at the time of exercise of the call option, and (ii) an amount calculated
as follows:
Y = (A x 37) + (B x 26) + (C x 30) + (D x 4), less existing
indebtedness of King at the time of exercise of the call option,
where:
Y is the price payable by SecurityVillage;
A is the wholesale recurring monthly revenues ("RMR")
of King at the date of exercise of the call option;
B is the wholesale RMR of Monital at the closing date of the
Monital Acquisition;
C is the excess of the wholesale RMR of
Monital at the date of exercise of the call option over B;
D is the incremental wholesale RMR of Monital at the
date of exercise of the call option directly
attributable to accounts delivered to King by
SecurityVillage.
The RMR shall be calculated based on the calendar month ending one month prior
to the exercise of the call option.
At SecurityVillage's election, SecurityVillage may pay the portion of the
purchase price equal to A x 37 in the above formula either (i) entirely in cash,
or (ii) A x 30 in cash and A x 7 in shares of SecurityVillage common stock
valued at the IPO price of such shares.
The purchase price for the Shares is based on the assumption that King has
acquired Monital prior to the closing of SecurityVillage's purchase of the
Shares. In the event that King has not acquired Monital prior to such closing,
the above formula shall be adjusted to be:
<PAGE> 16
Y = (A x 37), less existing indebtedness of King at the time of exercise of
the call option,
with SecurityVillage having the right to elect to pay A x 37 entirely in cash or
partly in cash and partly with SecurityVillage stock as described above.
The purchase price of the Shares is for 100% of the Shares, including the 8%
equity interest to be taken by SecurityVillage in King pursuant to Section 1(b)
of the letter. Accordingly, if SecurityVillage takes such 8% equity interest in
King (either in the form of shares of common stock of King, an option or other
right to acquires shares of common stock or equivalent economic value), the
holders of Shares other than SecurityVillage will receive 92% of the purchase
price set forth above.
At the discretion of King, up to one third of the purchase price payable by
SecurityVillage may be satisfied by the issue to King's shareholders of Series C
preferred stock of SecurityVillage.
In the event of an IPO of SecurityVillage, King shall have a put option to
require SecurityVillage to acquire all, but not less than all, of the Shares of
King, exercisable within 15 days after a determination by SecurityVillage to
initiate its IPO, for the purchase price set forth in this Exhibit A (after
taking into account all applicable adjustments set forth above); provided,
however, that at SecurityVillage's election, SecurityVillage may pay the portion
of the purchase price equal to A x 37 in the applicable formula set forth above
either (i) entirely in cash, or (ii) A x 27 in cash and A x 10 in shares of
SecurityVillage common stock valued at the IPO price of such shares. Should
SecurityVillage elect to use shares of its common stock, the shares must be
registered and freely tradable at the time of the IPO, but will be subject to
any underwriter restrictions that may apply. King may exercise this put option
by giving written notice to SecurityVillage within thirty (30) days after
receiving written notice from SecurityVillage informing King of
SecurityVillage's intent to file a registration statement for an IPO. In the
event that the IPO is of a holding or successor company of SecurityVillage, this
put option shall apply to such holding or successor company.
Upon exercise of the put or call option, SecurityVillage shall issue to King's
shareholders warrants to acquire a number of shares of common stock of
SecurityVillage that, collectively for all warrants, equals two percent of the
fully diluted share capital of SecurityVillage as of the earlier to occur of (i)
the effective date of SecurityVillage's registration statement for its IPO, or
(ii) the closing date of any merger or combination of SAI and SecurityVillage.
Such warrants shall be exercisable only upon the occurrence of an IPO of
SecurityVillage. The exercise price of the warrants shall be the IPO price. In
the event that the IPO is of a holding or successor company of SecurityVillage,
the warrants shall relate to shares in such holding or successor company.
Additionally, in the event the put or call option has been exercised and there
is an IPO of SecurityVillage, Messrs. Thomas Few and Timothy McGinn will be
entitled to subscribe for, at the IPO price, up to three percent of the shares
of common stock to be offered and sold by SecurityVillage in its IPO (or, if
relevant, by any holding or successor company the subject of the IPO).
<PAGE> 17
Simultaneous with SecurityVillage's tender of the purchase price in connection
with the exercise of the put or call option, the selling shareholders shall
transfer all of their Shares to SecurityVillage, free and clear of all liens and
encumbrances of any kind.
<PAGE> 18
Exhibit B
KEY RIGHTS UNDER DEALER AGREEMENT WITH SAI
SecurityVillage shall have the following rights relative to the business of SAI:
a) access to SAI dealer networks and customer lists for the purposes of
marketing its services and pursuing its marketing goals upon terms
agreeable to both parties;
b) solicit the dealer companies of SAI for enrollment and participation
in the SecurityVillage dealer program. Such program shall include all
program features developed or substantially developed through December
31, 2001. Among other things, these program features are expected to
include the branding of the dealers, use and sale of specialized
equipment, and adherence to procedures established by SecurityVillage;
c) install at its own cost and connect to the operating computers of SAI
specialized equipment allowing access to the customer information
through the internet with SAI to have final authority over issues
relating to control of the firewalls, UL certificates and integration
with SAI systems;
d) to directly solicit the end-user customers of dealers enrolled as
SecurityVillage dealers to register and use the SecurityVillage
internet facility; and
e) to offer directly or through the SecurityVillage internet facility to
the end-user customers, as part of the SecurityVillage dealer program,
additional products and services.
Notwithstanding anything to the contrary in this Exhibit B, SAI will be
obligated only to facilitate the introduction of the SecurityVillage program to
dealers and to actively encourage dealers to participate in such program.
SecurityVillage acknowledges that dealer participation in the program is subject
to obtaining the consent and agreement of individual dealers. SecurityVillage
agrees not to solicit SAI dealers for the purpose of buying their customer
accounts.
The Dealer Agreement may be terminated by SAI in the event that
SecurityVillage's web site is not operational by January 31, 2001.
Either Palisades Partners or M&S Partners will be granted a right of first
refusal with respect to dealer financing for the King and Monital dealers,
SecurityVillage dealers and SAI dealers (to the extent allowable under SAI's
current contractual commitments) through December 31, 2005.
<PAGE> 19
Exhibit C
KEY RIGHTS UNDER DEALER AGREEMENT WITH KING
SecurityVillage shall have the following rights relative to the business of
King:
a) access to King dealer networks and customer lists for the purposes of
marketing its services and pursuing its marketing goals upon terms
agreeable to both parties;
b) solicit the dealer companies of King for enrollment and participation
in the SecurityVillage dealer program. Such program shall include all
program features developed or substantially developed through December
31, 2001. Among other things, these program features are expected to
include the branding of the dealers, use and sale of specialized
equipment, and adherence to procedures established by SecurityVillage;
c) install at its own cost and connect to the operating computers of King
specialized equipment allowing access to the customer information
through the internet with King to have final authority over issues
relating to control of the firewalls, UL certificates and integration
with King systems;
d) to directly solicit the end-user customers of dealers enrolled as
SecurityVillage dealers to register and use the SecurityVillage
internet facility; and
e) to offer directly or through the SecurityVillage internet facility to
the end-user customers, as part of the SecurityVillage dealer program,
additional products and services.
Notwithstanding anything to the contrary in this Exhibit C, King will be
obligated only to facilitate the introduction of the SecurityVillage program to
dealers and to actively encourage dealers to participate in such program.
SecurityVillage acknowledges that dealer participation in the program is subject
to obtaining the consent and agreement of individual dealers. SecurityVillage
agrees not to solicit King dealers for the purpose of buying their customer
accounts.
The Dealer Agreement may be terminated by King in the event that
SecurityVillage's web site is not operational by January 31, 2001.
Either Palisades Partners or M&S Partners will be granted a right of first
refusal with respect to dealer financing for the King and Monital dealers,
SecurityVillage dealers and SAI dealers (to the extent allowable under SAI's
current contractual commitments) through December 31, 2005.
<PAGE> 20
EXHIBIT D
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is entered into as of this day of , 2000, by and
between , Inc., a corporation (hereinafter the
"Company") and , a corporation
(hereinafter, the "Recipient"), each separately to be a Party and collectively,
the Parties.
WHEREAS, the Company is the owner of certain proprietary and confidential
information relating to
- -------------------------------------------------------------------------------;
WHEREAS, Recipient wishes to have access to this proprietary and confidential
information for the purpose of performing due diligence on the Company in
connection with establishing a business relationship with the Company, and is
willing to receive this information under the strict obligation of
confidentiality described below.
NOW, THEREFORE, in consideration of the Company's disclosure of information to
Recipient and the promises set forth below, the parties agree as follows:
1. Confidential Information. "Confidential Information" as used in this
Agreement shall mean all information disclosed to Recipient by the Company,
including any business, investment, customer, technical, strategic, marketing,
sales, product, operational, industry, financial or other information,
applications, notes, memoranda, communications derived from such information,
whether in written, electronic or oral form. Confidential Information does not
include information which (i) is or becomes part of the public domain other than
as a result of disclosure by the Company; (ii) becomes available to Recipient on
a non-confidential basis from a source other than the Company, provided that
source is not bound with respect to that information by a confidentiality
agreement with the Company or is otherwise prohibited from transmitting that
information by a contractual, legal or other obligation; (iii) was in
Recipient's possession prior to disclosure of the same by the Company or (iv) or
is required to be disclosed by a mandatory request of a government agency, a
court order, subpoena or otherwise at law.
Confidential Information as used in this Agreement shall also include the
identity of the Company, its subsidiaries, affiliates, funding, supplier,
advisory and other related entities; and their relationships to the Company.
For clarification, this Agreement shall not apply to public disclosures of the
existence or terms of: (i) the letter dated April 21, 2000 among
SecurityVillage, Security Associates International, Inc., KC Acquisition Corp.,
TJS Partners, L.P., James S. Brannen, Thomas Few and Timothy McGinn (the
"Letter"); or (ii) the definitive agreements that are contemplated by the Letter
(the "Definitive Agreements"). It is understood and agreed that the rights and
obligations of the parties hereto with respect to public disclosures of the
existence and terms of the Letter and Definitive Agreement are or will be set
forth in such documents.
2. Protection and Dissemination of Confidential Information. Recipient agrees
that for a period of three (3) years from the date of this Agreement, it will
not use the Confidential Information for other than the purposes of this
Agreement, shall use all efforts to (i) preserve and ensure the confidentiality
of this Confidential Information; (ii) take proper and adequate precautions at
all times; (iii) not copy or other reproduce the Confidential Information in
whole or in part except with express written permission of the Company; and (iv)
enforce such precautions to preserve the secrecy and confidentiality of the
Confidential Information. Recipient further agrees, without in any way limiting
the generality of the foregoing, to identify to the Company all persons and
other entities having access to the Confidential Information and to take all
necessary action to prevent any prohibited persons from obtaining
<PAGE> 21
access to the Confidential Information whether by direct or indirect exposure
thereto or otherwise.
3. Ownership of Confidential Information. All Confidential Information shall
be and remain the property of the Company.
4. Return of Confidential Information. Immediately upon the request of the
Company, Recipient agrees to (i) immediately return all Confidential
Information, including all copies of the same, to the Company; and (ii)
immediately cause any memoranda, summaries, reports, documents or otherwise
created by it that contain or are based in any way on the Confidential
Information to be destroyed and to certify the same in writing to the Company.
5. Relationship of the Parties. No right or license, express or implied, is
granted to Recipient with respect to any Confidential Information. Nothing in
this Agreement obligates the Company or the Recipient to disclose any
information to the other or creates any agency or partnership relation between
them.
6. Compelled Disclosure. In the event that Recipient is required by judicial
or administrative process to disclose any Confidential Information, Recipient
shall promptly notify the Company to allow the Company a reasonable time to
oppose such process and, without cost or expense to the Recipient cooperate
fully in such opposition.
7. Misuse and Misappropriation of Confidential Information. The Parties agree
that the misappropriation or misuse of the Confidential Information may cause
irreparable damage to the Company for which monetary damages may not be
sufficient compensation; and the Company will be entitled to all benefits,
direct and indirect, that accrue from such misappropriation or misuse including,
with limitation or election, all remedies at law and in equity.
8. Use of and Reliance on Confidential Information. While the Company may
provide Confidential Information to the Recipient, the Recipient understands
that the acceptance or use of any Confidential Information so disclosed under
the terms of this Agreement including but not limited to financial statements
and marketing studies shall be the sole responsibility of the Recipient. The
Company neither represents nor warrants that any such Confidential Information
is audited or verified and that ultimately the Recipient is solely responsible
for any analysis or commitments based thereupon.
9. Third Part Beneficiary. It is expressly understood and agreed that the
Company's investors are third party beneficiaries of this Agreement and shall
have full rights to enforce the terms and provisions of this Agreement through
direct action in the event of any violation.
10. Attorneys' Fees. In the event that the Company commences a lawsuit or other
proceeding against Recipient to enforce any of the provisions of this Agreement
or on account of any damages sustained by the Company by reason of Recipient's
violation of any provision of this Agreement, if the Company is the prevailing
Party, Recipient agrees that it shall pay, in addition to other costs and
damages, the Company's reasonable attorneys' fees.
11. Governing Law. This Agreement shall be governed by and interpreted in
accordance with that laws of the State of New York (without regard to conflict
of laws provisions).
12. Severability. In the event that any one of the provisions contained in this
Agreement shall be found to be invalid, illegal or unenforceable in any respect
by a court of competent jurisdiction, the validity, legality or enforceability
of the remaining provisions contained in this Agreement shall not in any way be
effected or impaired by such a finding.
<PAGE> 22
13. Waiver. Failure or omission by either Party at any time to enforce or
require strict or timely compliance with any provision of this Agreement shall
not affect or impair that provision in any way or the rights or such Party to
avail itself of the remedies it may have with respect to any breach of that
provision. Any waiver or consent given by either Party must be in writing, shall
be effective only as to that instance and will not be construed as a bar to or a
waiver of any right on any other occasion.
14. Injunctive Relief. Recipient agrees that should it breach or threaten to
breach any provision of this Agreement, the Company will suffer irreparable
damages and its remedy at law will be inadequate. Upon any breach or threatened
breach by Recipient, the Company shall be entitled to Injunctive Relief in
addition to any other remedy at law or in equity which it may have.
15. Entire Agreement. This Agreement contains the entire agreement of the
Parties and supersedes any and all prior agreements, written or oral, between
the Parties relating to the subject matter of this Agreement and may not be
amended unless agreed to in writing by both Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first written above.
The Company:
[name of entity]
[address]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Recipient:
[name of entity]
[address]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 1
EXHIBIT 10.2
SECURITYVILLAGE.COM INC.
141 Central Avenue, Unit X
Farmingdale, NY 11735
Telecopy: 919-571-0484
May 10, 2000
Security Associates International, Inc.
2101 S. Arlington Heights Rd.
Suite 100
Arlington Heights, IL 60005-4142
KC Acquisition Corp.
P. O. Box 1943
South Hackensack, NJ 07606-0543
TJS Partners, L.P.
115 East Putnam Avenue
Greenwich, CT 06830
Ladies and Gentlemen:
Reference is made to the letter dated April 21, 2000 among the parties
hereto (the "April 21 Letter"). The purpose of this letter is to memorialize our
agreement to make certain changes to the April 21 Letter as set forth below.
Unless otherwise indicated, all capitalized terms in this letter shall have the
meanings set forth in the April 21 Letter.
1. All references to May 2, 2000 in Sections 3(c) and 4(f) of the April
21, 2000 Letter are hereby changed to May 22, 2000. All other dates in
those sections shall remain unchanged.
2. SecurityVillage's due diligence investigation of SAI, and SAI's due
diligence investigation of SecurityVillage, pursuant to Section 3(b)
of the April 21 Letter are hereby extended until May 22, 2000. All
other due diligence investigations referred to in Section 3(b) of the
April 21 Letter shall be deemed to have been satisfactorily completed
simultaneous with the consummation of the Monital Acquisition as
provided in Section 1(b) of the April 21 Letter.
3. The terms and conditions of Exhibit C relating to SecurityVillage's
rights with respect to the business of King shall apply from and after
the date of this letter and serve as an interim agreement between the
parties pending completion of a more formal Dealer Agreement pursuant
to Section 4(f) of the April 21 Letter. In the event that the parties
do not enter into such Dealer Agreement, the rights granted to
SecurityVillage under Exhibit C shall nevertheless be a binding
obligation of King for a term of six years following the date of this
<PAGE> 2
letter; provided, however, that King may terminate such rights upon
written notice of termination to SecurityVillage if SecurityVillage
materially breaches the April 21 Letter and fails to substantially
cure such breach within (i) ten (10) days after receipt of written
notice of breach from King in the case of monetary obligations, or
(ii) thirty (30) days after receipt of written notice of breach from
King in the case of non-monetary obligations.
4. King's right to exercise the put option feature of the King Option
shall be subject to satisfaction of each of the following conditions:
(i) if the Monital Acquisition has closed prior to exercise of such
put option, the total RMR of King and its subsidiaries for the
calendar month ending one month prior to the exercise of such put
option shall be at least $1.3 million (the "Minimum King/Monital
RMR"); (ii) if the Monital Acquisition has not closed prior to
exercise of such put option, the total RMR of King and its
subsidiaries for the calendar month ending one month prior to the
exercise of such put option shall be at least $900,000 (the "Minimum
King RMR"); and (iii) there has been no change to the business of King
or its subsidiaries prior to the exercise of such put option that
would materially impair King's ability to service the Minimum
King/Monital RMR or Minimum King RMR (as applicable).
Except as set forth above, all of the terms and conditions of the April 21
Letter shall remain unchanged.
<PAGE> 3
If the foregoing changes to the April 21 Letter are acceptable to you,
please so indicate by signing the enclosed copy of this letter and returning it
to the attention of the undersigned.
Very truly yours,
SecurityVillage.com Inc.
By:_____________________________________
Name:_________________________________
Title:________________________________
ACCEPTED AND AGREED TO AS OF THE DATE
OF THIS LETTER:
SECURITY ASSOCIATES INTERNATIONAL, INC.
By:________________________________
Name: __________________________
Title: _________________________
KC ACQUISITION CORP.
By:________________________________
Name: __________________________
Title: _________________________
<PAGE> 4
TJS PARTNERS. L.P.
By: TJS Management, L.P.
General Partner
By: TJS Corporation
General Partner
By:_____________________________
Thomas J. Salvatore
President
- --------------------------------
James S. Brannen
--------------------------------
Thomas Few
- --------------------------------
Timothy McGinn
<PAGE> 1
Exhibit 10.3
EXECUTION COPY
MAY , 2000
INVESTMENT AGREEMENT
BY AND AMONG
MTL ACQUISITION CORP.
M FINANCE LIMITED
TIMESMASTER LIMITED
LWG HOLDINGS LIMITED
GRIPTIGHT HOLDINGS, INC.
AND
MONITORING ACQUISITION CORPORATION
<PAGE> 2
1 DEFINITIONS AND INTERPRETATION....................................2
2 SHARE PURCHASE CLOSING............................................3
3 ASSIGNMENT AND ASSUMPTION OF PROMISSORY NOTE......................5
4 SALE OF GRIPTIGHT SHARES AND RELATED MATTERS......................5
5 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR....................7
6 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................8
7 INDEMNIFICATION...................................................8
8 FEES AND EXPENSES.................................................9
9 TAX RETURNS; SECTION 338 ELECTION.................................9
10 CONFIDENTIALITY...................................................9
11 MISCELLANEOUS.....................................................9
EXHIBIT A FORM OF PROMISSORY NOTE.........................................14
<PAGE> 3
THIS INVESTMENT AGREEMENT (this "AGREEMENT") is entered into as of May , 2000,
by and among the following parties:
(1) MTL ACQUISITION CORP., a Delaware corporation (the "COMPANY"), and a
wholly-owned subsidiary of MSC Acquisition (Holdings) Corp., a Cayman
Islands limited company ("HOLDINGS");
(1) M FINANCE LIMITED, an English limited company ("FINANCE CORP.") and a
wholly-owned subsidiary of SecurityVillage.com Inc., a Delaware
corporation ("SECURITYVILLAGE");
(1) TIMESMASTER LIMITED, an English limited company ("TIMESMASTER");
(1) LWG HOLDINGS LIMITED, an English limited company ("LWG"), and a
wholly-owned subsidiary of Timesmaster;
(1) GRIPTIGHT HOLDINGS, INC., a New Jersey corporation ("GRIPTIGHT"),
and a wholly-owned subsidiary of LWG; and
(1) MONITORING ACQUISITION CORPORATION, a New Jersey corporation (the
"INVESTOR"), and a wholly-owned subsidiary of KC Acquisition Corp., a
New Jersey corporation ("KING").
WHEREAS:
(A) The Company has entered into that certain Share Purchase Agreement,
dated as of the date hereof (the "SHARE PURCHASE AGREEMENT"), with
Rimma Hurst (as Temporary Administrator of the United States estate of
Eric Hurst (deceased)) ("HURST"), Stuart Lyons and Rimma Hurst (as
Co-executors of the United Kingdom estate of Eric Hurst (deceased)),
Linda Hurst, Heather Hurst, Edward Hurst, Robert Hurst, First Court
Limited and Maygarden Limited (collectively, the "TIMESMASTER HOLDERS,"
and together with Hurst, the "MONITAL SELLERS"), pursuant to which the
Company has agreed to purchase, upon the terms and subject to the
conditions of the Share Purchase Agreement, (i) from Hurst, a 20%
interest (the "DIRECT INTEREST") in Monital Signal Corporation, a New
York corporation ("MONITAL"), and (ii) from the Timesmaster Holders,
all of the issued and outstanding shares of capital stock ("TIMESMASTER
SHARES") of Timesmaster, which is the beneficial owner of all of the
issued share capital of LWG ("LWG SHARES");
(A) LWG is the beneficial and record owner of all of the issued and
outstanding shares of capital stock of Griptight, and Griptight is the
beneficial and record owner of 80% of the issued and outstanding shares
of capital stock of Monital;
(A) The Company desires to assign to the Investor the Company's right to
purchase the Direct Interest under the terms and subject to the
conditions of the Share Purchase Agreement; and
<PAGE> 4
(A) Griptight desires to sell and issue to the Investor, and the Investor
desires to purchase from Griptight, 99 shares of common stock of
Griptight, no par value per share (the "SHARES"), which will represent,
following such issuance, 99% of the issued and outstanding shares of
common stock of Griptight, upon the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1 DEFINITIONS AND INTERPRETATION
1.1 As used in this Agreement, the terms "AGREEMENT," "COMPANY," "FINANCE
CORP.," "GRIPTIGHT," "HOLDINGS," "INVESTOR," "KING," "LWG," "SECURITYVILLAGE"
and "TIMESMASTER" shall have the respective meanings assigned to such terms in
the introductory paragraph of this Agreement.
1.2 All of the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Agreement.
1.3 For purposes of this Agreement, unless the context requires otherwise,
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.2(d).
"COMPANY GROUP" shall mean the Company and the Company's Affiliates and their
respective directors, officers, attorneys, accountants, agents and employees and
their respective heirs, successors and assigns.
"COMPANY INDEMNITEES" shall have the meaning set forth in Section 7.2.
"COMPANY LOAN" shall have the meaning set forth in Section 2.1.
"CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality Agreement,
dated as of April 21, 2000, by and between King and SecurityVillage.
"CONSOLIDATED GROUP" shall have the meaning set forth in Section 9.
"DIRECT INTEREST" shall have the meaning set forth in the recitals of this
Agreement.
"ESCROW ACCOUNT" shall have the meaning set forth in Section 2.2(e).
"ESCROW AGENT" shall have the meaning set forth in Section 2.2(c).
"GRIPTIGHT ASSIGNMENT" shall have the meaning set forth in Section 3.4.
"GRIPTIGHT CLOSING" shall have the meaning set forth in Section 4.3.
<PAGE> 5
"HOLDINGS LOAN" shall have the meaning set forth in Section 2.2(b).
"HURST" shall have the meaning set forth in the recitals of this Agreement.
"INCENTIVE PAYMENTS" shall have the meaning set forth in Section 2.2(d).
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section 7.1.
"INDEMNITEES" shall have the meaning set forth in Section 7.1.
"LETTER AGREEMENT" shall mean the Letter Agreement, dated as of the date hereof,
by and among SecurityVillage, King, Security Associates International, Inc., TJS
Partners, L.P., James S. Brannen, Thomas Few and Timothy McGinn.
"LWG ASSIGNMENT" shall have the meaning set forth in Section 3.3.
"LWG INTEREST" shall have the meaning set forth in Section 4.5(b).
"LWG SHARES" shall have the meaning set forth in the recitals of this Agreement.
"MONITAL" shall have the meaning set forth in the recitals of this Agreement.
"MONITAL SELLERS" shall have the meaning set forth in the recitals of this
Agreement.
"NOTE PURCHASE AGREEMENT" shall mean that certain Note Purchase Agreement, dated
as of the date hereof, by and between SecurityVillage and King.
"PLAN OF MERGER" shall mean the Plan of Merger, dated on or about May 11, 2000,
by and among Griptight, Monital and the Investor.
"PROMISSORY NOTE" shall have the meaning set forth in Section 2.1.
"PUT OPTION AGREEMENT" shall mean that certain Put Option Agreement, dated as of
the date hereof, by and between Finance Corp. and Holdings.
"SHARE PURCHASE AGREEMENT" shall have the meaning set forth in the recitals of
this Agreement.
"SHARE PURCHASE CLOSING" shall mean the closing of the transactions contemplated
by the Share Purchase Agreement.
"SHARES" shall have the meaning set forth in the recitals of this Agreement.
"TIMESMASTER ASSIGNMENT" shall have the meaning set forth in Section 3.2.
"TIMESMASTER HOLDERS" shall have the meaning set forth in the recitals of this
Agreement.
"TIMESMASTER SHARES" shall have the meaning set forth in the recitals of this
Agreement.
<PAGE> 6
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Share Purchase Agreement,
the Promissory Note for the Company Loan, the Promissory Note for the Holdings
Loan, the Letter Agreement, the Put Option Agreement and the Note Purchase
Agreement.
1.4 Unless otherwise defined herein, terms defined in the Share Purchase
Agreement and used herein shall have the meanings given to them in the Share
Purchase Agreement.
2 SHARE PURCHASE CLOSING
2.1 GRANT OF LOAN Upon the terms and subject to the conditions of this
Agreement, the Investor shall loan to the Company an aggregate principal amount
of U.S.$8,880,804 (the "COMPANY LOAN"). The proceeds of the Company Loan shall
be used by the Company to acquire the Timesmaster Shares upon the terms and
subject to the conditions set forth in the Share Purchase Agreement. The Company
Loan made by the Investor shall be evidenced by a promissory note, the form of
which is attached hereto as Exhibit A (the "PROMISSORY NOTE"). The Promissory
Note shall be dated as of the date of the Share Purchase Closing, and shall
represent the obligation of the Company to pay the aggregate principal amount of
the Company Loan to the Investor, with interest accrued thereon, as prescribed
in the Promissory Note; provided that the Company shall have the right to assign
all of its obligations under the Company Loan to any of the Company's
Affiliates.
2.2 SHARE PURCHASE CLOSING On the date of the Share Purchase Closing:
(A) the Company will deliver to the Investor the Promissory Note against
the making by the Investor of the Company Loan in accordance with
Section 2.1;
(B) Finance Corp. will loan to Holdings an aggregate principal amount of
U.S.$170,000 upon the terms and subject to the conditions of the Put
Option Agreement ("HOLDINGS LOAN");
(C) the Company (or its nominee) shall deliver to Weil, Gotshal & Manges,
LLP (the "ESCROW AGENT"), acting on the Company's or such nominee's
behalf, by wire transfer in immediately available funds an amount equal
to U.S.$89,705 out of the proceeds of the Holdings Loan into the Escrow
Account and shall instruct the Escrow Agent to pay U.S.$89,705 to the
Monital Sellers upon the terms and subject to the conditions set forth
in the Share Purchase Agreement;
(D) the Company shall sell, transfer and assign to the Investor to have and
to hold forever, the right, title and interest of the Company Group in
and to (i) the Company's right to purchase the Direct Interest and the
Company's obligation to make the incentive payments, associated tax
payments and the brokerage payments as specified in the Share Purchase
Agreement (the "INCENTIVE PAYMENTS"), (ii) all of the representations,
warranties, covenants and indemnities made by the Monital Sellers to
the Company Group under the Share Purchase Agreement in connection with
the Company's purchase of the Direct Interest and making of the
Incentive Payments, and the Investor shall irrevocably assume all of
the Company Group's obligations and liabilities in respect of the
purchase of the Direct Interest and the making of the Incentive
Payments upon the terms and subject to the conditions set forth in the
Share Purchase Agreement and irrevocably undertakes (i) to carry out
and perform and complete all of such obligations and liabilities
relating to the purchase of the Direct Interest and the making of the
Incentive Payments under the Share Purchase Agreement, including
without limitation the
<PAGE> 7
Company Group's indemnities made to the Monital Sellers and their
respective heirs, successors and assigns (other than indemnities
arising out of, based upon, attributable to or resulting from the
failure of any of the representations and warranties of the Company set
forth in the Share Purchase Agreement to be true and correct as of the
date of the Share Purchase Closing) (the "ASSUMED LIABILITIES"), with
effect from the date of the Share Purchase Closing, and (ii) to be
bound by the applicable provisions of the Share Purchase Agreement
relating to the purchase of the Direct Interest and the making of the
Incentive Payments as if the Investor had been a party to such
applicable provisions of the Share Purchase Agreement in place of the
Company; and
(E) the Investor shall deliver to the Escrow Agent by wire transfer in
immediately available funds an aggregate amount equal to
U.S.$10,750,295 into an escrow account (the "ESCROW ACCOUNT")
established by the Escrow Agent at Morgan Guaranty Trust Company, 500
Stanton Christiana, Newark, Delaware 19173, ABA Number: 031100238, For
Credit to: Weil, Gotshal & Manges, LLP Special Account, Account Number:
158-37-474, Reference: 73353/0003 -- Doug Warner and shall instruct the
Escrow Agent to pay U.S.$10,750,295 to the Monital Sellers upon the
terms and subject to the conditions set forth in the Share Purchase
Agreement.
2.3 AFFIRMATIVE COVENANT Following the date of the Share Purchase Closing,
the Investor will negotiate in good faith with the senior executive officers of
Monital to enter into employment agreements mutually acceptable to the parties
thereto.
3 ASSIGNMENT AND ASSUMPTION OF PROMISSORY NOTE
3.1 CONDITION PRECEDENT Within one Business Day following the Share
Purchase Closing, Timesmaster and LWG shall file certificates of domestication
and certificates of incorporation with the Secretary of State of the State of
Delaware.
3.2 ASSIGNMENT OF LOAN TO TIMESMASTER Following the satisfaction of the
condition referred to in Section 3.1, the Company shall sell, transfer and
assign to Timesmaster, to have and to hold forever, all of the Company's right,
title and interest in and to the Promissory Note free from any encumbrance,
claims or restrictions whatsoever, and Timesmaster shall assume all of the
Company's obligations in respect of the Promissory Note and without limiting the
foregoing, agree to perform the Company's obligations pursuant to the terms and
subject to the conditions thereunder (the "TIMESMASTER ASSIGNMENT").
3.3 ASSIGNMENT OF LOAN TO LWG Following the Timesmaster Assignment
referred to in Section 3.2, Timesmaster shall sell, transfer and assign to LWG,
to have and to hold forever, all of Timesmaster's right, title and interest in
and to the Promissory Note free from any encumbrance, claims or restrictions
whatsoever, and LWG shall assume all of Timesmaster's obligations in respect of
the Promissory Note and without limiting the foregoing, agree to perform
Timesmaster's obligations pursuant to the terms and subject to the conditions
thereunder (the "LWG ASSIGNMENT").
3.4 ASSIGNMENT OF LOAN TO GRIPTIGHT Following the LWG Assignment, LWG
shall sell, transfer and assign to the Griptight, to have and to hold forever,
all of LWG's right, title and interest in and to the Promissory Note free from
any encumbrance, claims or restrictions whatsoever, and Griptight shall assume
all of LWG's obligations in respect of the Promissory Note and without limiting
the foregoing,
<PAGE> 8
agree to perform LWG's obligations pursuant to the terms and subject to the
conditions thereunder (the "GRIPTIGHT ASSIGNMENT").
4 SALE OF GRIPTIGHT SHARES AND RELATED MATTERS
4.1 THE SALE Following the Griptight Assignment and upon the terms and
subject to the conditions of this Agreement, the Shares shall be delivered by
Shapiro & Croland or its nominee to the Investor or its nominee, dated as of the
date of the Griptight Closing, and such Shares will be validly issued, fully
paid and non-assessable. Prior thereto, Griptight shall adopt resolutions of its
Board of Directors approving the issuance of the Shares to the Investor
effective upon the Griptight Assignment and execute and deliver the Shares to
Shapiro & Croland or its nominee to hold such Shares in escrow pending the
consummation of the Griptight Assignment.
4.2 PURCHASE PRICE In consideration of the aforesaid sale, assignment,
transfer and delivery of the Shares at the Griptight Closing, the Investor shall
cancel the full amount due and owing to the Investor under the Promissory Note
and this Agreement and irrevocably release and discharge from any and all of the
obligations and liabilities of the Company, Griptight and their respective
Affiliates hereunder and thereunder in connection with the Company Loan.
4.3 GRIPTIGHT CLOSING
(A) The closing of the Timesmaster Assignment, the LWG Assignment, the
Griptight Assignment and the purchase and sale of the Shares
(collectively, the "GRIPTIGHT CLOSING") will take place at the offices
of Shapiro & Croland, Continental Plaza II, 411 Hackensack, N.J. 07601,
immediately following the satisfaction or waiver of all conditions set
forth in Section 4.4 hereof, or at such other place or time or both as
the parties may agree.
(B) At the Griptight Closing, the Investor shall cancel the Promissory Note
and irrevocably release and discharge the Company, Griptight and their
respective Affiliates from any and all of the obligations and
liabilities under the Promissory Note and this Agreement in connection
with the Company Loan against delivery by Shapiro & Croland to the
Investor of a certificate or certificates for the Shares, registered in
the name of the Investor or in such other name or names as the Investor
may designate.
4.4 CONDITIONS PRECEDENT The obligation of the Investor to purchase, and
the obligation of Griptight to issue and sell the Shares, at the Griptight
Closing is subject to the satisfaction or waiver of the following conditions
prior to or contemporaneously with the Griptight Closing:
(A) CERTIFICATES OF DOMESTICATION Timesmaster and LWG shall have filed
certificates of domestication and certificates of incorporation with
the Secretary of State of the State of Delaware.
(B) REPRESENTATIONS AND WARRANTIES The representations and warranties of
the Investor shall be true and correct in all material respects at and
as of the date of the Griptight Closing as though such representations
and warranties were made at and as of such date (except for such
representations and warranties which are by their terms made as of an
earlier date, which shall speak only as of such date).
<PAGE> 9
(C) PERFORMANCE The parties hereto shall have performed and complied in
all material respects with all agreements, covenants and conditions
required by this Agreement to be performed or complied with it or any
of their Affiliates on or prior to the Griptight Closing.
(D) NO INJUNCTION OR PROCEEDING No Order shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits or
restricts the consummation of the transactions contemplated hereby. No
action or proceeding by any Governmental Entity shall have been
commenced (and be pending) against either party or any of their
respective Affiliates, associates, officers or directors seeking to
prevent or delay the transactions contemplated hereby or challenging
any of the terms or provisions of this Agreement or seeking material
damages in connection therewith.
(E) TRANSACTION DOCUMENTS The Investor and the Company shall have received
the Transaction Documents executed and delivered by the respective
parties thereto, and all of the conditions set forth in Sections 2 and
3 shall have been satisfied.
(F) APPROVALS The Boards of Directors of the Investor, the Company,
Timesmaster, LWG and Griptight shall have approved the transactions
contemplated hereby.
(G) CONSENTS All consents, approvals, authorizations, licenses,
registrations, qualifications, decrees or orders of, or filings with,
any Governmental Entity as is necessary or required for the execution,
delivery and performance by the parties to the Transaction Documents or
the consummation of the transactions contemplated thereby shall have
been obtained and such evidence as the Company may reasonably request
shall have been delivered to the Company.
(H) MISCELLANEOUS Such ancillary certificates and documents required for
closing the transactions contemplated hereby as the Company may
reasonably request shall have been delivered to the Company.
4.5 COVENANTS Following the Griptight Closing,
(A) with the prior consent of LWG which is hereby acknowledged, Griptight
and Monital shall merge with and into the Investor, whereupon the
separate existence of the Griptight and Monital shall cease, and the
Investor shall be the surviving corporation following such merger upon
the terms and subject to the conditions of the Plan of Merger; and
(B) except as set forth in Section 4.5(a), the Investor, Griptight or their
successors shall not, without the prior written consent of LWG or the
Company, take any action whatsoever that may cause LWG not to own the
1% interest LWG will have held in Griptight (or LWG's equivalent
interest in Griptight's successor) (the "LWG INTEREST"), including
without limitation, (i) the liquidation, redemption, purchase,
acquisition or other disposition of the LWG Interest or any part of it
by any Person, (ii) the conversion or exchange of the LWG Interest into
any shares of capital stock of, or other equity interests in, any
Person or (iii) the recapitalization or reorganization, split,
combination or reclassification of the LWG Interest.
<PAGE> 10
5 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company as follows:
5.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION The Investor is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. The Investor has all requisite
corporate power and authority to execute and deliver this Agreement, and to
carry out the provisions of this Agreement.
5.2 AUTHORIZATIONS; BINDING OBLIGATIONS All corporate action on the part
of the Investor, its officers, directors and shareholders necessary for the
authorization of this Agreement and the performance of all obligations of the
Investor hereunder has been taken. This Agreement is the valid and binding
obligation of the Investor enforceable in accordance with its terms.
5.3 NO CONFLICTS The execution, delivery and performance of, and
compliance with, this Agreement will not, with or without the passage of time or
giving of notice, result in any violation of, or be in conflict with or
constitute a default under, any term of the Investor's Certificate of
Incorporation or By-Laws (or other comparable governing documents), or of any
material provision of any mortgage, indenture, contract, agreement, instrument
or contract to which it is party or by which it or any of its property or assets
are bound, or of any judgment, decree, order or writ against or binding upon it
or upon its securities, properties or business, or result in the creation of any
Lien upon the properties or assets of the Investor or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Investor or its business or
operations or any of its assets or properties, or give rise to any right of
termination, cancellation or acceleration of any obligation to repay, including,
without limitation, under any provision relating to changes of control, under
any of the terms, conditions or provisions of any mortgage, indenture, contract,
agreement, instrument or contract to which the Investor is a party or by which
the Investor or any of its properties or assets are bound. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement, except such as has
been duly and validly obtained or filed. The Investor is not in default in any
material respect under any such of such franchises, permits, licenses or other
similar authority.
6 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investor as follows:
6.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, and to carry out the provisions
of this Agreement.
6.2 AUTHORIZATIONS; BINDING OBLIGATIONS All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization of this Agreement and the performance of all obligations of the
Company hereunder has been taken. This Agreement is the valid and binding
obligation of the Company enforceable in accordance with its terms.
<PAGE> 11
6.3 NO CONFLICTS The execution, delivery and performance of, and
compliance with, this Agreement will not, with or without the passage of time or
giving of notice, result in any violation of, or be in conflict with or
constitute a default under, any term of the Company's Certificate of
Incorporation or By-Laws, or of any material provision of any mortgage,
indenture, contract, agreement, instrument or contract to which it is party or
by which it or any of its property or assets are bound, or of any judgment,
decree, order or writ against or binding upon it or upon its securities,
properties or business, or result in the creation of any Lien upon the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company or its business or operations or any of its assets or
properties, or give rise to any right of termination, cancellation or
acceleration of any obligation to repay, including, without limitation, under
any provision relating to changes of control, under any of the terms, conditions
or provisions of any mortgage, indenture, contract, agreement, instrument or
contract to which the Investor is a party or by which the Investor or any of its
properties or assets are bound. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement, except such as has been duly and validly obtained or
filed. The Company is not in default in any material respect under any such of
such franchises, permits, licenses or other similar authority.
7 INDEMNIFICATION
7.1 INDEMNIFICATION BY INVESTOR The Investor hereby agrees to defend,
indemnify, exonerate and hold harmless, the Company and any of its officers,
directors, stockholders, Affiliates, trustees, employees and agents and each
other Person, if any, controlling the Company or any of the Company's Affiliates
(collectively the "INDEMNITEES") at all times from and against any and all
liabilities, losses, actions, causes of action, suits, proceedings, costs,
claims, demands, damages and expenses in connection therewith, including,
without limitation, reasonable counsel fees and disbursements incurred by the
investigation and defense of claims and actions (collectively, the "INDEMNIFIED
LIABILITIES"), brought or made against or incurred by the Indemnitees or any of
them as a result of, or arising out of, or relating to the Assumed Liabilities
after the date hereof. The indemnification provided by the Investor under this
Section 7.1 shall be in addition to any other rights and remedies available to
the Indemnitees available at law or in equity.
7.2 INDEMNIFICATION BY COMPANY Solely for a period commencing on the date
hereof until the Griptight Closing, the Company hereby agrees to defend,
indemnify, exonerate and hold harmless, the Investor and any of its officers,
directors, stockholders, Affiliates, trustees, employees and agents and each
other Person, if any, controlling the Investor or any of the Investor's
Affiliates (collectively, the "COMPANY INDEMNITEES") from and against any and
all failure by the Company to perform its obligations in connection with the
Company Loan, the Promissory Note and under Section 3 of this Agreement.
8 FEES AND EXPENSES
Whether or not the transactions contemplated by this Agreement are consummated,
all legal, accounting and other costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
<PAGE> 12
9 TAX RETURNS; SECTION 338 ELECTION
9.1 TAX RETURNS Following the satisfaction of the condition referred to in
Section 3.1, the Company will prepare and file the U.S. federal, state and local
income tax returns required to be filed, if not otherwise filed, for the
Company, Timesmaster, LWG, Griptight and Monital (the "CONSOLIDATED GROUP") for
any taxable period commencing prior to the date of the Share Purchase Closing
and for any taxable period commencing on the day following the date of the Share
Purchase Closing until the date of the Griptight Closing. The Investor will
prepare and file the U.S. federal, state and local income tax returns required
to be filed for Griptight and Monital for any taxable period following the date
of the Griptight Closing. The Investor will cooperate with the Company in
providing access to (i) Griptight's and Monital's books and records as
reasonably necessary to enable the Company to file the tax returns required to
be filed on or prior to the date of the Griptight Closing and (ii) the
Investor's, Griptight's and Monital's books and records as reasonably necessary
in assisting the Company in any U.S. Internal Revenue Service audit or other
proceeding concerning the tax liability of the Consolidated Group.
9.2 SECTION 338 ELECTION Within nine months after the date of the Share
Purchase Closing, the Company shall make a Section 338 election on IRS Form 8023
under the Code (a "SECTION 338 ELECTION") with respect to Timesmaster's assets,
and Timesmaster shall make a Section 338 Election with respect to LWG's assets
upon the terms and subject to the conditions of the Share Purchase Agreement.
LWG will not make a Section 338 Election with respect to Griptight's assets, and
Griptight will not make a Section 338 Election with respect to Monital's assets.
10 CONFIDENTIALITY
The parties acknowledge that the Confidentiality Agreement shall continue in
full force and effect in accordance with its terms and the parties adopt same,
make it a part hereof by reference and agree to be bound by all of its terms. In
addition, the parties agree that the terms and conditions of the transactions
contemplated hereby and information exchanged in connection with the execution
hereof shall be subject to the same standard of confidentiality as is set forth
in the Confidentiality Agreement.
11 MISCELLANEOUS
11.1 ILLEGALITY OF AGREEMENT No party shall be responsible for its full or
partial failure to perform its obligations under this Agreement in the event
such failure to fully perform its obligations hereunder is caused by this
Agreement or the transactions contemplated hereby being rendered illegal by
circumstances beyond the control of such party which have arisen after the
execution of this Agreement. Any party that relies on such illegality as
justification for the full or partial failure to perform its obligations under
this Agreement shall immediately inform the other parties thereof in writing.
<PAGE> 13
11.2 ARBITRATION AND DISPUTE RESOLUTION
(A) Any and all disputes or controversies arising under, out of, in
connection with or in relation to this Agreement shall be determined
and settled by binding arbitration, held in New York, New York, in
accordance with this Section 11.2 and in accordance with the
Arbitration Rules of the American Arbitration Association. Upon the
occurrence of a dispute or controversy, a party may submit the dispute
or controversy for such arbitration pursuant to this Section 11.2 by
delivery of written notice to the other party demanding an arbitration
and specifying the controversy or dispute to be arbitrated. Within ten
(10) Business Days of the delivery of such notice, the parties shall
agree upon a single arbitrator. If the parties are unable to select a
single arbitrator within such ten (10) day period, each party shall
within five (5) Business Days thereafter select an arbitrator and the
arbitrators so chosen shall select the single arbitrator. If any party
fails to select an arbitrator, the arbitrator chosen by the other party
shall act as the sole arbitrator. The arbitration shall be held in
accordance with the rules of the American Arbitration Association and
judgment upon any award rendered by the single arbitrator shall be
valid, binding, final and non-appealable. No arbitrator shall have
authority to disregard or modify any provisions of this Agreement. The
arbitrator(s) shall have authority to award counsel fees and costs to
the prevailing party. The reference to the rules and procedures of the
American Arbitration Association shall not require arbitration by that
entity unless otherwise agreed by the parties.
(B) For the purpose of enforcement of any arbitral award hereunder, the
parties hereto hereby irrevocably submit to the exclusive jurisdiction
of the United States District Court for the District of New York over
any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby and each party hereby irrevocably
agrees that all claims in respect of such dispute or any suit, action
or proceeding related thereto may be heard and determined in such
court. The parties hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may now or
hereafter have to the laying of venue of any such dispute brought in
such court or any defence of inconvenient forum for the maintenance of
such dispute. Each of the parties hereto agrees that a judgment in any
such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(C) Each of the parties hereto hereby consents to process being served by
any party to this Agreement in any suit, action or proceeding by the
mailing of a copy thereof in accordance with the provisions of Section
11.3 hereof.
11.3 NOTICES All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly received, given or delivered (i) when received by such party if delivered
personally, (ii) upon confirmation when delivered by facsimile transmission,
(iii) within three (3) days after being mailed by registered or certified mail
(return receipt requested), postage pre-paid, or (iv) within one day after being
sent by recognized overnight delivery service, and in each case to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
<PAGE> 14
(A) if to the Investor or Griptight, to:
Monitoring Acquisition Corporation
P.O. Box 1943
South Hackensack, New Jersey 07606-0543
Fax: 732-225-5326
Attention: Thomas Few
with copies to:
Shapiro & Croland
Counsellors at Law
Continental Plaza II
Hackensack, New Jersey 07601
Fax: 201-488-9481
Attention: Bruce J. Ackerman, Esq.
(B) if to the Company, Timesmaster, LWG or Finance Corp. to:
c/o Weil, Gotshal & Manges
One South Place
London, EC2M 2WG
England
Fax: +44 (0) 207 903 0990
Attention: Douglas Warner, Esq.
11.4 AMENDMENT AND MODIFICATION This Agreement may be amended, modified or
supplemented at any time by the parties hereto. This Agreement may be amended
only by an instrument in writing signed on behalf of the parties hereto.
11.5 WAIVER Any waiver by any party of a breach of any provision of this
Agreement shall not operate as, or be construed to be, a waiver of any other
breach of that provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be evidenced by a
writing signed by the party against whom the waiver is sought to be enforced.
11.6 SEVERABILITY If any provision of this Agreement shall be determined to
be illegal or unenforceable by any court of law of competent jurisdiction, the
parties intend that such provision shall be deemed not to form part of this
Agreement and the remaining provisions shall be severable and enforceable in
accordance with their terms.
11.7 GOVERNING LAW This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding choice-of-law
principles of the law of such State that would require the application of the
laws of a jurisdiction other than such State.
<PAGE> 15
11.8 ENTIRE AGREEMENT; ASSIGNMENT This Agreement (a) and certain provisions
of the Share Purchase Agreement constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and (b) shall not be assigned or
transferred by either party without the prior written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon each of
the parties hereto and their respective successors and permitted assigns.
11.9 CAPTIONS The captions herein are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. Unless otherwise indicated section
cross-references in this Agreement are references to the sections of this
Agreement.
11.10 COUNTERPARTS This Agreement may be executed in any number of
counterparts (any or all of which may be executed by facsimile), each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the date first written above.
MTL ACQUISITION CORP.
By:
----------------------------
Name:
Title:
M FINANCE LIMITED
By:
----------------------------
Name:
Title:
TIMESMASTER LIMITED
By:
----------------------------
Name:
Title:
LWG HOLDINGS LIMITED
By:
----------------------------
Name:
Title:
GRIPTIGHT HOLDINGS, INC.
By:
----------------------------
Name:
Title:
MONITORING ACQUISITION CORPORATION
By:
----------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.4
MAY 2000
SHARE PURCHASE AGREEMENT
BY AND BETWEEN
THE EXECUTORS OF THE UNITED KINGDOM ESTATE OF
ERIC HURST (DECEASED)
ROBERT HURST
EDWARD HURST
LINDA HURST
HEATHER HURST
FIRST COURT LIMITED
MAYGARDEN LIMITED
THE TEMPORARY ADMINISTRATOR OF THE UNITED STATES ESTATE OF
ERIC HURST (DECEASED)
MTL ACQUISITION CORP.
WEIL, GOTSHAL & MANGES
<PAGE> 2
TABLE OF CONTENTS
Page
1 CERTAIN DEFINITIONS .............................................. 1
2 SALE OF SHARES AND RELATED MATTERS ............................... 6
3 THE CLOSING ...................................................... 7
4 REPRESENTATIONS AND WARRANTIES OF SELLERS ........................ 9
5 REPRESENTATIONS AND WARRANTIES OF SECURITY VILLAGE AND
BUYER ............................................................ 17
6 COVENANTS OF THE PARTIES ......................................... 18
7 CONDITIONS TO SELLERS' OBLIGATIONS ............................... 22
8 CONDITIONS TO BUYER'S OBLIGATIONS ................................ 23
9 INDEMNIFICATION AND RELATED MATTERS .............................. 24
10 TERMINATION AND ABANDONMENT ...................................... 26
11 MISCELLANEOUS PROVISIONS ......................................... 27
ANNEX A - Opinion of Schiffman, Berger, Kaufman and Ritter .............. 33
ANNEX B - Officer's Certificate of Buyer ................................ 41
ANNEX C - Seller's Certificate .......................................... 42
ANNEX D - Schedule of Incentive Payments ................................ 43
ANNEX E - Tax and Indemnity Deed ........................................ 45
ANNEX F - Working Capital Calculation ................................... 56
1
<PAGE> 3
This Share Purchase Agreement (the "AGREEMENT") is entered into as of __ May,
2000, by and between Stuart Lyons and Rimma Hurst (as co-executors of the United
Kingdom estate of Eric Hurst (deceased)), Robert Hurst, Edward Hurst, Linda
Hurst, Heather Hurst, First Court Limited and Maygarden Limited (collectively,
"TIMESMASTER HOLDERS"), Rimma Hurst (as Temporary Administrator of the United
States estate of Eric Hurst (deceased)) ("HURST") and MTL Acquisition Corp., a
Delaware corporation ("BUYER"). Timesmaster Holders and Hurst are collectively
referred to as "Sellers."
WHEREAS:
(A) Timesmaster Holders, collectively, are the beneficial and record owners of
15,110 ordinary shares (the "TIMESMASTER SHARES") of Timesmaster Limited,
an English limited company (the "COMPANY"), constituting all of the issued
share capital of the Company.
(B) The Company is the beneficial and record owner of all of the issued share
capital of LWG Holdings Limited, an English limited company ("LWG"), which
is the beneficial and record owner of all of the issued and outstanding
shares of capital stock of Griptight Holdings, Inc., a New Jersey
corporation ("GRIPTIGHT").
(C) Griptight is the beneficial and record owner of eight (8) shares of common
stock, no par value per share (the "GRIPTIGHT SHARES"), of Monital Signal
Corporation, a New York corporation ("MONITAL"), constituting 80% of the
issued and outstanding shares of capital stock of Monital.
(D) Hurst is the beneficial and record owner of two (2) shares of common stock,
no par value per share of Monital (the "HURST SHARES") constituting 20% of
the issued and outstanding shares of capital stock of Monital. The Hurst
Shares and the Timesmaster Shares are hereinafter referred to as the
"SHARES".
(E) Sellers desire to sell to Buyer, and Buyer wishes to purchase from Sellers,
the Shares for the Purchase Price upon the terms and conditions set forth
in this Agreement.
Certain terms used in this Agreement are defined in Article I.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1 CERTAIN DEFINITIONS
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the United States Securities and Exchange Act of 1934, as
amended.
"AGREEMENT" has the meaning ascribed to it in the Preamble hereto.
"BASKET" has the meaning ascribed to such term in Section 9.3(a) hereof.
"BUSINESS DAY" means any day on which banks are open for business in London,
England and New York City.
"BUYER" has the meaning assigned to it in the Preamble hereto.
"BUYER GROUP" means Buyer and Buyer's Affiliates and their respective successors
and assigns.
2
<PAGE> 4
"BUYER INDEMNIFIED PARTIES" has the meaning ascribed to such term in Section
9.1(a) hereof.
"CLAIM NOTICE" has the meaning ascribed to such term in Section 9.4(a) hereof.
"CLOSING" means the closing of the transactions contemplated by this Agreement.
"CLOSING DATE" means the date on which the Closing actually occurs and the
transactions contemplated hereby become effective.
"CLOSING DATE BALANCE SHEET" means the balance sheet of Monital as of the
Closing Date, prepared on the same basis as used in the calculation entitled
"Working Capital Adjustment" attached as Annex F.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning ascribed to it in the Preamble hereto.
"COMPANY SUBSIDIARY" means any subsidiary of the Company or any subsidiary of
such subsidiary.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement, dated 20
August, 1999, and as amended, between SecureTech Partners LLC and Nomura
International PLC, on behalf of Security Village.com Inc.
"CONSENT" means a consent, waiver, approval, authorisation or permit.
"CONTRACT" means any of the items referred to in sections (a) through (g) of
Section 4.10 hereof.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule dated the date hereof
delivered by Sellers to Buyer.
"ERISA" means the United States Employee Retirement Income Security Act of 1974,
as amended.
"ENCUMBRANCE" means a claim, lien, encumbrance, easement, security interest,
third-party rights, charge or restriction on transfer of any nature whatsoever.
"ENVIRONMENTAL LAWS" means all applicable United States federal, state or local
or foreign laws, rules, statutes, regulations, codes, ordinances, orders,
decrees, directives, all common law decisions and any other applicable legally
binding requirement of any Governmental Entity, in each case as in effect on the
Closing Date, relating to pollution or protection of the environment, including
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act, the Resource Conservation and Recovery Act, the Clean Air Act,
the Clean Water Act, the Federal Insecticide, Fungicide and Rodenticide Act, the
Toxic Substance and Control Act, the Safe Water Drinking and Toxic Enforcement
Act of 1986 and the Occupational Safety and Health Act (but only to the extent
it regulates occupational exposure to Hazardous Materials) and similar state and
local laws.
"ESCROW AGENT" means Schiffman, Berger, Abraham, Kaufman & Ritter, P.C., United
States counsel to Sellers, or any other person designated by Sellers pursuant to
the Escrow Agreement and reasonably acceptable to Buyer.
3
<PAGE> 5
"ESCROW AGREEMENT" means the Escrow Agreement, dated as of 22 November, 1999,
among the Sellers, Security Village.com Inc. and the Escrow Agent, which governs
the custody of the Escrow Deposit.
"ESCROW DEPOSIT" means the U.S.$100,000 deposited by Buyer with Escrow Agent,
together with any interest or other amounts earned thereon, pursuant to the
terms of the Escrow Agreement.
"FACILITIES" shall mean all buildings and improvements on the Property.
"FINANCIAL STATEMENTS" means the (x) audited balance sheets of LWG, Griptight
and Monital and the related statements of earnings, retained earnings and cash
flows (including any related notes) as of and for the fiscal year ended 31 March
1999 and (y) the unaudited balance sheet of Monital as of 31 March 2000.
"GAAP" means generally accepted accounting principles in the United Kingdom or
the United States, as the case may be, as of the date hereof applied on a
consistent basis during the periods involved.
"GOVERNMENTAL ENTITY" means a governmental or regulatory authority, agency or
commission, including courts of competent jurisdiction, domestic or foreign.
"GRIPTIGHT" has the meaning ascribed to it in the Recitals hereto.
"GRIPTIGHT SHARES" has the meaning ascribed to it in the Recitals hereto.
"HAZARDOUS MATERIALS" means any substance, material or waste that is regulated,
identified or classified as "HAZARDOUS" "TOXIC", a "POLLUTANT", "CONTAMINANT" or
words of similar meaning under any Environmental Law, including, without
limitation, petroleum (including crude oil or any fraction thereof),
polychlorinated biphenyls and asbestos.
"HURST" has the meaning ascribed to it in the Preamble hereto.
"HURST SHARES" has the meaning ascribed to it in the Recitals hereto.
"INCENTIVE PAYMENT AMOUNT" means the sum of US$1,126,864.
"IRS" means the United States Internal Revenue Service.
"ISRA" means the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et
seq.
"INDEMNIFIED PARTY" has the meaning ascribed to such term in Section 9.4(a)
hereto.
"INDEMNIFYING PARTY" has the meaning ascribed to such term in Section 9.4(a)
hereto.
"INSURANCE POLICIES" means all insurance policies with respect to the property,
assets, operations and business of the Company and any Company Subsidiaries,
whether purchased directly by or on behalf of the Company and any Company
Subsidiaries.
"INTELLECTUAL PROPERTY RIGHTS" means, wherever existing in the world, (i)
patents, whether in the form of utility patents or design patents, and all
pending applications for registration thereof, (ii) trademarks, trade names,
service marks, domain names, designs, logos, trade dress and trade styles,
whether or not registered, and all pending applications for registration
thereof, (iii) copyrights, whether or not registered, and all pending
applications for registration thereof, (iv)
4
<PAGE> 6
know-how, inventions, research records, trade secrets, confidential information,
product designs, engineering specifications and drawings, technical information,
formulae, customer lists, supplier lists and market analyses, (v) computer
software and programmes, including, without limitation, computer programmes
embedded in semiconductor chips or otherwise embodied, and related flow charts,
programmer notes, documentation, updates and data, whether in object or source
code form, and (vi) all other similar intellectual property rights, whether or
not registered.
"KNOWLEDGE" as applied herein to Sellers means such knowledge as any Seller
would have had had he made reasonable enquiry of Ray Sacks and Bob Heintz.
"KNOWLEDGE" as applied to a corporation means actual knowledge of an executive
officer (Vice President or higher) or of a member of the Board of Directors.
"LWG" has the meaning ascribed to such term in the Recitals.
"LWG Holdback" means the sum of $80,000 to be held back from the Purchase Price
on the terms set out in the Tax and Indemnity Deed.
"LOSSES" has the meaning ascribed to such term in Section 9.1(a) hereof.
"MAYGARDEN SETTLEMENT" means the settlement dated 21 January 1986 between
Penelope Jane Hart Carrega (formerly Gancikov ) and Rothschild Trust Guernsey
Limited (formerly Rothschild Trust Company (C.I.) Limited )(as amended).
"MONITAL" has the meaning ascribed to it in the Recitals.
"NOTICE PERIOD" has the meaning ascribed to such term in Section 9.4(a) hereof.
"OBLIGATION" means an indenture, mortgage, note, bond, licence, government
registration, contract, lease, agreement or other instrument or obligation.
"ORDER" means an order, writ, judgment, injunction, decree, statute, ordinance,
rule or regulation.
"PBGC" means the United States Pension Benefit Guaranty Corporation.
"PERSON" means any individual, corporation, limited liability company,
partnership, trust or other entity of whatever nature.
"PLAN" means each "EMPLOYEE BENEFIT PLAN" as such term is defined in Section
3(3) of ERISA, as amended, and any severance, bonus or other incentive
compensation, deferred compensation, relocation, tuition assistance, stock
purchase, stock option or award, vacation or disability plans, programmes or
policies, whether written or otherwise, that the Company or any of the Company
Subsidiaries maintains or contributes to on behalf of its current or former
employees for which the Company or any Company Subsidiary has any potential
liability.
"PROPERTY" shall mean all real property leased or owned by, or otherwise used in
the conduct of the business of, the Company or any Company Subsidiary, either
currently or in the past.
"PURCHASE PRICE" means U.S.$10,988,825. A portion of the Purchase Price will be
satisfied by payment to Sellers of the Escrow Deposit.
"SECURITIES ACT" means the United States Securities Act of 1933, as amended.
"SELLERS" has the meaning ascribed to it in the Preamble hereto.
5
<PAGE> 7
"SHARES" has the meaning ascribed to it in the Recitals hereto.
"SUBSIDIARY" means any corporation, association or other business entity of
which more than 50% of the total voting power of stock entitled to vote in the
election of directors or managers thereof is at the time owned or controlled,
directly or indirectly, by such Person.
"TAX AND INDEMNITY DEED" means the Tax and Indemnity Deed in the agreed form
annexed hereto as Exhibit E, to be entered into by Sellers (other than Hurst)
and Buyer, in relation to tax, real estate and other liabilities relating to
Timesmaster and LWG.
"TIMESMASTER HOLDERS" has the meaning ascribed to such term in the Preamble
hereto.
"TIMESMASTER SHARES" has the meaning ascribed to it in the Recitals hereto.
"TRANSACTION DOCUMENTS" means (i) this Agreement, (ii) the Escrow Agreement,
(iii) the Tax and Indemnity Deed, (iv) the Confidentiality Agreement as made a
part hereof and (v) any other agreement or certificate executed by any Seller or
Buyer in connection with the transactions contemplated herein.
"WORKING CAPITAL" shall mean the difference between the Total Current Assets and
the Total Current Liabilities of Monital, calculated on the same basis as used
in the calculation entitled "Working Capital Adjustment" attached as Annex F.
"WORKING CAPITAL DIFFERENTIAL" shall mean the differential between a negative
Working Capital of US$1,104,105 and the Working Capital at the close of business
in New York on the Closing Date as reflected in the Closing Date Balance Sheet.
2 SALE OF SHARES AND RELATED MATTERS
2.1 THE SALE Upon the terms and subject to the conditions of this Agreement, at
the Closing, Sellers will sell, assign, transfer and deliver to Buyer with (in
the case of the Timesmaster Shares), full title guarantee, and Buyer will
purchase from Sellers, the Shares.
2.2 PURCHASE PRICE In consideration of the aforesaid sale, assignment, transfer
and delivery of the Shares at the Closing, Buyer will pay or cause to be paid to
the Escrow Agent on behalf of the Sellers (whose receipt shall be a valid
release of the Buyer from the provisions of this Section), in immediately
available funds, the cash Purchase Price less the amount of the Escrow Deposit.
2.3 PURCHASE PRICE ADJUSTMENT
(a) No later than sixty (60) calendar days following the Closing, Sellers shall
prepare the Closing Date Balance Sheet and calculate the Working Capital
Differential and shall deliver same to Buyer. Buyer shall deliver to
Sellers its written acceptance or rejection of the submission within ten
(10) calendar days after receipt from Sellers and a failure to provide
notice shall be deemed an acceptance. If the parties are unable to agree on
adjustments to the Closing Date Balance Sheet within an additional five (5)
calendar days, then the open issue or issues shall be submitted to binding
arbitration by a disinterested Certified Public Accountant mutually
selected by the parties. If the parties are unable to agree upon an
arbitrator within an additional five (5) calendar days, then either party
may apply to a Judge of a Superior Court of New Jersey, Monmouth County,
for the selection of a qualified Certified Public Accountant to serve as
arbitrator. The arbitrator shall have free access to all pertinent records
maintained by Buyer and Sellers
6
<PAGE> 8
and shall issue a written decision within thirty (30) days of his or her
appointment conclusively establishing the Closing Date Balance Sheet and
the Working Capital Differential.
(B) If the Working Capital Differential reflects a decrease in Working Capital
exceeding US$10,000, then Sellers shall within 2 business days after final
resolution of the Working Capital Differential pay Buyer the amount of the
Working Capital Differential. If the Working Capital Differential reflects
a decrease in Working Capital of US$10,000 or less, no payment shall be due
from the Sellers to the Buyer.
(C) If the Working Capital Differential reflects an increase in Working Capital
exceeding US$10,000, then Buyer shall within 2 business days after final
resolution of the Working Capital Differential pay to Sellers (care of
their attorney's bank account details of which are set out in section 3.3)
the amount of the Working Capital Differential, up to a maximum of
US$160,000. If the Working Capital Differential reflects an increase in
Working Capital of US$10,000 or less, no payment shall be due from the
Buyer to the Sellers.
(D) All deliveries pursuant to this Section 2.3 shall be in accordance with
Section 11.5.
3 THE CLOSING
3.1 TIME AND PLACE OF CLOSING Upon the terms and subject to the conditions
contained in this Agreement, the Closing will take place at the offices of Weil,
Gotshal & Manges, One South Place, London EC2M 2WG immediately following
satisfaction or waiver of all conditions set forth in Articles 7 and 8 hereof.
3.2 DELIVERIES BY SELLERS At the Closing, Sellers will deliver or cause to be
delivered the following to Buyer:
(A) Certificates representing the Shares accompanied by duly executed
instruments of transfer from each Seller in the name of Buyer or its
nominee.
(B) The resignations (including releases of liability) of all members of the
Board of Directors of the Company and each Company Subsidiary.
(C) The certificate contemplated by Section 8.4 hereof in the form of Annex C.
(D) A copy of the resolutions of the board of directors of the Company
authorising the execution, delivery and performance of this Agreement,
together with a copy of a board minute of the Company authorising
registration of the Buyer as holder of the Timesmaster Shares.
(E) Certificates of good standing, or the functional equivalent thereof, of the
Company and each Company Subsidiary from the appropriate governmental
office of each jurisdiction of organisation, and each jurisdiction where
qualified to conduct business, dated not more than thirty (30) days prior
to the Closing.
(F) An Opinion of Schiffman, Berger, Abraham, Kaufman & Ritter, P.C., United
States counsel to Sellers, addressed to Buyer and dated the Closing Date,
substantially in the forms attached hereto as Annex A.
(G) THE Tax and Indemnity Deed in the form of Annex E, duly executed by each
Seller.
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(H) The duly executed release of all charges to which the assets of the Company
or any Company Subsidiary are subject and of all guarantees given by the
Company or any Company Subsidiary, including without limitation the deed of
negative pledge in favour of Lloyds Bank Plc entered into by LWG on 11 July
1985.
(I) Written confirmation by R. Sacks, G. Steinmetz, R. Heintz, Ann Chapman and
Craig Sacks that transactions contemplated herein do not trigger change of
control provisions in their contracts and releases of any obligation of
Monital to make any payment in respect of any future change of control.
(J) The duly executed release by each of the Sellers releasing the Company and
each Company Subsidiary from all and any claims which Sellers may have
against any such Company other than claims and liabilities arising pursuant
to this agreement.
(K) Such other documents reasonably necessary or appropriate to give full force
and effect to this Agreement as Buyer may request not less than five (5)
business days prior to the Closing.
3.3 DELIVERIES BY BUYER At the Closing, Buyer will deliver or cause to be
delivered the following to Sellers:
(A) The Purchase Price in immediately available funds (which Buyer authorises
Weil, Gotshal & Manges LLP to pay on its behalf) to the Sellers, care of
their attorney's bank account, details of which are as follows:
Schiffman, Berger, Abraham, Kaufman & Ritter, P.C.
Account No. 021201383 5150004147
Bank: Valley National Bank
Three University Plaza
Hackensack, New Jersey 07602
Routing Number 021201383
(ABA Number)
(B) The certificate contemplated by Section 7.4 hereof.
(C) A copy of the resolutions of the board of directors of Buyer authorising
the execution, delivery and performance of this Agreement, and a
certificate of the secretary or assistant secretary of Buyer, dated as of
the Closing Date, to the effect that such resolutions were duly adopted and
are in full force and effect.
(D) The Tax and Indemnity Deed duly executed by Buyer.
(E) Such other documents reasonably necessary or appropriate to give full force
and effect to this Agreement as Buyer may request not less than five (5)
business days prior to the Closing.
3.4 INCENTIVE PAYMENTS At Closing, Buyer will pay (and authorises Weil, Gotshal
& Manges LLP to pay on its behalf) to the Escrow Agent the Incentive Payment
Amount and Buyer and Sellers hereby authorise the Escrow Agent to apply the
Incentive Payment Amount on behalf of Monital immediately after Closing in
making incentive payments to Raymond Sacks and other employees of Monital in
accordance with the schedule at Annex D, which payments Sellers warrant shall be
in full and final settlement of all claims by employees of Monital against
Monital
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in respect of the sale of the Shares and any subsequent change of control of
Griptight or Monital, direct or indirect.
3.5 DEBT REPAYMENTS At Closing, Buyer will pay (and authorises Weil, Gotshal &
Manges LLP to pay on its behalf) to the Escrow Agent the sum of US$224,311 and
Buyers and Sellers hereby authorize and instruct the Escrow Agent to pay such
amount to Lewis Woolf Griptight Limited, on behalf of Griptight as to US$68,765
and on behalf of LWG as to US$155,546, which Sellers warrant will be in full and
final satisfaction of all and any liabilities Griptight or LWG to Lewis Woolf
Griptight Limited.
For the avoidance of doubt, (i) the repayment of the intercompany loan
outstanding at Closing from Griptight to Lewis Woolf Griptight Limited will be
funded by an intercompany loan from the Buyer to LWG and a capital contribution
in similar amount by LWG to Griptight; and (ii) the repayment of the
intercompany loan outstanding at Closing from LWG to Lewis Woolf Griptight
Limited will be funded by an intercompany loan from the Buyer to LWG. Buyer
confirms these arrangements will not result in any liability to Griptight.
4 REPRESENTATIONS AND WARRANTIES OF SELLERS
Subject to Section 4.27, Sellers hereby jointly and severally represent
and warrant to Buyer as follows:
4.1 CORPORATE ORGANISATION; Etc The Company is a limited company duly
incorporated, validly existing and in good standing under the laws of England.
The Company has all requisite corporate power and authority to conduct its
business as it is now being conducted and to own, lease and operate its property
and assets. True and complete copies of the Memorandum and Articles of
Association of the Company have been heretofore delivered to Buyer. To the
knowledge of the Sellers all other copies of documents supplied to Buyer are in
all material respects true and complete copies of the original documents they
represent.
4.2 CAPITALISATION OF THE COMPANY The authorised capital stock of the Company
consists of 20,000 ordinary shares of (pound)0.05 each, of which the Timesmaster
Shares are the only shares issued and outstanding as of date hereof. Timesmaster
Holders are the record and beneficial owners of the Timesmaster Shares, and each
of the Timesmaster Holders has good and valid title to his or her Timesmaster
Shares, free and clear of all Encumbrances. All of the Timesmaster Shares are
duly authorised, validly issued, fully paid and non-assessable and were not
issued in violation of any pre-emptive rights. Except as set forth in Schedule
4.2 of the Disclosure Schedule, there are no outstanding (a) securities
convertible into or exchangeable for the capital stock of the Company, (b)
options, warrants or other rights to purchase or subscribe for capital stock of
the Company or (c) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights, pursuant to which, in any of the foregoing cases, the
Company is subject or bound. The consummation of the transactions contemplated
hereby will convey to Buyer good and valid title to the Shares, free and clear
of all proxies, voting agreements and other Encumbrances.
4.3 COMPANY SUBSIDIARIES Each Company Subsidiary is listed in Schedule 4.3 of
the Disclosure Schedule together with its jurisdiction of incorporation or
organisation and the percentage interest held directly or indirectly by the
Company. All issued and outstanding capital stock or membership interest of each
Company Subsidiary is validly issued, fully paid and non-assessable, and, except
as set forth in Schedule 4.3 of the Disclosure Schedule, is owned directly or
indirectly by the Company free and clear of all Encumbrances. There are no
outstanding (a) securities convertible into or exchangeable for the capital
stock or membership interest of any
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Company Subsidiary, (b) options, warrants or other rights to purchase or
subscribe for capital stock or membership interest of any Company Subsidiary or
(c) contracts, commitments, agreements, understandings or arrangements of any
kind relating to the issuance of any capital stock or membership interest of any
of the Company Subsidiaries, any such convertible or exchangeable securities or
membership interest or any such options, warrants or rights pursuant to which,
in any of the foregoing cases, the Company or Company Subsidiaries are subject
or bound. Each Company Subsidiary is a duly organised and validly existing
corporation or limited liability company or other entity in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own its properties and carry on its business as
presently conducted. Except as set forth on Schedule 4.3 as to Monital, each
Company Subsidiary is qualified or licensed to do business as a foreign
corporation or to act as a provincial corporation in each jurisdiction wherein
the nature of its activities or its properties owned or leased makes such
qualification necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on its business. True and complete
copies of the Memorandum and Articles of Association or the Certificate of
Incorporation and By-Laws (or comparable organisational documents) of each
Company Subsidiary, as presently in effect, have been heretofore delivered to
Buyer.
4.4 AUTHORITY RELATIVE TO THIS AGREEMENT AND THE TRANSACTION DOCUMENTS Each
Seller has all requisite authority and power to execute and deliver this
Agreement and each Transaction Document to which any Seller is a party and to
consummate the transactions contemplated hereby or thereby. The execution and
delivery of this Agreement and each Transaction Document to which any Seller is
a party and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorised by all required action and no other
proceedings on the part of any Seller is necessary to authorise this Agreement
or any Transaction Document to which any Seller is a party, or to consummate the
transactions contemplated hereby and thereby. This Agreement and each
Transaction Document to which any Seller is a party has been duly and validly
executed and delivered by such Seller and, assuming this Agreement and the
Transaction Documents have been duly authorised, executed and delivered by
Buyer, constitutes a valid and binding agreement of such Seller, enforceable
against such Seller in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganisation, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS Except as set forth in Schedule 4.5 of
the Disclosure Schedule, neither the execution and delivery of this Agreement or
any of the Transaction Documents to which any Seller is a party nor any Seller's
consummation of the transactions contemplated hereby or thereby will (a)
conflict with or violate any provision of the Certificate or Articles of
Incorporation or By-Laws (or other comparable governing documents) of the
Company or any Company Subsidiary, (b) require any material Consent of, or
filing with or notification to, any Governmental Entity, except such as shall
have been lawfully and validly obtained prior to the Closing, (c) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration of any obligation to repay), including, without limitation,
under any provision relating to changes of control, under any of the terms,
conditions or provisions of any material Obligation to which any Seller, the
Company or any Company Subsidiary is a party or by which any Seller, the Company
or any Company Subsidiary or any of their respective property or assets may be
bound except such violations, breaches and defaults as to which requisite
waivers or consents have been, or will be prior to the Closing, obtained, (d)
violate any material Order of any Governmental Entity applicable to any Seller,
the Company or any Company Subsidiary or
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(e) result in the creation of any Encumbrance against or with respect to the
Shares or any assets of the Company or any Company Subsidiary.
4.6 FINANCIAL STATEMENTS Schedule 4.6 of the Disclosure Schedule sets forth the
Financial Statements. The Financial Statements present fairly the financial
position and earnings and cash flows of LWG, Griptight and Monital, in each case
as of the dates or for the periods presented therein in conformity with GAAP,
except as otherwise noted therein.
4.7 ABSENCE OF CERTAIN CHANGES Except as set forth in Schedule 4.7 of the
Disclosure Schedule, since 31 December 1999, neither the Company nor any Company
Subsidiary has (a) suffered any material adverse change in its business,
operations or financial position, (b) (to the best of the knowledge of the
Shareholders) suffered any material damage, destruction or loss, whether covered
by insurance or not, to its properties, assets or business, (c) (to the best of
the knowledge of the Shareholders) conducted its business in any material
respect not in the ordinary and usual course consistent with past practice,
except pursuant to the terms of this Agreement or any of the Transaction
Documents, (d) changed in any material respect any accounting principle or
policy, (e) except in the ordinary course of business consistent with past
practice, sold, transferred or otherwise disposed of, any of its material
properties or assets, (f) made any loan to or entered into any other transaction
with, any of its consultants or agents, directors or officers or its
stockholders, (g) made any material capital expenditures other than in the
ordinary course of business consistent with past practice, (h) sold any of its
inventory other than in the ordinary course of business consistent with past
practice, (i) made any payments to Affiliates other than in the ordinary course
of business, (j) made any declaration, setting aside or payment of any dividend
or other distribution in respect of its capital stock or membership interest, as
applicable, any direct or indirect redemption, retirement, purchase or other
acquisition by it of any shares of its capital stock, (k) incurred any
indebtedness for borrowed money, (l) made any change in existing credit
arrangements with any bank or other institution, (m) entered into or assumed any
contract, agreement, arrangement, lease (as lessor or lessee), licence or other
commitment, whether written or oral, involving more than U.S.$25,000 in each
instance, except in the ordinary course of business, (n) made any payment of, or
commitment to pay, any severance or termination pay to any officer, director or
consultant that is a natural person or stockholder, (o) discharged or satisfied
any material Encumbrance or paid any liability, except in the ordinary course of
business, (p) cancelled or compromised any debts owed to it or known claims
against others exceeding U.S.$25,000 in the aggregate, other than in the
ordinary course of business or (q) made any sale, transfer or grant of any
Intellectual Property Rights other than in the ordinary course of business.
4.8 NO UNDISCLOSED LIABILITIES
(a) Neither the Company nor any Company Subsidiary has any liability (whether
accrued, absolute, contingent or otherwise and whether known or unknown)
other than liabilities (a) of a nature not required to be disclosed or
reflected in a balance sheet prepared in accordance with GAAP or the notes
thereto, (b) reflected or reserved against (to the extent of the reserves
therefor) in the Financial Statements (or, to the extent expressly
quantified therein, in the notes thereto), (c) incurred or arising in the
ordinary course of business since 31 December 1999, (d) relating to
subscriber monitoring contracts or (e) with respect to the matters
described in the Disclosure Schedule (including, without limitation,
Schedule 4.8 thereof).
(b) Without prejudice to the generality of Section 4.8(a), no Company
Subsidiary other than Monital has any indebtedness other than the sums of
US$68,765 owed by Griptight to Lewis Woolf Griptight Limited and the sum of
US$155,546 owed by LWG to Lewis Woolf Griptight Limited.
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4.9 COMPLIANCE WITH LAW; GOVERNMENTAL AUTHORISATIONS Except as set forth in
Schedule 4.9 of the Disclosure Schedule, each Seller, the Company and any
Company Subsidiary has complied and is currently in compliance with all
applicable material Orders of any Governmental Entity in all material respects.
Except as set forth in Schedule 4.9 of the Disclosure Schedule, the Company and
each Company Subsidiary has all material governmental licences and permits
necessary to conduct itself in the ordinary course of business. Each of the
Company and any Company Subsidiary has obtained each United States federal,
state, county, local or foreign governmental consent, licence, permit, grant, or
other authorisation of a Governmental Entity (i) pursuant to which such company
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of such company's business or the holding of any
such interest ((i) and (ii) herein collectively called "Authorisations"), and
all of such Authorisations are in full force and effect.
4.10 CONTRACTS AND COMMITMENTS Schedule 4.10 of the Disclosure Schedule sets
forth a complete list of all (a) collective bargaining agreements to which the
Company or each Company Subsidiary are a party, (b) agreements which require
aggregate future payments by or to the Company or any Company Subsidiary of more
than U.S.$25,000 which are not terminable by such entity on less than ninety
(90) days' notice without penalty, (c) agreements containing covenants limiting
the freedom of the Company or any Company Subsidiary to compete with any person
in any line of business or in any area or territory, (d) licence agreements with
respect to the Intellectual Property Rights, (e) indentures, mortgages and notes
or other debt instruments evidencing indebtedness of the Company or any Company
Subsidiary involving more than U.S.$25,000 in each instance, (f) leases for real
property to which the Company or any Company Subsidiary is a party and (g)
agreements to which the Company or any Company Subsidiary is a party under which
it has advanced or loaned any amount to any of its directors or officers. Except
as set forth in Schedule 4.10 of the Disclosure Schedule, all of the Contracts
are in full force and effect and, as to each Contract, there does not exist
thereunder any material default on the part of the Company or any Company
Subsidiary, or to the best of any Seller's knowledge, any other party thereto.
Schedule 4.10 of the Disclosure Schedule lists all Contracts that require a
novation or consent to assignment, as the case may be, prior to the Closing Date
as a result of the transactions contemplated hereby in order for such Contracts
to continue in full force and effect following the Closing.
4.11 LITIGATION Except as set forth in Schedule 4.11 of the Disclosure Schedule,
as of the date hereof, there is no material action, suit or proceeding pending
or, to the knowledge of any Seller, threatened, or unserved against either the
Company or any Company Subsidiary.
4.12 TAXES. Each of the Company and each Company Subsidiary, and any
consolidated, combined, unitary or aggregate group for Tax (as defined below)
for the purposes of which any of the Company or any Company Subsidiary is or has
been a member ("Tax Group"), has timely filed all material Tax Returns required
to be filed by it and has paid all Taxes shown thereon to be due. Such Tax
Returns are true, correct and complete in all material respects. There is (i) no
material claim for Taxes being asserted against the Company or any Company
Subsidiary, (ii) no audit of any Tax Return of the Company or any Company
Subsidiary being conducted by a Tax Authority, (iii) no extension of the statute
of limitations on the assessment of any Taxes granted by the Company or any
Company Subsidiary currently in effect, (iv) no agreement, contract or
arrangement to which the Company or any Company Subsidiary is a party that would
result in the payment of any amount that would not be deductible by reason of
Section 280G of the Code and (v) no material unpaid Tax for which the Company or
any of the Company Subsidiaries could be held liable as a transferee of any
other contributed assets. Neither the Company nor any Company Subsidiary is a
party to any Tax sharing or Tax allocation agreement and neither does the
Company nor any of the Company Subsidiaries has any liability or potential
liability to another party under any such agreement. Neither the Company nor any
Company Subsidiary has
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ever been a member of a consolidated, combined or unitary group for United
States or English Tax purposes, except that Monital and Griptight have at all
times filed consolidated tax returns. None of the Tax Returns of Griptight or
Monital have ever been audited by any Tax Authority. For purposes of this
Agreement, the following terms have the following meanings: "TAX" (and, with
correlative meaning, "TAXES" and "TAXABLE") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, value added, capital, transfer, franchise, profits, licence,
withholding, payroll, employment, social security, registration, excise,
severance, stamp, occupation, Pension Benefit Guaranty Corporation, premiums,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental entity (a "TAX AUTHORITY") responsible for the
imposition of any such Tax either in the United States or in any non-United
States jurisdiction, including (but not limited to) England, (ii) any liability
for the payment of any amounts of the type described in section (i) above as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period and (iii) any liability for the payment of any
amounts of the type described in sections (i) or (ii) above as a result of being
a transferee of or successor to any person or as a result of any express or
implied obligation to indemnify any other person. As used herein, "TAX RETURN"
shall mean any return, statement, report or form (including, without limitation,
estimated tax returns and reports, withholding tax returns and reports and
information reports and returns) required to be filed with respect to Taxes.
4.13 EMPLOYEE BENEFIT PLANS; ERISA
(a) Schedule 4.13 of the Disclosure Schedule contains a complete list of all
Plans for the Company's U.S. Subsidiaries (the "US PLANS"). With respect to
each U.S. Plan, Sellers have heretofore delivered or made available to
Buyer, to the extent applicable: (i) true and complete copies of each U.S.
Plan (including all amendments), (ii) complete copies of the most recent
Form 5500 filed for the past three (3) years with respect to each U.S. Plan
with the IRS and (iii) copies of the most recent IRS determination letters
issued with respect to each U.S. Plan. None of the U.S. Plans is a
multi-employer plan within the meaning of Section 3(37) of ERISA.
(b) Except as set forth in Schedule 4.13 of the Disclosure Schedule: (i) there
have been no non-exempt prohibited transactions within the meaning of
Section 406 of ERISA, or Section 4975 of the Code with respect to any of
the U.S. Plans; (ii) there is no outstanding liability under Title IV of
ERISA with respect to any of the U.S. Plans other than for payment of
premiums to the PBGC (which have been paid when due) or contributions not
yet due; (iii) the PBGC has not instituted proceedings to terminate any of
the U.S. Plans; (iv) each of the U.S. Plans has been operated and
administered in accordance with its terms and applicable laws except for
any failures that would not result in a liability (including any Tax or
penalty under ERISA, the Code or any foreign law, the cost to correct such
failure and reasonable professional fees) material to the relevant U.S.
Plan; (v) there are no unfunded benefit liabilities within the meaning of
Section 4001(a)(18) of ERISA with respect to any defined benefit plan
maintained by the Company or any Company Subsidiary, as determined under
the actuarial assumptions used in the most recent valuation report for the
U.S. Plan; (vi) neither the Company nor any Company Subsidiary has taken
any actions to terminate any Plan for which there is any outstanding
liability; and (vii) the Company and the Company Subsidiaries have made or
properly accrued on the books and records (as of the end of the month prior
to the Closing Date) of the Company and the Company Subsidiaries all
contributions (including periodic instalments) required by law or contract
to be made to any U.S. Plan;
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(c) The Company, LWG and Griptight have no Plans of any type. None of the
Monital Plans is maintained outside the United States or covers employees
employed outside the United States.
(d) Neither the Company, LWG nor Griptight has any liability, actual or
contingent, to make any payment to any person arising out of or in respect
of or in connection with any employment or alleged employment of any person
by either of them, except as set forth on Schedule 4.13.
4.14 TITLE TO PROPERTIES Schedule 4.14 lists all real property owned or leased
by the Company or any Company Subsidiary. The Company and all Company
Subsidiaries have good, valid and, in the case of real property, marketable fee
simple title to all of the assets and properties which it owns and which are
reflected on the Financial Statements (except for assets and properties sold,
consumed or otherwise disposed of by Company or any Company Subsidiary in the
ordinary course of business since 29 February 2000, which are sold or disposed
of on or prior to the Closing). Such assets and properties are owned free and
clear of all Encumbrances, except for (i) Encumbrances listed in Schedule 4.14
of the Disclosure Schedule, (ii) liens for current Taxes not yet due and payable
or for Taxes the validity of which is being contested in good faith, (iii)
mechanics', materialmens' and other Encumbrances which have arisen in the
ordinary course of business and which, in the case of such other Encumbrances,
are not material in the aggregate, (iv) zoning, entitlement, building and other
land use and environmental regulations by any Governmental Entity, provided that
such regulations have not been materially violated and (v) such other
imperfections in title, including Encumbrances that do not materially interfere
with the present use or marketability of any assets or property subject thereto
or affected thereby, including all matters reflected on the policy of title
insurance and the survey annexed to Schedule 4.14 respecting the real property
owned by Monital (and Buyer agrees to accept title to said real property subject
to all facts disclosed on said policy of title insurance).
4.15 INTELLECTUAL PROPERTY RIGHTS Schedule 4.15 of the Disclosure Schedule sets
forth (i) a list of the Intellectual Property Rights and (ii) the owner or
licensor and any licensee of the Intellectual Property Rights. Except as set
forth in Schedule 4.15 of the Disclosure Schedule, (a) the Company and the
Company Subsidiaries own or possess adequate licences or other valid rights to
use all registered Intellectual Property Rights and, to the knowledge of any
Seller, all unregistered Intellectual Property Rights, (b) the Intellectual
Property Rights are, to the knowledge of any Seller, valid and the validity of
the Intellectual Property Rights and the title thereto of the Company or the
Company Subsidiary, as the case may be, are not being questioned in any
litigation to which the Company or any Company Subsidiary is a party nor, to the
knowledge of any Seller, is any such litigation threatened and (c) to the
knowledge of any Seller (i) the conduct of the business of the Company and the
Company Subsidiary as now conducted does not infringe or otherwise conflict with
any Intellectual Property Rights of others and (ii) neither the Company nor any
Company Subsidiary has received written notice alleging any such conflict.
4.16 INSURANCE The Insurance Policies are in full force and effect and neither
the Company nor any Company Subsidiary is in material default of any provision
thereof. Such insurances are issued on an "occurrence" basis. Sellers have
heretofore delivered or made available to Buyer copies of all Insurance Policies
that have been issued by carriers. Sellers make no representation or warranty
that such Insurance Policies will be continued or are continuable after the
Closing.
4.17 ENVIRONMENTAL MATTERS
(a) Except as set forth in Schedule 4.17 of the Disclosure Schedule, the
Company and each Company Subsidiary has timely obtained, complied with and
currently possesses all
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material permits, licences or authorisations required by Environmental Laws
("ENVIRONMENTAL PERMITS"), and are in material compliance with all such
Environmental Permits and applicable Environmental Laws.
(b) (i) No methylene chloride or asbestos is contained in or has been used at
or released from the Facilities except in material compliance with all
applicable Environmental Laws; (ii) all Hazardous Materials have been
disposed of in accordance with all applicable Environmental Laws; (iii)
neither the Company nor any Company Subsidiary has received any notice
(verbal or written) of any material non-compliance of the Facilities or its
past or present operations with Environmental Laws; (iv) no administrative
actions or suits are pending or threatened relating to a violation of any
Environmental Law; (v) there have not been in the past, and are not now,
any Hazardous Materials on, under or migrating to or from the Facilities or
Property so as to give rise to any material liability under applicable
laws; (vi) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property,
including, without limitation, treatment or storage tanks or sumps or
water, gas or oil wells except those placed and maintained in material
compliance with all applicable Environmental Laws; and (vii) the Property
is not affected by any pollution or other negative environmental conditions
which, regardless of the source, would create the obligation to assume any
material obligation of clearance of the land or similar liability under
Environmental Laws or any other material liability towards third parties
under the same laws.
4.18 LABOUR RELATIONS None of the employees of the Company or any Company
Subsidiary is covered by a collective bargaining agreement. Neither the Company
nor any Company Subsidiary has ever suffered or experienced a strike, work
stoppage, material slowdown or other material labour dispute. To the knowledge
of Sellers, no employee of the Company or any Company Subsidiary has expressed
an intention to terminate his or her employment as a result of the transactions
contemplated by this Agreement.
4.19 BROKERS AND FINDERS Neither the Company nor any Company Subsidiary nor any
Seller or any of their respective officers, directors or employees has employed
any broker or finder or incurred any liability for any investment banking fees,
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement or the Transaction Documents, other than
SecureTech Partners, L.L.C., which has been partially paid by Monital, on or
before 31 March 2000, and any balance of which not paid as of 31 March 2000
shall be paid by Sellers.
4.20 ACCOUNTS RECEIVABLE Subject to any reserves set forth in the Financial
Statements and to the best of the knowledge of the Sellers, the accounts
receivable shown on the Financial Statements represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts. The amount carried for doubtful
account and allowances disclosed in the Financial Statements was calculated in
accordance with GAAP and in a manner consistent with prior periods.
4.21 CUSTOMERS Except as set forth on Schedule 4.21 of the Disclosure Schedule,
none of the customers of the Company or any Company Subsidiary representing
U.S.$25,000 or more of revenues during the fiscal year ended 31 December 1999
has cancelled or otherwise terminated, or, to the knowledge of Sellers,
threatened to cancel or otherwise terminate, its relationship with the Company
or any Company Subsidiary between 31 December 1999 and the close of business on
the date immediately prior to the date hereof.
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4.22 RESTRICTIONS ON BUSINESS ACTIVITIES There is no agreement, judgment,
injunction, order or decree binding upon either the Company or any Company
Subsidiary which has or could reasonably be expected to have the effect of
prohibiting or materially impairing (i) any current business practice of any of
them or (ii) any acquisition of property by any of them.
4.23 CERTAIN AGREEMENTS AFFECTED Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby or a sale
of the Shares or any issuance of shares in Griptight to Monitoring Acquisition
Corporation will (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of the Company or any Company
Subsidiary, other than Raymond Sacks pursuant to separate agreement, which will
be paid by Monital at Closing in accordance with Section 2.3 (ii) materially
increase any benefits otherwise payable by the Company or any Company
Subsidiary, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
4.24 YEAR 2000 So far as Sellers are aware, having made reasonable enquiries,
except as a result of errors or "bugs" contained in data that are generated by
third parties, none of the products and services sold, licensed, rendered or
otherwise provided by the Company or any Company Subsidiary in the conduct of
its business will malfunction, will cease to function, will generate materially
incorrect data or will produce materially incorrect results and will not
directly cause any of the above with respect to the property or business of
third parties using such products or services when processing, providing or
receiving (i) date-related data from, into and between the twentieth (20th) and
twenty-first (21st) centuries, or (ii) date-related data in connection with any
valid date in the twentieth (20th) and twenty-first (21st) centuries. Other than
certifications as to Year 2000 compliance given to customers in the ordinary
course, neither the Company nor any Company Subsidiary has made any
representations or warranties specifically relating to the ability of any
product or service sold, licensed, rendered or otherwise provided by the Company
or any Company Subsidiary in the conduct of its business to operate without
malfunction, to operate without ceasing to function, to generate correct data or
to produce correct results when processing, providing or receiving (i)
date-related data from, into and between the twentieth (20th) and twenty-first
(21st) centuries, and (ii) date-related data in connection with any valid date
in the twentieth (20th) and twenty-first (21st) centuries.
4.25 NO PRIOR OPERATION The Company has not had any operation and has no assets
or liabilities other than its shareholding in LWG.
4.26 RELEASE BY ESTATE OF ERIC HURST The Estate of Eric Hurst hereby represents
and warrants that it has no claim to acquire any shares, options or other
securities of the Company or any Company Subsidiary (including, without
limitation, Monital) and that it hereby unconditionally and irrevocably releases
the Company, each Company Subsidiary, Buyer and Security Village from any claim
with respect thereto.
4.27 THE WARRANTIES Notwithstanding anything to the contrary in this Section 4,
the warranties are given on the following basis:
(a) Hurst does not give any warranty or other representation, undertaking or
indemnity with respect to the Company or LWG and gives its warranties
severally and the liability of Hurst for all claims pursuant to this
Agreement shall not exceed the aggregate Purchase Price received by it;
(b) Each of Maygarden Limited and First Court Limited gives its warranties
severally. The liability of each of Maygarden Limited and First Court
Limited for all claims pursuant to this Agreement and the Tax and Indemnity
Deed shall not, in any event, exceed the lower
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of (i) the aggregate cash Purchase Price received by either or (ii) the
value of the capital assets of the Maygarden Settlement including, without
limitation, those capital assets held by First Court Limited as nominee for
Maygarden Limited from time to time (excluding the value of the existing
loans made to beneficiaries of the Maygarden Settlement prior to the date
of this Agreement ) provided in relation to (ii) that neither the Maygarden
Settlement nor First Court Limited in its capacity as nominee of Maygarden
Limited has after the date of this Agreement made distributions of capital
(including, without limitation, by way of further loans, or guarantees of
any obligations of beneficiaries of the Maygarden Settlement or directly or
indirectly making capital payments to them in consideration for consulting
or other services) whilst they respectively retain liability under this
Agreement or the Tax and Indemnity Deed provided further that the Maygarden
Settlement, in any financial year, shall be entitled to make capital loans
to such beneficiaries which, when aggregated with all income distributions
from the Maygarden Settlement, do not exceed in aggregate the value of the
income derived by the Maygarden Settlement from the aggregate cash Purchase
Price so received or investments derived therefrom; and
(c) all warranties relating to Griptight are given on an absolute basis and
not subject to the knowledge of the Sellers.
4.28 CERTAIN TRUSTS The Sellers acknowledge that the proportion of the Purchase
Price to be received by certain of the Sellers is as follows:
Maygarden Limited 47.75 per cent
First Court Limited 6.84 per cent
5 REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer jointly and severally represent and warrant to Sellers as follows:
5.1 CORPORATE ORGANISATION; ETC Buyer is a corporation duly organised, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to conduct its business as it is now
being conducted and to own, lease and operate its property and assets.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT AND THE TRANSACTION DOCUMENTS Buyer has
all requisite corporate authority and power to execute and deliver this
Agreement and each of the Transaction Documents to which it is a party and to
consummate the transactions contemplated hereby or thereby. The execution and
delivery of this Agreement, each of the Transaction Documents to which it is a
party and the consummation of the transactions contemplated hereby or thereby
have been duly and validly authorised by all required corporate action on the
part of Buyer and no other corporate proceedings on the part of Buyer are
necessary to authorise this Agreement, any Transaction Document to which it is a
party or to consummate the transactions contemplated hereby or thereby. This
Agreement and each Transaction Document to which Buyer is a party have been duly
and validly executed and delivered by Buyer and, assuming this Agreement and
each Transaction Document have been duly authorised, executed and delivered by
each Seller, constitutes a valid and binding agreement of Buyer, enforceable
against Buyer in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganisation, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
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5.3 CONSENTS AND APPROVALS; NO VIOLATIONS Except as set forth in Schedule 5.3
of the Disclosure Schedule, neither the execution and delivery of this Agreement
or any of the Transaction Documents by Buyer nor the consummation by Buyer of
the transactions contemplated hereby or thereby will (a) conflict with or
violate any provision of the certificate or their respective Certificates of
Incorporation or By-Laws, (b) require any material Consent of, or filing with or
notification to, any Governmental Entity, except such as shall have been
lawfully and validly obtained prior to the Closing, (c) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration
or any obligation to repay) under, any of the terms, conditions or provisions of
any material Obligation to which Buyer is a party or by which Buyer or any of
its properties or assets may be bound, except such violations, breaches and
defaults as to which requisite waivers or consents have been, or will be prior
to the Closing, obtained or (d) violate any material Order of any Governmental
Entity applicable to Buyer.
5.4 FINANCIAL CAPABILITY Buyer has, and on the Closing Date will have,
sufficient funds to effect the Closing and all other transactions contemplated
by this Agreement or the Transaction Documents.
5.5 NO REPRESENTATION Buyer has satisfactorily completed a thorough due
diligence investigation of the Company and each Company Subsidiary and
acknowledge that no representation or warranty is given by Sellers in respect of
the same except as set out in this Agreement.
5.6 BROKERS AND FINDERS Neither the Buyer nor any of its respective officers,
directors or employees has employed any broker or finder or incurred any
liability for investment banking fees, brokerage fees, commissions or finders'
fees in connection with this Agreement or the Transaction Documents which is or
may become a liability of the Sellers other than in relation to SecureTech
Partners LLC.
6 COVENANTS OF THE PARTIES
6.1 CONDUCT OF BUSINESS OF THE COMPANY AND THE COMPANY SUBSIDIARIES Except as
contemplated by this Agreement, as set forth in Schedule 6.1 of the Disclosure
Schedule or with the prior written consent of Buyer during the period from the
date of this Agreement to the Closing Date, Sellers will cause the Company and
the Company Subsidiaries to: (i) conduct its business and operations in the
ordinary course of business consistent with past practice, except as
contemplated by the terms of this Agreement or any Transaction Document and
except for acquisition from time to time by Monital of portfolios of contracts
for the provision of security services; and (ii) use all commercially reasonable
efforts consistent therewith to preserve intact its properties, assets and
business organisations, to keep available the services of its officers and
employees and to maintain satisfactory relationships with customers, suppliers,
distributors and others having commercially beneficial business relationships
with them, in each case in the ordinary course of business consistent with past
practice. Without limiting the generality of the foregoing, and except as
otherwise provided in this Agreement or any Transaction Document or as
contemplated hereby or thereby or as set forth in Schedule 6.1 of the Disclosure
Schedule, Sellers will cause the Company and the Company Subsidiaries not to,
prior to the Closing Date, without the prior written consent of Security Village
and Buyer, which consent shall not be unreasonably withheld or delayed:
(a) issue, sell or pledge, or authorise or propose the issuance, sale or
pledge of (i) additional shares of capital stock, or securities
convertible into any such shares, or any rights, warrants or options to
acquire any such shares or other convertible securities or (ii) any
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other securities in respect of, in lieu of or in substitution for, the
shares of capital stock of the Company or any Company Subsidiary
outstanding on the date hereof;
(b) declare or pay any dividend or distribution on any of the Shares;
(c) redeem, purchase or otherwise acquire any outstanding shares of the Company
or any Company Subsidiary;
(d) amend the Memorandum and Articles of Association or Certificates of
Incorporation and By-Laws (or other comparable governing documents) of the
Company or any Company Subsidiary;
(e) sell, transfer or otherwise dispose of, any of its material property or
assets (other than inventory in the ordinary course of business) or
mortgage or encumber any of its material property or assets;
(f) enter into other material agreements, commitments or contracts, except
agreements, commitments or contracts made in the ordinary course of
business consistent with past practice;
(g) fail to pay any material obligation or liability, except in the ordinary
course of business or unless being contested in good faith;
(h) incur any indebtedness for borrowed money or enter into any capital leases;
(i) make any capital expenditures (or commitment therefor) in excess of
U.S.$25,000 (excluding any capital expenditures in progress as of the date
hereof);
(j) allow any insurance policy of the Company or any Company Subsidiary to
lapse or be discontinued; or
(k) agree or commit to take any of the foregoing actions.
6.2 ACCESS TO INFORMATION From the date of this Agreement to the Closing Date,
Sellers will cause the Company and the Company Subsidiaries to (i) give Buyer
and its authorised representatives reasonable access to all books, records,
offices and other facilities and properties of the Company and the Company
Subsidiaries, (ii) permit Buyer to make such inspections thereof as Buyer may
reasonably request, (iii) cause their officers to furnish Buyer with such
financial and operating data and other information with respect to the business
and properties of the Company and the Company Subsidiaries as Buyer may from
time to time reasonably request, (iv) permit an authorised representative of
Buyer to have access to appropriate personnel of the Company or any Company
Subsidiary as well as the offices and other facilities and properties of the
Company or any Company Subsidiary for the purpose of reviewing and observing the
day-to-day financial and accounting functions of the Company and the Company
Subsidiaries; provided, however, that (i) any such access shall be conducted at
a reasonable time and in such a manner as not to interfere unreasonably with the
operation of the business of the Company or any Company Subsidiary; (ii) the
rights hereunder shall not be construed as affording a further due diligence
period or contingency (Buyer agreeing that it has completed its due diligence
investigation); and (iii) no information or statements obtained by or
communicated to Buyer in the course of such access shall be construed as a
representation or warranty of Sellers nor shall any such information be relied
upon by the Buyer. All such information and access shall be subject to the terms
and conditions of the Confidentiality Agreement which shall be binding upon the
Buyer and its representatives.
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6.3 CONSENTS AND APPROVALS Each of the parties hereto shall use its commercially
reasonable efforts to obtain as promptly as practicable all Consents required in
connection with the consummation of the transactions contemplated by this
Agreement.
6.4 FILINGS Promptly after the execution of this Agreement, each of the parties
hereto shall (and Sellers shall use their best efforts to cause the Company and
the Company Subsidiaries to) prepare and make or cause to be made any required
filings, submissions and notifications under the laws of any domestic or foreign
jurisdictions to the extent that such filings are necessary to consummate the
transactions contemplated hereby and will use its commercially reasonable
efforts to take all other actions necessary to consummate the transactions
contemplated hereby in a manner consistent with applicable law. Each of the
parties hereto will furnish to the other parties such necessary information and
reasonable assistance as such other parties may reasonably request in connection
with the foregoing.
6.5 LEGAL REQUIREMENTS Each party will, and will cause their respective
subsidiaries to, take all reasonable and necessary steps to comply in all
material respects promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorisation of, or any registration, declaration or filing
with, any Governmental Entity or other person, required to be obtained or made
by them in connection with the taking of any action contemplated by this
Agreement.
6.6 COVENANT TO SATISFY CONDITIONS Sellers will use their best efforts to ensure
that the conditions set forth in Article 7 hereof are satisfied, insofar as such
matters are within the control of Sellers, and Security Village and Buyer will
use their reasonable efforts to ensure that the conditions set forth in Article
8 hereof are satisfied, insofar as such matters are within the control of
Security Village and Buyer.
6.7 FURTHER ASSURANCES Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use its reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. If at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the parties hereto shall take or cause to be taken
all such necessary actions, including, without limitation, the execution and
delivery of such further instruments and documents as may be reasonably
requested by any party for such purposes or otherwise to consummate and make
effective the transactions contemplated hereby.
6.8 NO SHOP Sellers and the Company acknowledge and agree to refrain from, and
will cause their Affiliates and their Affiliates' officers, directors,
shareholders, advisers, employees and contractors to refrain from soliciting or
encouraging or entering into any discussions or negotiations with any party with
respect to the due diligence or the potential purchase or sale of the Shares or
assets of the Company or any Company Subsidiary or any potential business
combination with any of them.
6.9 CONFIDENTIALITY The parties acknowledge that the Confidentiality Agreement
shall continue in full force and effect in accordance with its terms and the
parties adopt same, make it a part hereof by reference and agree to be bound by
all of its terms. In addition, the parties agree that the terms and conditions
of the transactions contemplated hereby and information exchanged
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in connection with the execution hereof shall be subject to the same standard of
confidentiality as is set forth in the Confidentiality Agreement.
6.10 PUBLIC DISCLOSURE Unless otherwise permitted by this Agreement, the
parties shall follow the procedures and requirements at Section 11.8 before
issuing any press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby.
6.11 PROPRIETARY INFORMATION All information (i) about the Company or any
Company Subsidiary, including, without limitation, the identity of their
customers and suppliers, and all of their internal procedures and processes,
costs, materials, special customer requirements, pricing techniques, business
plans, and operational procedures and policies, and (ii) about any Intellectual
Property Rights is referred to herein as "PROPRIETARY INFORMATION". Proprietary
Information shall not include, however, information which is or becomes
generally available to the public other than as a result of a disclosure by
Sellers or their directors, officers, employees, agent and advisers (including,
without limitation, financial advisors, attorneys and accountants)
(collectively, "REPRESENTATIVES"), as required by law or a court or regulatory
authority or which becomes publicly available other than by a breach by Sellers
of this Agreement. Unless otherwise agreed in writing by Buyer, Sellers shall
keep all Proprietary Information confidential, shall not disclose or reveal any
Proprietary Information to any person and shall not use Proprietary Information
for any purpose. Sellers shall be responsible for any breach of the terms of
this provision by it or its Representatives. The provisions of this Section
shall survive the Closing for a period of five (5) years.
6.12 COVENANTS REGARDING EMPLOYEES AND COVENANT NOT TO INTERFERE, COMPETE OR
SOLICIT BUSINESS
(a) Each Seller agrees that, commencing on the date hereof, neither it nor any
of its Affiliates shall induce or encourage, or assist others to induce or
encourage, any current employee of the Company or any Company Subsidiary to
end or decline an employment arrangement with Monital, or interfere in any
manner with the relationship between such Company and such employee and
each Seller hereby agrees that for a period of two years from the Closing
Date, neither it nor any of its Affiliates shall induce or encourage, or
assist others to induce or encourage, any current employee of any such
company to leave Monital's employ.
(b) Each Seller hereby agrees that commencing on the date hereof and ending on
the second anniversary of the Closing Date, neither it nor any of its
Affiliates shall directly or indirectly in any manner whatsoever induce or
assist others to induce any customer of the Company or any Company
Subsidiary to terminate its association with such entity or do anything,
directly or indirectly, to interfere with the business relationship between
such entity and any of its current or prospective customers.
(c) In furtherance of the sale of the Shares to Buyer and more effectively to
protect the business and good will of the Company and the Company
Subsidiaries, upon the consummation of the transactions contemplated
hereby, each Seller agrees that, for a period commencing on the Closing
Date and ending on the third anniversary of the Closing Date, it and (other
than in the case of Maygarden Limited (which agrees for itself only) and
First Court Limited (which agrees solely in its capacity as nominee for
Maygarden Limited)) its Affiliates will not: directly or indirectly
(whether as an employer, employee, partner, stockholder, consultant,
investor, director, representative or otherwise) anywhere within the world
own, manage, operate, control or be employed by,
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participate in, consult with or be otherwise connected in any manner with
the ownership, management or operation of any business involving the
monitoring of security alarm accounts located within the United States of
America (the "COVERED ACTIVITIES"). Notwithstanding the foregoing, nothing
herein shall restrict any Seller or (other than in the case of Maygarden
Limited (which agrees for itself only) and First Court Limited (which
agrees solely in its capacity as nominee for Maygarden Limited)) its
Affiliates from owning, solely for investment purposes, up to five per
cent. (5%) of any class of securities of any publicly traded company
engaged in the Covered Activities. As to First Court Limited, conduct
solely in its capacity as nominee for persons other than Maygarden Limited
or any other Seller would not violate this covenant.
(d) Without limiting the rights of the parties to pursue all other legal and
equitable rights available to them for violation of this Section 6.12 or
Section 6.11 by any of the other parties hereto, it is agreed that other
remedies cannot fully compensate a party for such a violation and that the
parties shall be entitled to injunctive relief to prevent the violation or
the continuing violation thereof. It is the intent and understanding of
each party hereto that if, in any action before any Governmental Entity
legally empowered to enforce this Section 6.12 or Section 6.11, any term,
restriction, covenant or promise in this Section 6.12 or Section 6.11 is
found to be unreasonable and for that reason unenforceable, then such term,
restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such court or agency.
6.13 BEST EFFORTS AND FURTHER ASSURANCES Each of the parties to this Agreement
shall use its best efforts to effectuate the transactions contemplated hereby
and to fulfil and cause to be fulfilled the conditions to Closing under this
Agreement.
6.14 SECTION 338 ELECTION Following Closing, Buyer shall procure that LWG shall
make a Section 338 election under the Code effective on or prior to the Closing
Date and neither Griptight nor Monital shall have made a Section 338 election on
or prior to the Closing Date; providing, however, that all tax liabilities
resulting from the Section 338 election shall be paid and satisfied by the
Buyer.
7 CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to effect the transactions contemplated hereby shall
be subject to the fulfilment, or written waiver by Sellers, at or prior to the
Closing of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE The representations and warranties of
Buyer contained herein qualified as to materiality shall be true and correct,
and the representations and warranties of Buyer contained herein not qualified
as to materiality shall be true and correct in all material respects, at and as
of the Closing Date as though such representations and warranties were made at
and as of such date (except for such representations and warranties which are by
their terms made as of an earlier date, which shall speak only as of such date).
7.2 PERFORMANCE Buyer shall have performed and complied in all material respects
with all agreements, obligations, covenants and conditions required by this
Agreement to be performed or complied with by it on or prior to the Closing.
7.3 NO INJUNCTION OR PROCEEDING No Order shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits or restricts
the consummation of the transactions contemplated hereby. No action or
proceeding by any Governmental Entity shall have been commenced (and be pending)
against Buyer, any Seller, the Company or any Company
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Subsidiary or any of their respective Affiliates, associates, officers or
directors seeking to prevent or delay the transactions contemplated hereby or
challenging any of the terms or provisions of this Agreement or seeking material
damages in connection therewith.
7.4 CERTIFICATES Buyer shall have furnished Sellers with certificates to
evidence its compliance with the conditions set forth in this Article 7 in the
form attached hereto as Annex B.
7.5 TRANSACTION DOCUMENTS Each of the Transaction Documents shall be executed
and delivered by the parties thereto in a form reasonably satisfactory to Buyer
and Sellers.
8 CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of Buyer to effect the transactions contemplated hereby shall be
subject to the fulfilment, or written waiver by Buyer, at or prior to the
Closing of each of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE The representations and warranties of
Sellers contained herein qualified as to materiality shall be true and correct,
and the representations and warranties of Sellers contained herein not qualified
as to materiality shall be true and correct in all material respects, at and as
of the Closing Date as though such representations and warranties were made at
and as of such date (except for such representations and warranties which are by
their terms made as of an earlier date, which shall speak only as of such date).
8.2 PERFORMANCE Sellers shall have performed and complied in all material
respects with all agreements, obligations, covenants and conditions required by
this Agreement to be performed or complied with by it on or prior to the
Closing.
8.3 NO INJUNCTION OR PROCEEDING No Order shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits or restricts
the consummation of the transactions contemplated hereby. No action or
proceeding by any Governmental Entity shall have been commenced (or be pending
or threatened) against Buyer, Sellers, the Company or any Company Subsidiary or
any of their respective Affiliates, associates, officers or directors seeking to
prevent or delay the transactions contemplated hereby or challenging any of the
terms or provisions of this Agreement or seeking material damages in connection
therewith.
8.4 CERTIFICATES Sellers shall have furnished Buyer with certificates to
evidence compliance by Sellers with the conditions set forth in this Article 8
in the form attached hereto as Annex C.
8.5 NO MATERIAL ADVERSE CHANGE No act, event or condition shall have occurred
to the Company or any Company Subsidiary after the date hereof which has had or
could have or is likely to have a material adverse effect on the Company's or
the Company Subsidiaries' business results of operations, condition (financial
or otherwise) or prospects, and which is not remedied by Sellers.
8.6 TRANSACTION DOCUMENTS Each of the Transaction Documents shall be executed
and delivered by the parties thereto in a form reasonably satisfactory to Buyer
and Sellers.
8.7 [INTENTIONALLY LEFT BLANK]
8.8 LIMITATION ON INDEBTEDNESS The Company and the Company Subsidiaries shall
not have indebtedness in excess of U.S.$1,400,000 at the Closing Date. For the
purposes of this section 8.8 "indebtedness" shall mean all debts of the Company
and Company Subsidiaries which
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should be stated on the balance sheet of the Company and/or the Company
Subsidiaries under GAAP, including but not limited to the current portion of
long term debt, long term debt and notes and specifically excluding (i) the
intercompany balance of US$331,312 owed by Monital to Griptight, the US$155,546
owed by LWG to Lewis Woolf Griptight Limited and the US$68,765 owed by Griptight
to Lewis Woolf Griptight (ii) deferred revenue (iii) corporate income taxes
payable (iv) accounts payable and accrued expenses as shown within current
liabilities on the balance sheet, (v) dealer holdbacks on acquisitions and (vi)
the intercompany loans provided by Buyer pursuant to Section 3.5.
8.9 BOARD RESIGNATIONS All board members of the Company and each Company
Subsidiary shall have resigned as directors and the persons designated by Buyer
shall have been appointed in their place, effective as at Closing.
8.10 CANCELLATION OF INTRA-GROUP RECEIVABLES AND PAYABLES At Closing, Sellers
shall procure that the balance of inter-company receivables and payables between
the Company and any Company Subsidiaries or between the Company Subsidiaries is
nil (save for the sum of US$331,312 owing from Monital to Griptight, which will
be left outstanding). To the extent that any tax charge arises in the Company or
any Company Subsidiary as a result of the cancellation of any such receivable or
payable, the Sellers shall indemnify the Buyer in respect of such charge which
shall upon demand be paid by the Sellers to the Buyer.
9 INDEMNIFICATION AND RELATED MATTERS
9.1 INDEMNIFICATION
(a) Subject to the provisions of this Article 9 and the limiting provisions in
Section 4.27, Sellers agree to jointly and severally indemnify and hold
harmless the Buyer Group and the Buyer Group's respective directors,
officers, attorneys, accountants, agents and employees and their respective
heirs, successors and assigns (the "BUYER INDEMNIFIED PARTIES"), from and
against any and all liabilities, obligations, damages, losses,
deficiencies, costs, Taxes, penalties, interest and expenses (including,
without limitation, reasonable accountants' and attorneys' fees), but
excluding consequential damages and lost profits (except to the extent due
to a third party pursuant to a third-party claim) (collectively, "LOSSES"),
including, without limitation, those arising from third-party claims,
arising out of, based upon, attributable to or resulting from:
(i) the failure of any of the representations or warranties of Sellers set
forth in Article 4 or the Sellers' Certificate at Annex C to be true
and correct as of Closing Date; or
(ii) the breach of any covenant on the part of Sellers under the terms of
this Agreement.
(b) Subject to the provisions of this Article 9, Buyer hereby agrees to, and
shall cause the Company and the Company Subsidiaries to, jointly and
severally indemnify and hold harmless Sellers and their respective heirs,
successors and assigns from and against any and all Losses, including,
without limitation, those arising from third-party claims, arising out of,
based upon, attributable to or resulting from:
(i) the failure of any of the representations or warranties of Buyer set
forth in Article 5 to be true and correct as of the Closing Date; or
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(ii) the breach of any covenant on the part of Buyer under the terms of
this Agreement.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
(a) The parties hereto hereby agree that the representations and warranties
contained in this Agreement shall survive the execution and delivery of
this Agreement and the Closing hereunder; provided, however, that (subject
to sub-section 9.2(c) any claims or actions with respect thereto shall
terminate unless by July 31, 2001 (or in the case of a claim pursuant to
any warranty in section 4.12, by July 31 2003) written notice of such
claims setting forth the nature of the claims with reasonable specificity
is given to the Indemnifying Party (as defined in Section 9.4(a) below) or
such actions are commenced.
(b) In the case of a claim under section 4.12, the claim shall survive after
July 31, 2001 only to the extent that any tax audit giving rise to the
claim is triggered other than as a result of the actions outside the
ordinary course of business of the Buyer, and the relevant claim shall be
reduced to the extent that a credit in relation to tax losses in the
relevant companies existing at Closing is available to the Buyer or, having
been available, has been used by Buyer to offset other tax liabilities
arising within the Buyer's group of companies.
(c) Notwithstanding the provisions of section 9.2(a) (and subject to section
9.2(b)), any claims or actions with respect to any representation or
warranty relating to Griptight shall terminate unless by the fifth
anniversary of Closing written notice of such claim setting forth the
nature of the claim with reasonable specificity is given to the Indemnified
Party (as defined in section 9.4(a) below) or such actions are commenced.
9.3 LIMITATIONS ON INDEMNIFICATION BY SELLERS
(a) Sellers shall not have any liability under Section 9.1(a)(i) hereof unless
the aggregate amount of Losses to the Buyer Indemnified Parties finally
determined to arise thereunder exceeds U.S.$225,000 (the "Basket") and, in
such event, Sellers shall be required to pay the entire amount of such
Losses in excess of the Basket, subject to the limitations set forth in
Section 9.3(b) hereof; provided, however, that such limitation shall not
apply to any Loss due to the failure of any of the representations and
warranties set forth in Sections 4.1, 4.2, 4.3, 4.8(b), 4.12, 4.13, 4.17,
4.19, 4.25 and 4.26 to be true and correct as of the date hereof and as of
the Closing Date.
(b) The aggregate amount that the Buyer Indemnified Parties shall be entitled
to recover pursuant to this Article 9 for any Loss or Losses shall be
limited to the Purchase Price.
9.4 INDEMNIFICATION PROCEDURES
(a) Any Person entitled to make a claim for indemnification under Section 9.1
(an "INDEMNIFIED PARTY") not involving a claim or demand by a third party,
may make a claim for indemnification by giving written notice of the
assertion of such claim covered by this indemnity to the Person from whom
it is seeking indemnification (the "INDEMNIFYING PARTY"). With respect to
third-party claims, all claims for indemnification by any Indemnified Party
hereunder shall be asserted and resolved as set forth below in this Section
9.4. In the event that any written claim or demand for which the
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
third party, such Indemnified Party shall promptly, but in no event more
than thirty (30) days following
25
<PAGE> 27
such Indemnified Party's receipt of such claim or demand, notify the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) (the "CLAIM
NOTICE"); provided, however, that the Indemnified Party's failure to
provide such notice in not more than thirty (30) days shall not preclude
the Indemnified Party from being indemnified for such claim or demand,
except to the extent that the failure to give timely notice results in the
forfeiture of substantive defences available to the Indemnifying Party. The
Indemnifying Party shall have thirty (30) days (or such shorter period as
may be necessary under the circumstances) from the personal delivery or
mailing of the Claim Notice (the "NOTICE PERIOD") to notify the Indemnified
Party whether or not it desires to defend the Indemnified Party against
such claim or demand. All costs and expenses incurred by the Indemnifying
Party in defending such claim or demand shall be a liability of, and shall
be paid by, the Indemnifying Party. Except as hereinafter provided, in the
event that the Indemnifying Party notifies the Indemnified Party within the
Notice Period that it desires to defend the Indemnified Party against such
claim or demand, the Indemnifying Party shall have the right to defend the
Indemnified Party by appropriate proceedings and shall have the sole power
to direct and control such defence and to negotiate, settle or otherwise
deal with such claim or demand. If any Indemnified Party desires to
participate in any such defence, it may do so at its sole cost and expense.
The Indemnified Party shall not settle a claim or demand without the prior
written consent of the Indemnifying Party. To the extent the Indemnifying
Party shall direct, control or participate in the defence or settlement of
any third-party claim or demand, the Indemnified Party will give the
Indemnifying Party and its counsel, without charge, access to, during
normal business hours, the relevant business records and other documents,
and shall permit them to consult with the employees and counsel of the
Indemnified Party. The Indemnified Party shall use its commercially
reasonable best efforts in the defence of all such claims or demands.
(b) Except in the case of common law fraud, this Article 9 shall be the
exclusive remedy of the Indemnified Parties for any Losses arising out of
this Agreement or the transactions contemplated hereby.
9.5 TAX TREATMENT OF INDEMNITY PAYMENTS The parties agree that any indemnity
payment made pursuant to this Article 9 shall be treated by the parties on their
respective tax returns as an adjustment to the Purchase Price.
9.6 COMPUTATION OF LOSSES The amount of any Loss subject to indemnification
under this Article 9 shall be calculated net of (i) any Tax benefit actually
realised by the Indemnified Party on account of such Loss and (ii) insurance
proceeds (net of direct collection expenses and deductibles) received by the
Indemnified Party on account of such Loss. In the event that a Tax benefit is
actually realised as set forth in section (i) above or an insurance recovery is
made by the Indemnified Party with respect to any Loss for which any such Person
previously has been indemnified, then a refund equal to the aggregate amount of
the realised Tax benefit or recovery (net of all direct collection expenses,
deductibles and Taxes payable with respect thereto) shall be made promptly to
the Indemnifying Party. Each party shall use best endeavours (at the cost of the
Indemnified Party) to obtain waiver of subrogation rights from its insurers on
all policies of insurance for the benefit of the other.
10 TERMINATION AND ABANDONMENT
10.1 TERMINATION This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual consent of all Sellers and Buyer;
26
<PAGE> 28
(b) by either all Sellers or Buyer at any time after the expiration of sixty
(60) days from the date hereof if, through no fault of the party seeking
termination, the Closing shall not have occurred; or
(c) by either Buyer or (together) all the Sellers if there shall be in
effect any Order of a Governmental Entity of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby or contemplated under any Transaction
Document.
10.2 PROCEDURE AND EFFECT OF TERMINATION In the event of termination of this
Agreement and abandonment of the transactions contemplated hereby by any or all
of the parties pursuant to Section 10.1 hereof, written notice thereof shall
forthwith be given to the other party or parties hereto and this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned, without
further action by any of the parties hereto, except that all confidentiality
obligations for the protection of the respective parties and their Affiliates
shall remain in full force and effect and shall survive any termination of this
Agreement. If this Agreement is terminated as provided herein, then each of the
parties shall be relieved of their duties and obligations arising under this
Agreement after the date of such termination and such termination shall be
without liability to the parties hereto; provided, however, that, with respect
to any termination pursuant to Section 10.1(b) or (c), nothing in this Section
10.2 shall be deemed to constitute a waiver of any rights or remedies otherwise
available under this Agreement, by operation of law or otherwise, to the party
who so terminates.
11 MISCELLANEOUS PROVISIONS
11.1 AMENDMENT AND MODIFICATION This Agreement may be amended, modified or
supplemented at any time by the parties hereto. This Agreement may be amended
only by an instrument in writing signed on behalf of the parties hereto.
11.2 EXTENSION; WAIVER At any time prior to the Closing Date, the party entitled
to the benefits of the respective term or provision may (a) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document, certificate or writing delivered pursuant
hereto or (c) waive compliance with any obligation, covenant, agreement or
condition contained herein. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of the party entitled to the benefits of such extended or
waived term or provision.
11.3 ENTIRE AGREEMENT; ASSIGNMENT This Agreement (a) constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof (other than the
Confidentiality Agreement and the Transactional Documents) and (b) shall not be
assigned or transferred by Buyer by operation of law or otherwise; provided,
however, that Buyer may assign the benefits of the representations, warranties,
covenants and indemnities in this Agreement to Monitoring Acquisition
Corporation in connection with their investment in the business and operations
of Griptight and/or Monital; providing that the assignee shall remain subject to
all offsets and defenses which could have been asserted against the assignor and
no assignee shall acquire the status of a holder in due course". This Agreement
shall be binding upon and insure to the benefit of the parties and their
respective successors and permitted assigns.
27
<PAGE> 29
11.4 VALIDITY The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
11.5 NOTICES All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission or three (3) days after being mailed by registered
or certified mail (return receipt requested), postage pre-paid, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) if to Sellers other than First Court Limited or Maygarden Limited, to:
Michael Houdret
St Mary's Court
39 Market Place
Henley on Thames
Oxon, RG9 2AA
01491-573-512 (telephone)
01491-579-793 (facsimile)
Attention: Michael Houdret
with copies to:
Richard G. Berger, Esq.
Schiffman, Berger, Abraham, Kaufman & Ritter, P.C.
Three University Plaza, Suite 410
P.O. Box 568
Hackensack, New Jersey 07602-0568
201-488-2600 (telephone)
201-488-5059 (facsimile)
Attention: Richard Berger
if to First Court Limited or Maygarden Limited, to:
PO Box 472
St Peter's House
Le Bordage
St Peter Port
Guernsey GY1 6AX
(b) if to Buyer, to:
Senia Rapisarda
c/o WG&M Secretaries Limited,
One South Place
London, EC2M 2WG
England
+44 (0) 207 903 1000 (telephone)
+44 (0) 207 903 0990 (facsimile)
Attention: Douglas Warner, Esq.
28
<PAGE> 30
with a copy to: K C Acquisition Corp.
325 South River Street
Hackensack
New Jersey
07601
Attention: Thomas Few Senior
11.6 GOVERNING LAW This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of laws thereof.
11.7 ARBITRATION OF DISPUTES; SUBMISSION TO JURISDICTION; CONSENT TO SERVICE
OF PROCESS
(a) Any and all disputes or controversies arising under, out of, in connection
with or in relation to this Agreement shall be determined and settled by
binding arbitration, held in Bergen County, New Jersey, in accordance with
this Section 11.7 and in accordance with the Arbitration Rules of the
American Arbitration Association. Upon the occurrence of a dispute or
controversy, a party may submit the dispute or controversy for such
arbitration pursuant to this Section 11.7 by delivery of written notice to
the other party demanding an arbitration and specifying the controversy or
dispute to be arbitrated. Within ten (10) Business Days of the delivery of
such notice, the parties shall agree upon a single arbitrator. If the
parties are unable to select a single arbitrator within such ten (10) day
period, each party shall within five (5) Business Days thereafter select an
arbitrator and the arbitrators so chosen shall select the single
arbitrator. If any party fails to select an arbitrator, the arbitrator
chosen by the other party shall act as the sole arbitrator. The arbitration
shall be held in accordance with the rules of the American Arbitration
Association and judgment upon any award rendered by the single arbitrator
shall be valid, binding, final and non-appealable. No arbitrator shall have
authority to disregard or modify any provisions of this Agreement. The
arbitrator(s) shall have authority to award counsel fees and costs to the
prevailing party. The reference to the rules and procedures of the American
Arbitration Association shall not require arbitration by that entity unless
otherwise agreed by the parties.
(b) For the purpose of enforcement of any arbitral award hereunder, the parties
hereto hereby irrevocably submit to the exclusive jurisdiction of the
United States District Court for the District of New Jersey over any
dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby and each party hereby irrevocably agrees
that all claims in respect of such dispute or any suit, action or
proceeding related thereto may be heard and determined in such court. The
parties hereby irrevocably waive, to the fullest extent permitted by
applicable law, any objection which they may now or hereafter have to the
laying of venue of any such dispute brought in such court or any defence of
inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.
(c) Each of the parties hereto hereby consents to process being served by any
party to this Agreement in any suit, action or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 11.5 hereof.
29
<PAGE> 31
11.8 PUBLICITY Buyer and Sellers will consult with each other before issuing,
and provide each other a reasonable opportunity to provide input with respect
to, any press release or other public statements or filings with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement or filing prior to providing such
opportunity, except as may be required by applicable law, court process or
obligations pursuant to the requirement of any stock exchange upon which the
securities of Buyer are listed.
11.9 DESCRIPTIVE HEADINGS The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
11.10 COUNTERPARTS This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall be
effective upon execution and delivery of either manually signed or
facsimile-signed signature pages.
11.11 FEES AND EXPENSES Whether or not the transactions contemplated by this
Agreement or the Transaction Documents are consummated, all legal, accounting
and other costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses (save for the avoidance of doubt legal, accounting and brokerage fees
paid by Monital prior to 31 March 2000).
11.12 PARTIES IN INTEREST This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and all direct successors and assigns
and nothing in this Agreement, express or implied, is intended by or shall
confer upon any other Person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed by
its duly authorised officers as of the date first above written.
30
<PAGE> 32
SELLERS:
- ---------------------------------------
ROBERT HURST
- ---------------------------------------
EDWARD HURST
- ---------------------------------------
LINDA HURST
- ---------------------------------------
HEATHER HURST
- ---------------------------------------
MAYGARDEN LIMITED
By:
------------------------------------
Name:
Title:
- ---------------------------------------
FIRST COURT LIMITED
By:
------------------------------------
Name:
Title:
ESTATE OF ERIC HURST
By:
------------------------------------
Rimma Hurst
Surviving Spouse and Temporary
Executrix of the Estate of Eric Hurst,
Deceased
By:
------------------------------------
Stuart Lyons
Co-executor of Last Will and Testament of Eric Hurst (UK)
By:
------------------------------------
Rimma Hurst
Co-executor of Last Will and Testament of Eric Hurst (UK)
31
<PAGE> 33
MTL ACQUISITION CORP:
By:
------------------------------------
Name:
Title:
32
<PAGE> 1
Exhibit 10.5
PLAN AND AGREEMENT OF MERGER
BETWEEN
SECURITY ASSOCIATES INTERNATIONAL, INC.,
KING ACQUISITION CORP.
KC ACQUISITION CORP.,
MR. THOMAS J. FEW SR.,
MR. DAVID L. SMITH
and
MR. TIMOTHY M. MCGINN
DATED AS OF: MAY 11, 2000
<PAGE> 2
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREMENT OF MERGER (the "Agreement"), dated and effective
as of 3:00 p.m., Central Daylight Savings Time, May 11, 2000, is entered into by
and among Security Associates International, Inc, a Delaware corporation
("SAI"), King Acquisition Corp., a Delaware corporation ("King Acquisition"), KC
Acquisition Corp., a New Jersey corporation (the "Company"), Mr. Thomas J. Few
Sr. ("Few"), Mr. David L. Smith ("Smith") and Mr. Timothy M. McGinn ("McGinn")
(Messrs. Few, Smith and McGinn are sometimes referred to herein individually as
a "Selling Shareholder" and collectively as the "Selling Shareholders").
RECITALS
WHEREAS, the board of directors of the Company, and the shareholders of
the Company (the "Shareholders"), have approved the transactions contemplated
hereby and have determined that it is advisable and in their respective best
interests to consummate the merger described in Article II (the "Merger') and
the other transactions contemplated herein; and
WHEREAS, the respective boards of directors of SAI and King Acquisition
have approved the transactions contemplated hereby, subject to the approval of
the shareholders of SAI, and have determined that it is advisable and in their
respective best interests to consummate the Merger and the other transactions
contemplated herein; and
WHEREAS, as a result of the Merger, King Acquisition will be merged
with and into the Company, all of the outstanding capital stock of the Company
will be converted into the right to receive a combination of cash and securities
of SAI, all of the outstanding capital stock of King Acquisition will be
converted into capital stock of the Company and the Company will be the
surviving corporation, all on the terms and subject to the conditions set forth
in this Agreement; and
WHEREAS, for Federal income tax purposes the Parties intend that the
Merger shall qualify as a tax-free reorganization within the meaning of Section
368(a) of the Code (as defined herein);
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 and agreements set forth in this Agreement, and upon the
terms and subject to the conditions contained herein, agree as follows:
<PAGE> 3
ARTICLE 1
DEFINITIONS
The following terms shall have the meanings assigned below when used in
this Agreement:
1.1 "Account" shall mean a written monitoring agreement pursuant to
which the Company or its Subsidiaries provides Monitoring Services to
Subscribers. All Accounts are "Dealer Owned Accounts," as defined below;
1.2 "Affiliate" shall mean, with respect to any particular Person,
any Person controlling, controlled by or under common control with such Person,
whether by ownership or control of voting securities, by contract or otherwise;
1.3 "Agreement" shall mean this Plan and Agreement of Merger;
1.4 "AMEX" shall mean the American Stock Exchange;
1.5 "Antenna" shall mean a radio antenna and antenna site used by the
Company or its Subsidiaries pursuant to an antenna site license agreement to
which the Company or its Subsidiaries is a party ("Antenna Lease");
1.6 "Acquisition Common" shall mean the common stock, $0.01 par
value, of King Acquisition;
1.7 "Assets" shall mean all of the assets (as defined under GAAP) of
the Company and its Subsidiaries, including, but not limited to, the assets
listed on Schedule 3.12(a);
1.8 "Audited Company Financial Statements" shall have the meaning
assigned in Section 3.7(a);
1.9 "Billed Accounts" shall mean Dealer Owned Accounts for which the
Company or its Subsidiaries bills Subscribers on behalf of the Dealers which own
the Accounts;
1.10 "Central Stations" shall mean the central monitoring stations
owned and operated by the Company, or its Subsidiaries, which are located at the
locations set forth on Schedule 3.4;
1.11 "Closing" shall mean the consummation of the Merger;
1.12 "Closing Date" shall mean the third business day following the
date upon which the conditions to closing referred to in Articles 7 and 8, as
applicable, of this Agreement have been satisfied or waived by the Party
authorized to do so as provided in
<PAGE> 4
this Agreement and the Escrow Agreement or such other date as the Parties may
agree in writing;
1.13 "Closing Date Balance Sheet" shall mean the balance sheet,
prepared as provided in Section 3.7, delivered at the Closing showing the assets
and liabilities of the Company and its Subsidiaries as of a date not more than
five days prior to the Closing Date;
1.14 "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;
1.15 "Company" shall mean KC Acquisition Corp., a New Jersey
corporation;
1.16 "Company Common" shall mean the Common Stock, with no par value
per share, of the Company;
1.17 "Company Financial Statements" shall mean the Audited Company
Financial Statements, the Unaudited Company Financial Statements, the Escrow
Date Balance Sheet and the Closing Date Balance Sheet;
1.18 "Company Released Claims" shall have the meaning assigned in
Section 5.15;
1.19 "Company Released Parties" shall have the meaning assigned in
Section 5.15;
1.20 "Company Releasing Parties" shall have the meaning assigned in
Section 6.5;
1.21 "Confidential Information" shall mean any and all oral, written,
electronic or other information designated as confidential or which ought to be
considered as confidential from its nature or from the circumstances surrounding
its disclosure, regardless of whether such information was disclosed before, on
or after the date of this Agreement, other than such information that (i) is
generally available or known by the public immediately prior to the time of
disclosure (except through the actions or inactions of the Person to whom
disclosure has been made) or (ii) has been acquired or developed independent
from the Person making the disclosure thereof.
1.22 "Contracts" shall mean Accounts, Dealer Monitoring Agreements,
and all agreements, contracts and arrangements relating to the businesses
conducted by the Company and its Subsidiaries;
<PAGE> 5
1.23 "Dealer" shall mean an individual or business entity that
contracts in writing to provide Monitoring Services to Subscribers, and who in
turn subcontracts the provision of the actual Monitoring Services from the
Company or its Subsidiaries;
1.24 "Dealer Monitoring Agreements" shall mean the written contracts
(and those oral contracts summarized on Schedule 1.24 attached hereto) pursuant
to which the Company or its Subsidiaries has contracted to provide Monitoring
Services to Dealer Owned Accounts;
1.25 "Dealer Owned Account" shall mean any Account owned by a Dealer;
1.26 "Distributed Business Items" means the assets and liabilities of
the business lines of the Company historically operated under the names "King
Capital" and "Monitoring Services" (the "Transferred Business Units") that are
described on Schedule 1.26 attached hereto and that are being transferred by the
Company to Morlyn Financial Group, LLC ("Morlyn") prior to Closing.
1.27 "Effective Time" shall have the meaning assigned in Section 2.1;
1.28 "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 its
Subsidiaries or any other current or former ERISA Affiliate.
1.29 "Environmental Laws" shall mean any and all federal, state and
local laws, rules, regulations and ordinances that relate to or impose liability
or standards of conduct concerning public or occupational health and safety or
protection of the environment, as now or hereafter in effect and as have been or
hereafter may be 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.
1.30 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, and the rules and
regulations issued and promulgated thereunder, as in effect from time to time.
<PAGE> 6
1.31 "ERISA Affiliate" shall mean any Person who is a member of 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 and, if not otherwise so included, any other Subsidiary.
1.32 "Equipment" shall mean the tangible assets used or useful in
connection with the Monitoring Business or any other business conducted by the
Company or its direct or indirect Subsidiaries, including, but not limited to
that listed on Schedule 3.12(a);
1.33 "Equipment Lease" shall mean a lease pertaining to Equipment and
shall also include the Antenna Lease.
1.34 "Escrow Agent" shall mean the Person acting as the escrow agent
pursuant to the Escrow Agreement;
1.35 "Escrow Agreement" shall mean the Escrow Agreement to be entered
into among the Parties and the Escrow Agent pursuant to Section 9.2 which
provides, among other things, for the closing into, and release from, escrow of
the transactions contemplated by this Agreement on the terms and subject to the
conditions contained therein;
1.36 "Escrow Closing" shall mean the closing in escrow pursuant to the
Escrow Agreement as contemplated in Section 9.2 and in the Escrow Agreement.
1.37 "Escrow Date Balance Sheet" shall mean the balance sheet,
prepared as provided in Section 3.7, delivered at the Escrow Closing, showing
the assets and liabilities of the Company and it Subsidiaries as of a date not
more than five days prior to the Escrow Closing Date.
1.38 "Escrow Closing Date" shall mean June 30, 2000 or such earlier
date which is three business days after the date upon which the conditions to
closing, other than SAI Stockholder Approval, referred to in Articles 7 and 8 of
this Agreement have been satisfied or waived by the Party authorized to do so as
provided in this Agreement or such other date as the Parties may agree upon in
writing;
1.39 "Excluded Assets" shall have the meaning assigned in Section
3.12(b);
1.40 "Facilities" shall have the meaning assigned in Section 3.27(a);
1.41 "Form Contracts" shall have the meaning assigned in Section 3.13;
1.42 "GAAP" shall mean "Generally Accepted Accounting Principles"
which shall mean the accounting rules, principles and conventions adopted by the
American Institute of Certified Public Accountants and referred to by that name;
<PAGE> 7
1.43 "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.
1.44 "including" shall indicate examples of a foregoing general
statement and is not a limitation on that general statement.
1.45 "Indemnitee" shall have the meaning assigned in Section 10.2;
1.46 "Indemnitor" shall have the meaning assigned in Section 10.2;
1.47 "Intellectual Property" shall mean all of the patents,
trademarks, trade names (excluding, the names "King Capital" and Monitoring
Services"), 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 and its Subsidiaries;
1.48 "Knowledge" means actual knowledge and knowledge a reasonable
person would have after due investigation and includes such knowledge of such
Party's officers, directors, the Company's Central Regional Manager, the
Company's National Sales Manager, legal counsel, financial representatives and
subsidiaries.
1.49 "Lease" shall mean each Real Estate Lease, each Equipment Lease
and each other lease pursuant to with the Company or its Subsidiaries rent or
lease Property;
1.50 "Leasehold Property" shall mean any real estate which is the
subject of a Lease under which the Company or its Subsidiaries is or has been
the lessee.
1.51 "Liabilities" shall have the meaning assigned under GAAP.
1.52 "Letter of Intent" shall mean the letter of intent, dated as of
April 21, 2000, among SecurityVillage.com, Inc. ("SecurityVillage"), SAI, the
Company and TJS Partners, L.P. which provides, among other things for the Merger
and the other transactions contemplated in this Agreement;
1.53 "Lien" shall have the meaning assigned in Section 3.12;
1.54 "Material Adverse Effect" shall have the meaning assigned in
Section 3.7;
1.55 "Material Contract" shall have the meaning assigned in Section
3.10;
1.56 "Merger" shall have the meaning assigned in the first Recital;
1.57 "Minimum RMR" shall mean RMR payable to the Company and its
Subsidiaries of not less than $1,100,000;
<PAGE> 8
1.58 "Monital" shall mean Monital Signal Corporation, Griptight
Holdings, Inc. and their respective subsidiaries prior to the Monital
Acquisition;
1.59 "Monital Acquisition" shall mean the merger of Griptight
Holdings, Inc. and Monital Signal Corporation into a Subsidiary of the Company
(the "Monital Acquisition Subsidiary") and the acquisition of a 20% equity
interest in Monital Signal Corporation, which transactions will result in the
Company owning 99.2% of the Monital Acquisition Subsidiary;
1.60 "Monital Retail Account Transactions" shall mean the sale by
Monital of its retail accounts to Palisades Partners or its assignee for a
purchase price of $450,000, the application of the proceeds therefrom to
indebtedness of Monital to M&S Partners, the potential loan from Palisades
Partners or its assignee to Monital for the release of certain liens or
encumbrances on such retail accounts and the subsequent repayment of such loan
by SAI upon the closing of the Merger, all as contemplated in Section 2(d) of
the Letter of Intent;
1.61 "Monitoring Business" shall mean the business of providing
Monitoring Services as presently conducted;
1.62 "Monitoring Services" shall mean the provision of remote alarm
monitoring services to Subscribers, and all related security services, including
but not limited to, notification and dispatch of emergency personnel, supervised
openings and closings, closed circuit monitoring and any other security related
services;
1.63 "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;
1.64 "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, its direct or indirect Subsidiaries 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;
1.65 "Permits" shall mean all governmental licenses, registrations,
permits, approvals and applications therefor;
1.66 "Person" shall mean any individual, trust, corporation,
partnership, limited partnership, limited liability company or other business
association or entity, court, governmental body or governmental agency;
<PAGE> 9
1.67 "Prebilled RMR" shall mean RMR billed by the Company or its
Subsidiaries to Dealers in advance for monitoring services to be performed
subsequent to the Closing Date;
1.68 "Proxy Statement" shall mean the proxy statement distributed by
SAI to its stockholders in connection with the meeting of the stockholders of
SAI called for the purpose, among other things, of obtaining SAI Stockholder
Approval;
1.69 "Real Estate Leases" shall have the meaning assigned in Section
3.11(a);
1.70 "Required Consents" shall have the meaning assigned in Section
5.3;
1.71 "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 Monitoring Agreements listed on Schedule 1.72. 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.
1.72 "SAI" shall mean Security Associates International, Inc., a
Delaware corporation;
1.73 "King Acquisition" shall mean King Acquisition Corp., a Delaware
corporation;
1.74 "SAI Common" shall mean the common stock, $.001 par value, of
SAI;
1.75 "SAI Financial Statements" shall have the meaning assigned in
Section 4.5;
<PAGE> 10
1.76 "SAI Indemnified Parties" shall have the meaning assigned in
Section 10.1(a);
1.77 "SAI Preferred" shall mean the Series B Convertible Preferred
Stock, par value $0.01 per share of SAI, having substantially the terms,
preferences and provisions previously disclosed to the Selling Shareholders;
1.78 "SAI SEC Reports" shall have the meaning assigned in Section 4.5;
1.79 "SAI/King LOI" shall mean the letter of intent, dated April 5,
2000, between SAI and the Selling Shareholders of the Company relating to the
acquisition of the Company by SAI and referred to in Section 3(c)(y) of the
Letter of Intent;
1.80 "SAI Stockholder Approval" shall have the meaning assigned in
Section 7.21;
1.81 "SAI Stockholders Meeting" shall have the meaning assigned in
Section 6.4;
1.82 "SEC" shall mean the Securities and Exchange Commission;
1.83 "Securities Act" shall mean the Securities Act of 1933, as
amended;
1.84 "Securities Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended;
1.85 "SecurityVillage" shall mean SecurityVillage.com, Inc., a
Delaware corporation;
1.86 "Shareholder Indemnified Parties" shall have the meaning assigned
in Section 10.1(b);
1.87 "Shareholders" shall have the meaning assigned in the first
Recital of this Agreement;
1.88 "Shares" shall mean all of the issued and outstanding capital
stock of the Company;
1.89 "Selling Shareholder Released Claims" shall have the meaning
assigned in Section 6.5;
1.90 "Selling Shareholder Released Parties" shall have the meaning
assigned in Section 6.5;
1.91 "Selling Shareholder Releasing Parties" shall have the meaning
assigned in Section 5.15;
<PAGE> 11
1.92 "Selling Shareholders" shall mean Messrs. Thomas J. Few Sr.,
David L. Smith and Timothy M. McGinn;
1.93 "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;
1.94 "Subsidiary" shall have the meaning assigned in Section 3.3;
1.95 "SV/SAI Agreement" shall have the meaning assigned in Section 3
of the Letter of Intent;
1.96 "SV Option" means the option referred to in Section 1 of the
Letter of Intent pursuant to which SecurityVillage has the right to acquire up
to 8% of the equity of the Company (on a fully diluted basis after giving effect
to the Monital Acquisition) for $1.5 million (or in lieu thereof a call option
for such 8% equity interest or another investment vehicle that provides
equivalent economic value to SecurityVillage);
1.97 "Taxes" shall have the meaning assigned in Section 3.23;
1.98 "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.
1.99 "Third Party Claim" shall have the meaning assigned in Section
10.2(a); and
1.100 "Unaudited Company Financial Statements shall mean the reviewed
financial statements of the Company and its Subsidiaries for each of the two
years ended December 31, 1999 and the financial statements of the Company for
the three month
<PAGE> 12
period ended March 31, 2000, all as more fully described in Section 3.7 of this
Agreement.
ARTICLE 2
THE MERGER
In connection with the Merger, the respective boards of directors and
shareholders of King Acquisition and the Company have, by resolutions duly
adopted, approved the following provisions of this Article II as their "Plan of
Reorganization" within the meaning of applicable law:
2.1 Articles of Merger. Subject to the provisions of this Agreement,
Certificates of Merger executed on behalf of each of King Acquisition and the
Company and meeting the requirements of applicable law (the "Certificates of
Merger"), shall be duly prepared, executed and acknowledged by the Company, King
Acquisition and such other parties as may be appropriate, and thereafter the
Certificates of Merger shall be delivered to the Secretary of State of the
states of New Jersey and Delaware, as provided under applicable law, for filing
at or before the Closing. The Merger shall become effective on the date upon
which the Certificates of Merger are filed in accordance with applicable law
(the "Effective Time").
2.2 Closing. The Closing shall take place as provided in Article 9
and in the Escrow Agreement.
2.3 Effects of the Merger.
(a) At the Effective Time, the separate corporate existence
of King Acquisition shall cease, King Acquisition shall
be merged with and into the Company and the Company, as
the surviving corporation in the Merger (the "Surviving
Corporation"), shall continue its corporate existence
under the laws of the state of New Jersey under such
name as SAI shall designate.
(b) At and after the Effective Time, the Merger will have
the effects set forth under applicable law.
2.4 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of King Acquisition, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation immediately after the Effective Time and shall thereafter continue
to be its Certificate of Incorporation until amended as provided therein and
under applicable law.
2.5 Directors and Officers. The directors of King Acquisition holding
office immediately prior to the Effective Time shall be the directors of the
Surviving Corporation immediately after the Effective Time. The officers of King
Acquisition
<PAGE> 13
holding office immediately prior to the Effective Time shall be the officers of
the Surviving Corporation immediately after the Effective Time.
2.6 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of King Acquisition, the Company or
the holders of any of the following securities, the following securities will be
converted in the manner set forth below:
(a) Each share of Company Common which is issued and
outstanding immediately prior to the Effective Time
(other than treasury shares) shall be canceled and
extinguished and converted into and become a right to
receive (x) 225 shares of SAI Preferred (having in the
aggregate a $22.5 million liquidation value and
convertible into 4.5 million shares of SAI Common in the
aggregate), and (y) and $25,000 ($5 million in the
aggregate); provided, however, that if as the result of
the conversion of any Shareholder's Company Common upon
consummation of the Merger, a fractional interest in a
share of SAI Preferred would be deliverable under this
Section 2.6.(a), in lieu of a fractional share being
delivered therefor, such fractional interest shall
automatically be converted into the right to receive an
amount in cash (without interest) equal to the product
of the average of the high and low sale prices of the
SAI Common as reported by the AMEX on the trading day
immediately prior to the Effective Time, multiplied by
the number of shares of SAI Common into which such
fractional interest would be convertible. No such holder
will be entitled to dividends, voting rights or any
other rights as a shareholder in respect of any
fractional share.
(b) The SV Option shall be canceled and extinguished and
converted and become a right to receive 300,000 shares
of SAI Common in the aggregate.
(c) To the extent that actual RMR is less than the Minimum
RMR, then the number of shares of SAI Preferred, SAI
Common, and cash to be exchanged pursuant to this
Section 2.6 shall be proportionately reduced.
(d) Each share of Acquisition Common issued and outstanding
immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and
nonassessable share of Company Common.
2.7 Closing of Company Transfer Books. Immediately prior to the
Effective Time the stock transfer books of the Company shall be closed and no
transfer of shares of Company stock shall thereafter be made or recognized.
After the Effective Time valid
<PAGE> 14
certificates previously representing shares of Company Common which are
presented in accordance with this Agreement to the Surviving Corporation shall
be exchanged as provided in Section 2.8.
2.8 Exchange of Common Certificates. Each holder of a certificate or
certificates representing shares of Company Common issued and outstanding
immediately prior to the Effective Time shall at or as soon as practicable
following the Closing, surrender to SAI for exchange a certificate or
certificates, duly endorsed in blank or accompanied by duly executed stock
powers, representing the number of shares of Company Common held by such holder.
In exchange therefor, SAI shall (x) issue to such holder of Company Common a
certificate or certificates representing the number of shares of SAI Preferred
to be issued to such holder pursuant to Section 2.6(a), and (y) the amount of
cash, if any, to be paid to be paid to such holder pursuant to Sections 2.6(a).
Surrendered certificates shall forthwith be canceled. At Closing,
SecurityVillage will surrender the original SV Option to SAI in exchange for the
SAI Common called for by Section 2.6(b). Until so surrendered and exchanged,
each such certificate (or the SV Option, as applicable) shall represent solely
the right to receive the consideration therefor provided in Sections 2.6(a) and
2.6(b), without interest, and SAI shall not be required to issue to such holder
the stock to which such holder otherwise would be entitled; provided, that
procedures allowing for payment against receipt of customary and appropriate
certifications and indemnities shall be provided with respect to lost or
destroyed certificates.
2.9 Rights of the Company Shareholders. From and after the Effective
Time, the holders of shares of Company Common issued and outstanding at the
Effective Time shall have no rights with respect to such shares other than to
surrender the certificate or certificates representing such shares pursuant to
Section 2.8.
2.10 Taking of Necessary Action; Further Action. SAI and King
Acquisition, on the one hand, and the Company and the Selling Shareholders, on
the other hand, shall use reasonable efforts to take all such action (including
action to cause the satisfaction of the conditions to the Merger) as may be
necessary or appropriate in order to effectuate the Merger as promptly as
possible. If, at any time after the Effective Time, any further action is
necessary or desirable to vest the Surviving Corporation with full possession of
all the rights, privileges, immunities and franchises of the Company and
Acquisition, the officers of the Surviving Corporation are fully authorized in
the name of either the Company or Acquisition or otherwise to take, and shall
take, all such action.
ARTICLE 3
REPRESENTATIONS WARRANTIES OF THE SELLING SHAREHOLDERS
The Selling Shareholders, jointly and severally, represent, warrant and
acknowledge to SAI, King Acquisition, and their respective successors and
assigns that on the date of execution of this Agreement, at the Escrow Closing
and at the Closing, except in each case as set forth on the applicable
Disclosure Schedules attached hereto and except as provided in Section 3.32:
<PAGE> 15
3.1 Organization and Standing; Certificate of Incorporation and
By-laws. The Company and each Subsidiary of the Company is a corporation duly
organized and validly existing under and by virtue of, the laws of the state of
its incorporation and is in good standing under such laws. The Company and each
Subsidiary of the Company 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. The Company and each Subsidiary of
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, each of which is listed on Schedule 3.1. The Company and its
Subsidiaries do business under the names listed on Schedule 3.1 and do not
conduct any business, and are not commonly known by any other names, other than
as set forth on Schedule 3.1. The Company and each Subsidiary of the Company has
complied with all laws requiring the registration or other recording of such
names in each jurisdiction in which the Company or such direct or indirect
Subsidiary does business. The certified copies of the Certificate or Articles of
Incorporation and By-laws of the Company and each of its Subsidiaries attached
to Schedule 3.1, are true, correct and complete and contain all amendments
through the date hereof.
3.2 Power and Authority. The Company, each of its Subsidiaries and
the Selling Shareholders have, and will have at the Closing, all requisite legal
power and authority to execute and deliver this Agreement, to consummate the
Merger and to carry out and perform their obligations under this Agreement. None
of the Company's shareholders has dissented from the transactions contemplated
by this Agreement and no shareholder of the Company has or will have dissenter's
rights as a result thereof. This Agreement has been duly executed and delivered
by the Company and each Selling Shareholder, and constitutes a legal, valid and
binding obligation of the Company and each Selling Shareholder, enforceable
against each in accordance with its terms. Attached to Schedule 3.2 are
certified copies of the resolutions of the Company authorizing the transactions
contemplated hereby, which have not been amended or revoked.
3.3 Subsidiaries. Except as disclosed 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, directly or indirectly, any equity
interest, and includes any Subsidiary of a Subsidiary.
3.4 Central Stations. The Company and its Subsidiaries own and
operate the Central Stations from which they monitor security systems pursuant
to the Accounts and the Dealer Monitoring Agreements. The Central Stations are
located at the locations described on Schedule 3.4.
3.5 Capitalization. The authorized capital stock of the Company
consists, and will consist at the Closing, of 2,500 shares of common stock, with
no par value per share,
<PAGE> 16
of which 200 shares are issued and outstanding, and all of which are, and at the
Closing will be, owned, beneficially and of record by Few, Smith and McGinn, the
Selling Shareholders, as follows: Few (160 shares), Smith (20 shares) and McGinn
(20 shares). All of such shares have been duly authorized and validly issued and
are fully paid and nonassessable. The authorized, issued and outstanding capital
stock of each Subsidiary of the Company is, and at the Closing will be, as set
forth on Schedule 3.5. Except for the 0.8% interest in Monital held by LWG
Holdings Limited, an English limited company, all shares of capital stock of
each Subsidiary of the Company are, and at the Closing will be, owned
beneficially and of record by the Company or a Subsidiary of the Company, free
and clear of all liens, encumbrances, restrictions and claims of every kind.
Except for the SV Option and except as described on Schedule 3.5, there are no
pre-emptive rights, 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 any Subsidiary
of the Company or of any securities convertible into or exchangeable for any
shares of the capital stock of the Company or any Subsidiary of the Company.
Except for the Letter of Intent, no shareholder of the Company or any Subsidiary
of the Company is party to any agreement or arrangement pursuant to which it is
obligated to dispose of any of the capital stock of the Company or any
Subsidiary of the Company to any party other than SAI in connection with the
Merger. Other than the Selling Stockholders, there are no other holders of
capital stock of the Company. All securities of the Company and each Subsidiary
of the Company were issued and transferred in compliance with all applicable
federal and state securities laws and regulations. The Merger and the exchange
of the shares of Company Common involved therein 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
Shareholders or the directors of the Company or of any governmental authority or
agency or any other third party is required for the consummation by the Company
of the Merger or the other transactions contemplated by this Agreement, except
for those listed on Schedule 3.6, all of which have been obtained and copies of
which have been delivered to SAI. Except as contemplated by this Agreement, no
filing or registration with any court or governmental or regulatory agency or
board is required to be made on behalf of the Company or any Subsidiary of the
Company in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
3.7 Company Financial Statements; Closing Date Balance Sheet.
(a) The Company has delivered to SAI the Unaudited Company
Financial Statements; and, prior to the Escrow Closing,
the Company will deliver to SAI the Escrow Date Balance
Sheet, and prior to the Closing, the Company will
deliver to SAI the Closing Date Balance Sheet. The
Unaudited Company Financial Statements are attached to
Schedule 3.7. The Unaudited Company
<PAGE> 17
Financial Statements are complete and correct in all
material respects and do not contain any information
which is false or misleading. The Escrow Date Balance
Sheet and the Closing Date Balance Sheet will contain,
among other things, specific schedules setting forth
the Company's RMR as of the dates thereof, and will be
true, accurate, complete and correct in all material
respects and will not contain any information which is
false or misleading as of their respective dates. The
Unaudited Company Financial Statements do, the Escrow
Date Balance Sheet, and the Closing Date Balance Sheet
will, fairly present the financial condition and
operating results of the Company and its Subsidiaries
as of the dates, and during the periods, indicated
therein. Prior to the Escrow Closing, the Company will
provide SAI with audited financial statements for
periods covered by the Unaudited Company Financial
Statements (the "Audited Company Financial
Statements"). The Audited Company Financial Statements
will fairly present the financial condition and
operating results of the Company and its Subsidiaries
as of the dates, and during the periods, indicated
therein, and will be prepared in accordance with GAAP,
consistently applied throughout the periods indicated,
except for the absence of footnotes and subject in the
case of interim financials, including the Escrow Date
Balance Sheet and the Closing Date Balance Sheet, to
the effect of normal year-end adjustments (which will
not be material). The Audited Company Financial
Statements will not differ from the Unaudited Company
Financial Statements in any material respect. Since
December 31, 1999, 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 any of its Subsidiaries, the Monitoring
Business or any other business conducted by the Company
or any of its Subsidiaries (a "Material Adverse
Effect").
(b) The books and records of the Company and each of its
Subsidiaries are and have been properly prepared and
maintained in form and substance adequate for preparing
audited financial statements in accordance with GAAP,
and fairly and accurately reflect all of the assets and
liabilities of the Company, its Subsidiaries and all
contracts and transactions to which the Company or its
Subsidiaries is or was a party or by which the Company,
its Subsidiaries or any of their respective businesses
or assets is or was affected. The corporate minute
books of the Company and each of its Subsidiaries,
copies of which have been made available
<PAGE> 18
to SAI, correctly reflect all resolutions adopted and
all other material corporate actions taken at all
meetings or through consents of the directors
(including committees thereof) and the shareholders of
the Company and each of its Subsidiaries. The stock
transfer books and stock ledger of the Company and each
of its Subsidiaries are complete and correctly reflect
all issuances and transfers of the capital stock of the
Company and each of such Subsidiaries.
(c) At the Closing the Company will have a tax basis of at
least (i) $18 million in depreciable and/or amortizable
assets for Federal income tax purposes, calculated in
accordance with GAAP, less (ii) the amount by which
such assets have been depreciated and/or amortized for
Federal income tax purposes since January 1, 2000,
calculated in accordance with GAAP.
3.8 Absence of Changes. Except for Monital Retail Account
Transactions, the transfer of the Distributed Business Items and the incurrence
in the ordinary course of indebtedness in the ordinary course of business for
working capital and/or under the Company's "8X" program, and except as otherwise
set forth in Schedule 3.8, since December 31, 1999:
(a) neither the Company nor any of its Subsidiaries has
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, its Subsidiaries, or their Assets, the
Monitoring Business or any other business conducted by
the Company or any of its Subsidiaries;
(c) except as permitted pursuant to Section 5.11, neither
the Company nor any of its Subsidiaries has declared or
paid any dividend or made any distribution (in cash,
securities or other property) on its capital stock, or
redeemed, purchased or otherwise acquired any of its
capital stock;
(d) neither the Company nor any of its Subsidiaries has
increased the compensation of its officers, or the rate
of pay of its employees as a group; and there are no
impending resignations or terminations of any officers
or employees of the Company or any of its Subsidiaries;
<PAGE> 19
(e) there has been no labor dispute involving the Company
or any of its Subsidiaries;
(f) there has not been any material change in the
contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(g) there have not been any loans made by the Company or
any of Subsidiaries to any of their employees, officers
or directors;
(h) neither the Company nor any of its Subsidiaries has
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) neither the Company nor any of its Subsidiaries has
paid any material obligations or liabilities, other
than current liabilities paid in the ordinary course of
business;
(j) neither the Company nor any of its Subsidiaries has
mortgaged, pledged or subjected to any lien, charge or
any other encumbrance, any of its properties or assets;
(k) neither the Company nor any of its Subsidiaries has
sold, assigned, transferred or leased any of its assets
other than in the ordinary course of business;
(l) neither the Company nor any of its Subsidiaries has
made any material capital expenditures or commitments
therefor;
(m) neither the Company nor any of its Subsidiaries has
changed its accounting methods or practices;
(n) there has been no other event or condition of any
character that has or can reasonably be expected to
result in a Material Adverse Effect to the Company and
its Subsidiaries;
(o) neither the Company nor any of it Subsidiaries has
changed the pricing for its services or indicated that
reduced pricing for their services could be expected;
and
(p) neither the Company nor any of its Subsidiaries has, to
the Knowledge of the Company or the Selling
Shareholders received, verbally or in writing, any
notice of intent to cancel or reduce use of its
services by any Dealer.
<PAGE> 20
3.9 Liabilities and Indebtedness. Schedule 3.9 contains a true and
complete list of each and every Liability of the Company and each of its
Subsidiaries, 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 or any of its Subsidiaries has outstanding indebtedness or
obligations of greater than $10,000 individually or $50,000 in the aggregate.
The Company has furnished SAI 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 or any
of its Subsidiaries relating to said agreements. Neither the Company nor any of
its Subsidiaries is in default in any material respect under any of its
agreements or evidences of indebtedness. Except as recorded on the face of the
Closing Balance Sheet or as disclosed on Schedule 3.9 attached hereto, neither
the Company nor any of its Subsidiaries has any material (individually or in the
aggregate) Liabilities or obligations, absolute or contingent.
3.10 Material Contracts. Schedule 3.10 contains a true, accurate and
complete list of each and every agreement, contract, arrangement or
understanding of the Company and each of its Subsidiaries pursuant to which the
Company or its Subsidiaries is obligated (or potentially obligated) to pay more
than $10,000 or pursuant to which the Company or any of its Subsidiaries is
obligated (or potentially obligated) to provide services with a value in excess
of $10,000 ("Material Contract"). No party (including the Company or any of its
Subsidiaries) to any Material Contract is in default in any material respect
thereunder. Except as set forth on Schedule 3.10, neither the Company nor any of
its Subsidiaries is a party to any Material Contract.
3.11 Leases.
(a) Schedule 3.11(a) contains a true and complete list of all
real estate leases of the Company and each of its
Subsidiaries (the "Real Estate Leases") and sets forth a
brief summary of the principal terms thereof. True and
complete copies of all such Real Estate Leases have been
supplied to SAI, including all amendments thereto. The
Company and its Subsidiaries will be able to utilize all of
the Central Stations under such Real Estate Leases for those
Facilities for the balance of the terms of their respective
leases, including any renewal terms. Neither the Company nor
its Subsidiaries or any Shareholder has any Knowledge of any
intention on the part of any lessor to terminate any Real
Estate Lease or raise the rental rate or take any other
action that might make the continued use by the Company or
any of its Subsidiaries of any of the Facilities housing the
Central Stations more onerous.
(b) Schedule 3.11(b) contains a true, accurate and complete list
of every equipment lease of the Company and each of its
Subsidiaries, including the Antenna Lease ("Equipment
Leases")
<PAGE> 21
and sets forth a brief summary of the principal terms of
each such lease. True, accurate and complete copies of all
such Equipment Leases have been supplied to SAI, including
all amendments thereto. The Company and its Subsidiaries
will be able to utilize all of the equipment leased under
such Equipment Leases for the balance of the terms of their
respective leases, including any renewal terms. Neither the
Company, its Subsidiaries nor any Shareholder has any
Knowledge of any intention on the part of any lessor to
terminate any Equipment Lease or raise the rental rate or
take any other action that might make the continued use by
the Company or any of its Subsidiaries of any of the
equipment leased thereunder more onerous.
(c) Schedule 3.11(c) contains a true, accurate and complete list
of all Leases not listed in Schedules 3.11(a) or 3.11(b).
Neither the Company, its Subsidiaries nor any other party is
in default under the terms of any Lease. None of the Leases
requires the consent of the lessors thereunder to the
transactions contemplated by this Agreement. Consummation of
the transactions contemplated hereby will not result in the
cancellation of any of the Leases or the acceleration of the
obligations thereunder. Prior to the Escrow Closing, the
Company shall have obtained and delivered to SAI all
necessary landlord and other lessor consents necessary for
the Company and its Subsidiaries to operate the Central
Stations, and to assume the rights of the Company or its
Subsidiaries under the Leases.
3.12 Title to Properties and Assets; Liens, etc. The Company or one of
its Subsidiaries 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, claim, encumbrance, restriction or charge
("Lien"), except for the Liens listed on Schedule 3.12. The Company or its
Subsidiaries own or lease all such equipment and properties as are necessary to
the Monitoring Business and each other business conducted by the Company or its
Subsidiaries. Schedule 3.12(a) contains a true, accurate and complete list of
all (x) Leases which require the consent of a party other than the Company or
its Subsidiaries in connection with the Merger, and (y) Assets of the Company
and its Subsidiaries which consist of:
(a) Cash and Securities;
(b) Bank Accounts;
(c) Contracts;
(d) Real Estate;
<PAGE> 22
(e) Equipment;
(f) Intellectual property;
(g) Leasehold interests in Real Estate Leases and Equipment
Leases;
(h) The rights to the telephone lines used in the Monitoring
Business, all of which are listed on Schedule 3.12(a);
(i) Accounts receivable;
(j) Prepaid expenses and deposits;
(k) All books and records of the Company and each of its
Subsidiaries, 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 the
Company and its Subsidiaries to operate the Monitoring
Business and the other business operated by the Company and
its Subsidiaries;
(l) All other contracts and commitments by which the Company or
any of its Subsidiaries is bound;
(m) The goodwill of the Company;
(n) All contracts and policies of insurance; and
(o) All other assets and rights used in the operation of the
Monitoring Business, excepting only those listed on Schedule
3.12(b) as "Excluded Assets".
All Equipment owned by the Company or any of its Subsidiaries is, and
at the Closing will be, in good operating condition and repair, ordinarily wear
and tear excepted. All of the Equipment is in compliance with all applicable
statutes, rules, regulations and ordinances.
Except as disclosed on Schedule 3.12(a), all real property owned by the
Company or any of its Subsidiaries is free and clear of all Liens and is not
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature, except (a) liens for current taxes
not yet due, and (b) (i) minor imperfections of title, if any, none of which is
substantial in amount, materially detracts from the value or impairs the use of
the property subject thereto, or impairs the operations of the Company or its
Subsidiaries, and (ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject thereto. Except as
disclosed on
<PAGE> 23
Schedule 3.12(a), all buildings, plants, and structures owned by the Company and
its Subsidiaries lie wholly within the boundaries of the real property owned by
the Company or its Subsidiaries and do not encroach upon the property of, or
otherwise conflict with the property rights of, any other Person.
Schedule 3.12(b) is a true and complete list of those assets formerly
owned by the Company or any of its Subsidiaries which have been distributed to
the shareholders of the Company or any of its Subsidiaries or entities
controlled by such shareholders at or prior to the Closing. Assets listed on
Schedule 3.12(b) which are to be distributed to the Selling Shareholders
immediately prior to the Closing, if any, shall be referred to herein as
"Excluded Assets." Except as disclosed on Schedule 3.12 or referred to
specifically in this Agreement, other than the Excluded Assets, no Asset of the
Company or any of its Subsidiaries has been disposed of since December 31, 1999,
other than in the ordinary course of business.
3.13 Form Contracts. Attached to Schedule 3.13 are the forms of
agreements the Company and its Subsidiaries use with Dealers and Subscribers 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. Neither the Company nor any of its Subsidiaries has entered into any
oral agreements with any Subscriber or Dealer, except for those agreements
described in reasonable detail on Schedule 3.13. 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. Neither the Company nor any of its
Subsidiaries provides monitoring to any Subscriber of a Dealer that has not
executed a written contract with that Dealer. The Company and each of its
Subsidiaries has delivered to SAI all of the Dealer Monitoring Agreements of the
Company and its Subsidiaries and copies of the form agreements used by the
respective Dealers for each Dealer Owned Account.
3.14 Telephone Lines. Schedule 3.14 contains a true, accurate and
complete list of (i) each telephone line being used in the operations of the
Company and its Subsidiaries; (ii) the name of the owner of the line if other
than the Company or one of its Subsidiaries, (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 and its Subsidiaries have 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 and its Subsidiaries will have all right, title, interest in and the
right to use as currently used all of said telephone lines. All of the contract
rights and outstanding obligations of the Company and its Subsidiaries with
respect to any and all Yellow Page listings and advertisements are set forth on
Schedule 3.14. The Company will provide SAI with the forms of any and all
telephone agency and supersession letters and will take such actions as are
necessary for
<PAGE> 24
the continuing right of the Company and its Subsidiaries to use of all such
telephone lines after the Closing.
3.15 Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in violation of any term of its respective Articles or
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 or such Subsidiary. 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 Articles or Certificate of Incorporation or By-laws of the Company or any of
its Subsidiaries or of the governing documents of any Selling Shareholder, (ii)
have not resulted, and will not result, in the creation of, any Lien upon any of
the properties or assets of the Company or its Subsidiaries or any Selling
Shareholder, (iii) have not resulted and will not result in the loss of any
license, permit, certificate, legal privilege or legal right enjoyed or
possessed by the Company or any of its Subsidiaries; (iv) do not and will not
give any party to any agreement to which the Company or any of its Subsidiaries
is a party a right of termination; and (v) 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, any of its
Subsidiaries or any Selling Shareholder is bound or to which any of their
respective properties are subject. No Selling Shareholder is a party to, subject
to or bound by any agreement or any judgment, order, writ, prohibition,
injunction or decree of any court or other governmental body which would prevent
the execution or delivery of this Agreement by such Selling Shareholder, such
Selling Shareholder's approval of the Merger or the conversion of such
Shareholder's shares of Company Common pursuant to the Merger.
3.16 Compliance with Laws.
(a) The Company and each of its Subsidiaries has complied, and
is currently in compliance, with all laws, rules,
regulations, and orders applicable to the operation of its
remote alarm monitoring business or any other business
conducted by the Company or any such Subsidiary. Neither the
Company nor any of its Subsidiaries has taken any action
which would, or failed to take any action which failure
would, in any way preclude or prevent the Company or any
such Subsidiary from continuing to operate the Monitoring
Business or any other business conducted by the Company or
any such Subsidiary following the Closing. The Company and
its Subsidiaries, and their respective employees, have, and
following the Closing, the Company, its Subsidiaries, and
their respective employees will continue to 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
<PAGE> 25
alarm systems and combined systems) and any other business
conducted by the Company or any such Subsidiary in all
jurisdictions in which the Company or any such Subsidiary
does business, and all such Permits are currently in effect.
Schedule 3.16(a) contains a true, accurate and complete list
of all states in which the Company, its Subsidiaries or
individuals acting on their behalf are licensed, the
entities and individuals licensed in each of such state and
the Accounts with respect to which such entities and
individuals are licensed.
(b) No violations are, or have been, recorded in respect of any
such Permits and no proceedings are pending, or to the
Knowledge of the Company and the Selling Shareholders,
threatened concerning revocation or limitation of any such
Permit. 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 business of the Company
and its Subsidiaries are attached to Schedule 3.16.
(c) To the Knowledge of the Company and the Selling
Shareholders, all of the Dealers for which the Company and
its Subsidiaries provide Monitoring Services are licensed as
installers of security systems by the appropriate entities
in the jurisdictions in which they conduct business, and
neither the Company, its Subsidiaries nor any of their
respective shareholders are 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 and each of its Subsidiaries
owns or has the right to use, and following the Closing the Company and each of
its Subsidiaries will continue to own and have the right to use, free and clear
of all Liens, all Intellectual Property used in the conduct of their respective
businesses without infringing upon or otherwise acting adversely to the right or
claimed right of any person. Schedule 3.17 contains a true and complete list of
the Intellectual Property of the Company, its Subsidiaries and the owner(s),
licensors, grantors and licensee(s) thereof. Except as disclosed on Schedule
3.17, neither the Company nor any of its Subsidiaries is, or following the
Closing will 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. Neither the Company nor any of its
Subsidiaries has granted any licenses allowing third parties to use any of the
Intellectual Property of the Company or its Subsidiaries. The conduct of the
Monitoring Business or any other business conducted by the Company and its
Subsidiaries does not, and will not, violate the Intellectual Property or any
other proprietary interest of any other Person. The Company
<PAGE> 26
and its Subsidiaries possess, and after the Closing will possess, ownership of
or licenses to utilize all proprietary technology necessary for the conduct of
the Monitoring Business and any other business conducted by the Company or its
Subsidiaries. Neither the Company nor any of its Subsidiaries is in default
under any agreement governing its use of any Intellectual Property.
3.18 Schedule 3.18 consists of the following:
(a) Schedule 3.18(a) is a true, accurate and complete list of
the Dealer Monitoring Agreements of the Company, its
Subsidiaries, and sets forth completely and accurately, as
of April 30, 2000 (i) the RMR due from each Dealer under
each such agreement; (ii) the agings of the accounts
receivable from each Dealer under each such agreement; and
(iii) the method of billing such Dealers.
(b) Except as disclosed on Schedule 3.18(a), all Accounts and
Dealer Monitoring Agreements or included in the RMR are
evidenced by written contracts, except those oral agreements
described on Schedule 3.18. The Accounts and 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
and Subscribers that are parties thereto without any
counterclaims, set-offs or other defenses thereto, and
neither the Company, its Subsidiaries or any selling
Shareholder has any basis to believe that the amounts
payable under such Accounts and Dealer Monitoring Agreements
are not collectible. Neither the Company nor any of its
Subsidiaries has any basis to believe that any Account or
Dealer Monitoring Agreement will not continue in existence
after the Closing.
3.19 Litigation, etc. There are no actions, suits, proceedings or
investigations pending or threatened against the Company, its Subsidiaries or
their respective properties before any court, arbitration panel or governmental
agency (nor, to the Selling Shareholder's or the Company's 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, its Subsidiaries
or their respective assets or the Monitoring Business or any other business
conducted by the Company and its Subsidiaries, except as described on Schedule
3.19. Schedule 3.19 also contains a true and complete list of every incident for
the last five years in which a Subscriber or third party asserted that it
experienced a loss related to any failure or omission of the Company, its
Subsidiaries (other than Monital except to the extent disclosed in the Monital
Acquisition) or their provision of Monitoring Services, a short description of
the claim and its current status or resolution.
<PAGE> 27
3.20 Related Party Transactions. Except as disclosed on Schedule 3.20,
neither the Company, its Subsidiaries nor any shareholder, officer, director,
employee of the Company, its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any contract with the
Company or its Subsidiaries, including but not limited to any agreement, written
or unwritten, for employment or consulting, or any lease for real or personal
property. No officer or employee of the Company or its Subsidiaries 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 or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person, except as disclosed on Schedule 3.20. All existing agreements between
each Shareholder and the Company or its Subsidiaries have been (or on or prior
to the Closing will be) terminated and, thereafter, except as contemplated
herein, such Shareholder will not be a party to, subject to or bound by any
agreement, commitment or understanding whatsoever between such Shareholder and
the Company.
3.21 Securities Law Compliance.
(a) Each of the Selling Shareholders understands and agrees that: (i) the
SAI Preferred to be issued pursuant to the Merger has not been, and
as of the Effective Time will not be, registered under the Securities
Act or under any state securities laws; (ii) the SAI Preferred is
being offered and issued in reliance upon Federal and state
exemptions for transactions not involving any public offering; (iii)
a "stop transfer" order will be placed against the certificates
representing shares of SAI Preferred issued pursuant to the Merger
until such time as (A) such SAI Preferred is registered under the
Securities Act or (B) until SAI has received an opinion of counsel
satisfactory to it that a proposed transfer or sale does not require
registration or qualification under applicable law; and (iv) until
removed in accordance with Section 5.17, the certificates
representing the shares of SAI Preferred and SAI Common issued in the
Merger will bear the legend set forth below:
The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any
applicable state securities laws, in reliance on exemptions under
the Act and applicable state securities laws. No transfer or sale
of these shares or any interest therein may be made without such
registration and qualification unless the issuer has received an
opinion of counsel satisfactory to it that a proposed
<PAGE> 28
transfer or sale does not require registration or qualification
under applicable law.
(b) The Selling Shareholders each further represent that: (i) he is
acquiring the SAI Preferred to be acquired him pursuant to the
Merger solely for his own account for investment purposes and not
with a view to the distribution thereof within the meaning of the
Securities Act; (ii) he is a sophisticated investor with knowledge
and experience in business and financial matters and is an
"accredited investor" within the meaning of Rule 501 under the
Securities Act; (iii) he has had access to all SAI SEC Reports filed
by SAI during the current year and the year preceding the current
year, and has had the opportunity to obtain additional information
and ask questions and receive answers as desired in order to
evaluate the merits and risks inherent in holding the SAI Preferred;
(iv) he has not been offered the SAI Preferred by any form of
general advertising or general solicitation; and (v) he is able to
bear the economic risk and lack of liquidity inherent in holding the
SAI Preferred.
3.22 Brokers or Finders. Neither the Company, its Subsidiaries nor any
Shareholder has 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
Company, its Subsidiaries or any Selling Shareholder, 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 and each of its Subsidiaries: (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 its Subsidiaries or with respect to which
the Company or any of its Subsidiaries is liable or otherwise in any way
subject, including without limitation all tax returns due for the period ending
December 31, 1999, (and all such returns fairly reflect the operations of the
Company and its Subsidiaries 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, except for those amounts set forth on Schedule 3.23
as being contested in good faith and for which appropriate amounts have been
reserved and are reflected on the Company's Financial Statements, and will be
reflected on the Escrow Date Balance Sheet or the Closing Date Balance Sheet, as
the case may be, in accordance with GAAP; (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 will not exceed the liability therefor appearing on the Escrow Date
Balance
<PAGE> 29
Sheet or the Closing Date Balance Sheet, as the case may be, and there are no
material unresolved questions or claims concerning the tax liability of the
Company, its Subsidiaries. The tax returns of the Company and its Subsidiaries
have not been reviewed or audited by any federal, state, local or county taxing
authority. There is no pending dispute with any taxing authority relating to any
of said tax returns. The Company's Financial Statements do, and the Escrow Date
Balance Sheet and the Closing Date Balance Sheet will, accurately reflect all of
the tax liability of the Company and its Subsidiaries for Taxes as of their
respective dates. All of the income, sales and employment-related tax returns of
the Company and its Subsidiaries for the years 1997, 1998 and 1999 are attached
to Schedule 3.23. The books of the Company and its Subsidiaries 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 Shareholders will fully cooperate
with the Company and its Subsidiaries in preparing their respective tax returns,
including, but not limited to, those for the stub period ending on the Closing
Date (the "Stub Period"). Neither the Company nor the Selling Shareholders have
taken or failed to take, or prior to the Closing will take or fail to take, any
action which would result in the loss of the Company's status as a Subchapter S
corporation or which would otherwise affect the Company's status as a Subchapter
S Corporation prior to Closing.
3.24 Insurance. The Company and each of its Subsidiaries has valid workers'
compensation, fire, casualty, liability and errors and omissions policies, in
such amounts and with such coverage as is reasonably related to the foreseeable
risks of the Company and its Subsidiaries, in each case with reputable insurers.
The Company has provided to SAI true, accurate and complete copies of all such
policies. All of the fire, casualty, liability and errors and omissions policies
of the Company and its Subsidiaries are "occurrence" policies not "claims made"
policies. Neither the Company nor any of its Subsidiaries (a) is in default with
respect to any provision contained in any such policy, or (b) has failed to give
any notice or present any claim under any such policy in due and timely fashion.
Neither the Company nor any of its Subsidiaries will be placed in default, nor
will their coverage be canceled, as a result of the transactions contemplated by
this Agreement. There are no outstanding unpaid claims under any such policy.
Neither the Company nor any of its Subsidiaries has received notice of, nor have
they 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, neither the Company nor any of its
Subsidiaries has canceled or terminated any insurance policy, nor has any
insurance company canceled or terminated any insurance policy of the Company or
its Subsidiaries or rejected any claim under such policy. All such policies will
remain in full force and effect following the Closing. Following the Closing,
the Company and its Subsidiaries 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.
<PAGE> 30
3.25 Pension Plans. Neither the Company nor any of its Subsidiaries maintains
or contributes to, or has any obligation under, or on the Closing Date will
maintain, contribute to, or have any obligation under, any Employee Benefit Plan
other than those identified on Schedule 3.25. The Company has provided SAI with
true, 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. 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. 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. No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in 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 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.
<PAGE> 31
(e) ERISA Litigation. No material proceeding, claim, lawsuit and/or
investigation is existing or 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 or
any of its Subsidiaries, (ii) Pension Plan or (iii) Multiemployer
Plan.
3.26 Directors, Officers and Employees.
(a) Directors, Officers and Employees. Schedule 3.26 sets forth the
names of each director, officer and employee of the Company and
each of its Subsidiaries and states the rate of compensation
payable to each. Attached to Schedule 3.26 are copies of each
written employment agreement and noncompetition agreement with any
of such directors, officers and employees. Except as set forth in
Schedule 3.26, no such agreement shall cause the Company or its
Subsidiaries to make additional payments as a result of the
Merger.
(b) Labor Matters. Neither the Company nor any of its Subsidiaries has
been, or is, a party to any collective bargaining agreement with
any union representing any of its employees. The Company and each
of its Subsidiaries 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 employees of the Company
or its Subsidiaries is represented by a labor union. There has not
been, and there are not presently, pending or threatened any
unfair labor practice or discrimination charges or complaints
against the Company or its Subsidiaries 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. Mr. Thomas J. Few Sr. has
agreed, without additional consideration, to remain employed by
SAI, the Company or its Subsidiaries at his current compensation
level. The individuals listed on Schedule 3.26(c) will continue to
act as the Company's qualifying license holders. The Selling
Shareholders agree to have each such employee execute a letter
agreement with SAI providing for the following:
(i) Continued employment by SAI, the Company or a Subsidiary of
the Company;
(ii) Continued compensation at current levels; and
<PAGE> 32
(iii) Confidentiality and non-competition undertakings.
3.27 Environmental Matters.
Except as set forth in Schedule 3.27:
(a) The Company and its Subsidiaries are, and at all times have been,
in full compliance with, and have not been and are not in
violation of or liable under, any Environmental Law. None of the
Selling Shareholders or the Company or its Subsidiaries has any
basis to expect, nor has any of them or any other Person for whose
conduct they are or may be held to be responsible received, any
order, notice, or other communication from (i) any governmental
body or private citizen acting in the public interest, or (ii) the
current or prior owner or operator of any owned or leased property
or facility ("Facilities"), of any actual or potential violation
or failure to comply with any Environmental Law, or of any
obligation to undertake or bear the cost of any environmental,
health, and safety liabilities with respect to any of the
Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company or its Subsidiaries has
had an interest, or with respect to any property or Facility at or
to which hazardous materials were generated, manufactured,
refined, transferred, imported, used, or processed by the Company,
or any other Person for whose conduct they are or may be held
responsible, or from which hazardous materials have been
transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b) There are no pending or, to the Knowledge of the Selling
Shareholders, the Company or its Subsidiaries, threatened claims,
Liens, or other restrictions of any nature, resulting from any
environmental, health, and safety liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting
any of the Facilities or any other properties and assets (whether
real, personal, or mixed) in which Company has or had an interest.
(c) None of the Selling Shareholders or the Company or its
Subsidiaries has Knowledge of any basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice,
Order, summons, warning, or other communication that relates to
hazardous activity, hazardous materials, or any alleged, actual,
or potential violation or failure to comply with any Environmental
Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any environmental, health, and
safety liabilities
<PAGE> 33
with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which the Company or
its Subsidiaries had an interest, or with respect to any property
or Facility to which hazardous materials generated, manufactured,
refined, transferred, imported, used, or processed by the Company,
or its Subsidiaries or any other Person for whose conduct they are
or may be held responsible, have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(d) There are no hazardous materials present on or in the environment
at the Facilities or at any geologically or hydrologically
adjoining property, including any hazardous materials contained in
barrels, above or underground storage tanks, landfills, land
deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities
or such adjoining property, or incorporated into any structure
therein or thereon.
(e) There has been no release or, to the Knowledge of the Selling
Shareholders, the Company, or its Subsidiaries threat of a
release, of any hazardous materials at or from the Facilities or
at any other locations where any hazardous materials were
generated, manufactured, refined, transferred, produced, imported,
used, or processed from or by the Facilities, or from or by any
other properties and assets (whether real, personal, or mixed) in
which the Company or its Subsidiaries has or had an interest, or
to the Knowledge of the Selling Shareholders, Company or its
Subsidiaries any geologically or hydrologically adjoining
property, whether by the Company, its Subsidiaries or any other
Person.
The Selling Shareholders have delivered to SAI true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by or on behalf of the Company pertaining to hazardous materials or
hazardous activities in, on, or under the Facilities, or concerning compliance
by the Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
3.28 UL Compliance and Compliance with Laws. The Central Stations are
certified by Underwriters Laboratories, Inc. ("U.L."). A copy of each U.L.
listing of the Central Stations is attached to schedule 3.28. The Selling
Shareholders are not aware of any reason why the Central Stations would lose
their U.L. certifications. No Accounts require inspections to be or remain in
compliance with any governmental regulation, law or code, and all Accounts are
in compliance with any applicable code or regulation.
3.29 Ownership of Stock. The Selling Shareholders are the lawful owners,
both beneficially and of record, of the Shares, have good and marketable title
to the
<PAGE> 34
Shares and, except for the King Option referred to in Section 3 of the
Letter of Intent, such ownership and title are free and clear of all liens,
encumbrances, preemptive rights, shareholders' agreements, voting trusts or
similar agreements, rights of first refusal, restrictions on transfer and other
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 or
Certificate of Incorporation and Bylaws. Schedule 3.29 sets forth the Shares
owned by each Shareholder; and each Selling Shareholder has good and marketable
title to the Shares owned by such Selling Shareholder.
3.30 Proxy Statement. The information supplied by the Company for inclusion
in the Proxy Statement shall not, at the time the Proxy Statement is first
mailed to the stockholders of SAI, at the time of the SAI Stockholders Meeting
or at the Effective Time, contain any statement which, at such time and in light
of the circumstances under which it was made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made in the Proxy Statement not false or
misleading. If at any time prior to the Effective Time any event relating to the
Company, it Subsidiaries or any of their respective affiliates, officers or
directors should be discovered by the Company which should be set forth in a
supplement to the Proxy Statement, the Company shall promptly inform SAI.
3.31 Representations and Warranties True on Closing Date. The
representations and warranties made by the Selling Shareholders herein, and all
statements made in any exhibit, schedule or certificate or other document or
instrument furnished pursuant to this Agreement, do not contain, and as of the
Closing 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. The Selling Shareholders have clearly and fully disclosed
to SAI, in writing, all material facts concerning the Company and its
Subsidiaries necessary for SAI to accurately evaluate its investment in the
Company and its Subsidiaries, their Assets and the Monitoring Business and other
business conducted by the Company and its Subsidiaries.
3.32 Representations relating to Monital. Notwithstanding anything in this
Agreement to the contrary, the Selling Shareholders' representations and
warranties as they relate to Monital, are made to the Knowledge of the Selling
Shareholders, the Company, the Central Regional Manager of the Company, the
National Sales Manager of the Company, the Company's Subsidiaries (except
Monital) and the respective officers, directors, legal counsel and financial
advisors of the Company and its Subsidiaries (except Monital) for all facts,
circumstances and conditions occurring with respect to Monital prior to the
consummation by the Company of the Monital Acquisition. The Selling Shareholders
hereby represent and warrant that (i) they have disclosed and provided, or prior
to the Escrow Closing Date will have disclosed and provided, to SAI all
documents and information received by the Selling Shareholders and/or their
representatives during the course of their due diligence investigation of
Monital
<PAGE> 35
(including without limitation, their document review and management interviews)
and (ii) they have no Knowledge that any of the representations and warranties
made in the transaction documents for the Monital Acquisition are untrue.
3.33 Selling Shareholder Released Claims. Neither the Company nor any
Subsidiary has any pending claim or cause of action of any kind whatsoever
against any Selling Shareholder, including, but not limited to, any claim
relating to such Selling Shareholder's performance of his duties as an officer,
director or employee of the Company or any of its Subsidiaries, or any facts or
circumstances which now or , with the passage of time, would give rise to any
such claim or cause of action. Neither the Company nor any Subsidiary has
assigned or otherwise transferred, or prior to the Closing will assign or
otherwise transfer, any right or interest in or to any such claim or cause of
action, including, but not limited to, Selling Shareholder Released Claims.
ARTICLE 4
REPRESENTATIONS, WARRANTIES, AND
ACKNOWLEDGEMENTS OF SAI AND KING ACQUSITION
SAI and King Acquisition, jointly and severally, represent, warrant, and
acknowledge to the Selling Shareholders that:
4.1 Incorporation. SAI is a validly existing corporation in good standing
under the laws of the State of Delaware. King Acquisition is a validly existing
corporation in good standing under the laws of the state of Delaware.
4.2 Power and Authority. SAI and King Acquisition each have the requisite
corporate power and authority to own and operate their respective properties and
assets, and to carry on their respective businesses as presently conducted and
as proposed to be conducted. Subject to approval of the Merger and other
transactions contemplated herein by the shareholders of SAI and its lenders, SAI
and King Acquisition each have all requisite corporate power and authority to
execute and deliver this Agreement; to consummate the Merger and to carry out
and perform its obligations under the terms of this Agreement.
4.3 Authorization. All action on the part of SAI and King Acquisition
necessary for the authorization, execution, delivery and performance of this
Agreement and the performance of all of the obligations of SAI and King
Acquisition hereunder have been taken or will be taken prior to the Closing.
This Agreement has been duly executed and delivered by SAI and King Acquisition,
respectively, and constitutes their valid and binding obligations, enforceable
against each in accordance with its terms. Except as contemplated by this
Agreement, no filing or registration with any court or governmental or
regulatory agency or board is required to be made on behalf of SAI or King
Acquisition in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
<PAGE> 36
4.4 SAI Securities. SAI has taken, or prior to the Closing will take, all
actions necessary to authorize and approve the issuance of the SAI Preferred and
the SAI Common to be issued in connection with the Merger, and as of the
Effective Time the SAI Preferred and the SAI Common will, when issued in
accordance herewith, be duly authorized, validly issued, fully paid and
nonassessable. Except as contemplated in the Letter of Intent, there are no
statutory or contractual shareholders' preemptive rights or rights of refusal
with respect to the issuance of the SAI Preferred or the SAI Common upon
consummation of the Merger.
4.5 Commission Filings. SAI has filed and made available to the Company and
the Shareholders all forms, reports and documents required to be filed by SAI
with the SEC under the Securities Exchange Act, and the Securities Act during
the one year period ending on the date hereof (collectively, the "SAI SEC
Reports"). The SAI SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Exchange Act, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such SAI SEC Reports or necessary in order to make the
statements in such SAI SEC Reports, in the light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements of SAI included in the SAI SEC Reports (the "SAI Financial
Statements") complied when filed as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, and were, when filed, in accordance with the
books and records of SAI, complete and accurate in all material respects, and
presented fairly the consolidated financial position and the consolidated
results of operations, changes in Shareholders' equity and cash flows of SAI and
its Subsidiaries as of the dates and for the periods indicated, in accordance
with generally accepted accounting principles, consistently applied, subject in
the case of interim financial statements to normal year-end adjustments and the
absence of certain footnote information.
4.6 Litigation, etc. Except as previously disclosed to the Selling
Shareholders or included in the SAI SEC Reports, there are no actions, suits,
proceedings or investigations pending or, to SAI's Knowledge, threatened against
SAI before any court, arbitration panel or governmental agency (nor, to SAI's
Knowledge, is there any reasonable basis therefor) which were not incurred in
the ordinary course and would have a material adverse effect on SAI, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding, that
in any such case seeks to enjoin or challenge the transactions contemplated
hereby.
4.7 Disclosure. The representations and warranties made by SAI herein, and
all statements made in any exhibit, schedule or certificate furnished by SAI
pursuant to this Agreement, do not contain, and at the Closing Date will not
contain, any untrue statement
<PAGE> 37
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 5
COVENANTS OF THE SELLING SHAREHOLDERS
5.1 Maintenance of Business. From the date hereof until the Closing, the
Selling Shareholders shall cause the Company and its Subsidiaries to carry on
and preserve the business, goodwill and the relationships of the Company, its
Subsidiaries and the Monitoring Business and any other business conducted by the
Company or its Subsidiaries with Dealers, Subscribers, suppliers, employees,
agents and others in substantially the same manner as they have been prior to
the date hereof. The Company will provide SAI with prior notice prior to making
any changes to employee compensation or benefits.
5.2 Absence of Certain Changes. From the date hereof until the Closing,
except for the Monital Retail Account Transactions, the transfer of the
Distributed Business Items or as otherwise expressly permitted or contemplated
hereby, the Selling Shareholders shall not cause or permit the Company and its
Subsidiaries to, and neither the Company nor any of its Subsidiaries shall,
without SAI's prior express written consent:
(a) incur any additional indebtedness for money borrowed, or guarantee
any indebtedness or obligation of any other party other than the
incurrence of working capital indebtedness and 8x program debt in
the ordinary course of business;
(b) pay any dividends or make any distributions to its shareholders
(other than distributions permitted pursuant to Section 5.11) with
respect to its capital stock;
(c) issue any capital stock or securities convertible into capital
stock or grant or issue any options, warrants or rights to
subscribe for its capital stock or securities convertible into its
capital stock;
(d) enter into, amend or terminate any agreement or arrangement, other
than in the ordinary course of business and the Company shall
notify SAI prior to entering into, amending or terminating any
material agreement or arrangement even in the ordinary course of
business;
(e) increase the compensation payable or to become payable to any of
its officers, employees or agents, or adopt or amend any employee
benefit plan;
<PAGE> 38
(f) acquire or dispose of any properties or assets used in its
business except in the ordinary course of business;
(g) permit any change in its business or the manner in which its books
and records are maintained;
(h) create or suffer to be imposed any lien, mortgage, security
interest or other charge on or against its business, properties or
assets;
(i) acquire any new accounts other than pursuant to transactions
mutually consented to by SAI and the Company;
(j) engage in any activities or transactions outside the ordinary
course of its business as conducted at the date hereof; or
(k) agree or commit to any of the foregoing.
5.3 Necessary Consents. Prior to the Closing, the Selling Shareholders will
use their best efforts to 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 business and operations
of the Company and its Subsidiaries after the Closing, including but not limited
to, any consents required with respect to any Real Estate Leases or Equipment
Leases for continued use of such Facilities and Equipment following the Closing
on the terms set forth in such Real Estate Leases and Equipment Leases
(collectively, "Required Consents").
5.4 Access to Information. From the date hereof until the Closing, the
Company and the Selling Shareholders shall give SAI and its accountants, legal
counsel and other representatives full access, during normal business hours, to
all of the properties, books, contracts, commitments and records relating to the
business, Assets and Liabilities of the Company and its Subsidiaries, and will
furnish SAI, its accountants, legal counsel and other representatives during
such period all such information concerning their affairs as SAI may reasonably
request; provided, that any furnishing of such information or any investigation
by SAI shall not affect SAI's right to rely on the representations, warranties
and covenants made by the Selling Shareholders in this Agreement. SAI shall, to
the extent that it has actual Knowledge, based on its review of materials
received from the Company, of any misstatements or omissions in the Company's
disclosure schedules, use its best efforts to inform the Company of such
misstatements or omissions.
5.5 Certain Defaults; Litigation. The Selling Shareholders will give prompt
notice to SAI of:
(a) any default by the Company, its Subsidiaries or any other party,
subsequent to the date of this Agreement and prior to the Closing
under any instrument or agreement to which the Company or any
<PAGE> 39
of its Subsidiaries is a party or by which it is bound, which
default could, if not remedied, result in any Material Adverse
Effect on the Company, its Subsidiaries or the Monitoring Business
or other business conducted by the Company or its Subsidiaries or
which would render incorrect any representation or warranty made
herein, and
(b) any suit, action, proceeding or investigation instituted or
threatened against or affecting the Company, its Subsidiaries or
the Monitoring Business or other business conducted by the Company
and its Subsidiaries subsequent to the date of this Agreement and
prior to the Closing.
5.6 Assistance in Transition. From the date hereof until the Closing, the
Selling Shareholders shall provide, and cause the Company and it Subsidiaries to
provide, SAI all reasonable assistance in connection with the transition of
ownership and management of the Company and its Subsidiaries.
5.7 Other Negotiations. Except as expressly set forth in the Letter of
Intent, from the date hereof until the termination of this Agreement, the
Selling Shareholders and the Company will not, and will cause the Company's
officers and directors not to, initiate discussions or negotiate, or authorize
any Person to discuss or negotiate on behalf of the Selling Shareholders or the
Company, with any party other than SAI, or entertain or consider any inquiries
or proposals received from any party other than SAI, concerning the possible
disposition of all or any portion of the business, assets or capital stock of
the Company or its Subsidiaries.
5.8 Assistance in Compliance with Loan Covenants. The Company and the
Selling Shareholders will cooperate with in (i) SAI's negotiating of all of the
documentation to be entered into by the Company, the Shareholders, SAI, SAI's
lenders, and any other party in connection with obtaining financing for the
acquisition of the Shares, (ii) any actions required of SAI, the Company or the
Shareholders to comply with the covenants contained in any loan agreement with
SAI's lenders and (iii) closing the transactions contemplated thereby or by this
Agreement. Each Selling Shareholder 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 Shareholder will agree that SAI's lenders may enforce SAI's
remedies under this Agreement in the event of SAI's default under its loan
agreements with such lenders. In addition, the Selling Shareholders will use
their best efforts to 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 SAI's lenders.
5.9 Noncompetition and Nonsolicitation. The Selling Shareholders each
acknowledge that but for their agreement to be bound by the terms of this
Section 5.9, SAI would not consummate the transactions contemplated by this
Agreement. From the
<PAGE> 40
date hereof until the fifth (5th) anniversary of the Closing Date (unless
otherwise provided), each Selling Shareholder agrees that he will refer all
inquiries by current or former clients (as of the Closing) of the Company and
its Subsidiaries relating to the business of the Company and its Subsidiaries to
SAI, and that he will not, directly or indirectly:
(a) enter into competition with the Company or SAI, or their
respective 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,
SAI or their respective Subsidiaries provide such services;
(b) provide, or solicit any Dealer or Subscriber for the purposes of
providing, any services similar to those provided by the Company,
SAI or their respective Subsidiaries, either directly or through
any other Person.
(c) reveal the customer list of the Company or its Subsidiaries to any
Person;
(d) employ any employee of the Company, SAI or their respective
Subsidiaries or solicit or encourage any such employee to
terminate his or her employment with any of the foregoing (other
than employees who have worked primarily for the Transferred
Business Units and who accept employment with Morlyn on or prior
to Closing), at any time within one year after such employee's
termination of employment with the Company or SAI; or
(e) for so long as the Company and its Subsidiaries are engaged in the
Monitoring Business and its other businesses, take any other
action which is intended to, or which would reasonably be expected
to:
(i) adversely affect the Company's, SAI's or their respective
Subsidiaries' interest in any Contract;
(ii) adversely affect the Company's, SAI's or their respective
Subsidiaries' contractual relationship with any Dealer or
Subscriber; or
(iii) discourage any Dealer, Subscriber or supplier from
continuing its business relationship with the Company, SAI
or their respective Subsidiaries after the Closing on the
same terms as were maintained prior to the Closing.
<PAGE> 41
For purposes of this Section 5.9, the term "Selling Shareholder" shall also
include any corporation, partnership or other business entity in which a Selling
Shareholder now or in the future owns, directly or indirectly, a controlling
equity interest, and the parents, spouse, or children, of a Selling Shareholder,
or any entity in which any of them own, directly or indirectly, a controlling
interest. Notwithstanding any other provision of this Agreement, each Selling
Shareholder agrees that money damages would not be a sufficient remedy for
breach of this Section 5.9 and that SAI shall be entitled to specific
performance, injunctive relief or other equitable relief as a remedy for breach
of this Section 5.9; provided, however, that all such equitable remedies would
be in addition to all remedies available at law to SAI.
5.10 Confidentiality. From the date hereof until the Closing, the Selling
Shareholders will, and will cause the Company and its Subsidiaries and their
respective officers, directors and employees to, treat as strictly confidential
all Confidential Information concerning SAI, the Company and their respective
Subsidiaries that is not part of the public domain and shall not disclose any
such information to any third party. At all times after the Closing each of the
Selling Shareholders will treat and hold as confidential all Confidential
Information concerning SAI, the Company and their respective Subsidiaries,
refrain from using any of such Confidential Information (except, as applicable,
in direct furtherance of such Shareholder's duties on behalf of SAI, the Company
or their respective Subsidiaries (as directed by SAI)) and shall deliver
promptly to the SAI or the Company or destroy, at the request and option of SAI,
all tangible embodiments (and all copies) of Confidential Information concerning
SAI, the Company or their respective Subsidiaries which are in such
Shareholder's possession. In the event that any of the Selling Shareholders is
requested or required (by oral question or written request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information concerning
SAI, the Company or their respective Subsidiaries, such Shareholder will notify
SAI promptly of the request or requirement so that SAI may seek an appropriate
protective order or waive compliance with the provisions of this Section 5.10.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of the Selling Shareholders is, on the advice of counsel, compelled to
disclose any of such Confidential Information to any tribunal or else stand
liable for contempt, such Selling Shareholder may disclose such Confidential
Information to the tribunal; provided, however, that the disclosing Selling
Shareholder shall, upon the request of SAI or the Company and at their expense,
exert all reasonable efforts to obtain an order or other assurance that
confidential treatment will be accorded to such portion of the Company
Confidential Information required to be disclosed as the Company or SAI shall
reasonably designate.
5.11 Tax Returns. The Selling Shareholders agree to cause the Company and
its Subsidiaries to file for all tax periods prior to the Closing Date, all
Federal, state, and local income, property, and payroll tax returns. The Selling
Shareholders hereby agree to indemnify SAI pursuant to Article 10 hereof for any
costs incurred for any unpaid tax liabilities related to the Company or its
Subsidiaries arising from any state of facts existing prior to the Closing Date,
including, but not limited to, Federal, state, and local
<PAGE> 42
income taxes. With regard to the partial tax year ended on the Closing Date (the
"Stub Period"), the Selling Shareholders shall cause the Company's final
Subchapter S return for such period to be prepared and filed. The Company will
cause its Subsidiaries to prepare and file in a timely manner their final tax
return(s) for the Stub Period consistent with the basis for preparation
previously disclosed by Weil Gotshall. The Company will make a distribution to
the Selling Shareholders in an amount equal to their Federal and state tax
liability arising from the inclusion of the Company's income on their personal
Federal and state tax returns for such period as reflected on such tax returns
or as certified to SAI by the accountant preparing such returns to the extent
not previously distributed by the Company. The Selling Shareholders will
indemnify the Company for any tax liability of the Company or its Subsidiaries
for the Stub Period in excess of the amount shown on the final tax returns of
the Company and its Subsidiaries for the Stub Period.
5.12 Financial Statement Audits. If at any time SAI deems it necessary or
advisable to have an independent audit performed on the financial statements of
the Company or its Subsidiaries, (including, without limitation, in connection
with the Proxy Statement), the Selling Shareholders will fully cooperate with
SAI and the independent auditors in the performance of the audit. In furtherance
and not in limitation of the foregoing, the Selling Shareholders will cooperate
and provide all assistance reasonably requested by SAI's independent accountants
and the Company's independent accountants (including without limitation,
executing any and all customary management representation letters with respect
to the Company's financial statements) in connection with the preparation and
delivery to SAI of audited financial statements and for the Company as of and
for each of the fiscal years ended December 31, 2003.
5.13 Disclosure to State Taxing Authorities. The Selling Shareholders shall
make all necessary disclosures related to the exchange of the Shares in
connection with the Merger as are required under the applicable state laws, and
no amounts are required to be withheld from consideration to be received by the
Selling Shareholders in connection with the Merger pursuant to such laws.
5.14 Update Disclosure; Breaches. From and after the date of this Agreement
until the Closing, the Selling Shareholders shall promptly notify SAI, by
written update to the attachments hereto, of (i) the occurrence or
non-occurrence of any event which would be likely to cause any condition to its
obligations to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied, (ii) any fact, condition or occurrence which
would be likely to result in any of the representations or warranties of the
Selling Shareholders not being true and correct as of the Closing, or (iii) the
failure of the Selling Shareholders to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by the Company, its
Subsidiaries or the Selling Shareholders pursuant to this Agreement which would
be likely to result in any condition to the obligations of any Party to effect
the Merger and the other transactions contemplated by this Agreement not to be
satisfied. The delivery of any notice pursuant to this Section 5.14 shall not
cure any breach of any representation or
<PAGE> 43
warranty requiring disclosure of such matter prior to the date of this Agreement
or otherwise limit or affect the remedies available hereunder to SAI.
5.15 Waiver and Release. Subject to, and conditioned upon, the consummation
of the Merger, each Selling Shareholder, on behalf of himself and his heirs,
executors, administrators, successors and assigns (with respect to each Selling
Shareholder, the "Selling Shareholder Releasing Parties"), irrevocably and
unconditionally waives and releases any and all rights with respect to, and
releases, forever acquits and discharges each of the Company and its
Subsidiaries and their officers, employees, agents and other representatives,
and their respective heirs, executors, administrators, successors and assigns
(the "Company Released Parties"), with respect to, each and all claims, demands,
charges, complaints, obligations, causes of action, suits, liabilities,
indebtedness, sums of money, covenants, agreements, instruments, contracts
(written or oral, express or implied), controversies, promises, fees, expenses
(including attorneys' fees, costs and expenses), damages and judgments, at law
or in equity, in contract or tort, in federal, state or other judicial,
administrative, arbitration or other proceedings, of any nature whatsoever,
known or unknown, suspected or unsuspected, previously, now or hereafter
arising, in each case which arise out of, are based upon or are connected with
facts or events occurring or in existence on or prior to the Effective Time (the
"Company Released Claims"). Each Selling Shareholder further represents and
warrants that such Shareholder has not assigned or otherwise transferred any
right or interest in or to any of the Released Claims. This Section 5.15 shall
not apply to any of the following: (a) claims for salaries and benefits accrued
through the Closing under the express terms of the written benefit plans of the
Company or its Subsidiaries, or (b) claims for indemnification pursuant to
Section 10.1(b) herein.
5.16 Verbal Dealer Monitoring Arrangements. The Company and the Selling
Shareholders shall use their best efforts to replace all verbal Dealer or
Subscriber monitoring arrangements with written agreements reflecting such
arrangements prior to Closing.
5.17 Post-Closing Transfer of SAI Securities.
(a) The Selling Shareholders hereby acknowledge and agree that the SAI
Preferred or the SAI Common issued in connection with the Merger
may not be transferred except pursuant to (a) a registered
offering under the Securities Act (in which case all transfers
shall be made in accordance with all applicable provisions of the
Registration Agreement), (b) Rule 144 promulgated pursuant to the
Securities Act (or any similar rule or rules then in force) if
available, or (c) subject to the conditions specified in
subparagraph (b) below, any other legally available means of
transfer.
(b) In connection with the transfer of any SAI Preferred or SAI Common
issued in connection with the Merger (other than a
<PAGE> 44
transfer pursuant to a registered public offering), the holder
thereof shall deliver written notice to SAI describing in
reasonable detail the transfer or proposed transfer, together
with an opinion of securities counsel (with such opinion and
such counsel being satisfactory to SAI) to the effect that such
transfer of SAI Preferred or SAI Common may be effected without
registration of such SAI Preferred or SAI Common under the
Securities Act or any applicable state securities law. In
addition, if the holder of SAI Preferred delivers to SAI such
an opinion that concludes that no subsequent transfer of such
SAI Preferred or SAI Common will require registration under the
Securities Act or any applicable state securities law, SAI
shall promptly upon such contemplated transfer deliver new
certificates for such SAI Preferred or SAI Common which do not
bear the restrictive legend set forth in Section 3.21(a). If
SAI is not required to deliver new certificates for such SAI
Preferred or SAI Common not bearing such legends, the holder
thereof shall not transfer the same until the prospective
transferee has confirmed to SAI in writing its agreement to be
bound by the conditions contained in this Section.
ARTICLE 6
COVENANTS OF SAI
6.1 Necessary Consents. Prior to the Closing, SAI will use its best efforts
obtain such consents and take such other actions as may be necessary or
appropriate to allow the consummation of the Merger and the other transactions
contemplated hereby, including the approval of its shareholders.
6.2 Offer of Employment. SAI agrees that SAI, the Company or its
Subsidiaries will offer employment to each of the individuals listed on Schedule
6.2 at the annual salary rates set forth on Schedule 6.2. Each such employee
that accepts such an offer will be an employee at will.
6.3 Confidentiality. SAI agrees to abide by the confidentiality provisions
of the Letter of Intent; provided, however, that SAI, as a reporting company
under the Securities Exchange Act and as an issuer of securities under the
Securities Act, may make all disclosures concerning this Agreement, the Selling
Shareholders and the Company and its Subsidiaries as are required by Federal and
state securities laws, as determined by SAI and its counsel.
6.4 SAI Stockholders Meeting. SAI shall call a meeting of its stockholders
(the "SAI Stockholders Meeting"), to be held as promptly as practicable for the
purpose of voting, among other things, upon the Merger and the issuance of the
shares of SAI Preferred and SAI Common contemplated hereunder, SAI will, through
its Board of Directors recommend to its stockholders, as applicable, approval of
such matters and will
<PAGE> 45
coordinate and cooperate with respect to the timing of such meetings and shall
use its best efforts to hold such meeting on the same day and as soon as
practicable after the date hereof. As promptly as practicable after the
execution of this Agreement, but in any event on or prior to September 1, 2000,
SAI shall prepare and file with the SEC the Proxy Statement, shall use its best
efforts to cause the Proxy to become approved by the SEC as soon as after such
filing as practicable, and shall promptly furnish a copy of the Proxy Statement
to each of SAI's Stockholders.
6.5 Subject to, and conditioned upon, the consummation of the Merger, the
Company, its Subsidiaries and their respective successors and assign (the
"Company Releasing Parties"), irrevocably and unconditionally waives and
releases any and all rights with respect to, and releases, forever acquits and
discharges each of the Selling Shareholders and their respective heirs,
executors, administrators, successors and assigns ("Selling Shareholder Released
Parties"), with respect to, each and all claims, demands, charges, complaints,
obligations, causes of action, suits, liabilities, indebtedness, sums of money,
covenants, agreements, instruments, contracts (written or oral, express or
implied), controversies, promises, fees, expenses (including attorneys' fees,
costs and expenses), damages and judgments, at law or in equity, in contract or
tort, in federal, state or other judicial, administrative, arbitration or other
proceedings, of any nature whatsoever, known or unknown, suspected or
unsuspected, previously, now or hereafter arising, in each case which arise out
of, are based upon or are connected with facts or events occurring or in
existence on or prior to the Effective Time ("Selling Shareholder Released
Claims"). This Section 6.5 shall not apply to limit or diminish in any way the
Selling Shareholders' joint and several obligations under Article 10.
ARTICLE 7
SAI'S CONDITIONS FOR CLOSING
The obligations of SAI and King Acquisition to consummate the Merger and
the other transactions contemplated by this Agreement are subject to the
fulfillment, at or before the Escrow Closing and the Closing, of all the
following conditions, unless waived in writing by SAI:
7.1 Representations True. The representations and warranties of the Selling
Shareholders in this Agreement shall be true and correct when made and shall be
true and correct at the Escrow Closing and at the Closing as those made as of
the Escrow Closing and the Closing, respectively.
7.2 Covenants Performed. The Company and the Selling Shareholders shall
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.
7.3 No Violations; No Actions. As of the Escrow Closing and as of the
Closing, consummation of the transactions contemplated by this Agreement shall
not violate any order, decree or judgment of any court or governmental entity
and no action or proceeding shall have been instituted by any Person or
threatened by any governmental
<PAGE> 46
entity which, in either such case, in the reasonable judgment of SAI, has a
probability of resulting in an order judgment or decree restraining, prohibiting
or rendering unlawful the consummation of the Merger or the other transactions
contemplated by this Agreement.
7.4 Company RMR. As of the Escrow Closing and as of the Closing, the
Company's RMR shall not be less than $600,000.
7.5 Company Assets. As of the Escrow Closing and as of the Closing, the
Company will have a tax basis of at least (i) $18 million in depreciable and/or
amortizable assets for Federal income tax purposes, calculated in accordance
with GAAP, less (ii) the amount by which such assets have been depreciated
and/or amortized for Federal income tax purposes since January 1, 2000,
calculated in accordance with GAAP.
7.6 Closing Balance Sheet. The Company shall have delivered the Closing
Balance Sheet to SAI.
7.7 Monital Retail Account Transactions. In the event that the Monital
Acquisition is consummated prior to the Closing, the Monital Retail Account
Transactions shall have been consummated.
7.8 FCC Approvals. All required FCC approvals shall have been obtained.
7.9 Few Company Note. Mr. Few shall have forgiven the indebtedness
represented by the outstanding promissory note, dated January 9, 1998, from the
Company to him.
7.10 No Material Adverse Change. During the period commencing on the date
of execution of this Agreement to the Closing, there shall not have been any
material adverse change in the condition (financial or otherwise), liabilities,
business or prospects of the Company or any of its Subsidiaries.
7.11 Closing Balance Sheets. The Company shall have delivered to SAI the
Escrow Date Balance Sheet prior to the Escrow Closing and the Closing Date
Balance Sheet prior to the Closing.
7.12 Opinion of Counsel for the Selling Shareholders. SAI shall have
received opinions from counsel for the Selling Shareholders, in form and
substance satisfactory to SAI, dated as of the Escrow Closing Date and to be
dated as of the Closing Date, respectively, covering the subject matter
contained in Sections 3.1, 3.2, 3.3, 3.5, 3.6, 3.12, 3.15, 3.16, 3.17, 3.19,
3.20, 3.21, 3.25, 3.27 and 3.29.
7.13 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 SAI, and SAI
<PAGE> 47
shall have received all such originals or certified or other copies of such
documents as it may reasonably request.
7.14 Employment Agreement. SAI, the Company or its Subsidiaries shall have
entered into a written employment agreement with Mr. Few, in the form attached
as Exhibit 7.14.
7.15 Delivery of Documents. SAI shall have received all documents and other
items to be delivered by the Selling Shareholders under Section 9.3 and 9.4.
7.16 Exhibits. The Selling Shareholders shall have completed and attached
hereto all Exhibits and Schedules required by this Agreement, and all such
Schedules shall have been acceptable to SAI, in its sole discretion.
7.17 Required Consents. As of the Closing Date, all corporate, 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 to the
transactions contemplated hereby and to the continued uninterrupted operation of
the business of the Company and its Subsidiaries shall have been obtained,
including, but not limited to, the Required Consents.
7.18 SV/SAI Transactions. In the event that the transactions contemplated
in the SV/SAI Agreement to be consummated at or prior to the consummation of the
transactions contemplated hereby shall not have been consummated, SAI's
obligation to close shall not be excused but may, at SAI's election, be delayed
for up to 120 days to the extent necessary to obtain financing to replace the
financial consideration to have been received by SAI as a result of the
consummation of the transactions contemplated in the SV/SAI Agreement.
7.19 Monital Acquisition Documents. If the Company and the other parties
thereto shall have executed the Monital Acquisition Documents prior to the
Escrow Closing Date, true, accurate and complete copies of the Monital
Acquisition Documents shall be attached hereto as Schedule 7.19.
7.20 Officer's and Other Certificates. The Selling Shareholders shall have
delivered to SAI the following:
(a) certificates of the each Selling Shareholder, dated as of the
Escrow Closing Date and to be dated as of the Closing Date,
respectively, stating that the conditions specified in Sections
7.1, 7.2, 7.3, 7.4, 7.5, 7.7, 7.8, 7.9, 7.10, 7.17 and 7.19 have
been fulfilled at or prior to the Escrow Closing and the Closing,
respectively;
<PAGE> 48
(b) certificates of the Company, executed on behalf of the Company by
its President, dated as of the Escrow Closing Date and to be dated
as of the Closing Date, respectively, stating that the conditions
specified in Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.7, 7.8, 7.9,
7.10, 7.17 and 7.19 have been fulfilled at or prior to the
Closing;
(c) certificates of the Company's Secretary, dated as of the Escrow
Closing Date and to be dated as of the Closing Date, respectively
certifying that: (x) that attached thereto are true, accurate and
complete copies of the Articles or Certificate of Incorporation
and By-laws of the Company and each of its Subsidiaries, and all
amendments thereto, and copies of the resolutions adopted by the
Board of Directors and Shareholders approving the Merger and other
transactions contemplated by this Agreement; and that (y) there
have been no amendments or modifications to the attached Articles
or Certificates of Incorporation since the date of such
certificate and that the attached resolutions are in full force
and effect on the date of such certificate and have not been
superceded or modified in any manner whatsoever; and
(d) incumbency certificates, in form and content, dated as of the
Closing Date, satisfactory in form and content to SAI and its
counsel.
7.21 SAI Stockholder Approval. The stockholders of SAI shall have approved
the Merger and the issuance of the SAI Preferred and SAI Common required
pursuant to this Agreement ("SAI Stockholder Approval").
7.22 Disclosure Schedules. The Company and the Selling Shareholders shall
have delivered to SAI all of the Schedules called for to be delivered by the
Company and/or the Selling Shareholders pursuant to this Agreement (including
without limitation, information concerning Monital for the period after the
closing of the Monital Acquisition and for the Company and its other
Subsidiaries for all other periods); and no fact, event, circumstance, contract
or condition disclosed in such Disclosure Schedules shall have or result, or
reasonably be expected to have or result, in a material adverse effect on the
financial condition, results or operations, business prospects or properties of
the Company or its Subsidiaries.
7.23 Disposal of Distributed Business Items. The Company shall have
completed the transfer of the Distributed Business Items to and Morlyn shall
have assumed the related liabilities of the Company and its Subsidiaries.
<PAGE> 49
ARTICLE 8
SELLING SHAREHOLDERS' CONDITIONS FOR CLOSING
The obligation of the Selling Shareholders to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or before the
Closing, of all the following conditions, unless waived in writing by a majority
in interest of the Selling Shareholders:
8.1 Representations True. The representations and warranties of SAI set
forth in Article 4 shall be true and correct when made and true and correct as
of the Closing as though made as of the Closing.
8.2 Covenants Performed. SAI shall have performed or complied with all of
the terms, covenants and conditions of this Agreement to be performed or
complied with by SAI at or before the Closing.
8.3 No Violations; No Actions. As of the Closing, 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 Shareholders, 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 Shareholders, 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 Shareholders shall have received all
documents and other items to be delivered by SAI under Section 9.3 and 9.5.
8.6 Required Consents. As of the Closing, 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; provided, however, that the
consents of the shareholders of SAI and King Acquisition shall not have been
obtained prior to the meeting of shareholders of SAI contemplated herein.
<PAGE> 50
ARTICLE 9
CLOSINGS
9.1 Time and Place. The Escrow Closing and the Closing, as the case may be,
shall each commence at the offices of SAI, or at any other place to which the
Parties shall mutually agree, at 10:00 a.m. on the Escrow Closing Date or the
Closing Date, as the case may be, or such other times, dates or places as the
Parties may mutually agree upon in writing. All actions to be taken, and all
documents and instruments to be delivered, at the Escrow Closing or the Closing,
as the case may be, shall be deemed to have been taken or delivered, as the case
may be, simultaneously. SAI shall file the Proxy Statement with the SEC by no
later than September 1, 2000, unless the delay shall have been the result of a
breach or delay on the part of the Company or SV or the Selling Shareholders.
9.2 Escrow Closing. At or prior to the Escrow Closing, the Parties and the
Escrow Agent shall enter into an escrow agreement (the "Escrow Agreement")
which, in form and substance, shall be reasonably (x) consistent with the terms
and of this Agreement, and (y) satisfactory to the Parties. Pursuant to the
terms and conditions of the Escrow Agreement, on the Escrow Closing Date, the
parties shall execute and deliver to the Escrow Agent all documents and
instruments required to be executed and delivered, and take such other actions
as may be required by this Agreement to be taken, in connection with the Escrow
Closing; and the transactions contemplated hereby shall be considered tendered
in escrow (the "Escrow Closing"). From and after the Escrow Closing until the
Closing, (i) the parties shall continue to comply with their respective
covenants under this Agreement, including without limitation, those in Articles
5 and 6, and (ii) the Closing shall take place on the Closing Date upon the
terms and conditions set forth herein and in the Escrow Agreement.
9.3 Actions to be taken in connection with the Closing. At the Closing, on
the Closing Date, upon the unanimous direction of the parties thereto to be
given upon satisfaction of the conditions to Closing set forth in Articles 7 and
8:
(a) SAI shall deliver to the Selling Shareholders a certificate,
dated the Closing Date, in form and substance satisfactory to the
Selling Shareholders and their counsel, confirming that the
shareholders of SAI and SAI, as the sole shareholder of King
Acquisition, have approved Merger and transactions contemplated
hereby;
(b) the Selling Shareholders shall deliver to SAI the corporate
records of the Company and its Subsidiaries relating to the
Monitoring Business and other business conducted by the Company
and its Subsidiaries; and
(c) the applicable Parties (or the Escrow Agent, as applicable)
shall,: (i) file or cause to be filed the appropriate
Certificates of Merger with the Secretary of State of the states
of New Jersey and
<PAGE> 51
Delaware; (ii) deliver to SAI the items called for by Section 9.4; and
(iii) make the payments to the Selling Shareholders referred to in
Section 9.5(a) and deliver to the Selling Shareholders the other items
called for by Section 9.5.
9.4 Deliveries of the Selling Shareholders. At or prior to the Closing, the
Selling Shareholders will execute and deliver or cause to be executed and
delivered, simultaneously with the execution and delivery of the items referred
to in Section 9.5 below, the following:
(a) Stock Certificates. Certificates representing the Company
Shares endorsed in blank over to SAI or accompanied by duly
executed stock powers endorsed in blank;
(b) Corporate Documents. The Articles or Certificate of
Incorporation of the Company and each of its Subsidiaries,
certified by the Secretary of State of their respective
state(s) of incorporation, as of a date not more than ten
days prior to the Closing Date, and the By-Laws of the
Company and each of its Subsidiaries, 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, dated not more than ten days prior to the
Closing Date, with respect to the Company, issued by the
Secretary of State of the state of New Jersey and
Certificates of Good Standing, dated not more than ten days
prior to the Closing Date, issued by the Secretary of State
of each foreign jurisdiction in which the Company or any of
its Subsidiaries is qualified to do business;
(d) Consents. Evidence that all consents, approvals, or
authorizations of or notifications to any third parties
(including governmental agencies), if any, required to
exchange the Shares in connection with the Merger and to
consummate the Merger and the other transactions
contemplated hereby and to continue to operate the business
of the Company and its Subsidiaries without interruption
have been obtained, including without limitation, any
revenue notices required by the state of New Jersey with any
corresponding taxes due paid by the Selling Shareholders,
and the consent the lessors under the Real Estate Leases and
the Equipment Leases for the continued use of any leased
Equipment and the Facilities following the Closing on the
terms contained in the respective leases.
(e) Opinion of Counsel. The opinion of counsel referred to in
Section 7.12 of this Agreement;
<PAGE> 52
(f) Certificates. The certificates referred to in Section 7.20
of this Agreement;
(g) Collateral Assignment of Leases. The Collateral Assignment
of Leases for each of the Company's Leases and Equipment
Leases in form and content reasonably satisfactory to SAI
and the Selling Shareholders;
(h) Employment Agreement. Executed employment agreement (s)
between the SAI or the Company and the individual (s)
referred to Section 7.14;
(i) Evidence of Release of Liens. Evidence, in form and
substance satisfactory to SAI, that all liens, charges and
encumbrances on the Shares, the Company and its properties
(other than Liens on the property of the Company or its
Subsidiaries incurred in the ordinary course of their
respective businesses) have been fully released prior to the
Closing, or will be released concurrently with the Closing;
(j) Resignations. The written resignations of each director and
officer of the Company and each of its Subsidiaries,
effective as of the Closing;
(k) Signature Cards. Substitute signature cards for all of the
bank accounts of the Company and each of its Subsidiaries
naming persons designated by SAI as the new signatories for
said bank accounts;
(l) Credit Cards. All corporate credit cards of the Company and
its Subsidiaries; and
(m) Other Documents. Such other documents and instruments as SAI
or its counsel reasonably shall deem necessary to consummate
the transactions contemplated hereby.
9.5 Deliveries of SAI. At the Closing, SAI will execute and deliver or
cause to be executed and delivered, simultaneously with the delivery of the
items referred to in Section 9.4 above, the following:
(a) Payment of Cash Consideration. SAI shall pay the cash
consideration to be paid pursuant to Article 2 in connection
with the Merger to the Selling Shareholders at the Closing
by bank wire transfer;
<PAGE> 53
(b) Delivery of SAI Preferred and SAI Common. SAI shall deliver
a certificate or certificates representing the shares of SAI
Preferred or SAI Common to which each equity holder of the
Company is entitled in connection with the Merger for
delivery pursuant to Article 2;
(c) Resolutions. A copy of the resolutions of the Board of
Directors and Stockholders of SAI and the Board of Directors
and SAI, as the sole shareholder of King Acquisition,
certified by SAI's Secretary as having been duly and validly
adopted and being in full force and effect, authorizing
execution and delivery of this Agreement, the consummation
of the Merger and the performance of the transactions
contemplated hereby by SAI and SAI, respectively, subject to
SAI Stockholder Approval;
(d) Corporate Documents. The Certificate of Incorporation of SAI
and the Certificate of Incorporation of King Acquisition,
certified by the Secretary of State of the state's of
Delaware and New Jersey, respectively, as of a date not more
than ten days prior to the Closing Date, and the By-Laws of
SAI and King Acquisition, certified by the secretary of SAI
as in effect at the Closing;
(e) Certificate of Good Standing. Certificates of Good Standing,
dated not more than ten days prior to the Closing Date, with
respect to SAI and King Acquisition, issued by the Secretary
of State of the states of Delaware and New Jersey;
(f) Officer's Certificate. Certificates, dated as of the Escrow
Closing Date and the Closing Date, respectively, from an
officer of SAI, confirming the satisfaction of the
conditions required pursuant to Sections 8.1 and 8.2 as of
the Escrow Closing and the Closing, respectively; and
(g) Other Documents. Such other documents and instruments as the
Selling Shareholders or their counsel reasonably shall deem
necessary to consummate the transactions contemplated
hereby.
All actions and proceedings hereunder and all documents and other papers
required to be delivered by SAI or King Acquisition hereunder or in connection
with the consummation of the Merger and the other transactions contemplated
hereby and all other related matters shall have been approved by, and, in the
case of such documents and papers, shall be in form and substance reasonably
satisfactory to, the Company, the Selling Shareholders and their respective
counsel.
<PAGE> 54
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification.
(a) Subject to Section 10.1(d), the Selling Shareholders, jointly and
severally, will indemnify and hold harmless SAI, its Subsidiaries
and their respective successors, affiliates and assignees and their
respective shareholders, officers, directors, employees and agents
("SAI Indemnified Parties") against any losses, claims, damages or
liabilities, including, without limitation, reasonable attorneys'
fees and other reasonable defense costs, in each case, to the
extent not covered by insurance (hereafter "Losses"), to which any
SAI Indemnified Party becomes subject in connection with the
following; provided, however, that, in the event that the Merger is
not consummated as provided herein, the Company and the Selling
Shareholders, jointly and severally, shall be responsible for the
indemnification obligations of the Selling Shareholders contained
in Section 10.1(a); and provided further, that in the event that
the Merger is not consummated as provided herein, the Selling
Shareholders shall be responsible for the indemnification
obligations contained in Section 101.(a) only if such Selling
Shareholders caused the Company to take, or to fail to take, any
action or failure to act giving rise to the claim for
indemnification thereunder:
(i) finders' fees or brokerage commissions incurred or alleged
to have been incurred by the Selling Shareholders with
respect to the transactions contemplated by this Agreement;
(ii) any liability of the Company or its Subsidiaries not
disclosed in writing prior to the Escrow Closing (other than
liabilities of a similar type as those disclosed which arise
thereafter prior to the Closing in the ordinary course of
business to the extent expressly permitted by the terms of
this Agreement);
(iii) any misrepresentation of fact, or failure to disclose a
material fact, by the Selling Shareholders;
(iv) any breach of any representation or warranty by the Selling
Shareholders contained in this Agreement or in any document
delivered hereunder;
<PAGE> 55
(v) 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) or otherwise
arising out of the business conducted by the Company or its
Subsidiaries which occurred prior to the Closing;
(vi) any breach of any covenant or agreement by the Company or
the Selling Shareholders contained herein or in any document
delivered hereunder, to be performed prior to or after the
Closing;
(vii) the failure to obtain any Required Consent; or
(viii) any other liability or expense resulting from a dispute or
cause of action relating to the business of the Company or
its Subsidiaries, arising from an event, act, or omission
occurring before the Closing or related to the enforcement
of the indemnification provisions of this Agreement.
(b) SAI will indemnify and hold harmless the Selling Shareholders, their
heirs, successors, affiliates, assigns ("Selling Shareholder
Indemnified Parties") against any Loss to which any Selling
Shareholder Indemnified Party becomes subject in connection with:
(i) finders' fees or brokerage commissions incurred or alleged to
have been incurred by SAI with respect to the purchase
transaction;
(ii) any misrepresentation of fact, or failure to disclose a
material fact, by SAI;
(iii) any breach of any representation or warranty by SAI
contained herein or in any document delivered hereunder;
(iv) any breach of any covenant or agreement by SAI contained
herein or in any document delivered hereunder, to be
performed prior to or after the Closing Date; or
(v) any liability or expense resulting from a dispute or cause of
action relating to the Company or its Subsidiaries, arising
from an event, act or omission occurring after the Closing.
<PAGE> 56
(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 10.1(b) or enforcement of the indemnification provisions
of this Agreement.
(d) The obligation of the Selling Shareholders to indemnify SAI under
Section 10.1(a) shall be subject to the following:
(i) The Selling Shareholders will be obligated to indemnify SAI from
and against any Losses (other than Losses under Section
10.1(a)(vii)) only after SAI shall have suffered aggregate Losses
in excess of $50,000, at which point the Selling Shareholders
will be obligated to indemnify SAI from and against all Losses
relating back to the first dollar; and
(ii) The Selling Shareholders will be obligated to indemnify SAI from
and against any Losses under Section 10.1(a)(vii) only after SAI
shall have suffered aggregate Losses under such Section in excess
of $50,000 (with respect to any particular Required Consent), or
$150,000 (with respect to all Required Consents in the
aggregate), at which point the Selling Shareholders will be
obligated to indemnify SAI from and against all such Losses in
excess of such amounts; and
(iii) The Selling Shareholders shall be obligated to indemnify SAI
from and against any Losses arising out of the breach of any of
the representations and warranties made by the Selling
Shareholders only to the extent that SAI makes a written claim
within the applicable survival period (as specified in Section
12.1) with respect to the breach which gives rise to such Losses.
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
<PAGE> 57
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 (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 the Indemnitor's 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
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
<PAGE> 58
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.
ARTICLE 11
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by written notice by the terminating Party to the other Parties,
whether before or after approval of the matters presented in connection with the
Merger by the Selling Shareholders of the Company, as follows:
(a) by mutual written consent of SAI and the Company; or
(b) by either SAI or the Company, if the Merger shall not have been
consummated by December 29, 2000 (provided, however, that the
right to terminate this Agreement under this Section 11.1(b)
shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date, and
provided further, that this Agreement may be extended up to 45
days by either Party by written notice to the other Party if the
Merger would have been consummated but for the absence of one or
more required Approvals or third-party consents, and such
Approval (s) or consent(s) can reasonably be expected to be
obtained within such 45 day period); or
(c) by either SAI or the Company if a court of competent jurisdiction
or other governmental entity shall have issued a final order,
decree or ruling, or taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the
Merger, and all appeals with respect to such order or action have
been exhausted or the time for appeal of such order, decree,
ruling or action shall have expired;
(d) by SAI, if a material breach of any representation, warranty,
covenant or agreement on the part of the Selling Shareholders set
<PAGE> 59
forth in this Agreement shall have occurred which would cause the
conditions set forth in Article 7 not to be satisfied, and, that
with respect to any breach of a covenant or agreement hereunder,
such covenant or agreement is incapable of being cured or, if
capable of being cured, shall not have been cured within ten (10)
business days following receipt by the Company of written notice
of such breach from SAI;
(e) by the Company, if a material breach of any representation,
warranty, covenant or agreement on the part of SAI set forth in
this Agreement shall have occurred which would cause the
conditions set forth in Article 8 not to be satisfied, and, with
respect to any breach of a covenant or agreement hereunder, such
covenant or agreement is incapable of being cured or, if capable
of being cured, shall not have been cured within ten (10)
business days following receipt by SAI of written notice of such
breach from the Company; or
(f) by the Company, if the Proxy Statement has not been filed by SAI
on or prior to September 1, 2000.
11.2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 11.1, there shall be no Liability or obligation on the part
of SAI, the Company, or their respective officers, directors, shareholders or
affiliates, except as provided in Article 10, and further except for the
liability of any Party then in breach of any of its representations, warranties,
covenants or agreements in this Agreement; and provided, that the provisions of
Sections 5.9, 5.10 and 6.3, Article 10 and this Section 11.2 shall remain in
full force and effect and survive any termination of this Agreement.
<PAGE> 60
ARTICLE 12
MISCELLANEOUS
12.1 Survival. The 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 and any investigation made at any time by or on behalf of a
party. The representations and warranties set forth in this Agreement shall
survive the Closing until the fourth anniversary of the Closing, except for
representations and warranties relating to taxes, title to stock and
environmental matters and claims of the nature covered by the insurance carried
by the Company and its Subsidiaries, which shall survive until the expiration of
the applicable statute of limitation of the particular matter, and except claims
for fraudulent breach, which shall have no expiration period.
12.2 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.
12.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW JERSEY
WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. THE SELLING
SHAREHOLDERS AGREE THAT THEY WILL NOT ASSERT ANY CLAIM AGAINST ANY OFFICER,
DIRECTOR, EMPLOYEE OR AGENT OF SAI OR ANY OF ITS AFFILIATES, PURSUANT TO ANY
CLAIM THEY MAY HAVE UNDER THIS AGREEMENT BY REASON OF ANY FAILURE OR ALLEGED
FAILURE BY SAI TO MEET ITS OBLIGATIONS HEREUNDER. THE PARTIES HERETO AGREE AND
INTEND THAT 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, TO THE SELLING SHAREHOLDERS 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 OF SAI TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW. IN THE
<PAGE> 61
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.
12.4 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.
12.5 Each Party to Bear Own Costs. The Selling Shareholders and SAI 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.
12.6 Entire Agreement; Amendment. This Agreement, its Schedules, the Escrow
Agreement and the other documents delivered to be delivered pursuant to this
Agreement 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.
Accordingly, this agreement supercedes, among other things, the SAI/King LOI and
all provisions of the Letter of Intent or the SV/SAI Agreement relating to the
consummation of the acquisition of the Company by SAI which are covered by the
terms of this Agreement. 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.
12.7 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 SAI or King Acquisition at: Security Associates International, Inc.
2101 South Arlington Heights Road
Arlington Heights, Illinois 60005-4142
ATTN: PRESIDENT
To KC ACQUISITION CORP. at: KC Acquisition Corp.
P.O. Box 1943
South Hackensack, NJ 07606-0543
<PAGE> 62
To Mr. Thomas J. Few Sr. at: Mr. Thomas J. Few Sr.
c/o King Acquisition Corp.
325 South River Street
Hackensack, NJ 07601
To Mr. Timothy M. McGinn at: Mr. Timothy M. McGinn
c/o McGinn Smith
99 Pine Street
Albany, N.Y. 12207
To Mr. David L. Smith at: Mr. David L. Smith
c/o McGinn Smith
99 Pine Street
Albany, N.Y. 12207
Any party may change its address for purposes of this Section 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. 12.8 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.
12.9 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.
12.10 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
<PAGE> 63
that no such severability shall be effective if it materially changes the
economic benefit of this Agreement to any party.
12.11 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.
12.12 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.
*****
<PAGE> 64
The foregoing Agreement is hereby executed as of the date first above
written.
SECURITY ASSOCIATES
INTERNATIONAL, INC.
By:_____________________________________
James S. Brannen, its President
KING ACQUISITION CORP.
By:_____________________________________
Title:__________________________________
KC ACQUISITION CORP.
By:_____________________________________
Title:__________________________________
SELLING SHAREHOLDERS
________________________________________
Thomas J. Few, Sr.
________________________________________
Timothy M. McGinn
________________________________________
David L. Smith
