<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Quarterly Period Ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Transition Period From to .
Commission file number 0-25552
DUALSTAR TECHNOLOGIES CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3776834
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PARK AVENUE, NEW YORK, NY 10016
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(Address, including zip code of principal executive offices)
(718) 340-6655
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(Registrant's telephone number, including area code)
NOT APPLICABLE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE -- 15,701,571 SHARES AS OF MAY 9, 2000
- --------------------------------------------------------------------------------
<PAGE>
INDEX
DUALSTAR TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
PAGE NUMBER
-----------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 2000 and June 30, 1999 2
Condensed consolidated statements of operations - Three and nine months ended
March 31, 2000 and 1999 4
Condensed consolidated statements of cash flows - Nine months ended March 31,
2000 and 1999 5
Notes to condensed consolidated financial statements (unaudited) - March 31,
2000 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Financial Statements of ParaComm, Inc. - December 31, 1999 (Audited) F-2
Signatures S-1
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
-------------------- --------------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $16,478,080 $ 110,003
Accounts receivable, net 1,414,344 1,156,312
Deferred tax asset - current 178,000 178,000
Prepaid expenses and sundry receivable 387,880 244,744
Net assets of discontinued operations 10,964,832 5,882,529
-------------------- --------------------
TOTAL CURRENT ASSETS 29,423,136 7,571,588
PROPERTY AND EQUIPMENT, NET 2,417,769 2,416,334
OTHER ASSETS:
Deferred tax asset - long-term 1,574,000 1,574,000
Other 1,616,171 1,570,486
==================== ====================
TOTAL ASSETS $35,031,076 $13,132,408
==================== ====================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
-------------------- --------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,124,952 $ 1,314,780
Promissory note payable 7,000,000 -
Subordinated note payable - 1,000,000
Accrued expenses and other liabilities 684,259 697,963
-------------------- --------------------
TOTAL CURRENT LIABILITIES 8,809,211 3,012,743
Mortgage payable - long-term 1,728,269 723,750
Other liabilities 124,916 206,498
Subordinated convertible note - 2,500,000
-------------------- --------------------
TOTAL LIABILITIES 10,662,396 6,442,991
-------------------- --------------------
CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 157,016 90,000
Additional paid-in capital 41,038,308 14,995,836
Accumulated deficit (14,637,394) (8,396,419)
Deferred compensation (2,189,250) -
-------------------- --------------------
TOTAL SHAREHOLDERS' EQUITY 24,368,680 6,689,417
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $35,031,076 $13,132,408
==================== ====================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE NINE MONTHS ENDED MARCH 31,
------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues .................................... $ 845,446 $ 1,487,608 $ 3,689,423 $ 4,848,730
Cost of revenues ............................ 1,114,468 1,166,664 3,547,723 3,571,805
------------ ------------ ------------ ------------
Gross (loss) profit ......................... (269,022) 320,944 141,700 1,276,925
General and administrative expenses ......... 2,462,930 604,325 4,469,965 1,900,815
------------ ------------ ------------ ------------
Loss from continuing operations before income
taxes ..................................... (2,731,952) (283,381) (4,328,265) (623,890)
Provision for income taxes .................. 40,000 -- 40,000 --
------------ ------------ ------------ ------------
Loss from continuing operations ............. (2,771,952) (283,381) (4,368,265) (623,890)
Income (loss) from discontinued operations .. 56,517 1,363,342 (1,872,710) 1,472,023
------------ ------------ ------------ ------------
Net (loss) income ........................... $ (2,715,435) $ 1,079,961 $ (6,240,975) $ 848,133
============ ============ ============ ============
Basic and diluted (loss) income per share:
Continuing operations ..................... $ (0.20) $ (0.03) $ (0.38) $ (0.07)
Discontinued operations ................... 0.00 0.15 (0.16) 0.16
------------ ------------ ------------ ------------
Total ..................................... $ (0.20) $ 0.12 $ (0.54) $ 0.09
============ ============ ============ ============
Weighted average shares outstanding ........ 13,246,285 9,000,000 11,609,429 9,000,000
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH USED IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS ...... $ (3,815,678) $ (1,222,630)
------------ ------------
CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS .... (6,726,183) (1,925,505)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ...................... (633,113) (250,989)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ........................... (633,113) (250,989)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of class A warrants and underwriter purchase option 20,352,285 --
(Repayment of) Proceeds from subordinated note payable ..... (1,000,000) 1,000,000
Proceeds from promissory note .............................. 7,000,000 --
Proceeds from subordinated convertible note ................ -- 2,500,000
Principal payments on capital lease obligations ............ (77,435) (118,703)
Proceeds from refinancing of mortgage loan ................. 996,250 --
Principal payments on mortgage loan ........................ (21,731) (37,500)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................... 27,249,369 3,343,797
------------ ------------
NET INCREASE (DECREASE) IN CASH ................................. 16,074,395 (55,327)
CASH - BEGINNING OF PERIOD ...................................... 583,995 1,356,228
------------ ------------
CASH - END OF PERIOD ............................................ $ 16,658,390 $ 1,300,901
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
NON-CASH TRANSACTIONS:
(1) In July 1999, Technology Investors Group, LLC ("TIG") converted its $2.5
million convertible note and a portion of unpaid interest into 1,791,000 shares
of the Company's common stock at the conversion price of $1.40 per share. In
addition, the Company issued a promissory note in the amount of $120,000
representing the remaining indebtedness to TIG. In connection with the
conversion, the Company incurred costs of approximately $41,000 which has been
charged to additional paid-in capital. Accordingly, the Company's common stock
(in par value) was increased by $17,910 and additional paid-in capital was
increased by $2,455,418.
(2) In November 1999, the Company refinanced its mortgage loan and increased the
loan balance to $1,750,000. The unpaid balance of $754,044 of the original
mortgage loan was paid off from the proceeds of the refinancing.
(3) In March 2000, options to purchase 975,000 shares of the Company's common
stock were granted to employees with an exercise price lower than the closing
price of the Company stock. One-third of the options vested at the date of the
grants and the remaining two-thirds shall vest ratably on a monthly basis
beginning on the last day of each of the 24 calendar months following March
2001. As a result of the grants, a compensation charge of $3,283,875 was
incurred, of which $1,094,625, or one-third, was recognized in the current
period. Accordingly, additional paid-in capital was increased by $3,283,875,
deferred compensation was increased by $2,189,250, and general and
administrative expenses were increased by $1,094,625.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 2000. For further information,
refer to the financial statements and footnotes thereto included in DualStar
Technologies Corporation and Subsidiaries' Annual Report on Form 10-K for the
fiscal year ended June 30, 1999.
NOTE B - NET LOSS PER SHARE
The computation of basic net (loss) income per share is based on the weighted
average number of shares of common stock outstanding. For diluted net income
(loss) per share, when dilutive, stock options and warrants are included as
share equivalents using the treasury stock method.
The weighted average number of shares and loss per share for continuing
operations for the three and nine months presented is as follows:
<TABLE>
<CAPTION>
INCOME (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------------- -------------------- ---------------
<S> <C> <C> <C>
Three Months Ended March 31, 2000:
BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $(2,771,952) 13,246,285 $ (0.20)
Three Months Ended March 31, 1999:
BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $ (283,381) 9,000,000 $ (0.03)
Nine Months Ended March 31, 2000:
BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $(4,368,265) 11,609,429 $ (0.38)
Nine Months Ended March 31, 1999:
BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $ (623,890) 9,000,000 $ (0.07)
</TABLE>
7
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE C - SUBORDINATED CONVERTIBLE NOTE
In November 1998, the Company sold to TIG a subordinated convertible note in the
principal amount of $2.5 million, due and payable on May 25, 2001. The note had
an interest rate of 7.5% per annum and was payable semi-annually at the option
of the Company. Interest that was not paid was added to the principal. In the
event of default, TIG had the right to declare the principal and unpaid interest
immediately due and payable, and the outstanding amount would have had an
interest rate of 12.5% per annum thereafter.
The note was subordinated to the first mortgage on the Company's building and to
the rights of financial lenders and sureties of the Company.
During the term of the note, TIG had an option to convert the note into
fully-paid and nonassessable shares of the Company's common stock. The number of
shares to be issued upon the conversion was not to exceed 1,791,000 shares, or
19.9% of the Company's outstanding shares of common stock on November 25, 1998.
Initially, the conversion price was $1.40 per share and could have been reset on
the 180th day following closing and every 90 days thereafter. The reset
conversion price was to be calculated as the lower of: (i) the average closing
price of the Company's common stock on the 20 trading days immediately preceding
the reset date or (ii) the initial conversion price of $1.40 per share. The
number of shares received upon conversion would have been adjusted
proportionately for certain transactions, such as stock splits and stockholder
distributions.
If the number of shares issued upon the conversion multiplied by the conversion
price was less than the note principal and unpaid interest, the difference was
payable in cash or a one-year term note.
The Company also had the right to require the TIG to convert the note into
shares of the Company's common stock at the applicable conversion price in
effect on such date if, at anytime after the 181st day following closing, the
closing price of the Company's common stock, for 20 consecutive days, was $3.00
or more per share. On July 7, 1999, the Company required TIG to convert the note
into 1,791,000 shares of the Company's common stock at a conversion price of
$1.40 per share. In addition, the Company issued a promissory note in the amount
of $120,000 (the "TIG Stub Loan") representing the remaining indebtedness to
TIG. The TIG Stub Loan was repaid in full in December 1999.
8
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE C (CONTINUED)
In connection with the subordinated convertible note, the Company and certain
stockholders of the Company also agreed to the designation by TIG of one member
to the Company's Board of Directors. In February 1999, TIG's nominee, Lloyd I.
Miller, III, was elected to the Company's Board of Directors. On April 10, 2000,
Mr. Miller resigned as a member of the board of directors of the Company.
NOTE D - STOCK OPTION PLAN
The Company has implemented and maintains the DualStar Technologies Corporation
1994 Stock Option Plan, as amended (the "Plan"). During the nine months ended
March 31, 2000, the Company granted options to purchase an aggregate of
2,184,000 shares of Company common stock to certain employees and a departing
director of the Company, as follows:
(1) In August 1999, the Company's Board of Directors granted 829,000 additional
options to various employees and directors. In general, these options vest over
5 years and have an option exercise price of $4.00;
(2) In October 1999, options to purchase 300,000 shares of Company common stock
were granted to an employee, which options have an exercise price of $5.00 per
share, with one-third of the options vesting on January 1, 2000 and the
remaining two-thirds shall vest ratably on a monthly basis beginning on the last
day of each of the 24 calendar months following January 1, 2001;
(3) On January 10, 2000, options to purchase 30,000 shares of Company common
stock were granted to an employee, which options have an exercise price of $6.50
per share and vest in equal installments over a 5-year period;
(4) On February 18, 2000, options to purchase 25,000 shares of Company common
stock were granted to a departing director, which options have an exercise price
of $10.00 per share and vested immediately upon granting;
(5) On March 1, 2000, options to purchase 600,000 shares of Company common stock
were granted to an employee, which options have an exercise price of $7.06 per
share, with one-third of the options vesting on March 1, 2000 and the remaining
two-thirds shall vest ratably on a monthly basis beginning on the last day of
each of the 24 calendar months following March 1, 2001;
9
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE D (CONTINUED)
(6) On March 8, 2000, options to purchase 25,000 shares of Company common stock
were granted to an employee, which options have an exercise price of $10.25 per
share and vested immediately upon granting; and
(7) On March 10, 2000, options to purchase 375,000 shares of Company common
stock were granted to an employee, which options have an exercise price of $7.06
per share, with one-third of the options vesting on March 10, 2000 and the
remaining two-thirds shall vest ratably on a monthly basis beginning on the last
day of each of the 24 calendar months following March 10, 2001. Of the options
granted on March 10, 2000, options to purchase 357,500 shares of Company common
stock are subject to stockholder approval, as more fully described below.
Subsequent to the end of the quarter ended March 31, 2000, on May 1, 2000, the
Company granted options to purchase 175,000 shares of Company common stock to an
employee, which options have an exercise price of $7.06 per share, with
one-third of the options vesting on May 1, 2000 and the remaining two-thirds
shall vest ratably on a monthly basis beginning on the last day of each of the
24 calendar months following May 1, 2001. Additionally, on May 11, 2000, the
Company granted options to certain ParaComm employees to purchase an aggregate
of 250,000 shares of Company common stock in connection with the acquisition of
ParaComm, Inc. (Note L). These options have an exercise price of $7.06 per
share, and vest in three installments on the first, second and third anniversary
of the ParaComm acquisition. These options are subject to stockholder approval,
as more fully described in the following paragraph.
At March 31, 2000, there were options to purchase 3,857,500 shares of Company
common stock issued and outstanding under the Plan. The Plan provides for
3,500,000 shares of Company common stock to be reserved and available for
distribution as grants under the Plan. On February 18, 2000, subject to
stockholder approval, the Company's Board of Directors approved an amendment to
the Plan to increase the number of shares reserved and available for
distribution as awards under the Plan from 3,500,000 to 6,000,000. The Company
anticipates seeking such stockholder approval at the next annual meeting of its
stockholders. Options granted in excess of the number of shares of Company
common stock currently authorized by the Company's stockholders as being
reserved and available for distribution as awards under the Plan and identified
above are subject to such stockholder approval. To the extent that such
stockholder approval is not obtained, the Company has agreed to provide the
holders of such options with the same economic benefit as would have been
provided by the options.
10
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE D (CONTINUED)
Options granted on March 1 and 10, 2000 were granted with an exercise price
lower than the closing price of the Company stock, as reported by Nasdaq, on the
dates on which such options were granted. Accordingly, the financial statements
to which this note relate contain a compensation charge to reflect the below
market option grants in the amount of $3,283,875, of which $1,094,625 was
recognized in the three and nine months ended March 31, 2000.
NOTE E - SHORT TERM NOTES
On December 16, 1999, the Company sold a $7 million secured convertible
promissory note (the "Madeleine Bridge Loan") to Madeleine, L.L.C.
("Madeleine"), an affiliate of Cerberus Capital Management L.P. ("Cerberus") and
Blackacre Capital Management L.L.C. ("Blackacre"). The note has an interest rate
of 11% per annum and is due on May 31, 2000. The Madeleine Bridge Loan is
guaranteed by certain subsidiaries of the Company and secured by such
subsidiaries' assets and capital stock and the Company's assets. Contemporaneous
with the advance of the Madeleine Bridge Loan, TIG purchased from Blackacre a $2
million participation interest in such loan, which was subsequently resold to
Blackacre in March 2000. See Forms 8-K, dated December 3, 1999 and December 21,
1999.
On October 26, 1999, the Company's subsidiary, Centrifugal/Mechanical
Associates, Inc., ("CMA") sold a $1 million promissory note (the "TIG Bridge
Note") to TIG. The TIG Bridge Note had an interest rate of 10% per annum and was
due December 15, 1999. The loan was guaranteed by the Company and collateralized
by certain Company assets. The TIG Bridge Note was paid in full in December 1999
from the proceeds of the $7 million Madeleine Bridge Loan.
On October 26, 1999 the Company issued to TIG the TIG Stub Loan in the amount of
$120,000 representing the remaining indebtedness to TIG under a certain
convertible promissory note, dated November 25, 1998 in the original principal
amount of $2,500,000. The TIG Stub Loan had an interest rate of 10% per annum
and was due on December 15, 1999. The TIG Stub Loan was paid in full in December
1999 from the proceeds of the $7 million Madeleine Bridge Loan.
11
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE F - CONTINGENCIES
(1) On August 11, 1999, Triangle Sheet Metal Works, Inc. ("Triangle"), a
subcontractor of Centrifugal/Mechanical Associates, Inc. ("CMA"), a subsidiary
of the Company, filed a petition under Chapter 11 of Title 11 of the United
States Code in the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"). Triangle's Chapter 11 case was subsequently
converted to a case under Chapter 7 of the Bankruptcy Code and a Chapter 7
trustee was appointed to administer Triangle's estate. Triangle was a sheet
metal subcontractor for CMA on six projects in New York City (the "Subcontractor
Projects"). CMA was also the subcontractor of Triangle on one additional project
in New York City (the "Contractor Project"). Prior to Triangle's Chapter 11
filing, Triangle ceased operation and defaulted on its obligations under the
Subcontractor Projects and Contractor Project. In pleadings filed with the
Bankruptcy Court prior to the appointment of a Chapter 7 trustee, Triangle
alleged, among other things, that CMA is indebted to Triangle in an amount
ranging between $1,400,000 and $3,000,000. Triangle also suggested in such
pleadings that there may exist potential causes of action by Triangle against
the Company and/or CMA, including breach of contract, tortious interference and
unfair competition. Triangle did not commence any formal legal actions or
proceedings with respect to any of such allegations (other than seeking to
obtain discovery from CMA and DualStar). On or about January 18, 2000,
Triangle's Chapter 7 trustee made a written request on CMA stating that
Triangle's records reflected that CMA was indebted to Triangle in the aggregate
sum of $2,435,097 based upon work performed by Triangle on the Subcontractor
Projects. Triangle's Chapter 7 trustee stated CMA was not entitled, under
applicable law, to offset amounts owed to CMA on particular Subcontractor
Projects against amounts owed by CMA to Triangle on other Subcontractor
Projects. Triangle's Chapter 7 trustee stated its intention to institute legal
proceedings in the Bankruptcy Court against CMA and the owners of the
Subcontractor Projects to recover such funds. CMA and DualStar dispute
Triangle's and the Chapter 7 trustee's allegations and assertions and believe
that they are without merit. CMA has claims and counterclaims against Triangle
for breaches, defaults, completion costs and damages in respect of the
Subcontractor Projects and the Contractor Project. Although such claims and
counterclaims are not fully liquidated and cannot be fully ascertained at this
time, CMA believes that it is entitled setoff and/or recoup part of the damages
by offsetting any monies owed by CMA to Triangle. The Company can make no
assurances, however, that such offsets and recoupment will be either (a) allowed
and that CMA will prevail in any such litigation with Triangle's Chapter 7
trustee, or (b) sufficient to cover all of CMA's damages resulting from
Triangle's defaults under the Subcontractor Projects and Contractor Project.
Based upon currently available information, it appears that a significant
portion of CMA's claims against Triangle may not be recoverable after such
setoff and/or recoupment.
12
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE F (CONTINUED)
(2) High-Rise Electric, Inc., a wholly owned subsidiary of the Company, is a
defendant in two lawsuits filed in April 1999. The plaintiffs are seeking
$5,000,000 and $2,000,000, respectively, for claims related to bodily injuries
on job sites where High-Rise and other trades were working. Management of
High-Rise believes that the plaintiffs' claims are without merit and, in any
event, are covered under the Company's general and umbrella liability insurance
policies.
(3) On March 28, 2000, the Company entered into a Securities Purchase Agreement
with Blackacre and certain of its affiliates pursuant to which, subject to the
approval of the Company's stockholders, Blackacre would invest $46.2 million in
the Company through the purchase, at Blackacre's election, of either: (A) a $30
million ten-year convertible promissory note (the "Blackacre Note") bearing
interest at the rate of 3% per annum, convertible into shares of the Company's
common stock at a conversion price of $4.00 per share, and 4,050,000 shares of
the Company's common stock at a purchase price of $4.00 per share; or
(B)11,550,000 shares of the Company's common stock at a purchase price of $4.00
per share. See the Company's Form 8-K, filed on April 6, 2000.
In connection with its $46.2 million investment, Blackacre would enter into a
"strategic alliance" with the Company under which the Company would be granted
the right of first negotiation to acquire access rights to deliver voice, video,
data and related services to properties owned, controlled by, managed or
affiliated with Blackacre and/or its affiliates. If the $46.2 million Blackacre
investment is consummated, Blackacre will nominate a majority of the members of
the Company's Board of Directors. Additionally, as one of the conditions to the
Blackacre investment, and as an incentive to Messrs. Cuneo and Birnbach to
continue to serve as President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer, respectively, of the Company, Messrs.
Cuneo and Birnbach or an entity owned by them, will be issued Class C Warrants
to purchase an aggregate of 400,000 shares of the Company's common stock at
$6.50 per share, exercisable over a period of 7 years. Also in connection with
Blackacre's $46.2 million investment, as a form of "break-up" protection, the
Company issued 1,440,000 Class B Warrants to Blackacre and Cerberus under which
they would have the right, under certain terms and conditions, to purchase
shares of the Company's common stock at an exercise price of $6.1656 per share.
The Class B Warrants are exercisable only if the Company enters into a letter of
intent or an agreement for a Competing Transaction (as defined) with an entity
other than Cerberus or its affiliates within a specified period of time. In such
event, the Class B Warrants will become exercisable and, in addition, the
Company would have to pay Blackacre and Cerberus an amount in cash equal to the
number of shares of the Company's common stock issuable upon exercise of the
Class B Warrants multiplied by the difference between the warrants' exercise
price of $6.1656 and $4.861, approximately $1.88 million.
13
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE F (CONTINUED)
In addition, on March 28, 2000, the Company entered into a definitive agreement
with M/E Contracting Corp. ("M/E"), an affiliate of Blackacre, to sell to M/E,
subject to the approval of the Company's stockholders and the consummation of
the $46.2 million Blackacre investment, the Company's electrical contracting
subsidiary, High-Rise Electric, Inc., and the Company's heating, ventilation and
air conditioning ("HVAC") contracting subsidiaries, Centrifugal Associates, Inc.
and Mechanical Associates, Inc. The aggregate purchase price is $11 million,
consisting of $1 million in cash and a $10 million secured ten-year note bearing
interest at 10% per annum. The definitive agreements relating to the Blackacre
$46.2 million investment and the M/E sale transactions described above are
subject to customary and other closing conditions including, with respect to the
sale to M/E, M/E's right to terminate the transaction for any reason at any time
prior to closing. See the Company's Form 8-K, filed on April 6, 2000.
(4) Trident Mechanical Systems, Inc. ("TMS"), a wholly owned subsidiary of the
Company, is a defendant in a lawsuit filed in January 2000. The plaintiff is
seeking $30,000,000 for claims related to property damage on a job site where
TMS and other trades were working. The claim, as currently constituted, exceeds
the Company's general as well as umbrella liability policy limits in the
aggregate. However, management believes that TMS is not responsible for the
damage and, accordingly, no provision for loss in excess of the insurance
coverage has been made in the accompanying financial statements.
NOTE G - MORTGAGE PAYABLE
On November 22, 1999, the Company refinanced its mortgage loan, borrowing an
additional $996,000. The new mortgage loan will expire on December 1, 2004 and
can be renewed for an additional five years. The mortgage loan bears interest at
a fixed rate of 8.5% per annum. Interest during the renewal term will be paid at
a fixed rate per annum equal to the prime rate in effect on November 1, 2004.
Principal of the loan is amortized on a 25-year basis. As of March 31, 2000, the
mortgage balance was $1.73 million.
14
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE H - SEGMENT INFORMATION
Other than the HVAC and electrical contracting business segment, which is now
reported as discontinued operations (see Note J), the Company has the following
two reportable segments: automated temperature controls and telecommunications.
The automated temperature controls segment, which was previously included in the
construction segment, primarily installs automated temperature controls systems
to buildings in the New York Tri-State area. The telecommunications segment
primarily installs communication systems and provides telephone, Internet,
television and other services to buildings.
The accounting policies used to develop segment information correspond to those
disclosed in the Company's financial statements for the fiscal year ended June
30, 1999. The Company does not allocate certain corporate expenses to its
segments. Segment profit (loss) is based on profit (loss) from operations before
income taxes (benefits). The telecommunications segment loss for the three and
nine months ended March 31, 2000 includes the $1,094,625 charge for stock
options granted on March 1 and March 10, 2000 which were granted with an
exercise price lower than the closing price of the Company stock, as reported by
Nasdaq, on the dates on which such options were granted. Sales and transfers
between segments are accounted for at cost. The reportable segments are distinct
business units operating in different industries. They are separately managed,
with separate marketing systems.
<TABLE>
<CAPTION>
AUTOMATED
REPORTABLE SEGMENT INFORMATION TEMPERATURE CONTROLS TELECOMMUNICATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Revenues from external customers ........ $ 515,374 $ 330,072 $ 845,446
Intersegment revenues ................... -- 13,750 13,750
Segment profit (loss) ................... 71,038 (1,989,866) (1,918,828)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Revenues from external customers ........ $ 1,009,509 $ 478,099 $ 1,487,608
Intersegment revenues ................... -- 18,917 18,917
Segment profit (loss) ................... 173,018 (298,648) (125,630)
FOR THE NINE MONTHS ENDED MARCH 31, 2000
Revenues from external customers ........ $ 2,295,186 $ 1,394,237 $ 3,689,423
Intersegment revenues ................... -- 41,250 41,250
Segment profit (loss) ................... 230,485 (2,811,293) (2,580,808)
</TABLE>
15
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE H (CONTINUED)
<TABLE>
<CAPTION>
AUTOMATED
REPORTABLE SEGMENT INFORMATION TEMPERATURE CONTROLS TELECOMMUNICATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE NINE MONTHS ENDED MARCH 31, 1999
Revenues from external customers ....... $ 3,249,904 $ 1,598,826 $ 4,848,730
Intersegment revenues .................. -- $ 63,000 63,000
Segment profit (loss) .................. 458,544 (541,220) (82,676)
ASSETS
Total assets at March 31, 2000 ......... $ 1,461,107 $ 4,108,481 $ 5,569,588
Total assets at June 30, 1999 .......... 860,026 3,732,849 4,592,875
</TABLE>
RECONCILIATION TO CONSOLIDATED AMOUNTS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH FOR THE NINE MONTHS ENDED MARCH
31, 31,
---------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
LOSS
Total loss for reportable segments $ (1,918,828) $(125,630) $(2,580,808) $ (82,676)
Unallocated amounts:
Corporate (853,124) (157,751) (1,787,457) (541,214)
=====================================================================
Total consolidated loss from continuing operations $ (2,771,952) $ (283,381) $(4,368,265) $(623,890)
=====================================================================
</TABLE>
MARCH 31, 2000 JUNE 30, 1999
-----------------------------------
ASSETS
Total assets for reportable segments $ 5,569,588 $ 4,592,875
Unallocated amounts:
Corporate 18,497,656 2,657,004
Discontinued operations 10,964,832 5,882,529
-----------------------------------
Total consolidated assets $ 35,031,076 $ 13,132,408
===================================
16
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE I - STOCKHOLDERS' EQUITY
During January and February 2000, a total of 4,510,571 shares of the Company's
common stock were issued pursuant to exercises of the Company's Class A Warrants
which expired on February 14, 2000. The Class A Warrants entitled holders to
acquire one share of the Company's common stock at a purchase price of $4.00 per
share. In addition, 400,000 shares of the Company's common stock were issued
upon exercise of a purchase option previously granted to an underwriter in
connection with the Company's February 1995 initial public offering. The
aggregate proceeds to the Company from the exercise of the warrants and the
option were $20,352,285.
NOTE J - DISCONTINUED OPERATIONS
In connection the proposed sale of the Company's electrical and HVAC contracting
subsidiaries to M/E, the electrical and HVAC contracting operations are
reflected as discontinued operations for all periods presented. The operating
results of the discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE NINE MONTHS ENDED MARCH 31,
------------------------------------- --------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $18,030,865 $18,853,536 $59,317,939 $56,583,795
Net income (loss) 56,517 1,363,342 (1,872,710) 1,472,023
</TABLE>
Net assets of the discontinued operations consist mainly of contracts receivable
and trade accounts payable.
The Company is unable to reasonably and accurately project the profit or loss
from the discontinued operations from the measurement date (March 8, 2000, the
date the Board of Directors approved the plan to sell the electrical and HVAC
contracting businesses) to the ultimate disposal date and the gain or loss on
the sale of the discontinued operations. Accordingly, the operating results of
the discontinued operations for all periods presented reflect only the actual
results incurred.
17
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE K - EMPLOYMENT AGREEMENT
In connection with enhancing the Company's communications business, DualStar
Communications, Inc. ("DCI"), a wholly owned subsidiary of the Company, has
hired Jill Thoerle as President and Chief Executive Officer of DCI. DCI has
entered into an employment agreement with Ms. Thoerle has agreed to serve as
President and Chief Executive Officer of DCI at a current annual salary of
$250,000. Ms. Thoerle's agreement contemplates that she is eligible for a bonus
of up to 50% of her annual base salary upon achievement by DCI and Ms. Thoerle
of performance targets agreed-upon by the Board of Directors and Ms. Thoerle.
Pursuant to the agreement, Ms. Thoerle's employment may be terminated by DCI
with cause or by Ms. Thoerle with or without good reason. Termination of
employment by DCI without cause, or by Ms. Thoerle with good reason, would
entitle her to severance in the amount of her then annual base salary, plus a
pro rata portion of the bonus that would be payable in the year of termination.
Additionally, all unvested options to purchase the Company's common stock issued
to her shall vest immediately, and be exercisable for a period of 9 months
following the date of termination. Certain other benefits continue for a period
of 6 months following the date of termination. In the event of a termination of
employment by DCI with cause, Ms. Thoerle is entitled to receive all base salary
through the date of termination. Options held by Ms. Thoerle upon termination
with cause that are vested on the date of termination remain exercisable for a
period of 90 days from the date of termination. All unvested options lapse. In
the event of a voluntary termination of employment by Ms. Thoerle, she is
entitled to receive her base salary through the date of termination and be
eligible for a pro rata portion of any bonus. Options held by Ms. Thoerle upon
voluntarily termination of her employment that are vested remain exercisable for
a period of 90 days from the date of termination. Upon a termination of
employment as a result of Ms. Thoerle's death or disability, all vested options
remain exercisable for a period of 18 months following the date of termination.
Pursuant to the employment agreement, DCI has agreed to nominate Ms. Thoerle to
the Company's board of director. In the event Ms. Thoerle is not elected to the
Company's board of directors, Ms. Thoerle would have "Good Reason", as defined
in the employment agreement, to terminate her employment with DCI and be
entitled to severance in the amount of her annual base salary, plus a pro rata
portion of any bonus and a 6-month continuation of health and welfare benefits.
18
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE L - SUBSEQUENT EVENTS
(1) On May 11, 2000, the Company, with the consent of Blackacre, acquired
ParaComm, Inc., a Delaware corporation ("ParaComm"), pursuant to an Agreement
and Plan of Merger dated as of May 11, 2000 (the "Merger Agreement") among the
Company, DCI Acquisition, Inc., a wholly owned subsidiary of the Company, and
ParaComm, a copy of which is filed as Exhibit 2.1 to this Form 10-Q. The Company
issued an aggregate of 775,000 shares of Company common stock and warrants to
purchase an aggregate of 25,000 shares of Company common stock as purchase price
consideration for ParaComm, which is now a wholly owned subsidiary of the
Company. The warrants are exercisable at $15.00 per share and expire five years
after issuance.
ParaComm is private cable operating company, providing video entertainment
services to multi-dwelling unit communities primarily in Texas, Florida and
Colorado. Based in Clermont, Florida, ParaComm provides video services to
approximately 18,000 units.
Audited financial statements for ParaComm for the periods specified in Section
3.05(b) of Regulation S-X promulgated under the Securities Exchange Act of 1934,
as amended, have been included in this Form 10-Q beginning on page F-2. Pro
Forma financial information required pursuant to Article 11 of Regulation S-X
will be provided by the Company not later than July 14, 2000.
(2) On April 10, 2000, Mr. Lloyd I. Miller, III, TIG's nominee, resigned as a
member of the board of directors of the Company.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
DualStar Technologies Corporation, through its wholly owned subsidiaries,
provides mechanical, electrical, electronic, control, environmental, security,
communications, telephone, Internet and television systems, services and
solutions to a wide range of customers primarily in the New York Tri-State area.
When used in this Report, the words "intends," "expects," "plans," "estimates,"
"projects," "believes," "anticipates," and similar expressions are intended to
identify forward-looking statements. Except for historical information contained
herein, the matters discussed and the statements made herein concerning the
Company's future prospects are "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. Although the Company believes that its plans, intentions, and expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such plans, intentions and expectations will be achieved, and
actual results could differ materially from forecasts and estimates. In
addition, such forward-looking statements are necessarily based on assumptions
and estimates that may be incorrect or imprecise and involve known and unknown
risks and other facts. Important factors that could cause actual results to
differ materially include, but are not limited to, changes in the pricing
environment for the Company's goods and services, regulatory or legislative
changes, the Company's dependence on key personnel, and the Company's ability to
manage growth, in addition to those risk factors set forth in DualStar
Technologies Corporation and Subsidiaries' Annual Report on Form 10-K for the
fiscal year ended June 30, 1999 and which speaks only as of the date thereof.
Many of the factors are beyond the Company's ability to control or predict.
Given these uncertainties, readers of this Report are cautioned not to place
undue reliance upon such forward-looking statements. The Company undertakes no
obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document.
CAPITAL RESOURCES AND LIQUIDITY
Cash balances at March 31, 2000 and June 30, 1999 were approximately $16.5
million and $0.1 million, respectively. The increase in cash at March 31, 2000
was due primarily to the proceeds of $20.4 million from the exercise of Class A
Warrants and an underwriter purchase option. The Company's continuing operations
used approximately $3.8 million and $1.2 million of cash in the nine months
ended March 31, 2000 and 1999, respectively. The net use of cash in operating
activities of continuing operations for the nine months ended March 31, 2000 was
primarily attributable to the use of the proceeds from the exercise of Class A
Warrants and the purchase option to pay trade payables and to fund the loss from
operations. The net use of cash in operating activities of continuing operations
for the nine months ended March 31, 1999 was due primarily to the use of the
proceeds of the sale of a $2.5 million subordinated convertible note to pay
trade payables and to fund the loss from operations.
20
<PAGE>
The Company's discontinued operations used approximately $6.7 million and $1.9
million of cash in the nine months ended March 31, 2000 and 1999, respectively.
In the nine months ended March 31, 2000 and 1999, the Company acquired capital
assets of approximately $633,000 and $250,000, primarily for investment in
communications infrastructure systems for buildings in return for rights to
provide telephone, Internet, television and other services to the buildings'
residents and tenants.
In July 1998, the Company entered into a $1 million loan agreement with
Technology Investors Group, LLC ("TIG"). The loan was due and payable on demand
and had an interest rate of 10% per annum. The loan, subordinate to the
building's first mortgage, was collateralized by the Company's building, cash
and accounts receivable. In November 1998, the maturity date of the subordinated
note was extended to November 25, 1999 and provisions relating to events of
default were added. The loan and unpaid interest were repaid in full in December
1999 from the proceeds of the Madeleine Bridge Loan (defined below).
In July 1999, TIG converted the $2.5 million convertible note and a portion of
the unpaid interest into 1,791,000 shares of the Company's common stock at the
conversion price of $1.40 per share.
On October 26, 1999, CMA sold a $1 million promissory note (the "TIG Bridge
Note") to TIG. The TIG Bridge Note has an interest rate of 10% per annum and was
due December 15, 1999. The loan was guaranteed by the Company and collateralized
by certain Company assets. The TIG Bridge Note was paid in full in December 1999
from the proceeds of the $7 million Madeleine Bridge Loan.
On October 26, 1999, the Company issued to TIG a promissory note (the "TIG Stub
Note") in the amount of $120,000 representing the remaining indebtedness to TIG
under a certain convertible promissory note, dated November 25, 1998 in the
original principal amount of $2,500,000. The TIG Stub Note has an interest rate
of 10% per annum as was due on December 15, 1999. The TIG Stub was paid in full
in December 1999 from the proceeds of the $7 million Madeleine Bridge Loan.
On December 1, 1999, the Company sold a $7 million secured convertible
promissory note ("Madeleine Bridge Loan") to Madeleine, L.L.C. The note has an
interest rate of 11% per annum and is due on May 31, 2000. The Madeleine Bridge
Loan is guaranteed by certain subsidiaries of the Company and secured by such
subsidiaries' assets and capital stock. Contemporaneous with the advance of the
Madeleine Bridge Loan, TIG purchased from Blackacre a $2 million participation
interest in such loan, which was subsequently resold to Blackacre in March 2000.
On March 28, 2000, the Company entered into a Securities Purchase Agreement with
Blackacre and certain of its affiliates pursuant to which, subject to the
approval of the Company's stockholders, Blackacre would invest $46.2 million in
the Company through the purchase, at Blackacre's election, of either: (A) a $30
million ten-year convertible promissory note bearing interest at the rate of 3%
per annum, convertible into shares of the Company's common stock at a conversion
price of $4.00 per share, and 4,050,000 shares of the Company's common stock at
a purchase price of $4.00 per share; or (B)11,550,000 shares of the Company's
common stock at a purchase price of $4.00 per share. See the Company's Form 8-K,
filed on April 6, 2000.
21
<PAGE>
In connection with its $46.2 million investment, Blackacre would enter into a
"strategic alliance" with the Company under which the Company would be granted
the right of first negotiation to acquire access rights to deliver voice, video,
data and related services to properties owned, controlled by, managed or
affiliated with Blackacre and/or its affiliates. If the $46.2 million Blackacre
investment is consummated, Blackacre will nominate a majority of the members of
the Company's Board of Directors. Additionally, as one of the conditions to the
Blackacre investment, and as an incentive to Messrs. Cuneo and Birnbach to
continue to serve as President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer, respectively, of the Company, Messrs.
Cuneo and Birnbach or an entity owned by them, will be issued Class C Warrants
to purchase an aggregate of 400,000 shares of the Company's common stock at
$6.50 per share, exercisable over a period of 7 years. Also in connection with
Blackacre's $46.2 million investment, as a form of "break-up" protection, the
Company issued 1,440,000 Class B Warrants to Blackacre and Cerberus under which
they would have the right, under certain terms and conditions, to purchase
shares of the Company's common stock at an exercise price of $6.1656 per share.
The Class B Warrants are exercisable only if the Company enters into a letter of
intent or an agreement for a Competing Transaction (as defined) with an entity
other than Cerberus or its affiliates within a specified period of time. In such
event, the Class B Warrants will become exercisable and, in addition, the
Company would have to pay Blackacre and Cerberus an amount in cash equal to the
number of shares of the Company's common stock issuable upon exercise of the
Class B Warrants multiplied by the difference between the warrants' exercise
price of $6.1656 and $4.861, approximately $1.88 million.
In addition, on March 28, 2000, the Company entered into a definitive agreement
with M/E Contracting Corp. ("M/E"), an affiliate of Blackacre, to sell to M/E,
subject to the approval of the Company's stockholders and the consummation of
the $46.2 million Blackacre investment, the Company's electrical contracting
subsidiary, High-Rise Electric, Inc., and the Company's heating, ventilation and
air conditioning ("HVAC") contracting subsidiaries, Centrifugal Associates, Inc.
and Mechanical Associates, Inc. The aggregate purchase price is $11 million,
consisting of $1 million in cash and a $10 million secured ten-year note bearing
interest at 10% per annum. The definitive agreements relating to the Blackacre
$46.2 million investment and the M/E sale transactions described above are
subject to customary and other closing conditions including, with respect to the
sale to M/E, M/E's right to terminate the transaction for any reason at any time
prior to closing. See the Company's Form 8-K, filed on April 6, 2000. To fully
implement the Company's telecommunications services business plan, the Company
continues to explore strategic relationships.
During January and February 2000, a total of 4,510,571 shares of the Company's
common stock were issued pursuant to exercises of the Company's Class A Warrants
which expired on February 14, 2000. The Class A Warrants entitled holders to
acquire one share of the Company's common stock at a purchase price of $4.00 per
share. In addition, 400,000 shares of the Company's common stock were issued
upon exercise of a purchase option previously granted to an underwriter in
connection with the Company's February 1995 initial public offering. The
aggregate proceeds to the Company from the exercise of the warrants and the
option were $20,352,285.
22
<PAGE>
RESULTS OF OPERATIONS
Revenues from continuing operations decreased 43.2% in the three months ended
March 31, 2000 to $0.8 million, down $0.6 million from the comparable period of
1999. Revenues from continuing operations decreased 23.9% in the nine months
ended March 31, 2000 to $3.7 million, down $1.2 million from the comparable
period of 1999. The decreases in revenues were primarily due to the Company's
decision of closing-out a small electrical contracting subsidiary at the
beginning of the current fiscal year, and to a $0.2 million adjustment of the
accounts receivable of the Company's telecommunication business. The adjustment
was to correct errors found in a third party billing service company's computer
systems and related primarily to prior periods.
For the three months ended March 31, 2000, the Company's continuing operations
had a gross loss of ($0.3) million and a gross loss margin of (31.8%) compared
to a gross profit of $0.3 million and a gross profit margin of 21.6% for the
three months ended March 31, 1999. The loss was primarily due to the decrease in
revenues and increases in fixed costs, such as depreciation and amortization and
direct labor costs.
For the nine months ended March 31, 2000, gross profit decreased $1.1 million to
$0.1 million from the comparable period of 1999. The gross profit margins were
3.8% and 26.3% for the nine months ended March 31, 2000 and 1999, respectively.
The decreases in gross profit and gross profit margin were due primarily to the
decrease in revenues and increases in fixed costs, such as depreciation and
amortization and direct labor costs.
In anticipation of the future expansion of its telecommunications business, the
Company increased its general and administrative expenses by $1.9 million in the
three months ended March 31, 2000 to $2.5 million from the comparable period of
1999. The increase in general and administrative expenses was primarily due to a
$1.1 million charge for stock options granted on March 1 and March 10, 2000
which were granted with an exercise price lower than the closing price of the
Company's stock on the dates on which such options were granted. In addition,
the increase in general and administrative expenses was due to increases in
professional fees of $0.3 million, payroll costs of $0.2 million, and interest
expense of $0.1 million.
General and administrative expenses increased $2.6 million in the nine months
ended March 31, 2000 to $4.5 million from the comparable period of 1999. The
increase in general and administrative expenses was primarily due to a $1.1
million charge for stock options granted on March 1 and March 10, 2000 which
were granted with an exercise price lower than the closing price of the
Company's stock on the dates on which such options were granted. In addition,
the increase in general and administrative expenses was due to increases in
professional fees of $0.8 million, payroll costs of $0.3 million, and interest
expense of $0.2 million.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 8, 2000, the Company's Board of Directors amended the
Company's Bylaws. The last sentence of Section 2.06 was amended and restated to
read as follows: "Except as otherwise required by statute, the Certificate of
Incorporation or these Bylaws, in all matters coming before any meeting of the
stockholders, other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders."
ITEM 5 - OTHER INFORMATION
The information contained in Part I - Note L is incorporated herein by
reference.
Effective as of September 1, 1999, the Company engaged TechOne Capital
Group LLC ("TechOne") to provide the Company with consulting services with
respect to strategic investments and ventures for a fee of $12,500 per month. On
March 23, 2000, the Company's board of directors increased the monthly fee to
$25,000. The term of the consulting arrangement is two years. Jared E.
Abbruzzese, chairman of the Company, is a principal of TechOne.
24
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed herewith or incorporated by reference as
indicated:
<TABLE>
<CAPTION>
- ---------------- -------------------------------------------------------------------------- -----------
Exhibit Description Page
Number Number
- ---------------- -------------------------------------------------------------------------- -----------
<S> <C> <C>
2.1 Securities Purchase Agreement dated as of March 28, 2000 by and among
DualStar Technologies Corporation, Cerberus Capital Management, L.P. and
Blackacre Capital Management, L.L.C.+
- ---------------- -------------------------------------------------------------------------- -----------
2.2 Stock Purchase Agreement dated as of March 28, 2000 between DualStar
Technologies Corporation and M/E Contracting Corp. +
- ---------------- -------------------------------------------------------------------------- -----------
2.3 Agreement and Plan of Merger dated as of May 11, 2000 among DualStar
Technologies Corporation, DCI Acquisition Co. and Paracomm, Inc. +
- ---------------- -------------------------------------------------------------------------- -----------
3.1 Certificate of Incorporation, filed June 14, 1994, as restated(1)
- ---------------- -------------------------------------------------------------------------- -----------
3.2 Amended and Restated Bylaws +
- ---------------- -------------------------------------------------------------------------- -----------
10.1 Stockholders Agreement dated March 28, 2000 among DualStar Technologies
Corporation, Blackacre Capital Management L.L.C., Cerberus Capital
Management, L.P., Gregory Cuneo and Robert J. Birnbach+
- ---------------- -------------------------------------------------------------------------- -----------
10.2 Employment Agreement dated as of March 1, 2000 between DualStar
Communications, Inc. and Jill Thoerle+
- ---------------- -------------------------------------------------------------------------- -----------
23.1 Consent of Dixon Odom, PLLC+
- ---------------- -------------------------------------------------------------------------- -----------
27 Financial Data Schedule+
- ---------------- -------------------------------------------------------------------------- -----------
</TABLE>
Legend
+ Filed herewith.
(1) Incorporated by reference to Registrant's Registration Statement on
Form S-1, File No. 33-83722, ordered effective by the Securities and
Exchange Commission on February 13, 1995.
25
<PAGE>
(b) The following Current Reports on Form 8-K were filed by the Company
since January 1, 2000.
(i) A Current Report on Form 8-K was filed on February 25, 2000
with respect to Item 5 of Form 8-K.
(ii) A Current Report on Form 8-K was filed on March 10, 2000 with
respect to Item 5 of Form 8-K.
(iii) A Current Report on Form 8-K was filed on April 6, 2000 with
respect to Item 5 of Form 8-K.
26
<PAGE>
PARACOMM, INC.
- -------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT....................................... F-2
FINANCIAL STATEMENTS
Balance Sheet.................................................. F-3
Statement of Operations........................................ F-4
Statement of Changes in Stockholders' Equity................... F-5
Statement of Cash Flows........................................ F-6
Notes to Financial Statements.................................. F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
ParaComm, Inc.
Clermont, Florida
We have audited the accompanying balance sheet of ParaComm, Inc. as of December
31, 1999 and the related statements of operations, changes in stockholders'
equity and cash flows for the period from July 7, 1999 (inception) through
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ParaComm, Inc. as of December
31, 1999, and the results of its operations and its cash flows for the period
from July 7, 1999 (inception) through December 31, 1999 in conformity with
generally accepted accounting principles.
DIXON ODEM, PLLC
April 14, 2000
Greensboro, North Carolina
F-2
<PAGE>
PARACOMM, INC.
BALANCE SHEET
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 880,812
Accounts receivable 37,359
-----------
TOTAL CURRENT ASSETS 918,171
-----------
PROPERTY AND EQUIPMENT
Furniture and equipment 49,408
Telecommunications equipment installed 489,797
Telecommunications equipment, not placed in service 181,971
-----------
721,176
Less accumulated depreciation 7,958
-----------
713,218
-----------
OTHER ASSETS
Deferred tax assets 163,480
Non-compete agreement, net of accumulated
amortization of $1,389 48,611
-----------
212,091
-----------
$ 1,843,480
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 75,501
Other accrued liabilities 20,214
-----------
TOTAL CURRENT LIABILITIES 95,715
-----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 100,000 shares
authorized; 10,000 issued and outstanding 100
Additional paid-in capital 2,199,900
Retained deficit (452,235)
-----------
1,747,765
-----------
$ 1,843,480
===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PARACOMM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 7, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
SALES $ 45,192
COST OF SALES 2,440
-----------
GROSS PROFIT 42,752
-----------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries 274,642
Consulting 21,869
Advertising 46,357
Professional fees 55,457
Insurance 11,089
Rents 11,751
Travel and entertainment 54,694
Depreciation and amortization 9,347
Other expenses 35,993
-----------
521,199
-----------
OTHER INCOME (EXPENSE)
Interest income 2,052
Interest expense (37)
Organizational costs (137,192)
Miscellaneous expense (2,091)
-----------
(137,268)
-----------
LOSS BEFORE INCOME TAXES (615,715)
INCOME TAX BENEFIT (163,480)
-----------
NET LOSS $ (452,235)
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PARACOMM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 7, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-In Retained
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 31, 1999 (inception) - $ - $ - $ - $ -
Issuance of common stock 10,000 100 2,199,900 - 2,200,000
Net loss - - - (452,235) (452,235)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 10,000 $ 100 $ 2,199,900 $ (452,235) $ 1,747,765
============ ============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PARACOMM, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 7, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (452,235)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 9,347
Increase in accounts receivable - trade (37,359)
Increase in deferred tax assets (163,480)
Increase in accounts payable - trade 75,501
Increase in other accrued liabilities 20,214
---------------
NET CASH USED BY
OPERATING ACTIVITIES (548,012)
---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (721,176)
Purchase of noncompete agreement (50,000)
---------------
NET CASH USED BY
INVESTING ACTIVITIES (771,176)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 70,000
Proceeds from issuance of common stock 2,130,000
---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,200,000
---------------
NET INCREASE IN CASH 880,812
CASH, BEGINNING OF PERIOD -
CASH, END OF PERIOD $ 880,812
---------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES:
Exchange of notes payable for common stock $ 70,000
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 37
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
PARACOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ParaComm, Inc. (the Company) is based in Clermont, Florida and was incorporated
in Delaware on July 7, 1999. The Company is a private cable and wireless
operating company and provides video and communications products and services to
multiple-dwelling unit communities. Video and communications products include
digital and analog video services for cable television programming and direct
broadcast satellite programming packages. The principal market for the Company's
services are primarily in Florida, Texas, and Colorado.
Property and equipment
Property and equipment are recorded at cost and depreciated on the straight-line
basis over the estimated useful lives of the assets as follows:
Furniture and equipment 5 to 10 years
Telecommunications equipment, installed 7 to 10 years
Maintenance, repairs, and minor renewals are charged to operations as incurred.
Additions, improvements, and major renewals are capitalized. The cost of assets
retired or sold, together with the related accumulated depreciation, is removed
from the accounts and any gain or loss on disposition is credited or charged to
operations. In accordance with the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company periodically
reviews long-lived assets when indicators of impairment exist, and if the value
of the assets is impaired, an impairment loss would be recognized.
INTANGIBLES
Intangible assets consist of a non-compete agreement purchased through the
acquisition of telecommunications equipment from a private cable operator and is
being amortized on the straight-line basis over five years.
Revenue Recognition
The Company recognizes sales revenue at the time programming services are
provided to customers.
- --------------------------------------------------------------------------------
F-7
<PAGE>
PARACOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to temporary differences between the reported amounts of assets and
liabilities and their tax bases. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for operating losses that are
available to offset future taxable income and tax credits that are available to
offset future federal income taxes. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ADVERTISING COSTS
Advertising costs are generally charged to operations in the year incurred and
totaled $46,357 in 1999.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet at their fair values. This Statement also
specifies the accounting for changes in fair value depending upon the intended
use of the derivative. The Statement is effective for fiscal years beginning
after June 15, 2000. Management does not believe that adopting SFAS No. 133 will
significantly impact the Company's results of operations and financial position.
- --------------------------------------------------------------------------------
F-8
<PAGE>
PARACOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE B - OPERATING LEASE COMMITMENTS
The Company leases office equipment and office space in Florida and a warehouse
in Texas. Future minimum rental payments required under operating leases that
have an initial or remaining non-cancelable lease term in excess of one year as
of December 31, 1999 are as follows:
2000 $ 5,558
2001 321
--------------
Total future minimum lease payments $ 5,879
==============
NOTE C - INCOME TAXES
The income tax benefit consists of the following components:
Current
Federal $ -
State -
--------------
-
Deferred
Benefit of net operating loss carryforward (229,662)
Tax on temporary differences 11,688
Increase in deferred tax asset valuation allowance 54,494
--------------
$ (163,480)
==============
The significant components of the Company's deferred tax assets and liabilities
are as follows at December 31:
Deferred tax assets:
Net operating loss carryovers $ 229,662
Valuation allowance (54,494)
--------------
Total net deferred tax assets 175,168
--------------
Deferred tax liabilities:
Accelerated depreciation 11,688
--------------
Total deferred tax liabilities 11,688
--------------
Total net deferred tax assets $ 163,480
==============
- --------------------------------------------------------------------------------
F-9
<PAGE>
PARACOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE C - INCOME TAXES (CONTINUED)
Realization of the deferred tax assets is dependent on generating sufficient
taxable income prior to expiration of the net operating loss carryforwards.
Although realization is not assured, management believes it is more likely than
not that the recorded deferred tax assets, net of valuation allowance provided,
will be realized.
A reconciliation of the statutory U.S. federal income tax rate and the effective
income tax rate is as follows:
Statutory U.S. federal rate (34.0)%
State income tax, net of federal benefit (3.2)
Valuation allowance 8.9
Other 1.7
--------
26.6%
========
At December 31, 1999, the Company had net operating loss carryforwards available
to be applied against future years taxable income in the amount of $647,050,
which will expire on December 31, 2019.
NOTE D - ORGANIZATIONAL EXPENSES
In accordance with AICPA Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities," the Company has expensed organizational costs of $137,192.
NOTE E - SEGMENT INFORMATION
The Company operates in one industry segment. The Company's operations are
comprised of providing video and communications products and services to
multiple-dwelling unit communities. All of the Company's operations, assets,
employees and revenues are located in the United States.
- --------------------------------------------------------------------------------
F-10
<PAGE>
PARACOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE F- SIGNIFICANT AGREEMENTS
In October 1999, the Company entered into a five-year System Operator Agreement,
with a five-year renewal option, with DIRECTV, Inc. (DIRECTV). The Company is
responsible for establishing and maintaining distribution systems in
multiple-dwelling unit communities throughout the United States and acts as a
commissioned sales representative for DIRECTV to market DIRECTV programming to
the residents of multiple-dwelling unit communities in which the Company has
installed systems. Residents that choose to subscribe to the service pay a
monthly access fee in addition to the program fees charged by DIRECTV for
programming ordered by the customer.
The Company's contract with DIRECTV gives the Company a 19% share of gross
subscriber revenues from the sale of DIRECTV programming services plus $100 per
new subscriber. The Company will incur only the cost associated with the
implementation of its services, and will not share any of DIRECTV's programming
or broadcasting costs. Under the agreement, the Company may not maintain
distribution systems or market direct-to-home satellite broadcast services for
other satellite operators.
The Company's revenues are significantly dependent on its contract with DIRECTV.
During the period ended December 31, 1999, revenues from DIRECTV accounted for
36% of total recorded revenues of the Company.
On March 20, 2000, the Company was assigned a five-year Master System Operator
Agreement, with a five-year renewal option with DIRECTV. As a Master System
Operator, the Company is allowed to establish, manage and maintain a network of
system operators. The agreement provides for higher commission percentages and
reimbursement of marketing expenses, subject to the Company reaching a specified
level of subscribers.
NOTE G - RELATED PARTY TRANSACTIONS
The Company purchases various marketing and business consulting services from a
company affiliated through common ownership. For the period ended December 31,
1999, the Company incurred costs of $59,404 for these services.
NOTE H - UNINSURED CASH BALANCES
The Company has cash balances in excess of federally-insured limits at
depositories of $814,397 at December 31, 1999.
- --------------------------------------------------------------------------------
F-11
<PAGE>
PARACOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE I - SUBSEQUENT EVENTS
In January 2000, the Company purchased telecommunications equipment assets
totaling $157,000 from other private cable operators serving subscribers in
multiple-dwelling unit communities.
The Company entered into a nonbinding letter of intent on March 13, 2000,
agreeing to a transaction whereby the Company's stockholders will exchange 100%
of the issued and outstanding common stock in exchange for $7,000,000 of the
acquiring company's common stock. Following consummation of this transaction,
which the Company expects to close in April 2000, the Company will continue to
operate as a private cable and wireless operator and as a wholly-owned
subsidiary of the acquiring company.
- --------------------------------------------------------------------------------
F-12
<PAGE>
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 thereunto duly authorized.
DualStar Technologies Corporation
Date: May 15, 2000 By: GREGORY CUNEO
---------------------- --------------------------------------
Gregory Cuneo
President and
Chief Executive Officer
Date: May 15, 2000 By: ROBERT BIRNBACH
---------------------- -------------------------------
Robert Birnbach
Executive Vice President,
Chief Financial Officer and Secretary
Date: May 15, 2000 By: JOSEPH CHAN
---------------------- --------------------------------------
Joseph Chan
Vice President and
Chief Accounting Officer
S-1
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
- ---------------- -------------------------------------------------------------------------- -----------
Exhibit Description Page
Number Number
- ---------------- -------------------------------------------------------------------------- -----------
<S> <C> <C>
2.1 Securities Purchase Agreement dated as of March 28, 2000 by and among
DualStar Technologies Corporation, Cerberus Capital Management, L.P. and
Blackacre Capital Management, L.L.C.+
- ---------------- -------------------------------------------------------------------------- -----------
2.2 Stock Purchase Agreement dated as of March 28, 2000 between DualStar
Technologies Corporation and M/E Contracting Corp. +
- ---------------- -------------------------------------------------------------------------- -----------
2.3 Agreement and Plan of Merger dated as of May 11, 2000 among DualStar
Technologies Corporation, DCI Acquisition Co. and ParaComm, Inc. +
- ---------------- -------------------------------------------------------------------------- -----------
3.1 Certificate of Incorporation, filed June 14, 1994, as restated(1)
- ---------------- -------------------------------------------------------------------------- -----------
3.2 Amended and Restated Bylaws +
- ---------------- -------------------------------------------------------------------------- -----------
10.1 Stockholders Agreement dated March 28, 2000 among DualStar Technologies
Corporation, Blackacre Capital Management L.L.C., Cerberus Capital
Management, L.P., Gregory Cuneo and Robert J. Birnbach+
- ---------------- -------------------------------------------------------------------------- -----------
10.2 Employment Agreement dated as of March 1, 2000 between DualStar
Communications, Inc. and Jill Thoerle+
- ---------------- -------------------------------------------------------------------------- -----------
23.1 Consent of Dixon Odom, PLLC+
- ---------------- -------------------------------------------------------------------------- -----------
27 Financial Data Schedule+
- ---------------- -------------------------------------------------------------------------- -----------
</TABLE>
Legend
+ Filed herewith.
(1) Incorporated by reference to Registrant's Registration Statement on Form
S-1, File No. 33-83722, ordered effective by the Securities and Exchange
Commission on February 13, 1995.
<PAGE>
Execution Copy
DUAL STAR TECHNOLOGIES CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of March
28, 2000, by and among DualStar Technologies Corporation, a Delaware corporation
located at One Park Avenue, New York, New York 10016 (the "Company"), Cerberus
Capital Management, L.P., a Delaware limited partnership, on behalf of certain
funds and accounts managed by it ("CP"), and Blackacre Capital Management
L.L.C., a Delaware limited liability company, on behalf of certain funds and
accounts managed by it ("Blackacre"), each located at 450 Park Avenue, 28th
Floor, New York, New York 10022 (CP and Blackacre and such funds and accounts
are collectively referred to as the "Purchaser").
WHEREAS, the Purchaser desires to purchase from the Company, and the
Company desires to sell and issue to the Purchaser, at Purchaser's election,
either (A) (x) $30,000,000 aggregate principal amount of a convertible
promissory note ("the Note") of the Company, convertible into shares of the
Common Stock, par value $0.01 per share, of the Company (the "Common Stock") at
an initial conversion price of $4.00 per share and (y) 4,050,000 shares of
Common Stock at a purchase price of $4.00 per share or (B) 11,550,000 shares of
Common Stock at a purchase price of $4.00 per share
WHEREAS, in connection with the aforementioned documents, the Purchaser and
the Company are also entering into Strategic Alliance Agreement (the "Strategic
Alliance Agreement") granting the Company certain rights to sell services with
respect to certain properties owned by the Purchaser or in which the Purchaser
holds an indirect interest;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements contained herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Common Stock. Upon the terms and subject to the conditions hereof, at
the Closing (as defined below), the Company will issue and sell to the Purchaser
and the Purchaser will purchase from the Company, at the Purchaser's election,
either (A) (x) the Note, in the form attached hereto as Exhibit A, bearing
interest at the rate of three percent (3%) per annum at a purchase price of
$30,000,000 and (y) 4,050,000 the number of shares of Common Stock at a purchase
price of $4.00 per share or (B) 11,550,000 shares of Common Stock at a purchase
price of $4.00 per share. (The Common Stock to be purchased by Purchaser
hereunder shall hereinafter be referred to as the "Shares;" the Note and the
Shares purchased hereunder shall hereinafter
<PAGE>
collectively be referred to as the "Securities"). Under either clause "A" or "B"
above, the aggregate purchase price shall be $46,200,000 (the "Purchase Price").
ARTICLE II
THE CLOSING
2.1 Closing. The closing of the purchase and sale of the Securities shall
be held at the offices of the Company in Long Island City, New York at 10:00
a.m., local time, on the first business day after which all conditions to
closing, identified in Article VII hereof have been satisfied or waived by the
party entitled to grant such waiver, or on such other date thereafter upon which
the Company and the Purchaser shall agree (the "Closing").
2.2 Payment and Delivery. At the Closing, (A) the Purchaser shall pay to
the Company the Purchase Price by wire transfer of immediately available funds
pursuant to the Company's instructions; (B) the Company shall deliver to the
Purchaser a certificate or certificates, registered in Purchaser's name,
representing the Securities and, in the event Purchaser elects to purchase the
Note identified in Section 1.1(A) of this Agreement, the guaranties, pledge and
security agreements and related Uniform Commercial Code financing statements,
identified on Schedule 2.2 hereto (collectively, the "Collateral Agreements");
(C) the Company, certain of its officers identified therein and the Purchaser
shall deliver to each other an executed copy of a Stockholders' Agreement in the
form attached hereto as Exhibit B (the "Stockholders' Agreement"); (D) the
Company, the officers of the Company identified therein and the Purchaser shall
deliver to each other an executed copy of a Registration Rights Agreement in the
form attached hereto as Exhibit D (the "New Registration Rights Agreement"); (E)
the Company shall deliver to the officers identified therein an executed copy of
the Class C Warrant Agreement in the form attached hereto as Exhibit F, together
with Class C Warrant registered in the names of such officer or designated
entity owned or controlled by them, and (F) the Company and the Purchaser shall
deliver to each other an executed copy of the Strategic Alliance Agreement among
the Company and Purchaser in the form attached hereto as Exhibit G (the
"Strategic Alliance Agreement", and, together with this Agreement, the Note, the
Stockholders' Agreement, the New Registration Rights Agreement, the Class C
Warrant Agreement the Class C Warrant and the Collateral Agreements being
collectively referred to herein as the "Transaction Documents").
All deliveries and payments at the Closing shall be made simultaneously.
2
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the date hereof
and as of the Closing Date as follows:
3.1 Organization and Standing; Certificate of Incorporation and Bylaws. The
Company and each of its subsidiaries are duly organized and existing under, and
by virtue of, the laws of the state of their respective organization and are in
good standing under such laws. The Company and each of its subsidiaries have the
requisite corporate power and authority to own and operate their respective
properties and assets, and to carry on their respective business as now
conducted and as proposed to be conducted. The Company and each of its
subsidiaries are qualified to do business as foreign corporations in each
jurisdiction in which such qualification is required, except to the extent that
the failure to so qualify would not have a material adverse effect on the
assets, liabilities, condition (financial or otherwise), operating results or
business of the Company and its subsidiaries (taken as a whole), as now
conducted or as now proposed to be conducted (a "Company Material Adverse
Effect"). The Company has furnished the Purchaser with true, correct and
complete copies of its Restated Certificate of Incorporation and Bylaws, as
amended, certified by the Delaware Secretary of State and by the Secretary of
the Company, respectively, and the corresponding organizational documents and
certifications for each of its subsidiaries.
3.2 Corporate Power. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement, to sell and issue the
Securities hereunder and to carry out and perform its obligations under the
terms of this Agreement, the Note and the other Transaction Documents.
3.3 Subsidiaries. Except as set forth in the Company's SEC Reports (as
hereinafter defined), 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, partnership or business entity, nor
has the Company made any commitment or subscribed for the purchase of any such
equity interest. The Company owns all of the outstanding voting securities and
other equity interests, if any, and all rights to acquire such securities, of
those subsidiaries which are set forth in Schedule 3.3.
3.4 Capitalization. (a) The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, of which 15,701,571 shares are
issued and outstanding.
(b) The authorized capital stock of each of the subsidiaries of the Company
and the number of issued and outstanding shares of capital stock and other
equity interest, if any, including rights to acquire securities of such
subsidiaries are identified in the Company's draft proxy statement in respect of
the Agreement and related matter, dated March 28, 2000 (the "Proxy Statement").
3
<PAGE>
(c) Other than as contemplated herein and except as set forth in Schedule
3.4, the Company's SEC Reports filed prior to the date hereof (as hereinafter
defined), or as reflected in the Proxy Statement, there are no options, warrants
or other rights outstanding to purchase or acquire, or any securities
convertible into, nor has the Company or its subsidiaries agreed to issue or
reissue, other than pursuant to this Agreement, any of the Company's authorized
and unissued capital stock of the Company or its subsidiaries. Except as set
forth in the Company's SEC Reports and the Proxy Statement, to the Company's
best knowledge, there are no voting agreements concerning any of the outstanding
securities of the Company or its subsidiaries; and except as set forth in the
Company's SEC Reports, (i) other than as contemplated in the New Registration
Rights Agreement, (ii) as set forth in the Registration Rights Agreement dated,
November 25, 1998, as amended, by and between the Company and certain holders of
the Company's outstanding Common Stock (the "Existing Registration Rights
Agreement") and (iii) as set forth in the Registration Rights Agreement, dated
as of December 1, 1999, by and between the Company and Madeleine L.L.C. (the
"Madeleine Registration Rights Agreement"), there are no agreements to register
any of the Company's securities. No person is entitled to any preemptive right
with respect to the issuance of the Shares or the Common Stock reserved for
issuance upon conversion of the Note (the "Conversion Shares").
3.5 Authorization. Except for the required approval by the stockholders of
the Company, all corporate action on the part of the Company necessary for the
authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents by the Company, the authorization, sale, issuance
and delivery of the Securities and the Conversion Shares, and the performance of
all of the Company's obligations under this Agreement and the other Transaction
Documents have been taken. This Agreement and the other Transaction Documents
constitute valid and binding obligations of the Company, enforceable in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The Shares, the Note and the Conversion Shares have been duly authorized and,
when issued in compliance with the provisions of this Agreement and the other
Transaction Documents, will be validly issued, fully paid and nonassessable, and
the Shares and the Conversion Shares will have the rights, preferences, and
privileges described with respect thereto in the Company's Restated Certificate
of Incorporation, as amended. The Shares and the Conversion Shares shall be free
of any liens or encumbrances, in all cases, subject to restrictions on transfer
pursuant to the Stockholders' Agreement and under state and/or federal
securities laws.
3.6 Compliance with Other Instruments. Neither the Company nor any of its
subsidiaries is in violation or default of any provision of its organizational
documents or of any mortgage, indenture, contract, agreement, instrument,
judgment or decree to which the Company or any of its subsidiaries is a party or
by which any of them is bound, except as would not individually or in the
aggregate have a Company Material Adverse Effect. The execution, delivery and
performance by the Company of this Agreement, the other Transaction Documents
and the consummation of the transactions contemplated hereby and thereby, will
not result in any violation of or conflict with the Company's Restated
Certificate of Incorporation or By-Laws, and will not result in any violation of
or conflict with, or constitute a default under, any mortgage, indenture,
4
<PAGE>
contract, agreement, instrument, judgment or decree to which the Company or any
of its material subsidiaries is a party or by which any of them is bound or in
the creation of any material mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company or any of its subsidiaries.
3.7 No Governmental Consent. Other than matters relating to the
satisfaction of the Closing condition set forth in Section 7.1(i) of this
Agreement, no consent, approval or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company or its subsidiaries is required in
connection with the valid execution and delivery of this Agreement, or the
offer, sale or issuance of the Shares, the Note and the Conversion Shares except
for such filings as may be required in connection with the exemption under the
Securities Act of 1933, as amended (the "Securities Act"), or the qualification
(or the exemption from qualification, if available) under applicable blue sky
laws of the offer and sale of the Shares, which filings and qualifications, if
required, will be accomplished in a timely manner.
3.8 Offering. Subject to the accuracy of the Purchaser's representations in
Section 4 hereof, the offer, sale and issuance of the Shares and the Note
pursuant to this Agreement, constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
3.9 Brokers or Finders. Neither the Company nor any of its subsidiaries has
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement, and there are no brokerage
commissions, finder's fees or similar items of compensation payable in
connection therewith based on any arrangement or agreement made by or on behalf
of the Company.
3.10 SEC Reports. The Company has filed with the Securities and Exchange
Commission (the "Commission") and provided to the Purchaser all forms, reports
and documents required to be filed by the Company since January 1, 1997 and
prior to the date hereof (collectively, the "Company's SEC Reports") pursuant to
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated by the Commission thereunder (the "Exchange Act"), all of which,
when filed, complied in all material respects with all applicable requirements
of the Exchange Act. As of their respective dates, the Company's SEC Reports
(not including any exhibits and schedules thereto and documents incorporated by
reference therein) did not contain any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company and its
subsidiaries included in the Company's SEC Reports filed prior to the date
hereof or incorporated by reference therein were prepared in accordance with
generally accepted accounting principles ("GAAP") (subject, in the case of such
unaudited financial statements, to the absence of complete footnotes) applied on
a consistent basis (except as indicated therein or in the notes thereto) and
fairly present in all material respects the consolidated financial position of
the Company and its subsidiaries at the dates thereof and the results of its
consolidated
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operations and cash flows for the periods then ended (subject in the case of the
unaudited interim financial statements, to normal year-end audit adjustments,
which shall not be material in amount or nature).
3.11 Absence of Certain Developments. Since December 31, 1999 there has
been no change in the consolidated assets, liabilities, condition (financial or
otherwise), operating results, or business of the Company and its subsidiaries
from that reflected in the Company's SEC Reports filed prior to the date hereof
that would have resulted in, individually or in the aggregate, a Company
Material Adverse Effect. Since December 31, 1999, the Company has not (i)
directly or indirectly declared or paid any dividend or ordered or made any
other distribution on account of any shares of any class of the capital stock of
the Company, (ii) directly or indirectly redeemed, purchased or otherwise
acquired any such shares or agreed to do so or set aside any sum or property for
any such purpose, (iii) made any capital expenditures exceeding $100,000 other
than in the ordinary course of business or (iv) incurred any indebtedness
exceeding $100,000 other than in the ordinary course of business.
3.12 Absence of Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any liability or obligation, absolute or contingent, that is
not reflected in the consolidated financial statements included in the Company's
SEC Reports filed prior to the date hereof, other than obligations and
liabilities which taken individually or in the aggregate would not have a
Company Material Adverse Effect.
3.13 Taxes. Except as set forth in Schedule 3.13, the Company and each of
its subsidiaries have filed all tax returns and reports required by law to be
filed (or have sought appropriate extensions therefor), and have paid, or
otherwise fully reserved for in accordance with GAAP, all taxes, assessments and
other governmental charges that are due and payable, except (x) for those
matters being contested in good faith and by appropriate proceedings by the
Company or the affected subsidiaries and for which adequate reserves have been
established in accordance with GAAP or (y) for those matters for which the
charges, accruals and reserves on the books of the Company and its subsidiaries
in respect of taxes are adequate, and the Company knows of no assessment for
additional taxes or any basis therefor.
3.14 Title to Properties; Liens and Encumbrances. The Company and each of
its subsidiaries have good title to all of their respective properties and
assets, both real and personal, tangible and intangible, reflected on the
balance sheet included in the consolidated financial statements included in the
Company's SEC Reports filed prior to the date hereof or acquired after the date
thereof (except inventory or other personal property disposed of in the ordinary
course of business subsequent to the date thereof), and such properties and
assets are not subject to any mortgage, pledge, lien, security interest,
encumbrance or charge other than (i) liens for current taxes not yet due and
payable, (ii) liens and encumbrances that do not materially detract from the
value of the property subject thereto or materially impair the operations of the
Company, (iii) liens securing obligations reflected in such financial statements
or (iv) the current mortgage on the Company's building located at 11-30 47th
Avenue, Long Island City, New York. With respect to properties or
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assets it leases, the Company or the applicable subsidiary is in compliance with
such leases (except for such defaults or breaches that would not have a Company
Material Adverse Effect) and holds valid leasehold interests free of any liens,
claims or encumbrances except for those described in clauses (i) through (iii)
of the preceding sentence.
3.15 Litigation, etc. Except as described in the Company's SEC Reports
filed prior to the date hereof, there are no actions, suits, proceedings or
investigations (i) pending or, to the Company's knowledge, threatened against
the Company or any of its subsidiaries or which otherwise involve the Company's
or any of its subsidiaries' business or operations, or (ii) to the Company's
knowledge, pending or threatened against any of the officers, directors or
principal stockholders in their capacities as officers, directors or
stockholders of the Company or any of its subsidiaries, except in each case
where an adverse outcome would not individually or in the aggregate have a
Company Material Adverse Effect.
3.16 Employees, Pension and Benefit Plans.
(a) To the Company's knowledge, no employee of the Company or any of its
subsidiaries is in violation of any term of any employment contract or any other
contract or agreement between such employee and the Company or any of its
subsidiaries, and there is no strike or other labor dispute pending or, to the
knowledge of the Company, threatened, with respect to the Company or any of its
subsidiaries.
(b) Schedule 3.16 identifies each retirement, pension, savings, bonus,
stock purchase, profit sharing, stock option, deferred compensation, severance
or termination pay, insurance, death, medical, hospital, dental, vision care,
drug, sick leave, disability, salary continuation, vacation, incentive or other
compensation plan or arrangement or other employee benefit that the Company or
any of its subsidiaries currently maintains or to which any such entity
currently contributes for the benefit of any of its employees or former
employees (or dependents or beneficiaries thereof) (or as to which the Company,
any subsidiary thereof or any person that, together with the Company or such
subsidiary, is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code (each such person, including the Company or such subsidiary, a
"Commonly Controlled Entity") may otherwise have any liability), including, but
not limited to, any pension plan (each a "Pension Plan") as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and any welfare plan as defined in Section 3(1) of ERISA (a "Welfare
Plan"), whether funded, insured or self-founded or whether written or oral (each
of the foregoing contained in this Section 3.16(b) (a "Plan").
(c) Each Plan has been administered in all material respects in accordance
with its terms. The Company, the subsidiaries thereof and all Plans are in
compliance in all material respects with the applicable provisions of ERISA, the
Code, all other applicable laws and each such Plan which is intended to meet the
requirements of a "qualified plan" under Code ss. 401(a) has been determined by
the IRS to be a qualified plan (in form) by the issuance of a favorable
determination letter by the IRS. There is no pending or, to the knowledge of the
Company, threatened legal action,
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suit, investigation or claim relating to the Plans (other than routine claims
for benefits). Neither the Company or any subsidiary thereof has engaged in a
transaction in connection with which such entity would be subject to either a
civil penalty pursuant to Section 502(i) or ERISA or tax pursuant to Section
4975 of the Code. All contributions and other payments required to be made by
the Company or any subsidiary thereof to any Plan as of the Closing Date, or
with respect to any period ending prior to the Closing Date, have (or will have)
been made, on or prior to the Closing Date.
(d) To the knowledge of the Company, there has not occurred, and the
transactions contemplated by this Agreement will not result in the occurrence
of, a "reportable event" within the meaning of Section 4043 of ERISA. To the
knowledge of the Company, neither the Company nor any Commonly Controlled Entity
has, within the 5 year period preceding the Closing Date, entered into any
transaction the principal purpose of which was to evade liability to which the
Company or any Commonly Controlled Entity would otherwise be subject under Title
IV of ERISA. The principal purpose of the Company entering into the transactions
contemplated by this Agreement is not to evade liability to which the Company or
any Commonly Controlled Entity would otherwise be subject under Title IV of
ERISA.
(e) No benefits under any Plan set forth in Schedule 3.16 shall become
accelerated as a result of the transactions contemplated by this Agreement.
(f) Except as required under Section 4908B of the Code, neither the Company
or any subsidiary thereof has an obligation to provide post-retirement health or
life benefits.
(g) WARN. Neither the Company nor any of its subsidiaries has incurred any
liability or obligation under the Worker Adjustment and Retraining Notification
Act or similar state laws which remains unpaid or unsatisfied.
3.17 Compliance With Law. The Company and its subsidiaries are conducting
and have conducted their respective businesses and operations in compliance with
all governmental rules and regulations applicable thereto, including without
limitation those relating to occupational safety, environmental, health and
employment practices, and are not in violation or default in any respect under
any statute, law, ordinance, rule, regulation, judgment, order, decree,
concession, grant, franchise, license or other governmental authorization or
approval applicable to it or any of its properties, except in each case where an
adverse outcome would not individually or in the aggregate have a Company
Material Adverse Effect.
3.18 Permits. The Company and its subsidiaries have all material permits,
licenses, orders and approvals of any federal, state, local or foreign
governmental or regulatory body (collectively, the "Permits") that are necessary
in the conduct of their respective businesses substantially in the manner as now
conducted; all such Permits are in full force and effect; no material violations
have been recorded in respect of any such Permits; and no proceeding is pending
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or, to the knowledge of the Company, threatened to revoke or limit in any
material respect any such Permits.
3.19 Fairness Opinion. The Board of Directors of the Company has received
the opinion of Chanin & Co., financial advisers of the Company, dated as of the
date hereof, to the effect that the Transactions contemplated hereby are fair to
the Company and its stockholders, from a financial point of view (the "Fairness
Opinion"), and the Fairness Opinion has not been withdrawn, altered or amended
in any material respect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
CP and Blackacre hereby jointly and severally represent and warrant to the
Company as follows:
4.1 Organization and Standing. CP is a limited partnership duly organized
and existing under and by virtue of the laws of Delaware and is in good standing
under such laws. Blackacre is a limited liability company duly organized and
existing under and by virtue of the laws of Delaware and is in good standing
under such laws.
4.2 Corporate Power. Each entity that constitutes the Purchaser has all
requisite legal power and authority to execute and deliver this Agreement and to
carry out and perform its obligations under the terms of this Agreement and the
other Transaction Documents.
4.3 Authorization. All legal action on the part of each entity that
constitutes the Purchaser and their respective directors, managers, partners,
owners and members necessary for the authorization, execution, delivery and
performance of this Agreement and the other Transaction Documents by each entity
that constitutes the Purchaser, the purchase of the Securities and the
performance of all of the Purchaser's obligations under this Agreement and the
other Transaction Documents has been taken. This Agreement and the other
Transaction Documents when executed and delivered by the Purchaser, shall
constitute the valid and binding obligation of each entity that constitutes the
Purchaser, enforceable against both entities that constitute the Purchaser in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules governing specific
performance, injunctive relief or other equitable remedies.
4.4 Experience. Each entity that constitutes the Purchaser is an accredited
investor within the meaning of Regulation D promulgated under the Securities Act
and, by virtue of its experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company, it is
capable of evaluating the merits and risks of its investment in the Securities
and has the capacity to protect its own interests.
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4.5 Investment. No entity that constitutes the Purchaser has been formed
solely for the purpose of making this investment. [CP and Blackacre are
acquiring the Securities on behalf of certain funds and accounts managed by CP,
Blackacre or their affiliates, and each of such funds or accounts]* is acquiring
the Securities for investment for its own account, not as a nominee or agent,
and not with the view to, or for resale in connection with, any distribution of
any part thereof. Neither CP, Blackacre nor any of such funds or accounts, has
any present intention of selling, granting any participation in or otherwise
distributing the Securities either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or non-occurrence of any
predetermined event or circumstance in violation of the Securities Act. Each
entity that constitutes the Purchaser understands that the Securities have not
been registered under the Securities Act or applicable state and other
securities laws by reason of a specific exemption from the registration
provisions of the Securities Act and applicable state and other securities laws,
the availability of which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of the Purchaser's representations as
expressed herein. Each entity that constitutes the Purchaser acknowledges and is
aware of the following:
(i) the Note is non-negotiable and non-transferable, except as
provided pursuant to Article VI hereto, and there will be substantial
restrictions on the transferability of the Shares or any Conversion Shares;
(ii) no representation, guarantee or warranty has been made to the
Purchaser by the Company, its officers, directors, agents, or employees or
any other person, expressly or by implication, as to the profitability of
the Company or with respect to the Note or the Conversion Shares, except
for those representations and warranties set forth in this Agreement and
the other Transaction Documents; and
(iii) the Note will be subordinated to the rights of any surety
company providing any surety bond for the benefit of the Company or its
subsidiaries.
4.6 Restricted Securities. No entity that constitutes the Purchaser will
sell or otherwise transfer the Shares, the Note, or the Conversion Shares,
without registration under the Securities Act of 1933, as amended (the
"Securities Act") or applicable state securities laws or an exemption therefrom.
None of the Shares, the Note, or the Conversion Shares have been registered
under the Securities Act or under the securities laws of certain states.
Purchaser is aware that an exemption from the registration requirements of the
Securities Act pursuant to Rule 144 promulgated thereunder is not presently
available; and, except as provided in the New Registration Rights Agreement, the
Company has no obligation to register the Shares, the Note or the Conversion
Shares, or to make available an exemption from the registration requirements
pursuant to such Rule 144 or any successor rule for resale of the Shares or the
Conversion Shares.
- ----------
* Not needed if fund(s) purchase the securities directly and are the
"Purchaser(s)."
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4.7 Risk Factors. Each entity that constitutes the Purchaser recognizes
that investment in the Shares and the Note involves substantial risks, including
loss of the entire amount of such investment. Further, it has carefully read and
considered the matters set forth under the caption "Risk Factors" in the
Company's SEC Reports filed prior to the date hereof, and has taken full
cognizance of and understands all of the risks related to the purchase of the
Shares.
4.8 Legend. Each entity that constitutes the Purchaser acknowledges that
the Note and the certificate(s) representing the Shares or the Conversion
Shares, shall be stamped or otherwise imprinted with a legend substantially in
the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS, WHICH, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE."
The following legend shall be placed on any certificate(s) evidencing the
Shares and the Conversion Shares:
THE SALE, PLEDGE OR TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS SET FORTH IN (1) A STOCKHOLDERS AGREEMENT DATED
__________, 2000 AMONG THE CORPORATION AND CERTAIN STOCKHOLDERS OF THE
CORPORATION AND (2) THE PROVISIONS OF A CERTAIN SECURITIES PURCHASE
AGREEMENT, DATED MARCH 28, 2000, AMONG THE CORPORATION, CERBERUS CAPITAL
MANAGEMENT, L.P. AND BLACKACRE CAPITAL MANAGEMENT, L.L.C.
The Company may place a stop transfer order on its transfer books against
the Shares and the Conversion Shares to enforce the foregoing restrictions.
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4.9 Access to Data. Each entity that constitutes the Purchaser has had an
opportunity to discuss the Company's and its subsidiaries' business, management,
financial affairs and prospects with its management, the opportunity to review
the Company's and its subsidiaries' facilities and Company's SEC Reports and the
opportunity to ask questions of officers and directors of the Company, including
the Officers. Each entity that constitutes the Purchaser has carefully
considered and has, to the extent it believes such discussion necessary,
discussed with its professional legal, tax, accounting and financial advisors
the suitability of an investment in the Shares and the Note for its particular
tax and financial situation and has determined that the Shares and the Note are
a suitable investment for it. Each entity that constitutes the Purchaser
acknowledges that (i) it has had the right to request copies of any documents,
records, and books pertaining to this investment and (ii) any such documents,
records and books which it requested have been made available for inspection by
it, its attorney, accountant or adviser(s).
4.10 Brokers or Finders. Neither entity that constitutes the Purchaser has
retained any investment banker, broker or finder. Each entity that constitutes
the Purchaser will severally indemnify and hold the Company harmless against any
liability, settlement or expense arising out of, or in connection with, any such
claim.
4.11 Intent of Representations and Warranties. Each entity that constitutes
the Purchaser acknowledges and represents to the Company that it is making the
foregoing representations and warranties with the intent that they may be relied
upon by the Company in determining the suitability of the sale of the Shares and
the Note to the Purchaser for purposes of the federal and state securities laws.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Shareholder Approval.
(a) The Company will call a meeting of its stockholders and use
commercially reasonable efforts to solicit the approval of its stockholders of
the transactions contemplated hereby.
(b) The Company's Board of Directors has recommended (and will continue to
recommend subject to its fiduciary duties under applicable law) approval of the
transactions contemplated hereby by the Company's stockholders and the Company
shall take all reasonable, lawful action to solicit such approval by its
stockholders.
(c) The Company agrees, as promptly as practicable, to prepare and file
with the Commission a proxy statement and other proxy solicitation materials of
the Company (the "Proxy Statement") seeking stockholder approval of the
transactions contemplated hereby. Each of the parties hereto agrees to cooperate
with the other, its counsel and its accountants, in preparation of the Proxy
Statement. The Purchaser agrees to furnish to the Company all information
concerning
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the Purchaser as may be reasonably requested in connection with the foregoing.
The Company shall comply with all applicable laws and regulations in
distributing the Proxy Statement to its stockholders.
(d) Each of the Purchaser and the Company agrees that none of the
information supplied or to be supplied by it for inclusion or incorporation by
reference in the Proxy Statement or any amendment or supplement thereto will, at
the date of mailing to stockholders and at the time of the Company's
stockholders' meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or any statement which, in light of the
circumstances under which such statement is made, will be false or misleading
with respect to any material fact, or which will omit to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier statement in the Proxy
Statement or any amendment or supplement thereto. Each of the Purchaser and the
Company further agrees that if it shall become aware of any information
furnished by it that would cause any of the statements in the Proxy to be false
or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or misleading,
to promptly inform the other party thereof and to take the necessary steps to
correct the Proxy Statement.
5.2 Certain Distributions. The Company will not make any distribution of
stock or stock rights of the Company to stockholders, if made at the election of
any of the stockholders of the Company if such distribution would result in
taxable income to the Purchaser pursuant to Section 305 of the Internal Revenue
Code, as amended.
5.3 Covenant with respect to the Note. So long as any principal amount of
the Note remains outstanding, without the prior written consent of the Purchaser
or a majority of the members of the Board of Directors designated by the
Purchaser, the Company shall comply with all of the covenants set forth in
Section 8 of the Note.
5.4 Operations of the Company.
(a) From the date hereof through the Closing Date, the Company and its
subsidiaries shall conduct their respective businesses in the ordinary course,
in a manner consistent with past practice, shall maintain in all material
respects their business organizations and assets, shall not take any action
reasonably likely to have a Company Material Adverse Effect, and shall not,
without the prior written consent of the Purchaser:
(i) amend its Certificate of Incorporation or By-Laws or merge with or
into or consolidate with any other person, subdivide or in any way
reclassify any shares of its capital stock or change or agree to change in
any manner the rights of its outstanding capital stock or the character of
its business;
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(ii) issue, sell, purchase or redeem, or enter into any contracts or
other agreements to issue, sell, purchase or redeem, any shares of its
capital stock or any options, warrants, convertible or exchangeable
securities, subscriptions, rights, (including preemptive rights), stock
appreciation rights, calls or commitments of any character whatsoever
relating to its capital stock, other than upon the exercise of options
outstanding on the date hereof granted pursuant to existing employee
incentive stock option plans;
(iii) enter into or amend any employment agreement other than in the
ordinary course of business; enter into any contract or other agreement
with any labor union or association representing any employee; or adopt,
enter into or amend any Compensation and Benefit Plan, Pension Plan or
similar plan or arrangement, or make any change in the actuarial methods or
assumptions used in funding any defined benefit pension plan, or make any
change in the assumptions or factors used in determining benefit
equivalencies thereunder;
(iv) declare, set aside or pay any dividends or declare, set aside or
make any distributions of any kind to its shareholders, or make any direct
or indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock;
(v) adopt a plan of liquidation or resolutions providing for the
liquidation, dissolution, merger, consolidation or other reorganization of
the Company or any of its subsidiaries;
(vi) make any change in its accounting methods, principles or
practices or made any change in depreciation or amortization policies or
rates adopted by it, except insofar as may have been required by a change
in generally accepted accounting principles;
(vii) make any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any of its officers,
directors, employees, consultants or agents or any accrual for or contract
or other agreement to make or pay the same, except to persons other than
its officers, directors or shareholders made in the ordinary course of
business in a manner consistent with past practice;
(viii) make any loan to any of its officers or directors, consultants,
agents or other representatives;
(ix) make any payment or commitment to pay severance or termination
pay to any of its officers, directors, employees, consultants, agents or
other representatives except in accordance with existing contractual
obligations;
(x) except in the ordinary course of business: sell, abandon or make
any other disposition of any of its assets, properties or businesses,
individually or in the aggregate, material to the business of the Company
and its subsidiaries (taken as a whole),
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other than sales of inventory in the ordinary course of business; or grant
or suffer any lien on any of its assets, properties or businesses other
than in the ordinary course of business or other than those in favor of the
Purchaser or its affiliates;
(xi) make any capital expenditures in excess of $500,000 in any one
(1) case or $5,000,000 in the aggregate;
(xii) except with respect to he endorsement of negotiable instruments
in the ordinary course of business incur or assume any debt, obligation or
liability, or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation because responsible for, liabilities of any
other person;
(xiii) except for tangible property acquired in the ordinary course of
business in a manner consistent with past practice, make any acquisition of
all or any part of the assets, properties, capital stock or business of any
other person;
(xiv) agree to do any of the foregoing.
(b) The Company shall give prompt notice to the Purchaser of any fact,
event or circumstance known to it that (i) is reasonably likely, individually or
together with other such matters, to result in any Company Material Adverse
Effect, or (ii) would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements hereunder.
ARTICLE VI
LOCKUP AGREEMENT
6.1 Lock-up Agreement. Purchaser agrees that, for a period of eighteen (18)
months from the Closing, it will not sell, assign, transfer, pledge, encumber or
in any way dispose of (i) any of the Shares purchased from the Company pursuant
to this Agreement or (ii) any Conversion Shares acquired pursuant to this
Agreement and the Note, except as provided in Section 6.2 of this Agreement.
6.2 Exceptions. The Lock-up Agreement set forth in Section 6.1 shall not
apply if there has been a default by the Company in any payment due to the
Purchaser under the Note. Notwithstanding the foregoing, CP, Blackacre or any
other entity comprising the Purchaser may assign any rights relating to the
Shares, Notes or the Conversion Shares to any fund, account or entity managed or
controlled by Stephen A. Feinberg; provided, however, that any such fund,
account or entity shall be subject to the restrictions, covenants and agreements
contained in this Agreement and the Note (and any other agreement executed in
connection herewith); and provided further, that each such fund, account or
entity shall make the representations and warranties to the Company set forth in
Article IV of this Agreement. Consent to any other transfer by Purchaser of its
rights hereunder relating to the Shares or the Conversion Shares to any other
person shall require the approval of a
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majority of the Board of Directors of the Company, excluding members designated
by or affiliated with the Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Purchaser's Obligations. The obligations of the Purchaser
to consummate the transactions contemplated by this Agreement are subject to the
following conditions:
(i) The transactions contemplated by this Agreement (including the
election of directors designated by the Purchaser constituting a simple
majority of the Company's Board of Directors and the increase of the number
of the Company's authorized shares) shall have received the approval of the
shareholders of the Company (and related SEC and NASDAQ approvals);
(ii) The representations and warranties of the Company herein
contained shall be true and correct in all material respects as of the
Closing as if made on and as of the Closing Date;
(iii) The Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed in or complied with by the Company on or prior to the Closing
Date;
(iv) The Company shall have delivered to the Purchaser a certificate,
dated the Closing Date, to the foregoing effect and stating that all
conditions to the Purchaser's obligations hereunder have been satisfied in
all material respects;
(v) All approvals and authorizations of, filings and registrations
with, and notifications to, all governmental authorities required for the
consummation of the transactions contemplated by this Agreement shall have
been obtained or made and shall be in full force and effect and all waiting
periods required by law shall have expired;
(vi) No governmental authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (either temporary,
preliminary or permanent) which is in effect and prohibits consummation of
the transactions contemplated by this Agreement.
(vii) There shall not have been and be continuing any change that has
had or could reasonably be expected to have a Company Material Adverse
Effect between the date hereof and the Closing as if made on the Closing
Date; and
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(viii) All documents and instruments identified in Section 2.2 of this
Agreement shall have been executed and delivered by the parties thereto
(other than the Purchaser).
7.2 Conditions to Company's Obligations. The obligations of the Company to
consummate the transactions contemplated by this Agreement are subject to the
following conditions:
(i) The transactions contemplated by this Agreement (including the
increase of the number of the Company's authorized shares) shall have
received the approval of the shareholders of the Company (and related SEC
and NASDAQ approvals);
(ii) The representations and warranties of the Purchaser herein
contained shall be true and correct in all material respects as of the
Closing as if made on and as of the Closing Date;
(iii) All documents and instruments identified in Section 2.2 of this
Agreement shall have been executed and delivered by the parties thereto
(other than the Company);
(iv) The Fairness Opinion has not been withdrawn, altered or amended
in any material respect.
ARTICLE VIII
MISCELLANEOUS
8.1 Governing Law. This agreement shall be governed in all respects by the
internal laws of the State of New York without regard to its conflicts of laws
provisions; provided however, that the General Corporation Law of the State of
Delaware shall apply to any matter relating to corporate governance of the
Company or the Common Stock.
8.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby.
8.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors and administrators of the
parties hereto.
17
<PAGE>
8.4 Entire Agreement; Amendment. This Agreement, its attachments and the
other documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof; provided, however, that the Company's obligations
under the Amended and Restated Promissory Note, dated as of December 16, 1999,
the Class B Warrant Agreement, the Madeleine Registration Rights Agreement, and
the letter from the Company to the Purchaser regarding the Break-Up Fee, each
dated as of December 16, 1999, shall not be affected hereby. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written agreement of the
Company and the Purchaser.
8.5 Notices. All notices and other communications required or permitted
hereunder to a party shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier services, addressed to such party
at the address set forth in the introductory paragraph of this Agreement, or at
such other address as each party shall have last furnished to the other in
writing. 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 or courier, at the earlier of its
receipt or seventy-two (72) hours after the same has been deposited with an
airborne courier service, addressed and mailed as aforesaid.
8.6 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, shall impair any such right, 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 thereafter occurring; nor
shall any waiver of any single 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 of any breach or default under this
Agreement, or any waiver 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 to this Agreement, shall be cumulative and not
alternative.
8.7 Expenses. The Company and the Purchaser shall bear their own expenses
and legal fees incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the party actually
executing such counterparts, and all of which together shall constitute one
instrument.
18
<PAGE>
8.9 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.
8.10 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY
DUALSTAR TECHNOLOGIES
CORPORATION
By: /s/ Gregory Cuneo
---------------------------------------------
Gregory Cuneo
President and Chief Executive Officer
PURCHASER
CERBERUS CAPITAL MANAGEMENT,
L.P., on behalf of various funds and
accounts
By: /s/ Mark A. Neporent
---------------------------------------------
BLACKACRE CAPITAL MANAGEMENT
L.L.C., on behalf of various funds and
accounts
By: /s/ Ronald J. Kravit
---------------------------------------------
Name: Ronald J. Kravit
19
<PAGE>
STOCK PURCHASE AGREEMENT
DATED AS OF MARCH __, 2000
BETWEEN
DUALSTAR TECHNOLOGIES CORPORATION
AND
M/E CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES AND CLOSING..............................................................10
Section 1.1 Purchase and Sale of Stock....................................................................10
Section 1.2 Closing.......................................................................................11
Section 1.3 Stockholders' Meeting.........................................................................11
ARTICLE II REPRESENTATIONS AND WARRANTIES REGARDING THE PURCHASER..............................................12
Section 2.1 Organization and Qualification................................................................12
Section 2.2 Authority and Absence of Conflict.............................................................12
Section 2.3 Approvals.....................................................................................13
Section 2.4 Purchase for Investment.......................................................................13
Section 2.5 Access to Information.........................................................................13
Section 2.6 Conduct of Business of the Purchaser..........................................................13
Section 2.7 Material Misstatements or Omissions...........................................................13
Section 2.8 Brokers.......................................................................................14
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER..................................................14
Section 3.1 Organization and Qualification................................................................14
Section 3.2 Authority and Absence of Conflict.............................................................14
Section 3.3 Ownership of Capital Stock....................................................................15
Section 3.4 Preemptive Right..............................................................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY................................................15
Section 4.1 Organization and Qualification................................................................15
Section 4.2 Authority and Absence of Conflict.............................................................15
Section 4.3 Corporate Records.............................................................................17
Section 4.4 Capital Stock; Subsidiaries...................................................................17
Section 4.5 Financial Statements..........................................................................17
Section 4.6 Tax Matters...................................................................................17
Section 4.7 Real Property and Leaseholds..................................................................19
Section 4.8 Title to Assets...............................................................................19
Section 4.9 Property, Plant and Equipment.................................................................19
Section 4.10 Accounts Receivable..........................................................................19
Section 4.11 Contracts....................................................................................19
Section 4.12 Compliance with Law..........................................................................19
Section 4.13 Permits and Other Operating Rights...........................................................19
Section 4.14 Litigation...................................................................................20
Section 4.15 ERISA Matters................................................................................20
Section 4.16 Labor and Employment Matters.................................................................22
Section 4.17 Insurance Coverage...........................................................................23
Section 4.18 Conduct of Business..........................................................................24
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<PAGE>
Section 4.19 Certain Transactions.........................................................................25
Section 4.20 Liabilities and Obligations..................................................................25
Section 4.21 Intentionally Omitted........................................................................26
Section 4.22 Brokers......................................................................................26
Section 4.23 Absence of Certain Payments..................................................................26
Section 4.24 No Outstanding Indebtedness..................................................................26
Section 4.25 Significant Customers........................................................................26
Section 4.26 Bank Accounts................................................................................26
Section 4.27 Material Adverse Effect......................................................................26
ARTICLE V CONDUCT OF BUSINESS PRIOR TO CLOSING; OTHER COVENANTS..................................................26
Section 5.1 Conduct of Business of the Company Pending the Closing........................................26
Section 5.2 Conduct of Business of the Purchaser..........................................................29
Section 5.3 Preparation of Proxy Statement................................................................29
Section 5.4 Access to Information; Confidentiality........................................................30
Section 5.5 No Solicitation...............................................................................30
Section 5.6 Directors' and Officers' Indemnification and Insurance........................................31
Section 5.7 Further Action; Best Efforts..................................................................31
Section 5.8 Public Announcements..........................................................................32
Section 5.9 Transactional Costs...........................................................................32
Section 5.10 Repayment of Company Indebtedness............................................................32
Section 5.11 Board of Directors and Officers of the Company...............................................32
ARTICLE VI CONDITIONS PRECEDENT TO THE CLOSING.................................................................33
Section 6.1 Conditions to the Obligations of Each Party to Consummate the Transactions....................33
Section 6.2 Conditions to Obligations of Purchaser........................................................33
Section 6.3 Conditions to the Obligations of the Seller...................................................35
ARTICLE VII TAX MATTERS........................................................................................36
Section 7.1 Tax Return Filings; Payment of Taxes; Indemnification.........................................36
Section 7.2 Procedures Relating to Indemnification of Tax Claims..........................................37
Section 7.3 Refunds and Credits...........................................................................38
Section 7.4 Cooperation...................................................................................38
Section 7.5 Elections; Consents and Other Actions.........................................................38
Section 7.6 Transfer Taxes................................................................................38
Section 7.7 Section 338(h)(10) Election...................................................................39
Section 7.8 FIRPTA Certificates...........................................................................40
Section 7.9 Relationship to Article VIII..................................................................40
ARTICLE VIII SURVIVAL; INDEMNIFICATION...........................................................................40
Section 8.1 Indemnification...............................................................................40
Section 8.2 Notice and Defense of Third Party Claims......................................................41
Section 8.3 Notice of Other Claims........................................................................42
Section 8.4 Limitations of Indemnification................................................................42
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<PAGE>
Section 8.5 Survival and No Waiver of Representations.....................................................43
Section 8.6 Limitation of Other Indemnification Rights....................................................43
Section 8.7 Exclusive Remedy..............................................................................44
ARTICLE IX PUBLICITY; CONFIDENTIALITY; BOOKS AND RECORDS.......................................................44
Section 9.1 Publicity.....................................................................................44
Section 9.2 Confidentiality...............................................................................44
Section 9.3 Books and Records.............................................................................45
Section 9.4 Survival......................................................................................45
ARTICLE X NOTICES..............................................................................................45
Section 10.1 Notices......................................................................................45
ARTICLE XI GOVERNING LAW; FORUM..................................................................................46
Section 11.1 GOVERNING LAW; FORUM.........................................................................47
ARTICLE XII BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES..............................................47
Section 12.1 Binding Effect; Assignment; Third Party Beneficiaries........................................47
ARTICLE XIII ENTIRE AGREEMENT..................................................................................47
Section 13.1 Entire Agreement.............................................................................47
ARTICLE XIV MATERIALITY AND IMMATERIALITY......................................................................48
Section 14.1 Materiality and Immateriality................................................................48
ARTICLE XV TERMINATION, AMENDMENT AND WAIVER.....................................................................48
Section 15.1 Termination..................................................................................48
Section 15.2 Effect of Termination........................................................................49
Section 15.3 Fees and Expenses............................................................................49
Section 15.4 Amendment....................................................................................49
Section 15.5 Waiver.......................................................................................49
Section 15.6 Procedure for Termination, Amendment, Extension or Waiver....................................50
ARTICLE XVI HEADINGS; COUNTERPARTS...............................................................................50
Section 16.1 Headings; Counterparts.......................................................................50
ARTICLE XVII SEVERABILITY........................................................................................50
Section 17.1 Severability.................................................................................50
</TABLE>
ANNEXES AND EXHIBITS
Annex I Company Stock
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<PAGE>
Exhibit __ Amended and Restated Articles of Incorporation of the Company
Exhibit __ Amended and Restated Bylaws of the Company
Exhibit __ Amended and Restated Articles of Incorporation of the Purchaser
Exhibit __ Amended and Restated Bylaws of the Purchaser
Exhibit __ Non-Competition Agreement
Exhibit __ Purchaser Note
Exhibit __ Security Agreement
Exhibit __ Form of Opinion of Seller's Counsel
Exhibit __ Form of Opinion of Purchaser's Counsel
Exhibit __ Form of Seller Release
Exhibit __ Form of Employment Contract
Exhibit __ List of Persons re: Knowledge Definition
DISCLOSURE SCHEDULES
1.1 Authorized and Outstanding Capital Stock of the Company
2.3 Approvals--Governmental and Other
4.1 Jurisdiction of Incorporation
4.2(d) Consents
4.3 Corporate Records
4.4 Capital Stock; Subsidiaries
4.5 Financial Statements
Exhibit A: Audited Financial Statements
Exhibit B: Interim Financial Statements
4.6 Certain Tax Matters
4.13 Permits and Operating Rights
4.15 ERISA Matters
4.16 Labor and Employment Matters
4.17 Insurance Coverage
4.18 Conduct of Business
4.20 Undisclosed Material Liabilities
4.26 Bank Accounts
4.27 Bank Accounts
4.28 Investments
5.5 Board of Directors and Officers of the Company
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<PAGE>
STOCK PURCHASE AGREEMENT dated as of March __, 2000 (this
"AGREEMENT") between DualStar Technologies Corporation, a corporation validly
existing under the laws of Delaware (herein referred to as the "SELLER"), and
M/E Corp., a corporation validly existing under the laws of Delaware (herein
referred to as the "PURCHASER"). Unless the context requires otherwise,
capitalized terms used in this Agreement or in any schedule hereto, and not
otherwise defined herein or therein, shall have the respective meanings set
forth below in "Definitions."
W I T N E S S E T H:
WHEREAS, the Seller owns all of the shares of capital stock of
each of High-Rise Electric, Inc., a Delaware corporation ("HIGH RISE"),
Centrifugal Associates, Inc., a New Jersey corporation ("Centrifugal"), and
Mechanical Associates, Inc., a New York corporation ("MECHANICAL"; High Rise,
Centrifugal and Mechanical are sometimes referred to herein individually as an
"ACQUIRED ENTITY", and collectively as the "Company");
WHEREAS, High Rise is engaged in the business of providing
electrical contracting services to various types of customers and in other
construction-related activities;
WHEREAS, Centrifugal and Mechanical are engaged in the
business of providing mechanical contracting services to various types of
customers;
WHEREAS, the Seller will sell the Company Stock to the
Purchaser in exchange for an aggregate Purchase Price of $16,000,000;
NOW, THEREFORE, in consideration of the premises,
representations and warranties and the mutual covenants and agreements contained
herein and other good, valuable and sufficient consideration, the receipt of
which is hereby acknowledged, each of the Parties, intending to be legally
bound, hereby agrees as follows:
DEFINITIONS
A. As used in this Agreement and the Schedules delivered
pursuant to this Agreement, the following definitions shall apply:
"338(h)(10) ELECTION" means any valid, timely and effective
election under Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the
Treasury Regulations and any comparable election under state or local tax law
with respect to the Company.
"1933 ACT" means the Securities Act of 1933, as amended.
"ACCOUNTING FIRM" means the accounting firm selected by the
Parties to resolve any dispute arising pursuant to Section 7.1(c) hereof. In the
event that the Parties are unable to agree on an accounting firm, one will be
selected pursuant to an appropriate arbitration proceeding according to the
then-current commercial rules and supervision of the American Arbitration
Association.
<PAGE>
"ACQUIRED ENTITY" has the meaning set forth in the recitals.
"ACQUISITION" means the acquisition of the Company Stock by
the Purchaser from the Seller as contemplated by this Agreement.
"ACTION" means any action, complaint, petition, suit or other
proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Authority.
"AFFILIATE" means, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person. The
term "control" (including the terms "controlling," "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Agreement, as amended or supplemented,
together with all Exhibits, Annexes and Schedules attached or incorporated by
reference.
"ANCILLARY AGREEMENTS" means the Purchaser Note, the Security
Agreement, _____________________________________.
"APPROVAL" means any license, franchise, permit, approval,
authorization, consent, qualification or registration, or any waiver of any of
the foregoing, required to be obtained from, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental
Authority or any other Person.
"ANNUAL FINANCIAL STATEMENTS" means the unaudited consolidated
balance sheets of C/M and the unaudited balance sheets of High Rise, in each
case, as of the end of such Acquired Entities' fiscal years for the year ended
1998 and the related unaudited statement of income, shareholders' equity and
cash flows for the year then ended.
"BALANCE SHEET DATE" means December 31, 1999.
"BLACKACRE" has the meaning set forth in Section 6.1(e).
"BOARD OF DIRECTORS" means the board of directors of the
Seller.
"BUSINESS" means with respect to High Rise, the business of
High Rise, consisting primarily of providing electrical contracting services to
various types of customers, and with respect to each of Centrifugal and
Mechanical, the business of each such company, in each case, consisting
primarily of providing mechanical contracting services to various types of
customers.
"BYLAWS" means a corporation's bylaws, code of regulations or
equivalent document.
"CENTRIFUGAL" has the meaning set forth in the recitals.
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<PAGE>
"CHARTER" means a corporation's articles of incorporation,
certificate of incorporation or equivalent organizational documents.
"CLAIM" means any Action, cause of action, claim, demand,
demand letter, lien, notice of noncompliance or suit, commenced or threatened.
"CLOSING" has the meaning set forth in Section 1.2(a).
"CLOSING DATE" has the meaning set forth in Section 1.2(a).
"C/M" has the meaning set forth in Section 4.5.
"CMA" means Centrifugal/Mechanical Associates, Inc., a
Delaware corporation.
"CODE" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"COMMONLY CONTROLLED ENTITY" has the meaning set forth in
Section 4.15(c).
"COMPANY" has the meaning set forth in the recitals.
"COMPANY COUNSEL" means Andrews & Kurth L.L.P., special
counsel to the Company and the Seller.
"COMPANY PERMITS" means each of the Acquired Entities' and
each of their respective subsidiaries' permits, licenses, easements, variances,
exemptions, orders and Approvals required by applicable Law or Order to conduct
the business of each such Acquired Entity or subsidiary as it is now being
conducted, by the property or contract rights of third Persons material to the
conduct of each of the Acquired Entities' Business as it is now being conducted
or to permit the current occupancy of the Real Property.
"COMPANY STOCK" means the issued and outstanding shares of
capital stock of the Acquired Entities.
"CONFIDENTIAL INFORMATION" means all nonpublic data, reports,
records and other information of any kind, received by a Receiving Party or by
the Affiliates, shareholders, directors, partners, officers, employees, agents,
representatives, consultants or lenders of a Receiving Party from a Delivering
Party or from the Affiliates, shareholders, partners, directors, officers,
employees, agents, representatives, consultants or lenders of a Delivering
Party.
"CONSENT" means any consent, approval, license, authorization,
order, filing, permit, registration or qualification of or with any Person.
"DECREES" means all orders, judgments or decrees of any
Governmental Authority, administrative agency or court of competent
jurisdiction, specifically applicable to an Acquired Entity or subsidiary
thereof or the conduct of the Business of an Acquired Entity or the business
- 3 -
<PAGE>
of a subsidiary thereof, or by which an Acquired Entity or subsidiary thereof or
any of its properties is bound or affected.
"DELIVERING PARTY" means a Party or the Affiliates,
shareholders, partners, directors, officers, employees, agents, representatives,
consultants or lenders of such Party which delivers Confidential Information to
the Receiving Party.
"ENCUMBRANCE" means any charge, encumbrance, lien, mortgage,
pledge, option, right of first refusal, equity, adverse claim or restriction or
other security interest of any nature or kind whatsoever, except for any
restrictions on transfer generally arising under any applicable federal or state
securities law.
"ERISA" has the meaning set forth in Section 4.15(a).
"EVENT OF INDEMNIFICATION" means the untruth, inaccuracy or
breach of any representation, warranty, agreement or covenant of any Party
contained in this Agreement or in any certificate, schedule, list, exhibit,
agreement, document or other writing delivered pursuant hereto or in connection
with the Transactions, and any Claim or Liability for any fee, commission,
compensation or other payment by any broker, finder or similar agent, or
Liability with respect thereto, who claims to have been, or who was in fact,
engaged by or on behalf of the Seller, an Acquired Entity or the Purchaser in
connection with the Transactions.
"FAIRNESS OPINION" has the meaning set forth in Section
6.1(d).
"FINAL PRE-CLOSING PERIOD" means the taxable period beginning
on _________ and ending on or prior to the Closing Date.
"FOREIGN PENSION PLAN" has the meaning set forth in Section
4.15(e).
"GAAP" means generally accepted accounting principles in the
United States, consistently applied throughout the periods indicated.
"GCL" has the meaning set forth in Section 1.3.
"GOVERNMENTAL AUTHORITY" means any foreign, federal or
national, state or provincial, municipal or local government, governmental
authority, regulatory or administrative agency, governmental commission,
department, board, bureau, agency or instrumentality, political subdivision,
court, tribunal, official arbitrator or arbitral body.
"HIGH RISE" has the meaning set forth in the recitals.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"INDEBTEDNESS" of an Acquired Entity means (i) all obligations
for borrowed money or with respect to deposits or advances of any kind, however
evidenced, including but not limited to principal and interest, (ii) all
obligations for the deferred purchase price of property or
- 4 -
<PAGE>
services, except for current accounts payable relating to trade payables arising
in the ordinary course of business and not overdue, (iii) all obligations as an
account party under any letter of credit or in respect of bankers' acceptances
or surety bonds or similar suretyships to the extent due and payable, (iv) all
obligations of any third party secured by property or assets of such Acquired
Entity, a subsidiary thereof or the Seller, as applicable (regardless of whether
such Acquired Entity, subsidiary or the Seller is liable for the repayment of
such obligations), (v) all guarantees of obligations by such Acquired Entity,
subsidiary or the Seller, as applicable and (vi) all obligations, contingent or
otherwise under any capitalized lease.
"INDEMNITEE" means any Party and its respective officers,
directors, employees, partners, shareholders, agents, representatives, and its
respective permitted successors and assigns, who may be entitled to
indemnification under Article VIII of this Agreement.
"INDEMNITOR" means any Party who may be obligated under
Article VIII of this Agreement to provide indemnification to an Indemnitee.
"INDEMNITY AGREEMENT" means the agreement of the parties
hereto to indemnify each other pursuant to Section 8.1 hereof.
"INDEMNITY NOTICE" means the written notice from the
Indemnitee to the Indemnitor in the event that the Indemnitee reasonably
believes that it has a Claim in respect of which indemnity may be sought based
on the Indemnity Agreement, which claim is not in respect of a Third Party
Claim, stating the nature and basis of such Claim.
"INDEMNITY RESPONSE" means the response in writing from the
Indemnitor to the Indemnitee given pursuant to Section 8.3(b) hereof.
"INDEPENDENT THIRD PARTY" means a firm of independent
accountants of national reputation.
"INTERCOMPANY INDEBTEDNESS" means the Seller's outstanding
indebtedness to the Acquired Entities pursuant to _______, dated as of _______
[DualStar to complete].
"INTERIM BALANCE SHEET DATE" means [December 31, 1999].
"INTERIM FINANCIAL STATEMENTS" means true and correct copies
of the unaudited consolidated balance sheet of C/M and the unaudited balance
sheet of High Rise, in each case, as of December 31, 1999 and the related
unaudited statements of income, shareholders' equity and cash flows for the six
months ended December 31, 1999.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" when used with respect to the Seller means the
actual knowledge of the persons identified in Exhibit __ hereto.
"LAW" means any statute, rule, regulation, administrative
requirement, code or ordinance of any Governmental Authority.
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<PAGE>
"LEASED REAL ESTATE" means all material parcels of real
property leased or subleased to an Acquired Entity as of the date hereof.
"LETTER OF INTENT" has the meaning set forth in Section
6.1(e).
"LIABILITIES" means any and all debts, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured, or determined or not determinable. When used
with respect to any Acquired Entity or subsidiary thereof, "Liabilities" shall
include, without limitation, all such Liabilities owed to suppliers,
contractors, subcontractors and any other such Persons who have provided or are
providing goods or services to such Acquired Entity or subsidiary.
"LOSSES" means any and all losses, costs, damages,
liabilities, assessments and expenses (including interest, penalties and
reasonable attorney's fees) ("LOSS ITEMS") sustained, suffered or incurred by
any Indemnitee, whether or not involving any Third Party Claim less (i) any
amounts received by such Indemnitee under insurance policies with respect to
Loss Items and (ii) any aggregate net tax benefit realized by the Indemnitee
arising from the incurrence or payment of any such Loss Item.
"MADELEINE NOTE" means the Amended and Restated Promissory
Note dated as of December 1, 1999 from the seller in favor of Madeleine L.L.C.
"MADELEINE PLEDGE" means the pledge to Madeleine L.L.C. and
grant to Madeleine L.L.C. of a security interest in the outstanding shares of
capital stock and other equity interests held by the Seller of each of the
Acquired Entities in connection with the Madeleine Note.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
the condition (financial or otherwise), results of operations, assets,
liabilities or business of the Company and its subsidiaries, taken as a whole;
provided that any such effect resulting from any change in economic conditions
generally or in the industries in which the Company operates shall not be
considered when determining whether a material adverse effect has occurred.
"MECHANICAL" has the meaning set forth in the recitals.
"NON-COMPETITION AGREEMENT" means the agreements not to
compete entered into by the Purchaser and Seller in the form attached hereto as
Exhibit __.
"NOTICE OF SUPERIOR PROPOSAL" has the meaning set forth in
Section 5.5(b).
"ORDER" means any consent or other type of decree, injunction,
stipulation, determination, judgment, order, ruling, arbitration award,
assessment or writ.
"OWNED REAL ESTATE" means all parcels of real property owned
in fee by an Acquired Entity as of the date hereof.
"PARTIES" means the Purchaser and the Seller.
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<PAGE>
"PENSION PLAN" has the meaning set forth in Section 4.15(e).
"PERMITTED LIENS" means:
(a) Encumbrances for Taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that adequate
reserves in accordance with GAAP with respect to contested Taxes are maintained
on the books of an Acquired Entity or any of their respective subsidiaries;
(b) pledges or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other social security legislation;
(c) easements, rights-of-way, restrictions and other similar
encumbrances previously incurred in the ordinary course of business which, in
respect of real property and assets of the Company taken as a whole, are not
material, and which, in the case of such encumbrances on the real property of an
Acquired Entity or any of their respective subsidiaries, do not detract from the
value of any such real property or interfere with any present use of such
properties or assets;
(d) statutory and contractual Encumbrances on the property of
an Acquired Entity or any of their respective subsidiaries in favor of the
applicable landlord securing the relevant underlying lease;
(e) Carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like encumbrances arising in the ordinary course of
business which are not overdue for a period of more than 90 days or which are
being contested in good faith by appropriate proceedings, except for such liens
which are filed of record and for which adequate reserves are reflected on the
books and records of an Acquired Entity or any of their respective subsidiaries;
and
(f) deposits to secure the performance of bids, contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
consistent with past practices and in the ordinary course of business.
"PERSON" shall include any individual, trust, trustee, firm,
corporation, partnership, limited liability company, joint venture, joint stock
company, Governmental Authority or other entity, whether acting in an
individual, fiduciary or any other capacity.
"PLAN" has the meaning set forth in Section 4.15(a).
"PRE-CLOSING PERIOD" means all taxable periods ending on or
prior to the Closing Date.
"PROXY STATEMENT" means a collective reference to the letter
to stockholders, notice of meeting, proxy statement and form of proxy (including
any amendments or supplements thereto and any schedules required to be filed
with the SEC in connection therewith) to be distributed to stockholders of the
Seller in connection with the Transactions.
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"PURCHASE PRICE" means $16,000,000, consisting of (i)
$3,000,000 in cash and (ii) the Purchaser Note.
"PURCHASER" means M/E Corp., a Delaware corporation.
"PURCHASER'S COUNSEL" means Schulte Roth & Zabel LLP, special
counsel to the Purchaser.
"PURCHASER NOTE" means a ten-year senior secured promissory
note of the Purchaser payable to the Seller in the principal amount of
$13,000,000, bearing interest at the rate of 10% per annum, in the form attached
hereto as Exhibit __.
"REAL PROPERTY" means the Owned Real Estate and Leased Real
Estate.
"RECEIVING PARTY" means a Party or the Affiliates,
shareholders, partners, directors, officers, employees, agents, representatives,
consultants or lenders of such Party which receives Confidential Information
from a Delivering Party.
"RELEVANT GROUP" means the Acquired Entities and any
affiliated group as defined in Section 1504 of the Code of which an Acquired
Entity is or was a member and any combined, consolidated, unitary or similar
group of which an Acquired Entity is or was a member.
"REPRESENTATIVES" means Persons acting on behalf of the
Seller, the Company or the Purchaser as the context requires, including without
limitation their respective independent accountants, investment bankers and
counsel.
"SALE(S)" means the sale, lease, transfer, assignment or other
disposition of any of the assets of an Acquired Entity or any subsidiary
thereof.
"SECURITY AGREEMENT" means the security agreement made by the
Purchaser in favor of the Seller, substantially in the form of Exhibit __
hereto.
"SEC" means the Securities and Exchange Commission.
"SELLER" means DualStar Technologies Corporation, a Delaware
corporation.
"SELLER COMMON STOCK" means the common stock, $.01 par value
per share, of the Seller.
"STOCKHOLDERS' MEETING" has the meaning set forth in Section
1.3.
"SUPERIOR PROPOSAL" means any bona fide Takeover Proposal
which the Board of Directors determines in its good faith reasonable judgment to
be more favorable to the Seller's stockholders than the Transactions.
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"SURVIVAL DATE" means (i) with respect to the representations
and warranties described in Section 4.6, the date on which the applicable
statute of limitations has expired, including any extensions thereto, but in no
event longer than 7 years after the date hereof, (ii) with respect to Section
4.12, the date on which the applicable statute of limitations has expired,
including any extensions thereto, (iii) with respect to the representations and
warranties described in Section 3.2, 3.3, 3.4 and 4.2 hereof, indefinitely, and
(iv) with respect to any other Event of Indemnification, 12 months after the
date hereof.
"TAKEOVER PROPOSAL" means any acquisition or purchase of a
substantial amount of the properties or assets of the Company or the Seller, or
any merger, consolidation, business combination, sale of substantially all
properties and/or assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company or the Seller (other than the transactions
contemplated hereby) or any other transaction the consummation of which would
reasonably be expected to impede, interfere with, prevent or materially delay
the consummation of the Transactions, or any agreement to, or public
announcement by the Seller or any other Person of a proposal, plan or intention
to do any of the foregoing.
"TAX(ES)" means taxes, fees, levies, duties, tariffs, imposts,
and governmental impositions or charges of any kind in the nature of (or similar
to) taxes, payable to any federal, state, local or foreign Taxing Authority,
including, without limitation, (i) income, franchise, profits, gross receipts,
ad valorem, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, and (ii) interest, penalties, additional
taxes and additions to tax imposed with respect thereto.
"TAX CLAIM" means any audit or claim for Taxes made by any
Taxing Authority in writing, which, if successful, might result in an indemnity
payment pursuant to Article VII hereof.
"TAX INDEMNIFIED PARTY" means the Party entitled to
indemnification for Taxes pursuant to Article VII hereof.
"TAX INDEMNIFYING PARTY" means the Party who is obligated to
indemnify the other Party for Taxes pursuant to Article VII hereof.
"TAX LAWS" means the Code, federal, state, county, local or
foreign laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
"TAX RETURN" means any return, report, information return,
schedule, certificate, statement or other document (including any related or
supporting information) filed or required to be filed with, or, where none is
required to be filed with a Taxing Authority, the statement or other document
(if any) issued by, a Taxing Authority in connection with any Tax (including,
but not limited to, returns required in connection with any Plans).
"TAX STATEMENT" has the meaning set forth in Section 7.1(c).
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"TAXING AUTHORITY" means any Governmental Authority
responsible for the imposition or collection of any Taxes, whether domestic or
foreign.
"TERMINATION FEE" has the meaning set forth in Section
15.3(a).
"THIRD PARTY CLAIM" means a Claim resulting from the assertion
of liability by third parties.
"TRANSACTIONAL COSTS" means all of a Party's legal,
accounting, brokers', finders', advisory and other reasonable fees and
out-of-pocket costs and expenses incurred as a result of this Agreement or the
Transactions.
"TRANSACTIONS" means collectively the Acquisition and the
other transactions contemplated in this Agreement.
"TRANSFER TAXES" means any sales, use, transfer, documentary,
real property transfer, recording, gains, stamp, registration, stock transfer
and any other similar taxes and fees.
"TRIGGERING EVENT" has the meaning set forth in Section
15.3(a).
"WARN ACT" means the Worker Adjustment and Retraining
Notification Act.
"WELFARE PLAN" has the meaning set forth in Section 4.15(a).
B. Certain References.
Accounting Terms. All accounting terms not otherwise defined
herein shall have the meanings provided under GAAP on the date hereof.
Herein; Hereof; Hereunder. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Article or other subdivision.
Pronouns. Any masculine personal pronoun herein shall be
considered to include the corresponding feminine or neuter personal pronoun, as
the context requires, and vice versa.
ARTICLE I
PURCHASE AND SALE OF SHARES AND CLOSING
Section 1.1 Purchase and Sale of Stock.
(a) Purchase and Sale. Upon the terms and subject to the
conditions contained in this Agreement and in reliance upon the representations,
warranties, covenants and agreements contained in this Agreement, on the Closing
Date, the Seller shall sell, convey and transfer to the Purchaser and the
Purchaser shall purchase from the Seller all of the Company Stock as described
on Annex I hereto, free and clear of all Encumbrances except for the Madeleine
Pledge.
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(b) Purchase Price. The Purchase Price for the Company Stock
shall be $16,000,000 (Sixteen Million Dollars), consisting of (i) $3,000,000 in
cash and (ii) the Purchaser Note.
(c) Allocation of Purchase Price. The Purchase Price shall be
allocated $_______ to the capital stock of Centrifugal and Mechanical and
$________ to the capital stock of High Rise.
Section 1.2 Closing.
(a) Closing. The closing (the "CLOSING") of the Transactions
shall take place at the offices of Schulte Roth & Zabel LLP, 900 Third Avenue,
New York, New York, 10022, commencing at 10:00 a.m. local time on or before
[__________] (the "CLOSING DATE"), provided that all of the conditions set forth
in Article VI have been satisfied or waived by the party entitled to grant such
waiver, or at or on any other mutually agreeable place, time or date, or if no
date has been agreed to, on any date specified by one party to the other upon
five days' notice following satisfaction or waiver by the party entitled to
grant such waiver of the latest to occur of the conditions set forth in Article
VI.
(b) Deliveries of Purchase Price and Share Certificates. If
all conditions set forth in Article VI are satisfied or waived by the party
entitled to grant such waiver, at the Closing (i) the Purchaser shall deliver to
the Seller the cash portion of the Purchase Price contemplated by Section 1.1(b)
by either bank draft or certified check made to the order of the Seller, (ii)
the Purchaser shall deliver to the Seller the Purchaser Note and (iii) the
Seller shall deliver or cause to be delivered to the Purchaser certificates
representing the Company Stock, duly endorsed in blank by the Seller, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Seller's expense, affixed and cancelled.
Section 1.3 Stockholders' Meeting. The Seller will take all
action necessary in accordance with and subject to applicable law and its
Charter and Bylaws to convene a meeting of its stockholders (the "STOCKHOLDERS'
MEETING") as soon as practicable after the date of this Agreement to consider
and vote upon the adoption and authorization of this Agreement and the approval
of the Transactions. Subject to the fiduciary duties of the Board of Directors,
the Seller shall (a) prepare, file with the SEC and send to its stockholders a
Proxy Statement which shall include the recommendation of the Board of Directors
that holders of Seller Common Stock adopt and authorize this Agreement and the
Transactions and (b) use its reasonable best efforts to obtain the adoption and
authorization of this Agreement and the Transactions by the stockholders of the
Seller.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES REGARDING THE PURCHASER
The Purchaser represents and warrants to the Seller as
follows:
Section 2.1 Organization and Qualification. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Purchaser has the requisite corporate power and
authority to (i) own, lease and operate its properties, (ii) carry on its
business as it is now being conducted and (iii) consummate the Transactions. The
Purchaser is duly qualified or licensed and in good standing as a foreign
corporation authorized to do business under the laws of each jurisdiction where
the character of the properties owned, leased or used by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
reasonably be expected to have a material adverse effect on the closing of the
Transactions.
Section 2.2 Authority and Absence of Conflict.
(a) The Purchaser has the requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the other agreements and instruments to be executed and delivered by the
Purchaser hereunder or in connection herewith and to carry out its obligations
hereunder and thereunder. The execution and delivery by the Purchaser of this
Agreement and the other agreements and instruments to be executed and delivered
by the Purchaser hereunder or in connection herewith and the closing of the
Transactions by the Purchaser have been duly authorized by all requisite
corporate action required on the part of the Purchaser. This Agreement and the
other agreements and instruments to be executed and delivered by the Purchaser
hereunder or in connection herewith have been duly executed or when executed
will be duly executed by the Purchaser and constitute (or upon execution, will
constitute) the valid and legally binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with their respective terms,
except insofar as enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws which may affect creditors' rights and remedies
generally and by principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(b) The execution and delivery by the Purchaser of this
Agreement and the other agreements and instruments to be executed and delivered
by the Purchaser hereunder or in connection herewith, the closing of the
Transactions by the Purchaser, and compliance with the provisions hereof and
thereof do not and will not violate, or conflict with, or result in a breach of
any provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) or create an Encumbrance on
the capital stock of the Purchaser including, without limitation, under any of
the terms, conditions or provisions of the Charter, Bylaws, or other similar
organizational documents of the Purchaser.
(c) The execution and delivery by the Purchaser of this
Agreement and the other agreements and instruments to be executed and delivered
by the Purchaser hereunder or in
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connection herewith, the closing of the Transactions by the Purchaser, and
compliance by the Purchaser with the provisions hereof and thereof do not and
will not (i) violate, or conflict with, or result in a breach of any provisions
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or give rise to a right of termination,
cancellation, modification or acceleration of the performance required by or a
loss of a material benefit under, or result in the creation of any Encumbrance
upon any of the properties or assets of the Purchaser under, any note, bond,
mortgage, indenture, deed of trust, license, agreement, lease, permit, franchise
or other instrument or obligation to which the Purchaser is a party or by which
the Purchaser or any of its properties are bound or affected, or (ii) violate
any Order or Law applicable to the Purchaser or by which any of its properties
is bound or affected.
Section 2.3 Approvals.
(a) Schedule 2.3 hereto contains a list of all Approvals of
Governmental Authorities that are required to be given by or obtained by the
Purchaser in connection with the closing of the Transactions by the Purchaser,
except where the failure to give or to obtain such Approvals, individually or in
the aggregate, would not reasonably be expected to have a material adverse
effect upon the closing of the Transactions.
(b) Schedule 2.3 hereto contains a list of all Approvals that
are required to be given by or obtained by the Purchaser from any and all third
parties in connection with the closing of the Transactions by the Purchaser. The
Purchaser has obtained all Approvals which are required to be given by or
obtained by the Purchaser in connection with the closing of the Transactions
from any and all third parties except where the failure to give or to obtain
such Approvals, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect upon the closing of the Transactions.
Section 2.4 Purchase for Investment. The Purchaser is
purchasing the Company Stock for its own account and with no intention of
distributing or reselling such Company Stock or any part thereof in any
transaction that would be in violation of the securities law of the United
States or any state.
Section 2.5 Access to Information. The Purchaser has had such
access to information regarding the Acquired Entities and Acquired Entities'
officers, and has had an opportunity to ask such questions of the Seller and the
Acquired Entities' officers to enable the Purchaser to make an informed
investment decision with respect to the Transactions.
Section 2.6 Conduct of Business of the Purchaser. The
Purchaser has not engaged in any activities of any nature except in connection
with the Transactions.
Section 2.7 Material Misstatements or Omissions. No
representation, warranty or statement by the Purchaser in this Agreement or in
any Exhibit or Schedule furnished or to be furnished by the Purchaser pursuant
hereto, or in connection with the Transactions, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading. None of
the information furnished or to be furnished by the Purchaser for inclusion or
incorporation by reference in the
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Proxy Statement, at the date of mailing to stockholders and at the time of the
Stockholders' Meeting, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
Section 2.8 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based on arrangements made by or on behalf of the
Purchaser or any of its affiliates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER
The Seller represents and warrants to the Purchaser as
follows:
Section 3.1 Organization and Qualification. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Seller has the requisite corporate power and
authority to (i) own, lease and operate its properties, (ii) carry on its
business as it is now being conducted and (iii) consummate the Transactions. The
Seller is duly qualified or licensed and in good standing as a foreign
corporation authorized to do business under the laws of each jurisdiction where
the character of the properties owned, leased or used by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
reasonably be expected to have a Material Adverse Effect.
Section 3.2 Authority and Absence of Conflict.
(a) The Seller has the requisite power and authority to
execute, deliver and perform its obligations under this Agreement and the other
agreements and instruments to be executed and delivered by the Seller hereunder
or in connection herewith, and to carry out its obligations hereunder and
thereunder. This Agreement and the other agreements and instruments to be
executed and delivered by the Seller hereunder or in connection herewith
constitute (or upon execution, will constitute) the valid and legally binding
obligations of the Seller, enforceable against the Seller in accordance with
their respective terms, except insofar as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws which may affect
creditors' rights and remedies generally and by principles of equity (regardless
of whether enforceability is considered in a proceeding in equity or at law).
(b) The execution and delivery by the Seller of this Agreement
and the other agreements and instruments to be executed and delivered by the
Seller hereunder or in connection herewith, the closing of the Transactions by
the Seller, and compliance by Seller with the provisions hereof and thereof do
not and will not (i) violate, or conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or give rise to a right of
termination, cancellation, modification or acceleration of the performance
required by or a loss of a material benefit under, or result in the creation of
any Encumbrance upon any of the capital stock of an Acquired Entity
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or subsidiary thereof or any other properties or assets of an Acquired Entity or
subsidiary thereof under, any note, bond, mortgage, indenture, deed of trust,
license, agreement, lease, permit, franchise or other instrument or obligation
to which the Seller, an Acquired Entity or subsidiary thereof is a party or by
which its properties are bound or affected, except in any such case (A) for any
such violation, conflict, breach, default, termination, cancellation,
modification, acceleration, loss or creation that would not reasonably be
expected to have a Material Adverse Effect or (B) for the effect of such
execution, delivery, closing and compliance on the Surety Bonds set forth in
Schedule 3.2(b) hereto, or (ii) violate any Order or Law applicable to the
Seller, an Acquired Entity or a subsidiary thereof or by which any of the
properties of the Seller, an Acquired Entity or subsidiary thereof is bound or
affected except as would not reasonably be expected to have a Material Adverse
Effect.
Section 3.3 Ownership of Capital Stock. The Seller is the sole
beneficial and record owner of the Company Stock, free and clear of any
Encumbrances, except for the Madeleine Pledge, or preemptive rights. Other than
this Agreement, (i) the Seller is not a party to or bound by any voting trust
agreements, proxies or other contracts or arrangements restricting or relating
to the Company Stock, except for the Madeleine Note and the Madeleine Pledge;
and (ii) the Seller is not a party to any option, warrant, purchase right or
other contract or commitment that could require the Seller to sell, transfer or
otherwise dispose of any Company Stock, except for the Madeleine Note and the
Madeleine Pledge.
Section 3.4 Preemptive Right. The Seller does not have, or
hereby waives, any preemptive or other right to acquire additional shares of
Company Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
The Seller represents and warrants to the Purchaser as
follows:
Section 4.1 Organization and Qualification. Each of the
Acquired Entities and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, as described on Schedule 4.1 hereto. Each of the Acquired
Entities and its subsidiaries has the requisite corporate power and authority
necessary to (i) own, lease and operate its properties, (ii) carry on its
business as it is now being conducted and (iii) consummate the Transactions.
Each of the Acquired Entities and its subsidiaries is duly qualified or licensed
and in good standing as a foreign corporation authorized to do business under
the laws of each jurisdiction where the character of the properties owned,
leased or used by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not reasonably be expected to have a
Material Adverse Effect.
Section 4.2 Authority and Absence of Conflict.
(a) Each of the Acquired Entities and its subsidiaries has the
requisite corporate power and authority necessary to execute, deliver and
perform its obligations under the
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agreements and instruments to be executed and delivered by it hereunder or in
connection herewith and to carry out its obligations hereunder and thereunder.
The execution and delivery by each of the Acquired Entities and its subsidiaries
of the agreements and instruments to be executed and delivered by it hereunder
or in connection herewith have been duly authorized by all requisite corporate
action required on the part of each such entity. The agreements and instruments
to be executed and delivered by each of the Acquired Entities and its
subsidiaries hereunder or in connection herewith have been duly executed by such
entity and constitute (or upon execution, will constitute) the valid and legally
binding obligations of each such entity enforceable against it in accordance
with their respective terms, except insofar as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws which may affect
creditors' rights and remedies generally and by principles of equity (regardless
of whether enforceability is considered in a proceeding in equity or at law).
(b) The execution and delivery by each of the Acquired
Entities and its subsidiaries of the agreements and instruments to be executed
and delivered by it hereunder or in connection herewith, the closing of the
Transactions and compliance by each of the Acquired Entities and its
subsidiaries with the provisions thereof do not and will not violate, or
conflict with, or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default), or create an Encumbrance upon the capital stock of any
such Acquired Entity or subsidiary thereof (other than in connection with the
Transactions), under any of the terms, conditions or provisions of the Charter
or Bylaws of the Acquired Entities and their respective subsidiaries.
(c) The execution and delivery by each of the Acquired
Entities and its subsidiaries of the agreements and instruments to be executed
and delivered hereunder or in connection herewith, the closing of the
Transactions and compliance with the provisions thereof do not and will not (i)
violate, or conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or give rise to a right of termination,
cancellation, modification or acceleration of the performance required by or a
loss of a material benefit under, or result in the creation of any Encumbrance
upon any of the properties or assets of any Acquired Entity or subsidiary
thereof under, any note, bond, mortgage, indenture, deed of trust, lease,
material license, agreement, permit, franchise or other instrument or obligation
to which such entity is a party or by which any of its properties are bound or
affected, except in any such case (A) for any such violation, conflict, breach,
default, termination, cancellation, modification, acceleration, loss or creation
that would not reasonably be expected to have a Material Adverse Effect or (B)
for the effect of such execution, delivery, closing and compliance on the Surety
Bonds [DualStar to review]; or (ii) violate any Order or any Law applicable to
any Acquired Entity or subsidiary thereof or by which any of its properties is
bound or affected except as would not reasonably be expected to have a Material
Adverse Effect.
(d) Except (i) as may be required under the HSR Act and (ii)
for any Consents where the failure to obtain such Consents would not reasonably
be expected to have a Material Adverse Effect, no Consent of or with any court,
Governmental Authority or third Person is required to be obtained by any
Acquired Entity in connection with the execution and delivery of this Agreement
by the Seller or the consummation by the Company of the Transactions.
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Section 4.3 Corporate Records. The corporate records of each
Acquired Entity and subsidiary thereof accurately reflect all material action
taken and authorizations made at meetings of the board of directors or any
committee thereof and at any shareholder meetings of such Acquired Entity or
subsidiary.
Section 4.4 Capital Stock; Subsidiaries.
(a) The authorized capital stock, all of which is validly
issued, fully paid, and non-assessable, the par value per share and the number
of issued and outstanding shares and treasury shares of each of the Acquired
Entities is set forth on Schedule 4.4 hereto.
(b) There are no outstanding options, warrants, agreements,
rights (including without limitation, preemptive rights or rights of conversion
or exchange), contracts, calls, puts, demands, or commitments of any character
relating to any shares of capital stock of or any other equity interest in any
Acquired Entity.
(c) No Acquired Entity has any direct or indirect equity or
ownership interest in any business and owns no subsidiaries other than the
ownership by each of Centrifugal and Mechanical of 50% of the capital stock of
CMA.
Section 4.5 Financial Statements.
(a) Attached as Exhibit A to Schedule 4.5 hereto are true and
correct copies of the Annual Financial Statements. The Annual Financial
Statements have been prepared in accordance with GAAP. The balance sheets
included in the Annual Financial Statements present fairly in all material
respects, in accordance with GAAP, the financial condition of (i) Centrifugal
and Mechanical (collectively, "C/M") and (ii) High Rise, in each case, as of its
date, and the statements of operations included in the Annual Financial
Statements present fairly, in accordance with GAAP, the results of operations of
C/M and High Rise as of the dates of such statements and for the period covered
thereby.
(b) Attached as Exhibit B to Schedule 4.5 hereto are true and
correct copies of the Interim Financial Statements. Such Interim Financial
Statements were prepared in a manner consistent with the Annual Financial
Statements, and fairly present the consolidated results of C/M's operations and
the results of High Rise's operations for the periods indicated, except that
such statements are subject to normal and non-recurring quarterly and year-end
adjustments, as applicable, which were not or are not expected to be material in
amount. The books and records of the C/M and High Rise from which the Annual
Financial Statements and Interim Financial Statements were prepared were
complete and accurate at the time of such preparation.
Section 4.6 Tax Matters.
(a) Except as set forth on Schedule 4.6 hereto, since
[__________]: (i) all Tax Returns required to be filed with any Taxing Authority
on or before the date hereof by or with respect to each of the Acquired Entities
have been duly and timely filed, and each such Tax Return is true, correct and
complete in all material respects; (ii) all Taxes due and payable by any
Acquired Entity, if any, whether or not shown on any Tax Return, have been
timely paid; (iii)
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there are no other Taxes that would be due by any Acquired Entity if asserted by
a Taxing Authority, except with respect to which such Acquired Entity is
maintaining adequate reserves in accordance with GAAP or contesting in good
faith; and (iv) each Acquired Entity duly and timely withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder or other third
party.
(b) Except as set forth on Schedule 4.6 hereto since
[__________]: (i) no unpaid (or unreserved in accordance with GAAP) deficiencies
for Taxes have been claimed, proposed or assessed by any Taxing Authority with
respect to any Acquired Entity; (ii) there are no pending or threatened audits,
investigations or claims for or relating to any liability in respect of Taxes of
any Acquired Entity; (iii) no Acquired Entity has requested any extension of
time within which to file any currently unfiled Tax Return; (iv) no extension of
a statute of limitations relating to any Taxes or Tax Returns is in effect or
effective with respect to any Acquired Entity; and (v) no Acquired Entity has
entered into any sale leaseback or any leveraged lease transaction.
(c) Except as set forth on Schedule 4.6 hereto: (i) there are
no liens for Taxes (other than for current Taxes not yet due and payable for
which adequate reserves have been made under GAAP) upon the assets of any
Acquired Entity; (ii) there are no private letter rulings in respect of any Tax
pending between any Acquired Entity and any Taxing Authority; (iii) no Acquired
Entity has ever been a member of an affiliated group within the meaning of
Section 1504(a) of the Code or filed or been included in a combined,
consolidated or unitary return of any Person; (iv) no Acquired Entity is
currently under any contractual obligation to indemnify any Person with respect
to Taxes or is a party to any tax sharing agreement or any other agreement
providing for payments by such Acquired Entity with respect to Taxes; (v) no
Acquired Entity will be required, as a result of a change in method of
accounting for (A) any taxable period ending on or before the date hereof or (B)
any taxable period that includes (but does not end on) the date hereof, but only
to the extent of the portion of such period that ends on the date hereof, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of foreign law) in taxable income for any taxable period after the
date hereof; (vi) no Acquired Entity is a party to any agreement, contract,
arrangement or plan that would result after the Closing (taking into account the
transactions contemplated by this Agreement), separately or in the aggregate, in
the payment of any excess parachute payments within the meaning of Section 280G
of the Code; (vii) Schedule 4.6 hereto lists all income Tax Returns filed by or
on behalf of each Acquired Entity for the taxable periods ended on or after
[_________] and indicates those income Tax Returns that have been audited and
those that currently are the subject of audit; (viii) no Acquired Entity has
made an election nor is any Acquired Entity required to treat any of its assets
as owned by another person within the meaning of Section 168(f) of the Code (or
any corresponding provision of state, local or foreign law); (ix) no Acquired
Entity is a party to any joint venture, partnership or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes; (x) all material elections with respect to Taxes affecting the Company
as of the date hereof are disclosed on the Tax Returns previously delivered to
the Purchaser or on the Annual Financial Statements; (xi) none of the Acquired
Entities are a consenting party within the meaning of Section 341(f) of the Code
(or any corresponding provision of state, local or foreign law); and (xii) with
respect to periods
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commencing on or after the Balance Sheet Date, no Acquired Entity has incurred
any material liability for Taxes (other than in the ordinary course of
business).
Section 4.7 Real Property and Leaseholds. No Acquired Entity
holds any Owned Real Estate or Leased Real Estate except as set forth on
Schedule 4.7. [DualStar to confirm.]
Section 4.8 Title to Assets. Each Acquired Entity and each of
its subsidiaries has good and valid title to all of the material properties and
material assets owned by it reflected in the Annual Financial Statements or
acquired after the Balance Sheet Date (except inventory and other properties
disposed of in the ordinary course of business since the Balance Sheet Date and
accounts or notes receivable paid since the Balance Sheet Date), free and clear
of all Encumbrances, except for Permitted Liens.
Section 4.9 Property, Plant and Equipment. All items of
property, plant and equipment leased or owned by the Acquired Entities and each
of their respective subsidiaries in connection with the operation of its
business as currently conducted are reflected in Exhibit B to Schedule 4.5.
Section 4.10 Accounts Receivable. An accurate list of the
accounts and notes receivable of each of the Acquired Entities and each of their
respective subsidiaries as of December 31, 1999, including all such amounts
which are not reflected in the balance sheet as of the Balance Sheet Date and
including receivables from and advances to employees and the Seller, is
reflected on Exhibit B to Schedule 4.5 hereto.
Section 4.11 Contracts. A correct and accurate list of all
written contracts necessary or material to the conduct of each Acquired Entity's
Business and the business of each subsidiary of an Acquired Entity as presently
conducted is reflected on Exhibit B to Schedule 4.11. To the Seller's knowledge,
all such contracts are in full force and effect and are valid and enforceable
obligations of each such Acquired Entity or subsidiary thereof. No Acquired
Entity or subsidiary thereof has received written notice of any plan or
intention of any other party to any such contract to exercise any right to
cancel or terminate any such contract.
Section 4.12 Compliance with Law. The Business of each
Acquired Entity and each subsidiary thereof is and has been conducted in
compliance in all material respects with and does not violate, and no Acquired
Entity or subsidiary thereof is in conflict with, or in material default or
violation of, any Decrees, Laws or Orders, and, to the Seller's Knowledge,
neither the Seller nor any Acquired Entity or subsidiary thereof has received
any notice from any Governmental Authority alleging any such lack of compliance,
violation, conflict or default.
Section 4.13 Permits and Other Operating Rights. The Company
has made and/or possesses all Company Permits required by applicable Law or
Order or by the property or contract rights of third Persons to be made and/or
possessed by the Company which are material to the conduct of each Acquired
Entity's Business and the business of each subsidiary of such Acquired Entity as
it is now being conducted and are necessary to conduct each such Business or
business upon the consummation of the Transactions (including upon any change of
control of
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the Company, an Acquired Entity or subsidiary thereof) or to permit the
continued occupancy of the Real Property in accordance with its current use.
Each of the Acquired Entities and its subsidiaries is in compliance in all
material respects with the terms of the Company Permits. All Company Permits are
listed in Schedule 4.13 hereto. Except as specifically provided in Schedule 4.13
hereto, to the Seller's knowledge, the consummation of the Transactions will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded to an Acquired Entity or subsidiary thereof by, any
such Company Permits or other rights.
Section 4.14 Litigation. The list of Actions pending or, to
the Seller's Knowledge, Claims threatened against or other facts or
circumstances, that could result in any material Claims against an Acquired
Entity or subsidiary thereof or any of its properties or any other entities by
or on behalf of the Company, whether at law, in equity or in any arbitration
proceeding, set forth in Exhibit B to Schedule 4.5 have been reflected in the
Interim Financial Statements in accordance with GAAP.
Section 4.15 ERISA Matters.
(a) Schedule 4.15 identifies each retirement, pension,
savings, bonus, stock purchase, profit sharing, stock option, deferred
compensation, severance or termination pay, insurance, death, medical, hospital,
dental, vision care, drug, sick leave, disability, salary continuation,
vacation, incentive or other compensation plan or arrangement or other employee
benefit (each a "PENSION PLAN") that any Acquired Entity or its subsidiaries
currently maintains or to which such Acquired Entity or subsidiary thereof
currently contributes for the benefit of any of its employees or former
employees (or dependents or beneficiaries thereof) (or as to which the such
Acquired Entity or subsidiary thereof may otherwise have any liability,
including, but not limited to, any pension plan as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
any welfare plan as defined in Section 3(1) of ERISA (a "WELFARE PLAN"), whether
funded, insured or self-funded or whether written or oral (each of the foregoing
contained in this Section 4.15 (a), a "PLAN").
(b) Each Plan has been administered in all material respects
in accordance with its terms. Each Acquired Entity, the subsidiaries thereof and
all Plans are in compliance in all material respects with the applicable
provisions of ERISA, the Code, all other applicable laws and each such Plan
which is intended to meet the requirements of a "qualified plan" under Code ss.
401(a) has been determined by the IRS to be a qualified plan (in form) by the
issuance of a favorable determination letter by the IRS. There is no pending or,
to the knowledge of the Acquired Entities or any of their respective
subsidiaries, threatened legal action, suit or claim relating to the Plans. No
Acquired Entity or subsidiary thereof has engaged in a transaction in connection
with which such Acquired Entity or subsidiary would be subject to either a civil
penalty pursuant to Section 502(i) or ERISA or tax pursuant to Section 4975 of
the Code. No action, suit, proceeding, hearing or investigation with respect to
the administration of the investment of the assets of any such Plan (other than
routine claims for benefits) is pending or threatened. All contributions and
other payments required to be made by any Acquired Entity or subsidiary thereof
to any Plan as of the Closing Date, or with respect to any period ending prior
to the Closing Date, have (or will have) been made, on or prior to the Closing
Date.
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(c) None of the Pension Plans is subject to Title IV of ERISA
or Section 412 of the Code and no Acquired Entity, subsidiary thereof or other
Person that, together with such Acquired Entity or subsidiary, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (each such
Person, including such Acquired Entity or subsidiary, a "COMMONLY CONTROLLED
ENTITY"), currently contributes to, or within the last six years had an
obligation to contribute to, a Pension Plan subject to Title IV of ERISA or
Section 412 of the Code.
(d) No Acquired Entity, subsidiary thereof or any Commonly
Controlled Entity is required to contribute to any "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer
plan where such withdrawal has resulted or would result in any "withdrawal
liability" (within the meaning of Section 4201 of ERISA) or "mass withdrawal
liability" within the meaning of PBGC Regulation 4219.2 that has not been fully
paid.
(e) No Acquired Entity, subsidiary thereof or any Commonly
Controlled Entity maintains or is required to contribute to any plan, fund
(including, without limitation, any superannuation fund) or other similar
program established or maintained outside the United States of America primarily
for the benefit of employees of an Acquired Entity or subsidiary thereof
residing outside the United States of America, which fund or similar program
provides, or results in, retirement income, a deferral of income in
contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code (a "FOREIGN
PENSION PLAN").
(f) No benefits under any Plan set forth in Schedule 4.15
shall become accelerated as a result the transactions contemplated by this
Agreement.
(g) Except as required under Section 4980B of the Code, no
Acquired Entity or subsidiary thereof has an obligation to provide
post-retirement health or life benefits.
(h) Each Plan may be amended or terminated at any time after
the Closing Date without liability to any Acquired Entity or subsidiary thereof.
(i) The Seller has heretofore delivered or made available to
the Purchaser correct and complete copies of each of the following:
(i) Each Plan and all amendments thereto; the trust
instrument and/or insurance contracts, if any, forming a part of such
Plan and all amendments thereto;
(ii) The most recent IRS Form 5500 and all schedules
thereto, if any;
(iii) The most recent determination letter issued by
the IRS regarding the qualified status of each such Pension Plan;
(iv) The most recent accountant's report, if any; and
(v) The most recent summary plan description, if any.
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Section 4.16 Labor and Employment Matters.
(a) Schedule 4.16 hereto includes (i) an accurate list of each
collective bargaining or similar agreement and any work rules or practices
agreed to with any labor organization or employee association applicable to
employees of the Acquired Entities or any of their respective subsidiaries; (ii)
an accurate and complete list of each employment contract to which an Acquired
Entity or a subsidiary thereof is a party or by which it is bound for personal
services or employment which is not terminable on thirty (30) days' (or less)
notice by such Acquired Entity or subsidiary thereof without penalty or
obligation to make payments related to such termination; (iii) an accurate list
of each plan, contract, arrangement or scheme under which fringe benefits
(including, but not limited to, severance benefits, vacation plans or programs,
sick leave plans or programs and related benefits) are afforded to employees of
an Acquired Entity or subsidiary thereof, (iv) except to the extent provided
pursuant to Section 4.16(c) below, an accurate and complete list of each
non-represented employee with his or her name, title, annual compensation and
brief job description. Except as described in Schedule 4.16, no individual will
accrue or receive additional payments, benefits, service or accelerated rights
to payment of benefits as a result of the Transactions (either alone or combined
with any other event or transaction).
(b) Except to the extent set forth in Schedule 4.16 hereto, to
the Knowledge of Seller, (i) there is no labor strike or lockout pending or
affecting any Acquired Entity or subsidiary thereof and since the date of
incorporation of each of the Acquired Entities and each of their respective
subsidiaries, there has not been any such action; (ii) no union claims to
represent the employees of any Acquired Entity or subsidiary thereof; (iii) none
of the employees of an Acquired Entity or subsidiary thereof is represented by
any labor organization and neither the Seller, an Acquired Entity or any
subsidiary thereof has any knowledge of any current union organizing activities
among its employees, nor does any question concerning representation exist
concerning such employees; (iv) each of the Acquired Entities and its
subsidiaries has at all times been in material compliance with all obligations
under the National Labor Relations Act, as amended, Title VII of the Civil
Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, and all
other federal, state and local labor or labor related laws applicable to persons
employed in connection with the Company, including, without limitation, those
laws, rules and regulations relating to wages, hours, health and safety, payment
of Social Security withholding and other taxes, maintenance of workers' payment
of Social Security withholding and other taxes, maintenance of workers'
compensation insurance, labor and employment relations and employment
discrimination, and is not engaged in any unfair labor practices as defined in
the National Labor Relations Act or other applicable law, ordinance or
regulation; (v) there is no unfair labor practice charge or complaint against
any Acquired Entity or subsidiary thereof pending or threatened before the
National Labor Relations Board or any similar state or foreign agency; (vi)
there is no grievance arising out of any collective bargaining agreement or
other grievance procedure; (vii) there is no charge with respect to or relating
to any Acquired Entity or subsidiary thereof pending before the Equal Employment
Opportunity Commission or any other agency responsible for the prevention of
unlawful employment practices; (viii) no Acquired Entity or subsidiary thereof
has received notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws, including, but not
limited
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to, health and safety laws, to conduct an investigation with respect to or
relating to such Acquired Entity or subsidiary thereof and no such investigation
is in progress nor has any such investigation been conducted during the last
five years; (ix) there are no complaints, lawsuits or other proceedings pending
or threatened in any forum by or on behalf of any present or former employee of
any Acquired Entity or subsidiary thereof, any applicant for employment or
classes of the foregoing alleging breach of any express or implied contract of
employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship; (x) since the enactment of the WARN Act, no
Acquired Entity or subsidiary thereof has effectuated (A) a plant closing (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of such
Acquired Entity or subsidiary; or (B) a mass layoff (as defined in the WARN Act)
affecting any of its sites of employment or facilities; nor has any Acquired
Entity or subsidiary thereof been affected by any transaction or engaged in
layoffs or employment terminations sufficient in number to trigger application
of any similar state, local or foreign law or regulation; (xi) none of the
employees of an Acquired Entity or subsidiary thereof has suffered an employment
loss (as defined in the WARN Act) during the 180-day period prior to the date of
this Agreement; (xii) each facility or location of each of the Acquired Entities
and each subsidiary thereof has been operated as a single site of employment (as
defined in the WARN Act) at all times since the enactment of the WARN Act; and
(xiii) none of the Acquired Entities, their respective subsidiaries or any other
party to any contract, agreement, plan, arrangement, scheme or written policy,
rules or procedures set forth in Schedule 4.16 hereto is in default of with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute such a default thereunder.
(c) Schedule 4.16 hereto sets forth an accurate and complete
list of all officers, directors and key employees the Acquired Entities and
their subsidiaries, listing all employment agreements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of (i) the Balance Sheet Date and (ii) the date hereof.
No Acquired Entity or subsidiary thereof has any employment agreements except
for the persons listed on Schedule 4.16 hereto.
Section 4.17 Insurance Coverage. Schedule 4.17 hereto sets
forth (i) the third party insurance policies of the Acquired Entities and their
respective subsidiaries, including but not limited to policies relating to fire
and casualty, general liability, title, business interruption, product
liability, sprinkler and water damage, business automobile, workers compensation
and employers liability, employee dishonesty and crime, boiler and machinery,
domestic and international cargo/transit, umbrella liability, employee benefits
liability, employment practices liability, fiduciary liability, directors' and
officers' liability (including company reimbursement coverages), errors and
omissions liability, and any and all "wrap-up" policies relating to any kind of
liability, and (ii) any agreements pursuant to which an Acquired Entity or
subsidiary thereof is a named insured on policies of third parties covering
product liability claims against such Acquired Entity or subsidiary. All
material insurance policies with respect to the property, assets, operations and
business of each Acquired Entity and subsidiary thereof are in full force and
effect and have not been cancelled. There has been no period since January 1,
1996 when
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any Acquired Entity or subsidiary thereof has had a lapse of insurance coverage
related to the matters set forth in clause (i) of the first sentence of this
Section 4.17. There are no pending, or, to the Knowledge of the Seller,
threatened Claims listed therein with respect to which the insurance carrier has
denied coverage or has advised an Acquired Entity or subsidiary thereof that it
is defending such claim under reservation of rights which are not reflected in
Exhibit B to Schedule 4.5.
Section 4.18 Conduct of Business. Except as otherwise
permitted or contemplated by this Agreement, since the date of the Interim
Financial Statements, each Acquired Entity and its subsidiaries has conducted
its Business (or business, as applicable) in the ordinary course consistent with
past practice or otherwise properly related to the conduct of its Business (or
business, as applicable), and there has not been any of the following which
individually or in the aggregate would, except if otherwise indicated, result in
liabilities or payments by the Acquired Entities and their respective
subsidiaries in an amount equal to or greater than $150,000 in the aggregate:
(a) material adverse change in the condition (financial or
otherwise), results of operations, assets, works-in-progress, liabilities, or
business of the Acquired Entities and their respective subsidiaries taken as a
whole;
(b) sale, assignment, disposition, transfer, pledge, mortgage
or lease of any asset of an Acquired Entity or subsidiary thereof (other than in
the ordinary course of business and consistent with past practice);
(c) increase in the compensation or fringe benefits payable or
to become payable by an Acquired Entity or subsidiary thereof, or any other form
of payment, including without limitation loans, to any of its directors,
officers or salaried employees, other than routine increases made in the
ordinary course of business and consistent with past practice;
(d) change by an Acquired Entity or subsidiary thereof in its
accounting principles, methods or practices (including, without limitation, any
change in depreciation or amortization policies or rates or any change in the
policies pertaining to the recognition of revenue or the discharge of accounts
payable or accounting for inventories, but excluding any changes required by
applicable accounting pronouncements);
(e) damage, destruction or loss with respect to any of the
properties or assets of the Acquired Entities and their respective subsidiaries
whether or not covered by insurance, individually or in the aggregate, in excess
of $[10,000], net of third party insurance;
(f) declaration or payment by an Acquired Entity or subsidiary
thereof of any dividend or distribution of any assets of any kind whatsoever to
any of its shareholders, including without limitation, distributions in
redemption of or as the purchase price for any capital stock or equity interest,
or in discharge or cancellation, in whole or in part, of any Indebtedness,
whether in payment of principal, interest or otherwise, except as otherwise
contemplated in this Agreement;
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(g) written or other binding commitment by an Acquired Entity
or subsidiary thereof to make capital expenditures for additions to property,
plant or equipment in an amount in excess of $[150,000] in the aggregate (in
respect of the Company);
(h) notice from any material supplier or customer of an
Acquired Entity or subsidiary thereof that it will cease doing business with
such Acquired Entity or subsidiary;
(i) issuance, sale or disposition of any capital stock or
other equity interest in an Acquired Entity or subsidiary thereof or any
options, warrants or other rights to purchase any such capital stock or equity
interest or any securities convertible into or exchangeable for such capital
stock or equity interest or other change in the issued and outstanding
capitalization of such Acquired Entity or subsidiary;
(j) incurrence or assumption of, or subjection to, whether
directly or by way of guarantee or otherwise, any Indebtedness or other
Liability, including purchase money indebtedness in excess of $150,000 in the
aggregate, except trade or business obligations or Liabilities incurred in the
ordinary course of business consistent with past practice;
(k) materially adverse changes to the business organization of
an Acquired Entity or subsidiary thereof, the goodwill toward an Acquired Entity
or subsidiary thereof of suppliers, customers, independent contractors,
employees and others with whom business relationships exist, and the
availability of the services of the present officers and the services of those
employed by an Acquired Entity or subsidiary thereof;
(l) subjection of any of the assets of an Acquired Entity or
subsidiary thereof to any additional Encumbrance (other than Permitted Liens);
(m) resignation of any officer or salaried key employee of an
Acquired Entity or subsidiary thereof; or
(n) agreement by an Acquired Entity or subsidiary thereof
involving any of the foregoing.
Section 4.19 Certain Transactions. Except as reflected in
Exhibit B to Schedule 4.5 hereto, neither the Seller nor any of the past or
present officers or directors of any Acquired Entity is presently a party to any
transaction with an Acquired Entity (other than for services as employees,
officers and directors), including without limitation any contract, agreement or
other arrangement (i) providing for the furnishing of services to or by, (ii)
providing for the rental of real or personal property to or from, or (iii)
otherwise requiring payments to or from, in each case, the Seller or any such
officer or director, any member of the family of the Seller or any such officer
or director or any corporation, partnership, trust or other entity in which the
Seller or any such officer or director has a substantial interest or is an
officer, director, trustee or partner.
Section 4.20 Liabilities and Obligations. Except as disclosed
in the balance sheet of each Acquired Entity as of the Balance Sheet Date
previously furnished the Purchaser, there are no Liabilities, whether absolute,
accrued, contingent or otherwise, of an Acquired
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Entity, that would be required to be reflected on, or reserved against, in a
consolidated balance sheet of the Company in accordance with GAAP, except for
(i) liabilities which, singly or in the aggregate, are immaterial in amount or
nature, and (ii) liabilities incurred subsequent to the date of such financial
statement by an Acquired Entity in the ordinary course of business consistent
with past practice.
Section 4.21 Intentionally Omitted.
Section 4.22 Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of the Seller
or any Acquired Entity.
Section 4.23 Absence of Certain Payments. To the best
Knowledge of the Seller, no Acquired Entity nor any of its affiliates, officers,
directors, employees or agents or other people acting on behalf of any of them
has (i) engaged in any activity prohibited by the United States Foreign Corrupt
Practices Act of 1977 or any other similar law, regulation, decree, directive or
order of any other country and (ii) without limiting the generality of the
preceding clause (i), used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others.
To the best Knowledge of the Seller, no Acquired Entity nor any of its
affiliates, directors, officers, employees or agents or other persons acting on
behalf of any of them has accepted or received any unlawful contributions,
payments, gifts or expenditures.
Section 4.24 No Outstanding Indebtedness. No Acquired Entity
has any outstanding Indebtedness, except as set forth in Exhibit B to Schedule
4.5 hereto.
Section 4.25 Significant Customers. An accurate and complete
list of all customers (persons or entities) representing 10% or more of annual
revenues of either High Rise or CMA for any period covered by any of the Annual
Financial Statements and the Interim Financial Statements is reflected on
Exhibit B to Schedule 4.5 hereto.
Section 4.26 Bank Accounts. Schedule 4.26 hereto sets forth a
complete and accurate list of each bank account, including the account number,
name and address of the bank where such account is maintained, that is in the
name of an Acquired Entity or any of their respective subsidiaries or is used in
the operation of such Acquired Entity's Business.
Section 4.27 Material Adverse Effect. Since the Balance Sheet
Date, no Material Adverse Effect has occurred or is continuing.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO CLOSING; OTHER COVENANTS
Section 5.1 Conduct of Business of the Company Pending the
Closing. Except as contemplated by this Agreement, the Seller shall cause the
Acquired Entities and their respective subsidiaries to, during the period from
the date of this Agreement to the Closing Date, (i) act and carry on their
respective businesses in the ordinary course of business and, to the
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extent consistent therewith, use reasonable efforts, to preserve intact their
current business organizations, keep available the services of their current key
officers and employees and preserve the goodwill of those engaged in material
business relationships with them, (ii) maintain and keep their properties and
equipment in good repair, working order and condition, consistent with current
condition, except for ordinary wear and tear, (iii) use their reasonable best
efforts to keep in full force and effect insurance comparable in amount and
scope of coverage to that now maintained by each of them, and (iv) perform in
all material respects all of its obligations under all contracts and commitments
applicable to its business or properties (subject to each Acquired Entity's
right to enter into comparable substitute arrangements, consistent with past
practice, on terms generally no less favorable to it than those in effect on the
date hereof). Without limiting the generality of the foregoing, the Seller shall
use its reasonable best efforts to cause the Acquired Entities and their
respective subsidiaries during the period from the date of this Agreement to the
Closing Date, except as expressly contemplated by this Agreement, not to take
any of the following actions without the prior written consent of the Purchaser:
(a) (i) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its outstanding capital stock
(other than cash dividends by a wholly-owned subsidiary of an Acquired Entity to
an Acquired Entity), (ii) split, combine or reclassify any of its outstanding
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its outstanding capital
stock (except to increase the authorized number of shares of Seller Common Stock
from 25,000,000 to 50,000,000) or (iii) purchase, redeem or otherwise acquire
any outstanding capital stock of such Acquired Entity or any of its
subsidiaries, or any rights, warrants or options to acquire any such capital
stock;
(b) authorize for issuance, issue, deliver, sell or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise),
pledge or otherwise encumber any shares of its capital stock, or any securities
convertible, exchangeable or exercisable into, or any rights, warrants or
options to acquire, any such capital stock, or other equity equivalents
(including without limitation stock appreciation rights);
(c) (i) increase or accelerate the compensation or fringe
benefits of any of its directors, officers or employees, except for increases in
salary or wages of employees of the Acquired Entities or their respective
subsidiaries in the ordinary course of business in accordance with past
practice, (ii) grant any severance or termination pay not currently required to
be paid on the date hereof, (iii) enter into any employment agreement with any
present or former director or officer or senior employee, or, other than in the
ordinary course of business consistent with past practice and terminable without
severance or other termination payment on 30 days' notice or less, any other
employee of any Acquired Entity or any of its subsidiaries, or (iv) establish,
adopt, enter into or amend or terminate any plan, agreement, trust, fund, policy
or arrangement for the benefit of any current or former directors, officers or
employees of any Acquired Entity or its subsidiaries;
(d) amend its Charter (except to increase the authorized
number of shares of Seller Common Stock from 25,000,000 to 50,000,000), Bylaws
or other comparable charter or
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organizational documents or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the entity structure or ownership of any
of the Acquired Entities or their respective subsidiaries;
(e) acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial portion of the stock, assets
or properties of (including through the exercise of any right of first refusal
or the exercise of any option to purchase or convert), or by any other manner,
any business or any corporation, partnership, joint venture, association or
other business organization or division thereof, or (ii) any material assets or
properties, except in the ordinary course of business consistent with past
practice;
(f) sell or otherwise dispose of any of its properties or
assets, except in the ordinary course of business for cash consideration equal
to fair market value at the time of such sale or other disposition as determined
by the board of directors of such Acquired Entity in good faith;
(g) lease, license, mortgage or otherwise encumber any of its
properties or assets, except in the ordinary course of business consistent with
past practice;
(h) amend, supplement or modify any material contract, except
in the ordinary course of business, or relinquish, forgive or cancel any
material debt or claim or waive any rights of material value;
(i) make any capital expenditure or commitment to make any
such expenditure or defer making any budgeted capital expenditure, except in the
ordinary course of business consistent with past practice;
(j) incur, prepay, or commit to incur any indebtedness for
borrowed money or guarantee any such indebtedness of another Person (other than
guarantees by an Acquired Entity in favor of the Purchaser or Affiliates of the
Purchaser, CMA, or any of its wholly-owned subsidiaries or by any of its
subsidiaries in favor of the Purchaser, Affiliates of the Purchaser, or an
Acquired Entity) in excess of $100,000 in the aggregate, except in the ordinary
course of business consistent with past practice;
(k) issue or sell any debt securities or warrants or other
rights to acquire any debt securities of an Acquired Entity or any of their
respective subsidiaries, guarantee any debt securities of another Person, enter
into any "keep well" or other agreement to maintain any financial condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing, except in the ordinary course of business consistent with past
practice;
(l) change any accounting principle, method or practice used
by it or any change in the classification of assets, recognition of income or
expenses or the depreciation or amortization policies or rates theretofore
applied, unless required by the SEC or the FASB;
(m) make any material Tax election or settle or compromise any
income Tax liability in excess of $150,000 in the aggregate or defer the payment
of any material Taxes that come due;
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(n) authorize any of, or commit or agree to take any of, the
foregoing actions.
To the extent any of the Acquired Entities or any of their
respective subsidiaries has done anything in contravention of the acts required
or proscribed, as applicable, in this Section 5.1 without the prior written
consent of the Purchaser, the Seller will promptly inform the Purchaser, by
telephone (with confirmation of details in writing) of such action in
contravention.
Section 5.2 Conduct of Business of the Purchaser. The
Purchaser has not engaged, and during the period from the date of this Agreement
to the Closing Date, the Purchaser shall not engage, in any activities of any
nature except as provided in, or in connection with the Transactions.
Section 5.3 Preparation of Proxy Statement. The Seller shall
promptly (and in any event within 30 days from the date hereof) file or cause to
be filed with the SEC a preliminary Proxy Statement relating to the
Transactions. In connection therewith, the Purchaser will fully cooperate with
the Seller and its counsel in the preparation by the Seller of the Proxy
Statement and in obtaining the stockholder approvals sought thereunder. The
Seller shall respond as promptly as practicable to any comments of the SEC on
the preliminary Proxy Statement, and cause the Proxy Statement, and any
amendment or supplement thereto, to be mailed to the Seller's stockholders at
the earliest practicable time. The Seller will notify Purchaser as promptly as
practicable of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for amendments or supplements to the Proxy
Statement or for additional information and will supply Purchaser with copies of
all correspondence between the Seller or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement or the Transactions. If at any time prior to the Closing Date any
event shall occur which should be set forth in an amendment of, or a supplement
to, the Proxy Statement, the Seller will promptly advise Purchaser, such an
amendment or supplement to be mailed to the Seller's stockholders within five
business days after the same is cleared by the SEC (or as promptly as
practicable thereafter). The Seller and Purchaser each agree to correct any
information provided by such party for use in the Proxy Statement which shall
have become false or misleading. Prior to the filing or distribution of the
Proxy Statement and any amendments or supplements thereto, Purchaser and its
counsel shall be given an opportunity to review and comment upon such documents.
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Section 5.4 Access to Information; Confidentiality.
(a) From the date hereof to the Closing Date, the Seller
shall, and shall cause its subsidiaries to, afford the officers, employees,
auditors and other agents of the Purchaser, full and free access at all
reasonable times to its officers, employees, properties, offices, plants and
other facilities and to its contracts, commitments, books and records, and shall
furnish the Purchaser and such other Persons all such documents and such
financial, operating and other data and information regarding the Seller and its
subsidiaries as the Purchaser, through its officers, employees or agents may
from time to time reasonably request in order to conduct such due diligence
review of the Company and its subsidiaries and their business, assets or
properties as Purchaser shall determine to be necessary or appropriate. Without
limiting the foregoing, from time to time, at the request of Purchaser, the
Seller will cause the officers of the Acquired Entities and CMA to keep the
officers of the Purchaser informed as to the affairs of such entities and to
arrange for meetings with the management of each such entity from time to time
upon the Purchaser's request.
(b) The Purchaser will hold, and will cause its Affiliates and
the directors, officers, employees, agents, advisors (including attorneys,
accountants and financial advisors of the Purchaser and its Affiliates), or
representatives of such agents, advisors, to hold in confidence, all documents
and information concerning the Seller and its subsidiaries and any other Person
in which any of the Seller's subsidiaries has an ownership interest furnished to
any such Person in connection with the Transactions.
Section 5.5 No Solicitation.
(a) The Seller shall not, nor shall the Seller authorize or
permit any of its subsidiaries to, nor shall it authorize or permit any of their
respective officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by them to,
solicit or initiate, or encourage, or take any other action to facilitate or
encourage (including by way of furnishing any information or having discussions
concerning the business, properties or assets of the Acquired Entities or any of
their respective subsidiaries), the submission of inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
Takeover Proposal, or enter into or maintain or continue discussions or
negotiate with any Person in furtherance of such inquiries or to obtain a
Takeover Proposal; provided, however, that the foregoing shall not prohibit the
Seller and its advisors, following receipt of an unsolicited Takeover Proposal,
to provide information to the Person making such Takeover Proposal and
participate in discussions or negotiations concerning such Takeover Proposal
following delivery of the notice required by Section 5.5(c) regarding such
Takeover Proposal, in each case to the extent the Board of Directors shall have
concluded in good faith that such action is required for the Board of Directors
to comply with its fiduciary duties under applicable law.
(b) Neither the Board of Directors nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Purchaser, the approval or recommendation by the Board of Directors
or any such committee of this Agreement or the Transactions, (ii) approve or
recommend, or propose to approve or recommend, any
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Takeover Proposal or (iii) enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event the Board of Directors
receives a Takeover Proposal that, in the exercise of its fiduciary obligations
(as determined in good faith by the Board of Directors), it determines to be a
Superior Proposal, the Board of Directors may (subject to the following
sentences) withdraw or modify its approval or recommendation of this Agreement
or the Transactions, approve or recommend any such Superior Proposal, enter into
an agreement with respect to such Superior Proposal or terminate this Agreement,
in each case at any time after the second business day following Purchaser's
receipt of written notice (a "NOTICE OF SUPERIOR PROPOSAL") advising Purchaser
that the Board of Directors has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
Person making such Superior Proposal. The Board of Directors may also withdraw
or modify its approval or recommendation of this Agreement or the Transactions
and terminate this Agreement if Chanin & Co.'s fairness opinion shall have been
withdrawn. In the event that the Seller shall enter into any agreement relating
to a Takeover Proposal, such agreement shall provide for the payment to the
Purchaser of the Termination Fee, upon the consummation of the transaction
contemplated by the Superior Proposal. This Section 4.5 shall not prohibit
accurate disclosure by the Seller in any document that is required to be filed
with the SEC.
(c) In addition to the obligations of the Seller set forth in
paragraph (b), the Seller shall promptly advise Purchaser orally and in writing
of any Takeover Proposal, or any inquiry with respect to or which could lead to
any Takeover Proposal, the material terms and conditions of such Takeover
Proposal or inquiry, and the identity of the person making any such Takeover
Proposal or inquiry. The Seller will keep the Purchaser reasonably informed of
the status and details of any such request, Takeover Proposal or inquiry.
(d) Notwithstanding anything contained in this Agreement to
the contrary, actions by the Board of Directors that are taken in accordance
with this Section 5.5 shall not constitute a breach of this Agreement by the
Seller.
Section 5.6 Directors' and Officers' Indemnification and
Insurance. On or prior to the Closing Date, the Bylaws of the Purchaser and the
Acquired Entities shall contain provisions no less favorable with respect to
indemnification than are currently set forth in the Bylaws of the Acquired
Entities, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Closing Date in any manner that would
adversely affect the rights thereunder of individuals who at the Closing Date
were current or former directors, officers, agents, or employees of the Acquired
Entities or otherwise entitled to indemnification pursuant to the Bylaws of the
Seller or one of its subsidiaries.
Section 5.7 Further Action; Best Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to facilitate to satisfaction and make effective
each condition to the consummation of the Transactions, including but not
limited to (i) cooperating in the preparation and filing of the Proxy Statement,
any required filings under the HSR Act, and any amendments to any thereof, (ii)
using its reasonable best efforts to make all required regulatory filings and
applications and to obtain all licenses and permits, consents,
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waivers of rights of first refusal and similar rights, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with any Acquired Entity or its subsidiaries as are
necessary for the consummation of the Transactions, or to permit such licenses
and permits, consents, waivers of rights of first refusal and similar rights,
approvals, authorizations, qualifications, orders and contracts to continue in
effect without modification after the Closing Date and (iii) subject to its
contractual obligations hereunder and the other terms and conditions of this
Agreement, using its reasonable best efforts to cause each of its
representations and warranties set forth herein to be true, correct and complete
in all material respects on the Closing Date as if made on such date. In
addition, the Seller shall cause senior management of the Company and its
subsidiaries to cooperate in good faith with representatives of the Purchaser in
identifying transition issues and formulating plans and strategies to address
any such issues.
Section 5.8 Public Announcements. The Seller and the Purchaser
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to the Transactions, shall provide
each other the opportunity to review and comment upon, any such press release or
public statement, and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law or
any listing agreement with any securities exchange on which the Seller's
securities are listed.
Section 5.9 Transactional Costs. Except as specifically
provided in this Section 15.3, each Party shall be responsible for all of its
Transactional Costs. The Parties shall promptly pay and discharge such
Transactional Costs and each Party shall promptly reimburse any other Party for
any amounts which such other Party may have expended on its behalf in the
payment of such Transactional Costs.
Section 5.10 Repayment of Company Indebtedness. The Purchaser
shall pay off or otherwise refinance, at the time of Closing, all Indebtedness
listed on Exhibit B to Schedule 4.5 hereto.
Section 5.11 Board of Directors and Officers of the Company.
The Purchaser agrees that so long as the Purchaser Note remains outstanding, (i)
Mr. Gregory Cuneo shall remain a member of the board of directors of the
Purchaser and (ii) the Purchaser shall provide to Mr. Cuneo director and officer
liability insurance protection with an aggregate limitation on liability of no
less than $____ million and having customary terms, provisions, conditions and
exclusions.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE CLOSING
Section 6.1 Conditions to the Obligations of Each Party to
Consummate the Transactions. The respective obligations of each Party to
consummate the Transactions shall be subject to the satisfaction at or prior to
the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Transactions
shall have been adopted by the affirmative vote of the holders of a majority of
the outstanding shares of Seller Common Stock entitled to vote thereon.
(b) Other Approvals. All Consents, Approvals, authorizations
or permits of, actions by, or filings with or notifications to, and all
expiration of waiting periods imposed by, any Governmental Authority shall have
been filed, occurred or been obtained and shall be in full force and effect.
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Transactions shall be in effect, no action or
proceeding shall have been commenced by any Governmental Authority seeking any
injunction, restraining order or other order which seeks to prohibit
consummation of the Transactions, and no action or proceeding shall have been
commenced by any Governmental Authority seeking material damages in connection
with the Transactions shall be pending; provided, however, that the parties
invoking this condition shall use reasonable efforts to have any such action,
proceeding, order or injunction vacated. There shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Transactions, which makes the consummation of the Transactions
illegal.
(d) Opinion of Financial Advisor. The opinion of [Chanin &
Co.] addressed to the Board of Directors (the "FAIRNESS OPINION"), to the effect
that the consideration to be received in the Acquisition by the Seller is fair
to the Seller's stockholders, shall not have been withdrawn.
(e) Investment by Blackacre in Seller. All conditions
precedent to the transactions contemplated by the letter of intent (the "LETTER
OF INTENT"), dated as of December 21, 1999, among the Seller, Blackacre Capital
Management, L.L.C. and certain of its affiliates (collectively, "BLACKACRE")
under which Blackacre would invest approximately $46.2 million in the Company,
shall have been satisfied. [To be revised to reflect definitive documentation.]
(f) Ancillary Agreements. The Ancillary Agreements shall have
been executed by all parties thereto on terms and conditions satisfactory to the
Purchaser, to consummate the Transactions.
Section 6.2 Conditions to Obligations of Purchaser. The
obligation of the Purchaser to consummate the Transactions is further subject to
the satisfaction of the following conditions prior to the Closing Date unless
waived by the Purchaser:
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(a) Representations and Warranties. (i) The representations
and warranties of the Seller set forth in Article IV of this Agreement shall be
true, correct and complete in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, except in each case (x) that those representations and warranties which
address matters only as of a particular date shall remain true, correct and
complete in all material respects as of that date and (y) as otherwise
contemplated by this Agreement, and (ii) the Purchaser shall have received a
certificate signed on behalf of the Seller by the chief executive officer and
the chief financial officer of the Seller to such effect.
(b) Performance of Obligations of the Seller. The Seller shall
have performed in all material respects all material obligations, required to be
performed by it under this Agreement at or prior to the Closing Date, and the
Purchaser shall have received a certificate signed on behalf of the Seller by
the chief executive officer and the chief financial officer of the Seller to
such effect.
(c) Madeleine Pledge. On the Closing Date, Seller shall use
the proceeds of the [Blackacre Investment] to repay to Madeleine L.L.C. the
Madeleine Note.
(d) Closing Deliveries.
(i) The Purchaser shall have received the favorable
opinion of Company Counsel, dated the Closing Date, addressed to the Purchaser
substantially in the form attached as Exhibit __.
(ii) The Purchaser shall receive the stock
certificates representing the Company Stock, as set forth in Section 1.2 hereof,
and evidence, satisfactory to the Purchaser, of the cancellation of the
Madeleine Pledge.
(iii) Any directors of the Acquired Entities, other
than those identified on Schedule 5.5, shall have resigned as directors of such
Acquired Entities and the directors listed on Schedule 5.5 shall appoint the
persons on Schedule 5.5 to fill the vacancies of the board of directors of the
Acquired Entities in accordance with the Charter and Bylaws of each such
Acquired Entity.
(iv) The Company shall have entered into Employment
Agreements with [executives], which shall be for a term of employment lasting at
least 2 years, in the form attached hereto as Exhibit ______.
(v) The Purchaser shall have received a copy of a
certificate of the Secretary of State of the jurisdiction of incorporation of
each of the Acquired Entities, dated reasonably near the Closing Date, in each
case listing the charter of each of the Acquired Entities and each amendment
thereto on file in his office and certifying that (w) such charter is a true and
correct copy thereof, (x) such amendments are the only amendments to such
charter on file in his office, (y) such Acquired Entity has paid all franchise
taxes to the date of such certificate and (z) such Acquired Entity is duly
incorporated and in good standing under the laws of the State of its
jurisdiction of incorporation.
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(vi) The Purchaser shall have received a certificate
of each Acquired Entity, signed on behalf of such Acquired Entity by its
President and its Secretary, dated the Closing Date, certifying as to (x) the
absence of any amendments to the Charter of such Acquired Entity since the date
of the Secretary of State's certificate referred to in Subsection (v) of this
Section 6.2(d), (y) a true and correct copy of the Bylaws of such Acquired
Entity as in effect on the date on which the resolutions authorizing the
transaction were adopted and on the Closing Date and (z) the due incorporation
and good standing or valid existence of such Acquired Entity as a corporation
organized under the Laws of the jurisdiction of its incorporation and the
absence of any proceeding for the dissolution or liquidation of such Acquired
Entity.
(vii) None of the supplements to the Disclosure
Schedule contemplated by Section 8.5 shall, in the good faith judgment of
Purchaser, contain any disclosure that reflects a material adverse change in the
results of operations, business, financial condition, liabilities or prospects
of the Acquired Entities considered as a whole.
Section 6.3 Conditions to the Obligations of the Seller. The
obligation of the Seller to consummate the Transactions is subject to the
satisfaction of the following unless waived by the Seller:
(a) Representations and Warranties. The representations and
warranties of the Purchaser set forth in this Agreement shall be true, correct
and complete in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except as otherwise contemplated by this Agreement, and the Seller shall have
received a certificate signed on behalf of the Purchaser by the President of the
Purchaser to such effect.
(b) Performance of Obligations of the Purchaser. The Purchaser
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and the
Seller shall have received a certificate signed on behalf of the Purchaser by
the President of the Purchaser to such effect.
(c) Surety Bonds. The Purchaser shall have obtained and shall
have delivered to the Seller (i) releases for the Seller from all surety bonds
issued to the Acquired Entities or (ii) new surety bonds in substitution of any
and all surety bonds issued to the Acquired Entities at its sole cost and
expense.
(d) Closing Deliveries.
(i) The Seller shall have received the favorable
opinion of Purchaser's Counsel, dated the Closing Date, addressed to the Seller,
substantially in the form attached as Exhibit __.
(ii) The Seller and the Company shall have received a
copy of resolutions adopted by the board of directors of the Purchaser
authorizing the Transactions, reasonably acceptable to Company Counsel,
certified by an authorized officer of the Purchaser.
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(iii) The Seller shall have received from the
Purchaser the Purchase Price.
(iv) The Company shall have received from the Seller
a receipt acknowledging satisfaction and discharge of the Intercompany
Indebtedness.
(v) The Seller shall have received from the Purchaser
a receipt acknowledging satisfaction and discharge of all Indebtedness listed on
Exhibit B to Schedule 4.5 hereto.
ARTICLE VII
TAX MATTERS
Section 7.1 Tax Return Filings; Payment of Taxes;
Indemnification.
(a) The Acquired Entities shall (i) prepare and file, or cause
to be prepared and filed, on a timely basis, all Tax Returns of the Acquired
Entities for all Pre-Closing Periods and such Tax Returns shall be provided for
the Purchaser's prior approval at least 15 days prior to the date on which such
Tax Returns are due to be filed, which approval shall not be unreasonably
withheld or delayed, and (ii) without derogation of Section 7.9 below, pay, or
cause to be paid, all Taxes shown to be due on such Pre-Closing Period Tax
Returns. To the extent any Tax Return prepared by the Seller pursuant to the
preceding sentence is required to be filed by any Acquired Entity, the Seller
shall deliver such return to such Acquired Entity no later than ten (10)
business days prior to the date such return is due and shall cause such Acquired
Entity to file such return on a timely basis. If the Purchaser disputes any
portion of any Tax Return provided to the Purchaser for approval, the provisions
of the last three sentences (other than a provision for payment) of Section
7.1(c) shall apply, with such changes as may be appropriate within the context
of this Section 7.1(a). Notwithstanding anything in this Agreement to the
contrary, the Seller shall pay, without derogation of Section 7.8 below, and
shall indemnify the Purchaser and its affiliates and hold them harmless from and
against any liability for Taxes imposed on the Acquired Entities for all
Pre-Closing Periods, including, without limitation, (w) all Taxes attributable
to the Transactions, (x) all Taxes, if any, imposed on the Acquired Entities
pursuant to Treasury Regulation Section 1.1502-6 or any similar provision of
state, local or foreign law as a result of any Acquired Entity being a member of
any Relevant Group, and (y) all liability for Taxes resulting from a 338(h)(10)
Election, as contemplated by Section 7.7 hereof. Each of the Company, the
Purchaser and the Seller shall comply with the tax reporting requirements of
Section 1.351-3 of the Code subject to gain, if any, recognized on the receipt
of cash or other property under Section 351(b) of the Code.
(b) Subject to paragraph (c) below, the Purchaser shall
prepare and file, or cause to be prepared and filed, on a timely basis all Tax
Returns of or which include the Company for all taxable periods other than a Tax
Return for a Pre-Closing Period due to be filed on or prior to the Closing and
shall pay or cause to be paid all Taxes shown to be due on such Tax Returns.
Subject to paragraph (c) below and Section 7.6 of this Agreement, the Purchaser
shall pay, and shall indemnify the Seller and its affiliates and hold them
harmless from and
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against any liability for Taxes of the Company for all taxable periods other
than a Pre-Closing Period.
(c) For purposes of this Section 7.1, if, for federal, state,
local or foreign Tax purposes, the taxable period of any of the Acquired
Entities that includes the Closing Date does not terminate on the Closing Date
("STRADDLE PERIOD"), the parties hereto will, to the extent permitted by
applicable law, elect with the relevant Governmental Authority to treat a
portion of any such Straddle Period as a short taxable period ending on the
Closing Date and such short taxable period shall be treated as a Pre-Closing
Period for purposes of this Agreement. In any case where applicable law does not
permit such an election to be made then, for purposes of this Agreement, Taxes
with respect to any of the Acquired Entities for the Straddle Period shall be
allocated to the Pre-Closing Period using an interim-closing-of-the-books
method, except that (i) exemptions, allowances or deductions that are calculated
on an annual basis shall be apportioned on a per diem basis and (ii) real
property Taxes shall be allocated in accordance with Section 164(d) of the Code.
In the case of any Straddle Period described in the preceding sentence, the
Purchaser shall prepare and shall provide the Seller with copies of the
completed Tax Returns for such period at least fifteen (15) business days before
the due date thereof (giving effect to any extensions thereto), accompanied by a
statement calculating in reasonable detail the amount of Taxes shown on such Tax
Return that are chargeable to the Seller pursuant to this Section 7.1 (the "TAX
Statement"). If the Seller disputes the amount calculated in the Tax Statement
or the amount of any income allocated to it on any Tax Return for a Straddle
Period, the Seller and the Purchaser shall consult and resolve in good faith any
issues arising as a result of the review thereof. If the parties are unable to
resolve any dispute within five (5) business days after the Seller's receipt of
such Straddle Period Tax Return or Tax Statement, such dispute shall be resolved
by the Accounting Firm. The Seller shall pay to the Purchaser an amount equal to
the Taxes shown on the Tax Statement as being chargeable to the Seller within
five (5) business days before the due date (including extensions thereof) for
payment of Taxes with respect to such Tax Statement. If the Seller has disputed
such amount, appropriate adjustments shall be made to the amount paid by the
Seller in order to reflect the decision of the Accounting Firm in immediately
available funds not later than five (5) business days after such decision has
been rendered. Any decision of the Accounting Firm shall be final and binding on
the Parties.
Section 7.2 Procedures Relating to Indemnification of Tax
Claims.
(a) If a notice of any Tax Claim is received by a Tax
Indemnified Party, such Tax Indemnified Party shall promptly notify the Tax
Indemnifying Party in writing of such Tax Claim within a reasonably sufficient
period of time to allow the Tax Indemnifying Party effectively to participate in
the contest or to contest such Tax Claim, and in reasonable detail to apprise
the Tax Indemnifying Party of the nature of the Tax Claim, and provide copies of
all correspondence and documents received by it from the relevant Taxing
Authority in connection with or related to such Tax Claim. Failure to give
prompt notice of a Tax Claim hereunder shall not affect the Tax Indemnifying
Party's obligation under Section 7.1, except to the extent that the Tax
Indemnifying Party is materially prejudiced by such failure to give prompt
notice.
(b) With respect to any Tax Claim which might result in an
indemnity payment to the Purchaser pursuant to Section 7.1(a), the Seller shall
at its election control all
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audits and proceedings taken in connection with such Tax Claim and, without
limiting the foregoing, may in their sole discretion and at their sole expense
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with any Taxing Authority with respect thereto, and may, in their
sole discretion, either pay the Tax claimed and sue for a refund where
applicable law permits such refund suits or contest such Tax Claim. If the
Seller elects to control a contest pursuant to this Section 7.2, the Seller
shall keep the Purchaser advised and shall pursue such contest in good faith.
(c) With respect to any Tax Claim not described in the
preceding paragraph which might result in an indemnity payment to the Seller
pursuant to Section 7.2, the Purchaser shall control all proceedings in
accordance with provisions that are parallel to those in the first preceding
paragraph.
Section 7.3 Refunds and Credits. Any refunds and credits of
Taxes of the Acquired Entities with respect to (a) any Pre-Closing Period shall
be for the account of the Seller, and if received or utilized by the Purchaser,
any of its affiliates or the Acquired Entities, shall be paid to the Seller
within five (5) business days after the Purchaser, any of its affiliates or the
Acquired Entities receive such refund or utilize such credit, (b) any taxable
period beginning after the Closing Date shall be for the account of the
Purchaser, and if received or utilized by the Seller, or any of its affiliates,
shall be paid by the Seller to the Purchaser within five (5) business days after
the Seller, or any of its affiliates, receive such refund or utilizes such
credit, and (c) any Straddle Period shall be apportioned between the Seller and
the Purchaser in the same manner as such Taxes originally had been allocated
pursuant to Section 7.1 hereof unless such refund or credit expressly apportions
such credit or payment in a different manner.
Section 7.4 Cooperation. The Seller and the Purchaser shall
reasonably cooperate, and shall cause their respective affiliates, officers,
employees, agents, auditors and representatives reasonably to cooperate, in
preparing and filing all Tax Returns (including amended returns and claims for
refund), including, without limitation, the issuance of a power of attorney, if
necessary, maintaining and making available to each other all records necessary
in connection with Taxes and in resolving all disputes and audits with respect
to all taxable periods relating to Taxes.
Section 7.5 Elections; Consents and Other Actions. Without the
prior written consent of the other Parties, none of the Seller, the Acquired
Entities or the Purchaser shall make or change any election, file an amended Tax
Return or surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the statute of limitations applicable to any Tax claim or
assessment relating to the Acquired Entities, take any other action or omit to
take any action, if such election, change, amendment, surrender, consent or
other action or omission would have the effect of increasing the Tax liability
of the Acquired Entities, the Purchaser or any affiliate of the Purchaser.
Section 7.6 Transfer Taxes. The Seller shall be responsible
for, and shall pay, all Transfer Taxes arising out of or in connection with the
Transactions, and shall indemnify and hold harmless the Company and the
Purchaser with respect to such Transfer Taxes. The Seller shall prepare and file
all necessary documentation and Tax Returns with respect to such Transfer
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Taxes, and the Purchaser shall join in the execution, or cause the Acquired
Entities to join in the execution, of any such documentation or Tax Returns if
required by applicable law.
Section 7.7 Section 338(h)(10) Election.
(a) The Seller and the Purchaser shall jointly make the
338(h)(10) Election on a timely basis in accordance with all rules and
regulations applicable to the 338(h)(10) Election. As soon as practicable after
the Closing, the Seller and the Purchaser shall mutually prepare a Form 8023,
with all attachments, and the Seller shall sign such Form 8023. Also, the
Purchaser and the Seller shall cooperate with each other to take all actions
necessary and appropriate (including timely filing such additional forms,
returns, elections, schedules and other documents on a joint or separate basis)
as may be required to effect and preserve a timely 338(h)(10) Election in
accordance with the provisions of Section 1.338(h)(10)-1 of the Treasury
Regulations (or any comparable provisions of state or local tax law) or any
successor provisions. The Seller and the Purchaser shall report the purchase by
the Purchaser of the Shares pursuant to this Agreement consistent with the
338(h)(10) Election and shall take no position inconsistent therewith in any Tax
Return or any proceeding before any Taxing Authority.
(b) In connection with the 338(h)(10) Election, not later than
70 days after the Closing, the Seller and the Purchaser shall, together and in
good faith, determine and agree upon the "Modified Aggregate Deemed Sale Price"
of the Company (within the meaning of, and in accordance with the Treasury
Regulations and any comparable provisions of state or local tax law). Each of
the Seller and the Purchaser can terminate in writing at any time negotiations
with respect to the "Modified Aggregate Deemed Sale Price" within 70 days after
the Closing. In the event of such termination, the Seller and the Purchaser
shall, not later than 10 days after such termination, submit all such disputed
items for resolution to the Accounting Firm which shall resolve the disputed
items within 20 days thereafter. The parties' agreement on the amount of the
"Modified Aggregate Deemed Sales Price" and the Accounting Firm's resolution of
disputed items with respect thereto shall be final and binding on the parties.
In connection with the 338(h)(10) Election, not later than 60 days after the
later of the parties' agreement as to the amount of the "Modified Aggregate
Deemed Sales Price" or the Accounting Firm's resolution of disputed items with
respect thereto, the Purchaser shall reasonably determine the proper allocations
(the "ALLOCATIONS") of the "Modified Aggregate Deemed Sale Price" among the
assets of the Acquired Entities and such subsidiaries (in accordance with
Section 338(b)(5) of the Code and the Treasury Regulations promulgated
thereunder and comparable provisions of state or local tax law) and shall submit
a statement (the "SECTION 338 STATEMENT") to the Seller setting forth the
foregoing. The Seller may dispute the Purchaser's determination of the
Allocations within 40 days ("40 DAY REVIEW") of delivery of the Section 338
Statement to the Seller if the Seller reasonably believes that the Purchaser's
determinations are unreasonable. In the event of such a dispute, the parties
shall commence negotiations. If either party terminates such negotiations, or if
the parties cannot resolve any such dispute within 40 days of such delivery by
the Purchaser to the Seller, the dispute shall be submitted no later than 10
days thereafter for resolution to the Accounting Firm which shall make its
determination within 20 days after submission to it of the dispute in the
following manner. In the event that the Accounting Firm determines that the
Purchaser's determinations of the Allocations were reasonable then the Purchaser
and the Seller shall be bound by such determinations. Otherwise, the Purchaser
and the Seller shall be bound
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by the Accounting Firm's own determinations. In the event that the parties
cannot resolve any disputes over such modifications within 20 days after the
receipt of [the Final Purchase Price Adjustment Statement,] the disputes shall
be submitted no later than 10 days thereafter for resolution to the Accounting
Firm which shall make its determination within 20 days after submission to it of
the dispute in the manner discussed above. The Seller and the Purchaser shall
(i) be bound by the final determination of the "Modified Aggregate Deemed Sale
Price" and such Allocations for purposes of determining any Taxes, unless
otherwise required by law, (ii) prepare and file their Tax Returns on a basis
consistent with such final determination of the "Modified Aggregate Deemed Sale
Price" and such Allocations, subject to adjustment to reflect the Seller's
selling expenses as a reduction of sales proceeds, and (iii) take no position
inconsistent with such determination of the "Modified Aggregate Deemed Sales
Price" and Allocations on any applicable Tax Return or in any proceeding before
any Taxing Authority. No Tax Returns reflecting the Allocations shall be filed
prior to the later of (i) the last day of the 40 Day Review and (ii) if any
items with respect to the Allocations are in dispute, the Accounting Firm's
resolution of such disputed items, except as otherwise required by law. In the
event that any of the Allocations is disputed by any Taxing Authority, the party
receiving notice of the dispute shall promptly notify the other party hereto
concerning resolution of the dispute.
Section 7.8 FIRPTA Certificates. The Seller shall deliver to
the Purchaser on the Closing Date duly completed and executed certifications of
non-foreign status pursuant to Section 1.1445-2(b)(2) of the Treasury
regulations.
Section 7.9 Relationship to Article VIII. To the extent that
Article VIII is inconsistent with this Article VII, Article VII shall govern all
matters relating to Taxes.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
The Seller and the Purchaser each make the following covenants
that are applicable to them, respectively:
Section 8.1 Indemnification. Subject to the limitations on
indemnification contained in Section 8.4 below from and after the Closing,
(a) The Seller covenants and agrees that it will indemnify and
hold harmless the Purchaser from and against (i) any and all Losses incurred by
the Purchaser or the Acquired Entities arising from or in connection with any
Event of Indemnification and (ii) any and all Losses arising from or in
connection with any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of the Seller
with any broker, finder or investment banker; and
(b) The Purchaser covenants and agrees that it will indemnify
and hold harmless the Seller from and against (i) any and all Losses incurred by
the Seller arising from or in connection with any Event of Indemnification and
(ii) any and all Losses arising from or in connection with any brokerage,
finder's or other fee or commission in connection with the
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Transactions based upon arrangements made by or on behalf of the Purchaser with
any broker, finder or investment banker.
Section 8.2 Notice and Defense of Third Party Claims. The
obligations and liabilities of any Indemnitor with respect to Claims resulting
from a Third Party Claim shall be subject to the following terms and conditions:
(a) The Indemnitee shall give prompt written notice to the
Indemnitor of any Third Party Claim that might give rise to a Claim by the
Indemnitee against the Indemnitor based on the indemnity agreement contained in
Section 8.1 above, stating the nature and basis of such Third Party Claim, and
the amount thereof to the extent known, but failure to give such prompt notice
shall not affect an Indemnitor's obligations hereunder except to the extent that
the defense of such a Third Party Claim by such Indemnitor has been actually and
materially prejudiced thereby. Such notice shall be accompanied by copies of all
relevant documentation in the possession of the Indemnitee or any of its
Affiliates (other than the Indemnitor) with respect to such Third Party Claim,
including without limitation any summons, complaint or other pleading which may
have been served or any written demand received.
(b) Subject to Section 8.4 hereof, the Indemnitor shall have
the right in good faith and at its own cost and expense, to take reasonable
steps to cure, remediate, mitigate, remedy or otherwise handle any event or
circumstance which gives rise to a Loss (including, but not limited to events
and circumstances which can be cured, remediated, mitigated or remedied through
the expenditure of money and events and circumstances which give rise to a Loss
which can be measured in terms of money), regardless of whether such Loss arises
out of a breach of or default under any representation, warranty, covenant or
agreement contained in this Agreement or otherwise. Such right shall include,
without limitation, (i) the right to investigate any such event or circumstance,
(ii) the right to cure, mitigate, remediate, remedy and otherwise handle any
such event or circumstance on such terms and conditions and by such means as the
Indemnitor may determine, in its reasonable discretion, and (iii) the right to
defend, contest or otherwise oppose any such Third Party Claim with legal
counsel selected by the Indemnitor (which legal counsel shall be reasonably
acceptable to the Indemnitee); provided, however, that in the event that the
Indemnitor shall not have expressly acknowledged in writing that the Indemnitee
will be indemnified with respect to such Third Party Claim in accordance with
this Agreement, such legal counsel shall be selected by the Indemnitee, and
provided, further, that such Indemnitor's right to defend, contest or otherwise
oppose any such Third Party Claim shall be limited to those situations where the
Indemnitor shall have expressly acknowledged in writing that the Indemnitee will
be indemnified with respect to such Third Party Claim in accordance with this
Agreement. The Indemnitor shall promptly inform the Indemnitee of all material
developments related to any such event or circumstance. The Indemnitee shall
have the right, but not the obligation, to participate, at its own cost and
expense, in the defense, contest or other opposition of any such Third Party
Claim through legal counsel selected by it and shall have the right, but not the
obligations to assert any and all cross-claims or counterclaims which it may
have. Any of the above notwithstanding, if the defendants in any Third Party
Claim include both the Indemnitor and the Indemnitee, and the Indemnitee has
been advised by its counsel that there are legal defenses available to the
Indemnitee which are different from or in addition to those available to the
Indemnitor, the Indemnitee shall have the right to employ its own counsel (in
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addition to any local counsel, if applicable) in such Third Party Claim, and, in
such event, the reasonable fees and expenses of such counsel shall be borne by
the Indemnitor.
(c) Subject to the provisions of Section 8.2(b), so long as
the Indemnitor is diligently and in good faith performing its obligations under
Section 8.2(b), the Indemnitee shall not compromise or settle any such Claim
without the prior written consent of the Indemnitor, which consent shall not be
unreasonably withheld; provided, however, that in the event that the Indemnitor
shall not have expressly acknowledged in writing that the Indemnitee will be
indemnified with respect to such Third Party Claim in accordance with this
Agreement, then the Indemnitee shall have the full right to defend against any
such Third Party Claim and shall be entitled to settle or agree to pay in full
such Third Party Claim.
(d) Subject to Section 8.2(c) above, neither the Indemnitor
nor the Indemnitee shall make any settlement of any Third Party Claim without
the written consent of the other, which consent shall not be unreasonably
withheld.
Section 8.3 Notice of Other Claims.
(a) In the event that the Indemnitee reasonably believes that
it has a Claim in respect of which indemnity may be sought based on the
indemnity agreement contained in Section 8.1 above, which claim is not in
respect of a Third Party Claim, the Indemnitee shall give an Indemnity Notice to
the Indemnitor. Each Indemnity Notice shall set forth with reasonable
specificity those items in respect of which the Indemnity Notice has been sent,
as well as the summary basis upon which each such item is founded.
(b) The Indemnitor shall, within twenty-five (25) business
days after receipt of any Indemnity Notice, respond in writing in an Indemnity
Response and set forth with reasonable specificity those items in the Indemnity
Notice to which the Indemnitor does not agree as well as the summary basis upon
which such disagreement is founded. Within twenty-five (25) business days
following the delivery of the Indemnity Response to the Indemnitor,
representatives of the Indemnitee and Indemnitor shall meet to attempt to
resolve through good faith negotiations the applicable indemnification claims.
Such representatives shall negotiate in good faith for twenty-five (25) business
days in an attempt to reach a settlement of any such disputed matter. In the
event that such representatives are not able to reach a settlement of any such
disputed matter, the Indemnitee may pursue any and all claims for indemnity
against the Indemnitor, subject to the provisions of this Article VIII.
Section 8.4 Limitations of Indemnification.
(a) The Indemnitor shall not be liable under this Agreement in
respect of any Event of Indemnification unless an Indemnitee gives written
notice to the Indemnitor providing a good faith description of the circumstances
relating to such Event of Indemnification (to the extent such circumstances are
then known), on or before the Survival Date with respect thereto. The Seller and
the Purchaser shall forward a copy of each such notice received by it to each
Indemnitor. Notwithstanding anything herein to the contrary, if written notice
of an Event of Indemnification has been given by the Indemnitee to the
Indemnitor in accordance with Article
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VIII of this Agreement on or before the applicable Survival Date, then the
Indemnitee's right to indemnification with respect to such Event of
Indemnification shall survive until any resulting Claims shall have been finally
resolved.
(b) The notice given to the Indemnitor pursuant to Section
8.2(a) and the Indemnity Notice given pursuant to Section 8.3 shall contain the
Indemnitee's reasonable good faith estimate of the maximum amount of
indemnification claimed based on the facts and circumstances then known to the
Indemnitee. From time to time, at the written request of the Indemnitor, the
Indemnitee shall update its reasonable good faith estimate of the maximum amount
of indemnification claimed based on the facts and circumstances then known to
the Indemnitee.
(c) No indemnification shall be required to be made under
Section 8.1 hereof until the aggregate amount of all claims under such Section
exceeds $250,000 (the "BASKET"), in which case the Indemnitors shall be liable
for the full amount of such claims but then, in the case of indemnification by
the Seller, only, (A) with respect to Losses specifically relating to High Rise,
for all such Losses up to an aggregate amount equal to $_______ and (B) with
respect to Losses specifically relating to Centrifugal, Mechanical or CMA, up to
an aggregate amount equal to $________, except in either instance in case of (x)
fraud or (y) indemnification sought for breaches of Sections 3.2, 3.3 and 4.2,
4.6 and 4.15 in which case the Seller shall be liable for the full amount of
such claims but then only for all such Losses up to an aggregate amount equal to
the Purchase Price; provided, however, in the case of indemnification pursuant
to Section 8.1(a)(ii) or 8.1(b)(ii), the Basket shall not apply.
Section 8.5 Survival and No Waiver of Representations. All
representations and warranties of the Parties contained in this Agreement or in
any certificate, schedule, list, exhibit, agreement, document or other writing
delivered pursuant hereto or in connection with the Transactions shall survive
the Closing until the applicable Survival Date. No investigation by a Party
shall affect the representations, warranties, covenants and agreements of the
other Parties under this Agreement or in any certificate, schedule, list,
exhibit, agreement, document or other writing delivered pursuant hereto or in
connection with the Transactions furnished or to be furnished to the other
Parties and such representations, warranties, covenants and agreements shall not
be affected or deemed waived by reason of the Closing or of the fact that the
other Party knew or should have known that any of the same is or might be
inaccurate in any respect, unless specifically disclosed in the Schedules as
amended or supplemented at or prior to Closing and delivered pursuant to this
Agreement.
Section 8.6 Limitation of Other Indemnification Rights.
Notwithstanding anything to the contrary in the Charter, Bylaws, agreements or
other instruments of the Acquired Entities, the Indemnitor shall not have any
right to indemnification or other recovery thereunder or otherwise (whether as
an officer, director, stockholder or in any other capacity) from the Company
(except pursuant to any applicable Director and Officer liability insurance, if
any) with respect to any matter to the extent that the Indemnitor is liable, or
would be liable but for the limitations on indemnification contained herein, to
the Indemnitee for indemnification under this Article VIII with respect to such
matter.
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Section 8.7 Exclusive Remedy. Except in the case of fraud, the
provisions contained in this Article VIII shall provide the sole and exclusive
remedy with respect to any and all breaches or misrepresentations with respect
to representations and warranties contained herein of the Seller or the
Purchaser under this Agreement.
ARTICLE IX
PUBLICITY; CONFIDENTIALITY; BOOKS AND RECORDS
Section 9.1 Publicity. No Party shall, or permit its
affiliates to, issue any publicity, release or announcement concerning the
execution and delivery of this Agreement, the provisions hereof or the
Transactions without the prior written approval of the form and content of such
publicity, release or announcement by the other Party hereto; provided, however,
that no such approval shall be required when such publicity, release or
announcement is required by (i) any applicable Law, (ii) any applicable rules or
regulations of a national or foreign stock exchange or the Automated Quotation
System maintained by the National Association of Securities Dealers, Inc. or
(iii) any order, writ, judgment, award, edict or decree of any court of
competent jurisdiction or any governmental or quasi-governmental agency,
authority or instrumentality of competent jurisdiction; and, provided further,
that, prior to issuing any publicity, release or announcement without such prior
written approval, the Party issuing, or whose Affiliate is issuing, such
publicity, release or announcement, to the extent practicable, shall have given
reasonable prior notice to the other Party of such intended issuance.
Section 9.2 Confidentiality.
(a) Except as otherwise provided herein, the Receiving Party
shall not use (and shall not permit its Affiliates, shareholders, directors,
officers, partners, employees, agents, representatives, consultants or lenders
to use) Confidential Information for its (or their own) or any third party's
benefit and shall (and shall cause its Affiliates, shareholders, partners,
directors, officers, employees, agents, representatives, consultants and lenders
to) maintain the confidentiality of Confidential Information. If the Receiving
Party or any of its Affiliates, subsidiaries, shareholders, directors, officers,
partners, employees, agents, representatives, consultants or lenders is required
to disclose Confidential Information by or to any court of competent
jurisdiction or any governmental or quasi-governmental agency, authority or
instrumentality of competent jurisdiction, the Receiving Party shall, prior to
such disclosure, immediately notify the Delivering Party of such requirement and
all particulars related to such requirement. The Delivering Party shall have the
right, at its expense, to object to such disclosure and to seek confidential
treatment of any Confidential Information to be so disclosed on such terms as it
shall determine.
(b) The restrictions set forth in Section 9.2(a) hereof shall
not apply to the use or disclosure of Confidential Information to the extent,
but only to the extent, (i) permitted or required pursuant to any other
agreement between or among the Parties (or their respective Affiliates), (ii)
necessary by a Party (or its Affiliates) in connection with exercising its (or
their) rights or performing its (or their) duties or obligations under this
Agreement or any other agreements, instruments and documents contemplated hereby
or thereby or the other agreements
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described in clause (i) of this Section 9.2(b), (iii) contemplated by the last
two (2) sentences of Section 9.2(a) or (iv) that such Confidential Information
(A) is or has become generally available to the public through no fault or
neglect of the Receiving Party, (B) was received in good faith on a
non-confidential basis from a third party who disclosed such Confidential
Information without violating any obligations of secrecy or confidentiality or
(C) was already possessed by the Receiving Party at the time of receipt as shown
by prior dated written records. The restrictions set forth in Section 9.2(a)
shall not apply to the use or disclosure by the Company or any of its Affiliates
of Confidential Information which consists of data, reports, records and
information relating to the Company's business or the ownership, leasing or use
of the properties owned, leased or used by Company or any of its Affiliates and
which is used or disclosed in connection with the conduct of the Company's
business.
Section 9.3 Books and Records. Unless otherwise consented to
in writing by the Seller and the Purchaser, as applicable, the Purchaser agrees,
following the Closing, to cause each of the Acquired Entities to maintain for a
period of not less than six (6) years after the Closing Date, all material
records relating to such Acquired Entity with respect to: (a) acquisitions or
dispositions; (b) existing or terminated contracts of a significant nature; (c)
real and personal property ownership records; (d) accounting records used in the
preparation of the Annual Financial Statements; and (e) such other records as
would be retained for six (6) years pursuant to the present record retention
program of the Company, including computer-generated records. For a period of
six (6) years following the Closing, Representatives of the Seller may, subject
to applicable obligations of confidentiality, review such records during normal
working hours and shall have the right at their own expense to make copies of
any such records. Following the Closing and for the full period of any statute
of limitations, Purchaser will retain or cause to be retained all Tax Returns
and any records or information related to such preparation, or any audit,
examination, proceeding or determination of the Acquired Entities and the Seller
may, subject to applicable obligations of confidentiality, review such Tax
Returns during normal working hours. The Purchaser shall not cause or permit the
destruction or other disposition of such Tax Returns without offering to
surrender to the Seller such Tax Returns or portions thereof. Thereafter, the
Purchaser shall not cause or permit the destruction or other disposition of such
books and records without first offering to surrender to the Seller such books
and records or any portion thereof.
Section 9.4 Survival. Sections 9.1 and 9.2 shall survive the
termination of this Agreement for any reason and the closing of the
Transactions.
ARTICLE X
NOTICES
Section 10.1 Notices. All notices, requests, demands, claims
and other communications required or permitted to be given pursuant to this
Agreement shall be given in writing, shall be transmitted by personal delivery
or by registered or certified mail, return receipt requested, postage prepaid,
by overnight courier or by facsimile (followed by prompt physical delivery of
such written notice or other document), and shall be addressed as follows:
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When the Seller is the intended recipient:
DualStar Technologies Corporation
11-30 47th Avenue
Long Island City, New York 11101
Attention: Robert J. Birnbach
Telecopy No.: (718) 340-6659
With a copy to:
Paul Silverstein, Esq.
Andrews & Kurth L.L.P.
805 Third Avenue, 7th Floor
New York, New York 10022
Telecopy No.: (212) 850-2929
When the Purchaser is the intended recipient:
M/E Corp.
450 Park Avenue
28th Floor
New York, New York 10022
Attention: Ron Kravit
Telecopy No.: (212) 891-1540
with a copy to:
Stuart D. Freedman, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Telecopy No.: (212) 593-5955
A Party may designate a new address to which notices required
or permitted to be given pursuant to this Agreement shall thereafter be
transmitted by giving written notice to that effect to the other Party. Each
notice transmitted in the manner described in this Article X shall be deemed to
have been given, received and become effective for all purposes at the time it
shall have been (i) delivered to the addressee as indicated by the return
receipt (if transmitted by mail) or the affidavit of the messenger (if
transmitted by personal delivery) or (ii) presented for delivery to the
addressee as so indicated during normal business hours, if such delivery shall
have been refused for any reason.
<PAGE>
ARTICLE XI
GOVERNING LAW; FORUM
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Section 11.1 GOVERNING LAW; FORUM. THE VALIDITY,
INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED
BY THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE LAWS, RULES OR
PRINCIPLES OF THE STATE OF NEW YORK REGARDING CONFLICT OF LAWS). EACH PARTY
AGREES THAT ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
BREACH OR THREATENED BREACH OF THIS AGREEMENT MAY BE COMMENCED AND PROSECUTED IN
A COURT IN THE UNITED STATES DISTRICT COURT IN THE STATE OF NEW YORK, COUNTY OF
NEW YORK, OR IF SUCH COURT WILL NOT ACCEPT JURISDICTION, IN ANY COURT OF
COMPETENT CIVIL JURISDICTION SITTING IN THE STATE OF NEW YORK. EACH PARTY
CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE PERSONAL JURISDICTION OF ANY COURT IN
THE STATE OF NEW YORK IN RESPECT OF ANY SUCH PROCEEDING. EACH PARTY CONSENTS TO
SERVICE OF PROCESS UPON IT WITH RESPECT TO ANY SUCH PROCEEDING BY REGISTERED
MAIL, RETURN RECEIPT REQUESTED, AND BY ANY OTHER MEANS PERMITTED BY APPLICABLE
LAWS AND RULES. EACH PARTY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING IN ANY COURT IN THE STATE OF
NEW YORK AND ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH
PROCEEDING IN ANY COURT IN THE STATE OF NEW YORK HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
ARTICLE XII
BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES
Section 12.1 Binding Effect; Assignment; Third Party
Beneficiaries. This Agreement shall be binding upon the Parties and their
respective successors, assigns, heirs, executors, administrators and other legal
representatives and shall inure to the benefit of the Parties and their
respective successors, permitted assigns, heirs, executors, administrators and
other legal representatives. No Party shall assign any of its rights or delegate
any of its duties under this Agreement (by operation of law or otherwise)
without the prior written consent of the other Party, except that the Purchaser
may assign this Agreement as collateral to its lenders and such lenders or their
assigns may exercise their rights and remedies with respect to indemnification
claims pursuant to Article VIII. Except as contemplated in Section 8.1, no
Person shall be, or be deemed to be, a third party beneficiary of this
Agreement. Any assignment of rights or delegation of duties under this Agreement
by a Party without the prior written consent of the other Party, if such consent
is required hereby, shall be void.
ARTICLE XIII
ENTIRE AGREEMENT
Section 13.1 Entire Agreement. This Agreement and the
Schedules and Exhibits attached hereto constitute the entire agreement among the
Parties, and cancel and
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supersede all of the previous or contemporaneous agreements, representations,
warranties and understandings (whether oral or written), with respect to the
subject matter hereof.
ARTICLE XIV
MATERIALITY AND IMMATERIALITY
Section 14.1 Materiality and Immateriality. None of the
threshold dollar amounts listed herein shall be deemed an admission that an
amount greater than such threshold is material or that an amount less than such
threshold is immaterial.
ARTICLE XV
TERMINATION, AMENDMENT AND WAIVER
Section 15.1 Termination. This Agreement may be terminated and
the Transactions may be abandoned at any time prior to the Closing Date,
notwithstanding approval thereof by the stockholders of the Seller:
(a) by the Purchaser for any reason, including, without
limitation, if at any time it shall become aware of any adverse matter regarding
the Acquired Entities or any of its subsidiaries, in its sole and absolute
discretion; or
(b) by the Purchaser, upon a breach of any representation,
warranty, covenant or agreement on the part of the Seller set forth in this
Agreement, or if any such representation or warranty of the Seller shall have
been or become untrue, in each case such that the conditions set forth in
Section 6.2(a) or Section 6.2(b), as the case may be, would be incapable of
being satisfied (following notice and failure to cure within 20 days of such
notice);
(c) by the Seller, upon a breach of any representation,
warranty, covenant or agreement on the part of the Purchaser set forth in this
Agreement, or if any such representation or warranty of the Purchaser shall have
been or become untrue, in each case such that the conditions set forth in
Section 6.3(a) or Section 6.3(b), as the case may be, would be incapable of
being satisfied (following notice and failure to cure within 20 days of such
notice);
(d) by either the Seller or the Purchaser, if any permanent
injunction or action by any Governmental Authority preventing the consummation
of the Transactions shall have become final and nonappealable;
(e) by either the Seller or the Purchaser if the Transactions
shall not have been consummated on or prior to June 30, 2000;
(f) by either the Seller or the Purchaser, if the approval of
the stockholders of the Seller of this Agreement and the Transactions required
for the consummation of the Acquisition shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment thereof;
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(g) by the Purchaser, if (i) following the receipt by the
Seller or an Acquired Entity of a Takeover Proposal, the Board of Directors or
any committee thereof shall have withdrawn or modified its approval or
recommendation of this Agreement or the Transactions in any manner which is
adverse to the Purchaser or shall have resolved to do the foregoing; or (ii) the
Board of Directors shall have approved or have recommended to the stockholders
of the Seller a Superior Proposal or shall have resolved to do the foregoing;
and
(h) by the Seller in accordance with Section 5.5.
Section 15.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 15.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 15.3 and Section 5.4(b); provided,
however, that nothing herein shall relieve any party from liability for any
willful and material breach hereof.
Section 15.3 Fees and Expenses.
(a) Unless this Agreement is terminated by the Seller and the
Purchaser shall have failed to perform in any material respects its obligations
under this Agreement, (x) if this Agreement is terminated pursuant to Section
15.1(f) (but only if a Takeover Proposal has been received prior to such vote
or, prior to the receipt of a Takeover Proposal, the Board of Directors has
withdrawn or modified, or proposed to withdraw or modify, in a manner adverse to
Purchaser, the approval or recommendation of this Agreement and the
Transactions), Section 15.1(g) or Section 15.1(h), or (y) (i) if at any time on
or after the date of this Agreement until six (6) months following the
termination of this Agreement, any person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act (other than Purchaser or any of its
Affiliates) shall have acquired, directly or indirectly, the Company, all or
substantially all its properties or assets or more than 50% of the shares of
Seller Common Stock then outstanding (other than as contemplated by this
Agreement) or (ii) if the Company enters into any agreement with respect to any
Superior Proposal prior to the one-year anniversary of the termination of this
Agreement (each such event described in clauses (x) and (y) of Section 15.3(a)
being hereinafter referred to as a "TRIGGERING EVENT"), the Seller shall pay, or
cause to be paid, to Purchaser a fee of $1,000,000 (the "TERMINATION FEE"), in
same day funds.
Section 15.4 Amendment. No addition to, and no cancellation,
renewal, extension, modification or amendment of, this Agreement shall be
binding upon a Party unless such addition, cancellation, renewal, extension,
modification or amendment is set forth in a written instrument which states that
it adds to, amends, cancels, renews, extends or modifies this Agreement and
which is executed and delivered by, or on behalf of, by an officer of, or
attorney-in-fact for, such Party.
Section 15.5 Waiver. No waiver of any provision of this
Agreement shall be binding upon a Party unless such waiver is expressly set
forth in a written instrument which is executed and delivered by such Party or
on behalf of such Party by an officer of, or attorney-in-fact for, such Party.
Such waiver shall be effective only to the extent specifically set forth in such
written instrument. Neither the exercise (from time to time and at any time) by
a Party of,
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nor the delay or failure (at any time or for any period of time) to exercise,
any right, power or remedy shall constitute a waiver of the right to exercise,
or impair, limit or restrict the exercise of, such right, power or remedy or any
other right, power or remedy at any time and from time to time thereafter. No
waiver of any right, power or remedy of a Party shall be deemed to be a waiver
of any other right, power or remedy of such Party or shall, except to the extent
so waived, impair, limit or restrict the exercise of such right, power or
remedy.
Section 15.6 Procedure for Termination, Amendment, Extension
or Waiver. A termination of this Agreement pursuant to Section 15.1, an
amendment of this Agreement pursuant to Section 15.4 or an extension or waiver
pursuant to Section 15.5 shall, in order to be effective, require in the case of
the Seller, action by the Board of Directors or the duly authorized designee of
the Board of Directors.
ARTICLE XVI
HEADINGS; COUNTERPARTS
Section 16.1 Headings; Counterparts. The headings set forth in
this Agreement have been inserted for convenience of reference only, shall not
be considered a part of this Agreement and shall not limit, modify or affect in
any way the meaning or interpretation of this Agreement. This Agreement may be
signed in any number of counterparts, each of which (when executed and
delivered) shall constitute an original instrument, but all of which together
shall constitute one and the same instrument. This Agreement shall become
effective and be deemed to have been executed and delivered by each of the
Parties at such time as counterparts shall have been executed and delivered by
each of the Parties, regardless of whether each of the Parties has executed the
same counterpart. It shall not be necessary when making proof of this Agreement
to account for any counterpart other than a sufficient number of counterparts
which, when taken together, contain signatures of all of the Parties.
ARTICLE XVII
SEVERABILITY
Section 17.1 Severability. If any provision of this Agreement
shall hereafter be held to be invalid, unenforceable or illegal in whole or in
part, in any jurisdiction under any circumstances for any reason, (i) such
provision shall be reformed to the minimum extent necessary to cause such
provision to be valid, enforceable and legal while preserving the intent of the
Parties as expressed in, and the benefits to the Parties provided by, this
Agreement or (ii) if such provision cannot be so reformed, such provision shall
be severed from this Agreement and an equitable adjustment shall be made to this
Agreement (including, without limitation, addition of necessary further
provisions to this Agreement) so as to give effect to the intent as so expressed
and the benefits so provided. Such holding shall not affect or impair the
validity, enforceability or legality of such provision in any other jurisdiction
or under any other circumstances. Neither such holding nor such reformation or
severance shall affect or impair the legality, validity or enforceability of any
other provision of this Agreement.
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IN WITNESS WHEREOF, the Parties have duly executed and
delivered this Agreement as of the date first above written.
DUALSTAR TECHNOLOGIES CORPORATION
By:
------------------------------------------
Name:
Title:
M/E CORP.
By:
------------------------------------------
Name:
Title:
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ANNEX I
COMPANY STOCK
- -------------------------------- ------------------------ ----------------------
Issuer Number of Shares Class of Shares
- -------------------------------- ------------------------ ----------------------
High-Rise Electric, Inc.
Centrifugal Associates, Inc.
Mechanical Associates, Inc.
- -------------------------------- ------------------------ ----------------------
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================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
DUALSTAR TECHNOLOGIES CORPORATION,
DCI ACQUISITION CO.,
and
PARACOMM, INC.
Dated as of May 10, 2000
================================================================================
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS...........................................................................1
1.1 Definitions...........................................................................1
ARTICLE II THE MERGER............................................................................6
2.1 The Merger............................................................................6
2.2 Effective Time........................................................................6
2.3 Closing...............................................................................6
2.4 Directors and Officers................................................................7
ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS............7
3.1 MergerCo Common Stock.................................................................7
3.2 Merger Consideration..................................................................7
3.3 Target Common Stock...................................................................8
ARTICLE IV PAYMENT FOR SHARES; REGISTRATION RIGHTS; LOCK-UP; DISSENTING SHARES...................8
4.1 Payment for Shares of Target Common Stock.............................................8
4.2 Registration Rights...................................................................9
4.3 Lock-Up; Voting Agreement.............................................................9
4.4 Appraisal Rights.....................................................................10
4.5 Post-Closing Adjustments.............................................................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF DUALSTAR AND MERGERCO..............................12
5.1 Corporate Organization...............................................................12
5.2 Authority for Transaction............................................................12
5.3 No Consent...........................................................................12
5.4 Brokerage or Finder's Fees...........................................................12
5.5 Exchange Act Reports and Financial Statements........................................13
5.6 Litigation...........................................................................13
5.7 Capitalization.......................................................................13
5.8 Absence of Certain Developments......................................................14
5.9 Blackacre Agreements.................................................................14
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5.10 Material Misstatements or Omissions..................................................14
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF TARGET.............................................14
6.1 Corporate Organization...............................................................14
6.2 Authority for Transaction............................................................14
6.3 No Consent...........................................................................15
6.4 Financial Statements.................................................................15
6.5 Liabilities..........................................................................15
6.6 Absence of Material Adverse Change...................................................15
6.7 Title to Assets; Leases..............................................................15
6.8 Accounts Receivable..................................................................16
6.9 Contracts and Commitments............................................................16
6.10 Indebtedness.........................................................................16
6.11 Intellectual Property................................................................16
6.12 Taxes................................................................................17
6.13 Litigation...........................................................................17
6.14 Labor and Employee Relations.........................................................18
6.15 Employee Benefit Plans...............................................................18
6.16 Compliance with Laws.................................................................18
6.17 Environmental Matters................................................................19
6.18 Land Use.............................................................................19
6.19 Joint Ventures.......................................................................20
6.20 Insurance............................................................................20
6.21 Books and Records....................................................................20
6.22 Powers of Attorney...................................................................20
6.23 No Guarantees........................................................................20
6.24 Brokerage and Finder's Fees..........................................................20
6.25 Material Misstatements or Omissions..................................................20
6.26 Company Subsidiaries.................................................................20
6.27 Capitalization.......................................................................20
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6.28 Rights of Entry; Subscribers.........................................................21
ARTICLE VII ADDITIONAL AGREEMENTS................................................................22
7.1 Stockholders'Action..................................................................22
7.2 Additional Agreements................................................................22
7.3 Fees and Expenses....................................................................22
7.4 Tax Treatment........................................................................22
7.5 Access to Information................................................................22
7.6 Public Announcements.................................................................23
7.7 Employee Benefit Arrangements........................................................23
7.8 Notification.........................................................................23
ARTICLE VIII CONDITIONS TO THE MERGER.................................................................23
8.1 Conditions to the Obligations of Each Party to Effect the Merger.....................23
(a) Stockholder Approval........................................................23
(b) Regulatory Approvals........................................................23
(c) No Injunctions, Orders or Restraints; Illegality............................24
(d) Escrow Agreement............................................................24
8.2 Conditions to Obligations of DualStar and MergerCo...................................24
(a) Representations and Warranties..............................................24
(b) Performance and Obligations of Target.......................................24
(c) Consents, Etc...............................................................24
(d) No Injunction...............................................................24
(e) Material Adverse Change.....................................................24
(f) Resignations................................................................24
(g) Opinion of Counsel..........................................................25
(h) Registration Rights and Lock-Up Agreement...................................25
(i) Voting Agreement............................................................25
(j) Other Deliveries............................................................25
(k) Consents Under Contracts....................................................25
(l) Employment Agreements.......................................................25
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8.3 Conditions to Obligations of Target and the Stockholders.............................25
(a) Representations and Warranties..............................................25
(b) Performance of Obligations of DualStar and MergerCo.........................25
(c) Opinion of Counsel..........................................................25
(d) Material Adverse Change.....................................................25
(e) Registration Rights and Lock-Up Agreement...................................25
(f) Voting Agreement............................................................26
(g) Employment Agreements.......................................................26
(h) Consents, Etc...............................................................26
(i) Other Deliveries............................................................26
ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION..........................26
9.1 Survival of Representations and Warranties...........................................26
9.2 Indemnification......................................................................26
(a) Agreement to Indemnify......................................................26
(b) Expiration of Indemnification...............................................26
(c) Hold Back Escrow............................................................27
(d) Claims Upon Hold Back Escrow................................................27
(e) Resolution of Conflicts; Arbitration........................................27
(f) Distribution of Hold Back Escrow Upon Termination of Hold Back Period.......28
(g) Third Party Claims..........................................................28
(h) Apportionment of Liability; Maximum Liability...............................29
(i) Remedies....................................................................29
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ARTICLE X MISCELLANEOUS........................................................................30
10.1 Amendment............................................................................30
10.2 Notices..............................................................................30
10.3 Entire Agreement; No Third-Party Beneficiaries; Section Headings.....................31
10.4 Confidentiality......................................................................31
10.5 Assignment...........................................................................32
10.6 Applicable Law.......................................................................32
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LIST OF SCHEDULES AND EXHIBITS
Schedule 4.3 -- Cashed Stockholders Party to the Voting
Agreement
Schedule 6.5 -- Liabilities
Schedule 6.7(a) -- Liens
Schedule 6.7(b) -- Leases
Schedule 6.9 -- Contracts and Commitments
Schedule 6.10 -- Indebtedness
Schedule 6.11 -- Intellectual Property
Schedule 6.13 -- Target Litigation
Schedule 6.14 -- Labor and Employee Relations
Schedule 6.15 -- Employee Benefit Plans
Schedule 6.17 -- Environmental Matters
Schedule 6.20 -- Insurance
Schedule 6.26 -- Company Subsidiaries
Schedule 6.27 -- Equity Holders
Schedule 6.28(a)-1 -- MDUs - 50+ Units
Schedule 6.28(a)-2 -- MDUs - 11-49 Units
Schedule 6.28(a)-3 -- MDUs - 1-10 Units
Schedule 6.28(a)-4 -- MDUs - Trailer and Mobile Home Parks
Schedule 6.28(b) -- Subscribers
Schedule 7.7 -- At-Will Employees
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Form of Employment Agreement
Exhibit C -- Form of Registration Rights and Lock-Up
Agreement
Exhibit D -- Form of Voting Agreement
Exhibit E -- Form of Warrant
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made this 10th
day of May, 2000, by and among PARACOMM, INC., a Delaware corporation having its
principal office at 295 E. Highway 50, Suite 2, Clermont, Florida 34711
("Target"), DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation having its
principal office at One Park Avenue, New York, New York 10016 ("DualStar") and
DCI ACQUISITION CO., a Delaware corporation and wholly-owned subsidiary of
DualStar ("MergerCo").
RECITALS:
WHEREAS, the respective Boards of Directors of MergerCo and DualStar
have approved the merger of MergerCo with and into Target (the "Merger") in
accordance with the Delaware General Corporation Law (the "Delaware Corporation
Law") upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of Target has, in light of and subject
to the terms and conditions set forth in this Agreement, determined that the
Merger is in the best interests of Target and its stockholders, and resolved to
approve and adopt this Agreement and the transactions contemplated by this
Agreement, including the Merger (collectively, the "Transactions"), and to
recommend approval and adoption by the stockholders of Target of this Agreement
and the Transactions; and
WHEREAS, DualStar, MergerCo and Target desire to make certain
representations, warranties, covenants and agreements in connection with the
Transactions, and also to prescribe various conditions to the Transactions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, DualStar, MergerCo and Target agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Unless the context requires a different meaning, the
following terms have the meaning, or are defined in the Section of this
Agreement, indicated below:
"Affiliate" - as to any party, any Person directly or indirectly
controlling, controlled by, or under common control with, such party. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling," "controlled by," and under "common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" - Section 4.5(b).
<PAGE>
"Agreement" - introductory paragraph.
"At-Will Employees" - Section 7.7.
"Blackacre" - Section 5.9.
"Blackacre Agreements" - Section 5.9.
"Blackacre Parties" - Section 2.1(b) of the Registration Rights and
Lock-Up Agreement.
"Bylaws" - Section 2.1.
"Cashed Shares" - Section 4.1(b).
"Cashed Stockholder(s)" - Section 4.1(b).
"Certificate of Incorporation" - Section 2.1.
"Certificate of Merger" - Section 2.2.
"Class A Cashed Shares" - Section 4.1(b).
"Class B Cashed Shares" - Section 4.1(b).
"Class A Stock Consideration" - Section 3.2(a)(i).
"Class B Stock Consideration" - Section 3.2(b)(i).
"Closing" - Section 2.3.
"Closing Date" - Section 2.3.
"Code" - Section 7.4.
"Common Certificates" - Section 4.1(a).
"Contract Employees" - Don Johnson and Mark Mayhook, each of whom shall
be required to enter into an Employment Agreement with the Surviving
Corporation.
"Delaware Corporation Law" - Recitals.
"Dissenting Shares" - Section 4.4(a).
"DualStar" - introductory paragraph.
"DualStar SEC Reports" - any document filed by DualStar with the SEC.
"DualStar Stock" - Section 3.2.
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"Effective Time" - Section 2.2.
"Employee" - Section 6.14.
"Employee Benefit Plans" - Section 6.15.
"Employment Agreements" - the Employment Agreements by and between the
Surviving Corporation and each of the Contract Employees, which Employment
Agreements shall be in substantially the form attached hereto as Exhibit B.
"Environmental Laws" - Section 6.17(a).
"ERISA" - the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" - Section 9.2.
"Escrow Agreement" - that certain Escrow Agreement of even date
herewith, relating to the Hold Back Escrow, among DualStar, the Agent and the
Escrow Agent, in substantially the form attached hereto as Exhibit A.
"Exchange Act" - Section 5.5.
"Financial Statements" - Section 6.4.
"GAAP" - generally accepted accounting principles in effect from time
to time within the United States.
"Governmental Authority" - the government of any nation, state, city,
locality or other political subdivision of any of the foregoing, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Hold Back Escrow" - Section 9.2(c).
"Hold Back Period" - Section 9.2(c).
"Injunction" - Section 8.1(c).
"Intellectual Property" - Section 6.11(a).
"Knowledge" - Target will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) any officer or director thereof is actually aware of such fact or
other matter; or
(b) any of Philip Dropkin, Donald Johnson or Mark Mayhook would, as a
prudent individual, be expected to discover or otherwise become aware of such
fact or
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other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
Each of DualStar and MergerCo will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) any officer or director thereof is actually aware of such
fact or other matter; or
(b) any officer or director thereof would, as a prudent
individual, be expected to discover or otherwise become aware of such fact or
other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
"Lien" - any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding Target Common Stock and equity related preferences)
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a capital lease, or any financing lease having substantially the
same economic effect as any of the foregoing, but in each above case excluding
Permitted Liens.
"Loss(es)" - Section 9.2(a).
"Material Adverse Effect" - any effect that is or is reasonably likely
to be materially adverse to a Person or its business, taken as a whole, except
for effects due to general economic conditions or changes in regulatory
conditions affecting the wireless or satellite cable industry generally.
"MDU" - means each dwelling unit contained in any house or building
containing two or more dwelling units, as well as each dwelling unit contained
in any apartment building complex, condominium or cooperative housing
development, mobile home or trailer park or other multi-family dwelling unit
building complex, as to which Target has a right of entry ("ROE") to provide
subscription, wireless or satellite cable television services , including, if
identified on Schedule 6.28(a)-1, 6.28(a)-2, 6.28(a)-3 or 6.28(a)-4, units under
construction or to be constructed.
"MDU Unit Threshold" - 18,237 MDU units.
"Merger" - Recitals.
"Merger Consideration" - Section 3.2.
"MergerCo" - introductory paragraph.
"Officer's Certificate" - Section 9.2(d).
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"Permitted Liens" - (a) materialmen's, mechanic's, carriers', or other
like liens arising in the ordinary course of business, or deposits to obtain the
release of such liens, (b) liens for current taxes not yet due and payable; (c)
liens to be released at or prior to Closing; and (d) in the case of the real
estate owned or real property leased or easements or rights of way (including
ROEs) included within Target's assets, (i) the terms of such leases, easements
or rights-of-way (including ROEs), (ii) municipal and zoning ordinances, (iii)
standard (printed) title insurance exceptions, (iv) easements for public
utilities and recorded building and use restrictions and covenants and other
restrictions and title imperfections which do not materially interfere with the
present use of or materially detract from the value of the property, and (v) in
the case of leased property, any rights of or security interests held by lenders
to the owners of such leased property.
"Person" - any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Post Closing Adjustment Statement" - Section 4.5(b).
"Premises" - Section 6.18.
"Proxy Statement" - Section 4.3(b).
"Registration Rights and Lock-Up Agreement" - that certain Registration
Rights and Lock-Up Agreement among DualStar and each of the stockholders
receiving the Merger Consideration, of even date herewith, in substantially the
form attached hereto as Exhibit C.
"ROE" - definition of MDU.
"SEC" - Securities and Exchange Commission or any successor regulatory
authority thereto.
"Stock Consideration" - Section 3.2(b)(i).
"Stock Consideration Adjustment" - Section 4.5(a).
"Subscriber Threshold" - 2,693 Subscribers.
"Subscribers" - Section 6.28(b).
"Surviving Corporation" - Section 2.1.
"Target" - introductory paragraph.
"Target Class A Stock" - the shares of Target's Class A Common Stock,
$0.01 par value per share.
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"Target Class B Stock" - the shares of Target's Class B Common Stock,
$0.01 par value per share.
"Target Common Stock" - the Target Class A Stock and the Target Class B
Stock, collectively.
"Tax" - Section 6.13.
"Transactions" - Recitals.
"Voting Agreement" - that certain Voting Agreement of even date
herewith among DualStar and each of the Cashed Stockholders set forth on
Schedule 4.3, in substantially the form attached hereto as Exhibit D.
"Warrant(s)" - Section 3.2(a)(ii).
ARTICLE II
THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, Target and MergerCo shall consummate the Merger pursuant
to which (a) MergerCo shall be merged with and into Target, and the separate
corporate existence of MergerCo shall thereupon cease, (b) Target shall be the
surviving corporation in the Merger (sometimes referred to in this Agreement as
the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Delaware and (c) the separate corporate existence of Target with
all its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The certificate of incorporation, as amended, of
Target (the "Certificate of Incorporation"), as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Certificate of
Incorporation, and the bylaws of Target (the "Bylaws") as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law, such Certificate of Incorporation
and such Bylaws. The Merger shall have the effects specified in the Delaware
Corporation Law.
2.2 Effective Time. At the Closing, after all of the conditions set
forth in Article VIII shall have been satisfied or, if permissible, waived by
the party entitled to the benefit of same, MergerCo and Target shall duly
execute and file a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in accordance with the Delaware
Corporation Law. The Merger shall become effective at such time as the
Certificate of Merger, accompanied by payment of the applicable filing fee, has
been examined by and received the endorsed approval of the Secretary of State of
the State of Delaware (the "Effective Time").
2.3 Closing. The closing of the Merger (the "Closing") shall take place
upon the execution of this Agreement (the "Closing Date"), at the offices of
Day, Berry &
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Howard LLP, One Canterbury Green, Stamford, Connecticut 06901, unless another
date or place is agreed to by the parties.
2.4 Directors and Officers. The directors and officers of MergerCo
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
Notwithstanding the foregoing, Donald Johnson shall be the initial President of
the Surviving Corporation, to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
As of the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Target Common Stock or any
shares of capital stock of MergerCo:
3.1 MergerCo Common Stock. Each share of common stock, par value $.01
per share, of MergerCo issued and outstanding immediately prior to the Effective
Time shall be converted into one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation following the
Merger.
3.2 Merger Consideration. Each share of Target Common Stock issued and
outstanding immediately prior to the Effective Time (other than (x) shares owned
by Target and (y) Dissenting Shares) shall be converted into the right to
receive the following consideration (collectively, the "Merger Consideration"),
upon surrender and exchange of the Common Certificate (as hereinafter defined)
representing such shares of Target Common Stock:
(a) Each share of Target Class A Stock shall be converted into the
right to receive:
(i) that number of shares of common stock, $.01 par value per
share, of DualStar (the "DualStar Stock") equal to 365,690, divided by the total
number of outstanding shares of Target Class A Stock (other than shares owned by
Target), i.e., 72.5 shares of DualStar Stock per share of Target Class A Stock
(the "Class A Stock Consideration"); and
(ii) a warrant (each a "Warrant" and, collectively, the
"Warrants") to purchase that number of shares of DualStar Stock equal to 11,796,
divided by the total number of outstanding shares of Target Class A Stock (other
than shares owned by Target) in the form attached hereto as Exhibit E.
(b) Each share of Target Class B Stock shall be converted into the
right to receive:
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(i) that number of shares of DualStar Stock equal to 409,310,
divided by the total number of outstanding shares of Target Class B Stock (other
than shares owned by Target), i.e., 82.589 shares of DualStar Stock per share of
Target Class B Stock (the "Class B Stock Consideration," and together with the
Class A Stock Consideration, collectively, the "Stock Consideration"); and
(ii) a Warrant to purchase that number of shares of DualStar
Stock equal to 13,204 divided by the total number of outstanding shares of
Target Class B Stock (other than shares owned by Target) in the form attached
hereto as Exhibit E.
3.3 Target Common Stock. All such shares of Target Common Stock, when
converted as provided in Section 3.2, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each Common
Certificate previously evidencing such shares shall thereafter represent only
the right to receive the applicable Merger Consideration. The holders of Common
Certificates previously evidencing shares of Target Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to the Target Common Stock except as otherwise provided in this
Agreement or by law and, upon the surrender of Common Certificates in accordance
with the provisions of Section 4.1, shall only represent the right to receive
for their shares of Target Common Stock, the applicable Merger Consideration,
without any interest thereon.
ARTICLE IV
PAYMENT FOR SHARES; REGISTRATION RIGHTS;
LOCK-UP; DISSENTING SHARES
4.1 Payment for Shares of Target Common Stock.
(a) Prior to the Closing Date, Target, at the request of DualStar,
shall have mailed to each record holder of certificates (the "Common
Certificates") that immediately prior to the Effective Time represented shares
of Target Common Stock a form of letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Common
Certificates shall pass, only upon proper delivery of the Common Certificates to
Target, on behalf of DualStar, and instructions for use in surrendering such
Common Certificates and receiving the Merger Consideration in respect of such
shares.
(b) In effecting the payment of the Merger Consideration with respect
to shares of Target Class A Stock and Target Class B Stock represented by Common
Certificates entitled to payment of the Merger Consideration pursuant to Section
3.2(a) and (b), respectively (the "Class A Cashed Shares" and the "Class B
Cashed Shares," respectively, and collectively, the "Cashed Shares"), upon the
surrender of each such Common Certificate, DualStar shall pay the holder of such
Common Certificate (each a "Cashed Stockholder") the Merger Consideration in
respect of Target Class A Stock or Target Class B Stock, as applicable,
multiplied by the number of Class A Cashed Shares or Class B Cashed Shares, as
the case may be, in consideration for such Cashed Shares,
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provided that 10% of each Cashed Stockholder's Stock Consideration shall be
delivered on behalf of such Cashed Stockholder to the Hold Back Escrow. Upon
such payment, such Common Certificate shall forthwith be canceled.
(c) Until surrendered in accordance with paragraph (b) above, each such
Common Certificate (other than Common Certificates representing (i) shares of
Target Common Stock held in the treasury of Target or by any wholly-owned
subsidiary of Target and (ii) Dissenting Shares) shall represent solely the
right to receive the Merger Consideration relating to such Common Certificates.
No interest or dividends shall be paid or accrued on the Merger Consideration.
If the Merger Consideration (or any portion of the Merger Consideration) is to
be delivered to any person other than the person in whose name the Common
Certificate formerly representing shares of Target Common Stock surrendered is
registered, it shall be a condition to such right to receive such Merger
Consideration that the Common Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
surrendering such shares of Target Common Stock shall pay to DualStar any
transfer or other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Common
Certificate surrendered, or shall establish to the satisfaction of DualStar that
such tax has been paid or is not applicable.
(d) No dividends or other distributions with respect to shares of
Target Common Stock with a record date after the Closing Date shall be paid to
the holder of any unsurrendered Common Certificate with respect to the shares of
Target Common Stock represented by such Common Certificate.
(e) After the Closing Date, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Target Common Stock
which were outstanding immediately prior to the Closing Date. If, after the
Closing Date, Common Certificates formerly representing the shares of Target
Common Stock are presented to DualStar or the Surviving Corporation, they shall
be surrendered and canceled in return for the payment of the Merger
Consideration relating to such Common Certificates, as provided in this Article
IV.
4.2 Registration Rights. DualStar agrees to grant to each of the Cashed
Stockholders unlimited piggyback registration rights with respect to the
DualStar Stock acquired thereby as part of the Merger Consideration (including
shares of DualStar Stock issuable upon exercise of the Warrants), subject to the
terms and conditions of the Registration Rights and Lock-Up Agreement.
4.3 Lock-Up; Voting Agreement.
(a) Each of the Cashed Stockholders shall agree not to, directly or
indirectly, offer, offer to sell, sell, loan, pledge, grant any rights, contract
to sell or grant any option to purchase or otherwise dispose or transfer any
shares of DualStar Stock acquired by it pursuant to the Merger (including shares
of DualStar Stock issuable upon exercise of the Warrants), without the prior
written consent of DualStar, for a period commencing upon the Closing Date and
ending 12 months subsequent to the Closing Date, except as
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otherwise permitted by the terms and conditions of the Registration Rights and
Lock-Up Agreement.
(b) To the extent permissible under applicable law, each of the Cashed
Stockholders set forth on Schedule 4.3 hereto will execute and deliver the
Voting Agreement pursuant to which each such Cashed Stockholder shall agree to
vote any shares of DualStar Stock acquired by it pursuant to the Merger
(including shares of DualStar Stock issuable upon exercise of the Warrants) (i)
in favor of all management proposals at the next annual meeting of the
stockholders of DualStar scheduled to be held as soon as practicable, which
proposals are reflected in the form of preliminary proxy statement previously
delivered thereto (the "Proxy Statement"), and (ii) for so long as such Cashed
Stockholder holds such shares of DualStar Stock and the Blackacre Parties have a
contractual right from DualStar to designate one or more nominees to DualStar's
board of directors, in favor of the Blackacre Parties' nominees to DualStar's
board of directors.
4.4 Appraisal Rights.
(a) Notwithstanding anything in this Agreement to the contrary, shares
of Target Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by holders of Target Common Stock who have
demanded and exercised any appraisal rights in the manner provided under the
Delaware Corporation Law and, as of the Effective Time, have neither effectively
withdrawn nor lost their appraisal rights under the Delaware Corporation Law
(the "Dissenting Shares"), shall not be converted into or be exchangeable for
the right to receive the Merger Consideration, unless and until such holder
shall have failed to exercise or shall have effectively withdrawn or lost such
holder's appraisal rights under the Delaware Corporation Law. If such holder
shall have so failed to exercise or shall have effectively withdrawn or lost
such appraisal rights, such holder's shares of Target Common Stock shall
thereupon be deemed to have been converted into and to have become exchangeable
for, at the Effective Time, the right to receive the Merger Consideration,
without any interest thereon.
(b) Target shall have given DualStar prompt notice of any demands
received by Target for appraisal pursuant to Section 262 of the Delaware
Corporation Law, withdrawals of such demands, and any other instruments served
pursuant to the Delaware Corporation Law and received by Target. Target shall
not have, except with the prior written consent of DualStar or as otherwise
required by applicable law, made any payment with respect to any such demands
for appraisal or offered to settle or settled any such demands.
4.5 Post-Closing Adjustments.
(a) On the date which is sixty (60) days following the Effective Time,
the amount of Stock Consideration set forth in Section 3.2 above shall be
adjusted by the parties hereto pursuant to the provisions of this Section 4.5
(the "Stock Consideration Adjustment"), to the extent necessary.
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(b) Within sixty (60) days following the Effective Time, DualStar shall
prepare and deliver to the agent designated by the Cashed Stockholders pursuant
to the Registration Rights and Lock-Up Agreement (the "Agent") a statement (the
"Post-Closing Adjustment Statement") showing the Surviving Corporation's
aggregate number of MDU units and its aggregate number of Subscribers as of the
Effective Time. If, within thirty (30) days after receipt of the Post-Closing
Adjustment Statement, the Agent has not disputed the items set forth thereon,
the Stock Consideration shall be adjusted, based upon the Post-Closing
Adjustment Statement, in accordance with Section 4.5(c) below. In the event that
the Agent disputes the items set forth in the Post-Closing Adjustment Statement
within such time, DualStar and the Agent shall use their best efforts to agree
to a compromise. If DualStar and the Agent are unable to come to such a
mutually-agreeable compromise, within thirty (30) days after the dispute arises,
or such additional period as may be agreed upon by them, the dispute shall be
resolved by arbitration pursuant to the provisions of Section 9.2(e) hereof. The
decision of an arbitration panel in respect of the Post-Closing Adjustment
Statement shall be final and binding as to the determination of the Stock
Consideration Adjustment provided for in this Section 4.5. The parties agree
that the Post Closing Adjustment Statement shall be prepared solely for the
purpose of determining the Stock Consideration Adjustment, if any. DualStar and
the Agent, on behalf of the Cashed Stockholders, shall each pay one-half of the
fees and expenses of the arbitrators in resolving the disputed issues pursuant
to this Section 4.5, if any.
(c) The Stock Consideration Adjustment, if any, shall be determined as
follows:
(i) In the event that the aggregate number of MDU units set
forth in the final Post-Closing Adjustment Statement is lower than the MDU Unit
Threshold, the Stock Consideration shall be reduced, on a per MDU unit basis, by
subtracting 27.86 shares of DualStar Stock per MDU unit shortfall from the
aggregate Stock Consideration, to be allocated 47.186% to the Cashed Class A
Shares and 52.814% to the Cashed Class B Shares; and
(ii) In the event that the aggregate number of Subscribers set
forth in the final Post-Closing Adjustment Statement is lower than the
Subscriber Threshold, the Stock Consideration shall be reduced, on a per
Subscriber basis, by subtracting 53.85 shares of DualStar Stock per Subscriber
shortfall from the aggregate Stock Consideration, to be allocated 47.186% to the
Cashed Class A Shares and 52.814% to the Cashed Class B Shares;
provided, however, that the Stock Consideration Adjustment shall not exceed, and
shall be payable exclusively from, the aggregate remaining amount of the Hold
Back Escrow, as defined in Section 9.2(c).
(d) If the aggregate Stock Consideration is reduced pursuant to this
Section 4.5, DualStar shall be entitled to receive from the Escrow Agent, from
and out of the remaining Hold Back Escrow, the amount of such reduction. Any
Stock Consideration
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Adjustment shall be apportioned among the Cashed Stockholders in proportion to
the amount of Stock Consideration paid to each of them at the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
DUALSTAR AND MERGERCO
DualStar and MergerCo hereby jointly and severally represent and
warrant to Target as follows:
5.1 Corporate Organization. Each of DualStar and MergerCo is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware.
5.2 Authority for Transaction. The execution and delivery of this
Agreement by each of DualStar and MergerCo, by DualStar of the Warrants and the
Registration Rights and Lock-Up Agreement, and the consummation of the
Transactions, have been duly and validly authorized by each of DualStar and
MergerCo by all necessary action, corporate or otherwise. This Agreement is the
legal, valid and binding obligation of each of DualStar and MergerCo,
enforceable against each of DualStar and MergerCo in accordance with its terms.
The Warrants and the Registration Rights and Lock-Up Agreement are the legal,
valid and binding obligations of DualStar, each enforceable against DualStar in
accordance with their respective terms. Neither the execution and delivery of
this Agreement by DualStar and MergerCo, nor the performance by DualStar and
MergerCo of their obligations hereunder, nor the execution, delivery or
performance by DualStar of the Warrants or the Registration Rights and Lock-Up
Agreement, will violate the certificate of incorporation or bylaws of any of
DualStar or MergerCo or will result in a violation or breach of, or constitute a
default under, any indenture, mortgage, deed of trust or other contract, license
or other agreement to which DualStar or MergerCo is a party or by which either
of them or their assets is bound, or of any provision of any federal or state
judgment, writ, decree, order, statute, rule, or governmental regulation
applicable to DualStar or MergerCo, which could have a Material Adverse Effect
on DualStar or MergerCo.
5.3 No Consent. No consent, approval, order, or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local Governmental Authority is required on the part of
DualStar or MergerCo in connection with the execution or delivery of this
Agreement or the consummation of the Transactions or the issuance of DualStar
Stock upon exercise of the Warrants, except for the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware.
5.4 Brokerage or Finder's Fees. Neither DualStar nor MergerCo has
employed any broker, finder or agent, or agreed to pay or incurred any brokerage
fee, finder's fee or commission with respect to the transactions contemplated by
this Agreement.
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5.5 Exchange Act Reports and Financial Statements. DualStar has
furnished or will upon request furnish to Target copies of the DualStar SEC
Reports, each as filed with the SEC. Each of the DualStar SEC Reports, when it
was filed with the SEC, complied in all material respects with the requirements
of the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the SEC
thereunder, and did not on the date of filing or amendment, if any, contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements contained in, or incorporated by
reference into, the DualStar SEC Reports: (i) were prepared in accordance with
GAAP (except as otherwise noted therein and subject, in the case of unaudited
interim financial statements, to the omission of certain notes not ordinarily
accompanying such unaudited interim financial statements and to normal year-end
adjustments and any other adjustments described therein) and with Regulation S-X
promulgated under the Exchange Act; and (ii) present fairly DualStar's
consolidated financial condition and the consolidated results of its operations,
cash flows and stockholders equity as at the relevant dates thereof and for the
periods covered thereby.
5.6 Litigation. Except as disclosed in the DualStar SEC Reports, there
is no action, suit, grievance or proceeding pending or, to the Knowledge of
DualStar or MergerCo, threatened against DualStar or any of its subsidiaries at
law, in equity, by way of arbitration or before any governmental or
quasi-governmental department, commission, board or agency. To the Knowledge of
DualStar or MergerCo, there are no existing facts or conditions which might give
rise to any charge, claim, litigation, proceeding, or investigation by any third
party which is likely to have a Material Adverse Effect on DualStar or any of
its subsidiaries, nor are there any facts or conditions which might give rise to
any order of condemnation, appropriation or other taking of any assets of
DualStar or any of its subsidiaries.
5.7 Capitalization. The authorized capital stock of DualStar consists
of 25,000,000 shares of DualStar Stock, of which 15,701,571 shares of DualStar
Stock were issued and outstanding as of March 1, 2000. No shares of DualStar
Stock are held in treasury. All of the issued and outstanding shares of DualStar
Stock have been duly authorized and are validly issued, fully paid, and
nonassessable. All of the shares of DualStar Stock to be issued as the Stock
Consideration or pursuant to the Warrants, and the Warrants themselves, have
been duly authorized and, upon consummation of the Merger, or exercise of the
Warrants, as applicable, will be validly issued, fully paid and nonassessable.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class or series of authorized capital stock of
DualStar are as set forth in the certificate of incorporation, as amended, of
DualStar, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Other than as contemplated herein
and except as set forth in the DualStar SEC Reports filed prior to the date
hereof, or as reflected in the Proxy Statement, there are no options, warrants
or other rights outstanding to purchase or acquire, or any securities
convertible into, nor has DualStar or its subsidiaries agreed to issue or
reissue, other than pursuant to this Agreement any authorized and unissued
capital stock of DualStar or its subsidiaries.
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5.8 Absence of Certain Developments. Since December 31, 1999, no event
has occurred with respect to DualStar, MergerCo or any other subsidiary of
DualStar which has had, or which is reasonably likely to have, a Material
Adverse Effect on DualStar, MergerCo or any other subsidiary of DualStar.
5.9 Blackacre Agreements. DualStar has furnished to Target true,
correct and complete copies of all agreements which have been entered into
between DualStar or any of its subsidiaries or Affiliates and Blackacre Capital
Management, L.L.C., M/E Contracting Corp., any of their respective Affiliates or
any of the Blackacre Parties (collectively, "Blackacre"), and any amendments
thereto, including, without limitation, the securities purchase agreement
pursuant to which Blackacre is to invest in DualStar (collectively, the
"Blackacre Agreements"). Each of the Blackacre Agreements is valid, binding and
in full force and effect against DualStar; and, to the Knowledge of DualStar,
assuming the due execution and delivery by Blackacre of the Blackacre
Agreements, each of the Blackacre Agreements is valid, binding and in full force
and effect against Blackacre. None of the Blackacre Agreements has been modified
or amended in a manner adverse to DualStar, and no violation or breach or event
or condition that, after notice or lapse of time or both, would constitute a
violation or breach under any of the Blackacre Agreements on the part of
DualStar or any of its subsidiaries or Affiliates, or to DualStar's Knowledge,
Blackacre, has occurred.
5.10 Material Misstatements or Omissions. No representation or warranty
by DualStar or MergerCo in this Agreement, or any document, statement,
certificate or schedule furnished or to be furnished to Target by, or on behalf
of, DualStar or MergerCo pursuant hereto contains, or will when furnished
contain, any untrue statement of a material fact, or omits, or will then omit to
state, a material fact necessary to make the statement of facts not materially
misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to each of DualStar and MergerCo
as follows:
6.1 Corporate Organization. Target is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware
and is duly qualified as a foreign corporation in the State of Florida. Target
has all necessary corporate power and authority to own and use its properties
and assets and to operate its business as presently conducted, and Target holds
all permits, licenses, orders and approvals of all federal, state and local
governmental or regulatory bodies necessary and required therefor, except where
failure to do so would not have a Material Adverse Effect on Target.
6.2 Authority for Transaction. The execution and delivery of this
Agreement by Target, and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by all necessary action, corporate
or otherwise. This
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Agreement is the legal, valid and binding obligation of Target, enforceable
against Target in accordance with its terms. Neither the execution and delivery
of this Agreement by Target, nor the performance by Target of its obligations
hereunder, will violate Target's certificate of incorporation or bylaws or will
result in a violation or breach of, or constitute a default under, any
indenture, mortgage, deed of trust or other contract, license or other agreement
to which Target is a party or by which it or any of its assets or properties is
bound, or of any provision of any federal or state judgment, writ, decree,
order, statute, rule, or governmental regulation applicable to Target, which
could have a Material Adverse Effect on Target.
6.3 No Consent. No consent, approval, order, or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local Governmental Authority is required on the part of Target
in connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware.
6.4 Financial Statements. Target has delivered to DualStar each of its
audited financial statements for the period from inception through December 31,
1999, and its unaudited financial statements for the three months ended March
31, 2000 (without footnotes) (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with GAAP, and present
fairly the financial condition and results of the operations of Target and its
business as of the dates and for the periods indicated, subject to customary
year-end adjustments.
6.5 Liabilities. To the Knowledge of Target, Target has no material
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, which under GAAP are required to be set forth,
but are not so set forth in the Financial Statements, other than those set forth
on Schedule 6.5 hereto.
6.6 Absence of Material Adverse Change. Since March 31, 2000, there has
not been with respect to the business of Target, nor have any facts come to the
attention of Target that Target or its business will experience, any material
change which will have a Material Adverse Effect on Target, and no facts have
come to the attention of Target that any material change having a Material
Adverse Effect on Target has occurred.
6.7 Title to Assets; Leases.
(a) Target has good and marketable title to all assets owned by it and
a valid leasehold interest in all assets leased by it, in each case, except as
set forth on Schedule 6.7(a) hereto, free and clear of all Liens.
(b) Schedule 6.7(b) hereto lists all leases and lease purchase
agreements to which Target is a party. Each such agreement is valid, binding and
in full force and effect; and no event of default or event or condition that,
after notice or lapse of time or both, would constitute a violation, breach or
event of default thereunder on the part of Target, or to the Knowledge of
Target, any other party thereto, has occurred or will occur
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or in connection with the closing of the transactions contemplated hereby, which
could have a Material Adverse Effect on Target or the Surviving Corporation.
6.8 Accounts Receivable. All accounts receivable of Target arose only
from bona fide transactions in the ordinary course of Target's business. No
material amount included in the accounts receivable of Target as of the Closing
Date has been released for an amount materially less than the value at which it
was included or is or will be regarded as unrecoverable in whole or in material
part, except to the extent there shall have been an appropriate reserve
therefor. Such receivables are not subject to any material counterclaim, refusal
to pay or setoff.
6.9 Contracts and Commitments. Schedule 6.9 hereto lists all written
and oral agreements, contracts, indebtedness, liabilities and other obligations
to which Target is a party or by which it is bound (other than ROEs, the
locations covered by which are to be listed on Schedules 6.28(a)-1, (a)-2, (a)-3
and (a)-4, as required under Section 6.28) which (a) are for a term longer than
twelve (12) months; (b) involve receipts or expenditures by Target greater than
Five Thousand Dollars ($5,000) in any twelve-month period; (c) involve the
mortgage, pledge, grant or creation of a lien or security interest or other
encumbrance on any of Target's assets other than Permitted Liens; (d) require
Target to indemnify any other party for any liability; or (e) was not entered
into in the ordinary course of business. Copies of such written, and summaries
of such oral, agreements, contracts, indebtedness, liabilities and obligations
have been delivered or made available to DualStar. Except as set forth on
Schedule 6.9, each of the contracts or agreements listed on Schedule 6.9 hereto
is valid, binding and in full force and effect, and no event of default or event
or condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder on the part of Target, or to
the Knowledge of Target, any other party thereto, has occurred, other than any
such matter as would not have a Material Adverse Effect on Target or the
Surviving Corporation. Other than as set forth on Schedule 6.9, none of such
contracts or agreements contain any change-of-control provisions that would be
triggered by this Agreement or the consummation of the transactions contemplated
hereby.
6.10 Indebtedness. Except as set forth in the Financial Statements or
on Schedule 6.10 hereto, Target does not have any obligations for money borrowed
or under any guarantees and does not have any agreements or arrangements to
borrow money or to enter into any such guarantee.
6.11 Intellectual Property.
(a) Schedule 6.11 hereto lists all intellectual property owned or
licensed by Target and material to Target's business, including but not limited
to registered and unregistered trademarks, trade names, service marks,
certification marks, domain names, copyrights and registration applications for
the above, and licenses to and from third parties relating to any of the above
(the "Intellectual Property").
(b) Except as set forth on Schedule 6.11, Target owns or has valid and
enforceable license(s) to use all the Intellectual Property and pays no royalty
with respect
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thereto. Except as set forth on Schedule 6.11, each such license is valid,
binding and in full force and effect; and no event of default or event or
condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder on the part of Target, or to
the Knowledge of Target, any other party thereto, has occurred.
(c) Target owns or has the right to use, all material trade secrets,
including know-how, inventions, designs, processes, computer software and
documentation for such software and technical data required for or incident to
the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by Target in connection with its business, free and
clear of any Liens, including without limitation, all claims of current and
former employees, consultants, officers, directors and stockholders of Target,
other than as set forth on Schedule 6.11.
6.12 Taxes.
(a) All returns, reports and other forms related to Taxes required to
be filed by Target on or before the Closing Date have been filed, in accordance
with all applicable laws (after taking into account extensions duly obtained),
and no penalties or other charges are due or will become due with respect to the
late filing of any such return, report or form. All Taxes due have been paid,
provided for in reserves, or properly protested or will be so paid, reserved for
or protested by Target. No audit of any such return, report or form is pending
or, to the Knowledge of Target, threatened. Target is not a party to any pending
action or proceeding by any Governmental Authority for assessment or collection
of Taxes, and no claim for assessment or collection of Taxes has been asserted
or threatened against Target. All deposits required by law to be made by Target
with respect to employees' withholding taxes have been duly made.
(b) As used in this Agreement, "Taxes" (or "Tax" where the context
requires) shall mean all federal, state, county, local, foreign and other taxes
(including, without limitation, income, profits, premium, estimated, excise,
value added, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll-related and property taxes, imposts, customs
duties and other governmental charges and assessments), whether or not measured
in whole or in part by net income, and including deficiencies, interest,
additions to tax or interest or penalties with respect thereto.
6.13 Litigation. Other than as set forth on Schedule 6.13 hereto, there
is no action, suit, grievance or proceeding pending or, to the Knowledge of
Target, threatened against Target at law, in equity, by way of arbitration or
before any governmental or quasi-governmental department, commission, board or
agency. To the Knowledge of Target, there are no existing facts or conditions
which might give rise to any charge, claim, litigation, proceeding, or
investigation by any third party which is likely to have a Material Adverse
Effect on Target, nor are there any facts or conditions which might give rise to
any order of condemnation, appropriation or other taking of any of Target's
assets.
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6.14 Labor and Employee Relations. Other than as set forth on Schedule
6.14 hereto, no current officer or employee of Target ("Employee") is a party to
any employment agreement or union or collective bargaining agreement, and no
union has been certified or recognized as the collective bargaining
representative of any of such Employees or has attempted to engage in
negotiations with Target regarding terms and conditions of employment. No unfair
labor practice charge, work stoppage, picketing or other such activity relating
to labor matters has occurred or is pending. To the Knowledge of Target, there
are no current or threatened attempts to organize or establish any labor union
to represent any Employees. Target is in material compliance with all
requirements of federal, state and local laws and regulations governing employee
relations, including without limitation anti-discrimination laws, wage and hour
laws, labor relations laws and occupational safety and health laws, and no
suits, charges or administrative proceedings relating to any such law or
regulation are pending or, to the Knowledge of Target, have been threatened. No
Employee has given any written notice to Target or, to the Knowledge of Target,
made any written threat, or otherwise revealed to Target an intent, to cancel or
otherwise terminate his or her relationship with Target.
6.15 Employee Benefit Plans. All of the employee benefit plans (as
defined in Section 3(3) of ERISA), multi-employer plans (as defined in Section
4001(a)(3) of ERISA), and compensation programs and employment arrangements
which are maintained, or contributed to, by Target for the Employees are listed
on Schedule 6.15 hereto ("Employee Benefit Plans"). All obligations of Target to
contribute to such Employee Benefit Plans on behalf of Employees for the
calendar years prior to 2000 have been satisfied, and all obligations of Target
to contribute to such plans on behalf of employees for the most recent period
ending on the Closing Date will be satisfied by Target. Except as set forth in
Schedule 6.15, Target does not maintain or sponsor, and is not required to make
contributions to, any written or oral pension, profit sharing, thrift, deferred
compensation, bonus, incentive, stock purchase, severance, hospitalization,
insurance or other similar plan, agreement, or arrangement relating to employee
benefits for any employee or to former employees of Target. To the Knowledge of
Target, the Employee Benefit Plans conform to and have been administered in
compliance with their terms and applicable laws and regulations (including, but
not limited to, ERISA), and no condition exists with respect to any Employee
Benefit Plan that could have a Material Adverse Effect on Target.
6.16 Compliance with Laws. Target has in all material respects duly
complied with all applicable laws, rules, regulations and orders of federal,
state, and local governments, including, but not limited to, Environmental Laws,
and Target is not in material default with respect to any order, judgment, writ,
injunction, decree, award, rule or regulation of any court, governmental or
regulatory body or arbitrator, and to the Knowledge of Target, no event of
default or event or condition that, after notice or lapse of time or both, would
constitute a material violation, material breach or event of default thereunder
has occurred or will occur as a result of the transactions contemplated hereby.
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6.17 Environmental Matters.
(a) All facilities and property whether currently or heretofore owned,
operated or leased by Target (including facilities or properties subleased to a
third party) were, during any period of ownership, operation or leasing
(including subleasing to a third party) by Target, and, to the extent currently
owned, operated or leased by Target, continue to be, in compliance with all
applicable federal, state or local statutes, laws, ordinances, codes, rules,
regulations, guidelines or any binding determinations of any federal, state or
local governmental agency (including consent decrees and administrative orders)
relating to protection of the environment or public or worker health and safety
(collectively, "Environmental Laws"), except where such failure would not have a
Material Adverse Effect on Target or the Surviving Corporation.
(b) Except as set forth on Schedule 6.17, (i) Target's past and present
operations have materially complied and are in material compliance with all
applicable Environmental Laws; (ii) Target has obtained all material
environmental, health and safety governmental permits required for the operation
of its business, and all such governmental permits are in good standing and
Target is in compliance with all material terms and conditions of such permits;
(iii) none of Target, nor any of Target's properties (to Target's Knowledge, in
the case of leased properties), or its past or present operations, is subject to
any ongoing investigation by, order from or agreement with any person
(including, without limitation, any prior owner or operator of any Company
property) respecting (A) any Environmental Laws, (B) any remedial action or (C)
any claim of losses and expenses arising from the release or threatened release
of a contaminant into the environment; and (iv) Target is not subject to any
judicial or administrative proceeding, order, judgment, decree or settlement
alleging or addressing a violation of or liability under any Environmental Laws.
(c) Target is not subject to the environmental liabilities of any third
party, whether by contractual agreement or, to Target's Knowledge, by operation
of law.
6.18 Land Use. The past and current use by Target of 295 E. Highway 50,
Suite 2, Clermont, Florida 34711 and each other location where Target maintains
an office (the "Premises") complies in all material respects with and in no
material way violates, (a) any applicable statute, law, regulation, rule,
ordinance or order of any kind whatsoever (including, without being limited to,
any building, fire, subdivision and zoning statute, law, code, ordinance, rule,
regulation, approval or order, or urban redevelopment plan or other governmental
or quasi-governmental requirement) affecting the Premises or any part thereof,
(b) any building or occupancy permit, (c) any condition, easement, right-of-way,
covenant, agreement or restriction of record affecting or otherwise relating to
the Premises, or (d) any term or provision of any lease, except for such
noncompliance or violations as would not reasonably be expected to have a
Material Adverse Effect on Target or the Surviving Corporation. No current use
by Target of the Premises is dependent on a nonconforming use or other
governmental approval, license or permit the absence of which would materially
limit Target or its business as currently operated. There is no pending or, to
the Knowledge of Target, threatened condemnation of all or any part of the
Premises. To Target's Knowledge, there are no occupancy rights
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(written or oral), leases or tenancies presently affecting the Premises, other
than as set forth on Schedule 6.7(b) hereto.
6.19 Joint Ventures. Target is not a participant, as a partner or
otherwise, in any joint venture or common or pooled risk business enterprises.
6.20 Insurance. Set forth on Schedule 6.20 is a description of the
casualty and liability insurance currently maintained by Target.
6.21 Books and Records. The books of account and other financial and
corporate records of Target are complete and correct in all material respects
and are maintained in accordance with good business practices.
6.22 Powers of Attorney. No person has any power of attorney to act on
behalf of Target other than such powers to so act as normally pertain to the
officers of Target.
6.23 No Guarantees. None of the obligations or liabilities of Target is
guaranteed by or subject to a similar contingent obligation of any other person.
6.24 Brokerage and Finder's Fees. Target has not employed any broker,
finder or agent, or agreed to pay or incurred any brokerage fee, finder's fee or
commission with respect to the transactions contemplated by this Agreement.
6.25 Material Misstatements or Omissions. No representation or warranty
by Target in this Agreement, or any document, statement, Common Certificate or
schedule furnished or to be furnished to DualStar or MergerCo, or on behalf of
Target pursuant hereto contains, or will when furnished contain, any untrue
statement of a material fact, or omits, or will then omit to state, a material
fact necessary to make the statement of facts contained therein not materially
misleading.
6.26 Company Subsidiaries. Target has no subsidiaries, and Target does
not own of record or beneficially, directly or indirectly, (a) any shares of
outstanding capital stock or securities convertible into capital stock of any
other corporation, nor (b) any participating interest in any partnership, joint
venture or other non-corporate business enterprises.
6.27 Capitalization.
(a) As of the Closing Date, the authorized capital stock of Target
consists of 50,000 shares of Target Class A Stock and 50,000 shares of Target
Class B Stock. As of the date of this Agreement, there are, and as of the
Closing Date there will be, 5,044 shares of Target Class A Stock and 4,956
shares of Target Class B Stock issued and outstanding.
(b) All outstanding shares of capital stock of Target have been duly
authorized by all necessary corporate action, have been validly issued, and are
fully paid and nonassessable. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class or series
of authorized capital stock of
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Target are as set forth in the Certificate of Incorporation, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Schedule 6.27 provides an accurate list of all stockholders
owning the issued and outstanding Target Common Stock, together with the number
of shares thereof held by each.
(c) As of the Effective Time, there will be no outstanding securities
convertible into or exchangeable for capital stock of Target or Options,
Warrants or other rights to purchase or subscribe for capital stock of Target,
or any of Target's subsidiaries, or contracts, commitments, agreements,
understandings or arrangements of any kind to which Target or any of Target's
subsidiaries is a party relating to the issuance of any capital stock of Target
or any of Target's subsidiaries, any such convertible or exchangeable securities
or any such options, warrants or rights.
6.28 Rights of Entry; Subscribers.
(a) Each MDU complex with 50 or more units as to which Target has an
ROE for the purposes of providing subscription wireless or satellite cable
television services to one or more Subscribers, as of May 3, 2000, is set forth
on Schedule 6.28(a)-1 hereto. Each such MDU complex with 11 to 49 units is set
forth on Schedule 6.28(a)-2, and each such MDU complex with fewer than 11 units
is set forth on Schedule 6.28(a)-3. Schedules 6.28(a)1-3 contain the address and
a description of the nature of each such MDU complex. Schedule 6.28(a)-4 sets
forth a list of each MDU complex as to which Target has an ROE consisting of a
trailer or mobile home park. To Target's Knowledge, none of the MDUs are
contained in housing developments that are the subject of any direct rental
subsidy to the owners thereof by any Governmental Authority, including but not
limited to housing developments which constitute Section 8 housing or Section
232 housing. No ROE listed has been revoked, rescinded or otherwise withdrawn.
As used herein the term "Section 8 housing" shall mean any multi-tenant
residential building in connection with which the owner receives direct rental
subsidies pursuant to Section 8 of the United States Housing Act of 1937, as
amended, with respect to more than 50% of the units therein, and "Section 232
housing" shall mean any nursing home or intermediate care facility the financing
for which is insured under Section 232 of the National Housing Act.
(b) The following information is set forth on Schedule 6.28(b): (i) the
aggregate number of MDUs, on an MDU complex-by-MDU complex basis, to whom Target
provided subscription wireless or satellite cable television services as of May
3, 2000 (the "Subscribers"); (ii) the billing names and addresses of each
Subscriber; and (iii) a description of the wireless or satellite cable services
provided by Target to each Subscriber and the charges invoiced to each
Subscriber therefor. Except as set forth on Schedule 6.28(b), as of May 3, 2000
no Subscriber set forth on Schedule 6.28(b) pursuant to clause (ii) of the
preceding sentence has given written notice to Target to cancel any subscription
wireless or satellite cable television service provided to such Subscriber by
Target or to otherwise terminate its relationship with Target.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Stockholders' Action. Prior to the Closing, Target, acting through
Target's Board of Directors, shall have, in accordance with applicable law:
(a) obtained the necessary approval of this Agreement and the
Transactions by its stockholders; and
(b) recommended that the stockholders of Target vote in favor of the
approval of this Agreement and the Transactions.
7.2 Additional Agreements. Subject to the terms and conditions provided
in this Agreement, each of the parties to this Agreement agrees to use
commercially reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions and to
cooperate with each other in connection with the foregoing, including the taking
of such actions as are necessary to obtain any necessary consents, approvals,
orders, exemptions and authorizations by or from any public or private third
party, including without limitation any that are required to be obtained under
any federal, state or local law or regulation or any contract, agreement or
instrument to which such party or any of its subsidiaries is a party or by which
any of their respective properties or assets are bound, to defend all lawsuits
or other legal proceedings challenging this Agreement or the consummation of the
Transactions and to cause to be lifted or rescinded any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the Transactions.
7.3 Fees and Expenses. Except as set forth in Sections 4.5 and 9.2 of
this Agreement, whether or not the Merger is consummated, all fees, costs and
expenses incurred in connection with this Agreement and the Transactions shall
be paid by the party incurring such costs or expenses.
7.4 Tax Treatment. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
Each of the parties hereto shall use its best efforts to cause the Merger to
qualify, and will not (both before and after consummation of the Merger) take
any actions, or fail to take any action, which could reasonably be expected to
prevent the Merger from qualifying as a reorganization under the provisions of
Section 368 of the Code. The parties hereto shall account for and report the
Merger for income tax purposes as a reorganization within the meaning of Section
368 of the Code.
7.5 Access to Information. Prior to the Effective Time, Target shall
have, and shall have caused its officers, employees and agents, to afford to
DualStar and to the
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officers, employees and agents of DualStar complete access at all reasonable
times to such officers, employees, agents, properties, books, records and
contracts, and shall furnish DualStar such financial, operating and other data
and information as DualStar may reasonably request.
7.6 Public Announcements. Prior to the Effective Time, subject to
applicable disclosure requirements, no public announcement with respect to the
proposed acquisition shall be made by Target without prior approval of DualStar,
which approval shall not be unreasonably withheld or delayed.
7.7 Employee Benefit Arrangements. The name, position or title, and
annual salary (as of March 31, 2000) of each of Target's employees other than
the Contract Employees (the "At-Will Employees") are listed on Schedule 7.7
hereto. Schedule 7.7 also indicates which of such At-Will Employees is party to
an employment agreement with Target. Each At-Will Employee shall continue to be
employed by the Surviving Corporation at a salary equal to or in excess of such
At-Will Employee's salary set forth on Schedule 7.7 hereto. Each At-Will
Employee who remains in employment with the Surviving Corporation shall remain
eligible to participate in the employee programs and plans, including but not
limited to any employee benefit and welfare plans, insurance and pension plans
maintained or provided by Target immediately prior to the Effective Time.
7.8 Notification. Prior to the Effective time, each of Target and
DualStar shall have, after obtaining Knowledge of the occurrence, non-occurrence
or threatened occurrence or non-occurrence of any fact or event that would cause
or constitute a material breach or failure of any of the representations and
warranties, covenants or conditions set forth in this Agreement, or that would
reasonably be expected to constitute or result in a Material Adverse Effect to
such party, notified the other parties in writing of such fact or event with
reasonable promptness.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment or waiver, where permissible, at or prior to the Closing
Date, of each of the following conditions:
(a) Stockholder Approval. This Agreement and the Transactions,
including the Merger, shall have been approved and adopted by the affirmative
vote of the stockholders of Target to the extent required by the Delaware
Corporation Law and the Certificate of Incorporation.
(b) Regulatory Approvals. All necessary approvals, authorizations and
consents of any governmental or regulatory entity required to consummate the
Merger shall have been obtained and remain in full force and effect, and all
waiting periods
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relating to such approvals, authorizations and consents shall have expired or
been terminated.
(c) No Injunctions, Orders or Restraints; Illegality. No preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission (an "Injunction") nor any statute, rule, regulation or executive
order promulgated or enacted by any Governmental Authority shall be in effect
which would (i) make the consummation of the Merger illegal, or (ii) otherwise
restrict, prevent or prohibit the consummation of any of the Transactions,
including the Merger.
(d) Escrow Agreement. The Escrow Agreement shall have been executed by
each of the parties thereto.
8.2 Conditions to Obligations of DualStar and MergerCo. The obligations
of DualStar and MergerCo to effect the Merger are further subject to the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Target set forth in this Agreement shall be true and correct in all material
respects (except to the extent such representations and warranties expressly
relate to a specific date) as of the Closing Date as though made on and as of
the Closing Date, and DualStar shall have received a certificate to such effect
signed on behalf of Target by its president.
(b) Performance and Obligations of Target. Target shall have performed
all obligations required to be performed by it under this Agreement, including,
without limitation, the covenants contained in Article VII of this Agreement.
(c) Consents, Etc. Any consent, authorization or approval of any third
party required to be obtained by Target in connection with the execution,
delivery and performance of the Agreement shall have been obtained, except where
the failure to have obtained any such consent, authorization or approval would
not reasonably be expected to have a Material Adverse Effect on Target.
(d) No Injunction. There shall not have been entered any order in any
action or proceeding by any state or Federal government or by any Governmental
Authority which prohibits or limits the ownership or operation by Target of any
portion of Target or its business, properties or assets which is material to
Target, or compels Target to dispose of or hold separate any portion of Target
or its business, properties or assets which is material to Target.
(e) Material Adverse Change. There shall not have occurred since March
31, 2000 any change concerning Target having a Material Adverse Effect thereon.
(f) Resignations. Each of the directors and officers of Target shall
have delivered his or her written resignation to DualStar as of the Closing
Date.
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(g) Opinion of Counsel. Target shall have delivered an opinion of its
counsel in form and substance reasonably satisfactory to DualStar and its
counsel.
(h) Registration Rights and Lock-Up Agreement. Each Cashed Stockholder
shall have executed and delivered to DualStar the Registration Rights and
Lock-Up Agreement.
(i) Voting Agreement. Each Cashed Stockholder set forth on Schedule 4.3
shall have executed and delivered to DualStar the Voting Agreement.
(j) Other Deliveries. Target shall have delivered such other documents,
certificates and instruments as DualStar may reasonably request.
(k) Consents Under Contracts. To the extent required under Section
8.2(c), Target shall have delivered evidence satisfactory to DualStar of the
consent of the other parties to the material contracts identified on Schedule
6.9 as having change-of-control provisions that would be triggered by this
Agreement or the consummation of the Transactions contemplated hereby.
(l) Employment Agreements. Each of the Contract Employees shall have
executed and delivered an Employment Agreement.
8.3 Conditions to Obligations of Target and the Stockholders. The
obligation of Target to effect the Merger is further subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties
of DualStar and MergerCo set forth in this Agreement shall be true and correct
in all material respects (except to the extent such representations and
warranties expressly relate to a specific date) as of the Closing Date as though
made on and as of the Closing Date, and Target shall have received a certificate
to such effect signed on behalf of DualStar by its Secretary.
(b) Performance of Obligations of DualStar and MergerCo. Each of
DualStar and MergerCo shall have performed all obligations required to be
performed by it under this Agreement, including, without limitation, the
covenants contained in Article VII of this Agreement.
(c) Opinion of Counsel. DualStar shall have delivered an opinion of its
counsel in form and substance reasonably satisfactory to Target and its counsel.
(d) Material Adverse Change. There shall not have occurred since
December 31, 1999, any change concerning DualStar and DualStar's subsidiaries
taken as a whole having a Material Adverse Effect thereon.
(e) Registration Rights and Lock-Up Agreement. DualStar shall have
executed and delivered to the Cashed Stockholders the Registration Rights and
Lock-Up Agreement.
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(f) Voting Agreement. DualStar shall have executed and delivered to
each Cashed Stockholder set forth on Schedule 4.3 the Voting Agreement.
(g) Employment Agreements. The Surviving Corporation shall have
executed and delivered Employment Agreements to each of the Contract Employees.
(h) Consents, Etc. DualStar shall have delivered to Target evidence
that all necessary consents of Blackacre and the Blackacre Parties to the
execution, delivery and performance of this Agreement and consummation of all
transactions contemplated hereby have been obtained. Any other consent,
authorization or approval of any third party required to be obtained by DualStar
or MergerCo in connection with the execution, delivery and performance of this
Agreement shall have been obtained.
(i) Other Deliveries. DualStar and MergerCo shall have delivered such
other documents, certificates and instruments as Target may reasonably request.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations and Warranties. The representations and
warranties set forth in Sections 6.12 and 6.17 herein shall survive the Merger
until the expiration of the applicable statutes of limitation. All other
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger for a period of one (1) year
following the Effective Time.
9.2 Indemnification.
(a) Agreement to Indemnify. By their approval of this Agreement and by
their execution and delivery of the Registration Rights and Lock-Up Agreements,
the Cashed Stockholders, jointly but not severally, (subject to the limitations
set forth below), agree exclusively from the Hold Back Escrow, other than as set
forth in Section 9.2(i) below, to indemnify and hold DualStar, MergerCo and each
of their Affiliates harmless against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation (hereinafter individually a "Loss" and collectively
"Losses"), incurred by DualStar, MergerCo or any of their Affiliates as a result
of any inaccuracy or breach of a representation or warranty contained in Article
VI herein.
(b) Expiration of Indemnification. The indemnification obligations of
the Cashed Stockholders under Section 9.2(a) above shall terminate one (1) year
following the Effective Time, but shall not terminate as to any Loss (or a
potential claim by an appropriate party) (i) asserted in good faith in writing
prior to such date, or (ii) as a result of any inaccuracy or breach of any of
the representations and warranties contained in Sections 6.12 or 6.17 herein
with respect to which such indemnification obligations shall terminate upon the
expiration of the applicable statute of limitations.
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(c) Hold Back Escrow. As the sole source of and security for the
indemnity provided for in Section 9.2(a) above and 9.2(g) below (subject,
however, to the provisions of Section 9.2(i) below), 77,500 shares of the
aggregate Stock Consideration, evidenced by a stock certificate in the amount of
77,500 shares of DualStar Stock (the "Hold Back Escrow") issued in the name of
the Agent, in his capacity as agent on behalf of the Cashed Stockholders, shall
be transferred to [ANDREWS & KURTH], as escrow agent (the "Escrow Agent") under
the Escrow Agreement for a period of one (1) year following the Effective Time
(the "Hold Back Period"), plus such additional period of time that any claim
validly delivered to the Agent prior to the end of the Hold Back Period by
DualStar, MergerCo or any of their respective Affiliates for indemnity pursuant
to this Section 9.2 shall remain unresolved. The parties acknowledge and agree
that, unless and until any of the Hold Back Escrow shall be delivered to
DualStar hereunder, the Agent (on behalf of the Cashed Stockholders) shall have
the right to vote the Hold Back Escrow and shall have the right to receive any
dividends or distributions declared thereon; provided however, that each of the
Cashed Stockholders shall be prohibited, during the Hold Back Period, from
transferring to any third party such Cashed Stockholder's right, title and
interest in and to the Hold Back Escrow. Upon compliance with and subject to the
limitations under the terms hereof, DualStar shall be entitled to obtain
indemnity from the Hold Back Escrow for all Losses incurred by DualStar,
MergerCo or any of their respective Affiliates as a result of any inaccuracy,
breach or failure set forth in Section 9.2(a) above. For purposes of any
indemnity payment pursuant to Section 9.2, each share held in escrow shall be
valued at $9.03 per share (subject to equitable adjustment for stock splits,
stock dividends, reorganizations, classifications or other similar transactions
occurring from and after the Closing Date).
(d) Claims Upon Hold Back Escrow. In the event that DualStar, MergerCo
or any of their respective Affiliates wishes to obtain indemnity from the Hold
Back Escrow, DualStar shall deliver to the Agent, on or before the last day of
the Hold Back Period, a certificate signed by an officer of DualStar (an
"Officer's Certificate") specifying in reasonable detail the individual items of
Loss included in the request for indemnity and the nature of the
misrepresentation, breach of warranty or claim to which such item is related.
DualStar, MergerCo or any of their respective Affiliates shall be entitled to
obtain indemnity from the Hold Back Escrow only when the aggregate of all Losses
suffered by such party with respect to which such party would otherwise be
entitled to indemnity from the Hold Back Escrow hereunder exceeds $50,000, after
which such party shall be entitled to indemnity from the Hold Back Escrow for
any Losses in excess of $20,000.
(e) Resolution of Conflicts; Arbitration. At the time of delivery of
any Officer's Certificate to the Agent, and for a period of twenty (20) days
after such delivery, the Agent may object to the claim made in the Officer's
Certificate in a written statement delivered to DualStar. If the Agent shall so
object to the claim, the Agent and DualStar shall attempt in good faith to agree
upon the rights of the respective parties with respect to such claim. If no such
agreement can be reached after good faith negotiation, either the Agent or
DualStar may demand arbitration of the matter, and in such event the matter
shall be settled by arbitration conducted by three arbitrators. DualStar and the
Agent shall each select one arbitrator, and the two arbitrators so selected
shall select a
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third arbitrator. The decision of a majority of the arbitrators so selected as
to the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and the Escrow Agent
shall be required to act in accordance with such decision and make or withhold
payments out of the Hold Back Escrow in accordance therewith. Judgment upon any
award rendered by the arbitrators may be entered in any court having
jurisdiction. Any such arbitration shall be held in New York, New York, under
the rules then in effect of the American Arbitration Association. In any
arbitration hereunder DualStar and the Cashed Stockholders shall each pay
one-half (1/2) of all of the arbitrators' costs and expenses.
(f) Distribution of Hold Back Escrow Upon Termination of Hold Back
Period. Promptly following termination of the Hold Back Period, the Escrow
Agent, in accordance with the Escrow Agreement, shall deliver to the Cashed
Stockholders their respective amounts of the Hold Back Escrow, minus any amounts
delivered to DualStar pursuant to Section 4.5 hereof or previously applied
pursuant to any other provision hereof and any amount subject to an unresolved
claim pursuant to Section 9.2(d) above. Amounts subject to unresolved claims
pursuant to Section 9.2(d) shall be delivered by the Escrow Agent promptly after
resolution.
(g) Third Party Claims.
(i) In the event DualStar becomes aware of any third-party
claim (A) in excess of the Hold Back Escrow or (B) brought by or on behalf of
any then-current supplier, vendor or customer of the Surviving Corporation,
which DualStar believes may result in a demand against the Hold Back Escrow,
DualStar shall promptly notify the Agent of such claim, and the Agent and the
Cashed Stockholders shall be entitled, at their expense, to participate in any
defense of such claim. DualStar shall have the right to settle any such claim
with the consent of the Agent, which consent shall not be unreasonably withheld;
provided, however, that except with the consent of the Agent, which consent
shall not be unreasonably withheld, no settlement of any such claim with
third-party claimants shall be deemed evidence of, or determinative of, the
amount of liability of the Cashed Stockholders. In the event that the Agent has
consented to any such settlement and acknowledged that the claim is a valid
claim against the Hold Back Escrow, the Agent shall have no power or authority
to object to the amount of such settlement by DualStar against the Hold Back
Escrow for indemnity with respect to such settlement.
(ii) In the event DualStar becomes aware of any third-party
claim for less than, or in the amount of, the Hold Back Escrow, other than any
such claim described in Section 9.2(g)(i)(B) above, which DualStar believes may
result in a demand against the Hold Back Escrow, DualStar shall promptly notify
the Agent of such claim, and the Agent will have the right at any time to assume
and thereafter conduct the defense of such a third party claim with counsel of
its choice reasonably satisfactory to DualStar, utilizing solely the Hold Back
Escrow to pay any settlements or judgments, and any balance thereof to pay costs
of defense (including, without limitation, for defending the claim and for
paying any settlement or judgment); provided, however, that the Agent will not
consent to the entry of any judgment or enter into any settlement with respect
to
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such third party claim without the prior written consent of DualStar, which
consent shall not be unreasonably withheld. Unless and until the Agent assumes
the defense of such a third party claim as provided above, however, DualStar may
defend against such third party claim in any manner it reasonably may deem
appropriate. In no event will DualStar consent to the entry of any judgment or
enter into any settlement with respect to the third party claim without the
prior written consent of the Agent, which consent shall not be unreasonably
withheld.
(h) Apportionment of Liability; Maximum Liability. The liability of the
Cashed Stockholders for any indemnification to which DualStar, MergerCo or any
of their respective Affiliates may be entitled shall be apportioned among the
Cashed Stockholders in proportion to the amount of Stock Consideration paid to
each of them at the Closing. Except as provided in Section 9.2(i) below, the
total liability of the Cashed Stockholders shall not exceed the Hold Back
Escrow. Other than as set forth in Section 9.2(i) below, each of DualStar and
MergerCo agrees that it will look solely to the Hold Back Escrow for the
satisfaction of its claims under the indemnity provided herein and agrees that
no Cashed Stockholder shall be personally liable with respect to such claims
beyond the interest of such Cashed Stockholder in the Hold Back Escrow.
(i) Remedies. Except as otherwise provided in this Section 9.2(i),
resort to the Hold Back Escrow shall be the sole and exclusive remedy of
DualStar, MergerCo and any of their respective Affiliates for any matter related
to this Agreement or the transactions contemplated hereby or any breaches by
Target of its representations, warranties and covenants set forth in this
Agreement. The existence of this Section 9.2 and of the rights and restrictions
set forth herein do not apply to, nor limit any other potential remedies of
DualStar, MergerCo or any of their respective Affiliates with respect to, (i)
breaches of any representation or warranty set forth in Sections 6.12 or 6.17,
or (ii) any fraudulent misrepresentations or fraudulent breaches of any of the
representations and warranties made in Article VI hereof. In the event DualStar,
MergerCo or any of their respective Affiliates incur any Losses by reason of
breaches of any representation or warranty set forth in Sections 6.12 or 6.17 or
any fraudulent misrepresentations or fraudulent breaches of any of the
representations or warranties made in Article VI hereof, each of DualStar and
MergerCo agrees that (A) DualStar, MergerCo or any of their respective
Affiliates will first resort to the Hold Back Escrow, until such amounts are
exhausted or have been released, prior to seeking further indemnification from
the Cashed Stockholders, and (B) subject to the foregoing (i.e., without
prejudice to such parties' rights to resort to the full Hold Back Escrow),
DualStar, MergerCo or any of their respective Affiliates shall apportion all
such Losses on a pro rata basis among the Cashed Stockholders. Each Cashed
Stockholder may satisfy any such liability by delivering to DualStar shares of
DualStar Stock valued at $9.03 per share. Notwithstanding anything to the
contrary set forth herein, it is understood and agreed that the maximum
liability of any Cashed Stockholder for any Losses incurred by DualStar,
MergerCo or any of their respective Affiliates by reason of breaches of any
representation or warranty set forth in Section 6.12 or 6.17, or fraudulent
misrepresentations or fraudulent breaches of any of the representations and
warranties made in Article VI shall be limited to the shares of DualStar Stock
issued to such Cashed Stockholder, or the proceeds received from the sale
thereof, except in either case to the
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<PAGE>
extent any such Loss is directly attributable to a fraudulent misrepresentation
or fraudulent breach of representation and warranty by such Cashed Stockholder,
in which case the liability of the Cashed Stockholder committing the fraud (and
no other Cashed Stockholder) shall not be so limited.
ARTICLE X
MISCELLANEOUS
10.1 Amendment. This Agreement may be amended by the parties to this
Agreement by an instrument in writing signed on behalf of each of the parties at
any time before or after any approval of this Agreement by the stockholders of
Target and MergerCo, but in any event following authorization by MergerCo's
Board of Directors and Target's Board of Directors; provided, however, that
after any such stockholder approval, no amendment shall be made which by law
requires further approval by stockholders without obtaining such approval and
that after the Effective Time no instrument pursuant to this Section 10.1 shall
be effective unless it shall have been executed by the Agent on behalf of Target
and the Cashed Stockholders.
10.2 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been received upon the
earlier of actual receipt thereof or, with respect to delivery by overnight
courier or Express mail, the day following delivery to such overnight courier or
the U.S. Postal Service and, with respect to delivery by registered or certified
mail, the third day following such delivery to the U.S. Postal Service, postage
prepaid, and addressed as follows:
(a) If to Target:
-------------
Paracomm, Inc.
295 E. Highway 50
Suite 2
Clermont, Florida 34711
Fax: (352) 394-1621
Attention: Donald Johnson
With a copy to:
---------------
RubinBaum LLP
30 Rockefeller Plaza
New York, New York 10112
Fax: (212) 698-7825
Attention: Paul A. Gajer, Esq.
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<PAGE>
(b) If to DualStar, MergerCo or the Surviving Corporation:
------------------------------------------------------
One Park Avenue
New York, New York 10016
Fax: (212) 696-5615
Attention: Mr. George Parise
With a copy to:
---------------
Day, Berry & Howard LLP
One Canterbury Green
Stamford, Connecticut 06901
Fax: (203) 977-7301
Attention: Sabino Rodriguez III, Esq.
(c) If to the Agent or any Stockholder of Target:
---------------------------------------------
Philip Dropkin
c/o Walter F. Garigliano
265 Broadway
P.O. Drawer 1069
Monticello, New York 12701-1069
Fax: (914) 796-1040
With a copy to:
---------------
RubinBaum LLP
30 Rockefeller Plaza
New York, New York 10112
Fax: (212) 698-7825
Attention: Paul A. Gajer, Esq.
10.3 Entire Agreement; No Third-Party Beneficiaries; Section Headings.
This Agreement and the other agreements, documents and instruments executed and
delivered pursuant hereto constitute the entire agreement between the parties,
and there are no agreements or commitments with respect to the transactions
contemplated herein except as set forth in this Agreement; this Agreement
supersedes any prior offer, agreement or understanding between the parties with
respect to the Transactions contemplated herein. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
person, firm or corporation other than the parties hereto and the Cashed
Stockholders any rights or remedies under or by reason of this Agreement. The
captions in this Agreement are for convenience only and shall not be considered
a part of or affect the construction or interpretation of any provision of this
Agreement.
10.4 Confidentiality. Except as may be required by law, Target shall
not, and shall not permit its officers, directors, shareholders and agents to,
directly or indirectly, disclose, discuss, announce or otherwise divulge to any
third party, the existence or terms
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<PAGE>
of the negotiations between the parties, this Agreement or the transactions
contemplated herein, without, in each case, the prior written consent of
DualStar.
10.5 Assignment. This Agreement shall inure to the benefit of, and be
binding upon, the heirs, successors and permitted assigns of the parties hereto.
This Agreement may not be assigned by any party without the other parties' prior
written consent.
10.6 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York (excluding application of
any choice of law doctrines that would make applicable the law of any other
state).
[Signature Pages Follow]
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<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized representative as of the date and year first
written above.
PARACOMM, INC.
By: /s/ Donald Johnson
----------------------------
Name: Donald Johnson
Title: President
DUALSTAR TECHNOLOGIES
CORPORATION
By: /s/ Jared E. Abbruzzese
----------------------------
Name: Jared E. Abbruzzese
Title: Chairman
DCI ACQUISITION CO.
By: /s/ Jill Thoerle
----------------------------
Name: Jill Thoerle
Title: President
Solely as a party to Sections 4.5 and
9.2, and 10.1:
/s/ Philip Dropkin
- --------------------------------------
Philip Dropkin, solely in his capacity
as Agent
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
DUALSTAR TECHNOLOGIES CORPORATION
(A Delaware corporation)
---------------------
As adopted Effective May 12, 2000
---------------------
ARTICLE I
OFFICES
SECTION 1.01 Registered Office.
The registered office of the Corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle, State of Delaware, and the name
of the registered agent at such address is The Corporation Trust Company.
SECTION 1.02 Other Offices.
The Corporation may also have offices at such other places as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 General.
All meetings of the stockholders shall be held at such place either within
or without the State of Delaware as the Board of Directors shall determine prior
to the mailing of the notice of such meeting. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman by the President, or in the absence of the President by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designated person by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in the absence of the Secretary the chairman of the meeting may
appoint any person to act as secretary of the meeting.
<PAGE>
SECTION 2.02 Annual Meeting.
An annual meeting of stockholders shall be held either within or without
the State of Delaware each year, at such time, on such day and at such place as
the Board of Directors may designate in the call or in a waiver of notice
thereof, for the purpose of electing directors and for the transaction of such
other business as may properly be brought before the meeting.
SECTION 2.03 Special Meetings.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Certificate of Incorporation, may be
called by the President and shall be called by the President or the Secretary at
the request in writing of a majority of the Board of Directors or of a holder or
holders of not less than ten percent (10%) of shares of Common Stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Special meetings may not
be called by any other person or persons.
SECTION 2.04 Notice, Purpose and Adjournment of Meetings.
Notice of the time and place of meetings and the purpose or purposes
thereof shall be given by the Secretary or an Assistant Secretary by mail not
less than ten days (unless a longer period shall be required by statute) nor
more than sixty days before the meeting to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the mail, postage prepaid. Such notice shall be directed to each
stockholder at the stockholders' address as it appears on the stock register of
the Corporation unless the stockholder shall have filed with the Secretary of
the Corporation a written request that notices be mailed to some other address,
in which case it shall be mailed or transmitted to the address designated in
such request. Such further notice shall be given as may be required by law.
Except as otherwise expressly provided by statute, no notice of a meeting of
stockholders shall be required to be given to any stockholder who shall, in
person or by attorney thereunto authorized, waive such notice in writing or by
facsimile transmission, telegraph, cable or radio either before or after such
meeting. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the stockholders need be specified in any written waiver of notice. Any
meeting of stockholders, annual or special, may adjourn from time to time to
reconvene at the same or some other place, and notice need not be given of any
such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
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<PAGE>
SECTION 2.05 Quorum.
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall be requisite
and shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute, by the
Certificate of Incorporation or by these By-Laws. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat present in person or represented by proxy,
consistent with Section 2.04, shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of any corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
SECTION 2.06 Voting.
Except as otherwise required by statute, the Certificate of Incorporation
or these By-Laws, at every meeting of the stockholders each stockholder of the
Corporation entitled to vote at such meeting shall have one vote in person or by
proxy for each share of stock having voting rights held by such stockholder and
registered in such stockholder's name on the books of the Corporation at the
record date fixed or otherwise determined for such meeting. Any vote in respect
of stock of the Corporation may be given by the stockholder entitled thereto in
person or by such stockholder's proxy appointed by an instrument in writing
subscribed by such stockholder or by such stockholder's attorney thereunto
authorized and delivered to the Secretary of the meeting; provided, however,
that no proxy shall be voted on after three years from its date unless said
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors unless the holders of a majority
of the shares of all classes of stock entitled to vote thereon present in person
or by proxy at such meeting shall so determine. Except as otherwise required by
statute, the Certificate of Incorporation or these Bylaws, in all matters coming
before any meeting of the stockholders, other than the election of directors,
the affirmative vote of the majority of shares present in person or represented
by proxy at the meeting and entitled to vote on the subject matter shall be the
act of the stockholders.
SECTION 2.07 List of Stockholders.
A complete list of the stockholders entitled to vote at each meeting of
stockholders, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares
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<PAGE>
registered in the name of each stockholder, shall be prepared by the Secretary
or other officer of the Corporation having charge of the stock ledger. Such list
shall be open to the examination of any stockholder for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meetings either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where said meeting is to be held, and the list shall
be produced and kept at the time and place of meeting during the whole time
thereof, and shall be subject to the inspection of any stockholder who may be
present.
SECTION 2.08 Informal Action.
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.01 Powers.
The property and business of the Corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these By-Laws directed or required to
be exercised or done by the stockholders.
SECTION 3.02 Number.
The number of directors which shall constitute the whole Board shall not be
less than one nor more than nine and shall be such as shall be determined from
time to time by resolution of the Board of Directors. Directors need not be
stockholders. Any director may resign at any time by giving written notice to
the Corporation; such resignation shall take effect immediately upon receipt by
the Corporation if no time is specified therein, or at such later time as such
director may specify. The directors shall be elected at the annual meeting of
the stockholders, except as provided in Section 3.03, and each director shall be
elected to serve until his or her successor shall have been elected.
4
<PAGE>
SECTION 3.03 Vacancies.
If any vacancies occur in the Board of Directors caused by death,
resignation, retirement, disqualification or removal from office of any
directors or otherwise, or any new directorship is created by any increase in
the authorized number of directors, the directors remaining in office, though
less than a quorum, may, by the act of all such remaining directors reduce the
size of the Board as provided in Section 3.02 or choose a successor or
successors, or fill the newly created directorship, and the directors so chosen
shall hold office until the next annual election of directors and until their
successors shall have been elected.
SECTION 3.04 Meetings.
Meetings of the Board of Directors shall be presided over by the Chairman
of the Board, if any, or in the absence of the Chairman by the Vice Chairman of
the Board, if any, or in the absence of the Vice Chairman by the President, or
in their absence by a chairman chosen at the meeting. The Secretary, or in the
Secretary's absence an Assistant Secretary, shall act as secretary of the
meeting, but in the absence of the Secretary or an Assistant Secretary the
chairman of the meeting may appoint any person to act as secretary of the
meeting. Meetings of the Board of Directors shall be held at such place within
or without the State of Delaware as may from time to time be fixed by resolution
of the stockholders or Board of Directors, or as may be specified in the notice
of the meeting. Regular meetings of the Board of Directors shall be held at such
times and places as may from time to time be fixed by resolution of the Board of
Directors, and special meetings shall be called by the Secretary pursuant to
order of the President or any director whenever in their judgment it may be
necessary, by facsimile transmission or by oral, telegraphic or written notice
duly served on or given to each director not less than one day before such
meeting. If mailed, such notice shall be deposited in the mail, first-class
postage prepaid, at least three days before the date of the meeting. Each newly
elected Board of Directors shall meet and organize at the place of the meeting
of the stockholders on the same date as the annual meeting of the stockholders
at which such Board of Directors was elected and as soon as reasonably
practicable after the adjournment of such annual meeting of the stockholders,
and no notice of such meeting shall be necessary to the newly elected directors
in order legally to constitute the meeting, provided a quorum shall be present.
In the event such meeting is not so held, the meeting may be held at such time
and place as shall be specified in a notice given as herein provided for special
meetings of the Board of Directors. Notice need not be given of regular meetings
of the Board of Directors held at the time and place fixed by resolution of the
Board of Directors. Meetings may be held at any time without notice if all the
directors are present, or if at any time before or after the meeting those not
present waive notice of the meeting in writing. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of any regular or special meeting of the directors or members of a
committee of directors need be specified in any written waiver of notice.
5
<PAGE>
SECTION 3.05 Quorum.
At all meetings of the Board the presence of a majority of the Board of
Directors shall be necessary and sufficient to constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically required by statute or by the
Certificate of Incorporation or these By-Laws. If a quorum shall not be present
at any meeting of directors, the directors present thereat nay adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3.06 Committees.
The Board of Directors may designate one or more committees, each committee
to consist of one or more of the directors of the Corporation, which, to the
extent provided in said resolution or resolutions, shall have and may exercise
the powers of the Board of Directors in the management of the business and
affairs of the Corporation, but no such committee shall have power or authority
in reference to amending the Certificate of Incorporation of the Corporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of dissolution, or amending these
By-Laws; and, unless the resolution expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. Unless otherwise provided in the resolution of the Board of Directors
designating a committee, each committee shall have the power to adopt rules and
regulations for the calling and holding of meetings, and in the absence of the
adoption of such rules and regulations the provisions of these ByLaws relating
to the calling and holding of meetings of the Board of Directors shall apply.
Unless otherwise provided In the resolution of the Board of Directors
designating a committee, each committee may select a Chairman and a majority of
a committee shall constitute a quorum and the act of a majority of the members
present at a meeting at which there is a quorum shall be the act of such
committee. A committee shall keep minutes of its meetings. Subject to the
provisions of these By-Laws, the Board of Directors shall have the power at any
time to fill vacancies in, to change the membership of, or to discharge any such
committee. Subject to the provisions of these By-Laws the Board may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
SECTION 3.07 Removal of Directors.
At any special meeting of the stockholders, duly called, as provided in
these By-Laws, any director or directors, by the affirmative vote of the holders
of not less than a majority of all shares of stock outstanding and entitled to
vote for the election of directors, may be removed from office either with or
without cause and a successor or their successors elected at such meeting; or
the remaining directors may, to the extent vacancies are not filled by such
election, fill any vacancy or
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<PAGE>
vacancies created by such removal or reduce the number of directors which shall
constitute the whole Board.
SECTION 3.08 Informal Action.
Any action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if a written
consent thereto is signed by all members of the Board or of the committee, as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or the committee.
SECTION 3.09 Meetings via Conference Telephone.
Members of the Board of Directors, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or a
committee by means of a conference telephone or similar communications equipment
in which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section shall constitute presence in
person at such meeting.
SECTION 3.10 Compensation of Directors.
Directors who are not salaried officers or salaried employees of the
Corporation shall be entitled to receive such fixed stipend for their services,
and/or such fixed sum for attendance at regular or special meetings, as may from
time to time be determined by resolution of the Board of Directors, and all
directors shall be entitled to reimbursement of their reasonable expenses of
attendance at each regular or special meeting of the Board. Like compensation
may be allowed by the Board of Directors for attendance at committee meetings.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation as a salaried officer or salaried employee, or from
rendering advice or services to the Corporation in any other capacity, and
receiving remuneration therefor.
ARTICLE IV
OFFICERS
SECTION 4.01 Number.
The officers of the Corporation shall be chosen by the directors and may
include a Chairman, a Vice Chairman, a President, one or more Vice Presidents, a
Secretary, a Treasurer, one or more Assistant Secretaries and one or more
Assistant Treasurers. Any number of offices may be held by the same person.
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<PAGE>
SECTION 4.02 Other Officers and Agents.
The Board may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
SECTION 4.03 Chairman.
The chairman of the Board of Directors, if one be elected, shall preside at
all meetings of the Board of Directors and he shall have and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
SECTION 4.04 President.
The President shall be the chief executive officer of the Corporation and
shall have the general powers and duties of supervision and management usually
vested in the office of President of a corporation. He shall preside at all
meetings of stockholders if present thereat and, in the absence or non-election
of a Chairman of the Board of Directors, at all meetings of the Board. He shall
have general supervision, direction and control of the business of the
corporation and, except as the Board of Directors shall authorize the execution
thereof in some other manner, shall execute bonds, mortgages and other contracts
in behalf of the Corporation and cause the seal to be affixed to any instrument
requiring it. When so affixed, the seal shall be attested by the signature of
the Secretary or the Treasurer, or an Assistant Secretary or an Assistant
Treasurer.
SECTION 4.05 Vice President.
Each Vice President shall have such powers and perform such duties as shall
be assigned to him by the Board.
SECTION 4.06 Treasurer.
The Treasurer shall have custody of corporate funds and securities and keep
full and accurate account of receipts and disbursements in books belonging to
the Corporation. He shall deposit all moneys and other valuables in the name and
to the credit of the Corporation in such depositaries as may be designated by
the Board of Directors.
The Treasurer shall disburse funds of the Corporation as ordered by the
Board of Directors or the President, taking proper vouchers for such
disbursements. He shall render to the President and the Board at its regular
meetings, or whenever the Board may request it, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors he shall give the Corporation a bond for the
faithful discharge of his duties in such amount and with such surety as the
Board shall prescribe.
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SECTION 4.07 Secretary.
The Secretary shall give or cause to be given notice of all meetings of
stockholders and directors, and all other notices required by law or by these
By-Laws. In case of his absence, refusal or neglect to do so, the notice may be
given by any person thereunto directed by the President, the Board, or the
stockholders, upon whose requisition the meeting is called as provided in these
ByLaws. He shall record all proceedings of the meetings of the Corporation and
its Board in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the Board or the President. He shall have
custody of the corporate seal, affix it to all instruments requiring it when
authorized by the Board or the President, and attest the same.
SECTION 4.08 Assistant Treasurers and Assistant Secretaries.
Assistant Treasurers and Assistant Secretaries, if any, shall be elected
and shall have such powers and perform such duties as shall be assigned to them
respectively by the Board.
SECTION 4.09 Term and Removal.
The officers of the Corporation shall hold office until their successors
are duly elected. Any officer elected or appointed by the Board of Directors may
be removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors. Any officer may resign at any time by
giving written notice to the Corporation; such resignation shall take effect
immediately upon receipt by the Corporation if no time is specified therein, or
at such later time as such officer may specify. If the office of any officer
becomes vacant for any reason, the vacancy may be filled by the Board of
Directors.
SECTION 4.10 Voting Corporation's Securities.
Unless otherwise ordered by the Board of Directors, the President shall
have full power and authority on behalf of the Corporation to attend and to act
and to vote, in person or by proxy, at any meetings of security holders of
corporations in which the Corporation may hold securities, and at such meeting
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities, and which as the owner thereof the Corporation
might have possessed and exercised if present. Such rights and powers shall
include the right to waive notice of meetings and to consent to action taken
without a meeting. The Board of Directors by resolution from time to time may
confer like powers upon any other person or persons.
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ARTICLE V
CERTIFICATES OF STOCK
SECTION 5.01 Form.
The interest of each stockholder shall be evidenced by a certificate or
certificates for shares of stock of the Corporation in such form as the Board of
Directors may from time to time prescribe. The certificates of stock shall be
signed by the President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary and sealed with the seal of
the Corporation, which may be a facsimile, engraved or imprinted.
SECTION 5.02 Lost, Stolen or Destroyed Certificates.
The Corporation may issue certificates for shares of stock to replace
certificates alleged to have been lost, stolen or destroyed. No certificates for
shares of stock of the Corporation shall be issued in place of any certificates
alleged to have been lost, stolen or destroyed except upon production of such
evidence of the loss, theft or destruction and upon indemnification of the
Corporation and its agents to such extent and in such manner as the Board of
Directors from time to time may prescribe.
SECTION 5.03 Transfers.
Transfers of shares of the capital stock of the Corporation shall be made
only on the books of the Corporation by the registered holder thereof, or by the
registered holder's attorney thereunto authorized, and on surrender of the
certificate or certificates for such shares properly endorsed. The Board of
Directors from time to time may make such additional rules and regulations as it
may deem expedient, not inconsistent with these By-Laws, concerning the issue,
transfer and registration of certificates for shares of the capital stock of the
Corporation.
SECTION 5.04 Fixing Record Date.
The Board of Directors, in order to determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
may fix, in advance, a record date which shall not be more than sixty nor less
than ten days before the date of such meeting. The Board of Directors may also,
in order to determine the stockholders entitled to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, fix, in advance, a record date not
more than sixty days prior to any of the above actions. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
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day on which the meeting is held. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5.05 Holder of Records.
The Corporation shall he entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.01 Dividends.
Dividends upon the stock of the Corporation, subject to the provisions of
the Certificate of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
SECTION 6.02 Checks.
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors from time to time may designate. Such signing may be in facsimile
if so authorized by the Board of Directors.
SECTION 6.03 Corporate Seal.
The corporate seal shall have inscribed thereon the name of the Corporation
and the words "Corporate Seal, Delaware." Said seal may be used by causing it or
a facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6.04 Fiscal Year.
The fiscal year of the Corporation shall be as determined by the Board of
Directors.
11
<PAGE>
ARTICLE VII
AMENDMENTS
SECTION 7.01 Amendments.
These By-Laws may be altered or repealed at any regular or special meeting
of the stockholders or at any regular or special meeting of the Board of
Directors at which a quorum is present or represented, provided notice of the
proposed alteration or repeal be contained in the notice of any such special
meeting.
12
<PAGE>
Execution Copy
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (the "Agreement") made the 28th day of March, 2000
by and among DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company"), and BLACKACRE CAPITAL MANAGEMENT L.L.C. and CERBERUS CAPITAL
MANAGEMENT, L.P. on behalf of various funds and accounts (collectively,
"Blackacre"), and Gregory Cuneo and Robert J. Birnbach (such persons or
entities, each of which is listed on Schedule "A" hereto, are hereinafter
referred to individually as a "Stockholder" or collectively as the
"Stockholders", unless otherwise individually named).
WHEREAS, the Stockholders are stockholders, or may hereafter become
stockholders upon conversion or exercise of outstanding securities, of the
Company, and the Stockholders desire to make certain arrangements among
themselves and with the Company.
NOW, THEREFORE, in consideration of the foregoing premise and the covenants
and agreements contained herein, the parties agree as follows:
1. Nomination of Directors. Commencing with the 1999 Annual Meeting of
Stockholders of the Company (to be held in early 2000), and at each stockholders
meeting thereafter at which directors of the Company are to be elected, for so
long as Blackacre beneficially owns shares of Stock representing (or securities
convertible into or exercisable for) at least twenty percent (20%) of the Stock
of the Company outstanding on a fully-diluted basis, the Company shall recommend
to shareholders of the Company for election as Directors of the Company, that
number of persons designated by Blackacre as shall constitute a simple majority
of the Board as then constituted (the "Blackacre Designees").
2. Voting. So long as Blackacre beneficially owns shares of Stock
representing (or securities convertible into or exercisable for) at least twenty
percent (20%) of the Stock of the Company outstanding on a fully-diluted basis,
each Stockholder will vote, or direct the voting of, all of the shares of common
stock, par value $.01 per share, of the Company (the "Stock") as to which such
Stockholder now has or hereafter shall have voting power (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
at all meetings of stockholders of the Company for the election of Directors, or
shall express or direct the expression of consent to any such action of
stockholders taken without a meeting, for the election as Directors of (x) the
Blackacre Designees and (y) one (1) person nominated by Gregory Cuneo and Robert
J. Birnbach.
3. Tag-Along Sale Rights.
3.1. Tag-Along by Blackacre. If any of the Stockholders other than
Blackacre, at any time or from time to time, in one or in a series of
transactions, enters into an agreement to transfer, sell or otherwise
dispose of, directly or indirectly (a "Tag-Along Sale"), any Stock to any
<PAGE>
person or entity, Blackacre shall have the right to participate in such
Tag-Along Sale by selling up to the total number of shares of Stock
proposed to be sold in the Tag-Along Sale by all Stockholders (other than
Blackacre) participating in the Tag-Along Sale pursuant to Section 3.3.
3.2. Tag Along by Stockholders Other than Blackacre. If Blackacre at
any time or from time to time, in one or in a series of transactions,
enters into a Tag-Along Sale in respect of any Stock to any person or
entity, all Stockholders other than Blackacre shall have rights to
participate in such Tag-Along Sale by selling up to the total number of
shares of Stock proposed to be sold in the Tag-Along Sale by Blackacre
pursuant to Section 3.3.
3.3. Notice. Any Stockholder shall, if participating in a Tag-Along
Sale (the Notifying Stockholder"), promptly provide the other Stockholders
with written notice of such Tag-Along Sale. The Notice shall set forth: (i)
the name and address of the proposed transferee or purchaser of the Stock
in the Tag-Along Sale; (ii) the name of the seller or transferor and the
number of shares proposed to be transferred or sold; (iii) the proposed
amount and form of consideration to be paid for such shares and the terms
and conditions of payment offered by the proposed transferee or purchaser;
(iv) the number of shares that Blackacre or the Stockholders other than
Blackacre, as the case may be, are entitled to include in the Tag-Along
Sale; and (v) that the proposed transferee or purchaser has been informed
of the "tag-along rights" provided for in this Article 3 and has agreed to
purchase Stock in accordance with the terms thereof. Upon receipt of a
Notice, the recipient Stockholder (the "Recipient") shall within ten (10)
days thereafter give written notice (the "Recipient Notice") to the
Notifying Stockholder and the Company of the Recipient's election
(including number of shares) to be included in the Tag-Along Sale. If a
Recipient fails to provide the Recipient Notice as provided herein, the
Notifying Stockholder is thereafter free to sell in accordance with the
terms set forth in the Notice. Based on the application of the foregoing,
the Company or any officer shall determine the aggregate number of shares
of Stock to be sold by the Stockholder in any given Tag-Along Sale.
3.4. Type of Consideration. The provisions of this Article 3 shall
apply regardless of whether the consideration received in the Tag-Along
Sale is cash, debt, equity securities, property-in-kind, or any combination
thereof.
3.5. Duration. The Tag-Along Sale rights granted in this Article 3
shall continue from the date hereof for so long as Blackacre holds any
Stock, or until the date, if earlier, when the other shareholders cease to
own any Stock, and then shall terminate and be of no further force and
effect.
4. Miscellaneous.
4.1. Amendment. This Agreement and the Schedule hereto may not be
amended except by an instrument in writing signed by or on behalf of each
of the parties hereto.
2
<PAGE>
4.2. Waiver. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of such party.
4.3. Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws
of the State of New York.
4.4. Captions. The Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
4.5. Publicity. None of the parties hereto shall issue any press
release or make any other public statement, in each case relating to or
connected with or arising out of this Agreement or the matters contained
herein, without obtaining the prior approval of the other parties to the
contents and the manner of presentation and publication thereof, except
such reports or other notices that the party issuing or making same has
been advised by counsel are required pursuant to applicable law or
regulation.
4.6. Notice. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight
courier and facsimile transmission (in each case with evidence of receipt),
addressed to the Company at its principal office and to the Stockholders at
the addresses set forth on Schedule A hereto. Any party may change such
address by like notice. Such notice shall be deemed to have been given as
of the next business day after it was deposited with the courier service.
4.7. Parties in Interest. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns.
4.8. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
4.9. Entire Agreement. This Agreement, including the Schedule referred
to herein, which forms a part hereof, contains the entire understanding of
the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
3
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement on the
date first set forth above.
CERBERUS CAPITAL MANAGEMENT, DUALSTAR TECHNOLOGIES CORPORATION
L.P., on behalf of various funds
and accounts
By: /s/ Mark A. Neporent By: /s/ Gregory Cuneo
------------------------------- ---------------------------------
Mark A. Neporent Gregory Cuneo
President and Chief Executive Officer
/s/ Gregory Cuneo
---------------------------------
Gregory Cuneo, individually
BLACKACRE CAPITAL MANAGEMENT /s/ Robert J. Birnbach
L.L.C., on behalf of various funds ---------------------------------
and accounts Robert J. Birnbach, individually
By: /s/ Ronald J. Kravit
-------------------------------
Ronald J. Kravit
4
<PAGE>
SCHEDULE A*
NAMES, ADDRESSES AND STOCK OWNERSHIP OF THE COMPANY
NAME AND ADDRESS COMMON STOCK OWNERSHIP
- ----------------------------------------------- -------------------------------
435,000
Gregory Cuneo
c/o DualStar Technologies Corporation
One Park Avenue
New York, New York 10016
Fax No. 212-616-6254
Robert J. Birnbach 2,000
c/o DualStar Technologies Corporation
One Park Avenue
New York, New York 10016
Fax No. 212-616-6254
Cerberus Partners, L.P. --
450 Park Avenue, 28th Floor -------
New York, New York 10022
Fax No. 212-593-5955
Blackacre Capital Management L.L.C. --
450 Park Avenue, 28th Floor -------
New York, New York 10022
Fax No. 212-593-5955
- --------
* As of 3/17/00.
5
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION
CERTIFICATE OF UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS
The undersigned, being all of the members of the Board of Directors of
DualStar Technologies Corporation, a Delaware corporation (the "Corporation"),
do hereby consent to the action set forth herein. Pursuant to the General
Corporation Law of the State of Delaware, this consent shall have the same force
and effect as would the undersigneds' vote in favor of such action at a
regularly constituted meeting of the Board of Directors of the Corporation
called for such purpose.
WHEREAS, pursuant to Section 109 of the Delaware General Corporation Law,
any corporation may in its certificate of incorporation confer the power to
amend the bylaws upon the directors;
WHEREAS, Article Seventh, Section 2 of the Corporation's Restated
Certificate of Incorporation grants the Board of Directors the power to amend
the bylaws of the Corporation;
RESOLVED: That Section 2.02 of the Bylaws of the Corporation be amended and
restated to read as follows:
"Section 2.02 Annual Meeting
An annual meeting of stockholders shall be held either within or
without the State of Delaware each year, at such time, on such day and at
such place as the Board of Directors may designate in the call or in a
waiver of notice thereof, for the purpose of electing directors and for the
transaction of such other business as may properly be brought before the
meeting."
This Certificate may be executed in counterparts, each of which shall be
considered an original instrument and all of which, taken together, shall
constitute one and same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Certificate as of
the 12th day of May, 2000.
-----------------------------------
Jared E. Abbruzzese
-----------------------------------
Gregory Cuneo
------------------------------------
Raymond L. Steele
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 14, 2000, accompanying the consolidated
financial statements included in the Quarterly Report of DualStar Technologies
Corporation on Form 10-Q for the quarterly period ended March 31, 2000. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of DualStar Technologies Corporation on Form S-8 (File
No.
33-97708, effective October 3, 1995).
Dixon Odom PLLC
Greensboro, North Carolina
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-END> MAR-31-2000 MAR-31-2000
<CASH> 16,478,080 16,478,080
<SECURITIES> 0 0
<RECEIVABLES> 1,414,344 1,414,344
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 29,423,136 29,423,136
<PP&E> 2,417,769 2,417,769
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 35,031,076 35,031,076
<CURRENT-LIABILITIES> 8,809,211 8,809,211
<BONDS> 0 0
0 0
0 0
<COMMON> 157,016 157,016
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 35,031,076 35,031,076
<SALES> 845,446 3,689,423
<TOTAL-REVENUES> 845,446 3,689,423
<CGS> 1,114,468 3,547,723
<TOTAL-COSTS> 1,114,468 3,547,723
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,731,952) (4,328,265)
<INCOME-TAX> 40,000 40,000
<INCOME-CONTINUING> (2,771,952) (4,368,265)
<DISCONTINUED> 56,517 (1,872,710)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,715,435) (6,240,975)
<EPS-BASIC> (0.20) (0.54)
<EPS-DILUTED> (0.20) (0.54)
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