<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
(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
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(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
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(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
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<PAGE>
THIS AMENDMENT INCLUDES THE FOLLOWING EXHIBITS WITH THE COMPANY'S FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2000:
EXHIBIT 2.2 - STOCK PURCHASE AGREEMENT DATED AS OF MARCH 28, 2000 BETWEEN
DUALSTAR TECHNOLOGIES CORPORATION AND M/E CONTRACTING CORP.
EXHIBIT 10.3 - AMENDED AND RESTATED PROMISSORY NOTE DATED AS OF MARCH 1, 2000 BY
DUALSTAR TECHNOLOGIES CORPORATION IN FAVOR OF MADELEINE L.L.C.
<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>
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Exhibit Number Description Page
Number
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<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.(1)
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2.2 Stock Purchase Agreement dated as of March 28, 2000 between
DualStar Technologies Corporation and M/E Contracting Corp.+
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2.3 Agreement and Plan of Merger dated as of May 11, 2000 among
DualStar Technologies Corporation, DCI Acquisition Co. and
Paracomm, Inc.(1)
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3.1 Certificate of Incorporation, filed June 14, 1994, as
restated(2)
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3.2 Amended and Restated Bylaws (1)
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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(1)
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10.2 Employment Agreement dated as of March 1, 2000 between DualStar
Communications, Inc. and Jill Thoerle(1)
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10.3 Amended and Restated Promissory Note dated as of March 1, 2000
by DualStar Technologies Corporation in favor of Madeleine
L.L.C.+
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23.1 Consent of Dixon Odom, PLLC(1)
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27 Financial Data Schedule(1)
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</TABLE>
Legend
+ Filed herewith.
(1) Filed with the Securities and Exchange Commission on May 15, 2000 with
the Company's Form 10-Q for the quarterly period ended March 31, 2000.
(2) 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>
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 24, 2000 By: GREGORY CUNEO
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Gregory Cuneo
President and
Chief Executive Officer
Date: May 24, 2000 By: ROBERT BIRNBACH
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Robert Birnbach
Executive Vice President,
Chief Financial Officer and
Secretary
Date: May 24, 2000 By: JOSEPH CHAN
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Joseph Chan
Vice President and
Chief Accounting Officer
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
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Exhibit Number Description Page
Number
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<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.(1)
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2.2 Stock Purchase Agreement dated as of March 28, 2000 between
DualStar Technologies Corporation and M/E Contracting Corp.+
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2.3 Agreement and Plan of Merger dated as of May 11, 2000 among
DualStar Technologies Corporation, DCI Acquisition Co. and
Paracomm, Inc.(1)
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3.1 Certificate of Incorporation, filed June 14, 1994, as
restated(2)
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3.2 Amended and Restated Bylaws (1)
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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(1)
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10.2 Employment Agreement dated as of March 1, 2000 between DualStar
Communications, Inc. and Jill Thoerle(1)
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10.3 Amended and Restated Promissory Note dated as of March 1, 2000
by DualStar Technologies Corporation in favor of Madeleine
L.L.C.+
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23.1 Consent of Dixon Odom, PLLC(1)
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27 Financial Data Schedule(1)
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</TABLE>
Legend
+ Filed herewith.
(1) Filed with the Securities and Exchange Commission on May 15, 2000 with the
Company's Form 10-Q for the quarterly period ended March 31, 2000.
(2) 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>
STOCK PURCHASE AGREEMENT
DATED AS OF MARCH 28, 2000
BETWEEN
DUALSTAR TECHNOLOGIES CORPORATION
AND
M/E CONTRACTING CORP.
<PAGE>
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TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF SHARES AND CLOSING..........................11
Section 1.1 Purchase and Sale of Stock.................................11
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........................14
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..........................16
Section 4.3 Corporate Records..........................................17
Section 4.4 Capital Stock; Subsidiaries................................17
Section 4.5 Financial Statements.......................................17
Section 4.6 Tax Matters................................................18
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.........................20
Section 4.14 Litigation.................................................20
Section 4.15 ERISA Matters..............................................20
Section 4.16 Labor and Employment Matters...............................21
Section 4.17 Insurance Coverage.........................................23
Section 4.18 Conduct of Business........................................23
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Section 4.19 Certain Transactions.......................................25
Section 4.20 Liabilities and Obligations................................25
Section 4.21 Intentionally Omitted......................................25
Section 4.22 Brokers....................................................25
Section 4.23 Absence of Certain Payments................................25
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.......................28
Section 5.3 Preparation of Proxy Statement.............................28
Section 5.4 Access to Information; Confidentiality.....................29
Section 5.5 No Solicitation............................................29
Section 5.6 Directors' and Officers' Indemnification and Insurance.....31
Section 5.7 Further Action; Best Efforts...............................31
Section 5.8 Public Announcements.......................................31
Section 5.9 Transactional Costs........................................31
Section 5.10 Repayment of Company Indebtedness; Contribution to
Capital of Intercompany Indebtedness.......................32
Section 5.11 Board of Directors and Officers of the Company.............32
ARTICLE VI CONDITIONS PRECEDENT TO THE CLOSING..............................32
Section 6.1 Conditions to the Obligations of Each Party to
Consummate the Transactions................................32
Section 6.2 Conditions to Obligations of Purchaser.....................33
Section 6.3 Conditions to the Obligations of the Seller................34
ARTICLE VII TAX MATTERS......................................................35
Section 7.1 Tax Return Filings; Payment of Taxes; Indemnification......35
Section 7.2 Procedures Relating to Indemnification of Tax Claims.......36
Section 7.3 Refunds and Credits........................................37
Section 7.4 Cooperation................................................37
Section 7.5 Elections; Consents and Other Actions......................37
Section 7.6 Transfer Taxes.............................................38
Section 7.7 Section 338(h)(10) Election................................38
Section 7.8 FIRPTA Certificates........................................39
Section 7.9 Relationship to Article VIII...............................39
ARTICLE VIII SURVIVAL; INDEMNIFICATION........................................39
Section 8.1 Indemnification............................................39
Section 8.2 Notice and Defense of Third Party Claims...................40
Section 8.3 Notice of Other Claims.....................................41
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<PAGE>
Section 8.4 Limitations of Indemnification.............................42
Section 8.5 Survival and No Waiver of Representations..................42
Section 8.6 Limitation of Other Indemnification Rights.................43
Section 8.7 Exclusive Remedy...........................................43
ARTICLE IX PUBLICITY; CONFIDENTIALITY; BOOKS AND RECORDS....................43
Section 9.1 Publicity..................................................43
Section 9.2 Confidentiality............................................43
Section 9.3 Books and Records..........................................44
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.......................................46
ARTICLE XII BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES............46
Section 12.1 Binding Effect; Assignment; Third Party Beneficiaries......46
ARTICLE XIII ENTIRE AGREEMENT.................................................47
Section 13.1 Entire Agreement...........................................47
ARTICLE XIV MATERIALITY AND IMMATERIALITY....................................47
Section 14.1 Materiality and Immateriality..............................47
ARTICLE XV TERMINATION, AMENDMENT AND WAIVER................................47
Section 15.1 Termination................................................47
Section 15.2 Effect of Termination......................................48
Section 15.3 Fees and Expenses..........................................48
Section 15.4 Amendment..................................................49
Section 15.5 Waiver.....................................................49
Section 15.6 Procedure for Termination, Amendment, Extension
or Waiver..................................................49
ARTICLE XVI HEADINGS; COUNTERPARTS...........................................49
Section 16.1 Headings; Counterparts.....................................49
ARTICLE XVII SEVERABILITY.....................................................50
Section 17.1 Severability...............................................50
ANNEXES AND EXHIBITS
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<PAGE>
Annex I Company Stock
Exhibit A Purchaser Note
Exhibit B Security Agreement
DISCLOSURE SCHEDULES
2.3 Approvals--Governmental and Other
3.2(b) Surety Bonds
4.1 Jurisdiction of Incorporation
4.4 Capital Stock; Subsidiaries
4.5 Financial Statements
Exhibit A: Annual Financial Statements
Exhibit B: Interim Financial Statements
4.6 Certain Tax Matters
4.7 Real Estate
4.13 Permits and Operating Rights
4.14 Litigation
4.15 ERISA Matters
4.16 Labor and Employment Matters
4.17 Insurance Coverage
4.19 Certain Transactions (Liens)
4.26 Bank Accounts
6.2 Board of Directors and Officers of the Company
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<PAGE>
STOCK PURCHASE AGREEMENT dated as of March 28, 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 Contracting
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 $11,000,000;
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 High-Rise.
"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
and the Subsidiary Guarantees.
"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 twelve months ended June
30, 1999 and the related unaudited statement of income, shareholders' equity and
cash flows for the year then ended.
"BALANCE SHEET DATE" means June 30, 1999.
"BLACKACRE" has the meaning set forth in Section 6.1(e).
"BOARD OF DIRECTORS" means the board of directors of the Seller.
"BREAK-UP WARRANTS" means the warrants issued by the Seller and
delivered to Cerberus Capital Management, L.P. and Blackacre Capital Management,
L.L.C., pursuant to that certain letter from the Seller to Cerberus Capital
Management, L.P. and Blackacre Capital Management, L.L.C., dated December 1,
1999, entitling Cerberus Capital Management, L.P. and Blackacre Capital
Management, L.L.C. to purchase from the Seller 1,440,000 shares of its common
stock, par value $.01 per share.
"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 company, in each case, consisting primarily of providing
mechanical contracting services to various types of customers.
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<PAGE>
"BYLAWS" means a corporation's bylaws, code of regulations or
equivalent document.
"CENTRIFUGAL" has the meaning set forth in the recitals.
"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.
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<PAGE>
"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 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).
"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
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<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 Acquired Entities' net
outstanding indebtedness to the Seller and its subsidiaries (other than the
Acquired Entities), which, as of the Interim Balance Sheet Date, was
$10,009,699.
"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 Mr. Gregory Cuneo and Mr. Robert Birnbach.
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<PAGE>
"LAW" means any statute, rule, regulation, administrative requirement,
code or ordinance of any Governmental Authority.
"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 granted 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 (i) any change in economic conditions generally
or in the industries in which the Company operates or (ii) any action(s)
required to be taken pursuant to this Agreement shall not be considered when
determining whether a material adverse effect has occurred.
"MECHANICAL" has the meaning set forth in the recitals.
"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.
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<PAGE>
"PARTIES" means the Purchaser and the Seller.
"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
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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.
"PURCHASE PRICE" means $11,000,000, consisting of (i) $1,000,000 in
cash and (ii) the Purchaser Note.
"PURCHASER" means M/E Contracting 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 $10,000,000, bearing
interest at the rate of 10% per annum, in the form attached hereto as Exhibit A.
"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.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement, dated as of March 27, 2000, between the Company, Blackacre Capital
Management LLC and Cerberus Capital Management L.P.
"SECURITY AGREEMENT" means the security agreement made by the Purchaser
in favor of the Seller, substantially in the form of Exhibit B 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.
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"STOCKHOLDERS' MEETING" has the meaning set forth in Section 1.3.
"SUBSIDIARY GUARANTEES" means the guarantees of High-Rise, Centrifugal
and Mechanical of the obligations of the Purchaser under the Purchaser Note.
"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 and its Stockholders than the Transactions.
"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 by the Securities Purchase Agreement) 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.
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"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).
"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.
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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.
(b) Purchase Price. The Purchase Price for the Company Stock shall be
$11,000,000 (Eleven Million Dollars), consisting of (i) $1,000,000 in cash and
(ii) the Purchaser Note.
(c) Allocation of Purchase Price. The Purchase Price shall be allocated
$1,000,000 to the capital stock of Centrifugal and Mechanical and $10,000,000 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 July 31, 2000
(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
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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, including,
without limitation, timely mailing a notice complying with the General
Corporation Law of the State of Delaware ("GCL") and describing the Transactions
and containing a recommendation of the Board of Directors that the holders of
Seller Common Stock entitled to vote thereon approve this Agreement and the
Transactions.
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
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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 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.
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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 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
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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 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. This Agreement and the Transactions have been
unanimously approved by the Board of Directors of Seller, and the Board of
Directors has unanimously resolved to recommend approval of this Agreement and
the Transactions to the stockholders of the Seller. The Board of Directors of
Seller has received a favorable opinion from Chanin Capital LLC as to the
fairness from a financial point of view of this Agreement and the Transactions
to the Seller and the Seller's stockholders.
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
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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 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 as contemplated by the Ancillary Documents), 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
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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; 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.
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
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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 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 June 30, 1999:
(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) 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 June 30, 1999: (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
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each Acquired Entity for the taxable periods ended on or after June 30, 1996 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 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.
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 4.5. 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 is in material default under such contract or 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
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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 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, are set forth on Schedule 4.14 and reserves therefor 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 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-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. 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
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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 Seller, threatened legal action,
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.
(c) To the knowledge of the Seller, 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 Seller, 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
Seller, the Company or any Commonly Controlled Entity would otherwise be subject
under Title IV of ERISA. The principal purpose of the Seller entering into the
transactions contemplated by this Agreement is not to evade liability to which
the Seller, the Company or any Commonly Controlled Entity would otherwise be
subject under Title IV of ERISA.
(d) No benefits under any Plan set forth in Schedule 4.15 shall become
accelerated as a result the transactions contemplated by this Agreement.
(e) Except as required under Section 4980B of the Code, neither the
Company or any subsidiary thereof has an obligation to provide post-retirement
health or life benefits.
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).
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(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 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
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(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 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:
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(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;
(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;
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(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 Schedule 4.19
or 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 Interim Balance Sheet Date
previously furnished the Purchaser, there are no Liabilities, whether absolute,
accrued, contingent or otherwise, of an Acquired 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
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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 (other than Intercompany 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 Interim 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 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
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:
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(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 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, Bylaws or other comparable charter or
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;
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(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;
(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 10 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
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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.
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
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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 (other than the transactions contemplated by
the Securities Purchase Agreement), or enter into or maintain or continue
discussions or negotiate with any Person in furtherance of such inquiries or to
obtain a Takeover Proposal (other than the transactions contemplated by the
Securities Purchase Agreement); 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 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
Capital LLC'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.
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(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, 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.
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Section 5.10 Repayment of Company Indebtedness; Contribution to Capital
of Intercompany Indebtedness. The Purchaser shall pay off or otherwise
refinance, at the time of Closing, all Indebtedness (other than Intercompany
Indebtedness) of the Acquired Entities listed on Exhibit B to Schedule 4.5
hereto, and the Seller shall contribute to the capital of the Acquired Entities
all of the Intercompany Indebtedness outstanding as of immediately prior to the
Closing Date.
Section 5.11 Board of Directors and Officers of the Company. The
Purchaser agrees that so long as the Purchaser Note remains outstanding, (i) the
Company shall have the right to designate one member to the board of directors
of the Purchaser (who shall be reasonably satisfactory to the Purchaser) and
(ii) the Purchaser shall provide to such director director and officer liability
insurance protection with an aggregate limitation on liability in an amount
which is commercially reasonable and available, and having customary terms,
provisions, conditions and exclusions.
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 Capital LLC
addressed to the Board of Directors (the "FAIRNESS OPINION"), to the effect that
the consideration
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to be received in the Acquisition by the Seller is fair to the Seller and the
Seller's stockholders, shall not have been withdrawn.
(e) Investment by Blackacre in Seller. All conditions precedent to the
transactions contemplated by the Securities Purchase Agreement, dated March 24,
2000 (the "SECURITIES PURCHASE AGREEMENT"), among Seller and Cerberus Capital
Management, L.P. and Blackacre Capital Management L.L.C. (collectively,
"BLACKACRE") shall have been satisfied.
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:
(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 have used the
proceeds of the purchase of securities of the Seller contemplated by the
Securities Purchase Agreement to repay in full the Madeleine Note.
(d) Closing Deliveries.
(i) 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.
(ii) Any directors of the Acquired Entities, other than those
identified on Schedule 6.2, shall have resigned as directors of such Acquired
Entities and the directors listed on Schedule 6.2 shall appoint the persons on
Schedule 6.2 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.
(iii) The Company shall have entered into Employment Agreements with
certain members of senior management of CMA and High-Rise, which shall be for a
term of employment lasting at least 2 years, and otherwise on terms reasonably
satisfactory to the Purchaser.
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(iv) 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.
(v) 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 (iv) 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.
(vi) 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.
(vii) The Purchase shall have received evidence, satisfactory to it, of
the contribution to capital of the Acquired Entities all of the Intercompany
Indebtedness outstanding as of immediately prior to the Closing Date.
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)
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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 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.
(ii) The Seller shall have received from the Purchaser the Purchase
Price.
(iii) 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.
(e) 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.
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
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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 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
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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 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
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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 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) Upon the Purchaser's decision to do so, which decision shall be
made by the Purchaser in its sole discretion, 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. If the Purchaser
shall decide to proceed with 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, if any,
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, if any, 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, if any, 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 High-Rise (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, if any, 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 High-Rise (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
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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 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 report of such Accounting Firm, 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,
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(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 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
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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 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
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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 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 $10,000,000 and (B) with
respect to Losses specifically relating to Centrifugal, Mechanical or CMA, up to
an aggregate amount equal to $1,000,000. The foregoing limitations on
indemnification shall not apply 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
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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.
Section 8.7 Exclusive Remedy. Except in the case of fraud and except in
connection with equitable relief, 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, warranties, covenants and
agreements 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
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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 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 Interim 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.
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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:
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 (which shall not constitute notice):
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 Contracting Corp.
450 Park Avenue
28th Floor
New York, New York 10022
Attention: Ron Kravit
Telecopy No.: (212) 891-1540
with a copy to (which shall not constitute notice):
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
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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.
ARTICLE XI
GOVERNING LAW; FORUM
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
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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 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);
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(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 July 31, 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;
(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) (other than in the event of a withdrawal of the
Chanin Capital LLC fairness opinion without a Takeover Proposal having been
received), 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 Seller, 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 the Securities Purchase Agreement or following termination of
the Securities Purchase
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<PAGE>
Agreement by the Seller following breach by Blackacre of its obligations under
the Securities Purchase Agreement) or (ii) if the Seller enters into any
agreement with respect to any Superior Proposal prior to the one-year
anniversary of the termination of this Agreement (other than following
termination of the Securities Purchase Agreement by the Seller following breach
by Blackacre of its obligations under the Securities Purchase 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.
Notwithstanding the foregoing, the Purchaser shall not be entitled to receive
the Termination Fee to the extent that (i) the Break-up Warrants become
exercisable as a result of the same Triggering Event, or (ii) the Purchaser
terminates this Agreement pursuant to Section 15.1(a).
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, 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
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<PAGE>
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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<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the date first above written.
DUALSTAR TECHNOLOGIES CORPORATION
By: /s/ GREGORY CUNEO
----------------------------------
Name: Gregory Cuneo
Title: CEO & President
M/E CONTRACTING CORP.
By: /s/ RON KRAVIT
----------------------------------
Name: Ron Kravit
Title: Authorized Signatory
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<PAGE>
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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<PAGE>
EXECUTION COPY
AMENDED AND RESTATED PROMISSORY NOTE
$7,000,000 Original Issue Date
December 1, 1999
AMENDED AND RESTATED PROMISSORY NOTE, dated as of March 1, 2000, by
DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation (the "Company"), in
favor of MADELEINE L.L.C., a New York limited liability company (the "Holder"),
for the principal sum of Seven Million Dollars ($7,000,000) with interest
(computed on the basis of a 360 day year and the actual number of days elapsed)
at the rate of 11.0% per annum on the balance of the principal from time to time
remaining unpaid, all on the terms and conditions set forth herein (the "Note").
WITNESSETH:
WHEREAS, the Company issued a Convertible Promissory Note, dated as of
December 1, 1999 (the "Convertible Note"), in favor of the Holder for the
principal sum of Seven Million Dollars ($7,000,000); and
WHEREAS, in exchange for the issuance and delivery by the Company to
Cerberus Capital Management, L.P. ("Cerberus") and Blackacre Capital Management
L.L.C. ("Blackacre") of warrants, dated as of December 16, 1999 (the
"Warrants"), entitling Cerberus and Blackacre to purchase from the Company
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") on such terms described in such Warrants, the Holder agreed to waive its
conversion rights under the Convertible Note and amended and restated the
Convertible Note accordingly as of December 16, 1999 (the Convertible Note, as
so amended and restated is hereinafter referred to as the "Amended Note"); and
WHEREAS, in consideration of the acceptance and agreement by the
Company to certain amendments, as of March 1, 2000, to that certain letter among
the parties, dated as of December 16, 1999, the Holder has agreed to extend the
Maturity Date of the Amended Note; and
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of this Note, the Amended Note is restated below in its entirety, and
the Company and Holder agree as follows:
FOR VALUE RECEIVED, DUALSTAR TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Company"), promises to pay to MADELEINE L.L.C., a New York
limited liability company (the "Holder"), at 450 Park Avenue, 28th Floor, New
York, New York 10022 or at such other place as the Holder may in writing
designate, the principal sum of Seven Million Dollars ($7,000,000) with interest
(computed on the basis of a 360 day year and the actual number of days elapsed),
from December 1, 1999, at the rate of 11.0% per annum on the balance of the
principal from time to time remaining unpaid, all on the terms and conditions
set forth herein (the "Note").
<PAGE>
1. Maturity, Interest and Amortization. Unless accelerated pursuant to
the terms of this Note, the unpaid principal balance of this Note together with
all unpaid interest accrued thereon shall be due and payable on May 31, 2000
(the "Maturity Date", with the period of time from the date hereof until the
Maturity Date being referred to herein as the "Term"). Interest on the Note
shall be payable monthly in arrears in cash on the 15th day of each month with
the first payment to be made on December 15, 1999. Principal and interest are
payable in lawful money of the United States. All payments received by Holder
under this Note shall be credited first to any charges or other expenses for
which Holder is entitled to payment hereunder, next to accrued but unpaid
interest, and third to unpaid principal. The Company shall have the right at any
time on at least fifteen (15) days' notice to prepay any portion of the
outstanding principal of this Note without penalty. Notwithstanding any contrary
provision contained herein, (i) immediately upon any Disposition (as such term
is hereinafter defined) by the Company or any of its subsidiaries, the Company
shall prepay the unpaid principal balance of this Note together with all unpaid
interest accrued thereon in an amount equal to 100% of the Net Cash Proceeds (as
such term is hereinafter defined) received by the Company or any of its
subsidiaries or affiliates in connection with such Disposition except to the
extent that such Net Cash Proceeds (x) relate to the sale of High-Rise Electric,
Inc. ("High-Rise") and (y) are used in accordance with a written budget
furnished to Holder within 30 days of the date hereof (and from time to time
thereafter) and approved by Holder, which approval shall not be unreasonably
withheld or delayed; (ii) immediately upon the incurrence by the Company or any
of its subsidiaries of any Indebtedness, the Company shall prepay the unpaid
principal balance of this Note together with all unpaid interest accrued thereon
in an amount equal to 100% of the Net Cash Proceeds received by the Company or
any of its subsidiaries in connection therewith; provided, that any amount of
unpaid principal balance together with unpaid interest which is not prepaid by
the Company pursuant to clause (i) and/or (ii) shall remain an obligation of the
Company on such terms and conditions set forth herein.
"Disposition" for purposes hereof shall mean any transaction, or series
of transactions, pursuant to which the Company or any of its subsidiaries sells,
assigns, transfers or otherwise disposes of any property or assets (whether now
owned or hereafter acquired) to any other Person, in each case whether or not
the consideration therefor consists of cash, securities or other assets owned by
the acquiring Person, excluding any sales of inventory in the ordinary course of
business on ordinary business terms.
"Excluded Subsidiary" for the purposes hereof shall mean each of the
following subsidiaries of the Company: Centrifugal Service, Inc.; The Automation
Group, Inc.; Trident Mechanical Systems, Inc.; Property Control, Inc.; Grace
Systems Technologies, Inc.; and HR Electrical Systems, Inc.
"Indebtedness" for purposes hereof shall mean indebtedness for borrowed
money, but shall not include accounts payable to trade creditors created or
assumed in the ordinary course of business in connection with obtaining
materials or services or amounts owed to employees of the Company in the
ordinary course of business.
"Net Cash Proceeds" for purposes hereof shall mean (i) with respect to
any Disposition by the Company or any of its subsidiaries, the amount of cash
received (directly or
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<PAGE>
indirectly) from time to time (whether as initial consideration or through the
payment of deferred consideration) by or on behalf of the Company or any of its
subsidiaries, in connection therewith after deducting therefrom only (A) the
principal amount of any indebtedness secured by any lien on any asset (other
than indebtedness assumed by the purchaser of such asset) which is required to
be, and is, repaid in connection with such Disposition (other than indebtedness
under this Note), (B) reasonable expenses related thereto reasonably incurred by
the Company or any of its subsidiaries in connection therewith, (C) transfer
taxes paid by the Company or any of its subsidiaries in connection therewith and
(D) net income taxes to be paid in connection with such Disposition (after
taking into account any tax credits or deductions and any tax sharing
arrangements and (ii) with respect to the issuance or incurrence of any
indebtedness by the Company or any of its subsidiaries, or the sale or issuance
by the Company or any of its subsidiaries of any shares of its capital stock,
the aggregate amount of cash received (directly or indirectly) from time to time
(whether as initial consideration or through the payment of deferred
consideration) by or on behalf of the Company or any of its subsidiaries in
connection therewith after deducting therefrom only reasonable brokerage
commissions, underwriting fees and discounts, legal fees and similar fees and
commissions.
1A. Use of Proceeds. The Company shall use Two Million One Hundred
Thirty-Four Thousand One Hundred Fifteen and 57/100s Dollars ($2,134,115.57) of
the principal received pursuant to this Note to pay (or cause
Centrifugal/Mechanical Associates, Inc. ("CMA") to pay) in full to Technology
Investors Group, L.L.C. the amounts owed under (a) the Promissory Note, dated as
of October 26, 1999 (the "1999 TIG Loan"), (b) the Secured Promissory Note
Extension Agreement, dated as of November 25, 1998 (the "1998 TIG Loan") and (c)
the Promissory Note, dated as of July 24, 1998 (the "Additional TIG Loan, and
with the 1999 TIG Loan and 1998 TIG Loan collectively referred to herein as the
"TIG Loans").
2. Event of Default/Remedies
a. Any of the following events shall constitute an Event of
Default:
i. (A) any failure to pay when due (whether at stated
maturity, by reason of acceleration of the maturity hereof or otherwise) any
principal hereof or any interest hereon; (B) any material breach by the Company
of any of its other obligations or covenants under this Note, the Guaranties,
the Security Agreement or the Pledge and Security Agreements (as such terms are
hereinafter defined), provided that such breach is not cured by the Company
within ten (10) days from the date of receipt of any notice from Holder of such
breach; or (C) any material breach by CMA, Centrifugal Associates, Inc. ("CA")
or Mechanical Associates, Inc. ("MA") of its obligations or covenants under
their respective guaranties (the "Guaranties") of this Note, or the Security
Agreement (as herein defined); or
ii. the Company or any subsidiary (other than an
Excluded Subsidiary) thereof (A) becomes insolvent or admits in writing its
inability to pay its debts as they mature, (B) makes any assignment for the
benefit of creditors, or (C) applies for or consents to the appointment of a
receiver or trustee for the Company or such subsidiary or for a substantial part
of the Company's or such subsidiary's property or business, or a receiver or
trustee otherwise is appointed and is not discharged within 45 days after such
appointment (for purposes of this
3
<PAGE>
subsection, the Company or such subsidiary shall be deemed "insolvent" if, as of
the Company's or such subsidiary's most recent balance sheet, the sum of its
debts exceed the sum of its assets, at a fair valuation, or it is unable to pay
its debts as they come due); or
iii. any bankruptcy, insolvency, reorganization or
liquidation proceeding or other proceeding for relief under any bankruptcy law
or any law for the relief of debtors is instituted by or against the Company or
any subsidiary (other than an Excluded Subsidiary), and if against the Company
or any subsidiary (other than an Excluded Subsidiary) such proceeding is not
vacated within 45 days; or
iv. any money judgment, lien, writ or warrant of
attachment, or similar process is entered of filed against the Company or any
subsidiary (other than an Excluded Subsidiary) or any of the assets of the
Company or any subsidiary (other than an Excluded Subsidiary) and remains
unvacated, unbonded, unstayed, undismissed or undischarged for a period of 45
days or in any event later than 10 days before the date of any proposed sale
thereunder, provided that such a lien (singly or, if more than one,
cumulatively) of less than $250,000 arising in the ordinary course of the
Company's or any subsidiary's business, even if it remains unbonded, unstayed or
undismissed for 45 days, shall not be deemed an Event of Default if the Company
has been advised by counsel in writing and thus believes in good faith that it
has a valid defense to the claim giving rise to such lien and promptly so
advises Holder in writing and timely contests such claim; or
v. the Company or any subsidiary (A) defaults on or
breaches in any material respect any material contract with or obligation when
due to a third party or (B) defaults in the performance of any material
obligation to a third party or Holder incurred for money borrowed of $500,000 or
more; or
vi. the Common Stock is delisted from the NASDAQ
National Market System ("NASDAQ"), unless such delisting occurs in connection
with the Common Stock being traded on either the American Stock Exchange or the
New York Stock Exchange; or
vii. the acquisition, directly or indirectly, by any
person or group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934) of beneficial ownership of more than 20% of the aggregate
outstanding voting power of the capital stock of the Company; or
viii. individuals who as of the date hereof
constituted the board of directors of the Company (together with any new
directors whose election by such board of directors or whose nomination for
election by the stockholders of the Company was approved by a vote of at least
66 2/3% of the directors of the Company then still in office who were either
directors as of the date hereof, or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of the
board of directors of the Company then in office;
ix. the Company shall fail to comply with the
provisions of Section 1A hereof;
4
<PAGE>
x. the Company shall fail to perform in a timely
manner its obligations (or disclaim any obligations) pursuant to that certain
letter of intent (the "Proposal Letter"), dated December 1, 1999, heretofore
executed and delivered by and among the Company, Cerberus and Blackacre (with
such changes thereto as Cerberus and Blackacre shall agree to in their sole
discretion); or
xi. the Company shall fail to perform in a timely
manner its obligations (or shall disclaim any obligations) pursuant to that
certain letter, dated as of December 16, 1999, from the Company to Cerberus and
Blackacre, regarding the payment of certain amounts in connection with a
"Competing Transaction" (as defined therein).
b. Remedies. Upon the occurrence and during the continuance of
an Event of Default described in subsections 2(a)(i)(A), 2(a)(ii), 2(a)(iii),
2(a)(x) or 2(a)(xi) above, all indebtedness under this Note shall automatically
be immediately due and payable. Upon the occurrence and during the continuance
of any other Event of Default, Holder at its option and, unless otherwise
specified below, upon no less than five (5) business days' written notice to the
Company (or such other notice as is required by law), may do any one or more of
the following:
i. declare all indebtedness under this Note
immediately due and payable and credit any sums received thereafter to such
indebtedness in whatever priority it shall elect; provided, however, that
application of sums so received shall not serve to waive or cure any default
existing under this Note nor to invalidate any notice of default or any act done
pursuant to such notice and shall not prejudice any rights of Holder; and
ii. exercise any or all rights provided or permitted
by law or granted pursuant to this Note, the Guaranties or that certain Pledge
Agreement, dated November 30 1999, by and between the Company and Holder
relating to all of the common stock of CA, MA and High-Rise, and the Pledge and
Security Agreements, dated as of November 30, 1999, by and between CA and MA and
the Holder relating to all of the common stock of CMA (collectively, the "Pledge
and Security Agreements") and that certain Security Agreement, dated as of
November 30, 1999, by and between CMA and the Holder (the "Security Agreement"),
in such order and in such manner as Holder may, in its sole judgment, determine,
including without limitation its right to convert this Note to Common Stock
pursuant to Section 5 hereof; provided that, upon conversion in accordance with
the terms hereof, Holder shall not have or exercise any other rights or remedies
hereunder, other than with respect to claims relating to the calculation or
payment of interest or costs and expenses of collection pursuant to Section 8
hereof, that have arisen up to the time of or in connection with conversion.
3. Default Rate. Any amounts not paid when due shall thereafter bear
interest at a rate per annum equal to the 18.0%. If such default rate would but
for this sentence, exceed the maximum lawful rate, the effective interest rate
under this Note shall be the maximum lawful rate, and any amount received by
Holder in excess of such rate shall be applied to principal and then to fees and
expenses, or, if no such amounts are owing, returned to the Company.
5
<PAGE>
4. Waiver. The Company hereby waives any right of offset it may now or
hereafter have against Holder, and the Company hereby also waives diligence,
presentment, protest and demand, notice of protest, dishonor and nonpayment of
this Note and expressly agrees that, without in any way affecting the liability
of the Company hereunder, Holder may in its sole discretion extend any maturity
date or the time for payment of any installment due hereunder, accept security,
release any party liable hereunder and release any security hereafter securing
this Note.
5. [Intentionally omitted.]
6. Notices. Any notice required by the provisions of this Note shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile, (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (iv) two (2) days after deposit with a
nationally recognized overnight courier, with written verification of receipt.
All notices shall be addressed to Holder at 450 Park Avenue, 28th Floor, New
York, New York 10022, Attention: Mark A. Neporent or at such subsequent address
as Holder shall provide to the Company in writing. Any notice to the Company
shall be addressed to the Company at 11-30 47th Avenue, Long Island City, New
York 11101 or at such subsequent address as the Company shall provide to the
Holder in writing.
7. Covenants. So long as the principal balance of the Note remains
outstanding, without the consent of the Holder, the Company agrees as follows
(the "Covenants"):
(i) The Company will not alter, amend or modify in any respect
the rights, preferences or privileges of the Note.
(ii) The Company and its subsidiaries will not incur any
Indebtedness.
(iii) The Company and its subsidiaries shall not engage in any
Disposition unless at least 65% of the proceeds thereof consist of cash and the
Net Cash Proceeds thereof are applied to the prepayment of the Note or otherwise
applied in accordance with Section 1 of this Note.
(iv) The Company and its subsidiaries (other than any Excluded
Subsidiary) shall not make, or commit to make, any Investment(s) in any Excluded
Subsidiary in excess of $20,000 in the aggregate. "Investments" for purposes
hereof shall mean all investments in the forms of direct or indirect loans
(including guarantees of Indebtedness or other obligations), advances or capital
contributions, purchases or other acquisitions for consideration of
Indebtedness, equity interests (including, without limitation, capital stock,
warrants, options or other rights to acquire capital stock) or other securities,
together with all other items that are or would be classified as investments on
a balance sheet prepared in accordance with generally accepted accounting
principles.
6
<PAGE>
No reference contained herein to actions that the Company may take
shall be deemed in any way to prejudice or limit Holder's rights to enforce the
Covenants. The Company acknowledges that the Covenants are a material inducement
to Holder's willingness to purchase the Note, and that Holder would not be
willing to purchase the Note in the absence of the Covenants. Accordingly,
except to the extent that the Covenants expressly limit Holder's discretion, the
Company acknowledges that Holder shall be free to enforce the Covenants in its
absolute discretion or to condition its consent as it sees fit.
8. Legal Fees. The Company agrees to pay all Holder's reasonable costs
and expenses actually incurred by Holder in connection with the good faith
enforcement of any obligation of the Company under this Note, including without
limitation reasonable attorneys' fees.
9. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York.
[Remainder of this page intentionally left blank.]
7
<PAGE>
10. Severability. Should any provision or portion of this Note be held
unenforceable or invalid for any reason, the remaining provisions and portions
of this Note shall be unaffected by such holding.
DUALSTAR TECHNOLOGIES CORPORATION
By: /s/ ROBERT BIRNBACH
------------------------------
Its: CFO & EVP
-----------------------------
MADELEINE L.L.C.
By: /s/ MARK NEPORENT
------------------------------
Its: Authorized Signatory
-----------------------------
8
