ASSET PURCHASE AGREEMENT By and Between FINANCIAL SECURITY SERVICES INC. and INTEGRATED ALARM SERVICES GROUP, INC. Dated as of October 1, 2005
By
and Between
FINANCIAL
SECURITY SERVICES INC.
and
INTEGRATED
ALARM SERVICES GROUP, INC.
Dated
as of October 1, 2005
TABLE
OF CONTENTS
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Page
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ARTICLE
1. SALE AND PURCHASE OF ASSETS
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1
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1.1
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Purchased
Assets.
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1
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1.2
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Assignment
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3
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1.3
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Excluded
Assets.
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4
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ARTICLE
2. PURCHASE PRICE; ADJUSTMENT
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5
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2.1
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Purchase
Price.
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5
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2.2
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Payment
of Base Purchase Price; Holdback Amount.
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6
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2.3
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The
Loan Adjustment and RMR Adjustments.
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6
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2.4
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Provisional
Adjustment.
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7
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2.5
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Final
Adjustment.
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7
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2.6
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Allocation
of Purchase Price.
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9
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ARTICLE
3. ASSUMPTION OF LIABILITIES AND OBLIGATIONS BY
PURCHASER
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10
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3.1
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Assumed
Liabilities.
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10
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3.2
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Excluded
Liabilities.
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10
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3.3
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Nonassignable
Contracts and Authorizations.
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11
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ARTICLE
4. REPRESENTATIONS AND WARRANTIES OF SELLER
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11
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4.1
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Organization
and Standing.
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11
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4.2
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No
Conflict.
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12
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4.3
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Financial
Statements.
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12
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4.4
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Litigation.
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13
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4.5
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Licenses
and Permits; Compliance with Laws.
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13
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4.6
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Taxes.
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14
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4.7
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Absence
of Certain Changes.
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15
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4.8
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Real
Properties.
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16
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4.9
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Contracts
and Commitments.
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17
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4.1
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Intellectual
Property.
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18
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4.11
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No
Consent Requirements.
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19
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4.12
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Authorization.
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19
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4.13
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Personal
Property.
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19
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4.14
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Environmental
Matters.
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20
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4.15
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Labor
Relations; Employee Benefit Plans.
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20
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4.16
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Condition
and Extent of Property.
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21
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4.17
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Compensation
and Other Benefits.
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21
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4.18
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Seller
Subsidiaries.
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22
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4.19
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Related
Party Transactions.
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23
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4.2
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Payables.
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23
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4.21
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Accounts
Receivable.
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23
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4.22
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Inventories.
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24
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4.23
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Other
Businesses.
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24
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4.24
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Product
Liability and Working Conditions.
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24
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4.25
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Insurance.
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24
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4.26
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Disclosures
and Material Facts.
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24
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4.27
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Brokers;
Finders.
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25
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2
TABLE
OF CONTENTS
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ARTICLE
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
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25
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5.1
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Organization
and Standing.
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25
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5.2
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Authorization.
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25
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5.3
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No
Conflict.
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25
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5.4
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Brokers,
Finders.
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26
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5.5
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Consent
Requirements.
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26
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ARTICLE
6. COVENANTS AND AGREEMENTS
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26
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6.1
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Handling
of Seller’s Employees.
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26
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6.2
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Seller’s
Tradename and Trademarks.
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27
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6.3
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Non-Solicitation.
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27
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6.4
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Billing
of Wholesale Accounts.
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28
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6.5
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Telecommunications.
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28
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6.6
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Use
of Dallas Facilities.
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28
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ARTICLE
7. CLOSING DATE; CONDITIONS AND TRANSACTIONS
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28
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7.1
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Closing
Date and Place.
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28
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7.2
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Deliveries
by Seller.
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29
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7.3
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Deliveries
by Purchaser.
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30
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ARTICLE
8. NON-TAX INDEMNIFICATION
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30
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8.1
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Indemnification
by Seller.
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30
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8.2
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Limitations
on Indemnification.
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31
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8.3
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Indemnity
Holdback.
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31
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8.4
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Seller’s
Representations and Warranties.
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32
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8.5
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Purchaser’s
Representations and Warranties.
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32
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8.6
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Indemnification
by Purchaser.
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33
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8.7
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Indemnification
Procedure.
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33
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ARTICLE
9. TAX MATTERS
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34
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9.1
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Tax
Indemnification.
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34
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9.2
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Straddle
Period.
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35
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9.3
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Responsibility
for Filing Tax Returns.
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35
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9.4
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Cooperation
on Tax Matters.
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36
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9.5
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Tax
Sharing Agreements.
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37
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9.6
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Certain
Taxes and Fees.
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37
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9.7
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Contest
Provisions.
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38
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9.8
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Carrybacks.
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38
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9.9
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Sole
Remedy.
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38
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3
TABLE
OF CONTENTS
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ARTICLE
10. MISCELLANEOUS
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38
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10.1
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Press
Release and Public Announcements.
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38
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10.2
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Confidential
Information.
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38
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10.3
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Expenses.
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39
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10.4
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Specific
Performance.
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39
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10.5
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Further
Assurances.
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39
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10.6
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Entire
Agreement; Amendments and Waivers.
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39
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10.7
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Governing
Law.
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40
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10.8
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Dispute
Resolution.
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40
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10.9
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Table
of Contents and Headings; Certain Interpretations
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41
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10.1
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Notices.
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41
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10.11
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Severability.
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42
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10.12
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Binding
Effect; Assignment.
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43
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10.13
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Books
and Records.
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43
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10.14
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Exhibits
and Schedules.
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43
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10.15
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Attorneys’
Fees and Costs.
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43
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10.16
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Counterparts;
Facsimile Signatures.
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44
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ARTICLE
11. DEFINED TERMS
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44
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11.1
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Definitions.
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44
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11.2
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Other
Definitions.
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47
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Schedules
to the Asset Purchase Agreement
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52
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Exhibits
to the Asset Purchase Agreement
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52
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4
THIS
ASSET PURCHASE AGREEMENT (this “Agreement”),
dated
as of the 1st
day of
October, 2005 (the “Closing
Date”),
by
and between FINANCIAL SECURITY SERVICES INC, a Delaware corporation
(“Seller”),
and
INTEGRATED ALARM SERVICES GROUP, INC., a Delaware corporation (“Purchaser”).
Seller and Purchaser are sometimes referred to individually as a “Party”
and
collectively as the “Parties”.
W
I T N E
S S E T H:
WHEREAS,
Seller owns five (5) shares of common stock (no par value) of Securion
Protection Network Inc., a Delaware corporation (“SPN”),
which
shares constitute all of the issued and outstanding shares of the capital stock
of SPN (the “SPN
Shares”),
and
five hundred (500) shares of common stock (no par value) of Securion Central
Control Inc., a Delaware corporation (“SCC”,
and
collectively with SPN, the “Seller
Subsidiaries”),
which
shares constitute all of the issued and outstanding shares of the capital stock
of SCC (the “SCC
Shares”,
and
collectively with the SPN Shares, the “Shares”).
Seller and the Seller Subsidiaries are sometimes collectively referred to herein
as the “Target
Companies”.
WHEREAS,
Seller, directly and/or through one or both of the Seller Subsidiaries, is
engaged in (i) providing monitoring and related services to alarm and security
system dealers on a wholesale basis and to individual customers on a retail
basis, (ii) providing third-party billing services and (iii) the funding of
alarm and security system dealers through a dealer loan program (collectively,
the “Business”);
WHEREAS,
Seller wishes to sell and transfer to Purchaser substantially all of the assets,
properties and business of Seller, including the Shares, and of the Business,
pursuant to and in accordance with the terms and conditions of this Agreement;
and
WHEREAS,
Purchaser wishes to acquire substantially all of the assets, properties and
business of Seller, including the Shares, and of the Business, and to assume
certain liabilities of Seller relating to the Business, pursuant to and in
accordance with the terms and conditions of this Agreement.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein set forth, the parties hereby agree as follows:
ARTICLE
1. SALE
AND PURCHASE OF ASSETS
| 1.1 |
Purchased
Assets.
|
Upon
the
terms and subject to the conditions set forth in this Agreement, Seller will
sell, convey, transfer and assign to Purchaser, free and clear of all Liens
(other than Permitted Liens), and Purchaser will purchase, acquire and accept
from Seller, all of Seller’s right, title and interest in and to substantially
all of the assets properties, rights and business of Seller and the Business,
whether
or not reflected on the books of Seller, other than the Excluded Assets
(collectively, the “Purchased
Assets”),
as
the same shall exist as of the Closing, including all of the Assigned Rights
and
also including Seller’s right, title and interest in and to the
following:
5
(a) all
patents, trademarks (whether registered or unregistered), service marks, trade
names, service names, brand names, Internet domain names, web site content,
logos, copyrights and any applications therefor, and any other intangible
property rights, including proprietary know-how, product and technology
licenses, inventions, discoveries and improvements, trade secrets, product
drawings, specifications, designs and other proprietary and/or confidential
information (collectively, “Intellectual
Property”)
owned
by Seller and all of the goodwill associated with the foregoing;
(b) all
business records, books, price sheets, plans, designs, schematic drawings,
engineering data, and the like used or useful in the conduct of the Business,
including customer files, correspondence with customers and account histories,
sales literature and promotional or other material pertaining to goods or
services offered by the Business, material relating to the purchase of
materials, supplies and services, research and commercial data, credit
information, catalogs, brochures and training and other manuals (collectively,
the “Books
and Records”)
other
than Excluded Records;
(c) without
limiting Section 1.1(a) above, all of Seller’s rights to and under its
names “Financial Security Services”, “Securion Protection Network” and “Securion
Central Control” (“Seller’s
Names”);
(d) all
of
the Assumed Alarm Contracts;
(e) all
of
the Assumed Loans;
(f) all
equipment, furniture, fixtures, vehicles, spare parts and other items of
tangible personal property used in the conduct of the Business (collectively,
the “Equipment”);
(g) all
accounts receivable;
(h) all
causes of action, vendor, supplier and similar claims, deposits, prepayments,
refunds, judgments, claims and demands of whatever nature to the extent relating
to the Purchased Assets or the Assumed Liabilities;
(i) all
owned
computer software (object code and, to the extent transferable, source code)
used or useful in the Business;
(j) all
prepaid items and deferred items or credits and deposits with respect to the
Purchased Assets described in clauses (a) through (I) above; and
(k) the
Shares.
6
| 1.2 |
Assignment
|
Seller
shall assign to Purchaser at Closing all of Seller’s assignable rights, title
and interest in, under and to the following, other than the Excluded Assets,
free and clear of all Liens (other than Permitted Liens), (collectively, the
“Assigned
Rights”):
(a) all
licenses, approvals, orders, certificates, variances, product license and
license applications, permits and other governmental authorizations and
approvals (federal, state and local) relating to the Business (collectively,
the
“Licenses
and Permits”),
each
of which is specified in Schedule 1.2(a);
(b) all
equipment leases and other agreements under which Seller is a lessee of, or
holds or operates, any equipment, vehicle or other tangible personal property
owned by a third party (collectively, “Personal
Property Leases”),
each
of which is specified in Schedule 1.2(b);
(c) all
rights to existing claims and potential future claims of or by either of the
Seller Subsidiaries under all
policies of insurance of Seller or of any of its Affiliates insuring the
Seller
Subsidiaries,
their
employees, representatives, agents and/or their assets against casualty,
liability or other risks, to the extent arising out of or relating or
attributable to any fact, circumstance, event or occurrence relating to any
period prior to the Closing;
(d) the
telephone numbers specified in Schedule 1.2(d);
(e) all
contracts for the supply of goods or the provision of services to the Business
(the “Assigned
Supply Contracts”),
including those set forth on Schedule 1.2(e);
(f) all
unfilled purchase orders entered into for the purchase of goods or services
for
the benefit of the Business (collectively, the “Unfilled
Purchase Orders”),
including those specified in Schedule 1.2(f);
(g) those
certain licenses for third-party software (the “Third-Party
Software”)
specified in Schedule 1.2(g);
(h) all
Intellectual Property not owned by Seller but used in the conduct of the
Business and all of the goodwill associated therewith;
(i) all
contracts, if any, for the purchase of end user accounts by any of the Target
Companies other than any such contracts executed and delivered with respect
to
any of the Assumed Loans (“Account
Purchase Contracts”),
including those specified in Schedule
1.2(i),
if
any;
(j) all
non-disclosure, non-solicitation and non-competition agreements entered into
by
employees or third parties in favor of the Target Companies and/or the Business,
including those given in connection with Account Purchase Contracts;
and
7
(k) other
than Excluded Contracts, all agreements, contracts, arrangements, commitments,
licenses, franchises, real and personal property leases and other similar
documents (collectively, “Contracts”)
other
than any Contract previously described in Section 1.1 or in this
Section 1.2.
| 1.3 |
Excluded
Assets.
|
Notwithstanding
anything herein to the contrary, the Purchased Assets and the Assigned Rights
shall not include the following (the “Excluded
Assets”):
(a) the
corporate minute books and stock registers of Seller;
(b) the
income tax records covering transactions of Seller occurring prior to the
Closing;
(c) all
telecommunications lines, circuits, electronic communication devices and related
telecommunication equipment of Seller, as well as any telephone numbers not
specified in Schedule
1.2(d);
(d) all
licenses for third-party software not specified in Schedule 1.2(f);
(e) the
Contracts, if any, specified in Schedule 1.3(e)
(the
“Excluded
Contracts”);
(f) all
cash
and cash equivalents investments of Seller;
(g) any
rights arising under or in connection with the Fields Litigation;
(h) any
claims arising out of the Excluded Liabilities;
(i) all
of
Seller’s rights and interests in and to all correspondence and documents,
including confidentiality agreements, entered into by the Purchaser or any
of
its Affiliates for the benefit of Seller in connection with the sale of the
Business;
(j) all
of
Seller’s rights and interests in all information, files, records, data, plans,
contracts and recorded knowledge related to or used in connection with the
Business to the extent that any of the foregoing (i) relate solely to
the
Excluded Assets; or (ii) relate primarily to the Excluded Assets and
can be
easily separated from the Purchased Assets; or (iii) are solely written
materials that Seller is required by law to retain and of which Seller shall
have provided a copy to Purchaser (collectively, “Excluded
Records”);
(k) all
of
Seller’s rights and interests in and to the equipment, furniture, fixtures,
vehicles, spare parts and other assets of Seller specified in Schedule 1.3(k);
(l) all
of
Seller's rights under this Agreement; and
(m) subject
to Section 1.2(c) above, all of Seller's insurance policies and Seller’s rights
thereunder.
8
ARTICLE
2. PURCHASE
PRICE;
ADJUSTMENT
| 2.1 |
Purchase
Price.
|
| 2.1.1 |
Base
Purchase Price.
|
In
full
consideration for the Purchased Assets, and upon the terms and subject to the
conditions contained in this Agreement, including the assumption by Purchaser
of
the Assumed Liabilities, Purchaser shall pay to Seller an amount (the
“Base
Purchase Price”)
equal
to (a) Twenty-Four Million Fifty-Three Thousand Nine Hundred Twenty-Three
Dollars ($24,053,923), plus
(b) the
sum of (i) 90% of the face amount of all Accounts Receivable respecting the
Assumed Alarm Contracts (excluding Accounts Receivable from Minnegasco) (the
“Alarm
Contract A/R”)
that
are less than thirty-one (31) days past the invoice due date as of the Closing;
plus (ii) 70% of the face amount of all delinquent Alarm Contract A/R that
are
more than thirty (30) but less than sixty-one (61) days past the invoice due
date as of the Closing; plus (iii) 40% of the face amount of all delinquent
Alarm Contract A/R that are more than sixty (60) but less than ninety-one (91)
days past the invoice due date as of the Closing; plus (iv) 100% of the face
amount of all Accounts Receivable from Minnegasco that are less than ninety-one
(91) days past the invoice due date as of the Closing, each as calculated on
Schedule 2.1.1(b)
(collectively,
the “Accounts
Receivable Amount”);
minus
(c) the
aggregate amount of unearned or deferred revenue respecting the Assumed Alarm
Contracts that has been paid to the Target Companies as of the Closing for
services to be rendered after the Closing, as calculated on Schedule 2.1.1(c)
(the
“Deferred
Revenue”);
minus
(d) the aggregate amount of the following liabilities of the Seller Subsidiaries
determined as of the Closing in accordance with GAAP: (A) accounts payable,
(B)
the accrued salary, accrued paid time off and any other accrued benefits payable
to the employees of the Seller Subsidiaries and (C) any other accrued expenses
(the “Assumed
Accruals”),
as set
forth in detail and calculated (or estimated with respect to subparts (A) and
(C)), on Schedule
2.1.1(d).
The
Base Purchase Price shall be subject to adjustment pursuant to the provisions
of
Section 2.1.2 hereof (as so adjusted, the “Purchase
Price”).
| 2.1.2 |
Adjustment.
|
The
Base
Purchase Price shall be subject to adjustment (a) to reflect the variance,
if
any, of the Loan Balance, Qualified Wholesale RMR and the Qualified Retail
RMR
from certain baseline values for each as specified in this Agreement and (b)
to
correct any errors in the calculation of the Accounts Receivable Amount, the
amount of Deferred Revenue and the amount of the Assumed Accruals as of the
Closing (collectively, the “Correction
Adjustment”).
A
provisional adjustment, based on estimated values of the Loan Adjustment and
the
RMR Adjustments shall be computed and applied at Closing as provided by
Section 2.4. After Closing and the final determination of the Loan
Adjustment, the RMR Adjustments and the Correction Adjustment, if any, a final
adjustment shall be made as provided in Section 2.5.
9
| 2.2 |
Payment
of Base Purchase Price; Holdback Amount.
|
(a) At
the
Closing, Purchaser shall pay to Seller an amount equal to (i) the Provisional
Purchase Price as determined pursuant to Section 2.4, less
(ii) Two
Million Dollars ($2,000,000) (the “Holdback
Amount”).
Any
payments due under this Agreement shall be made by wire transfer of immediately
available funds in accordance with wire instructions to be provided by notice
given by the intended recipient of such payment.
(b) $500,000
of the Holdback Amount shall be designated as the “Adjustment
Holdback Amount”
and the
remaining $1,500,000 of the Holdback Amount shall be designated as the
“Indemnity
Holdback Amount”.
At
Closing, Purchaser will pay to LaSalle Bank National Association (the
“Escrow
Agent”)
by
wire transfer to an account designated in advance by the Escrow Agent, in trust,
the Holdback Amount. Escrow Agent shall promptly deposit each of the Adjustment
Holdback Amount and the Indemnity Holdback Amount into separate interest-bearing
accounts maintained by Escrow Agent and each shall be held and disbursed by
Escrow Agent in accordance with the terms of that certain Escrow Agreement
being
executed at Closing by Escrow Agent, Seller and Purchaser (the “Escrow
Agreement”).
All
of the costs and fees of the Escrow Agent shall be borne equally by Seller
and
Purchaser. Escrow Agent will pay the applicable portion of the Adjustment
Holdback Amount to Seller and Purchaser in accordance with Section 2.5.2
below and will pay the applicable portion of the Indemnity Holdback Amount
to
Seller and Purchaser in accordance with Section 8.3 below, each subject
to
the terms of the Escrow Agreement.
| 2.3 |
The
Loan Adjustment and RMR Adjustments.
|
| 2.3.1 |
Loan
Adjustment.
|
In
the
event of any difference between the aggregate amount of the principal balances
and daily accrued interest as of the Closing as to each of the Assumed Loans
(such aggregate amount, the “Loan
Balance”)
and
Eighteen Million Two Hundred Eighty Thousand Dollars ($18,280,000), the Purchase
Price shall be adjusted (the “Loan
Adjustment”)
in the
following manner :
(a) In
the
event the Loan Balance is more than Eighteen Million Two Hundred Eighty Thousand
Dollars ($18,280,000), the Purchase Price shall be increased by an amount equal
to the product of (x) 0.96 and (y) the amount of such excess; and
(b) In
the
event the Loan Balance is less than Eighteen Million Two Hundred Eighty Thousand
Dollars ($18,280,000), the Purchase Price shall be decreased by an amount equal
to the product of (x) 0.96 and (y) the amount of such deficiency.
| 2.3.2 |
RMR
Adjustments.
|
In
the
event that either (i) the RMR respecting all of the Retail Contracts that are
Qualified Alarm Contracts as of the date forty-five (45) days after the Closing
Date (such date
10
being
the
“Adjustment
Date”
and
such RMR being the “Qualified
Retail RMR”)
differs from Eleven Thousand Dollars ($11,000) or (ii) the RMR respecting all
of
the Dealer Contracts that are Qualified Alarm Contracts as of the Adjustment
Date (the “Qualified
Wholesale RMR”)
differs from Two Hundred Eight Thousand Dollars ($208,000), the Purchase Price
shall be adjusted (the “RMR
Adjustments”)
in the
following manner:
(a) In
the
event the Qualified Retail RMR is more than Eleven Thousand Dollars ($11,000),
the Purchase Price shall be increased by an amount equal to the product of
(x)
30 and (y) the amount of such excess; and
(b) In
the
event the Qualified Retail RMR is less than Eleven Thousand Dollars ($11,000),
the Purchase Price shall be decreased by an amount equal to the product of
(x)
30 and (y) the amount of such deficiency.
(c) In
the
event the Qualified Wholesale RMR is more than Two Hundred Eight Thousand
Dollars ($208,000), the Purchase Price shall be increased by an amount equal
to
the product of (x) 16 and (y) the amount of such excess; and
(d) In
the
event the Qualified Wholesale RMR is less than Two Hundred Eight Thousand
Dollars ($208,000), the Purchase Price shall be decreased by an amount equal
to
the product of (x) 16 and (y) the amount of such deficiency.
| 2.4 |
Provisional
Adjustment.
|
Not
less
than three (3) business days nor more than five (5) business days prior to
the
Closing Date, Seller shall have prepared and delivered to Purchaser a statement
(“Seller’s
Closing Statement”)
setting forth Seller’s pre-Closing estimates of the Loan Balance, the Qualified
Retail RMR and the Qualified Wholesale RMR based on all applicable information
available to Seller at such time, and the calculation of the Loan Adjustment
and
the RMR Adjustments as based on such estimates; provided, however, solely for
purposes of calculating the portion of the Provisional Adjustment attributable
to the RMR Adjustments, the determination of whether an Assumed Alarm Contract
is a Qualified Alarm Contract shall be made as of the date of Seller’s Closing
Statement (rather than as of the Adjustment Date). Seller’s Closing Statement
shall be accompanied by: (i) supporting schedules setting forth in
reasonable detail the determination of the Loan Balance, and (ii) as to the
Qualified Retail RMR and the Qualified Wholesale RMR, a provisional draft of
Schedule
1.1(d),
which
shall distinguish between Qualified Alarm Contracts and Non-Qualified Alarm
Contracts and shall indicate the RMR for each Assumed Alarm Contract. The net
aggregate amount (positive or negative) of such pre-Closing determinations
of
the Loan Adjustment and the RMR Adjustments (such net aggregate amount, the
“Provisional
Adjustment”)
shall
result in an adjustment (increase if positive or decrease if negative) to the
Base Purchase Price (as so adjusted, the “Provisional
Purchase Price”).
11
| 2.5 |
Final
Adjustment.
|
Purchaser
shall deliver a statement (“Purchaser’s
Closing Statement”)
to
Seller and Escrow Agent not later than forty-five (45) days after the Adjustment
Date showing its proposed final
determination of (i) the Loan Balance, the Qualified Retail RMR and the
Qualified Wholesale RMR, and the corresponding Loan Adjustment and RMR
Adjustments, (ii) the Correction Adjustment and (iii) based on such adjustments,
the resulting Purchase Price and the amounts payable by the Escrow Agent to
Purchaser and/or Seller and, if applicable, by Purchaser or Seller to the other
Party. Purchaser’s Closing Statement shall be prepared by Purchaser from the
books of account of the Business as of the Closing or, with respect to the
RMR
Adjustments, as of the Adjustment Date. Upon reasonable advance notice and
so
long as it does not interfere with Purchaser’s operations of the Business,
Purchaser will give representatives of Seller access to the Books and Records
and to the appropriate personnel of Purchaser for purposes of confirming
Purchaser’s Closing Statement. Purchaser will make the work papers and back up
materials used in preparing the Final Closing Statement and such additional
information as Seller may reasonably request available to Seller and its
accountants and other representatives at reasonable times and upon reasonable
notice at any time after delivery to Seller of Purchaser’s Closing Statement for
purposes of Seller’s review thereof.
| 2.5.1 |
Procedure
for Final Adjustment.
|
Unless
Seller delivers notice to Purchaser and Escrow Agent in writing that it
disagrees with Purchaser’s Closing Statement within thirty (30) days after
Seller’s receipt thereof, Purchaser’s Closing Statement shall be conclusive and
binding on Purchaser and Seller. If Seller delivers notice to Purchaser and
Escrow Agent of its disagreement with Purchaser’s Closing Statement within such
30-day period identifying the particular matter(s) in dispute, then Purchaser
and Seller shall attempt in good faith to resolve their differences with respect
thereto within 30 days after Purchaser’s receipt of Seller’s notice of
disagreement. Any dispute regarding Purchaser’s Closing Statement not resolved
by Purchaser and Seller within such 30-day period will be resolved by McGladrey
& Xxxxxx (or an independent accounting firm mutually acceptable to both
parties) (as applicable, the “Arbiter”)
whose
role shall be limited to determining the specific matter(s) in dispute (as
identified in Seller’s notice if not sooner resolved). The determination by the
Arbiter of Purchaser’s Closing Statement and the Loan Adjustment, RMR
Adjustments and Correction Adjustment (to the extent that any of the same are
in
dispute) shall be conclusive and binding upon the parties absent fraud or
palpable mistake. The fees and expenses of the Arbiter in acting under this
Section 2.5.1 shall be shared equally by Purchaser and Seller.
| 2.5.2 |
Payment
of Adjustment.
|
Within
five (5) business days after Purchaser’s Closing Statement has become conclusive
and binding on Seller and Purchaser in accordance with the provisions of
Section 2.5.1 (either (i) by Seller delivering notice to Purchaser and
Escrow Agent that it agrees with Purchaser’s Closing Statement, (ii) by reason
of Seller’s failure to timely dispute Purchaser’s Closing Statement prepared by
Purchaser, (iii) upon mutual agreement of the parties or (iv) as determined
by
the Arbiter), the applicable payments shall be made by wire transfer in
accordance with the following (and upon Purchaser’s Closing Statement so
becoming conclusive and binding, it shall be referred to as the “Final
Closing Statement”
and the
Purchase Price as determined on the Final Closing Statement shall be referred
to
as the “Final
Purchase Price”):
12
(a) If
the
Provisional Purchase Price exceeds the Final Purchase Price by $500,000 or
more,
(i) Escrow Agent shall pay to Purchaser the entire Adjustment Holdback Amount
and (ii) Seller shall pay to Purchaser the amount by which the Provisional
Purchase Price exceeds the sum of (A) the Final Purchase Price plus
(B)
$500,000.
(b) If
the
Provisional Purchase Price exceeds the Final Purchase Price but by less than
$500,000 or if the Provisional Purchase Price is equal to the Final Purchase
Price, (i) Escrow Agent shall pay to Seller out of the Adjustment Holdback
Amount an amount equal to $500,000 minus
the
amount, if any, by which the Provisional Purchase Price exceeds the Purchase
Price and (ii) Escrow Agent shall pay to Purchaser the balance, if any, of
the
Adjustment Holdback Amount.
(c) If
the
Final Purchase Price exceeds the Provisional Purchase Price, (i) Escrow Agent
shall pay to Seller the entire Adjustment Holdback Amount and (ii) Purchaser
shall pay to Seller the amount of such excess.
All
interest and/or income accrued on the Adjustment Holdback Amount shall be paid
by Escrow Agent to Seller and/or Purchaser on a pro rata basis in proportion
to
the percentage of the Adjustment Holdback Amount payable to each Party. Each
Party agrees that any notice or other communication to be delivered to the
other
Party and to the Escrow Agent under Section 2.5 or under the Escrow Agreement
shall be sent concurrently to both recipients and such sending Party shall
use
its good faith efforts to ensure that any such notice or communication is
delivered to both recipients on the same day.
| 2.5.3 |
Effect
of Final Closing Statement.
|
The
Parties agree that the finalization of the Final Closing Statement shall not
limit, be deemed evidence of compliance with or otherwise affect in any way
any
of the representations, warranties or covenants of Seller in this Agreement
or
any claim, right or remedy of Purchaser in connection with any breach,
inaccuracy or incompleteness in any such representation or warranty or any
failure to perform or comply with any such covenant.
| 2.6 |
Allocation
of Purchase Price.
|
The
Purchase Price to be paid by Purchaser to Seller shall be allocated by
Purchaser, which allocation shall be subject to the approval of Seller in its
reasonable discretion, but otherwise in accordance with Code
Section 1060(a) and the applicable treasury regulations thereunder.
The
Parties agree to file all Tax Returns consistent with such allocation (and
in
particular to report the information required by Section 1060(b) of
the
Code) and shall not make any inconsistent written statement or take any
inconsistent position on any Tax Returns during the course of any Internal
Revenue Service or other tax audit, for any financial or regulatory purpose,
in
any litigation or investigation or otherwise. Each Party shall promptly notify
the other Party if it receives notice that the Internal Revenue Service proposes
any allocation different from the allocation agreed upon in accordance with
this
Section 2.6.
13
ARTICLE
3. ASSUMPTION
OF LIABILITIES AND OBLIGATIONS
BY PURCHASER
| 3.1 |
Assumed
Liabilities.
|
At
the
Closing, Purchaser will assume all of the following Liabilities (the
“Assumed
Liabilities”):
(a)
all Liabilities with respect to the Purchased Assets and the Assigned Rights
arising
out of or relating or attributable to any fact, circumstance, event or
occurrence relating to any period after the Closing, including
any of
Seller’s contractual obligations under or arising out of the Assumed Loans, the
Assumed Alarm Contracts, the Personal Property Leases, the Assigned Supply
Contracts, the Unfilled Purchase Orders and the Third Party Software and (b)
the
Deferred Revenue of Seller, but in all cases excluding all Liabilities expressly
designated as Excluded Liabilities under Section 3.2(c) below.
All
of
the Assumed Liabilities
shall be
the sole responsibility and obligation of Purchaser. Purchaser shall
pay,
honor and discharge all Assumed Liabilities when due and payable in accordance
with and subject to the terms and conditions of any relevant governing
Contracts.
| 3.2 |
Excluded
Liabilities.
|
Except
as
expressly set forth in Section 3.1 above, Purchaser is not assuming
or
agreeing to pay or perform any Liabilities or Contracts of Seller, and all
Liabilities and Contracts of Seller not expressly set forth in Section 3.1
above as being assumed by Purchaser are referred to as the “Excluded
Liabilities”.
Without limiting the generality of the foregoing and except as expressly set
forth in Section 3.1 above, the following Liabilities and Contracts
of
Seller are part of and shall constitute Excluded Liabilities:
(a) any
Liability for accounts payable, accrued expenses or other accrued
liabilities;
(b) any
Liability relating to or in respect of any Excluded Asset;
(c) any
Liability, the Basis of which is Seller’s (i) default under any Contract, (ii)
tort, (iii) infringement of any third party Intellectual Property,
(iv) violation of any Legal Requirement, or (v) product defect or breach
of
warranty;
(d) any
Liability for bank, term or other similar debt;
(e) except
as
provided in Section 9.6, any Liability of Seller under this Agreement or on
account of any of the transactions contemplated hereby, including any Liability
of Seller to attorneys, accountants, brokers or others for services rendered
or
expenses incurred by or on behalf of Seller, and all other expenses of the
Seller associated with the transfer of the Purchased Assets and/or the Assigned
Rights;
(f) any
wages, salary, severance, bonuses, commissions, vacation or holiday pay, post
retirement medical benefits, fringe benefits, long-term disability benefits,
life insurance
14
(g) benefits,
any duties, obligations or liabilities arising under any employee benefit plan,
policy or practice, whether defined by Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended and in effect (“ERISA”)
or
otherwise, relating to the employees of Seller or other amounts due to any
employees or former employees of the Seller that accrue prior to the Closing;
and
(h) any
Liabilities that would arise as either a result of a breach of any of Seller’s
representations and warranties hereunder or under any of the Ancillary
Agreements, or a breach of any of Seller’s covenants or agreements hereunder or
under any of the Ancillary Agreements.
All
of
the Excluded Liabilities shall be the sole responsibility and obligation of
Seller. Seller shall pay,
honor and discharge all Excluded Liabilities when due and payable in accordance
with and subject to the terms and conditions of any relevant governing
Contracts.
| 3.3 |
Nonassignable
Contracts and Authorizations.
|
To
the
extent that the sale, transfer or assignment hereunder of any of the Purchased
Assets, including the Assigned Rights, requires the consent of any other party,
this Agreement shall not constitute a contract to sell, transfer or assign
the
same to the extent that an attempted sale, transfer or assignment would
constitute a breach of any document, agreement or understanding governing such
rights or assets. Seller shall use its commercially reasonable efforts both
prior to and after the Closing and Purchaser shall cooperate where appropriate
to obtain any consent necessary to any such sale, transfer or assignment. Until
any such consent is obtained or if any such consent is not obtained, Seller
shall cooperate with Purchaser in any reasonable arrangement requested by
Purchaser designed to provide to Purchaser the benefits under any such rights
or
assets hereunder, including enforcement of any and all rights of Seller against
any other party with respect thereto.
ARTICLE
4. REPRESENTATIONS
AND WARRANTIES OF SELLER
Seller
represents and warrants to Purchaser that the following statements contained
in
this Article 4 are true, correct and complete as of the Closing:
| 4.1 |
Organization
and Standing.
|
(a) Seller
is
a corporation duly organized, validly existing and in good standing under the
laws of Delaware and has all power and authority to own or lease its properties
and to carry on its business as presently conducted, to execute and deliver
this
Agreement, to consummate the transactions contemplated hereby and to perform
its
obligations hereunder. Seller is qualified to do business and is in good
standing in each of the jurisdictions where failure to do so could reasonably
be
expected to result in a Material Adverse Effect.
(b) Each
of
the Seller Subsidiaries is a corporation duly organized, validly existing and
in
good standing under the laws of Delaware and has all power and authority to
own
or lease its properties and to carry on its business as presently conducted.
Each of the Seller Subsidiaries is qualified to do business and is in good
standing in each of the jurisdictions where failure to do so could reasonably
be
expected to result in a Material Adverse Effect.
15
| 4.2 |
No
Conflict.
|
The
execution and delivery of this Agreement does not, and the consummation of
the
transactions contemplated hereby will not (i) result in the acceleration
of
or the creation in any party of any right to accelerate, terminate, modify
or
cancel any Contract or other Liability to which any of the Target Companies
is a
party or by which any of them are bound or to which any of their assets is
subject, or result in a default under or violation of any material Lien,
Contract or other Liability to which any of them is a party or by which any
of
them are bound or to which any of their assets are subject or result in the
creation of any Lien upon any of said assets, (ii) conflict with or result
in a
breach of or constitute a default under any provision of the Certificate of
Incorporation or Bylaws (or other constitutive documents) of any of the Target
Companies, or (iii) violate or result in a breach of or constitute a default
under any Order or Legal Requirement to which the assets or business of any
of
the Target Companies are subject.
| 4.3 |
Financial
Statements.
|
(a) Schedule
4.3(a)
consists
of copies of (i) Seller’s (A) audited consolidated balance sheet as of December
31, 2004 (the “Most
Recent Fiscal Year End”)
and
the related audited consolidated statements of operations and cash flows for
the
fiscal year then ended and (B) audited consolidated balance sheets as of
December 31, 2003 and December 31, 2002, and the related audited consolidated
statements of operations for each of the fiscal years then ended; (ii) each
Seller Subsidiaries’ (A) unaudited balance sheet as of the Most Recent Fiscal
Year End and the related unaudited statements of operations and cash flows
for
the fiscal year then ended and (B) unaudited balance sheets as of December
31,
2003 and December 31, 2002, and the related unaudited statements of operations
for each of the fiscal years then ended; (iii) the unaudited consolidated
balance sheet of Seller as of August 31, 2005 (the “Most
Recent Fiscal Month End”)
and
the related unaudited consolidated statements of operations and cash flows
for
the eight (8) months then ended; and (iv) the unaudited balance sheets of each
of the Seller Subsidiaries as of August 31, 2005 and the related unaudited
statements of operations and cash flows for the eight (8) months then ended.
The
financial statements described in subparts (iii) and (iv) above are collectively
referred to as the “Most
Recent Seller Financial Statements”).
The
financial statements described in subparts (i), (ii), (iii) and (iv) above
are
collectively referred to as the “Seller
Financial Statements”.
The
Seller Financial Statements:
(i) are
true,
complete and correct in all material respects as of the respective dates and
for
the respective periods stated above;
provided, however,
that the
balance sheets for the Most Recent Fiscal Month End are subject to normal
year-end adjustments and lack footnotes and other presentation
items;
(ii) have
been
prepared from the books and records of the Target Companies;
(iii) fairly
present in all material respects the financial position and results of
operations of the Target Companies as of the respective dates and for the
respective periods stated above; and
16
(iv) have
been
prepared pursuant to and in accordance with GAAP applied on a consistent basis
(except as expressly set forth in the notes thereto).
(b) There
is
no Liability of the Target Companies, nor, to the Knowledge of Seller, is there
any Basis for such a Liability to be asserted against the Target Companies,
which are not timely and adequately reflected, reserved for or specifically
disclosed in the Seller Financial Statements, except for (i) contractual or
other obligations of performance (other than obligations arising by reason
of a
default in performance) not required to be reflected in the Seller Financial
Statements under GAAP consistently applied, (ii) Liabilities
(other than Liabilities arising by reason of default by any of the Target
Companies under any Contract, breach of any warranty, tort, infringement of
any
third party Intellectual Property or violation of any Legal Requirements)
incurred in the Ordinary Course of Business since the Most Recent Fiscal Month
End, and (iii) Liabilities reflected on Schedule 4.3(b).
No
provision in the Seller Financial Statements is necessary, under GAAP, for
liability on account of product warranties or with respect to the design,
development, manufacture or sale of defective products or the provision of
faulty services. Any items of income or expense which are unusual or of a
nonrecurring nature are separately disclosed in the Seller Financial Statements,
to the extent required by GAAP.
| 4.4 |
Litigation.
|
Except
as
set forth in Schedule 4.4,
(i)
no
Legal
Proceeding of any kind or nature or governmental or administrative investigation
to which any of the Target Companies or any directors, officers or key employees
of any of the Target Companies is a party is now pending or, to the Knowledge
of
Seller, threatened, (ii) no claim which has ripened into a Legal Proceeding
has
been made or, to the Knowledge of Seller, threatened against any of the Target
Companies and (iii) to the Knowledge of Seller, there will be no such Legal
Proceeding or investigation arising out of or relating to any facts,
circumstances or conditions existing at any time as of or prior to the Closing,
in each case whether or not covered by insurance.
| 4.5 |
Licenses
and Permits; Compliance with Laws.
|
(a) Except
as
set forth in Schedule 4.5(a),
each
of
the Target Companies owns,
holds or possesses in its own name, all Licenses and Permits necessary to
entitle it to use its corporate name, to own or lease, operate and use its
assets and properties and to carry on and conduct its business and its
operations as presently conducted. None of the Target Companies is, in any
material respect, in violation of or in default under any Licenses and Permits.
(b) Except
as
set forth in Schedule 4.5(b),
(i)
each
of
the Target Companies is
in
compliance in all material respects with each Legal Requirement that is
applicable to it or to the conduct or operation of its business or the ownership
or use of its assets and (ii) there are no Orders currently in force against
any
of
the Target Companies.
No
event has occurred or circumstance exists that (with or without notice or lapse
of time) (x) may constitute or result in a violation by any
of
the Target Companies,
or a
failure on the part of any
of
the Target Companies,
to
comply in all material respects with any Legal Requirements, or (y) may
give rise
(c) to
any
obligation on the part of any
of
the Target Companies to
undertake, or to bear all or any portion of the cost of, any remedial action
of
any nature.
| 4.6 |
Taxes.
|
(a) Definitions.
For
purposes of this Agreement:
(i) The
term
“Tax”
means
any of the Taxes, and “Taxes”
means
(A) all net income, capital gains, gross income, gross receipts, sales,
use, ad
valorem,
franchise, capital, profits, license, and other withholding, employment, social
security, payroll, transfer, conveyance, documentary, stamp, property, value
added, customs duties, minimum taxes, estimated and any other taxes, fees,
charges, levies, excises, duties or assessments of any kind whatsoever, together
with additions to tax or additional amounts, interest and penalties relating
thereto that may be imposed by the federal government or any state, local or
foreign government (whether payable directly or by withholding and whether
or
not requiring the filing of a Tax Return), and (B) any Liability for
the
payment of any amount of any type described in the foregoing clause (A) as
a
result of a person being a transferee or a member of an affiliated consolidated,
unitary or combined group or of a contractual obligation to indemnify any person
or other entity prior to the Closing;
(ii) “Tax
Returns”
means
all returns, reports, statements and forms (including elections, declarations,
disclosures, schedules, estimates and information tax returns) required to
be
filed in respect of any Tax; and
(iii) “Code”
means
the Internal Revenue Code of 1986, as amended, including the rules and
regulations thereunder and any substitute or successor provisions.
(iv) “Affiliated
Group”
means
any affiliated group within the meaning of Code §1504(a) or any similar group
defined under a similar provision of state, local or foreign law.
(b) Each
of
the Target Companies has filed all Tax Returns that it was required to file
under all applicable Legal Requirements. All such Tax Returns were correct
and
complete in all material respects and have been prepared in substantial
compliance with all applicable Legal Requirements. All Taxes due and owing
by
any of the Target Companies (whether or not shown on any Tax Return) have been
paid. None of the Target Companies currently is the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by
an
authority in a jurisdiction where any of the Target Companies does not file
Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are
no Liens for Taxes (other than Taxes not yet due and payable) upon any of the
assets of the Target Companies.
(c) Each
of
the Target Companies has withheld and paid or shall timely pay all Taxes
required to have been withheld and paid in connection with any amounts paid
or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(d) No
foreign, federal, state, or local tax audits or administrative or judicial
Tax
proceedings are pending or being conducted with respect to any of the Target
Companies. None
17
(e) of
the
Target Companies has received from any foreign, federal, state, or local taxing
authority (including jurisdictions where the Target Companies have not filed
Tax
Returns) any (i) notice indicating an intent to open an audit or other review,
(ii) request for information related to Tax matters, or (iii) notice of
deficiency or proposed adjustment for any amount of Tax proposed, asserted,
or
assessed by any taxing authority against any of the Target Companies.
Schedule
4.6(d)
lists
all federal, state, local, and foreign income Tax Returns filed with respect
to
any of the Target Companies for taxable periods ended on or after
December 31, 2001, indicates those Tax Returns that have been audited,
and
indicates those Tax Returns that currently are the subject of audit. Seller
has
delivered to Purchaser correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against
or
agreed to by any of the Target Companies filed or received since December 31,
2001.
| 4.7 |
Absence
of Certain Changes.
|
Except
as
set forth in Schedule 4.7,
since
the Most Recent Fiscal Month End, each of the Target Companies has conducted
its
business in the Ordinary Course of Business, and there has not occurred with
respect to any of the Target Companies and/or the Business:
(i) any
assets becoming subject to any Lien (other than Permitted Liens), whether
voluntarily or by operation of law;
(ii) any
cancellation or waiver of any material claims or rights of value, or any sale,
transfer, distribution or other disposal of any assets used in the business
of
the Target Companies, except for sales of any assets in the Ordinary Course
of
Business;
(iii) any
disposal, cancellation or abandonment of any rights in any patent, trademark,
trade name or copyright owned or used by any of the Target Companies, or, to
the
Knowledge of Seller, any unauthorized disclosure to any person not an employee
or other unauthorized disposal of any confidential and proprietary dealer or
customer lists;
(iv) any
material increase in the base compensation or other payment to any director
or
officer of any of the Target Companies, whether now or hereafter payable or
granted, or entry into or variation of the material terms of any employment
or
incentive agreement with any such person (other than increases or variations
in
base compensation in the Ordinary Course of Business or pursuant to a written
agreement in effect on the date hereof);
(v) any
single capital expenditure or commitment for additions to property, plant or
equipment, or lease agreement that exceeds $25,000 and
that,
if purchased, would be reflected in the property,
plant or equipment accounts;
(vi) any
material change in any method of accounting or keeping its books of account
or
accounting practices;
(vii) any
damage, destruction or loss of any asset, whether or not covered by insurance,
that exceeds $25,000;
18
(viii) any
material Contract or License and Permit being entered into or obtained,
materially
amended or terminated
or any
material right contained therein being waived, other than in the Ordinary Course
of Business;
(ix) any
material changes to the customers, suppliers, sales, products, prices and/or
the
terms of sales of any
of the
Target Companies;
(x) any
acquisition
of all or substantially all of the stock or assets of any other Person,
including any such acquisition structured as a merger or consolidation, or
the
making of any loan of money to or investment in any other Person (other than
Assumed Loans);
(xi) any
creation, incurring or assumption, or commitment to create, incur or assume,
any
Liabilities, except for accounts payable or other current Liabilities which
(i)
are not for borrowed money, (ii) were incurred in the Ordinary Course of
Business and (iii) have not had and will not have a Material Adverse
Effect;
(xii) the
adoption or amendment of or to any bonus, profit sharing, compensation, stock
option, stock purchase, pension, retirement, deferred compensation or other
plan, agreement, trust, fund or arrangement for the benefit of
employees;
(xiii) the
initiation or settlement of any material Legal Proceeding; or
(xiv) any
Material Adverse Change, and to the Knowledge of Seller, there exists no Basis
which is reasonably likely to result in any Material Adverse Change.
| 4.8 |
Real
Properties.
|
(a) Schedule 4.8(a)
lists by
street address the real property (the “Central
Station Property”)
subject to the real property lease for the central station located in St. Xxxx,
Minnesota (the “Real
Property Lease”)
and
all other real property used by Seller in the Business or in which Seller has
an
interest (collectively, the “Properties”).
Schedule 4.8(a)
also
lists and describes all amendments and modifications to the Real Property Lease.
True and complete copies of the Real Property Lease and the other items listed
and described on Schedule 4.8(a)
have
been delivered to Purchaser. None of
the
Target Companies
owns,
leases or uses any real property other than the Properties listed on
Schedule 4.8(a).
(b) Except
as
set forth on Schedule 4.8(b),
Seller
has a valid and enforceable leasehold interest in all of the Properties, free
and clear of all Liens or other matters affecting title, use or occupancy,
except for Permitted Liens. Except for Permitted Liens and as set forth on
Schedule 4.8(b),
Seller’s rights under such leasehold estates are not subordinate to, or
defeasible by, any Liens on the subject real estate, or any prior lease thereon.
The Central Station Property is fully accessible by public roads or by easements
or private rights of way accessing public roads. There are no material
defaults under the Real Property Lease by Seller or, to the Knowledge of Seller,
by any other party thereto, and no event has occurred that with the lapse of
time or giving of notice or both would constitute a material default
thereunder.
19
(c) The
Central Station Property is served by all utilities, including water, sewage,
gas, waste disposal, electricity and telephone necessary in accordance with
past
practices for the operation of such Property, and Seller is not aware of any
inadequacies with respect to such utilities.
(d) The
Properties constitute all interests in real property currently used or currently
held for use in connection with the Business and which are necessary for the
continued operation of the Business as currently conducted.
(e) Seller
has not received any notice from any insurance company that has issued a policy
of insurance with respect to the Central Station Property requiring performance
of any structural or other repairs or alterations to the Central Station
Property.
(f) Except
as
set forth on Schedule
4.8(a),
none of
the Target Companies owns or holds, nor is obligated under or a party to, any
option, right of first refusal or other contractual right to purchase, acquire,
sell, assign or dispose of any real estate or any portion thereof or interest
therein.
(g) No
Governmental Entity having jurisdiction over the Properties has, nor has any
other Person, given any notice to Seller of a possible future imposition of
assessments affecting the Properties or to exercise the power of eminent domain,
and Seller has no knowledge of any such contemplated actions.
(h) None
of
the Target Companies has previously owned any real property.
| 4.9 |
Contracts
and Commitments.
|
(a) Schedule 4.9(a)
lists
all of the existing Contracts to which any of the Target Companies is a party,
other than the Assumed Alarm Contracts and the Assumed Loans, whether written
or
unwritten, which are in any way necessary for the continued conduct and
operation of the business of any of the Target Companies. Seller has previously
made available to Purchaser copies of all written instruments evidencing the
items listed in Schedule
4.9(a),
the
Assumed Alarm Contracts, the Assumed Loans, the Account Purchase Contracts
and a
reasonably representative sampling of Retail Contracts used by Seller during
the
last three (3) years.
(b) With
respect to all of the Contracts listed in Schedule 4.9(a),
the
Assumed Alarm Contracts, the
Account Purchase Contracts
and the
Assumed Loans: (i) all are valid and binding obligations of the Target
Companies that are parties thereto and, to the Knowledge of Seller, of all
of
the other parties thereto, in full force and effect and enforceable in
accordance with their respective terms, except to the extent that enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or
other similar laws affecting creditors rights generally and by general equitable
principles, and (ii) to the Knowledge of Seller there has occurred no event
which would constitute any material breach of or material default in any
provision thereof or which would permit the acceleration or termination of
any
obligation of any party thereto or the creation of a Lien upon any asset of
the
Target Companies or which would give
rise
to any of the foregoing upon the giving of notice or lapse of time or both.
Seller has no Knowledge that any wholesale alarm dealer, material supplier
or
that a significant number of retail customers of any of the Target Companies
intends to cease dealing with such Target Company other than attrition under
Retail Contracts consistent with historical attrition rates. Except as will
be
separately identified on Schedule 4.9(a),
no
approval or consent of any Person is needed in order that the Contracts listed
on Schedule 4.9(a),
the
Assumed Loans, the
Account Purchase Contracts
and the
Assumed Alarm Contracts (A) continue in full force and effect immediately
following the consummation of the transactions contemplated by this Agreement
and (B) can be assigned to and assumed by Purchaser and remain in full force
and
effect after such assignment and assumption. There is no Liability of the Target
Companies, nor, to the Knowledge of Seller, is there any Basis for such a
Liability to be asserted against the Target Companies under any Account Purchase
Contract.
(c) The
Assigned Rights, the Assumed Loans and the Assumed Alarm Contracts are in full
force and effect, enforceable in accordance with their respective terms
(except
to
the extent that enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors rights
generally and by general equitable principles) and
valid
and binding obligations of the parties thereto and will at the Closing be
assigned to Purchaser free and clear of all Liens (other than Permitted Liens);
provided however, that Licenses and Permits issued by Governmental Entities
are
assigned subject to such restrictions, conditions or prohibitions on
transferability as may be applicable.
| 4.10 |
Intellectual
Property.
|
Any
Intellectual Property, to the extent directly or indirectly owned, licensed,
used, required for use or controlled in whole or in part by any of the Target
Companies (or owned, licensed or controlled in whole or in part by any present
or former officer, director or other employee of any of the Target Companies),
are listed by Seller (or in the case of trade secrets and secret processes,
generally described) in Schedule 4.10
(“Seller
Intellectual Property”).
Schedule 4.10 also
lists all licenses and other Contracts allowing any of the Target Companies
to
use Intellectual Property rights of third parties in the United States or
foreign countries. Except as set forth in Schedule 4.10
and
except as otherwise described in Section 4.9(c),
(a)
Seller, directly or through one of the Seller Subsidiaries, is the sole and
exclusive owner of the Seller Intellectual Property free and clear of any Liens
(other than Permitted Liens), licenses or sublicenses, and no governmental
registration of any of the Seller Intellectual Property has lapsed, expired
or
been canceled, abandoned, opposed or, to the Knowledge of Seller, is the subject
of a re-examination request, (b) there have been no claims and Seller does
not
have any Knowledge of any Basis for any claim, challenging the scope, validity
or enforceability of any of the Seller Intellectual Property and no fees,
royalties or other payments by any of the Target Companies are required in
connection with the use of the Seller Intellectual Property by Seller, (c)
to
the Knowledge of Seller, there are no instances where it has been held, claimed
or alleged, whether directly or indirectly, and Seller does not have any
Knowledge of any Basis upon which a claim could reasonably be made, that any
activity of any of the Target Companies infringes upon, misappropriates, misuses
or violates the Intellectual Property of any third party or that any activity
of
any third party infringes upon any of the Seller Intellectual Property. The
Target Companies have been and are now conducting their respective businesses
in
a manner which has not
been
and is not now in violation of any Intellectual Property of another and does
not
require a license or other proprietary right from another Person to so operate
such businesses. The Target Companies own or otherwise have the legal right
to
use all Intellectual Property reasonably necessary for the conduct of their
respective businesses as now conducted and the Target Companies have not
forfeited or otherwise relinquished any such Intellectual Property reasonably
necessary for the conduct of such businesses as now conducted.
20
| 4.11 |
No
Consent Requirements.
|
Except
as
set forth in Schedule 4.11,
no
consent, approval, authorization, order, filing, registration or qualification
of or with any Governmental Entity is required to be made or obtained by any
of
the Target Companies in connection with the execution and delivery of this
Agreement by Seller or the consummation of the transactions contemplated
hereby.
| 4.12 |
Authorization.
|
Seller
has corporate power, authority and legal capacity to enter into this Agreement
and the other agreements, documents, instruments and certificates contemplated
hereby (the “Ancillary
Agreements”)
to
which Seller is a party, and to consummate the transactions contemplated herein
and therein. This Agreement has been duly and validly executed and delivered
by
Seller and the Ancillary Agreements, upon due execution and delivery by
Purchaser, will have been duly and validly executed and delivered by Seller,
and
each such agreement is or upon execution will be a valid and legally binding
obligation of Seller, enforceable in accordance with its terms, except to the
extent that enforceability of the Agreement and the Ancillary Agreements may
be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
at
the time in effect affecting the rights of creditors generally and by equitable
principles.
| 4.13 |
Personal
Property.
|
(a) Each
of
the Target Companies has good and marketable title to all items of personal
property of any kind or nature owned by it, and has a valid leasehold interest
or other legal right to use all other personal property used by it, free and
clear of all Liens, except for (i) Permitted Liens and
(ii) those Liens listed in Schedule 4.13.
At
the
Closing, title to the Purchased Assets will be transferred to Purchaser free
and
clear of all Liens, other than Permitted Liens. All items of personal property
which, individually or in the aggregate, are material to the operation of the
businesses of the Target Companies are in good condition and in and in a state
of good maintenance and repair,
normal
wear and tear excepted,
and are
suitable for the purposes used.
(b) Except
as
set forth in Schedule 4.13,
each
of
the Target Companies has a valid leasehold interest under each of the Personal
Property Leases under which it is a lessee and there is no material default
under any Personal Property Leases by either the applicable Target Company
or,
to the knowledge of Seller, by any other party thereto, and no event has
occurred that with the lapse of time or giving of notice or both would
constitute a material default thereunder. All of the items of personal property
used by any of the Target Companies under the Personal Property Leases and
material to the Business are in good condition and repair, normal
(c) wear
and
tear excepted, and are suitable for the purposes used. Seller
shall deliver or make available to Purchaser prior to the Closing complete
and
correct copies of the Personal Property Leases.
21
| 4.14 |
Environmental
Matters.
|
(a) For
purposes of this Agreement, “Environmental,
Health and Safety Requirements”
shall
mean any federal, state, local or foreign statute, regulation, ordinance or
other provision having the force or effect of law, the common law, and any
judicial or administrative Order or determination concerning public health
and
safety, worker health and safety, and pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, all of the foregoing as amended and as now or
hereafter in effect.
(b) To
the
Knowledge of Seller, except as set forth on Schedule 4.14
(i)
the
Properties, the use of the Properties and the conduct of the business of the
Target Companies thereon have not violated any Environmental, Health and Safety
Requirements (except for violations of an immaterial nature which will not
result in any Liability to Purchaser). The Target Companies have utilized,
handled, stored, delivered for disposal, disposed of and transported all wastes,
whether hazardous or not, in compliance in all material respects with all
Environmental, Health and Safety Requirements and so as not to contaminate
any
of the Properties or any other properties and so as not to give rise to any
reporting, remediation or clean-up obligation under any Environmental, Health
and Safety Requirement. The Properties, including buildings, fixtures,
machinery, equipment and inventory, have not been contaminated, tainted or
polluted as a result of activities conducted by any of the Target Companies
or,
to the Knowledge of Seller, by any other Person, the migration of contaminants
from any adjacent property. None of the Properties appears on the National
Priority List or any federal, state, local or foreign listing which identifies
sites for remedial clean-up or investigatory actions. To the Knowledge of
Seller, no asbestos, PCB’s, urea-formaldehyde, underground storage tanks or
plating operations are or were located on the Properties, and, to the Knowledge
of Seller, none of the Properties have been used to handle, treat, store or
dispose of or has been contaminated (including contamination of soils,
subsurface groundwater and surface waters located on, in or under such premises)
with or by pollutants, wastes, or any other substances, which contamination
may
give rise to a reporting, remediation or clean-up obligation with respect to
such Properties or the property of others under any Environmental, Health and
Safety Requirement.
22
| 4.15 |
Labor
Relations; Employee Benefit Plans.
|
Except
as
described in Schedule 4.15(a),
no
employees of any of the Target Companies are represented by a union or other
labor organization. Each of the Target Companies has complied in all material
respects with all applicable Legal Requirements affecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not engaged in any unfair labor practice. There has been no complaint
alleging unfair labor practices by any of the
Target
Companies filed with the National Labor Relations Board. There has been no
labor
strike, dispute, slowdown or stoppage pending or, to the Knowledge of Seller,
threatened against or affecting any of the Target Companies. There has been
no
grievance or arbitration proceeding against any of the Target Companies arising
out of or under a collective bargaining agreement and no Basis therefor exists.
No agreement which is binding on any of the Target Companies restricts any
of
the Target Companies from relocating or closing any of its operations. None
of
the Target Companies has experienced any work stoppage since January 1,
2000. There are no Employee Benefit Plans of any of the Target Companies or
of
any entities related to any of the Target Companies such that they are described
in Sections 414(b), (c), or (m) of the Code (the “ERISA
Affiliates”)
which
are subject to the provisions of ERISA, other than those which are listed and
included as part of Schedule 4.15(b).
Except
as described on Schedule 4.15(c),
none of
the Target Companies nor their Affiliates maintains or has ever maintained
a
defined benefit Employee Pension Benefit Plan which is or was subject to Title
IV of ERISA; none of the Target Companies nor any of the Target Companies’ ERISA
Affiliates has ever been required to contribute to any Multiemployer Plan;
and
none of the Target Companies nor any of the Target Companies’ ERISA Affiliates
offers health benefits to retirees, other than continuation coverage pursuant
to
ERISA Sections 601 - 609. Schedule 4.15(d)
lists
and describes all of the Employee Welfare Benefit Plans and Employee Pension
Benefit Plans of any of the Target Companies, including any which have been
terminated since January 1, 2000. The terminations of all such Employee Pension
Benefit Plans have been approved by the Internal Revenue Service and, in the
case of any defined benefit pension plan, by the Pension Benefit Guaranty
Corporation, and copies of any determination letters or “notices of deficiency”
issued by the Internal Revenue Service with respect to any Employee Pension
Benefit Plans are attached as Schedule 4.15(e).
| 4.16 |
Condition
and Extent of Property.
|
All
buildings and improvements and all of the machinery and equipment owned or
used
by any
of
the Target Companies
and
material to the Business are in good operating
condition and repair (subject to normal wear and tear), have been maintained
in
accordance with commercially reasonable practice and, as applicable, in
accordance with all material obligations under the Real Property
Lease.
The
Purchased Assets and the Excluded Assets constitute all of the assets and
properties owned by Seller as of the Closing.
| 4.17 |
Compensation
and Other Benefits.
|
Seller
has previously provided to Purchaser
the
names, positions and annual salaries of all officers and employees of each
of
the Target Companies, together with the amount of bonuses and description of
agreements or arrangements for commissions and other compensation or benefits
of
any nature to be paid or provided to any of such persons pursuant to agreement,
custom or present understanding. Except for group policies included in
Schedule 4.25,
there
is no insurance policy on the life of any of such officer or other person,
the
premium for which is paid, or contributed to, by any of the Target
Companies.
23
| 4.18 |
Seller
Subsidiaries.
|
| 4.18.1 |
Ownership
and Transfer of Shares.
|
Seller
is
the record and beneficial owner of the Shares, free and clear of any and all
Liens (other than Permitted Liens). Seller has the authority and power to sell,
transfer, assign and deliver such Shares as provided in this Agreement, and
such
delivery will convey to Purchaser good title to such Shares, free and clear
of
any and all Liens (other than Permitted Liens).
| 4.18.2 |
Capitalization.
|
(a) As
of the
Closing,
(i) the
authorized capital stock of SPN consists of 5,000 shares of common stock (no
par
value), of which five shares are issued and outstanding and owned beneficially
and of record by Seller, and the authorized capital stock of SCC consists of
5,000 shares of common stock (no par value), of which 500 shares are issued
and
outstanding and owned beneficially and of record by Seller;
(ii) all
of
the Shares were duly authorized for issuance and are validly issued, fully
paid
and non-assessable, and
(iii) there
is
no existing option, warrant, call, right, commitment or other agreement of
any
character to which Seller or the Seller Subsidiaries is a party requiring,
and
there are no securities of the Seller Subsidiaries outstanding which upon
conversion or exchange would require, the issuance, sale or transfer of any
additional shares of capital stock or other equity securities of the Seller
Subsidiaries or other securities convertible into, exchangeable for or
evidencing the right to subscribe for or purchase shares of capital stock or
other equity securities of the Seller Subsidiaries, and there are no incentive
units, phantom stock or similar arrangements outstanding.
(b) Neither
Seller nor the Seller Subsidiaries is a party to any voting trust or other
voting agreement with respect to any of the Shares or the unissued capital
stock
of the Seller Subsidiaries or to any agreement relating to the issuance, sale,
redemption, transfer or other disposition of the capital stock of the Seller
Subsidiaries.
| 4.18.3 |
Corporate
Records; Bank
Accounts.
|
(a) Seller
has delivered to Purchaser true, correct and complete copies of (i) the
Certificate of Incorporation of each of the Seller Subsidiaries (certified
by
the Secretary of State of Delaware) and (ii) the Bylaws of each of the Seller
Subsidiaries (certified by the secretary, assistant secretary or other
appropriate officer of such Seller Subsidiary).
(b) The
minute books of each of the Seller Subsidiaries made available to Purchaser
contain substantially complete records of all meetings for which minutes were
taken, and reflect other corporate actions, of the stockholders and board of
directors (including any
24
committees
thereof) of such Seller Subsidiary. To the extent required by applicable
Legal Requirements and its Certificate of Incorporation and Bylaws, all
corporate action of each Seller Subsidiary has been duly authorized and adopted
by such Seller Subsidiary’s board of directors and stockholders. The
stock
certificate books and stock transfer ledgers of each of the Seller Subsidiaries
made available to Purchaser are true, correct and complete. Any applicable
stock
transfer Taxes and fees of any Governmental Entity levied or payable with
respect to all transfers of the Shares prior to the Closing have been paid
and
any applicable transfer tax stamps affixed.
(c) Schedule 4.18.3
sets
forth a complete list containing the names of all banks or any other financial
institutions which are depositories of funds of such Seller Subsidiary and
the
names and locations of any institutions in which such Seller Subsidiary has
safe
deposit boxes and the names of the persons having access thereto.
| 4.19 |
Related
Party Transactions.
|
Schedule
4.19
lists
each Contract of the Target Companies with any current or former Affiliate
of a
Target Company or any Person in which a Target Company or any current or former
Affiliate of a Target Company had a direct or indirect interest. To the
Knowledge of Seller, no employee of any of the Target Companies has violated
the
published business policies of such Target Company or of any third party with
respect to gifts, services or corporate business practices. None of the Target
Companies has any outstanding loans or other advances directly or indirectly
to
or from any current or former officer, director or employee of any of the Target
Companies, other than travel and business expense advances in the Ordinary
Course of Business. Schedule 4.19
lists
any officer or any employee of any of the Target Companies with annual
compensation in excess of $50,000 who terminated employment with such Target
Company since January 1, 2004. Seller has no knowledge that any current officer
or other key employee of any of the Target Companies is considering the
termination of his or her employment.
| 4.20 |
Payables.
|
All
accounts payable of each of the Seller Subsidiaries reflected in the Most Recent
Seller Financial Statements or arising after the Most Recent Fiscal Month End
are the result of bona fide transactions in the Ordinary Course of Business
and
have been paid or are not yet due and payable.
| 4.21 |
Accounts
Receivable.
|
All
accounts receivable of each of the Target Companies
reflected in the Most Recent Seller Financial Statements or arising after the
Most Recent Fiscal Month End (the
“Accounts
Receivable”),
including those arising under the Assumed Alarm Contracts, have
arisen from bona fide transactions in the Ordinary Course of Business consistent
with past practice. Adequate reserves have been reflected in the Most Recent
Seller Financial Statements for doubtful accounts, which reserves were and
will
be calculated in a manner consistent with past practice and in accordance with
GAAP consistently applied.
25
| 4.22 |
Inventories.
|
All
inventory of each of the Target Companies is in good and marketable condition,
not obsolete or defective, and useable or saleable in the Ordinary Course of
Business, except for shorts, slow-moving, obsolete or otherwise unusable
inventory reflected in the Most Recent Seller Financial
Statements. Adequate reserves have been reflected in the Most
Recent
Seller Financial Statements for shorts, slow-moving, obsolete or otherwise
unusable inventory, which reserves were and will be calculated in a manner
consistent with past practice and in accordance with GAAP consistently
applied.
| 4.23 |
Other
Businesses.
|
Other
than Seller’s ownership of the Shares, none of the Target Companies owns,
directly or indirectly, any interest or has any investment in any corporation
or
other business. Other than Seller’s ownership of the Shares and the ownership of
non-controlling interests in securities of corporations the shares of which
are
publicly traded, none of the Target Companies, and, to the Knowledge of the
Seller, none of the Target Companies’ Affiliates nor any of the Target
Companies’ or the Target Companies’ Affiliates’ directors and officers own
directly or indirectly any interest or have any investment or profit
participation in any Person which is a competitor of or which directly or
indirectly does business with any of the Target Companies.
| 4.24 |
Product
Liability and Working Conditions.
|
Except
as
set forth on Schedule
4.24,
none of
the Target Companies has any Liability arising out of (a) defective products
(including liability on account of product warranties) or services other than
repairs to be made in the Ordinary Course of Business, or (b) any injury to
individuals or property as a result of the ownership, possession or use of
any
product manufactured, sold, leased, provided or performed by or on behalf of
any
of the Target Companies at any time prior to the Closing or (c) working
conditions of any of the Target Companies as they existed at any time prior
to
the Closing.
| 4.25 |
Insurance.
|
Schedule 4.25
contains
a full, complete and accurate list of all policies of insurance and
self-insurance programs of the Target Companies or of any of their Affiliates
insuring the Target Companies, their employees and/or their assets against
casualty, liability or other risks, and such policies and programs provide
adequate coverage for all risks normally insured against with commercially
reasonable deductible amounts. All of the policies and self-insurance programs
of insurance to be described therein are in full force and effect as stated
therein and the premiums therefor have been paid as they became
due.
| 4.26 |
Disclosures
and Material Facts.
|
Neither
this Agreement nor any Schedules or other documents or certificates to be
furnished to Purchaser pursuant hereto contain or will contain any untrue
statement of a material fact
or
will omit to state a material fact necessary to make the factual statements
contained herein or therein, in light of the circumstances under which they
were
made, not misleading.
26
| 4.27 |
Brokers;
Finders.
|
None
of
the Target Companies nor any of their Affiliates has any Liability to pay any
fees or commissions to any broker, finder, financial advisor or agent (other
than attorneys’ fees and fees of accountants) with respect to the transactions
contemplated by this Agreement.
ARTICLE
5. REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
represents and warrants to Seller that the following statements contained in
this Article 5 are correct and complete as of the Closing:
| 5.1 |
Organization
and Standing.
|
Purchaser
is a corporation duly organized, validly existing and in good standing under
the
laws of Delaware, and has all corporate power and authority to carry on the
businesses in which it is engaged, to own and use the properties owned and
used
by it, to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder.
| 5.2 |
Authorization.
|
Purchaser
has corporate power, authority and legal capacity to enter into this Agreement
and the Ancillary Agreements to which Purchaser is a party, and to consummate
the transactions contemplated herein and therein. This Agreement has been duly
and validly executed and delivered by Purchaser and the Ancillary Agreements,
upon due execution and delivery by Seller, will have been duly and validly
executed and delivered by Purchaser, and each such agreement is or upon
execution will be a valid and legally binding obligation of Purchaser,
enforceable in accordance with its terms, except to the extent that
enforceability of the Agreement and the Ancillary Agreements may be limited
by
bankruptcy, insolvency, reorganization, moratorium or other laws at the time
in
effect affecting the rights of creditors generally and by equitable
principles.
| 5.3 |
No
Conflict.
|
The
execution and delivery of this Agreement does not, and the consummation of
the
transactions contemplated hereby will not (i) result in the acceleration
of
or the creation in any party of any right to accelerate, terminate, modify
or
cancel any Contract or other Liability to which Purchaser is a party or by
which
it is bound or to which any of its assets is subject, or result in a default
under or violation of any material Lien, Contract or other Liability to which
it
is a party or by which it is bound or to which any of its assets is subject
or
result in the creation of any Lien upon any of said assets, (ii) conflict with
or result in a breach of or constitute a default under any provision of the
Certificate of Incorporation or Bylaws (or other constitutive documents) of
Purchaser, or (iii) violate or result in a breach of or constitute a default
under any Order
or
Legal Requirement to which Purchaser is subject, except in each of clauses
(i)
and (iii) above, for such accelerations, terminations, modifications,
cancellations, defaults, liens, encumbrances or violations as would not have
a
material adverse effect on the ability of Purchaser to consummate the
transactions contemplated hereby.
27
| 5.4 |
Brokers,
Finders.
|
Neither
Purchaser nor any of its Affiliates has any Liability to pay any fees or
commissions to any broker, finder, financial advisor or agent (other than
attorneys’ fees and fees of accountants) with respect to the transactions
contemplated by this Agreement.
| 5.5 |
Consent
Requirements.
|
No
consent, approval, authorization, order, filing, registration or qualification
of or with any Governmental Entity is required to be made or obtained by
Purchaser in connection with the execution and delivery of this Agreement by
Purchaser or the consummation by Purchaser of the transactions contemplated
hereby.
ARTICLE
6. COVENANTS
AND AGREEMENTS
| 6.1 |
Handling
of Seller’s Employees.
|
| 6.1.1 |
Termination
by Seller; Offers of Employment by Purchaser.
|
As
of the
Closing, Seller shall terminate the employment of all of its employees other
than Xxxxx Xxxx (who will have resigned prior to the Closing), Xxxx Xxxxxx
and
Xxxxx Xxxx, and Purchaser will offer to employ all of such terminated
employees,
with
substantially similar compensation and benefits as are provided by Seller and
with such employees being credited with years of service of Seller for purposes
of participation and benefits accruals under Purchaser's
benefit plans, it
being
understood that at any time after the Closing, Purchaser may terminate any
such
employee for any reason or no reason, it being further understood that, subject
to Section 6.1.2 below, Purchaser shall be solely responsible for all
liabilities and obligations owed to such employee arising after the Closing
in
connection with his or her employment by Purchaser or arising in connection
with
such employee's subsequent termination by Purchaser. As
to
such employees being terminated by Seller as of the Closing, Seller shall notify
each of them in writing that by reason of the sale of the Business their
employment with Seller is being terminated as of the Closing and that each
will
be offered new employment by Purchaser.
| 6.1.2 |
Severance
Pay.
|
As
part
of Purchaser’s employment offer to Seller’s employees pursuant to Section 6.1.1
above, other than with respect to Xxxx Xxxxxx, Xxx Xxxxxxxx, Xxxxx Xxxxxx and
Xxxxxx Xxxxxxx, Purchaser shall agree to pay each employee severance pay in
the
amount of three (3) months of such employee’s base salary or wages in the event
that Purchaser terminates such employee within six (6) months after the Closing
Date due to (a) sourcing such employee's duties elsewhere
within Purchaser and/or its Affiliates or (b) relocating the operations of
the
Business with respect to such employee to a location outside of the general
Dallas, Texas area. In the event that such severance pay becomes payable by
Purchaser, Seller shall reimburse Purchaser for fifty percent (50%) of (a)
the
total amount of such severance payments plus (b) the amount of the employment
taxes payable by Purchaser in respect of such severance payments within ten
(10)
days after Purchaser delivers notice to Seller that it has made such payments,
which notice shall include a schedule of the payments and the employment taxes
payable thereon.
28
| 6.1.3 |
Seller’s
Employment of Xxxxx Xxxx.
|
Seller
agrees to continue employing Xxxxx Xxxx for a period of six (6) months after
the
Closing Date, during which xxxx Xxxxxx agrees to make Xx. Xxxx available to
Purchaser during normal business hours to assist with the operation of the
Business. If prior to the end of such six-month period, Xx. Xxxx ceases to
provide his services to Purchaser (excluding by reason of Purchaser’s decision
to voluntarily terminate this arrangement), Seller shall promptly pay to
Purchaser an amount calculated as $95,670 multiplied by a fraction, the
numerator of which is the number of days from the date that Xx. Xxxx first
ceases to provide services until the date six (6) months after the Closing
Date
and the denominator of which is 182. Purchaser shall reimburse Seller for
out-of-pocket expenses reasonably occurred by Xx. Xxxx in the performance of
services for the Business in accordance with Purchaser’s expense reimbursement
policies in effect from time to time. After such six (6) month period, Seller
shall make Xx. Xxxx available to Purchaser, if at all, on such terms and
conditions as are mutually agreed upon by Seller and Purchaser.
| 6.2 |
Seller’s
Tradename and Trademarks.
|
Upon
Closing, Seller shall cease using the Seller’s Names and
any
and all trade names used by Seller prior to the Closing; provided, however,
that
Seller shall have a limited license to use such names solely for the purposes
of
enforcing this Agreement and the Ancillary Agreements, winding up the affairs
of
Seller or dissolving Seller. Such limited license shall not be assigned or
sublicensed by Seller and shall not be used to conduct any aspect of the
Business, nor shall Seller permit it to be used in any way which would
constitute a violation of any of the provisions of the Non-Solicitation
Agreement that Seller is entering into in favor of Purchaser at the Closing.
Seller shall assist Purchaser in obtaining the full and exclusive right to
use
all names included within the Intellectual Property being transferred to
Purchaser hereunder. Without limiting the generality of the foregoing,
promptly
following Closing, Seller shall cause its corporate name to be changed so as
to
avoid any confusion with Purchaser’s use of the Seller’s Names from and after
Closing.
| 6.3 |
Non-Solicitation.
|
Concurrent
with the Closing, each of Seller, Xxxx Xxxxxx, Xxxxx Xxxx, Xxxx Xxxxxx and
Xxx
Xxxxxxxx shall
enter into a Non-Solicitation/Non-Competition Agreement in favor of Purchaser
in
a form acceptable to Purchaser (collectively, the “Non-Solicitation
Agreements”).
29
| 6.4 |
Billing
of Wholesale Accounts.
|
From
and
after the Closing, all communications with the third party dealers under the
Dealer Contracts and the Subscribers under the Retail Contracts shall be made
solely by Purchaser and/or its Affiliates, and Seller shall not initiate any
such communications and shall refer any inquiries or requests by any such
Persons to Purchaser for handling.
| 6.5 |
Telecommunications.
|
Seller
shall cooperate with Purchaser to have the telephone numbers specified in
Schedule
1.2(d)
properly
assigned to the Purchaser by the telephone company or companies providing such
telephone numbers.
| 6.6 |
Use
of Dallas Facilities.
|
During
the six (6) months after the Closing, Seller shall allow Purchaser to utilize
the real property leased by Seller in Dallas, Texas; provided, however, that
Seller shall retain the right to use at least one office equipped with a
telephone, computer and internet access. In consideration of Seller allowing
Purchaser to utilize such property (and whether or not Purchaser utilizes such
property during the entire period), Purchaser shall pay Seller, no later than
3
Business Days prior to the date Seller's monthly lease payment to the lessor
of
such real property is due, (a) during each of the first three (3) months of
such
period, an amount equal to 75% of all amounts owed by Seller under such lease
with respect to each such month, and (b) during each of the final three (3)
months of such period, an amount equal to 50% of all amounts owed by Seller
under such lease with respect to each such month. After such six (6) month
period, Purchaser shall utilize such real property, if at all, on such terms
and
conditions as are mutually agreed upon by Seller and Purchaser.
ARTICLE
7. CLOSING
DATE; CONDITIONS AND TRANSACTIONS
| 7.1 |
Closing
Date and Place.
|
On
the
terms and subject to the conditions of this Agreement, the conveyance of the
Purchased Assets and the Assigned Rights by Seller to Purchaser and the
assumption of the Assumed Liabilities by Purchaser (the “Closing”)
shall
take place on the Closing Date. A pre-closing shall take place at the offices
of
Xxxxx, Xxxxxxx & Xxxxxxxx LLP in Los Angeles, California or at such other
place as is mutually agreed upon by Purchaser and Seller on September 30, 2005
(the “Pre-Closing
Date”),
on
which date the Parties shall execute and exchange this Agreement and the
Ancillary Agreements and Purchaser shall deliver funds, all to be held in trust
by the receiving Party pending the effective time and date of the Closing.
Notwithstanding the timing of the execution and exchange of documents and the
payment of funds, the Closing shall be deemed completed at 12:01 a.m. Central
Daylight Time on the Closing Date. All actions taken at the Closing will be
considered as having been taken
30
simultaneously
and no such actions will be considered to be completed until all such actions
have been completed.
| 7.2 |
Deliveries
by Seller.
|
On
the
Pre-Closing Date, Seller shall deliver or cause to be delivered to Purchaser
the
following:
7.2.1 Secretary’s
Certificate.
A
Certificate of the Secretary of Seller, dated the Closing Date, attaching and
certifying as to Seller’s Certificate of Incorporation and the resolutions of
Seller’s Board of Directors authorizing and approving this Agreement and the
consummation of the transaction contemplated hereby, and certifying as to the
incumbency of each person executing (as a corporate officer or otherwise) any
document executed by the Seller and delivered to Purchaser pursuant to this
Agreement.
| 7.2.2 |
Xxxx
of Sale.
|
A
Xxxx of
Sale, Assignment and Assumption Agreement (the “Xxxx
of Sale”),
duly
executed by Seller, transferring and assigning to Purchaser all right, title
and
interest of Seller in and to the Purchased Assets, free and clear of Liens,
other than Permitted Liens, together with such documentation, including
allonges, as is reasonably requested by Purchaser to assign, transfer, convey
and deliver all of the loan documents related to or otherwise evidencing or
securing the Assumed Loans.
| 7.2.3 |
Shares.
|
All
stock
certificates evidencing the Shares duly endorsed in blank or accompanied by
stock powers duly endorsed in blank, in proper form for transfer, and with
any
required stock transfer tax stamps affixed.
| 7.2.4 |
Non-Solicitation
Agreements.
|
The
Non-Solicitation Agreements duly executed by all parties thereto (other than
Purchaser).
| 7.2.5 |
Opinion.
|
An
opinion of Xxxxxxxx
Xxxxxxx Van Deuren s.c., counsel to Seller, in a form acceptable to
Purchaser.
| 7.2.6 |
Escrow
Agreement.
|
The
Escrow Agreement duly executed by Seller.
31
| 7.3 |
Deliveries
by Purchaser.
|
On
the
Pre-Closing Date, Purchaser shall deliver or cause to be delivered to Seller
the
following:
| 7.3.1 |
Secretary’s
Certificate.
|
A
Certificate of the Secretary of Purchaser, attaching a copy of and certifying
as
to Purchaser’s Certificate of Incorporation and the resolutions of Purchaser’s
Board of Directors authorizing and approving this Agreement and the consummation
of the transaction contemplated hereby, and certifying as to the incumbency
of
each person executing (as a corporate officer or otherwise) any document
executed by the Purchaser and delivered to Seller pursuant to this
Agreement.
| 7.3.2 |
Payment.
|
The
Provisional Purchase Price, less
the
Holdback Amount.
| 7.3.3 |
Xxxx
of Sale.
|
A
counterpart to the Xxxx of Sale duly executed by Purchaser, which will evidence
Purchaser’s assumption of the Assumed Liabilities.
| 7.3.4 |
Escrow
Agreement.
|
The
Escrow Agreement duly executed by Purchaser.
ARTICLE
8. NON-TAX
INDEMNIFICATION
| 8.1 |
Indemnification
by Seller.
|
Subject
to Sections 8.2, 8.3, 8.4 and 9.9 below, and without limiting any other rights
available to Purchaser with respect to Special Claims (as defined below), Seller
shall indemnify, defend and hold harmless Purchaser and Purchaser's Affiliates
(the “Purchaser
Indemnified Parties”)
from,
against and with respect to any claim, liability, obligation, loss, damage,
assessment, judgment, settlement, cost and expense, including reasonable
attorneys' and accountants' fees, and costs and expenses reasonably incurred
in
investigating, preparing, defending against or prosecuting any litigation or
claim, action, suit, proceeding or demand (individually, a “Loss”
and
collectively, “Losses”),
of
any kind or character, arising out of or in any manner incident, relating or
attributable to (a) any inaccuracy or incompleteness in any representation
or
breach of any warranty of Seller contained in this Agreement or the Ancillary
Agreements or in any certificate, instrument of transfer or other document
or
agreement executed by Seller in connection with this Agreement or otherwise
made
or given by Seller in connection with this Agreement (together with this
Agreement and the Ancillary Agreements, the “Seller
Agreements”),
(b)
any failure by the Selling Parties to perform or observe, or to have performed
or
observed, in full, any covenant or agreement to be performed or observed by
Seller under any of the Seller Agreements, (c) the enforcement of Purchaser's
rights under the Seller Agreements, (d) the Excluded Liabilities, (e) that
certain litigation between Xxxx Xxxxxx and Xxxxxx Xxxxxx, as plaintiffs, and
Seller, Xxxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxx Xxx and Xxxxx Xxxxxx, as defendants,
any counterclaims or cross-claims related thereto or any other litigation
between any of such plaintiffs and any of such defendants (collectively, the
“Fields
Litigation”),
or
(f) any claim, demand or allegation by any third party relating to any of the
foregoing.
32
| 8.2 |
Limitations
on Indemnification.
|
Notwithstanding
anything to the contrary contained in this Agreement, Seller shall not be liable
for indemnification for any Losses arising under Sections 8.1 and 9.1, other
than with respect to Special Claims, unless the amount of such Losses for which
Seller would, but for the provisions of this Section 8.2, be liable exceeds,
on
an aggregate basis, $150,000 (the “Indemnification
Threshold”),
in
which case Seller shall, subject to the other limitations set forth in this
Section 8.2 and in Sections 8.3 and 8.4, be liable for all Losses, including
those used in calculating the Indemnification Threshold; provided,
however, that the Indemnification Threshold shall not be applicable to (a)
claims against Seller pursuant to Section 8.1 or 9.1 based upon Seller’s fraud
or intentional misrepresentation, (b) claims against Seller pursuant to
Section 9.1 related to income or franchise Taxes, or (c) claims arising
under Section 8.1(b), other than claims arising (i) from Seller’s failure to
pay,
honor and discharge any Excluded Liabilities
in
accordance with Section 3.2 or (ii) under Article 9 with respect to
Taxes
other than income and franchise Taxes, (d) claims arising under
Section 8.1(e) above, or (e) claims arising under Section 8.1(f) above
to
the extent relating to the claims described in subparts (c) and (d) of this
Section 8.2 (collectively, the “Special
Claims”).
Notwithstanding anything to the contrary contained in this Agreement, in no
event will the aggregate liability
of
Seller pursuant to Sections 8.1 and 9.1 exceed the Indemnity Holdback Amount;
provided, however, that the indemnification obligations against Seller will
not
be so limited with respect to Special Claims. The amount of Losses for which
indemnification is sought under Sections 8.1 and 9.1 shall be reduced by the
net, after-tax recoveries which the applicable Purchaser Indemnified Party
receives under insurance policies with respect to such Losses.
| 8.3 |
Indemnity
Holdback.
|
In
seeking indemnification to which the Purchaser Indemnified Parties are entitled
under Articles 8 and 9 of this Agreement, other than with respect to Special
Claims, the exclusive remedy of the Purchaser Indemnified Parties shall be
the
right to set off any and all amounts for which Seller is required to indemnify
a
Purchaser Indemnified Party pursuant to Section 8.1 above against any
amounts to be paid to Seller out of the Indemnity Holdback Amount pursuant
to
the Escrow Agreement, provided that notice of a claim for indemnification is
given by Purchaser under Section 8.6 below and the notice specifies
that
payment will be sought in part or in whole as an offset. Neither the exercise
of
nor the failure to give a claim notice under Section 8.6 which seeks
an
offset shall constitute an election of remedies or limit Purchaser in any manner
in the enforcement of any other remedies that may be available to Purchaser
with
respect to Special Claims, whether under this Agreement, under any other of
the
Seller Agreements or under law or in equity. If the amount of such
33
Loss
is
not fully liquidated at the time the claim for indemnification is made, then
the
amount being claimed as an offset shall continue to be held by the Escrow Agent
until the earlier of the date when (i) Seller and Purchaser mutually agree
upon
the use and disposition of the offset funds, or (ii) the amount of the Loss
is
fully liquidated. As used in this Section 8.2, a third party claim shall
not be considered liquidated until it has been finally resolved, whether by
settlement or compromise, negotiation, final judgment (including all appeals)
or
otherwise in accordance with the procedures set forth in Section 8.6
below.
On the date one (1) year after the Closing Date, Escrow Agent shall pay to
Seller by wire transfer the remaining balance of the Indemnity Holdback Amount,
provided the aggregate amounts of all “Disputed Claims” and the amounts of any
then-current “Demands” (as such terms are defined in the Escrow Agreement) shall
continue to be held by the Escrow Agent and subsequently paid to Purchaser
and/or Seller in accordance with the terms of the Escrow Agreement. All interest
and/or income accrued on the Indemnity Holdback Amount shall be paid by Escrow
Agent to Seller.
| 8.4 |
Seller’s
Representations and Warranties.
|
The
representations and warranties contained in this Agreement and in any of the
other Seller Agreements to be delivered at the Closing, and the obligations
of
Seller pursuant to Section 8.1 above and Section 9.1 below, shall,
except as otherwise provided in this Section 8.4, survive the Closing.
The
obligations of Seller pursuant to Section 8.1 above shall survive with
respect to each representation and warranty made by Seller herein or therein
for
the same period of time as that during which the associated representation
or
warranty survives. Notwithstanding the expiration of any period limiting the
duration of the obligations of Seller under Section 8.1(a), such
obligations shall continue with respect to all claims as to which Purchaser
has
given Seller notice prior to such expiration date. Notwithstanding anything
to
the contrary contained in this Agreement or in the other Seller Agreements,
all
representations and warranties by Seller contained herein and in the other
Seller Agreements shall survive the Closing (a) until the expiration of all
applicable statute of limitations, as to those representations and warranties
contained in Section 4.6 above to the extent relating to income or
franchise Taxes, and (b) for a period expiring one (1) year after the Closing
Date as to all other representations and warranties of Seller contained in
this
Agreement or in any of the other Seller Agreements. Notwithstanding anything
contained in this Section 8.4 to the contrary, the covenants and agreements
of the Parties contained in this Agreement and in all of the other Seller
Agreements and Purchaser Agreements shall survive the Closing in accordance
with
their respective terms.
| 8.5 |
Purchaser’s
Representations and Warranties.
|
The
representations and warranties of Purchaser contained in this Agreement or
in
any of the other Purchaser Agreements, and the obligations of Purchaser pursuant
to Section 8.6 below, shall, except as otherwise provided in this
Section 8.5, survive the Closing. Purchaser’s obligations pursuant to
Section 8.6(a) below shall survive with respect to each representation
and
warranty made by Purchaser in the Purchaser Agreements for the same period
of
time as that during which the associated representation or warranty survives.
Notwithstanding anything to the contrary contained in the Purchaser Agreements,
all representations and warranties by Purchaser contained in the Purchaser
Agreements shall survive for a period of one (1) year after the Closing
Date.
34
| 8.6 |
Indemnification
by Purchaser.
|
Without
limiting any other rights or remedies available to Seller, Purchaser shall
indemnify, defend and hold harmless Seller and its Affiliates (the “Seller
Indemnified Parties”)
from,
against and with respect to any Loss of any kind or character, arising out
of or
in any manner incident, relating or attributable to (a) any inaccuracy or
incompleteness in any representation or breach of any warranty of Purchaser
contained in this Agreement, the Ancillary Agreements or in any certificate,
instrument of transfer or other document or agreement executed by Purchaser
in
connection with this Agreement or otherwise made or given in connection with
this Agreement (together with this Agreement and the Ancillary Agreements,
the
“Purchaser
Agreements”),
(b)
any failure by Purchaser to perform or observe, or to have performed or
observed, in full, any covenant or agreement to be performed or observed by
Purchaser under any Purchaser Agreements, (c) the enforcement of the rights
of
Seller under this Agreement, (d) the Assumed Liabilities, or (e) any claim,
demand or allegation by any third party relating to any of the
foregoing.
| 8.7 |
Indemnification
Procedure.
|
If
either
the Purchaser Indemnified Parties, on the one hand, or the Seller Indemnified
Parties, on the other hand, as the case may be (the “Indemnitee”),
has a
claim or potential claim or receives notice of any claim or potential claim
or
the commencement of any action or proceeding that could give rise to an
obligation on the part of the Selling Parties, on the one hand, or Purchaser,
on
the other hand, as the case may be, to provide indemnification (the
“Indemnifying
Party”)
pursuant to Sections 8.1 or 8.6, Purchaser, on behalf of the Purchaser
Indemnified Parties, and Seller, on behalf of the Seller Indemnified Parties,
shall promptly give the Indemnifying Party notice thereof. Such notice shall
describe the claim in reasonable detail, shall indicate the amount (estimated
if
necessary) of the Losses that has been or may be sustained by the Indemnitee
and
shall be accompanied by supporting documentation, if any. The Indemnifying
Party
may elect to compromise or defend, at such Indemnifying Party’s own expense and
by such Indemnifying Party’s own counsel, any such matter involving the asserted
Liability of the Indemnitee. If the Indemnifying Party elects to compromise
or
defend such asserted Liability, it shall within thirty (30) days (or sooner,
if
the nature of the asserted Liability so requires) notify the Indemnitee of
its
intent to do so and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, any such asserted
Liability. If the Indemnifying Party fails to compromise or defend such asserted
Liability, or fails to notify the Indemnitee of its election as herein provided
following the earlier notice given by Indemnitee to the Indemnifying Party
of a
claim or a potential claim, the Indemnitee may pay, compromise or defend such
asserted Liability, and the Indemnifying Party shall indemnify the Indemnitee
for any Losses indemnifiable under Section 8.1 or Section 9.1
incurred
in connection therewith. Notwithstanding the foregoing, the Indemnifying Party
may not settle or compromise any claim without the consent of the Indemnitee,
which consent shall not be withheld if the settlement or compromise does not
result in any Liability to the Indemnitee or require the Indemnitee to take
any
action or refrain from taking any action or otherwise restrict or limit in
any
way Purchaser’s ability to operate the Acquired Business after the Closing. In
any event, the Indemnitee and the Indemnifying Party may each participate,
at
its own expense, in
35
the
defense of such asserted Liability. If the Indemnifying Party chooses to defend
any claim, the Indemnitee shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense and shall, at the expense of the Indemnifying
Party, otherwise cooperate with and assist in the defense of such claim.
Notwithstanding the foregoing, the Indemnitee shall have the right to employ
separate counsel at the Indemnifying Party’s expense and to control its own
defense of such asserted Liability to the extent that (a) there are reasonable
legal defenses available to such Indemnitee or to other Indemnitees that are
of
a material benefit to such Indemnitee and are materially different from or
additional to those available to the Indemnifying Party or (b) in the reasonable
opinion of counsel to such Indemnitee, a conflict or potential conflict exists
between the Indemnifying Party and such Indemnitee that would make such separate
representation advisable; provided, however, that the Indemnifying Party shall
not be required to pay for more than one such additional counsel for all
Indemnitees in connection with any claim.
ARTICLE
9. TAX
MATTERS
The
following provisions shall govern the allocation of responsibility as between
Purchaser and Seller for certain tax matters following the Closing:
9.1 Tax
Indemnification.
(a) Seller
shall indemnify the Purchaser Indemnified Parties and hold them harmless from
and against any Loss of any kind or character arising out of or in any manner
incident, relating or attributable to (i) all Taxes (or the non-payment thereof)
of Seller and the Seller Subsidiaries for all Taxable periods ending on or
prior
to the Closing Date and, with respect to any Straddle Period, the portion of
such Straddle Period ending on and including the Closing Date (“Pre-Closing
Tax Period”),
and
(ii) all Taxes of any member of an affiliated, consolidated, combined or unitary
group of which Seller or the Seller Subsidiaries (or any predecessor of any
of
the foregoing) is or was a member on or prior to the Closing Date solely as
a
result of Treasury Regulation §1.1502-6 or any analogous or similar state,
local, or foreign law or regulation, provided,
however,
that
Seller shall not indemnify any of the Purchaser Indemnified Parties or hold
any
of them harmless from or against, (I) any Taxes that result from any actual
or
deemed election under Section 338 of the Code or any similar provisions
of
state, local or foreign law in connection with or as a result of the purchase
of
the Shares or that result from Purchaser, any Affiliates of Purchaser, Seller
or
either of the Seller Subsidiaries engaging in any activity or transaction that
would cause the transactions contemplated by this Agreement to be treated as
a
purchase or sale of assets of the Seller Subsidiaries for federal, state, local
or other Tax purposes, and (II) any Taxes imposed on either of the Seller
Subsidiaries or for which either of the Seller Subsidiaries may otherwise be
liable as a result of transactions occurring on the Closing Date that are
properly allocable (based on, among other relevant factors, factors set forth
in
Treasury Regulation §1.1502-76(b)(1)(ii)(B)) to the portion of the Closing Date
after the Closing (Taxes described in clauses (I) and (II) of this proviso,
hereinafter “Excluded
Taxes”).
Purchaser and Seller agree that, with respect to any transaction described
in
clause (II) of the preceding sentence, Purchaser and Seller and all persons
related to Purchaser and Seller under Code §267(b) immediately after the Closing
shall treat the transaction for all federal income Tax purposes (in accordance
with Treasury Regulation §1.1502-76(b)(1)(ii)(B)), and (to the extent permitted)
for other income Tax purposes, as occurring at the beginning of the day
following the Closing
Date. Seller shall be entitled to any refund of (or credit for) Taxes allocable
to any Pre-Closing Tax Period.
36
(b) Purchaser
shall indemnify,
defend
and hold harmless the Seller Indemnified Parties from, against and with respect
to, any Loss of any kind or character, arising out of or in any manner incident,
relating or attributable to,
(A) all
Taxes of the Seller
Subsidiaries,
or for
which the Seller
Subsidiaries may
otherwise be liable, for any taxable year or period that begins after the
Closing Date and, with respect to any Straddle Period, the portion of such
Straddle Period beginning after the Closing Date and (B) Excluded Taxes. Except
as otherwise provided herein, Purchaser shall be entitled to any refund of
(or
credit for) Taxes allocable to any taxable year or period that begins after
the
Closing Date and, with respect to any Straddle Period, the portion of such
Straddle Period beginning after the Closing Date.
(c) If,
as a
result of any action, suit, investigation, audit, claim, assessment or amended
Tax Return, there is any change after the Closing Date in an item of income,
gain, loss, deduction, credit or amount of Tax that results in an increase
in a
Tax liability for which Seller would otherwise be liable pursuant to paragraph
(a) of this Section 8.1, and such change results in or will result in
a
decrease in the Tax liability of the Seller
Subsidiaries,
Purchaser or any Affiliate or successor of any thereof for any taxable year
or
period beginning after the Closing Date or for the portion of any Straddle
Period beginning after the Closing Date, Seller shall not be liable pursuant
to
such paragraph (a) with respect to such increase to the extent of the present
value (using a discount rate equal to the then “Federal mid-term rate,” as that
term is defined in Code §1274(d))
of such decrease (and, to the extent such increase in Tax liability is paid
to a
taxing authority by Seller or any Affiliate thereof, Purchaser shall pay Seller
an amount equal to the present value of such decrease).
9.2 Straddle
Period.
In
the
case of any Taxable period that includes (but does not end on) the Closing
Date
(a “Straddle
Period”),
the
amount of any Taxes of the Seller Subsidiaries for the Pre-Closing Tax Period
shall be determined based on an interim closing of the books as of the close
of
the Closing Date); provided,
however,
that
exemptions, allowances or deductions that are calculated on an annual basis,
such as the deduction for depreciation, shall be apportioned on a daily
basis.
9.3 Responsibility
for Filing Tax Returns.
(a) Seller
shall timely file or cause to be timely filed (taking into account all
extensions properly obtained): (i) any consolidated, combined or unitary Tax
Return required to be filed with respect to the Seller Subsidiaries, for all
Taxable periods ending on or prior to the Closing Date and (ii) all other Tax
Returns required to be filed with respect to Seller and the Seller Subsidiaries
that are due on or prior to the Closing Date. In each case, Seller shall remit
or cause to be remitted any Taxes due in respect of any such Tax Returns, and
all such Tax Returns shall be prepared and filed in a manner consistent with
prior practice, except as required by a change in applicable Legal Requirements
or to the extent a failure to do so will not materially affect any post-Closing
Tax liability of the Seller Subsidiaries. Purchaser shall have the right to
review and comment on (but not approve) any such Tax Returns prepared by
Seller. Purchaser shall cause the Seller Subsidiaries to furnish
information to Seller as reasonably requested by Seller to allow Seller to
satisfy its obligations under this Section 9.3 in accordance with prior
practice.
37
(b) Purchaser
shall timely file or cause to be timely filed (taking into account all
extensions properly obtained) any Tax Returns required to be filed with respect
to the Seller Subsidiaries for any taxable year or period ending after the
Closing Date and any Straddle Period that Seller is not required to file
pursuant to paragraph (a) of this Section 9.3. Purchaser shall remit
or
cause to be remitted any Taxes due in respect of any such Tax Returns. With
respect to Tax Returns to be filed by Purchaser pursuant to this paragraph
(b)
that relate to Taxable years or periods ending on or prior to the Closing Date
or any Straddle Period (x) such Tax Returns shall be prepared and filed in
a
manner consistent with prior practice, except as required by a change in
applicable Legal Requirements or to the extent a failure to do so will not
materially affect any Tax liability of Seller or either of the Seller
Subsidiaries for any Pre-Closing Tax Period and (y) such Tax Returns shall
be
submitted to Seller prior to filing and not later than 30 days prior to the
due
date (taking into account all extensions properly obtained) for filing such
Tax
Returns (or, if such due date is within 45 days following the Closing Date,
as
promptly as practicable following the Closing Date) for review and approval
by
Seller, which approval may not be unreasonably withheld, but may in all cases
be
withheld if such Tax Returns were not prepared in accordance with clause (x)
of
this sentence.
(c) Seller
or
Purchaser shall pay the other party for the Taxes for which Seller or Purchaser,
respectively, is liable pursuant to Section 9.1 but which are payable
with
any Tax Return to be filed by the other party pursuant to this Section 9.3
upon the written request of the party entitled to payment, setting forth in
detail the computation of the amount owed by Seller or Purchaser, as the case
may be, but in no event earlier than ten (10) days prior to the due date for
paying such Taxes.
(d) Purchaser
shall not amend or cause the amendment of a Tax Return of the Seller
Subsidiaries, change an annual accounting period, adopt or change any accounting
method, or file or amend any Tax election concerning the Seller Subsidiaries,
with respect to any period ending on or prior to the Closing Date (including
with respect to a Straddle Period, the portion of such period ending on the
Closing Date pursuant to 9.2) without the written consent of Seller. The
Purchaser shall, upon request by Seller, cause either of the Seller Subsidiaries
to cooperate in the preparation of and submission to the proper Tax authority
of
any amended Tax Return with respect to the Company for any taxable period ending
on or prior to the Closing Date or any Straddle Period that includes the Closing
Date.
9.4 Cooperation
on Tax Matters.
(a) Purchaser
and Seller shall cooperate fully, as and to the extent reasonably requested
by
the other Party, in connection with the filing of Tax Returns pursuant to
Section 9.3 above and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other Party’s request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide
38
additional
information and explanation of any material provided hereunder. Purchaser and
Seller agree (i) to retain all books and records with respect to Tax matters
pertinent to the Target Companies relating to any Pre-Closing Tax Period until
the expiration of the statute of limitations (and, to the extent notified by
Purchaser or Seller, any extensions thereof) of the respective taxable periods,
and to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other Party reasonable notice prior to
transferring, destroying or discarding any such books and records and, if the
other Party so requests, Purchaser or Seller, as the case may be, shall allow
the other Party to take possession of such books and records.
(b) Purchaser
and Seller further agree, upon request, to provide the other Party with all
information that either Party may be required to report pursuant to Code §6043
and all Treasury Regulations promulgated thereunder.
(c) Seller
shall provide Purchaser with any information reasonably requested for Purchaser
to determine the amount of any net operating losses and similar Tax attributes
available to the Seller Subsidiaries after the Closing Date, it being understood
that such information may not be available until final Tax calculations relating
to Seller’s consolidated federal income Tax Return have been
completed.
(d) Subject
to Section 9.1(a)(I) above, if Purchaser makes an election under
Section 338 of the Code or any similar provisions of state, local or
foreign law in connection with the purchase of the Shares (excluding any
election under Section 338(h)(10) of the Code or any state law equivalent),
which Purchaser shall have the right to do in its sole discretion, Seller shall
join in such election to the extent such joint action is required by applicable
Legal Requirements to make Purchaser’s election effective.
9.5 Tax
Sharing Agreements.
All
Tax
sharing agreements as and to the extent applied to the Seller Subsidiaries
shall
be terminated as of the Closing and, after the Closing, the Seller Subsidiaries
shall not be bound thereby or have any liability or rights
thereunder.
9.6 Certain
Taxes and Fees.
All
transfer, documentary, sales, use, stamp, registration and other such Taxes,
and
all conveyance fees, recording charges and other fees and charges (including
any
penalties and interest) incurred in connection with consummation of the
transactions contemplated by this Agreement shall be paid one-half
by Purchaser and one-half by Seller when due, and each of Purchaser and Seller
will,
at their
own expense, file all necessary Tax Returns and other documentation with respect
to all such Taxes, fees and charges. Purchaser and Seller agree, upon request,
to use their best efforts to obtain any certificate or other document from
any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any such Tax that could be imposed.
39
9.7 Contest
Provisions.
Purchaser
shall promptly notify Seller in writing upon receipt by Purchaser, any of its
Affiliates, or any of the Seller Subsidiaries of notice of any pending or
threatened federal, state, local or foreign Tax audits, examinations or
assessments which might affect the Tax liabilities for which Seller may be
liable pursuant to Section 9.1. Seller shall have the sole right to
represent each Seller Subsidiary’s interests in any Tax administrative or court
proceeding relating to taxable periods ending on or prior to the Closing Date
or
otherwise relating to Taxes for which Seller may be liable pursuant to
Section 9.1, and to employ counsel of its choice at its expense. In
the
case of a Straddle Period, Seller shall be entitled to participate at its
expense in any Tax administrative or court proceeding relating (in whole or
in
part) to Taxes attributable to the portion of such Straddle Period ending on
and
including the Closing Date and, with the written consent of Purchaser, and
at
Seller’s sole expense, may assume the entire control of such proceeding. None of
Purchaser, any of its Affiliates, or either of the Seller Subsidiaries may
settle any Tax claim for any Taxes for which Seller may be liable pursuant
to
Section 9.1, without the prior written consent of Seller.
9.8 Carrybacks.
Purchaser
shall
not
carryback any post-acquisition Tax attributes of either of the Seller
Subsidiaries into the Seller’s consolidated federal income Tax Return (or any
similar return under state, local or other Tax law).
9.9 Sole
Remedy.
Purchaser’s
sole remedy with respect to Tax matters and as to any Losses arising
out of or in any manner incident, relating or attributable to any inaccuracy
in
any representation or breach of any warranty of Seller contained in Article
4
respecting Tax matters shall
be
under this Article 9, but subject to Sections 8.2, 8.3 and 8.4
above.
ARTICLE
10. MISCELLANEOUS
10.1 Press
Release and Public Announcements.
No
party
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of Purchaser
(if Seller proposes to make such disclosure) or Seller (if Purchaser proposes
to
make such disclosure); provided, however, that Purchaser may issue any press
release or make any public announcement it believes in good faith is required
by
applicable Legal Requirements or any listing or trading agreement concerning
the
publicly traded securities of Purchaser or its Affiliates.
10.2 Confidential
Information.
The
Parties acknowledge that the transaction described herein is of a confidential
nature and shall not be disclosed except to consultants, advisors and
Affiliates, or as required by applicable Legal Requirements, until such time
as
the Parties make a public announcement regarding
the transaction as provided in Section 10.1. No party shall make any
public
disclosure of the specific terms of this Agreement, except as required by
applicable Legal Requirements. In connection with the negotiation of this
Agreement and preparation for the consummation of the transactions contemplated
hereby, each party acknowledges that it will have access to confidential
information relating to the other party.
40
10.3 Expenses.
Except
as
otherwise provided in this Agreement, Seller and Purchaser shall each bear
their
own expenses incurred in connection with the negotiation and execution of this
Agreement and each other agreement, document and instrument contemplated by
this
Agreement and the consummation of the transactions contemplated hereby and
thereby.
10.4 Specific
Performance.
The
Parties acknowledge and agree that the breach of this Agreement by a Party
would
cause irreparable damage to the other and that the non-breaching Party will
not
have an adequate remedy at law. Therefore, the obligations of the Parties under
this Agreement, including Seller’s obligation to transfer and convey the
Purchased Assets and Assigned Rights to Purchaser, shall be enforceable by
a
decree of specific performance issued by any court of competent jurisdiction,
and appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.
10.5 Further
Assurances.
Each
Party agrees to execute and deliver such other documents or agreements and
to
take such other action as may be reasonably necessary or desirable for the
implementation of this Agreement and the consummation of the transactions
contemplated hereby.
10.6 Entire
Agreement; Amendments and Waivers.
This
Agreement (including the Schedules and Exhibits hereto) represents the entire
understanding and agreement between the Parties hereto with respect to the
subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the party against whom enforcement of
any
such amendment, supplement, modification or waiver is sought. No action taken
pursuant to this Agreement, including, any investigation by or on behalf of
any
party, shall be deemed to constitute a waiver by the Party taking such action
of
compliance with any representation, warranty, covenant or agreement contained
herein. The waiver by any Party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver
of
such breach or as a waiver of any other or subsequent breach. No failure on
the
part of any party to exercise, and no delay in exercising, any right, power
or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any
other
or further exercise thereof or the exercise
of any other right, power or remedy. All remedies hereunder are cumulative
and
are not exclusive of any other remedies provided by law.
41
10.7 Governing
Law.
This
agreement shall be governed by and construed and enforced in accordance with
the
laws of the State of Delaware applicable to contracts made in that state,
without giving effect to the conflict of laws principles thereof.
10.8 Dispute
Resolution.
If,
after
the Closing, the Parties should have any dispute arising out of or relating
to
this Agreement, any other documents or agreements delivered in connection with
this Agreement, or the Parties’ respective rights and duties hereunder or
thereunder (excluding only those matters relating to Purchaser’s Closing
Statement and the Loan Adjustment, RMR Adjustments and Correction Adjustments,
which are to be resolved in accordance with Section 2.5.1) (in each case, a
“Dispute”),
then
the Parties will resolve such Dispute in the following manner:
(a) Dispute
Notice.
Either
Party may at any time deliver to the other a notice identifying a Dispute (the
“Dispute
Notice”).
The
Dispute Notice shall initiate the dispute resolution mechanism contemplated
by
this Section 10.8. Within 15 days after delivery of the Dispute Notice, the
receiving Party shall submit to the other a written response. The Dispute Notice
and the written response thereto shall state with particularity the facts and
conditions giving rise to the Dispute and shall include (i) a statement of
each
party’s position and a summary of arguments supporting that position and (ii)
the name and title of the persons who will represent that Party in the
negotiations contemplated by Section 10.8(b).
(b) Good
Faith Negotiation.
Within
30 days after delivery of the Dispute Notice, the designated representatives
of
both parties shall attempt in good faith to resolve the Dispute and shall meet
at a mutually acceptable time and place, and as often as they reasonably deem
necessary, to attempt to resolve the Dispute. All negotiations pursuant to
this
Section 10.8(b) shall be confidential and shall be treated as compromise
and settlement negotiations for purposes of applicable rules of
evidence.
(c) Arbitration.
If the
representatives of the Parties are unable to resolve the Dispute through
negotiations within ninety (90) days after delivery of the Dispute Notice,
then
the Dispute shall be resolved by final and binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(“AAA”),
as
the same may be modified by the terms of this Agreement. Within ten (10) days
of
the expiration of the 90-day period referenced in this Section 10.8(c), the
demanding Party may initiate arbitration by making a written demand for
arbitration on the other party and simultaneously filing copies of the demand,
together with the required fees, with the New York, New York office of the
AAA.
Within ten (10) business days after receipt of such demand by the other Party,
each Party shall designate one arbitrator and the two arbitrators named by
the
Parties will, within ten (10) business days thereafter, select a third
arbitrator (the three arbitrators being collectively referred to herein as
the
“Arbitration
Panel”).
The
Arbitration Panel shall cause a hearing to be held
42
(d) Place
of Arbitration; Decision; Fees and Expenses.
The
place of arbitration shall be New York, New York. The Parties expressly covenant
and agree to be bound by the decision of the Arbitration Panel and accept any
such decision as the final determination of the matter in dispute. The
Arbitration Panel may grant any remedy appropriate including injunctive relief
or specific performance. Prior to the appointment of the Arbitration Panel,
any
Party may seek a temporary restraining order or a preliminary injunction any
court of competent jurisdiction which shall be effective until a final decision
is rendered by the Arbitration Panel. Any decision, award and/or judgment
rendered by the Arbitration Panel may be entered in any court having competent
jurisdiction; provided, however, if an award of injunctive relief or specific
performance by the Arbitration Panel cannot be so entered in court, appropriate
injunctive relief or specific performance may be separately applied for and
granted in any court having competent jurisdiction. The expenses and fees of
the
Arbitration Panel shall be borne as set forth in the award of the Arbitration
Panel.
10.9 Table
of Contents and Headings; Certain Interpretations
The
table
of contents and section headings of this Agreement are for reference purposes
only and are to be given no effect in the construction or interpretation of
this
Agreement. Except as otherwise expressly provided in this Agreement: (i) any
reference in this Agreement to any agreement, document or instrument includes
all permitted supplements and amendments; (ii) a reference to a law includes
any
amendment or modification to such law and any rules or regulations issued
thereunder; (iii) the words “include,”“included” and “including” are not
limiting; and (iv) a reference to a person or entity includes its permitted
successors and assigns.
10.10 Notices.
All
notices, requests, approvals, consents, demands, claims and other communications
required or permitted to be given under this Agreement (for purposes of this
Section only, individually and collectively, “Notices”)
shall
be in writing and shall be served personally, or sent by a national overnight
delivery or courier company, or by United States registered or certified mail,
postage prepaid, return receipt requested, and addressed as
follows:
If
to
Purchaser, to: Integrated
Alarm Services Group, Inc.
00
Xxxx
Xxxxxx
Xxxxxx,
Xxx Xxxx 00000
Attention:
C.E.O. or President
Facsimile:
(000) 000-0000
43
With
copies to: Xxxxx,
Xxxxxxx & Xxxxxxxx LLP
00000
Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxx, Esq.
Facsimile:
(000) 000-0000
If
to
Seller to: Financial
Security Services Inc.
00000
Xxxx Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx,
Xxxxx 00000
Attention:
C.E.O. or President
Facsimile:
(000) 000-0000
With
a
copy to: Xxxxxxxx
Xxxxxxx Van Deuren s.c.
0000
Xxxxx Xxxxx Xxxxxx
Xxxxx
0000
Xxxxxxxxx,
Xxxxxxxxx 00000
Attention:
Xxxxxx X. Xxx, Esq.
Facsimile:
(000) 000-0000
Any
such
Notices shall be deemed delivered upon delivery or refusal to accept delivery
as
indicated in writing by the Person attempting to make personal service, on
the
U.S. Postal Service return receipt, or by similar written advice from the
overnight delivery company; provided, however, that if any such Notice shall
also be sent by electronic transmission device, such as telex, telecopy, fax
machine or computer to the fax number, if any, set forth above, such Notice
shall be deemed given at the time and on the date of machine transmittal (except
if sent after 5:00 p.m. recipient’s time, then the notice shall be deemed given
at 9:00 a.m. on the next Business Day) if the sending party receives a written
send verification on its machine and sends a duplicate Notice on the same day
or
the next Business Day by personal service, registered or certified United States
mail, or overnight delivery in the manner described above. Each party hereto
shall make an ordinary, good faith effort to ensure that it will accept or
receive Notices that are given in accordance with this paragraph, and that
any
Person to be given Notice actually receives such Notice. Any party to whom
Notices are to be sent pursuant to this Agreement may from time to time change
its address and/or facsimile number for future communication hereunder by giving
notice in the manner prescribed herein to all other Parties hereto, provided
that the address and/or facsimile number change shall not be effective until
five (5) Business Days after the notice of change has been given.
10.11 Severability.
Any
term
or provision of this Agreement that is invalid or unenforceable in any situation
in any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability of
the
offending term or provision in any other situation or in any other
jurisdiction.
44
10.12 Binding
Effect; Assignment.
This
Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors, permitted assigns, heirs and personal
representatives. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights in any Person not a party to this Agreement
except as provided below. No assignment of this Agreement or of any rights
or
obligations hereunder may be made by any Party hereto (by operation of law
or
otherwise) without the prior written consent of the other Parties hereto and
any
attempted assignment without the required consents shall be void; provided,
however, that Purchaser may assign this Agreement and any or all rights or
obligations hereunder (including Purchaser’s rights to purchase the Purchased
Assets and Assigned Rights and Purchaser’s rights to seek indemnification
hereunder) to any Affiliate of Purchaser. Upon any such permitted assignment,
the references in this Agreement to Purchaser shall also apply to any such
assignee unless the context otherwise requires and the assigning Purchaser
shall
nevertheless remain primarily liable for its obligations hereunder.
10.13 Books
and Records.
Each
Party agrees that it will cooperate with and make available to the other
Parties, during normal business hours, all corporate books and records,
information and employees (without substantial disruption of employment)
retained and remaining in existence after the Closing which are necessary or
useful in connection with any Tax inquiry, audit, investigation or dispute,
any
litigation or investigation or any other matter requiring any such corporate
books and records, information or employees for any reasonable business purpose.
The Party requesting any such corporate books and records, information or
employees shall bear all of the out-of-pocket costs and expenses (including
attorneys’ fees, but excluding reimbursement for salaries and employee benefits)
reasonably incurred in connection with providing such books and records,
information or employees.
10.14 Exhibits
and Schedules.
All
instruments or documents to be delivered by any Party to this Agreement shall
be
in form and content reasonably satisfactory to the counsel for the Party
receiving such instrument or document. All
Exhibits and Schedules attached hereto and referred to herein are hereby
incorporated herein as though fully set forth at length as an integral part
of
this Agreement.
10.15 Attorneys’
Fees and Costs.
In
the
event of any action at law or in equity between the Parties hereto to enforce
any of the provisions hereof, the court shall have the discretion to require
the
unsuccessful party or parties to such arbitration or litigation (as determined
by the Arbitration Panel or the court, as applicable) to pay to the successful
party or parties costs and expenses, including reasonable attorneys’ fees,
incurred therein by such successful party or parties; and if such successful
party or parties shall recover award or judgment in any such action or
proceeding, such costs, expenses and attorneys’ fees may be included in and as
part of such award or judgment.
45
10.16 Counterparts;
Facsimile Signatures.
This
Agreement may be executed in one or more counterparts by the Parties hereto.
All
counterparts shall be construed together and shall constitute one agreement.
This Agreement, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects and for all purposes as
an
original agreement and shall be considered to have the same binding legal effect
as if it were the original signed version thereof delivered in person. At the
request of either Party, the other Party shall re-execute original forms hereof
and deliver them to the requesting Party. No Party hereto shall raise the use
of
a facsimile machine to deliver a signature or the fact that any signature was
transmitted or communicated through the use of a facsimile machine as a defense
to the formation or enforceability of a contract and each Party forever waives
any such defense.
ARTICLE
11. DEFINED
TERMS
| 11.1 |
Definitions.
|
The
following definitions of terms used in this Agreement are in addition to any
other terms which are defined in this Agreement:
(a) “Affiliated
Entity”
means,
with respect to a Person, any other Person directly or indirectly controlling,
controlled by, or under common control with such Person.
(b) “Affiliated
Parties”
means,
with respect to a Person, all of its shareholders, officers, members, managers,
directors, trustees, employees, advisors, representatives, attorneys, agents
and
accountants.
(c) “Affiliates”
collectively means, with respect to a Person, its Affiliated Parties and
Affiliated Entities.
(d) “Assumed
Alarm Contracts”
means,
collectively, the Dealer Contracts and the Retail Contracts.
(e) “Assumed
Loans”
means
all loans receivable of Seller or the Seller Subsidiaries, all of which are
described on Schedule
1.1(e),
and all
other loan documents (including contracts for the purchase of the end user
accounts of dealers) executed or delivered under the dealer loan programs
described in the Recitals to this Agreement above, which evidence and/or secure
such loans.
(f) “Basis”
means
any past or present fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction that forms or could be reasonably likely to form the basis for
any
specified consequence.
46
(g) “Business
Day”
means
any day other than a Saturday, a Sunday or a day on which banks in
New York, New York are authorized or required by law to close.
(h) “Dealer
Contracts”
means
all of the Target Companies’ wholesale dealer agreements for central station
monitoring services, each of which is specified in Schedule
1.1(d).
(i) “Employee
Benefit Plan”
means
any (a) nonqualified deferred compensation or retirement plan or arrangement
which is an Employee Pension Benefit Plan, (b) qualified defined contribution
retirement plan or arrangement which is an Employee Pension Benefit Plan, (c)
qualified defined benefit retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan.
(j) “Employee
Pension Benefit Plan”
has the
meaning set forth in ERISA Section 3(2).
(k) “Employee
Welfare Benefit Plan”
has the
meaning set forth in ERISA Section 3(1).
(l) “GAAP”
means
generally accepted United States accounting principles as in effect from time
to
time.
(m) “Governmental
Entity”
means
any government or any agency, bureau, commission, court, authority, department,
official, political subdivision, administrative body, tribunal or other
instrumentality of any government, whether federal, state or local, domestic
or
foreign.
(n) “Legal
Proceeding”
means
any judicial, administrative or arbitral actions, suits, proceedings (public
or
private), claims or governmental proceedings.
(o) “Legal
Requirement”
means
any law, rule, regulation, Order or ordinance of any Governmental Entity,
including Environmental, Health and Safety Requirements.
(p) “Liability”
or
“Liabilities”
means
any commitments, liabilities, obligations (including Contract and capitalized
lease obligations), indebtedness, accounts payable and accrued expenses (whether
any of the foregoing are known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability
or
obligation for Taxes.
(q) “Liens”
means
any mortgage, deed of trust, pledge, lien, security interest, encumbrance,
charge, assessment, conditional sales agreement, occupancy agreement,
restriction on transfer (including under any agreement with or among any
shareholders,), option, easment, claim or any other restriction or limitation
whatsoever respecting property of any Person or respecting any Contract or
any
Intellectural Property.
47
(r) “Material
Adverse Effect”
or
“Material
Adverse Change”
means,
with respect to the Business, the Purchased Assets and the Assigned Rights,
any
material adverse effect or material adverse change, either individually or
in
the aggregate, in the condition (financial or otherwise), operations, assets,
liabilities of the Business, the Purchased Assets (including the Assigned
Rights) or on the ability of Seller to consummate the transactions contemplated
hereby, or any event or condition which would, with the passage of time,
constitute any of the foregoing.
(s) “Non-Qualified
Alarm Contract”
means
as of any given date an Assumed Alarm Contract which as of such date is not
a
Qualified Alarm Contract.
(t) “Order”
means
any order, injunction, judgment, decree, ruling, writ, assessment or arbitration
award.
(u) “Ordinary
Course of Business”,
with
respect to a Person, means such Person’s usual and ordinary course of business
consistent with past custom and practice.
(v) “Permitted
Liens”
means
(i)
Liens for nondelinquent ad valorem Taxes or other current Taxes not yet due
and
payable; (ii) statutory
liens of landlords, liens of carriers, warehousepersons, mechanics and material
persons to the extent incurred in the ordinary course of business for sums
not
yet due and payable; (iii) liens incurred or deposits made in connection with
workers’ compensation, unemployment insurance and other similar types of social
security programs or to secure statutory obligations to the extent incurred
in
the ordinary course of business for sums not yet due and payable; (iv)
easements,
rights-of-way, restrictions and other similar charges or encumbrances, in each
case, which do not interfere with the ordinary conduct of business and do not
materially detract from the value of the property upon which such encumbrance
exists; and
(v)
Liens that will be released in connection with the Closing.
(w) “Person”
means
an individual, a partnership, a limited liability company or partnership, a
corporation, an association, a joint stock company, a trust, a joint venture,
an
unincorporated organization, a Governmental Entity or any other form of entity
or company.
(x) “Qualified
Alarm Contract”
as of
any given date means an Assumed Alarm Contract which as of such date satisfies
the criteria set forth in Exhibit
A.
(y) “Retail
Contracts”
means
all of the Target Companies’ retail monitoring agreements for Subscribers
(including those obtained from a third party dealer other than those obtained
pursuant to a contract executed and delivered under any of the Assumed Loans),
each of
which
is specified in Schedule
1.1(d).
(z) “RMR”
means
the recurring monthly revenue respecting an Acquired Monitoring Contract;
provided, however, that RMR shall not include (a) time and materials charges,
installation charges or from any other like charges that are non-recurring,
non-regular services; (b) reimbursement for or prepayment of telephone line
and
other utility company charges associated with the account under the Monitoring
Contract; (c) any and all taxes, fees or other charges imposed by any
governmental authority relative to the furnishing of alarm services,
whether
or not such taxes, fees or other charges have been billed to the customer and/or
paid by the Purchaser or Seller; and (d) reimbursement for or prepayment of
any
false alarm assessments.
48
(aa) “Subscriber”
means a
Person who has entered into a contract for the purpose of obtaining alarm system
installation, servicing and/or central station monitoring services for such
Person’s place of business or residence.
(bb) “Subsidiary”
means
any corporation, limited liability company or other entity with respect to
which
a specified Person (or a Subsidiary thereof) owns a majority of the common
stock
or other voting interests or otherwise has the power to vote or direct the
voting of sufficient securities to elect a majority of the directors, managers
or other Persons controlling the activities of the entity.
(cc) “To
the
Knowledge of Seller”
or
other term of similar import means the actual knowledge of the following
directors, officers, senior managers and key employees of Seller or the Seller
Subsidiaries: Xxxx Xxxxxx, Xxxxx Xxxx, Xxxx Xxxxxx, Xxx Xxxxxxxx and Xxxx
Xxxxxxx, after
reasonable consultation with and inquiry of all employees or agents of any
of
the Target Companies who could reasonably be expected to have knowledge or
information with respect to the matter in question.
| 11.2 |
Other
Definitions.
|
In
addition to the foregoing, the following terms shall have the respective
meanings assigned thereto in the Sections indicated below:
|
Term
|
Section
|
|
AAA
|
10.8(c)
|
|
Account
Purchase Contracts
|
1.2(i)
|
|
Accounts
Receivable
|
4.21
|
|
Accounts
Receivable Amount
|
2.1.1
|
|
Adjustment
Date
|
2.3.2
|
|
Adjustment
Holdback Amount
|
2.2(b)
|
|
Affiliated
Group
|
4.6(a)(iv)
|
|
Agreement
|
Preamble
|
|
Ancillary
Agreements
|
4.12
|
|
Arbiter
|
2.5.1
|
|
Arbitration
Panel
|
10.8(c)
|
|
Assigned
Rights
|
1.2
|
|
Assigned
Supply Contracts
|
1.2(e)
|
|
Assumed
Alarm Contracts
|
1.1(e)
|
|
Assumed
Accruals
|
2.1.1
|
|
Assumed
Liabilities
|
3.1
|
|
Assumed
Loans
|
1.1(f)
|
|
Audited
Balance Sheet Date
|
4.3(a)
|
49
|
Audited
Balance Sheets
|
4.3(a)
|
|
Base
Purchase Price
|
2.1.1
|
|
Xxxx
of Sale
|
7.2.2
|
|
Books
and Records
|
1.1(c)
|
|
Business
|
Recitals
|
|
Business
Day
|
2.5.2
|
|
Central
Station
|
1.2(c)
|
|
Central
Station Property
|
4.8(a)
|
|
Closing
|
8.1
|
|
Closing
Date
|
Preamble
|
|
Closing
Loan Balances
|
2.6.1
|
|
COBRA
|
6.1.6
|
|
Code
|
4.6(a)(iii)
|
|
Contracts
|
1.2(k)
|
|
Correction
Adjustment
|
2.1.2
|
|
Dealer
Contracts
|
1.1(e)
|
|
Deferred
Revenue
|
2.1.1
|
|
Dispute
|
10.8
|
|
Dispute
Notice
|
10.8(a)
|
|
Environmental,
Health and Safety Requirements
|
4.14(a)
|
|
Equipment
|
1.1(g)
|
|
ERISA
|
3.2(g)
|
|
ERISA
Affiliates
|
4.15
|
|
Escrow
Agent
|
2.2(b)
|
|
Escrow
Agreement
|
2.2(b)
|
|
Excluded
Assets
|
1.3
|
|
Excluded
Contracts
|
1.3(e)
|
|
Excluded
Liabilities
|
3.2
|
|
Excluded
Records
|
1.3(j)
|
|
Excluded
Taxes
|
9.1(a)
|
|
Fields
Litigation
|
8.1
|
|
Final
Closing Statement
|
2.5
|
|
Final
Purchase Price
|
2.5.2
|
|
GAAP
|
2.6.2
|
|
Holdback
Amount
|
2.2(a)
|
|
Indemnification
Threshold
|
8.2
|
|
Indemnitee
|
8.7
|
|
Indemnifying
Party
|
8.7
|
|
Indemnity
Holdback Amount
|
2.2(b)
|
|
Intellectual
Property
|
1.1(a)
|
|
Legal
Requirement(s)
|
4.5(b)
|
|
Licenses
and Permits
|
1.2(a)
|
|
Liens
|
4.13
|
|
Loan
Adjustment
|
2.3.1
|
50
|
Loan
Balance
|
2.3.1
|
|
Loss
or Losses
|
8.1
|
|
Most
Recent Fiscal Month End
|
4.3(a)
|
|
Most
Recent Fiscal Year End
|
4.3(a)
|
|
Most
Recent Seller Financial Statements
|
4.3(a)
|
|
Non-Solicitation
Agreements
|
6.3
|
| Permitted Liens | 4.13 |
|
Personal
Property Leases
|
1.2(b)
|
|
Pre-Closing
Date
|
7.1
|
|
Pre-Closing
Tax Period
|
9.1(a)
|
|
Properties
|
4.8(a)
|
|
Provisional
Adjustment
|
2.4
|
|
Provisional
Purchase Price
|
2.4
|
|
Purchase
Price
|
2.1.1
|
|
Purchased
Assets
|
1.1
|
|
Purchaser
|
Preamble
|
|
Purchaser
Agreements
|
8.6
|
|
Purchaser
Indemnified Parties
|
8.1
|
|
Purchaser’s
Closing Statement
|
2.5
|
|
Qualified
Retail RMR
|
2.3.2
|
|
Qualified
Wholesale RMR
|
2.3.2
|
|
Real
Property Lease
|
1.2(c)
|
|
Retail
A/R
|
2.1.1
|
|
Retail
Contracts
|
1.1(e)
|
|
RMR
Adjustments
|
2.3.2
|
|
SCC
|
Recitals
|
|
SCC
Shares
|
Recitals
|
|
Seller
|
Preamble
|
|
Seller
Agreements
|
8.1
|
|
Seller
Financial Statements
|
4.3(a)
|
|
Seller
Indemnified Parties
|
8.6
|
|
Seller
Intellectual Property
|
4.10
|
|
Seller
Subsidiaries
|
Recitals
|
|
Seller’s
Closing Statement
|
2.4
|
|
Seller’s
Names
|
1.1(d)
|
|
Shares
|
Recitals
|
|
Special
Claims
|
8.2
|
|
SPN
|
Recitals
|
|
SPN
Shares
|
Recitals
|
|
Straddle
Period
|
9.2
|
|
Successor
Liability Taxes
|
4.6(b)
|
|
Target
Companies
|
Recitals
|
|
Tax
|
4.6(a)(i)
|
51
|
Tax
Returns
|
4.6(a)(ii)
|
|
Taxes
|
4.6(a)(i)
|
|
Telephone
Equipment
|
1.1(h)
|
|
Third-Party
Software
|
1.2(g)
|
|
Transfer
Taxes
|
2.7
|
|
Unaudited
Balance Sheet
|
4.3(a)
|
|
Unaudited
Balance Sheet Date
|
4.3.(a)
|
|
Unfilled
Purchase Orders
|
1.2(f)
|
[SIGNATURES
ON FOLLOWING PAGE]
52
IN
WITNESS WHEREOF, Seller and Purchaser have duly executed and delivered this
Asset Purchase Agreement as of the Closing.
|
SELLER:
FINANCIAL
SECURITY SERVICES INC.,
a
Delaware corporation
By: /s/
Xxxxxxx Xxxxxx
Xxxxxxx
Xxxxxx
Chief
Executive Officer and President
|
|
|
PURCHASER:
INTEGRATED
ALARM SERVICES GROUP, INC.,
a
Delaware corporation
By: /s/
Xxxxxx X. Few, Sr.
Xxxxxx
X. Few Sr.
President
|
|
53
Schedules
to the Asset Purchase Agreement
|
Schedule Number
|
Description
|
|
1.1(d)
|
Assumed
Alarm Contracts
|
|
1.1(e)
|
Assumed
Loans
|
|
1.2(a)
|
Licenses
and Permits
|
|
1.2(b)
|
Personal
Property Leases
|
|
1.2(d)
|
Telephone
Numbers
|
|
1.2(e)
|
Assigned
Supply Contracts
|
|
1.2(f)
|
Unfilled
Purchase Orders
|
|
1.2(g)
|
Third
Party Software
|
|
1.2(i)
|
Account
Purchase Contracts
|
|
1.3(c)
|
Excluded
Contracts
|
|
1.3(i)
|
Other
Excluded Assets
|
|
2.2.1(b)
|
Accounts
Receivable Amount
|
|
2.2.1(c)
|
Deferred
Revenue
|
|
2.2.1(d)
|
Assumed
Accruals
|
|
4.3(a)(i)-(iv)
|
Seller
Financial Statements
|
|
4.3(b)
|
Undisclosed
Liabilities
|
|
4.4
|
Litigation
|
|
4.5(a)
|
Exceptions
- Licenses and Permits
|
|
4.5(b)
|
Exceptions
- Compliance with Law
|
|
4.6(d)
|
Tax
Returns
|
|
4.7
|
Absence
of Certain Changes
|
|
4.8(a)
|
Real
Property Matters
|
|
4.8(b)
|
Real
Property Liens
|
|
4.9(a)
|
Contracts
|
|
4.10
|
Seller
Intellectual Property
|
|
4.11
|
No
Consent Requirements
|
|
4.13
|
Personal
Property
|
|
4.14
|
Environmental
Compliance
|
|
4.15(a)-(e)
|
Labor
Matters
|
|
4.18.3
|
Seller
Subsidiary Bank Accounts
|
|
4.19
|
Related
Party Transactions
|
|
4.24
|
Product
Liability and Working Conditions
|
|
4.25
|
Insurance
|
Exhibits
to the Asset Purchase Agreement
|
Exhibit
Number
|
Description
|
|
Exhibit
A
|
Qualified
Alarm Contract Criteria
|
54
EXHIBIT
"A"
Qualified
Alarm Contract Criteria
"Qualified
Alarm Contract"
as of
any given date (the "Measurement
Date")
means:
(a) A
Dealer
Contract that (i) is not delinquent and (ii) has not been terminated, and the
dealer has not given express notice (oral or written) of such dealer's intention
to terminate the Dealer Contract. "Delinquent" shall mean, with respect to
a
Dealer Contract, one full month of RMR for a Dealer Contract providing for
monthly payments, or in which one full payment used to calculate RMR for a
Dealer Contract providing for non-monthly payments, is delinquent by more than
ninety (90) days; or
(b) A
Retail
Contract that meets all of the following criteria as of the Measurement
Date:
(i) The
monitoring system covered by the Retail Contract is installed at the
Subscriber’s premises, fully operational and download-capable.
(ii) The
Retail Contract has not been terminated, and the Subscriber has not given
express notice (oral or written) of such Subscriber's intention to terminate
the
Retail Contract.
(iii) The
Retail Contract is on a form that has been approved by Purchaser and also meets
all of the following requirements (provided, however, that Purchaser agrees
to
accept up to 5% of all Retail Contracts without properly executed or written
Contracts, if such Retail Contracts meet the criteria set forth in sections
(b)(i), (ii) and (iv) of this Exhibit A):
| · |
The
original thereof, with original legible signatures of the Subscriber
and
Seller, has been delivered to Purchaser at or prior to the Measurement
Date.
|
| · |
The
RMR is clearly indicated thereon.
|
| · |
A
three day right of rescission clause is contained within the Retail
Contract for residential accounts and has been signed and dated (or
a
separate three day right of rescission has been signed and dated)
and the
three-day rescission period has either expired prior to the Measurement
Date or, if it has not expired prior to the Measurement Date, no
rescission shall have occurred within the three-day recession period
after
the Measurement Date.
|
| · |
There
are no provisions contained therein which in any way prohibit or
restrict,
or otherwise require the Subscriber to consent to, the transfer and
assignment of either the Retail Contract or the central station monitoring
thereunder to Purchaser.
|
| · |
Contains
a so-called “Limitation of Liability” clause on residential accounts in
form and in a not-to-exceed amount acceptable to
Purchaser.
|
| · |
The
original term is no less than 1 year with renewals on a minimum of
an
annual basis and the original or any applicable renewal term has
not
expired.
|
1
| · |
Contains
provisions allowing for central station
monitoring.
|
| · |
Does
not have any representations for Life-Time Warranty and provides
that all
maintenance, parts and labor may be charged to the Subscriber at
industry
standard rates.
|
(iv) The
Subscriber’s account is not delinquent. "Delinquent" shall mean, with respect to
a Retail Contract, one full month of RMR for a Retail Contract providing for
monthly payments, or in which one full payment used to calculate RMR for a
Retail Contract providing for non-monthly payments, is delinquent by more than
sixty (60) days.
2
