Exhibit 10.13
STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 21, 1994
AMONG
AV ALARM, INC.
AUSTIN VENTURES III-A, L.P.,
AUSTIN VENTURES III-B, L.P.,
TABLE OF CONTENTS
Page
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1. Authorization of the Preferred Stock......................................1
2. Purchase and Sale: Closings...............................................1
2A. Purchase and Sale of Preferred Stock................................1
2B. The Closings........................................................2
3. Conditions to Each Purchaser's Obligations at a Closing...................2
3A. Representations, Warranties and Covenants...........................3
3B. Inspection of Property..............................................3
3C. No Adverse Changes..................................................3
3D. Amendment to Articles of Incorporation: Articles of Amendment.......3
3E. Acquisition of the Assets...........................................3
3F. Shareholders Agreement..............................................3
3G. Registration Agreement..............................................3
3H. Employment Agreement................................................3
3I. Proprietary Information Agreements..................................4
3J. Indemnification Agreements..........................................4
3K. Life Insurance......................................................4
3L. Adoption of 1994 Stock Option Plan..................................4
3M. Financing Commitment................................................4
3N. Sale of Preferred Stock to Each Purchaser...........................4
3O. Consents: Regulatory Approvals......................................4
3P. Payment of Fees and Expenses........................................5
3Q. Proceedings and Documents...........................................5
3R. Closing Documents...................................................5
3S. Waiver of Conditions................................................5
4. Covenants.................................................................5
4A. Financial Statements and Other Information..........................5
4B. Information and Inspection..........................................7
4C. Affirmative Covenants...............................................7
4D. Negative Covenants..................................................8
4E. Compliance with Agreements..........................................9
4F. Indemnification....................................................10
4G. Brokerage..........................................................10
4H. Reservation of Common Stock........................................10
5. Representations and Warranties of the Company............................10
5A. Organization and Power.............................................10
5B. Capitalization of the Company......................................11
5C. Projections........................................................11
5D. Assets.............................................................11
5E. Government Approvals...............................................11
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5F. Other Agreements...................................................11
5G. Brokers............................................................12
5H. Disclosure.........................................................12
6. Definitions..............................................................12
Affiliate................................................................12
Board of Directors.......................................................12
Articles of Amendment....................................................12
Common Stock.............................................................12
Equity Securities........................................................12
Lien.....................................................................12
Person...................................................................12
Purchaser Director.......................................................12
Qualified Public Offering................................................12
Securities Act...........................................................13
Subsidiary...............................................................13
Underlying Common Stock..................................................13
7. Miscellaneous............................................................13
7A. Expenses; Fees.....................................................13
7B. Remedies; Waivers..................................................13
7C. Purchasers' Investment Representations.............................14
7D. Confidentiality....................................................14
7E. Amendments; Consent................................................15
7F. Survival of Representations and Warranties.........................15
7G. Successors and Assigns.............................................15
7H. Severability.......................................................15
7I. Descriptive Headings...............................................16
7J. Notices............................................................16
7K. Governing Law......................................................16
7L. Further Assurances.................................................16
7M. Understanding Among the Purchasers.................................16
7N. Other Interests....................................................17
7O. Counterparts.......................................................17
7P. Contractual Preemptive Rights......................................17
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Exhibit 3D Articles of Amendment
Exhibit 3F Shareholders Agreement
Exhibit 3G Co-Sale Agreement
Exhibit 3H Registration Agreement
Exhibit 3I Affiliate Registration Agreement
Exhibit 3J Employment Agreement
Exhibit 3K Proprietary Information Agreement
Exhibit 3L Indemnification Agreement
Exhibit 3P Opinion of Glast, Phillips & Murray
Exhibit 5A Exceptions to Organization and Power
Exhibit 5B Capitalization of the Company
Exhibit 5C Projections of the Company
Exhibit 5D Assets
Exhibit 5E Consents Not Obtained
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DRAFT 10/20/94
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
October 21, 1994 among AV Alarm, Inc., a Texas corporation (the "Company"),
Austin Ventures rU-A, L.Po, a Delaware limited partnership ("Austin A"), Austin
Ventures rU-B, L.P., a Delaware limited partnership ("Austin B")(Austin A and
Austin B are sometimes collectively referred to as "Austin Ventures") and as the
"Purchasers" and individually as a "Purchaser").
Recitals:
The Company has entered into an Asset Purchase Agreement dated October 21,
1994 (the "Asset Purchase Agreement") with My Alarm, Inc., an Iowa corporation
(the "Seller"), pursuant to which the Seller has agreed to sell to the Company
and the Company has agreed to acquire from the Seller, substantially all of the
assets of the Seller (the "Assets") used or useful in connection with the
Seller's security alarm monitoring services business (the "Business").
Concurrently with the acquisition of the Assets by the Company, the Company
desires to issue and sell to the Purchasers and the Purchasers desire to
purchase from the Company, 2,000,000 shares of its Series A Convertible
Preferred Stock, $.01 par value (the "Preferred Stock"). The Purchasers, at
their option, may purchase up to 2,000,000 additional shares of Preferred Stock.
The Preferred Stock will be issued and sold upon the terms and subject to the
conditions of this Agreement.
The parties agree as follows:
1. Authorization of the Preferred Stock. The Company will authorize the
issuance and sale to the Purchasers of up to 4,000,000 shares of Preferred Stock
upon the terms and subject to the conditions of this Agreement. The Company will
reserve a sufficient number of shares of Common Stock, $.01 par value, of the
Company (the "Common Stock"), for issuance upon conversion of the Preferred
Stock.
2. Purchase and Sale: Closings.
2A. Purchase and Sale of Preferred Stock. Subject to the terms and
conditions of and in reliance upon the representations, warranties and covenants
contained in this Agreement:
(i) At the First Closing (as defmed below), the Company shall
issue and sell to the Purchasers, and the Purchasers shall purchase from
the Company, an aggregate 2,000,000 shares of Preferred Stock at a purchase
price of $1400 per share, with each Purchaser purchasing the number of
shares of Preferred Stock indicated on the attached Schedule of Purchasers
to be purchased by such Purchaser at the First Closing; and
(ii) The Purchasers, in their sole discretion, may elect to
purchase up to an aggregate of 2,000,000 additional shares of Preferred
Stock by giving written notice (the "Notice of Election") to the Company of
such election not later than 365 days after the First Closing setting forth
the number of shares of Preferred Stock (not to exceed 2,000,000 shares) to
be purchased and the date selected by the Purchasers (not later than 15
days after the date of the Notice of Election) for each Subsequent Closing
(as defined
below). At each Subsequent Closing, the Company shall issue and sell to the
Purchasers, and the Purchaser shall purchase from the Company, the
aggregate number of shares of Preferred Stock specified in the Notice of
Election to be purchased by the Purchasers at each Subsequent Closing at a
purchase price of $1.00 per share, with each Purchaser purchasing the
number of shares of Preferred Stock indicated in the Notice of Election to
be purchased by such Purchaser at each Subsequent Closing.
2B. The Closings.
(i) An initial closing of the issuance, sale and purchase of
2,000,000 shares of Preferred Stock (the "First Closing") shall take place
on October 21, 1994.
(ii) One or more subsequent closings of the issuance, sale and
purchase. of Preferred Stock (each a "Subsequent Closing") shall take place
at 10:00 a.m. on the date specified by the Purchasers in the Notice of
Election. The First Closing and each Subsequent Closing are each referred
to as a "Closing."
(iii) At each Closing, the Company will issue, sell and deliver
to each Purchaser the number of shares of Preferred Stock indicated on the
Schedule of Purchasers or the Notice of Election, as applicable, to be
purchased by such Purchaser at such Closing and such Purchaser will pay to
the Company the purchase price for such shares as provided in paragraph 2A.
(iv) Each Closing shall be held at the offices of Jenkens &
Gilchrist, 2200 One American Center, 600 Congress Avenue, Austin, Texas at
10:00 a.m. on the date specified for such Closing, or at such other place
or such other time or date as the Company and the Purchasers purchasing
Preferred Stock at such Closing may agree in writing.
(v) Payments to be made by the Purchasers at each Closing shall
be made to the Company by cashiers or certified check or by wire transfer
of immediately available funds pursuant to written instructions delivered
to the Purchasers by the Company prior to such Closing; provided, however,
that at the First Closing Austin Ventures shall surrender to the Company
10,000 shares of Common Stock registered in the name of Austin Ventures and
the promissory note of the Company dated September 1, 1994 in the original
principal amount of $509,000 payable to the order of Austin Ventures and
the promissory note of the Company dated October 4, 1994 in the original
principal amount of $125,000 (collectively, the "Bridge Notes"), and the
outstanding principal balance of the Bridge Notes at the First Closing Date
and the original purchase price paid for the 10,000 shares of Common Stock
to be surrendered shall be credited to the purchase price for the shares of
Preferred Stock to be purchased by Austin Ventures at the First Closing.
Accrued interest under the Bridge Notes shall be payable in cash to Austin
Ventures at the First Closing.
3. Conditions to Each Purchaser's Obligations at a Closing. The obligation
of each Purchaser to purchase and pay for the Preferred Stock at a Closing is
subject to the satisfaction at or prior to such Closing of each of the following
conditions:
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3A. Representations, Warranties and Covenants. The representations and
warranties of the Company contained in part S hereof shall be true and correct
at and as of such Closing as though then made. In addition, the Company shall
have performed all covenants contained herein required to be performed by it
prior to such Closing.
3B. Inspection of Property. The Seller and the Company shall have permitted
representatives of the Purchasers to visit and inspect the premises and examine
the corporate and financial records of the Seller and the Company, and make
copies thereof, and discuss the Business and financial affairs and prospects of
the Seller and the Company with their respective directors, officers, key
employees and independent accountants of the Seller and the Company,. provided
that each Purchaser agrees to protect the confidentiality of information
furnished to it by the Seller and the Company as provided in paragraph 7D
hereof.
3C. No Adverse Changes. Prior to the Closing, no change shall have occurred
or be anticipated as reasonably likely to occur in the condition (financial or
otherwise), properties, proposed operations, management, potential competition
or any other matter affecting the Seller or the Company or their respective
prospects, which, in the opinion of such Purchaser, in its sole and absolute
discretion, is or could be materially adverse.
3D. Amendment to Articles of Incorporation: Articles of Amendment. Except
as a result of the filing of the Articles of Amendment, the articles of
incorporation of the Company shall not have been amended. The Articles of
Amendment in the form of Exhibit 3D shall have been filed with the Secretary of
State of Texas and shall have become and remain effective.
3E. Acquisition of the Assets. Concurrently with the First Closing, the
Company shall have completed the acquisition of the Assets pursuant to the terms
of the Asset Purchase Agreement, and the Assets shall be owned and held by the
Company.
3F. Shareholders Agreement. The Company, the Seller, James R. Hull
("Hull"), Robert Sherman ("Sherman") and Heath Malone ("Malone") and each
Purchaser shall have entered into an agreement (the "Shareholders Agreement") in
the form attached as Exhibit 3F, and the Shareholders Agreement shall be in full
force and effect. The Purchaser Directors shall have been elected to the Board
of Directors pursuant to the Shareholders Agreement, effective immediately upon
the Closing.
3G. Registration Agreement. The Company and each Purchaser shall have
entered into an agreement (the "Registration Agreement") in the form attached as
Exhibit 3G, and the Registration Agreement shall be in full force and effect.
3H. Employment Agreement. The Company shall have entered into agreements
(the "Employment Agreement") in the form attached as Exhibit 3H with Hull and
the Employment Agreement shall be in full force and effect.
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3I. Proprietary Information Agreements. The Company shall have entered into
agreements (the "Proprietary Information Agreements") in the form attached as
Exhibit 31 with each of Hull, Sherman and Malone, and each of the Proprietary
Information Agreements shall be in full force and effect.
3J. Indemnification Agreements. The Company and each of the Purchaser
Directors of the Company nominated by the Purchasers pursuant to the
Shareholders Agreement shall have entered into agreements (the "Indemnification
Agreements") in the form attached as an exhibit to the Shareholders Agreement,
and the Indemnification Agreements shall be in full force and effect.
3K. Life Insurance. Hull shall have applied for term life insurance in the
face amount of $2,000,000 on the life of Hull, naming the Company as beneficiary
and with coverage and other terms acceptable to the Purchasers. Prior to the
First Closing and at all times thereafter, the Company and Hull shall have used
reasonable best efforts to obtain such insurance. Such insurance policy shall be
in full force and effect at each Subsequent Closing.
3L. Adoption of 1994 Stock Option Plan. At or prior to the First Closing,
the Company shall have adopted, and the shareholders of the Company shall have
approved, an incentive stock compensation plan in form and substance
satisfactory to the Purchasers (the "1994 Stock Option Plan"), and the 1994
Stock Option Plan shall be full force and effect and shall not have been
modified or amended.
3M. Financing Commitment. At or prior to the closing, the Company shall
have received a commitment letter (the "Heller Commitment") from Heller
Financial, Inc. ("Heller") in form and substance satisfactory to the Purchasers
setting forth the terms upon which Heller will provide to the Company a line of
credit of up to $15,000,000 for the acquisition of monitoring contracts in the
Company's account purchase program and to provide working capital for the
Company, and the Heller Commitment shall not have been modified, amended,
terminated or withdrawn.
3N. Sale of Preferred Stock to Each Purchaser. The Company shall have sold
to each Purchaser the Preferred Stock indicated on the Schedule of Purchasers to
be' sold to such Purchaser at such Closing.
3O. Consents: Regulatory Approvals. The Seller and the Company shall have
received all consents and approvals of third parties and governmental agencies
or licensing authorities necessary in order for the Seller to sell the Assets
and enter into and perform its obligations under the Asset Purchase Agreement
and for the Company to acquire and hold the Assets, to carry on the business
previously conducted by Seller, to issue and sell the Preferred Stock hereunder
and to enter into and perform its obligations under this Agreement, the
Shareholders Agreement, the Registration Agreement, the Employment Agreement,
the Proprietary Information Agreements and the Indemnification Agreements, and
such consents and approvals or governmental or regulatory authorization shall
not have been withdrawn, rescinded, modified or amended and shall be in full
force and effect.
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3P. Payment of Fees and Expenses. The Company shall have paid to the
Purchasers the expenses required to be paid by the Company pursuant to paragraph
8A that have been incurred on or prior to such Closing, and at the First Closing
shall have paid to Austin Ventures the interest accrued on the Bridge Notes
through the date of the First Closing.
3Q. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated herein and all related documents
and instruments will be reasonably satisfactory in form and substance to each
Purchaser and its counsel.
3R. Closing Documents. The Company will have delivered to each Purchaser
all of. the following documents:
(i) such documents relating to the transactions contemplated by
this Agreement as the Purchasers reasonably may request.
3S. Waiver of Conditions. If the Purchasers purchase Preferred Stock prior
to the fulfillment of any of the conditions set forth in this part 3 without
expressly waiving such conditions in writing, the purchase of such Preferred
Stock shall constitute only an extension of time for the fulfillment of such
conditions and not a waiver thereof, and the Company shall thereafter use its
best efforts fulfill each such condition precedent.
4. Covenants.
4A. Financial Statements and Other Information. The Company will furnish to
each Purchaser (as long as it holds any Underlying Common Stock) and to each
holder of at least 10% of the outstanding Underlying Common Stock:
(i) not later than December 31 of each fiscal year, capital and
operating expense budgets, projections of sources and applications of funds
and profit and loss projections, in each case for the Company and each of
the Subsidiaries for each month of the next succeeding fiscal year,
prepared in accordance with generally accepted accounting principles,
consistently applied ("GAAP"), all itemized in reasonable detail and
prepared by the Company, and any material revisions made in such budgets or
projections;
(ii) as soon as available, but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each
case comparisons to the annual budget and to the corresponding period in
the preceding fiscal year, in each case, prepared in accordance with GAAP;
(iii) accompanying the financial statements referred to in clause
(ii) above, (A) a certificate signed by the chief financial officer of the
Company, stating that neither the Company nor any of its Subsidiaries is in
default in the performance of any material obligation or agreements or, if
any such default exists, specifying the nature and
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period of existence thereof, and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto, and (B) a
monthly executive summary signed by the chief executive officer of the
Company, setting forth in reasonable detail a discussion of the results of
the Company's operations for the month covered by such financial statements
and of the operating plan for the following months;
(iv) as soon as available and in any event within 100 days after
the end of each fiscal year, (A) consolidating and consolidated statements
of income and cash flows of the Company and its Subsidiaries for such
fiscal year, and consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal year, and, in
each case, comparisons to the preceding fiscal year, all prepared in
accordance with GAAP, with an unaudited comparison to the annual budget and
projections, and accompanied by (1) an opinion of an independent public
accounting firm of recognized national standing selected by the Company's
board of directors with the Purchaser Directors concurring, (2) a copy of
such firm's annual management letter to the board of directors, and (3) a
certificate signed by the chief executive officer of the Company and by the
chief financial officer of the Company, stating that there is no Event of
Noncompliance in existence and that neither the Company nor any of its
Subsidiaries is in material default under any of its other material
agreements or, if any such default exists, specifying the nature and period
of existence thereof, and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto;
(v) promptly upon receipt thereof, any additional reports,
management letters or other written information concerning significant
aspects of the Company's operations and financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials furnished to the Purchasers and holders of Underlying
Common Stock);
(vi) promptly (and in any event within three business days) after
the discovery or receipt of notice of any material default under any
material agreement to which the Company or any of its Subsidiaries is a
party or any other material adverse event or circumstance affecting the
Company or any Subsidiary (including the filing of any material litigation
against the Company or any Subsidiary or the existence of any dispute with
any Person which involves a reasonable likelihood of such litigation being
commenced), an officer's certificate specifying the nature and period of
existence thereof and what actions the Company and its Subsidiaries have
taken and propose to take with respect thereto;
(vii) within ten days after transmission thereof, unless
contained in other materials furnished to the Purchasers or holders of
Underlying Common Stock, copies of all financial statements, proxy
statements, reports and any other general written communications which the
Company sends to its shareholders and copies of all registration statements
and all regular, special or periodic reports which it files, or any of its
officers or directors file with respect to the Company, with the Securities
and Exchange Commission, any securities exchange, the National Association
of Securities Dealers, Inc. or any state securities commissioner or
regulatory agency, and copies of all press releases and other statements
made available generally by the Company to the
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public concerning material available generally by the Company to the public
concerning material information concerning the Company, the Company's
business or its securities;
(viii) simultaneously with delivery to any lender of the Company
copies of all financial statements, information and notices delivered to
such lender under any credit agreement which are not otherwise delivered to
the Purchasers pursuant to subparagraphs (i) through (vii) above; and
(ix) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Purchaser
or a holder of 10% of the Underlying Common Stock may reasonably request.
Each of the financial statements referred to in subparagraphs (ii), (iii)
and (iv) will fairly and accurately reflect the financial condition and
results of operations of the Company and its Subsidiaries as of the dates
and for the periods stated therein subject, in the case of the unaudited
financial statements, to changes resulting from normal year-end audit
adjustments (none of which would, alone or in the aggregate, be materially
adverse to the Company's financial condition, operating results or business
prospects).
4B. Information and Inspection. During normal business hours upon
'reasonable notice, the Company shall permit any authorized representative
designated by a holder of Preferred Stock to visit (at its own expense) and
inspect any properties of the Company and any Subsidiary, including its books
(and to make extracts therefrom), and to discuss its affairs, finances and
accounts with the Company's and each Subsidiary's officers, accountants and
attorneys.
4C. Affirmative Covenants. Prior to a Qualified Public Offering, without
the prior written consent of the holders of at least a majority of the
outstanding Underlying Common Stock, the Company shall, and shall cause each
Subsidiary to:
(i) maintain in full force and effect all leases, permits,
licenses, easements and other rights necessary to the operation of the
Company's or each Subsidiary's business;
(ii) maintain its corporate existence and its business; and
maintain all equipment and property which is reasonably necessary for the
conduct of its business, now or hereafter owned by it, in good repair,
working order and condition, reasonable wear and tear excepted, and make
any replacements of equipment and property necessary for the successful
operation of its business;
(iii) maintain on all insurable assets now or hereafter owned by
it insurance against loss or damage by fire or other casualty to the extent
customary with respect to similar assets of companies conducting business
similar to the business conducted by it, and to maintain public liability
and worker's compensation insurance covering it to the extent customary
with respect to companies conducting business similar to the business
conducted it;
(iv) comply in all material respects with all material contracts,
franchises, licenses, permits or other agreements or instruments to which
it is now or.
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hereafter a party or by which it or any of its assets are now or hereafter
bound, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves have been
established on its books with respect thereto in accordance with GAAP;
(v) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its respective properties or upon the
income or profits therefrom (in each case before the same becomes
delinquent and before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid might by law become a Lien upon any
of its respective properties, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP, consistently applied) have
been established on its respective books with respect thereto;
(vi) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which could reasonably be
expected to have a material adverse effect on its financial condition,
operating results or business prospects; and
(vii) maintain proper books of record and account which fairly
represent its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves as in
each case are required in accordance with GAAP.
4D. Negative Covenants. Prior to a Qualified Public Offering, without the
prior written consent of the holders of at least 66-% % of the outstanding
Underlying Common Stock, the Company shall not, and shall cause each Subsidiary
not to:
(i) directly or indirectly enter into any lease, agreement,
arrangement or other transaction with any Affiliate less favorable to it
than those which might be obtained at the time from an unaffiliated third
party, unless approved by a majority of disinterested directors;
(ii) increase by more than 10% per year the annual compensation
of any employee of the Company or any Subsidiary whose annual compensation,
including salary and bonus, exceeds $80,000 per year;
(iii) amend the articles of incorporation or bylaws of the
Company;
(iv) issue any capital stock, options, warrants or rights to
purchase or acquire capital stock, or any other Equity Securities, other
than (A) pursuant to the Company's 1994 Stock Option Plan, or (B) upon
conversion of shares of Preferred Stock;
(v) amend or modify the terms of the Company's 1994 Stock Option
Plan or any options granted thereunder;
(vi) purchase, redeem or otherwise acquire or retire for value
any of its capital stock or other Equity Securities or declare or make any
dividend or other
8
distribution with respect to any of its capital stock or other Equity
Securities (other than a dividend or distribution payable solely in shares
of Common Stock), except that this provision shall not prevent the (A) the
repurchase by the Company of capital stock from employees at cost pursuant
to agreements with such employees approved by the Board of Directors (with
the Purchaser Directors concurring), or redemption or repurchase of the
Preferred Stock or the declaration or payment of any dividend or other
distribution in respect of the Preferred Stock;
(vii) enter into or amend any material contract, franchise,
license, permit or other agreement or instrument, if such contract,
franchise, license, permit or other agreement or instrument or amendment
would by its terms restrict its performance of any obligation of the
Company or any Subsidiary to the Purchasers hereunder or under any
agreement or instrument contemplated hereby;
(viii) sell or dispose of in any manner all or any substantial
portion of its properties or assets, liquidate, dissolve or enter into any
merger, consolidation or similar transaction;
(ix) make any capital expenditures exceeding $100,000 in any
12-month period (software development costs capitalized under Financial
Account Standards Board Opinion NO. 86 will not be considered to be capital
expenditures for this purpose) except for purchases of alarm monitoring
contracts in the ordinary course of business;
(x) acquire any interest in any business entity (whether by a
purchase of assets, purchase of stock or other securities, merger or
otherwise, or create any subsidiary (other than a wholly owned subsidiary))
except for purchases of alarm monitoring contracts in the ordinary course
of business;
(xi) make loans or advances to or guaranties for the benefit of
any Person in an amount more than $10,000 in a single transaction or
$50,000 in the aggregate, other than in the ordinary course of business;
(xii) create, assume, incur or permit to exist, any Lien on any
of its assets or properties other than (A) Liens arising pursuant to
[SPECIFY CREDIT AGREEMENTS] or any refinancing thereof on substantially the
same terms, (B) Liens for taxes not yet due or which are being contested in
good faith and for which adequate reserves have been established, (C)
deposits or pledges made to secure the payment of utilities or similar
services, workers' compensation, unemployment insurance, pensions or social
security obligations, (D) interests or title of a lessor under a lease, (E)
easements, rights-of-way, restrictions or similar charges not interfering
with its ordinary conduct of business, (F) purchase money Liens, or (G)
Liens for the acquisition of automobiles; or
(xiii) prepay any indebtedness of the Company.
4E. Compliance with Agreements. The Company will perform and observe, and
will cause each Subsidiary to perform and observe, all of its material
obligations to the Purchasers
9
and the holders of the Underlying Common Stock set forth in this Agreement and
the articles of incorporation and bylaws of the Company or such Subsidiary.
4F. Indemnification. The Company, without limitation as to time, will
indemnify each Purchaser and its agents against, and hold each Purchaser and its
agents harmless from, all losses, claims, damages, liabilities, costs (including
the costs of preparation and attorneys' fees and expenses) (collectively, the
"Losses") incurred pursuant to any investigation or proceeding against the
Company, any Purchaser or any of their agents arising out of or in connection
with this Agreement (or any other document or instrument executed herewith or
pursuant hereto), which investigation or proceeding requires the participation
of, or is commenced or filed against, one or more of the Purchasers and any of
their agents because of this Agreement or such other documents and the
transactions contemplated hereby or thereby, other than any Losses resulting
from action on the part of such Purchaser or its agents which is finally
determined in such proceeding to be primarily and directly a result of such
Purchaser's gross negligence or willful misconduct, or Losses incurred by or on
behalf of an agent of a Purchaser which are the subject of the Indemnification
Agreement, as to which the Indemnification Agreement, rather than this paragraph
4F, shall apply. The Company agrees to reimburse each Purchaser and its agents
promptly for all such Losses as they are incurred by such Purchaser and its
agents. Each Purchaser agrees to reimburse the Company for any payments made by
the Company to such Purchaser pursuant to this paragraph for Losses which are
finally determined in such proceeding to primarily and directly result from the
gross negligence or willful misconduct of such Purchaser. The obligations of the
Company to each Purchaser and its agents under this paragraph will be separate
obligations. The obligations of the Company under this paragraph will survive
any transfer of Underlying Common Stock by any Purchaser and the termination of
this Agreement.
4G. Brokerage. The Company shall pay, and hold each Purchaser harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any claim for brokerage commissions, finders' fees or similar compensation
incurred by the Company in connection with the transactions contemplated by this
Agreement.
4H. Reservation of Common Stock. The Company will at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of issuance upon the conversion of the Preferred Stock, such
number of shares of Common Stock issuable upon the conversion of all outstanding
Preferred Stock.
5. Representations and Warranties of the Company. As a material inducement
to each Purchaser to enter into this Agreement and to purchase Preferred Stock,
the Company represents and warrants to each Purchaser that:
5A. Organization and Power. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Texas and,
except as described in Exhibit 5A, has full power and authority, and ~all
licenses, permits and authorizations, necessary to conduct its business and own
its properties as presently conducted and owned and as proposed to be conducted
and owned, and to carry out the transactions contemplated by this Agreement.
Except as described in Exhibit 5A, the Company is qualified to do business and
is in good
10
standing in each jurisdiction in which the nature of its business or
the properties owned or leased by it requires qualification. The Company has no
Subsidiaries and owns no capital stock or other securities of any other entity.
Complete and correct copies of the articles of incorporation and bylaws of the
Company as in effect immediately prior to the consummation of the transactions
contemplated by this Agreement have been delivered to the Purchasers.
5B. Capitalization of the Company. After giving effect to the issuance and
sale of the Preferred Stock (all 4,000,000 shares) and Common Stock pursuant to
the Asset Purchase Agreement and this Agreement, the authorized capital stock of
the Company will consist of 4,000,000 shares of Series A Preferred Stock, $.01
par value, all of which will be issued and outstanding and owned of record by
the Purchasers, and 6,000,000 shares of Common Stock, of which 399,835 shares
will be issued and outstanding and owned of record and, to the knowledge of the
Company, beneficially as set forth in Exhibit 5B, and a sufficient number of
shares of Common Stock will be reserved for issuance upon conversion of the
Preferred Stock. When issued as contemplated by this Agreement, the Preferred
Stock will be duly and validly issued and fully paid and non-assessable: Shares
of Common Stock issued upon conversion of shares of Preferred Stock, when
issued, will be duly and validly issued and fully paid and non-assessable.
Except for the right of holders of shares of Preferred Stock to convert such
shares into shares of Common Stock and except for options granted under the
Company's 1994 Stock Option Plan, there are no existing options, puts, calls,
warrants, conversion privileges, exchange rights, pledges, Liens, repurchase or
redemption rights, profit participation or stock appreciation rights, transfer
restrictions or commitments of any character relating to any issued or unissued
shares of capital stock of the Company. There are no preemptive or other
preferential rights applicable to the issuance and sale of the Company's capital
stock. Except for the rights of the Purchasers in the Registration Agreement,
the Company has not granted registration rights under the Securities Act with
respect to any securities.
5C. Projections. The projections attached as Exhibit 5C represent a good
faith estimate concerning the most probable course of the Company's business for
the time specified therein, subject to the assumptions and qualifications noted
therein.
5D. Assets. The Company has good and marketable title to all of the assets
described in Exhibit 5D as being owned by it, free and clear of all Liens,
except those described in Exhibit 6C.
5E. Government Approvals: Consents. Except as set forth in Exhibit 5E, the
Company is not required to obtain any order, consent, license, permit approval
or authorization of, or required to make any declaration or filing with, any
governmental agency or licensing authority or other person in connection with
the negotiation, execution and delivery of this Agreement, the offer, issuance,
sale and delivery of the Preferred Stock to the Purchasers or any other
transaction contemplated in this Agreement.
5F. Other Agreements. None of the current officers of the Company is a
party to or bound by any agreement, contract or commitment, or subject to any
restrictions, which materially and adversely affect the business or operations
of the Company or the right of the Company or any such person to participate in
the affairs of the Company.
11
5G. Brokers. None of the current officers of the Company has dealt with any
broker, finder, commission agent or other similar person in connection with the
offer and sale of the Preferred Stock by the Company to the Purchasers, or the
transactions contemplated by this Agreement, and none of the current officers of
the Company is under any obligation to pay any broker's fee, finder's fee or
commission in connection with such transactions.
5H. Disclosure. To the knowledge of the current officers of the Company,
there is no fact relating to the Company or the transactions contemplated by
this Agreement known to the current officers of the Company which materially and
adversely affects the business, operations, or condition of the Company or any
of its properties, or the rights of the Purchasers therein, which has not been
set forth in this Agreement, an exhibit attached to this Agreement or the other
written materials furnished to the Purchasers in connection with the
transactions contemplated by this Agreement.
6. Definitions. For the purposes of this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" means with respect to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person, and, in the case of an individual,
includes any relative or spouse of such person, or any relative of such spouse,
who has the same home as such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"Board of Directors" means the board of directors of the Company.
"Common Stock" means the Company's Common Stock, $.01 par value per share.
"Equity Securities" means any capital stock or any security convertible,
with or without consideration, into capital stock, or carrying any option
warrant or right to subscribe to, purchase or acquire capital stock, or any such
option, warrant or right.
"Lien" means any security interest, pledge, bailment, mortgage, deed of
trust, the grant of a power to confess judgment, conditional sales and title
retention agreement (including any lease in the nature thereof), encumbrance or
other similar arrangement or interest in real, personal or mixed property
(tangible or intangible, and wherever located).
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
or a governmental entity or any department, agency or political subdivision
thereof.
"Purchaser Director" means a Person serving as a director of the Company as
the designee or nominee of the Purchasers pursuant to the Shareholders
Agreement.
"Qualified Public Offering" means a Qualified Public Offering as defined in
the Articles of Amendment.
12
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Subsidiary" means (i) any corporation more than 50% of the outstanding
voting securities of which are owned by the Company or any Subsidiary, directly
or indirectly, or (ii) a partnership in which the Company or any Subsidiary
holds a general partnership interest sufficient to enable it to direct the
management and policies.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
upon conversion of the Preferred Stock, and (ii) any Common Stock issued or
issuable with respect to the Common Stock referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Any Person who
holds Preferred Stock will be deemed to be the holder of the Underlying Common
Stock issuable upon conversion of the Preferred Stock regardless of any
restriction on the conversion of the Preferred Stock. As to any particular
shares of Underlying Common Stock, such shares will cease to be Underlying
Common Stock when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them
or (y) distributed to the public pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act.
7. Miscellaneous.
7A. Expenses; Fees. The Company agrees to pay and hold each Purchaser and
all holders of the Preferred Stock harmless from and against any liability for
the payment of (i) the reasonable fees and expenses of their special counsel,
Jenkens & Gilchrist, arising in connection with the negotiation and execution of
this Agreement, the Asset Purchase Agreement and the consummation of the
transactions contemplated hereby, which shall be payable at the Closing;. (ii)
the reasonable fees and expenses incurred by them with respect to any amendments
or waivers (whether or not the same become effective) under or in respect of
this Agreement, the Shareholders Agreement, the Registration Agreement, the
Employment Agreement, the Proprietary Information Agreements or the
Indemnification Agreements or the other agreements contemplated hereby; (iii)
the reasonable fees and expenses incurred by them with respect to the
enforcement of the rights granted under this Agreement and the other agreements
contemplated hereby; (iv) transfer taxes which may be payable in respect of the
execution and delivery of this Agreement or the issuance, delivery or
acquisition of the Preferred Stock; and (v) the fees and expenses reasonably
incurred by them in any filing with any governmental agency with respect to its
investment in the Company or in any other filing with any governmental agency
with respect to the Company that mentions such Person. At the First Closing, the
Company shall pay an investment advisory fee of $150,000 to AVP Management
Services, Inc.
7B. Remedies; Waivers. Each holder of Underlying Common Stock will have all
rights and remedies set forth in this Agreement, the certificate of
incorporation and bylaws of the Company and the Shareholders Agreement and all
of the rights and remedies that such holders have been granted at any time under
any other agreement or contact or that the Purchasers have under any law. Any
person having any rights under any provision of this Agreement will be entitled
to enforce such rights specifically, to recover damages by reason of any breach
or any provision of this Agreement and to exercise all other rights granted by
law or at equity. No delay
13
or omission by a holder of Underlying Common Stock in exercising any right or
remedy hereunder shall impair such right or remedy or constitute a waiver of any
default hereunder or an acquiescence therein. Every right and remedy given by
this Agreement or by law or equity to a holder of Underlying Common Stock may be
exercised from time to time and as often as may be deemed expedient, by such
holder.
7C. Purchasers' Investment Representations. Each Purchaser severally
represents and warrants to and for the benefit of the Company, each Purchaser
acknowledging that the Company will rely hereon in assessing compliance with
legal matters, that it is acquiring the Preferred Stock purchased hereunder for
investment for its own account with the present intention of holding such
Preferred Stock for purposes of investment and that it is an 'accredited
investor" as that term is defined in Rule 501 under the Securities Act and that
it has no intention of selling the Preferred Stock in a public distribution in
violation of federal or applicable state securities laws; provided, that nothing
contained herein shall prevent the Purchasers and subsequent holders of
Preferred Stock from transferring Preferred Stock in compliance with the
Shareholders Agreement. Each certificate for Preferred Stock will bear legends
to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH
REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR
SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS
MAY BE SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER
SHALL NOT BE IN VIOLATION OF THE SECURI11ES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SALE, ASSIGNMENT,
TRANSFER, PLEDGE OR OTHER DISPOSITION AND A VOTING THEREOF ARE SUBJECT TO
CERTAIN RESTRICTIONS AND AGREEMENTS CONTAINED IN A SHAREHOLDERS AGREEMENT
DATED AS OF OCTOBER 20, 1994 AMONG THE COMPANY AND CERTAIN SHAREHOLDERS. A
COPY OF THE SHAREHOLDERS AGREEMENT AND ALL APPLICABLE AMENDMENTS THERETO
WILL BE FURNISHED BY THE COMPANY TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE UPON WRITFEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE
OF BUSINESS OR REGISTERED OFFICE."
7D. Confidentiality. Each Purchaser agrees to maintain as confidential any
non-public information regarding the Company which it receives pursuant to its
rights under this
14
Agreement, provided that each Purchaser may disclose any such information which
is (i) required by . law, rule or regulation to be disclosed, (ii) compelled by
judicial or administrative order, deposition, subpoena or other legal process to
be disclosed, (iii) authorized by the Company to be disclosed, or (iv) generally
known to and available for use by the public other than as a result of such
Purchaser's acts or omissions to act. Notwithstanding the foregoing, in
connection with a proposed sale of securities of the Company by a Purchaser,
such Purchaser may disclose solely to a prospective purchaser such material
non-public information in its possession which is required by law, rule or
regulation to be disclosed if (a) such sale is a private transaction pursuant to
which such information will remain non-public and (b) the purchaser of such
securities agrees in writing to be bound by the provisions of this paragraph 7D.
Each Purchaser will give prompt written notice to the Company of any disclosure
by such Purchaser pursuant to (i) or (ii) above.
7E. Amendments; Consent. Except as otherwise expressly provided herein, the
provisions of this Agreement may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, if the Company has obtained the written consent of the holders of at least a
majority of the issued and outstanding shares of Underlying Common Stock. No
course of dealing between or among the Company and the holders of Underlying
Common Stock or any delay in exercising any rights hereunder shall operate as a
wavier of any rights of any holder of Underlying Common Stock. If the Company
pays any consideration to any holder of Underlying Common Stock for such
holder's consent to any amendment, modification or waiver hereunder, the Company
shall also pay each other holder of Underlying Common Stock granting its consent
hereunder equivalent consideration computed on a pro rata basis.
7F. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by the parties or on their behalf.
7G. Successors and Assigns. Except as otherwise expressly provided herein,
all covenants and agreements in this Agreement by or on behalf of any of the
parties hereto will bind and inure to the benefit of the respective heirs,
personal representatives, successors and assigns of the parties hereto whether
so expressed or not. In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for any Purchaser's
benefit as a purchaser or holder of shares of Underlying Common Stock are also
for the benefit of, and enforceable by, any subsequent holder of such Underlying
Common Stock. Other than by operation of law, the Company shall not make any
assignment or transfer of any of its or his rights or obligations hereunder
without the prior written consent of each of the Purchasers.
7H. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
15
7I. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
7J. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or by
telex, facsimile transmission, telegram or overnight delivery service, or 72
hours after having been mailed by certified or registered mail, return receipt
requested and postage prepaid, to the recipient. Such notices, demands and other
communications will be sent to each party at the address indicated below:
To the Company: AV Alarm, Inc.
12801 Stemmons Freeway
Suite 821
Dallas, Texas 75234
Facsimile: (214) 484-1393
Attn: James R. Hull
To Purchasers to their addresses set forth on the Schedule of Purchasers,
With a copy to: Jenkens & Gilchrist,
A Professional Corporation
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
Facsimile: (512) 404-3520
Attn: William R. Volk
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7K. Governing Law. The construction, validity and interpretation of this
Agreement will be governed by the internal laws of the State of Texas without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
7L. Further Assurances. Each party to this Agreement hereby covenants and
agrees, without the necessity of any further consideration, to execute and
deliver any and all such further documents and take any and all such other
actions as may be necessary or appropriate to carry out the intent and purposes
of this Agreement and to consummate the transactions contemplated hereby.
7M. Understanding Among the Purchasers. The determination of each Purchaser
to purchase shares of Preferred Stock pursuant to this Agreement has been made
by such Purchaser independent of any other Purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company that may have been made or given by any other Purchaser. In addition, it
is acknowledged by each Purchaser that no Purchaser has acted as an agent of any
other Purchaser iii connection with making its investment hereunder and that no
Purchaser will
16
be acting as an agent of any other Purchaser in connection with monitoring its
investment hereunder.
7N. Other Interests. Except to the extent specifically restricted under
this Agreement, it is specifically understood and agreed that any Purchaser may
at any time and from time to time engage in and possess interests in other
business ventures of any and every type and description, independently or with
others, whether such ventures are competitive with the Company and the
Subsidiaries or otherwise, and none of the Company, the Subsidiaries nor any
other Purchaser shall by virtue of this Agreement have any right, title or
interest in or to such independent ventures or to the income or profits derived
therefrom.
7O. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
7P. Contractual Preemptive Rights. If prior to a Qualified Public Offering,
the Company shall issue any Equity Securities, each holder of Underlying Common
Stock shall be entitled to purchase the portion of such Equity Securities to be
issued necessary in order that the. aggregate shares of Common Stock and
Underlying Common Stock held by such holder constitute the same percentage of
all Common Stock (assuming, in each case, the conversion, exercise or exchange
of all outstanding Equity Securities, including outstanding Equity Securities
held by such holder) after the issuance of such Equity Securities as before the
issuance thereof; provided, however, that such preemptive right shall not apply
to (a) issuances of Equity Securities to employees of the Company as and to the
extent permitted by paragraph 4D(iv), (b) issuances of Equity Securities upon
the conversion, exercise or exchange of other Equity Securities to which the
preemptive rights granted hereunder were applicable, (c) issuances of Equity
Securities in connection with an exercise of the preemptive rights granted
hereunder, or (d) issuances of Preferred Stock pursuant to this Agreement or
issuances of Common Stock or other Equity Securities as a dividend or other
distribution with respect to the Preferred Stock or upon conversion of the
Preferred Stock. The price of securities which each holder becomes entitled to
purchase by reason hereof shall be the same price at which such securities are
offered to others. A holder of Underlying Common Stock may exercise his or its
right under this paragraph 7P to purchase Equity Securities by paying the
purchase price therefor at the principal office of the Company within 15 days
after receipt of notice from the Company (which notice by the Company shall be
given at least 20 days before the issuance of the Equity Securities) stating the
amount of Equity Securities it intends to issue and the price and
characteristics thereof. The holder shall pay such purchase price in cash or by
check; provided, however, that if the Company is indebted to such holder, the
holder shall be entitled, at the holder's sole option, to credit against the
purchase price all or any portion of the Company's indebtedness to such holder
which is then due (accrued and unpaid dividends on the Preferred Stock shall be
deemed to be indebtedness for purposes of such credit). A holder's contractual
preemptive rights hereunder shall be deemed to be exercised immediately prior to
the close of business on the day of payment of the purchase price in accordance
with the foregoing provisions, and at such time such holder shall be treated for
all purposes as the record holder of the Equity Securities, as the case may be.
As promptly as practicable (and in any event within ten days) on or after the
purchase date, the Company shall issue and deliver at its principal office a
certificate or certificates for the number of full shares or amount, whichever
is applicable, of Equity Securities together with cash for any
17
fraction of a share or portion of an Equity Security at the purchase price to
which the holder is entitled hereunder.
* * *
18
IN WITNESS WHEREOF, the parties have executed this agreement on the day and year
first written above.
COMPANY:
AV Alarm, Inc.
By: /s/ James R. Hull
-----------------------------------------
James R. Hull
President
PURCHASERS:
Austin Ventures Ill-A, L.P.
By AV Partners III, L.P.,
Its General Partner
By: /s/ Blaine F. Wesner
-----------------------------------------
Blaine F. Wesner
Authorized Signatory
Austin Ventures Ill-B, L.P.
By AV Partners III, L.P., Its General Partner
Its General Partner
By: /s/ Blaine F. Wesner
-----------------------------------------
Blaine F. Wesner
Authorized Signatory
19
SCHEDULE OF PURCHASERS
Series A Preferred Stock
------------------------
Purchase
Name Shares Price
---- --------- ----------
Austin Ventures III-A, L.P. 1,084,200 $1,084,000
1300 Norwood Tower
114 West Seventh Street
Austin, TX 78701
Facsimile: (512) 476-3952
Attn: Blame F. Wesner
Austin Ventures 111-B, L.P. 915,800 915,800
1300 Norwood Tower
114 West Seventh Street
Austin, TX 78701
Facsimile: (512) 476-3952
Attn: Blame F. Wesner
Totals 2,000,000 2,000,000
20