<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-35845
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
THE O'GARA COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
OHIO 3711 31-1470817
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
</TABLE>
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9113 LESAINT DRIVE, FAIRFIELD, OHIO 45014
(513) 874-2112
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
WILFRED T. O'GARA,
CHIEF EXECUTIVE OFFICER
THE O'GARA COMPANY
9113 LESAINT DRIVE FAIRFIELD, OHIO 45014
(513) 874-2112
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------
COPIES TO:
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<S> <C>
Timothy E. Hoberg, Esq. Peter S. Kolevzon, Esq.
Taft, Stettinius & Hollister Kramer, Levin, Naftalis &
1800 Star Bank Center Frankel
425 Walnut Street 919 Third Avenue
Cincinnati, Ohio 45202-3957 New York, New York 10022
(513) 381-2838 (212) 715-9100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
O'GARA LETTERHEAD
October , 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
The O'Gara Company ("O'Gara") at 9:00 a.m., local time, on November 21, 1997, at
The Omni Netherland Plaza Hotel, Fifth and Race Streets, Cincinnati, Ohio.
At the Special Meeting, you will be asked to consider and vote upon a
proposal (the "Merger Proposal") to approve a merger of VDE, Inc., a wholly
owned subsidiary of O'Gara, into Kroll Holdings, Inc. ("Kroll"). In the proposed
merger, Kroll would become a wholly owned subsidiary of O'Gara and holders of
Kroll Class A common stock and Kroll common stock would receive (and options to
purchase Kroll common stock would be converted into options to purchase) an
aggregate of 6,650,000 shares of O'Gara common stock. Based on the number of
shares of Kroll common stock and the number of options to purchase Kroll common
stock outstanding as of the date hereof, if the merger had been consummated on
the date of this letter, holders of Kroll Class A common stock or Kroll common
stock would have been entitled to receive 62.52 shares of O'Gara common stock
for each share of Kroll Class A common stock or Kroll common stock held by them.
The Merger Proposal also provides for the change of O'Gara's corporate name
from "The O'Gara Company" to "The Kroll-O'Gara Company" and the election of four
additional members to the O'Gara Board of Directors, as more fully described in
the accompanying Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT, WHICH WAS
APPROVED UNANIMOUSLY BY THE BOARD, IS IN THE BEST INTEREST OF THE SHAREHOLDERS
OF O'GARA AND RECOMMENDS THAT YOU VOTE FOR THE MERGER PROPOSAL. THE O'GARA BOARD
OF DIRECTORS HAS RECEIVED THE OPINION (THE "DILLON READ OPINION") OF SBC WARBURG
DILLON READ INC. ("DILLON READ"), AN ADVISOR TO O'GARA, THAT THE CONSIDERATION
TO BE PAID BY O'GARA IN THE MERGER IS FAIR TO O'GARA FROM A FINANCIAL POINT OF
VIEW. A COPY OF THE DILLON READ OPINION IS INCLUDED IN THE PROXY
STATEMENT/PROSPECTUS AS APPENDIX C THERETO.
Consistent with the engagement letter between O'Gara and Dillon Read, the
Dillon Read Opinion does not address the fairness of the Merger to the
shareholders of O'Gara, nor does it constitute a recommendation regarding
whether or not it is advisable for such shareholders to vote in favor of the
Merger. O'Gara believes that because (i) O'Gara will become the parent of Kroll
in the Merger, (ii) the O'Gara shareholders are not receiving any consideration
in the Merger, and (iii) the Merger will not adversely affect the rights of
O'Gara shareholders, the interests of the O'Gara shareholders are aligned with
those of O'Gara. Accordingly, O'Gara did not request that the Dillon Read
Opinion address the fairness of the Merger to the O'Gara shareholders
individually.
At the Special Meeting, O'Gara shareholders also will be asked to (i)
approve amendments to the O'Gara 1996 Stock Option Plan (the "Option Plan") to
increase the maximum number of shares available for issuance under the Option
Plan from 400,000 to 836,000 and to increase the maximum number of shares which
may be subject to options issued under the Option Plan to any one person in any
twelve-month period from 50,000 to 125,000 and (ii) approve a proposal to amend
and restate O'Gara's existing Amended and Restated Articles of Incorporation to
increase the number of shares of O'Gara's Preferred Stock, par value $0.01 per
share, and the number of shares of O'Gara's Common Stock, par value $0.01 per
share, which O'Gara is authorized to issue to 1,000,000 and 50,000,000,
respectively.
Approval of the Merger Proposal and the amendment and restatement of
O'Gara's Amended and Restated Articles of Incorporation, requires the
affirmative vote of the holders of a majority of the outstanding shares of
O'Gara common stock. Approval of the amendments to the Option Plan requires the
affirmative vote of a majority of the shares of O'Gara common stock present at
the Special Meeting. Your Chairman has agreed to vote all of his shares of
O'Gara common stock, constituting approximately 55.5% of those outstanding, in
favor of the Merger Proposal.
The enclosed Proxy Statement/Prospectus provides a detailed description of
the matters to be considered at the Special Meeting and extensive information
concerning O'Gara and Kroll. Please carefully review and consider all of this
information.
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ALL HOLDERS OF O'GARA COMMON STOCK ARE INVITED TO ATTEND THE SPECIAL
MEETING IN PERSON. WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE.
THIS ACTION WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON AT THE SPECIAL MEETING
IF YOU WISH TO DO SO.
On behalf of the Board of Directors,
Thomas M. O'Gara
Chairman
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O'GARA LETTERHEAD
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 21, 1997
To the Shareholders of
The O'Gara Company:
Notice is hereby given that a Special Meeting of Shareholders of The O'Gara
Company, an Ohio corporation ("O'Gara"), will be held on November 21, 1997,
beginning at 9:00 a.m., local time, at The Omni Netherland Plaza Hotel, Fifth
and Race Streets, Cincinnati, Ohio, for the following purposes:
1. To consider and vote upon a proposal to (a)(i) approve and adopt a
Plan and Agreement to Merge, dated as of August 8, 1997, among O'Gara, VDE,
Inc., Kroll Holdings, Inc. ("Kroll") and Jules B. Kroll, providing for the
merger of VDE, Inc. into Kroll and (ii) amend and restate the Amended and
Restated Articles of Incorporation of O'Gara to change the name of O'Gara
to "The Kroll-O'Gara Company" and (b) increase the number of directors of
O'Gara to eleven and elect Jules B. Kroll, Howard I. Smith, Michael G.
Cherkasky and Marshall S. Cogan as directors of O'Gara;
2. To consider and act upon proposed amendments to the 1996 O'Gara
Stock Option Plan (the "Option Plan") to increase the number of shares of
O'Gara Common Stock issuable upon exercise of stock options under the
Option Plan from 400,000 to 836,000 and to increase the maximum number of
shares of O'Gara Common Stock which may be subject to options issued under
the Option Plan to any one person in any twelve-month period from 50,000 to
125,000;
3. To consider and act upon a proposal to amend and restate the
existing Amended and Restated Articles of Incorporation of O'Gara to
increase the number of shares of O'Gara's Preferred Stock, $0.01 par value
per share, and the number of shares of O'Gara's Common Stock, $0.01 par
value per share, which O'Gara is authorized to issue to 1,000,000 and
50,000,000, respectively; and
4. To transact any other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on October 15, 1997, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE
PAID ENVELOPE. YOU MAY REVOKE SUCH PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN
THE MANNER PROVIDED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors
Thomas M. O'Gara
Chairman
October , 1997
<PAGE> 5
THIS PROXY STATEMENT/PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE PROXY
STATEMENT/PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES
SHALL THIS PROXY STATEMENT/PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
PRELIMINARY COPY -- SUBJECT TO COMPLETION -- DATED OCTOBER 22, 1997
PROXY STATEMENT
FOR SPECIAL MEETING OF
SHAREHOLDERS OF THE O'GARA COMPANY
TO BE HELD NOVEMBER 21, 1997
THE O'GARA COMPANY
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $0.01 per share ("O'Gara Common Stock"), of The O'Gara Company,
an Ohio corporation ("O'Gara"), in connection with the solicitation of proxies
by the Board of Directors of O'Gara (the "O'Gara Board") for use at the special
meeting of shareholders of O'Gara to be held on November 21, 1997, or any
adjournment or postponement thereof (the "O'Gara Meeting").
The O'Gara Meeting has been called to consider and vote upon a proposal
(the "O'Gara Proposal") (a)(i) to approve and adopt a Plan and Agreement to
Merge (the "Merger Agreement"), dated as of August 8, 1997, among O'Gara, VDE,
Inc., a Delaware corporation and a wholly owned subsidiary of O'Gara ("Newco"),
Kroll Holdings, Inc., a Delaware corporation ("Kroll"), and Jules B. Kroll,
which provides for the merger of Newco into Kroll (the "Merger") and (ii) to
amend and restate the Amended and Restated Articles of Incorporation of O'Gara
(the "O'Gara Articles") to change the name of O'Gara to "The Kroll-O'Gara
Company" and (b) to increase the number of directors of O'Gara to eleven and to
elect Jules B. Kroll, Howard I. Smith, Michael G. Cherkasky and Marshall S.
Cogan as directors of O'Gara. At the O'Gara Meeting, holders of O'Gara Common
Stock also will be asked to consider and approve (i) a proposal (the "O'Gara
Option Proposal") to amend O'Gara's 1996 Stock Option Plan (the "Plan") to
increase the maximum number of shares of O'Gara Common Stock available for
issuance thereunder from 400,000 to 836,000 and to increase the maximum number
of shares of O'Gara Common Stock which may be subject to options issued under
the Plan to any one person in any twelve-month period from 50,000 to 125,000 and
(ii) a proposal (the "O'Gara Capitalization Proposal") to amend and restate the
O'Gara Articles to increase the number of shares of O'Gara's preferred stock,
$0.01 par value per share ("O'Gara Preferred Stock"), and the number of shares
of O'Gara Common Stock which O'Gara is authorized to issue to 1,000,000 and
50,000,000, respectively. Approval of the O'Gara Proposal, the O'Gara Option
Proposal and the O'Gara Capitalization Proposal are not conditioned upon one
another.
This Proxy Statement/Prospectus is also being mailed to holders of shares
of Class A common stock, par value $0.01 per share ("Kroll Class A Common
Stock"), and common stock, par value $0.01 per share ("Kroll Common Stock" and,
together with Kroll Class A Common Stock, the "Kroll Stock"), of Kroll for their
information in connection with the special meeting of shareholders of Kroll to
be held on November 21, 1997 (the "Kroll Meeting" and, together with the O'Gara
Meeting, the "Special Meetings"). The Kroll Meeting has been called to consider
and vote upon a proposal (the "Kroll Proposal") to approve and adopt the Merger
Agreement.
As a result of the Merger, Kroll will become a wholly owned subsidiary of
O'Gara. The Merger is intended to be a tax-free reorganization and will be
accounted for as a pooling of interests. The shares of O'Gara Common Stock to be
issued to holders of outstanding Kroll Stock in the Merger will constitute
approximately 47.7% of the outstanding shares of O'Gara Common Stock after the
Merger. After the Merger, O'Gara's directors and executive officers (including
those persons who will become directors and executive officers of O'Gara upon
consummation of the Merger) will beneficially own approximately 72.2% of the
outstanding O'Gara Common Stock.
The O'Gara Common Stock is traded on the Nasdaq National Market. On October
, 1997, the last reported sale price per share of the O'Gara Common Stock was
$ .
This Proxy Statement/Prospectus also serves as a prospectus of O'Gara with
respect to up to 6,650,000 shares of O'Gara Common Stock that will be issued to
holders of outstanding Kroll Stock upon consummation of the Merger. See "THE
MERGER AGREEMENT -- Conversion of Kroll Stock" and "COMPARISON OF SHAREHOLDERS'
RIGHTS."
CERTAIN RISK FACTORS SHOULD BE CONSIDERED BY SHAREHOLDERS OF O'GARA AND
KROLL IN EVALUATING THE MERGER. SEE "RISK FACTORS" ON PAGES 15-22.
This Proxy Statement/Prospectus is first being mailed to the shareholders
of O'Gara and Kroll on or about October , 1997. Shareholders of O'Gara are
also being mailed the accompanying form of proxy.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is October , 1997.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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SUMMARY............................................................... 1
The Companies....................................................... 1
Reasons for the Merger.............................................. 1
The Merger.......................................................... 1
The Merger Agreement................................................ 3
Risk Factors........................................................ 4
The O'Gara Meeting.................................................. 4
The Kroll Meeting................................................... 5
Market Prices and Dividends......................................... 5
Summary Historical and Unaudited Pro Forma Combined Condensed
Financial Information............................................ 6
Comparative Per Share Data.......................................... 14
RISK FACTORS.......................................................... 15
Risk Factors Associated with the Merger............................. 15
Risk Factors Relating to the Business of O'Gara..................... 17
Risk Factors Relating to the Business of Kroll...................... 20
THE MERGER............................................................ 23
General............................................................. 23
Background of the Merger............................................ 23
Reasons for the Merger and Recommendations of the Boards of
Directors........................................................ 24
Financing the Merger................................................ 29
Interests of Certain Persons in the Merger.......................... 30
Ownership of O'Gara after the Merger................................ 31
Management of O'Gara after the Merger............................... 31
Accounting Treatment................................................ 32
Certain Federal Income Tax Consequences............................. 33
Federal Securities Law Consequences................................. 34
Dissenters' Rights.................................................. 35
Regulatory Requirements............................................. 37
Merger Expenses and Fees and Other Costs............................ 37
THE MERGER AGREEMENT.................................................. 38
THE SPECIAL MEETINGS.................................................. 42
The O'Gara Meeting.................................................. 42
The Kroll Meeting................................................... 43
MARKET PRICES AND DIVIDENDS........................................... 45
O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 49
KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 56
BUSINESS OF O'GARA.................................................... 61
General............................................................. 61
Business Strategy................................................... 61
Products and Services............................................... 63
Customers........................................................... 66
Marketing and Sales................................................. 67
Engineering and Development......................................... 68
U.S. Government Contracts........................................... 69
</TABLE>
i
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Competition......................................................... 70
Seasonality, Backlog and Related Matters............................ 71
Properties and Facilities........................................... 72
Employees........................................................... 73
Government Regulation............................................... 73
Environmental Matters............................................... 73
Legal Proceedings................................................... 74
Patents, Trademarks and Copyrights.................................. 74
BUSINESS OF KROLL..................................................... 75
Background.......................................................... 75
Services............................................................ 75
Clients............................................................. 77
Marketing and Sales................................................. 78
Competition......................................................... 78
Employees........................................................... 78
Government Regulation............................................... 79
Properties.......................................................... 79
Litigation.......................................................... 80
MANAGEMENT OF O'GARA.................................................. 81
THE O'GARA OPTION PROPOSAL............................................ 87
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- O'GARA........ 90
PRINCIPAL SHAREHOLDERS OF O'GARA...................................... 93
MANAGEMENT OF KROLL................................................... 94
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL......... 96
PRINCIPAL SHAREHOLDERS OF KROLL....................................... 98
THE O'GARA CAPITALIZATION PROPOSAL.................................... 99
DESCRIPTION OF O'GARA CAPITAL STOCK................................... 100
SHARES OF O'GARA COMMON STOCK ELIGIBLE FOR FUTURE SALE................ 101
COMPARISON OF SHAREHOLDERS' RIGHTS.................................... 102
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............... 108
LEGAL MATTERS......................................................... 108
EXPERTS............................................................... 108
PROXY STATEMENT PROPOSALS............................................. 108
OTHER BUSINESS........................................................ 108
AVAILABLE INFORMATION................................................. 109
FINANCIAL STATEMENT INDEX............................................. F-1
APPENDICES
Plan and Agreement to Merge......................................... A-1
Amended and Restated Articles of Incorporation of O'Gara............ B-1
Opinion of SBC Warburg Dillon Read Inc. ............................ C-1
Sections 1701.84 and 1701.85 of the Ohio Revised Code............... D-1
Section 262 of the Delaware General Corporation Law................. E-1
</TABLE>
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Upon consummation of the Merger (the "Effective Time"), O'Gara will be
renamed "The Kroll-O'Gara Company." References to "O'Gara" in this Proxy
Statement/Prospectus refer to The O'Gara Company prior to the Effective Time and
The Kroll-O'Gara Company after the Effective Time, as the context indicates, and
include its subsidiaries on a consolidated basis, unless the context otherwise
requires. References herein to "Kroll" refer to Kroll Holdings, Inc., a Delaware
corporation, and its subsidiaries on a consolidated basis, unless the context
otherwise requires. This Proxy Statement/Prospectus contains forward-looking
statements which involve risks and uncertainties. O'Gara's and Kroll's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "RISK
FACTORS" and elsewhere in this Proxy Statement/Prospectus.
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus. This summary is not
intended to be complete and is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, the
Appendices hereto and the documents otherwise referred to herein. Shareholders
of O'Gara and Kroll are urged to review carefully this entire Proxy
Statement/Prospectus, including the Appendices hereto and such other documents.
THE COMPANIES
O'Gara. O'Gara is a worldwide integrated security company with three
business lines: security hardware products, security services and security
systems integration. The Security Hardware Products Group markets all of
O'Gara's armoring products, including ballistic and blast protected armoring
systems for commercial and military vehicles, aircraft and missile components.
The Security Services Group offers security-related products and services, such
as advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing and force protection consulting. The
Security Systems Integration Group offers planning, design and hardware and
software integration services which are customized to meet specific portable
satellite communications needs of customers, as well as customized turn-key site
security systems to international customers. It also distributes global
positioning satellite equipment. The mailing address of O'Gara's principal
executive offices is 9113 LeSaint Drive, Fairfield, Ohio 45014; its telephone
number is (513) 874-2112. See "BUSINESS OF O'GARA."
Kroll. Kroll provides a broad array of corporate investigation, risk and
crisis management and business intelligence services on a global basis to
multinational and other large companies, including law firms, investment banks
and other financial institutions, government agencies and other clients. Kroll
believes that it is one of the largest companies in the world providing this
broad array of services and that it enjoys strong name recognition within its
customer base. The mailing address of Kroll's principal executive offices is 900
Third Avenue, New York, New York 10022; its telephone number is (212) 593-1000.
See "BUSINESS OF KROLL."
REASONS FOR THE MERGER
The O'Gara Board and the Board of Directors of Kroll (the "Kroll Board")
have approved the Merger for many reasons, including their belief that the
Merger will further the strategic objectives of each company by virtue of their
complementary businesses, managements and resources and that the Merger will
create a global integrated company with strong name recognition and
opportunities for cross selling of goods and services. See "THE
MERGER -- Reasons for the Merger and Recommendations of the Boards of
Directors."
THE MERGER
General. Upon consummation of the Merger, shareholders of Kroll will
receive (and options to purchase Kroll Stock will be converted into options to
purchase) an aggregate of 6,650,000 shares of O'Gara Common Stock and Kroll will
become a wholly owned subsidiary of O'Gara.
1
<PAGE> 9
Recommendation of O'Gara Board. The O'Gara Board, by unanimous vote, has
determined that the Merger is in the best interests of the holders of O'Gara
Common Stock and recommends that holders of O'Gara Common Stock vote in favor of
the O'Gara Proposal. The decision of the O'Gara Board to enter into the Merger
Agreement and to recommend that O'Gara shareholders vote in favor of the O'Gara
Proposal is based upon its evaluation of a number of factors, including, among
others, the indication by SBC Warburg Dillon Read Inc. ("Dillon Read"), an
advisor to O'Gara in connection with the Merger, that, subject to receipt of the
executed Merger Agreement substantially in the form and containing the terms as
presented at the August 6, 1997 O'Gara Board meeting, Dillon Read was prepared
to deliver an opinion (the "Dillon Read Opinion") to the O'Gara Board that the
consideration to be paid by O'Gara in connection with the Merger was fair to
O'Gara from a financial point of view. Dillon Read was not requested to and did
not render an opinion as to the fairness of the Merger to the shareholders of
O'Gara individually because (i) O'Gara will become the parent of Kroll in the
Merger, (ii) the O'Gara shareholders are not receiving any consideration in the
Merger, and (iii) the Merger will not adversely affect the rights of the O'Gara
shareholders. Accordingly, O'Gara believes that the interests of the O'Gara
shareholders are aligned with those of O'Gara. See "THE MERGER -- Reasons for
the Merger and Recommendations of the Boards of Directors" and "THE
MERGER -- Opinion of Dillon Read."
Recommendation of Kroll Board. The Kroll Board, by unanimous vote, has
determined that the Merger Agreement and the Merger are fair to, and in the best
interests of, Kroll and its shareholders and recommends that shareholders of
Kroll vote for approval and adoption of the Merger Agreement at the Kroll
Meeting. See "THE MERGER -- Reasons for the Merger and Recommendations of the
Boards of Directors."
Opinion of Dillon Read. At the O'Gara Board meeting on August 6, 1997,
Dillon Read set forth its analysis of the proposed transaction, and based on
discussions and materials provided at the O'Gara Board meeting and subject to
receipt of the executed Merger Agreement substantially in the form and
containing the terms as presented at the meeting, Dillon Read indicated that it
was prepared to deliver an opinion that the consideration to be paid by O'Gara
in connection with the Merger is fair to O'Gara from a financial point of view.
The Dillon Read Opinion does not address the fairness of the Merger to the
shareholders of O'Gara or Kroll, nor does it constitute a recommendation
regarding whether or not it is advisable for such shareholders to vote in favor
of the Merger. The full text of the Dillon Read Opinion, dated September 12,
1997, which sets forth a description of the assumptions made, matters considered
and limitations on the review undertaken, is attached hereto as Appendix C. See
"THE MERGER -- Opinion of Dillon Read."
Interests of Certain Persons in the Merger. Certain members of the
management of O'Gara and Kroll and of the O'Gara Board and the Kroll Board have
certain interests in the Merger that may be different from, or in addition to,
the interests of shareholders of O'Gara and Kroll generally. O'Gara will cause
Kroll to repay certain indebtedness to Jules B. Kroll and American International
Group, Inc., a Delaware corporation ("AIG"). Jules B. Kroll and AIG are the
principal shareholders of Kroll. At the Effective Time, Jules B. Kroll, Howard
I. Smith (an executive officer of AIG), Michael G. Cherkasky and Marshall S.
Cogan will become directors of O'Gara, Jules B. Kroll will become Chairman and
Chief Executive Officer of O'Gara, Thomas M. O'Gara will become Vice Chairman of
O'Gara, Wilfred T. O'Gara will become President and Chief Operating Officer of
O'Gara and certain other executive officers of Kroll will become executive
officers of O'Gara. O'Gara has entered into employment agreements or amendments
to employment agreements with such executive officers which will become
effective at the Effective Time and it is contemplated that options to purchase
shares of O'Gara Common Stock will be issued to certain of such persons at the
Effective Time. " See "THE MERGER -- Interests of Certain Persons in the
Merger," "-- Management of O'Gara after the Merger," "PRINCIPAL SHAREHOLDERS OF
KROLL,""CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- O'GARA," and
"CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL." O'Gara has
executed agreements with Jules B. Kroll, Thomas M. O'Gara and AIG granting them
rights to require O'Gara, under certain conditions, to register all or a portion
of the O'Gara Common Stock to be owned by them after the Merger. See "THE MERGER
AGREEMENT -- Registration Rights Agreements."
Ownership of O'Gara after the Merger. Immediately following the Merger (i)
the former holders of O'Gara Common Stock will collectively own approximately
52% of the issued and outstanding shares of O'Gara Common Stock, (ii) the former
holders of Kroll Stock will collectively hold approximately 48% of the issued
and outstanding shares of O'Gara Common Stock, and (iii) Thomas M. O'Gara, Jules
B. Kroll and AIG will beneficially own approximately 29.0%, 26.5% and 10.4%,
respectively, of the issued and outstanding shares of
2
<PAGE> 10
O'Gara Common Stock. See "THE MERGER -- Ownership of O'Gara after the Merger"
and "PRINCIPAL SHAREHOLDERS OF O'GARA."
Management of O'Gara after the Merger. At the Effective Time, Jules B.
Kroll, Howard I. Smith, Michael G. Cherkasky and Marshall S. Cogan will join the
O'Gara Board, Jules B. Kroll will become Chairman of the Board and Chief
Executive Officer of O'Gara, Thomas M. O'Gara will become Vice Chairman of
O'Gara, Wilfred T. O'Gara will become President and Chief Operating Officer of
O'Gara, and certain other changes in the executive officers of O'Gara will be
effected. Election of Jules B. Kroll and Howard I. Smith as directors of O'Gara
is a condition to the consummation of the Merger. Michael G. Cherkasky and
Marshall S. Cogan have been nominated for election as directors consistent with
the understanding of Kroll and O'Gara that Kroll could propose four candidates
(including Messrs. Kroll and Smith) for election to the O'Gara Board. See "THE
MERGER -- Management of O'Gara after the Merger."
Financing the Merger. O'Gara contemplates that at the Effective Time it
will cause Kroll to repay approximately $14.3 million principal amount of
indebtedness to Kroll's principal shareholders and other lenders. O'Gara
anticipates that, to the extent necessary, such funds will be provided by
borrowings under O'Gara's bank credit agreement, as amended. See "THE
MERGER -- Financing the Merger."
Accounting Treatment. The Merger will be accounted for under the pooling
of interests method of accounting in accordance with generally accepted
accounting principles. See "THE MERGER -- Accounting Treatment."
Certain Federal Income Tax Consequences. The Merger is intended to be a
tax-free reorganization for federal income tax purposes so that no gain or loss
will be recognized by the Kroll shareholders, the O'Gara shareholders, Kroll or
O'Gara, except as a result of cash received in lieu of fractional shares or upon
a shareholder's exercise of dissenters' or appraisal rights. See "THE
MERGER -- Certain Federal Income Tax Consequences."
Federal Securities Law Consequences. All shares of O'Gara Common Stock
received in the Merger by Kroll shareholders (other than persons who are
affiliates of Kroll prior to the Merger or O'Gara after the Merger) will be
freely transferable. O'Gara has agreed, under certain circumstances, to register
shares of O'Gara Common Stock held by Jules B. Kroll, Thomas M. O'Gara and AIG.
See "THE MERGER -- Federal Securities Law Consequences," "THE MERGER
AGREEMENT -- Registration Rights Agreements" and "SHARES OF O'GARA COMMON STOCK
ELIGIBLE FOR FUTURE SALE."
Dissenters' Rights. Holders of O'Gara Common Stock or Kroll Stock who do
not vote in favor of the Merger and who otherwise properly comply with Sections
1701.84 and 1701.85 of the Ohio General Corporation Law (the "OGCL") or Section
262 of the Delaware General Corporation Law (the "DGCL"), respectively, will be
entitled to dissenters' or appraisal rights. See "THE MERGER -- Dissenters'
Rights."
THE MERGER AGREEMENT
General. The Merger Agreement provides, among other things, for the merger
of Newco with and into Kroll, which will result in Kroll, as the surviving
corporation of the Merger, becoming a wholly owned subsidiary of O'Gara.
Conversion of Kroll Stock. At the Effective Time, all shares of Kroll
Stock then issued and outstanding (other than treasury shares and shares owned
by O'Gara or Newco and other than shares subject to dissenters' or appraisal
rights ("Dissenting Shares")), including shares of Kroll Stock subject to
outstanding warrants, options or other stock issuance agreements, will be
converted into an aggregate of 6,650,000 shares of O'Gara Common Stock. On the
date of this Proxy Statement/Prospectus, 106,367 shares of Kroll Stock were
outstanding or subject to warrants, options or other stock issuance agreements.
If the Merger had been consummated on the date of this Proxy
Statement/Prospectus, each outstanding share of Kroll Stock would have been
converted into 62.52 shares of O'Gara Common Stock and each outstanding right to
purchase one share of Kroll Common Stock would have been converted into a right
to purchase 62.52 shares of O'Gara Common Stock. See "THE MERGER
AGREEMENT -- Conversion of Kroll Stock."
HOLDERS OF KROLL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING KROLL
STOCK TO O'GARA OR KROLL AT THIS TIME. IF THE MERGER IS APPROVED, A LETTER OF
3
<PAGE> 11
TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING KROLL STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. KROLL
SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING KROLL STOCK TO O'GARA'S
TRANSFER AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS
CONTAINED IN THE LETTER OF TRANSMITTAL.
Conditions to the Merger. The obligations of O'Gara and Kroll to
consummate the Merger are subject to the fulfillment of various conditions,
including (i) the effectiveness of the Registration Statement of which this
Proxy Statement/Prospectus is a part and the absence of any stop order
suspending the effectiveness thereof or any threat thereof and (ii) approval of
the Merger by the shareholders of O'Gara and Kroll. Each of such conditions may
be waived, to the extent permitted by law, by the party or parties entitled to
the benefit thereof. At the current time, neither O'Gara nor Kroll believes that
any such waiver will be required. If any condition is not fulfilled, each of
O'Gara and Kroll will evaluate whether it is in its best interests to grant such
a waiver. See "THE MERGER AGREEMENT -- Conditions to the Merger."
Termination of the Merger Agreement. The Merger Agreement may be
terminated (i) by O'Gara or Kroll, if the Merger is not consummated on or prior
to January 31, 1998, (ii) by agreement of O'Gara, Newco, Kroll and Jules B.
Kroll, (iii) by the O'Gara Board, if any of the conditions to O'Gara's
obligations have not been satisfied prior to the closing of the Merger (the
"Closing"), or (iv) by the Kroll Board, if any of the conditions to Kroll's
obligations have not been satisfied prior to the Closing.
RISK FACTORS
An investment in O'Gara Common Stock involves a high degree of risk and
there are risks associated with the business of Kroll and with the Merger.
Accordingly, certain risk factors should be considered by shareholders of O'Gara
and Kroll in evaluating the Merger. See "RISK FACTORS."
THE O'GARA MEETING
The O'Gara Meeting will be held at The Omni Netherland Plaza Hotel, Fifth
and Race Streets, Cincinnati, Ohio on November 21, 1997, starting at 9:00 a.m.
local time. See "THE SPECIAL MEETINGS -- The O'Gara Meeting." At the O'Gara
Meeting, holders of O'Gara Common Stock will be asked to approve and adopt the
O'Gara Proposal. The Merger Agreement and the Amended and Restated Articles of
Incorporation of O'Gara are attached hereto as Appendices A and B, respectively.
At the O'Gara Meeting holders of O'Gara Common Stock also will be asked to
consider and approve the O'Gara Option Proposal and the O'Gara Capitalization
Proposal. The O'Gara Proposal, the O'Gara Option Proposal and the O'Gara
Capitalization Proposal are not conditioned upon one another.
Holders of record of O'Gara Common Stock at the close of business on
October 15, 1997 (the "O'Gara Record Date"), have the right to receive notice of
and to vote at the O'Gara Meeting. On the O'Gara Record Date, there were
7,279,310 shares of O'Gara Common Stock outstanding and entitled to vote. Each
share of O'Gara Common Stock is entitled to one vote on each matter that is
properly presented to O'Gara shareholders for a vote at the O'Gara Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
O'Gara Common Stock is required to approve and adopt the O'Gara Proposal and the
O'Gara Capitalization Proposal. The affirmative vote of a majority of the shares
of O'Gara Common Stock represented at the O'Gara Meeting in person or by proxy
and entitled to vote on the O'Gara Option Proposal is required to approve the
O'Gara Option Proposal.
The presence at the O'Gara Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of O'Gara Common Stock entitled to vote
is necessary to constitute a quorum at the O'Gara Meeting. A shareholder of
O'Gara may revoke his or her proxy at any time prior to its use by delivering to
the Secretary of O'Gara a signed notice of revocation or a later dated signed
proxy or by attending the O'Gara Meeting and voting in person. Attendance at the
O'Gara Meeting will not in itself constitute the revocation of a proxy.
As of the O'Gara Record Date, directors and executive officers of O'Gara as
a group beneficially owned 4,760,016 outstanding shares of O'Gara Common Stock,
or approximately 65.4% of those shares outstanding as
4
<PAGE> 12
of such date. See "PRINCIPAL SHAREHOLDERS OF O'GARA." As of the O'Gara Record
Date, Thomas M. O'Gara beneficially owned 4,041,838 shares of O'Gara Common
Stock, or approximately 55.5% of those outstanding. He has agreed to vote such
shares in favor of the O'Gara Proposal. Accordingly, it is expected that the
O'Gara Proposal will be approved regardless of the votes cast by other holders
of O'Gara Common Stock. See "THE MERGER AGREEMENT -- Stock Agreements."
THE KROLL MEETING
The Kroll Meeting will be held at The Omni Netherland Plaza Hotel, Fifth
and Race Streets, Cincinnati, Ohio on November 21, 1997, starting at 11:00 a.m.
local time. See "THE SPECIAL MEETINGS -- The Kroll Meeting." At the Kroll
Meeting, holders of Kroll Stock will be asked to approve and adopt the Kroll
Proposal.
Holders of record of Kroll Stock at the close of business on October 15,
1997 (the "Kroll Record Date") have the right to receive notice of and to vote
at the Kroll Meeting. On the Kroll Record Date, there were 23,100 shares of
Kroll Class A Common Stock and 74,446 shares of Kroll Common Stock outstanding
and entitled to vote. Each share of Kroll Stock is entitled to one vote on each
matter that is properly presented to Kroll shareholders for a vote at the Kroll
Meeting. The affirmative vote of the holders of a majority of the outstanding
shares of Kroll Stock and the affirmative vote of the holders of a majority of
the Kroll Class A Common Stock are required to approve and adopt the Kroll
Proposal.
As of the Kroll Record Date, directors and executive officers of Kroll who
will be directors or executive officers of O'Gara after the Merger as a group
beneficially owned 60,920 outstanding shares of Kroll Common Stock, or
approximately 81.8% of those shares outstanding on that date, and AIG
beneficially owned all of the outstanding Kroll Class A Common Stock. See
"PRINCIPAL SHAREHOLDERS OF KROLL." As of that date, Jules B. Kroll and AIG owned
an aggregate of 82,041 shares of Kroll Stock, or approximately 84.1% of those
outstanding. Jules B. Kroll and AIG have agreed to vote such shares in favor of
the Kroll Proposal. Accordingly, it is expected that the Kroll Proposal will be
approved regardless of the votes cast by other holders of Kroll Stock. See "THE
MERGER AGREEMENT -- Stock Agreements."
MARKET PRICES AND DIVIDENDS
The O'Gara Common Stock is traded on the Nasdaq National Market under the
symbol OGAR.
On August 7, 1997, the last full trading day preceding public announcement
of the proposed Merger, the last reported sale price per share of the O'Gara
Common Stock on the Nasdaq National Market was $12.75. On , 1997,
the most recent practicable date prior to the printing of this Proxy
Statement/Prospectus, the last reported sale price per share of the O'Gara
Common Stock on the Nasdaq National Market was $ . See "MARKET PRICES
AND DIVIDENDS -- Price Range Of O'Gara Common Stock."
There is no established market for the Kroll Stock.
HOLDERS OF KROLL STOCK AND O'GARA COMMON STOCK ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE O'GARA COMMON STOCK PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
O'Gara anticipates that any future earnings will be retained to finance
O'Gara's operations and for the growth and development of its business.
Accordingly, O'Gara currently does not anticipate paying cash dividends on the
O'Gara Common Stock in the foreseeable future. See "MARKET PRICES AND
DIVIDENDS -- Dividend Policy."
5
<PAGE> 13
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
O'GARA HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial data set forth below with
respect to O'Gara's consolidated statements of operations for each of the three
years in the period ended December 31, 1996, and with respect to O'Gara's
consolidated balance sheets at December 31, 1995 and 1996, are derived from the
audited consolidated financial statements of O'Gara included elsewhere in this
Proxy Statement/Prospectus. The summary historical financial data set forth
below with respect to O'Gara's consolidated statement of operations for the year
ended December 31, 1993 and with respect to O'Gara's consolidated balance sheet
at December 31, 1994 is derived from audited consolidated financial statements
of O'Gara not included in this Proxy Statement/Prospectus. The summary
historical financial data set forth below with respect to O'Gara's consolidated
balance sheets at December 31, 1992 and 1993 and O'Gara's consolidated statement
of operations for the year ended December 31, 1992 are derived from unaudited
consolidated financial statements.
The summary historical financial data for O'Gara for the six months ended
June 30, 1996 and 1997 are derived from unaudited consolidated financial
statements of O'Gara included elsewhere in this Proxy Statement/Prospectus.
The data set forth below is qualified by reference to, and should be read
in conjunction with, the related consolidated financial statements and the notes
related thereto and "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," included elsewhere in this Proxy
Statement/Prospectus. Unaudited interim data reflects, in the opinion of
O'Gara's management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of results for such
interim periods. Results of operations for unaudited interim periods are not
necessarily indicative of results which may be expected for any other interim or
annual period.
6
<PAGE> 14
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997(3)
------- ------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $16,860 $21,054 $33,912 $32,817 $ 82,778 $41,521 $ 51,853
Cost of sales................ 11,511 14,640 24,505 25,237 61,523 31,383 37,484
------- ------- ------- ------- --------- ------- ---------
Gross profit............ 5,349 6,414 9,407 7,580 21,255 10,138 14,369
Selling and marketing
expenses................... 2,432 1,933 2,736 3,628 4,810 2,159 3,794
General and administrative
expenses................... 1,464 3,169 4,441 4,129 7,930 3,286 5,121
------- ------- ------- ------- --------- ------- ---------
Operating income
(loss)................ 1,453 1,312 2,230 (177) 8,515 4,693 5,454
Interest expense............. (481) (269) (410) (842) (1,300) (613) (1,404)
Other income (expense),
net........................ 92 (81) 60 (103) (38) (78) 329
------- ------- ------- ------- --------- ------- ---------
Income (loss) before
minority interest,
provision for income
taxes and extraordinary
item.................... 1,064 962 1,880 (1,122) 7,177 4,002 4,379
Minority interest............ -- -- -- -- -- -- (74)
------- ------- ------- ------- --------- ------- ---------
Income (loss) before
provision for income
taxes and extraordinary
item.................... 1,064 962 1,880 (1,122) 7,177 4,002 4,305
Provision for income
taxes(1)................... -- -- -- -- 518 -- 1,623
------- ------- ------- ------- --------- ------- ---------
Income (loss) before
extraordinary item...... 1,064 962 1,880 (1,122) 6,659 4,002 2,682
Extraordinary item, net of
tax benefit................ -- -- -- -- -- -- 194
------- ------- ------- ------- --------- ------- ---------
Net income (loss)............ $ 1,064 $ 962 $ 1,880 $(1,122) $ 6,659 $ 4,002 $ 2,488
======= ======= ======= ======= ========= ======= =========
Pro Forma earnings per
share(2)................... $ 0.69
=========
Earnings per share........... $ 0.35
=========
Pro Forma weighted average
shares outstanding......... 6,449,050
=========
Weighted average shares
outstanding................ 7,141,389
=========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)....... $(4,468) $(2,238) $(1,999) $(4,094) $ 4,279 $ (616) $32,332
Net property, plant and
equipment..................... 2,236 2,622 2,945 3,171 4,925 3,669 9,083
Total assets.................... 10,504 11,372 19,243 27,817 43,938 36,265 89,747
Total debt...................... 4,715 4,752 7,900 12,372 12,241 15,808 41,974
Shareholders' equity
(deficit)..................... (1,713) (1,023) 1,273 239 12,656 4,016 20,752
</TABLE>
- ---------------
(1) Prior to its initial public offering consummated in November 1996 (the
"Offering"), O'Gara's business was conducted by a group of corporations
affiliated by substantially common management and control (the "Related
Corporations"), which were combined on October 28, 1996 (the
"Reorganization"). The most significant of the Related Corporations had
elected to be treated as an S Corporation for federal and state income tax
purposes, rather than be taxed at the corporate level. Accordingly, the
O'Gara Historical Financial Data does not contain a provision for income
taxes prior to 1996. The provision for income taxes in 1996 reflects a tax
provision for the period subsequent to the Reorganization.
(2) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
purchase of net assets of Palmer Associates, S.C. ("Palmer"), the
elimination of interest expense relating to the retirement of bank debt and
the application of corporate income taxes to O'Gara's consolidated income
before income taxes at an effective rate of approximately 40%. See the
Consolidated Statements of Operations and Notes to O'Gara's Consolidated
Financial Statements included elsewhere in this Proxy Statement/Prospectus.
(3) O'Gara completed certain acquisitions in the first quarter of 1997
(including the acquisition of Labbe, S.A. ("Labbe") which was effective for
accounting purposes on January 1, 1997) and the results of the acquired
entities are included from the dates of their respective acquisitions in the
consolidated statement of operations as well as in the consolidated balance
sheet data as of June 30, 1997.
7
<PAGE> 15
KROLL HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial data set forth below with
respect to Kroll's consolidated statements of operations for each of the three
years in the period ended December 31, 1996, and with respect to Kroll's
consolidated balance sheets at December 31, 1995 and 1996, are derived from the
audited consolidated financial statements of Kroll included elsewhere in this
Proxy Statement/Prospectus. The summary historical financial data set forth
below with respect to Kroll's consolidated statement of operations for the year
ended December 31, 1993, and with respect to Kroll's consolidated balance sheets
at December 31, 1993 and 1994, are derived from audited consolidated financial
statements of Kroll not included in this Proxy Statement/Prospectus. The summary
historical combined financial data presented for Kroll in 1992 is that of Kroll
Associates, Inc. and affiliated subsidiaries group ("KAI"). Kroll Holdings, Inc.
commenced operations in June 1993.
The summary historical financial data for Kroll for the six months ended
June 30, 1996 and 1997 are derived from unaudited consolidated financial
statements of Kroll included elsewhere in this Proxy Statement/Prospectus.
The data set forth below is qualified by reference to, and should be read
in conjunction with, the related consolidated financial statements and the notes
related thereto and "KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," included elsewhere in this Proxy
Statement/Prospectus. Unaudited interim data reflects, in the opinion of Kroll's
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of results for such interim
periods. Results of operations for unaudited interim periods are not necessarily
indicative of results which may be expected for any other interim or annual
period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
TWELVE MONTHS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $57,144 $56,161 $52,872 $53,024 $70,883 $33,374 $36,746
Cost of sales(3)................ 29,181 31,024 31,684 35,206 47,900 21,772 21,073
------- ------- ------- ------- ------- ------- -------
Gross profit............... 27,963 25,137 21,188 17,818 22,983 11,602 15,673
Selling and marketing
expenses...................... 3,784 4,084 4,700 5,490 4,632 2,097 2,581
General and administrative
expenses...................... 17,273 16,301 18,076 16,788 18,350 8,689 9,513
------- ------- ------- ------- ------- ------- -------
Operating income (loss).... 6,906 4,752 (1,588) (4,460) 1 816 3,579
Interest expense................ (2,426) (2,423) (2,188) (1,970) (1,840) (950) (783)
Other income (expense), net..... 1,915 515 406 (282) 358 71 (135)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax
provision (benefit) and
cumulative effect of
accounting change............. 6,395 2,844 (3,370) (6,712) (1,481) (63) 2,661
Provision (benefit) for income
taxes(1)...................... 635 7,070 (1,751) (1,298) (679) (57) 1,326
------- ------- ------- ------- ------- ------- -------
Income (loss) before cumulative
effect of accounting change... 5,760 (4,226) (1,619) (5,414) (802) (6) 1,335
Cumulative effect of accounting
change(2)..................... -- (295) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)(3)............ $ 5,760 $(4,521) $(1,619) $(5,414) $ (802) $ (6) $ 1,335
======= ======= ======= ======= ======= ======= =======
</TABLE>
8
<PAGE> 16
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $15,630 $26,158 $16,510 $ 8,181 $ 6,321 $10,257 $ 3,838
Net property, plant and
equipment..................... 5,075 4,582 4,067 3,705 3,639 3,576 4,227
Total assets.................... 39,639 48,179 44,659 38,950 37,296 38,703 37,414
Total debt...................... 21,643 20,622 19,666 18,543 15,173 18,124 14,597
Stockholders' equity............ 5,126 11,362 9,803 4,418 4,212 4,376 3,019
</TABLE>
- ---------------
(1) Prior to 1993, Kroll had elected to be treated as an S Corporation for
federal and state income tax purposes and as such, income was allocable to
its shareholders for income tax purposes, rather than being taxed at the
corporate level. Income tax expense reflected in the consolidated statement
of operations for the year ended December 31, 1992, relates to those
jurisdictions which did not recognize Kroll's S Corporation status. During
1993, Kroll changed its tax filing status from an S to a C Corporation. The
deferred tax liability resulting from this tax status change has been
included in income tax expense for the year ended December 31, 1993.
(2) Effective January 1, 1993, Kroll adopted SFAS 109 and reported the
cumulative effect of a change in the method of accounting for income taxes
in the 1993 consolidated statement of operations.
(3) The net income (loss) and costs of sales for the year ended December 31,
1996 reflect a write-off by Kroll of approximately $5.0 million ($2.8
million, net of tax benefit) of uncollectible accounts receivable. See
"KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" included elsewhere in this Proxy
Statement/Prospectus.
9
<PAGE> 17
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The selected unaudited pro forma combined condensed financial data is
derived from the unaudited pro forma combined condensed financial statements,
which give effect to the Merger as a pooling of interests, and should be read in
conjunction with, and are qualified by reference to, such pro forma statements
and the notes thereto included elsewhere in this Proxy Statement/Prospectus. For
purposes of the unaudited pro forma operating data, O'Gara's consolidated
financial statements for the three fiscal years ended December 31, 1996, and for
the six months ended June 30, 1996 and 1997 have been combined with the
consolidated financial statements of Kroll for the three fiscal years ended
December 31, 1996 and for the six months ended June 30, 1996 and 1997,
respectively. For purposes of the unaudited pro forma combined balance sheet
data, O'Gara's consolidated financial data at June 30, 1997 has been combined
with Kroll's consolidated financial data at June 30, 1997. No dividends have
been declared or paid on the O'Gara Common Stock.
The pro forma data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have been achieved if the Merger had been consummated as of the beginning of the
periods indicated, nor is it indicative of future financial position or results
of operations.
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997(1)
------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net sales........................... $86,784 $85,841 $ 153,661 $74,895 $ 88,599
Cost of sales....................... 56,189 60,443 109,423 53,155 58,557
------- ------- ---------- ------- ----------
Gross profit................... 30,595 25,398 44,238 21,740 30,042
Selling and marketing expenses...... 7,436 9,118 9,442 4,256 6,375
General and administrative
expenses.......................... 22,517 20,917 26,280 11,975 14,634
------- ------- ---------- ------- ----------
Operating income (loss)........ 642 (4,637) 8,516 5,509 9,033
Interest expense.................... (2,598) (2,812) (3,140) (1,563) (2,187)
Other income (expense), net......... 466 (385) 320 (7) 194
------- ------- ---------- ------- ----------
Income (loss) before minority
interest, provision (benefit)
for income taxes and
extraordinary item........... (1,490) (7,834) 5,696 3,939 7,040
Minority interest................... -- -- -- -- (74)
------- ------- ---------- ------- ----------
Income (loss) before provision
(benefit) for income taxes
and extraordinary item....... (1,490) (7,834) 5,696 3,939 6,966
Income tax provision (benefit)(2)... (1,751) (1,298) (161) (57) 2,949
------- ------- ---------- ------- ----------
Income (loss) before
extraordinary item........... 261 (6,536) 5,857 3,996 4,017
Extraordinary item, net of tax
benefit........................... -- -- -- -- 194
------- ------- ---------- ------- ----------
Net income (loss) (3)............... $ 261 $(6,536) $ 5,857 $ 3,996 $ 3,823
======= ======= ========== ======= ==========
Pro Forma earnings per share (4).... $ 0.28
==========
Earnings per share.................. $ 0.28
==========
Weighted average shares
outstanding....................... 13,099,050 13,791,389
========== ==========
</TABLE>
10
<PAGE> 18
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 36,170
Net property, plant and equipment........................... 13,310
Total assets................................................ 127,161
Total debt.................................................. 56,571
Shareholders' equity........................................ 23,771
</TABLE>
- ---------------
(1) O'Gara completed certain acquisitions in the first quarter of 1997
(including Labbe, which was effective for accounting purposes on January 1,
1997) and the results of the acquired entities are included from the
effective dates of their respective acquisitions in the consolidated
statement of operations as well as in the consolidated balance sheet data as
of June 30, 1997.
(2) Prior to the Offering, O'Gara's business was conducted by the Related
Corporations, which were combined on October 28, 1996, in the
Reorganization. The most significant of the Related Corporations had elected
to be treated as an S Corporation for federal and state income tax purposes,
rather than be taxed at the corporate level. Accordingly, the O'Gara
Historical Financial Data does not contain a provision for income taxes
prior to 1996. The provision for income taxes in 1996 reflects a tax
provision for the period subsequent to the Reorganization.
(3) The unaudited pro forma net income (loss) for the year ended December 31,
1996 reflects a write-off by Kroll of approximately $5.0 million ($2.8
million, net of tax benefit) of uncollectible accounts receivable. See
"KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" included elsewhere in this Proxy
Statement/Prospectus.
(4) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
acquisition of Labbe and the purchase of net assets of Palmer, the
additional interest expense relating to debt incurred to fund the Labbe
acquisition (net of debt retired upon completion of the Offering) and the
application of corporate income taxes to O'Gara's consolidated income before
income taxes at an effective rate of approximately 40% (net of recognition
of the benefit for income taxes from Labbe pro forma adjustments at an
effective rate of approximately 37%). See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements.
NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
1. The unaudited pro forma combined condensed financial statements of O'Gara and
Kroll give retroactive effect to the Merger using the pooling of interests
method of accounting, and, as a result, the unaudited pro forma combined
condensed balance sheet and statements of operations are presented as if the
combining companies had been combined for all periods presented. The unaudited
pro forma combined condensed financial statements will become the historical
financial statements of O'Gara upon issuance of financial statements for a
period that includes the date on which the Merger is consummated. The unaudited
pro forma combined condensed financial statements reflect the issuance of
6,650,000 shares of O'Gara Common Stock in exchange for all shares of Kroll
Stock outstanding or subject to stock options to effect the Merger. The
unaudited pro forma combined condensed financial statements, including the notes
thereto, should be read in conjunction with the historical financial statements
of O'Gara and Kroll included elsewhere in this Proxy Statement/Prospectus.
2. The unaudited pro forma data is presented for informational purposes only and
does not give effect to any synergies that may occur due to the combining of
O'Gara's and Kroll's existing operations. O'Gara expects to incur charges
currently estimated to be approximately $2.4 million, net of estimated tax
benefit of approximately $1.6 million, to reflect costs associated with
transaction fees and costs incident to the Merger. In addition, following the
Merger, O'Gara expects to incur additional expenses, net of any tax benefits,
associated with integrating the operations of the two companies. It is currently
estimated that these nonrecurring charges will not exceed $0.5 million, and such
charges are not reflected in the unaudited pro forma combined condensed balance
sheet or statement of operations.
11
<PAGE> 19
3. In connection with the Merger, O'Gara will realize a charge to shareholders'
equity of $3.5 million, net of an estimated tax benefit of $2.4 million, related
to the accelerated vesting of certain stock options issued by Kroll.
4. Following the consummation of the Merger, O'Gara will cause Kroll to repay
its indebtedness to certain of the Kroll shareholders of approximately $6.2
million.
5. In 1997, O'Gara incurred an extraordinary charge resulting from the
refinancing of certain debt obligations.
6. The accounting policies of the separate companies are currently being studied
from a conformity perspective. The impact of conforming accounting policies, if
any, is not presently estimable.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA INCLUDING LABBE
The following selected unaudited pro forma combined condensed financial
data is derived from the unaudited pro forma combined condensed financial
statements, which give effect to the Merger as a pooling of interests, after
giving effect to O'Gara's acquisition of Labbe. The selected unaudited pro forma
combined condensed financial data should be read in conjunction with, and are
qualified by reference to, such pro forma statements and the notes thereto
included elsewhere in this Proxy Statement/Prospectus. For purposes of the
unaudited pro forma operating data, O'Gara's pro forma consolidated financial
statements for the fiscal year ended December 31, 1996 have been combined with
the consolidated financial statements of Kroll for the fiscal year ended
December 31, 1996.
The pro forma data is presented for illustrative purposes only, and is not
indicative of the operating results that would have been achieved if the
acquisition of Labbe or the Merger had been consummated as of the beginning of
the period indicated, nor is it indicative of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
O'GARA
PRO FORMA KROLL TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 106,896 $ 70,883 $ 177,779
Cost of sales......................................... 81,179 47,900 129,079
---------- ---------- -----------
Gross profit..................................... 25,717 22,983 48,700
Selling and marketing expenses........................ 5,894 4,632 10,526
General and administrative expenses................... 9,323 18,350 27,673
---------- ---------- -----------
Operating income (loss).......................... 10,500 1 10,501
Interest expense...................................... (2,769) (1,840) (4,609)
Other income (expense), net........................... (201) 358 157
---------- ---------- -----------
Income (loss) before provision (benefit) for
income taxes................................... 7,530 (1,481) 6,049
Provision (benefit) for income taxes (1).............. 676 (679) (3)
---------- ---------- -----------
Net income (loss) (2)................................. $ 6,854 $ (802) $ 6,052
========== ========== ===========
Pro Forma net income (loss) (3)....................... $ 4,644 $ (802) $ 3,842
========== ========== ===========
Earnings per share.................................... $ 0.68 $ 0.29
========== ===========
Weighted average shares outstanding................... 6,825,647 6,650,000 13,475,647
========== ========== ===========
</TABLE>
(1) Prior to the Offering, O'Gara's business was conducted by the Related
Corporations, which were combined on October 28, 1996, in the
Reorganization. The most significant of the Related Corporations had elected
to be treated as an S Corporation for federal and state income tax purposes,
rather than be taxed at the corporate level. Accordingly, the O'Gara
Historical Financial Data does not contain a provision for income taxes
prior to 1996. The provision for income taxes in 1996 reflects a tax
provision for the period subsequent to the Reorganization.
12
<PAGE> 20
(2) The unaudited pro forma net income (loss) for the year ended December 31,
1996 reflects a write-off by Kroll of approximately $5.0 million ($2.8
million, net of tax benefit) of uncollectible accounts receivable. See
"KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" included elsewhere in this Proxy
Statement/Prospectus.
(3) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
acquisition of Labbe and the purchase of net assets of Palmer, the
additional interest expense relating to debt incurred to fund the Labbe
acquisition (net of debt retired upon completion of the Offering) and the
application of corporate income taxes to O'Gara's consolidated income before
income taxes at an effective rate of approximately 40% (net of recognition
of the benefit for income taxes from Labbe pro forma adjustments at an
effective rate of approximately 37%). See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements included
elsewhere in this Proxy Statement/Prospectus.
13
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of O'Gara
and Kroll and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis of accounting. This
data should be read in conjunction with the selected historical financial data,
the unaudited pro forma combined condensed financial data and the separate
historical consolidated financial statements of O'Gara and Kroll, and notes
thereto and the O'Gara and Kroll Managements' Discussion and Analyses of
Financial Condition and Results of Operations included elsewhere in this Proxy
Statement/Prospectus. The pro forma combined financial data is not indicative of
the operating results that would have been achieved had the Merger been
consummated as of the beginning of the periods indicated nor is such data
indicative of future financial condition or results of operations. For purposes
of the comparative per share data, O'Gara's financial data at December 31, 1996
and June 30, 1997 have been combined with Kroll's financial data at December 31,
1996 and June 30, 1997, respectively.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Historical -- O'Gara:
Net income per share(3).................................. $ 0.69 $ 0.35
Book value per share(1).................................. $ 1.90 $ 2.85
Dividends per share...................................... $ -- $ --
Pro Forma -- O'Gara(4):
Net income (loss) per share.............................. $ 0.68 $ 0.35
Book value per share(1).................................. $ 2.36 $ 2.85
Dividends per share...................................... $ -- $ --
Historical -- Kroll:
Net income (loss) per share(5)........................... $ (7.35) $ 12.54
Book value per share(1).................................. $ 38.62 $ 28.38
Dividends per share...................................... $ -- $ --
Pro Forma Combined Per O'Gara Share(6):
Net income per share..................................... $ 0.28 $ 0.28
Book value per share(1).................................. $ 1.27 $ 1.71
Dividends per share...................................... $ -- $ --
Equivalent Pro Forma Combined Per Kroll Share(2):
Net income (loss) per share.............................. $ 17.51 $ 17.51
Book value per share..................................... $ 79.40 $ 106.91
Dividends per share...................................... $ -- $ --
</TABLE>
- ---------------
(1) The historical book value per share of each of O'Gara and Kroll,
respectively, is computed by dividing the respective shareholders' equity by
the number of shares of common stock outstanding at the end of each period.
The pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number of shares of O'Gara Common
Stock outstanding at the end of each period.
(2) The equivalent Kroll pro forma per share amounts are calculated by
multiplying the O'Gara combined pro forma per share amounts by the exchange
ratio.
(3) Represents pro forma earnings per share reflecting the pro forma effects on
the historical consolidated financial information of certain transactions as
if they occurred on January 1, 1996. The pro forma adjustments include
amortization on intangible assets resulting from the purchase of net assets
of Palmer, the elimination of interest expense relating to the retirement of
bank debt and the application of corporate income taxes to O'Gara's
consolidated income before income taxes at an effective rate of
approximately 40%. See the Consolidated Statements of Operations and Notes
to O'Gara's Consolidated Financial Statements included elsewhere in this
Proxy Statement/Prospectus.
(4) Represents pro forma earnings per share assuming the acquisition of Labbe
occurred on January 1, 1996 and reflecting the pro forma effects on the
historical O'Gara and Labbe consolidated financial information of certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
acquisition of Labbe and the purchase of net assets of Palmer, the
additional interest expense relating to debt incurred to fund the Labbe
acquisition (net of debt retired upon completion of the Offering) and the
application of corporate income taxes to O'Gara's consolidated income before
income taxes at an effective rate of approximately 40% (net of recognition
of the benefit for income taxes from Labbe pro forma adjustments at an
effective rate of approximately 37%). See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements included
elsewhere in this Proxy Statement/Prospectus.
(5) Includes Class A and common stock as well as the dilutive impact of
outstanding common stock equivalents.
(6) The unaudited pro forma data are presented for informational purposes only
and do not give effect to any synergies that may occur due to the combining
of O'Gara's and Kroll's existing operations. O'Gara expects to incur charges
currently estimated to be approximately $2.4 million, net of estimated tax
benefit of approximately $1.6 million, to reflect costs associated with
transaction fees and costs incident to the Merger. In addition, following
the Merger, O'Gara expects to incur additional expenses, net of any tax
benefits, associated with integrating the operations of the two companies.
It is currently estimated that these nonrecurring charges will not exceed
$0.5 million, and such charges are not reflected in the unaudited pro forma
combined condensed balance sheet or statement of operations.
14
<PAGE> 22
RISK FACTORS
The following risk factors should be considered by shareholders of O'Gara
and Kroll in evaluating the Merger. After the Effective Time, the risk factors
described under "Risk Factors Relating to the Business of O'Gara" and "Risk
Factors Relating to the Business of Kroll" will relate to the business of the
combined companies.
RISK FACTORS ASSOCIATED WITH THE MERGER
Uncertainties Relating to Integration of Operations. The anticipated
benefits of the Merger may not be achieved unless the operations of Kroll are
combined successfully with those of O'Gara in a coordinated, timely and
efficient manner, and there can be no assurance that this will occur. Even if
the two companies' operations are integrated successfully, there can be no
assurance that the benefits anticipated by the Merger will be achieved. The
transition to a combined company will require substantial attention from
management. The diversion of the attention of management and any difficulties
encountered in the transition process could have an adverse impact on the
revenues and operating results of the combined companies. These difficulties may
be increased by the necessity of integrating personnel with disparate business
backgrounds and combining two different corporate cultures. In addition, the
process of combining the two organizations could cause the interruption of, or a
loss of momentum in, the activities of either or both of the companies'
businesses, which could have an adverse effect on their combined operations. The
uncertainties associated with such integration may result in the loss of key
management and other employees. Failure to achieve the anticipated benefits of
the Merger or to integrate successfully the operations of the companies could
have a material adverse effect upon the business, operating results and
financial condition of O'Gara after the Merger. Even if the benefits of the
Merger are achieved and the two companies' operations are integrated
successfully, there can be no assurance that the operating results and financial
condition of O'Gara after the Merger will not be materially and adversely
affected by any number of economic, market or other factors that are not related
to the Merger, including those described under "Risk Factors Relating to the
Business of O'Gara" and "Risk Factors Relating to the Business of Kroll."
Transaction Expenses; Costs of Integration. O'Gara and Kroll estimate that
they will together incur direct transaction costs (including financial advisors,
legal, accounting, registration and printing fees) of approximately $4.0 million
associated with the Merger. In addition, following the Merger, O'Gara expects to
incur additional expenses, which at this time are not expected to exceed $0.5
million, relating to information systems integration, promotional materials
reflecting the Merger, integration of benefit plans, and travel and other costs
relating to transitional planning and implementation. These costs (except for
any such costs which are capitalized) are expected to be charged against income
of O'Gara in the fiscal quarter in which they are incurred. There can be no
assurance that O'Gara will not incur unforeseen costs, which could be material,
in subsequent periods to reflect additional costs associated with the Merger.
Dependence on Key Personnel. After the Merger, the combined companies'
operations will depend on the continued efforts of their executive officers and
senior management, particularly Jules B. Kroll, Thomas M. O'Gara and Wilfred T.
O'Gara. If the executive officers of O'Gara and Kroll become unable or decide
not to continue with O'Gara after the Merger, or if a number of senior managers
fail to continue with O'Gara and O'Gara is unable to attract and retain
appropriate replacements, the combined companies' business could be materially
and adversely affected. See "THE MERGER -- Management of O'Gara after the
Merger."
Control by Management. After the Merger, O'Gara's directors and executive
officers will beneficially own approximately 72.2% of the outstanding O'Gara
Common Stock and will be able to control most matters requiring approval by
shareholders, including the election of directors. See "THE MERGER -- Ownership
of O'Gara after the Merger" and "PRINCIPAL SHAREHOLDERS OF O'GARA."
Possible Volatility of Stock. The market price for the O'Gara Common Stock
may be highly volatile after the Merger. O'Gara believes that a variety of
factors, including announcements by O'Gara or its competitors, quarterly
variations in financial results, trading volume, general market trends and other
factors, could cause the market price of the O'Gara Common Stock to fluctuate
substantially. In addition, the stock market has experienced extreme price and
volume fluctuations that are often unrelated to the operating performance of
particular companies. These market fluctuations may adversely affect the price
of the O'Gara Common Stock.
15
<PAGE> 23
Changes in the market value of the O'Gara Common Stock will affect the value to
be received by holders of Kroll Stock in the Merger.
Dilutive Effect of the Merger on Current Shareholders' Voting Power. After
the Merger, the current shareholders of O'Gara will initially own approximately
52% of the outstanding O'Gara Common Stock, and the current shareholders of
Kroll will initially own approximately 48% of the outstanding O'Gara Common
Stock. This represents substantial dilution of their current percentage voting
power in O'Gara and Kroll, respectively.
Dilutive Effect of the Merger on O'Gara's Earnings Per Share and Book Value
Per Share. On a pro forma basis, the Merger is dilutive to O'Gara's net income
per share for the twelve months ended December 31, 1996 and the six months ended
June 30, 1997. O'Gara's net income per share for such periods was $0.69 and
$0.35, respectively. On a pro forma basis, giving effect to the Merger as if it
had occurred on the first day of each such period, net income per share for such
periods would have been $0.28 and $0.28, respectively, representing dilution of
$0.41 and $0.07 per share, respectively. On a pro forma basis, the Merger also
is dilutive to O'Gara's book value per share at December 31, 1996 and June 30,
1997. O'Gara's book value per share at such dates was $1.90 and $2.85,
respectively. On a pro forma basis, giving effect to the Merger, book value per
share would have been $1.27 and $1.71, respectively, a reduction of $0.63 and
$1.14 per share, respectively. See "SUMMARY -- Comparative Per Share Data."
There can be no assurance that the Merger will not similarly dilute O'Gara's net
income and book value per share in the future.
Shares Eligible for Future Sale. Sales of a substantial number of shares
of O'Gara Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the O'Gara Common Stock and may
make it more difficult for O'Gara to sell shares of O'Gara Common Stock in the
future at times and for prices that it deems appropriate. Upon consummation of
the Merger, there will be outstanding 13,929,310 shares of O'Gara Common Stock
(assuming the exercise of all Kroll stock options and no exercise of outstanding
O'Gara stock options). The 6,650,000 shares of O'Gara Common Stock to be issued
in the Merger (except for any shares received by affiliates of O'Gara or Kroll),
and the shares of O'Gara Common Stock issued in the Offering, will be or are
freely tradeable without restriction under the Securities Act of 1933 (the
"Act"). The remaining approximately 5.2 million shares (the "Restricted Shares")
of currently outstanding O'Gara Common Stock have been owned beneficially by
certain of O'Gara's executive officers and directors since prior to the Offering
or were issued in the Acquisitions or as stock bonuses to certain executive
officers of O'Gara paid in the first quarter of 1997 and may not be resold
unless they are registered under the Act or sold pursuant to an applicable
exemption from registration, including Rule 144 under the Act. Pursuant to Rule
145 under the Act, resale of the shares of O'Gara Common Stock acquired in the
Merger by affiliates of Kroll prior to the Merger or O'Gara thereafter will be
subject to the provisions of Rule 144 (other than the holding period
requirements). See "SHARES OF O'GARA COMMON STOCK ELIGIBLE FOR FUTURE SALE."
Absence of Dividends. O'Gara does not anticipate paying any dividends on
the O'Gara Common Stock in the foreseeable future. Additionally, the terms of
the $35.0 million principal amount of O'Gara's Senior Notes due May 30, 2004,
issued and sold by O'Gara to certain institutional investors on June 3, 1997
(the "Senior Notes"), and O'Gara's credit agreement with its bank require
maintenance of certain financial ratios which may limit the funds available for
cash dividends. See "MARKET PRICES AND DIVIDENDS -- Dividend Policy."
Potential Anti-Takeover Effect and Potential Adverse Impact on Market Price
of Certain Charter and Code of Regulations Provisions and the OGCL. Certain
provisions of the O'Gara Articles and O'Gara's Code of Regulations (the "O'Gara
Code") and of the OGCL, together or separately, could discourage potential
acquisition proposals, delay or prevent a change in control of O'Gara and limit
the price that certain investors might be willing to pay in the future for
O'Gara Common Stock.
The O'Gara Board has authority to issue up to 100,000 (to be increased to
1,000,000 if the O'Gara Capitalization Proposal is approved) shares of O'Gara
Preferred Stock without further shareholder approval. Such O'Gara Preferred
Stock could have dividend, liquidation, conversion, voting and other rights and
privileges that are superior or senior to the O'Gara Common Stock. Issuance of
shares of O'Gara Preferred Stock could result in the dilution of the voting
power of the O'Gara Common Stock, adversely affect holders of the O'Gara Common
Stock in the event of liquidation of O'Gara or delay, defer or prevent a change
in control of O'Gara.
16
<PAGE> 24
In addition, Sections 1701.01 and 1701.831 of the OGCL contain provisions
that require shareholder approval of any proposed "control share acquisition" of
any Ohio corporation at any of three ownership thresholds: 20%, 33 1/3% and 50%;
and Chapter 1704 of the Ohio Revised Code contains provisions that restrict
certain business combinations and other transactions between an Ohio corporation
and interested shareholders. See "DESCRIPTION OF O'GARA CAPITAL
STOCK -- Provisions Affecting Business Combinations and Changes in Control."
RISK FACTORS RELATING TO THE BUSINESS OF O'GARA
An investment in O'Gara Common Stock involves a high degree of risk. O'Gara
operates in a highly competitive environment that involves a number of risks,
some of which are beyond its control. The following discussion highlights some
of these risks, which should be considered by shareholders of O'Gara and Kroll
in considering the Merger.
Risks Associated with Business Strategy. O'Gara's strategy is to become a
fully integrated global security company. Part of this strategy requires
developing relatively new lines of business by expanding O'Gara's Security
Systems Integration and Security Services Groups. Historically, O'Gara has not
generated substantial revenues from these lines of business. O'Gara's primary
business and experience has been in vehicle armoring. Although the O'Gara Board
believes the Merger will further this strategy, it believes that full
implementation of this strategy will require further steps to continue the
development of these lines of business. There can be no assurance that O'Gara
will be able to build or manage profitably these businesses without substantial
costs, delays or other problems, which could have a material adverse effect upon
O'Gara's financial condition, results of operations and cash flows.
As O'Gara's business develops and expands, O'Gara will need to implement
enhanced operational and financial systems and will require additional
employees, management and operational and financial resources. There can be no
assurance that O'Gara will successfully implement and maintain such operational
and financial systems or successfully obtain, integrate or utilize the
employees, management and operational and financial resources required to manage
a developing and expanding business. Failure to implement such systems
successfully and use such resources effectively could have a material adverse
effect on O'Gara's financial condition, results of operations and cash flows.
O'Gara's business strategy requires substantial capital. In addition, the
expansion of O'Gara's business into related products and services may require
additional capital. Such capital may be obtained by borrowings under O'Gara's
credit facilities, through the issuance of long-term or short-term indebtedness
or through the issuance of equity securities in private or public transactions.
This strategy could result in increased interest expense and/or dilution of
existing equity positions. There can be no assurance that acceptable capital
financing for future growth can be obtained on suitable terms, if at all. See
"O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
Risks Associated with Acquisition Strategy. A further part of O'Gara's
strategy is to grow through the acquisition of companies that will complement
its existing operations or provide it with an entry into markets it does not
currently serve. Although the O'Gara Board believes the Merger is consistent
with this strategy, growth through acquisitions involves substantial risks,
including the risk of improper valuation of the acquired business and the risk
of inadequate integration. There can be no assurance that O'Gara will be able to
acquire suitable companies or manage them profitably or that acquisitions will
produce returns that justify O'Gara's investments. In addition, O'Gara may
compete for acquisition and expansion opportunities with companies that have
significantly greater resources than O'Gara.
O'Gara may finance future acquisitions with cash from operations or
additional debt or equity financings. There can be no assurance that O'Gara will
be able to generate internal cash or obtain financing from external sources or
that, if available, such financing will be on terms acceptable to O'Gara. The
issuance of additional O'Gara Common Stock to finance acquisitions may result in
substantial dilution to holders of O'Gara Common Stock. Any debt financing may
significantly increase O'Gara's leverage and may involve restrictive covenants
which limit O'Gara's operations. Future acquisitions by O'Gara also will require
the approval of KeyBank under O'Gara's loan agreement. See "O'GARA MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
17
<PAGE> 25
If O'Gara is successful in its acquisition strategy, O'Gara may experience
a period of rapid growth which could place significant additional demands on
O'Gara's management, resources and management information systems. O'Gara's
failure to manage any such rapid growth effectively could have a material
adverse effect on O'Gara's financial condition, results of operations and cash
flows.
Competition. The markets in which O'Gara does or intends to do business
are highly competitive. There are a large number of companies, both public and
private, involved in one or more aspects of security hardware, security systems
integration and security services, as well as distribution of satellite
telecommunications and navigation products and services. Furthermore, O'Gara may
encounter additional competition from future industry entrants. Certain of
O'Gara's current competitors have, and new competitors may have, substantially
greater financial and other resources than O'Gara. There can be no assurance
that O'Gara will continue to develop and market products or services that will
be accepted in the marketplace or that it will be able to compete effectively in
the future, either of which could have a material adverse effect on O'Gara's
financial condition, results of operations and cash flows. See "BUSINESS OF
O'GARA -- Competition."
Risks Associated with U.S. Military Contracts. Since August 1993, U.S.
Military contracts have accounted for a substantial portion of O'Gara's
business, representing 28.5%, 50.1%, 45.6%, 66.0% and 37.3% of net sales for
1993, 1994, 1995, 1996 and the six months ended June 30, 1997, respectively.
Prior to August 1993, O'Gara's business did not include armoring military
vehicles. O'Gara's U.S. Military contracts are funded in annual increments and
require subsequent authorization and appropriation which may not occur or which
may provide less than the total amount of the contract due to budgetary or other
considerations. O'Gara's current prime contract to armor and blast protect 360
High Mobility Multi-Purpose Wheeled Vehicles ("HMMWVs"; a HMMWV which has been
armored and blast-protected is referred to herein as an "Up-Armored HMMWV") is
scheduled to be completed by July 31, 1998. 68 of these HMMWVs had been shipped
as of October 21, 1997. There can be no assurance that future contracts will be
received or as to the size of any contracts that are received. Fluctuations in
spending by the U.S. Government for national defense could adversely affect
O'Gara's ability to receive future contracts. Moreover, U.S. Government
contracts, in general, are cancelable unilaterally at the convenience of the
U.S. Government and a variety of international and/or domestic political factors
or decisions could result in the cancellation of the HMMWV armoring project or a
curtailing of its scope. The loss of, or a significant reduction in, this
business would have a material adverse effect on O'Gara's financial condition,
results of operations and cash flows. See "BUSINESS OF O'GARA -- U.S. Government
Contracts."
Risk of U.S. Government Shut Down. On several occasions during the U.S.
Government's 1996 fiscal year, certain operations of the U.S. Government
essentially were "shut down" because of budget impasses between the U.S.
Congress and the President. During these periods, payments to O'Gara under its
U.S. Military contracts were delayed. Future U.S. Government shut downs, if
sufficiently prolonged, could have a material adverse effect on O'Gara's
financial condition, results of operations and cash flows.
Single and Primary Source Suppliers. The HMMWVs armored by O'Gara are
manufactured under separate U.S. Military contracts by AM General Corporation
("AM General"). Should AM General for any reason be unable to deliver HMMWVs to
O'Gara, as occurred during 1995, or should the U.S. Military elect or be
obligated to select a new HMMWV supplier, there could be a material adverse
effect on O'Gara's financial condition, results of operations and cash flows.
The unanticipated six-month delay in the delivery of HMMWV chassis in 1995 led
to the production of 116 fewer Up-Armored HMMWV's than originally planned and a
reduction in net sales of $1.1 million from 1994. During the period, it was
necessary to maintain manufacturing and engineering support personnel to ensure
production deadlines could be met once the chassis were delivered. These support
costs of approximately $0.6 million occurred without a corresponding increase in
net sales.
In 1996 and the first six months of 1997, O'Gara obtained approximately 80%
and 70%, respectively, of the glass used in armoring its vehicles from
Pilkington Aerospace Limited. Should O'Gara at some time find it necessary to
select one or more additional or substitute suppliers, delays could be
encountered in obtaining glass which meets O'Gara's specifications.
A majority of O'Gara's cost of armoring HMMWVs consists of components which
are purchased from various vendors and suppliers. Component prices are generally
negotiated based on, among other things, O'Gara's expected manufacturing volume.
There can be no assurance that O'Gara will be able to predict
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<PAGE> 26
accurately the anticipated manufacturing volume. As a result, O'Gara may be
subject to future cost increases which could have a material adverse effect on
O'Gara's financial condition, results of operations and cash flows.
Fluctuations in Operating Results. Approximately 37.3% of O'Gara's net
sales for the six months ended June 30, 1997 were derived from U.S. Military
contracts and an additional 5.0% were derived from commercial contracts with
U.S. governmental agencies or foreign governments. These contracts generally are
awarded on a periodic and/or sporadic basis. O'Gara frequently receives
substantial orders, and begins to incur related expenses, in one quarter, the
revenues from which will not be received until one or more subsequent quarters.
As a result, O'Gara generally has significant fluctuations from time to time in
its business. Historically, these fluctuations have not been seasonal.
Period-to-period comparisons within a given year or between years may not be
meaningful or indicative of operating results over a full fiscal year. The
following table sets forth O'Gara's net sales, net income and net income as a
percentage of net sales for the last six calendar quarters. See "BUSINESS OF
O'GARA -- Seasonality, Backlog and Related Matters" and "O'GARA MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
1997
1996 --------------------
--------------------------------------------
(DOLLARS IN
(DOLLARS IN THOUSANDS) THOUSANDS)
Q1 Q2 Q3 Q4 Q1 Q2
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $21,417 $20,104 $18,804 $22,453 $23,817 $28,036
Net income..................... $2,836 $1,166 $1,845 $812 $1,227 $1,261
Percent of net sales........... 13.2% 5.8% 9.8% 3.6% 5.2% 4.5%
</TABLE>
Risks Associated with Fixed Price Contracts. A substantial portion of
O'Gara's projects are currently performed on a fixed-price basis. O'Gara
attempts to cover anticipated increases in labor, material and service costs of
long-term fixed-price contracts through an estimation of such increases which is
reflected in the original price. Despite these attempts, however, the revenue,
cost and gross profit realized on a fixed-price contract will often vary from
the estimated amounts due to unforeseen conditions or changes in job conditions
and variations in productivity over the term of the contract. These variations
and the risks generally inherent in fixed-price contracts may result in the
gross profits realized by O'Gara being different from those originally estimated
and may result in O'Gara's experiencing reduced profitability or losses on
projects. Depending on the size of a contract, these variations from estimated
contract performance could have a material adverse effect on O'Gara's results of
operations for any quarter or year.
Risks Associated with Percentage-of-Completion Accounting. O'Gara's net
sales from government contracts and most commercial contracts are recognized
using the percentage-of-completion method. Under this method, estimated contract
revenues are accrued based generally on the percentage that costs to date bear
to total estimated costs. Estimated contract losses are recognized in full when
determined. Accordingly, contract revenues and total cost estimates are reviewed
and revised periodically as the work progresses and as change orders are
approved, and adjustments based upon the percentage of completion are reflected
in contract revenues in the period when such estimates are revised. To the
extent that these adjustments result in an increase, a reduction or an
elimination of previously reported contract revenues, O'Gara would recognize a
credit or a charge against current earnings, which could be material. See
"O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Impact on Operations."
Political and Economic Risks of Doing Business Outside the United
States. In addition to its U.S. facilities, O'Gara has operations and assets in
Brazil, France, Italy, Mexico, the Philippines, Russia and the United Kingdom.
In addition, O'Gara sells its products and services in other foreign countries
and is seeking to increase its level of international business activity.
Accordingly, O'Gara is subject to various risks, including exchange rate
fluctuations, foreign currency restrictions, U.S. imposed embargoes of sales to
specific countries, expropriation of assets, war, civil uprisings and riots,
government instability and legal systems of decrees, laws, regulations,
interpretations and court decisions which are not always fully developed and
which may be retroactively applied. O'Gara's operations in foreign countries may
be materially adversely affected in that certain governmental agencies in such
countries may interpret laws, regulations or court decisions in a manner which
might be considered inconsistent or inequitable in other countries. O'Gara may
be subject to unanticipated income taxes, excise duties, import taxes, export
taxes or other governmental assessments. There can be no assurance that such
risks will not result in a loss of business or other unexpected costs which
could have a
19
<PAGE> 27
material adverse effect on O'Gara's financial condition, results of operations
and cash flows. See "BUSINESS OF O'GARA."
Government Regulation. As a contractor with agencies of the U.S.
Government, O'Gara is obligated to comply with a variety of regulations
governing certain aspects of its operations and the workplace. Additionally,
O'Gara's contracts give the contracting agency the right to conduct audits of
O'Gara's facilities and operations, and such audits occur routinely. An audit
involves a U.S. Governmental agency's review of O'Gara's compliance with the
prescribed procedures established in connection with the applicable government
contract. O'Gara also may be subject to investigations as a result of an audit
or for other causes. Adverse findings in an audit or other investigation,
including violations of environmental or labor laws, could result in fines or
other penalties up to and including disqualification as a U.S. Government
contractor. In addition, U.S. Government contracts may contain cost or
performance incentives based on stated targets or other criteria. Failure to
meet these stated targets or other criteria could result in penalties or lost
profits to O'Gara. Any or all of these matters could have a material adverse
effect on O'Gara's financial condition, results of operations and cash flows.
O'Gara is subject to federal licensing requirements with respect to the
sale in foreign countries of certain of its hardware products. Regulations
promulgated by the U.S. Commerce Department require O'Gara to obtain a general
destination license in connection with the sale of certain commercial products
in foreign countries, and certain U.S. State Department regulations require
O'Gara to file an export license in connection with sales of military equipment
in foreign countries. Furthermore, the U.S. State Department prohibits all sales
of military equipment to certain countries, including Cuba, Iran, Iraq, Libya
and China. There can be no assurance that such regulations will not become more
restrictive in the future, which could limit O'Gara's ability to market its
products internationally. If such additional restrictions were imposed, they
could have a material adverse effect on O'Gara's financial condition, results of
operations and cash flows. See "BUSINESS OF O'GARA -- U.S. Government
Regulation."
Management of Labor Force. Due to the nature of O'Gara's contracts, which
are awarded periodically and are not assured for future periods, O'Gara may need
to hire, lay-off and rehire workers. As a result, O'Gara may spend substantial
time and effort training and supervising new, essentially unskilled, personnel
hired to supplement its existing trained work force. There can be no assurance
that sufficient workers will be available at any time, or can be trained in
time, so as not to interfere with O'Gara's ability to accept large new orders or
to meet contractual delivery deadlines. Alternatively, if O'Gara were to
experience production delays, as occurred with respect to O'Gara's Up-Armored
HMMWV production in 1995, it may be necessary to maintain manufacturing and
engineering support personnel in order to meet contract deadlines once
production resumes. These circumstances could have a material adverse effect on
O'Gara's financial condition, results of operations and cash flows.
Dependence on Key Personnel. O'Gara's operations currently depend on the
continued efforts of its executive officers and on its senior management,
particularly Thomas M. O'Gara, its current Chairman of the Board, and Wilfred T.
O'Gara, its current President and Chief Executive Officer. If the executive
officers of O'Gara become unable or decide not to continue in their present
positions, or if a number of senior managers fail to continue with O'Gara and
O'Gara is unable to attract and retain replacements, O'Gara's business could be
materially and adversely affected. See "MANAGEMENT OF O'GARA."
Product Liability. Although O'Gara has never had a product liability claim
made against it, there can be no assurance that O'Gara will not be subject to
claims of liability in the future. O'Gara carries liability insurance in the
amount of $10.0 million; however, a successful claim could result in liability
in excess of coverage limits and have a material adverse effect on O'Gara's
financial condition, results of operations and cash flows.
RISK FACTORS RELATING TO THE BUSINESS OF KROLL
Kroll operates in a highly competitive environment that involves a number
of risks, some of which are beyond its control. The following discussion
highlights some of these risks, which should be considered by shareholders of
O'Gara and Kroll in considering the Merger.
Dependence on Key Employees. Jules B. Kroll founded Kroll in 1972 and has
been actively involved in the management and growth of Kroll since that date as
its chairman and chief executive officer. Other members of
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<PAGE> 28
Kroll's senior management play key roles in the management and direction of
Kroll, and Kroll is highly dependent on the quality and efforts of its
professional staff to provide its services and attract and retain clients.
Competition for these types of employees is intense. If Jules B. Kroll ceased to
be employed by Kroll or if the services of any of Kroll's other senior
management, or the services of any significant number of its professional staff,
were no longer available to Kroll, Kroll's financial condition, results of
operations and cash flows could be materially and adversely affected. See
"MANAGEMENT OF KROLL."
Competition. Kroll faces significant and increasing competition in the
United States and elsewhere in the world from a variety of companies that
provide some of the services offered by Kroll. These competitors consist of
local, regional, national and international firms. In most service areas in
which Kroll operates, there is at least one competitor that is significantly
larger or more established than Kroll. Many of the national and international
accounting firms provide consulting services similar to some of the services
provided by Kroll. Some of these firms have indicated an interest in providing
corporate investigation and business intelligence services on a broader scale.
The accounting firms have significantly larger financial and other resources
than Kroll and have long-established relationships with their clients, which are
also likely to be clients or prospective clients of Kroll. In addition, large
multinational security product and service providers have indicated an interest
in expanding their services to include value-added services such as certain of
the investigation and consulting services provided by Kroll. The accounting
firms and other service providers could prove to be formidable competitors if
they elect to devote the necessary resources to such competitive businesses. In
that event, there can be no assurance that Kroll will be able to continue to
provide its services on existing financial terms and conditions, which would
have a material adverse effect on Kroll's financial condition, results of
operations and cash flows.
Dependance on Key Customer. In 1995, 1996 and the first six months of
1997, services performed for AIG, a principal shareholder of Kroll, constituted
7.3%, 7.5% and 9.3% of Kroll's revenues, respectively. The loss of, or a
significant reduction in, this business could have a material adverse effect on
Kroll's financial condition, results of operations and cash flows.
Fluctuations in Operating Results. Kroll generally does not have long term
contracts with its clients and its ability to generate net sales is dependent
upon obtaining many new projects each year, most of which are of relatively
short duration. As a result, Kroll's net sales and net income from year to year
and period to period are not necessarily predictable and historically there has
not been a consistent year-to-year pattern of growth. The following table sets
forth Kroll's net sales, net income (loss) and net income (loss) as a percentage
of net sales for the last six calendar quarters. See "BUSINESS OF
KROLL -- Clients."
<TABLE>
<CAPTION>
1996 1997
-------------------------------------------- --------------------
(DOLLARS IN
(DOLLARS IN THOUSANDS) THOUSANDS)
Q1 Q2 Q3 Q4 Q1 Q2
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $14,812 $18,562 $18,153 $19,356 $17,422 $19,324
Net income (loss).............. $341 $(347) $2,122 $(2,918) $303 $1,032
Percent of net sales........... 2.3% (1.9%) 11.7% (15.1%) 1.7% 5.3%
</TABLE>
The demand for Kroll's services is affected by general economic conditions
and the level of corporate acquisitions and other financial transactions, and
clients may reduce their reliance on Kroll's services during periods when there
is a decline in such activities.
Political and Economic Risks of Doing Business Outside the United
States. Kroll provides services in many foreign countries and has offices in a
number of foreign countries, including Australia, Brazil, China, France,
Germany, India, Japan, the Philippines, Russia, Singapore and the United
Kingdom. Kroll plans to expand its marketing efforts for services. There can be
no assurance that Kroll will be successful in such expansion or that any such
expansion will increase Kroll's net income. See "BUSINESS OF KROLL."
Kroll is and will be subject to various risks in the foreign countries in
which it operates, including exchange rate fluctuations, foreign currency
restrictions, U.S. imposed embargoes on doing business with specific countries,
expropriation of assets, war, civil uprisings and riots, government instability
and legal systems of decrees, laws, regulations, interpretations and court
decisions which are not always fully developed and which may be retroactively
applied. Kroll's operations in foreign countries may be adversely affected in
that certain
21
<PAGE> 29
governmental agencies in such countries may interpret laws, regulations or court
decisions in a manner which might be considered inconsistent or inequitable in
other countries. In addition, Kroll may be subject to unanticipated income
taxes, excise duties or other governmental assessments. There can be no
assurance that such risks will not result in a loss of business or significant
unexpected write-offs of assets or other unexpected costs which could have a
material adverse effect on Kroll's financial condition, results of operations
and cash flows.
Collection of Accounts Receivable. In the past Kroll occasionally
encountered difficulties in collecting significant accounts receivable for
services. This problem has been exacerbated if the receivable obligor is located
in a foreign country. If such problems recur, they could have a material adverse
effect on Kroll's financial condition, results of operations and cash flows.
Liability to Clients and Others. Although Kroll has never had a
substantial claim by a client alleging negligence in the performance of its
services, there can be no assurance that such a claim may not be asserted
against it in the future. Certain of the matters with respect to which Kroll
provides services are extremely large and complex financial transactions in
which very substantial amounts of money may be at risk. Kroll maintains a
Miscellaneous Professional Liability Coverage, Errors and Omissions insurance
policy with limits of $10.0 million; however, no assurance can be given that
this will afford Kroll adequate protection if such a claim is asserted against
Kroll. Furthermore, in the ordinary course of its business, Kroll is subject to
claims of third parties other than clients alleging trespass, invasion of
privacy and other tortious conduct by its investigators and other personnel. See
"BUSINESS OF KROLL -- Litigation." Although Kroll endeavors to minimize the risk
of such claims, there can be no assurance that such a claim could not have a
material adverse effect on Kroll's financial condition, results of operations
and cash flows.
Government Regulation. Kroll's services are subject to various federal,
state, local and foreign laws, including laws designed to protect the privacy of
persons. A wholly owned subsidiary of Kroll holds private investigative licenses
from, and its investigative activities are regulated by, government agencies in
the following jurisdictions: California, Connecticut, Florida, Illinois,
Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania and the
District of Columbia. In addition, an application to obtain a private detective
license on behalf of such subsidiary is pending with the Georgia Board of
Private Detective and Security Agencies and with the Massachusetts Department of
State Police Special Licensing Unit. See "BUSINESS OF KROLL -- Government
Regulation." Kroll utilizes certain data from outside sources, including data
from third party vendors and various government and public record services, in
performing its services. To the present time, laws and regulations of the
foregoing jurisdictions have not interfered materially with the conduct of the
business or operations of Kroll, including Kroll's access to data used in its
business. However, there can be no assurance that new regulations, such as
changes in governmental regulations relating to the protection of privacy, will
not be enacted that could interfere materially with the manner in which Kroll
obtains information, conducts its operations and provides its services, with a
resulting material adverse effect on Kroll's financial condition, results of
operations and cash flows.
22
<PAGE> 30
THE MERGER
GENERAL
Upon consummation of the Merger, shareholders of Kroll will receive (and
options to purchase Kroll Stock will be converted into options to purchase) an
aggregate of 6,650,000 shares of O'Gara Common Stock and Kroll will become a
wholly owned subsidiary of O'Gara.
BACKGROUND OF THE MERGER
Background. Over the last several years Kroll has considered strategies
to: (i) increase the size and scope of its organization, (ii) increase its
domestic and international presence, (iii) increase its access to capital to
fund its plans for growth, (iv) continue to attract and retain talented
professionals, and (v) diversify and expand its products and services. The
alternatives Kroll considered included a sale of its business to a publicly
traded or other entity pursuant to a merger or other business combination or a
public offering by Kroll. Either solution would have provided Kroll with an
increased presence in the competitive marketplace, access to capital and the
ability to provide key employees with equity interests having greater liquidity.
In furtherance of these strategies, the Kroll Board retained Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") in January 1996 to advise it on
strategic alternatives.
In the fall of 1996, Kroll examined several potential transactions. In
January 1997, Kroll determined to focus on merger discussions with ChoicePoint,
Inc. ("ChoicePoint"), a subsidiary of Equifax, Inc. that was planned to be spun
off to the shareholders of Equifax as an independent public company, and
terminated all other discussions. ChoicePoint is much larger than Kroll and
provides a variety of investigative, security and other services that are
similar to certain services provided by Kroll. The discussions with ChoicePoint
led to an announcement on April 1, 1997 of an agreement in principle under which
ChoicePoint would acquire Kroll after it had been spun off from Equifax, Inc.
ChoicePoint and Kroll subsequently were unable to reach agreement on several
substantive issues, including, but not limited to, the amount of the purchase
price (as well as the allocation between cash and equity) to be paid for the
purchase of Kroll, the amount and nature of certain indemnities and the
treatment of certain principal shareholders of Kroll. On August 6, 1997,
ChoicePoint and Kroll acknowledged that the agreement in principle had been
terminated. After the termination of the agreement in principle, Kroll did not
hold discussions regarding a strategic combination with any party other than
O'Gara.
Following its November 12, 1996 initial public offering, O'Gara pursued its
strategy of expanding its business by acquiring compatible businesses. See
"BUSINESS OF O'GARA -- Business Strategy." In furtherance of this strategy,
during the first three months of 1997, O'Gara acquired the businesses of Next
Destination Limited ("Next Destination"), Labbe, and International Training,
Incorporated ("ITI"). See "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- General."
In continuation of this strategy, in the spring of 1997, after learning of
the announcement of the agreement in principle between ChoicePoint and Kroll
described above, Thomas M. O'Gara, Chairman of the Board of O'Gara, discussed
with Jules B. Kroll, Chairman of the Board of Kroll, the potential purchase by
O'Gara of certain divisions of Kroll that might be available for sale after the
then contemplated acquisition of Kroll by ChoicePoint. In April 1997, O'Gara
instructed J. Jeffrey Brausch & Company ("Brausch"), one of O'Gara's advisors,
to develop a proposal to acquire these divisions and, depending upon the status
of Kroll's transaction with ChoicePoint, to acquire Kroll in its entirety.
In June 1997, after receiving assurances from Kroll that its negotiations
with ChoicePoint had not been concluded and that several substantive issues
remained unresolved, Thomas M. O'Gara, Wilfred T. O'Gara and J. Jeffrey Brausch
met with Jules B. Kroll to propose that O'Gara acquire Kroll in a merger in
which the shareholders of Kroll would receive shares of O'Gara Common Stock.
Kroll reviewed the O'Gara proposal and determined, at that point, that it
preferred to merge with a company which had a business more closely related to
the current business of Kroll. The consideration proposed to be paid to
shareholders of Kroll by O'Gara pursuant to that proposal was similar to the
consideration to be paid by O'Gara in the Merger. Although Kroll did not then
accept this proposal, during July 1997, several discussions and meetings between
senior executive officers of
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<PAGE> 31
O'Gara and senior executive officers of Kroll and their respective financial
advisors took place. At these meetings, the respective businesses of O'Gara and
Kroll, among other matters, were discussed.
On July 30, 1997, the parties determined that discussions relating to a
proposed combination of Kroll and O'Gara had advanced to the point where the
parties thought it might be possible to reach a definitive agreement on the
essential terms of such a transaction. Commencing on August 1, 1997, members of
senior management of O'Gara and Kroll, together with their respective legal,
accounting and other advisors, exchanged financial and legal due diligence
materials, conducted other due diligence and negotiated the definitive terms and
conditions of the Merger Agreement. As a result of such discussions, Kroll
determined that a merger with O'Gara would provide a good strategic fit for
Kroll.
On August 3, 1997, Dillon Read was engaged by the O'Gara Board to provide
an opinion as to the fairness of the Merger to O'Gara from a financial point of
view. The engagement letter between O'Gara and Dillon Read does not require
Dillon Read to render an opinion as to the fairness of the Merger to the O'Gara
shareholders. O'Gara believes that because (i) O'Gara will become the parent of
Kroll in the Merger, (ii) the O'Gara shareholders are not receiving any
consideration in the Merger, and (iii) the Merger will not adversely affect the
rights of O'Gara shareholders, the interests of the O'Gara shareholders are
aligned with those of O'Gara. Accordingly, O'Gara did not request that the
Dillon Read Opinion address the fairness of the Merger to the O'Gara
shareholders individually.
The O'Gara Board held a special meeting on August 6, 1997, to consider the
proposed Merger Agreement and the transaction contemplated thereby, including
the proposed consideration to be paid to Kroll shareholders. At this meeting,
members of O'Gara's senior management, together with Taft, Stettinius &
Hollister, its legal advisors, representatives of Brausch, and Arthur Andersen
LLP, its independent public accountants, reviewed with the O'Gara Board, among
other things, the strategic fit between the two companies, the background of the
proposed transaction, financial evaluation analysis of the transaction, the
terms of the Merger Agreement and the accounting treatment of the transaction.
Representatives of Taft, Stettinius & Hollister and Arthur Andersen LLP made
presentations to the O'Gara Board and discussed with the O'Gara Board their
views and analysis of various aspects of the proposed transaction. In addition,
at the August 6, 1997, meeting, Dillon Read set forth its analysis of the
proposed transaction to the O'Gara Board and, based on discussions and materials
provided at the meeting and subject to receipt of the executed Merger Agreement
substantially in the form and containing the terms as presented at the meeting,
Dillon Read indicated that it was prepared to deliver an opinion that the
consideration to be paid by O'Gara in connection with the Merger is fair to
O'Gara from a financial point of view. O'Gara did not request an opinion as to
the fairness of the Merger to the shareholders of O'Gara from Brausch. After
extensive discussion and consideration, the O'Gara Board unanimously approved
the Merger substantially on the terms presented to it and authorized the
execution of the Merger Agreement on such terms with such changes as the
executive officers approved.
The Kroll Board unanimously approved the Merger and the Merger Agreement by
written consent dated August 8, 1997.
On August 8, 1997, Kroll and O'Gara agreed to a merger that provided for
the issuance of up to 6,750,000 shares of O'Gara Common Stock and announced such
agreement; however the parties subsequently agreed to revise the terms of the
merger to reduce the number of shares of O'Gara Common Stock to be issued to
6,650,000 based on further quantification of Kroll's prior payments and existing
liabilities to a former shareholder in connection with the repurchase of such
former shareholder's Kroll Stock in 1997. The parties agreed to share this cost
of approximately $2.6 million by reducing the number of shares of O'Gara Common
Stock to be issued in the Merger by 100,000. This revision is reflected in the
Merger Agreement.
REASONS FOR THE MERGER AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
O'Gara Reasons for the Merger. At the meeting held on August 6, 1997, the
O'Gara Board, by unanimous vote, determined that the terms of the Merger
Agreement and the Merger are in the best interests of O'Gara and its
shareholders, and approved the Merger Agreement and the Merger. At such meeting
the O'Gara Board also recommended that O'Gara shareholders approve the O'Gara
Proposal. In reaching these conclusions and
24
<PAGE> 32
recommendations, the O'Gara Board consulted with O'Gara management and its legal
counsel and financial advisors and considered a number of factors, including the
following:
(i) the O'Gara Board's belief that the combination of the two
companies will continue and enhance O'Gara's strategy to become a global
integrated company due to:
(a) the nature and scope of Kroll's business, including the quality
and breadth of its assets, strong name recognition in the security
industry, competitive position and prospects for future development;
(b) the strategic fit between O'Gara and Kroll, including the
complementary nature of the businesses of the two companies, which have
little overlap and which present opportunities for cross promotion and
cross selling by each company with respect to the operations of the
other and which would create significant opportunities for developing
the combined businesses;
(c) the quality and breadth of the Kroll management, which would
enhance the management of the combined companies;
(d) the belief that the combined companies would be better able to
respond to the needs of their customers and clients and to exploit
opportunities that changes in the security industry may bring; and
(e) the stronger platform for future acquisitions within the
security industry that would be provided by the combined companies;
(ii) the long-term interests of O'Gara and its shareholders, as well
as the interests of its employees, customers, clients, creditors and
suppliers;
(iii) the indication by Dillon Read that, subject to receipt of the
executed Merger Agreement substantially in the form and containing the
terms as presented at such meeting, it was prepared to deliver an opinion
to the O'Gara Board that the consideration to be paid by O'Gara in
connection with the Merger was fair to O'Gara from a financial point of
view (see "-- Opinion of Dillon Read"); as described above, O'Gara believes
that the interests of the O'Gara shareholders are aligned with those of
O'Gara and, accordingly, O'Gara did not request that the Dillon Read
Opinion address the fairness of the Merger to the O'Gara shareholders
individually, and the O'Gara Board concurred in this decision;
(iv) the terms of recent comparable transactions in the security
industry;
(v) the terms and conditions of the Merger Agreement;
(vi) the results of the due diligence review of Kroll conducted by
O'Gara management and its legal and financial advisors; and
(vii) the sources of capital available to O'Gara to finance the Merger
and the effects of the Merger on the financial condition of the combined
companies.
The O'Gara Board also determined that, because the Merger would enhance the
value of O'Gara for the reasons described above, the consideration to be paid by
O'Gara in the Merger was fair to O'Gara from a financial point of view and there
are no conflicts in interest that materially adversely affect the O'Gara
shareholders, the interests of the O'Gara shareholders are aligned with those of
O'Gara. Accordingly, the Merger is in the best interests of, and fair to, the
O'Gara shareholders.
The O'Gara Board considered not only the benefits that could arise from the
Merger, but considered also certain adverse effects relating to the Merger,
including the dilution to O'Gara shareholders resulting from the issuance of
shares of O'Gara Common Stock pursuant to the Merger, certain nonrecurring costs
that would result from the Merger, the risks inherent in any merger, and other
risks and uncertainties relating to the business of O'Gara and Kroll, including
those described in "RISK FACTORS."
The foregoing discussion of the information and factors considered by the
O'Gara Board is not intended to be exhaustive, but includes all material factors
considered by the O'Gara Board. In view of the variety of factors considered in
connection with its evaluation of the Merger, the O'Gara Board did not quantify
or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. A determination
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<PAGE> 33
of the relative weight of such factors would, in the view of the O'Gara Board,
be impractical. Rather, the O'Gara Board viewed its position and recommendations
as being based on the totality of the information presented to, and considered
by, it. In addition, individual members of the O'Gara Board may have given
different weight to different factors.
Recommendation of O'Gara Board. The O'Gara Board believes the terms of the
Merger Agreement and the Merger are in the best interests of O'Gara and its
shareholders.
THE O'GARA BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF O'GARA COMMON STOCK
VOTE FOR THE O'GARA PROPOSAL.
Kroll Reasons for the Merger. The Kroll Board believes that the Merger
will further Kroll's strategic objectives because: (i) the greater market float
and liquidity represented by the shares of O'Gara Common Stock after the Merger
should provide the combined companies with additional and better alternatives to
meet their capital needs to fund their growth and allow the implementation of an
equity incentive plan that should be helpful in attracting and retaining
talented key employees, (ii) the greater marketing and financial resources of
the combined companies compared to Kroll alone and the opportunities that should
emerge from the cross selling of goods and services among the clients of Kroll
and O'Gara should allow the combined companies to broaden their domestic and
international customer base, (iii) by virtue of Jules B. Kroll being named
Chairman of the Board of Directors and Chief Executive Officer of O'Gara and the
large position of Kroll shareholders in the combined companies, former
shareholders of Kroll can expect to have a meaningful role in the management and
policies of O'Gara after the Merger, (iv) the expected accounting treatment of
the Merger as a pooling of interests will avoid the reduction in future earnings
of the combined companies that would result from the creation and amortization
of goodwill under the purchase method of accounting, and (v) the expected
federal income tax treatment of the Merger as a tax-free reorganization to the
parties and to Kroll's shareholders.
The Kroll Board determined that there were no material adverse factors that
would affect its decision to recommend that Kroll shareholders approve the
Merger.
Recommendation of Kroll Board. The Kroll Board unanimously has determined
that the Merger Agreement and the Merger are fair to, and in the best interests
of, Kroll and its shareholders, and has approved the Merger Agreement and the
transactions contemplated thereby.
THE KROLL BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF KROLL STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE KROLL MEETING.
Opinion of Dillon Read. At the O'Gara Board meeting held on August 6, 1997,
Dillon Read advised the O'Gara Board that based on the August 4, 1997 closing
price of the O'Gara Common Stock of $12.25 per share and the terms of the Merger
as presented to Dillon Read, and, subject to receipt of the executed Merger
Agreement substantially in the form and containing the terms presented to such
meeting, Dillon Read was prepared to render an opinion as to the fairness to
O'Gara from a financial point of view of the consideration to be paid by O'Gara
pursuant to the Merger. The engagement letter between O'Gara and Dillon Read
does not require Dillon Read to render an opinion as to the fairness of the
Merger to the O'Gara shareholders. O'Gara believes that, because (i) O'Gara will
become the parent of Kroll in the Merger, (ii) the O'Gara shareholders are not
receiving any consideration in the Merger and (iii) the Merger will not
adversely affect the rights of the O'Gara shareholders, the interests of the
O'Gara shareholders are aligned with those of O'Gara. Accordingly, O'Gara did
not request that the Dillon Read Opinion address the fairness of the Merger to
the O'Gara shareholders individually. The Dillon Read Opinion, dated September
12, 1997, that the consideration to be paid by O'Gara, as set forth in the
Merger Agreement, is fair to O'Gara from a financial point of view, is attached
hereto as Appendix C.
SHAREHOLDERS ARE ENCOURAGED TO READ THE FULL TEXT OF THE DILLON READ
OPINION IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
DILLON READ IN ARRIVING AT ITS OPINION. THE DILLON READ OPINION DOES NOT ADDRESS
THE FAIRNESS OF THE MERGER TO THE SHAREHOLDERS OF O'GARA OR KROLL, NOR DOES IT
CONSTITUTE A RECOMMENDATION REGARDING WHETHER OR NOT IT IS ADVISABLE FOR SUCH
SHAREHOLDERS TO VOTE IN FAVOR OF THE
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<PAGE> 34
MERGER. THE SUMMARY OF THE DILLON READ OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
Dillon Read has consented to the use of Appendix C, containing its opinion
dated September 12, 1997 and incorporated elsewhere in this Proxy
Statement/Prospectus, and to the references to Dillon Read under the headings
"Summary" and "The Merger" in this Proxy Statement/Prospectus. In giving such
consent, Dillon Read does not admit that it comes within the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder, nor does Dillon Read admit that it is an expert with
respect to any part of the Registration Statement in which this Proxy
Statement/Prospectus is included, within the meaning of the term "experts" as
used in the Act or the rules and regulations of the Commission promulgated
thereunder.
In arriving at its opinion, Dillon Read has, among other things: (i)
reviewed the Merger Agreement and the exhibits thereto; (ii) reviewed certain
publicly available business and financial information relating to O'Gara; (iii)
reviewed the reported price and trading activity for the O'Gara Common Stock;
(iv) reviewed certain internal financial information and other data provided to
Dillon Read by each of O'Gara and Kroll relating to the business and prospects
of O'Gara and Kroll, respectively, including financial projections prepared by
the management of O'Gara and Kroll, respectively, and the Consolidated Financial
Statements for the year ended December 31, 1996, and other audited financial
statements for Kroll and O'Gara; (v) conducted discussions with members of the
senior management of O'Gara and Kroll; (vi) reviewed the financial terms, to the
extent publicly available, of certain acquisition transactions which Dillon Read
believed to be generally comparable to the Merger; (vii) reviewed publicly
available financial and securities market data pertaining to certain publicly
held companies in lines of business which Dillon Read believed to be generally
comparable to Kroll; and (viii) conducted such other financial studies, analyses
and investigations, and considered such other information, as Dillon Read deemed
necessary and appropriate.
In connection with its review, with O'Gara's consent, Dillon Read did not
assume any responsibility for independent verification of any of the foregoing
information and relied upon its being complete and accurate in all material
respects. Dillon Read was not requested to and did not make an independent
evaluation or appraisal of any assets or liabilities (contingent or otherwise)
of Kroll, nor was Dillon Read furnished with any such evaluation or appraisal.
Further, Dillon Read assumed, with O'Gara's consent, that all of the
information, including the projections, provided to Dillon Read by management of
O'Gara and Kroll was prepared in good faith and was reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of O'Gara and Kroll as to the future financial performance of Kroll,
and was based upon the historical performance of Kroll and certain estimates and
assumptions which were reasonable at the time made. With O'Gara's consent,
Dillon Read assumed that the Merger would be accounted for as a pooling of
interests. In addition, the Dillon Read Opinion was based on economic, monetary
and market conditions as they existed and could be evaluated on the date of the
Dillon Read Opinion.
In rendering its opinion, Dillon Read considered a variety of valuation
methods. The following discussion constitutes a summary of the material analyses
considered by Dillon Read assuming the terms of the Merger Agreement as
presented at the August 6, 1997 meeting of the O'Gara Board (the "Proposed
Merger"):
Contribution Analysis. Dillon Read calculated the contribution of Kroll to
O'Gara with respect to historical 1996 and projected 1997 (based on management
estimates) net income available to common shareholders, operating income, and
revenues, as well as historical 1996 assets, debt and book value of common
equity. These calculations yielded amounts reflecting Kroll's contribution
ranging from 33% to 49% of the total pro forma combined amount, with an average
contribution of 43%. Based on the terms of the Proposed Merger and giving effect
to the Proposed Merger, Dillon Read reported to the O'Gara Board and the O'Gara
Board considered the fact that this 43% average contribution was less than the
approximately 48% of the outstanding O'Gara Common Stock that Kroll shareholders
would own after the Merger.
Public Company Analysis. Using publicly available information, Dillon Read
compared, based upon market trading values at the time, multiples of certain
financial criteria of Kroll to certain other companies in the security related
business that were deemed generally comparable to Kroll for purposes of this
analysis. The group
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<PAGE> 35
of companies used in the comparison consisted of Armor Holdings, Inc.;
Borg-Warner Security Corporation; Code-Alarm, Inc.; Command Security
Corporation; Detection Systems, Inc.; ICTS International N.V.; ITI Technologies,
Inc.; NAPCO Security Systems, Inc.; Pinkerton's, Inc.; Pittston Brink's Group;
Pittway Corporation; Protection One, Inc.; and The Wackenhut Corporation
(collectively, the "Comparison Companies").
Dillon Read analyzed the unlevered market value (equity market value plus
debt, minus cash) of the Comparison Companies as multiples of revenues,
operating income, and earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the latest twelve month period ("LTM"), the equity
market value of the Comparison Companies as multiples of LTM net income and the
stock price of the Comparison Companies as multiples ("P/E ratios") as provided
by First Call, Inc., estimated 1997 earnings per share ("EPS") and estimated
1998 EPS, and compared these figures to similar multiples based on financial
data for Kroll and Kroll management estimates for 1997 and 1998 for Kroll at the
Proposed Merger price.
An analysis of the unlevered market value to LTM revenues yielded ranges of
0.2x to 2.0x with a mean of 0.9x for the Comparison Companies, which compares
with an implied ratio of 1.3x for Kroll at the Proposed Merger price. An
analysis of the unlevered market value to LTM EBITDA yielded ranges of 5.5x to
15.4x with a mean of 8.3x for the Comparison Companies, which compares with an
implied ratio of 10.8x for Kroll at the Proposed Merger price. An analysis of
the unlevered market value to LTM operating income yielded ranges of 8.1x to
18.4x with a mean of 12.2x for the Comparison Companies, which compares with an
implied ratio of 18.7x for Kroll at the Proposed Merger price. An analysis of
the equity market value to LTM net income yielded ranges of 13.3x to 41.2x with
a mean of 23.2x for the Comparison Companies, which compares with an implied
ratio of 23.6x for Kroll at the Proposed Merger price. An analysis of 1997
estimated P/E ratios yielded ranges of 14.2x to 36.0x with a mean of 21.6x for
the Comparison Companies, which compares with an implied 1997 estimated P/E
ratio of 12.5x for Kroll at the Proposed Merger price. An analysis of 1998
estimated P/E ratios yielded ranges of 10.5x to 21.6x with a mean of 16.7x for
the Comparison Companies, which compares with an implied 1998 estimated P/E
ratio of 8.6x for Kroll at the Proposed Merger price. Dillon Read reported to
the O'Gara Board, and the O'Gara Board acknowledged, that the Kroll P/E ratio
was below the mean and range for the Comparison Companies, as shown above.
Discounted Cash Flow Analysis. Dillon Read performed a discounted cash
flow evaluation of Kroll based upon projections supplied by the management of
O'Gara and Kroll. Utilizing these projections, Dillon Read discounted to present
value, under varying assumed discount rates, estimated future unlevered cash
flows. Such analysis indicated that assuming terminal value multiples ranging
from 4.0x to 8.0x EBITDA and discount rates ranging from 12% to 16%, the net
present value of Kroll's unlevered future after-tax cash flows ranged from $75.5
million to $164.1 million.
Acquisition Analysis. Using publicly available information, Dillon Read
compared, based upon the total transaction values, price multiples of certain
financial criteria of Kroll to certain completed acquisitions which Dillon Read
deemed relevant. Dillon Read determined that there was limited publicly
available financial data on acquisitions in the security services industry, and
there were few completed acquisitions of companies generally comparable to Kroll
because of Kroll's substantial revenue base, unique business mix, and leading
market position. Two acquisitions were analyzed: Armor Holdings, Inc.'s
acquisition of DSL Holdings Limited and O'Gara's acquisition of Palmer
(collectively, the "Comparison Acquisitions"). For the Comparison Acquisitions,
Dillon Read analyzed the adjusted aggregate purchase price (equity value plus
debt less cash, where available) of the acquired company as multiples of the
acquired company's LTM revenues. Dillon Read determined that other financial
data for the acquired companies was not available or not meaningful in this
analysis. Based on analysis of the unlevered market value to LTM, revenues
yielded ranges of 0.9x to 1.0x with a mean of 0.95x, which compares with an
implied ratio of 1.3x for Kroll at the Proposed Merger price.
Pro Forma Merger Analysis. Dillon Read also analyzed certain pro forma
financial effects of the Merger on O'Gara. This analysis was based upon certain
assumptions made by Dillon Read with O'Gara's consent, O'Gara's management
projections, and Kroll projections for the fiscal years 1997 through 1999
prepared by the management of O'Gara and Kroll, respectively. No revenue
enhancements or operating cost savings were assumed in these projections.
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<PAGE> 36
Based upon such assumptions, Dillon Read's pro forma analysis of the
financial effects of the Merger indicated that these effects (before the impact
of one-time transaction related costs) were neutral to O'Gara's net income per
share for the forecasted period ended December 31, 1997 and accretive to
O'Gara's net income per share for the years in the forecasted periods ending
December 31, 1998 through December 31, 1999.
Subsequent to (i) Dillon Read's analysis of the Proposed Merger (as
summarized above), (ii) the August 6, 1997 meeting of the O'Gara Board at which
the Proposed Merger was unanimously approved, (iii) the August 8, 1997 approval
of the Proposed Merger by the Kroll Board, (iv) the August 8, 1997 agreement to
a merger between Kroll and O'Gara that provided for the issuance of up to
6,750,000 shares of O'Gara Common Stock, and (v) the public announcement of such
agreement, Kroll and O'Gara agreed to revise the terms of the Merger to reduce
the number of shares of O'Gara Common Stock to be issued to 6,650,000, based on
further consideration of Kroll's prior payments and existing liabilities to a
former shareholder in connection with the repurchase of such former
shareholder's Kroll Stock in 1997. Dillon Read reviewed the revised terms of the
Merger as reflected in the Merger Agreement, and the Dillon Read Opinion, dated
September 12, 1997, and attached hereto as Appendix C, considers and reflects
such revised terms of the Merger.
In arriving at its opinion, Dillon Read did not assign any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments based upon its experience in rendering such opinions and on economic,
monetary, and market conditions then present as to the significance and
relevance of each analysis and factor. Accordingly, Dillon Read believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and other factors considered by it, without considering all factors and
analyses, could create a misleading or incomplete view of the valuation process
underlying its opinion. With O'Gara's consent, Dillon Read relied upon
information provided by O'Gara and Kroll with respect to Kroll's historical and
projected financial and industry performance. Dillon Read also assumed, with
O'Gara's consent, that currently existing general business and economic
conditions, many of which are beyond Kroll's, O'Gara's and Dillon Read's
control, and other matters discussed herein, would remain constant throughout
the period of the projections. Any assumed estimates contained in Dillon Read's
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth herein.
Dillon Read is an internationally recognized investment banking firm which,
as part of its investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The O'Gara Board selected Dillon Read on the basis
of the firm's expertise and reputation.
Dillon Read has performed and continues to perform investment banking
services for O'Gara. Dillon Read is familiar with O'Gara, having served (i) as
lead underwriter in O'Gara's initial public offering on November 12, 1996; (ii)
as financial advisor to O'Gara in the acquisition of Labbe on February 12, 1997;
and (iii) as sole placement agent for the Senior Notes. For such services,
Dillon Read has received customary fees. Pursuant to the terms of an engagement
letter dated August 4, 1997, Dillon Read received $450,000 for services rendered
in connection with providing its opinion and O'Gara has agreed to reimburse
Dillon Read for all of its expenses associated with this engagement. O'Gara has
also agreed to indemnify Dillon Read and its officers, directors, employees,
agents and controlling persons against certain liabilities arising in connection
with its engagement. In addition, in the ordinary course of business, Dillon
Read trades securities of O'Gara for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
FINANCING THE MERGER
The Merger Agreement provides that, promptly after the Effective Time,
O'Gara will cause Kroll to repay certain of its indebtedness to Jules B. Kroll
and all of its indebtedness to AIG in an aggregate principal amount not to
exceed $7.5 million. At August 31, 1997, the aggregate outstanding principal
amount of the debt to be repaid was $6.2 million, of which $2.0 million was owed
to AIG and $4.2 million was owed to Jules B. Kroll. The $2.0 million principal
amount of indebtedness to AIG is due on demand and bears interest at an annual
rate 2% in excess of the base rate of Citibank N.A. All of the indebtedness to
be repaid to Jules B. Kroll represents the net amount of advances made by him on
account, which advances are due on demand. Of the indebtedness to be repaid to
Jules B.
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Kroll, $3.0 million bears interest at an annual rate 1% in excess of the prime
rate and the balance bears interest at the broker loan rate, currently 7.625%
per annum. The approximately $0.3 million net principal amount of certain other
loans by Jules B. Kroll to Kroll will remain outstanding, will be evidenced by a
new promissory note issued by Kroll and will bear interest at an annual rate
1/2% below the Prime Rate. See "CERTAIN RELATED PARTY TRANSACTIONS -- KROLL."
In addition, O'Gara contemplates that, at the Effective Time, it will cause
Kroll to repay all of its indebtedness under the Note Purchase Agreement, dated
as of December 15, 1989, as amended, among Kroll, certain of its subsidiaries
and Teachers Insurance and Annuity Association of America ("Teachers"). At June
30, 1997, the outstanding principal amount of such indebtedness was $8.1
million. This indebtedness bears interest at an annual rate of 10.95% and
matures December 15, 1999. Prepayment of this indebtedness will require payment
of a $37,500 additional fee to Teachers. O'Gara contemplates that the source of
funds for repayment of such indebtedness will be the cash on hand of O'Gara and
Kroll (an aggregate of $5.1 million at September 30, 1997) and, to the extent
necessary, borrowings under an amended and restated credit facility with KeyBank
National Association ("KeyBank"), which will provide for a $7.0 million term
loan, a $7.0 million revolving credit loan, a $6.0 million standby letter of
credit facility and a foreign exchange line of credit. The term loan will mature
on January 4, 1999, will bear interest at a rate equal to KeyBank's prime rate
or 2.5% in excess of the 30-day LIBOR rate and will be secured by a lien on the
assets of Kroll Associates, Inc. The revolving credit loan will mature on May
31, 1999, will bear interest at a rate equal to (x) for advances of less than
$4.5 million, 0.5% less than KeyBank's prime rate or 2.0% in excess of the
30-day LIBOR rate or (y) for advances of $4.5 million or more, KeyBank's prime
rate or 2.5% in excess of the 30-day LIBOR rate, and will be unsecured. The
amended and restated credit facility will contain customary financial covenants,
including limitations on capital expenditures and acquisitions and will require
that Messrs. T. O'Gara, W. O'Gara, Carpinello and Gordon remain in the executive
capacities described below during the term of the loans. See "O'GARA
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the respective recommendations of the O'Gara Board and the
Kroll Board with respect to the Merger Agreement and the transactions
contemplated thereby, shareholders of O'Gara and Kroll should be aware that
certain members of the management of O'Gara and Kroll, the O'Gara Board and the
Kroll Board may have certain interests in the Merger that may be different from,
or in addition to, the interests of shareholders of O'Gara and Kroll generally.
At the Effective Time, the O'Gara Board will be expanded to eleven members
and Jules B. Kroll, Howard I. Smith, Michael G. Cherkasky and Marshall S. Cogan
will become directors of O'Gara. Mr. Smith and Mr. Cogan will be non-employee
directors of O'Gara. Non-employee directors of O'Gara currently receive an
annual fee of $10,000, plus options to purchase 1,000 shares of O'Gara Common
Stock. They also receive $500 for each O'Gara Board meeting attended, including
telephone meetings, and $500 per committee meeting attended, unless the
committee meeting occurs on the same day as an O'Gara Board meeting. The
consideration to be paid to directors of O'Gara is determined by, and subject to
change at the discretion of, the O'Gara Board. See "-- Management of O'Gara
after the Merger" and "MANAGEMENT OF O'GARA -- Directors' Compensation."
Pursuant to the Merger Agreement, at the Effective Time, Jules B. Kroll
will become Chairman and Chief Executive Officer of O'Gara and certain other
executive officers of Kroll will become executive officers of O'Gara. Executive
officers of O'Gara and Kroll have entered into new employment agreements or
amendments to existing employment agreements which will become effective at the
Effective Time. It also is contemplated that options to purchase shares of
O'Gara Common Stock will be granted to certain of such executive officers (other
than Jules B. Kroll and Thomas M. O'Gara) at the Effective Time. The employment
agreement with Jules B. Kroll provides that he shall receive an annual salary of
$375,000 (compared to $500,000 in salary received by him in 1996) and insurance
benefits consistent with other employees. The employment agreements with Wilfred
T. O'Gara and Michael Lennon provide that they shall receive increases in base
annual salary from $230,000 and $145,000, respectively, to $350,000 and
$185,000, respectively. Wilfred T. O'Gara and Michael Lennon will also receive
additional stock options for 75,000 and 15,000 shares of O'Gara Common Stock,
respectively. See "-- Management of O'Gara after the Merger."
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O'Gara has executed agreements with Jules B. Kroll, Thomas M. O'Gara and
AIG granting them rights to require O'Gara, under certain conditions, to
register for sale under the Act all or a portion of the O'Gara Common Stock
owned by them after the Merger. See "THE MERGER AGREEMENT -- Registration Rights
Agreements."
Kroll is currently indebted to Jules B. Kroll and AIG for money borrowed in
the net principal amounts of $4.5 million and $2.0 million, respectively. At the
Effective Time, O'Gara will cause Kroll to repay all of such indebtedness to AIG
and all but approximately $0.3 million principal amount of such indebtedness to
Jules B. Kroll, together in each case with accrued interest thereon. The
remaining indebtedness to Jules B. Kroll will be reflected by a new promissory
note issued by Kroll and will bear interest at an annual rate 1/2% below the
Prime Rate. See "-- Financing the Merger" and "CERTAIN RELATED PARTY
TRANSACTIONS -- KROLL."
OWNERSHIP OF O'GARA AFTER THE MERGER
Immediately following the Merger (i) the former holders of O'Gara Common
Stock will collectively own approximately 52% of the issued and outstanding
shares of O'Gara Common Stock, (ii) the former holders of Kroll Stock will
collectively hold approximately 48% of the issued and outstanding shares of
O'Gara Common Stock, and (iii) Thomas M. O'Gara, Jules B. Kroll and AIG will
hold approximately 29.0%, 26.5% and 10.4%, respectively, of the issued and
outstanding shares of O'Gara Common Stock. See "PRINCIPAL SHAREHOLDERS OF
O'GARA."
MANAGEMENT OF O'GARA AFTER THE MERGER
At the Effective Time, the number of directors of O'Gara will be increased
to eleven, and Jules B. Kroll, Howard I. Smith, Michael G. Cherkasky and
Marshall S. Cogan will join the O'Gara Board. Election of Jules B. Kroll and
Howard I. Smith as directors of O'Gara is a condition to the consummation of the
Merger. Michael G. Cherkasky and Marshall S. Cogan have been nominated for
election as directors consistent with the understanding of Kroll and O'Gara that
Kroll could propose four candidates (including Messrs. Kroll and Smith) for
election to the O'Gara Board. For biographical information relating to Messrs.
Kroll, Smith and Cherkasky, see "MANAGEMENT OF KROLL."
Marshall S. Cogan has been Vice Chairman of Foamex International Inc. since
May 30, 1997 and Chairman and Chief Executive Officer of United Auto Group (a
franchisor of car and light truck dealerships) since April 17, 1997. Mr. Cogan
was Chairman of the Board and Chairman of the Executive Committee of Foamex
International Inc. (a manufacturer of polyurethane foam products) from September
1993 until May 30, 1997, and was Chief Executive Officer of Foamex International
Inc. from January 1994 until May 30, 1997. In addition, Mr. Cogan was Vice
Chairman of Foamex L.P. (a subsidiary of Foamex International, Inc.) from
January 1993 until January 1994, and was Chairman and Chief Executive Officer of
Foamex L.P. from January 1994 until May 30, 1997. Since 1974, Mr. Cogan has been
the principal stockholder, Chairman or Co-Chairman of the Board of Directors of
and Chief Executive Officer or Co-Chief Executive Officer of Trace International
Holdings, Inc. (a holding company operating businesses in the auto sales, foam,
textile, and publishing industries). Mr. Cogan has also served as director or
chairman of companies formerly owned by Trace Holdings International, Inc.,
including General Felt Industries, Inc., Knoll International, Inc. and
Sheller-Globe Corporation. Mr. Cogan is 59 years old.
The following table sets forth the names and titles of the persons expected
to be the executive officers of O'Gara immediately following the Effective Time:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
Jules B. Kroll................ 56 Chairman of the Board and Chief Executive
Officer
Thomas M. O'Gara.............. 47 Vice Chairman of the Board
Wilfred T. O'Gara............. 40 President, Chief Operating Officer and
Director
Michael G. Cherkasky.......... 47 Chief Operating Officer -- Kroll
Michael J. Lennon............. 41 Chief Operating Officer -- O'Gara-Hess &
Eisenhardt Armoring Co.
Nazzareno E. Paciotti......... 51 Chief Financial Officer
Nicholas P. Carpinello........ 47 Controller and Treasurer
Abram S. Gordon............... 34 Vice President, General Counsel and Secretary
</TABLE>
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For biographical information relating to these executive officers, see
"MANAGEMENT OF O'GARA" and "MANAGEMENT OF KROLL."
O'Gara, Kroll or one of their respective subsidiaries has entered into new
employment agreements, or amendments to existing employment agreements, which
will commence at the Effective Time and expire on November 30, 2000, with each
of these executive officers, providing for annual base salaries in the
respective amounts set forth in the table below. Each executive officer will
also be entitled to participate in an annual bonus plan to be established by the
Compensation Committee of the O'Gara Board and to receive up to 50% of such
bonus in shares of O'Gara Common Stock. Employment may be terminated by O'Gara
at any time with or without cause, except that, in a case of termination without
cause, the employee is entitled to receive compensation for the greater of the
balance of the term of the agreement and one year. The agreements also provide
that if the employer does not renew the agreement for one year or more at the
end of the term, the employee will receive an amount equal to one year's base
salary. Each employment agreement restricts the executive officer from competing
with O'Gara during the term of the agreement, and for two years thereafter if
termination of employment is for cause or at the volition of the employee. Each
of Thomas M. O'Gara and Wilfred T. O'Gara has further agreed that during his
employment and for a period of 10 years thereafter he will not directly or
indirectly own any interest in or perform any services for any entity which uses
the word "O'Gara" as a business or trade name and competes with O'Gara.
Additionally, Jules B. Kroll has agreed that during his employment with O'Gara
and for a period of 10 years thereafter he will not directly or indirectly own
any interest in or perform any services for any entity which uses the word
"Kroll" as a business or trade name and competes with O'Gara. It is also
contemplated that, at the Effective Time, O'Gara will issue to certain of the
executive officers options to purchase shares of O'Gara Common Stock as set
forth in the following table:
<TABLE>
<CAPTION>
OPTIONS TO PURCHASE
SHARES OF O'GARA
NAME BASE SALARY COMMON STOCK(1)
------------------------------------------------------- ----------- -------------------
<S> <C> <C>
Jules B. Kroll......................................... $ 375,000 -- 0 --
Thomas M. O'Gara....................................... $ 275,000 -- 0 --
Wilfred T. O'Gara...................................... $ 350,000 75,000
Michael G. Cherkasky................................... $ 400,000 25,000
Michael J. Lennon...................................... $ 185,000 15,000
Nazzareno E. Paciotti.................................. $ 275,000 15,000
Nicholas P. Carpinello................................. $ 140,000 10,000
Abram S. Gordon........................................ $ 135,000 10,000
</TABLE>
- ---------
(1) All of such options will be issued pursuant to the Plan and will be priced
at the market price of the O'Gara Common Stock at the Effective Time.
ACCOUNTING TREATMENT
O'Gara will account for the Merger in its consolidated financial statements
by the pooling of interests method of accounting. Under the pooling of interests
method of accounting, the recorded assets and liabilities of Kroll and O'Gara
will be carried forward to the O'Gara financial statements at their recorded
amounts; income of O'Gara will include income of O'Gara and Kroll for the entire
fiscal year in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of O'Gara
on a consolidated basis. It is a condition to the consummation of the Merger
that O'Gara receive an opinion from Arthur Andersen LLP, its independent public
accountants, confirming the appropriateness of this accounting treatment under
generally accepted accounting principles. Each of Arthur Andersen LLP and
Deloitte & Touche LLP, Kroll's independent public accountants, have issued a
letter to the effect that no state of facts exists with respect to O'Gara or
Kroll, respectively, which would be reasonably expected to result in a failure
of the Merger to constitute a pooling of interests. Availability of the pooling
of interests method requires, among other things, that not more than 10% of the
Merger consideration be paid in cash. Accordingly, if holders of a sufficient
number of shares of O'Gara Common Stock or Kroll Stock were to exercise
dissenters' or appraisal rights, this condition would not be satisfied. See "THE
MERGER AGREEMENT -- Conditions to the Merger."
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<PAGE> 40
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS NOT
INTENDED TO CONSTITUTE ADVICE REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER. THIS SUMMARY DOES NOT DISCUSS TAX CONSEQUENCES UNDER THE LAWS OF
STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER JURISDICTION OR TAX CONSEQUENCES TO
CATEGORIES OF SHAREHOLDERS THAT MAY BE SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN
PERSONS, TAX-EXEMPT ENTITIES, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND
DEALERS IN STOCKS AND SECURITIES. EACH HOLDER OF KROLL STOCK AND/OR O'GARA
COMMON STOCK IS URGED TO OBTAIN, AND SHOULD RELY ONLY UPON, HIS OR HER OWN TAX
ADVICE.
The Merger is intended to be a tax-free reorganization for federal income
tax purposes so that no gain or loss will be recognized by the Kroll
shareholders, the O'Gara shareholders, Kroll or O'Gara, except as a result of
cash received in lieu of fractional shares or a shareholder's exercise of
appraisal rights.
Kroll and O'Gara have received opinions (the "Tax Opinions") from their
respective legal counsel to the effect that, for federal income tax purposes,
the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended ("the Code"), and that
the federal income tax consequences of the Merger to the Kroll shareholders, the
O'Gara shareholders, Kroll and O'Gara will be as follows:
(i) No gain or loss will be recognized to the shareholders of Kroll
upon their receipt of shares of O'Gara Common Stock in exchange for their
Kroll Stock;
(ii) The basis in the shares of O'Gara Common Stock to be received by
the shareholders of Kroll in the Merger will be the same as their basis in
the Kroll Stock exchanged therefor, reduced by the basis allocable to
fractional shares;
(iii) The holding period of the shares of O'Gara Common Stock to be
received by the shareholders of Kroll will include the period during which
they held their Kroll Stock exchanged therefor, provided such Kroll Stock
was held as a capital asset at the time of the Merger;
(iv) Neither O'Gara nor Kroll will recognize gain or loss as a result
of the Merger;
(v) Cash payments received by holders of Kroll Stock in lieu of a
fractional share will be treated as if a fractional share of O'Gara Common
Stock had been issued in the Merger and then redeemed by O'Gara for cash. A
holder of Kroll Stock will generally recognize gain or loss upon such
payment, equal to the difference (if any) between such holder's basis in
the fractional share and the amount of cash received; and
(vi) A holder of Kroll Stock or O'Gara Common Stock who exercises
appraisal rights in respect to all of such holder's shares will generally
recognize gain or loss for federal income tax purposes, measured by the
difference between the holder's basis in such shares and the amount of cash
received, provided that the payment is not essentially equivalent to a
dividend within the meaning of Section 302 of the Code, which will be the
case if the dissenting shareholder does not directly or constructively own
any shares of O'Gara Common Stock or Kroll Stock after the Merger. Such
gain or loss will be a capital gain or loss, provided that such shares are
held as a capital asset at the time of the Merger. If the payment is
essentially equivalent to a dividend, it will be treated as ordinary income
to the extent of the paying corporation's current and accumulated earnings
and profits, and any remaining amount will first be applied against the
holder's basis in his, her, or its shares and will then be treated as gain
from the exchange of property, as described above.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. The Tax Opinions neither bind the IRS or
the courts nor preclude the IRS from adopting a contrary position. In addition,
the Tax Opinions are subject to certain assumptions and qualifications and are
based on the truth and accuracy of certain representations made by Kroll, O'Gara
and certain shareholders of Kroll. Of particular importance are those
assumptions and representations relating to the "continuity of interest,"
"control" and "continuity of business enterprise" requirements.
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<PAGE> 41
To satisfy the continuity of interest requirement, Kroll shareholders must
not, pursuant to a plan or intent existing at or prior to the Merger, dispose of
or transfer so much of either (i) their Kroll Stock prior to the Merger or (ii)
their shares of O'Gara Common Stock to be received in the Merger (collectively,
"Planned Dispositions"), such that the Kroll shareholders, as a group, would no
longer have a substantial proprietary interest in the Kroll business being
conducted by O'Gara after the Merger. Planned Dispositions include, among other
things, shares disposed of pursuant to the exercise of dissenters' or appraisal
rights. Kroll shareholders will generally be regarded as having retained a
substantial proprietary interest as long as the shares of O'Gara Common Stock
received in the Merger (after reduction for any Planned Dispositions), in the
aggregate, represent at least 50% of the entire consideration received by the
Kroll shareholders in the Merger. To satisfy the "continuity of business
enterprise" requirement, O'Gara must either (i) continue the historic business
conducted by Kroll, or (ii) use a significant portion of the historic business
assets of Kroll in a business. To satisfy the control requirement, Kroll
shareholders owning (1) at least 80% of the total voting power of all classes of
Kroll Stock entitled to vote, and (2) at least 80% of the total number of shares
of all other classes of Kroll Stock must exchange their shares of Kroll Stock
for shares of O'Gara Common Stock. For purposes of the control requirement, the
amount of stock constituting control is measured immediately before the
transaction, and therefore, is affected by the number of shares of Kroll Stock
voted against the merger by shareholders who thereafter exercise their appraisal
rights as dissenting shareholders and receive cash provided by O'Gara.
A successful IRS challenge to the "reorganization" status of the Merger (as
a result of a failure to satisfy the "continuity of interest" or "continuity of
business enterprise" requirements or otherwise) would result in a Kroll
shareholder recognizing gain or loss with respect to each share of Kroll Stock
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, as of the Effective Time of the Merger, of the
shares of O'Gara Common Stock received in exchange therefor. In such event, a
shareholder's aggregate basis in the shares of O'Gara Common Stock so received
would equal their fair market value and the holding period for such shares would
begin the day after the Merger.
Holders of options to acquire shares of Kroll Stock granted pursuant to the
Kroll Holdings, Inc. Management Stock Option Plan (the "Kroll Management Stock
Option Plan") will not recognize income upon the conversion of the options into
options to purchase O'Gara Common Stock. Holders will recognize ordinary income
when the options are exercised in an amount equal to the difference between the
fair market value of the O'Gara Common Stock received upon exercise and the
exercise price of the options.
Holders of non-vested restricted shares of Kroll Stock awarded pursuant to
the Kroll Holdings, Inc. Restricted Stock Plan (the "Kroll Restricted Stock
Plan") will recognize ordinary income upon the exchange of such shares for fully
vested unrestricted shares of O'Gara Common Stock in an amount equal to the fair
market value of the O'Gara Common Stock received. No gain will be recognized,
however, if the holder of the restricted shares made a valid election pursuant
to Section 83(b) of the Code at the time the shares were awarded.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of O'Gara Common Stock received by Kroll shareholders in the
Merger will be freely transferable, except that shares of O'Gara Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Act) of Kroll prior to the Merger or O'Gara after the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 promulgated under the Act (or Rule 144 in the case of persons who become
affiliates of O'Gara) or as otherwise permitted under the Act. Persons who may
be deemed to be affiliates of O'Gara or Kroll generally include individuals or
entities that control, are controlled by, or are under common control with, such
party and may include certain officers and directors of such party as well as
principal shareholders of such party.
O'Gara has agreed under certain circumstances to register for sale under
the Act shares of O'Gara Common Stock held by Jules B. Kroll, Thomas M. O'Gara
and AIG. See "THE MERGER AGREEMENT -- Registration Rights Agreements."
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<PAGE> 42
DISSENTERS' RIGHTS
O'Gara Shareholders. The following is a summary of the principal steps
which an O'Gara shareholder must take to perfect dissenters' rights under
Section 1701.85 of the OGCL. The summary is qualified in its entirety by
Sections 1701.84 and 1701.85 of the OGCL, copies of which are attached hereto as
Appendix D and incorporated herein by reference. Failure to take any one of the
required steps may result in termination of the rights of the shareholder under
the OGCL. If an O'Gara shareholder has a beneficial interest in O'Gara Common
Stock that is held of record in the name of another person, and such shareholder
desires to perfect whatever appraisal rights such beneficial shareholder may
have, such beneficial shareholder must act promptly to cause the shareholder of
record timely and properly to follow the steps summarized below. Any holder of
shares of O'Gara Common Stock who is considering dissenting should consult his
or her legal advisor.
Exercise of dissenters' rights under the OGCL may result in a judicial
determination that the "fair cash value" of the dissenting shareholder's shares
is higher, the same, or lower than the market value of the shares of O'Gara
Common Stock on the date of the Merger.
A holder of shares of O'Gara Common Stock which are not voted for adoption
of the Merger Agreement may be entitled, if the Merger is consummated, to be
paid the "fair cash value" of such shares held of record on the record date. Any
O'Gara shareholder who is eligible to, and does, exercise his or her dissenters'
rights with respect to the Merger is referred to herein as an "O'Gara Dissenting
Shareholder," and the shares of O'Gara Common Stock with respect to which such
rights are exercised are referred to herein as "O'Gara Dissenting Shares." An
O'Gara Dissenting Shareholder must serve a written demand for the "fair cash
value" of all (but not less than all) of the shares of O'Gara Common Stock held
by such O'Gara Dissenting Shareholder upon O'Gara on or before the tenth day
after the shareholder vote adopting the Merger Agreement and must otherwise
comply with Section 1701.85 of the OGCL. O'Gara will not inform shareholders of
the expiration of the ten-day period and therefore dissenting shareholders are
advised to retain this Proxy Statement/Prospectus. A vote for adoption of the
O'Gara Proposal and the Merger Agreement constitutes a waiver of dissenters'
rights. Submission of a properly executed Proxy Card without a designation of
"against" or "abstain" will constitute a vote for the O'Gara Proposal including
the Merger. Failure to vote does not constitute a waiver of dissenters' rights.
The required written demand must specify the shareholder's name and address, the
number of O'Gara Dissenting Shares held of record on the record date and the
amount claimed as the "fair cash value" of the shares. Voting against adoption
of the O'Gara Proposal will not of itself constitute a written demand as
required by Section 1701.85 of the OGCL.
If O'Gara requests, O'Gara Dissenting Shareholders must submit their O'Gara
Dissenting Share certificates to O'Gara within 15 days after the making of such
request for endorsement thereon by O'Gara of a legend that demand for appraisal
has been made. Such certificates will be returned promptly to the O'Gara
Dissenting Shareholders by O'Gara. O'Gara intends to make such a request to
O'Gara Dissenting Shareholders.
If O'Gara and any O'Gara Dissenting Shareholder cannot agree on the "fair
cash value" of the O'Gara Dissenting Shares held by such O'Gara Shareholder,
either may, within three months after service of the demand by the shareholder,
file a complaint in the Court of Common Pleas of Butler County, Ohio (the
"Court"), for a determination of the "fair cash value" of such O'Gara Dissenting
Shareholder's O'Gara Dissenting Shares. The Court, if it determines that such
O'Gara Dissenting Shareholder is entitled to be paid the "fair cash value" of
the O'Gara Dissenting Shares, may appoint one or more appraisers to determine
its value. If the Court approves the appraisers' report, judgment will be
entered therefor, and the costs of the proceeding, including reasonable
compensation to the appraisers, shall be assessed or apportioned as the Court
considers equitable. "Fair cash value" is the amount which a willing seller,
under no compulsion to sell, would be willing to accept, and which a willing
buyer, under no compulsion to purchase, would be willing to pay, but in no event
in excess of the amount specified in the O'Gara Dissenting Shareholder's demand.
"Fair cash value" is determined as of the day prior to that on which the
shareholder vote is taken at the Special Meeting and would exclude any
appreciation or depreciation in market value of O'Gara Dissenting Shares
resulting from the Merger. O'Gara does not intend to file such a complaint.
Therefore, an O'Gara Dissenting Shareholder must timely file such a complaint to
protect his rights to a judicial determination under the OGCL.
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<PAGE> 43
The right of any O'Gara Dissenting Shareholder to be paid the "fair cash
value" of the O'Gara Dissenting Shares will terminate if: (i) for any reason the
Merger, although adopted by shareholder vote, does not become effective; (ii)
the O'Gara Dissenting Shareholder fails to serve an appropriate timely written
demand upon O'Gara; (iii) the O'Gara Dissenting Shareholder does not, upon
request of O'Gara, timely surrender certificates for an endorsement thereon of a
legend to the effect that demand for the "fair cash value" of such O'Gara
Dissenting Shares has been made; (iv) the demand is withdrawn by the O'Gara
Dissenting Shareholder, with the consent of the O'Gara Board; (v) O'Gara and the
O'Gara Dissenting Shareholder shall not have come to an agreement as to the
"fair cash value" of the O'Gara Dissenting Shares and neither shall have filed a
complaint in the Court as described above; or (vi) the O'Gara Dissenting
Shareholder has otherwise not complied with the requirements of Section 1701.85
of the OGCL.
From the time an O'Gara Dissenting Shareholder's demand is made until the
termination of the right arising from that demand, all rights accruing from such
O'Gara Dissenting Shares, including dividend and voting rights, shall be
suspended. If, during such suspension, any cash dividend is paid with respect to
O'Gara Common Stock, an amount equal to such dividend is to be paid to the
holder of record of the O'Gara Dissenting Shares as a credit upon the fair cash
value thereof. If the right to receive "fair cash value" is terminated other
than by purchase by O'Gara of the O'Gara Dissenting Shareholder's O'Gara
Dissenting Shares, all such O'Gara Dissenting Shareholder's rights with respect
to O'Gara Dissenting Shares shall be restored to the O'Gara Dissenting
Shareholder.
Kroll Shareholders. The following summary of the material provisions of
Section 262 of the DGCL ("Section 262") is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached hereto as
Appendix E and incorporated herein by reference.
If the Merger is approved by the required vote of Kroll and O'Gara
shareholders and the Merger becomes effective, and a holder of Kroll Stock
exercises appraisal rights in connection with the Merger under Section 262, any
shares of Kroll Stock with respect to which such appraisal rights have been
exercised and perfected will not be converted into O'Gara Common Stock but,
instead, will be converted into the right to receive such consideration as may
be determined by the Delaware Court of Chancery (the "Delaware Court") to be due
with respect to such shares pursuant to the DGCL. This discussion and Section
262 of the DGCL should be reviewed carefully by any shareholder who wishes to
exercise statutory appraisal rights or wishes to preserve the right to do so
since failure to comply with the required procedures will result in the loss of
such rights. A Kroll shareholder who votes for the adoption and approval of the
Merger will be deemed to have waived such shareholder's right to exercise
appraisal rights with respect to all shares of Kroll Stock held by such
shareholder. Any holder of shares of Kroll Stock who is considering dissenting
should consult his or her legal advisor. If a Kroll shareholder has a beneficial
interest in shares of Kroll Stock that are held of record in the name of another
person, and such shareholder desires to perfect whatever appraisal rights such
beneficial shareholder may have, such beneficial shareholder must act promptly
to cause the shareholder of record timely and properly to follow the steps
summarized below.
The shareholders of record of shares of Kroll Stock which are eligible to,
and do, exercise their appraisal rights with respect to the Merger are referred
to herein as "Kroll Dissenting Shareholders," and the shares of Kroll Stock with
respect to which they exercise appraisal rights are referred to herein as "Kroll
Dissenting Shares." If the Merger is consummated, the Kroll Dissenting
Shareholders will be entitled, if they strictly comply with the provisions of
the DGCL, to have the "fair value" of their shares of Kroll Stock judicially
determined and paid to them. To exercise appraisal rights, a shareholder must
(i) file with Kroll, before the taking of the shareholders' vote on the approval
and adoption of the Merger Agreement and the Merger at the Kroll Meeting, a
written objection to the Merger Agreement and the Merger stating the intention
of such shareholder to demand payment for Kroll Stock owned by such shareholder
if the Merger Agreement and the Merger are adopted and approved and the Merger
becomes effective, and (ii) the shareholder must not vote in favor of the Merger
Agreement and the Merger. A vote in favor of the Merger Agreement and the Merger
will waive such shareholder's appraisal rights. However, a shareholder's failure
to vote on the Merger Agreement and the Merger will not in itself be a waiver of
such holder's appraisal rights. A designation of proxy or vote against the
Merger Agreement and the Merger does not, alone, constitute a demand. A
shareholder who dissents and demands appraisal rights must do so as to all
shares of Kroll Stock owned by such shareholder.
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<PAGE> 44
Within 120 days after the Effective Time, Kroll or any shareholder who gave
notice, before the taking of the shareholders' vote on the Merger Agreement and
the Merger at the Kroll Meeting, of such shareholder's objection to the Merger
Agreement and the Merger and who did not vote in favor of the Merger Agreement
and the Merger and who otherwise complied with the DGCL, may (i) file a petition
in the Delaware Court demanding a determination of the value of the Kroll
Dissenting Shares of all such shareholders and (ii) upon written request,
receive from the surviving corporation a statement setting forth the aggregate
number of shares of Kroll Stock not voted in favor of the Merger and the Merger
Agreement and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. Kroll does not intend to file
such a petition. Upon the filing of any such petition by a shareholder, a copy
must be served on Kroll.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Delaware Court is required to determine the holders of Kroll
Dissenting Shares entitled to appraisal rights and to determine the "fair value"
of the Kroll Dissenting Shares, taking into account all relevant factors,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any.
Any holder of Kroll Dissenting Shares who has demanded an appraisal under
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or to receive payment of dividends or
other distributions on such Kroll Dissenting Shares (except dividends or other
distributions, if any, payable to shareholders of record as of a date prior to
the Effective Time).
The shares of any Kroll shareholder who demands appraisal under Section 262
and subsequently withdraws or loses his, her or its right to appraisal will be
converted into a right to receive that number of shares of O'Gara Common Stock
as is determined in accordance with the Merger Agreement. A shareholder will
effectively lose a right to appraisal if he, she or it fails to file a written
objection prior to the vote or votes, or executes and delivers a proxy, in favor
of the approval of the Merger Agreement, if no petition for appraisal is filed
within 120 days after the Effective Time, or if the holder withdraws such
holder's demand for appraisal within 60 days after the Effective Time. A holder
of stock represented by certificates may also lose his, her or its right to
appraisal if such holder fails to comply with the Delaware Court's direction to
submit such certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings. All court costs, including
appraisers' fees, shall be allocated by the Delaware Court in a manner it
determines to be fair and equitable.
REGULATORY REQUIREMENTS
Other than the effectiveness of the Registration Statement, no material
federal or state regulatory requirements must be complied with or regulatory
approval obtained in connection with the Merger.
MERGER EXPENSES AND FEES AND OTHER COSTS
O'Gara and Kroll estimate that they will incur direct transaction costs of
approximately $4.0 million associated with the Merger. All of such costs will be
charged against operations in the accounting period in which the Effective Date
occurs. O'Gara anticipates incurring additional costs and expenses relating to
integrating the companies. Except to the extent these costs are capitalized,
they will also be charged against operations as they are incurred. It is
currently anticipated that such costs will not exceed $0.5 million.
Whether or not the Merger is consummated, each of O'Gara and Kroll will
bear its own costs and expenses in connection with the Merger. O'Gara has paid
to Dillon Read for its services in rendering the Dillon Read Opinion a fee of
$450,000. Kroll has paid to DLJ for its services a fee of $100,000 and has
agreed to pay DLJ an additional fee of $1.2 million ($200,000 of which will be
paid by Jules B. Kroll) upon the Closing. DLJ has also rendered services to
O'Gara in connection with the Merger, for which O'Gara has agreed to pay DLJ
$200,000 upon the closing of the Merger. O'Gara has also agreed to pay Brausch,
upon the Closing, a fee of $500,000 for its services. Each of O'Gara and Kroll
has also agreed to reimburse the reasonable expenses of the advisors mentioned
in this paragraph, and to indemnify them against certain liabilities, in
connection with their respective engagements.
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<PAGE> 45
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full and complete text of the
Merger Agreement. Capitalized terms used herein without definition have the
respective meanings assigned to them in the Merger Agreement.
The Merger. Pursuant to the Merger Agreement and subject to its terms and
conditions, Newco will be merged with and into Kroll. As a result of the Merger,
Kroll will become a wholly owned subsidiary of O'Gara and all of the Kroll Stock
(with certain exceptions described below) will be converted into O'Gara Common
Stock.
Subject to the terms and conditions of the Merger Agreement, the Closing
will be held as soon as practicable after the shareholders of O'Gara, Newco and
Kroll approve the Merger, but in no event more than 10 business days after such
approval. The Effective Time will occur, and the Merger will become effective,
as of the close of business on the date that a certificate of merger is filed
with the office of the Secretary of State of the State of Delaware.
Conversion of Kroll Stock. Pursuant to the Merger Agreement, upon the
consummation of the Merger, each share of Kroll Stock issued and outstanding
immediately prior to the Effective Time (other than shares held in the treasury
of Kroll or owned by O'Gara or Newco and other than Dissenting Shares) will be
converted into that number of fully paid and nonassessable shares of O'Gara
Common Stock equal to one times the Share Conversion Multiplier. The Share
Conversion Multiplier is a fraction, the numerator of which is 6,650,000, and
the denominator of which is equal to the sum of (1) the total number of shares
of Kroll Stock issued and outstanding immediately prior to the Effective Time,
and (2) the total number of shares of Kroll Stock issuable pursuant to all
warrants, options and other stock issuance agreements (including conversion
rights under any instruments convertible into shares of Kroll Stock
(collectively the "Kroll Issuance Agreements")) existing immediately prior to
the Effective Time, assuming all of such Kroll Issuance Agreements are fully
exercisable and the rights of the holders thereof are fully vested therein and
in the stock issuable pursuant thereto. On the date of this Proxy
Statement/Prospectus, 106,367 shares of Kroll Stock were outstanding or subject
to Kroll Issuance Agreements. If the Merger had been consummated as of the date
of this Proxy Statement/Prospectus, each outstanding share of Kroll Stock would
have been converted into 62.52 shares of O'Gara Common Stock and each
outstanding right to purchase one share of Kroll Stock would have been converted
into a right to purchase 62.52 shares of O'Gara Common Stock at the same
aggregate purchase price.
Pursuant to the Merger Agreement, all Kroll Issuance Agreements will, to
the extent the shares of Kroll Stock issuable pursuant thereto have been
included in the denominator in determining the Share Conversion Multiplier, be
converted into the right to receive, upon exercise, subject to and in accordance
with the terms of such Kroll Issuance Agreements and further subject to payment
in full of the exercise price under such Kroll Issuance Agreements, that number
of shares of O'Gara Common Stock which is equal to the product of (i) the number
of shares of Kroll Stock issuable upon exercise of such Kroll Issuance
Agreements and (ii) the Share Conversion Multiplier. To the extent any Kroll
Stock issuable pursuant to a Kroll Issuance Agreement was not included in the
denominator of the Share Conversion Multiplier, such Kroll Issuance Agreement
will automatically be cancelled at the Effective Time and neither Kroll Stock
nor O'Gara Common Stock will thereafter be issued or issuable with respect to
such Kroll Issuance Agreement.
Exchange Procedure. Promptly after the Effective Time, O'Gara will mail to
each registered holder of a certificate or certificates which immediately prior
to the Effective Time evidenced outstanding shares of Kroll Stock (the "Kroll
Certificates") a letter of transmittal providing for the surrender of such Kroll
Certificates to O'Gara's transfer agent, The Fifth Third Bank, for exchange.
HOLDERS OF KROLL STOCK SHOULD NOT SEND ANY KROLL CERTIFICATES TO KROLL OR
O'GARA AT THIS TIME. KROLL SHAREHOLDERS SHOULD SEND KROLL CERTIFICATES TO
O'GARA'S TRANSFER AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE
INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
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<PAGE> 46
Dividends. No dividends or other distributions with respect to O'Gara
Common Stock with a record date after the Effective Time will be paid to the
holder of an unsurrendered Kroll Certificate with respect to the shares of
O'Gara Common Stock represented thereby, and no cash payment in lieu of
fractional shares will be made to any such holder, in each case unless and until
the holder of record of such Kroll Certificate surrenders such Kroll
Certificate.
Fractional Shares. No fractional shares of O'Gara Common Stock will be
issued pursuant to the Merger. In lieu of any such fractional shares, cash equal
to the product of such fractional amount and the average of the last reported
prices per share of O'Gara Common Stock for the 10 consecutive trading days
ending with the last trading day prior to the Effective Time will be paid with
respect thereto.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties by Kroll and Jules B. Kroll as to, among other
things, Kroll's: (i) organization, good standing and capitalization, (ii)
corporate authorization to conduct business and enter into the Merger Agreement,
(iii) Subsidiaries, (iv) stock options and similar arrangements, (v) financial
statements, (vi) liabilities, (vii) litigations and similar proceedings, (viii)
assets, (ix) operations since December 31, 1996, including the absence of any
material change therein, (x) tax status, (xi) insurance coverage, (xii)
contracts, (xiii) employee benefit plans, (xiv) defaults under contracts, (xv)
information about Kroll to be included in this Proxy Statement/Prospectus, (xvi)
compliance with law, (xvii) need to obtain approvals from governmental agencies
and others to consummate the Merger, (xviii) patents, trademarks and copyrights,
(xix) environmental law compliance, (xx) actions relating to the accounting
treatment of the Merger, (xxi) licenses and permits, (xxii) orders and
judgments, (xxiii) labor relations and (xxiv) use of a broker.
The Merger Agreement also contains customary representations and warranties
by O'Gara and Newco as to, among other things, their (i) organization, good
standing and capitalization, (ii) corporate authorization to conduct business
and enter into the Merger Agreement, (iii) Subsidiaries, (iv) stock options and
similar arrangements, (v) financial statements and filings made with the
Commission, (vi) liabilities, (vii) litigations and similar proceedings, (viii)
assets, (ix) operations since December 31, 1996, including the absence of any
material change therein, (x) tax status, (xi) insurance coverage, (xii)
contracts, (xiii) employee benefit plans, (xiv) defaults under contracts, (xv)
information to be included in this Proxy Statement/Prospectus, (xvi) compliance
with laws, (xvii) need to obtain approvals from governmental agencies and others
to consummate the Merger, (xviii) patents, trademarks and copyrights, (xix)
environmental law compliance, (xx) licenses and permits, (xxi) orders and
judgments, (xxii) labor relations, (xxiii) use of a broker and (xxiv) actions
relating to the accounting treatment of the Merger.
Covenants. Pursuant to the Merger Agreement, each of O'Gara and Kroll has
made various customary covenants relating to the Merger, including those
described below.
Registration of O'Gara Common Stock. Pursuant to the Merger Agreement,
O'Gara agreed to file with the Commission a registration statement on Form S-4
(together with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Act relating to the O'Gara Common Stock to be issued in
the Merger and to use its commercially reasonable best efforts to cause it to be
declared effective as soon as practicable and to distribute this Proxy
Statement/Prospectus to the shareholders of O'Gara and Kroll as soon as
practicable thereafter. In furtherance thereof, Kroll and O'Gara agreed to
cooperate with each other and to furnish the information required to be included
in the Registration Statement.
Conduct of Business Pending the Merger. Each of Kroll and O'Gara has
agreed that, prior to the Effective Time, it and its Subsidiaries will operate
in all material respects in the ordinary course of business and each agreed to
use commercially reasonable best efforts to maintain its properties and
facilities, to retain its key employees and to maintain its material assets and
relationships with customers. Specifically, Kroll has agreed, among other
things, not to (i) declare any dividends or purchase any shares of Kroll Stock,
(ii) create or incur any indebtedness (except indebtedness of up to $1.0 million
to Jules B. Kroll) or incur any liability except in the ordinary course of
business, (iii) make any capital expenditure except as specified therein, (iv)
increase the rate of compensation of any officer or employee other than in the
ordinary course of business, (v) make any material contract not in the ordinary
course of business, (vi) default in any material respect under any material
contract, (vii) adopt, amend or terminate any employee benefit plan, (viii)
acquire, sell or lease any material asset,
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<PAGE> 47
(ix) change any accounting principle, (x) make any material tax election, (xi)
pay any material claim or write off any material asset other than in the
ordinary course of business or (xii) take or agree to take any action which
would cause any condition to the Merger not to be satisfied.
O'Gara has agreed, among other things, not to (i) declare any dividends or
purchase any shares of O'Gara Common Stock, (ii) create or incur any liability
except in the ordinary course of business or increase its indebtedness by more
than $30.0 million, (iii) increase the compensation of its officers or employees
other than in the ordinary course of business, (iv) default in any material
respect under any material contract, (v) adopt, amend or terminate any employee
benefit plan, (vi) sell or lease any material asset, (vii) change any accounting
principle, (viii) make any material tax election with a material adverse effect,
(ix) take or agree to take any action which would cause any condition to the
Merger not to be satisfied, (x) make any material contract outside the ordinary
course of business with specified exceptions, (xi) write off any material asset
outside the ordinary course of business, or (xii) issue O'Gara Common Stock
except as permitted by the Merger Agreement.
Other Proposals. Kroll and Jules B. Kroll have agreed not to provide
information or participate in discussions or negotiations with respect to any
proposal for a merger involving Kroll or any of its Subsidiaries or any proposal
to acquire an equity interest in or a substantial portion of the assets of Kroll
or any of its Subsidiaries.
Repayment of Debt. O'Gara has agreed to cause Kroll to repay promptly
after the Effective Time certain of its indebtedness to Jules B. Kroll and all
of its indebtedness to AIG in an aggregate principal amount not to exceed $7.5
million. The Merger Agreement provides that it would be a breach of such
Agreement for Jules B. Kroll or Kroll to participate in discussions or
negotiations with respect to a proposal from a party, other than O'Gara, with
respect to a merger or other business combination. Each of Jules B. Kroll and
Kroll believes that entering into the Merger Agreement with this provision was
consistent with each of their fiduciary obligations.
Shareholders' Meetings. Each of O'Gara and Kroll has agreed duly to call
and hold the O'Gara Meeting and the Kroll Meeting, respectively, and to
recommend to its shareholders the approval of the Merger Agreement.
Indemnification. No claim for breach of the representations and warranties
by Kroll, Jules B. Kroll or O'Gara in the Merger Agreement will survive the
Effective Time. However, Jules B. Kroll has agreed in the Merger Agreement,
after the Effective Time and subject to certain conditions and time limitations,
to indemnify and hold O'Gara and Kroll harmless from any loss arising if (i) the
Registration Statement contains an untrue statement of a material fact regarding
any Kroll Matters or omits to state a material fact regarding any Kroll Matters
required to be stated therein or necessary to make the statements regarding
Kroll Matters not misleading, (ii) any written or oral communication by Kroll
Representatives to any holder of Kroll Stock who owns O'Gara Common Stock after
the Merger contains any such untrue statement or omission, unless Jules B. Kroll
can prove that the Kroll Representative did not know, and in the exercise of
reasonable care could not have known, of such untruth or omission or (iii) this
Proxy Statement/Prospectus includes any such untrue statement or omission,
unless Jules B. Kroll can prove that the Kroll Representative did not know, and
in the exercise of reasonable care could not have known, of such untruth or
omission.
Other Actions. Pursuant to the Merger Agreement, O'Gara, Newco, Kroll and
Jules B. Kroll have agreed to use their commercially reasonable best efforts to
cause the conditions to the Merger to be satisfied at the earliest practicable
date. O'Gara and Kroll have also agreed to provide each other with access to
their respective properties and records and to exchange certain tax information.
Conditions to the Merger. The obligations of O'Gara, Newco and Kroll to
consummate the Merger are conditioned on the fulfillment of the following: (i)
the receipt of all necessary governmental approvals, (ii) the Registration
Statement having become effective and the absence of any stop order suspending
the effectiveness of the Registration Statement or any threat thereof, (iii) the
absence of any temporary restraining order, injunction or other order preventing
the consummation of the Merger, and (iv) if requested by AIG, the election of an
individual nominated by AIG and reasonably acceptable to O'Gara as a director of
O'Gara.
The obligations of O'Gara and Newco to consummate the Merger are also
conditioned on the fulfillment of the following: (i) the representations and
warranties of Kroll and Jules B. Kroll being true and complete when made and
true and complete in all material respects at the Effective Time as if then
made, (ii) Kroll having
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<PAGE> 48
performed in all material respects all of its obligations under the Merger
Agreement, (iii) receipt by O'Gara of an opinion of Kramer, Levin, Naftalis &
Frankel, counsel to Kroll, (iv) receipt by O'Gara of "comfort letters" from
Kroll's independent public accountants (if requested by O'Gara), (v) receipt by
O'Gara of an opinion of its independent public accountants confirming that the
Merger will constitute a pooling of interests for financial accounting purposes,
(vi) receipt by the O'Gara Board of the Dillon Read Opinion and such Opinion not
being withdrawn, (vii) approval of the Merger by the O'Gara shareholders at the
O'Gara Meeting, and (viii) receipt of specified consents under contracts between
Kroll and third parties.
The obligation of Kroll to consummate the Merger is also conditioned on the
fulfillment of the following: (i) the representations and warranties of O'Gara
and Newco being true and complete when made and true and complete in all
material respects at the Effective Time as if then made, (ii) O'Gara and Newco
having performed in all material respects all of their obligations under the
Merger Agreement, (iii) receipt by Kroll of an opinion of Taft, Stettinius &
Hollister, counsel to O'Gara, (iv) receipt by Kroll of "comfort letters" from
O'Gara's independent public accountants (if requested by Kroll), (v) receipt of
specified consents under contracts between O'Gara and third parties, (vi)
election of Jules B. Kroll as a director and Chief Executive Officer of O'Gara
effective as of the Effective Time, (vii) the absence of any strike involving
more than 20% of O'Gara's United States workforce and (viii) O'Gara not having
received notice of the termination of, or intent to terminate, the HMMWV
contract.
Each of such conditions may be waived, to the extent permitted by law, by
the party or parties entitled to the benefit thereof. At the current time,
neither O'Gara nor Kroll believes that any such waiver will be required. If any
condition is not fulfilled, each of O'Gara and Kroll will evaluate whether it is
in its best interests to grant such a waiver.
Termination of the Merger Agreement. The Merger Agreement may be
terminated (i) by Kroll or O'Gara, if the Merger is not consummated on or prior
to January 31, 1998, (ii) by agreement of O'Gara, Newco, Kroll and Jules B.
Kroll, (iii) by the O'Gara Board if any of the conditions to O'Gara's
obligations have not been satisfied prior to the Closing, or (iv) by the Kroll
Board if any of the conditions to Kroll's obligations have not been satisfied
prior to the Closing.
Stock Agreements. Pursuant to letter agreements dated August 8, 1997 (the
"Stock Agreements"), (i) each of Jules B. Kroll and AIG agreed to vote all
shares of Kroll Stock owned or otherwise controlled by him or it in favor of the
Merger and not to sell, transfer or pledge any of such shares prior to the
sooner of the termination of the Merger Agreement and the Effective Time, unless
the transferee agrees to be bound by such agreement, and (ii) Thomas M. O'Gara
agreed to vote all shares of O'Gara Common Stock owned or otherwise controlled
by him in favor of the Merger and not to sell, transfer or pledge any of such
shares prior to the sooner of the termination of the Merger Agreement and the
Effective Time, unless the transferee agrees to be bound by such agreement.
AIG's agreement was conditioned upon the execution by O'Gara and AIG of a
registration rights agreement as described below and to the recommendation by
the O'Gara Board of an AIG nominee for election as a director of O'Gara as of
the Effective Time.
Registration Rights Agreements. Pursuant to a letter agreement dated
August 8, 1997, Jules B. Kroll, Thomas M. O'Gara and O'Gara have agreed that if
after the Effective Time O'Gara registers any shares of O'Gara Common Stock
pursuant to the Act and any shares of O'Gara Common Stock owned by either Jules
B. Kroll or Thomas M. O'Gara are included therein, then O'Gara will also afford
to Thomas M. O'Gara or Jules B. Kroll, as the case may be, the opportunity to
include therein his shares of O'Gara Common Stock pro rata and otherwise on the
same terms and conditions.
Pursuant to the Stock Agreement with AIG, O'Gara and AIG have entered into
a registration rights agreement providing for one "demand" and unlimited
"piggyback" registration rights for AIG at the cost and expense of O'Gara (other
than underwriting discounts, if any) for a period of three years after the
Effective Time, subject to customary limitations with respect to underwriter
cutbacks, pending announcements or transactions involving O'Gara and certain
other terms and conditions.
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<PAGE> 49
THE SPECIAL MEETINGS
This Proxy Statement/Prospectus is furnished to holders of O'Gara Common
Stock in connection with the solicitation of proxies from them by the O'Gara
Board for use at the O'Gara Meeting. This Proxy Statement/Prospectus is also
being furnished to holders of Kroll Stock. Neither the O'Gara Board nor the
Kroll Board is soliciting proxies from the holders of Kroll Stock for use at the
Kroll Meeting and holders of Kroll Stock are requested not to send proxies to
the O'Gara Board or the Kroll Board.
THE O'GARA MEETING
Time and Place; Purpose. The O'Gara Meeting will be held at The Omni
Netherland Plaza Hotel, Fifth and Race Streets, Cincinnati, Ohio on November 21,
1997, starting at 9:00 a.m. local time. At the O'Gara Meeting, the shareholders
of O'Gara will be asked to consider and vote upon the O'Gara Proposal, the
O'Gara Option Proposal, the O'Gara Capitalization Proposal and such other
matters as may properly come before the O'Gara Meeting. Copies of the Merger
Agreement and the proposed Amended and Restated Articles of Incorporation of
O'Gara are included as Appendix A and Appendix B, respectively, to this Proxy
Statement/Prospectus.
Voting Rights; Votes Required for Approval. The O'Gara Board has fixed the
close of business on October 15, 1997 as the O'Gara Record Date. Only holders of
record of shares of O'Gara Common Stock on the O'Gara Record Date are entitled
to notice of and to vote at the O'Gara Meeting. As of the O'Gara Record Date,
there were 7,279,310 shares of O'Gara Common Stock outstanding and entitled to
vote held by approximately 62 shareholders of record.
Each holder of record, as of the O'Gara Record Date, of O'Gara Common Stock
is entitled to cast one vote per share on each matter presented to shareholders.
The presence at the O'Gara Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of O'Gara Common Stock entitled to vote is
necessary to constitute a quorum at the O'Gara Meeting.
Under the OGCL and the O'Gara Articles, the affirmative vote at the O'Gara
Meeting, in person or by proxy, of the holders of a majority of the shares of
O'Gara Common Stock outstanding on the O'Gara Record Date is required to approve
and adopt the O'Gara Proposal and the O'Gara Capitalization Proposal. Under the
O'Gara Code and the OGCL, the affirmative vote of a majority of the shares of
O'Gara Common Stock represented at the O'Gara Meeting in person or by proxy and
entitled to vote on the O'Gara Option Proposal is required to approve the O'Gara
Option Proposal if a quorum is present. The O'Gara Common Stock has no
cumulative voting rights. O'Gara has not established a procedure for
confidential voting.
The O'Gara Proposal, the O'Gara Option Proposal and the O'Gara
Capitalization Proposal are not conditioned upon one another.
As of the O'Gara Record Date, directors and executive officers of O'Gara as
a group beneficially owned 4,760,016 shares of O'Gara Common Stock, or
approximately 65.4% of those shares of O'Gara Common Stock outstanding as of
such date. As of the O'Gara Record Date, Thomas M. O'Gara beneficially owned
4,041,838 shares of O'Gara Common Stock, or approximately 55.5% of those
outstanding. He has agreed to vote such shares in favor of the O'Gara Proposal.
Accordingly, it is expected that the O'Gara Proposal will be approved regardless
of the votes cast by other holders of O'Gara Common Stock. See "THE MERGER
AGREEMENT -- Stock Agreements."
If fewer shares of O'Gara Common Stock are voted in favor of the O'Gara
Proposal than the number required for approval, it is expected that the O'Gara
Meeting will be postponed or adjourned for the purpose of allowing additional
time for soliciting and obtaining additional proxies or votes, and, at any
subsequent reconvening of the O'Gara Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the O'Gara Meeting, except for any proxies that have theretofore effectively
been revoked or withdrawn.
Proxies. All shares of O'Gara Common Stock represented by properly
executed proxies received prior to or at the O'Gara Meeting and not revoked will
be voted in accordance with the instructions indicated in such
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<PAGE> 50
proxies. If no instructions are indicated on a properly executed returned proxy,
such proxy will be voted FOR the O'Gara Proposal, FOR the O'Gara Option Proposal
and FOR the O'Gara Capitalization Proposal. A properly executed proxy marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum, will not be voted. Accordingly, because the affirmative vote of a
majority of the shares of O'Gara Common Stock outstanding on the O'Gara Record
Date is required for approval of the O'Gara Proposal and the O'Gara
Capitalization Proposal, and the affirmative vote of a majority of the shares of
O'Gara Common Stock represented at the O'Gara Meeting is required for approval
of the O'Gara Option Proposal, a proxy marked "ABSTAIN" will have the effect of
a vote against the O'Gara Proposal, the O'Gara Capitalization Proposal and the
O'Gara Option Proposal. In accordance with applicable rules, brokers and
nominees are precluded from exercising their voting discretion on the O'Gara
Proposal, the O'Gara Option Proposal and the O'Gara Capitalization Proposal and
thus, absent specific instructions from the beneficial owner of such shares, are
not empowered to vote such shares with respect thereto. Because the affirmative
vote of a majority of the shares of O'Gara Common Stock outstanding on the
O'Gara Record Date is required for approval of the O'Gara Proposal and the
O'Gara Capitalization Proposal, a broker non-vote (i.e., shares held by brokers
or nominees which are represented at a meeting but with respect to which the
broker or nominee is not empowered to vote on a particular proposal) with
respect to the O'Gara Proposal or the O'Gara Capitalization Proposal will have
the effect of a vote against the O'Gara Proposal or the O'Gara Capitalization
Proposal, respectively, but will not be counted with respect to the O'Gara
Option Proposal. Shares represented by broker non-votes will, however, be
counted for purposes of determining whether there is a quorum at the O'Gara
Meeting.
General. A shareholder of O'Gara may revoke his or her proxy at any time
prior to its use by delivering to the Secretary of O'Gara a signed notice of
revocation or a later dated signed proxy or by attending the O'Gara Meeting and
voting in person. Attendance at the O'Gara Meeting will not in itself constitute
the revocation of a proxy. The cost of solicitation of the O'Gara proxies will
be paid by O'Gara. In addition to solicitation by mail, proxies may be solicited
in person by directors, officers and employees of O'Gara without additional
compensation, and by telephone, telegram, teletype, facsimile or similar method.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxy material to beneficial owners; and O'Gara will,
upon request, reimburse them for their reasonable expenses in so doing. To the
extent necessary in order to ensure sufficient representation at the O'Gara
Meeting, O'Gara may request by telephone or telegram the return of proxies. The
extent to which this will be necessary depends entirely upon how promptly
proxies are returned.
THE KROLL MEETING
Time and Place; Purpose. The Kroll Meeting will be held at The Omni
Netherland Plaza Hotel, Fifth and Race Streets, Cincinnati, Ohio, on November
21, 1997, starting at 11:00 a.m. local time. At the Kroll Meeting, the
shareholders of Kroll will be asked to consider and vote upon the Kroll Proposal
and such other matters as may properly come before the Kroll Meeting.
Voting Rights; Votes Required for Approval. The Kroll Board has fixed the
close of business on October 15, 1997 as the Kroll Record Date. Only holders of
record of shares of Kroll Stock on the Kroll Record Date are entitled to notice
of and to vote at the Kroll Meeting. On the Kroll Record Date, there were 23,100
shares of Kroll Class A Common Stock outstanding and entitled to vote at the
Kroll Meeting held by one shareholder of record, AIG, and 74,446 shares of Kroll
Common Stock outstanding and entitled to vote at the Kroll Meeting held by
approximately 50 shareholders of record.
Each holder of record, as of the Kroll Record Date, of Kroll Stock is
entitled to cast one vote per share. The presence at the Kroll Meeting, in
person or by proxy, of the holders of a majority of the outstanding shares of
Kroll Stock entitled to vote is necessary to constitute a quorum at the Kroll
Meeting.
Under the DGCL, the affirmative vote, in person or by proxy, of the holders
of a majority of the shares of Kroll Stock outstanding on the Kroll Record Date
and entitled to vote on the Kroll Proposal and, in addition, the affirmative
vote of the holders of a majority of the shares of Kroll Class A Common Stock,
are required to approve and adopt the Kroll Proposal.
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<PAGE> 51
As of the Kroll Record Date, directors and executive officers of Kroll who
will be directors or executive officers of O'Gara after the Merger, as a group,
beneficially owned 60,920 outstanding shares of Kroll Common Stock, or
approximately 81.8% of those shares outstanding on that date, and AIG
beneficially owned all of the outstanding Kroll Class A Common Stock. As of the
Kroll Record Date, Jules B. Kroll and AIG owned an aggregate of 82,041 shares of
Kroll Stock, approximately 84.1% of those outstanding. Jules B. Kroll and AIG
have agreed to vote such shares of Kroll Stock in favor of the Kroll Proposal.
Accordingly, it is expected that the Kroll Proposal will be approved regardless
of the votes cast by other holders of Kroll Stock. See "THE MERGER
AGREEMENT -- Stock Agreements."
If fewer shares of Kroll Stock are voted in favor of the Kroll Proposal
than the number required for approval, it is expected that the Kroll Meeting
will be postponed or adjourned for the purpose of allowing additional time for
soliciting and obtaining proxies or additional votes.
HOLDERS OF KROLL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING KROLL
STOCK TO KROLL OR O'GARA AT THIS TIME. IF THE MERGER IS APPROVED, A LETTER OF
TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING KROLL STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. KROLL
SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING KROLL STOCK TO THE TRANSFER
AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS
CONTAINED IN THE LETTER OF TRANSMITTAL.
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<PAGE> 52
MARKET PRICES AND DIVIDENDS
Price Range Of O'Gara Common Stock. Following the Offering at $9.00 per
share, the O'Gara Common Stock commenced trading on the Nasdaq National Market
under the symbol OGAR. The following table sets forth, for the periods
indicated, the high and low sale prices for the O'Gara Common Stock as reported
on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996
Fourth Quarter (from November 13, 1996)........... $ 9.750 $ 8.250
1997
First Quarter..................................... $13.250 $ 9.125
Second Quarter.................................... $13.000 $ 9.625
Third Quarter..................................... $16.625 $10.250
Fourth Quarter (through October , 1997).........
</TABLE>
On August 7, 1997, the last full trading date preceding public announcement
of the Merger, the last reported sale price of the O'Gara Common Stock on the
Nasdaq National Market was $12.75 per share. On , 1997, the most
recent practicable date prior to the printing of this Proxy
Statement/Prospectus, the last reported sale price per share of the O'Gara
Common Stock on the Nasdaq National Market was $ . As of the O'Gara
Record Date, there were approximately 62 record holders of the outstanding
shares of O'Gara Common Stock.
Kroll Stock. There is no established market for the Kroll Stock.
HOLDERS OF KROLL STOCK AND O'GARA COMMON STOCK ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR O'GARA COMMON STOCK PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
Dividend Policy. O'Gara anticipates that any future earnings will be
retained to finance O'Gara's operations and for the growth and development of
its business. Accordingly, O'Gara does not anticipate paying cash dividends on
O'Gara Common Stock in the foreseeable future. Additionally, the terms of
O'Gara's Senior Notes and the credit agreement with its bank require maintenance
of certain financial ratios which may limit the funds available for cash
dividends. If and when permitted, the payment of any future dividends will be
subject to the discretion of the O'Gara Board and will depend on O'Gara's
results of operations, financial position and capital requirements, general
business conditions, restrictions imposed by financing arrangements, if any,
legal restrictions on the payment of dividends and other factors the O'Gara
Board deems relevant.
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<PAGE> 53
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to
O'Gara's consolidated statements of operations for each of the three years in
the period ended December 31, 1996, and with respect to O'Gara's consolidated
balance sheets at December 31, 1995 and 1996, are derived from the audited
consolidated financial statements of O'Gara, which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
included elsewhere in this Proxy Statement/Prospectus. The selected historical
financial data set forth below with respect to O'Gara's consolidated statement
of operations for the year ended December 31, 1993 and with respect to O'Gara's
consolidated balance sheet at December 31, 1994 are derived from the audited
consolidated financial statements of O'Gara which have been audited by Arthur
Andersen LLP, independent public accountants, not included in this Proxy
Statement/Prospectus. The selected historical financial
data set forth below with respect to O'Gara's consolidated balance sheets at
December 31, 1992 and 1993 and O'Gara's consolidated statement of operations for
the year ended December 31, 1992 are derived from the unaudited consolidated
financial statements. The selected historical financial data set forth below
with respect to the consolidated statement of operations of Kroll for the period
ended December 31, 1996 and with respect to Kroll's consolidated balance sheet
at December 31, 1996 are derived from the audited consolidated financial
statements of Kroll which have been audited by Deloitte & Touche LLP,
independent public accountants, as indicated in their report included elsewhere
in this Proxy Statement/Prospectus. The selected historical financial data set
forth below with respect to the consolidated statements of operations of Kroll
for each of the two years in the period ended December 31, 1995 and with respect
to Kroll's consolidated balance sheet at December 31, 1995 are derived from the
audited consolidated financial statements of Kroll which have been audited by
KPMG Peat Marwick LLP, independent public accountants, as indicated in their
report included elsewhere in this Proxy Statement/Prospectus. The selected
historical financial data set forth below with respect to the consolidated
statement of operations of Kroll for the year ended December 31, 1993 and with
respect to Kroll's consolidated balance sheets at December 31, 1993 and 1994 are
derived from audited consolidated financial statements of Kroll not included
herein. The summary historical combined financial data presented for Kroll in
1992 is that of KAI. Kroll Holdings, Inc. commenced operations in June 1993.
The selected historical financial data for O'Gara for the six months ended
June 30, 1996 and 1997 are derived from the unaudited consolidated financial
statements of O'Gara included elsewhere in this Proxy Statement/Prospectus. The
selected historical financial data for Kroll for the six months ended June 30,
1996 and 1997 are derived from the unaudited consolidated financial statements
of Kroll included elsewhere in this Proxy Statement/Prospectus. In each case,
the unaudited consolidated financial statements include all adjustments,
consisting of normal recurring adjustments, that each company considers
necessary for a fair presentation of the financial position and results of
operations for the periods presented.
Operating results for O'Gara for the six months ended June 30, 1997 and for
Kroll for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year or future periods.
The data set forth below is qualified by reference to, and should be read
in conjunction with, the related consolidated financial statements and the notes
related thereto and "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," and "KROLL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
46
<PAGE> 54
O'GARA SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997(3)
------- ------- ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $16,860 $21,054 $33,912 $32,817 $ 82,778 $41,521 $ 51,853
Cost of sales........................ 11,511 14,640 24,505 25,237 61,523 31,383 37,484
------- ------- ------- ------- ------- ------- -------
Gross profit..................... 5,349 6,414 9,407 7,580 21,255 10,138 14,369
Selling and marketing expenses....... 2,432 1,933 2,736 3,628 4,810 2,159 3,794
General and administrative
expenses........................... 1,464 3,169 4,441 4,129 7,930 3,286 5,121
------- ------- ------- ------- ------- ------- -------
Operating income (loss).......... 1,453 1,312 2,230 (177) 8,515 4,693 5,454
Interest expense..................... (481) (269) (410) (842) (1,300) (613) (1,404)
Other income (expense), net.......... 92 (81) 60 (103) (38) (78) 329
------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interest, provision for income
taxes and extraordinary item..... 1,064 962 1,880 (1,122) 7,177 4,002 4,379
Minority interest.................... -- -- -- -- -- -- (74)
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for
income taxes and extraordinary
item............................. 1,064 962 1,880 (1,122) 7,177 4,002 4,305
Provision for income taxes(1)........ -- -- -- -- 518 -- 1,623
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item............................. 1,064 962 1,880 (1,122) 6,659 4,002 2,682
Extraordinary item, net of tax
benefit............................ -- -- -- -- -- -- 194
------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ 1,064 $ 962 $ 1,880 $(1,122) $ 6,659 $ 4,002 $ 2,488
======= ======= ======= ======= ======= ======= =======
Pro Forma earnings per share(1)...... $ 0.69
=======
Earnings per share................... $ 0.35
=======
Pro Forma weighted average shares
outstanding........................ 6,449,050
=======
Weighted Average shares
outstanding........................ 7,141,389
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................. $(4,468) $(2,238) $(1,999) $(4,094) $ 4,279 $ (616) $32,332
Net property, plant and equipment......... 2,236 2,622 2,945 3,171 4,925 3,669 9,083
Total assets.............................. 10,504 11,372 19,243 27,817 43,938 36,265 89,747
Total debt................................ 4,715 4,752 7,900 12,372 12,241 15,808 41,974
Shareholders' equity (deficit)............ (1,713) (1,023) 1,273 239 12,656 4,016 20,752
</TABLE>
- ---------------
(1) Prior to the Offering, O'Gara's business was conducted by the Related
Corporations, which were combined in the Reorganization on October 28, 1996.
The most significant of the Related Corporations had elected to be treated
as an S Corporation for federal and state income tax purposes, rather than
be taxed at the corporate level. Accordingly, the O'Gara Historical
Financial Data does not contain a provision for income taxes prior to 1996.
The provision for income taxes in 1996 reflects a tax provision for the
period subsequent to the Reorganization.
(2) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
purchase of net assets of Palmer, the elimination of interest expense
relating to the retirement of bank debt and the application of corporate
income taxes to O'Gara's consolidated income before income taxes at an
effective rate of approximately 40%. See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements included
elsewhere in this Proxy Statement/Prospectus.
(3) O'Gara completed certain acquisitions in the first quarter of 1997
(including the acquisition of Labbe, which was effective for accounting
purposes on January 1, 1997) and the results of the acquired entities are
included from the effective dates of their respective acquisitions in the
consolidated statement of operations as well as in the consolidated balance
sheet data as of June 30, 1997.
47
<PAGE> 55
KROLL SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
TWELVE MONTHS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $57,144 $56,161 $52,872 $53,024 $70,883 $33,374 $36,746
Cost of sales............................. 29,181 31,024 31,684 35,206 47,900 21,772 21,073
------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 27,963 25,137 21,188 17,818 22,983 11,602 15,673
Selling and marketing expenses............ 3,784 4,084 4,700 5,490 4,632 2,097 2,581
General and administrative expenses....... 17,273 16,301 18,076 16,788 18,350 8,689 9,513
------- ------- ------- ------- ------- ------- -------
Operating income (loss)............... 6,906 4,752 (1,588) (4,460) 1 816 3,579
Interest expense.......................... (2,426) (2,423) (2,188) (1,970) (1,840) (950) (783)
Other income (expense), net............... 1,915 515 406 (282) 358 71 (135)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax provision
(benefit) and cumulative effect of
accounting
change................................ 6,395 2,844 (3,370) (6,712) (1,481) (63) 2,661
Provision (benefit) for income taxes(1)... 635 7,070 (1,751) (1,298) (679) (57) 1,326
------- ------- ------- ------- ------- ------- -------
Income (loss) before cumulative effect of
accounting change..................... 5,760 (4,226) (1,619) (5,414) (802) (6) 1,335
Cumulative effect of accounting
change(2)............................... -- (295) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)......................... $ 5,760 $(4,521) $(1,619) $(5,414) $ (802) $ (6) $ 1,335
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $15,630 $26,158 $16,510 $ 8,181 $ 6,321 $10,257 $ 3,838
Net property, plant and equipment......... 5,075 4,582 4,067 3,705 3,639 3,576 4,227
Total assets.............................. 39,639 48,179 44,659 38,950 37,296 38,703 37,414
Total debt................................ 21,643 20,622 19,666 18,543 15,173 18,124 14,597
Shareholders' equity...................... 5,126 11,362 9,803 4,418 4,212 4,376 3,019
</TABLE>
- ---------------
(1) Prior to 1993, Kroll had elected to be treated as an S Corporation for
federal and state income tax purposes and as such, income was allocable to
its shareholders for income tax purposes, rather than being taxed at the
corporate level. Income tax expense reflected in the consolidated statement
of operations for the year ended December 31, 1992 relates to those
jurisdictions which did not recognize Kroll's S Corporation status. During
1993, Kroll changed its tax filing status from an S to a C Corporation. The
deferred tax liability resulting from this tax status change has been
included in income tax expense for the year ended December 31, 1993.
(2) Effective January 1, 1993, Kroll adopted SFAS 109 and reported the
cumulative effect of a change in the method of accounting for income taxes
in the 1993 consolidated statement of operations.
(3) The summary historical combined financial data presented for Kroll in 1992
is that of KAI. Kroll Holdings, Inc. commenced operations in June 1993.
48
<PAGE> 56
O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
is based upon and should be read in conjunction with O'Gara's Consolidated
Financial Statements and Notes thereto, the selected consolidated financial data
and other financial data appearing elsewhere in this Proxy Statement/Prospectus.
GENERAL.
O'Gara is a leading provider of ballistic and blast protected armoring
systems for commercial and military vehicles, aircraft and missile components.
These products are provided through O'Gara's principal subsidiary O'Gara-Hess &
Eisenhardt Armoring Company ("OHE") and certain other subsidiaries or divisions
which constitute its Security Hardware Products Group. Through O'Gara Satellite
Networks Limited ("OSN") and its other subsidiaries which constitute its
Security Systems Integration Group, O'Gara provides integrated satellite
communications systems to commercial and governmental clients and integrated
site protection security systems. In 1996, O'Gara began offering
security-related services, such as advanced driver training, background
clearances, business intelligence, country risk assessments, forensic auditing,
and force protection consulting through certain subsidiaries or divisions which
constitute its Security Services Group.
On November 15, 1996, O'Gara sold to the public 2,000,000 shares of O'Gara
Common Stock at $9.00 per share. On December 16, 1996, O'Gara sold an additional
48,000 shares under a partial exercise of the underwriters' over-allotment
option. The net proceeds from the Offering were used to finance certain
distributions to existing shareholders, to acquire O'Gara's leased Mexico City
manufacturing facility, and to pay initial installments for the acquisition of
Palmer. The balance of the proceeds was used to repay a portion of the
indebtedness of O'Gara.
On October 29, 1996, O'Gara acquired substantially all the assets of Palmer
of Mexico City, Mexico, for $1.2 million (including $0.2 million for a
non-competition agreement), most of which is payable over two years. Palmer is a
provider of security services such as advanced driver training, background
investigations, due diligence reports and forensic auditing, and reports its
revenue through O'Gara's Security Services Group. This acquisition provides an
entry into the security services industry and allows O'Gara's Mexico City based
subsidiary to offer an integrated line of security products.
On February 5, 1997, O'Gara completed the acquisition of all of the shares
of Next Destination of Salisbury, the United Kingdom, a distributor of high
technology products for the global positioning satellite and satellite
communication markets. The aggregate purchase price (including the value of
shares of O'Gara Common Stock) was approximately $3.5 million, consisting of
170,234 shares of O'Gara Common Stock (valued at approximately $1.9 million, or
$10.88 per share) and $1.6 million in seller-provided financing in the form of
secured three-year 6% promissory notes. Next Destination, which sells portable
satellite terminals offered by O'Gara, reports revenue through O'Gara's Security
Systems Integration Group.
On February 12, 1997, O'Gara completed the acquisition of all of the shares
of Labbe, a leading armorer of commercial and private vehicles headquartered in
Lamballe, France. The aggregate purchase price (including the value of shares of
O'Gara Common Stock) was approximately $14.2 million, consisting of $10.7
million in cash and 376,597 shares of O'Gara Common Stock (valued at
approximately $3.5 million, or $9.29 per share). For accounting purposes, the
acquisition was effective on January 1, 1997 and the results of operations of
Labbe are included in the consolidated results of operations of the Company from
that date forward. The acquisition of Labbe has increased substantially the
level of commercial revenue generated by the Security Hardware Products Group
and enhanced O'Gara's competitive position due to an expanded product line,
which includes cash-in-transit vehicles and commercial truck bodies, and
penetration into new markets, such as Europe and Africa.
On March 24, 1997, O'Gara completed the acquisition of all of the shares of
ITI, a provider of advanced security training headquartered near Washington,
D.C. The aggregate purchase price (including the value of shares of O'Gara
Common Stock) was approximately $2.5 million, consisting of $0.5 million in
cash, 68,086 shares of O'Gara Common Stock (valued at $0.8 million, or $11.89
per share) and $1.2 million in seller-provided financing in the form of
unsecured two-year 10% promissory notes. ITI, which reports revenue through
O'Gara's
49
<PAGE> 57
Security Services Group, offers many new products, such as evasive and defensive
driver training, terrorist surveillance training, force protection consulting
and advanced weapons training not previously available from O'Gara.
IMPACT ON OPERATIONS
O'Gara's operations have been or will be affected by several factors,
including: (i) revenue recognition and (ii) provision for income taxes in
connection with the termination of OHE's S Corporation status.
Revenue recognition. O'Gara's net sales from government contracts and most
commercial contracts are recognized using the percentage-of-completion method
calculated utilizing the cost-to-cost approach. Under this method, estimated
contract revenues are accrued based generally on the percentage that costs to
date bear to total estimated costs. Estimated contract losses are recognized in
full when determined. Accordingly, contract revenues and total cost estimates
are reviewed and revised periodically as the work progresses and as change
orders are approved, and adjustments based upon the percentage of completion are
reflected in contract revenues in the period when such estimates are revised. To
the extent that these adjustments result in an increase, a reduction or an
elimination of previously reported contract revenues, O'Gara would recognize a
credit or a charge against current earnings, which could be material. Contract
costs include all direct material and labor costs, along with certain overhead
costs allocated to contract production.
Provisions for any estimated total contract losses on uncompleted contracts
are recorded in the period in which it is concluded that such losses will occur.
Changes in estimated total contract costs will result in revisions to contract
revenue. The revisions are recognized when determined.
Revenue related to telecommunications equipment and services is recognized
as equipment is shipped or as services are provided. Revenue and related direct
costs of brokered satellite time are recorded when payments are received from
customers.
Provision for income taxes. From 1988 until October 28, 1996, OHE was
treated as an S Corporation under Subchapter S of the Code and comparable
provisions of certain state tax laws. As a result, it paid no federal or state
income tax. O'Gara is a C Corporation and is responsible for federal and state
income taxes.
50
<PAGE> 58
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the items noted
as a percentage of net sales:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Security hardware products:
Military.................... 50.1% 45.6% 66.0% 72.4% 37.3%
Commercial.................. 48.6 48.2 22.1 18.4 45.6
Security systems
integration................. 1.3 6.2 11.8 9.2 15.1
Security services............. -- -- 0.1 -- 2.0
----- ----- ----- ----- -----
Total net sales..... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 72.3 76.9 74.3 75.6 72.3
----- ----- ----- ----- -----
Gross profit........ 27.7 23.1 25.7 24.4 27.7
Operating expenses:
Selling and marketing....... 8.1 11.0 5.8 5.2 7.3
General and
administrative........... 13.1 12.6 9.6 7.9 9.9
----- ----- ----- ----- -----
Operating income (loss)....... 6.5 (0.5) 10.3 11.3 10.5
Other income (expense):
Interest expense............ (1.2) (2.6) (1.6) (1.5) (2.6)
Other, net.................. 0.2 (0.3) -- (0.2) 0.5
----- ----- ----- ----- -----
Income (loss) before minority
interest, provision for
income taxes and
extraordinary item.......... 5.5 (3.4) 8.7 9.6 8.4
Minority interest............. -- -- -- -- 0.1
Provision for income taxes.... -- -- 0.6 -- 3.1
Extraordinary item, net of tax
benefit..................... -- -- -- -- 0.4
----- ----- ----- ----- -----
Net income (loss)............. 5.5% (3.4)% 8.0% 9.6% 4.8%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales. O'Gara's net sales in the first half of 1997 increased to $51.9
million, compared to $41.5 million for the first half of 1996, an increase of
25%. The increase in revenue, both in commercial armoring and overall, was due
primarily to the inclusion of operating results from acquisitions made by O'Gara
in the first quarter of 1997 (the "Acquisitions"), along with continued growth
in O'Gara's start-up operations, especially in Brazil and Mexico, partially
offset by a decrease in net sales of military products due to a return to more
normal levels of military production. The results of the entities acquired in
the Acquisitions are included from the effective dates of their respective
acquisition.
Net sales for the Security Hardware Products Group for the six months ended
June 30, 1997 were $43.0 million. This represented an increase of $5.3 million,
or 14%, over the six month period ended June 30, 1996. For the six months ended
June 30, 1997, net sales of commercial armoring products increased $16.1
million, or 210%, from $7.6 million to $23.7 million over the same period in
1996, and net sales of military products decreased $10.7 million, or 36%, from
$30.0 million to $19.3 million. The 1996 net sales of military products were
favorably affected by a request by the U.S. Government to accelerate the
armoring of HMMWVs and the manufacture of HMMWV armor kits. HMMWV armoring by
the Company returned to a non-accelerated level in 1997. In addition, the
acceleration of the HMMWV contract led to abnormally low levels of revenue in
commercial armoring in the second quarter of 1996 due to the diversion of the
workforce necessary to complete the military production schedule. Commercial
armoring at the affected subsidiaries returned to more normal levels in 1997.
For the six months ended June 30, 1997, net sales for the Security Systems
Integration Group were $7.8 million, an increase of $4.0 million or 104%, from
$3.8 million for the same period in 1996. This increase was
51
<PAGE> 59
due to the acquisition of Next Destination in the first quarter of 1997, along
with the continued development of security integration operations put in place
in 1996.
Net sales for the Security Services Group were $1.0 million for the six
months ended June 30, 1997. There were no net sales for the Security Services
Group in the first half of 1996. Revenue for 1997 is attributable to the
acquisition of Palmer in the fourth quarter of 1996 and ITI in the first quarter
of 1997.
Cost of sales. For the six months ended June 30, 1997, cost of sales
increased $6.1 million, or 19%, from $31.4 million in the six months ended June
30, 1996 to $37.5 million. The increase in cost of sales was due to increased
activity resulting from the Acquisitions.
Gross profit as a percentage of net sales was 27.7% for the six months
ended June 30, 1997, as compared to 24.4% for the same period in 1996. As
contracts are completed under percentage of completion accounting, actual cost
and gross profit may be revised from previously estimated amounts as a result of
O'Gara's performance in completing the requirements of each contract. Gross
profit was favorably affected in the six months ended June 30, 1997 by
adjustments resulting from contracts completed.
O'Gara continues to expect that future margin percentages will be higher
than experienced in 1995 and 1996 due to the effect of increased sales from
foreign subsidiaries and a more favorable mix of commercial revenue in
comparison with military revenue; however, it does not, in future periods,
expect to maintain the level of gross margin as a percentage of sales reached in
the first half of 1997.
Operating expenses. In the six months ended June 30, 1997, operating
expenses increased from $5.4 million in the six months ended June 30, 1996 to
$8.9 million, an increase of $3.5 million, or 64%. The dollar increase was
primarily attributable to an increased level of overhead expenses included in
O'Gara's operations resulting from the Acquisitions. Additionally, O'Gara
experienced an increase, from 13.1% in the first half of 1996 to 17.2% in the
first half of 1997, in the percentage of operating expenses compared to net
sales. This increase was primarily attributable to overhead put in place
throughout the organization to ensure the growth in commercial revenue seen in
1997, including investments made in its foreign subsidiaries. In addition,
corporate overhead requirements contributed to the increase. O'Gara currently
expects that total operating expenses will show an increase in 1997 in
comparison to 1996.
Interest expense. For the six months ended June 30, 1997, interest expense
increased $0.8 million, or 129%, to $1.4 million from $0.6 million for the same
period in 1996. The increase was a result of the financing to fund the
Acquisitions along with an increased amount of outstanding borrowings as result
of the sale of the Senior Notes (see "-- Liquidity and Capital Resources").
O'Gara expects interest expense will continue to be significantly higher in 1997
compared to 1996.
Other, net. Other, net income (expense) for the six months ended June 30,
1997 was $0.3 million of income, an increase of $0.4 million from the same
period in 1996. In the six months ended June 30, 1997, other, net income
(expense) includes the effect of an agreement reached by O'Gara with
International Electronics Engineering ("IEE") to sell O'Gara's exclusive rights
to distribute IEE's Passenger Presence Detection sensors in the North American
automotive market. These distribution rights, which sold for $0.4 million, gave
O'Gara the exclusive right to seek additional customers and receive commissions
based on sales of sensors designed to prevent automotive airbags from inflating
when an infant is in the front seat.
Income before provision for income taxes and extraordinary item. For the
six months ended June 30, 1997, income before provision for income taxes and
extraordinary item increased $0.3 million, or 8%, to $4.3 million from $4.0
million in the six months ended June 30, 1996. The increase in the net income is
the result of the inclusion of the operating results of the Acquisitions in
1997. The positive effect of the Acquisitions was partially offset by the
completion of the Up-Armored HMMWV acceleration contract in 1996 and subsequent
return to a more normal level of military production in 1997.
As a percent of net sales, income before provision for income taxes and an
extraordinary item decreased from 10% in the six months ended June 30, 1996 to
8% for the six months ended June 30, 1997. This decrease was a result of
operations put in place by O'Gara necessary to attain the growth in commercial
revenue which required the support of a more overhead intensive structure,
including requirements in personnel and facilities.
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<PAGE> 60
Provision for income taxes. The provision for income taxes was $1.6
million for the six months ended June 30, 1997. There was no provision for
income taxes recorded for the six month period ending June 30, 1996 due to OHE's
S Corporation status which was terminated on October 28, 1996 in conjunction
with the Reorganization.
Extraordinary item. As a result of new working capital arrangements put in
place by O'Gara (see "-- Liquidity and Capital Resources"), all prepaid fees
associated with the previous financing arrangements recorded by O'Gara were
charged against earnings as an extraordinary item in the second quarter of 1997.
The amount charged is shown net of applicable tax of $0.1 million.
1996 COMPARED TO 1995
Net sales. Net sales increased $50.0 million or 152.2% from $32.8 million
in 1995 to $82.8 million in 1996. Net sales of the Security Hardware Products
Group were $72.9 million for 1996, with military sales contributing $54.6
million and armored commercial vehicle net sales contributing $18.3 million. The
Security Systems Integration Group had net sales of $9.8 million in 1996
compared to $2.0 million in 1995. Net sales from O'Gara's satellite
communications business increased from $2.0 million in 1995 to $7.8 million in
1996, a change of 280.1%. Net sales of O'Gara's integrated site protection
services were $2.1 million in 1996. The Security Services Group, which commenced
offering services in late 1996, had net sales of $0.1 million for the year.
Although net sales in 1996 reflected the effect of the request to
accelerate Up-Armored HMMWV and HMMWV kit production, production levels and
military net sales figures returned to a non-accelerated level in 1997.
Cost of sales. Cost of sales in 1996 increased $36.3 million, or 143.8%,
from $25.2 million in 1995 to $61.5 million. The increase in cost of sales was
due to the increase in production levels. Gross profit as a percentage of net
sales was 25.7% for the year ended December 31, 1996 as compared to 23.1% for
the year ended December 31, 1995. Revenue recognized on new military contracts,
both U.S. and foreign, with a higher gross profit percentage than previously
experienced, contributed to the increase in gross profit percentage. O'Gara will
continue to pursue opportunities for sales of its military products. No
assurance can be given, however, that any new contract will contribute at the
gross profit level experienced in 1996. In general, the gross profit percentage
recognized on military contracts is lower than gross profit percentage
recognized on commercial contracts.
Gross profit percentage was favorably affected by an increase in net sales
from foreign subsidiaries, both in O'Gara's Security Hardware Products Group and
Security Systems Integration Group, where the gross profit percentages are
higher than have been experienced in other markets due to lower direct costs and
less developed competition. O'Gara expects the effect of net sales of foreign
subsidiaries to continue to have a positive effect on O'Gara's consolidated
gross margin percent until these markets become more competitive.
Operating expenses. Selling and marketing expenses for 1996 increased $1.2
million, or 32.6%, from $3.6 million in 1995 to $4.8 million. This increase was
primarily attributable to increases in personnel and advertising to implement
O'Gara's business strategy.
General and administrative expenses for 1996 increased $3.8 million, or
92.1%, from $4.1 million in 1995 to $7.9 million. This increase in
administrative expenses was due to the addition of professional employees and
associated infrastructure to support the increased level of business activity.
Both selling and general and administrative expenses will continue to
increase in total dollars as O'Gara acquires new businesses, expands into new
foreign markets and administers a more complex corporate environment.
Interest expense. Interest expense for 1996 was $1.3 million, an increase
of $0.5 million, or 54.4%, compared to $0.8 million for 1995. This was due to
increased borrowings necessary to finance increased production levels and new
operations. As a result of recent acquisitions and O'Gara's continued efforts to
expand into new foreign markets, interest expense will be significantly higher
than it has been in previous years.
53
<PAGE> 61
Provision for income taxes. The provision for income taxes was $0.5
million in 1996. There was no provision for income taxes recorded in 1995 due to
OHE's S Corporation status.
1995 COMPARED TO 1994
Net sales. Net sales were $32.8 million for 1995, a decrease of $1.1
million, or 3.2%, compared to $33.9 million for 1994. The decrease in net sales
was primarily due to the late delivery of HMMWV chassis by a supplier which
resulted in a six-month delay in the armoring of HMMWVs for the U.S. Army Tank
and Automotive Armaments Command ("TACOM"). Such delay was principally
responsible for a decrease in net sales of military armoring products from $17.0
million in 1994 to $15.0 million for 1995, a decrease of $2.0 million or 12.0%.
Net sales of commercial armoring products decreased $0.7 million or 4.0% from
$16.5 million in 1994 to $15.8 million for 1995. Net sales of satellite
communications equipment and services increased $1.6 million or 358.3% from $0.4
million in 1994 to $2.0 million in 1995.
Cost of sales. Cost of sales was $25.2 million for 1995, an increase of
$0.7 million, or 3.0%, compared to $24.5 million for 1994. The increase in cost
of sales was primarily due to the absorption of manufacturing and material
overhead associated with the six-month delay in the armoring of the HMMWVs for
TACOM. Since production was expected to return to anticipated levels once the
delay period ended, O'Gara retained its trained manufacturing personnel and did
not temporarily reduce its head count. As a result of this delay and the
increased percentage of sales associated with military sales, which have a lower
gross profit margin than commercial sales, cost of sales as a percentage of net
sales increased to 76.9% for 1995 from 72.3% for 1994. In addition, engineering
expenses for OHE increased approximately $0.5 million to $1.1 million as a
result of the additional engineering requirements for the Up-Armored HMMWV
contract.
Selling and marketing. Selling and marketing expenses were $3.6 million
for 1995, an increase of $0.9 million, or 32.6%, compared to $2.7 million for
1994. This increase was primarily attributable to increased sales personnel and
travel expenses that were incurred to support OSN's growth.
General and administrative. General and administrative expenses were $4.1
million for 1995, a decrease of $0.3 million, or 7.0%, compared to $4.4 million
for 1994. Increases in personnel costs were offset by lower travel and insurance
costs.
Interest expense. Interest expense was $0.8 million for 1995, an increase
of $0.4 million, or 105.4%, compared to $0.4 million for 1994. This increase in
interest expense was due to additional borrowings to finance working capital
growth and the Up-Armored HMMWV contract.
LIQUIDITY AND CAPITAL RESOURCES
General. O'Gara historically has met its operating cash needs by utilizing
borrowings under its credit arrangements to supplement cash provided by net
income and depreciation and amortization.
Senior Notes. The Senior Notes, which were issued June 3, 1997 and mature
May 30, 2004, bear interest at a rate of 9.56%, subject to a step down of the
associated interest rate to a minimum of 8.56% if O'Gara meets certain defined
requirements. The Senior Notes also impose covenant restrictions on O'Gara's
operations, including limitations on dividends and priority debt, and
constraints on specific investments, as well as requirements relating to
O'Gara's reported net worth, fixed charges coverage and limitations on
outstanding debt. Of the $35.0 million in gross proceeds from the sale of the
Senior Notes, $26.2 million was used to pay off the term loan and revolver from
O'Gara's previous credit agreement. The payoff also resulted in the recognition
of an extraordinary charge against earnings for the bank fees associated with
the previous agreement.
Credit Facility. On May 30, 1997, O'Gara entered into a new credit
agreement with KeyBank. The new agreement provides for a revolving line of
credit of $4.5 million and a letter of credit facility of approximately $5.7
million. The revolving credit facility bears interest at the prime rate less
0.5%, or, at O'Gara's option, the LIBOR rate plus 2.0%. The credit agreement
also imposes requirements on O'Gara's reported fixed charge coverage ratio, net
worth and debt capitalization, along with certain restrictions on investments,
acquisitions and capital expenditures. To finance a portion of the costs of the
Merger, O'Gara expects to enter into an amended and
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restated credit facility with KeyBank, which will provide for a $7.0 million
term loan, a $7.0 million revolving credit loan and a $6.0 million standby
letter of credit facility. See "THE MERGER -- Financing the Merger."
The new credit agreement replaced a previous arrangement O'Gara entered
into on February 11, 1997, with The Fifth Third Bank and LaSalle National Bank.
The previous arrangement provided for (i) a one-year revolving line of credit of
up to $12.0 million, (ii) a five-year term loan in the amount of $16.0 million,
and (iii) a $5.5 million letter of credit facility.
On September 8, 1997, there were no borrowings outstanding under the new
revolving credit agreement. O'Gara believes that proceeds from the sale of the
Senior Notes and borrowings under the new credit facility and the term loan
facility, along with cash provided by net income and depreciation and
amortization, will be sufficient to fund O'Gara's operating cash requirements
for the next 12 months. O'Gara continues to review strategic opportunities and
other sources of working capital.
Cash flows from operating activities. Net cash used in operating
activities was $6.3 million and $1.2 million for the six months ended June 30,
1997 and 1996, respectively. This change was primarily due to increases in
accounts receivable as a result of the growth in business activity and a
reduction in accrued liabilities resulting from the close-out of certain
contracts with the U.S. Government.
Capital expenditures. Historically, O'Gara has limited its capital
expenditure requirements by leasing certain facilities and equipment. Capital
expenditures totaled $1.1 million for the six months ended June 30, 1997, and
$0.8 million for the same period in 1996. The new credit agreement limits annual
capital expenditures.
In addition to capital expenditures, O'Gara also used $7.6 million in net
cash in connection with the acquisition of Labbe and ITI in the first quarter of
1997.
Cash flows from financing activities. Net cash provided by financing
activities was $24.4 million and $3.1 million for the six months ended June 30,
1997 and 1996, respectively. The increase in 1997 was due primarily to issuance
of the Senior Notes executed in the second quarter of 1997.
Foreign operations. O'Gara attempts to mitigate the risks of doing
business in foreign developing countries by separately incorporating its
operations in such countries; entering into contracts providing for payment in
U.S. dollars instead of the local currency in certain instances; maintaining
reserves for credit losses; and maintaining insurance on equipment to protect
against losses related to political risks and terrorism. In addition, O'Gara
will, from time to time, attempt to mitigate the risk of doing business in a
foreign currency by utilizing futures contracts and other derivative financial
instruments. O'Gara has not experienced a material impact on its results of
operations, liquidity or financial position as a result of its investment in
such contracts and instruments.
Quarterly fluctuations. O'Gara's operations are not seasonal, but may
fluctuate on a quarterly basis as a result of the timing of contract costs. The
incurrence of contract costs and related production scheduling must be
responsive to specific customer delivery requirements, which may involve the
acceleration of deliveries under a contract at a customer's request, such as
occurred with the HMMWV contract in 1996. O'Gara's liquidity may be affected by
the payment terms of its contracts, including those with TACOM and certain
foreign governments.
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KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of Kroll is based upon and should be read in conjunction with Kroll's
Consolidated Financial Statements and Notes thereto, the selected consolidated
financial data and other financial data appearing elsewhere in this Proxy
Statement/Prospectus.
GENERAL
Kroll believes that it is the largest company in the world providing a
broad array of corporate investigation, risk and crisis management and business
intelligence services on an international basis. See "BUSINESS OF KROLL."
Kroll's results of operations are based primarily on net sales generated
from fees it charges for corporate investigation services, risk and crisis
management services and business intelligence services. Kroll generally does not
have long term contracts with its clients and its ability to generate net sales
is dependent upon obtaining many new projects each year, most of which are of
relatively short duration. As a result, Kroll's net sales and net income from
year to year are not necessarily predictable and historically there has not been
a consistent year-to-year pattern of growth. See "RISK FACTORS -- Risk Factors
Relating to the Business of Kroll -- Fluctuations in Operating Results."
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED)
--------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales............................................... $33,374 $36,746
Cost of sales........................................... 21,772 21,073
Selling expenses........................................ 2,097 2,581
General and administrative expenses..................... 8,689 9,513
Interest expense........................................ 950 783
Other income (expense), net............................. 71 (135)
Income (loss) before provision (benefit) for taxes...... (63) 2,661
Provision (benefit) for taxes........................... (57) 1,326
Net income (loss)....................................... $ (6) $ 1,335
</TABLE>
Net sales. Net sales increased approximately $3.4 million, or 10%, from
$33.4 million for the six months ended June 30, 1996 to $36.7 million for the
six months ended June 30, 1997. This increase was primarily caused by increases
in net sales of Kroll's corporate investigation and business intelligence
services. Net sales increases for Kroll's services in Asia, Europe and Latin
America were partially offset by a decline in net sales of services in North
America.
Cost of sales. Cost of sales decreased approximately $0.7 million, or
3.2%, from $21.8 million for the six months ended June 30, 1996 to $21.1 million
for the six months ended June 30, 1997. This decrease was principally caused by
a write-off of approximately $2.5 million in uncollectible receivables in 1996
relating to services performed in earlier periods. Adjusted for this write-off,
cost of sales would have been 57.8% of net sales for the six months ended June
30, 1996 compared with 57.4% for the same period of 1997, resulting in a
comparable gross profit percentage of approximately 42.5% for both periods.
Kroll also added 34 professional staff members. In the short term, this increase
in staffing has resulted in certain training and orientation costs which have
caused a nominal increase in the cost of sales during the first six months of
1997.
Selling expenses. Selling expenses increased approximately $0.5 million,
or 23%, from $2.1 million for the six months ended June 30, 1996 to $2.6 million
for the six months ended June 30, 1997. This increase was primarily caused by an
increase in personnel, principally temporary employees utilized for special
selling activities, and advertising expenses during the first six months of
1997.
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General and administrative expenses. General and administrative expenses
increased approximately $0.8 million, or 9.5%, from $8.7 million for the six
months ended June 30, 1996 to $9.5 million for the six months ended June 30,
1997. This increase was caused by personnel additions and an increase in other
expenses and equipment necessary to support increased business levels. Examples
of such additional expenses include an increase in rental expenses resulting
from the opening of offices in Singapore, Chicago, Illinois and Frankfurt,
Germany.
Interest expense. Interest expense decreased approximately $0.2 million or
17.6% from $1.0 million for the six months ended June 30, 1996 to $0.8 million
for the six months ended June 30, 1997. This was caused by a decrease in overall
debt to $14.6 million resulting from payment of the scheduled annual principal
debt service.
Other income (expense), net. Other income (expense), net, decreased $0.2
million from $0.1 million of income for the six months ended June 30, 1996 to
$0.1 million of expense for the six months ended June 30, 1997. This decrease
was caused by realized foreign currency transaction losses.
Income (loss) before provision (benefit) for taxes. Income (loss) before
provision (benefit) for taxes changed $2.8 million from a $0.1 million loss for
the six months ended June 30, 1996 to income of $2.7 million for the six months
ended June 30, 1997. This increase was primarily caused by increased net sales
and the approximate $2.5 million write-off of accounts receivable in the 1996
period which did not recur in the first six months of 1997.
Provision (benefit) for taxes. Provision (benefit) for taxes increased
approximately $1.4 million from a benefit of $0.1 million for the six months
ended June 30, 1996 to a provision of $1.3 million for the six months ended June
30, 1997. This increase was attributable to increased operating profits.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
---------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales.............................................. $53,024 $70,883
Cost of sales.......................................... 35,206 47,900
Selling expenses....................................... 5,490 4,632
General and administrative expenses.................... 16,788 18,350
Interest expense....................................... 1,970 1,840
Other income (expense), net............................ (282) 358
(Loss) before provision (benefit) for taxes............ (6,712) (1,481)
Provision (benefit) for taxes.......................... (1,298) (679)
Net (loss)............................................. $(5,414) $ (802)
</TABLE>
Net sales. Net sales increased approximately $17.9 million, or 33.7%, from
$53.0 million for the year ended December 31, 1995 to $70.9 million for the year
ended December 31, 1996. This increase was primarily due to an increase in net
sales of all of Kroll's services, particularly sales of services in North
America and principally the corporate investigations and business intelligence
services, which increased $12.3 million and $4.0 million, respectively. Kroll's
recently introduced Vendor Integrity Program (VIP) accounted for approximately
$1.0 million of the increase in net sales in 1996.
Cost of sales. Cost of sales increased approximately $12.7 million, or
36.1%, from $35.2 million for the year ended December 31, 1995 to $47.9 million
for the year ended December 31, 1996. Contributing to this increase was a
write-off of approximately $5.0 million in uncollectible receivables in 1996
relating to services provided in earlier periods. During 1996, Kroll added 66
professional and administrative staff members. This increase in staff members
was necessary to handle: (i) increased business activity; (ii) Kroll's new VIP
program; and (iii) the opening of offices in Beijing, China, New Delhi, India
and Sao Paulo, Brazil.
Selling expenses. Selling expenses decreased approximately $0.9 million,
or 15.6%, from $5.5 million for the year ended December 31, 1995 to $4.6 million
for the year ended December 31, 1996. This decrease was
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primarily attributable to the use of lower cost information services for
pre-marketing purposes during 1996, as well as reduced costs of temporary
personnel who provided services to Kroll during extensive marketing campaigns in
1995.
General and administrative expenses. General and administrative expenses
increased approximately $1.6 million, or 9.3%, from $16.8 million for the year
ended December 31, 1995 to $18.4 million for the year ended December 31, 1996.
This increase was caused by $0.5 million of additional rental expenses resulting
from the opening of three offices in Asia and Latin America, increases of
approximately $0.2 million in the costs of certain consulting services used by
Kroll and $0.9 million of increases related to higher personnel cost and fees
paid to retain consultants under agreements related to security and crisis
management services.
Interest expense. Interest expense decreased approximately $0.2 million,
or 6.6%, from $2.0 million for the year ended December 31, 1995 to $1.8 million
for the year ended December 31, 1996. This was caused by a decrease in overall
debt to $15.2 million resulting from principal payments.
Other income (expense), net. Other income (expense), net, increased
approximately $0.7 million from $0.3 million of expense for the year ended
December 31, 1995 to $0.4 million of income for the year ended December 31,
1996. This increase was primarily caused by a gain on sale of marketable
securities of $0.1 million and realized foreign currency transaction gains of
$0.3 million and a $0.2 million loss associated with certain joint venture
arrangements.
Loss before provision (benefit) for taxes. Loss before provision (benefit)
for taxes increased $5.2 million from a $6.7 million loss for the year ended
December 31, 1995 to a $1.5 million loss for the year ended December 31, 1996.
This increase was primarily caused by the increase in net sales and an improved
gross profit margin in 1996, after adjustment for the write-off of approximately
$5.0 million in accounts receivable in 1996 relating to services performed in
earlier periods.
Provision (benefit) for taxes. Provision (benefit) for taxes decreased
approximately $0.6 million, or 47.7%, from a $1.3 million benefit for the year
ended December 31, 1995 to a $0.7 million benefit for the year ended December
31, 1996. This decrease was attributable to increased operating profits.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................ $52,872 $53,024
Cost of sales............................................ 31,684 35,206
Selling expenses......................................... 4,700 5,490
General and administrative expenses...................... 18,076 16,788
Interest expense......................................... 2,188 1,970
Other income (expense), net.............................. 406 (282)
(Loss) before provision (benefit) for taxes.............. (3,370) (6,712)
Provision (benefit) for taxes............................ (1,751) (1,298)
Net (loss)............................................... $(1,619) $(5,414)
</TABLE>
Net sales. Net sales increased approximately $0.1 million, or 0.3%, from
$52.9 million for the year ended December 31, 1994 to $53.0 million for the year
ended December 31, 1995. This increase was primarily due to an increase in
Kroll's risk and crisis management services of $2.0 million offset by a decrease
in corporate investigations and business intelligence services of $1.9 million.
Cost of sales. Cost of sales increased approximately $3.5 million, or
11.1% from $31.7 million for the year ended December 31, 1994 to $35.2 million
for the year ended December 31, 1995. This increase was primarily caused by the
increase in the number of professional staff, causing an approximate $2.2
million increase in labor cost. In addition, a special allowance for doubtful
accounts was established for certain old international receivables.
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Selling expenses. Selling expenses increased approximately $0.8 million or
16.8% from $4.7 million for the year ended December 31, 1994 to $5.5 million for
the year ended December 31, 1995. This increase was primarily attributable to
increased personnel costs. In addition, approximately $0.3 million of such
increase resulted from the expanded use of pre-marketing information gathering
in an effort to expand Kroll's corporate client database.
General and administrative expenses. General and administrative expenses
decreased approximately $1.3 million, or 7.1%, from $18.1 million for the year
ended December 31, 1994 to $16.8 million for the year ended December 31, 1995.
This decrease resulted principally from a cost reduction program which
contributed approximately $0.8 million of the decrease. Additionally, a
reduction in certain foreign office rents contributed $0.2 million of the total.
Interest expense. Interest expense decreased approximately $0.2 million,
or 10.0%, from $2.2 million for the year ended December 31, 1994 to $2.0 million
for the year ended December 31, 1995. This decrease resulted from payments of
debt carrying a higher interest rate with the proceeds of loans carrying a lower
interest rate. In addition, overall debt was reduced by $1.1 million.
Other income (expense), net. Other income (expense), net, decreased
approximately $0.7 million from income of $0.4 million for the year ended
December 31, 1994 to $0.3 million of expense for the year ended December 31,
1995. This decrease in other income was primarily caused by a loss from a joint
venture arrangement and the sale of certain accounts receivable at a discount.
Loss before provision (benefit) for taxes. Loss before provision (benefit)
for taxes for the year ended December 31, 1995 was a loss of $6.7 million or a
decrease of $3.3 million over the loss before provision (benefit) for taxes for
the year ended December 31, 1994. This increased loss resulted from the
increased operating and administrative cost incurred in 1995 while net sales
remained flat compared with the prior year.
Provision (benefit) for taxes. Provision (benefit) for taxes benefit
decreased approximately $0.5 million, or 25.9%, from a $1.8 million benefit for
the year ended December 31, 1994 to a $1.3 million benefit for the year ended
December 31, 1995. This decrease was attributable to the provision of certain
tax reserves to cover open tax years and the mix of domestic and foreign source
income.
LIQUIDITY AND CAPITAL RESOURCES
General. Kroll historically has met its operating cash needs by cash
provided from operations, loans from its shareholders and other borrowings.
Shareholder debt at June 30, 1997 consists of $2.0 million principal amount
of indebtedness to AIG which is due on demand and bears interest at an annual
rate 2% in excess of the base rate of Citibank N.A. and $4.4 million due to
Jules B. Kroll. Of the amounts due to Jules B. Kroll, $3.0 million bears
interest at an annual rate 1% in excess of the prime rate and the balance bears
interest at the broker loan rate, currently 7.625% per annum. In addition to its
borrowing from its principal shareholders, Kroll's borrowing consists of a term
debt facility entered into in 1989 in the aggregate principal amount of $20.0
million. See "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL."
The outstanding balance on this term debt facility at June 30, 1997 was $8.1
million. The term debt facility bears interest at a fixed rate of 10.95% per
annum and provides for quarterly payments of interest and principal. The term
debt facility allows certain prepayments. The term debt facility contains
customary restrictive covenants which limit, among other items, Kroll's ability
to pay cash dividends, make cash distributions and incur additional
indebtedness. The term debt facility also requires that Kroll maintain certain
financial ratios. Compliance with certain of these covenants has been waived
through December 1, 1997. It is anticipated that this term debt facility will be
repaid upon the consummation of the Merger and that O'Gara will be required to
obtain sufficient alternative financing for Kroll.
Cash flows from operating activities. Kroll expects that it will be able
to meet its routine cash requirements from cash generated from operations. Net
cash provided by operating activities was $1.7 million, $8.1 million and $5.3
million for the years ended December 31, 1995 and 1996 and the six months ended
June 30, 1997, respectively.
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<PAGE> 67
Capital expenditures. Kroll has limited its capital expenditure
requirements by leasing its office facilities and computer equipment. Kroll
anticipates that it will be able to provide for any capital expenditures from
funds generated from operations. Capital expenditures totaled $0.5 million for
the year ended December 31, 1995, and $0.7 million for the year ended December
31, 1996.
Foreign operations. Kroll attempts to mitigate against the risks of doing
business in foreign countries by separately incorporating its operations in such
countries, transacting business in the local currency and maintaining, on a
global basis, insurance to cover professional liability and general liability,
in addition to local insurance coverage. Kroll has not used hedging instruments,
including, but not limited to, derivatives, to mitigate against the risk of
currency fluctuations arising from its business activities in foreign countries.
See "RISK FACTORS -- Risk Factors Relating to the Business of Kroll -- Political
and Economic Risks of Doing Business Outside of the United States."
Quarterly fluctuations. Kroll's operations are not seasonal, but may
fluctuate on a quarterly basis as a result of the transactional nature of a
significant portion of its business. See "RISK FACTORS -- Risk Factors Relating
to the Business of Kroll -- Fluctuations in Operating Results."
Inflation. Inflation has not been a significant factor to the results of
operations of Kroll. Kroll generally has been able to pass on the cost of
inflation to its clients.
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<PAGE> 68
BUSINESS OF O'GARA
GENERAL
O'Gara is a worldwide integrated security company with three business
lines: security hardware products, security services and security systems
integration services. The Security Hardware Products Group markets all of
O'Gara's armoring products, including ballistic and blast protected armoring
systems for commercial and military vehicles, aircraft and missile components
through O'Gara's various O'Gara Hess & Eisenhardt Armoring subsidiaries and
Labbe. The Security Services Group offers security-related products and services
such as, advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing and force protection consulting
through its Palmer division and its subsidiaries, ITI and O'Gara Security
Associates, Inc. ("OSA"). The Security Systems Integration Group offers
planning, design and hardware and software integration services which are
customized to meet specific portable satellite communications or navigation
needs of customers, as well as customized turn-key site security systems to
international customers, through its O'Gara Security International, Inc.
("OSI"), OSN and Next Destination subsidiaries.
Originally founded in 1876 as Sayers & Scovil, a manufacturer of
horse-drawn carriages, O'Gara evolved into a producer of specialized motor
vehicles. By the early 1900s, O'Gara changed its ownership and name to Hess &
Eisenhardt and focused on the development and construction of a broad range of
specialized consumer and commercial vehicles such as ambulances and hearses. In
the 1940s, O'Gara was commissioned by the U.S. Secret Service to design and
assemble the first armored presidential limousine which was used by President
Harry S Truman. O'Gara's Labbe subsidiary has protected every French president
since 1981. Labbe is the first and only armoring company to serve the French
presidency.
O'Gara now provides armored commercial vehicles for heads of state,
business executives and VIPs worldwide. Since 1993, O'Gara also has been the
primary provider of armoring systems for HMMWVs used by the U.S. Military and
other armed forces. O'Gara began offering satellite communication products in
1994 and site protection products and services in 1996 and, also in 1996, began
its expansion into other security-related services.
O'Gara's business today is increasingly being driven by the needs of (i)
multinational corporations to protect executives, corporate assets and
information in high risk countries; (ii) wealthy individuals to secure
themselves and their families from the growing threat of kidnappings worldwide;
(iii) worldwide military organizations to field a more versatile armored
vehicle, such as the HMMWV; (iv) governments to protect heads of state and
diplomats from terrorist attacks; (v) individuals to insulate themselves and
their property from planned criminal activity and random acts of violence; and
(vi) individuals, corporations and governments to obtain secure, remote or
independent telecommunications services.
BUSINESS STRATEGY
The principal elements of O'Gara's operating and growth strategy are as
follows:
Expand armored commercial vehicle sales in foreign markets. O'Gara intends
to expand its foreign market position as a leading provider of armored
commercial vehicles by leveraging its well recognized name, high quality
reputation and global network of customer relationships. To support this effort,
O'Gara acquired Labbe and established manufacturing operations in Brazil,
Mexico, the Philippines and Russia, has increased its sales and marketing
professionals from four at October 1985 to 39 at present and increased its
annual marketing budget from $0.7 million in 1995 to $1.6 million in 1997.
O'Gara believes that these efforts, coupled with the strong global demand for
armored commercial vehicles, will enable it to penetrate effectively these and
other markets. In the future, O'Gara intends to establish manufacturing
operations in additional countries as it deems appropriate.
Grow non-armoring security-related businesses. O'Gara's Security Services
Group offers security-related products and services such as site protection
surveys, business intelligence and investigation services, country risk
assessments and briefings, and forensic auditing. In addition, O'Gara offers a
wide range of sophisticated state-of-the-art training services including
advanced driver and protective operations training, force protection training
and consulting, crisis management training and advanced counterintelligence and
information security training.
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<PAGE> 69
O'Gara, in 1997, acquired all of the shares of ITI, a leading domestic provider
of advanced driver training and other security services, and substantially all
of the assets of Palmer, a provider of driving training, business intelligence
and forensic auditing in Mexico.
O'Gara's Security Systems Integration Group is building on its rapidly
growing satellite communication and navigation business by offering a broader
array of products and services to existing hardware customers and to buyers in
new geographic markets. In order to expand the distribution channels for
O'Gara's telecommunication products, O'Gara acquired all of the shares of Next
Destination, a U.K. company headquartered in Salisbury, the United Kingdom,
which is one of the largest distributors of INMARSAT related portable satellite
telephone and communication hardware systems as well as global positioning
satellite systems in Europe. Additionally, the Security Systems Integration
Group offers a wide range of site protection products.
Expand foreign military sales. As the nature of armed conflicts changes
and worldwide military budgets are cut, O'Gara believes that expensive heavily
armored tracked vehicles will continue to be replaced by more versatile and less
expensive tactical wheeled vehicles ("TWVs"), such as the HMMWV. O'Gara markets
both Up-Armored HMMWVs and armor kits which may be added in the field to certain
existing HMMWVs. There currently exists an installed base of 130,000 HMMWVs,
including 18,400 owned by 31 foreign countries. O'Gara estimates that
approximately 12,000 of the HMMWVs in use worldwide are suitable for its armor
kits and believes a significant opportunity exists to market aggressively these
kits, internationally as well as domestically. O'Gara also believes that those
countries currently utilizing HMMWVs are candidates for future sales of the Up-
Armored HMMWV. For example, in 1996 O'Gara entered into contracts to provide
Up-Armored HMMWVs to two foreign countries, Luxembourg and Qatar.
Standardize production to improve efficiencies and reduce throughput
time. Since 1994, O'Gara has committed in excess of $4.0 million to
engineering, tooling, and training to standardize its product design, armoring
components, and assembly line operations. O'Gara has developed a standard
armored Chevrolet or GMC Suburban (the "Standard Suburban"), which has been
available since 1995, as well as a standard armored Mercedes Benz E-420, which
has been available since July 1997. O'Gara's efforts in this area have reduced
the number of employee work hours needed to produce the Up-Armored HMMWV from
465 to 265, and the number of components involved from 800 to 550, and have
reduced the number of employee work hours required to armor the Standard
Suburban from 1,200 to 500, and the number of components involved from 350 to
200. As a result of these efficiencies, O'Gara is able to provide rapid, and
sometimes immediate, delivery of these armored commercial vehicles, which O'Gara
believes increases substantially their attractiveness and marketability.
Pursue strategic acquisition opportunities. The fragmented nature of the
global security industry provides ample opportunities for strategic
acquisitions. O'Gara believes it is positioned to consolidate companies in the
armoring, security systems integration, security services, engineering and
secured satellite communications business. Since October 1996, O'Gara has made
four strategic acquisitions: one in vehicle armoring, one in satellite
communications and two in security services. O'Gara believes the Merger will
further this strategy. O'Gara continues to review additional acquisition
opportunities in each of these businesses. Consummation of future acquisitions
by O'Gara will require the approval of KeyBank under O'Gara's amended and
restated loan agreement.
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PRODUCTS AND SERVICES
The following table presents the net sales of O'Gara's principal products
and services for the periods indicated:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Security hardware products
group.......................... $33,466 $30,773 $72,900 $37,682 $42,979
Security systems integration
group.......................... 466 2,044 9,823 3,839 7,830
Security services group.......... -- -- 55 -- 1,044
------- ------- -------- -------- -------
Total.................. $33,912 $32,817 $82,778 $41,521 $51,853
======= ======= ======== ======== =======
</TABLE>
O'Gara's products and services are focused on three primary areas of global
security. The Security Hardware Products Group markets all of O'Gara's armoring
services, including ballistic and blast protected armoring systems for
commercial and military vehicles, aircraft and missile components. The Security
Services Group offers security-related products and services such as site
protection services, advanced driver training, background clearances, business
intelligence, country risk assessments, forensic auditing, force protection
consulting and private security guards. The Security Systems Integration Group
offers planning, design and hardware and software integration services which are
customized to meet specific satellite communications or navigation needs of
customers. The Security Systems Integration Group also distributes global
positioning satellite equipment.
SECURITY HARDWARE PRODUCTS GROUP
The following table provides net sales information about the products and
services of O'Gara's Security Hardware Products Group:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMMERCIAL PRODUCTS:
Fully armored vehicles......... $11,265 $11,024 $13,424 $ 4,842 $15,568
Light armored vehicles......... 2,953 2,213 3,889 2,253 2,143
Commercial truck bodies........ -- -- -- -- 5,184
------- ------- ------- ------- -------
Other.......................... 2,254 2,581 991 539 760
------- ------- ------- ------- -------
16,472 15,818 18,304 7,634 23,655
------- ------- ------- ------- -------
MILITARY PRODUCTS:
Up-Armored HMMWVs.............. 15,222 13,275 43,780 23,544 17,246
HMMWV armored kits............. -- -- 6,938 5,599 325
Other armor systems............ 1,772 1,680 3,878 905 1,753
------- ------- ------- ------- -------
16,994 14,955 54,596 30,048 19,324
------- ------- ------- ------- -------
Total.................. $33,466 $30,773 $72,900 $37,682 $42,979
======= ======= ======= ======= =======
</TABLE>
COMMERCIAL PRODUCTS
Fully armored vehicles (FAVs). The base vehicle that is converted into a
FAV may be a limousine, a large size sedan (such as a Cadillac, Mercedes Benz
S600 or Volvo S90) or a sport utility vehicle (such as the GMC/Chevrolet
Suburban) which is purchased new from a dealership or directly from the factory.
The armoring process begins with disassembly of the new vehicle at O'Gara's
production facilities. This disassembly typically involves the removal of the
interior trim, the seats, the doors and all windows. The passenger compartment
then is armored with both opaque armor (metallic, fibrous and ceramic materials)
and transparent armor (glass/plastic
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laminate) and other features, such as run flat tires, are added. Finally, the
vehicle is reassembled as close to its original appearance as possible. The
designation of FAV normally connotes the ability of the completed vehicle to
protect against attacks from military assault rifles such as AK-47s and M16s and
from certain underbody explosives. Certain FAVs also are blast protected. A
blast protected vehicle normally incorporates the ballistic and underbody
protection of an FAV but with proprietary materials and installation methods
that enable the vehicle occupants to survive a defined blast threat. Typical
types of protection defend against pipe bombs attached to the exterior of the
vehicle and non-directional charges of 20 kg of TNT detonated approximately five
meters from the vehicle. FAV armoring normally sells for $50,000 to $200,000
exclusive of the cost of the base vehicle.
The FAV class of vehicle includes the Parade Car, a formal limousine used
predominantly for high level, official functions by a president or other head of
state. This vehicle is usually of customized design based upon a commercially
available chassis which O'Gara essentially rebuilds from the ground up. Since
the threat of organized assassination attempts is greater for heads of state,
these vehicles normally incorporate more advanced armor and sophisticated
protection systems. In addition to the more protective opaque and transparent
armor systems, special features may include supplemental oxygen systems, air
purification systems to protect against chemical or biological contamination,
underbody fire suppressant systems, tear gas launchers, anti-explosive self-
sealing fuel tanks, electric deadbolt door locks, gun ports and remote-starters
with bomb scanning capability. Parade Cars normally sell for $300,000 to in
excess of $1.0 million which includes the cost of the base vehicle.
Light armored vehicles (LAVs). The armoring process for an LAV is similar
in all respects to that for an FAV except that substantially less total weight
of armoring is added. Typical base vehicles include the Volkswagon Jetta, the
General Motors Omega, the Mercedes Benz S600 and the Jeep Cherokee. The
designation of LAV connotes the ability of the completed vehicle to protect
against attacks from handguns, such as a 9 mm or .357 Magnum. The price of LAV
armoring ranges from $5,000 to $60,000 exclusive of the cost of the base
vehicle.
Commercial truck bodies. O'Gara's Labbe subsidiary builds commercial truck
bodies in its facilities in Lamballe, France. The bodies are primarily
manufactured for 3.5 ton trucks and are installed on chassis produced by a
variety of manufacturers. The bodies are manufactured under contracts with the
chassis manufacturers. The prices of the commercial truck bodies generally range
from approximately $2,000 to $25,000.
Specialty vehicles. Other commercial products include specialty vehicles
which are custom built for a specific mission. Vehicle types that fall into this
category are Escort Cars (usually a convertible) and Chase Cars (usually a
closed-top vehicle) in which security personnel ride while in a head of state
motorcade. Also included in this business line are armor kits, normally designed
for a specific vehicle to be installed at a location outside of O'Gara's main
production facilities in Fairfield, Ohio or Torino, Italy. These armor kits
usually provide LAV levels of protection. O'Gara also provides technical
support, training and spare parts for all of its manufactured products. O'Gara
can service a customer's vehicle in any of O'Gara's facilities. In certain
instances, O'Gara will fly its technicians to the customer's location.
Armored money transport vehicles. Cash-in-Transit ("CIT") money transport
vehicles are built in O'Gara's facilities in Lamballe, France. CIT vehicles
normally are used by banks or other businesses that transport large amounts of
hard currency. After starting with a van or small truck, the base vehicle is
modified to provide protection for the cargo and individuals attending the
vehicle from ballistic and blast threats. O'Gara believes that conditions in
many emerging growth countries, including Russia and China, will promote high
demand for these vehicles.
MILITARY PRODUCTS
Up-Armored HMMWVs. O'Gara is the prime contractor to the U.S. Military for
the supply of Up-Armored HMMWVs. The basic four door HMMWV chassis are produced
by AM General and shipped directly to O'Gara's facility where perimeter armor
and blast protection components are added. These Up-Armored HMMWVs provide
perimeter protection against 7.62 mm armor-piercing ammunition (such as that
fired by the AK-47 military assault rifle), overhead airburst protection against
a 155 mm shell, front underbody blast protection against a 12 lb. anti-tank mine
and rear underbody blast protection against a 4 lb. anti-personnel mine. In
addition, O'Gara installs other features designed to enhance crew safety,
comfort and performance, such as air conditioning, weapon turrets and mounts,
door locks and shock-absorbing seats. The customers for this product
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<PAGE> 72
are TACOM, as well as defense and peacekeeping forces around the world. O'Gara
charges its customers $70,000 to $100,000 for these ballistic and blast
protective systems, which is in addition to the cost of the vehicle. In addition
to the products described above, O'Gara supplies engineering design and
prototype services to TACOM primarily in support of the Up-Armored HMMWV
Program. O'Gara also supplies spare parts and logistics support for all of its
military programs.
HMMWV armor kits. O'Gara supplies field-installable armoring kits to
TACOM. These kits are installable on HMMWVs which are currently in TACOM's
inventory as well as new HMMWV chassis that are delivered to O'Gara's
manufacturing facilities. Two kits are available. The two door armor kit
provides perimeter protection against 7.62 mm ball ammunition and underbody
blast protection against a 12 lb. anti-tank mine. The four door armor kit
provides the same perimeter and front underbody protection but adds rear
underbody blast protection against a 4 lb. antipersonnel mine. Customers for
this product are current owners of non-armored HMMWVs, which include TACOM, as
well as defense and peacekeeping forces around the world. At present, over
130,000 HMMWVs have been sold worldwide, and O'Gara estimates that approximately
12,000 of these HMMWVs may be suitable for kit installation. These kits sell for
$18,000 to $30,000, without installation.
Other armor systems. O'Gara markets armor sub-systems for other TWVs such
as 2.5 ton and 5.0 ton trucks, for which the defined threat is from small arms
rounds, typically defined as 12.7 mm and less. O'Gara also produces various
armor systems as a subcontractor to larger defense contractors, such as Lockheed
Martin Corporation ("Lockheed Martin") and The Boeing Company. These products
include armor for containers for fuels and missile launchers, and for pilot
protection, and typically involve the use of materials or methods which are
unique to O'Gara.
SECURITY SERVICES GROUP
O'Gara is leveraging its reputation in the armored vehicle industry and its
customer base to market an expanded range of security products and services such
as advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing and force protection consulting. The
acquisitions of Palmer and ITI have increased the revenues generated from
O'Gara's Security Services Group from $0.1 million in 1996 to $1.0 million in
the first six months of 1997.
Driver training. O'Gara now offers comprehensive driver training programs
through its ITI subsidiary at its various facilities around the world.
Additionally, in June 1997, ITI acquired property near San Antonio, Texas to
open a new Force Protection Institute. In addition to a full range of driver and
protection operations training, this new facility specializes in force
protection training and related issues. O'Gara believes that its driver training
courses offer excellent cross selling opportunities for its other products and
services such as armored vehicles and its communication/navigation products and
are an essential element of a comprehensive security plan.
Firearms training. O'Gara maintains a progressive and realistic 360
degree, .223 caliber ballistic shooting house, encompassing 6,800 square feet of
training space. O'Gara teaches a wide spectrum of combat marksmanship skills.
O'Gara's training program focuses on realistic situations, which involves
exposing students to stress while under difficult firing situations.
Counterintelligence training. O'Gara offers security and
counterintelligence training courses for both United States Government agencies
as well as for clients in the private sector. These courses provide a history of
United States' counterintelligence efforts and current issues in the field, such
as force protection, protection of intellectual property rights and information
security. The training offers instruction on methods to recognize and deter
political and business intelligence risks.
Surveillance detection training. O'Gara provides training in the detection
of, and responses to, surveillance. Instruction is provided both in classrooms
as well as in live exercises. Students learn methodologies utilized by
terrorists, what information is needed by terrorists in order to plan an attack
and how to block or manipulate this flow of intelligence. Students also are
taught to identify and exploit weaknesses in terrorist attack plans.
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<PAGE> 73
SECURITY SYSTEMS INTEGRATION GROUP
Site protection systems integration. O'Gara is now offering comprehensive
planning, design and hardware and software integration services customized to
meet the requirements of customers for physical site protection. Primarily
intended for perimeter security around business facilities and plant operations,
O'Gara also offers its services to embassies, VIPs' homes and public facilities.
Generally, such a systems integration project begins with a site survey, which
identifies areas of vulnerability and recommends methods for securing the entire
area surveyed. Specific pieces of hardware are ordered and installed, processes
and procedures are outlined, engineering documentation is provided and control
centers are established. Although each job is unique, the methodology used to
develop the system is similar in most cases.
Satellite communication integration. O'Gara offers comprehensive design
and hardware and software integration services customized to meet specific
satellite communication requirements of its customers. This involves the
integration of portable satellite terminals, mobile antennas and software-based
air time. Usually these systems are designed for remote or security intensive
operations. The portable satellite terminals, which are manufactured by third
party suppliers to O'Gara's specifications, allow the user to make voice and
data transmissions via satellite link anywhere in the world.
Navigation systems. O'Gara sells Magellan Global Positioning Satellite
Systems ("GPS") through distributors in the United Kingdom and Europe. The GPS
products are sold predominantly for the marine and aircraft markets and enable
the users to identify their exact location throughout the world.
CUSTOMERS
SECURITY HARDWARE PRODUCTS GROUP
Commercial. O'Gara's armored commercial vehicle customers include
governmental and private buyers. U.S. and foreign governmental buyers purchase
both FAVs and LAVs. Governmental buyers also comprise the market for Parade
Cars. Typically, governmental buyers consist of ministries of foreign affairs,
defense and internal affairs and offices of presidential security. Such
customers are not constrained in their purchasing decisions by considerations
such as import duties and taxes. They are, therefore, free to search globally
for the best product. The procurement cycles of governmental buyers can range
from relatively rapid, when the vehicles are for the use of the head of state or
in a crisis mode, to prolonged bureaucratic bids and evaluations where the
procurement is for normally budgeted items. O'Gara's private customers for
armored commercial vehicles include corporations and individuals. Private buyers
are much more sensitive to cost (of which import duties and taxes may be a
substantial part) and, therefore, often will buy a locally produced product if
one exists. Local servicing of the vehicle is also a critical concern to private
buyers. The 1996 sales of O'Gara's commercial armored vehicles (including Labbe)
as a percentage of the total annual sales are distributed as follows:
1996 COMMERCIAL SALES
BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
PERCENTAGE OF
AREA COMMERCIAL SALES
------------------------------------------------------------- ----------------
<S> <C>
Europe....................................................... 41.5%
Africa....................................................... 13.9%
Middle East.................................................. 12.5%
North America................................................ 12.4%
Central and South America.................................... 11.0%
Russian Republics............................................ 5.0%
Far East..................................................... 3.7%
</TABLE>
Military. O'Gara's market for military hardware products is worldwide in
scope, including the U.S. Military and foreign defense forces. O'Gara's major
contracts for delivery of Up-Armored HMMWVs and armoring kits are with TACOM.
Additionally, O'Gara provides protected container systems, typically used to
protect missile systems from small arms fire, to the U.S. Missile Command
("MICOM") under a subcontract
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with Lockheed Martin. The ability to obtain future U.S. military business will
be affected by future levels of defense spending and TACOM's budget. O'Gara has
sold Up-Armored HMMWVs to Qatar and Luxembourg, either directly or through the
Foreign Military Sales ("FMS") Program. O'Gara is attempting to leverage the
reputation earned by its Up-Armored HMMWVs in Bosnia, Somalia and Haiti to
expand its sales to foreign defense forces. See "-- U.S. Government Contracts."
SECURITY SERVICES GROUP
O'Gara provides training in security awareness and executive protection.
Additionally, O'Gara provides business intelligence and investigation services.
O'Gara markets these services to both businesses and governments. Corporate or
governmental buyers of security services usually contract for such services
through their security officers. Corporate security officers, who are normally
former members of a government agency themselves, tend to purchase services
based upon industry reputation for quality and expertise, trust in the firm or
individual they are buying the services from, price and availability. Security
services are charged out by the hour, day or week or are based upon a retainer
schedule. In some cases, a project may be bid in its entirety.
Driver training. O'Gara began offering driver training courses after its
acquisition of ITI. ITI has an established customer base of U.S. and foreign
governmental agencies and corporate customers. Many private sector clients are
drawn to O'Gara's driver training courses due to its reputation of providing
such services to various governmental agencies. O'Gara has been able to augment
ITI's existing customers through selling driver training courses along with
armored vehicles.
SECURITY SYSTEMS INTEGRATION GROUP
Site protection systems integration. Since the inception of the Security
Systems Integration Group in early 1996, O'Gara has obtained numerous contracts
with both Russian and multinational companies to provide integrated site
protection systems. Currently, O'Gara is marketing these products primarily in
Russia. Corporate and governmental buyers of integrated security systems
normally purchase through their corporate security officer, a governmental
department responsible for the particular facility's security, a facility
manager or a construction project manager. Purchases generally are made on
project-specific proposals and include the cost of the hardware, transportation
costs to the site, engineering integration and documentation.
Satellite communication integration. Principal customers for satellite
communications services include private corporations and individuals,
governmental agencies, peacekeeping forces and disaster relief organizations
which operate in lesser-developed countries that lack a telecommunications
infrastructure, in rural areas of developed countries or in disaster scenarios
in which the traditional forms of telecommunications are rendered inoperable. To
date, most of O'Gara's systems integration services customers have not been
purchasers of O'Gara's security hardware products. However, O'Gara is actively
marketing these services to security hardware purchasers and security services
customers. Increasingly, customers are demanding that the satellite
communication channels provided be secure. Depending on the level of security
desired, satellite communication systems can be implemented using a variety of
encryption methods up to and including fully secure U.S. Government STU-III
telephones. Most of O'Gara's satellite communication customers are located
outside of the United States because the U.S. Federal Communications Commission
does not permit private corporations or individuals to use terminals in the
United States which do not utilize the American Mobile Satellite Corp. ("AMSC")
satellite network. The terminals marketed by O'Gara access the INMARSAT network
rather than the AMSC network.
Navigation systems. O'Gara sells GPS equipment through approximately 1,270
distributors in the United Kingdom and France. Marine GPS units are sold through
approximately 700 retailers, some of which specialize in marine electronics and
others that sell general boat equipment. Outdoor (general recreational) GPS
units are sold through approximately 500 sporting goods retailers, camping and
outdoor stores and general electronics stores. Aviation GPS equipment is sold
through approximately 70 aviation equipment retailers.
MARKETING AND SALES
Commercial marketing. O'Gara believes that, as a result of its long
history of successfully armoring vehicles, it enjoys excellent name recognition
and a strong reputation in its sector of the security industry. The
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central element of O'Gara's commercial marketing strategy is to leverage its
name recognition and reputation by positioning O'Gara as a global provider of
one-stop security services and products. O'Gara believes that by positioning
itself in this manner it can capitalize on its existing customer base, maximize
the benefits of its long history of supplying security-related products around
the world and leverage its leadership niche in the armored commercial vehicle
market. When entering a foreign market, O'Gara normally seeks to penetrate the
market with its strongest product offering, which in most cases is armored
vehicles. O'Gara tailors its marketing strategy to each geographic area of the
world and will often tailor its product offering by country. There is strong
cross-marketing of military and commercial products which O'Gara believes
strengthens the image of each product group. This goal is accomplished through
consistency of product literature, image and style; the featuring of both
product groups in advertising and exhibitions; and full briefings to customers
and potential customers that encompass O'Gara's entire product line.
Commercial sales. On a worldwide basis, O'Gara employs 39 sales
professionals who operate out of Los Angeles, California; Washington, D.C.; Deer
Park, New York; Fairfield, Ohio; Sao Paulo, Brazil; Lamballe, France; Paris,
France; Nairobi, Kenya; Mexico City, Mexico; Subic Bay, the Philippines; Moscow,
Russia; Geneva, Switzerland and Salisbury, the United Kingdom. All sales
personnel have a geographic and/or product-specific responsibility. In most
cases, sales personnel also maintain and recruit sales agents or distributors
for O'Gara's principal product groups. The agents or distributors have
geographic and product-specific agreements, and compensation in most cases is
based upon a commission arrangement. In some instances, particularly when
commercial products are sold to governments, O'Gara's salespersons will handle
sales directly with the ultimate customer without any involvement from an agent
or distributor. Sales personnel use a consultative approach when offering
solutions to the customer's security problems. Sales cycles for commercial
products can range from several months to a matter of days, depending upon the
product and the urgency associated with the security problem being addressed.
Security products which are readily available, such as the fully armored
Standard Suburban, allow O'Gara to assist customers who have, or believe they
have, developed an immediate threat.
Military marketing. O'Gara continues to position itself in the marketplace
as a commercial company with a military production capability and to emphasize
its ability to develop new products, or product adaptations, quickly and more
cost-effectively than traditional defense contractors. In marketing its products
to the military, O'Gara also places strong emphasis on its superior anti-tank
and anti-personnel mine protection for the occupants of TWVs. O'Gara markets its
military products through a combination of trade show exhibitions, print
advertising in military-related periodicals and direct customer visits. O'Gara
emphasizes the cross-marketing of military and commercial products, which it
believes strengthens the image of each product group. O'Gara also has entered
into exclusive teaming and joint marketing agreements with AM General, the
manufacturer of the basic HMMWV, for sales in the military and commercial
arenas. These agreements provide that O'Gara is the exclusive armorer to AM
General for HMMWVs and allow O'Gara to benefit from the AM General distribution
network and save on certain costs, such as exhibitions where AM General and
O'Gara otherwise would both show products.
Military sales. O'Gara's military sales activities are directed toward
identifying contract bid opportunities with various U.S. Government agencies,
private enterprises acting as prime contractors on government contracts, sales
through the FMS Program, and military sales directly to foreign military
organizations. O'Gara has two full-time business development managers who are
responsible for this activity and also has contractual arrangements with several
outside consultants who assist the business development managers in their
activities. Proposal preparation and presentation for government projects is
done by a proposal team which normally consists of program managers who have
specific project responsibilities, a contracting officer, a cost accountant and
various manufacturing and engineering personnel.
Foreign operations. See Note 14 to O'Gara's Consolidated Financial
Statements included elsewhere in this Proxy Statement/Prospectus for information
concerning foreign and domestic operations and export sales.
ENGINEERING AND DEVELOPMENT
O'Gara emphasizes engineering excellence and has an extensive engineering
staff. Design engineers use state-of-the-art two-dimensional and
three-dimensional computer aided design and engineering (CAD/CAE)
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systems in conjunction with coordinate measuring machines to develop electronic
models which are generally converted to solid models or prototypes.
Manufacturing engineers concentrate on the ability of O'Gara to manufacture a
product design, on improvements in the production process and overall cost
reductions from better methods, fewer components and less expensive materials
with equal or superior quality and on materials handling issues. Applying these
techniques, in the last several years O'Gara has been able to produce savings in
both the time and cost necessary to produce its armored vehicles.
Quality engineering is responsible for assuring that manufacturing and
design plans are consistent with a reliable, quality product that meets the
specifications of the customer. Quality engineers are also responsible for
identifying in-process quality inspection points in the work orders. O'Gara's
ballistic engineer, in conjunction with its design and manufacturing engineers,
develops new ballistic and blast protection systems that meet ever-changing
threats. Ballistic engineers are also responsible for the ballistic testing
required by customers, the assignment of ballistic specifications to final
products and the issuance of ballistic specifications for internal quality
control. Advanced engineering is responsible for new product development in
conjunction with design engineering, manufacturing engineering and ballistic
engineering.
In January 1997, O'Gara signed a Systems Technical Support Contract ("STS
Contract") with TACOM to support continued research and development on the
Up-Armored HMMWV program. See "-- U.S. Government Contracts." O'Gara believes
that the knowledge gained from this contract can be applied to O'Gara's
commercial manufacturing programs. O'Gara estimates that it expended
approximately $2.8, $2.0 and $0.7 million in 1996, 1995 and 1994, respectively,
on engineering and development efforts related to its armored vehicles and
satellite communications products.
U.S. GOVERNMENT CONTRACTS
O'Gara serves as the U.S. Military's primary contractor for armoring for
its HMMWV fleet. Under the initial contract in August 1993, TACOM engaged O'Gara
to armor fully 59 HMMWVs. A contract to armor an additional 100 vehicles was
executed in May 1994. All of these 159 Up-Armored HMMWVs were shipped prior to
April 1995.
In 1995, the HMMWV was redesigned to include a more powerful engine and
greater cargo space. In March 1995, TACOM engaged O'Gara to armor 309 of the
redesigned HMMWVs. This agreement included options for the armoring of up to an
additional 155 vehicles. In February 1996, TACOM requested an acceleration of
the production of Up-Armored HMMWVs previously ordered and subsequently
exercised options for the armoring by O'Gara of all 155 vehicles under option.
Of these vehicles, 16 were sold to Luxembourg under the FMS Program. The FMS
Program is part of the U.S. Government's security assistance program which
provides equipment and services to more than 100 nations and international
organizations. The U.S. Government markets, procures and delivers military
equipment and services to such foreign entities. Funding is provided either
directly by the purchaser or with U.S.-granted foreign aid credits or loans. As
of March 15, 1997, O'Gara had shipped all 464 of these Up-Armored HMMWVs.
Under a July 1996 contract, TACOM engaged O'Gara to armor 72 additional
HMMWVs. As of December 31, 1996, all of these vehicles had been shipped. On
September 27, 1996, O'Gara was awarded a contract by TACOM for an additional 133
Up-Armored HMMWVs. The contract includes options for the armoring of up to 67
additional vehicles. All of these vehicles have been shipped.
On March 31, 1997, O'Gara was awarded a contract by TACOM for 360
Up-Armored HMMWVs. The contract includes options for the armoring of up to 360
additional vehicles.
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In the aggregate, O'Gara has shipped 884 Up-Armored HMMWVs under various
TACOM contracts as follows:
<TABLE>
<CAPTION>
NUMBER OF
HMMWVs
YEAR SHIPPED
---------------------------------------- ----------
<S> <C>
1993.................................... 0
1994.................................... 139
1995.................................... 26
1996.................................... 507
1997 (through September 30)............. 212
</TABLE>
O'Gara also manufactures armoring kits that can be shipped to customers and
installed in HMMWVs on location. O'Gara installed 166 of such kits for TACOM in
its Fairfield, Ohio facility during the first seven months of 1996 and has
shipped 14 kits to the U.S. Army in Germany for purposes of providing
instruction to U.S. Army personnel concerning the installation process.
In January 1997, O'Gara signed an STS Contract with TACOM to support
continued research and development on the Up-Armored HMMWV program. The four
year contract, three of which are option years, is budgeted for $2.5 million in
1997, with $2.5 million options in each of 1998 and 1999 and a $2.0 million
option in 2000. The STS Contract, in part, will allow O'Gara to make new design
improvements, to conduct additional testing of materials, components and
vehicles and to explore alternate and more advanced armor configurations. The
contract requires O'Gara to provide 25,000 hours per year of engineering and
development time to TACOM. O'Gara believes that the knowledge gained from STS
Contract work can be applied to O'Gara's commercial manufacturing programs.
As a subcontractor to Lockheed Martin, O'Gara has provided armoring for
certain missile weapons systems. O'Gara was first engaged in September 1993 by
Lockheed Martin to armor fuel systems of missiles. O'Gara was most recently
engaged by Lockheed Martin in March 1997 to provide such armoring and believes
that it is well positioned for future engagements.
COMPETITION
The markets for O'Gara's present and contemplated products and services are
highly competitive. However, in the vehicle armoring business, O'Gara believes
that its design, engineering and production expertise in providing fully
integrated ballistic and blast protected vehicles gives it a competitive
advantage over those competitors who provide protection against only selected
ballistic threats. In the market for military armoring systems there are a large
number of companies, such as Simula, Inc., that provide specific armoring
packages for TWVs, helicopters and selected other military applications. O'Gara
believes that, as the size of the Up-Armored HMMWV requirement continues to
grow, competition from major defense contractors may increase.
The principal competitive factors are price, quality of engineering and
design, production capability and capacity, ability to meet delivery schedules
and reputation in the industry.
The largest competitor on a worldwide basis in the production of armored
commercial vehicles is Mercedes-Benz Aktiengesellschaft ("MBZ") of Germany. MBZ
produces its own armored passenger vehicles based upon the S600 chassis, the new
Pullman Limousine and the S300 chassis. MBZ sells its product through its
worldwide dealer distribution system. In addition to MBZ, there are a number of
other vehicle armorers focused on their local markets in Europe, the Middle East
and Latin America, armoring primarily locally manufactured automobiles. U.S.
based protected passenger automobile armorers include the Pittston Company
(owner of Brinks armored vehicles), Moloney Coachbuilders, Inc., Safe Car, Inc.,
Rausch Enterprises, Inc. and Armet Armored Vehicles, Inc. These and other
companies compete for U.S. Department of State and Treasury Department Secret
Service contracts. Currently, the U.S. Department of State FAV and LAV contracts
are split among three companies, of which O'Gara is one. The principal
competitive factors are price, quality of engineering and design, production
capability and capacity, ability to deliver and reputation in the industry.
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In the security services businesses, O'Gara competes primarily with
numerous local integrators and small consultant-type businesses and also large
suppliers of security-related equipment such as Westinghouse Electric
Corporation, Pinkerton's, Inc., The Wackenhut Corporation, Borg-Warner Security
Corporation, Pittway Corporation, Kroll, Armor Holdings, Inc., ICTS
International, N.V. and ADT Inc. The principal competitive factors are the best
approach to solving the security problem, expertise, price, trust, availability
and the company or individual reputation.
In the area of communication/navigation systems integration services,
O'Gara competes with many companies, including STN, Atlas Elektronik, GmbH, and
Nera AS, in the sale of both the portable terminals and air time. O'Gara
believes that the competitive factors in this portion of its business include
product reliability, the incorporation of advanced technological features,
price, ease of installation, availability and service. With respect to secure
custom communications systems integration services, O'Gara competes with small
and large communications systems integrators.
SEASONALITY, BACKLOG AND RELATED MATTERS
O'Gara's backlog at June 30, 1996 and 1997 was approximately $39.0 million
and $35.1 million, respectively. Backlog consists of net sales value for firm
orders not previously included in net sales on the basis of percentage of
completion accounting. Because many factors affect the conclusion of definitive
agreements for contracts awarded and the production and delivery of O'Gara's
products, no assurance can be given as to when or whether net sales will be
recognized from O'Gara's backlog. Year-to-year comparisons of backlog are not
necessarily indicative of future operating results.
Approximately 66.0% of O'Gara's net sales during 1996 were derived from
military contracts and an additional 11.6% were derived from commercial
contracts with U.S. governmental agencies or foreign governments. For the first
six months of 1997, these percentages were 37.3% and 5.0%, respectively,
reflecting the shift toward more commercial sales. Military and governmental
contracts generally are awarded on a periodic or sporadic basis. O'Gara
frequently receives substantial orders, and begins to incur related expenses, in
one quarter, the revenues from which will not be received until one or more
subsequent quarters. As a result, O'Gara generally has significant fluctuations
from time to time in its business. Historically, these fluctuations have not
been seasonal. Period-to-period comparisons within a given year or between years
may not be meaningful or indicative of operating results over a full fiscal
year. See "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
O'Gara's net sales from government contracts and most commercial contracts
are recognized using the percentage-of-completion method. Under this method,
estimated contract revenues are accrued based generally on the percentage that
costs to date bear to total estimated costs. Estimated contract losses are
recognized in full when determined. Accordingly, contract revenues and total
cost estimates are reviewed and revised periodically as the work progresses and
as change orders are approved, and adjustments based upon the percentage of
completion are reflected in contract revenues in the period when such estimates
are revised. See "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
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PROPERTIES AND FACILITIES
O'Gara's principal properties and facilities as of September 1, 1997 are as
follows:
<TABLE>
<CAPTION>
BUILDING
INDUSTRY SQUARE
LOCATION SEGMENT FOOTAGE STATUS
-------------------------- --------------------- ------- -------------
<S> <C> <C> <C>
Fairfield, Ohio Hardware 130,000 owned
Lamballe, France Hardware 125,000 leased
St. Brieue, France Hardware 19,000 owned
Auxerre, France Hardware 21,500 leased
Caen, France Hardware 15,000 leased
Deer Park, New York Integration 4,000 leased
Washington, D.C. area Services N/A leased
Salisbury, UK Integration 3,750 leased
Mexico City, Mexico Hardware, Integration 20,000 owned
and Services
Sao Paulo, Brazil Hardware 50,000 leased
San Antonio, Texas Services N/A owned
Moscow, Russia Hardware and 2,700 leased
Integration
Subic Bay, the Philippines Hardware 85,000 subcontractor
Torino, Italy Hardware 15,000 subcontractor
</TABLE>
The following is a description of O'Gara's major production facilities:
Fairfield, Ohio. This facility houses O'Gara's executive offices and
contains full production and assembly facilities for O'Gara's armored commercial
vehicles and the manufacturing and distribution of Up-Armored HMMWVs and HMMWV
armoring kits. The facility is financed through tax-exempt debt and is pledged
to secure the repayment of such debt. The facility includes a complete
fabrication and machine shop equipped with a computer controlled plasma cutter,
a computer controlled press break, mills, automated grinders, a robotic welder
and two coordinate measuring machines, paint booths and ancillary equipment for
both military and commercial painting.
Lamballe, France. This facility houses the management, sales and
accounting functions of Labbe. The site contains facilities for production of
armored commercial and cash-in-transit vehicles, plus design studios for
development of prototypes and integrated computer systems, plus parts,
fabrication, painting and quality control. This facility also contains a
ballistics range. Labbe has occupied the site since 1948. It is leased for a
term expiring in September 2000. For accounting purposes, this is treated as an
operating lease.
Mexico City, Mexico. This facility is used for manufacturing and sales of
armored commercial vehicles. The facilities in Mexico City, Mexico and Sao
Paulo, Brazil are currently installing armoring kits which have been engineered
in the Fairfield, Ohio facility. O'Gara expects these facilities to have the
capability to build a complete product line once they have fully trained their
production work forces.
San Antonio, Texas. This facility, which was acquired in 1997, consists of
165 acres of land used for driver training and force protection training.
Sao Paulo, Brazil. This facility, which was expanded to include a second
facility on an adjacent location in December 1996, is used for manufacturing and
sales of armored commercial vehicles and is currently leased for a term expiring
in March 2000. For accounting purposes, this lease is treated as an operating
lease.
Subic Bay, the Philippines. This facility is owned by a subcontractor, but
is supervised by O'Gara's personnel and performs installation of armoring kits
engineered in the Fairfield, Ohio facility.
Torino, Italy. This facility is owned by a subcontractor, but is
supervised by O'Gara's personnel and performs all aspects of manufacturing
specialty armored and unarmored commercial vehicles, from component fabrication
through final assembly. On occasion, the Torino subcontractor will act as a
vendor to O'Gara.
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O'Gara's manufacturing capabilities include fully integrated manufacturing
programs which link production control, materials control, quality control and
accounting, thus allowing O'Gara to issue work orders, update and track
inventories, implement quality assurance procedures, schedule and track
production and report, on a daily basis, costs accumulated to a job. O'Gara
believes that its facilities are adequate for its present needs and that its
properties, including machinery and equipment, are generally in good condition,
well maintained and suitable for their intended current and foreseeable uses.
EMPLOYEES
As of June 30, 1997, O'Gara had 619 employees (including 32 temporary
employees), comprised of 59 (including 5 temporary employees) in marketing and
sales, 413 (including 22 temporary employees) in manufacturing, 23 (including 2
temporary employees) in professional services, 48 in engineering and 76
(including 3 temporary employees) in general and administrative. O'Gara's U.S.
employees are not represented by any union and are not covered by any collective
bargaining agreements. Approximately 25 employees of Labbe are employed under
agreements with the Confederation Francarse Democatique du Travail (FTDT). Wage
increase parameters are set twice a year by O'Gara's local management in
consultation with the union. O'Gara has not experienced any work stoppages or
employee related slowdowns and believes that its relationship with its employees
is good.
GOVERNMENT REGULATION
As a contractor with agencies of the U.S. Government, O'Gara is obligated
to comply with a variety of regulations governing certain aspects of its
operations and the workplace. Additionally, O'Gara's contracts give the
contracting agency the right to conduct audits of O'Gara's facilities and
operations, and such audits occur routinely. An audit involves a governmental
agency's review of O'Gara's compliance with the prescribed procedures
established in connection with the government contract. O'Gara also may be
subject to investigations as a result of an audit or other causes. Adverse
findings in an audit or other investigation, including a violation of
environmental or labor laws, could result in fines or other penalties, up to and
including disqualification as a government contractor. In addition, government
contracts generally contain cost or performance incentives based on stated
targets or other criteria. Failure to meet these stated targets or criteria
could result in penalties or lost profits to O'Gara.
O'Gara is subject to federal licensing requirements with respect to the
sale in foreign countries of certain of its hardware products. Regulations
promulgated by the U.S. Commerce Department require O'Gara to obtain a general
destination license in connection with the sale of certain commercial products
in foreign countries, and certain U.S. State Department regulations require
O'Gara to file an export license in connection with sales of military equipment
in foreign countries. Furthermore, the U.S. State Department prohibits all sales
of military equipment to certain countries, including China, Cuba, Iran, Iraq
and Libya. There can be no assurance that such regulations will not become more
restrictive in the future, which could limit O'Gara's ability to market its
products internationally. See "RISK FACTORS -- Risk Factors Relating to the
Business of O'Gara -- Political and Economic Risks of Doing Business Outside the
United States."
O'Gara's foreign operations are subject to the laws and regulations of the
various countries in which they are conducted, including licensing, labor,
environmental and currency control restrictions.
ENVIRONMENTAL MATTERS
O'Gara and its operations are subject to a number of environmental laws,
regulations and ordinances, both in the U.S. and various foreign countries, that
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling, storage and disposal
practices regarding solid and hazardous materials, and impose liability for the
cost of remediating, and certain damages resulting from, sites of past releases
of hazardous materials. Environmental laws continue to change rapidly, and it is
likely that O'Gara will be subject to increasingly stringent environmental
standards in the future. O'Gara believes that it currently conducts its
activities and operations in substantial compliance with applicable
environmental laws. O'Gara is implementing recommendations of an environmental
consulting company designed to address certain air pollution, hazardous waste,
underground storage tank and hazard communication matters at its Fairfield, Ohio
facility. No notices of violation have been issued to O'Gara by any regulatory
agency with respect to
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environmental matters which remain uncorrected. O'Gara believes that its
potential liability under the environmental laws, if any, would not have a
material adverse effect, individually or in the aggregate, on its results of
operations, financial condition or cash flows. There can be no assurance in this
regard, however, nor can there be any assurance that environmental laws will not
become more stringent in the future or that O'Gara will not incur significant
costs in the future to comply with such environmental laws.
LEGAL PROCEEDINGS
Certain of the services provided by O'Gara's Security Services Group are
similar to activities carried on by O'Gara Protective Services, Inc. ("OPS"),
which is controlled by Edward F. O'Gara, the brother of Thomas M. O'Gara and
Wilfred T. O'Gara. On October 9, 1996, OPS and Edward F. O'Gara filed a
complaint against O'Gara, OHE and Thomas M. O'Gara in the Federal District Court
for the Southern District of Ohio (O'Gara Protective Services, Inc., et al. v.
The O'Gara Company, et al., No. C-1-96-979). The complaint alleged: that Thomas
M. O'Gara and OHE agreed not to compete with OPS and that O'Gara's plan to enter
the security services market constituted a breach of the agreement; that Thomas
M. O'Gara (a former director and shareholder of OPS) breached unspecified
fiduciary duties which he owed to OPS by virtue of his status as a director and
significant shareholder of OPS; and that O'Gara's plan to enter the security
services market constituted a violation of the Lanham Act, which prohibits false
advertising and use of an established corporate name in such a manner as to
confuse consumers, as well as unfair competition in violation of the Ohio
Deceptive Trade Practices Act and common law. The plaintiffs sought a
preliminary and permanent injunction prohibiting OHE and Thomas M. O'Gara from
using the name O'Gara "in connection with the provision of security services, or
from otherwise competing with OPS in the market for security services" and an
award to OPS of any profits earned by OHE in connection with the provision of
such services, as well as costs, punitive damages and attorneys' fees. On August
1, 1997, this lawsuit was settled. Pursuant to the settlement, O'Gara paid
$75,000 to OPS and agreed not to compete against OPS with respect to certain
specified persons and entities.
O'Gara is not involved in any litigation or legal proceedings on the date
of this Proxy Statement/Prospectus and is not aware of any material litigation
or proceeding threatened against it.
PATENTS, TRADEMARKS AND COPYRIGHTS
O'Gara currently has four issued U.S. patents relating to its armoring
business. O'Gara currently has no federally registered trademarks or copyrights.
Although O'Gara does not believe that its ability to compete in any of its
product markets is dependent on its patents, O'Gara does believe that the
protection afforded by its "Armoring Assembly" and "Vehicle Mine Protection
Structure" patents, both of which relate to vehicle underbody blast protection,
provides O'Gara with important technological advantages over its competitors.
Although O'Gara has protected its technologies to the extent that it believes
appropriate, there can be no assurance that O'Gara's measures to protect its
proprietary rights will deter or prevent unauthorized use of O'Gara's
technologies. In other countries, O'Gara's proprietary rights may not be
protected to the same extent as in the United States.
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BUSINESS OF KROLL
BACKGROUND
Kroll provides a broad array of corporate investigation, risk and crisis
management and business intelligence services on a global basis to multinational
and other large companies, including law firms, investment banks and other
financial institutions, government agencies and other clients. Kroll believes
that it is one of the largest companies in the world providing this broad array
of services and that it enjoys strong name recognition within its customer base.
Founded in 1972, Kroll originally provided services exclusively in
connection with the detection of internal fraud. Since the late 1970's Kroll has
expanded the scope of its services, first to include business intelligence
services, such as due diligence in connection with potential borrowings and
investments and intelligence gathering in connection with hostile takeovers, and
more recently to include a variety of risk and crisis management services. Kroll
has sought to broaden its client base, which initially focused on intermediaries
such as law and accounting firms and investment banks, to deal directly with the
companies and others that utilize information provided by Kroll. Kroll has also
attempted to shift its focus from a relatively few large transaction-oriented
matters to a broader array of smaller but more frequent matters and from
providing information in response to crisis situations to providing a steady
flow of information to help clients avert crises.
In the 1990's, Kroll has also expanded significantly the geographic scope
of its activities. It has opened offices in a number of locations in Europe,
Asia and Latin America and has expanded its international client base to include
foreign enterprises as well as foreign offices and subsidiaries of U.S.
entities.
SERVICES
Kroll offers a broad array of corporate investigation, risk and crisis
management and business intelligence services in the United States, Europe, Asia
and Latin America.
Corporate Investigation Services. Kroll's corporate investigation services
include a variety of services in connection with (i) investigating financial
fraud, theft of trade secrets, infringement of trademarks and other intellectual
property rights and sexual harassment and other employee misconduct; (ii)
preparing for litigation or arbitration proceedings; (iii) tracing and locating
assets and developing financial profiles in connection with such matters as
bankruptcy cases and loan defaults; (iv) performing monitoring and special
inquiry assignments to discover and assess the extent of legal and ethical
misconduct by corporate employees and developing and installing appropriate
systems to assist in ensuring future compliance with relevant legal and ethical
standards; and (v) strategic consulting with businesses facing potential
environmental liabilities and investigating and conducting due diligence reviews
with respect to environmental issues.
Kroll's financial fraud investigation services involve Kroll investigators,
including forensic accountants and computer specialists, who work with Kroll's
clients to detect and curtail such fraudulent and illegal activities as theft of
corporate assets, manipulation of financial records and statements and business,
insolvency and bankruptcy fraud. Kroll's litigation support services involve
employee professionals providing assistance to counsel in connection with
preparing for litigation or arbitration proceedings, designing settlement
strategies or resisting unwanted takeover attempts. These services include
developing evidence to support a claim or a defense, identifying and locating
material witnesses, investigating adverse witnesses, locating and evaluating
recoverable or relevant assets of adverse parties and helping to assess whether
an adequate recovery can be obtained if a lawsuit is successful. Kroll's other
asset tracing services consist of tracing and locating assets anywhere in the
world and developing financial profiles and life style assessments in connection
with bankruptcy cases, loan defaults, internal investigations and other due
diligence requests by clients.
Kroll's monitoring and special inquiry services consist of investigations
by a team of Kroll's lawyers, forensic accountants, investigators, analysts and
industry experts to identify violations of federal or state regulatory
requirements or corporate policies and consultations with clients with respect
to establishing systems to audit and ensure compliance with such regulatory
requirements or policies. Kroll's environmental investigation
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services involve conducting due diligence investigations, establishing audit and
compliance verification programs, providing litigation support and reporting to
insurance companies in connection with underwriting analysis.
In the years ended December 31, 1995 and 1996 and in the six months ended
June 30, 1997, Kroll's corporate investigation services accounted for
approximately 56%, 60% and 50% of Kroll's net sales, respectively.
Kroll has also recently developed a vendor integrity program that provides
clients a profile of a client's vendors using information provided by the
vendors and obtained from independent sources. Clients utilize this profile to
insure that vendors adhere to the client's standards for ethical business
practices. The fees for this service are paid either through nominal fees
charged to each participating vendor or are directly charged to the client.
Risk and Crisis Management Services. Kroll's risk and crisis management
services consist of a variety of consulting services to assist businesses in
managing diverse risks to their personnel and assets and in meeting and managing
unexpected crises. Risk management services are used in connection with
corporate security programs and systems, programs to protect the safety of key
executives, systems to preserve assets and protect the integrity of computer and
telecommunications systems, and data and planning for disaster recovery. Kroll's
crisis management services are provided in a variety of contexts, including the
kidnapping of a company's executive, the safety of consumers, contamination of a
consumer product or the environment or the potential damage to the reputation of
a corporate client as a result of disclosure of adverse events. Kroll maintains
a crisis management center in Vienna, Virginia where personnel are on duty 24
hours a day, 365 days a year, to handle requests for information and provide
initial advice and immediate contact with members of Kroll's professional staff
specializing in the particular crisis presented.
As part of its risk and crisis management services, Kroll provides periodic
information services that include reports providing city-specific advisories to
business travellers on conditions and other relevant information with respect to
almost 300 cities around the world; a comprehensive country security risk
assessment service that includes daily intelligence briefings containing early
warnings of events and up-to-date information about political unrest, terrorist
activities, product contaminations, health emergencies and other similar events;
a monthly bulletin that reviews and analyzes safety and security issues relating
to air travel around the world; a monthly intelligence review that provides a
global survey of political risk developments in countries around the world; and
special reports on relevant topics, such as kidnappings or specific regions or
countries that are relevant to business travelers.
In the years ended December 31, 1995 and 1996 and in the six months ended
June 30, 1997, Kroll's risk and crisis management services accounted for
approximately 27%, 22% and 24% of Kroll's net sales, respectively.
Business Intelligence Services. Kroll's business intelligence services
include the provision of due diligence and background information and analysis
that is intended to be useful for clients considering significant operating or
strategic decisions, such as proposed acquisitions or unsolicited offers to
acquire corporate control, possible business arrangements with particular
partners, and proposed entries into new markets. Such services provide
sophisticated business intelligence with respect to the financial and managerial
background and reputation of companies and their management, as well as their
market position, technical capabilities and strategic direction. These services
are utilized by lenders, underwriters, potential acquirers and businesses
concerned with assessing and attempting to minimize the risks related to major
financial and other business decisions.
In the years ended December 31, 1995 and 1996 and in the six months ended
June 30, 1997, Kroll's business intelligence services accounted for
approximately 17%, 18% and 26% of Kroll's net sales, respectively.
Prices for Services. Generally, Kroll charges for its services on an
hourly basis at varying rates, depending upon the type of service being provided
and the competition that exists in providing the service. Kroll also provides
services, particularly outside the United States, on a negotiated project, or
fixed fee, basis. While providing services on a fixed fee basis enhances the
potential for higher profit margins, such arrangements can also result in
unexpected losses on a particular project. However, Kroll believes that the
large number of its fixed fee arrangements limits the risk to Kroll of incurring
a cost overrun on any one or a significant number of projects, which overrun
could have a material adverse effect on Kroll's results of operation.
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Potential Expansion. Kroll does not presently contemplate expanding the
variety of services it offers; however, it does intend to seek opportunities to
expand in locations in which it does not presently provide services. Any such
expansion requires Kroll to hire competent professional and administrative
staff, rent office space, provide furniture, fixtures and other necessary
equipment and incur start-up marketing costs. These costs are necessarily
incurred prior to the time Kroll is able to generate net sales and, thus, will
have a short-term adverse effect on Kroll's results of operations. There can be
no assurance that Kroll will successfully identify any locations for expansion
or that any such expansion, if undertaken, will increase Kroll's net sales or
net income.
Geographic Distribution of Net Sales. Kroll classifies its sales by where
the services are delivered; international sales are services delivered outside
the United States. In the years ended December 31, 1995 and 1996, and the six
months ended June 30, 1996 and 1997, 71%, 73%, 77%, and 68%, respectively, of
Kroll's net sales were attributable to services delivered in the United States.
The balance of Kroll's net sales in each period were attributable to services
delivered outside the United States.
Kroll believes that at present the services it delivers in the United
States provide significantly higher profit margins than the services it delivers
outside the United States. However, Kroll believes that its margins will change
due to trends in the marketplace. Overseas, demand for higher margin services,
such as corporate investigation services and business intelligence services,
including due diligence, is increasing. In addition, Kroll expects to be able to
leverage the fixed costs of its overseas operations more efficiently. Kroll
believes that profit margins with respect to services delivered by Kroll in the
United States will generally decrease over time due to increasing competition,
offsetting the increase in profit margins resulting from increased overseas
demand for higher margin services (see "-- Competition").
CLIENTS
From 1994 through 1996, Kroll provided services to approximately 2,250
clients located in the United States and approximately 850 clients located in
other parts of the world. Kroll's clients consist of multinational corporations,
leading law firms, financial institutions, government agencies and individuals
in a wide range of business sectors. The financial institutions to which Kroll
provides services include many of the largest international investment banks,
numerous commercial banks, insurance companies and other significant credit
institutions. Kroll's governmental clients include agencies of the United States
Government, state and local governments in the United States and a number of
foreign governments and ministries.
In the year ended December 31, 1995, AIG accounted for approximately 7.3%
of Kroll's net sales. No other client accounted for more than 3.4% of Kroll's
net sales in that year, although Kroll's 30 largest clients in that year,
including AIG, accounted for approximately 37.6% of Kroll's 1995 net sales. In
the year ended December 31, 1996, AIG accounted for approximately 7.5% of
Kroll's net sales. No other client accounted for more than 3.6% of Kroll's net
sales in that year, although Kroll's 30 largest clients, including AIG,
accounted for approximately 41.2% of Kroll's 1996 net sales. In the six months
ended June 30, 1997, AIG accounted for approximately 9.3% of Kroll's net sales
and Kroll's 30 largest clients, including AIG, accounted for approximately 41.4%
of its net sales. While many of Kroll's clients utilize Kroll's services on a
periodic basis, relatively few of Kroll's clients utilize Kroll's services each
year and the clients that account for a material percentage of Kroll's net sales
in any year may vary widely. Kroll does not believe that the loss of any one
client (other than AIG) would have a material adverse effect upon its business
or financial condition.
Kroll generally does not have long-term contracts with its clients and its
ability to generate net sales is dependent upon obtaining many new projects each
year, most of which are of relatively short duration. As a result, Kroll's net
sales and net income from year to year are not necessarily predictable and
historically there has not been a consistent year-to-year pattern of growth.
The demand for Kroll's services is affected by general economic conditions
and the level of corporate acquisitions and other financial transactions, and
clients may reduce their reliance on Kroll's services during periods when there
is a decline in such activities.
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MARKETING AND SALES
Kroll's professionals are principally responsible for the marketing of
services and for establishing relationships with clients. Kroll obtains
engagements from a client's board of directors, chief executive and chief
financial officers, general counsel and a variety of other corporate officials,
including business development officers, security managers, risk managers and
human resource personnel. Kroll's senior professionals act as relationship
managers for Kroll's major clients, and a significant amount of Kroll's
marketing consists of maintaining and developing these personal relationships.
In addition, Kroll has a professional marketing and sales staff in New York
City and in each of its regional headquarters that includes marketing, sales and
public relations professionals who support and coordinate Kroll's marketing
efforts on a worldwide basis. These marketing efforts include seminars,
briefings, receptions, breakfast and lunch meetings, direct mail and selected
advertising in trade and other journals. Kroll's services and marketing events
are promoted through its internet website and a publication mailed periodically
to approximately 20,000 clients and prospective clients.
Kroll's marketing efforts attempt to increase business with existing
clients by expanding clients' awareness of the range of services offered by
Kroll and by broadening the decision makers within a client's organization that
are aware of the range of services offered by Kroll.
Kroll's business development staff periodically conducts surveys of Kroll's
clients to assess their perception of the range and quality of Kroll's services
and, after the completion of an assignment, clients are often asked to complete
a quality control questionnaire.
COMPETITION
Kroll believes that it is one of the largest companies in the world
providing a broad array of corporate investigation, risk and crisis management
and business intelligence services on a global basis and enjoys strong name
recognition in its industry. Nevertheless, Kroll faces significant, and
increasing, competition in the United States and elsewhere in the world from a
variety of companies that provide some of the services offered by Kroll. These
competitors consist of local, regional, national and international firms,
including investigative and security firms, guard companies and specialized
consultants in specific areas such as kidnapping. In most service areas in which
Kroll operates, there is at least one competitor that is significantly larger or
more established than Kroll. Many of the national and international accounting
firms provide consulting services similar to some of the services provided by
Kroll. Some of these firms have indicated an interest in providing corporate
investigation and business intelligence services on a broader scale. These
accounting firms have significantly larger financial and other resources than
Kroll and have long-established relationships with their clients, which are also
likely to be clients or prospective clients of Kroll. In addition, large
multinational security product and service providers have indicated an interest
in expanding their services to include value-added services such as certain of
the investigation and consulting services provided by Kroll. The accounting
firms and other service providers could prove to be formidable competitors if
they elect to devote the necessary resources. In that event, there can be no
assurance that Kroll will be able to continue to provide its services on
existing financial terms and conditions, which would have material and adverse
effects on Kroll's business and financial condition. See "RISK FACTORS -- Risk
Factors Relating to Business of Kroll -- Competition."
EMPLOYEES
As of August 1, 1997, Kroll employed approximately 340 persons in its 23
offices around the world, of whom approximately 250 worked in the United States.
Approximately 60% of Kroll's employees are professionals whose time Kroll bills
to clients and who have backgrounds in, among other things, law, forensic
accounting and financial analysis, federal, state and local law enforcement,
domestic and foreign intelligence, business management and consulting, corporate
security, computer and information technology and security and environmental
sciences. Kroll bills its clients for the time spent by these professionals in
providing services. Kroll's remaining employees perform administrative,
marketing and clerical functions.
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In addition to its own full-time personnel, Kroll utilizes a network of
hundreds of field associates around the world, thus providing Kroll with
additional industry expertise and technical and specialized skills when needed.
Kroll believes that its professional employees are highly trained and
skilled and that its ability to continue to provide services to its existing
clients and to expand its business is highly dependent upon retaining its
existing professionals and attracting additional professionals with the
requisite credentials. The competition for these types of employees is intense
and the loss of any significant number of its professional staff, or the loss of
Jules B. Kroll, could have a material adverse effect on the business and
financial condition of Kroll (see "RISK FACTORS -- Risks Relating to the
Business of Kroll -- Dependence on Key Employees").
GOVERNMENT REGULATION
Kroll's services are subject to various federal, state, local and foreign
laws, including laws designed to protect the privacy of persons. A wholly owned
subsidiary of Kroll holds private investigative licenses from, and its
investigative activities are subject to regulation by, the following state and
local authorities: California (Department of Consumer Affairs, Division of
Licensing, Bureau of Security and Investigative Services); Connecticut
(Department of Public Safety, Division of State Police); Florida (Department of
State, Secretary of State, Division of Licensing); Illinois (Department of
Professional Regulations); Maryland (Department of State Police); Massachusetts
(Department of State Police, Special Licensing Unit) Michigan (Department of
State Police); New Jersey (Department of Law and Public Safety, Division of
State Police); New York (Department of State, Division of Licensing Services);
Pennsylvania (County of Allegheny); and District of Columbia (Metropolitan
Police, Investigative Services Division, Security Officers Management Branch).
In addition, an application to obtain a private detective license on behalf of
such subsidiary is pending with the Georgia Board of Private Detective. Kroll
does not believe that the Merger will have an adverse effect upon its licenses
in the foregoing states. Kroll utilizes certain data from outside sources,
including data from third party vendors and various government and public record
services, in performing its services. To the present time, laws and regulations
of the foregoing jurisdictions have not interfered materially with the conduct
of the business or operations of Kroll, including Kroll's access to data used in
its business. However, there can be no assurance that new regulations, such as
changes in governmental regulations relating to the protection of privacy, will
not be enacted that could materially interfere with the manner in which Kroll
obtains information, conducts its operations and provides its services, with a
resulting material adverse effect on Kroll's financial condition, results of
operations and cash flows. See "RISK FACTORS -- Risk Factors Relating to the
Business of Kroll -- Government Regulation."
PROPERTIES
Kroll leases all of the real properties it uses in connection with its
business. Kroll's principal executive offices are located in New York, New York,
where it leases approximately 36,900 square feet of office space under a lease
expiring in December 2007. This lease currently requires annual base rent of
approximately $1.3 million, plus its proportionate share of real estate taxes,
common area charges and other expenses, which base rate escalates to
approximately $1.6 million by December 2007.
Kroll also maintains domestic offices in each of Los Angeles, San Francisco
and Santa Clara, California; Washington, D.C.; Miami, Florida; Atlanta, Georgia;
Chicago, Illinois; Parsippany, New Jersey; Pittsburgh, Pennsylvania; and Vienna,
Virginia. These offices range from approximately 600 square feet to
approximately 8,800 square feet and are under leases expiring between December
1997 and October 2001 that provide for annual base rents ranging from
approximately $9,000 to approximately $242,000 plus, in each case, its
proportionate share of real estate taxes, common area charges and certain other
expenses.
Kroll also maintains foreign offices in Sydney, Australia; Sao Paulo,
Brazil; Hong Kong and Beijing, China; Paris, France; Frankfurt Am Main, Germany;
New Delhi, India; Tokyo, Japan; Manilla, the Philippines; Moscow, Russia;
Singapore; and London, the United Kingdom. These foreign offices range from
approximately 320 square feet to approximately 7,200 square feet and are under
leases expiring between January 1998 and May 2002 that provide for annual base
rents ranging from approximately $15,000 to approximately $400,000 plus, in each
case, its proportionate share of real estate taxes and certain other charges.
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<PAGE> 87
Kroll management believes that all its leased properties are adequate for
its current and reasonably foreseeable future requirements, and that additional
or replacement space should be available as required.
LITIGATION
Kroll is involved in litigation from time to time in the ordinary course of
its business; however, Kroll does not believe that there is any pending
litigation, individually or in the aggregate, that is reasonably likely to have
a material adverse effect on its business or financial condition. Kroll is a
defendant in an action titled De Fillipis v. American Ref-Fuel et al pending in
the Supreme Court of the State of New York, Queens County. In this litigation,
which was commenced in May 1997 by Daniel De Fillipis and his wife against
American Ref-Fuel, American Ref-Fuel Co. of Hempstead, Kroll and Chad Barker,
plaintiffs allege various tortious conduct on the part of Kroll and its former
employee (Mr. Barker) in connection with an investigation of Mr. De Fillipis and
seek compensatory and punitive damages of $5.0 million. On September 30, 1997,
Kroll filed a notice of motion notifying plaintiffs that, on October 28, 1997,
Kroll will request an order from the court dismissing plaintiffs' complaint for
failure to state a cause of action, or, in the alternative, striking the
complaint and requiring a more definite statement. Based on preliminary
information presently available to Kroll, Kroll believes that it is unlikely
that the plaintiffs suffered damages in the amount of the claims. Kroll intends
vigorously to defend these claims, but there can be no assurance that a
favorable outcome will be obtained. Mr. De Fillipis also has filed a complaint
related to this matter with the New York Department of State, Division of
Licensing Services.
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MANAGEMENT OF O'GARA
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of October 15, 1997
concerning each of O'Gara's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- --------------------------------------------------
<S> <C> <C>
Thomas M. O'Gara........... 47 Chairman of the Board
Wilfred T. O'Gara.......... 40 President, Chief Executive Officer and Director
Gary W. Allen.............. 43 Vice President -- Operations, O'Gara-Hess &
Eisenhardt Armoring Company
Nicholas P. Carpinello..... 47 Executive Vice President, Chief Financial Officer
and Treasurer
Richard L. Curotto......... 59 Vice President -- Worldwide Product Development,
O'Gara-Hess & Eisenhardt Armoring Company
Daniel Gautier............. 54 Director
Abram S. Gordon............ 34 Vice President, General Counsel and Secretary
Michael J. Lennon.......... 41 President and Chief Operating Officer, O'Gara-Hess
& Eisenhardt Armoring Company
Raymond E. Mabus........... 49 Director
Hugh E. Price.............. 60 President, O'Gara Security Associates, and
Director
Jerry E. Ritter............ 62 Director
William S. Sessions........ 67 Director
</TABLE>
Thomas M. O'Gara is Chairman of the Board of O'Gara. Mr. O'Gara has been
Chairman of the Board of OHE since 1990 and was OHE's Chief Executive Officer
from 1990 until 1995. He has been a director of O'Gara since August 1996 and a
director of OHE since 1988. Mr. O'Gara has been an executive of O'Gara and its
predecessors since 1975. From 1984 until 1986, Mr. O'Gara also was Honorary
Consul General for the Sultanate of Oman. Thomas M. O'Gara and Wilfred T. O'Gara
are brothers.
Wilfred T. O'Gara is President and Chief Executive Officer of O'Gara. He
has been associated with O'Gara and its predecessors since 1983. He has been
Chief Executive Officer of OHE since January 1996, was President and Chief
Operating Officer of OHE from 1991 through 1995 and was Vice President -- Sales
and Marketing from 1988 until 1991. He also has been Vice Chairman of O'Gara
Satellite Networks, Inc. ("OSN, Inc."), a Delaware corporation which is now a
wholly owned subsidiary of O'Gara, since October 1995, having served as
President of OSN, Inc. from January 1995 through September 1995. Mr. O'Gara has
been a director of O'Gara since August 1996, a director of OHE since 1991 and a
director of OSN, Inc. since 1995.
Gary W. Allen is Vice President -- Operations of OHE, a position in which
he has served since 1994. From 1989 until 1994, Mr. Allen was Manager of Shop
Operations for the G.E. Aircraft Engines business of General Electric Company.
Nicholas P. Carpinello is Executive Vice President, Chief Financial Officer
and Treasurer of O'Gara. He has held these same positions with OHE since 1993
and also has been Treasurer of OSN, Inc. since 1995. Mr. Carpinello has been
associated with O'Gara and its predecessors since 1984. From 1975 until 1984, he
was employed by Arthur Andersen LLP where he served as a manager in the audit
and small business consulting divisions.
Richard L. Curotto is Vice President -- Worldwide Product Development of
OHE, a position which he has held since 1992. Mr. Curotto joined OHE in
September 1990 as Vice President -- Engineering. Prior to joining OHE, Mr.
Curotto was an engineer, manager and executive with Stutz Motor Cars of America,
Inc., a company he co-founded in 1968.
Daniel Gautier is Chairman of the Board of Labbe, an armorer of commercial
and private vehicles based in Lamballe, France, which was acquired by O'Gara in
February 1997. He had been Labbe's principal shareholder since 1988 and became
its Chairman in 1992. Previously, Mr. Gautier had served for sixteen years as
President
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<PAGE> 89
and Senior Partner of Gautier et Associe's, a large, regional accounting firm,
and as a consultant to various businesses. Mr. Gautier has been a director of
O'Gara since May 1997.
Abram S. Gordon is Vice President, General Counsel and Secretary of O'Gara.
Prior to joining O'Gara in January 1997, he was with the law firm of Taft,
Stettinius & Hollister, Cincinnati, Ohio, from October 1987 until December 1996.
Michael J. Lennon is President and Chief Operating Officer of OHE,
positions he has held since January 1996. Mr. Lennon joined OHE in February 1994
as Manager of Commercial and Military Programs; he became Vice President for
Sales, Marketing and Program Management in October 1994 and served OHE in that
capacity through 1995. Prior to joining OHE, Mr. Lennon had 15 years' experience
in manufacturing, quality control and marketing with General Electric Company,
which he joined in 1979. From 1990 to 1994, he was Manager of Advanced
Technology Marketing for their G.E. Aircraft Engines business.
Raymond E. Mabus is currently of counsel to the law firm of Baker,
Donaldson, Bearman and Caldwell and also manages a family timber business. He
served as the United States Ambassador to the Kingdom of Saudi Arabia from 1994
until 1996, as a consultant to Mobil Telecommunications Technology from 1992
until 1994 and as Governor of the State of Mississippi from 1988 until 1992. Mr.
Mabus has been a director of O'Gara since November 1996.
Hugh E. Price is President of OSA. During 1995 and 1996, prior to joining
O'Gara, he was a consultant to various businesses and organizations. Until his
retirement in 1995, Mr. Price had been employed by the Central Intelligence
Agency since 1964. His positions with the Agency included Deputy and Associate
Deputy Director for Operations (1991-1995), Chief and Deputy Chief for
Counterintelligence (1988-1990) and Director of Personnel (1986-1988). Mr. Price
became a director of O'Gara in October 1996.
Jerry E. Ritter is currently a consultant to Anheuser-Busch Companies,
Inc., a company engaged in the brewing and family entertainment businesses. He
also is Chairman of the Board of Clark Enterprises, Inc., the general partner of
the Kiel Center and the St. Louis Blues Hockey Club. From 1990 until 1996, Mr.
Ritter served as Executive Vice President and Chief Financial and Administrative
Officer for Anheuser-Busch Companies, Inc. Prior to that time, he served
Anheuser-Busch in various other managerial and executive capacities. Mr. Ritter
also is a director of The Earthgrains Company, Brown Group, Inc. and OmniQuip
International, Inc. He became a director of O'Gara in January 1997.
William S. Sessions is a partner in the law firm of Sessions & Sessions,
L.C. and is a consultant to various public and private businesses. From 1987
until 1993, Mr. Sessions was Director of the Federal Bureau of Investigation. He
served as a United States District Judge for the Western District of Texas from
1974 until 1987. Mr. Sessions is a director of Zenith National Insurance
Company. He has been a director of O'Gara since November 1996.
Directors of O'Gara are elected annually. Officers of O'Gara are elected
annually and serve at the discretion of the Board of Directors.
See "THE MERGER -- Management of O'Gara after the Merger" for information
relating to the effects of the Merger on the directors and executive officers of
O'Gara.
MEETINGS; COMMITTEES OF THE O'GARA BOARD
The O'Gara Board held two meetings in 1996. The O'Gara Board has an Audit
Committee and a Compensation Committee, both of which are composed of Messrs.
Ritter (Chairman), Mabus and Sessions. The Audit Committee recommends the
appointment of independent accountants and reviews and discusses with the
independent accountants the scope of their examination, their proposed fee and
the overall approach to the audit. The Audit Committee also reviews with the
independent accountants and O'Gara's financial management the annual financial
statements and discusses the effectiveness of internal accounting controls. The
Audit Committee did not meet in 1996. The Compensation Committee has
responsibility for establishing executive officers' compensation and other
benefits. The Compensation Committee did not meet in 1996 but met in March 1997
to determine bonus payments for 1996 and to establish compensation criteria for
1997. See "-- Report of the
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Compensation Committee on Executive Compensation." The O'Gara Board does not
have a Nominating Committee. During 1996, each incumbent director except Mr.
Mabus attended more than 75% of the aggregate of all meetings of the O'Gara
Board and all committees on which he served which he was eligible to attend.
DIRECTORS' COMPENSATION
Directors who are not employees of O'Gara receive annually a $10,000 fee,
plus options to purchase 1,000 shares of O'Gara Common Stock, for serving as
directors and members of committees. These directors also are paid $500 for each
O'Gara Board meeting attended, including O'Gara Board meetings held by
telephone. Committee members receive $500 per committee meeting attended, unless
the committee meeting occurs on the same day as an O'Gara Board meeting, in
which case no separate fee is paid. Employee directors are not separately
compensated for their services as directors.
From time to time, Mr. Sessions has provided consulting services to O'Gara
or OHE. During 1996 and the first six months of 1997, he received fees of $5,000
and $7,500, respectively, plus reimbursement of expenses, for sales development
assistance relating to OHE's commercial armored products.
EXECUTIVE COMPENSATION
Summary Information. The following table sets forth, for the fiscal years
indicated, amounts of cash and certain other compensation paid by O'Gara and its
subsidiaries, for services in all capacities, to (i) Wilfred T. O'Gara and (ii)
each of O'Gara's four other most highly compensated executive officers during
1996. Mr. O'Gara and these other executive officers are sometimes referred to as
the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ ------------
OTHER SECURITIES
ANNUAL UNDERLYING
COMPEN- STOCK OPTION ALL OTHER
NAME AND PRINCIPAL SALARY BONUS SATION GRANTS COMPENSATION
POSITION YEAR ($)(1) ($) ($) (#) ($)(2)
- -------------------------- ----- --------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. O'Gara.......... 1996 $379,081 $7,000 -- -- $1,218
Chairman of the Board 1995 410,631 -- -- -- 1,218
Wilfred T. O'Gara......... 1996 $200,231 $45,000 -- 17,000 $ 462
President and Chief 1995 140,550 -- -- -- 462
Executive Officer
Gary W. Allen............. 1996 $100,666 $47,784 -- 15,000 $ 512
Vice President, OHE 1995 88,239 -- -- -- 414
Richard L. Curotto........ 1996 $100,833 $47,392 -- 15,000 $2,248
Vice President, OHE 1995 98,433 17,000 -- -- 2,223
Michael J. Lennon......... 1996 $128,334 $60,317 -- 17,000 $ 667
President, OHE 1995 89,977 20,000 -- -- 277
</TABLE>
- ---------------
(1) Effective November 1, 1996, Messrs. Thomas M. O'Gara, Wilfred T. O'Gara,
Allen, Curotto and Lennon receive base annual salaries of $250,000,
$230,000, $115,000, $110,000 and $145,000, respectively (see "-- Employment
Agreements").
(2) Represents profit-sharing contributions to O'Gara's 401(k) Plan.
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<PAGE> 91
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The policy of the Compensation Committee of the O'Gara Board is to provide
compensation that attracts, motivates and retains a highly qualified management
team meeting the special management requirements of O'Gara. The compensation
program is central to the successful operation and growth of O'Gara and is
intended to align closely the interests of management with those of O'Gara's
shareholders.
Statement of Purpose. The Committee believes that a compensation program
must enable O'Gara to attract a limited number of executives with critical
experience for key positions and to retain and motivate strong, capable
management. At the same time, the cost of management compensation must bear a
reasonable relationship to the performance of O'Gara and the total return to
shareholders on their investment in O'Gara. The purposes of the program approved
and actions taken by the Compensation Committee are as follows:
- Encourage and reward an entrepreneurial spirit and business success each
year in the operating divisions of O'Gara and, at the same time, build
the structure and teamwork necessary for profitable long-term growth in
O'Gara's business.
- Provide executives who succeed within O'Gara the opportunity to build
capital value through stock options and stock, as long as shareholders
build corresponding value.
Cash Compensation. To achieve these purposes, the Committee has set total
cash compensation at levels that it believes are reasonable in light of O'Gara's
size and financial results. Salaries are reviewed annually and are determined
based on specific executive responsibilities, the changing nature of these
responsibilities and performance. Total cash compensation each year can be
increased or decreased substantially from the prior year depending on the size
of the annual incentive payment awarded.
The base annual salary of each named executive officer, including the Chief
Executive Officer, is set in his employment agreement with O'Gara (see
"Employment Agreements") and is subject to increase from time to time. Because
the employment agreements did not take effect until November 1, 1996, the full
year salary shown on the Summary Compensation Table for each executive officer
does not necessarily reflect that established in his employment agreement. Also,
because the base salaries were so recently set, the Committee determined that
they should not be increased for 1997. All salaries will be reviewed at the end
of 1997 and, depending on O'Gara's financial results and the executive officers'
performances, may be increased.
The annual incentive payment portion of total cash compensation each year
is tied directly to the level of achievement of O'Gara relative to the financial
objectives established at the beginning of the year. Currently, these objectives
relate to O'Gara's overall operating revenue or the operating revenue of the
particular Company subsidiary or division for which the executive officer has
responsibility. For 1996, three executive officers of O'Gara, the Chairman of
the Board, the Chief Executive Officer and the Chief Financial Officer, did not
receive the total incentive compensation to which they were entitled because
such individuals had received certain distributions in connection with the
initial public offering of O'Gara Common Stock in November 1996. All other
eligible executive officers received the full awards for which they were
eligible. Annual incentive awards to senior executives generally are paid, net
of applicable withholdings, one-half in cash and one-half in restricted shares
of O'Gara Common Stock. For 1996, however, those executive officers receiving
smaller awards, the Chairman of the Board, the Chief Executive Officer and the
Chief Financial Officer, received their full awards in cash.
Long-Term Stock Incentives. The Committee also is responsible for grants
to O'Gara's executive officers under O'Gara's 1996 Stock Option Plan. The
purpose of the Plan is to provide long-term compensation which, because it is
based upon stock price appreciation, directly aligns the interest of management
with that of shareholders. During 1996, options for 17,000 shares were granted
to the Chief Executive Officer and options for an aggregate of 47,000 shares
were granted to O'Gara's other named executive officers. All of these grants
were approved by the Board of Directors prior to O'Gara's initial public
offering and became effective at the time of the Offering.
Section 162(m) of the Internal Revenue Code and its related regulations
(together "Section 162(m)") limit the deductibility of non- "performance based"
compensation received by each of O'Gara's named executive officers to $1.0
million per year. Compensation meeting certain criteria specified in Section
162(m) is considered
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"performance based" and is excluded from the limitation on deductibility.
O'Gara's 1996 Stock Option Plan and all options granted to O'Gara's named
executive officers under the Plan are designed to meet the Section 162(m)
criteria for performance based compensation. In 1996, no named executive officer
received non-performance based compensation in excess of $400,000, and the
Committee currently does not expect the Section 162(m) limitation to be an issue
in its compensation decisions during 1997. As previously noted, the policy of
the Committee is to maintain a compensation program that maximizes the creation
of long-term shareholder value. As appropriate in the future, the Committee will
consider qualifying the deductibility of compensation to the extent consistent
with the objectives of O'Gara's executive compensation program and with
maintaining competitive compensation.
Jerry E. Ritter, Chairman
Raymond E. Mabus
William S. Sessions
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<PAGE> 93
PERFORMANCE GRAPH
The following graph compares the performance of O'Gara Common Stock with
the performance of companies included in the Russell 2000 Index of Small
Capitalization Companies and in a self-constructed peer group index. The graph
assumes that $100 was invested on November 13, 1996, the first day of trading of
O'Gara Common Stock, and that any dividends were reinvested.
Because O'Gara operates in three business segments, no published peer group
accurately mirrors O'Gara's business. Accordingly, O'Gara has created a special
peer group composed of Armor Holdings, Inc., Pinkerton's, Inc., Simula, Inc. and
Spartan Motors, Inc. The returns of each company are weighted according to its
respective stock market capitalization. The peer group was selected based upon
criteria including business activities, industries served, size of company and
market capitalization.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE O'GARA
(FISCAL YEAR COVERED) COMPANY RUSSELL 2000 PEER GROUP
<S> <C> <C> <C>
11/13/96 100.00 100.00 100.00
12/31/96 108.00 107.00 98.00
</TABLE>
Employment Agreements. O'Gara (or OHE) entered into employment agreements,
which commenced on November 1, 1996 and expire on August 31, 1998, with Messrs.
Thomas M. O'Gara, Wilfred T. O'Gara, Allen, Curotto and Lennon, providing for
annual base salaries of $250,000, $230,000, $115,000, $110,000 and $145,000,
respectively. Each named executive officer also is entitled to participate in an
annual bonus plan established by the Compensation Committee and to receive up to
50% of such bonus in shares of O'Gara Common Stock. Employment may be terminated
by O'Gara at any time with or without cause, except that, in a case of
termination without cause, the employee is entitled to receive compensation for
the balance of the term of the agreement. Each employment agreement restricts
the executive officer from competing with O'Gara during the term of the
agreement and for two years thereafter if termination of employment is for cause
or at the volition of the employee. For information relating to changes in these
agreements in connection with the Merger, see "THE MERGER -- Management of
O'Gara after the Merger."
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THE O'GARA OPTION PROPOSAL
Introduction. The Plan, which was adopted prior to the Offering, currently
provides for the issuance of up to 400,000 shares of O'Gara Common Stock
pursuant to options granted under the Plan. Options to acquire 274,050 shares of
O'Gara Common Stock are currently outstanding.
The Plan was adopted to further the growth and success of O'Gara by
providing an incentive to employees which increases their direct involvement in
the future success of O'Gara.
The O'Gara Board is proposing that the Plan be amended to provide for an
increase in the maximum number of shares of O'Gara Common Stock which may be
issued under the Plan from 400,000 to 836,000 and to make other changes as
described below. In proposing these amendments, the O'Gara Board took into
consideration the number of shares of O'Gara Common Stock subject to outstanding
options, the expansion of the O'Gara employee base since the Offering as a
result of the Acquisitions and the substantially larger employee base that would
result from the consummation of the Merger.
Approval of the O'Gara Option Proposal is not contingent upon approval or
effectiveness of the Merger.
THE O'GARA BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE O'GARA OPTION
PROPOSAL.
The Plan. Any employee on the regular payroll of O'Gara may be selected to
participate in the Plan. Additionally, options are granted under the Plan to
O'Gara's non-employee directors in accordance with O'Gara's policy for the
compensation of directors. See "MANAGEMENT OF O'GARA -- Directors'
Compensation." Up to 400,000 (to be increased to 836,000 if the O'Gara Option
Proposal is adopted) shares of O'Gara Common Stock may be issued pursuant to the
Plan. The Plan currently provides that options for no more than 50,000 shares
may be granted to any eligible employee during any period of 12 consecutive
months; the O'Gara Option Proposal would increase this maximum number to
125,000. Appropriate adjustments in the number of shares issuable and in the
number and prices of shares covered by outstanding options will be made to give
effect to any changes in O'Gara's capitalization (stock splits, stock dividends,
etc.).
Currently, the Plan is administered by the O'Gara Board. In addition to
administering and interpreting the Plan, the O'Gara Board has authority to
select optionees, determine the number of shares for which an option is granted,
set the option's price and term, select the type of option and establish all
other terms and conditions of the option.
The O'Gara Board may waive or amend the terms and conditions of, or
accelerate the vesting of, an option. The O'Gara Board may appoint a committee
to carry out all of its functions with respect to the Plan, except for
amendments to or termination of the Plan. For the purpose of option grants to
and approval of other transactions with persons who are subject to Section 16 of
the Securities Exchange Act of 1934 (the "Exchange Act") with respect to O'Gara,
each committee member must be a "Non-Employee Director" as defined in Rule 16b-3
under the Exchange Act. The Board has delegated to the Compensation Committee
the responsibility for option grants to O'Gara's executive officers.
Both incentive stock options and nonqualified options may be granted to
employee-participants in the Plan. Non-employee directors may only receive
nonqualified option grants. The per share exercise price of a nonqualified
option must be at least 85% of the fair market value of a share of the O'Gara
Common Stock on the date the option is granted. The per share exercise price of
an incentive stock option may not be less than 100% of the O'Gara Common Stock's
fair market value on the date of grant, and no incentive stock option may be
exercised after ten years from the date of grant. Incentive stock options
granted to an optionee holding more than 10% of outstanding O'Gara Common Stock
must have a price of at least 110% of fair market value on the date of grant and
may be for a term no longer than five years.
An option's exercise price may be paid in cash or by the tender of shares
of O'Gara Common Stock or by a combination of these methods. Shares of O'Gara
Common Stock which are tendered or withheld are valued at their fair market
value on the date of tender and may be counted as available for issuance under
the Plan. For purposes of the Plan, fair market value means the last sale price
for the O'Gara Common Stock reported on the Nasdaq National Market on a given
date.
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<PAGE> 95
Generally, an unexercisable option terminates when an optionee terminates
employment with or service as a director of O'Gara. An exercisable option
terminates on the earlier of (i) its full exercise, (ii) its expiration date or
(iii) the end of the three-month period following the date of termination of
employment or service as a director. If, however, an optionee becomes disabled
or dies while employed by or serving as a director of O'Gara or within three
months thereafter, a then-exercisable option may be exercised for one year after
the date of death or commencement of disability. The Plan allows the O'Gara
Board to extend these option exercise periods.
A nonqualified option may be transferred pursuant to a domestic relations
order or under other circumstances, terms and conditions established by the
O'Gara Board. Otherwise, an option is not transferrable except by the optionee's
will or the laws of descent and distribution and, during an optionee's lifetime,
may only be exercised by the optionee or the optionee's legal representative or
guardian.
The O'Gara Board may amend or terminate the Plan at any time; however,
shareholder approval is required for an amendment if such approval is necessary
under the Code or the Exchange Act. No Plan amendment may alter or impair an
outstanding option without the optionee's consent. No option may be granted
under the Plan subsequent to October 22, 2006.
If O'Gara enters into an agreement of reorganization, merger or
consolidation in which O'Gara is not to be the surviving corporation or enters
into an agreement for the sale or transfer of all or substantially all of its
assets, all outstanding options will become immediately exercisable. If the
successor or transferee corporation does not agree to continue the Plan, both
the Plan and all outstanding options will terminate as of the effective date of
any such transaction. An optionee who is subject to Section 16 of the Exchange
Act may, immediately prior to the consummation of the transaction and in lieu of
the consideration receivable by other optionees in the transaction, tender any
unexercised options to O'Gara and receive a cash payment equal to the difference
between the aggregate "fair value" of the shares of O'Gara Common Stock subject
to the holder's unexercised options and the aggregate option price of those
shares.
Accounting Effects. The proceeds of the sale of O'Gara Common Stock under
the Plan constitute general funds of O'Gara and may be used by it for any
purpose. Under present accounting practices followed by O'Gara, neither the
grant at fair market value nor the exercise of an option generally results in
any charge against O'Gara's earnings. The grant of options at a price less than
100% of fair market value results in compensation expense to O'Gara. To date,
O'Gara has granted all options under the Plan at an exercise price equal to at
least 100% of the fair market value of O'Gara Common Stock for accounting
purposes.
Certain Federal Income Tax Considerations. The Plan provides that, if
payments to an optionee by O'Gara would constitute "excess parachute payments"
under the Code, amounts payable in accordance with the Plan's change of control
provisions will be reduced so that the employee is not subject to the 20% excise
tax on the payment and O'Gara is able to deduct the entire payment.
Generally, an optionee recognizes no income upon the grant or exercise of
an incentive stock option and, if the stock purchased on option exercise is not
disposed of within two years from the date of grant nor within one year after
exercise, the amount realized on sale or taxable exchange in excess of the
option price is treated as a long term capital gain and O'Gara is not entitled
to a federal income tax deduction. If stock acquired on exercise of an incentive
stock option is disposed of before the expiration of either of the prescribed
holding periods, the lesser of (i) the difference between the option price and
the fair market value at the time of exercise, or (ii) the difference between
the option price and the amount realized upon disposition is treated as ordinary
income to the optionee at the time of disposition and is allowed as a deduction
to O'Gara; any excess of the amount realized upon sale over the fair market
value at the time of exercise generally is treated as capital gain to the
optionee. In general, an optionee who exercises a nonqualified option recognizes
taxable ordinary income, and O'Gara is entitled to a deduction, at the time of
exercise of the option in an amount equal to the excess of the fair market value
of the shares purchased over the option price.
Grants. Currently, options have been granted to approximately 200
individuals under the Plan. The Plan contains no limitation as to the maximum
number of participants. As of October 15, 1997, options granted under the Plan
were outstanding in the following amounts: Thomas M. O'Gara, 23,150 shares;
Wilfred T. O'Gara, 40,150 shares; Gary W. Allen, 19,000 shares; Richard L.
Curotto, 18,000 shares; Michael J. Lennon, 22,000 shares; Hugh E.
88
<PAGE> 96
Price, 22,500 shares; all current executive officers as a group, 168,800 shares;
Raymond E. Mabus, 2,000 shares; Jerry E. Ritter, 1,000 shares; William S.
Sessions, 2,000 shares; and all employees as a group, 274,050 shares. For
information relating to options to be granted at the Effective Time, see "THE
MERGER -- Management of O'Gara after the Merger."
The following table presents information on option grants to the named
executive officers during 1996 pursuant to the Plan. The Plan does not provide
for the grant of stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
--------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR
OPTIONS GRANTED TO OR BASE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------- ---------- ------------ -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. O'Gara.......... -- -- -- -- -- --
Wilfred T. O'Gara......... 17,000 9.6% $ 9.00 11/11/06 $96,050 $244,120
Gary W. Allen............. 15,000 8.5% $ 9.00 11/11/06 $84,750 $215,400
Richard L. Curotto........ 15,000 8.5% $ 9.00 11/11/06 $84,750 $215,400
Michael J. Lennon......... 17,000 9.6% $ 9.00 11/11/06 $96,050 $244,120
</TABLE>
- ---------------
(1) All options vest on November 12, 1997. The exercise price of all options may
be paid in cash or by the transfer of shares of O'Gara Common Stock valued
at their fair market value on the date of exercise. Each option becomes
exercisable in full in the event of the execution of an agreement of merger,
consolidation or reorganization pursuant to which O'Gara is not to be the
surviving corporation or the execution of an agreement of sale or transfer
of all or substantially all of the assets of O'Gara.
With respect to each named executive officer, the following table sets
forth information concerning unexercised stock options held at December 31,
1996. No options were exercised during 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
VALUE REALIZED ($) UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
(MARKET PRICE ON FY-END (#) AT FY-END ($)
SHARES ACQUIRED ON EXERCISE LESS EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) EXERCISE PRICE) UNEXERCISABLE UNEXERCISABLE
- --------------------- ------------------ ------------------ ---------------------- ----------------------------
<S> <C> <C> <C> <C>
Thomas M. O'Gara..... -- -- -- --
Wilfred T. O'Gara.... -- -- --/17,000 --/$12,750
Gary W. Allen........ -- -- --/15,000 --/$11,250
Richard L. Curotto... -- -- --/15,000 --/$11,250
Michael J. Lennon.... -- -- --/17,000 --/$12,750
</TABLE>
Kroll Options. Pursuant to the Merger Agreement, any option to acquire
Kroll Stock which is not exercised prior to the Effective Time will be converted
into an option to purchase the number of shares of O'Gara Common Stock which
would have been received had such option been exercised immediately prior to the
Effective Time. See "THE MERGER AGREEMENT -- Conversion of Kroll Stock." Such
options will continue to be governed by the terms of the Kroll Management Stock
Option Plan or the Stock Option and Stockholder Agreements and will not be
subject to the terms of the Plan or reduce the number of shares of O'Gara Common
Stock with respect to which options may be issued under the Plan. See
"MANAGEMENT OF KROLL" and "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS -- KROLL" for information relating to the Kroll Management Stock
Option Plan and the Stock Option and Stockholder Agreements and the options
outstanding thereunder.
89
<PAGE> 97
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- O'GARA
In connection with the Offering, the O'Gara Board adopted a policy
requiring that any future transactions, including loans, between O'Gara and its
officers, directors, principal shareholders and their affiliates be on terms no
less favorable to O'Gara than could be obtained from unrelated third parties and
that any such transactions be approved by a majority of the disinterested
members of the O'Gara Board.
Described below are certain transactions and relationships between O'Gara
and certain of its officers, directors and shareholders which have occurred
during the last three fiscal years. Except with respect to interest rates
charged on certain of the intercompany notes and accounts payable/receivable,
O'Gara believes that the material terms of the various transactions were as
favorable as could have been obtained from unrelated third parties.
LONGLINE LEASING/EXCEL ARMOR
General. Longline Leasing, Inc. ("Longline") and Excel Armor Products,
Inc. ("Excel Armor" and, together with Longline, "Longline/Excel") are Delaware
corporations, which merged as of December 31, 1996; Messrs. Thomas M. O'Gara,
Wilfred T. O'Gara and Carpinello owned approximately 92%, 1% and 1%,
respectively, of the outstanding capital stock of each.
Lease agreements. OHE has a Master Equipment Lease with Longline, entered
into in July 1995, pursuant to which OHE leases various items of equipment from
Longline. As of June 30, 1997, OHE had approximately $1,250,000 of equipment
under lease for 12 and 36-month terms, beginning on various dates between July
1995 and April 1996. Rental expenses were $17,000, $381,446 and $222,598 for the
years ended December 31, 1995 and 1996 and for the six months ended June 30,
1997, respectively.
Supplier arrangements. During 1995 and 1996, OHE purchased the dual-hard
steel required for certain aspects of its vehicle armoring from Excel Armor,
which distributed the steel for an unrelated third party. Purchases by OHE from
Excel Armor were $520,700 and $960,231 during 1995 and 1996, respectively, and
accounted for 90% and 99% of Excel Armor's sales revenues for the same periods.
In connection with these purchases, OHE advanced $160,390 to Excel Armor during
1995 to fund Excel Armor's initial purchase commitments and guaranteed a
$150,000 letter of credit furnished by Excel Armor to the third party. OHE now
purchases its dual-hard steel directly from the third party. At December 31,
1996 and June 30, 1997, OHE had receivables of $210,659 and $282,346,
respectively, from Excel Armor in connection with the prior arrangement. All
other aspects of the arrangement have been terminated. Also, in August 1995,
Excel Armor and OHE entered into an agreement under which OHE manufactured
certain parts needed by Excel Armor in connection with a contract with a third
party. Total revenue recognized in association with this contract was $124,000.
Corporate aircraft. Effective January 1, 1994, OHE entered into a five
year lease for a Hawker jet owned by Longline. Financing for the jet had been
provided to Longline by means of a $1,100,000 loan from Cessna Finance
Corporation to Thomas M. O'Gara. OHE's agreement with Longline provided for
deposit and rental payments aggregating $1,634,000 over the term of the lease.
This lease was cancelled effective January 30, 1995.
In February 1995, OHE entered into a lease for a Gulfstream G-II aircraft
owned by Longline and Excel Armor as tenants in common. The Gulfstream aircraft
was purchased by Longline/Excel for a price of $4,060,000 (represented by an
exchange of the Hawker jet and new financing). In connection with the
cancellation of the Hawker lease, $400,493, representing the unamortized portion
of OHE's $504,000 deposit on that lease, was transferred as the deposit on the
Gulfstream lease. The Gulfstream lease had a non-cancelable ten year term and
initially provided for rental payments of $53,000 per month. Nonetheless O'Gara
paid rentals based on actual usage. In August 1996, the Gulfstream lease was
amended to provide for minimum lease payments of $35,200 per month.
In February 1995, OHE also entered into a supplemental agreement with
Longline/Excel pursuant to which Longline/Excel agreed to provide all aircraft
management (including insurance) for the Gulfstream aircraft and to charter it
to others when not in use by OHE. Pursuant to this arrangement, and in lieu of
the $53,000 per month rental payments then required by the lease, OHE paid
Longline/Excel $30,000 per month, plus $1,800 per hour of monthly use in excess
of 16.7 hours, and Longline/Excel was entitled to retain all revenues from the
charter
90
<PAGE> 98
operations. In connection with the August 1996 amendment to the Gulfstream
lease, this agreement was amended to allow OHE 23 hours of usage per month and
to provide for charges of $1,500 per hour thereafter. Longline/Excel continues
to retain all revenues from charter operations. Rental expense related to the
Gulfstream lease (including amortization of the deposit) was $414,160, $422,349
and $249,833 for 1995, 1996 and the first six months of 1997, respectively.
Additionally, O'Gara paid Longline/Excel $327,000 relating to usage of the
aircraft during O'Gara's initial public offering in 1996. O'Gara believes that
the rate paid was equivalent to that charged by Longline/Excel to other
unrelated companies for similar services during 1996 and compared favorably to
rates charged by another unrelated charter service for similar aircraft.
OHE and Longline/Excel have begun negotiations regarding changes to these
lease arrangements. Because of unanticipatedly high usage of the Gulfstream
aircraft by OHE during the past year due to travel undertaken during the
Offering and the transaction with Kroll, Longline/Excel has been limited in its
ability to charter the aircraft. Longline/Excel has requested that OHE amend the
lease arrangements in order that OHE commence paying market rates for its use of
the aircraft.
INTERCOMPANY NOTES AND ACCOUNTS PAYABLE/RECEIVABLE
OHE held promissory notes, for money borrowed, in the principal amounts of
$100,000 and $130,000 from Thomas M. O'Gara. Each note bore interest at the rate
of 8.75% per annum and was due on December 31, 1996. In December 1996, Thomas M.
O'Gara repaid in full the $251,834 of principal and accrued interest outstanding
under these notes. Thomas M. O'Gara also was indebted, for money borrowed, to
OHE in amounts up to $288,725, not represented by a promissory note; this
indebtedness has been fully repaid.
OSN held a promissory note, for money borrowed, from Excel Metal Products,
Inc. ("Excel Metal"), a corporation wholly owned by Thomas M. O'Gara, in the
principal amount of $310,000, which bore interest at the rate of 8.5% and was
due on February 11, 1997. All principal and accrued interest outstanding
pursuant to this note, totalling $331,224, was repaid in December 1996.
During 1994, 1995 and 1996, OHE paid Silver Springs Land and Cattle
Company, a Nevada corporation of which Thomas M. O'Gara is the President and
sole shareholder, $55,203, $11,082 and $3,177, respectively, for the use of its
facilities for corporate meetings. The use of these facilities by O'Gara has
been discontinued.
Until the Reorganization, OHE held a 49% beneficial interest in O'Gara
Overseas Services, S.A., a Swiss corporation ("OOS"), with the remaining 51%
held by Limited. As part of the Reorganization, OHE's interest in OOS was
exchanged for certain assets and liabilities of Limited, with the result being
that OOS is no longer affiliated with O'Gara. In addition, OHE fulfilled a
demand note, bearing interest at 3.0% per annum, that had been outstanding with
OOS in the amount of $90,930, which represented $88,685 in principle and $2,245
in interest. Also, subsequent to the Reorganization, Thomas M. O'Gara made full
payment on a 3.0% promissory note, which totalled $302,803 including interest,
held by OOS. OOS also had provided sales and marketing services for OHE and OSN.
During 1994, 1995 and 1996, $362,761, $377,144 and $363,583, respectively, were
paid to OOS for these services. All arrangements with OOS were terminated in
connection with the Reorganization.
Prior to August 1994, OHE was indebted to Letter International Limited
Irrevocable Trust in the amount of $1,260,000. Letter International Limited
Irrevocable Trust was a trust of which OHE was the sole beneficiary. At the same
time, the Trust was indebted in an equal amount to Thomas M. O'Gara. Thomas M.
O'Gara received from the Trust an assignment of the OHE's obligation in
satisfaction of the Trust's indebtedness to him. Thomas M. O'Gara then agreed to
the cancellation of this indebtedness of OHE in exchange for shares of common
stock of OHE equal to 21.5% of the shares of OHE outstanding, giving effect to
such transaction.
Since its incorporation in 1988, OPS was provided certain medical and
general liability insurance coverage under OHE's insurance policies. These
insurance programs were paid for by OPS through monthly and annual premiums
established by OHE's insurance provider. These arrangements were terminated upon
the consummation of the Offering.
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<PAGE> 99
BUILDING LEASE
OLG, Limited, an Ohio limited liability company of which Messrs. Thomas M.
O'Gara, Wilfred T. O'Gara, Allen, Carpinello, Curotto and Lennon own
approximately 91%, 5%, 1%, 1%, 1% and 1% of the outstanding capital stock,
respectively, was formed in March 1996 for the purpose of acquiring and leasing
to OHE O'Gara's facility located at 4175 Mulhauser Road, Fairfield, Ohio. The
building was purchased for approximately $1.8 million and was leased to OHE for
one year, ending March 31, 1997, for $468,000 (plus taxes, insurance and
maintenance costs). OHE exercised an option to renew the lease, at a base rent
of $21,000 per month, through July 1997. Since August 1997, OHE has continued to
utilize the facility on a month to month basis. Previously used for
manufacturing, the facility is currently used for storage. OHE also has an
option to purchase the building for its fair market value.
CONSULTING AGREEMENTS
Excel Metal. OSN, Inc. had a consulting agreement with Excel Metal
pursuant to which Excel Metal provided management consulting services to OSN,
Inc. during calendar year 1996 for a fee of $6,000 per month plus reimbursement
of expenses. The arrangement terminated upon consummation of the Offering.
William S. Sessions. From time to time, Mr. Sessions has provided
consulting services to O'Gara or OHE. During 1994, 1995, 1996 and for the first
six months of 1997, he received $55,000, $25,000, $5,000, and $7,500,
respectively, for sales development assistance related to OHE's commercial
armored products.
Neil P. Saldin. Mr. Saldin was an executive officer of O'Gara until June
30, 1997. Prior to becoming an executive officer of O'Gara, Mr. Saldin was a
consultant to OSN from October 1994 through September 1995. The consulting
services, which were managerial and related to the start up of OSN's operations,
were provided through a company controlled by Mr. Saldin, which was paid
$180,000.
Edward F. O'Gara. In 1994, 1995 and 1996, OHE guaranteed certain
consulting agreements between Longline or Excel Armor and Cirrus Systems, Inc.,
a Delaware corporation owned by Edward F. O'Gara, the brother of Thomas M.
O'Gara and Wilfred T. O'Gara. Such agreements were for one year terms for a
total of $120,000 per year and expired December 31, 1996. Thomas M. O'Gara has
agreed to indemnify OHE for any claims made under such guarantees.
EXERCISE OF STOCK OPTIONS AND SALE OF SHARES
On August 23, 1996, Messrs. Thomas M. O'Gara, Wilfred T. O'Gara, Carpinello
and Curotto exercised options previously granted on December 31, 1993 to
purchase 138, 131, 91 and 85 shares of the Common Stock of OHE, respectively, at
a price of $1.00 per share. Giving effect to the Reorganization, the
corresponding numbers of shares of O'Gara Common Stock were 37,667, 35,756,
24,838 and 23,201, respectively, at a price of $0.0037 per share.
On August 23, 1996, Thomas M. O'Gara sold 10 shares of the Common Stock of
OHE to Mr. Carpinello for a price of $468.00 per share (equivalent to 2,730
shares of O'Gara Common Stock for a price of $1.71 per share). O'Gara incurred a
nonrecurring, non-cash expense of approximately $19,890 in the fourth quarter of
1996 in connection with this sale. This expense resulted in a corresponding
increase in additional paid-in capital, and no change in total shareholders'
equity. This expense was not tax deductible and represented the difference
between the net offering price and the net sales price of these shares as if
issued directly by O'Gara.
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<PAGE> 100
PRINCIPAL SHAREHOLDERS OF O'GARA
The following table sets forth certain information regarding the beneficial
ownership of O'Gara Common Stock on October 15, 1997 (on an actual basis and as
adjusted to reflect the consummation of the Merger) by (i) each beneficial owner
of more than 5% of the O'Gara Common Stock immediately prior to or after the
Merger, (ii) each director, nominee for director and named executive officer
individually, (iii) all directors, nominees for director and executive officers
of O'Gara as a group, (iv) all shareholders of O'Gara prior to the Merger and
(v) all shareholders of Kroll prior to the Merger. Unless otherwise indicated,
all shares are owned directly and the indicated owner has sole voting and
dispositive power with respect thereto.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR SHARES BENEFICIALLY
TO MERGER(1)(4) OWNED AFTER MERGER(1)(5)
--------------------- --------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------- --------- ------- ---------- --
<S> <C> <C> <C> <C>
Thomas M. O'Gara(2)(3)...................... 4,041,838 55.5 4,041,838 29.0
Wilfred T. O'Gara........................... 277,266 3.8 277,266 2.0
Gary W. Allen............................... 16,397 * n/a(6) *
Richard L. Curotto.......................... 40,087 * n/a(6) *
Daniel Gautier(2)........................... 376,597 5.2 376,597 2.7
Michael J. Lennon........................... 18,864 * 18,864 *
Raymond E. Mabus............................ 1,000 * 1,000 *
Hugh E. Price............................... 15,000 * 15,000 *
Jerry E. Ritter............................. 1,000 * 1,000 *
William S. Sessions......................... 1,000 * 1,000 *
Jules B. Kroll(2)........................... -- * 3,684,991(7) 26.5
Michael G. Cherkasky........................ -- -- 200,939 1.4
American International Group, Inc.(2)....... -- -- 1,444,197 10.4
Howard I. Smith............................. -- -- 1,444,197(8) 10.4
Marshall S. Cogan........................... -- -- -- *
All directors, nominees for director and
executive officers as a group (13 persons
prior to the Merger, 12 persons
thereafter)............................... 4,861,016 65.6 10,238,685(7)(9) 72.2
All shareholders of O'Gara prior to the
Merger.................................... 7,279,310 100.0 7,279,310 52.3
All shareholders of Kroll prior to the
Merger.................................... -- -- 6,650,000 47.7
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) Pursuant to the regulations of the Commission, shares are deemed to be
"beneficially owned" by a person if such person directly or indirectly has
or shares the power to vote or dispose of such shares, whether or not such
person has any pecuniary interest in such shares, or has or shares the right
to acquire the power to vote or dispose of such shares within 60 days,
including through the exercise of any option, warrant or right.
(2) Mr. O'Gara's address is 9113 LeSaint Drive, Fairfield, Ohio 45014. Mr.
Gautier's address is Z.I., rue d'Armor B.P. 414, 22404 Lambelle Cedex,
France. Mr. Kroll's address is 900 Third Avenue, New York, New York 10022.
AIG's address is 70 Pine Street, New York, New York 10270.
(3) Includes 793,095 shares held by MeesPierson Management (Guernsey) Ltd. and
373,524 shares held by Union Federal Corporation over which Thomas M. O'Gara
has indirect voting control and 2,864,219 shares held by a family trust.
(4) Includes 101,000 shares of O'Gara Common Stock which all directors, nominees
for director and executive officers as a group have the right to acquire
upon the exercise of stock options which are exercisable prior to December
15, 1997, including 17,000 shares subject to options held by Wilfred T.
O'Gara, 15,000 shares subject to options held by Gary W. Allen, 15,000
shares subject to options held by Richard L. Currotto, 17,000 shares subject
to options held by Michael J. Lennon, 1,000 shares subject to options held
by Raymond E. Mabus, 15,000 shares subject to options held by Hugh E. Price,
and 1,000 shares subject to options held by William S. Sessions.
(5) Includes 161,529 shares of O'Gara Common Stock which all directors, nominees
for director and executive officers as a group have the right to acquire
which are exercisable prior to December 15, 1997, including 17,000 shares
subject to options held by Wilfred T. O'Gara, 17,000 shares subject to
options held by Michael J. Lennon, 1,000 shares subject to options held by
Raymond E. Mabus, 15,000 shares subject to options held by Hugh E. Price,
1,000 shares subject to options held by William S. Sessions, and 90,529
shares subject to options to be held by Michael G. Cherkasky originally
issued by Kroll.
(6) Mr. Allen and Mr. Curotto will cease to be executive officers of O'Gara upon
consummation of the Merger.
(7) Does not include an aggregate of 192,561 shares of O'Gara Common Stock to be
held by trusts for the benefit of Mr. Kroll's adult children, in which
shares Mr. Kroll disclaims any beneficial interest.
(8) Consists of shares of O'Gara Common Stock to be held by AIG. Mr. Smith
disclaims any beneficial interest in these shares.
(9) Includes 90,529 shares of O'Gara Common Stock which a former director and
executive officer of Kroll will have the right to acquire upon the exercise
of stock options originally issued by Kroll and 1,444,197 shares of O'Gara
Common Stock to be held by AIG which are deemed to be owned by Mr. Smith and
in which he disclaims any beneficial interest.
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<PAGE> 101
MANAGEMENT OF KROLL
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information, as of September 1,
1997, with respect to the executive officers and directors of Kroll who will
become executive officers and directors of O'Gara at the Effective Time:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH KROLL SINCE
- -------------------------- ----- -------------------------------------------------------- -----
<S> <C> <C> <C>
Jules B. Kroll............ 56 Chairman, Director 1972
Michael G. Cherkasky...... 47 President, Director 1997
Nazzareno E. Paciotti..... 51 Chief Financial Officer, Vice President, Treasurer 1992
Howard I. Smith........... 52 Director 1993
</TABLE>
Jules B. Kroll founded Kroll in 1972 and has been the Chairman of the Board
and Chief Executive Officer of Kroll since then. Mr. Kroll is also a director of
United Auto Group, Inc.
Michael G. Cherkasky has been an Executive Managing Director of Kroll since
April, 1997 and Chief Operating Officer of Kroll since January 1997. From
November 1995 to January 1997, he was the head of Kroll's North American Region
and from February 1994 to November 1995 he was the head of Kroll's Monitoring
Group. From June 1993 to November 1993, Mr. Cherkasky was a candidate for public
office. From 1978 to June, 1993, Mr. Cherkasky was with the District Attorney's
office for New York County, his last position being Chief of the Investigations
Division.
Nazzareno E. Paciotti has been the Chief Financial Officer of Kroll since
June 1992. From January 1990 to June 1992, he was a Managing Director and the
Controller of the Henley Group, (the parent of PneumoAbex Inc. and Fisher
Scientific (a laboratory supply company)) and from August 1988 to January 1990,
he was a Vice President and the Controller of PneumoAbex Inc. (an aerospace
contractor specializing in the manufacture of landing gear and flight actuating
systems).
Howard I. Smith has been Executive Vice President, Chief Financial Officer
and Comptroller of AIG since 1996. From 1984 until 1996, Mr. Smith was Senior
Vice President and Comptroller of AIG. From 1975 until 1984 Mr. Smith was a
partner in the independent public accounting firm of Coopers & Lybrand. Mr.
Smith is also a director of 20th Century Industries, International Lease Finance
Corporation, and Transatlantic Holdings, Inc. Mr. Smith was elected a director
of AIG in 1997.
94
<PAGE> 102
EXECUTIVE COMPENSATION
The following table shows the compensation awarded or paid by Kroll for
services rendered for the years ended December 31, 1994, 1995 and 1996 to Jules
B. Kroll, Chairman of the Board and Chief Executive Officer of Kroll, and
Messrs. Cherkasky and Paciotti, the executive officers of Kroll who will become
executive officers of O'Gara at the Effective Time:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION OTHER RESTRICTED SECURITIES
NAME AND -------------------------- ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARD OPTIONS COMPENSATION
AT 1996 FISCAL YEAR-END YEAR ($) $ $ $ (#) $(1)(2)
- -------------------------------- ---- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jules B. Kroll.................. 1996 $500,000 $75,000 -- $ -- -- $ 31,715
Chairman and Chief 1995 500,000 -- -- -- -- 30,395
Executive Officer 1994 500,000 -- -- -- -- 29,076
Michael G. Cherkasky............ 1996 300,000 75,000 898 -- 1,098 26,767
Head of North 1995 260,000 -- 898 -- 350 25,971
American Region 1994 170,513 16,201 -- 20,700 -- --
Nazzareno E. Paciotti........... 1996 225,520 50,000 -- -- 1,098 24,984
Chief Financial Officer 1995 225,520 -- -- -- 350 22,797
1994 205,520 20,000 -- -- -- 22,111
</TABLE>
- ---------------
(1) Represents contributions to the Kroll Associates, Inc. Money Purchase
Pension Plan and 401(k) Savings Plan (collectively the "Savings Plans"). In
1996, Kroll contributed a total of $19,250 to the Savings Plans on behalf of
each of Messrs. Kroll and Cherkasky and contributed a total of $18,500 to
the Savings Plans on behalf of Mr. Paciotti.
(2) Includes annual cost of a supplemental disability benefit. In 1996, the cost
to Kroll of this benefit was $12,465 for Mr. Kroll, $7,517 for Mr. Cherkasky
and $6,484 for Mr. Paciotti.
RESTRICTED STOCK
Restricted Stock Plan. Kroll adopted the Kroll Restricted Stock Plan on
June 15, 1993, and subsequently amended the Kroll Restricted Stock Plan on
November 10, 1993. The Kroll Restricted Stock Plan is administrated by a
committee elected by the Kroll Board of Directors (the "Kroll Restricted Stock
Committee"). The Kroll Restricted Stock Committee has broad discretion in
determining which employees of Kroll (excluding Jules B. Kroll who is not
eligible to participate in the Kroll Restricted Stock Plan) are eligible to
receive awards of restricted Kroll Common Stock. The Kroll Restricted Stock Plan
Committee also has the power to set the vesting schedule of any shares of
restricted stock granted pursuant to the Kroll Restricted Stock Plan. The Kroll
Restricted Stock Plan contains, among other transfer restrictions, certain put
rights, certain rights of first refusal in favor of Kroll, certain tag-along
rights and certain call rights in favor of Kroll with respect to any sale or
transfer of any Kroll Common Stock which was granted pursuant to the Kroll
Restricted Stock Plan. All of these restrictions will terminate at the Effective
Time. Subject to applicable law and the discretion of the Kroll Restricted Stock
Committee, awards of Kroll Common Stock made pursuant to the Kroll Restricted
Stock Plan are typically granted at no purchase price to the recipient. Subject
to the provisions of the Kroll Restricted Stock Plan, shares of Kroll Common
Stock issued pursuant to a restricted stock award may not be sold or transferred
until the ownership in the restricted shares vests. Upon the consummation of the
Merger, all shares of Kroll Common Stock issued pursuant to the Kroll Restricted
Stock Plan will immediately vest and will be converted into shares of O'Gara
Common Stock.
A maximum of 9,240 shares of Kroll Common Stock were available for awards
under the Kroll Restricted Stock Plan. All of such shares have been awarded. As
of the date hereof, 8,443 shares of Kroll Common Stock remain outstanding under
the Kroll Restricted Stock Plan, including 150 shares held by Michael G.
Cherkasky and 213 shares held by Nazzareno E. Paciotti.
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<PAGE> 103
Other Restricted Stock Grants. In January, 1997, Kroll awarded 1,616
shares of restricted Kroll Common Stock to Mr. Cherkasky, in connection with his
appointment as President of Kroll, on terms substantially similar to the terms
set forth in the Kroll Restricted Stock Plan.
Outstanding Restricted Stock Grants. As of the date hereof, Messrs.
Cherkasky and Paciotti own 1,766 and 213 shares, respectively, of restricted
Kroll Common Stock. Assuming the conversion of each share of restricted Kroll
Common Stock into 62.52 shares of O'Gara Common Stock and assuming an $ per
share value of O'Gara Common Stock, based on the price of O'Gara Common Stock on
, the value of the restricted Kroll Stock to each of Messrs. Cherkasky
and Paciotti would be $ and $ , respectively.
STOCK OPTIONS
Management Stock Option Plan. The Kroll Management Stock Option Plan is
managed by a committee appointed by the Kroll Board of Directors (the "Kroll
Management Stock Option Plan Committee"). The Kroll Management Stock Option Plan
Committee has the power to grant options, determine eligible employees,
determine the number of shares of Kroll Common Stock subject to options,
prescribe the form of the option grant, and determine the vesting of the
options. Any option issued pursuant to the Kroll Management Stock Option Plan
shall expire on the tenth anniversary of the grant date. An option enables the
option holder to purchase shares of Kroll Common Stock at the option exercise
price. The per share exercise price of any option granted under the Kroll
Management Stock Option Plan is determined by a formula set forth in the Kroll
Management Stock Option Plan based on an appraisal of Kroll. The Kroll
Management Stock Option Plan provides that Kroll has the option to pay the
option holder either in cash or Kroll Common Stock upon the exercise of an
option granted thereunder. The Kroll Management Stock Option Plan contains
certain restrictions on the transfer of Kroll Common Stock issued pursuant to
such plan, including certain put rights, certain rights of first refusal in
favor of Kroll, certain tag-along rights and certain call rights in favor of
Kroll. All of these restrictions will terminate upon the consummation of the
Merger. Upon the consummation of the Merger, all options under the Kroll
Management Stock Option Plan will vest and be converted into options to purchase
shares of O'Gara Common Stock.
As of the date hereof, there were options relating to 6,625 shares of Kroll
Common Stock outstanding pursuant to the Kroll Management Stock Option Plan,
including options to purchase 350 shares of Kroll Common Stock at a price of
$400 per share granted to each of Messrs. Cherkasky and Paciotti. Assuming such
options are exercised and all such shares of Kroll Common Stock are converted to
O'Gara Common Stock at the exchange ratio of 62.52 shares of O'Gara Common Stock
for each share of Kroll Common Stock, the value of these options to each of
Messrs. Cherkasky and Paciotti will be $ and $ ,
respectively (based on the price of O'Gara Common Stock on , 1997).
Stock Option and Stockholder Agreements. On January 29, 1996, Mr.
Cherkasky and Mr. Paciotti each entered into a Stock Option and Stockholder
Agreement with Jules B. Kroll and Kroll. Pursuant to each such agreement,
Messrs. Cherkasky and Paciotti were each granted on the date of the agreement
the option to purchase 1,098 shares of Kroll Common Stock at an exercise price
of $150 per share. As of the date hereof, all of such options have vested. If
the Merger is consummated, all such options granted pursuant to the Stock Option
and Stockholder Agreements expire on the tenth anniversary of the date of the
grant of the options. The Kroll Common Stock issued pursuant to the Stock Option
and Stockholder Agreements is subject to certain transfer restrictions,
including, but not limited to, certain put rights, certain rights of first
refusal in favor of Kroll, certain tag-along rights and certain call rights in
favor of Kroll. All of these restrictions will terminate upon the consummation
of the Merger. Assuming such options are exercised and all such shares of Kroll
Common Stock are converted to O'Gara Common Stock at the exchange ratio of 62.52
shares of O'Gara Common Stock for each share of Kroll Common Stock, the value of
these options to each of Messrs. Cherkasky and Paciotti will be $ and
$ , respectively (based on the price of O'Gara Common Stock on
, 1997).
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<PAGE> 104
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL
CERTAIN LOAN AND OTHER TRANSACTIONS
Jules B. Kroll has borrowed an aggregate of $1,345,499 from Kroll. Of this
amount, $748,000 is represented by a promissory note that bears interest at an
annual rate equal to the Prime Rate plus 1% and $597,499 is represented by a
promissory note that bears interest at an annual rate of 7% (equal to the Prime
Rate at the date of the loan plus 1%). As of June 30, 1997, principal and
accrued interest in the aggregate amount of $1,373,720 was outstanding under
these notes. These loans will be repaid in full prior to the consummation of the
Merger and are expected to be repaid in connection with the payment by Kroll to
Jules B. Kroll of the amounts it owes to him as described in the next paragraph.
Since 1989 Jules B. Kroll has loaned an aggregate of $1,806,999 to Kroll,
of which $152,000 has been repaid and an aggregate of $1,654,999 was outstanding
as of June 30, 1997. Of the outstanding amount, $1,057,500 is represented by
promissory notes that bear interest at an annual rate equal to the Prime Rate
from time to time in effect plus 1% and $597,499 is represented by promissory
notes that bear interest at an annual rate of 7% (equal to the Prime Rate at the
date of the loan plus 1%). As of June 30, 1997, principal and accrued interest
in the aggregate amount of $1,690,571 was outstanding under these notes. Prior
to the Merger, these loans will be repaid to the extent of the amounts owed to
Kroll by Jules B. Kroll under the loans described in the preceding paragraph.
The remaining amount will be reflected by a new promissory note issued by Kroll
in the principal amount of $309,500, which will bear interest at an annual rate
1/2% below the Prime Rate from time to time in effect. The accrued interest
described in the preceding paragraph and the accrued interest described in this
paragraph will be repaid in full prior to consummation of the Merger.
In addition, since 1989, Jules B. Kroll has made open account advances to
Kroll from time to time in the aggregate principal amount of $9,695,136, of
which $5,532,678 has been repaid and $4,162,458 was outstanding as of June 30,
1997. These advances were utilized by Kroll for working capital purposes. Of the
outstanding amount, $3,033,349 bears interest at an annual rate equal to the
Prime Rate, from time to time, plus 1% and $1,129,109 bears interest at an
annual rate equal to the brokers' loan rate (7.625% at June 30, 1997) from time
to time in effect. As of June 30, 1997, principal and accrued interest in the
aggregate amount of $4,244,649 was owed by Kroll to Jules B. Kroll under these
advances, all of which amounts will be repaid upon the consummation of the
Merger (see "THE MERGER -- Financing the Merger"). The Merger Agreement also
contemplates that Jules B. Kroll may make further advances to Kroll of up to
$1,000,000 prior to the Effective Time. Any such additional advances, together
with accrued interest thereon at an annual rate equal to the Prime Rate plus 1%,
will be repaid in full upon the consummation of the Merger.
On each of July 28, 1995 and July 29, 1995 AIG loaned to Kroll $1,000,000.
Such loans are evidenced by demand promissory notes in the aggregate principal
amount of $2,000,000 and bear interest at an annual rate equal to the Citibank
N.A. base rate from time to time in effect plus 2%. As of June 30, 1997,
principal and accrued interest in the aggregate amount of $2,053,083 was
outstanding under these notes. These notes will be repaid in full upon the
consummation of the Merger (see "THE MERGER -- Financing the Merger").
During 1994, 1995 and 1996, Kroll rendered services to AIG and its
subsidiaries. Such services consisted of risk management services, including
marketing support, and claims investigations. Kroll billed AIG and its
subsidiaries for such services $3,158,113, $3,868,967 and $5,325,559 in 1994,
1995 and 1996, respectively. Since 1995, Kroll has purchased certain of its
liability insurance, including Professional Errors and Omissions and Directors
and Officers liability insurance, from AIG's subsidiaries. AIG's subsidiaries
billed Kroll $485,807 and $824,348 for this insurance during 1995 and 1996,
respectively. Kroll obtained the coverage through an independent insurance
broker that had obtained competitive proposals from unrelated third parties.
Effective April 1, 1996, Kroll and American Insurance Underwriters ("AIU"), a
marketing unit comprised of wholly owned subsidiaries of AIG, entered into an
agreement pursuant to which Kroll agreed to provide AIU with certain crisis
management and marketing services through November 30, 1998. The agreement
provides for an annual retainer ($2,288,640 for 1997), subject to certain
adjustments, and is payable quarterly in advance.
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<PAGE> 105
PRINCIPAL SHAREHOLDERS OF KROLL
The following table sets forth certain information as of June 30, 1997 with
respect to the beneficial ownership of shares of Kroll Stock by (i) each person
that beneficially owns more than 5% of the outstanding shares of Kroll Stock,
(ii) each director of Kroll who will become a director of O'Gara upon the
Effective Time, (iii) each executive officer of Kroll who will become an
executive officer of O'Gara upon the Effective Time, and (iv) all such executive
officers and directors as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF KROLL STOCK PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS BENEFICIALLY OWNED(1) KROLL STOCK(1)
- ------------------------------------------ ------------------------------- -------------------------
<S> <C> <C>
Jules B. Kroll
900 Third Avenue
New York, New York 10022.................. 58,941(2)(3) 60.4
American International Group, Inc.
70 Pine Street
New York, New York 10270.................. 23,100(4) 23.7
Michael G. Cherkasky
900 Third Avenue
New York, New York 10022.................. 3,214(3)(5)(6) 3.2
Nazzareno E. Paciotti
900 Third Avenue
New York, New York 10022.................. 1,661(3)(6)(7) 1.7
Howard I. Smith
70 Pine Street
New York, New York 10270.................. 23,100(4)(8) 23.7
All executive officers and directors, as a
group (4 people)........................ 86,916(2)(3)(5)(7)(9) 87.2
</TABLE>
- ---------------
(1) Unless otherwise indicated each person listed above has sole voting and
investment power with respect to all shares of Kroll Stock owned by such
person. The percentage of outstanding Kroll Stock owned by each such person
is determined by assuming that all options held by such person have been
exercised and that the restrictions with respect to all shares of restricted
stock held by such person have lapsed. See "MANAGEMENT OF KROLL -- Stock
Options" and "MANAGEMENT OF KROLL -- Restricted Stock."
(2) Does not include an aggregate of 3,080 shares of Kroll Common Stock held by
trusts for the benefit of Mr. Kroll's adult children, in which shares Mr.
Kroll disclaims any beneficial interest.
(3) Consists of Kroll Common Stock.
(4) Consists of Kroll Class A Common Stock.
(5) Includes 1,766 shares of Kroll Common Stock issued under the Kroll
Restricted Stock Plan and under a restricted stock agreement. See
"MANAGEMENT OF KROLL -- Restricted Stock."
(6) Includes, for each of Mr. Cherkasky and Mr. Paciotti, (a) 1,098 shares of
Kroll Common Stock issuable upon the exercise of options expiring in 2006,
granted under a stock option and stockholder agreement, at $150 per share,
and (b) 350 shares of Kroll Common Stock issuable upon the exercise of
options, expiring in 2005, granted under the Kroll Management Stock Option
Plan at $400 per share. See "MANAGEMENT OF KROLL -- Stock Options."
(7) Includes 213 shares of shares of Kroll Common Stock issued under the Kroll
Restricted Stock Plan. See "MANAGEMENT OF KROLL -- Restricted Stock."
(8) Consists of shares of Kroll Class A Stock owned by AIG. Mr. Smith disclaims
any beneficial interest in these shares.
(9) Includes an aggregate of 2,896 shares of Kroll Stock issuable upon the
exercise of the options described in note 6 above and 23,100 shares of Kroll
Class A Stock owned by AIG which are deemed to be owned by Mr. Smith and in
which he disclaims any beneficial interest. See "MANAGEMENT OF
KROLL -- Stock Options."
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<PAGE> 106
THE O'GARA CAPITALIZATION PROPOSAL
The O'Gara Board is proposing an amendment to the O'Gara Articles to
increase the number of authorized shares of O'Gara Preferred Stock and O'Gara
Common Stock to 1,000,000 and 50,000,000, respectively.
The proposed increase in the number of authorized shares has been deemed
advisable by the O'Gara Board in order to provide additional authorized but
unissued shares for issuance from time to time for such proper corporate
purposes as may be determined by the O'Gara Board, without further action or
authorization by the shareholders. Such corporate purposes might include the
raising of additional capital through the issuance of stock, the acquisition of
other companies, or the declaration of stock splits and/or stock dividends.
Although O'Gara from time to time considers possible acquisitions involving the
issuance of stock other than the Merger, it is not presently engaged in
negotiations concerning any transaction involving the issuance of additional
shares.
On October 15, 1997, there were issued and outstanding 7,279,310 shares of
O'Gara Common Stock, of which 614,917 were issued in 1997 in connection with the
Acquisitions. In addition, a total of 274,050 shares were reserved for issuance
pursuant to the Plan and an additional 6,650,000 shares will be issued or
reserved for issuance if the Merger is consummated.
The proposed increase in the number of authorized shares of O'Gara
Preferred Stock or O'Gara Common Stock will not change the rights of holders of
currently outstanding shares of O'Gara Common Stock. The newly authorized shares
will have the same rights as currently outstanding shares. Current shareholders
of O'Gara would not have any preemptive rights to purchase a portion of the
newly authorized shares.
The increase in authorized but unissued shares may have an incidental
anti-takeover effect in that additional shares could be used to dilute the stock
ownership of persons seeking to obtain control of O'Gara. The resulting effect
may be to render more difficult or to discourage the possibility of certain
mergers, tender offers or proxy contests. For a description of other existing
possible anti-takeover provisions, see "RISK FACTORS -- Risk Factors Associated
with the Merger -- Potential Anti-Takeover Effect and Potential Adverse Impact
on Market Price of Certain Charter and Code of Regulations Provisions and the
OGCL," "DESCRIPTION OF O'GARA CAPITAL STOCK" and "COMPARISON OF SHAREHOLDERS'
RIGHTS."
If the proposed amendment is approved, all or any part of the authorized
but unissued shares may thereafter be issued without further approval from the
shareholders, except as required by the OGCL or the policies of the Nasdaq
National Market, for such purposes and on such terms as the O'Gara Board may
determine. O'Gara is not presently subject to any law or stock exchange policy
which would require further shareholder approval prior to the issuance of O'Gara
Common Stock, except in limited situations involving the issuance of a
substantial block of stock.
THE O'GARA BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE O'GARA
CAPITALIZATION PROPOSAL.
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<PAGE> 107
DESCRIPTION OF O'GARA CAPITAL STOCK
O'Gara's authorized capital stock consists of 25,000,000 (to be increased
to 50,000,000 if the O'Gara Capitalization Proposal is approved) shares of
Common Stock, $0.01 par value per share, of which 7,279,310 shares are
outstanding as of the date of this Proxy Statement/Prospectus, and 100,000 (to
be increased to 1,000,000 if the O'Gara Capitalization Proposal is approved)
shares of undesignated preferred stock, $0.01 par value per share, none of which
is issued or outstanding. See "THE O'GARA CAPITALIZATION PROPOSAL." The
following description of the material terms of the capital stock of O'Gara is
qualified in its entirety by the provisions of the O'Gara Articles and the
O'Gara Code and by the provisions of the OGCL.
COMMON STOCK
Holders of O'Gara Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Shareholders do
not have the right to cumulate their votes in the election of directors.
Subject to preferences which may be granted to holders of O'Gara Preferred
Stock, holders of O'Gara Common Stock are entitled to share in such dividends as
the Board of Directors, in its discretion, may validly declare from funds
legally available. In the event of liquidation, each outstanding share of O'Gara
Common Stock entitles its holder to participate ratably in the assets remaining
after payment of liabilities and any preferred stock liquidation preferences.
Shareholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or any other securities of
O'Gara. There are no redemption or sinking fund provisions with regard to the
O'Gara Common Stock. All outstanding shares of O'Gara Common Stock are fully
paid, validly issued and nonassessable.
The vote of holders of a majority of all outstanding shares of O'Gara
Common Stock is required to amend the O'Gara Articles and to approve mergers,
reorganizations, and similar transactions.
PREFERRED STOCK
Up to 100,000 (to be increased to 1,000,000 if the O'Gara Capitalization
Proposal is approved) authorized shares of O'Gara Preferred Stock may be issued
from time to time in series having such designations, preferences and rights,
qualifications and limitations as the O'Gara Board may determine without any
approval of shareholders. O'Gara Preferred Stock could be given rights which
would adversely affect holders of O'Gara Common Stock and could have preference
to O'Gara Common Stock with respect to dividend and liquidation rights. Issuance
of O'Gara Preferred Stock could have the effect of acting as an anti-takeover
device to prevent a change of control of O'Gara.
PROVISIONS AFFECTING BUSINESS COMBINATIONS AND CHANGES IN CONTROL
Ohio law, which governs the rights of shareholders of O'Gara, contains
several provisions which may be viewed as having an anti-takeover effect. See
"COMPARISON OF SHAREHOLDERS' RIGHTS -- Anti-takeover Statutes." While O'Gara
believes that these provisions are in its best interests, potential shareholders
should be aware that such provisions could be disadvantageous to them because
the overall effect of these statutes may be to render more difficult or
discourage the removal of incumbent management or the assumption of effective
control by other persons.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the O'Gara Common Stock is The Fifth
Third Bank, Cincinnati, Ohio.
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<PAGE> 108
SHARES OF O'GARA COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Merger, there will be outstanding 13,929,310 shares
of O'Gara Common Stock (assuming the exercise of all Kroll stock options and no
exercise of outstanding O'Gara stock options). O'Gara may issue up to 6,650,000
shares of O'Gara Common Stock in the Merger (depending on the number of shares
of O'Gara Common Stock subject to Kroll Issuance Agreements exercised prior to
the Effective Time and not converted into options to acquire O'Gara Common
Stock). All shares of O'Gara Common Stock issued in the Merger will be freely
tradeable by persons other than "affiliates" of O'Gara and Kroll, as that term
is defined in Rule 144 under the Act, without restriction or registration under
the Act. See "THE MERGER -- Federal Securities Law Consequences." In addition,
all of the shares of O'Gara Common Stock sold in the Offering are freely
tradeable. The remaining approximately 5.2 million shares (the "Restricted
Shares") have been beneficially owned primarily by certain of O'Gara's executive
officers or directors since prior to the Offering or were issued in the
Acquisitions or as stock bonuses to certain executive officers of O'Gara paid in
the first quarter of 1997. The Restricted Shares may not be sold unless they are
registered under the Act or sold pursuant to an applicable exemption from
registration, including an exemption pursuant to Rule 144.
Rule 144 governs the public sale in ordinary trading transactions of
"restricted securities" and of securities owned by "affiliates." Restricted
securities are securities acquired directly or indirectly from an issuer in a
transaction not involving a public offering. In general, under Rule 144, if a
holding period of at least one year has elapsed since the date the restricted
securities were acquired from O'Gara, then the holder of such restricted
securities (including an affiliate of O'Gara) is entitled, subject to certain
conditions, to sell within any three-month period a number of shares which does
not exceed the greater of (i) 1% of O'Gara's then outstanding shares of Common
Stock or (ii) the shares' average weekly trading volume during the four calendar
weeks preceding such sale. If a holding period of at least two years has elapsed
since the date the restricted securities were acquired from O'Gara, then sales
by holders of such restricted securities who are not affiliates of O'Gara are
not subject to such volume limitations. Sales under Rule 144 are also subject to
certain manner-of-sale provisions and requirements as to notice and the
availability of current public information about O'Gara. Of the Restricted
Shares, approximately 4.6 million currently are eligible for sale pursuant to
Rule 144; and approximately 0.6 million will become eligible for sale under Rule
144 in the first quarter of 1998 upon the first anniversary of the Acquisitions.
Of these 5.2 million Restricted Shares, approximately 4.7 million are held by
affiliates of O'Gara and as a result will continue to be subject to the volume
limitations of Rule 144 indefinitely; approximately 0.2 million will become
eligible for sale without regard to the volume limitations of Rule 144 in
February, 1999, approximately 0.1 million will become eligible for resale
without regard to the volume limitations of Rule 144 in March, 1999, and the
remaining approximately 0.3 million are currently eligible for resale without
regard to the volume limitations of Rule 144.
Pursuant to Rule 145 under the Act, resale of the shares of O'Gara Common
Stock acquired in the Merger by affiliates of Kroll prior to the Merger, or
O'Gara thereafter, will be subject to the provisions of Rule 144 (other than the
holding period requirement).
O'Gara has agreed to register certain of the Restricted Shares for sale
under the Act under certain circumstances. See "THE MERGER
AGREEMENT -- Registration Rights Agreements."
O'Gara has reserved up to 400,000 shares of O'Gara Common Stock for
issuance under the Plan. If the O'Gara Option Proposal is approved, the number
of shares subject to the Plan will be increased to 836,000. As of October 15,
1997, options for 274,050 shares of O'Gara Common Stock were outstanding under
the Plan. O'Gara has registered the shares of O'Gara Common Stock reserved for
issuance under the Plan. Subject to compliance with Rule 144 by affiliates of
O'Gara and to Section 16 of the Exchange Act by directors, officers and 10%
beneficial owners, any shares of O'Gara Common Stock issued upon exercise of
options granted under the Plan will be freely tradeable. O'Gara will reserve up
to an additional 551,489 shares of O'Gara Common Stock with respect to shares of
Kroll Stock subject to Kroll Issuance Agreements. See "THE MERGER AGREEMENT --
Conversion of Kroll Stock." O'Gara expects to register, effective at or about
the Effective Time, the shares of O'Gara Common Stock reserved for issuance
after the Effective Time with respect to Kroll Issuance Agreements.
Sales of substantial amounts of O'Gara Common Stock in the public market
could adversely affect prevailing market prices and O'Gara's ability to raise
capital at favorable prices.
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<PAGE> 109
COMPARISON OF SHAREHOLDERS' RIGHTS
O'Gara is organized under the laws of the State of Ohio and Kroll is
organized under the laws of the State of Delaware. The following discussion
summarizes material differences between the O'Gara Articles and the O'Gara Code
and the Certificate of Incorporation (the "Kroll Certificate") and Bylaws (the
"Kroll Bylaws") of Kroll and between certain provisions of the DGCL and the OGCL
affecting shareholders' rights.
Authorized Capital. The total number of authorized shares of capital stock
of Kroll is 200,000, consisting of 153,800 shares of Kroll Common Stock and
46,200 shares of Kroll Class A Common Stock. The authorized capital of O'Gara is
set forth under "DESCRIPTION OF O'GARA CAPITAL STOCK."
Directors. The O'Gara Code provides for no fewer directors than the lesser
of three or the number of shareholders of record, which number may be fixed or
changed upon approval of a majority of the shareholders or by action of the
O'Gara Board. Kroll's Bylaws provide for no fewer than three nor more than 10
directors, which number may be increased by the affirmative approval of a
majority of the Kroll directors at an annual or special meeting or the
affirmative approval of a majority in interest of the Kroll shareholders.
Amendment of Code of Regulations and Bylaws. The O'Gara Code may be
amended, pursuant to its terms, by the affirmative approval of the O'Gara
shareholders entitled to exercise a majority of the voting power of O'Gara. The
Kroll Certificate provides that the Kroll Board has the power by vote of the
majority of the Kroll directors and without the assent of the shareholders to
make, alter, amend, change, add to or repeal the Kroll Bylaws. Pursuant to its
terms, the Kroll Bylaws may be altered or repealed by the affirmative vote of
the holders of a majority of the outstanding capital stock entitled to vote
thereon.
Amendment of Charter Documents. Under the OGCL (as implemented by the
O'Gara Articles) and the DGCL, the affirmative vote of a majority of the
outstanding shares entitled to vote is required to amend a certificate of
incorporation or articles of incorporation, as the case may be. In addition,
amendments which make changes relating to the capital stock by increasing or
decreasing the par value or the aggregate number of authorized shares of a
class, or otherwise adversely affecting the rights of such class, must be
approved by the majority vote of each class or series of stock affected, even if
such stock would not otherwise have such voting rights.
Cumulative Voting. Cumulative voting permits a shareholder to cast as many
votes in the election of directors for each share of stock held as there are
directors to be elected and each shareholder may cast all his votes for a single
candidate or distribute such votes among two or more candidates. Under the OGCL,
cumulative voting is permitted unless the articles of incorporation otherwise
provide. Under the DGCL, cumulative voting is permitted only if it is provided
for in the certificate of incorporation. The Kroll Certificate does not provide
for, and the O'Gara Articles expressly prohibit, cumulative voting for
directors.
Filling Vacancies on the Board of Directors. Pursuant to the O'Gara Code,
any vacancy on the O'Gara Board may be filled for the unexpired portion of the
term by the vote of a majority of the remaining O'Gara directors then in office.
Under the Kroll Bylaws, any vacancy in the Kroll Board may be filled for the
unexpired portion of the term by the vote of a majority of the remaining Kroll
directors then in office.
Shareholder Meetings and Provisions for Notices. The O'Gara Code provides
that special meetings of shareholders may be called by the Chairman of the
Board, the President, a majority of directors, or person or persons holding 50%
of all voting power who would be entitled to vote at such meeting. Special
meetings of the shareholders may not be called by any other person or persons.
The Kroll Bylaws provide that a special meeting of shareholders may be called by
the President or Secretary or by resolution of the Kroll Board.
Pursuant to the O'Gara Code, written notice of any meeting of shareholders
stating the time and place of the meeting shall be given to each shareholder
entitled to vote at such meeting between seven and 60 days before the date of
such meeting. Written notice of a special meeting must also include the purpose
or purposes for which the meeting is called, and only such business as is stated
in such notice shall be acted upon thereat. Under the Kroll Bylaws, notice of
the time and place of annual or special meetings of shareholders shall be given
at least 10 days before the date of such annual or special meeting to each
shareholder entitled to vote thereat.
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<PAGE> 110
Under the OGCL, a proxy is valid for 11 months from its date, unless the
proxy provides otherwise. Under the DGCL, a proxy is valid for three years from
its date, unless the proxy provides for a longer period.
Notice of Director Nominations and New Business. The O'Gara Code provides
that, with respect to an annual meeting of shareholders, nominations of persons
for election to the O'Gara Board and the proposal of business to be considered
at the annual meeting must be (i) specified in the notice of annual meeting
given by or at the direction of the O'Gara Board, (ii) brought before the annual
meeting by or at the direction of the O'Gara Board, or (iii) brought before the
annual meeting by a shareholder who has complied with the advance notice
procedures set forth in the O'Gara Code. There is no similar provision in the
Kroll Certificate or the Kroll By-laws.
Quorum. Under the O'Gara Code, a quorum for the transaction of business at
any regular or special meeting of the O'Gara Board consists of not less than
one-half of the whole authorized number of directors. Under the Kroll Bylaws, a
quorum for the transaction of business at any regular or special meeting of the
Kroll Board consists of a majority of the directors of the Kroll Board.
Under the O'Gara Code, a quorum for the transaction of business at any
shareholder meeting consists of a number of shareholders representing the
majority of the voting power of O'Gara, present in person or represented by
proxy. Under the Kroll Bylaws, a quorum for the transaction of business at any
shareholder meeting consists of shareholders holding a majority of the stock of
Kroll entitled to vote, present in person or by proxy.
Preemptive Rights. Under the OGCL, shareholders have preemptive rights,
subject to certain limitations expressed in the OGCL, unless the articles of
incorporation provide otherwise. The O'Gara Articles prohibit O'Gara
shareholders from exercising preemptive rights. Under the DGCL, shareholders
have no preemptive rights unless such rights are provided for in the certificate
of incorporation. The Kroll Certificate does not provide for preemptive rights.
Voting by Shareholders. Under the O'Gara Code, except as otherwise
required by law, the O'Gara Articles or the O'Gara Code, action by O'Gara
shareholders is taken by the vote of the holders of a majority of the stock
represented and entitled to vote at a meeting of shareholders at which a quorum
is present. Under the Kroll Bylaws, except as otherwise required by law, the
Kroll Certificate or the Kroll Bylaws, action by Kroll shareholders is taken by
the vote of the holders of a majority of the stock entitled to vote.
Anti-takeover Statutes. Section 203 of the DGCL (the "Delaware Statute")
applies to a broad range of "business combinations" between a Delaware
corporation and an "interested shareholder." The Delaware Statute definition of
"business combination" includes mergers, sales of assets, issuance of voting
stock and almost any related party transaction.
The Delaware Statute prohibits a corporation from engaging in a business
combination with an interested shareholder for a period of three years following
the date on which the shareholder became an "interested shareholder" unless (i)
the board of directors approved the business combination before the shareholder
became an "interested shareholder," (ii) upon consummation of the transaction
which resulted in the shareholder becoming an "interested shareholder," such
shareholder owned at least 85% of the voting stock outstanding when the
transaction began, or (iii) the board of directors approved the business
combination after the shareholder became an "interested shareholder" and the
business combination was approved by at least two-thirds of the outstanding
voting stock not owned by such shareholder. An "interested shareholder" is
defined as any person who owns, directly or indirectly, 15% or more of the
outstanding voting stock of a corporation. A person "owns" voting stock if such
person individually or with or through any of its affiliates or associates (i)
beneficially owns such stock, directly or indirectly, (ii) has the right to
acquire or vote such stock pursuant to any agreement (except that a person who
has the right to vote such stock pursuant to an agreement which arises solely
from a revocable proxy given in response to a proxy solicitation made to ten or
more persons is not deemed to be an owner for purposes of the Delaware Statute),
or (iii) has any agreement for the purposes of acquiring, holding, voting or
disposing of such stock with any other person who beneficially owns such stock,
directly or indirectly.
Chapter 1704 of the Ohio Revised Code (the "Merger Moratorium Provisions")
prohibits certain business combinations and transactions between an "issuing
public corporation" and a beneficial owner of 10% or more of the shares of the
corporation (an "interested shareholder") for at least three years after the
interested
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shareholder attains 10% ownership, unless the board of directors of the issuing
public corporation approves the transaction before the interested shareholders
attains 10% ownership. Accordingly, the Merger Moratorium Provision may be
viewed as having an anti-takeover effect. An "issuing public corporation" is
defined as an Ohio corporation with 50 or more shareholders that has its
principal place of business, principal executive offices, or substantial assets
within the State of Ohio, and as to which no close corporation agreement exists.
O'Gara is an "issuing public corporation." Examples of transactions regulated by
the Merger Moratorium Provisions include the disposition of assets, mergers,
consolidations, voluntary dissolutions and the transfer of shares ("Moratorium
Transactions"). Subsequent to the three-year period, a Moratorium Transaction
may take place provided that certain conditions are satisfied, including that
(a) the board of directors approves the transaction, (b) the transaction is
approved by the holders of shares with at least two-thirds of the voting power
of the corporation (or a different proportion set forth in the articles of
incorporation), including at least a majority of the outstanding shares after
excluding shares controlled by the interested shareholder, or (c) the business
combination results in shareholders, other than the interested shareholder,
receiving a fair price plus interest for their shares. One significant effect of
the Merger Moratorium Provisions is to encourage a person to negotiate with the
board of directors of a corporation prior to becoming an interested shareholder.
Although the Merger Moratorium Provisions may apply, a corporation may elect not
to be covered by the Merger Moratorium Provisions, or subsequently elect to be
covered, with an appropriate amendment to its articles of incorporation. O'Gara
has not taken action to opt out of the Merger Moratorium Provisions.
In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
Although the Merger Moratorium Provisions are similar to the Delaware
Statute in some respects, there are significant differences. The Merger
Moratorium Provisions are triggered by the acquisition of 10% of the voting
power of a subject Ohio corporation rather than 15%. The prohibition imposed by
the Merger Moratorium Provisions continues indefinitely after the initial
three-year period unless the subject transaction is approved by the requisite
vote of the shareholders or satisfies statutory conditions relating to the
fairness of consideration received by shareholders who are not interested in the
subject transaction. During the initial three-year period the prohibition is
absolute absent prior approval by the board of directors of the acquisition of
voting power by which a person became an "interested shareholder" or of the
subject transaction. The Merger Moratorium Provisions do not provide any
exemption for an interested shareholder who acquires a significant percentage of
stock in the transaction which resulted in the shareholder becoming an
"interested shareholder" as does the Delaware Statute. The Merger Moratorium
Provisions' definition of "beneficial owner" of shares is essentially similar to
that of the Delaware Statute except that the Merger Moratorium Provisions do not
expressly exclude from the definition of beneficial owner a person who has the
right to vote stock pursuant to an agreement which arises solely from a
revocable proxy.
Section 1701.831 of the OGCL (the "Control Share Acquisition Act") provides
that certain notice and informational filings and special shareholder meetings
and voting procedures must occur prior to consummation of a proposed "Control
Share Acquisition," which is defined as any acquisition of an issuer's shares
that would entitle the acquirer to exercise or direct the voting power of the
issuer in the election of directors within any of the following ranges: (a)
one-fifth or more but less than one-third of such voting power; (b) one-third or
more but less than a majority of such voting power; or (c) a majority or more of
such voting power. Assuming compliance with the notice and information filing
requirements prescribed by the statute, the proposed Control Share Acquisition
may take place only if, at a duly convened special meeting of shareholders, the
acquisition is approved by both a majority of the voting power of the issuer
represented at the meeting and a majority of the voting power remaining after
excluding the combined voting power of the intended acquirer and the directors
and officers of the issuer. The Control Share Acquisition Act does not apply to
a corporation whose articles of incorporation or regulations so provide. O'Gara
has not opted out of the application of the Control Share Acquisition Act.
Delaware law contains no provisions comparable to Ohio's Control Share
Acquisition Act. The Control Share Acquisition Act does not apply to the
acquisition by Kroll shareholders of shares of O'Gara Common Stock in the
Merger.
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The expressed purpose of the Control Share Acquisition Act is to give
shareholders of Ohio corporations a reasonable opportunity to express their
views on a proposed shift in control, thereby reducing the coercion inherent in
an unfriendly takeover. The provisions of the Control Share Acquisition Act
grant to the shareholders of O'Gara the assurance that they will have adequate
time to evaluate the proposal of the acquiring person, that they will be
permitted to vote on the issue of authorizing the acquiring person's purchase
program to go forward in the same manner and with the same proxy information
that would be available to them if a proposed merger of O'Gara were before them
and, most importantly, that the interests of all shareholders will be taken into
account in connection with such vote and the probability will be increased that
they will be treated equally regarding the price to be offered for their common
shares if the implementation of the proposal is approved.
The Control Share Acquisition Act applies not only to traditional offers
but also to open market purchases, privately negotiated transactions and
original issuances by an Ohio corporation, whether friendly or unfriendly. The
procedural requirements of the Control Share Acquisition Act could render
approval of any control share acquisition difficult in that the transaction must
be authorized at a special meeting of shareholders, at which a quorum is
present, by the affirmative vote of the majority of the voting power represented
and by a majority of the portion of such voting power excluding "interested
shares." It is recognized that any corporate defense against persons seeking to
acquire control may have the effect of discouraging or preventing offers which
some shareholders might find financially attractive. On the other hand, the need
on the part of the acquiring person to convince the shareholders of O'Gara of
the value and validity of his offer may cause such offer to be more financially
attractive in order to gain shareholder approval.
Section 1701.59 of the OGCL provides that in determining what such director
reasonably believes to be in the best interests of the corporation the director
may consider, in addition to the interests of the corporation's shareholders,
any of the interests of the corporation's employees, suppliers, creditors and
customers, the economy of the State of Ohio and the U.S., community and societal
considerations and the long-term as well as the short-term interests of the
corporation and its shareholders, including the possibility that these interests
may be best served by the continued independence of the corporation.
Mergers and Consolidations. Under the OGCL, an agreement of merger or
consolidation must be approved by the directors of each constitue corporation
and adopted by shareholders of each constituent Ohio corporation (other than the
surviving corporation) holding at least two-thirds of the corporation's voting
power, or a different proportion, but not less than a majority of the voting
power, as provided in the articles of incorporation. In the case of a merger,
the agreement must, in certain situations, also be adopted by the shareholders
of the surviving corporation by a similar vote. The O'Gara Articles provide that
any such agreement must be adopted by shareholders holding at least a majority
of the voting power.
Under the DGCL, an agreement of merger or consolidation must be approved by
the directors of each constituent corporation and adopted by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote
thereon, or by a greater vote as provided in the certificate of incorporation.
Under the DGCL the separate vote of any class of shares is not required.
Additionally, the DGCL provides that, unless the corporation's certificate of
incorporation provides otherwise, no vote of the shareholders of the surviving
corporation is required to approve the merger if (i) the agreement of merger
does not amend in any respect the corporation's certificate of incorporation,
(ii) each share outstanding immediately prior to the effective date is to be an
identical outstanding or treasury share of the surviving corporation after the
effective date, and (iii) the number of shares of the surviving corporation's
common stock to be issued in the merger plus the number of shares of common
stock into which any other securities to be issued in the merger are initially
convertible does not exceed 20% of its common stock outstanding immediately
prior to the effective date of the merger. The Kroll Certificate does not
require any such vote.
Other Corporate Transactions. Under the OGCL, as implemented by the O'Gara
Articles, subject to certain exceptions, the approval of a majority of the
voting power of the corporation, or a different proportion (not less than a
majority of the corporation's voting power) as provided in the articles of
incorporation, is required for (i) the consummation of combinations and majority
share acquisitions involving the transfer or issuance of such number of shares
as would entitle the holders thereof to exercise at least one-sixth of the
voting power of such corporation in the election of directors immediately after
the consummation of such transaction, (ii) the
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disposition of all or substantially all of the corporation's assets other than
in the regular course of business and (iii) voluntary dissolutions.
The DGCL does not require shareholder approval in the case of combinations
and majority share acquisitions, but does require a majority vote on disposition
of all or substantially all of a corporation's assets and on dissolutions,
unless a greater vote is provided for in the certificate of incorporation. The
Kroll Certificate does not require a greater vote.
Class Voting. Under the OGCL, holders of a particular class of shares are
entitled to vote as a separate class if the rights of such class are affected in
certain respects by mergers, consolidations or amendments to the articles of
incorporation.
The DGCL requires voting by separate classes only with respect to
amendments to the certificate of incorporation which adversely affect the
holders of such classes or which increase or decrease the aggregate number of
authorized shares or the par value of the shares of any such classes.
Appraisal Rights. Under the OGCL, dissenting shareholders are entitled to
appraisal rights in connection with the lease, sale, exchange, transfer or other
disposition of all or substantially all of the assets of a corporation and in
connection with certain amendments to its articles of incorporation. In
addition, shareholders of an Ohio corporation being merged into a new
corporation are also entitled to appraisal rights. Shareholders of an acquiring
corporation are entitled to appraisal rights in a merger, combination or
majority share acquisition in which such shareholders are entitled to voting
rights.
Under the DGCL, appraisal rights are available only in connection with
statutory mergers or consolidations. Even in such cases, unless the certificate
of incorporation otherwise provides, the DGCL does not recognize dissenters'
rights for any class or series of stock which is either listed on a national
securities exchange or held of record by more than 2,000 shareholders except
that appraisal rights are available for holders of stock who, by the terms of
the merger or consolidation, are required to accept anything except (i) stock of
the corporation surviving or resulting from the merger or consolidation, (ii)
shares which at the effective time of the merger or consolidation are either
listed on a national securities exchange or held of record by more than 2,000
shareholders, (iii) cash in lieu of fractional shares of stock described in the
foregoing clauses (i) and (ii), or (iv) any combination of stock and cash in
lieu of fractional shares described in the foregoing clauses (i), (ii) or (iii).
The Kroll Certificate does not grant dissenters' rights in such transactions
Dividends. An Ohio corporation may pay dividends out of surplus, however
created, but must notify its shareholders if a dividend is paid out of surplus
other than earned surplus. A Delaware corporation may pay dividends out of any
surplus and, if it has no surplus, out of any net profits for the fiscal year,
in which the dividend was declared or for the preceding fiscal year provided
that such payment will not reduce capital below the amount of capital
represented by all classes of shares having a preference upon the distribution
of assets.
Repurchases. Under the OGCL, a corporation may purchase or redeem its own
shares if authorized to do so by its articles of incorporation or under certain
other circumstances but may not do so if immediately thereafter its assets would
be less than its liabilities plus its stated capital, if any, or if the
corporation is insolvent or would be rendered insolvent by such a purchase or
redemption.
Under the DGCL, a corporation may repurchase or redeem its shares only out
of surplus and only if such purchase does not impair capital. However, a
corporation may redeem preferred stock out of capital if such shares will be
retired upon redemption and the stated capital of the corporation is thereupon
reduced pursuant to a resolution of its board of directors by the amount of
capital represented by such shares.
Indemnification and Limitation of Liability. Ohio and Delaware have
similar laws regarding indemnification by a corporation of its officers,
directors, employees and other agents. Under the OGCL and the DGCL, corporations
are authorized to indemnify any person who is, or is threatened to be made a
party, to any threatened, pending, or completed action, suit or proceeding
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another entity, against judgments, fines, amounts paid in settlement and
expenses
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(including attorneys' fees), actually and reasonably incurred by such person in
connection with any such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
With respect to actions by or in the right of the corporation, the OGCL and
the DGCL authorize indemnification of any director, officer, employee or agent
of the corporation against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit. To be entitled to indemnification, a person must have acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation except that court approval is required as
a prerequisite to indemnification of expenses in respect of any claim as to
which a person has been adjudged liable to the corporation.
The OGCL and the DGCL require indemnification against expenses actually and
reasonably incurred by any director, officer, employee or agent in connection
with a proceeding or action against such person in such capacity to the extent
that the person has been successful on the merits or otherwise successful in the
defense of such proceeding or action. The OGCL and the DGCL permit the
advancement of expenses (i.e., payment prior to a determination on the merits)
provided that the director or officer undertakes to repay such expenses if it is
ultimately determined that he is not entitled to indemnification. The
disinterested members of the board of directors (or independent legal counsel or
the stockholders) must determine, in each instance where indemnification is
expressly not required by law, that such director, officer, employee or agent is
entitled to indemnification.
The O'Gara Code provides that O'Gara shall indemnify to the fullest extent
permitted by law any person who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding by reason of
the fact that he is or was a director, officer, employee or agent of O'Gara, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another entity, against all expense, liability, and loss
(including, without limitation, attorneys' fees, costs of investigation,
judgments, fines, excise taxes or penalties arising under the Employee
Retirement Income Security Act of 1974 ("ERISA") or other federal or state acts)
actually incurred or suffered by such indemnitee in connection therewith.
Pursuant to Section 1701.59 of the OGCL a director is liable for damages
for any action he takes or fails to take as a director only if it is proved by
clear and convincing evidence that his action or failure to act involved an act
or omission undertaken with deliberate intent to cause injury to the corporation
or undertaken with reckless disregard for the best interests of the corporation.
The Kroll Certificate provides that Kroll shall indemnify directors to the
fullest extent permitted by law, as such law currently exists or as such law may
be amended in the future. The Kroll Bylaws also provide that Kroll shall
indemnify to the fullest extent authorized or permitted by law any person made,
or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
he is or was a director or officer of Kroll or by reason of the fact that such
director or officer, at the request of Kroll, is or was serving such other
organization in any capacity.
The Kroll Certificate provides that no director shall be liable for money
damages for breach of fiduciary duties, except for liability for (i) breaches of
the director's duty of loyalty to the corporation or its stockholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director received
an improper personal benefit.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires O'Gara's executive officers and
directors, and persons who beneficially own more than ten percent of O'Gara's
equity securities, to file reports of security ownership and changes in such
ownership with the Commission. These persons also are required by the Commission
regulations to furnish O'Gara with copies of all Section 16(a) forms they file.
Based upon a review of copies of such forms and written representations from its
executive officers and directors, O'Gara believes that all Section 16(a) forms
were filed on a timely basis during and for 1996. In April 1997, however, O'Gara
ascertained that shares purchased by Mr. Lennon and Mr. Curotto in the Offering
had inadvertently been omitted from their Form 3 filings; amendments to these
Form 3s were filed promptly.
LEGAL MATTERS
The validity of the O'Gara Common Stock to be issued in connection with the
Merger will be passed upon by Taft, Stettinius & Hollister.
Taft, Stettinius & Hollister and Kramer, Levin, Naftalis & Frankel have
each delivered an opinion to the effect that the description of the Federal
income tax consequences of the Merger under the heading "THE MERGER -- Certain
Federal Income Tax Consequences" correctly sets forth the material Federal
income tax consequences of the Merger to O'Gara, Kroll and their respective
shareholders.
EXPERTS
The audited consolidated financial statements and schedule of O'Gara as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996, included in this Proxy Statement/Prospectus and elsewhere in
the Registration Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of Kroll at December 31, 1996 and for
the year then ended, included in this Proxy Statement/Prospectus and the related
financial statement schedule included elsewhere in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the Registration Statement and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements and schedules of Kroll as of December
31, 1995 and for each of the years in the two-year period ended December 31,
1995, have been included herein and in the registration statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
It is expected that representatives of Arthur Andersen LLP, O'Gara's
independent public accountants, will be present at the O'Gara Meeting and
representatives of Deloitte & Touche LLP, Kroll's independent public
accountants, will be present at the Kroll Meeting, where they will have an
opportunity to respond to appropriate questions of shareholders and to make a
statement if they so desire.
PROXY STATEMENT PROPOSALS
Shareholder proposals will be considered for inclusion in the Proxy
Statement for O'Gara's 1998 Annual Meeting if they are received by O'Gara before
the close of business on December 19, 1997.
OTHER BUSINESS
O'Gara is not aware of any matters which properly may be presented at the
O'Gara Meeting other than those discussed above. However, if other matters do
come before the O'Gara Meeting, proxies will be voted on those matters in
accordance with the recommendation of the O'Gara Board.
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AVAILABLE INFORMATION
O'Gara is subject to the reporting requirements of the Exchange Act, and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may be
inspected and copied at the Commission's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the Commission's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. The Commission also maintains a Web
site that contains reports, proxy information and statements, and other
information regarding registrants that file electronically with the Commission.
The Web site address is http://www.sec.gov. O'Gara files electronically.
O'Gara has filed the Registration Statement with the Commission. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement filed by O'Gara with the Commission, certain portions of
which are omitted in accordance with the rules and regulations of the
Commission. Such additional information is available for inspection and copying
at the offices of the Commission. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated into this Proxy
Statement/Prospectus by reference as to the contents of any contract or other
documents referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.
All information contained in this Proxy Statement/Prospectus relating to
O'Gara has been supplied by O'Gara and all such information relating to Kroll
has been supplied by Kroll.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE
SALE OF ANY SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF O'GARA OR KROLL
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
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FINANCIAL STATEMENT INDEX
<TABLE>
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PAGE
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<S> <C>
FINANCIAL STATEMENTS OF THE O'GARA COMPANY
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheets as of June 30, 1997 (unaudited).............. F-25
Consolidated Statements of Operations for the Six Months Ended June 30,
1996 and 1997 (unaudited)............................................. F-26
Consolidated Statement of Shareholders' Equity for the Six Months Ended
June 30, 1997......................................................... F-27
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1996 and 1997 (unaudited)............................................. F-28
Notes to Consolidated Unaudited Financial Statements..................... F-29
FINANCIAL STATEMENTS OF KROLL HOLDINGS, INC.
Independent Auditors' Report............................................. F-34
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-36
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996................................................... F-37
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1994, 1995 and 1996................................ F-38
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995, and 1996.................................................. F-39
Notes to Consolidated Financial Statements............................... F-41
Condensed Consolidated Balance Sheets as of December 31, 1996 and June
30, 1997 (unaudited).................................................. F-54
Consolidated Statements of Operations for the Six Months Ended June 30,
1996 and 1997 (unaudited)............................................. F-55
Statement of Cash Flows for the Six Months Ended June 30, 1996 and 1997
(unaudited)........................................................... F-56
Notes to Unaudited Financial Statements.................................. F-57
FINANCIAL STATEMENTS OF LABBE, S.A.
Report of Independent Public Accountants................................. F-58
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-59
Consolidated Statements of Operations for the Years Ended December 31,
1995 and 1996......................................................... F-60
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995 and 1996............................................ F-61
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995 and 1996......................................................... F-62
Notes to Consolidated Financial Statements............................... F-63
PRO FORMA FINANCIAL STATEMENTS
O'Gara Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1996..................................................... F-69
O'Gara-Kroll Pro Forma Combining Balance Sheets as of June 30, 1997...... F-71
O'Gara-Kroll Pro Forma Combining Statements of Operations for the Years
Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June
30, 1996 and 1997..................................................... F-72
</TABLE>
F-1
<PAGE> 118
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The O'Gara Company:
We have audited the accompanying consolidated balance sheets of THE O'GARA
COMPANY (Note 1) and subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The O'Gara
Company and subsidiaries as of December 31, 1995 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio
March 19, 1997,
except for Note 19 as to
which the date is August 8, 1997
F-2
<PAGE> 119
THE O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS (NOTE 7)
CURRENT ASSETS:
Cash...................................................................... $ 323,851 $ 1,454,475
Trade accounts receivable, net of allowance for doubtful accounts of
approximately $211,000 and $109,000 in 1996 and 1995, respectively (Note
2)...................................................................... 7,094,894 7,736,286
Other receivables (Note 6)
Advances to shareholders................................................ 204,698 248,829
Affiliates.............................................................. 128,222 249,981
Advances to vendors (Notes 2 and 12)...................................... 2,496,689 664,539
Notes receivable -- shareholder (Note 6).................................. 233,253 --
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 2)...................................................... 7,700,075 15,326,548
Inventories (Note 2)...................................................... 4,927,499 8,733,640
Prepaid expenses.......................................................... 149,250 677,603
----------- -----------
Total current assets............................................... 23,258,431 35,091,901
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 2 and 8):
Land...................................................................... 372,039 901,079
Buildings and improvements................................................ 2,762,905 3,772,295
Furniture and fixtures.................................................... 1,286,421 1,743,876
Machinery and equipment................................................... 2,260,005 2,797,433
----------- -----------
6,681,370 9,214,683
Less -- accumulated depreciation.......................................... (3,510,702) (4,289,861)
----------- -----------
3,170,668 4,924,822
----------- -----------
OTHER ASSETS (Note 2)....................................................... 1,387,887 3,921,664
----------- -----------
$27,816,986 $43,938,387
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit (Note 7)........................................ $10,188,765 $ 9,935,947
Current portion of long-term debt (Note 8)................................ 1,649,018 1,836,420
Notes payable -- shareholders (Note 6).................................... 308,630 --
Accounts payable
Trade................................................................... 10,075,075 11,087,422
Affiliates (Note 6)..................................................... 499,730 532,998
Billings in excess of costs and estimated earnings on uncompleted
contracts (Note 2)...................................................... 1,706,042 1,330,402
Accrued liabilities....................................................... 1,677,307 3,971,887
Customer deposits......................................................... 1,248,197 2,118,609
----------- -----------
Total current liabilities.......................................... 27,352,764 30,813,685
----------- -----------
LONG-TERM DEBT, net of current portion (Note 8)............................. 225,429 469,092
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' EQUITY (Note 1):
Preferred stock, $0.01 par value, 100,000 shares authorized; none
issued.................................................................. -- --
Common stock, $0.01 par value, 25,000,000 shares authorized, 6,659,846 and
4,490,383 shares issued and outstanding in 1996 and 1995,
respectively............................................................ 15,235 66,598
Additional paid-in-capital................................................ 2,730,977 17,591,656
Retained deficit.......................................................... (2,508,834) (4,957,872)
Cumulative foreign currency translation adjustment (Note 2)............... 1,415 (44,772)
----------- -----------
Total shareholders' equity......................................... 238,793 12,655,610
----------- -----------
$27,816,986 $43,938,387
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE> 120
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES........................................... $33,912,279 $32,816,996 $82,777,691
COST OF SALES....................................... 24,505,236 25,237,159 61,522,946
----------- ----------- -----------
Gross profit................................... 9,407,043 7,579,837 21,254,745
OPERATING EXPENSES:
Selling and marketing............................. 2,735,940 3,628,312 4,810,232
General and administrative........................ 4,440,552 4,129,017 7,930,293
----------- ----------- -----------
Operating income (loss)........................ 2,230,551 (177,492) 8,514,220
OTHER INCOME (EXPENSES):
Interest expense.................................. (410,325) (841,972) (1,299,930)
Other, net........................................ 60,250 (102,588) (37,687)
----------- ----------- -----------
Income (loss) before provision for income
taxes........................................ 1,880,476 (1,122,052) 7,176,603
Provision for income taxes (Note 4)............... -- -- 517,641
----------- ----------- -----------
Net income (loss)......................... $ 1,880,476 $(1,122,052) $ 6,658,962
=========== =========== ===========
UNAUDITED PRO FORMA INFORMATION (Note 18):
Gross profit...................................... $21,254,745
Selling and marketing............................. 4,810,232
General and administrative........................ 8,030,918
-----------
Operating income.................................. 8,413,595
Interest expense.................................. (960,866)
Other, net........................................ (37,687)
-----------
Income before provision for income taxes.......... 7,415,042
Provision for income taxes........................ 2,966,049
-----------
Net income........................................ $ 4,448,993
===========
Earnings per share................................ $ 0.69
===========
Weighted average shares outstanding............... 6,449,050
===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE> 121
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY
ADDITIONAL TRANSLATION
COMMON PAID-IN RETAINED ADJUSTMENT
SHARES STOCK CAPITAL DEFICIT (NOTE 2) TOTAL
--------- ------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993...................... 2,681,012 $ 9,826 $ 1,121,996 $(2,155,308) $ -- $(1,023,486)
Net income................ -- -- -- 1,880,476 -- 1,880,476
Aggregate translation
adjustment............. -- -- -- -- 493 493
Issuance of OHE stock
(Note 15).............. 885,996 3,246 1,356,144 -- -- 1,359,390
Incorporation of
Limited................ 1,000 1,000 4,000 -- -- 5,000
Distributions to
shareholders........... -- -- -- (949,150) -- (949,150)
--------- ------- ----------- ----------- -------- -----------
BALANCE, December 31,
1994...................... 3,568,008 14,072 2,482,140 (1,223,982) 493 1,272,723
Net loss.................. -- -- -- (1,122,052) -- (1,122,052)
Aggregate translation
adjustment............. -- -- -- -- 922 922
Incorporation of OSN...... 922,375 1,163 248,837 -- -- 250,000
Distributions to
shareholders........... -- -- -- (162,800) -- (162,800)
--------- ------- ----------- ----------- -------- -----------
BALANCE, December 31,
1995...................... 4,490,383 15,235 2,730,977 (2,508,834) 1,415 238,793
Net income................ -- -- -- 6,658,962 -- 6,658,962
Aggregate translation
adjustment............. -- -- -- -- (46,187) (46,187)
Distributions to
shareholders, prior to
the offering........... -- -- -- (230,000) -- (230,000)
Sale of common stock
between shareholders
prior to the
offering............... -- -- 39,780 -- -- 39,780
Exercise of stock options,
prior to the offering
(Notes 11 and 17)...... 121,463 4 441 -- -- 445
Initial public offering of
common stock, net of
issuance costs of
approximately
$3,550,000 (Note 17)... 2,048,000 51,359 14,820,458 -- -- 14,871,817
Distribution of previously
taxed S Corp earnings
to S Corp shareholders
(Note 17).............. -- -- -- (9,000,000) -- (9,000,000)
Forgiveness of affiliate
obligation (Note 6).... -- -- -- 122,000 -- 122,000
--------- ------- ----------- ----------- -------- -----------
BALANCE, December 31,
1996...................... 6,659,846 $66,598 $17,591,656 $(4,957,872) $(44,772) $12,655,610
========= ======= =========== =========== ======== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE> 122
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 1,880,476 $(1,122,052) $ 6,658,962
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization....................... 469,889 476,868 851,332
Shareholder stock compensation...................... -- -- 39,780
Decrease (increase) in receivables.................. (4,887,854) 502,872 (807,282)
Decrease (increase) in advances to vendors.......... -- (3,360,136) 870,390
Increase in costs and estimated earnings in excess
of billings on uncompleted contracts.............. (1,608,458) (3,957,287) (7,626,473)
Increase in inventories............................. (444,879) (1,590,370) (3,806,141)
Decrease (increase) in prepaid expenses............. 47,839 (50,320) (528,353)
Increase in other assets............................ (146,882) (33,950) (322,342)
Increase in accounts payable........................ 106,655 6,070,946 1,167,615
Increase (decrease) in billings in excess of costs
and estimated earnings on uncompleted contracts... 427,650 (43,150) (375,640)
Increase (decrease) in accrued liabilities.......... 1,021,620 (502,422) 2,294,580
Increase (decrease) in customer deposits............ 871,021 (389,425) 870,412
----------- ----------- -----------
Net cash used in operating activities.......... (2,262,923) (3,998,426) (713,160)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net........ (683,319) (638,009) (2,534,617)
Decrease (increase) in notes
receivable -- shareholder........................... -- (233,253) 233,253
Acquisition costs (Note 3)............................. -- -- (305,128)
Purchase of Palmer net assets (Note 3)................. -- -- (509,582)
----------- ----------- -----------
Net cash used in investing activities.......... (683,319) (871,262) (3,116,074)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of
credit.............................................. 4,676,630 4,551,025 (252,818)
Proceeds from long-term debt........................... 30,958 41,608 50,899
Payments of long-term debt............................. (109,351) (120,869) (125,668)
Repayment of notes payable -- shareholder.............. (190,000) -- (308,630)
Net proceeds from issuance of common stock (Note 17)... 104,390 250,000 14,871,817
Foreign currency translation........................... 493 922 (46,187)
Distributions to shareholders.......................... (949,150) (162,800) (9,230,000)
Proceeds from exercise of stock options................ -- -- 445
----------- ----------- -----------
Net cash provided by financing activities...... 3,563,970 4,559,886 4,959,858
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH.......................... 617,728 (309,802) 1,130,624
CASH, beginning of year.................................. 15,925 633,653 323,851
----------- ----------- -----------
CASH, end of year........................................ $ 633,653 $ 323,851 $ 1,454,475
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 361,000 $ 796,000 $ 1,321,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Conversion of note payable to the majority shareholder
to common stock (Note 15)........................... $ 1,260,000 $ -- $ --
=========== =========== ===========
Note payable issued for purchase of Palmer net assets
(Note 3)............................................ $ -- $ -- $ 505,834
=========== =========== ===========
Affiliate obligation forgiven in connection with the
reorganization...................................... $ -- $ -- $ 122,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE> 123
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(1) BASIS OF PRESENTATION
The O'Gara Company, an Ohio corporation, together with its subsidiaries
(collectively the "Company"), provides fully integrated ballistic and blast
protected vehicle armoring systems; planning, design and hardware and software
integration services which are customized to meet specific satellite
communications or site protection needs of customers; and customized turn-key
site security systems to international customers.
The Company was formed in 1996 for the purposes of becoming a holding
company, effecting a reorganization and a combination of certain affiliated
entities and carrying out an initial public offering of common stock which was
completed on November 15, 1996. Pursuant to the terms of the offering, the
Company issued 2,048,000 shares of common stock at $9.00 per share (Note 17).
The accompanying consolidated financial statements of the Company consist
of the following subsidiaries:
O'Gara-Hess & Eisenhardt Armoring Company (OHE) -- OHE is a Delaware
corporation whose principal business is the armoring of commercial and
military vehicles for the U.S. Government, foreign governments, large
foreign and domestic corporations and individuals.
O'Gara Satellite Networks, Limited (Satellite Ltd.), and its sister
corporation, O'Gara Satellite Networks, Inc. (Satellite Inc.) (collectively
"OSN") -- OSN is engaged in the business of providing satellite
communication equipment and services primarily to European and Middle
Eastern customers.
O'Gara-Hess & Eisenhardt Armoring Company Limited (Limited) -- Limited
is an Irish corporation that historically was engaged in the armoring of
commercial vehicles primarily for Middle Eastern governments, large foreign
corporations and individuals. Pursuant to the corporate reorganization on
October 28, 1996, OHE succeeded to substantially all of the businesses
formerly carried out by Limited either directly or through subsidiary
corporations.
O'Gara-Hess & Eisenhardt de Mexico S.A. de C.V. (OHEM) -- OHEM, a 100%
owned Mexican subsidiary of OHE, was formed in 1995 for the purpose of
producing light armored commercial vehicles primarily for customers in
Mexico.
O'Gara-Hess & Eisenhardt do Brasil (OHEB) -- OHEB, a 75% owned
Brazilian subsidiary of OHE, was formed in 1996 for the purpose of
producing armored commercial vehicles primarily for customers in South
America (Note 17).
O'Gara Security International, Inc. (OSI) -- OSI, a Delaware
corporation and a 100% owned subsidiary of OHE, was formed in 1996 for the
purpose of providing security products and services in the former Soviet
Union.
O'Gara-Hess & Eisenhardt, S.r.1. (Italy) -- Italy, a 90% owned Italian
subsidiary of OHE was formed in 1992 for the purpose of facilitating
contract manufacturing of armored commercial vehicles by an unrelated
manufacturer.
In connection with the Company's public equity offering, the above entities
and respective shareholders entered into a reorganization plan on October 28,
1996 which resulted in the following:
(1) The shareholders of OHE transferred their ownership interests in
OHE to the Company in exchange for 3,689,476 shares of common stock of the
Company. The ratio of exchange was 272.95 shares of Company common stock
for each share of OHE stock.
(2) The Company acquired all of the equity ownership of Satellite Ltd.
from the shareholders of Satellite Ltd. in exchange for 922,370 shares of
common stock of the Company. The ratio of exchange was 793.1 shares of
Company common stock for each share of OSN stock.
F-7
<PAGE> 124
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(3) OHE acquired substantially all of the operations and certain
selected assets and assumed certain selected liabilities of Limited for
consideration (including OHE's interest in O'Gara Overseas Services, S.A.),
which the Board of Directors of the Company believed represented the fair
value of such assets and liabilities.
Prior to the initial public offering, all entities that now comprise the
Company were owned or controlled by substantially the same shareholders, with
one such shareholder owning or controlling approximately 86% to 88% of each
entity. Accordingly, the accompanying consolidated financial statements present,
as a combination of entities under common control as if using the pooling method
of accounting, the financial position and related results of operations of the
Company on a consolidated basis for all periods presented. All significant
balances and transactions between the consolidated entities have been eliminated
in these consolidated statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition -- Revenue related to government contracts and most
commercial contracts results principally from long-term fixed price contracts
and is recognized on the percentage-of-completion method calculated utilizing
the cost-to-cost approach. The percent deemed to be complete is calculated by
comparing the costs incurred to date to estimated total costs for each contract.
This method is used because management considers costs incurred to be the best
available measure of progress on these contracts. However, adjustments to this
measurement are made when management believes that costs incurred materially
exceed effort expended. Contract costs include all direct material and labor
costs, along with certain direct overhead costs related to contract production.
Provisions for any estimated total contract losses on uncompleted contracts
are recorded in the period in which it becomes known that such losses will
occur. Changes in estimated total contract costs will result in revisions to
contract revenue. These revisions are recognized when determined.
Revenue related to telecommunications equipment and services is recognized
as equipment is shipped or as services are provided. Revenue and related direct
costs of brokered satellite time are recorded when payments are received from
customers.
(b) Trade Accounts Receivable and Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts -- The following summarizes the components of
trade accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
United States Military:
Billed receivables............................... $2,322,553 $ 1,461,491
Costs and estimated earnings in excess of
billings on uncompleted contracts............. 6,201,466 10,189,891
---------- -----------
Total United States Military............. $8,524,019 $11,651,382
========== ===========
Other contracts:
Billed receivables............................... $4,772,341 $ 6,274,795
Costs and estimated earnings in excess of
billings on uncompleted contracts............. 1,498,609 5,136,657
---------- -----------
Total other contracts.................... $6,270,950 $11,411,452
========== ===========
Total trade accounts receivable.................... $7,094,894 $ 7,736,286
========== ===========
Total costs and estimated earnings in excess of
billings on uncompleted contracts................ $7,700,075 $15,326,548
========== ===========
</TABLE>
F-8
<PAGE> 125
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Costs and estimated earnings in excess of billings on uncompleted contracts
are net of $20,385,270 and $66,180,434 of progress billings to the United States
Military at December 31, 1995 and 1996, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenue recognized on long-term contracts in excess of billings
because amounts were not billable at the balance sheet date. It is anticipated
such unbilled amounts attributable to the United States Military will generally
be billed over the next 180 days as the contract is substantially completed.
Amounts receivable on other contracts are generally billed as shipments are
made. It is estimated that substantially all of such amounts will be billed
within one year, although contract extensions may delay certain collections
beyond one year.
(c) Advances to Vendors -- OHE and OSN periodically make advances to
vendors. Such advances are non-interest bearing and are generally applied to
vendor billings for shipments of inventory.
(d) Inventories -- Inventories are stated at the lower of cost or market
using the first-in, first-out (FIFO) method and include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Raw materials....................................... $2,306,176 $4,782,321
Vehicle costs and work-in-process................... 2,621,323 3,951,319
---------- -----------
$4,927,499 $8,733,640
========== ===========
</TABLE>
(e) Property, Plant and Equipment -- Property, plant and equipment are
stated at cost. Depreciation is computed on the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Buildings and improvements....................................... 5-40 years
Furniture and fixtures........................................... 5-7 years
Machinery and equipment.......................................... 5-7 years
</TABLE>
(f) Other Assets -- Other assets are stated at cost less accumulated
amortization and are being amortized on a straight-line basis over their
estimated useful lives, as applicable. Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE -------------------------
DESCRIPTION (YEARS) 1995 1996
------------------------------------------------ ----------- ---------- ----------
<S> <C> <C> <C>
Advance to vendor (Notes 2(c) and 12(b))........ -- $ 863,447 $1,825,207
Goodwill, intangibles and acquisition costs
(Note 3)...................................... 1-25 50,000 1,420,543
Non-refundable deposit on an equipment lease
with a related party (Notes 6(f) and 9)....... 10 503,858 503,858
Non-compete agreement with a former OHEM
shareholder................................... 5 -- 115,000
Loan origination costs.......................... 30 152,940 152,940
Advance to minority shareholder of OHEB......... -- -- 60,000
Investment in OGM Communications, Ltd. (OGM)
(Note 2(k))................................... -- 25,215 69,266
Deferred bid costs and other.................... -- 23,461 76,753
---------- ----------
1,618,921 4,223,567
Less -- accumulated amortization................ (231,034) (301,903)
---------- ----------
$1,387,887 $3,921,664
========== ==========
</TABLE>
Costs applicable to bids in process are deferred when management believes
it is probable that future contracts will be obtained. These costs are
transferred to contract costs when contracts are awarded or are expensed when
the contract award is no longer considered probable.
F-9
<PAGE> 126
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(g) Foreign Currency Translation -- Assets and liabilities of foreign
operations are translated using year-end exchange rates and revenues and
expenses are translated using exchange rates prevailing during the year, with
gains or losses resulting from translation included in a separate component of
shareholders' equity. Gains and losses resulting from transactions in foreign
currencies were immaterial.
(h) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(i) Research and Development -- Research and development costs are expensed
as incurred. The Company incurred approximately $69,000, $91,000 and $130,000
for the years ended December 31, 1994, 1995 and 1996, respectively, for research
and development. These costs are included in general and administrative expenses
in the accompanying consolidated statements of operations.
(j) Advertising -- The Company expenses the cost of advertising as
incurred. Advertising expenses for the years ended December 31, 1994, 1995 and
1996 were $185,000, $280,000 and $638,000, respectively.
(k) Investments -- In May 1995, OSN entered into a joint venture, OGM, with
Morsviazsputnik (MVS), the Russian signatory to Inmarsat and a marketer of
Inmarsat mobile services. OSN owns a 49% interest in OGM. The investment in OGM
was recorded at the cost of the initial capital contribution of $50,000 in May
1995 and is accounted for on the equity method. The Company's proportionate
share of OGM's loss was $24,785 and $2,052 for the years ended December 31, 1995
and 1996, respectively.
(l) SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" -- In March 1996, the Financial Accounting
Standards Board issued Statement No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. This statement also addresses the accounting for long-lived
assets that are expected to be disposed of in the future. The Company adopted
SFAS No. 121 in the first quarter of fiscal 1996 with no material impact.
(m) SFAS 123 "Accounting for Stock-Based Compensation" -- The Company has
elected to account for the cost of its stock options utilizing the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25 (APB 25)
as allowed by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" (SFAS 123). Accordingly, no compensation cost has
been recognized for stock options as all stock options were granted at fair
market value, as defined by the plan, at the measurement date. The pro forma
disclosures required by SFAS 123 are presented in Note 16.
(n) Reclassifications -- Certain reclassifications have been reflected in
1994 and 1995 to conform with the current period presentation.
(o) Preferred Stock -- In August 1996, the Company authorized the issuance
of up to 100,000 preferred shares, $0.01 par value.
(3) ACQUISITIONS
(a) Palmer Acquisition -- In October 1996, the Company completed the
purchase of substantially all of the assets and certain liabilities of Palmer
Associates, S.C., (Palmer) a security services provider, for approximately
$1,000,000, which resulted in goodwill and intangible assets equal to the
purchase price. The purchase was payable $500,000 at the closing of the
Company's completion of the common stock offering (Note 17) and
F-10
<PAGE> 127
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
$250,000 each in November 1997 and 1998. The former owner will also be subject
to a four-year non-competition agreement, payable in annual installments of
$50,000, and a two-year employment agreement.
(b) Next Destination Limited Acquisition -- On February 5, 1997, the
Company completed its acquisition of all of the shares of Next Destination
Limited (Next). Next, headquartered in Salisbury, United Kingdom (UK), is a
distributor of high technology communication equipment for the consumer
electronic, marine, aviation, professional and leisure markets in both the UK
and Europe. Pursuant to the agreement, the Company acquired Next for $3.5
million, consisting of $1.75 million in shares of the Company's common stock
(170,234 shares) and $1.75 million in seller-provided financing in the form of
three-year 6% notes. The former managing director and founder of Next will
continue to manage the business and is subject to a three-year non-competition
agreement.
(c) Labbe, S.A. Acquisition -- On February 12, 1997, the Company completed
its acquisition of Labbe, S.A. (Labbe) for $14,230,000. Labbe, headquartered in
Lamballe, France, provides vehicle armoring systems for commercial customers
located mainly in Western Europe. Pursuant to an agreement signed January 21,
1997, the Company acquired all of the shares of Labbe for $10.7 million in cash,
financed through funds advanced under the term loan portion of the new credit
agreement (Note 7) and 376,597 shares of the Company's common stock. The former
shareholders of Labbe, who were employed by Labbe prior to the acquisition, will
continue in their formerly-held capacities. The former shareholders will also be
subject to certain non-competition agreements upon their leaving the employment
of the Company. The Company has capitalized certain transaction costs related to
this acquisition as of December 31, 1996 which amounted to approximately
$305,000 (Note 2(f)). For accounting purposes, the acquisition was effective on
January 1, 1997 and the results of operations of Labbe are included in the
consolidated results of operations of the Company from that date forward.
(4) INCOME TAXES
Prior to October 28, 1996, OHE was an S Corporation. Accordingly, OHE
generally was not responsible for payment of income taxes. Rather, the
respective shareholders were taxed on OHE's taxable income at the respective
individual federal and state income tax rates. Therefore, no income taxes have
been provided in the accompanying consolidated financial statements for the
period prior to October 28, 1996.
Effective with the reorganization on October 28, 1996, the Company is
subject to federal and state income taxes as well as certain foreign income
taxes. The Company accounts for income taxes under the liability method pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under the liability method, deferred tax liabilities and assets are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities using enacted tax rates.
The Company's provision for income taxes for the period October 28, 1996
through December 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Currently payable:
Federal................................................. $371,641
State................................................... 63,000
Foreign................................................. 83,000
--------
517,641
--------
Deferred.................................................. --
--------
$517,641
========
</TABLE>
F-11
<PAGE> 128
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A reconciliation between the statutory federal income tax rate and the
effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
1996
---------------------
AMOUNT RATE
----------- -----
<S> <C> <C>
Provision for income taxes at the federal statutory rate........ $ 2,440,046 34.0%
State and local income taxes, net of federal benefit............ 41,303 0.6
Impact of S Corp income, prior to reorganization................ (2,087,529) (29.1)
Impact of foreign income, prior to reorganization............... (199,095) (2.8)
Change in valuation allowance................................... 176,080 2.5
Foreign losses providing no current benefit..................... 151,604 2.1
Other........................................................... (4,768) (0.1)
----------- -----
Provision for income taxes................................. $ 517,641 7.2%
=========== =====
</TABLE>
The components of the Company's consolidated deferred income tax asset as
of December 31, 1996 is summarized below:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Deferred tax assets:
Inventory reserve............................................. $ 148,000
Vacation and other benefits................................... 220,000
Warranty reserve.............................................. 130,000
Allowance for doubtful accounts............................... 60,000
Other accruals................................................ 206,000
Foreign loss carryforwards.................................... 152,000
Other......................................................... 116,000
Valuation allowance........................................... (1,032,000)
-----------
$ --
===========
</TABLE>
The valuation allowance is required due to the recently completed
reorganization and the uncertainty of realizing the net future tax benefit
through future operations. A valuation allowance has been recorded in an amount
equal to the deferred tax asset associated with the differences between the
Company's basis for financial reporting and tax purposes. Adjustments to the
valuation allowance, if any, will be recorded in the periods in which it is
determined the asset is realizable.
(5) AFFILIATED ENTITIES
Affiliated entities are not included in the accompanying consolidated
financial statements, and include the following:
O'Gara Overseas Services, SA (OOS) -- OOS is a Swiss corporation that,
subsequent to the reorganization, is indirectly owned by the former
shareholders of OHE, through Overseas International (Overseas) and O'Gara
Overseas Services Trust (OOS Trust). OOS previously performed sales
functions, primarily in the Middle East, Africa and Europe.
Excel Armor Products, Inc. (Excel) -- Excel is a Delaware S
Corporation, owned substantially by the former shareholders of OHE, that
purchases and distributes dual-hard opaque armor material and armoring
products. Excel had an exclusive purchasing arrangement with a dual-hard
steel producer through December 31, 1996.
F-12
<PAGE> 129
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Longline Leasing, Inc. (Longline) -- Longline is a Delaware S
Corporation, owned substantially by the former shareholders of OHE. OHE
leases certain manufacturing and production equipment from Longline.
Longline and Excel have a 50/50 joint venture in a corporate aircraft. OHE
has a minimum monthly usage agreement with the joint venture.
O'Gara Protective Services, Inc. (OPS) -- OPS is a Delaware
corporation that provides protective training and services, primarily to
foreign governments. The former shareholders of OHE own approximately 47%
of OPS (see Note 12).
Overseas International (Overseas) -- In connection with the
reorganization discussed in Note 1, whereby OHE acquired substantially all
of the assets and assumed certain selected liabilities of Limited, Limited
changed its name to Overseas.
OLG, Limited (OLG) -- OLG is an Ohio limited liability company, owned
substantially by the former shareholders of OHE, which was organized in
March 1996. In 1996, OLG acquired a building for approximately $1.8 million
and leased the building to OHE for a one year period for $468,000.
Excel Metal Products, Inc. (Excel Metal) -- Excel Metal is a wholly
owned corporation of the former majority shareholder of OHE. Excel Metal
provides management consulting services to Satellite Inc.
Silver Springs Land and Cattle Company (Silver) -- Silver is a wholly
owned corporation of the former majority shareholder of OHE that provided
facilities for certain corporate meetings.
(6) RELATED PARTY TRANSACTIONS
(a) Notes Receivable -- Shareholder -- Notes receivable-shareholder
consisted of two unsecured promissory notes in the principal amounts of $100,000
and $130,000, respectively. These notes bore interest at the rate of 8.75% per
annum and were repaid upon the completion of the Company's common stock offering
(Note 17). Accrued interest amounted to $3,253 at December 31, 1995.
(b) Advances to Shareholders -- The Company periodically makes advances to
certain employee-shareholders. Such advances are due on demand and are
non-interest bearing. Advances to the Company's majority shareholder were
$189,698 and $120,191 at December 31, 1995 and 1996, respectively. At December
31, 1996 the Company also had an advance to the minority shareholder of OHEB in
the amount of $128,638.
(c) Notes Payable -- Shareholders -- OHE had the following notes payable to
shareholders, which were repaid upon the completion of the Company's common
stock offering (Note 17):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Note payable to former minority shareholder of OHE, interest at
10%, payable on demand, unsecured............................ $243,630 $ --
Notes payable to former minority shareholders of OHE, interest
at 7.5% through December 31, 1995, 10% thereafter, payable on
demand, unsecured............................................ 65,000 --
-------- --------
$308,630 $ --
======== ========
</TABLE>
Interest cost associated with the above obligations expensed by OHE
approximated $38,000, $33,000 and $27,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
(d) Sales -- Affiliated Entities -- In 1995, OHE entered into a contract
with Excel to provide certain manufacturing services. Total revenue recognized
under this contract approximated $27,000 and $97,000 for the years ended
December 31, 1995 and 1996, respectively.
F-13
<PAGE> 130
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Beginning in 1995, OSN entered into certain sales contracts with MVS for
the sale of portable satellite terminals. Total revenue recognized approximated
$66,000 and $139,000 for the years ended December 31, 1995 and 1996,
respectively.
(e) Purchases -- Affiliated Entities -- Prior to December 31, 1996, OHE
purchased dual-hard steel used in the vehicle armoring process from Excel.
Purchases were approximately $521,000 and $960,000 for the years ended December
31, 1995 and 1996, respectively.
OSN offers satellite air time to customers through an agreement with MVS.
Total purchases under this agreement were approximately $36,000 and $216,000 for
the years ended December 31, 1995 and 1996, respectively.
(f) Building and Equipment Leases -- OHE currently leases a corporate
aircraft from Longline/Excel under a ten year lease agreement which began in
February 1995. The lease stipulates minimum monthly payments of $35,200, with
additional charges accruing for usage in excess of established base limits. In
1994, OHE leased a corporate aircraft from Longline under a five year agreement.
This original lease was canceled upon the execution of the lease with
Longline/Excel. The terms of the original lease and the newly executed lease
required a non-refundable deposit. The original deposit of approximately
$504,000 is being amortized as rental expense over the existing lease period.
Rental expense, including amortization recognized, approximated $365,000,
$414,000 and $422,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Additionally, the Company paid Longline/Excel $327,000 related to
usage of the corporate aircraft during the roadshow for the initial public stock
offering and included such amount in issuance costs (Note 17). Management is of
the opinion that the hourly rate paid by the Company was equivalent to the rate
charged by Longline/Excel to other unrelated companies for IPO roadshows during
1996 and it was favorably comparable to rates charged by another unrelated
charter service for similar aircraft.
OHE is also currently leasing equipment from Longline under various three
year lease agreements which began in July 1995. Rental expense approximated
$17,000 and $381,000 for the years ended December 31, 1995 and 1996,
respectively.
OHE leases a manufacturing facility from OLG under a non-cancelable one
year lease agreement which began in March 1996. The lease stipulates monthly
payments of $39,000. Rental expense recognized approximated $376,000 for the
year ended December 31, 1996.
(g) Consulting Services -- OOS and a minority shareholder of the Company
provided certain sales and marketing services for OHE and OSN. OHE recognized
expense of approximately $490,000, $506,000 and $363,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. Effective with the
reorganization (Note 1), these services were terminated.
In May 1993, OHE renewed an existing consulting agreement with a former
shareholder whereby Excel assumed a $10,000 monthly payment which was formerly
paid by OHE. In conjunction with this renewal, OHE provided a payment guarantee
to the former shareholder. For the year ended December 31, 1995, OHE incurred
$20,000 in expense relating to payments made under this guarantee. There were no
such payments during 1996. OHE's payment guarantee expired on December 31, 1996.
In 1996, OSN entered into a management consulting agreement with Excel
Metal which stipulates monthly payments of $6,000. OSN recognized approximately
$60,000 in expense in 1996 under this agreement. This agreement was terminated
upon the completion of the common stock offering (Note 17).
In 1994 and 1995, prior to joining the Company, a minority shareholder of
OSN was paid $45,000 and $135,000, respectively, in conjunction with a
consulting agreement. These payments were recognized in selling and marketing
expenses in the accompanying consolidated statements of operations.
F-14
<PAGE> 131
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(h) Commissions -- In accordance with the OGM joint venture agreement with
MVS (Note 2), OSN was required to pay a stipulated amount per minute for prepaid
time sold to customers in the form of phone cards through June 1996. Beginning
July 1, 1996, this requirement was terminated by agreement of OSN and MVS. For
the year ended December 31, 1996, OSN recognized commission expense of
approximately $43,000.
(i) Other -- During 1994, 1995 and 1996, OHE recognized approximately
$55,000, $11,000 and $3,000, respectively, in expense relating to payments made
to Silver for use of its facilities for corporate meetings.
(j) Summary of Related Party Transactions -- The following summarizes
transactions with related parties:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Sales
to Excel......................................... $ -- $ 27,000 $ 97,000
to MVS........................................... -- 66,000 139,000
Purchases
from Excel....................................... -- 521,000 960,000
from MVS......................................... -- 36,000 216,000
Lease expense
to Longline...................................... 365,000 17,000 381,000
to Longline/Excel................................ -- 414,000 422,000
to OLG........................................... -- -- 376,000
Consulting service expense
provided by OOS.................................. 361,000 377,000 245,000
provided by minority shareholder................. 129,000 129,000 118,000
provided by minority shareholder of OSN.......... 45,000 135,000 --
provided by Excel Metal.......................... -- -- 60,000
provided by former shareholder................... -- 20,000 --
Facility service fees paid to Silver............... 55,000 11,000 3,000
Commission expense to OGM.......................... -- -- 43,000
Charter fee included in costs of the offering (Note
17).............................................. -- -- 327,000
</TABLE>
(k) Other Receivables -- Affiliates -- Other receivables -- affiliates
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
-------- --------
<S> <C> <C>
Excel.............................................. $ 53,057 $210,659
OPS................................................ 9,657 39,322
OGM................................................ 38,669 --
Longline........................................... 26,839 --
-------- --------
$128,222 $249,981
======== ========
</TABLE>
F-15
<PAGE> 132
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(l) Accounts Payable -- Affiliates -- Accounts payable -- affiliates
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
-------- --------
<S> <C> <C>
OOS................................................ $348,535 $ 32,921
MVS................................................ 29,195 177,191
OOS Trust.......................................... 122,000 --
Longline........................................... -- 151,080
OGM................................................ -- 22,028
Overseas........................................... -- 149,778
-------- --------
$499,730 $532,998
======== ========
</TABLE>
In conjunction with the reorganization discussed in Note 1, the
shareholders of OOS Trust forgave the amount owed by OHE for no consideration.
OOS Trust is controlled by a shareholder of the Company and accordingly this
transaction has been reflected as a contribution of capital in the accompanying
consolidated statement of shareholders' equity.
(7) REVOLVING LINES OF CREDIT
OHE had a $12,000,000 revolving line of credit with a bank at December 31,
1996, which was renegotiated subsequent to year-end. Interest on the first
$8,500,000 was at the bank's prime rate, which approximated 8.25% at December
31, 1996, while interest on the remaining $3,500,000 was at the bank's prime
rate plus 1%. This line of credit was secured by substantially all of the assets
of OHE and, on the $3,500,000 portion of the revolver, included the personal
guarantees of certain former shareholders of OHE. Borrowings under this line of
credit were $7,601,686 and $9,935,947 at December 31, 1995 and 1996,
respectively.
On February 11, 1997, the Company entered into a new credit agreement which
provides a revolving line of credit of up to $12,000,000 through January 1998,
subject to a borrowing base calculation, a term loan of $16,000,000, through
January 2002, and a letter of credit facility of up to $5,500,000. Amounts
outstanding under the credit agreement bear interest at the prime rate plus a
percentage of up to 1.25% over the prime rate, or, at the Company's option,
LIBOR plus a percentage ranging from 2.25% to 3.5%, dependent upon the
calculation of certain financial ratios. Amounts outstanding under the credit
agreement are secured by substantially all of the Company's assets. The credit
agreement includes certain financial covenants which, among other restrictions,
prohibits dividends, requires the maintenance of certain financial ratios,
including tangible net worth and cash flow coverage, and imposes limitations on
foreign investment and capital expenditures. Additionally, the agreement also
requires the Company to obtain, by July 1, 1997, an interest rate protection
agreement.
OSN had a bank credit facility consisting of (i) a $1,000,000 six-month
revolving loan, of which $1,000,000 was outstanding at December 31, 1995, and
(ii) an available $3,000,000 six-month letter of credit of which $1,587,079 was
outstanding at December 31, 1995. These balances were repaid in November, 1996
with proceeds from the offering (Note 17) and the credit facility was
terminated.
In June 1996, OHEB obtained a $500,000 line of credit with interest at
prevailing Brazilian market rates. This line of credit matures on May 31, 1997
and is supported by a standby letter of credit issued by the Company's primary
lender with a similar maturity. As of December 31, 1996, there were no
borrowings under this line of credit.
F-16
<PAGE> 133
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) LONG-TERM DEBT
The components of long-term debt are as follows at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Development Bonds, variable interest rate approximating
85% of the bond equivalent yield of 13 week U.S.
Treasury bills (not to exceed 12%), which approximated
3.6% at December 31, 1996, payable in scheduled
installments through September 2016, subject to optional
tender by the bondholders, secured by the property,
plant and equipment of OHE, the guaranty of OHE's former
majority shareholder and a bank letter of credit (Note
12)..................................................... $ 1,606,250 $ 1,525,000
Note payable to former shareholder of Palmer, interest at
7%, payable in scheduled installments through November
1998.................................................... -- 505,834
Mortgage note to bank, interest at 8.68%, payable in
monthly installments of $2,349, including interest,
through April 2003, secured by real estate and the
guaranty of OHE's former majority shareholder........... 208,274 195,723
Note payable to former shareholder of OHEM, interest
imputed at 9%, due October 1, 1997...................... -- 45,000
Other notes payable, interest at 6.84% to 15.7%, payable
in scheduled installments through July 2000, secured by
equipment............................................... 59,923 33,955
----------- -----------
1,874,447 2,305,512
Less -- current portion................................... (1,649,018) (1,836,420)
----------- -----------
$ 225,429 $ 469,092
=========== ===========
</TABLE>
Scheduled maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997, including $1,525,000 of Development Bonds subject to optional
tender by the bondholders.............................................. $1,836,420
1998..................................................................... 283,220
1999..................................................................... 23,829
2000..................................................................... 18,621
2001..................................................................... 16,210
Thereafter............................................................... 127,212
----------
$2,305,512
==========
</TABLE>
F-17
<PAGE> 134
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) OPERATING LEASES
The Company leases certain equipment under agreements with terms from one
to ten years. The following is a schedule, by year, of approximate future
minimum rental or usage payments required under operating leases that have
initial or non-cancelable lease terms in excess of one year as of December 31,
1996:
<TABLE>
<CAPTION>
AFFILIATED
COMPANIES OTHER TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1997............................................ $ 883,573 $293,373 $1,176,946
1998............................................ 703,265 207,409 910,674
1999............................................ 439,600 166,941 606,541
2000............................................ 246,400 37,143 283,543
2001............................................ 422,400 -- 422,400
Thereafter...................................... 1,513,600 -- 1,513,600
---------- -------- ----------
$4,208,838 $704,866 $4,913,704
========== ======== ==========
</TABLE>
Rental expense charged against current operations amounted to approximately
$500,000, $670,000 and $1,521,000, for the years ended December 31, 1994, 1995
and 1996, respectively.
(10) RETIREMENT PLANS
During 1991, OHE established a non-contributory profit sharing/401(k) plan
covering substantially all employees. Contributions are discretionary and are
determined annually by OHE's Board of Directors. Plan contribution expense
charged against current operations amounted to approximately $75,000, $25,000
and $125,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
The Company does not maintain any other postretirement or postemployment
benefit plans.
(11) EXECUTIVE BONUS PLAN
During 1993, OHE adopted an executive bonus plan, which covered four
individuals. The plan awarded a bonus based on the attainment of goals
stipulated in the five year business plan, ranging from 50% to 120% of the
executives' base compensation. The bonus amounts were distributed 50% in cash
and 50% in non-qualified stock options to purchase stock of OHE. Subject to the
executives' ability to elect a decrease in the percentage of cash payments and
to increase the percentage of stock options, 50% of the bonus amount was payable
in cash, and the remainder in stock options. OHE issued 445 options in 1994
based on 1993's operating results and recorded compensation expense of
approximately $207,000 in fiscal 1994. No options were issued in 1995 or 1996.
In August 1996 the 445 options were exercised for 445 shares of OHE common stock
at their $1 per share stated value (121,463 shares of the Company, giving effect
to the reorganization) and the executive bonus plan was terminated.
(12) COMMITMENTS AND CONTINGENCIES
(a) Letters of Credit -- Under the terms of the Economic Development
Revenue Bonds Agreement, OHE is required to maintain a letter of credit
supporting the debt. OHE's lender is committed to providing this letter of
credit through September 2, 1997. As of December 31, 1996, OHE had an
outstanding letter of credit in the amount of $1,681,750.
At December 31, 1996, OHE had standby and purchase letters of credit,
issued by its primary lender, in the aggregate amount of $3,296,028.
(b) Supply and Purchase Agreements -- In June 1995, OSN entered into an
irrevocable supply agreement with Magellan Systems Corporation ("Magellan")
whereby Magellan will purchase 4,000 Compact-M portable
F-18
<PAGE> 135
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
satellite telecommunication units for delivery within two years of the first
shipment, which has already occurred, at a predetermined price for a total
contract value of approximately $16,000,000. In the agreement, OSN granted
worldwide distribution to Magellan except for certain limited markets retained
by OSN.
In June 1995, in connection with the above-mentioned supply agreement, OSN
entered into a firm purchase agreement with Glocom, Inc. ("Glocom"). The
agreement provides for an irrevocable purchase order for the purchase of 4,000
units of the Compact-M for approximately $12,000,000. In accordance with the
agreement, OSN advanced a total of $3,000,000 to Glocom for the funding of the
related production costs. As of December 31, 1995 and 1996, OSN had advances to
the above vendor of $1,607,597 and $2,320,307, respectively.
As a result of certain market conditions related to the sale of the Compact
M, the Company is in discussions with both Glocom and Magellan regarding
reducing the number of units required under the respective purchase and supply
agreements. These negotiations have not been concluded. Although the amount the
Company will ultimately realize may differ materially from carrying amounts,
management believes there will be no material impact on the results of future
operations, or the carrying value of inventory or the advances.
In 1996, OHEB committed to purchase 100 glass kits, valued at approximately
$675,000, for delivery at various dates prior to June 1997.
(c) Employment Agreements -- On September 1, 1996, the Company entered into
employment agreements with certain key officers and employees providing for
continued salary and benefits for a two year period through August 31, 1998 in
the event of a termination of employment without cause, including a change in
control of the Company.
(d) Option to Purchase OHEB Minority Interest -- In August 1996, the
Company entered into an option agreement to acquire the minority interest in
OHEB on or prior to December 31, 1999. Under terms of the agreement, if the
Company exercises its option, it will be obligated to transfer to the former
shareholder, over a period of three years, common shares of the Company valued
at $1,200,000. The number of shares transferred is dependent on the market value
of the stock at the time of transfer. The exercise price for the purchase option
increases by $100,000 for each year after 1997 through 1999.
In conjunction with this agreement, the Company also entered into a two
year employment agreement with the former shareholder.
(e) Legal Matters -- The Company is party to various legal proceedings
arising from its consolidated operations. On October 9, 1996, the Company was
named in a lawsuit which alleges, among other allegations, that the Company's
expansion into the security services market constitutes a breach of a
non-competition agreement existing with OPS and the controlling shareholder of
OPS, Edward F. O'Gara, the brother of Thomas M. O'Gara, the Company's Chairman
of the Board, and Wilfred T. O'Gara, the Company's Chief Executive Officer. The
Company denies the assertions made by OPS in this matter. Management of the
Company believes that the outcome of this, as well as other proceedings,
individually and in the aggregate, will have no material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of significant current assets, current liabilities and
long-term debt approximate their respective historical carrying amounts.
(14) CUSTOMER AND SEGMENT DATA
(a)Segment Data -- The Company operates in three business segments, the
security hardware products group (Products Group), the security systems
integration group (Integration Group) and the security services group
(Services Group). The Products Group markets all of the Company's fully
integrated
F-19
<PAGE> 136
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
ballistic and blast protected vehicle armoring systems for military,
commercial and governmental clients worldwide. The Integration Group
provides vital communication systems for its clients by integrating
proprietary hardware and smart card billing software that operate on the
International Maritime Satellite ("Inmarsat") network. The Services
Group provides security-related services including, among others,
business intelligence, advanced driver training and security background
clearances to international customers. The following summarizes
information about the Company's business segments (in 000's):
<TABLE>
<CAPTION>
PRODUCTS INTEGRATION SERVICES
GROUP GROUP GROUP CONSOLIDATED
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
1994
Net sales to unaffiliated customers............ $ 33,466 $ 446 $ -- $ 33,912
======= ====== === =======
Operating income (loss)........................ $ 2,275 $ (44) $ -- $ 2,231
======= ====== === =======
Identifiable assets at year-end................ $ 19,108 $ 135 $ -- $ 19,243
======= ====== === =======
1995
Net sales to unaffiliated customers............ $ 30,773 $ 2,044 $ -- $ 32,817
======= ====== === =======
Operating income (loss)........................ $ 411 $ (588) $ -- $ (177)
======= ====== === =======
Identifiable assets at year-end................ $ 24,493 $ 3,324 $ -- $ 27,817
======= ====== === =======
1996
Net sales to unaffiliated customers............ $ 72,900 $ 9,823 $ 55 $ 82,778
======= ====== === =======
Operating income............................... $ 8,004 $ 505 $ 5 $ 8,514
======= ====== === =======
Identifiable assets at year-end................ $ 36,149 $ 6,816 $ 55 $ 43,020
======= ====== ===
Corporate assets............................... 918
-------
Total assets at year-end....................... $ 43,938
=======
</TABLE>
Total net sales by segment includes sales to unaffiliated customers.
Intersegment sales are nominal. Operating income (loss) is total net sales less
operating expenses. Operating income (loss) does not include the following
items: interest expense, other expenses and income taxes. Depreciation expense
for the Products Group for the years ended December 31, 1994, 1995 and 1996 was
$360,713, $411,970 and $780,463, respectively. Capital expenditures for the
Products Group for the years ended December 31, 1994, 1995 and 1996 was
$683,319, $638,009 and $2,543,168, respectively. There were no capital
expenditures or depreciation expense for the Integration Group or the Services
Group during 1994, 1995 and 1996. Identifiable assets by segment are those
assets that are used in the Company's operations in each segment. Corporate
assets are principally cash, certain intangible assets and certain prepaid
expenses.
F-20
<PAGE> 137
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following summarizes information about the Company's different
geographic areas (in 000's):
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1994
Net sales to unaffiliated customers................... $33,278 $ 634 $ -- $ 33,912
======= ====== ===== =======
Operating income...................................... $ 2,014 $ 217 $ -- $ 2,231
======= ====== ===== =======
Identifiable assets at year-end....................... $17,908 $ 1,335 $ -- $ 19,243
======= ====== ===== =======
1995
Net sales to unaffiliated customers................... $30,080 $ 2,737 $ -- $ 32,817
======= ====== ===== =======
Operating income (loss)............................... $ (336) $ 159 $ -- $ (177)
======= ====== ===== =======
Identifiable assets at year-end....................... $26,182 $ 1,635 $ -- $ 27,817
======= ====== ===== =======
1996
Net sales to unaffiliated customers................... $75,743 $ 7,035 $ -- $ 82,778
Intercompany.......................................... 2,226 -- (2,226) --
------- ------ ----- -------
Total net sales............................. $77,969 $ 7,035 $ (2,226) $ 82,778
======= ====== ===== =======
Operating income...................................... $ 8,141 $ 373 $ -- $ 8,514
======= ====== ===== =======
Identifiable assets................................... $37,384 $ 6,291 $ (655) 43,020
======= ====== =====
Corporate assets...................................... 918
-------
Total assets at year-end.............................. $ 43,938
=======
</TABLE>
The Company accounts for transfers between geographic areas at cost plus a
proportionate share of operating profit.
The following summarizes the Company's sales in the United States and
foreign locations (in 000's):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Sales to unaffiliated customers:
U.S. Government................................... $15,332 $11,514 $51,505
Other United States............................... 2,711 7,356 8,994
Middle East....................................... 7,795 8,582 7,598
Central & South America........................... 4,093 1,050 5,807
Other Foreign..................................... 3,981 4,315 8,874
------- ------- -------
$33,912 $32,817 $82,778
======= ======= =======
</TABLE>
Export sales by the Company's domestic operations were approximately 46%,
37% and 21% of net sales for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company is subject to audit and investigation by various agencies which
oversee contract performance in connection with the Company's contracts with the
U.S. Government. Management believes that potential claims from such audits and
investigations will not have a material adverse effect on the consolidated
financial statements. In addition, contracts with the U.S. Government may
contain cost or performance incentives or both based on stated targets or other
criteria. Cost or performance incentives are recorded at the time there is
sufficient information to relate actual performance to targets or other
criteria.
F-21
<PAGE> 138
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company has foreign operations and assets in Brazil, Mexico, Russia and
Italy. In addition, the Company sells its products and services in other foreign
countries and continues to increase its level of international activity.
Accordingly, the Company is subject to various risks including, among others,
foreign currency restrictions, exchange rate fluctuations, government
instability and complexities of local laws and regulations.
(b) Major Customers -- During the years ended December 31, 1994, 1995 and
1996 sales to three customers and their affiliated entities approximated 64%,
52% and 68%, respectively, of the Company's net sales. These customers are
individually presented as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Government......................................... 45% 35% 62%
Middle East Foreign Government A........................ 9% 14% 6%
Middle East Foreign Government B........................ 10% 3% --
-- -- --
64% 52% 68%
== == ==
</TABLE>
The year-end accounts receivable balances of these customers approximated
61%, 62% and 22% of the Company's total trade receivable balance at December 31,
1994, 1995 and 1996, respectively. In addition, two other customers not included
above had year-end accounts receivable balances which approximated 16% and 10%
of total trade accounts receivable as of December 31, 1994 and 1996,
respectively.
(15) ISSUANCE OF OHE STOCK
Prior to August 1994, OHE was indebted to Letter International Limited
Irrevocable Trust (Trust), a trust for which OHE was the sole beneficiary, in
the amount of $1,260,000. At the same time, the Trust was indebted in an equal
amount to OHE's majority shareholder. In August 1994, the majority shareholder
received from the Trust an assignment of OHE's obligation. The majority
shareholder then agreed to the cancellation of this indebtedness of OHE in
exchange for 2,692 shares of common stock of OHE (734,781 shares of the Company,
giving effect to the reorganization).
(16) STOCK OPTION PLANS
In 1996, the Company adopted a stock option plan (the 1996 Plan) for
employees and non-employee directors. Had compensation cost for this plan been
determined consistent with SFAS 123, the Company's net income and earnings per
share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net income
As reported................................................. $6,658,962
Pro forma................................................... $6,636,312
Earnings per share
Pro forma before SFAS No. 123 impact........................ $ 0.69
Pro forma after SFAS No. 123 impact......................... $ 0.69
</TABLE>
The Company may grant options for up to 400,000 shares under the 1996 Plan.
The Company granted options for 180,000 shares during fiscal 1996 at the initial
public offering price. Options granted under the plan are generally granted at
fair market value at the date of grant and are exercisable over periods not
exceeding ten years.
F-22
<PAGE> 139
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of the status of the Company's stock option plan at December 31,
1996, and the change during the year then ended is presented in the table and
narrative below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
SHARES PRICE
------- -----
<S> <C> <C>
Outstanding, beginning of year............................. -- $ --
Granted.................................................... 180,000 9.00
Exercised.................................................. -- --
Forfeited/Expired.......................................... -- --
------- -----
Outstanding, end of year................................... 180,000 $9.00
======= =====
Exercisable, end of year................................... -- $ --
======= =====
</TABLE>
At December 31, 1996, all 180,000 of the options have an exercise price of
$9.00, a fair value of $4.98, and remaining contractual life of 10 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Dividend yield........................................ 0%
Expected volatility................................... 39.3%
Risk-free interest rate............................... 6.5%
Expected lives........................................ 7.5 years
</TABLE>
(17) INITIAL PUBLIC OFFERING
On November 15, 1996, the Company completed its initial public offering of
common stock. The proceeds from the sale of 2,048,000 shares of common stock,
including 48,000 shares issued through the underwriters' partial exercise of
their over-allotment option, were used by the Company for retirement of bank
debt, payment of the AAA notes described below, purchase of a manufacturing
facility in Mexico, acquisition of Palmer net assets (Note 3) and transaction
costs associated with the offering.
On October 28, 1996 OHE distributed to its shareholders a dividend of
$9,000,000 in the form of long-term notes (the "AAA Notes") which represented
the undistributed previously taxed income of OHE as an S Corporation through the
effective date of the reorganization. During 1996 the Company recognized
approximately $27,000 in interest expense related to the AAA notes.
F-23
<PAGE> 140
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(18) PRO FORMA INFORMATION (UNAUDITED)
(a) Pro Forma Consolidated Statements of Operations Adjustments -- The pro
forma consolidated statements of operations information presents the pro forma
effects on the historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The following adjustments
have been reflected in the pro forma consolidated statements of operations
information:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Amortization on intangible assets resulting from the purchase of
Palmer net assets................................................... $ (101,000)
The elimination of interest expense relating to the retirement of bank
debt................................................................ 339,000
The provision for income taxes at an effective rate of 40% as if the
Company had filed a consolidated U.S. Federal tax return............ (2,448,000)
------------
Total....................................................... $ (2,210,000)
============
</TABLE>
(b) Pro Forma Net Income Per Share -- Pro forma net income per common share
is based on the weighted average number of shares of common stock of the Company
outstanding during the period (assuming the reorganization had occurred as of
the beginning of the year and using the treasury stock method), plus the number
of shares required to fund the distribution to shareholders and the number of
shares required to repay existing debt.
Supplemental pro forma income per share considering only the repayment of
existing debt would have been $0.83 for the year ended December 31, 1996, based
on the weighted average number of shares of common stock outstanding during the
period, plus the estimated number of shares to be issued to repay existing debt.
(19) SUBSEQUENT EVENT (UNAUDITED)
On August 8, 1997, the Company entered into a merger agreement with Kroll
Holdings, Inc. (Kroll). In the proposed merger, Kroll would become a wholly
owned subsidiary of the Company and holders of Kroll stock and stock options
would receive an aggregate of 6,650,000 shares of O'Gara common stock. The
merger is intended to be a tax-free reorganization and will be accounted for as
a pooling of interests.
F-24
<PAGE> 141
THE O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents....................................................................... $ 7,874
Marketable securities...................................................................... 3,011
Trade accounts receivable, net of allowance for doubtful accounts of $467.................. 20,064
Other receivables
Advances to shareholders................................................................. 69
Affiliates............................................................................... 398
Advances to vendors........................................................................ 505
Costs and estimated earnings in excess of billings on uncompleted contracts................ 12,616
Inventories................................................................................ 15,211
Prepaid expenses........................................................................... 1,590
--------
Total current assets................................................................ 61,338
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land....................................................................................... 1,255
Buildings and improvements................................................................. 5,525
Furniture and fixtures..................................................................... 2,080
Machinery and equipment.................................................................... 5,074
--------
13,934
Less: accumulated depreciation............................................................. (4,851)
--------
9,083
--------
COSTS IN EXCESS OF ASSETS ACQUIRED, net of accumulated amortization of $215.................. 12,949
OTHER ASSETS................................................................................. 6,377
--------
19,326
--------
$ 89,747
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit.................................................................. $ --
Current portion of long-term debt.......................................................... 2,030
Accounts payable-
Trade.................................................................................... 16,703
Affiliates............................................................................... 1,014
Billings in excess of costs and estimated earnings on uncompleted contracts................ 732
Accrued liabilities........................................................................ 6,917
Customer deposits.......................................................................... 1,610
--------
Total current liabilities........................................................... 29,006
LONG-TERM DEBT, net of current portion....................................................... 39,944
MINORITY INTEREST............................................................................ 45
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, 100,000 shares authorized, none issued................... --
Common stock, $0.01 par value, 25,000,000 shares authorized, 7,279,310 shares issued and
outstanding in 1997...................................................................... 73
Additional paid-in-capital................................................................. 23,726
Retained deficit........................................................................... (2,470)
Cumulative foreign currency translation adjustment......................................... (577)
--------
Total shareholders' equity.......................................................... 20,752
--------
$ 89,747
========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-25
<PAGE> 142
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
NET SALES....................................................................... $ 41,521 $ 51,853
COST OF SALES................................................................... 31,383 37,484
--------- ---------
Gross profit.................................................................. 10,138 14,369
OPERATING EXPENSES:
Selling and marketing......................................................... 2,159 3,794
General and administrative.................................................... 3,286 5,121
--------- ---------
Operating income.......................................................... 4,693 5,454
OTHER INCOME (EXPENSE):
Interest expense.............................................................. (613) (1,404)
Other, net.................................................................... (78) 329
--------- ---------
Income before minority interest, provision for income taxes and
extraordinary item......................................................... 4,002 4,379
Minority interest............................................................... -- (74)
--------- ---------
Income before provision for income taxes and extraordinary item............. 4,002 4,305
Provision for income taxes...................................................... -- 1,623
--------- ---------
Income before extraordinary item............................................ 4,002 2,682
Extraordinary item, cost of early extinguishment of debt, net of $129 tax
benefit....................................................................... -- 194
--------- ---------
Net income............................................................. $ 4,002 $ 2,488
========= =========
Earnings per share.............................................................. $ 0.35
=========
Weighted average shares outstanding............................................. 7,141,389
=========
UNAUDITED PRO FORMA INFORMATION:
Gross profit.................................................................. $ 10,138
Selling and marketing expenses................................................ 2,159
General and administrative expenses........................................... 3,356
---------
Operating income.............................................................. 4,623
Interest expense.............................................................. (457)
Other, net.................................................................... (78)
---------
Income before provision for income taxes...................................... 4,088
Provision for income taxes.................................................... 1,635
---------
Net income................................................................ $ 2,453
=========
Earnings per share............................................................ $ 0.40
=========
Weighted average shares outstanding........................................... 6,173,728
=========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-26
<PAGE> 143
THE O'GARA COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
SHARES STOCK CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- ------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996........... 6,659,846 $ 66 $ 17,592 $ (4,958) $ (44) $12,656
Net income........................... -- -- -- 2,488 -- 2,488
Aggregate translation adjustment..... -- -- -- -- (533) (533)
Issuance of stock bonus to certain
employees.......................... 4,547 -- 49 -- -- 49
Issuance of stock in conjunction with
the purchase of Labbe.............. 376,597 4 3,426 -- -- 3,430
Issuance of stock in conjunction with
the purchase of Next Destination... 170,234 2 1,850 -- -- 1,852
Issuance of stock in conjunction with
the purchase of ITI................ 68,086 1 809 -- -- 810
--------- --- ------- ------- ----- -------
Balance, June 30, 1997............... 7,279,310 $ 73 $ 23,726 $ (2,470) $ (577) $20,752
========= === ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 144
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------------
1996 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 4,002 $ 2,488
Adjustments to reconcile net income to net cash used in operating
activities
Depreciation and amortization................................... 317 908
Minority interest............................................... -- 13
Decrease (increase) in receivables.............................. 602 (5,546)
Decrease in advances to vendors................................. 157 159
Increase (decrease) in costs and estimated earnings in excess of
billings on uncompleted contracts.............................. (4,452) 3,443
Increase in inventories......................................... (2,345) (2,290)
Increase in prepaid expenses.................................... (137) (844)
Increase in other assets........................................ (622) (1,076)
Increase (decrease) in accounts payable......................... 229 (575)
Decrease in billings in excess of costs and estimated earnings
on uncompleted contracts....................................... (1,236) (598)
Increase (decrease) in accrued liabilities...................... 385 (1,879)
Increase (decrease) in customer deposits........................ 1,856 (509)
-------- ---------
Net cash used in operating activities...................... (1,244) (6,306)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net.................... (787) (1,064)
Purchase of Labbe, net of cash acquired............................ -- (7,229)
Purchase of ITI, net of cash acquired.............................. -- (377)
Purchase of marketable securities.................................. (3,011)
Investment in shareholder and affiliate notes...................... (317) --
-------- ---------
Net cash used in investing activities...................... $ (1,104) $ (11,681)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of credit........ 3,457 (9,936)
Proceeds from long-term debt....................................... -- 34,875
Payments of long-term debt......................................... (80) --
Repayment of shareholder notes..................................... (40) --
Distribution to shareholders....................................... (230) --
Foreign currency translation....................................... 5 (532)
-------- ---------
Net cash provided by financing activities.................. 3,112 24,407
-------- ---------
NET INCREASE IN CASH AND EQUIVALENTS................................. 764 6,420
-------- ---------
CASH AND EQUIVALENTS, beginning of period............................ 324 1,454
-------- ---------
CASH AND EQUIVALENTS, end of period.................................. $ 1,088 $ 7,874
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................. $ 565 $ 924
======== =========
Cash paid for taxes................................................ $ -- $ 1,510
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 145
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The O'Gara Company (the "Company") is an integrated security company with
three business lines: security hardware products, security systems integration
and security services. The Security Hardware Products Group markets all of the
Company's armoring products, including ballistic and blast protected armoring
systems for military and commercial vehicles, aircraft and missile components,
through the Company's various O'Gara-Hess & Eisenhardt Armoring Company
subsidiaries and Labbe, S.A ("Labbe"). The Security Systems Integration Group
offers planning, design and hardware and software integration services which are
customized to meet specific satellite communications or site protection needs of
customers through its O'Gara Satellite Networks ("OSN"), Next Destination
Limited ("Next Destination") and O'Gara Security International, Inc.
subsidiaries. The Security Services Group offers security-related services such
as advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing, force protection consulting and
private security agent training through its Palmer Associates division and its
O'Gara Security Associates, Inc. and International Training, Inc. ("ITI")
subsidiaries.
On November 15, 1996, the Company completed an initial public offering of
2,048,000 shares of common stock at $9.00 per share, including 48,000 shares
issued through the underwriters' partial exercise of their over-allotment
option. The net proceeds from the offering were used by the Company for
retirement of bank debt, payment of the AAA Notes described below (Note 4),
purchase of a manufacturing facility in Mexico, initial payments in connection
with the acquisition of the net assets of Palmer Associates and transaction
costs associated with the offering.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. The accompanying financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1996.
The accompanying consolidated financial statements consist of several
entities, all of which, until October 28, 1996, were owned or controlled by
substantially the same shareholders. In contemplation of the Company's initial
public offering, these entities and their respective shareholders entered into a
reorganization plan that was executed on October 28, 1996 (the
"Reorganization"). Accordingly, the accompanying consolidated financial
statements present, as a combination of entities under common control as if
using the pooling method of accounting, the financial position and related
results of operations of the Company on a consolidated basis for all periods
presented. All significant balances and transactions between the consolidated
entities have been eliminated in these consolidated statements.
(2) REVENUE RECOGNITION
Revenue related to government contracts and most commercial contracts
results principally from long-term fixed price contracts and is recognized on
the percentage of completion method calculated utilizing the cost-to-cost
approach. The percent deemed to be complete is calculated by comparing the costs
incurred to date to estimated total costs for each contract. This method is used
because management considers costs incurred to be the best available measure of
progress on these contracts. However, adjustments to this measurement are made
when management believes that costs incurred materially exceed effort expended.
Contract costs include all direct material and labor costs, along with certain
direct overhead costs related to contract production.
F-29
<PAGE> 146
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
Provisions for any estimated total contract losses on uncompleted contracts
are recorded in the period in which it becomes known that such losses will
occur. Changes in estimated total contract costs will result in revisions to
contract revenue. These revisions are recognized when determined.
Revenue related to telecommunications equipment and services is recognized
as equipment is shipped or as services are provided. Revenue and related direct
costs of brokered satellite time are recorded when payments are received from
customers.
(3) ACQUISITIONS
The Company completed the following acquisitions during the first quarter
of 1997. All three of these acquisitions were accounted for as purchases and the
results of the acquired entities are included in the consolidated results of the
Company from their respective dates of acquisition. The Company is still
awaiting results of certain appraisals and other analysis; therefore the
allocation of purchase price is still preliminary in each case.
(a) Next Destination Acquisition -- On February 5, 1997, the Company
acquired all of the shares of Next Destination for $3.5 million,
consisting of approximately $1.9 million in shares of the Company's
common stock (170,234 shares) and approximately $1.6 million in
seller-provided financing in the form of three-year 6% notes. The
former managing director and founder of Next Destination continues to
manage the business and is subject to a three year non-competition
agreement. Costs in excess of assets acquired is expected to be $3.2
million and will be amortized over 15 years.
(b) Labbe Acquisition -- On February 12, 1997, the Company acquired all
of the shares of Labbe for approximately $14.2 million consisting of
$10.7 million in cash, financed through funds advanced under the
Company's credit facility, and 376,597 shares of the Company's common
stock. For accounting purposes, the acquisition was effective on
January 1, 1997 and the results of operations of Labbe are included
in the consolidated results of operations of the Company from that
date forward. The former shareholders of Labbe, who were employed by
Labbe prior to the acquisition, continue in their formerly-held
capacities. The former shareholders also are subject to certain
non-competition agreements upon their leaving the employment of the
Company. Costs in excess of assets acquired is expected to be $7.0
million and will be amortized over 30 years.
(c) ITI Acquisition -- On March 24, 1997, the Company acquired all of the
shares of ITI for approximately $2.5 million, consisting of $0.5
million in cash, financed through the Company's credit facility,
68,086 shares of the Company's common stock, and $1.2 million in
seller provided financing in the form of 2-year, 10%, subordinated
notes. The former shareholders of ITI, who were employed by ITI prior
to the acquisition, continue in their formerly-held capacities. The
former shareholders are also subject to certain non-competition
agreements upon their leaving the employment of the Company. Costs in
excess of assets acquired is expected to be $2.0 million and will be
amortized over 15 years.
F-30
<PAGE> 147
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
In connection with the acquisitions of Labbe, Next Destination and ITI,
assets were acquired and liabilities were assumed as follows (in thousands):
<TABLE>
<CAPTION>
NEXT
DESTINATION ITI LABBE
----------- ------- --------
<S> <C> <C> <C>
FAIR VALUE OF ASSETS ACQUIRED INCLUDING:
Cash................................................ -- $ 23 $ 3,501
Accounts receivable................................. $ 1,830 310 4,690
Inventories......................................... 1,276 -- 2,911
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... -- -- 732
Prepaid expenses.................................... -- 4 64
Property, plant & equipment......................... 80 213 3,360
Intangible assets................................... -- -- 802
Other non-current assets............................ -- 12 2,357
Goodwill............................................ 3,207 2,015 6,961
-------- ------- --------
6,393 $ 2,577 $ 25,378
Less: Cash paid for net assets...................... -- (500) (10,730)
Fair value of debt issued..................... (1,575) (1,231) --
Fair value of stock issued.................... (1,851) (810) (3,435)
-------- ------- --------
$ 2,967 $ 36 $ 11,213
======== ======= ========
LIABILITIES ASSUMED INCLUDING:
Liabilities assumed and acquisition costs........... $ 2,967 $ 19 $ 9,710
Debt................................................ -- 17 1,503
-------- ------- --------
$ 2,967 $ 36 $ 11,213
======== ======= ========
</TABLE>
(4) S CORPORATION DISTRIBUTION
From 1988, when O'Gara-Hess & Eisenhardt Armoring Company ("OHE") elected S
Corporation status until October 28, 1996, when that status terminated, OHE had
made distributions from time to time to its shareholders for the purpose of
funding their income tax payments on the income generated by OHE, which income
was taxable to the shareholders whether or not distributed. In connection with
the Reorganization, OHE distributed to its shareholders a dividend of $9.0
million in the form of long-term notes (the "AAA Notes"), which represented the
undistributed previously taxed income of OHE as an S Corporation through the
effective date of the Reorganization.
(5) PROVISION FOR INCOME TAXES
During the time OHE was treated as an S Corporation under Subchapter S of
the Code and comparable provisions of certain state tax laws, it paid no federal
income tax. On October 28, 1996, OHE terminated its S Corporation status and,
from that date forward, is responsible for federal and state income tax.
F-31
<PAGE> 148
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
(6) INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and includes the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Raw materials................................................ $ 7,671
Vehicle costs and work-in-process............................ 7,540
------
$ 15,211
======
</TABLE>
(7) PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS (UNAUDITED)
The pro forma consolidated statements of operations information presents
the pro forma effects on the historical consolidated financial information
reflecting certain transactions as if they occurred on January 1, 1996. The
following adjustments have been reflected in the pro forma consolidated
statements of operations information (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996
-------------
<S> <C>
Amortization of intangible assets resulting from the purchase of Palmer
Associates, S.C...................................................... $ (70)
Elimination of interest expense relating to the retirement of bank
debt................................................................. 156
Provision for income taxes at an effective rate of 40% as if OHE had
been a C Corporation and as if the Company had filed a consolidated
U.S. Federal tax return.............................................. (1,635)
---------
Total.................................................................. $ (1,549)
=========
</TABLE>
(8) NEW PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128),
effective for fiscal years ending after December 15, 1997. The new standard
replaces primary earnings per share ("EPS") with basic EPS, simplifies EPS
calculations and requires restatement of all prior period EPS data. The Company
intends to adopt the provisions of SFAS 128 during the fourth quarter of 1997
with no material impact anticipated.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130), which requires comprehensive
income and the associated income tax expense or benefit be reported in a
financial statement with the same prominence as other financial statements with
an aggregate amount of comprehensive income reported in that same financial
statement. SFAS No. 130 permits the statement of changes in shareholders equity
to be used to meet this requirement. "Other Comprehensive Income" refers to
revenues, expenses, gains and losses that under GAAP are included in
comprehensive income but bypass net income. The Company intends to adopt SFAS
No. 130 in the first quarter of fiscal 1998. The Company anticipates that
adoption of SFAS No. 130 will not be material.
1997, the FASB issued Statement of Financial Accounting Standards No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS No.
131), which requires disclosure for each segment in which the chief operating
decision maker organizes these segments within a company for making operating
decisions and assessing performance. Reportable segments are based on products
F-32
<PAGE> 149
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
and services, geography, legal structure, management structure and any manner in
which management disaggregates a company. The Company intends to adopt SFAS No.
131 in the first quarter of fiscal 1998. The Company anticipates that adoption
of SFAS No. 131 will not be material.
(9) SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash and equivalents consist of all operating cash accounts and investments
with an original maturity of three months or less. Marketable securities consist
of available-for-sale commercial paper obligations which mature or will be
available for use in operations in 1997. These securities are valued at current
market value, which approximates cost.
Non-cash activity (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ------
<S> <C> <C>
Fair value of stock issued in connection with acquisition
of ITI................................................. -- $ 810
Notes issued in connection with acquisition of ITI....... -- $1,231
Fair value of stock issued in connection with acquisition
of Next Destination.................................... -- $1,851
Notes issued in connection with acquisition of Next
Destination............................................ -- $1,575
Fair value of stock issued in connection with acquisition
of Labbe............................................... -- $3,435
Note payable obligation incurred and receivable forgiven
in connection with non-compete agreement............... $115 --
</TABLE>
(10) FUTURES CONTRACT
The Company on occasion utilizes derivative financial instruments,
primarily futures contracts, to mitigate its exposure to foreign currency rate
fluctuations in transactions denominated in a foreign currency. At June 30,
1997, one such futures contract was outstanding with a bank at a contract amount
in excess of its calculated fair market value. As a result, an adjustment has
been recorded in Cumulative Foreign Currency Translation in the balance sheet.
The contract effectively hedges the Company's exposure to foreign currency
fluctuations associated with a loan to its Labbe subsidiary.
F-33
<PAGE> 150
INDEPENDENT AUDITORS' REPORT
The Stockholders of
Kroll Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Kroll
Holdings, Inc. (the "Company") and subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and subsidiaries as
of December 31, 1996, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ DELOITTE AND TOUCHE LLP
New York, New York
March 13, 1997
(August 8, 1997 as to Notes 7 and 17)
F-34
<PAGE> 151
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Kroll Holdings, Inc.:
We have audited the consolidated balance sheet of Kroll Holdings, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the two year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kroll
Holdings, Inc. and subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
March 28, 1996
F-35
<PAGE> 152
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 2,367,453 $ 3,306,989
Marketable securities................................................ -- 47,500
Accounts receivable, net............................................. 19,855,478 15,204,779
Unbilled revenues.................................................... 1,936,425 4,150,307
Amounts due from employees........................................... 196,410 490,881
Refundable income taxes.............................................. 95,619 154,333
Amounts due from affiliated companies................................ 162,680 41,970
Notes receivable..................................................... 471,289 100,000
Prepaid income taxes................................................. 69,802 382,602
Prepaid expenses..................................................... 1,615,411 917,483
----------- -----------
Total current assets............................................... 26,770,567 24,796,844
DATABASES (Net of accumulated amortization of $13,618,339 and
$16,568,473 in 1995 and 1996, respectively).......................... 7,114,223 7,415,449
PROPERTY AND EQUIPMENT--Net............................................ 3,705,133 3,638,526
INTANGIBLE AND OTHER ASSETS (Net of accumulated amortization of
$150,085 and $77,556 in 1995 and 1996, respectively)................. 1,248,111 1,333,033
OTHER ASSETS........................................................... 111,811 111,732
----------- -----------
TOTAL ASSETS........................................................... $38,949,845 $37,295,584
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade.............................................. $ 4,538,749 $ 4,910,286
Accrued compensation................................................. 397,449 2,621,343
Accrued interest payable............................................. 1,258,746 209,171
Deferred revenue..................................................... 167,582 1,064,955
Accounts payable other............................................... 2,719,852 3,341,385
Deferred income taxes................................................ 2,506,932 1,703,377
Current maturities of long-term debt................................. 5,000,000 2,625,000
Amount due to stockholder............................................ 2,000,000 2,000,000
----------- -----------
Total current liabilities.......................................... 18,589,310 18,475,517
DEFERRED RENT.......................................................... 1,559,576 1,588,718
OTHER LONG-TERM LIABILITIES............................................ 1,235,295 468,479
AMOUNT DUE TO STOCKHOLDERS............................................. 3,543,381 5,048,266
LONG-TERM DEBT--Less current maturities................................ 8,000,000 5,500,000
DEFERRED INCOME TAXES.................................................. 1,604,604 2,002,779
----------- -----------
TOTAL LIABILITIES...................................................... 34,532,166 33,083,759
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 10, 11 and 13)
STOCKHOLDERS' EQUITY:
Class A common stock ($0.01 par value; authorized 46,200 shares)..... 231 231
Common stock ($0.01 par value; authorized 153,800 shares)............ 654 718
Additional paid-in capital........................................... 19,364,159 20,255,161
Accumulated deficit.................................................. (15,143,498) (15,945,238)
Unrealized appreciation of marketable securities..................... -- 14,167
Cumulative translation adjustment.................................... 196,133 (113,214)
----------- -----------
Total stockholders' equity......................................... 4,417,679 4,211,825
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $38,949,845 $37,295,584
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 153
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES............................................ $52,871,687 $53,024,304 $70,883,058
COST OF SALES....................................... 31,683,853 35,205,810 47,899,920
----------- ----------- -----------
Gross profit (loss)............................... 21,187,834 17,818,494 22,983,138
OPERATING EXPENSES:
Selling and marketing............................. 4,700,040 5,489,615 4,632,013
General and administrative........................ 18,076,344 16,788,146 18,349,974
----------- ----------- -----------
Operating income (loss)........................ (1,588,550) (4,459,267) 1,151
OTHER INCOME (EXPENSE):
Interest expense.................................. (2,188,404) (1,970,483) (1,839,984)
Other, net........................................ 406,757 (281,774) 357,828
----------- ----------- -----------
LOSS BEFORE INCOME TAXES............................ (3,370,197) (6,711,524) (1,481,005)
INCOME TAX BENEFIT.................................. (1,751,098) (1,297,837) (679,265)
----------- ----------- -----------
NET LOSS............................................ $(1,619,099) $(5,413,687) $ (801,740)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 154
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL APPRECIATION OF CUMULATIVE
PAID-IN ACCUMULATED MARKETABLE TRANSLATION
CLASS A COMMON CAPITAL DEFICIT SECURITIES ADJUSTMENT TOTAL
------- ------ ----------- ------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1993
(88,450 shares issued and
outstanding)............... $ 231 $654 $19,364,159 $ (8,110,712) $ -- $ 108,146 $11,362,478
Cumulative translation
adjustment............... -- -- -- -- -- 59,174 59,174
Net loss................... -- -- -- (1,619,099) -- -- (1,619,099)
---- ---- ----------- ------------ -------- --------- -----------
BALANCE at December 31, 1994
(88,450 shares issued and
outstanding)............... 231 654 19,364,159 (9,729,811) -- 167,320 9,802,553
Cumulative translation
adjustment............... -- -- -- -- -- 28,813 28,813
Net loss................... -- -- -- (5,413,687) -- -- (5,413,687)
---- ---- ----------- ------------ -------- --------- -----------
BALANCE at December 31, 1995
(88,450 shares issued and
outstanding)............... 231 654 19,364,159 (15,143,498) -- 196,133 4,417,679
Cumulative translation
adjustment............... -- -- -- -- -- (309,347) (309,347)
Issuance of 6,457 shares... -- 64 891,002 -- -- -- 891,066
Unrealized appreciation of
marketable securities.... -- -- -- -- 14,167 -- 14,167
Net loss................... -- -- -- (801,740) -- -- (801,740)
---- ---- ----------- ------------ -------- --------- -----------
BALANCE at December 31, 1996
(94,907 shares issued and
outstanding)............... $ 231 $718 $20,255,161 $(15,945,238) $ 14,167 $(113,214) $ 4,211,825
==== ==== =========== ============ ======== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 155
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(1,619,099) $(5,413,687) $ (801,740)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
provided
by operating activities:
Depreciation and amortization -- property and
equipment.................................... 1,042,748 841,294 751,083
Amortization for goodwill...................... 19,143 26,939 26,992
Amortization for noncompete agreement.......... 33,334 16,667 --
Amortization for databases..................... 2,469,576 2,470,696 2,949,134
Bad debt expense............................... 2,032,749 3,050,310 8,108,976
Common stock issued as compensation............ -- -- 891,066
Loss on write-off of notes receivables......... -- 55,966 --
Share in net (income) loss of joint ventures... (1,749) 224,789 (19,224)
(Gain) loss on sale of property and
equipment.................................... (54,554) 6,245 1,872
Minority interest.............................. 53,785 -- --
Gain on sale of marketable securities.......... -- -- (108,646)
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable... 1,918,332 (1,952,444) (3,681,011)
(Increase) decrease in unbilled revenues..... (129,654) 1,391,221 (2,334,527)
(Increase) decrease in refundable income
taxes..................................... (340,501) 299,959 (58,714)
(Increase) decrease in prepaid income
taxes..................................... (202,834) 112,581 (312,800)
Decrease (increase) in amounts due from
affiliated companies...................... (1,080,756) (61,579) 120,710
Decrease in prepaid expenses................. 107,838 54,377 944,217
(Increase) decrease in intangibles and other
assets.................................... 29,463 (24,052) (111,914)
Increase in accounts payable and accrued
expenses.................................. 123,409 1,344,204 3,064,762
(Increase) decrease in amounts due to/from
employees................................. (23,695) 19,820 (294,471)
Decrease in deferred income taxes payable.... (409,517) (875,312) (405,380)
Decrease in income taxes payable............. (1,109,009) -- --
Increase (decrease) in long-term
liabilities............................... 289,231 349,103 (680,802)
Increase (decrease) in deferred rent......... 29,929 (199,363) 29,142
----------- ----------- -----------
Total adjustments.............................. 4,797,268 7,151,421 8,880,465
----------- ----------- -----------
Net cash provided by operating activities...... 3,178,169 1,737,734 8,078,725
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............... (497,795) (489,667) (686,948)
Proceeds from sale of property and equipment...... 80,765 4,235 600
Additions to databases............................ (3,065,554) (2,985,409) (3,250,360)
Purchase 50% of Kroll Asia (net of cash acquired
of $1,026)..................................... (334,538) -- --
Sale of marketable securities..................... -- -- 200,313
Other............................................. (127,289) (27,600) (66,711)
----------- ----------- -----------
Net cash used in investing activities.......... (3,944,411) (3,498,441) (3,803,106)
----------- ----------- -----------
</TABLE>
F-39
<PAGE> 156
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt........................ $(1,062,986) $(3,615,876) $(4,875,000)
Proceeds from borrowings from stockholders......... 106,500 2,600,000 2,000,000
Repayment of borrowings from stockholder........... -- (106,500) (495,115)
----------- ----------- -----------
Net cash used in financing activities........... (956,486) (1,122,376) (3,370,115)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................................ (1,722,728) (2,883,083) 905,504
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES ON CASH... -- -- 34,032
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR....... 6,973,264 5,250,536 2,367,453
----------- ----------- -----------
CASH AND CASH EQUIVALENTS -- END OF YEAR............. $ 5,250,536 $ 2,367,453 $ 3,306,989
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash items:
Exchange of note receivable for trade
receivables................................... $ 409,967 $ 60,000 $ --
=========== =========== ===========
Exchange of stock in an unaffiliated company for
trade receivables............................. $ -- $ 125,000 $ --
=========== =========== ===========
Issuance of restricted stock.................... $ -- $ -- $ 891,066
=========== =========== ===========
Cash paid during the year for:
Interest........................................ $ 1,382,698 $ 1,840,061 $ 2,972,970
=========== =========== ===========
Income taxes.................................... $ 595,387 $ 123,686 $ 97,629
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE> 157
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. ORGANIZATION
General -- In June 1993, Kroll Holdings, Inc., a Delaware corporation,
commenced operations. The Company was established as a holding company for
previously affiliated companies, hereinafter referred to as the Kroll Group, all
of whom were owned by common stockholders.
Description of Business -- Kroll is an international investigative and
consulting professional services organization. By combining sophisticated
investigative techniques with state of the art research methods, Kroll provides
services involving major financial transactions, corporate fraud, international
expansion, litigation, corporate takeovers, competitor actions, bankruptcies,
environmental liability, crisis management and other business concerns.
Reorganization -- During June 1993, pursuant to an unanimous consent of
stockholders, the holders of capital stock of the Kroll Group and an outside
investor entered into a Plan of Reorganization and Stockholders Agreement (the
"Plan"). Under the Plan, the outside investor contributed cash and notes to the
Company in exchange for 23,100 shares of the Company's Class A Common Stock, par
value $.01 per share. At December 31, 1993, the notes contributed by the outside
investor had been fully satisfied. The existing stockholders contributed all of
the capital stock of the Kroll Group in exchange for shares of the Company's
Common Stock, par value $.01. Due to the common ownership of the Kroll Group
Companies and Kroll Holdings, Inc., this reorganization has been accounted for
as a transaction between entities under common control. Accordingly, all assets
and liabilities of the entities have been combined at their historical net book
values and the exchange of shares by the existing stockholders has been
reflected in the accompanying consolidated financial statements as of January 1,
1993. The Reorganization qualified as a tax-free transaction as provided in
Section 351 of the Internal Revenue Code of 1986.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying consolidated financial
statements of Kroll Holdings, Inc. ("Holdings") and its wholly owned
subsidiaries include the accounts of Kroll Associates, Inc. ("KAI"), Kroll
Associates UK Limited ("Kroll UK"), Kroll Associates France SARL ("Kroll
France"), Kroll Environmental Enterprises, Inc. ("KEE"), Kroll Information
Services, Inc. ("KINS"), Kroll Associates Brazil Limited ("Kroll Brazil"), Kroll
Electronic Recovery Inc. ("KER"), Kroll Travel Security Services, Inc. ("Kroll
Travel"), Kroll Associates (Asia) Limited ("Kroll Asia"), Kroll International
Holdings, Inc. ("KIHI") and Kroll International, Inc. ("KII"). In April 1988,
Kroll Associates entered into a joint venture agreement. The investment in the
joint venture represented 50% of the common stock of Kroll Asia. In May 1994,
the remaining 50% of the common stock of Kroll Asia was purchased by Kroll
Holdings, Inc. Beginning with the year ended December 31, 1994, Kroll Asia has
been consolidated into the Kroll Holdings, Inc. financial statements. All
significant intercompany accounts and transactions among these companies have
been eliminated in consolidation. KIHI and KII are newly formed companies and
are included in the consolidated financial statements of KHI for the year ended
December 31, 1996.
Property and Equipment -- Property and equipment are carried at cost.
Depreciation, including amortization of leasehold improvements, is computed
using the straight-line method over the estimated useful life of the asset. When
assets are retired or sold, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is charged to income
as incurred.
Databases -- Databases are capitalized costs incurred to obtain information
from third-party databases. Amortization is computed using the straight-line
method over the estimated useful life of five years.
Revenue Recognition -- Revenue from services is recognized as the services
are performed. The Company records either billed or unbilled accounts receivable
based on case-by-case invoicing determinations.
F-41
<PAGE> 158
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Income Taxes -- Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Foreign Currency -- The functional currency for the Company's foreign
subsidiaries is the applicable local currency. The translation from the
applicable foreign currencies to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using a weighted average exchange rate during
the period. The gains or losses resulting from such translation are included in
stockholders' equity.
Gains or losses resulting from foreign currency transactions are translated
to local currency at the rates of exchange prevailing at the dates of the
transactions. Amounts receivable or payable in foreign currencies, other than
the subsidiary's local currency, are translated at the rates of exchange
prevailing at the balance sheet date. The effect of transactional gains or
losses is included in other income (expense).
Statement of Cash Flows -- Cash equivalents of $600,000, $600,000 and
$890,000 at December 31, 1994, 1995 and 1996, respectively, consist of
certificates of deposit with a maturity of less than three months.
For purposes of the consolidated statements of cash flows, the Company
considers all investments with maturities of three months or less from purchase
date to be cash equivalents.
Intangibles -- The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a straight-line
basis over a period of 40 years. The period of amortization of goodwill is
evaluated at least annually to determine whether events and circumstances
warrant revised estimates of useful lives. This evaluation considers, among
other factors, expected cash flows and profits of the businesses to which the
goodwill relates. Goodwill is written off when it becomes evident that it has
become permanently impaired.
Concentrations of Credit Risk -- Financial instruments which subject the
Company to concentrations of credit risk consist principally of trade
receivables. Concentrations of credit risk with respect to accounts receivable
are limited due to the large number of clients comprising the Company's client
base and their dispersion across many different industries and geographic
regions. Generally, the Company does not require collateral or other security to
support client receivables, except for certain significant receivables in 1995.
The Company has four significant foreign clients with receivables in the
aggregate accounting for approximately $7,456,000 or 35% and $6,531,000 or 33%
of the accounts receivable balance at December 31, 1994 and 1995, respectively.
A substantial portion of these receivables have been outstanding for more than a
year. During 1996, approximately $5,179,000 of such receivables were written
off. The Company establishes an allowance for doubtful accounts based upon facts
surrounding the credit risk of specific clients, historical trends and other
information. Management does not anticipate incurring losses on its trade
receivables in excess of established allowances.
Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets, primarily in the
area of accounts receivable, and liabilities and the disclosure of contingent
assets and liabilities to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Marketable Securities -- The Company adopted the provisions of SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities, for the
year ended December 31, 1996. Under SFAS 115, the
F-42
<PAGE> 159
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Company must classify its debt and marketable securities in one of three
categories: trading, available-for-sale or held-to-maturity. The Company has
classified equity securities as "Available for Sale."
Unrealized holding gains and losses, net of the related income tax effect
on the available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholders' equity until realized. The Company
recorded an unrealized gain of $14,167 during the year ended December 31, 1996.
A decline in the market of any available-for-sale security below cost that
is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Reclassifications -- Certain prior year balances have been reclassified to
conform with current year presentation.
3. ACCOUNTS RECEIVABLE
Accounts receivable, net, include an allowance for doubtful accounts of
$2,451,294 and $1,702,731 at December 31, 1995 and 1996, respectively. Refer to
Note 1, "Concentrations of Credit Risk."
4. SALES OF RECEIVABLES
During the year ended December 31, 1995, KAI entered into agreements to
sell, without recourse, accounts receivable in the amount of $4,507,800, to a
stockholder. A discount of $225,390, or 5%, was applied to the sales. Under the
terms of the agreements, a portion of the sales proceeds was withheld by the
purchaser subject to a final determination of the specific account receivables
to be included in the sale. At December 31, 1995, all obligations to the
purchaser, pursuant to the agreements, have been satisfied.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
1995 1996 USEFUL LIVES
----------- ----------- ---------------
<S> <C> <C> <C>
Furniture and fixtures............................ $ 1,948,611 $ 1,997,508 5 years
Office equipment.................................. 5,161,819 5,637,538 5 years
Automobiles....................................... 52,558 53,377 3 years
Leasehold improvements............................ 4,995,745 5,186,648 Term of leases
----------- -----------
12,158,733 12,875,071
----------- -----------
Less accumulated depreciation and amortization:
Furniture and fixtures.......................... 1,781,578 1,851,464
Office equipment................................ 4,339,416 4,668,046
Automobiles..................................... 26,279 44,481
Leasehold improvements.......................... 2,306,327 2,672,554
----------- -----------
8,453,600 9,236,545
----------- -----------
$ 3,705,133 $ 3,638,526
=========== ===========
</TABLE>
Depreciation and amortization charged to income amounted to $1,042,748,
$841,294 and $751,083 for 1994, 1995 and 1996, respectively.
6. INVESTMENT IN JOINT VENTURES
Investment in Electronic Recovery Group--In May 1994, KER entered into a
partnership agreement with Sabin Environmental Processing, Inc., a Connecticut
corporation, to form Electronic Recovery Group (ERG).
F-43
<PAGE> 160
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KER owns 50% of the partnership. At December 31, 1996 and 1995, KER's share of
accumulated losses is in excess of its investment in the amounts of $93,947 and
$145,883, respectively. The Company's liability for such is included in Other
Long-Term Liabilities.
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
10.95% Senior Notes due December 15, 1999......... $13,000,000 $8,125,000
Less current maturities........................... 5,000,000 2,625,000
----------- ----------
$ 8,000,000 $5,500,000
=========== ==========
</TABLE>
The aggregate annual principal payments during the succeeding years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------
<S> <C>
1997................................................. $2,625,000
1998................................................. 2,500,000
1999................................................. 3,000,000
----------
$8,125,000
==========
</TABLE>
Under the terms of the Note Purchase Agreement governing the Senior Notes,
certain wholly owned subsidiaries of the Company are subject to certain
restrictions relating to, among other things: liens; indebtedness;
consolidations, mergers and sale of assets; investments; certain payments in
respect of capital stock; dividends; changes in the business; maintenance of
certain financial conditions; and use of proceeds. At December 31, 1996, the
Company was in violation of one of the covenants in connection with this credit
agreement. The violation related to a financial matter regarding maintaining
certain levels of modified working capital. However, subsequent to December 31,
1996, the Company has obtained from lender a waiver with respect to such
violation.
8. EMPLOYEE BENEFIT PLANS
a. PENSION AND SAVINGS PLANS
i) Money Purchase Pension Plan -- Effective January 1, 1991, the
Company adopted the Kroll Associates Money Purchase Pension Plan and Trust
(the "Plan"). The Plan is a defined contribution plan which covers all
domestic employees.
Under the Plan, a separate account is maintained for each participant. In
general, annual contributions to each participant's account under the Plan
are based on the participant's base salary.
The total cost of the Plan for 1994, 1995 and 1996 was $768,120, $818,180
and $826,278, respectively.
ii) 401(k) Plan -- Effective January 1, 1991, the Company also adopted
the Kroll Associates 401(k) Savings Plan and Trust (the "Savings Plan").
The Savings Plan is a defined contribution plan with a cash or deferred
feature that allows participant contributions. The Savings Plan covers all
eligible domestic employees of the Company.
To encourage employees to participate, the Savings Plan offers a matching
contribution whereby the Company will contribute 25% of the amount a
participant contributes on contributions up to 5% of salary, limited to a
maximum annual matching contribution of $500.
The cost of the Company's matching contribution for 1994, 1995 and 1996 was
$66,410, $58,662 and $57,479, respectively.
F-44
<PAGE> 161
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
iii) U.K. Defined Contribution Plan -- Kroll UK operates a defined
contribution Group Personal Pension Scheme (the "Scheme") which is open to
all local employees. The assets of the Scheme are held in an independently
administered fund. The pension cost amounted to $98,629, $93,309 and
$141,161 in 1994, 1995 and 1996, respectively.
(iv) Kroll Asia Defined Contribution Plan -- Kroll Asia operates a
defined contribution Pooled Provident Fund (the "Fund") which is open to
all local employees. The assets of the Fund are held in an independently
administered fund. The pension cost amounted to $87,948 and $85,924 in 1995
and 1996, respectively.
(v) Japan Defined Contribution Plan -- Kroll Japan operates a defined
contribution Pooled Provident Fund (the "Fund") which is open to all local
employees. The assets of the Fund are held in an independently administered
fund. The pension costs amounted to $7,125 in 1996.
b. RESTRICTED STOCK PLAN
The Company adopted a long-term incentive plan designed to give managing
directors and other key employees a stake in the long-term success of the
Company through grants of phantom stock options. Each option gave the right to
receive a payment equal to the appreciation in the price of the option at the
payment determination date.
Effective June 14, 1993, the Company replaced the long-term incentive plan
with a restricted stock plan. The restricted stock plan provides for cliff
vesting after a five-year period from the date the stock is awarded.
Participants who were awarded stock under the long-term incentive plan prior to
or in January 1991, vested in three years, as they received a two-year credit
toward vesting. Participants who were awarded stock under the long-term
incentive plan after January 1, 1991 and prior to, or in January 1992, will vest
in four years, as they receive a one-year credit toward vesting. Under the
provisions of the plan, a participant has the ability to put the stock back to
the Company and receive cash for the then fair value of the stock. The fair
value of a Common Share shall be determined by an appraisal and shall be equal
to the fair value of the Company divided by the total number of shares of Common
Stock issued and outstanding at the time determined on a fully diluted basis. In
determining the fair value of the Company, the appraiser will consider such
factors as the financial condition and operating results and prospects of the
Company. No payment of awards to any participant shall be made if, at the time
payment would otherwise be made, an event of default under any note purchase
agreement has occurred and is continuing.
During 1996, 4,147 shares of restricted stock fully vested and were issued.
Based on a valuation of the Company, the total value assigned to the shares on
the vesting date equaled $572,286.
At December 31, 1994, 1995 and 1996, 7,858, 7,289 and 3,068 shares,
respectively, were outstanding relating to the restricted stock plan and an
additional 1,382, 1,951 and 2,025 shares at December 31, 1994, 1995 and 1996,
were reserved for issuance. As a result, at December 31, 1994, 1995 and 1996,
$490,831, $732,234 and $374,532, respectively, was accrued in connection with
these benefits.
c. SUPPLEMENTAL EXECUTIVE AWARD AGREEMENTS
The Company entered into agreements with certain senior executives which
provided additional benefits to the participants. During 1996, all 2,310 shares
fully vested and were issued. Based on a valuation of the Company, the total
value assigned to the shares on the vesting date equaled $318,780. At December
31, 1994 and 1995, $215,400 and $323,100, respectively, was accrued in
connection with these benefits.
F-45
<PAGE> 162
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
d. PROFIT AND REVENUE SHARING PLANS
In 1991, the Company adopted a Profit and Revenue Sharing Plan to give
employees an annual cash incentive bonus based on the Company's performance. The
new plans made a portion of most employees' compensation (except administrative
personnel, who have a guaranteed bonus) contingent. There were two plans under
the Profit and Revenue Sharing Plan umbrella -- the Profit and Revenue Sharing
Plan for Managing Directors and the Bonus Plan for Professionals and Senior
Administrative Employees.
PROFIT AND REVENUE SHARING PLAN FOR MANAGING DIRECTORS
The managing directors' bonus plan is based on a matrix of firmwide revenue
and a percentage of operating profit. The maximum bonus opportunity for managing
directors was 50%, 50% and 15% of salary in 1994, 1995 and 1996, respectively.
The administrator may amend, modify or terminate the plan at any time.
BONUS PLAN FOR PROFESSIONAL AND SENIOR ADMINISTRATIVE STAFF
Similar to the managing directors' bonus plan, the plan for the
professional staff is based on a matrix of firmwide revenue and a percentage of
operating profit. The maximum bonus opportunity for this group ranged from 18%
to 26% of salary in 1994 and 1995 and from 15% of salary in 1996 depending on
the employee's level in the Company. The administrator may amend, modify or
terminate the plan at any time.
The Company incurred approximately $99,000, $314,000 and $2,288,000
associated with the profit and revenue sharing plans in 1994, 1995 and 1996,
respectively.
e. STOCK OPTIONS
Effective January 1995, the Company established the Kroll Holdings, Inc.
Management Stock Option Plan (the "Management Stock Option Plan"). The
Management Stock Option Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors. In administering the
Management Stock Option Plan, the Committee may adopt rules and regulations for
carrying out the Management Stock Option Plan and shall determine the vesting
period and exercise price of options granted. In addition, the Committee shall
determine which employees are granted options.
The Management Stock Option Plan provides for the issuance of options to
purchase up to 7,700 shares of the Company's common stock. Options granted under
the Management Stock Option Plan shall be nonqualified stock options which are
not entitled to tax treatment as incentive stock options under Section 422 of
the Internal Revenue Code. Options may only be exercised while a participant is
employed, or in the event of disability, death, termination of employment after
the age of 65, within a 90-day period of the participant's termination of
employment. Options may be terminated at the Committee's discretion with
compensation paid to participants based on a current valuation (as defined in
the Management Stock Option Plan) of the options. Common stock granted on the
exercise of options shall generally not be transferable; however, after holding
such shares for one year, a participant has the right to sell, and the Company
has an obligation to purchase, shares put to the Company, with the share price
based on a current valuation of the Company. Options to purchase 6,090 and 535
shares of common stock were granted under the Management Stock Option Plan in
1995 and 1996, respectively. In addition, during 1996, options to purchase 2,196
shares of common stock were issued to two key employees with an exercise price
above market price.
F-46
<PAGE> 163
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of the status of the Company's stock options as of December 31,
1995 and 1996 and changes during the years then ended is presented below.
<TABLE>
<CAPTION>
1995 1996
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year......... -- $ -- 6,090 $400
Granted.................................. 6,090 400 2,731 199
----- ---- ----- ----
Outstanding at end of year............... 6,090 $400 8,821 $338
===== ==== ===== ====
Options exercisable at end of year....... -- -- 3,763 $327
===== ==== ===== ====
Weighted average fair market value of
options granted during the year........ $0.00 $0.00
===== =====
</TABLE>
The fair value of each option granted during 1995 and 1996 is estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<S> <C>
Dividend yield..................................................... 0%
Expected volatility................................................ 0%
Risk-free interest rate............................................ 6.00%
Expected life...................................................... 5 years
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ ---------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED OUTSTANDING WEIGHTED
RANGE OF AT CONTRACTUAL AVERAGE AT AVERAGE
EXERCISE DECEMBER LIFE EXERCISE DECEMBER EXERCISE
PRICES 31, 1996 (YEARS) PRICE 31, 1996 PRICE
- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150 2,196 10 years $150 1,098 $150
400 6,625 9 years 400 2,665 400
------ ------
8,821 3,763
====== ======
</TABLE>
The Company applies APB Option No. 25 and related Interpretations in
accounting for stock options. Accordingly, no compensation cost has been
recognized with respect to the plans. Had compensation cost for the Company's
stock option plans been determined consistent with Statement of Financial
Accounting Standards No. 123, Accounting for Stock -- Based Compensation ("SFAS
123"), there would have been no effect on the Company's net loss, as the options
granted during 1995 and 1996 were determined to have a fair value of $-0-.
9. RELATED PARTY TRANSACTIONS
a. Investment in One Sky Consulting -- During 1994 and 1995, the Company
rendered services to an affiliated company, One Sky Consulting ("One Sky").
Included in revenues on the accompanying consolidated statements of operations
for 1994 and 1995 is $101,276 and $115,067, respectively, billed to this
company.
F-47
<PAGE> 164
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
b. Amounts Due from Affiliated Companies -- Amounts due from affiliated
companies include the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Net receivable from One Sky............................. $153,713 $ 289
Advances due (to) from ERG.............................. (13,533) 8,906
Net receivable due to ERG............................... -- (708)
Note receivable from ERG................................ -- 13,500
Advances due from Kroll Stevens......................... 22,500 19,983
-------- -------
$162,680 $41,970
======== =======
</TABLE>
c. Transactions with Stockholder -- During 1994, 1995 and 1996, the Company
rendered services to a corporation which became an outside investor in June
1993. Included in revenue on the accompanying consolidated statements of
operations for 1994, 1995 and 1996 is $3,158,113, $3,868,967 and $5,325,559,
respectively, billed to this company. Included in costs and expenses on the
consolidated statements of operations for 1994, 1995 and 1996 is $936,870,
$485,807 and $824,348, respectively, billed by this company. Included in
accounts receivable for 1995 and 1996 is $923,400 and $857,820, respectively.
The outside investor has the right to designate one individual for membership on
the Company's Board of Directors.
10. LEASE COMMITMENTS
The Company leases office space under agreements that expire at various
dates through 2007. The aggregate minimum rental commitments under operating
leases for succeeding years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------
<S> <C>
1997........................................................... $ 3,002,950
1998........................................................... 2,845,399
1999........................................................... 2,258,467
2000........................................................... 2,073,328
2001........................................................... 1,768,837
Thereafter..................................................... 9,440,164
-----------
$21,389,145
===========
</TABLE>
Other lease commitments for equipment and automobiles are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------
<S> <C>
1997.............................................................. $131,177
1998.............................................................. 406,364
--------
$537,541
========
</TABLE>
For 1994, 1995 and 1996, rent expense amounted to $2,847,521, $2,646,658
and $3,074,454, respectively.
Future annual rent expense will differ from actual payments made due to
rent abatements in the initial period of various leases. This results in
deferred rent.
F-48
<PAGE> 165
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. INCOME TAXES
Income tax benefit amounted to $1,751,098, $1,297,837 and $679,265 for
1994, 1995 and 1996, respectively. The actual tax benefit differs from the
"expected" tax benefit (computed by applying the U.S. Federal statutory tax rate
of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit............... $(1,145,867) $(2,281,918) $(503,542)
Effect of foreign income/loss................. 249,043 1,443,806 (227,149)
Nondeductible expenses........................ 76,579 78,220 65,702
Foreign taxes................................. (329,371) -- --
State and local taxes (net of Federal income
tax benefit)................................ (457,418) (370,496) 41,453
Other......................................... (144,064) (167,449) (55,729)
----------- ----------- ---------
Actual tax benefit.......................... $(1,751,098) $(1,297,837) $(679,265)
=========== =========== =========
</TABLE>
The components of income tax benefit for 1994 are as follows:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL FOREIGN TOTAL
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Current............................ $(664,798) $(347,412) $(329,371) $(1,341,581)
Deferred........................... (63,871) (345,646) -- (409,517)
--------- --------- --------- -----------
$(728,669) $(693,058) $(329,371) $(1,751,098)
========= ========= ========= ===========
</TABLE>
The components of income tax benefit for 1995 are as follows:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL FOREIGN TOTAL
--------- --------- ------- -----------
<S> <C> <C> <C> <C>
Current............................. $(159,569) $(262,956) $ -- $ (422,525)
Deferred............................ (576,910) (298,402) -- (875,312)
--------- --------- ----- -----------
$(736,479) $(561,358) $ -- $(1,297,837)
========= ========= ===== ===========
</TABLE>
The components of income tax benefit for 1996 are as follows:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL FOREIGN TOTAL
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Current................................ $(482,629) $ 208,744 $ -- $(273,885)
Deferred............................... (259,443) (145,937) -- (405,380)
--------- --------- ----- ---------
$(742,072) $ 62,807 $ -- $(679,265)
========= ========= ===== =========
</TABLE>
F-49
<PAGE> 166
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 547,247 $ 588,773
Fixed assets, principally due to differences in
depreciation and amortization........................ 591,319 576,996
Accrual for restricted stock plan....................... 464,347 164,794
Net operating loss...................................... 1,365,895 1,271,336
Other................................................... 65,087 --
----------- -----------
Total gross deferred tax assets...................... 3,033,895 2,601,889
Less valuation allowance................................ (1,338,113) (1,271,336)
----------- -----------
1,695,782 1,330,563
----------- -----------
Deferred tax liabilities:
Nonaccrual service fee receivable....................... (219,560) (219,560)
Deferred revenue........................................ (1,678,846) (2,072,590)
Database capitalization................................. (2,644,120) (2,738,824)
S to C conversion....................................... (1,264,792) (5,745)
----------- -----------
Total gross deferred tax liabilities................. (5,807,318) (5,036,719)
----------- -----------
Net deferred tax liability........................... $(4,111,536) $(3,706,156)
=========== ===========
</TABLE>
A valuation reserve is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The change in the
valuation reserve from January 1 to December 31 was $1,338,113 and $(66,777) for
1995 and 1996, respectively.
At December 31, 1994, 1995 and 1996, the Company had approximately $237,000
of net operating loss carryforwards for Federal income tax purposes attributable
to years in which KEE was taxed at the corporate level. The net operating loss
carryforwards are limited in their use; therefore, they have been reserved for
in the valuation allowance, due to the uncertainty of their realization. The
carryforwards for Federal income tax purposes expire as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------- --------
<S> <C>
2001.............................................................. $ 19,000
2002.............................................................. 91,000
2003.............................................................. 127,000
--------
$237,000
========
</TABLE>
At December 31, 1995 and 1996, Kroll UK had approximately $756,000 and
$985,000, respectively, of net operating loss carryforwards. Kroll Asia had
approximately $420,000 and $206,000 of net operating loss carryforwards at
December 31, 1995 and 1996, respectively. A valuation allowance, for the full
amount of all carryforwards has been provided for both the Kroll UK & the Kroll
Asia carryforwards as it is not certain that the tax benefit will be realized in
the foreseeable future.
F-50
<PAGE> 167
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
12. AMOUNTS DUE TO/FROM STOCKHOLDERS
Amounts due to/from the majority stockholders of the Company include the
following amounts due to/from the various consolidated companies:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Amounts due from majority stockholder of the Company:
KAI............................................................. $ 1,345,499 $ 1,345,499
----------- -----------
Amounts due to stockholders of the Company:
KAI............................................................. (5,233,881) (6,738,766)
KEE............................................................. (1,057,500) (1,057,500)
KINS............................................................ (597,499) (597,499)
----------- -----------
(6,888,880) (8,393,765)
----------- -----------
Net due to stockholders...................................... $(5,543,381) $(7,048,266)
=========== ===========
</TABLE>
Balances included in Amounts Due To/From Stockholders are classified as
open advance accounts (held with the majority shareholder) or term loans (held
with the majority shareholder and a minority shareholder). The net due to
stockholders under the term loans was $2,309,500 at December 31, 1995 and 1996.
The balances due and activity in the open advance accounts for the period was as
follows:
<TABLE>
<CAPTION>
ADVANCE NO. 1 ADVANCE NO. 2 TOTAL
------------- ------------- ----------
<S> <C> <C> <C>
Balance, January 1, 1994................ $ 2,633,881 $ -- $2,633,881
Advances................................ 600,000 -- 600,000
Repayments.............................. -- -- --
----------- ----------- ----------
Balance, December 31, 1995.............. 3,233,881 -- 3,233,881
Advances................................ -- 2,000,000 2,000,000
Repayments.............................. (43,458) (451,657) (495,115)
----------- ----------- ----------
Balance, December 31, 1996.............. $ 3,190,423 $ 1,548,343 $4,738,766
=========== =========== ==========
</TABLE>
F-51
<PAGE> 168
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
13. CUSTOMER AND SEGMENT DATA
Kroll operates in a single segment, providing consulting services. The
following summarizes Kroll's foreign and domestic sales (in thousands of
dollars):
<TABLE>
<CAPTION>
U.S. FOREIGN ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1994
Net sales to unaffiliated customers............ $36,239 $16,633 $ -- $ 52,872
Intercompany................................... 725 1,047 (1,772) --
------- ------- ------- -------
Total net sales...................... $36,964 $17,680 $ (1,772) $ 52,872
======= ======= ======= =======
Operating income (loss)........................ $(3,159) $ 1,570 $ -- $ (1,589)
======= ======= ======= =======
Identifiable assets............................ $36,882 $ 3,716 $ (1,088) 39,510
======= ======= =======
Corporate assets............................... 5,149
-------
Total assets at year-end....................... $ 44,659
=======
1995
Net sales to unaffiliated customers............ $37,768 $15,256 $ -- $ 53,024
Intercompany................................... 782 1,469 (2,251) --
------- ------- ------- -------
Total net sales...................... $38,550 $16,725 $ (2,251) $ 53,024
======= ======= ======= =======
Operating income (loss)........................ $(3,094) $(1,365) $ -- $ (4,459)
======= ======= ======= =======
Identifiable assets............................ $33,680 $ 1,508 $ (1,127) 34,061
======= ======= =======
Corporate assets............................... 4,889
-------
Total assets at year-end....................... $ 38,950
=======
1996
Net sales to unaffiliated customers............ $52,086 $18,797 $ -- $ 70,883
Intercompany................................... 1,023 2,761 (3,784) --
------- ------- ------- -------
Total net sales...................... $53,109 $21,558 $ (3,784) $ 70,883
======= ======= ======= =======
Operating income (loss)........................ $(1,908) $ 1,909 $ -- $ 1
======= ======= ======= =======
Identifiable assets............................ $28,716 $ 4,967 $ (1,187) 32,496
======= ======= =======
Corporate assets............................... 4,800
-------
Total assets at year-end....................... $ 37,296
=======
</TABLE>
Kroll accounts for transfers between geographic areas at cost plus a
proportionate share of operating profit. Operating income (loss) does not
include the following items: interest expense, other expenses and income taxes.
Identifiable assets by segment are those assets that are used in Kroll's
operations in each segment. Corporate assets are principally advances to
subsidiaries and affiliates, cash and investments.
F-52
<PAGE> 169
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. OTHER COMMITMENTS AND CONTINGENCIES
a. Letters of Credit
i) During 1993, KAI's bank issued an irrevocable standby letter of
credit for $400,000 in connection with the execution and delivery of
a new lease. This irrevocable standby letter of credit expires on
December 31, 1997.
ii) During 1992, KAI's bank issued a second irrevocable letter of
credit for L100,000 ($171,250*). This letter of credit expires on
August 23, 1997.
iii) During 1994, KAI's bank issued a third irrevocable letter of credit
for HK$4,000,000 ($517,200*). This letter of credit expired on
March 21, 1996.
iv) During 1994, the Company issued an irrevocable standby letter of
credit for $250,000. This letter of credit expires on June 3, 1997.
v) During 1996, KAI's bank issued an irrevocable letter of credit for
Canadian $50,000 ($36,496*). This letter of credit expires on July
31, 2001.
No amounts were outstanding under the letter of credit arrangements at December
31, 1995 and 1996.
* Based on December 31, 1996 foreign exchange rates.
b. Litigation
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the accompanying consolidated
financial statements.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade accounts
receivables amounts, due from employees, other current assets, accounts payable,
due to stockholders, and accrued expenses approximate fair value because of the
short maturity of those instruments. Management of the Company believes that the
carrying value of long-term debt approximate fair value which is based on rates
currently available to the Kroll Group.
16. VALUATION OF LONG-LIVED ASSETS
The Company undertakes a review and evaluation of the net carrying value,
recoverability and write-off period of all categories of its long-lived assets.
The Company, in its valuation, considers current market values of its
properties, competition, and the Company's and the industry's historical and
current growth patterns.
The Company's long-lived assets are stated at the lower of cost or market
and are amortized over their respective, expected lives.
17. SUBSEQUENT EVENTS
On August 8, 1997, the Company entered into a merger agreement whereby it
will exchange all of its outstanding shares of common stock for common shares of
an unrelated third party.
******
F-53
<PAGE> 170
KROLL HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................... $ 3,307 $ 3,478
Marketable securities.............................................. 48 53
Accounts receivable................................................ 15,205 14,339
Unbilled revenue................................................... 4,150 4,108
Amounts due from employees......................................... 491 471
Amounts due from affiliated companies.............................. 42 27
Other current assets............................................... 1,554 1,649
------- -------
Total current assets....................................... 24,797 24,125
PROPERTY, PLANT AND EQUIPMENT, NET................................... 3,639 4,227
DATABASES, NET....................................................... 7,415 7,632
OTHER ASSETS......................................................... 1,445 1,430
------- -------
Total assets............................................... $ 37,296 $ 37,414
======= =======
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........................... 12,147 13,596
Current portion of long-term debt.................................. 2,625 2,625
Notes payable -- stockholder....................................... 2,000 2,000
Other current liabilities.......................................... 1,703 2,066
------- -------
Total current liabilities.................................. 18,475 20,287
LONG-TERM DEBT, NET OF CURRENT PORTION............................... 5,500 5,500
NOTES PAYABLE-STOCKHOLDERS........................................... 5,048 4,472
OTHER LIABILITIES.................................................... 4,061 4,136
STOCKHOLDERS' EQUITY:
Class A common stock ($0.01 par value; authorized 46,200 shares;
23,100 shares issued and outstanding)........................... -- --
Common stock ($0.01 par value; authorized 153,800 shares; 71,807
shares issued; 71,807 and 69,108 shares outstanding,
respectively)................................................... 1 1
Additional paid-in capital......................................... 20,255 20,255
Accumulated deficit................................................ (15,945) (14,611)
Unrealized appreciation of marketable securities................... 14 19
Cumulative translation adjustment.................................. (113) (92)
Less -- treasury stock, 2,699 shares at cost....................... -- (2,553)
------- -------
Total stockholders' equity......................................... 4,212 3,019
------- -------
Total liabilities and stockholders' equity................. $ 37,296 $ 37,414
======= =======
</TABLE>
The accompanying notes to the unaudited financial statements are an integral
part of these consolidated financial statements.
F-54
<PAGE> 171
KROLL HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
NET SALES................................................................ $33,374 $36,746
COST OF SALES............................................................ 21,772 21,073
------- -------
Gross margin........................................................ 11,602 15,673
OPERATING EXPENSES
Selling................................................................ 2,097 2,581
General and administrative............................................. 8,689 9,513
------- -------
Operating income.................................................... 816 3,579
OTHER INCOME (EXPENSE)
Interest expense....................................................... (950) (783)
Other, net............................................................. 71 (135)
------- -------
Income (loss) before provision for taxes............................ (63) 2,661
Provision (benefit) for income taxes................................ (57) 1,326
------- -------
Net income (loss).............................................. $ (6) $ 1,335
======= =======
</TABLE>
The accompanying notes to the unaudited financial statements are an integral
part of these consolidated financial statements.
F-55
<PAGE> 172
KROLL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................................. $ (6) $ 1,335
Adjustments to reconcile net loss to net cash provided by operating activities:
Cumulative translation adjustment............................................ (35) 21
Depreciation and amortization-property and equipment......................... 363 410
Amortization for goodwill.................................................... 14 13
Amortization for databases................................................... 781 788
Bad debt expense............................................................. 3,432 637
Share in net loss of joint venture........................................... 7 43
Loss on sale of property and equipment....................................... -- 6
Gain on sale of marketable securities........................................ (45) --
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable................................. (1,780) 228
Decrease (increase) in unbilled revenues................................... (1,445) 43
Decrease (increase) in refundable income taxes............................. (2) 111
Decrease in prepaid income taxes........................................... -- 383
Decrease (increase) in amounts due from affiliated companies............... (12) 15
Increase in prepaid expenses............................................... (171) (574)
Increase in intangibles and other assets................................... (80) (27)
Increase in accounts payable and accrued expenses.......................... 21 1,449
Increase in amounts due from employees..................................... 1 20
Increase in deferred income taxes payable.................................. 109 --
Increase in income taxes payable........................................... (243) 363
Increase in long-term liabilities.......................................... 190 71
Decrease in deferred rent.................................................. (103) (26)
-------- --------
Total adjustments....................................................... 1,002 3,974
Net cash provided by operating activities............................... 996 5,309
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............................................ (234) (1,004)
Payments from loan receivable.................................................. 386 --
Additions to database.......................................................... (766) (1,081)
Sale of marketable securities.................................................. (17) --
Other.......................................................................... (10) 77
-------- --------
Net cash used in investing activities................................... (641) (2,008)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock for treasury........................................ -- (2,553)
Repayment of long-term debt.................................................... (2,375) --
Proceeds from borrowings from stockholder...................................... 2,000 --
Repayment of borrowings from stockholder....................................... (44) (577)
-------- --------
Net cash used in financing activities................................... (419) (3,130)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (64) 171
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................... 2,368 3,307
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................... $ 2,304 $ 3,478
======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS:
Cash paid for interest......................................................... $ 1,973 $ 751
======== ========
Cash paid for income taxes..................................................... $ 98 $ 555
======== ========
</TABLE>
The accompanying notes to the unaudited financial statements
are an integral part of these consolidated financial statements.
F-56
<PAGE> 173
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Kroll is an international investigative and consulting professional
services organization. By combining sophisticated investigative techniques with
state of the art research methods, Kroll provides services involving major
financial transactions, corporate fraud, international expansion, litigation,
competitor actions, corporate takeovers, bankruptcies, environmental liability,
crisis management and other business concerns.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying interim unaudited
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the consolidated financial
position of Kroll Holdings, Inc. ("Kroll") and subsidiaries as of June 30, 1997
and the results of its consolidated operations and cash flows for the six months
ended June 30, 1996 and 1997. It is suggested that the statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Kroll's December 31, 1996 consolidated financial statements.
(2) REVENUE RECOGNITION
Revenue from services is recognized as the services are performed. Kroll
records either billed or unbilled accounts receivable based on case-by-case
invoicing determinations.
(3) ACCOUNTS RECEIVABLE
Accounts receivable, net, include an allowance for doubtful accounts of
$1,702,731 and $1,987,484 at December 31, 1996 and June 30, 1997, respectively.
(4) SUBSEQUENT EVENTS
On August 8, 1997, Kroll entered into a merger agreement whereby it will
exchange all of its outstanding shares of common stock for common shares of an
unrelated third party.
(5) NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS No. 130), which requires comprehensive income and the associated
income tax expense or benefit be reported in a financial statement with the same
prominence as other financial statements with an aggregate amount of
comprehensive income reported in the same financial statement. SFAS No. 130
permits the statement of changes in shareholders' equity to be used to meet this
requirement. "Other Comprehensive Income" refers to revenues, expenses, gains
and losses that under Generally Accepted Accounting Principles are included in
comprehensive income but bypass net income. Kroll intends to adopt SFAS No. 130
in the first quarter of fiscal 1998. Kroll anticipates that adoption of SFAS No.
130 will not be material.
F-57
<PAGE> 174
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of Labbe (Note
1) (a French corporation) and subsidiaries as of December 31, 1995 and December
31 1996, and the related consolidated statements of operations and shareholders'
equity and cash flows for the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Labbe (Note 1) and
subsidiaries as of December 31, 1995 and December 31, 1996 and the results of
their operations and cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles
in the United States of America.
April 25, 1997
Paris, France
/s/ PGA
Member Firm of Andersen Worldwide
Philippe Mongin
F-58
<PAGE> 175
LABBE
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
AS OF
12.31.95 12.31.96
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (note 2)........................................................ $ 1,987 $ 3,501
Accounts receivable, net of allowance for doubtful accounts of $169
in 1995 and $272 in 1996.......................................... 7,572 4,389
Other receivables (note 2)........................................... 759 300
Inventories (note 2)................................................. 5,143 3,643
Prepaid expenses..................................................... 151 65
------ ------
Total current assets......................................... 15,612 11,898
------ ------
PROPERTY, PLANT AND EQUIPMENT (note 2)
Land and land improvements........................................... 281 263
Buildings and improvements........................................... 2,472 2,361
Furniture and fixtures............................................... 677 695
Machinery and equipment.............................................. 1,503 1,427
Other................................................................ 524 537
------ ------
Total................................................................ 5,457 5,284
Less accumulated depreciation........................................ 2,447 2,664
Net property, plant and equipment.................................... 3,010 2,620
GOODWILL AND INTANGIBLES
Goodwill............................................................. 612 530
Franchises and licenses.............................................. -- 12
------ ------
612 542
Other assets (note 2)................................................ 2,160 2,202
------ ------
Total assets................................................. $21,394 $17,262
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving lines of credit (note 3)................................... $ 18 $ --
Current portion of long term debt (note 4)........................... 630 498
Accounts payable..................................................... 6,210 3,694
Accrued liabilities (note 2)......................................... 5,145 4,819
Deferred tax liabilities (note 2).................................... 243 37
------ ------
Total current liabilities.................................... 12,246 9,048
------ ------
Long term debt (note 4).............................................. 2,039 1,472
Minority interest.................................................... 54 31
SHAREHOLDERS' EQUITY
Common stock, 150,000 shares of FF100 par value...................... 1,871 2,848
Additional paid in capital........................................... 22 22
Retained earnings.................................................... 4,655 3,792
Translation adjustment............................................... 506 49
------ ------
Total shareholders' equity................................... 7,054 6,711
------ ------
Total liabilities and shareholders' equity................... $21,394 $17,262
====== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-59
<PAGE> 176
LABBE
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
12.31.95 12.31.96
----------- -----------
(12 MONTHS) (12 MONTHS)
<S> <C> <C>
Net sales............................................................. $ 25,461 $ 24,118
Cost of sales......................................................... (19,725) (19,656)
-------- --------
Gross profit.......................................................... 5,736 4,462
OPERATING EXPENSES
Selling and marketing............................................... (1,229) (1,084)
General and administrative.......................................... (1,179) (1,093)
-------- --------
Total operating expenses............................................ (2,407) (2,177)
-------- --------
Operating income.................................................... 3,329 2,285
OTHER INCOME (EXPENSE)
Interest expense.................................................... (303) (476)
Interest income..................................................... 172 380
Other............................................................... (515) (537)
-------- --------
Total other income (expense)................................ (646) (633)
-------- --------
PRE-TAX INCOME........................................................ 2,682 1,652
Provision for income taxes (note 2)................................... (985) (827)
Deferred tax (note 2)................................................. (25) 195
Minority interest..................................................... (21) (6)
-------- --------
NET INCOME.................................................. $ 1,648 $ 1,014
======== ========
Net income per share........................................ $ 16.48 $ 8.27
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-60
<PAGE> 177
LABBE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ---------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994...................... 1,871 $ 22 $ 3,408 $ -- $5,301
Net income.................................... -- -- 1,648 -- 1,648
Aggregate translation adjustment.............. -- -- -- 506 506
Distribution to shareholders.................. -- -- (401) -- (401)
----- ---- ----- ----- -----
BALANCE, December 31, 1995...................... 1,871 22 4,655 506 7,054
Net income.................................... -- -- 1,014 -- 1,014
Aggregate translation adjustment.............. -- -- -- (457) (457)
Distribution to shareholders.................. -- -- (391) -- (391)
Decrease in capital........................... (196) -- (313) -- (509)
Increase in capital........................... 1,173 -- (1,173) -- --
----- ---- ----- ----- -----
BALANCE, December 31, 1996...................... 2,848 $ 22 $ 3,792 $ 49 $6,711
===== ==== ===== ===== =====
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-61
<PAGE> 178
LABBE
CONSOLIDATED CASH FLOWS STATEMENTS
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
12.31.95 12.31.96
----------- -----------
(12 MONTHS) (12 MONTHS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................ $ 1,648 $ 1,014
Adjustments to reconcile net income to net cash provided by (used for)
operating activities
Depreciation and amortization......................................... 490 437
(Gain) or loss on sales of assets..................................... -- 21
Provision for doubtful accounts....................................... 21 114
Provision for slow moving inventories................................. (91) (30)
Changes in operating assets & liabilities
(Increase) decrease in accounts receivable.......................... (1,475) 2,582
(Increase) decrease in other receivables............................ (50) 410
(Increase) decrease in inventories.................................. 257 1,199
(Increase) decrease in prepaid expenses............................. (60) 78
(Increase) decrease in deferred income taxes........................ -- (191)
Increase (decrease) in accounts payables............................ 332 (2,116)
Increase (decrease) in accrued liabilities.......................... 276 4
Increase (decrease) in deferred tax liabilities..................... 30 --
------ ------
(270) 2,508
Increase (decrease) of minority interest.............................. (12) (20)
------ ------
Net cash provided by operating activities............................. 1,366 3,502
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of HELLIO Company (net of cash acquired)..................... (1,073) --
Purchase of property and equipment.................................... (438) (254)
(Increase) decrease in other assets................................... (1,990) (181)
Proceeds from sale of equipment....................................... 22 22
(Increase) decrease in deferred credit................................ (4) --
------ ------
Net cash used for investing activities................................ (3,485) (413)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital leases............................................ (178) (156)
Proceeds from capital leases.......................................... 94 38
Proceeds from borrowings.............................................. 828 14
Payments of borrowings................................................ (577) (424)
Payments of dividend to shareholders.................................. (401) (391)
Translation adjustment................................................ 24 (2)
Decrease in capital................................................... -- (509)
------ ------
Net cash used for financing activities................................ (210) (1,430)
------ ------
NET INCREASE (DECREASE) IN CASH....................................... (2,329) 1,659
------ ------
CASH AND CASH EQUIVALENTS: BEGINNING OF YEAR.......................... 4,082 1,968
Impact of change in exchange rates on translations.................... 215 (126)
------ ------
CASH AND CASH EQUIVALENTS: END OF YEAR................................ $ 1,968 $ 3,501
====== ======
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-62
<PAGE> 179
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(ALL AMOUNTS IN THOUSANDS OF US DOLLARS)
(1) BASIS OF PRESENTATION
(a) Consolidated entities
The accompanying consolidated financial statements consist of the following
entities.
-- Normandie Carrosserie is a company, whose principal business is
repairing industrial coachwork. Labbe owned 65% of this company until
1994, then has increased its shareholder owning up to 84%
(approximately).
-- Societe de Blindage et de Securite (S.B.S.) is engaged in the business
of providing armored products and repairing industrial coachwork. Labbe
owns approximately 100% of this entity.
-- Hellio is a company that is building and repairing industrial coachwork.
Labbe owns approximately 100% of this entity.
As Labbe has a voting interest in the above companies of more than 50%,
these companies are fully consolidated into the consolidated financial
statements.
Some companies in which Labbe holds a majority interest are not
consolidated in the consolidated financial statements because they are not
significant and will be sold in 1997.
(b) Business
The company operates in two segments, providing security products and
industrial coachwork. The Company's primary products include the armoring of
commercial and private vehicles. The following summarizes the company's foreign
and domestic sales:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
France:................................................ $ 19,839 $ 16,051
Foreign countries:..................................... 5,622 8,067
------ ------
$ 25,461 $ 24,118
====== ======
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America.
(a) Revenue recognition
Revenue related to most commercial contracts results principally from both
short-term and long-term fixed price contracts and is recognized on the
percentage of completion method calculated utilizing the cost-to-cost approach.
The percent deemed to be complete is calculated by comparing the cost incurred
to date to estimated total cost of each contract. This method is used because
management considers costs incurred to be the best available measure of progress
on these contracts. However, adjustments to this measurement are made when
management believes that cost incurred materially exceeds effort expended.
Contract costs includes all direct material and labor costs, along with certain
direct overhead costs related to contract production. Provisions for any
estimated total contract losses on uncompleted contracts are recorded in the
period in which it becomes known that such losses will occur. Changes in
estimated total contract costs will result in revisions to contract revenue.
These revisions are recognized when determined.
F-63
<PAGE> 180
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(b) Cash and cash equivalents
Cash and cash equivalents are composed as follows:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Mutual funds.......................................... $ 442 $2,075
Short term deposits................................... 571 --
Cash.................................................. 974 1,426
------ ------
$1,987 $3,501
====== ======
</TABLE>
(c) Other receivables
Other receivables are composed as follows:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Income tax............................................ $432 $ 11
VAT................................................... 96 50
Suppliers discount to obtain.......................... 72 110
Other................................................. 159 129
---- ----
$759 $300
==== ====
</TABLE>
(d) Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and include the following:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Raw materials......................................... $2,101 $1,934
Merchandises.......................................... 64 79
Work-in-process and finished goods.................... 2,568 1,723
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 810 251
------ ------
Gross inventory....................................... 5,543 3,987
Less-accumulated depreciation......................... 400 344
------ ------
Net inventory......................................... $5,143 $3,643
====== ======
</TABLE>
(e) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the related
assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 19-40 years
Furniture and fixtures...................................... 5-7 years
Machinery and equipment..................................... 5-7 years
</TABLE>
(f) Research and development costs
Research and development costs are expensed as incurred. These costs are
included in cost of sales as they are directly affected to specific orders.
F-64
<PAGE> 181
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(g) Other assets
The components of other assets are as follows:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Investments in affiliated companies.......... $ 326 $ 305
Deposits..................................... 267 147
Loans to affiliated companies................ 1,753 1,766
----- -----
Gross Value.................................. 2,346 2,219
Less accumulated depreciation................ 186 17
----- -----
Net value.................................... $2,160 $2,202
===== =====
</TABLE>
Loans to affiliated companies mainly correspond to a loan to Holding Saint
Roch (H.S.R.) amounting to $1,571 and one to Verem amounting to $169 as of
December 31, 1996.
(h) Accrued liabilities
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Income tax................................... $ 262 $ 168
Other taxes.................................. 60 49
----- -----
Tax payable.................................. 322 217
Wages...................................... 1,444 1,146
Social security charges.................... 864 748
Retirement indemnity....................... 226 320
Employee profit sharing.................... 683 981
----- -----
Accrued compensation......................... 3,217 3,195
Deferred revenue............................. 931 558
VAT sales tax payable........................ 195 184
Guarantees and warranty costs.............. 183 276
Litigation, claims, assessments............ 102 224
Other...................................... 195 165
----- -----
Other liabilities............................ 480 665
----- -----
$5,145 $4,819
===== =====
</TABLE>
Income tax assets and liabilities can not be compensated as they do not
relate to the same legal entities and as the Labbe group does not take the
advantage of tax consolidation.
Retirement indemnity has only been calculated for Labbe for the year 1995
and for each entity of the Labbe group for the year 1996.
Deferred revenue consists of goods not delivered before year end but
already invoiced.
(i) Income taxes
Labbe and consolidated subsidiaries are subjected to corporate income tax
(applicable rates were 36 2/3% in 1995 and 1996).
F-65
<PAGE> 182
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The provision for income taxes consists of:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Labbe................................................. $ (792) $ (649)
Normandie Carrosserie................................. (60) (22)
Societe de Blindage et de Securite.................... (9) --
Hellio................................................ (124) (156)
------ ----
Total current......................................... (985) (827)
Deferred.............................................. (25) 195
------ ----
Total provision for income tax........................ $ (1,010) $ (632)
====== ====
</TABLE>
In addition, the Labbe Group recognizes a deferred tax asset for cumulative
temporary differences between financial reporting and tax reporting, which
includes primarily accruals and reserves not currently deductible for tax
purposes.
The components of the deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Profit sharing scheme................................. $ 120 $ 99
Capital lease......................................... (97) (106)
Amortization and depreciation......................... (64) (83)
Retirement indemnities................................ 83 117
Inventory valuation................................... (315) (91)
Other................................................. 30 27
---- ----
Total net deferred tax liabilities.................... $ (243) $ (37)
==== ====
</TABLE>
(j) Foreign Currency Translation
Assets and liabilities of foreign operations are translated using year-end
exchange rates prevailing during the year. Gains and losses resulting from
transactions in foreign currencies are immaterial.
(k) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments and trade
receivables. The Company has cash investment policies that limit investments to
short-term low risk instruments. Concentrations of credit risk with respect to
trade receivables are limited due to the nature of customers comprising the
Company's customer base (state-owned or private car manufacturers, French
Military).
(3) REVOLVING LINES OF CREDIT
Considering the level of cash of the Labbe group, bank accounts showing a
credit balance remain exceptional.
F-66
<PAGE> 183
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) LONG TERM DEBT
The components of the long term debts (including current portions) consist
of the following:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Borrowings............................................ $1,408 $ 908
Capital leases........................................ 1,261 1,062
------ ------
$2,669 $1,970
====== ======
</TABLE>
a) Long term debt except capital lease
The components of long term debt are as follows:
<TABLE>
<CAPTION>
INTEREST RATE REMAINING REMAINING
--------------- DEBT DEBT
BANK INITIAL DEBT 12.31.95 12.31.96
-------------------------------------- ------------ (%) --------- ---------
<S> <C> <C> <C> <C>
BCMB.................................. 48 8.50 $ 30 $ 18
Credit Maritime....................... 96 T4M - 0.25 10 --
96 10.25 13 --
191 10.30 83 35
67 8.75 34 17
29 10.75 15 8
CIO................................... 72 Codevi + 4.75 20 2
Credit Agricole....................... 67 8.25 17 --
72 8.25 19 --
72 10.00 19 --
286 7.25 211 141
764 7.2 until April 747 561
1996 then 6.2
Advance granted by the regional
Council............................. 95 0 102 87
COFACE................................ 14
Advances from shareholders............ 50 21
Accrued interests loan................ 7 4
Other liabilities..................... 31 --
Total long-term debt.................. 1,408 908
Less current portion.................. 468 334
------- -----
Total................................. $ 940 $ 574
======= =====
</TABLE>
Scheduled maturities of long term debt as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997.............................. $334
1998.............................. 278
1999.............................. 208
2000.............................. 88
----
$908
====
</TABLE>
F-67
<PAGE> 184
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
b) Capital leases
<TABLE>
<CAPTION>
12-31-95 12-31-96
--------- ---------
<S> <C> <C>
Current portion....................................................... $ 162 $ 164
Long term credit...................................................... 1,099 898
----- -----
$ 1,261 $ 1,062
===== =====
</TABLE>
Scheduled maturities of leasing as of December 31,1996 are as follows:
<TABLE>
<S> <C>
1997............................ $ 164
1998............................ 155
1999............................ 138
2000............................ 130
2001............................ 130
After 2001...................... 345
-----
$1,062
=====
</TABLE>
Interests on capital leases are not included in the above figures.
(5) COMMITMENTS AND CONTINGENCIES
a) Guaranties given
Guaranties given for consolidated entities and affiliated companies amount
to $663.
b) Unrecorded obligation
The consolidated company "S.B.S" is committed to buy the assets of the
former company S.I.B.S., which went bankrupt, for an amount of $306. However,
S.B.S's ownership on these assets is contested by the previous owners. S.B.S.
only paid $38 as an advance payment. Therefore, the unrecorded obligation
amounts to $268 that will be paid when the claim is solved.
F-68
<PAGE> 185
O'GARA PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1996 assumes O'Gara's acquisition of Labbe occurred on
January 1, 1996, and should be read in conjunction with, and are qualified by
reference to the audited consolidated financial statements of O'Gara and Labbe
included elsewhere in this Proxy Statement/Prospectus. For purposes of the
unaudited pro forma statements of operations, O'Gara's consolidated statement of
operations for the fiscal year ended December 31, 1996 has been combined with
the consolidated statement of operations of Labbe for the fiscal year ended
December 31, 1996.
The pro forma data is presented for illustration purposes only, and is not
necessarily indicative of the operating results that would have been achieved if
the acquisition of Labbe had been consummated as of the beginning of the period
indicated, nor is it necessarily indicative of future results of operations.
O'GARA PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL LABBE(1) ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $ 82,778 $ 24,118 $ -- $ 106,896
Cost of sales........................... 61,523 19,656 -- 81,179
--------- -------- ------- ---------
Gross profit.......................... 21,255 4,462 -- 25,717
Operating expenses:
Selling and marketing................. 4,810 1,084 -- 5,894
General and administrative............ 7,930 1,093 300(2)(4)(5)(6)(7) 9,323
--------- -------- ------- ---------
Operating income.............. 8,515 2,285 (300) 10,500
Other income (expense):
Interest expense...................... (1,300) (476) (993)(3) (2,769)
Other, net............................ (38) (163) -- (201)
--------- -------- ------- ---------
Income before provision for income
taxes................................. 7,177 1,646 (1,293) 7,530
Provision for income taxes.............. 518 632 (474)(8) 676
--------- -------- ------- ---------
Net income.................... $ 6,659 $ 1,014 $ (819) $ 6,854
========= ======== ======= =========
UNAUDITED PRO FORMA INFORMATION:
Gross profit.......................... 21,255 25,717
Selling and marketing................. 4,810 5,894
General and administrative............ 8,031 9,424
--------- ---------
Operating income...................... 8,414 10,399
Interest expense...................... (961) (2,436)
Other, net............................ (38) (201)
--------- -------- ------- ---------
Income before provision for income
taxes.............................. 7,415 1,646 (1,293) 7,768
Provision for income taxes............ 2,966 632 (474) 3,124
--------- -------- ------- ---------
Net income............................ $ 4,449 $ 1,014 $ (819) $ 4,644
========= ======== ======= =========
Pro Forma earnings per share.......... $ 0.69 $ 0.68
========= =========
Pro Forma weighted average shares
outstanding........................ 6,449,050 6,825,647
========= =========
</TABLE>
- ---------------
(1) To include historical results of operations for Labbe for the year ended
December 31, 1996.
(2) To record amortization on goodwill resulting from acquisition of Labbe
(gross cost -- $6,961 over 30 years).
F-69
<PAGE> 186
(3) To reflect interest expense on debt incurred to fund acquisition of Labbe
($10,730 at 9.25%).
(4) To amortize capitalized acquisition costs associated with Labbe ($662 over
30 years).
(5) To amortize trademarks and customer lists identified in conjunction with
the completion of the Labbe acquisition (customer lists -- $100 over 5
years; trademarks -- $40 over 15 years).
(6) To deduct $30 in amortization recorded in historical Labbe results of
operations for pre-existing intangible assets.
(7) To record additional depreciation on fixed assets revalued in conjunction
with the completion of the Labbe acquisition (increase to building -- $470
over 20 years and machinery and equipment -- $190 over 7 years).
(8) To recognize the benefit for income taxes at an effective rate of
approximately 37% on the pro forma adjustments.
F-70
<PAGE> 187
O'GARA-KROLL PRO FORMA COMBINING FINANCIAL STATEMENTS
The unaudited pro forma combining financial data gives effect to the Merger
as a pooling of interests, and should be read in conjunction with, and are
qualified by reference to the audited consolidated financial statements of
O'Gara and Kroll and the notes thereto included elsewhere in this Proxy
Statement/Prospectus. For purposes of the unaudited pro forma operating data,
O'Gara's consolidated financial statements for the three fiscal years ended
December 31, 1996 and for the six months ended June 30, 1996 and 1997 have been
combined with the consolidated financial statements of Kroll for the three
fiscal years ended December 31, 1996 and for the six months ended June 30, 1996
and 1997, respectively. For purposes of the unaudited pro forma combined balance
sheet data, O'Gara's consolidated financial data at June 30, 1997 has been
combined with Kroll's consolidated financial data at June 30, 1997.
The pro forma data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have been achieved if the Merger had been consummated as of the beginning of the
periods indicated, nor is it indicative of future financial position or results
of operations.
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEETS
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
------- ------- ---------
<S> <C> <C> <C>
Current Assets:
Cash....................................................... $ 7,874 $ 3,478 $ 11,352
Marketable securities...................................... 3,011 53 3,064
Accounts receivable........................................ 20,064 14,339 34,403
Costs and estimated earnings in excess of billings
on uncompleted contracts................................ 12,616 -- 12,616
Unbilled revenue........................................... -- 4,108 4,108
Inventories................................................ 15,211 -- 15,211
Other current assets....................................... 2,562 2,147 4,709
------- ------- --------
Total current assets.................................... 61,338 24,125 85,463
Property, plant and equipment, net........................... 9,083 4,227 13,310
Databases.................................................... -- 7,632 7,632
Other assets................................................. 19,326 1,430 20,756
------- ------- --------
Total assets............................................ $89,747 $37,414 $127,161
======= ======= ========
Current liabilities:
Accounts payable and accrued liabilities................... 16,703 13,596 30,299
Current portion of long-term debt.......................... 2,030 2,625 4,655
Notes payable -- shareholder............................... -- 2,000 2,000
Other current liabilities.................................. 10,273 2,066 12,339
------- ------- --------
Total current liabilities............................... 29,006 20,287 49,293
Long-term debt, net of current portion....................... 39,944 5,500 45,444
Notes payable-shareholders................................... -- 4,472 4,472
Other liabilities............................................ 45 4,136 4,181
Shareholders' equity......................................... 20,752 3,019 23,771
------- ------- --------
Total liabilities and shareholders' equity.............. $89,747 $37,414 $127,161
======= ======= ========
</TABLE>
F-71
<PAGE> 188
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
---------- ---------- -----------
<S> <C> <C> <C>
Net sales............................................ $ 51,853 $ 36,746 $ 88,599
Cost of sales........................................ 37,484 21,073 58,557
---------- ---------- -----------
Gross profit....................................... 14,369 15,673 30,042
Operating expenses
Selling............................................ 3,794 2,581 6,375
General and administrative......................... 5,121 9,513 14,634
---------- ---------- -----------
Operating income................................... 5,454 3,579 9,033
Other income (expense)
Interest expense................................... (1,404) (783) (2,187)
Other, net......................................... 329 (135) 194
---------- ---------- -----------
Income before minority interest, provision for
income taxes and extraordinary item........... 4,379 2,661 7,040
Minority interest.................................... (74) -- (74)
---------- ---------- -----------
Income before provision for taxes and
extraordinary item............................ 4,305 2,661 6,966
Provision for income taxes........................... 1,623 1,326 2,949
---------- ---------- -----------
Income before extraordinary item................ 2,682 1,335 4,017
Extraordinary item................................... 194 -- 194
---------- ---------- -----------
Net income...................................... $ 2,488 $ 1,335 $ 3,823
========== ========== ===========
Earnings per share................................... $ 0.35 $ 0.28
========== ===========
Weighted average shares outstanding.................. 7,141,389 6,650,000 13,791,389
========== ========== ===========
</TABLE>
F-72
<PAGE> 189
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
---------- ------- ---------
<S> <C> <C> <C>
Net sales................................................ $ 41,521 $33,374 $74,895
Cost of sales............................................ 31,383 21,772 53,155
------- ------- -------
Gross profit........................................... 10,138 11,602 21,740
Operating expenses
Selling................................................ 2,159 2,097 4,256
General and administrative............................. 3,286 8,689 11,975
------- ------- -------
Operating income.................................... 4,693 816 5,509
Other income (expense)
Interest expense....................................... (613) (950) (1,563)
Other, net............................................. (78) 71 (7)
------- ------- -------
Income (loss) before provision (benefit) for
taxes............................................. 4,002 (63) 3,939
Provision (benefit) for income taxes..................... -- (57) (57)
------- ------- -------
Net income (loss)................................... $ 4,002 $ (6) $ 3,996
======= ======= =======
UNAUDITED PRO FORMA INFORMATION:
Gross profit........................................... $ 10,138
Selling and marketing expenses......................... 2,159
General and administrative expenses.................... 3,356
-------
Operating income....................................... 4,623
Interest expense....................................... (457)
Other, net............................................. (78)
-------
Income before provision for income taxes............ 4,088
Provision for income taxes............................. 1,635
-------
Net income.......................................... $ 2,435
=======
Earnings per share..................................... $ 0.40
=======
Weighted average shares outstanding.................... 6,173,728
=======
</TABLE>
F-73
<PAGE> 190
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
---------- ---------- -----------
<S> <C> <C> <C>
Net sales............................................ $ 82,778 $ 70,883 $ 153,661
Cost of sales........................................ 61,523 47,900 109,423
---------- ---------- -----------
Gross profit.................................... 21,255 22,983 44,238
Operating expenses
Selling......................................... 4,810 4,632 9,442
General and administrative...................... 7,930 18,350 26,280
---------- ---------- -----------
Operating income........................... 8,515 1 8,516
Other income (expense)
Interest expense................................ (1,300) (1,840) (3,140)
Other, net...................................... (38) 358 320
---------- ---------- -----------
Income (loss) before provision (benefit)
for taxes................................ 7,177 (1,481) 5,696
Provision (benefit) for income taxes................. 518 (679) (161)
---------- ---------- -----------
Net income (loss).......................... $ 6,659 $ (802) $ 5,857
========== ========== ===========
Pro Forma net income (loss).......................... $ 4,449 $ (802) $ 3,647
========== ========== ===========
Pro Forma earnings per share......................... $ 0.69 $ 0.28
========== ===========
Weighted average shares outstanding.................. 6,449,050 6,650,000 13,099,050
========== ========== ===========
</TABLE>
F-74
<PAGE> 191
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
------- ------- ---------
<S> <C> <C> <C>
Net sales................................................... $32,817 $53,024 $85,841
Cost of sales............................................... 25,237 35,206 60,443
------- ------- -------
Gross profit.............................................. 7,580 17,818 25,398
Operating expenses
Selling................................................... 3,628 5,490 9,118
General and administrative................................ 4,129 16,788 20,917
------- ------- -------
Operating income (loss)................................... (177) (4,460) (4,637)
Other income (expense)
Interest expense.......................................... (842) (1,970) (2,812)
Other, net................................................ (103) (282) (385)
------- ------- -------
Income (loss) before provision (benefit) for taxes........ (1,122) (6,712) (7,834)
Provision (benefit) for income taxes........................ -- (1,298) (1,298)
------- ------- -------
Net income (loss)......................................... $(1,122) $(5,414) $(6,536)
======= ======= =======
</TABLE>
F-75
<PAGE> 192
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
------- ------- ---------
<S> <C> <C> <C>
Net sales................................................... $33,912 $52,872 $ 86,784
Cost of sales............................................... 24,505 31,684 56,189
------- ------- --------
Gross profit.............................................. 9,407 21,188 30,595
Operating expenses
Selling................................................... 2,736 4,700 7,436
General and administrative................................ 4,441 18,076 22,517
------- ------- --------
Operating income (loss)................................... 2,230 (1,588) 642
Other income (expense)
Interest expense.......................................... (410) (2,188) (2,598)
Other, net................................................ 60 406 466
------- ------- --------
Income (loss) before provision (benefit) for taxes........ 1,880 (3,370) (1,490)
Provision (benefit) for income taxes........................ -- (1,751) (1,751)
------- ------- --------
Net income (loss)......................................... $ 1,880 $(1,619) $ 261
======= ======= ========
</TABLE>
F-76
<PAGE> 193
APPENDIX A
PLAN AND AGREEMENT
TO MERGE
VDE, INC.
WITH AND INTO
KROLL HOLDINGS, INC.
<PAGE> 194
PLAN AND AGREEMENT TO MERGE
VDE, INC.
WITH AND INTO KROLL HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Recitals................................................................................. 1
ARTICLE I
MERGER OF NEWCO INTO KHI................................................................. 2
1.01 Merger........................................................................... 2
1.02 Effective Time of the Merger..................................................... 2
1.03 The Closing...................................................................... 2
1.04 Effect of Merger................................................................. 2
1.05 Payment to Dissenting KHI Shareholders........................................... 2
1.06 Payment to Dissenting O'Gara Shareholders........................................ 2
1.07 Certificate of Incorporation..................................................... 2
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES........................................................ 2
2.01 Conversion of Shares............................................................. 2
2.02 Exchange of Certificates; Issuance of New Certificates........................... 3
2.03 No Further Transfers............................................................. 4
2.04 Treatment of KHI Stock Options................................................... 4
2.05 Dissenters' Rights............................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF KHI AND THE KHI PRINCIPAL SHAREHOLDER..................
4
3.01 Organization and Capitalization.................................................. 4
3.02 Power and Authority and Board and Shareholder Approval........................... 5
3.03 Subsidiaries..................................................................... 5
3.04 Stock Options and Other Arrangements............................................. 5
3.05 Financial Statements............................................................. 6
3.06 Liabilities...................................................................... 6
3.07 Claims........................................................................... 6
3.08 Assets........................................................................... 6
3.09 Operations Since December 31, 1996............................................... 7
3.10 Taxes............................................................................ 7
3.11 Insurance........................................................................ 7
3.12 Contracts........................................................................ 8
3.13 Employee Benefit Plans........................................................... 8
3.14 No Default....................................................................... 10
3.15 Joint Proxy Statement............................................................ 10
3.16 Compliance with Laws............................................................. 10
3.17 Consents and Approvals........................................................... 11
3.18 Patents, Trademarks and Copyrights............................................... 11
3.19 Environmental Matters............................................................ 11
3.20 Pooling-of-Interests............................................................. 12
3.21 No Material Adverse Change....................................................... 12
3.22 Licenses and Permits............................................................. 12
3.23 Orders, Actions, Etc. ........................................................... 13
3.24 Labor Matters.................................................................... 13
</TABLE>
i
<PAGE> 195
<TABLE>
<S> <C> <C>
3.25 Brokers.......................................................................... 13
3.26 Full Disclosure.................................................................. 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF O'GARA AND NEWCO....................................... 13
4.01 Organization and Capitalization.................................................. 13
4.02 Power and Authority and Board Approval........................................... 14
4.03 Subsidiaries..................................................................... 14
4.04 Stock Options and Other Arrangements............................................. 14
4.05 SEC Filings and Financial Statements............................................. 14
4.06 Liabilities...................................................................... 15
4.07 Claims........................................................................... 15
4.08 Assets........................................................................... 15
4.09 Operations Since December 31, 1996............................................... 16
4.10 Taxes............................................................................ 16
4.11 Insurance........................................................................ 16
4.12 Contracts........................................................................ 16
4.13 Employee Benefit Plans........................................................... 17
4.14 No Default....................................................................... 19
4.15 Joint Proxy Statement............................................................ 19
4.16 Compliance with Laws............................................................. 19
4.17 Consents and Approvals........................................................... 19
4.18 Patents, Trademarks and Copyrights............................................... 19
4.19 Environmental Matters............................................................ 20
4.20 No Material Adverse Change....................................................... 21
4.21 Licenses and Permits............................................................. 21
4.22 Orders, Actions, Etc. ........................................................... 21
4.23 Labor Matters.................................................................... 21
4.24 Brokers.......................................................................... 21
4.25 Pooling-of-Interests............................................................. 21
4.26 Full Disclosure.................................................................. 21
ARTICLE V
REGISTRATION OF O'GARA COMMON STOCK...................................................... 22
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF O'GARA, NEWCO, KHI AND THE KHI PRINCIPAL SHAREHOLDER........
22
6.01 Necessary Governmental Approvals................................................. 22
6.02 Effectiveness of Registration Statement.......................................... 22
6.03 No Injunction.................................................................... 23
6.04 AIG Director..................................................................... 23
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF O'GARA AND NEWCO............................................ 23
7.01 Representations and Warranties True; Covenants and Obligations Performed......... 23
7.02 Opinion of Counsel............................................................... 23
7.03 Auditor's Comfort Letter......................................................... 23
7.04 Pooling-of-Interests............................................................. 24
7.05 Opinion of Financial Advisor..................................................... 24
7.06 Shareholder Approval............................................................. 24
7.07 Required Consents................................................................ 24
</TABLE>
ii
<PAGE> 196
<TABLE>
<S> <C> <C>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF KHI AND THE KHI PRINCIPAL SHAREHOLDER....................... 24
8.01 Representations and Warranties True; Covenants and Obligations Performed......... 24
8.02 Opinion of Counsel............................................................... 24
8.03 Auditor's Comfort Letter......................................................... 24
8.04 Required Consents................................................................ 25
8.05 Election of Principal Shareholder................................................ 25
8.06 No Labor Strikes................................................................. 25
8.07 HMMWV Contract................................................................... 25
ARTICLE IX
COVENANTS OF KHI......................................................................... 25
9.01 Access to Properties and Records................................................. 25
9.02 Operations Pending Merger........................................................ 25
9.03 Best Efforts to Expedite Closing................................................. 26
9.04 No Solicitation.................................................................. 26
9.05 Tax Information.................................................................. 27
ARTICLE X
COVENANTS OF O'GARA AND NEWCO............................................................ 27
10.01 Access to Properties and Records................................................. 27
10.02 Operations Pending Merger........................................................ 27
10.03 Best Efforts to Expedite Closing................................................. 28
10.04 Repayment of KHI Shareholder Debt................................................ 28
10.05 Tax Information.................................................................. 28
ARTICLE XI
SHAREHOLDERS' MEETINGS................................................................... 29
ARTICLE XII
TERMINATION OF MERGER AGREEMENT.......................................................... 29
ARTICLE XIII
MUTUAL COVENANTS......................................................................... 29
13.01 Satisfaction of Conditions....................................................... 29
13.02 Further Assurances............................................................... 29
ARTICLE XIV
INDEMNIFICATION.......................................................................... 29
14.01 Pre-closing Indemnification by KHI and the KHI Principal Shareholder............. 29
14.02 Pre-closing Indemnification by O'Gara............................................ 30
14.03 Post-closing Indemnification by the KHI Principal Shareholder.................... 30
14.04 Survival......................................................................... 31
14.05 Survives Termination............................................................. 31
ARTICLE XV
FEES AND EXPENSES........................................................................ 31
ARTICLE XVI
NOTICES.................................................................................. 31
ARTICLE XVII
PUBLIC ANNOUNCEMENT...................................................................... 32
</TABLE>
iii
<PAGE> 197
<TABLE>
<S> <C> <C>
ARTICLE XVIII
GOVERNING LAW............................................................................ 33
ARTICLE XIX
CAPTIONS; COUNTERPARTS................................................................... 33
ARTICLE XX
ENTIRE AGREEMENT......................................................................... 33
ARTICLE XXI
WAIVER; MODIFICATION; ASSIGNMENT......................................................... 33
Exhibit 7.02 Form of Opinion of Counsel to KHI and the KHI Principal Shareholder........ 35
Exhibit 8.02 Form of Opinion of Counsel to O'Gara and NEWCO............................. 36
</TABLE>
iv
<PAGE> 198
PLAN AND AGREEMENT TO MERGE
VDE, INC.
WITH AND INTO KROLL HOLDINGS, INC.
This Plan and Agreement to Merge dated as of August 8, 1997 (the
"Agreement") is entered into by and among THE O'GARA COMPANY, an Ohio
corporation ("O'Gara"), VDE, INC., a Delaware corporation and a wholly owned
subsidiary of O'Gara ("NEWCO"), KROLL HOLDINGS, INC., a Delaware corporation
("KHI") and Jules Kroll, individually ("Kroll") (Kroll is sometimes referred to
herein as the "KHI Principal Shareholder").
RECITALS
A. O'Gara is an Ohio corporation and has its main office at 9113 LeSaint
Drive, Fairfield, Ohio 45014. O'Gara's authorized capital stock consists of
25,000,000 shares of common stock of the par value of one cent ($.01) per share
("O'Gara Common Stock"), of which 7,279,310 shares have been issued and are
outstanding as of the date hereof, and no shares of which are held by O'Gara as
treasury stock as of the date hereof, and 100,000 shares of preferred stock of
the par value of one cent ($.01) per share ("O'Gara Preferred Stock"), none of
which is outstanding as of the date hereof.
B. NEWCO is a Delaware corporation and has its main office at 9113 LeSaint
Drive, Fairfield, Ohio 45014. NEWCO's authorized capital stock consists of 100
shares of common stock without par value ("NEWCO Common Stock"), all of which
shares have been issued and are outstanding and are held by O'Gara.
C. KHI is a Delaware corporation and has its main office at 900 Third
Avenue, New York, New York 10022. KHI's authorized capital stock consists of
46,200 Class A shares of common stock of the par value of one cent ($.01) per
share (the "KHI Class A Common Stock"), 23,100 of which are outstanding, and
153,800 shares of common stock of the par value of one cent ($.01) per share
("KHI Common Stock), of which 76,624 are issued and outstanding and of which
8,821 are covered by options to purchase (the KHI Class A Common Stock and KHI
Common Stock are hereafter referred to collectively as "KHI Capital Stock").
D. The holders of the KHI Capital Stock, the holders of O'Gara Common Stock
and O'Gara as the holder of NEWCO Common Stock are entitled to vote on this
Agreement.
E. O'Gara, NEWCO and KHI desire that the merger provided for in this
Agreement shall qualify as a tax-free reorganization pursuant to Section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
F. The respective Boards of Directors of KHI, O'Gara and NEWCO deem it
advisable and in the best interests of their respective corporations and their
shareholders that NEWCO merge with and into KHI on the terms and conditions
hereinafter set forth (the "Merger").
G. In order to induce O'Gara to enter into this Agreement, the KHI
Principal Shareholder and American International Group, Inc., a Delaware
corporation and a shareholder of KHI ("AIG"), have entered into agreements with
O'Gara as of the date hereof with respect to (a) the voting of their shares of
KHI Capital Stock in favor of the Merger and (b) certain other matters.
H. In order to induce KHI to enter into this Agreement, Thomas M. O'Gara, a
shareholder of O'Gara, has entered into an agreement with KHI as of the date
hereof with respect to (a) the voting of his shares of O'Gara Common Stock in
favor of the Merger and (b) certain other matters.
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NOW THEREFORE, in consideration of the premises and the mutual agreements,
provisions and covenants contained herein, the parties agree as follows:
ARTICLE I
MERGER OF NEWCO INTO KHI
1.01 Merger. At the Effective Time (as defined in Section 1.02), NEWCO
shall merge with and into KHI, and KHI, as the surviving corporation, shall
continue its existence under the laws of the State of Delaware under the name
"Kroll Holdings, Inc."
1.02 Effective Time of the Merger. The Merger shall become effective as of
the close of business on the date that the Certificate of Merger with respect to
this Agreement is filed with the office of the Secretary of State of the State
of Delaware (the "Effective Time").
1.03 The Closing. Subject to the provisions of Articles VI, VII, and VIII
hereof, the closing of the Merger (the "Closing") shall be held as soon as
practicable after the shareholders of O'Gara, NEWCO and KHI duly approve the
Merger, but in no event more than ten (10) business days after such approval,
and shall take place at the offices of Taft, Stettinius & Hollister, 1800 Star
Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202 on the date of the
Closing. All parties agree to use their respective commercially reasonable best
efforts to cause the conditions set forth in Articles VI, VII and VIII hereof to
be satisfied on or before the date of the shareholders' meetings held pursuant
to Article XI hereof.
1.04 Effect of Merger. At the Effective Time, the separate corporate
existence of NEWCO shall cease, and NEWCO shall be merged into and continued in
KHI, which shall be the "Surviving Corporation," pursuant to the provisions of
and with the effect provided in the General Corporation Law of the State of
Delaware (the "Delaware Law"). The Surviving Corporation shall possess all the
rights, privileges, immunities, powers and franchises and shall be subject to
all of the duties and liabilities of a corporation organized and existing under
the Delaware Law.
1.05 Payment to Dissenting KHI Shareholders. KHI will pay to the
dissenting shareholders of KHI the amount, if any, to which they shall be
entitled under the provisions of Chapter 262 of the Delaware Law.
1.06 Payment to Dissenting O'Gara Shareholders. O'Gara will pay to the
dissenting shareholders of O'Gara the amount, if any, to which they shall be
entitled under the provisions of Section 1701.85 of the Ohio General Corporation
Law.
1.07 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of KHI shall be, without any further action on the part of
O'Gara or KHI, the Certificate of Incorporation of the Surviving Corporation.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES
2.01 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) All of the shares of NEWCO Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become
an aggregate of 100 fully paid and nonassessable shares of KHI Common
Stock;
(b) Each share of KHI Capital Stock held in the treasury of KHI or
owned by O'Gara or NEWCO immediately prior to the Effective Time shall be
canceled and retired and shall cease to exist and no consideration shall be
delivered in exchange for such shares;
(c) Each share of KHI Class A Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares referred to in
Section 2.01(b) above and Dissenting Shares (as defined
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below)) shall be converted into that number of fully paid and nonassessable
shares of O'Gara Common Stock equal to one times the Share Conversion
Multiplier (as defined in paragraph (e) of this Section 2.01);
(d) Each share of KHI Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares referred to in Section
2.01(b) above and Dissenting Shares) shall be converted into that number of
fully paid and nonassessable shares of O'Gara Common Stock equal to one
times the Share Conversion Multiplier (as defined in paragraph (e) of this
Section 2.01.)
(e) For purposes of this Agreement, the term "Share Conversion
Multiplier" shall mean a fraction, the numerator of which is 6,650,000, and
the denominator of which is equal to the sum of (1) the total number of
shares of KHI Capital Stock issued and outstanding immediately prior to the
Effective Time, and (2) the total number of shares of KHI Capital Stock
issuable pursuant to all warrants, options and other stock issuance
agreements (including conversion rights under any instruments convertible
into shares of KHI Capital Stock) existing immediately prior to the
Effective Time, assuming all of such warrants, options or other stock
issuance agreements are fully exercisable and the rights of the holders
thereof are fully vested therein and in the stock issuable pursuant
thereto.
2.02. Exchange of Certificates; Issuance of New Certificates.
(a) Promptly after the Effective Time, O'Gara shall mail to each registered
holder of a certificate or certificates which immediately prior to the Effective
Time evidenced outstanding shares of KHI Capital Stock (the "KHI Certificates")
a letter of transmittal providing for the surrender of such KHI Certificates to
O'Gara's transfer agent, The Fifth Third Bank, for exchange. Until so
surrendered, such KHI Certificates shall represent solely the right to receive
the applicable number of whole shares, and, if applicable, cash for fractional
shares, of O'Gara Common Stock with respect to the number of shares of KHI
Capital Stock evidenced thereby. No dividends or other distributions declared or
made after the Effective Time with respect to shares of O'Gara Common Stock with
a record date after the Effective Time shall be paid to the holder of an
unsurrendered KHI Certificate with respect to the shares of O'Gara Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder, in each case unless and until the holder of record of
such KHI Certificate shall surrender such KHI Certificate. Subject to the effect
of unclaimed property, escheat and other applicable laws, upon surrender of any
such KHI Certificate, such KHI Certificate shall be cancelled and there shall be
issued or paid to the registered holder of such KHI Certificate, without
interest, (i) such number of whole shares of O'Gara Common Stock as are to be
issued in exchange for such KHI Certificate pursuant to Section 2.01 of this
Agreement, and (ii) the amount of any cash payable in lieu of a fractional share
of O'Gara Common Stock to which such holder is entitled pursuant to Section
2.02(b) hereof and the amount of dividends or other distributions payable to
holders of record as of a record date after the Effective Time theretofore paid
with respect to whole shares of O'Gara Common Stock issued pursuant to clause
(i) above. If any cash or certificate evidencing shares of O'Gara Common Stock
is to be paid to or issued in a name other than that in which the KHI
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the KHI Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to O'Gara any transfer or other taxes
required by reason of the issuance of certificates for such shares of O'Gara
Common Stock in, or the payment of cash to, a name other than that of the
registered holder of the KHI Certificate surrendered, or shall establish to the
satisfaction of O'Gara that such tax has been paid or is not applicable.
(b) Notwithstanding any other provision of this Agreement, no certificates
or scrip representing fractional shares of O'Gara Common Stock shall be issued
upon the surrender for exchange of KHI Certificates. Any holder of KHI Capital
Stock who would otherwise have been entitled to a fractional share of O'Gara
Common Stock shall be entitled to receive a cash payment in lieu of such
fractional share in an amount equal to the product of such fraction multiplied
by the average of the last reported prices per share of O'Gara Common Stock on
the NASDAQ National Market on the ten consecutive trading days ending with the
last trading day prior to the Effective Time on which O'Gara Common Stock was
traded on the NASDAQ National Market, without any interest thereon. Any such
holder shall not be entitled to vote or to any other rights of a holder of
O'Gara Common Stock in respect of such fractional share.
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2.03. No Further Transfers. From and after the Effective Time, there shall
be no transfers on the stock transfer books of KHI of any shares of KHI Capital
Stock. If, after the Effective Time, certificates evidencing KHI Capital Stock
are presented to KHI for transfer, such certificates shall be canceled and
exchanged for certificates evidencing the applicable number of whole shares of
O'Gara Common Stock and, if applicable, cash in lieu of fractional shares as
provided in Section 2.02.
2.04 Treatment of KHI Stock Options. All warrants, options and other stock
issuance agreements (including conversion rights under any instruments
convertible into shares of KHI Capital Stock) (collectively, "KHI Issuance
Agreements") shall, to the extent the shares of KHI Capital Stock issuable
pursuant thereto have been included in the denominator in determining the Share
Conversion Multiplier, be converted into the right to receive, upon exercise,
subject to and in accordance with the terms of such KHI Issuance Agreements and
further subject to payment in full of the exercise price under such KHI Issuance
Agreements, that number of shares of O'Gara Common Stock equal to the product of
(i) the number of shares of KHI Capital Stock issuable upon exercise of such KHI
Issuance Agreements, and (ii) the Share Conversion Multiplier. To the extent any
KHI Capital Stock issuable pursuant to a KHI Issuance Agreement was not included
in the denominator of the Share Conversion Multiplier, such KHI Issuance
Agreement shall automatically be cancelled at the Effective Time and neither KHI
Capital Stock nor O'Gara Common Stock shall thereafter be issued or issuable
with respect to such KHI Issuance Agreement.
2.05 Dissenters' Rights. Notwithstanding any provisions of this Agreement
to the contrary, any shares of KHI Capital Stock outstanding immediately prior
to the Effective Time held by a holder who has demanded and perfected the right,
if any, for appraisal of those shares in accordance with the provisions of
Section 262 of the Delaware Law and as of the Effective Time has not withdrawn
or lost such right to such appraisal ("Dissenting Shares") shall not be
converted into or represent a right to receive O'Gara Common Stock pursuant to
Section 2.01 hereof, but the holder shall only be entitled to such rights as are
granted by the Delaware Law. If a holder of shares of KHI Capital Stock who
demands appraisal of those shares under the Delaware Law shall effectively
withdraw or lose (through failure to perfect or otherwise) the right to
appraisal, then, as of the Effective Time or the occurrence of such event,
whichever last occurs, those shares shall be converted into and represent only
the right to receive O'Gara Common Stock as provided in Section 2.01 hereof,
without interest, upon compliance with the provisions, and subject to the
limitations, of Section 2.02 hereof. KHI shall give O'Gara (a) prompt notice of
any written demands for appraisal of any shares of KHI Capital Stock, attempted
withdrawals of such demands, and any other instruments served pursuant to the
Delaware Law and received by KHI relating to stockholders' rights of appraisal,
and (b) the opportunity to direct all negotiations and proceedings with respect
to any demands for appraisal under the Delaware Law. KHI shall not, except with
the prior written consent of O'Gara, voluntarily make any payment with respect
to any demands for appraisal of KHI Capital Stock, offer to settle or settle any
such demands or approve any withdrawals of any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF KHI AND THE KHI PRINCIPAL SHAREHOLDER
KHI and the KHI Principal Shareholder hereby jointly and severally
represent and warrant to each of O'Gara and NEWCO, as of the date hereof and as
of the Closing, as follows:
3.01 Organization and Capitalization. KHI is duly organized, validly
existing and in good standing under the laws of the State of Delaware. KHI has
authorized capital stock consisting of (i) 46,200 shares of KHI Class A Common
Stock with par value of one cent ($.01) per share, of which 23,100 shares have
been duly authorized, validly issued, and are outstanding and are fully paid and
non-assessable and held of record as of the date hereof as set forth in Schedule
3.01(i) of that certain Disclosure Schedule to Plan and Agreement to Merge of
even date herewith delivered by KHI to O'Gara (the "KHI Disclosure Schedule"),
and none of which shares are held by KHI as treasury stock, and (ii) 153,800
shares of KHI Common Stock with par value of one cent ($.01) per share, of which
76,624 shares have been duly authorized, validly issued, and are outstanding and
are fully paid and non-assessable and held of record as of the date hereof as
set forth in Schedule 3.01(ii) of the KHI Disclosure Schedule, of which 8,821
are covered by options to purchase and of which 2,699 shares are held by
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KHI as treasury stock. True and complete copies of the Certificate of
Incorporation and Bylaws of KHI have been delivered by KHI to O'Gara.
3.02 Power and Authority and Board and Shareholder Approval. KHI has the
corporate power and authority to own its properties and to carry on its business
as heretofore conducted and, subject to the approval and adoption of this
Agreement by its shareholders as required by law, to perform all of the
obligations to be performed by it hereunder. Each of KHI's Subsidiaries (as
defined below) has the corporate power and authority to own its properties and
to carry on its business as heretofore conducted. KHI and its Subsidiaries are
duly qualified as a foreign entity and in good standing in each jurisdiction
where the nature of their respective properties or the conduct of their
respective businesses makes such qualification necessary, except when the
failure to be so qualified would not reasonably be expected to have a Material
Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" shall
mean, as to any Person, a material adverse effect on the business, operations,
properties or financial condition of such Person and its Subsidiaries taken as a
whole. This Agreement constitutes the valid and legally binding obligation of
KHI, enforceable against KHI in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and to applicable
equitable principles or public policy with respect to the indemnification
provisions hereof, and the execution and delivery hereof and consummation of the
Merger have been approved by the Board of Directors of KHI. For purposes of this
Agreement a "Subsidiary" of any Person (as defined below) means another Person,
an amount of the voting securities, other voting ownership or voting partnership
interests of which sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first Person. For purposes of this Agreement, "Person" means an individual,
corporation, partnership, joint venture, limited liability company, association,
trust, unincorporated organization or other entity of any type, including any
government, governmental agency or other governmental body.
3.03 Subsidiaries. Schedule 3.03 of the KHI Disclosure Schedule lists all
of the Subsidiaries of KHI together with an accurate description, with respect
to each such Subsidiary, of (i) the type of entity and its jurisdiction of
formation, (ii) the authorized, issued and outstanding capital or other
ownership interests, and (iii) the names and addresses of all Persons having an
interest therein and the amount and type of such interests. Each of KHI's
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of formation as set forth on Schedule 3.03 of the KHI
Disclosure Schedule. Schedule 3.03 of the KHI Disclosure Schedule also lists all
Persons in which KHI or any of its Subsidiaries has an equity or other ownership
interest which is material to the business, properties, operations or financial
condition of KHI and its Subsidiaries taken as a whole, or the right to acquire
any such interest, together with an accurate description, with respect to each
such Person, of (i) the type of entity and its jurisdiction of formation, (ii)
the authorized, issued and outstanding capital or other ownership interests, and
(iii) the names of all Persons having an interest therein and the amount and
type of such interests. All of the outstanding shares of capital stock or other
ownership interests of each of KHI's Subsidiaries which are owned by KHI or one
of its Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially and of record as set forth on
Schedule 3.03, free and clear of all liens, charges, claims or encumbrances.
True and complete copies of the charter documents of all entities listed on
Schedule 3.03 of the KHI Disclosure Schedule have been delivered by KHI to
O'Gara.
3.04 Stock Options and Other Arrangements. As of the date hereof, KHI has
outstanding options to purchase an aggregate of 8,821 shares of KHI Common
Stock. Except for such options or as set forth in Schedule 3.04 of the KHI
Disclosure Schedule (i) there are no outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character to which KHI or any of its Subsidiaries is a party
or by which KHI or any of its Subsidiaries is bound relating to the issued or
unissued capital stock or other ownership interests of KHI or any of KHI's
Subsidiaries or relating to securities convertible into, exchangeable for or
evidencing the right to subscribe for any such capital stock or other ownership
interests, (ii) there are no shareholders' agreements, partnership agreements,
registration rights agreements, voting trusts or other agreements or
understandings to which KHI or any of its Subsidiaries is a party or by which
KHI or any of its Subsidiaries is bound with respect to the voting of the
capital stock or other ownership interests of KHI or any
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of its Subsidiaries, or with respect to the registration of KHI Capital Stock of
any shareholder of KHI under the Securities Act of 1933, as amended (the "Act"),
and (iii) there are no stock options, stock bonus agreements, restricted stock
agreements or other agreements or obligations outstanding which commit KHI or
any of its Subsidiaries to issue, deliver, sell, repurchase or redeem shares of
stock or other ownership interests upon the fulfillment of specified conditions.
True and complete copies of all documents, agreements and other instruments
listed on Schedule 3.04 of the KHI Disclosure Schedule have been delivered by
KHI to O'Gara.
3.05 Financial Statements. The audited consolidated financial statements
of KHI and its Subsidiaries for the one-year periods ended December 31, 1994 and
December 31, 1995, including consolidated balance sheets, statements of income,
changes in shareholders' equity and cash flows for the years then ended (the
"KHI Audited Statements"), the draft financial statements of KHI and its
Subsidiaries for the one-year period ended December 31, 1996, including
consolidated balance sheet, statements of income, changes in shareholders'
equity and cash flows for the year then ended (the "Draft KHI Financials") and
the unaudited consolidated statements of financial position and related
consolidated statements of income and cash flows for the six-month interim
period ended June 30, 1997 (the "KHI Interim Statements"), all as previously
delivered to O'Gara (the KHI Audited Statements, the Draft KHI Financials and
the KHI Interim Statements are referred to herein collectively as the "KHI
Financial Statements"), have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
throughout the periods covered and with prior periods (except as stated in the
footnotes thereto, and subject, with respect to such KHI Interim Statements, to
non-material year-end adjustments and the absence of footnotes), and fairly
present in all material respects the consolidated financial condition of KHI and
its Subsidiaries as of the dates thereof and the consolidated results of their
operations for the periods ended on such dates, except in each case, with
respect to the Draft KHI Financials, for changes described in the last sentence
of this Section 3.05. True and complete copies of the KHI Financial Statements
have been delivered by KHI to O'Gara. The audited consolidated financial
statements of KHI and its Subsidiaries for the one-year period ended December
31, 1996 (the "1996 Financials") shall be delivered by KHI to O'Gara within two
(2) weeks of the date of this Agreement and such 1996 Financials shall (i) be
the same as the Draft KHI Financials except that accounts receivable shall be
approximately $4,800,000 less than accounts receivable on the Draft KHI
Financials and there shall be such other changes as have been approved by O'Gara
in writing, (ii) have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis throughout the
periods covered and with prior periods (except as stated in the footnotes
thereto), and (iii) fairly present in all material respects the consolidated
financial condition of KHI and its Subsidiaries as of December 31, 1996 and the
consolidated results of their operations for the one-year period ended on
December 31, 1996.
3.06 Liabilities. Except to the extent reflected and reserved against in
the KHI Interim Statements or as disclosed in Schedule 3.06 of the KHI
Disclosure Schedule, and except for liabilities and obligations incurred in the
ordinary course of business consistent with prior practice since June 30, 1997,
none of which individually or in the aggregate would reasonably be expected to
have a Material Adverse Effect, neither KHI nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether accrued, absolute, determined,
determinable, contingent or otherwise and whether due or to become due, which
individually or in the aggregate would reasonably be expected to have a Material
Adverse Effect.
3.07 Claims. There are no governmental proceedings or investigations or
any claims, suits or proceedings by any Person pending, asserted, or, to the
actual knowledge of KHI and its Subsidiaries, threatened against KHI or any of
its Subsidiaries, and to the actual knowledge of KHI and its Subsidiaries there
is no reasonable basis for any such investigations, claims, suits or proceedings
which, if determined adversely to KHI or any of its Subsidiaries, would
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect, except in each case as disclosed on Schedule 3.07 of the KHI
Disclosure Schedule.
3.08 Assets. Schedule 3.08 of the KHI Disclosure Schedule lists all real
property now owned, leased, occupied or otherwise used by KHI or any of its
Subsidiaries and indicates with respect to each such parcel of real property
whether it is owned or leased and the name of the owner or lessee. With respect
to said leased property, Schedule 3.08 sets forth the base rent payable under
each lease, the amount and type of other expenses paid by the tenant under the
lease and the commencement and expiration dates of the lease. True and complete
copies of all of such leases have been delivered by KHI to O'Gara. Each of KHI
and its Subsidiaries has good and
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marketable title in fee simple to all real estate listed on such Schedule 3.08
as owned by it and valid leasehold title to all real estate listed on such
Schedule 3.08 as leased by it, in each case free and clear of all material
liens, mortgages, pledges, encumbrances and charges of every kind, except (i) as
reflected in Schedule 3.08 of the KHI Disclosure Schedule, (ii) for statutory
liens for taxes not yet due and payable, (iii) for inchoate liens for work
performed or materials delivered, payment for which is not yet due, and (iv) for
other immaterial covenants or restrictions which do not individually or in the
aggregate materially interfere with the use or value of any such property. KHI
and each of its Subsidiaries owns and has good and marketable title to all of
its properties and assets reflected on the KHI Interim Statements, or acquired
by it after the date thereof, free and clear of all material liens, mortgages,
pledges, encumbrances and charges of every kind, except for inventory sold in
the ordinary course of business after the date of the KHI Interim Statements and
except as set forth in Schedule 3.08 of the KHI Disclosure Schedule. All real
property owned or leased by KHI or its Subsidiaries and all tangible personal
property owned or leased by KHI or any of its Subsidiaries is in sufficient
condition to enable each of KHI and its Subsidiaries to conduct its business as
now being conducted. KHI and its Subsidiaries own or have a legal and valid
right to use all real and personal property necessary for, or used in, the
conduct of their respective businesses as heretofore conducted.
3.09 Operations Since December 31, 1996. Since December 31, 1996, except
as contained on Schedule 3.09 of the KHI Disclosure Schedule (the "KHI
Operations Schedule"), neither KHI nor any of its Subsidiaries has (i) incurred
any obligation or liability (absolute or contingent), except obligations and
liabilities incurred in the ordinary course of business consistent with prior
practice, none of which individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect, except as permitted in Sections
9.02(b) and (c) hereof; (ii) discharged or satisfied any material lien or
encumbrance, or paid any obligation or liability (absolute or contingent), other
than current liabilities reflected in the KHI Financial Statements and current
liabilities incurred since the date of the KHI Interim Statements in the
ordinary course of business consistent with prior practice; (iii) declared or
made any payment or distribution of assets or dividends on its capital stock or
other ownership interests except those dividends normally paid by KHI's
Subsidiaries to KHI; (iv) purchased or redeemed any of its shares, or issued or
committed to issue any additional shares or any securities exercisable for or
convertible into shares except pursuant to stock options and restricted stock
plans described on Schedule 3.13 of the KHI Disclosure Schedule; (v) other than
as described in Section 9.02 or in the ordinary course of business consistent
with prior practice, made any general wage or salary increases or increased the
salary or other compensation of any officers; (vi) mortgaged, pledged or
subjected to material lien, or any other material encumbrance, any of its
material assets, tangible or intangible; (vii) sold, assigned or transferred any
of its tangible assets or canceled any debt or claim, other than the sale of
inventory for fair market value in the ordinary course of business consistent
with prior practice; (viii) sold, assigned or transferred any patent, trademark,
trade name, copyright, license or other intangible asset; (ix) suffered any net
operating loss or extraordinary loss, or waived any right of substantial value;
or (x) entered into any transaction other than in the ordinary course of
business consistent with prior practice, other than as permitted in Section 9.02
hereof.
3.10 Taxes. Except as disclosed in Schedule 3.10 of the KHI Disclosure
Schedule, reserves for taxes as shown on the KHI Interim Statements are
sufficient for the payment of all accrued but unpaid federal, state, county,
local and foreign taxes of KHI and each of its Subsidiaries, for all periods
ending on or prior to December 31, 1996, and are a reasonable estimate of all
such taxes for the period ending June 30, 1997. Except as disclosed on Schedule
3.10 of the KHI Disclosure Schedule, all tax returns required to be filed have
been filed by KHI and its Subsidiaries when due in accordance with all
applicable laws, all such returns were correct as filed in all material
respects, all taxes shown to be due on such returns have been timely paid,
withheld or remitted to the appropriate taxing authority and there is no audit,
dispute, claim, action, proceeding or investigation pending or, to the actual
knowledge of KHI and its Subsidiaries, threatened with respect to any such
returns or any taxes shown thereon. Except as disclosed on Schedule 3.10 of the
KHI Disclosure Schedule, neither KHI nor any of its Subsidiaries has received
any notice of any deficiency with respect to the payment of any federal, state,
county, local or foreign taxes.
3.11 Insurance. Schedule 3.11 of the KHI Disclosure Schedule lists all
property, liability, life and other insurance policies for the benefit of KHI
and its Subsidiaries. All such insurance is in full force and effect. Since
December 31, 1996 there has been no material loss or damage to the tangible
property of KHI or any of its
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Subsidiaries, whether or not insured, except as disclosed on Schedule 3.11 of
the KHI Disclosure Schedule, and neither KHI nor any of its Subsidiaries has
been refused any insurance coverage for which it has applied.
3.12 Contracts. Schedule 3.12 of the KHI Disclosure Schedule (the "KHI
Contract Schedule") lists all contracts, agreements, commitments and engagements
to which KHI or any of its Subsidiaries is a party, or by which their respective
assets are bound which (i) provide for the payment or receipt by KHI or any of
its Subsidiaries of $100,000 or more, other than contracts with customers
entered into in the ordinary course of business consistent with prior practices,
(ii) restrict in any manner the business activities of KHI or any of its
Subsidiaries, with the exception of non-competition covenants entered into with
customers of KHI or any of its Subsidiaries which would not be reasonably
expected to have a Material Adverse Effect on any of O'Gara, KHI or their
respective Subsidiaries, (iii) are partnership or joint venture agreements with
any other Person, or (iv) are union contracts, health and welfare plans, life or
hospitalization insurance plans, pension, profit sharing or other similar
benefit plans, deferred incentive compensation agreements or plans, lease
agreements, and material employment or consulting agreements (excluding
employment agreements with foreign employees mandated by law that do not contain
rights in excess of the minimum mandated by law). Each of such agreements is
legal, valid and binding against KHI or any of its Subsidiaries that is a party
thereto and, to the actual knowledge of KHI and its Subsidiaries, is legal,
valid and binding against any other Person who is a party thereto. Each of such
agreements is in full force and effect without any material default or breach
existing with respect thereto by KHI or any of its Subsidiaries or, to the
actual knowledge of KHI and its Subsidiaries, any other Person. True and
complete copies of all contracts, agreements, commitments and engagements listed
on the KHI Contract Schedule have been delivered by KHI to O'Gara. Except as
disclosed on the KHI Contract Schedule, the consummation of the Merger will not
result in the acceleration of, or any adverse change in the terms of, any
obligation of KHI or any of its Subsidiaries for borrowed money or any material
liability under any such contract, agreement, commitment or engagement. KHI and
its Subsidiaries may prepay without penalty or premium any indebtedness for
borrowed money incurred by them.
3.13 Employee Benefit Plans. Schedule 3.13 of the KHI Disclosure Schedule
contains listings of each Plan (as hereinafter defined). True and complete
copies of all of such Plans (and if applicable related trust agreements)
together with the most recent annual reports (Form 5500 including, if
applicable, Schedule B thereto) and the most recent actuarial valuation report
prepared in connection with any Plan, have been delivered by KHI to O'Gara. No
Plan is maintained in connection with any trust described in Section 501(c)(9)
of the Code. Each Plan complies in all material respects with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code and all
other applicable laws and administrative or governmental rules and regulations.
No Plan is subject to Title IV of ERISA. None of KHI or any of its Subsidiaries
or ERISA Affiliates, has withdrawn from any Plan subject to Title IV of ERISA or
Multiemployer Plan (as hereinafter defined) or has taken, or is currently
considering taking, any action to do so; and no action has been taken, or is
currently being considered, by KHI or any of its Subsidiaries or ERISA
Affiliates to terminate any Plan subject to Title IV of ERISA (other than
standard terminations previously effected under which KHI or any of its
Subsidiaries or ERISA Affiliates have no existing liability). None of KHI, or
any of its Subsidiaries or ERISA Affiliates has engaged in, or is a successor or
parent corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA. The assets of KHI and its Subsidiaries are
not now, nor will they solely because of the mere passage of time be, subject to
any lien imposed under Code Section 412(n) by reason of a failure of KHI or any
of its Subsidiaries or ERISA Affiliates to make timely installments or other
payments required under Code Section 412. No Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived. There
are no actions, suits or claims pending or, to KHI's and its Subsidiaries'
actual knowledge, threatened (other than routine claims for benefits) with
respect to any Plan which would reasonably be expected to have a Material
Adverse Effect. None of KHI or any of its Subsidiaries or ERISA Affiliates has
incurred or, to KHI's and its Subsidiaries' actual knowledge, would reasonably
be expected to incur any material liability under or pursuant to Section 4971 of
the Code. No prohibited transactions described in Section 406 of ERISA or
Section 4975 of the Code have occurred which would reasonably be expected to
result in a material liability. All Plans that are intended to be qualified
under Section 401(a) of the Code have received a favorable determination letter
as to such qualification from the Internal Revenue Service, and to KHI's and its
Subsidiaries actual knowledge, no event has occurred, either by reason of any
action or failure to act, which would cause the loss of any such
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qualification. To KHI's and its Subsidiaries' actual knowledge, there is no
reason why any Plan is not so qualified in operation. None of KHI or any of its
Subsidiaries or ERISA Affiliates is a party, contributes or within the past six
years has contributed, to a Multiemployer Plan (as defined below). None of KHI
or any of its Subsidiaries or ERISA Affiliates contributes to, or has within the
past six years contributed to a single-employer plan within the meaning of
Section 4001(a)(15) of ERISA which has two or more contributing sponsors, as
defined in Section 4001(a)(13) of ERISA, at least two of whom are not under
common control, within the meaning of ERISA. KHI and its Subsidiaries have
complied in all material respects with the health care continuation requirements
of Part 6 of Title I of ERISA to the extent applicable. Except as disclosed on
Schedule 3.13 of the KHI Disclosure Schedule, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, result in an increase in the
amount of compensation or benefits or accelerate the vesting or timing of
payment of any compensation or benefits payable by KHI or any of its
Subsidiaries or ERISA Affiliates to any Plan, Benefit Arrangement (as defined
below), International Plan (as defined below) or to any employee of KHI or any
of its Subsidiaries or ERISA Affiliates. Schedule 3.13 of the KHI Disclosure
Schedule contains listings of each Benefit Arrangement. True and complete copies
or descriptions of each Benefit Arrangement (and, if applicable, related trust
agreements) and all amendments thereto have been delivered by KHI to O'Gara.
Each Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations and has been maintained in good standing with
applicable regulatory authorities. All contributions and payments accrued under
each Plan and Benefit Arrangement, determined in accordance with prior funding
and accrual practices, as adjusted to include proportional accruals for the
period ending on the Closing Date, have been discharged and paid when due. As
used in this Section 3.13: (i) "Plan" means an "employee benefit plan," as
defined in Section 3(3) of ERISA, (other than a Multiemployer Plan) which (a) is
subject to any provision of ERISA, (b) is established, administered, maintained
or contributed to by KHI or any Subsidiary or ERISA Affiliates of KHI and (c)
covers any employee or former employee of KHI or any of its Subsidiaries or
ERISA Affiliates in respect of service with KHI or any of its Subsidiaries or
ERISA Affiliates or to which KHI or any of its Subsidiaries or ERISA Affiliates
otherwise may have any liability; (ii) "Multiemployer Plan" means a
"multiemployer plan" (as defined in Section 3(37) or Section 4001(a)(3) of
ERISA) to which KHI or any of its Subsidiaries or ERISA Affiliates is or has
been obligated to contribute or otherwise may have any liability; and (iii) with
respect to any Person, "ERISA Affiliate" means any trade or business (whether or
not incorporated) which is under common control or would be considered a single
employer with such person pursuant to Section 414(b), (c), (m) or (o) of the
Code and the regulations promulgated thereunder or pursuant to Section 4001(b)
of ERISA and the regulations promulgated thereunder. "Benefit Arrangement" means
any employment, severance, change in control or similar contract or arrangement
or any plan, policy, fund, program or contract or arrangement providing for
bonus, profit-sharing, stock option, or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, workers'
compensation or severance benefits that (A) is not a Plan, (B) is entered into,
maintained, administered or contributed to, as the case may be, by KHI or any
Subsidiary or ERISA Affiliate of KHI and (C) covers in respect of service with
KHI or any of its Subsidiaries any current or former U.S. employee or U.S.
independent contractor of KHI or any of its Subsidiaries or ERISA Affiliates who
is or was employed in the United States. "International Plan" means (I) any
written employment agreement providing for annual salary in excess of U.S.
$100,000 (or its foreign equivalent) or any severance or similar contract or
arrangement providing for compensation (including retirement benefits) in excess
of U.S. $100,000 (or its foreign equivalent) that (A) is not a Plan or a Benefit
Arrangement and (B) is entered into between KHI or any of its Subsidiaries or
ERISA Affiliates and any current or former employee, agent or independent
contractor of KHI or any of its Subsidiaries or ERISA Affiliates who is or was
employed outside of the United States or (II) any written plan, policy, fund,
program, arrangement, or contract of or with KHI or any of its Subsidiaries or
ERISA Affiliates in respect of service with KHI or any of its Subsidiaries or
its ERISA Affiliates covering employees who are or were employed by KHI or any
of its Subsidiaries or its ERISA Affiliates outside of the United States;
providing for (A) retirement benefits (including pension, health, medical or
life insurance), but excluding any retirement scheme fund, plan or program (x)
sponsored by any government or (y) providing benefits statutorily mandated under
the laws of the applicable jurisdiction at the minimum level statutorily
mandated, or (B) bonus (including post-employment bonus), profit sharing, stock
option, or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, life insurance (including any self-insured
arrangements), health or medical benefits, disability benefits,
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supplemental unemployment benefits or severance benefits (cumulatively
"Benefits"), other than any plan, policy, fund, program, arrangement or contract
providing for Benefits statutorily mandated by the laws of the applicable
jurisdiction at the minimum level statutorily mandated that (I) is not a Plan or
a Benefit Arrangement and (II) is entered into, maintained, administered, or
contributed to by KHI or any of its Subsidiaries. Schedule 3.13 of the
Disclosure Schedule lists each International Plan. True and complete copies of
each International Plan and all amendments thereto have been made available by
KHI to O'Gara. Each International Plan has been maintained and operated in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations and has been
maintained in good standing with all applicable regulatory authorities. With
respect to each International Plan all necessary or appropriate approvals,
qualifications or certifications have been obtained and no event has occurred or
condition exists which would cause the loss of such approval, qualification or
certifications. All contributions and payments accrued under each International
Plan, determined in accordance with prior funding and accrual practices, have
been discharged and paid when due.
3.14 No Default. Except as disclosed on the KHI Contract Schedule, (i)
neither KHI nor any of its Subsidiaries is in material default under any
material contract, agreement, commitment or engagement of any kind; (ii) no
event of default or event that, but for the giving of notice or lapse of time,
or both, would constitute an event of default exists or, upon the Effective
Time, will exist under any loan or credit agreement, note, bond, mortgage,
indenture or guarantee of indebtedness for borrowed money or other material
instrument to which KHI or any of its Subsidiaries is a party; and (iii) the
execution and delivery of this Agreement and the consummation of the Merger will
not contravene or conflict with, or constitute a violation of, or result in a
default under, cancellation of, termination of, or acceleration of obligations
under, the Certificate or Articles of Incorporation, Articles of Association,
By-Laws or other organizational documents of KHI or any of its Subsidiaries or
any material contract, agreement, commitment, engagement, judgment, injunction,
order, decree or instrument to which KHI or any of its Subsidiaries is a party
or by which they or any of their assets are bound, which default, event of
default, contravention, conflict, violation, cancellation, termination or
acceleration would reasonably be expected to have a Material Adverse Effect, or
result in the incurrence by KHI or any of its Subsidiaries of any material
liability.
3.15 Joint Proxy Statement. When the Registration Statement on Form S-4
described in Article V hereof (the "Registration Statement") is filed with the
Securities and Exchange Commission (the "Commission") and the related
Prospectus/Proxy Statement to be distributed to KHI's and O'Gara's shareholders
(the "Joint Proxy Statement") in connection with the Merger shall first be
mailed to such shareholders, and at all times subsequent thereto up to and
including the Effective Time, the information with respect to KHI and its
Subsidiaries provided by KHI in writing for inclusion in the Registration
Statement and the Joint Proxy Statement, and any information with respect to KHI
and its Subsidiaries provided in writing by O'Gara to KHI at least two (2) days
prior to the date of mailing the Joint Proxy Statement to the shareholders with
respect to which information O'Gara has not received any written objection from
KHI (i) will comply in all material respects with the provisions of the Act and
of the Securities Exchange Act of 1934 (the "Exchange Act") and (ii) will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time, any event relating to
KHI or any of its Subsidiaries shall occur which, pursuant to the Act or the
Exchange Act or the rules and regulations thereunder, should be disclosed in the
Registration Statement or the Joint Proxy Statement and which is not so
disclosed, KHI shall promptly so inform O'Gara.
3.16 Compliance With Laws. KHI and its Subsidiaries (and each of them)
have complied and are currently in compliance in all material respects with all
applicable laws, and governmental rules (including rules related to governmental
contracts), regulations and orders (including zoning ordinances), except when
the failure to be in such compliance would not reasonably be expected to have a
Material Adverse Effect. Neither KHI nor any of its Subsidiaries is in material
default under, and no event has occurred which, with the lapse of time or action
by a third party, would be reasonably expected to result in a material default
under, the terms of any judgment, decree, order or writ, of any court, whether
federal, state or local, foreign or domestic, and whether at law or in equity.
Schedule 3.16 of the KHI Disclosure Schedule includes the policies of KHI and
its Subsidiaries regarding the Foreign Corrupt Practices Act (the "FCPA"),
including a description of the means by which information
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regarding such policies are disseminated to employees of KHI and its
Subsidiaries. Neither KHI nor any of its Subsidiaries has received written
notice of any violation of the FCPA by any employees of KHI or any of its
Subsidiaries.
3.17 Consents and Approvals. Except for the approval of KHI's
shareholders, the filing of the Certificate of Merger with respect to the Merger
with the Secretary of State of the State of Delaware, the filing of the
Registration Statement and any filings required under state "blue sky" laws, no
other corporate proceedings on the part of KHI or any of its Subsidiaries, and
no consent of or filing with any governmental agency or, except as set forth on
the KHI Contract Schedule, third party is required to be held, obtained or made
by KHI or any of its Subsidiaries in connection with the execution and delivery
of this Agreement and the consummation of the Merger. The ultimate parent entity
of KHI does not have $100,000,000 or more of assets as of its last regularly
prepared balance sheet or $100,000,000 or more of sales for its most recently
ended fiscal year for purposes of the Hart-Scott-Rodino Anti-Trust Improvements
of 1976, as amended (the "HSR Act").
3.18 Patents, Trademarks and Copyrights. Schedule 3.18 of the KHI
Disclosure Schedule contains a list of (a) all filed patents, patent and
trademark applications and registered trademarks, servicemarks and copyrights
(collectively the "KHI Registered Rights") owned by KHI or any of its
Subsidiaries, together with an indication as to the owner of such right and the
jurisdiction by or in which such right has been issued, registered or filed, (b)
all material license agreements (other than licenses for off-the-shelf software
programs) or other rights of use relating to intellectual property used by KHI
or its Subsidiaries (the "KHI Licensed Rights") and (c) all other intellectual
property (other than off-the-shelf software programs) owned or used by KHI or
its Subsidiaries (the "KHI Common Law Rights"). All of the KHI Registered Rights
are valid and in full force and effect. True and complete copies of all
agreements or licenses relating to the KHI Registered Rights, the KHI Licensed
Rights and the KHI Common Law Rights (collectively, the "KHI Rights") have been
delivered by KHI to O'Gara. Neither KHI nor any of its Subsidiaries has received
any notice with respect to any alleged infringement or unlawful use by KHI or
its Subsidiaries of any intangible property right owned or alleged to be owned
by others. Except as set forth in Schedule 3.18 of the KHI Disclosure Schedule,
the Merger will not adversely affect the use by KHI of any of the KHI Rights.
Schedule 3.18 of the KHI Disclosure Schedule contains a list of all licenses and
sublicenses granted by KHI and its Subsidiaries with respect to the KHI Rights.
Except as set forth on Schedule 3.18 of the KHI Disclosure Schedule (i) no
Person other than KHI and its Subsidiaries has any right to use the KHI
Registered Rights, and (ii) neither KHI nor any of its Subsidiaries has actual
knowledge of any infringement by any Person of any of the KHI Rights.
3.19 Environmental Matters. Except as set forth in Schedule 3.19 of the
KHI Disclosure Schedule, (i) there is no liability of KHI or any of its
Subsidiaries under any federal, state, local, or foreign laws, rules,
regulations, orders, judgments, decrees, permits or licenses relating to health,
safety or the environment (the "Environmental Requirements"), whether absolute,
determined, determinable or contingent, and (ii) the properties, assets and
operations of KHI and its Subsidiaries are in compliance with all applicable
Environmental Requirements, except for any such non-compliance that would not
reasonably be expected to have a Material Adverse Effect. No spill, release,
threatened release or discharge of Hazardous Substances (as defined below) into
the environment has occurred at any of the facilities owned, leased or operated
by KHI and its Subsidiaries (the "KHI Facilities") or, to KHI's and its
Subsidiaries' actual knowledge, on any real property adjacent thereto, and there
has been no corrective action, remediation or clean up required of KHI or any of
its Subsidiaries by applicable Environmental Requirements or by governmental
authorities as a consequence of any such spill, release, threatened release or
discharge of Hazardous Substances. All corrective action, remediation or other
clean up activities undertaken by KHI or any of its Subsidiaries has been
performed, or is being performed, in accordance in all material respects with
all applicable Environmental Requirements. KHI and its Subsidiaries have
discharged in all material respects any and all applicable record keeping and
reporting requirements pursuant to all applicable Environmental Requirements and
all such reports and records are complete and correct in all material respects
and have been retained for the length of time required by any applicable
Environmental Requirements setting forth document retention requirements. Except
as set forth in Schedule 3.19 of the KHI Disclosure Schedule, none of the KHI
Facilities or, to KHI's and its Subsidiaries' actual knowledge, any property
adjacent thereto, or, to KHI's and its Subsidiaries' actual knowledge, any sites
used for the disposal of wastes generated by KHI or its Subsidiaries have been
designated as a "Superfund Site" or are otherwise the subject of
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an order of removal or remedial action for which KHI or any of its Subsidiaries
has liability pursuant to the provisions of applicable Environmental
Requirements and there are no conditions or circumstances affecting the KHI
Facilities which, to KHI's and its Subsidiaries' actual knowledge, might
reasonably be expected to cause them to be designated as a "Superfund Site" or
render them subject to any such order of removal or remedial action for which
KHI or any of its Subsidiaries will have liability pursuant to the provisions of
applicable Environmental Requirements. Except as set forth in Schedule 3.19 of
the Disclosure Schedule, no unresolved written notice, notification, demand,
request for information, citation, summons or order has been issued, no pending
complaint has been filed, no unpaid penalty has been assessed and no action,
claim, suit or proceeding or, to the actual knowledge of KHI and its
Subsidiaries, investigation or review is pending or, to the actual knowledge of
KHI and its Subsidiaries, threatened by any governmental authority with respect
to KHI or any of its Subsidiaries and relating to or arising out of any
Environmental Requirements. To KHI's and its Subsidiaries' actual knowledge, no
Hazardous Substance is present at, on, in or under any of the KHI Facilities in
violation of applicable Environmental Requirements. All permits required by
applicable Environmental Requirements and necessary for the operation of the
businesses, or the use of the assets of KHI and its Subsidiaries have been
obtained, are identified in Schedule 3.19 of the KHI Disclosure Schedule, and
are in full force and effect. Except as set forth in Schedule 3.19 of the
Disclosure Schedule, KHI and its Subsidiaries are in material compliance with
the terms of such permits, no action or investigation has been taken, commenced
or, to KHI's actual knowledge, threatened by any governmental authority or any
other Person to revoke or modify such permits or to enforce the terms of or take
action for violation of such permits, and, to KHI's and its Subsidiaries' actual
knowledge, there is no reasonable basis for any such action or investigation.
KHI and its Subsidiaries do not own, lease or operate and have not within the
past four (4) years owned, leased or operated, any real property in New Jersey
or Connecticut that is subject to transfer act requirements of those states. For
purposes of this Agreement, the term "Hazardous Substances" shall mean any
materials defined or regulated as pollutants, contaminants, or hazardous or
toxic substances, materials or wastes in any way by any Environmental
Requirements and the term "Superfund Site" shall mean any location which is
listed or proposed for listing on the National Priorities List or on any similar
state list of sites requiring investigation or cleanup, or which is the subject
of any pending or threatened action, suit, proceeding or investigation or
cleanup related to or arising from any alleged violation of any Environmental
Requirement or the cleanup or threatened release of Hazardous Substances.
3.20 Pooling-of-Interests. Neither KHI nor any of its Subsidiaries or
shareholders has taken any action, or caused any event or condition to occur,
and there is no set of facts in existence relating to KHI or any of its
Subsidiaries or shareholders of which KHI has actual knowledge, which would be
reasonably expected to result in the failure of the Merger to constitute a
pooling-of-interests for accounting purposes, and, within ten (10) days after
the date hereof, KHI shall obtain a certificate to that effect from its
independent certified public accountants, Deloitte & Touche, and deliver a copy
of such certificate to O'Gara, which certificate shall be reasonably acceptable
in form and substance to O'Gara.
3.21 No Material Adverse Change. Since December 31, 1996, there has been
no material adverse change in the business, operations, properties or financial
condition of KHI and its Subsidiaries taken as a whole.
3.22 Licenses and Permits. KHI and its Subsidiaries have obtained all
permits, licenses, franchises and authorizations from any governmental authority
which are necessary in connection with the ownership, lease or operation of
their respective properties or the conduct of their respective businesses as
heretofore owned, leased and conducted, except for such permits or licenses, the
absence of which would not reasonably be expected to have a Material Adverse
Effect (collectively, the "KHI Licenses"). All of such KHI Licenses are in full
force and effect and are listed in Schedule 3.22 of the KHI Disclosure Schedule.
Except as disclosed on Schedule 3.22 of the KHI Disclosure Schedule, neither KHI
nor any of its Subsidiaries has received any notice that KHI or any of its
Subsidiaries is in violation of or default under any KHI License or that any KHI
License will be revoked, terminated or not renewed, except for any such
violation, default, revocation, termination or nonrenewal which would not
reasonably be expected to have a Material Adverse Effect. All private
investigators licenses of KHI and its Subsidiaries are listed in Schedule 3.22
of the KHI Disclosure Schedule and, except as disclosed in such Schedule 3.22,
neither KHI nor any of its Subsidiaries has received any notice that it is in
violation of or in default under any private investigators license, or that any
private investigators license will be revoked, terminated
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or not renewed. True and complete copies of all private investigators licenses
and all KHI Licenses have been delivered by KHI to O'Gara.
3.23 Orders, Actions, Etc. There are no outstanding orders, judgments,
injunctions, awards or decrees of any governmental authority against KHI or any
of its Subsidiaries or any of their properties, assets or businesses that would
reasonably be expected to have a Material Adverse Effect. There are no actions,
suits or claims or legal, administrative or arbitration proceedings or
investigations pending against or, to KHI's or any of its Subsidiaries' actual
knowledge, threatened against, any of KHI, its Subsidiaries, or any of their
properties, assets or businesses, that would reasonably be expected to have a
Material Adverse Effect, and neither KHI nor any of its Subsidiaries has
received any written notice of any actions, suits or claims or legal,
administrative or arbitration proceedings or investigations affecting any of
KHI, its Subsidiaries, or any of their properties, assets or businesses, that
would be reasonably expected to have a Material Adverse Effect.
3.24 Labor Matters. Except as set forth in Schedule 3.24 of the KHI
Disclosure Schedule, neither KHI nor any of its Subsidiaries has any labor
contracts, collective bargaining agreements or material employment or consulting
agreements with any persons employed by or otherwise performing services
primarily for KHI or any of its Subsidiaries (collectively, the "KHI Business
Personnel") or any representative of any KHI Business Personnel. True and
complete copies of all agreements listed on Schedule 3.24 of the KHI Disclosure
Schedule have been delivered by KHI to O'Gara. Neither KHI nor any of its
Subsidiaries has engaged in any unfair labor practice with respect to KHI
Business Personnel, and neither KHI nor any of its Subsidiaries has received
written notice that there is an unfair labor practice complaint pending against
KHI or any of its Subsidiaries with respect to KHI Business Personnel. There is
no labor strike, dispute, slowdown or stoppage pending against or, to KHI's
actual knowledge, threatened against KHI or any of its Subsidiaries that would
reasonably be expected to have a Material Adverse Effect, and neither KHI nor
any of its Subsidiaries has experienced any primary work stoppage or other
material labor difficulty involving its employees during the last three (3)
years that has had or would reasonably be expected to have a Material Adverse
Effect. KHI and its Subsidiaries are in material compliance with the
requirements of all applicable labor and employment laws, rules and regulations.
3.25 Brokers. No broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with the
execution and delivery of, or the consummation of the transactions contemplated
by, this Agreement based on agreements or arrangements made by KHI or any of its
Subsidiaries, except for Donaldson Lufkin & Jenrette, the fees and expenses of
which shall be paid by KHI.
3.26 Full Disclosure. The representations and warranties made by KHI in
this Agreement, the KHI Disclosure Schedules and certificates to be furnished by
KHI or any of its Subsidiaries at the Closing hereunder do not contain and will
not contain any untrue statement of a material fact, and do not omit and will
not omit any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF O'GARA AND NEWCO
O'Gara and NEWCO hereby jointly and severally represent and warrant to KHI
and the KHI Principal Shareholder, as of the date hereof and as of the date of
Closing, as follows:
4.01 Organization and Capitalization. O'Gara is duly organized, validly
existing and in good standing under the laws of the State of Ohio. As of the
date hereof, O'Gara has authorized capital stock consisting of (i) 25,000,000
shares of O'Gara Common Stock with par value of one cent ($.01) per share, of
which 7,279,310 shares have been duly authorized, validly issued, and are
outstanding and are fully paid and non-assessable, and no shares of which are
held by O'Gara as treasury stock, and (ii) 100,000 shares of O'Gara Preferred
Stock with par value of one cent ($.01) per share, of which no shares are
outstanding. NEWCO is duly organized, validly existing and in good standing
under the laws of the State of Delaware. NEWCO's authorized capital stock
consists of 100 shares of common stock without par value, all of which shares
have been duly authorized, validly issued and are outstanding and are fully paid
and non-assessable and held of record and beneficially by O'Gara.
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NEWCO was recently formed for the purpose of the transactions contemplated
hereby and has no material assets or liabilities. True and complete copies of
the Certificate of Incorporation and By-laws of O'Gara have been delivered by
O'Gara to KHI. The O'Gara Common Stock to be issued in the Merger will be duly
authorized, validly issued and outstanding, fully paid and non-assessable and
listed for trading on the NASDAQ National Market.
4.02 Power and Authority and Board Approval. O'Gara has the corporate
power and authority to own its properties and to carry on its business as
heretofore conducted and, subject to the approval and adoption of this Agreement
by its shareholders as required by law, to perform all of the obligations to be
performed by it hereunder. Each of O'Gara's Subsidiaries has the corporate power
and authority to own its properties and to carry on its business as heretofore
conducted. O'Gara and its Subsidiaries are duly qualified as a foreign entity
and in good standing in each jurisdiction where the nature of their respective
properties or the conduct of their respective businesses makes such
qualification necessary, except when the failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect. This Agreement
constitutes the valid and legally binding obligation of O'Gara and NEWCO,
enforceable against O'Gara and NEWCO in accordance with its terms, subject to
applicable bankruptcy insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and to applicable
equitable principles or public policy with respect to the indemnification
provisions hereof, and the execution and delivery hereof and consummation of the
Merger have been approved by the Board of Directors of O'Gara and NEWCO.
4.03 Subsidiaries. Each of O'Gara's Subsidiaries is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
formation. Except as described in the SEC Filings or on Schedule 4.03 of that
certain Disclosure Schedule to this Plan and Agreement to Merge delivered by
O'Gara to KHI (the "O'Gara Disclosure Schedule"), O'Gara or its Subsidiaries
owns all issued and outstanding equity or other ownership interests in O'Gara's
Subsidiaries. Except as set forth on Schedule 4.03 of the O'Gara Disclosure
Schedule, all of the outstanding shares of capital stock or other ownership
interests of each of O'Gara's Subsidiaries which are owned by O'Gara or one of
its Subsidiaries have been duly authorized and validly issued, fully paid and
nonassessable and are owned beneficially and of record, free and clear of all
liens, charges, claims or encumbrances. Except as described in the SEC Filings
(as defined in Section 4.05(b)) and except for O'Gara's Subsidiaries, O'Gara and
its Subsidiaries have no equity or ownership interest or the right to acquire
any such interest in any Person, which interest is material to the business,
properties, operations or financial condition of O'Gara and its Subsidiaries
taken as a whole.
4.04 Stock Options and Other Arrangements. Except as disclosed in the SEC
Filings (as defined in Section 4.05 below) or set forth in Schedule 4.04 of the
O'Gara Disclosure Schedule, (i) there are no outstanding subscriptions, option
plans, warrants, calls, rights, convertible securities, preemptive rights or
other agreements or commitments of any character to which O'Gara or any of its
Subsidiaries is a party or by which O'Gara or any of its Subsidiaries is bound
relating to the issued or unissued capital stock or other ownership interests of
O'Gara or any of O'Gara's Subsidiaries or relating to securities convertible
into, exchangeable for or evidencing the right to subscribe for any such capital
stock or other ownership interests, (ii) there are no shareholders' agreements,
partnership agreements, registration rights agreements, voting trusts or other
agreements or understandings to which O'Gara or any of its Subsidiaries is a
party or by which O'Gara or any of its Subsidiaries is bound with respect to the
voting of the capital stock or other ownership interests of O'Gara or any of its
Subsidiaries or with respect to the registration of O'Gara Common Stock of any
shareholder of O'Gara under the Act, and (iii) there are no stock options, stock
bonus agreements, restricted stock agreements or other agreements or obligations
outstanding which commit O'Gara or any of its Subsidiaries to issue, deliver,
sell, repurchase or redeem shares of stock or other ownership interests upon the
fulfillment of specified conditions. True and complete copies of all documents,
agreements and other instruments listed in Schedule 4.04 of the O'Gara
Disclosure Schedule have been delivered by O'Gara to KHI.
4.05 SEC Filings and Financial Statements.
(a) O'Gara has timely filed with the Commission all documents and reports
required to be filed by it pursuant to the Exchange Act for the year ended
December 31, 1996, and has filed or will timely file all such required documents
and reports at all times subsequent thereto up to and including the Effective
Time.
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(b) O'Gara has delivered to KHI true and complete copies of: (i) its
Registration Statement on Form S-1 in the form in which it was declared
effective under the Act, including the Prospectus and all exhibits forming a
part thereof; (ii) its annual report on Form 10-K for the fiscal year ended
December 31, 1996; (iii) its quarterly report on Form 10-Q for the fiscal
quarter ending March 31, 1997; and (iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since December 31,
1996, which if not yet filed shall be delivered promptly upon the filing thereof
as provided in Section 4.05(d) below (collectively, the "SEC Filings").
(c) The SEC Filings comply as to form in all material respects with the
requirements of the Act and the Exchange Act, as applicable, in effect on the
respective dates thereof. None of the SEC Filings, when filed pursuant to the
Act or the Exchange Act, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(d) From March 31, 1997 through the date hereof, O'Gara has not filed and
is not aware of any event which would require the filing with the Commission of
any report by it on Form 8-K except for this Agreement and the Merger. Promptly
upon the filing thereof with the Commission, O'Gara will deliver to KHI any
current reports on Form 8-K and any other SEC Filings filed with the Commission
from the date hereof until the Effective Time, all of which when filed under the
Exchange Act or declared effective under the Act, as applicable, will comply as
to form in all material respects with the requirements of the Act and the
Exchange Act, as applicable, in effect at the time of filing thereof and (with
the exception of any information provided by KHI for inclusion therein and any
information with respect to KHI and its Subsidiaries provided in writing by
O'Gara to KHI for inclusion therein, with respect to which O'Gara has not
received any written objection from KHI) none of which will contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(e) The financial statements included in the SEC Filings (the "O'Gara
Financial Statements") comply as to form in all material respects with the
applicable accounting requirements of the Commission with respect thereto, were
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods covered and with
prior periods (except as stated in the O'Gara Financial Statements, the
footnotes thereto or the SEC Filings, and subject, in the case of unaudited
interim financial, to year-end adjustments), and fairly present in all material
respects the consolidated financial condition of O'Gara and its Subsidiaries as
of the dates thereof and the consolidated results of their operations for the
periods ended on such dates.
4.06 Liabilities. Except to the extent reflected in the SEC Filings or
reflected and reserved against in the O'Gara Financial Statements, and except
for liabilities and obligations incurred in the ordinary course of business
consistent with prior practice since March 31, 1997, none of which individually
or in the aggregate would reasonably be expected to have a Material Adverse
Effect, neither O'Gara nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether accrued, absolute, determined, determinable,
contingent or otherwise and whether due or to become due, which individually or
in the aggregate would reasonably be expected to have a Material Adverse Effect.
4.07 Claims. There are no governmental proceedings or investigations or
any claims, suits or proceedings by any Person pending, asserted, or, to the
actual knowledge of O'Gara and its Subsidiaries, threatened against O'Gara or
any of its Subsidiaries, and to the actual knowledge of O'Gara and its
Subsidiaries there is no reasonable basis for any such investigations, claims,
suits or proceedings, which if determined adversely to O'Gara or any of its
Subsidiaries would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, except in each case as disclosed in the SEC
Filings or on Schedule 4.07 of the O'Gara Disclosure Schedule.
4.08 Assets. All material real property owned or leased by O'Gara or its
Subsidiaries, as disclosed in the SEC Filings, and all tangible personal
property owned or leased by O'Gara or any of its Subsidiaries is in sufficient
condition to enable each of O'Gara and its Subsidiaries to conduct its business
as now being conducted. O'Gara and its Subsidiaries own or have a legal and
valid right to use all real and personal property necessary for, or used in, the
conduct of their respective businesses as heretofore conducted.
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4.09 Operations Since December 31, 1996. Since December 31, 1996, except
as disclosed in the SEC Filings or contained on Schedule 4.09 of the O'Gara
Disclosure Schedule (the "O'Gara Operations Schedule"), neither O'Gara nor any
of its Subsidiaries has (i) incurred any obligation or liability (absolute or
contingent), except obligations and liabilities incurred in the ordinary course
of business consistent with prior practice, none of which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect; (ii)
discharged or satisfied any material lien or encumbrance, or paid any obligation
or liability (absolute or contingent), other than current liabilities reflected
in the O'Gara Financial Statements and current liabilities incurred since the
date of the latest O'Gara Financial Statements in the ordinary course of
business consistent with prior practice; (iii) declared or made any payment or
distribution of assets or dividends except those dividends normally paid by
O'Gara's Subsidiaries to O'Gara; (iv) purchased or redeemed any of its shares,
or issued or committed to issue any additional shares or any securities
exercisable for or convertible into shares except pursuant to stock options and
restricted stock plans described on Schedule 4.13 of the O'Gara Disclosure
Schedule and except as permitted in Section 10.02(k); (v) other than as
described in Section 10.02 or in the ordinary course of business consistent with
prior practice, made any general wage or salary increases or increased the
salary or other compensation of any officers; (vi) mortgaged, pledged or
subjected to material lien, or any other material encumbrance, any of its
material assets, tangible or intangible other than in connection with a
refinancing of an existing debt obligation and other than in connection with the
incurrence of up to $30,000,000 of additional indebtedness described in Section
10.02(b); (vii) sold, assigned or transferred any of its tangible assets or
canceled any debt or claim, other than the sale of inventory for fair market
value in the ordinary course of business consistent with prior practice; (viii)
sold, assigned or transferred any patent, trademark, trade name, copyright,
license or other intangible asset; (ix) suffered any net operating loss or
extraordinary loss, or waived any right of substantial value; or (x) entered
into any transaction other than in the ordinary course of business consistent
with prior practice and other than as permitted in Section 10.02.
4.10 Taxes. Except as described in the SEC Filings, reserves for taxes as
shown on the O'Gara Financial Statements are sufficient for the payment of all
accrued but unpaid federal, state, county, local and foreign taxes of O'Gara and
each of its Subsidiaries for all periods ending on or prior to December 31,
1996, and are a reasonable estimate of all such taxes for the period ended on
March 31, 1997. Except as disclosed in the SEC Filings or in documents delivered
pursuant to Section 10.05 below, all tax returns required to be filed have been
filed by O'Gara and its Subsidiaries when due in accordance with all applicable
laws, all such returns were correct as filed in all material respects, all taxes
shown to be due on such returns have been timely paid, withheld or remitted to
the appropriate taxing authority and there is no audit, dispute, claim, action,
proceeding or investigation pending or, to the actual knowledge of O'Gara and
its Subsidiaries, threatened with respect to any such returns or any taxes shown
thereon. Except as disclosed in the SEC Filings, neither O'Gara nor any of its
Subsidiaries has received any notice of any deficiency with respect to the
payment of any federal, state, county, local or foreign taxes.
4.11 Insurance. O'Gara and its Subsidiaries have obtained all property,
liability, life and other insurance policies for the benefit of O'Gara and its
Subsidiaries which are reasonable and necessary in connection with the
ownership, lease or operation of their respective properties or the conduct of
their respective businesses as heretofore owned, leased and operated, and all
such insurance is in full force and effect. Since December 31, 1996 there has
been no material loss or damage to the tangible property of O'Gara or any of its
Subsidiaries, whether or not insured, except as disclosed in the SEC Filings or
on Schedule 4.11 of the O'Gara Disclosure Schedule, and neither O'Gara nor any
of its Subsidiaries has been refused any insurance coverage for which it has
applied.
4.12 Contracts. All contracts, agreements, commitments and engagements
which are material to the business, properties, operations or financial
condition of O'Gara and its Subsidiaries, taken as a whole, are disclosed in the
SEC Filings, and each such agreement is a legal and binding contract against
O'Gara or any of its Subsidiaries and, to the actual knowledge of O'Gara and its
Subsidiaries, is legal, valid and binding against any other Person who is a
party thereto. Each of such agreements is in full force and effect without any
default or breach existing with respect thereto by O'Gara or any of its
Subsidiaries or to the best of O'Gara's and its Subsidiaries' actual knowledge,
any other Person. The copies of such contracts, agreements, commitments and
engagements that have been filed with the Commission are true and complete in
all material respects. Except as
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disclosed on Schedule 4.12 of the O'Gara Disclosure Schedule (the "O'Gara
Contract Schedule"), the consummation of the Merger will not result in the
acceleration of, or any adverse change in the terms of, any obligation of O'Gara
or any of its Subsidiaries for borrowed money or any material liability under
any such material contract, agreement, commitment or engagement. A true and
complete copy of the contract with the U.S. Army Tank-Automotive Command with
respect to providing armoring systems for HMMWVs (the "HMMWV Contract") has been
delivered to KHI. O'Gara is in compliance in all material respects with the
terms and provisions of that contract, and as of the date hereof O'Gara has not
received notice of the termination of, or intent to terminate such HMMWV
Contract.
4.13 Employee Benefit Plans. Schedule 4.13 of the O'Gara Disclosure
Schedule contains listings of each Plan (as hereinafter defined). True and
complete copies of all of such Plans (and if applicable related trust
agreements) together with the most recent annual reports (Form 5500 including,
if applicable, Schedule B thereto) and the most recent actuarial valuation
report prepared in connection with any Plan, have been delivered by O'Gara to
KHI. No Plan (as hereinafter defined) is maintained in connection with any trust
described in Section 501(c)(9) of the Code. Each Plan complies in all material
respects with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and all other applicable laws and administrative or
governmental rules and regulations. No Plan is subject to Title IV of ERISA or
Section 412 of the Code. None of O'Gara or any of its Subsidiaries or ERISA
Affiliates, has withdrawn from any Plan subject to Title IV of ERISA or
Multiemployer Plan (as hereinafter defined) or has taken, or is currently
considering taking, any action to do so; and no action has been taken, or is
currently being considered, by O'Gara or any of its Subsidiaries or ERISA
Affiliates to terminate any Plan subject to Title IV of ERISA (other than
standard terminations previously effected under which O'Gara or any of its
Subsidiaries or ERISA Affiliates have no existing liability). None of O'Gara or
any of its Subsidiaries or ERISA Affiliates has engaged in, or is a successor or
parent corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA. There are no actions, suits or claims pending
or, to O'Gara's and its Subsidiaries' actual knowledge, threatened (other than
routine claims for benefits) with respect to any Plan which would reasonably be
expected to have a Material Adverse Effect. No prohibited transactions described
in Section 406 of ERISA or Section 4975 of the Code have occurred which would
reasonably be expected to result in a material liability. All Plans that are
intended to be qualified under Section 401(a) of the Code have received a
favorable determination letter as to such qualification from the Internal
Revenue Service, and to O'Gara's and its Subsidiaries' actual knowledge, no
event has occurred, either by reason of any action or failure to act, which
would cause the loss of any such qualification. To O'Gara's and its
Subsidiaries' actual knowledge, there is no reason why any Plan is not so
qualified in operation. None of O'Gara or any of its Subsidiaries or ERISA
Affiliates is a party, contributes or within the past six years has contributed,
to a Multiemployer Plan (as defined below). None of O'Gara or any of its
Subsidiaries or ERISA Affiliates contributes to, or has within the past six
years contributed to a single-employer plan within the meaning of Section
4001(a)(15) of ERISA which has two or more contributing sponsors, as defined in
Section 4001(a)(13) of ERISA, at least two of whom are not under common control,
within the meaning of ERISA. O'Gara and its Subsidiaries have complied in all
material respects with the health care continuation requirements of Part 6 of
Title I of ERISA to the extent applicable. Except as disclosed on Schedule 4.13
of the O'Gara Disclosure Schedule, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, result in an increase in the
amount of compensation or benefits or accelerate the vesting or timing of
payment of any compensation or benefit payable by O'Gara or any of its
Subsidiaries or ERISA Affiliates to any Plan, Benefit Arrangement (as defined
below), International Plan (as defined below) or to any employee of O'Gara or
any of its Subsidiaries or ERISA Affiliates. Schedule 4.13 of the O'Gara
Disclosure Schedule contains listings of each Benefit Arrangement. True and
complete copies or descriptions of each Benefit Arrangement (and, if applicable,
related trust agreements) and all amendments thereto have been delivered by
O'Gara to KHI. Each Benefit Arrangement (as hereinafter defined) has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations and
has been maintained in good standing with applicable regulatory authorities. All
contributions and payments accrued under each Plan and Benefit Arrangement,
determined in accordance with prior funding and accrual practices, as adjusted
to include proportional accruals for the period ending on the Closing Date, have
been discharged and paid when due. As used in this Section 4.13: (i) "Plan"
means an "employee benefit plan," as defined in Section 3(3) of ERISA, (other
than a Multiemployer
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Plan) which (a) is subject to any provision of ERISA, (b) is established,
administered, maintained or contributed to by O'Gara or any Subsidiary or ERISA
Affiliates of O'Gara and (c) covers any employee or former employee of O'Gara or
any of its Subsidiaries or ERISA Affiliates in respect of service with O'Gara or
any of its Subsidiaries or ERISA Affiliates or to which O'Gara or any of its
Subsidiaries or ERISA Affiliates otherwise may have any liability; (ii)
"Multiemployer Plan" means a "multiemployer plan" (as defined in Section 3(37)
or Section 4001(a)(3) of ERISA) to which O'Gara or any of its Subsidiaries or
ERISA Affiliates is or has been obligated to contribute or otherwise may have
any liability; and (iii) with respect to any Person, "ERISA Affiliate" means any
trade or business (whether or not incorporated) which is under common control or
would be considered a single employer with such person pursuant to Section
414(b), (c), (m) or (o) of the Code and the regulations promulgated thereunder
or pursuant to Section 4001(b) of ERISA and the regulations promulgated
thereunder. "Benefit Arrangement" means any employment, severance, change in
control or similar contract or arrangement or any plan, policy, fund, program or
contract or arrangement providing for bonus, profit-sharing, stock option, or
other stock related rights or other forms of incentive or deferred compensation,
vacation benefits, workers' compensation or severance benefits that (A) is not a
Plan, (B) is entered into, maintained, administered or contributed to, as the
case may be, by O'Gara or any Subsidiary or ERISA Affiliate of O'Gara and (C)
covers in respect of service with O'Gara or any of its Subsidiaries any current
or former U.S. employee or U.S. independent contractor of O'Gara or any of its
Subsidiaries or ERISA Affiliates who is or was employed in the United States.
"International Plan" means (I) any written employment agreement providing for
annual salary in excess of U.S. $100,000 (or its foreign equivalent) or any
severance or similar contract or arrangement providing for compensation
(including retirement benefits) in excess of U.S. $100,000 (or its foreign
equivalent) that (A) is not a Plan or a Benefit Arrangement and (B) is entered
into between O'Gara or any of its Subsidiaries or ERISA Affiliates and any
current or former employee, agent or independent contractor of O'Gara or any of
its Subsidiaries or ERISA Affiliates who is or was employed outside of the
United States or (II) any written plan, policy, fund, program, arrangement, or
contract of or with O'Gara or any of its Subsidiaries or ERISA Affiliates in
respect of service with O'Gara or any of its Subsidiaries or any of its ERISA
Affiliates covering employees who are or were employed by O'Gara or any of its
Subsidiaries or ERISA Affiliates outside of the United States; providing for (A)
retirement benefits (including pension, health, medical or life insurance), but
excluding any retirement scheme fund, plan or program (x) sponsored by any
government or (y) providing benefits statutorily mandated under the laws of the
applicable jurisdiction at the minimum level statutorily mandated, or (B) bonus
(including post-employment bonus), profit sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, life insurance (including any self-insured arrangements), health or
medical benefits, disability benefits, supplemental unemployment benefits or
severance benefits (cumulatively "Benefits"), other than any plan, policy, fund,
program, arrangement or contract providing for Benefits statutorily mandated by
the laws of the applicable jurisdiction at the minimum level statutorily
mandated that (I) is not a Plan or a Benefit Arrangement and (II) is entered
into, maintained, administered, or contributed to by O'Gara or any of its
Subsidiaries. Schedule 4.13 of the Disclosure Schedule lists each International
Plan. True and complete copies of each International Plan and all amendments
thereto have been made available by O'Gara to KHI. Each International Plan has
been maintained and operated in substantial compliance with its terms and with
the requirements prescribed by any and all applicable statutes, orders, rules
and regulations and has been maintained in good standing with all applicable
regulatory authorities. With respect to each International Plan all necessary or
appropriate approvals, qualifications or certifications have been obtained and
no event has occurred or condition exists which would cause the loss of such
approval, qualification or certifications. All contributions and payments
accrued under each International Plan, determined in accordance with prior
funding and accrual practices, have been discharged and paid when due. O'Gara
represents that there has been and continues to be in full force and effect
insurance, commonly known as "stop-loss insurance", during all periods that the
O'Gara Companies Employee Benefit Plan has been in existence (other than any
periods during which the plan was fully insured), sufficient to reimburse the
plan or O'Gara, as the case may be, for any claims properly covered under the
terms of the plan: (a) for a covered individual after the plan or O'Gara, as the
case may be, has paid out $35,000 under the terms of the plan with respect to
that individual for a given plan year and (b) after the plan or O'Gara, as the
case may be, has paid out $600,000 under the terms of the plan with respect to
all covered individuals for a given plan year.
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4.14 No Default. Except as disclosed in the SEC Filings or on the O'Gara
Contract Schedule, (i) neither O'Gara nor any of its Subsidiaries is in material
default under any material contract, agreement, commitment or engagement of any
kind; (ii) no event of default or event that, but for the giving of notice or
lapse of time, or both, would constitute an event of default exists or, upon the
Effective Time, will exist under any loan or credit agreement, note, bond,
mortgage, indenture or guarantee of indebtedness for borrowed money or other
material instrument to which O'Gara or any of its Subsidiaries is a party; and
(iii) the execution and delivery of this Agreement and the consummation of the
Merger will not contravene or conflict with or constitute a violation of, or
result in a default under, cancellation of, termination of, or acceleration of
obligations under, the Certificate or Articles of Incorporation, Articles of
Association, By-Laws or other organizational documents of O'Gara or any of its
Subsidiaries or any material contract, agreement, commitment, engagement,
judgment, injunction, order, decree or instrument to which O'Gara or any of its
Subsidiaries is a party or by which it or any of its assets are bound, which
default, event of default, contravention, conflict, violation, cancellation,
termination or acceleration would reasonably be expected to have a Material
Adverse Effect, or result in the incurrence by O'Gara or any of its Subsidiaries
of any material liability.
4.15 Joint Proxy Statement. When the Registration Statement is filed with
the Commission and the Joint Proxy Statement in connection with the Merger shall
first be mailed to O'Gara's and KHI's shareholders, and at all times subsequent
thereto up to and including the Effective Time, the information with respect to
O'Gara and its Subsidiaries set forth in the Registration Statement and the
Joint Proxy Statement (i) will comply in all material respects with the
provisions of the Act and of the Exchange Act and the requirements of any
applicable state "blue sky" laws and (ii) will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time, any event relating to O'Gara or any of its Subsidiaries
shall occur which, pursuant to the Act or the Exchange Act or the rules and
regulations thereunder, should be disclosed in the Registration Statement or the
Joint Proxy Statement and which is not so disclosed, O'Gara shall promptly so
inform KHI.
4.16 Compliance with Laws. O'Gara and its Subsidiaries (and each of them)
have complied and are currently in compliance in all material respects with all
applicable laws and governmental rules (including rules related to governmental
contracts), regulations and orders (including zoning ordinances), except when
the failure to be in such compliance would not reasonably be expected to have a
Material Adverse Effect. Except as disclosed in the SEC Filings, neither O'Gara
nor any of its Subsidiaries is in material default under, and no event has
occurred which, with the lapse of time or action by a third party, would be
reasonably expected to result in a material default under, the terms of any
judgment, decree, order or writ of any court, whether federal, state or local,
foreign or domestic, and whether at law or in equity. O'Gara has delivered to
KHI a true and complete copy of and description of its policies, and the
policies of its Subsidiaries, regarding the FCPA. Neither O'Gara nor any of its
Subsidiaries has received written notice of any violation of the FCPA by any
employees of O'Gara or any of its Subsidiaries.
4.17 Consents and Approvals. Except for the approval of O'Gara's
shareholders, the filing of the Certificate of Merger with respect to the Merger
with the Secretary of State of the State of Delaware, the filing of the
Registration Statement and any filings required under state "blue sky" laws, no
other corporate proceedings on the part of O'Gara or any of its Subsidiaries,
and no consent of or filing with any governmental agency or, except as set forth
on the O'Gara Contract Schedule, third party is required to be held, obtained or
made by O'Gara or any of its Subsidiaries in connection with the execution and
delivery of this Agreement and the consummation of the Merger. The ultimate
parent entity of O'Gara does not have $100,000,000 or more of assets as of its
last regularly prepared balance sheet or $100,000,000 or more of sales for its
most recently ended fiscal year for purposes of the HSR Act.
4.18 Patents, Trademarks and Copyrights. O'Gara and its Subsidiaries own
or have the right to use all material patents, trademarks, servicemarks,
tradenames, copyrights and other proprietary intellectual property necessary for
the conduct of their respective businesses as currently conducted (collectively,
the "O'Gara Intellectual Property"). Except as disclosed in the SEC Filings,
neither O'Gara nor any of its Subsidiaries has received any notice with respect
to any alleged infringement or unlawful use by O'Gara or its Subsidiaries of any
intangible property right owned or alleged to be owned by others. Except as set
forth in Schedule 4.18 of the
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O'Gara Disclosure Schedule, the Merger will not adversely affect the use by
O'Gara of any of the O'Gara Intellectual Property. Each of the unexpired filed
patents owned by O'Gara and its Subsidiaries is in full force and effect,
neither O'Gara nor any of its Subsidiaries has received any notice that such
filed patents infringe upon the rights of any Person, and, to the actual
knowledge of O'Gara and its Subsidiaries, no Person is infringing upon the
rights of O'Gara or its Subsidiaries under any such patent.
4.19 Environmental Matters. Except as disclosed in the SEC Filings (i)
there is no liability of O'Gara or any of its Subsidiaries under any
Environmental Requirement, whether absolute, determined, determinable or
contingent, and (ii) the properties, assets and operations of O'Gara and its
Subsidiaries are in compliance with all applicable Environmental Requirements,
except for any such liability or non-compliance that would not reasonably be
expected to have a Material Adverse Effect. Except as disclosed in the SEC
Filings, (i) no spill, release, threatened release or discharge of Hazardous
Substances into the environment has occurred at any of the facilities owned,
leased or operated by O'Gara and its Subsidiaries (the "O'Gara Facilities") or,
to O'Gara's and its Subsidiaries' actual knowledge, on any real property
adjacent thereto that would reasonably be expected to have a Material Adverse
Effect, and (ii) there has been no corrective action, remediation or clean up
required of O'Gara or any of its Subsidiaries by applicable Environmental
Requirements or by governmental authorities as a consequence of any such spill,
release, threatened release or discharge of Hazardous Substances. All corrective
action, remediation or other clean up activities undertaken by O'Gara or any of
its Subsidiaries has been performed, or is being performed, in accordance in all
material respects with all applicable Environmental Requirements. O'Gara and its
Subsidiaries have discharged in all material respects any and all applicable
record keeping and reporting requirements pursuant to all applicable
Environmental Requirements and all such reports and records are complete and
correct in all material respects and have been retained for the length of time
required by any applicable Environmental Requirements setting forth document
retention requirements. Except as disclosed in the SEC Filings or set forth in
Schedule 4.19 of the O'Gara Disclosure Schedule, none of the O'Gara Facilities
or, to O'Gara's and its Subsidiaries' actual knowledge, any property adjacent
thereto, or, to O'Gara's and its Subsidiaries' actual knowledge, any sites used
for the disposal of wastes generated by O'Gara or its Subsidiaries have been
designated as a "Superfund Site" or are otherwise the subject of an order of
removal or remedial action for which O'Gara or any of its Subsidiaries has
liability pursuant to the provisions of applicable Environmental Requirements
and there are no conditions or circumstances affecting the O'Gara Facilities or
any property adjacent thereto which, to O'Gara's and its Subsidiaries' actual
knowledge, might reasonably be expected to cause them to be designated as a
"Superfund Site" or render them subject to any such order of removal or remedial
action for which O'Gara or any of its Subsidiaries will have liability pursuant
to the provisions of applicable Environmental Requirements. Except as disclosed
in the SEC Filings or set forth in Schedule 4.19 of the O'Gara Disclosure
Schedule, no unresolved written notice, notification, demand, request for
information, citation, summons or order has been issued, no pending complaint
has been filed, no unpaid penalty has been assessed and no action, claim, suit
or proceeding or, to the actual knowledge of O'Gara and its Subsidiaries, no
investigation or review is pending or, to the actual knowledge of O'Gara and its
Subsidiaries, threatened by any governmental authority with respect to O'Gara or
any of its Subsidiaries and relating to or arising out of any Environmental
Requirements. To the actual knowledge of O'Gara and its Subsidiaries, no
Hazardous Substance is present at, on, in or under any of the O'Gara Facilities
in violation of applicable Environmental Requirements. All permits required by
applicable Environmental Requirements and necessary for the operation of the
businesses, or the use of the assets of O'Gara and its Subsidiaries have been
obtained and are in full force and effect. Except as disclosed in the SEC
Filings or set forth in Schedule 4.19 of the Disclosure Schedule, O'Gara and its
Subsidiaries are in material compliance with the terms of such permits, no
action or investigation has been taken, commenced or, to O'Gara's actual
knowledge, threatened by any governmental authority or any other Person to
revoke or modify such permits or to enforce the terms of or take action for
violation of such permits, and, to O'Gara's and its Subsidiaries' actual
knowledge, there is no reasonable basis for any such action or investigation.
O'Gara and its Subsidiaries do not own, lease or operate and have not within the
past four (4) years owned, leased or operated any property in New Jersey or
Connecticut that is subject to transfer act requirements of those states.
Neither O'Gara nor any of its Subsidiaries is, based upon actual knowledge,
required to incur now or within twelve (12) months after the Effective Time
capital expenditures for compliance with Environmental Requirements that would
reasonably be expected to have a Material Adverse Effect.
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4.20 No Material Adverse Change. Since the date of the latest O'Gara
Financial Statements, except as disclosed in the SEC Filings, there has been no
material adverse change in the business, properties, operations or financial
condition of O'Gara and its Subsidiaries taken as a whole.
4.21 Licenses and Permits. O'Gara and its Subsidiaries have obtained all
permits, licenses, franchises and authorizations from any governmental authority
which are necessary in connection with the ownership, lease or operation of
their respective properties or the conduct of their respective businesses as
heretofore and presently owned, leased and conducted, except for such permits or
licenses, the absence of which would not reasonably be expected to have a
Material Adverse Effect (collectively, the "O'Gara Licenses"). All of such
O'Gara Licenses are in full force and effect. Neither O'Gara nor any of its
Subsidiaries has received any notice that O'Gara or any of its Subsidiaries is
in violation of or default under any O'Gara License or that any O'Gara License
will be revoked, terminated or not renewed, except for any such violation,
default, revocation, termination or nonrenewal which would not reasonably be
expected to have a Material Adverse Effect.
4.22 Orders, Actions, Etc. Except as disclosed in the SEC Filings, there
are no outstanding orders, judgments, injunctions, awards or decrees of any
governmental authority against O'Gara or any of its Subsidiaries or any of their
properties, assets or businesses that would reasonably be expected to have a
Material Adverse Effect. Except as disclosed in the SEC Filings, there are no
actions, suits or claims or legal, administrative or arbitration proceedings or
investigations pending against or, to O'Gara's or any of its Subsidiaries'
actual knowledge, threatened against any of O'Gara, its Subsidiaries, or any of
their properties, assets or businesses that would reasonably be expected to have
a Material Adverse Effect, and neither O'Gara nor any of its Subsidiaries has
received any written notice of any actions, suits or claims or legal,
administrative or arbitration proceedings or investigations affecting O'Gara,
its Subsidiaries or any of their properties, assets or businesses that would be
reasonably expected to have a Material Adverse Effect.
4.23 Labor Matters. Except as disclosed in the SEC Filings or set forth in
Schedule 4.23 of the O'Gara Disclosure Schedule, neither O'Gara nor any of its
Subsidiaries has engaged in any unfair labor practice with respect to persons
employed by or otherwise performing services primarily for O'Gara or any of its
Subsidiaries (the "O'Gara Business Personnel") or any representative of any
O'Gara Business Personnel, and neither O'Gara nor any of its Subsidiaries has
received written notice that there is an unfair labor practice complaint pending
against O'Gara or any of its Subsidiaries with respect to O'Gara Business
Personnel. There is no labor strike, dispute, slowdown or stoppage pending
against or, to O'Gara's actual knowledge, threatened against or affecting,
O'Gara or any of its Subsidiaries that would reasonably be expected to have a
Material Adverse Effect, and neither O'Gara nor any of its Subsidiaries has
experienced any primary work stoppage or other material labor difficulty
involving its employees during the last three (3) years that has had or would
reasonably be expected to have a Material Adverse Effect. O'Gara and its
Subsidiaries are in material compliance with the requirements of all applicable
labor and employment laws, rules and regulations.
4.24 Brokers. No broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with the
execution and delivery of, or the consummation of the transactions contemplated
by, this Agreement based on agreements or arrangements made by O'Gara or any of
its Subsidiaries, except for Dillon Read & Co., Inc. ("Dillon Read") and J.
Jeffrey Brausch & Company, the fees and expenses of which shall be paid by
O'Gara.
4.25 Pooling-of-Interests. Neither O'Gara nor any of its Subsidiaries or
shareholders has taken any action, or caused any event or condition to occur,
and there is no set of facts in existence relating to O'Gara or any of its
Subsidiaries or shareholders of which O'Gara has actual knowledge, which would
be reasonably expected to result in the failure of the Merger to constitute a
pooling-of-interests for accounting purposes, and, within ten (10) days after
the date hereof, O'Gara shall obtain a certificate to that effect from its
independent certified public accountants, Arthur Andersen LLP, and deliver a
copy of such certificate to KHI, which certificate shall be reasonably
acceptable in form and substance to KHI.
4.26 Full Disclosure. The representations and warranties made by O'Gara in
this Agreement, the O'Gara Disclosure Schedule and certificates to be furnished
by O'Gara or any of its Subsidiaries at the Closing hereunder do not contain and
will not contain any untrue statement of a material fact, and do not omit and
will not omit any
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material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they are made, not misleading.
ARTICLE V
REGISTRATION OF O'GARA COMMON STOCK
Subject to the provisions of this Article V, as promptly as practicable
after execution of this Agreement, and in no event later than September 30,
1997, O'Gara shall prepare (with the assistance of KHI as described below) and
file with the Commission a Registration Statement on Form S-4 under the Act for
the registration of the O'Gara Common Stock to be delivered as a result of the
Merger. In connection with the preparation of the Registration Statement and the
related Joint Proxy Statement forming a part of the Registration Statement to be
mailed to the shareholders of O'Gara and KHI in connection with the meeting of
shareholders of O'Gara and KHI referred to in Article XI hereof, KHI and O'Gara
will cooperate with each other and will furnish the information relating to KHI,
O'Gara and NEWCO, as the case may be, required by the Act and the Exchange Act
to be set forth in the Registration Statement (including the Joint Proxy
Statement), in each case, within the time period necessary to permit O'Gara to
file such Registration Statement with the Commission no later than September 30,
1997, and also, in each case, in a timely fashion to enable O'Gara to respond to
any comments received from the Commission with respect thereto. O'Gara shall use
its commercially reasonable best efforts to cause such Registration Statement to
be declared effective under the Act as soon as may be practicable and to
distribute the Joint Proxy Statement contained therein to the O'Gara and KHI
shareholders as soon as practicable thereafter but not less than twenty (20)
business days prior to the date of the special meetings at which this Agreement
and the transactions contemplated hereby are submitted to O'Gara's and KHI's
shareholders for approval and adoption. O'Gara and KHI shall postpone the
special meetings of their respective shareholders in the event the twenty (20)
business day requirement would not be fulfilled. Except to the extent permitted
by Rule 145(b) promulgated by the Commission under the Act and except as
otherwise required by law or the rules of the National Association of Securities
Dealers, Inc., the NASDAQ National Market, none of O'Gara, NEWCO or KHI shall
publish any communication (including any press release) other than the
Registration Statement or notices and proxy materials accompanied by the Joint
Proxy Statement with respect to the Merger without first consulting with the
other parties and obtaining their approval, which shall not be unreasonably
withheld. O'Gara shall submit to KHI and its counsel the Registration Statement
and all proxy soliciting material for its review prior to the use thereof.
O'Gara shall use its commercially reasonable best efforts to maintain the
effectiveness of the Registration Statement by the preparation and filing of
amendments and/or supplements thereto from the original effective date through
the Effective Time. O'Gara shall not be required to maintain the effectiveness
of the Registration Statement or the Joint Proxy Statement for the purpose of
resales by affiliates of KHI.
ARTICLE VI
CONDITIONS TO OBLIGATIONS
OF O'GARA, NEWCO, KHI AND THE KHI PRINCIPAL SHAREHOLDER
The obligations of O'Gara, NEWCO, KHI and the KHI Principal Shareholder
under this Agreement are subject to the following conditions:
6.01 Necessary Governmental Approvals. All necessary governmental
approvals shall have been received from any required governmental authority, and
all necessary waiting periods shall have expired. Each party shall cooperate
fully with the other in applying for such approvals and in prosecuting
applications, including the execution of supplemental agreements and other
documents consistent with the terms of this Agreement.
6.02 Effectiveness of Registration Statement. The Registration Statement
shall have become effective pursuant to an order of the Commission, and there
shall have been no stop order issued or threatened by the Commission suspending
the effectiveness of the Registration Statement.
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6.03 No Injunction. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect.
6.04 AIG Director. If requested by AIG, an individual nominated by AIG and
reasonably acceptable to O'Gara shall have been elected a director of O'Gara.
ARTICLE VII
CONDITIONS TO OBLIGATIONS
OF O'GARA AND NEWCO
The obligations of O'Gara and NEWCO under this Agreement are subject to the
following conditions:
7.01 Representations and Warranties True; Covenants and Obligations
Performed. All of the representations and warranties of KHI and the KHI
Principal Shareholder herein shall have been true and complete when made and
shall be true and complete in all material respects as of the Effective Time,
with the same force and effect as though such representations and warranties had
been made at the Effective Time. KHI shall have performed in all material
respects all covenants, agreements and obligations to be performed by it
hereunder prior to or at the Effective Time. KHI shall have delivered to O'Gara
certificates of its officers to such effect.
7.02 Opinion of Counsel. O'Gara shall have received an opinion of Kramer,
Levin, Naftalis & Frankel, counsel for KHI, dated the Effective Date of the
Merger, substantially in the form contained at Exhibit 7.02 attached hereto.
7.03 Auditor's Comfort Letter. If the Registration Statement and/or the
Proxy Statement shall contain any unaudited interim financial statements of KHI,
O'Gara shall have received, if requested, "comfort" letters from KHI's
independent certified public accountants, Deloitte & Touche, dated (i) the
effective date of the Registration Statement and (ii) the date of the Closing,
in each case substantially to the effect that:
(a) They are a firm of independent public accountants with respect to
KHI within the meaning of the Act and the rules and regulations of the
Commission thereunder;
(b) In their opinion the audited financial statements of KHI examined
by them and included in the Registration Statement comply as to form in all
material respects with the applicable requirements of the Act and the
applicable published rules and regulations of the Commission thereunder
with respect to registration statements on Form S-4; and
(c) On the basis of specified procedures (which do not constitute an
examination in accordance with generally accepted auditing standards),
consisting of a reading of the unaudited financial statements of KHI
included in the Registration Statement and of the latest available
unaudited financial statements of KHI, inquiries of officers of KHI
responsible for financial and accounting matters and a reading of the
minutes of meetings of shareholders and the Board of Directors of KHI,
nothing has come to their attention which causes them to believe: (i) that
the unaudited financial statements of KHI included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published rules and
regulations thereunder, (ii) that any such unaudited financial statements
are not, or any unaudited financial statements of KHI from which unaudited
quarterly financial information set forth in such Registration Statement
has been derived are not, fairly presented in all material respects in
conformity with United States generally accepted accounting principles
consistently applied and on a basis substantially consistent with that of
the audited financial statements or (iii) that during the period from
December 31, 1996 to a date five business days prior to the date of such
letter there was any change in the capital stock or any increase in long
term debt of KHI as compared to the amounts shown in the balance sheet as
of December 31, 1996 included in the KHI Financial Statements, except for
any acquisition publicly announced by KHI, or that during the period from
the date of said balance sheet to the most recent month-end for which
financial statements are available there was any material decrease in net
assets or any material decrease, as compared with the corresponding period
in the preceding year, in net income of KHI, except in
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all instances for changes or decreases which are set forth in such letter
or which the Registration Statement and/or the Proxy Statement discloses
have occurred.
7.04 Pooling-of-Interests. The Merger shall constitute a
pooling-of-interests for financial accounting purposes and O'Gara, at its
option, shall have received an opinion to that effect from Arthur Andersen LLP.
7.05 Opinion of Financial Advisor. The Board of Directors of O'Gara shall
have received an opinion from Dillon Read, dated the date of this Agreement, to
the effect that the consideration to be received in the Merger by O'Gara is fair
to O'Gara from a financial point of view, and such opinion shall not have been
withdrawn.
7.06 Shareholder Approval. The shareholders of O'Gara shall have approved
the Merger at the meeting of shareholders of O'Gara called pursuant to Article
XI.
7.07 Required Consents. All necessary consents (the "Required Consents")
under the Contracts identified in Schedule 7.07 of the KHI Disclosure Schedule
as requiring consents prior to consummation of the Merger shall have been
received.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS
OF KHI AND THE KHI PRINCIPAL SHAREHOLDER
The obligations of KHI and the KHI Principal Shareholder under this
Agreement are subject to the following conditions:
8.01 Representations and Warranties True; Covenants and Obligations
Performed. All of the representations and warranties of O'Gara and NEWCO herein
shall have been true and complete when made and shall be true and complete in
all material respects as of the Effective Time, with the same force and effect
as though such representations and warranties had been made at the Effective
Time. O'Gara and NEWCO each shall have performed in all material respects all
covenants, agreements and obligations to be performed by it hereunder prior to
or at the Effective Time. O'Gara and NEWCO shall have delivered to KHI
certificates of its officers to such effect.
8.02 Opinion of Counsel. KHI shall have received an opinion of Taft,
Stettinius & Hollister, counsel for O'Gara and NEWCO, dated the effective date
of the Merger, substantially in the form contained at Exhibit 8.02 attached
hereto.
8.03 Auditor's Comfort Letter. If the Registration Statement and/or the
Joint Proxy Statement shall contain any unaudited interim financial statements
of O'Gara, KHI shall have received, if requested, "comfort" letters from
O'Gara's independent certified public accountants, dated (i) the effective date
of the Registration Statement and (ii) the date of the Closing, in each case
substantially to the effect that:
(a) They are a firm of independent public accountants with respect to
O'Gara within the meaning of the Act and the rules and regulations of the
Commission thereunder;
(b) In their opinion the audited financial statements of O'Gara
examined by them and included in the Registration Statement comply as to
form in all material respects with the applicable requirements of the Act
and the applicable published rules and regulations of the Commission
thereunder with respect to registration statements on Form S-4; and
(c) On the basis of specified procedures (which do not constitute an
examination in accordance with generally accepted auditing standards),
consisting of a reading of the unaudited financial statements of O'Gara
included in the Registration Statement and of the latest available
unaudited financial statements of O'Gara, inquiries of officers of O'Gara
responsible for financial and accounting matters and a reading of the
minutes of meetings of shareholders and the Board of Directors of O'Gara,
nothing has come to their attention which causes them to believe: (i) that
the unaudited financial statements of O'Gara included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published rules and
regulations thereunder, (ii) that any such unaudited
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financial statements are not, or any unaudited financial statements of
O'Gara from which unaudited quarterly financial information set forth in
the Registration Statement has been derived are not, fairly presented in
all material respects in conformity with United States generally accepted
accounting principles consistently applied and on a basis substantially
consistent with that of the audited financial statements or (iii) that
during the period from December 31, 1996 to a date five business days prior
to the date of such letter there was any change in the capital stock or any
increase in long term debt of O'Gara as compared to the amounts shown in
the balance sheet as of December 31, 1996 included in the O'Gara Financial
Statements, except for any acquisition publicly announced by O'Gara, or
that during the period from the date of said balance sheet to the most
recent month-end for which financial statements are available there was any
material decrease in net assets or any material decrease, as compared with
the corresponding period in the preceding year, in net income of O'Gara,
except in all instances for changes or decreases which are set forth in
such letter or which the Registration Statement and/or the Proxy Statement
disclosures have occurred.
8.04 Required Consents. All necessary consents under the contracts
identified on Schedule 7.07 of the KHI Disclosure Schedules as requiring
consents prior to consummation of the Merger have been received.
8.05 Election of Principal Shareholder. The KHI Principal Shareholder
shall have been elected a director and the Chairman and CEO of O'Gara effective
as of the Effective Time.
8.06 No Labor Strikes. As of the date of consummation of the Merger, there
shall not be in existence any strike involving in excess of twenty percent (20%)
of the United States workforce of O'Gara.
8.07 HMMWV Contract. O'Gara shall not have received notice of the
termination of, or intent to terminate, the HMMWV contract.
ARTICLE IX
COVENANTS OF KHI AND KHI PRINCIPAL SHAREHOLDER
From the date hereof through the Effective Time, KHI and the KHI Principal
Shareholder jointly and severally covenant and agree as follows:
9.01 Access to Properties and Records. O'Gara's officers, employees,
attorneys, accountants and other authorized agents shall be given access to all
of the offices, properties and records of KHI and its Subsidiaries on reasonable
notice to allow O'Gara to make an investigation of KHI's and its Subsidiaries'
businesses, assets and affairs. O'Gara shall be permitted to make such extracts
or copies of such documents, books or records of KHI and its Subsidiaries as
O'Gara may desire and KHI shall furnish to O'Gara such financial and operating
data and other information concerning the business, assets and affairs of KHI
and its Subsidiaries as O'Gara may reasonably request. KHI shall instruct its
accountants and attorneys to disclose to O'Gara any and all non-privileged
information they may have with respect to the business, assets and affairs of
KHI and its Subsidiaries. O'Gara shall treat all information it receives
concerning KHI and its Subsidiaries during the course of its investigation as
confidential (subject to such disclosure as may be required by applicable law
with prompt notice thereof to be given to KHI) and shall return to KHI or
destroy all extracts and copies of documents, books and records which it has
received if the Merger is not consummated, pursuant to the terms of that certain
Confidentiality Agreement dated July 16, 1997 which shall survive the execution
and delivery of this Agreement.
9.02 Operations Pending Merger. KHI and its Subsidiaries will be operated
in all material respects in the ordinary course of business consistent with
prior practice without substantial change in current operational policy or
plans, and in compliance in all material respects with applicable laws,
including Environmental Requirements, and KHI will use commercially reasonable
best efforts to maintain KHI's and each of its Subsidiaries' properties and
facilities in their present condition, reasonable use and ordinary wear and tear
excepted, to retain KHI's and each of its Subsidiaries' key employees, and to
maintain KHI's and each of its Subsidiaries' material assets and KHI's and each
of its Subsidiaries' relationships with its customers and others having business
relations with
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KHI or any of its Subsidiaries. KHI further agrees that from the date hereof to
the Effective Time, neither it nor any of its Subsidiaries will, without the
prior written consent of O'Gara:
(a) Declare any dividends, make any distribution of assets to its
shareholders or purchase any shares of KHI Capital Stock or any stock
option;
(b) Create or incur any indebtedness for money borrowed except
indebtedness of up to $1,000,000 to the KHI Principal Shareholder or create
or incur any liability except in the ordinary course of business;
(c) Except for committed expenditures set forth on the Schedule 9.02
of the KHI Disclosure Schedule, make any capital expenditure in excess of
$750,000 in the aggregate or enter into any lease with an annual cost in
excess of $250,000;
(d) Increase the rate of compensation of any of its officers or
employees other than in the ordinary course of business consistent with
prior practice;
(e) Cancel any of the insurance existing at the date hereof or permit
any of its insurance to lapse or terminate unless it is replaced with
insurance with substantially the same coverage, limits and deductibles and
with no gap in coverage;
(f) Make any material contract not in the ordinary course of business;
(g) Default in any material respect under any material contract,
agreement, commitment or engagement of any kind, including those described
on the KHI Contract Schedule;
(h) Except as may be required by law, enter into, adopt, amend or
terminate any employee benefit or welfare trust, plan or arrangement,
except for stay bonuses provided to key employees of KHI and its
Subsidiaries with the prior written consent of O'Gara, which consent shall
not be unreasonably withheld or delayed;
(i) Acquire, sell, lease or dispose of any material assets, other than
the sale of inventory in the ordinary course of business consistent with
past practice;
(j) Except as may be required to conform with United States generally
accepted accounting principles, change any of the accounting principles
used by it;
(k) Make any material tax election or compromise relating to any tax
liability;
(l) Pay, discharge or satisfy any material claims or obligations
(whether absolute, asserted, unasserted, contingent or otherwise) other
than in the ordinary course of business consistent with prior practice;
(m) Take or agree to take any action which would result in any of the
conditions set forth in Articles VI, VII or VIII hereof not being satisfied
at or prior to the Closing; or
(n) Write off any material assets other than in the ordinary course of
business consistent with prior practices.
9.03 Best Efforts to Expedite Closing. From the date hereof through the
Effective Time, KHI shall exert its commercially reasonable best efforts and
cooperate with O'Gara to accomplish by the earliest practicable date all those
things within its control necessary to cause this Agreement to be carried out,
including but not limited to the making of applications to, and the obtaining of
approvals from, the appropriate regulatory agencies for the accomplishment of
the Merger. KHI shall cooperate with O'Gara in order to accomplish the
registration of the O'Gara Common Stock by the earliest practicable date.
9.04 No Solicitation. Neither KHI nor the KHI Principal Shareholder shall,
directly or indirectly, furnish information or access in response to requests
from any Person, or participate in discussions or negotiate with any such Person
concerning any proposal for a merger or other business combination involving KHI
or any of its Subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in any voting securities of, or a
substantial portion of the assets of, KHI or any of its Subsidiaries, other than
pursuant to the Merger.
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9.05 Tax Information. Within 30 days after the date hereof, KHI shall
deliver to O'Gara a list of (i) all United States federal income tax returns of
KHI and its Subsidiaries which have not been audited by the Internal Revenue
Service or are not closed by the applicable statute of limitations, (ii) all
jurisdictions, foreign or domestic, federal, state, provincial or local, to
which any tax is payable, or in which any tax return is required to be filed, by
KHI and its Subsidiaries, and (iii) all waivers or extensions granted by KHI,
its Subsidiaries or any member of any affiliate, consolidated, combined or
unitary group of which KHI or any of its Subsidiaries has been a member of any
statute of limitations in respect of taxes or tax returns.
ARTICLE X
COVENANTS OF O'GARA AND NEWCO
From the date hereof through the Effective Time, O'Gara and NEWCO jointly
and severally covenant and agree as follows:
10.01 Access to Properties and Records. KHI's officers, employees,
attorneys, accountants and other authorized agents shall be given free and full
access to all of the offices, properties and records of O'Gara and its
Subsidiaries on reasonable notice to allow KHI to make an investigation of
O'Gara's and its subsidiaries' businesses, assets and affairs. KHI shall be
permitted to make such extracts or copies of such documents, books or records of
O'Gara and its Subsidiaries as KHI may desire and O'Gara shall furnish to KHI
such financial and operating data and other information concerning the business,
assets and affairs of KHI and its Subsidiaries as KHI may reasonably request.
O'Gara shall instruct its accountants and attorneys to disclose to KHI any and
all non-privileged information they may have with respect to the business,
assets and affairs of O'Gara and its Subsidiaries. KHI shall treat all
information it receives concerning O'Gara and its Subsidiaries during the course
of its investigation as confidential (subject to such disclosures as may be
required by applicable law with prompt notice thereof to be given to O'Gara) and
shall return to O'Gara or destroy all extracts and copies of documents, books
and records which it has received if the Merger is not consummated, pursuant to
the terms of the Confidentiality Agreement referred to in Section 9.01 hereof.
10.02 Operations Pending Merger. O'Gara and its Subsidiaries will be
operated in all material respects in the ordinary course of business consistent
with prior practice without substantial change in current operational policy or
plans, and in compliance in all material respects with applicable laws,
including Environmental Requirements, and O'Gara will use commercially
reasonable best efforts to maintain O'Gara's and each of its Subsidiaries'
properties and facilities in their present condition, reasonable use and
ordinary wear and tear excepted, to retain O'Gara's and each of its
Subsidiaries' employees, and to maintain O'Gara's and each of its Subsidiaries'
assets and O'Gara's and each of its Subsidiaries' relationships with its
customers and others having business relations with O'Gara or any of its
Subsidiaries. O'Gara further agrees that from the date hereof to the Effective
Time, neither it nor any of its Subsidiaries will, without the prior written
consent of KHI:
(a) Declare any dividends, make any distribution of assets to its
shareholders or purchase any shares of O'Gara Common Stock or any stock
option (except for dividends paid by O'Gara's Subsidiaries to O'Gara or
another O'Gara Subsidiary and except as contemplated by Section 1.06);
(b) Create or incur any liability except in the ordinary course of
business or increase its indebtedness by more than $30,000,000, which
increase shall be for the purposes listed on Schedule 10.02 of the O'Gara
Disclosure Schedule;
(c) Increase the rate of compensation of any of its officers or
employees other than in the ordinary course of business consistent with
prior practice;
(d) Cancel any of the insurance existing at the date hereof or permit
any of its insurance to lapse or terminate unless it is replaced with
insurance with substantially the same coverage, limits and deductibles and
with no gap in coverage;
(e) Default in any material respect under any material contract,
agreement, commitment or engagement of any kind, including those described
on the O'Gara Contract Schedule;
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(f) Except as may be required by law or pursuant to plans or
arrangements described in the SEC Filings, enter into, adopt, amend or
terminate any employee benefit or welfare trust, plan or arrangement which
would reasonably be expected to have a material adverse effect on the value
of the shares of O'Gara Common Stock to be issued in connection with the
Merger, except as contemplated by Section 4.04;
(g) Sell, lease or dispose of any material assets, other than the sale
of inventory in the ordinary course of business consistent with past
practice;
(h) Except as may be required to conform with United States generally
accepted accounting principles, change any of the accounting principles
used by it;
(i) Make any tax election or compromise relating to any tax liability
in either case which would reasonably be expected to have a Material
Adverse Effect;
(j) Take or agree to take any action which would result in any of the
conditions set forth in Articles VI, VII or VIII hereof not being satisfied
at or prior to the Closing;
(k) Make any material contract not in the ordinary course of business
except for agreements entered into in connection with indebtedness
permitted by paragraph 10.02(b), acquisitions of assets or stock consented
to in writing by KHI (which consent shall not be unreasonably withheld or
delayed), capital expenditures or improvements involving not more than
$750,000 in the aggregate and acquisitions of assets or stock involving the
issuance by O'Gara of O'Gara Common Stock consented to in writing by KHI
(which consent shall not be unreasonably withheld or delayed); or
(l) Write off any material assets except in the ordinary course of
business consistent with prior practices.
(m) Issue O'Gara Common Stock except as permitted in Section 10.02(k)
and except pursuant to option plans and options described in Schedule 4.04
of the O'Gara Disclosure Schedule or in the SEC Filings.
10.03 Best Efforts to Expedite Closing. From the date hereof through the
Effective Time, O'Gara and NEWCO shall exert their commercially reasonable best
efforts and cooperate with KHI to accomplish by the earliest practical date all
those things within its control necessary to cause this Agreement to be carried
out, including but not limited to, the making of applications to, and the
obtaining of approvals from, the appropriate regulatory agencies for the
accomplishment of the Merger, including the registration of the O'Gara Common
Stock, the compliance with applicable state "blue sky" laws, and calling and
holding a special meeting of O'Gara shareholders at which the O'Gara Board of
Directors will present and recommend this Agreement to such shareholders for
their approval.
10.04 Repayment of KHI Shareholder Debt. Subject to confirmation by Arthur
Andersen LLP that the repayments contemplated in this Section 10.04 will not
adversely affect the pooling accounting treatment for the Merger, promptly
following the Effective Time, O'Gara shall cause KHI and its Subsidiaries to pay
(i) to AIG an amount not in excess of $2,000,000 principal amount, plus accrued
and unpaid interest thereon, in repayment of all indebtedness owing by KHI and
its Subsidiaries to AIG, and (ii) to the KHI Principal Shareholder an amount in
repayment of all amounts reflected in an advance account as owing to the KHI
Principal Shareholder by KHI and its Subsidiaries. In no event shall the total
amount of indebtedness paid to AIG and the KHI Principal Shareholder pursuant to
this Section 10.04 exceed $7,500,000. The parties acknowledge and agree that
certain other indebtedness, evidenced by various promissory notes, of KHI and
its Subsidiaries to the KHI Principal Shareholder in the approximate amount of
$310,000 (which amount is net of all liabilities or other amounts payable by the
KHI Principal Shareholder to KHI and its Subsidiaries) shall remain outstanding
following the Effective Time.
10.05 Tax Information. Within 30 days after the date hereof, O'Gara shall
deliver to KHI a list of (i) all United States federal income tax returns of
O'Gara and its Subsidiaries which have not been audited by the Internal Revenue
Service or are not closed by the applicable statute of limitations, and (ii) all
waivers or extensions granted by O'Gara, its Subsidiaries or any member of any
affiliate, consolidated, combined or unitary
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group of which O'Gara or any of its Subsidiaries has been a member of any
statute of limitations in respect of taxes or tax returns.
ARTICLE XI
SHAREHOLDERS' MEETINGS
Prior to the Closing, as soon as practicable after the effective date of
the Registration Statement, and in accordance with its Regulations and
applicable law, O'Gara shall duly call and hold a special meeting of its
shareholders at which it will present this Agreement for, and will recommend,
the approval of its shareholders. Prior to the Closing, as soon as practicable
after the effective date of the Registration Statement, and in accordance with
the By-laws and applicable law, KHI shall duly call and hold a special meeting
of its shareholders at which it will present this Agreement for, and will
recommend, the approval of its shareholders. Notwithstanding the foregoing, the
special meetings of shareholders shall not be held less than twenty (20)
business days after the distribution of the Joint Proxy Statement.
ARTICLE XII
TERMINATION OF MERGER AGREEMENT
This Agreement and the transactions contemplated herein may be terminated,
notwithstanding approval thereof by the shareholders of KHI, the shareholders of
O'Gara or by O'Gara as the sole shareholder of NEWCO, at any time prior to the
Effective Time (i) if consummation of the Merger has not occurred on or prior to
January 31, 1998; (ii) by agreement of each of the parties to this Agreement;
(iii) by the Board of Directors of O'Gara if any of the conditions precedent set
forth in Article VI or VII of this Agreement have not been satisfied on or
before the Closing; or (iv) by the Board of Directors of KHI if any of the
conditions precedent of Article VI or VIII of this Agreement have not been
satisfied on or before the Closing.
ARTICLE XIII
MUTUAL COVENANTS
13.01 Satisfaction of Conditions. From and after the date hereof, each of
the parties hereto shall use their commercially reasonable best efforts
(individually or jointly, as the case may be) to cause all conditions precedent
set forth in Articles VI, VII and VIII of this Agreement to be satisfied and
fulfilled at the earliest practicable date, to the extent the satisfaction or
fulfillment thereof is its responsibility hereunder or within its reasonable
control. If any event should occur, either within or without the control of any
party hereto, which would prevent fulfillment of the conditions precedent to the
obligations of any party to consummate the transactions contemplated by this
Agreement, all parties shall use their respective commercially reasonable best
efforts to cure or remove the effect of the event as expeditiously as possible.
13.02 Further Assurances. After the Closing, each of the parties shall,
from time to time upon any other party's request, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, all such further
assignments, documents, instruments, transfers, conveyances, discharges,
releases, assurances and consents, and shall take or cause to be taken such
further actions, as such other party may reasonably request to further evidence
or carry out the transactions contemplated by, and the purposes of, this
Agreement.
ARTICLE XIV
INDEMNIFICATION
14.01 Pre-closing Indemnification by KHI and the KHI Principal
Shareholder. Prior to the Effective Time, KHI and the KHI Principal Shareholder
shall jointly and severally indemnify and hold O'Gara and NEWCO harmless from
any and all losses, costs, expenses (including reasonable attorneys' fees) and
liabilities arising from any (i) breach of any representation or warranty of KHI
or the KHI Principal Shareholder set forth in this
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Agreement, (ii) breach or nonfulfillment of any covenant, agreement or
obligation of KHI or the KHI Principal Shareholder in this Agreement, (iii)
misrepresentation in the KHI Disclosure Schedule or any certificate furnished by
KHI or the KHI Principal Shareholder to O'Gara or NEWCO at the Closing under
this Agreement, and (iv) omission from the KHI Disclosure Schedule or any
certificate furnished by KHI or the KHI Principal Shareholder to O'Gara or NEWCO
at the Closing under this Agreement of a fact required to be stated therein or
necessary to make the information set forth therein, in light of the
circumstances under which they are made, not misleading.
14.02 Pre-closing Indemnification by O'GARA. Prior to the Effective Time,
O'Gara shall indemnify and hold KHI and the KHI Shareholder harmless from any
and all losses, costs, expenses (including reasonable attorneys' fees) and
liabilities arising from any (i) breach of any representation or warranty of
O'Gara or NEWCO set forth in this Agreement, (ii) breach or nonfulfillment of
any covenant, agreement or obligation of O'Gara or NEWCO in this Agreement,
(iii) misrepresentation in the O'Gara Disclosure Schedule or any certificate
furnished by O'Gara or NEWCO to KHI or the KHI Principal Shareholder at the
Closing under this Agreement, and (iv) omission from the O'Gara Disclosure
Statement or any certificate furnished by O'Gara or NEWCO to KHI or the KHI
Principal Shareholder at the Closing under this Agreement of a fact required to
be stated therein or necessary to make the information set forth therein, in
light of the circumstances under which they are made, not misleading.
14.03 Post-closing Indemnification by the KHI Principal Shareholder. The
parties acknowledge and agree that (i) O'Gara is entitled to rely upon, and
shall rely upon, facts and statements regarding KHI Matters (as hereinafter
defined) set forth in (or omitted from) the Registration Statement and the Joint
Proxy Statement, (ii) such facts and statements shall be deemed to be
representations and warranties made to O'Gara by the Principal Shareholder in
order to induce O'Gara to consummate the Merger, and (iii) the indemnification
in this Section 14.03 is made to provide a contract remedy to O'Gara for factual
misrepresentations or omissions notwithstanding the expiration of the
representations and warranties contained in Article III hereof at the Effective
Time. Accordingly, after the Effective Time, the KHI Principal Shareholder shall
indemnify and hold O'Gara and KHI harmless from any and all damages, losses and
liabilities arising from:
(a) any part of the Registration Statement, when such part became
effective, containing an untrue statement of a material fact regarding any
KHI Matters or omitting to state a material fact regarding any KHI Matters
required to be stated therein or necessary to make the statements regarding
KHI Matters therein not misleading;
(b) written or oral communications by representatives of KHI or any
Subsidiaries of KHI (the "KHI Representatives") to any Person that was a
holder of KHI Capital Stock and will hold (or have the right to receive
pursuant to the Merger) O'Gara Common Stock immediately after the Effective
Time, which communications include an untrue statement of a material fact
regarding any KHI Matters or omit to state a material fact necessary in
order to make the statements regarding any KHI Matters, in light of the
circumstances under which they were made, not misleading if the KHI
Principal Shareholder is unable to sustain the burden of proof that the KHI
Representatives did not know, and in the exercise of reasonable care could
not have known, of such untruth or omission; or
(c) the Joint Proxy Statement including an untrue statement of a
material fact regarding any KHI Matters or omitting to state a material
fact necessary in order to make the statements regarding any KHI Matters,
in light of the circumstances under which they were made, not misleading if
the KHI Principal Shareholder is unable to sustain the burden of proof that
the KHI Representative did not know, and in the exercise of reasonable care
could not have known, of such untruth or omission;
provided, that (x) all facts and statements regarding KHI Matters set forth in
the Registration Statement and the Joint Proxy Statement shall have been
approved in advance by KHI or its counsel, or such facts and statements
regarding KHI Matters shall have been provided to KHI and its counsel at least
two (2) days prior to the date of mailing the Joint Proxy Statement to the
shareholders and neither KHI nor its counsel shall have objected in writing
thereto, and (y) the Registration Statement and Joint Proxy Statement contains
all facts and statements regarding KHI Matters reasonably requested to be
included therein by KHI or its counsel. No claim for indemnification shall be
maintained pursuant to this Section 14.03 unless brought within one (1) year
after the
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discovery of such claim, or after discovery of such claim should have been made
by the exercise of reasonable diligence. In no event shall any claim be brought
under this Section 14.03 more than three (3) years after the Effective Time. For
purposes of this Section 14.03, the term "KHI Matters" shall mean KHI, any
Subsidiary of KHI, any owner, officer, director or employee of KHI or any of its
Subsidiaries, the business, operations, properties, assets, prospects, financial
condition, results of operations and liabilities of KHI or any of its
Subsidiaries and any information required by the Act or the Exchange Act to be
included in the Registration Statement or the Joint Proxy Statement concerning
or relating to any of the foregoing.
14.04 Survival. The representations and warranties of KHI and the KHI
Principal Shareholder contained in Article III and the representations and
warranties of O'Gara and NEWCO contained in Article IV shall survive until the
Effective Time, at which time all such representations shall expire and be of no
further force and effect, and no claim based upon the breach of any such
representation or warranty shall survive the Effective Time, regardless of
whether asserted prior to the Effective Time. Claims based upon a breach of the
representations and warranties contained in Articles III and IV may be brought
and maintained at any time prior to the Effective Time, shall be indemnified as
provided in Sections 14.01 and 14.02 and shall survive the termination of this
Agreement. As between and among the parties to this Agreement, the directors and
officers of O'Gara, NEWCO and KHI (other than the KHI Principal Shareholder)
shall have no personal liability for any misrepresentation, warranty or breach
of this Agreement, caused either by action or inaction.
14.05 Survives Termination. The indemnification obligations of the parties
under this Article XIV shall survive the termination of this Agreement for any
reason.
ARTICLE XV
FEES AND EXPENSES
Whether or not the Merger is consummated, each party hereto shall bear its
own expenses in connection with this Agreement and the transactions contemplated
hereby.
ARTICLE XVI
NOTICES
All notices, consents, waivers or other communications between the parties
hereto shall be in writing and shall be deemed given or delivered on the date
actually received by personal delivery, facsimile, overnight courier, ordinary
mail or other such means, or five (5) days after being mailed by United States
certified or registered mail, return receipt requested, with postage prepaid, in
each case addressed as follows:
(a) If to KHI:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10027
Attention: General Counsel
Fax: 212-750-6194
Phone: 212-833-3221
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance, Esq.
Fax: 212-715-8000
Phone: 212-715-9236
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(b) If to O'Gara or NEWCO:
The O'Gara Company
9113 LeSaint Drive
Fairfield, Ohio 45014
Attention: Wilfred T. O'Gara
Fax: 513-874-1262
Phone: 513-881-5440
with copies to:
The O'Gara Company
9113 LeSaint Drive
Fairfield, Ohio 45014
Attention: Abram S. Gordon, Esq.
Fax: 513-874-1262
Phone: 513-881-5481
and
Taft, Stettinius & Hollister
1800 Star Bank Center
Cincinnati, Ohio 45202
Attention: Thomas D. Heekin, Esq.
Fax: 513-381-0205
Phone: 513-381-2838
(c) If to Kroll:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10022
Attention: Jules Kroll
Fax: 212-750-6194
Phone: 212-833-3221
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance, Esq.
Fax: 212-715-8000
Phone: 212-715-9236
or to such other addresses, and to the attention of such other Persons, as any
party hereto may specify in a notice given pursuant to this Article XVI.
ARTICLE XVII
PUBLIC ANNOUNCEMENT
All parties shall consult with each other before issuing any press releases
or otherwise making any public statements with respect to this Agreement or the
Merger and shall not issue any such press release or make any such public
statement prior to such consultation.
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ARTICLE XVIII
GOVERNING LAW
Except for the application of the Delaware Law to the Merger, this
Agreement shall be construed in accordance with the laws of the State of New
York, applicable to agreements made and to be performed therein.
ARTICLE XIX
CAPTIONS; COUNTERPARTS
The captions in this Agreement are for convenience purposes only and shall
not be considered a part of or affect the construction or interpretation of any
provision of this Agreement. This Agreement may be executed in counterparts by
the parties and any such counterpart shall be deemed an original hereof.
ARTICLE XX
ENTIRE AGREEMENT
This Agreement is binding upon and is for the benefit of the parties hereto
and their respective successors, legal representatives and assigns. This
Agreement supersedes any other agreement, whether written or oral, that may have
been made or entered into by O'Gara, NEWCO, KHI or the KHI Principal Shareholder
or by any officer or officers of such parties relating to the Merger. This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof, and there are no agreements or commitments with respect
thereto except as set forth herein.
ARTICLE XXI
WAIVER; MODIFICATION; ASSIGNMENT
No delay on the part of any party hereto in the exercise of any right,
power or remedy arising hereunder shall operate as a waiver thereof. No waiver
shall be effective unless in writing and signed by the party granting the
waiver. This Agreement may be amended by agreement of the Boards of Directors of
the parties hereto at any time prior to the filing of the Certificate of Merger
with respect to the Merger except as otherwise provided under applicable law. No
amendment or modification of this Agreement shall be effective unless in writing
and signed by all parties hereto. No assignment of this Agreement or any rights
or obligations hereunder shall be effective without the prior written consent of
all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly exercised as of the date and year first above written.
ATTEST:
/s/ DAVID L. DICK
- ---------------------------------------------------
Assistant Secretary
ATTEST:
/s/ ABRAM S. GORDON
- ---------------------------------------------------
Secretary
ATTEST:
/s/ ABRAM S. GORDON
- ---------------------------------------------------
Secretary
KROLL HOLDINGS, INC.
By: /s/ JULES KROLL
--------------------------------------------------
Jules Kroll, Chairman
THE O'GARA COMPANY
By: /s/ THOMAS M. O'GARA
--------------------------------------------------
Thomas M. O'Gara, Chairman
VDE, INC.
By: /s/ WILFRED T. O'GARA
--------------------------------------------------
Wilfred T. O'Gara
President
/s/ JULES KROLL
- ---------------------------------------------------
Jules Kroll
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EXHIBIT 7.02
FORM OF OPINION OF COUNSEL TO
KHI AND THE KHI PRINCIPAL SHAREHOLDER
1. KHI is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now being conducted. KHI is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business makes such qualification necessary, except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse Effect on
KHI.
2. The execution, delivery and performance by KHI of the Merger Agreement
and the consummation by KHI of the Merger and the other transactions
contemplated by the Merger Agreement are within the corporate power and
authority of KHI and have been duly authorized by all necessary corporate action
of KHI. The Merger Agreement has been duly authorized, executed and delivered by
each of KHI and the KHI Principal Shareholder and constitutes the valid and
binding obligation of KHI and the KHI Principal Shareholder, enforceable against
each of them, as applicable, in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or transfer, or similar laws affecting the
rights of creditors generally, subject to general principles of public policy,
limited by the unavailability of remedies of specific performance or injunctive
relief without appropriate judicial process, and subject to general principles
of equity, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
3. Other than as set forth in Schedule 3.17 of the KHI Disclosure Schedule,
the execution, delivery and performance by KHI and the KHI Principal Shareholder
of the Merger Agreement and the consummation by KHI of the Merger and by KHI and
the KHI Principal Shareholder of the other transactions contemplated by the
Merger Agreement do not, to our knowledge, require any consent, approval or
action by or in respect of, or any declaration, filing or registration by KHI or
any of its Subsidiaries with, a governmental or regulatory authority of the
United States, other than (i) a routine filing with the Secretary of State of
the State of Delaware necessary to consummate the Merger, (ii) the filing of the
Registration Statement and the Joint Proxy Statement with the Commission, and
(iii) such filings or notifications which would not prevent or delay
consummation of any of the transactions contemplated by the Merger Agreement in
any material respect, or otherwise prevent KHI or the KHI Principal Shareholder
from performing their respective obligations under the Merger Agreement in any
material respect.
4. The execution, delivery and performance by KHI and the KHI Principal
Shareholder of the Merger Agreement, and the consummation by KHI of the Merger
and by KHI and the KHI Principal Shareholder of the other transactions
contemplated by the Merger Agreement, do not contravene or conflict with or
constitute a violation of the Certificate of Incorporation or By-Laws of KHI or
any of its Subsidiaries or any judgment, injunction, order or decree of any
United States court or government regulatory authority of which we have
knowledge to which KHI or any of its Subsidiaries is a party or by which it or
any of its assets are bound, which contravention, conflict or violation would
reasonably be expected to have a Material Adverse Effect on KHI.
5. The authorized capital stock of KHI consists of 46,200 Class A shares of
common stock, $.01 par value per share ("KHI Class A Stock"), of which 23,100
shares are issued and outstanding as of the date hereof, and 153,800 shares of
common stock, $.01 par value per share ("KHI Common Stock"), of which 76,624
shares are issued and outstanding as of the date hereof. All issued and
outstanding shares of KHI Capital Stock are duly authorized, validly issued,
fully paid and nonassessable, and have not been issued in violation of any
preemptive rights of any shareholder of KHI or any other Person provided by
statute or the Certificate of Incorporation of KHI. Except for options to
purchase an aggregate of 8,821 shares of KHI Common Stock or as set forth in
Schedule 3.04 of the KHI Disclosure Schedule, there are no outstanding (i)
shares of KHI Capital Stock or other voting securities of KHI, (ii) securities
of KHI convertible into or exchangeable for shares of KHI Capital Stock or other
voting securities of KHI, (iii) options, warrants, exchange rights, subscription
rights or other agreements, commitments or rights to purchase or otherwise
acquire KHI Capital Stock or other voting securities from KHI, or (iv)
agreements, commitments or obligations of KHI to issue, sell, redeem, repurchase
or otherwise acquire, any KHI Capital Stock or securities convertible into or
exchangeable for KHI Capital Stock or other voting securities of KHI.
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EXHIBIT 8.02
FORM OF OPINION OF COUNSEL
TO O'GARA AND NEWCO
1. O'Gara is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Ohio and has all requisite corporate
power and authority to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business makes such qualification necessary, except where the failure to be so
qualified would not be reasonably expected to have a Material Adverse Effect on
O'Gara.
2. NEWCO is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business makes such qualification necessary.
3. The execution, delivery and performance by each of O'Gara and NEWCO of
the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement are
within each of O'Gara and NEWCO's corporate power and authority and have been
duly authorized by all necessary corporate action of each of O'Gara and NEWCO.
The Merger Agreement has been duly authorized, executed and delivered by each of
O'Gara and NEWCO and constitutes the valid and binding obligation of each of
O'Gara and NEWCO, enforceable against each of them in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or transfer, or similar laws
affecting the rights of creditors generally, subject to general principles of
public policy, limited by the unavailability of remedies of specific performance
or injunctive relief without appropriate judicial process, and subject to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law. [O'Gara's counsel is not
licensed to practice in New York and an appropriate qualification will be added
to the opinion.]
4. Other than as set forth in Schedule 4.17 of the O'Gara Disclosure
Schedule, the execution, delivery and performance by each of O'Gara and NEWCO of
the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement do not,
to our knowledge, require any consent, approval or action by or in respect of,
or any declaration, filing or registration with, any governmental or regulatory
authority of the United States other than (i) a routine filing with the
Secretary of the State of Delaware necessary to consummate the Merger, (ii)
compliance with the applicable requirements of the Securities Act, the Exchange
Act and any applicable state securities laws in connection with the offering,
sale and delivery of the shares of O'Gara Common Stock to be issued in the
Merger and filings with the NASD and the NASDAQ National Market in connection
with listing the shares of O'Gara Common Stock to be issued in the Merger on the
Nasdaq National Market, and (iii) such filings or notifications which would not
prevent or delay consummation of any of the transactions contemplated by the
Merger Agreement in any material respect, or otherwise prevent O'Gara or NEWCO
from performing their respective obligations under the Merger Agreement in any
material respect.
5. The execution, delivery and performance by each of O'Gara and NEWCO of
the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement do not
contravene or conflict with the Articles of Incorporation or Regulations of
O'Gara or the Certificate of Incorporation or By-laws of NEWCO or any judgment,
injunction, order or decree of any United States court or government regulatory
authority of which we have knowledge to which O'Gara or any of its Subsidiaries
is a party or by which it or any of its assets are bound, or which violation,
contravention or conflict would reasonably be expected to have a Material
Adverse Effect on O'Gara.
6. Immediately prior to the Effective Time, the authorized capital stock of
O'Gara consists of (i) 25,000,000 shares of common stock, $.01 par value per
share ("O'Gara Common Stock"), of which 7,279,310 shares are issued and
outstanding as of the date hereof, and 100,000 shares of preferred stock, $.01
par value per share, none of which is issued and outstanding as of the date
hereof. All such issued and outstanding shares of O'Gara Common Stock are duly
authorized, validly issued, fully paid and nonassessable, and have not been
issued in
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violation of any preemptive right of any shareholder of O'Gara or any other
Person provided by statute or the Articles of Incorporation of O'Gara. Except as
set forth in the SEC Filings or Schedule 4.04 of the O'Gara Disclosure Schedule,
to our knowledge, there are no outstanding (i) securities of O'Gara convertible
into or exchangeable for shares of capital stock or voting securities of O'Gara
or (ii) options, warrants, exchange rights, subscription rights or other
agreements, commitments or rights to purchase or otherwise acquire from O'Gara,
or (iii) agreements, commitments or obligations of O'Gara to issue, sell,
redeem, repurchase or otherwise acquire any capital stock or securities
convertible into or exchangeable for capital stock of O'Gara.
7. Immediately prior to the Effective Time, the authorized capital stock of
NEWCO consists of (i) 100 shares of common stock, $.01 par value per share
("NEWCO Common Stock"), all of which are issued and outstanding and owned by
O'Gara as of the date hereof. All such issued and outstanding shares of NEWCO
Common Stock are duly authorized, validly issued, fully paid and nonassessable,
and have not been issued in violation of any preemptive rights of any
shareholder of NEWCO or any other Person provided by statute or the Certificate
of Incorporation of NEWCO. To our knowledge, there are no outstanding (i)
securities of NEWCO convertible into or exchangeable for shares of capital stock
or voting securities of NEWCO, (ii) options, warrants, exchange rights,
subscription rights or other agreements, commitments or rights to purchase or
otherwise acquire from NEWCO, or (iii) agreements, commitments or obligations of
NEWCO to issue, sell, redeem, repurchase or otherwise acquire any capital stock
or securities convertible into or exchangeable for capital stock of NEWCO.
8. The shares of O'Gara Common Stock to be issued and exchanged for shares
of KHI Capital Stock in the Merger pursuant to the Merger Agreement will, at the
Effective Time, be duly authorized and, upon issuance of such shares at and
after the Effective Time pursuant to and in compliance with the provisions of
Article II of the Merger Agreement, will be validly issued, fully paid and
nonassessable and will not be subject to preemptive rights. The shares of O'Gara
Common Stock issuable pursuant to Section 2.01 of the Merger Agreement have been
duly listed for trading on the NASDAQ National Market.
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APPENDIX B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE O'GARA COMPANY
FIRST. The name of the corporation is THE KROLL-O'GARA COMPANY (the
"Corporation").
SECOND. The place in the State of Ohio where the Corporation's principal
office is to be located is the City of Fairfield in Butler County, Ohio.
THIRD. The purpose for which the Corporation is organized shall be to
engage in any lawful act or activity for which corporations may be formed under
the Ohio General Corporation Law, Ohio Revised Code sec.sec.1701.01 et seq.
FOURTH. The aggregate number of shares of stock which the Corporation
shall have authority to issue is Fifty-One Million (51,000,000) shares, which
shall be divided into two classes, consisting of:
(a) Fifty Million (50,000,000) shares of common stock ("Common Stock")
with a par value of $.01 per share.
(b) One Million (1,000,000) shares of preferred stock ("Preferred
Stock") with a par value of $.01 per share.
PART ONE: COMMON STOCK
The shares of Common Stock may be issued at any time or from time to time
for such amount of lawful consideration as may be fixed by the Board of
Directors. Each holder of Common Stock shall be entitled to one (1) vote for
each share of Common Stock held by such holder.
PART TWO: PREFERRED STOCK
Clause 1. Except as otherwise provided by this Article Fourth or by the
amendment or amendments adopted by the Board of Directors providing for the
issue of any series of Preferred Stock, the Preferred Stock may be issued at any
time or from time to time in any amount, not exceeding in the aggregate,
including all shares of any and all series thereof theretofore issued, the One
Million (1,000,000) shares of Preferred Stock hereinabove authorized, as
Preferred Stock of one or more series, as hereinafter provided, and for such
lawful consideration as shall be fixed from time to time by the Board of
Directors.
Clause 2. Authority is hereby expressly granted to the Board of Directors
from time to time to adopt amendments to these Articles of Incorporation
providing for the issue in one or more series of any unissued or treasury shares
of the Preferred Stock, and providing, to the fullest extent now or hereafter
permitted by the laws of the State of Ohio and notwithstanding the provisions of
any other Article of these Articles of Incorporation of the Corporation, in
respect of the matters set forth in the following subdivisions (i) to (ix),
inclusive, as well as any other rights or matters pertaining to such series:
(i) The designation and number of shares of such series;
(ii) Voting rights (to the fullest extent now or hereafter permitted
by the laws of the State of Ohio);
(iii) The dividend rate or rates of such series (which may be a
variable rate and which may be cumulative);
(iv) The dividend payment date or dates of such series;
(v) Redemption rights (to the fullest extent now or hereafter
permitted by the laws of the State of Ohio), including the price or prices
at which shares of such series may be redeemed;
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(vi) The amount of the sinking fund, if any, to be applied to the
purchase or redemption of shares of such series and the manner of its
application;
(vii) The liquidation price or prices of such series;
(viii) Whether or not the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or classes
or of any other series of the same class of stock of the Corporation or any
other property, and if made so convertible or exchangeable, the conversion
price or prices, or the rates of exchange at which such conversion or
exchange may be made and the adjustments thereto, if any; and,
(ix) Whether or not the issue of any additional shares of such series
or any future series in addition to such series shall be subject to any
restrictions and, if so, the nature of such restrictions.
Any of the voting rights, dividend rate or rates, dividend payment date or
dates, redemption rights and price or prices, sinking fund requirements,
liquidation price or prices, conversion or exchange rights and restrictions on
issuance of shares of any such series of Preferred Stock may, to the fullest
extent now or hereafter permitted by the laws of the State of Ohio, be made
dependent upon facts ascertainable outside these Articles of Incorporation or
outside the amendment or amendments providing for the issue of such Preferred
Stock adopted by the Board of Directors pursuant to authority expressly vested
in it by this Article Fourth. If the then-applicable laws of the State of Ohio
do not permit the Board of Directors to fix, by the amendment creating a series
of Preferred Stock, the voting rights of shares of such series, each holder of a
share of such series of Preferred Stock shall, except as may be otherwise
provided by law, be entitled to one (1) vote for each share of Preferred Stock
of such series held by such holder.
Clause 3. Before any dividends shall be declared or paid upon or set apart
for, or distribution made on, the Common Stock and before any sum shall be paid
or set apart for the purchase or redemption of Preferred Stock of any series or
for the purchase of the Common Stock, the holders of Preferred Stock of each
series shall be entitled to receive accrued dividends declared by the Board of
Directors, payable at the rate or rates fixed for such series in accordance with
the provisions of this Article Fourth, and no more, from the dividend payment
date thereof, or preceding dividend payment date or dates fixed from time to
time by the Board of Directors.
Clause 4. If upon any dissolution, liquidation or winding up of the
Corporation or reduction of its capital stock, the assets so to be distributed
among the holders of the Preferred Stock pursuant to the provisions of this
Article Fourth or of the amendment or amendments providing for the issue of such
Preferred Stock adopted by the Board of Directors pursuant to authority
expressly vested in it by this Article Fourth shall be insufficient to permit
the payment to such holders of the full preferential amounts aforesaid, then the
entire assets of the Corporation shall be distributed ratably among the holders
of the Preferred Stock in proportion to the full preferential amounts to which
they are respectively entitled as aforesaid.
Clause 5. The term "accrued dividends", whenever used herein with respect
to the Preferred Stock of any series, shall be deemed to mean that amount which
would have been paid as dividends declared on the Preferred Stock of such series
to date had full dividends been paid thereon at the rate fixed for such series
in accordance with the provisions of this Article Fourth, less in each case the
amount of all dividends declared paid upon the shares of such series.
FIFTH. The Corporation shall have the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation or any
provision that may be added or inserted in these Articles of Incorporation,
provided that:
(a) Such amendment, alteration, change, repeal, addition or insertion
is consistent with law and is accomplished in the manner now or hereafter
prescribed by statute or these Articles; and
(b) Any provision of these Articles of Incorporation which requires,
or the change of which requires, the vote or consent of all or a specific
number or percentage of the holders of shares of any class or series shall
not be amended, altered, changed or repealed by any lesser amount, number
or percentage of votes or consents of such class or series. Any rights at
any time conferred upon the shareholders of the Corporation are granted
subject to the provisions of this Article.
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SIXTH. Subject to the provisions of Article Fifth hereof, the affirmative
vote of shareholders entitled to exercise a majority of the voting power of the
Corporation shall be required to amend these Articles of Incorporation, approve
mergers and to take any other action which by law must be approved by a
specified percentage of the voting power of the Corporation or of all
outstanding shares entitled to vote.
SEVENTH. No holder of any shares of the Corporation shall have any
preemptive rights to subscribe for or to purchase any shares of the Corporation
of any class, whether such shares or such class be now or hereafter authorized,
or to purchase or subscribe for any security convertible into, or exchangeable
for, shares of any class or to which shall be attached or appertained any
warrants or rights entitling the holder thereof to purchase or subscribe for
shares of any class.
EIGHTH. Subject to the provisions of Article Fourth hereof, the
Corporation, through its Board of Directors, shall have the right and power to
purchase any of its outstanding shares at such price and upon such terms as may
be agreed upon between the Corporation and any selling shareholder.
NINTH. No shareholder shall have the right to vote cumulatively in the
election of directors.
TENTH. These Amended and Restated Articles of Incorporation shall take the
place of and supersede the existing Amended and Restated Articles of
Incorporation.
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APPENDIX C
[SBC WARBURG DILLON READ LETTERHEAD]
September 12, 1997
The Board of Directors
The O'Gara Company
9113 Le Saint Drive
Fairfield, Ohio 45014
Gentlemen:
We understand that The O'Gara Company (the "Company") and Kroll Holdings,
Inc. ("Kroll") have entered into a Plan and Agreement to Merge dated as of
August 8, 1997 (the "Agreement") pursuant to which a wholly owned subsidiary of
the Company will be merged with and into Kroll (the "Merger") as a result of
which Kroll will become a wholly owned subsidiary of the Company. Pursuant to
the Agreement, all shares of Class A Common Stock and Common Stock of Kroll,
including shares subject to outstanding warrants, options or other stock
issuance agreements, will be converted into an aggregate 6,650,000 shares of
Common Stock of the Company (the "Consideration").
You have requested our opinion as to whether the Consideration to be paid
by the Company, as set forth in the Agreement, is fair to the Company, from a
financial point of view.
SBC Warburg Dillon Read Inc. ("Dillon Read"), as part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Dillon Read has performed and continues to perform investment banking services
for the Company. For such services, Dillon Read has received customary fees. In
addition, in the ordinary course of business, we have traded securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In arriving at our opinion, we have, among other things: (i) reviewed the
Agreement and the exhibits thereto, (ii) reviewed certain publicly available
business and financial information relating to the Company; (iii) reviewed the
reported price and trading activity for the Common Stock of the Company; (iv)
reviewed certain internal financial information and other data provided to us by
each of the Company and Kroll relating to the business and prospects of the
Company and Kroll, respectively, including financial projections prepared by the
management of the Company and Kroll, respectively, and the Consolidated
Financial Statements for the Year Ended December 31, 1996 and other audited
financial statements for Kroll, (v) conducted discussions with members of the
senior management of the Company and Kroll, (vi) reviewed the financial terms,
to the extent publicly available, of certain acquisition transactions which we
believed to be generally comparable to the Merger; (vii) reviewed publicly
available financial and securities market data pertaining to certain publicly
held companies in lines of business which we believed to be generally comparable
to Kroll; and (viii) conducted such other financial studies, analyses and
investigations, an considered such other information as we deemed necessary and
appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing information
and have relied upon its being complete and accurate in all material respects.
We have not been requested to and have not made an independent evaluation or
appraisal of any assets or liabilities (contingent or otherwise) of Kroll, nor
have we been furnished with any such evaluation or appraisal. Further, we have
assumed, with your consent, that all of the information, including the
projections, provided to us by management of the Company and Kroll was prepared
in good faith and was reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the
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[SBC WARBURG DILLON READ LETTERHEAD]
The Board of Directors
The O'Gara Company
September 12, 1997
Page Two
Company and Kroll as to the future financial performance of Kroll, and was based
upon the historical performance of Kroll and certain estimates and assumptions
which were reasonable at the time made. With your consent, we have assumed that
the Merger will be treated as a pooling of interests. In addition, our opinion
is based on economic, monetary and market conditions existing and that could be
evaluated on the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration to be paid by the Company in connection with
the Merger is fair to the Company from a financial point of view.
Very truly yours,
SBC WARBURG DILLON READ INC.
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APPENDIX D
SEC. 1701.84. DISSENTS IN CASE OF A MERGER, CONSOLIDATION, COMBINATION, OR
MAJORITY SHARE ACQUISITION.
The following are entitled to relief as dissenting shareholders under
section 1701.85 of the Revised Code:
(A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign, pursuant
to section 1701.78, 1701.781, 1701.79, 1701.791, or 1701.801 of the Revised
Code;
(B) In the case of a merger into a domestic corporation, shareholders
of the surviving corporation who under section 1701.78 or 1701.781 of the
Revised Code are entitled to vote on the adoption of an agreement of
merger, but only as to the shares so entitling them to vote;
(C) Shareholders, other than the parent corporation, of a domestic
subsidiary corporation that is being merged into the domestic or foreign
parent corporation pursuant to section 1701.80 of the Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the
shares so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which one
or more domestic or foreign corporations are being merged pursuant to
section 1701.801 of the Revised Code.
SEC. 1701.85. PROCEDURE IN CASE OF DISSENTS.
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting
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shareholder, at the option of the corporation, exercised by written notice sent
to the dissenting shareholder within twenty days after the lapse of the
fifteen-day period, unless a court for good cause shown otherwise directs. If
shares represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a compliant in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceedings, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for hearing on the complaint or any adjournment of it, the court shall determine
from the complaint and from such evidence as is submitted by either party
whether the dissenting shareholder is entitled to be paid the fair cash value of
any shares and, if so, the number and class of such shares. If the court finds
that the dissenting shareholder is so entitled, the court may appoint one or
more persons as appraisers to receive evidence and to recommend a decision on
the amount of the fair cash value. The appraisers have such power and authority
as is specified in the order of their appointment. The court thereupon shall
make a finding as to the fair cash value of a share and shall render judgment
against the corporation for the payment of it, with interest at such rate and
from such date as the court considers equitable. The costs of the proceeding,
including reasonable compensation to the appraisers to be fixed by the court,
shall be assessed or apportioned as the court considers equitable. The
proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or as fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken, and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of
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the agreement of merger by the directors of the particular subsidiary
corporation. The fair cash value of a share for the purposes of this section is
the amount that a willing seller who is under no compulsion to sell would be
willing to accept and that a willing buyer who is under no compulsion to
purchase would be willing to pay, but in no event shall the fair cash value of a
share exceed the amount specified in the demand of the particular shareholder.
In computing such fair cash value, any appreciation or depreciation in market
value resulting from the proposal submitted to the directors or to the
shareholders shall be excluded.
(D) (1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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APPENDIX E
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock corporation;
and the words "depository receipt" mean a receipt or other instrument issued by
a depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251, sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the
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procedures of this section, including those set forth in subsections (d) and (e)
of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall also notify such stockholders of
the effective date of the merger or consolidation. Any stockholder entitled
to appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and
E-2
<PAGE> 245
to accept the terms offered upon the merger of consolidation. Within 120 days
after the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trail upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
E-3
<PAGE> 246
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
299, L. '96, eff. 2-1-96 and Ch. 349, L. '96, eff. 7-1-96.)
E-4
<PAGE> 247
THE O'GARA COMPANY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR SPECIAL MEETING
The undersigned hereby appoints Wilfred T. O'Gara, Nicholas P.
Carpinello and Abram S. Gordon, and each of them, attorneys with the powers
which the undersigned would possess if personally present, including the power
of substitution, to vote all shares of the undersigned at the Special Meeting
of Shareholders of The O'Gara Company (the "Company") to be held at The Omni
Netherland Plaza Hotel, Fifth and Race Streets, Cincinnati, Ohio on November
21, 1997, at 9:00 a.m. (local time), and at any adjournments thereof:
1. FOR AGAINST ABSTAIN Proposal to (a)(i) approve
[ ] [ ] [ ] and adopt the Plan and
Agreement to Merge attached
as Appendix A to the Proxy
Statement, and (ii) amend and
restate the Amended and
Restated Articles of
Incorporation to change the
name of the Company to "The
Kroll-O'Gara Company"
attached as Appendix B to the
Proxy Statement, and (b)
increase the number of
directors of the Company to
eleven and elect Jules B.
Kroll, Howard I. Smith,
Michael G. Cherkasky and
Marshall S. Cogan as
directors of the Company.
2. FOR AGAINST ABSTAIN Proposal to approve and
[ ] [ ] [ ] adopt the amendments to the
Company's 1996 Stock Option
Plan.
3. FOR AGAINST ABSTAIN Proposal to amend and
[ ] [ ] [ ] restate the Amended and
Restated Articles of
Incorporation to increase the
number of shares of the
Company's Preferred Stock and
Common Stock.
4. Upon such other business as may properly come before the meeting or any
adjournment thereof.
The proxy will be voted on the above as specified. IF NO SPECIFICATION IS
MADE, THE PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE> 248
As to any other matter or if any of the nominees is not available for
election, said attorneys shall vote in accordance with the recommendation of
the Board of Directors.
Please mark: I do [ ] do not [ ] plan to attend the meeting.
Dated _____________________________, 1997
-----------------------------------------
-----------------------------------------
(Signature of Shareholder)
IMPORTANT: Please date and sign
exactly as name appears hereon. If
shares are held jointly, each
shareholder named should sign.
Executors, administrators, trustees,
etc. should so indicate when signing.
If the signer is a corporation, please
sign full corporate name by duly
authorized officer.
<PAGE> 249
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by O'Gara to any person made or threatened to be made a party to
any proceedings, other than a proceeding by or in the right of the registrant,
by reason of the fact that he is or was a director, officer, employee or agent
of O'Gara, against expenses, including judgments and fines, if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the registrant and, with respect to criminal actions, in which he
had no reasonable cause to believe that his conduct was unlawful. Similar
provisions apply to actions brought by or in the right of O'Gara, except that no
indemnification shall be made in such cases when the person shall have been
adjudged to be liable for negligence or misconduct to the registrant unless
determined by the court. The right to indemnification is mandatory in the case
of a director or officer who is successful on the merits or otherwise in defense
of any action, suit or proceeding or any claim, issue or matter therein.
Permissive indemnification is to be made by a court of competent jurisdiction,
the majority vote of a quorum of disinterested directors, the written opinion of
independent counsel or by the shareholders.
O'Gara's Code of Regulations provides that O'Gara shall indemnify such
persons to the fullest extent permitted by law.
O'Gara also maintains director and officer liability insurance which
provides coverage for claims against its officers and directors acting as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits. The list of Exhibits is set forth beginning on page E-1 of
this Registration Statement and is incorporated by reference.
(B) Financial Statement Schedules. See Financial Statement Index on page
F-1 for the list of financial statements filed with this Registration Statement.
<TABLE>
<CAPTION>
PAGE DESCRIPTION
- ----- -------------------------------------------------------------------------------------
<S> <C>
The O'Gara Company
S-1 Report of Independent Public Accountants
S-2 Schedule II--Valuation and Qualifying Accounts.
</TABLE>
All other financial statement schedules are omitted due to the absence of
conditions under which they are required or because the information is shown in
the consolidated financial statements or notes thereto.
<TABLE>
<S> <C>
Kroll Holdings, Inc.
S-3 Independent Auditors' Report
S-4 Independent Auditors' Report
S-5 Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other financial statement schedules are omitted due to the absence of
conditions under which they are required or because the information is shown in
the consolidated financial statements or notes thereto.
(C) Reports, Opinions or Appraisals
The opinion of SBC Warburg Dillon Read Inc. is filed as Appendix C to the
Proxy Statement/Prospectus constituting part of this Registration Statement and
is incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
II-1
<PAGE> 250
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(3) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of or included in the registration statement when it became effective.
II-2
<PAGE> 251
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati,
State of Ohio, as of the 22nd day of October, 1997.
THE O'GARA COMPANY
By: /s/ WILFRED T. O'GARA
--------------------------------------
Wilfred T. O'Gara
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities indicated as of the 22nd day of October, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------- --------------------------------------------
<C> <S>
/s/ THOMAS M. O'GARA* Chairman of the Board
- -----------------------------------
Thomas M. O'Gara
/s/ WILFRED T. O'GARA President, Chief Executive Officer and
- ----------------------------------- Director (Principal Executive Officer)
Wilfred T. O'Gara
/s/ NICHOLAS P. CARPINELLO Executive Vice President and Treasurer
- ----------------------------------- (Principal Financial and Accounting
Nicholas P. Carpinello Officer)
/s/ DANIEL GAUTIER* Director
- -----------------------------------
Daniel Gautier
/s/ RAYMOND E. MABUS* Director
- -----------------------------------
Raymond E. Mabus
/s/ HUGH E. PRICE* Director
- -----------------------------------
Hugh E. Price
/s/ JERRY E. RITTER* Director
- -----------------------------------
Jerry E. Ritter
/s/ WILLIAM S. SESSIONS* Director
- -----------------------------------
William S. Sessions
*By /s/ NICHOLAS P. CARPINELLO , as attorney-in-fact
- -----------------------------------
Nicholas P. Carpinello
</TABLE>
II-3
<PAGE> 252
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The O'Gara Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of THE O'GARA COMPANY included in this
registration statement as of December 31, 1995 and 1996 and for each of the
three years in the period ended December 31, 1996 and have issued our report
thereon dated March 19, 1997, except for Note 19 as to which the date is August
8, 1997. Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
accompanying index is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
March 19, 1997,
except for Note 19 as to which
the date is August 8, 1997
S-1
<PAGE> 253
THE O'GARA COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN 000'S)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------------------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended December 31, 1994.................... $ 145 $ 45 $(90) $ 100
Year Ended December 31, 1995.................... $ 100 $ 52 $(43) $ 109
Year Ended December 31, 1996.................... $ 109 $151 $(49) $ 211
INVENTORY OBSOLESCENCE RESERVES:
Year Ended December 31, 1994.................... $ -- $ -- $ -- $ --
Year Ended December 31, 1995.................... $ -- $ -- $ -- $ --
Year Ended December 31, 1996.................... $ -- $264 $ -- $ 264
</TABLE>
S-2
<PAGE> 254
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kroll Holdings, Inc.
New York, New York
We have audited the consolidated financial statements of Kroll Holdings,
Inc. as of December 31, 1996 and for the year then ended, and have issued our
report thereon dated March 13, 1997 (August 8, 1997 as to Notes 7 and 17). Our
audit also included the financial statement schedule of Kroll Holdings, Inc.
listed in Item 21. This financial statement schedule is the responsibility of
Kroll Holdings, Inc.'s management. Our responsibility is to express an opinion
based on our audit. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
New York, New York
March 13, 1997
S-3
<PAGE> 255
INDEPENDENT AUDITORS' REPORT
The Stockholders of Kroll Holdings, Inc. and Subsidiaries:
Under date of March 28, 1996, we reported on the consolidated balance sheet
of Kroll Holdings, Inc. and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the two-year period ended December 31,
1995, which are included in the prospectus. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth herein.
/s/ KPMG PEAT MARWICK LLP
New York, New York
March 28, 1996
S-4
<PAGE> 256
KROLL HOLDINGS, INC. & SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
BEGINNING CHARGED TO ENDING
BALANCE COSTS & EXPENSES DEDUCTIONS BALANCE
---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1994......... $2,238,116 2,070,185 (1,218,503) $3,089,798
Year ended December 31, 1995......... $3,089,798 3,050,310 (3,688,814) $2,451,294
Year Ended December 31, 1996......... $2,451,294 3,108,976 (3,857,539) $1,702,731
</TABLE>
S-5
<PAGE> 257
MASTER EXHIBIT LIST
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
2.1 Plan and Agreement to Merge, dated as of August 8, 1997, by and among The O'Gara
Company, VDE, Inc., Kroll Holdings, Inc. and Jules B. Kroll (included as Appendix
A to the Proxy Statement/Prospectus included in this Registration Statement)
3.1 Amended and Restated Articles of Incorporation of The O'Gara Company *
3.2 Code of Regulations of The O'Gara Company *
4.1 Note Purchase Agreement, dated as of May 30, 1997, between and among The O'Gara
Company, Connecticut General Life Insurance Company, Life Insurance Company of
North America, Massachusetts Mutual Life Insurance Company, The Traveler's
Insurance Company, and The Guardian Life Insurance Company of America **
5.1 Opinion of Taft, Stettinius & Hollister (filed herewith)
8.1 Form of opinion of Taft, Stettinius & Hollister regarding certain tax matters
(filed herewith)
8.2 Form of opinion of Kramer, Levin, Naftalis & Frankel regarding certain tax matters
(filed herewith)
10.1 Agreement to armor HMMWVs between The O'Gara Company and the United States Army
Tank and Automotive Command, dated May 12, 1994, as amended *
10.2 Systems Technical Support Agreement between The O'Gara Company and the United
States Army, dated January 20, 1997 ***
10.3 Lease of Mulhauser Road facility between O'Gara-Hess & Eisenhardt Armoring Company
and OLG, Limited, dated March 12 1996, as amended *
10.4 Aircraft Lease between O'Gara-Hess & Eisenhardt Armoring Company and Longline
Leasing, Inc. and Excel Armor Products, Inc., dated February 13, 1995, as amended
*
10.5 Terms of Lease (English Translation) of Sao Paulo, Brazil facility between
O'Gara-Hess & Eisenhardt Armoring Company do Brazil and Piero Balducci and Elvira
Miriam Cob Balducci, dated March 8, 1996 *
10.6 The 1996 O'Gara Company's Stock Option Plan *
10.7 Employment Agreement between O'Gara-Hess & Eisenhardt Armoring Company and Richard
L. Curotto, dated August 23, 1996 *
10.8 Employment Agreement between The O'Gara Company and Thomas M. O'Gara, dated August
23, 1996 *
10.9 Employment Agreement between The O'Gara Company and Wilfred T. O'Gara, dated
August 23, 1996 *
10.10 Employment Agreement between The O'Gara Company and Nicholas P. Carpinello, dated
August 23, 1996 *
10.11 Employment Agreement between O'Gara-Hess & Eisenhardt Armoring Company and Gary W.
Allen, dated August 23, 1996 *
10.12 Employment Agreement between O'Gara-Hess & Eisenhardt Armoring Company and Michael
J. Lennon, dated August 23, 1996 *
10.13 Form of Accumulated Adjustments Account ("AAA") promissory notes to existing
shareholders *
10.14 Supply agreement between O'Gara Satellite Networks Limited and Glocom, Inc. *
10.15 Marketing agreement between O'Gara Satellite Networks Limited and Magellan Systems
Corporation *
10.16 License agreement between O'Gara Satellite Networks Limited and Morsviasputnik,
dated March 21, 1995 *
10.17 Asset Purchase Agreement between O'Gara-Hess & Eisenhardt Armoring Company de
Mexico, S.A. de C.V. and Palmer Associates, S.C., dated October 29, 1996 ***
</TABLE>
II-4
<PAGE> 258
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
10.18 Asset Purchase Agreement between O'Gara-Hess & Eisenhardt Armoring Company and
Palmer Associates, LTD., dated October 29, 1996 ***
10.19 Acquisition Agreement between The O'Gara Company and Next Destination Limited,
dated February 5, 1997 ***
10.20 Acquisition Agreement between The O'Gara Company and Labbe, S.A., dated January
21, 1997 ****
10.21 Stock Purchase Agreement between O'Gara-Hess and Eisenhardt Armoring Company and
Jerome E. Hoffman, Gerald O. Smith, Rosemary Smith and Katherine L. Kropp, dated
March 24, 1997 ***
10.22 Loan Agreement, dated as of May 30, 1997, between The O'Gara Company, O'Gara-Hess
& Eisenhardt Armoring Company and KeyBank National Association **
10.23 Supplemental Agreement Modification to acquire 360 additional armored HMMWVs
between United States Army Tank and Automotive Armaments Command and O'Gara-Hess
and Eisenhardt Armoring Company, dated March 31, 1997 *****
10.24 Agreement to armor HMMWVs between The O'Gara Company and the United States Army
Tank and Automotive Armaments Command, dated September 27, 1996 *
10.25 Second Lease Amendment, dated March 31, 1997 between OLG Limited and O'Gara-Hess &
Eisenhardt Armoring Company******
10.26 Kroll Associates, Inc. Restricted Stock Plan, adopted on June 15, 1993 and amended
on November 10, 1993*******
10.27 Kroll Holdings, Inc. Management Stock Option Plan, effective January 1, 1995
(filed herewith)
10.28 Stock Option and Stockholders' Agreement, dated January 29, 1996, among Kroll
Holdings, Inc., Jules B. Kroll and Michael Cherkasky*******
10.29 Stock Option and Stockholders' Agreement, dated January 29, 1996, among Kroll
Holdings, Inc., Jules B. Kroll and Nazzareno E. Paciotti*******
10.30 Stockholders' Agreement, dated as of March 20, 1992, among Kroll Associates, Inc.,
Kroll Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc., Public
Advisory Services, Inc. and Palumbo Partners, Inc., Jules B. Kroll, and Robert J.
McGuire and Joseph R. Rosetti, as amended*******
10.31 Stockholders' Agreement, dated as of December 31, 1992, among Kroll Associates,
Inc., Kroll Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc.,
Public Advisory Services, Inc. and Palumbo Partners, Inc., Jules B. Kroll, and
Robert J. McGuire, Joseph Rosetti and Ernest Broad, as amended*******
10.32 Stockholders' Agreement, dated as of June 30, 1994, among Kroll Holdings, Inc.,
Jules B. Kroll and Brian M. Jenkins*******
10.33 Plan and Agreement of Reorganization and Stockholders' Agreement, dated June 15,
1993, by and among American International Group, Inc., Jules B. Kroll and Kroll
Holdings, Inc. (filed herewith)
10.34 AIU Retainer Agreement (filed herewith)
10.35 Letter Agreement, dated February 26, 1997, among Robert J. McGuire, Kroll
Holdings, Inc., Kroll Associates, Inc. and Jules B. Kroll, as amended June 2, 1997
(filed herewith)
10.36 Note Purchase Agreement, dated as of December 15, 1989 among Kroll Associates,
Inc., Kroll Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc.,
Public Advisory Services, Inc. and Teachers Insurance and Annuity Association of
America, as amended*******
10.37 Demand Promissory Note, dated June 29, 1995, in favor of American International
Group, Inc. by Kroll Associates, Inc.*******
10.38 Demand Promissory Note, dated July 28, 1995, in favor of American International
Group, Inc. by Kroll Associates, Inc.*******
</TABLE>
II-5
<PAGE> 259
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
10.39 Kroll Associates, Inc. Money Purchase Pension Plan and Trust, effective January 1,
1991, amended January 1, 1994*******
10.40 Kroll Associates, Inc. 401(k) Savings Plan Trust, effective January 1, 1994*******
10.41 Amended and Restated Lease of office space in New York, New York between Progress
Partners and Kroll Associates, Inc.*******
10.42 Agreement, dated August 8, 1997, between Thomas M. O'Gara and Kroll Holdings,
Inc.*******
10.43 Agreement, dated August 8, 1997, between Jules B. Kroll and The O'Gara
Company*******
10.44 Agreement, dated August 8, 1997, between American International Group, Inc. and
The O'Gara Company (filed herewith)
10.45 Registration Rights Agreement, dated August 8, 1997, among Thomas M. O'Gara, Jules
B. Kroll and The O'Gara Company*******
10.46 Form of Registration Rights Agreement between American International Group, Inc.
and The O'Gara Company (filed herewith)
10.47 Employment Agreement, dated October 17, 1997, between The O'Gara Company and Jules
B. Kroll (filed herewith)
10.48 Employment Agreement, dated October 17, 1997, between Kroll Holdings, Inc. and
Michael G. Cherkasky (to be filed by amendment)
10.49 Employment Agreement, dated October 17, 1997, between The O'Gara Company and
Nazzareno E. Paciotti (filed herewith)
10.50 Employment Agreement, dated October 17, 1997, between The O'Gara Company and Abram
S. Gordon (filed herewith)
10.51 Amendment to Employment Agreement, dated October 17, 1997, between O'Gara-Hess &
Eisenhardt Armouring Company and Michael J. Lennon (filed herewith)
10.52 Amendment to Employment Agreement, dated October 17, 1997, between The O'Gara
Company and Thomas M. O'Gara (filed herewith)
10.53 Amendment to Employment Agreement, dated October 17, 1997, between The O'Gara
Company and Wilfred T. O'Gara (filed herewith)
10.54 Amendment to Employment Agreement, dated October 17, 1997, between The O'Gara
Company and Nicholas P. Carpinello (filed herewith)
10.55 Form of Promissory Note between Jules B. Kroll and Kroll (filed herewith)
10.56 Commitment Letter, dated October 21, 1997, between KeyBank National Association
and The O'Gara Company (filed herewith)
11.1 Statements regarding computation of per share income (filed herewith)
21.1 Subsidiaries of The O'Gara Company*******
23.1 Consents of Taft, Stettinius & Hollister (to be contained in Exhibits 5.1 and 8.1)
(to be filed by amendment)
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in Exhibit 8.2) (to
be filed by amendment)
23.3 Consent of Arthur Andersen LLP (filed herewith)
23.4 Consent of Deloitte & Touche LLP (filed herewith)
23.5 Consent of SBC Warburg Dillon Read Inc. *******
23.6 Consent of KPMG Peat Marwick LLP (filed herewith)
24.1 Power of Attorney*******
</TABLE>
II-6
<PAGE> 260
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
99.1 Consent of Jules B. Kroll to be named as a director*******
99.2 Consent of Howard I. Smith to be named as a director*******
99.3 Consent of Michael G. Cherkasky to be named as a director*******
99.4 Consent of Marshall S. Cogan to be named as a director*******
</TABLE>
- ---------------
* Filed as an Exhibit to The O'Gara Company's Registration Statement on
Form S-1, No. 333-11093 and incorporated herein by reference.
** Filed as an Exhibit to The O'Gara Company's Current Report on Form 8-K
(Date of Report: May 30, 1997) and incorporated herein by reference.
*** Filed as an Exhibit to The O'Gara Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
**** Filed as an Exhibit to The O'Gara Company's Current Report on Form 8-K
(Date of Report: February 12, 1997) and incorporated herein by
reference.
***** Filed as an Exhibit to The O'Gara Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 and incorporated herein by
reference.
****** Filed as an Exhibit to The O'Gara Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference.
******* Previously filed as an Exhibit to the Registration Statement.
- ---------------
The O'Gara Company will furnish to the Commission, upon request, its long-term
debt instruments not listed above.
II-7
<PAGE> 1
Exhibit 5.1
[TAFT, STETTINIUS & HOLLISTER LETTERHEAD]
October 21, 1997
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10027
Attention: General Counsel
Dear Sirs:
We have acted as counsel for The O'Gara Company ("O'Gara") and VDE,
Inc. ("NEWCO") in connection with the transactions contemplated by the Plan and
Agreement to Merge (the "Merger Agreement") dated as of August 8, 1997 among
O'Gara, NEWCO, Kroll Holdings, Inc., a Delaware corporation ("KHI"), and Jules
Kroll ("Kroll"), including the Merger contemplated thereby (the "Merger"). This
is the opinion contemplated by Section 8.02 of the Merger Agreement.
Capitalized terms used herein without definitions have the respective meanings
assigned thereto in the Merger Agreement.
We have made such investigations and examined such documents,
including certificates of officers of O'Gara and NEWCO and of public officials,
as we have considered necessary or appropriate as a basis for this opinion. In
our examination, we have assumed the genuineness of all signatures (other than
the signatures of officers of O'Gara and NEWCO), the legal capacity of all
natural persons, the authenticity of all documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted
to us as certified or photostatic copies. As to matters of fact material to the
opinions expressed in this letter, we have relied on statements and
certificates of officers of O'Gara and NEWCO and of state authorities and on
the representations, warranties and statements of O'Gara and NEWCO contained in
the Merger Agreement. We have assumed that the Merger Agreement, together
with the other
<PAGE> 2
Kroll Holdings, Inc.
October 21, 1997
Page 2
contracts referred to in the Merger Agreement, reflects the complete
understanding and agreement of the parties.
We have also assumed that each entity that is a party to the Merger
Agreement (other than O'Gara or NEWCO) has been duly organized or formed and is
validly existing and in good standing (or the local law equivalent) as a
corporate or similar organization under the laws of its jurisdiction of
organization; that each individual that is a party to the Merger Agreement has
the legal power and capacity to enter into a binding contract; that the Merger
Agreement has been duly authorized, executed and delivered by each party (other
than O'Gara and NEWCO) and constitutes such party's legal, valid and binding
obligation; that each party (other than O'Gara and NEWCO) has the requisite
corporate or other organizational power and authority to perform its
obligations under the Merger Agreement; and that each party (other than O'Gara
and NEWCO) to the Merger Agreement has performed or will perform its
obligations under the Merger Agreement.
Based on the foregoing, our opinion is as follows:
1. O'Gara is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Ohio and has all requisite
corporate power and authority to carry on its business as now being conducted,
and is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the nature of its properties or the conduct
of its business makes such qualification necessary, except where the failure to
be so qualified would not be reasonably expected to have a Material Adverse
Effect on O'Gara.
2. NEWCO is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as now being conducted,
and is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the nature of its properties or the conduct
of its business makes such qualification necessary.
3. The execution, delivery and performance by each of O'Gara and NEWCO
of the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement are
within each of O'Gara and NEWCO's corporate power and authority and have been
duly authorized by all necessary corporate action of each of O'Gara and NEWCO.
The Merger Agreement has been duly authorized, executed and delivered by each
of O'Gara and NEWCO and constitutes the valid and binding obligation of each of
O'Gara and NEWCO, enforceable against each of them in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or transfer, or similar laws
affecting the rights of creditors generally, subject to general principles of
public policy, limited by the unavailability of remedies of specific
performance or injunctive relief without appropriate judicial process, and
subject to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
<PAGE> 3
Kroll Holdings, Inc.
October 21, 1997
Page 3
4. Other than as set forth in Schedule 4.17 of the O'Gara Disclosure
Schedule, the execution, delivery and performance by each of O'Gara and NEWCO
of the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement do not,
to our knowledge, require any consent, approval or action by or in respect of,
or any declaration, filing or registration with, any governmental or regulatory
authority of the United States other than (i) a routine filing with the
Secretary of the State of Delaware necessary to consummate the Merger, (ii)
compliance with the applicable requirements of the Securities Act, the Exchange
Act and any applicable state securities laws in connection with the offering,
sale and delivery of the shares of O'Gara Common Stock to be issued in the
Merger and filings with the NASD and the Nasdaq National Market in connection
with listing the shares of O'Gara Common Stock to be issued in the Merger on
the Nasdaq National Market, and (iii) such filings or notifications which would
not prevent or delay consummation of any of the transactions contemplated by
the Merger Agreement in any material respect, or otherwise prevent O'Gara or
NEWCO from performing their respective obligations under the Merger Agreement
in any material respect.
5. The execution, delivery and performance by each of O'Gara and NEWCO
of the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement do not
contravene or conflict with the Articles of Incorporation or Regulations of
O'Gara or the Certificate of Incorporation or Bylaws of NEWCO or any judgment,
injunction, order or decree of any United States court or government regulatory
authority of which we have knowledge to which O'Gara or any of its Subsidiaries
is a party or by which it or any of its assets are bound, or which violation,
contravention or conflict would reasonably be expected to have a Material
Adverse Effect on O'Gara.
6. Immediately prior to the Effective Time, the authorized capital
stock of O'Gara consists of (i) 25,000,000 shares of common stock, $0.01 par
value per share ("O'Gara Common Stock"), of which 7,279,310 shares are issued
and outstanding as of the date hereof, and 100,000 shares of preferred stock,
$0.01 par value per share, none of which is issued and outstanding as of the
date hereof. All such issued and outstanding shares of O'Gara Common Stock are
duly authorized, validly issued, fully paid and nonassessable, and have not
been issued in violation of any preemptive right of any shareholder of O'Gara
or any other Person provided by statute or the Articles of Incorporation of
O'Gara. Except as set forth in the SEC Filings or Schedule 4.04 of the O'Gara
Disclosure Schedule, to our knowledge, there are no outstanding (i) securities
of O'Gara convertible into or exchangeable for shares of capital stock or
voting securities of O'Gara, (ii) options, warrants, exchange rights,
subscription rights or other agreements, commitments or rights to purchase or
otherwise acquire from O'Gara, or (iii) agreements, commitments or obligations
of O'Gara to issue, sell, redeem, repurchase or otherwise acquire any capital
stock or securities convertible into or exchangeable for capital stock of
O'Gara.
7. Immediately prior to the Effective Time, the authorized capital
stock of NEWCO consists of (i) 100 shares of common stock, $0.01 par value per
share ("NEWCO Common
<PAGE> 4
Kroll Holdings, Inc.
October 21, 1997
Page 4
Stock"), all of which are issued and outstanding and owned by O'Gara as of the
date hereof. All such issued and outstanding shares of NEWCO Common Stock are
duly authorized, validly issued, fully paid and nonassessable, and have not been
issued in violation of any preemptive rights of any shareholder of NEWCO or any
other Person provided by statute or the Certificate of Incorporation of NEWCO.
To our knowledge, there are no outstanding (i) securities of NEWCO convertible
into or exchangeable for shares of capital stock or voting securities of NEWCO,
(ii) options, warrants, exchange rights, subscription rights or other
agreements, commitments or rights to purchase or otherwise acquire from NEWCO,
or (iii) agreements, commitments or obligations of NEWCO to issue, sell, redeem,
repurchase or otherwise acquire any capital stock or securities convertible into
or exchangeable for capital stock of NEWCO.
8. The shares of O'Gara Common Stock to be issued and exchanged for
shares of KHI Capital Stock in the Merger pursuant to the Merger Agreement
will, at the Effective Time, be duly authorized and, upon issuance of such
shares at and after the Effective Time pursuant to and in compliance with the
provisions of Article II of the Merger Agreement, will be validly issued, fully
paid and nonassessable and will not be subject to preemptive rights. The shares
of O'Gara Common Stock issuable pursuant to Section 2.01 of the Merger
Agreement have been duly listed for trading on the Nasdaq National Market.
Whenever we have asserted above that a matter is "known to us," our
knowledge is limited to actual knowledge of those attorneys in our office who
have directly participated in this engagement. No opinion is expressed with
respect to the applicability or effect of the substantive provisions of the
anti-trust laws or any anti-fraud provision of Federal or state law or as to
the enforceability of any provision of the Merger Agreement which provides for
indemnification or contribution with respect to liabilities arising under
Federal securities laws.
Our opinion is limited to matters governed by the laws of the States
of Ohio and New York, the General Corporation Law of the State of Delaware and
the Federal laws of the United States of America.
The opinions in this letter are rendered only to you in connection
with the Merger Agreement. The opinions may not be relied upon by you for any
other purpose, or relied upon by any other person, firm or entity for any
purpose. This letter may not be paraphrased, quoted or summarized, nor may it
be duplicated or reproduced in part.
Yours very truly,
/s/ Taft, Stettinius & Hollister
<PAGE> 1
EXHIBIT 8.1
October 22, 1997
Board of Directors
The O'Gara Company
9113 LeSaint Drive
Fairfield, OH 45014
Gentlemen:
This is in response to your request for our tax opinion on the proposed
merger (the "Merger") of VDE, Inc. ("Newco"), a Delaware corporation and a
wholly-owned subsidiary of The O'Gara Company ("O'Gara"), an Ohio corporation,
with and into Kroll Holdings, Inc. ("Kroll"), a Delaware corporation, pursuant
to the Plan and Agreement to Merge VDE, Inc. with and into Kroll Holdings, Inc.
(the "Merger Agreement"), dated as of August 8, 1997 by and among O'Gara, Newco,
Kroll and Jules Kroll.
In rendering our opinion, we have relied upon the statements, facts,
assumptions and representations contained in the Merger Agreement and the
Registration Statement on Form S-4 (the "Registration Statement"), as filed by
O'Gara with the Securities and Exchange Commission on September 17, 1997 and
Amendment No. 1 thereto, including the Proxy Statement/Prospectus (the "Proxy
Statement") which forms a part thereof, but excluding the section of the Proxy
Statement entitled "THE MERGER -- Certain Federal Income Tax Consequences." We
have also relied upon the representations of fact set forth in the letters
issued by Kroll and certain Kroll shareholders, and by O'Gara (the
"Representation Letters"). The Merger Agreement, Registration Statement, Proxy
Statement, and Representation Letters are collectively referred to herein as the
"Documents."
We have assumed that the statements, facts, assumptions, and
representations contained in the Documents are true, complete, and accurate on
the date hereof, and will be true, complete, and accurate at the Effective Time
(the "Effective Time"), as that term is defined in the Merger Agreement;
however, we have not independently investigated or otherwise verified any of the
statements, facts, assumptions, or representations. We have also assumed that no
actions will be taken that are inconsistent with any of these statements or
representations. A misstatement or omission of any fact, or a change or
amendment in any of the statements, facts, assumptions, or representations we
have relied upon may require a modification of all or a part of this opinion.
The opinion set forth herein is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations promulgated thereunder, and
existing administrative and judicial interpretations thereof, as of the date of
this opinion, all of which are subject to change. If there is a change,
including a change having retroactive effect, in
<PAGE> 2
Board of Directors
October 22, 1997
Page 2
the Code, Treasury regulations, Internal Revenue Service rulings or releases,
or in the prevailing judicial interpretation of the foregoing, the opinion
expressed herein would necessarily have to be re-evaluated in light of any such
change.
Our opinion is not the equivalent of a ruling from the Internal Revenue
Service and, upon audit, may be challenged by the Internal Revenue Service. Our
opinion is as of the date hereof, and we have no responsibility to update this
opinion for events, transactions, circumstances, or changes in any of the
statements, facts, assumptions, or representations occurring after such date.
The opinion expressed herein reflects our assessment of the probable outcome of
litigation and other adversarial proceedings based solely on an analysis of the
existing tax authorities.
Our opinion does not address, inter alia, (1) state, local or foreign
tax consequences pertaining to the Merger; (2) tax return filing requirements,
information reporting requirements, or similar procedural aspects of the
Merger; or (3) proposed or future changes in law. In addition, we do not
address the tax consequences of the Merger with regard to particular categories
of shareholders that may be subject to special rules, such as foreign persons,
tax-exempt entities, insurance companies, financial institutions, or dealers in
stocks and securities.
In view of the above, it is our opinion that, if the Merger is
consummated in accordance with the Documents as they exist at the date hereof,
then under the applicable federal income tax law as it exists as of the date
hereof, (1) the Merger will be a tax-free reorganization within the meaning of
section 368(a) of the Code, and (2) although the statements contained in the
Proxy Statement section entitled "THE MERGER--Certain Federal Income Tax
Consequences" do not purport to discuss all possible federal income tax
considerations relating to the Merger, the statements do correctly set forth
the material federal income tax consequences of the Merger to O'Gara, Kroll,
and their respective shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement; however, giving this consent does not constitute an
admission that we are "experts" within the meaning of section 11 of the
Securities Act of 1933 ("Act"), as amended, nor are we within the category of
persons whose consent is required by section 7 of the Act.
Sincerely,
<PAGE> 1
EXHIBIT 8.2
[KRAMER, LEVIN, NAFTALIS & FRANKEL LETTERHEAD]
October 22, 1997
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10027
Ladies and Gentlemen:
We have acted as counsel to Kroll Holdings, Inc., a Delaware
corporation ("Kroll"), in connection with the planned merger (the "Merger") with
and into Kroll of VDE, Inc., a Delaware corporation ("Merger Sub") and a wholly
owned subsidiary of The O'Gara Company, an Ohio corporation ("O'Gara"), pursuant
to a Plan and Agreement to Merge VDE, Inc. with and into Kroll Holdings, Inc.,
dated as of August 8, 1997 by and among O'Gara, Kroll, Merger Sub and Jules
Kroll (the "Merger Agreement").
For purposes of the opinion set forth below, we have reviewed and
relied upon (i) the Merger Agreement, (ii) the Proxy Statement/Prospectus
included in the registration statement on Form S-4 (the "Registration
Statement"), as amended, filed by O'Gara with the Securities and Exchange
Commission (the "Proxy Statement/Prospectus"), and (iii) such other documents,
records, and instruments as we have deemed necessary or appropriate as a basis
for our opinion. In addition, in rendering our opinion we have relied upon
certain statements and representations made by Kroll, O'Gara, and certain
shareholders of Kroll (the "Certified Representations"), and upon certain
statements and representations contained in the Merger Agreement and the Proxy
Statement/Prospectus, which we have neither investigated nor verified. We have
assumed that such statements and representations are true, correct, complete,
and not breached, and that no actions that are inconsistent with such statements
<PAGE> 2
KRAMER, LEVIN, NAFTALIS & FRANKEL
Kroll Holdings, Inc.
October 22, 1997
Page 2
and representations will be taken. We have also assumed that all representations
made in the Certified Representations "to the best knowledge of" any persons
will be true, correct, and complete as if made without such qualification.
In addition, we have assumed that (i) the Merger will be consummated
in accordance with the Merger Agreement and as described in the Proxy
Statement/Prospectus (including satisfaction of all covenants and conditions to
the obligations of the parties without amendment or waiver thereof); (ii) the
Merger will qualify as a merger under the applicable laws of Delaware; (iii)
each of Kroll, O'Gara, and Merger Sub will comply with all reporting obligations
with respect to the Merger required under the Internal Revenue Code of 1986, as
amended (the "Code"), and the Treasury regulations promulgated thereunder; (iv)
the Merger Agreement and all other documents and instruments referred to therein
or in the Proxy Statement/Prospectus are valid and binding in accordance with
their terms; and (v) there are no shareholders that own, at the Effective Time
(as defined in the Merger Agreement), more than 1% of the outstanding stock of
Kroll, other than those shareholders that have made Certified Representations.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations, and assumptions or any change after the date hereof in
applicable law could adversely affect our opinion. No ruling has been (or will
be) sought from the Internal Revenue Service (the "IRS") by Kroll, O'Gara,
Merger Sub, or, to our knowledge, any other person, as to the federal income tax
consequences of any aspect of the Merger. The opinion expressed herein is not
binding on the IRS or any court, and there can be no assurance that the IRS or a
court of competent jurisdiction will not disagree with such opinion.
Based upon and subject to the foregoing as well as the limitations
set forth below, it is our opinion, under presently applicable federal income
tax law, that (i) the Merger of Merger Sub with and into Kroll will be a
tax-free reorganization within the meaning of section 368(a) of the Code and
(ii) the statements contained in the section of the Proxy Statement/Prospectus
entitled "The Merger -- Certain Federal Income Tax Consequences," are correct.
No opinion is expressed as to any matter not specifically addressed
above. Also, no opinion is expressed as to the tax consequences of any of the
transactions under any foreign, state, or local tax law. Furthermore, our
opinion is based on current federal income tax law and administrative practice,
and we do not undertake to advise you as to any changes after the Effective Time
(as defined in the Merger Agreement) in federal income tax law or administrative
practice that may affect our opinion unless we are specifically asked to do so.
We hereby consent to the filing of this opinion as an exhibit to the
aforementioned Registration Statement and to the reference to this firm under
the captions
<PAGE> 3
KRAMER, LEVIN, NAFTALIS & FRANKEL
Kroll Holdings, Inc.
October 22, 1997
Page 3
"The Merger -- Certain Federal Income Tax Consequences" and "Legal Matters" in
the Registration Statement and the Proxy Statement/Prospectus which is a part
thereof. The giving of this consent, however, does not constitute an admission
that we are "experts" within the meaning of Section 11 of the Securities Act of
1933, as amended, or within the category of persons whose consent is required by
Section 7 of said Act.
This opinion has been delivered to you as contemplated by the Merger
Agreement and for the purpose of being included as an exhibit to the
Registration Statement and is intended solely for your benefit.
Very truly yours,
<PAGE> 1
EXHIBIT 10.27
KROLL HOUSINGS, INC.
MANAGEMENT STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the Kroll Holdings, Inc. Management Stock
Option Plan (the "Plan") is to promote the interests of the
Company and its stockholders by providing the Company's key
employees with an appropriate incentive to encourage them to
continue in the employ of the Company and to improve the growth
and profitability of the Company.
2. DEFINITIONS
As used in this Plan, the following capitalized terms shall have the
following meanings:
(a) "Affiliate" shall mean with respect to any Person, a spouse of such
Person, any relative (by blood, adoption or marriage) of such Person, any
director, officer or employee of such Person, any trust formed by such Person,
any other Person of which such Person is a director, officer or employee, and
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person.
(b) "Appraisal Date" shall mean December 31 of each year, commencing
with December 31,1996.
(c) "Appraised Value" shall mean, as of any Appraisal Date, the
appraised value of a share of Common Stock, as determined by the Appraiser, and
shall be equal to the appraised value of the Company as of such Appraisal Date
(determined in accordance with the considerations listed below), divided by the
sum of the total number of shares of Company Stock issued and outstanding as of
the Appraisal Date and the total number of options or any other instruments that
provide rights to acquire shares of Company Stock outstanding as of such
Appraisal Date. The Appraised Value of the Company shall be the price at which
the
<PAGE> 2
Common Stock would change hands between a willing buyer and a willing seller
when the former is not under any compulsion to buy and the latter is not under
any compulsion to sell, both parties having reasonable knowledge of relevant
facts. In determining the Appraised Value of the Company, the Appraiser will
consider the financial condition and operating results and prospects of the
Company, including: balance sheet, historical and at the Appraisal Date; assets;
liabilities; book value; historical operating results, particularly profits
generated and factors affecting profits; dividends paid historically and
dividend-paying capacity; budgets; plans and projections of future performance;
and prospects at the Appraisal Date. Appraised Value shall be determined by an
appraisal conducted as of each Appraisal Date, and continuing for so long as
Appraised Value shall be required to be determined under the Plan. Such
appraisal shall be conducted following the release of the Company's audited
annual financial statements for the year ending on such Appraisal Date. The
Company shall be responsible for the costs of such appraisal.
(d) "Appraiser" shall mean an accounting, investment banking or other
appraisal firm selected by the Committee.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Call Date" shall have the meaning set forth in Section 5.8(b)
herein.
(g) "Cause" shall mean (i) the commission of a felony; (ii) gross
negligence or willful misconduct in connection with the performance of the
Participant's duties as an Employee; (iii) a fraudulent act or omission by the
Participant adverse to the reputation of the Company or any of its Affiliates;
(iv) the disclosure by the Participant of any trade secrets or confidential
information of the Company or any of its Affiliates to persons not authorized to
know same; or (v) the willful refusal to carry out reasonable instructions of
the Chairman, which has a material adverse effect on the Company or any of its
Affiliates. If, subsequent to
2
<PAGE> 3
a Participant's termination of Employment, it is discovered that such
Participant's Employment could have been terminated for Cause, the
Participant's Employment shall, at the election of the Committee, in its sole
discretion, be deemed to have been terminated for Cause.
(h) "Chairman" shall mean the acting Chairman of the Company or its
Affiliates.
(i) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(j) "Committee" shall mean the Committee appointed by the Board
pursuant to Section 3 of the Plan.
(k) "Common Stock" shall mean the common stock of the Company,
excluding the class A common stock.
(l) "Company" shall mean Kroll Holdings, Inc.
(m) "Company Notice" shall have the meaning set forth in Section 5.7
herein.
(n) "Company Stock" shall mean the common stock of the Company,
including both the class A common stock and the Common Stock.
(o) "Corporate Event" shall mean the date that (i) more than 50% of the
shares of Company Stock, by vote and by value, are owned by persons other than
the Majority Stockholder or employees or employee benefit plans of the Company
or its Affiliates, or (ii) all or substantially all of the assets of the Company
are sold to persons other than the Majority Stockholder or employees or employee
benefit plans of the Company or its Affiliates.
(p) "Disability" shall mean a permanent disability as defined in Kroll
Associates' long-term disability plan.
3
<PAGE> 4
(q) "Eligible Employee" shall mean (i) any Employee who is a managing
director or key executive of the Company or an Affiliate, or (ii) certain other
Employees who, in the judgment of the Committee, should be eligible to
participate in the Plan due to the services they perform on behalf of the
Company or an Affiliate.
(r) "Employment" shall mean employment with the Company or any
Affiliate. "Employee" and "Employed" shall have correlative meanings.
(s) "Exercise Date" shall have the meaning set forth in Section 4.10
herein.
(t) "Exercise Notice" shall have the meaning set forth in Section 4.10
herein.
(u) "Fair Value" shall mean, as of any Valuation Date, the fair value
of each share of Common Stock, determined by dividing (i) one-third of the
Operating Income of the Company and its subsidiaries for the thirty-six month
period ending on the Valuation Date immediately preceding the Exercise Date for
which the determination is being made multiplied by 12.91, by (ii) the sum of
the total number of shares of Company Stock issued and outstanding as of the
Valuation Date and the total number of options or any other instruments that
provide rights to acquire shares of Company Stock outstanding as of such
Valuation Date.
(v) "Grant" shall mean a grant of Options under the Plan and evidenced
by a Stock Option Grant Agreement.
(w) "Grant Date" shall mean the Grant Date as defined in Section 4.2
herein.
(x) "Kroll Associates" shall mean Kroll Associates, Inc.
(y) "Majority Stockholder" shall mean Jules B. Kroll and his family and
their respective donees, estates and heirs.
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(z) "Note Purchase Agreement" shall mean any long-term debt, credit or
other agreements or arrangements entered into by the Company or its Affiliates.
(aa) "Operating Income" shall mean the operating (loss) profit as shown
in the monthly consolidated financial reports of the Company and its
subsidiaries, prepared in accordance with generally accepted accounting
principles.
(bb) "Options" shall mean the options to purchase Common Stock Granted
to the Participants under the Plan.
(cc) "Option Spread" shall mean, with respect to an Option, the excess,
if any, of the Fair Value of a share of Common Stock as of the Valuation Date
immediately preceding the Exercise Date over the exercise price of such Option
provided in the Stock Option Grant Agreement.
(dd) "Participant" shall mean an Eligible Employee to whom a Grant of
Options under the Plan has been made.
(ee) "Permitted Disposition" shall have the meaning set forth in
Section 5.2 herein.
(ff) "Permitted Transferee" shall mean a Transferee who receives his
interest in Common Stock as the result of a Permitted Disposition, provided that
the Transferee becomes a party to this Agreement as provided in Section 5.1.
(gg) "Person" shall mean an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
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(hh) "Public Offering" shall mean an offer for sale of shares of
Company Stock pursuant to an effective registration statement filed by the
Company which issued such shares pursuant to the Securities Act.
(ii) "Put Notice" shall have the meaning set forth in Section 5.6(b).
(jj) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(kk) "Selling Stockholder" shall have the meaning set forth in Section
5.7 herein.
(ll) "Stock Option Grant Agreement" shall mean an agreement entered
into by each Participant and the Company evidencing the Grant of Options
pursuant to the Plan.
(mm) "Stockholder Notice" shall have the meaning set forth in Section
5.7 herein.
(nn) "Transfer" shall mean any transfer, sale, assignment, gift,
testamentary transfer, pledge, hypothecation or other disposition of any
interest. "Transferee" and "Transferor" shall have correlative meanings.
(oo) "Valuation Date" shall mean the last day of each month, commencing
with December 31, 1995.
(pp) "Vesting Date" shall mean the date an Option becomes
exercisable as defined in Section 4.3 herein.
3. ADMINISTRATION OF THE PLAN
The Committee shall be appointed by the Board and shall administer the
Plan. No member of the Committee shall participate in any decision that
specifically affects such member's interest in the Plan.
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3.1 POWERS OF THE COMMITTEE. In addition to the other powers granted to
the Committee under the Plan, the Committee shall have the power: (a) to Grant
Options; (b) to determine to which of the Eligible Employees Grants shall be
made; (c) to determine the time or times when Grants shall be made and to
determine the number of shares of Common Stock subject to each such Grant and
the Vesting Dates for such Options; (d) to prescribe the form of any instrument
evidencing a Grant; (e) to adopt, amend and rescind such rules and regulations
as, in its opinion, may be advisable for the administration of the Plan; (f) to
construe and interpret the Plan, such rules and regulations and the instruments
evidencing Grants; and (g) to make all other determinations necessary or
advisable for the administration of the Plan.
3.2 DETERMINATIONS OF THE COMMITTEE. Any Grant, determination,
prescription or other act of the Committee shall be final and conclusively
binding upon all persons.
3.3 INDEMNIFICATION OF THE COMMITTEE. No member of the Committee or the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Grant. To the full extent permitted by law, the
Company shall indemnify and save harmless each person made or threatened to be
made a party to any civil or criminal action or proceeding by reason of the fact
that such person, or such person's testator or intestate, is or was a member of
the Committee.
3.4 COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to
the contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Common Stock pursuant to the exercise of any
Options, unless and until the Committee has determined, with advice of counsel,
that the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if applicable, the
requirements of any exchange on which the shares of Common Stock are listed or
traded. The Company shall in no event be obligated to register such shares of
Common Stock or to take any other action in order to comply with any such law,
regulation or
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requirement with respect to the issuance and delivery of such certificates. In
addition to the terms and conditions provided herein, the Committee may require
that a Participant make such covenants, agreements and representations as the
Committee, in its sole discretion, deems necessary in order to comply with any
such laws, regulations or requirements.
4. OPTIONS
Subject to adjustment as provided in Section 4.14 hereof, the Committee
may Grant to Participants Options to purchase shares of Common Stock of the
Company which, in the aggregate, do not exceed 7700 shares of Common Stock. To
the extent that any Options Granted under the Plan terminate, expire or are
canceled without having been exercised, the shares covered by such Options shall
again be available for Grant under the Plan.
4.1 IDENTIFICATION OF OPTIONS. The Options Granted under the Plan shall
be non-qualified stock options which are not entitled to tax treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986.
4.2 GRANT DATE. The Grant Date of the Options shall be the date
designated by the Committee and specified in the Stock Option Grant Agreement as
the date the Options are Granted.
4.3 VESTING DATE OF OPTIONS. The Options shall become exercisable as
determined by the Committee, except that, with respect to Participants receiving
Options with a Grant Date of January 1, 1995, Vesting Dates shall be as follows
(a) 25% of Options become exercisable on January 1, 1996; and (1)) 18.75% become
exercisable each January 1 thereafter, except that the Options shall become
fully exercisable on (i) the date of a Corporate Event; or (ii) the date a
Participant's Employment ceases due to (A) Disability, (B) death, (C)
termination of Employment at or after age 65 other than for Cause, or (D)
termination of Employment by the Company or any of its Affiliates other than for
Cause.
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4.4 EXPIRATION OF OPTIONS. The Options shall expire on the 10th
anniversary of the Grant Date.
4.5 TERMINATION OF EMPLOYMENT. The Options may only be exercised while
a Participant is Employed and, in the event a Participant's Employment ceases
due to such Participant's Disability, death, termination of Employment at or
after age 65 other than for Cause or termination of Employment by the Company or
an Affiliate other than for Cause, for a period of 90 days after the date of
such cessation or termination. In the event a Participant voluntarily terminates
his Employment before age 65, all Options, whether vested or unvested, shall
expire as of the date of such termination.
4.6 TERMINATION FOR CAUSE. In the event a Participant's Employment is
or is deemed to have been terminated by the Company for Cause, all Options,
whether vested or unvested, shall expire at the commencement of business as of
the date of such termination.
4.7 LIMITATION ON TRANSFER. During the lifetime of a Participant, the
Options shall be exercisable only by such Participant. No Option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
4.8 EXERCISE OF OPTIONS.
(a) PRIOR TO A PUBLIC OFFERING. Prior to a Public Offering, a
Participant may exercise any or all of his vested Options by serving an Exercise
Notice on the Company as provided in Section 4.10 hereto. With respect to such
Options, the Company shall pay to such Participant an amount equal to the number
of Options exercised multiplied by the Option Spread determined as of the
Valuation Date immediately preceding the Exercise Date and payable in any
combination of cash or Common Stock (such Common Stock shall be valued at Fair
Value determined as of the Valuation Date used for determining the Option
Spread), as may be requested by such Participant, provided, however, that the
Company may limit the
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amount of cash compensation to an amount equal to 50 percent of the amount
payable to the Participant as determined above, less the Fair Value of any
shares of Common Stock (determined as of the Valuation Date used for determining
the Option Spread) withheld to satisfy the applicable withholding taxes pursuant
to Section 4.12 hereto. The Company may delay payment until the financial
information necessary to calculate Fair Value becomes available.
(b) SUBSEQUENT TO A PUBLIC OFFERING. Coincident with or following a
Public Offering, a Participant may exercise any or all of his vested Options by
serving an Exercise Notice on the Company as provided in Section 4.10 hereto.
The Participants may pay the exercise price in cash and/or by delivering freely
transferable shares of Common Stock of the Company, such shares to be valued at
their fair market value as of the Exercise Date.
4.9 EXERCISE OF OPTIONS BY BENEFICIARY(IES). Before any beneficiary or
beneficiaries of a Participant may exercise the Options granted herein upon such
Participant's death, such beneficiary or beneficiaries must agree to be bound by
the Plan, including, without limitation, the restrictions on Common Stock
provided in Section 5 herein, and the Stock Option Grant Agreement, as if they
had been original signatories thereto.
4.10 METHOD OF EXERCISE. The Options shall be exercised by delivery of
written notice to the Company's principal office (the "Exercise Notice"), to the
attention of its Secretary, no less than two business days in advance of the
effective date of the proposed exercise (the "Exercise Date"). Such notice shall
(a) specify the number of shares of Common Stock with respect to which the
Options are being exercised, the Exercise Date and any requests with respect to
the form of payment and withholding taxes as provided in Sections 4.8 and 4.12,
respectively, (b) be signed by the Participant or his beneficiary(ies), as the
case may be, and (c) if the Options are being exercised by the Participant's
beneficiary(ies), such beneficiary or beneficiaries shall indicate in writing
that they agree to and shall be bound by
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the Plan and Stock Option Grant Agreement as if they had been original
signatories thereto. The partial exercise of the Options, alone, shall not
cause the expiration, termination or cancellation of the remaining Options.
4.11 CERTIFICATES OF SHARES. Upon the exercise of the Options,
certificates of shares of Common Stock, if any, legended as provided in Section
5.4, shall be issued in the name of the Participant or his beneficiary(ies), as
the case may be, and delivered to such Participant or his beneficiary(ies), as
the case may be, as soon as practicable following the Exercise Date.
4.12 WITHHOLDING TAXES. At the time that a Participant exercises all or
part of his Options by delivery of the Exercise Notice, such Participant may
notify the Company within such Exercise Notice and request, in writing, that the
Company withhold a portion of the shares that are to be distributed to the
Participant to satisfy the applicable federal, state and local withholding taxes
incurred in connection with the exercise of the Options. Otherwise, the
Participants must pay to the Company in cash an amount sufficient to satisfy
such withholding taxes.
4.13 ADMINISTRATION OF OPTIONS.
(a) TERMINATION OF THE OPTIONS. The Committee may, at any time, in its
absolute discretion, without amendment to the Plan or any relevant Stock Option
Grant Agreement, terminate the Options then outstanding, whether or not
exercisable, provided, however, that the Company, in full consideration of such
termination, pay to such Participants an amount in cash for each such Option
equal to either (i) if the date of termination occurs prior to a Public
Offering, the Option Spread determined as of the Valuation Date immediately
preceding the date of termination, or (ii) if the date of termination occurs
coincident with or following a Public Offering, the excess of (x) the fair
market value of each share of Common Stock as of the date of termination over
(y) the exercise price of the Options.
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(b) AMENDMENT OF TERMS OF OPTIONS. The Committee may, in its absolute
discretion, amend the terms of the Options, provided, however, that any such
amendment shall not impair the Participants' rights under such Options without
such Participants' consent.
4.14 ADJUSTMENT UPON CHANGES IN COMPANY STOCK.
(a) INCREASE OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION.
Subject to any required action by the stockholders of the Company, in the event
of any increase or decrease in the number of issued shares of Company Stock
resulting from a subdivision or consolidation of shares of Company Stock or the
payment of a stock dividend (but only on the shares of Company Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Committee shall proportionally adjust the
number of shares of Common Stock subject to the Options and the exercise price
per share of Common Stock of each such Option.
(b) CERTAIN MERGERS. Subject to any required action by the stockholders
of the Company, in the event that the Company shall be the surviving corporation
in any merger or consolidation (except a merger or consolidation as a result of
which the holders of shares of Common Stock receive securities of another
corporation), the Options outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such Options would have received in
such merger or consolidation.
(c) CERTAIN OTHER TRANSACTIONS. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation involving the Company in which
the Company is not the surviving corporation or (iv) a merger or consolidation
involving the Company in which the Company is the surviving corporation but the
holders of shares of Company Stock receive securities of another
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corporation and/or other property, including cash, the Committee shall, in its
absolute discretion, have the power to:
(A) cancel, effective immediately prior to the occurrence of
such event, the Options outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participants an amount in cash, for each share
of Common Stock subject to the Options, equal to the excess of (1) the
value, as determined by the Board in its absolute discretion, of the
property (including cash) received by the holder of a share of Common
Stock as a result of such event over (2) the exercise price of the
Options; or
(B) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for
an option on or stock appreciation right with respect to, as
appropriate, some or all of the property for which such Options are
exchanged and, incident thereto, make an equitable adjustment, as
determined by the Committee in its absolute discretion, in the exercise
price of the options or stock appreciation rights, or the number of
shares or amount of property subject to the options or stock
appreciation rights or, if appropriate, provide for a cash payment to
the Participants in partial consideration for the exchange of the
Options.
(d) OTHER CHANGES. In the event of any change in the capitalization
of the Company or a corporate change other than those specifically referred to
in Sections 4.14(a), (b) or (c) hereof, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares subject to
Options outstanding on the date on which such change occurs and in the per-share
exercise price of each such Option as the Committee may consider appropriate to
prevent dilution or enlargement of rights.
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(e) NO OTHER RIGHTS. Except as expressly provided in the Plan or the
Stock Option Grant Agreements evidencing the Options, the Participants shall not
have any rights by reason of any subdivision or consolidation of shares of
Common Stock or shares of stock of any class, the payment of any dividend, any
increase or decrease in the number of shares of Common Stock or shares of stock
of any class or any dissolution, liquidation, merger or consolidation of the
Company or any other corporation. Except as expressly provided in the Plan or
the Stock Option Grant Agreements evidencing the Options, no issuance by the
Company of shares of Common Stock or shares of stock of any class, or securities
convertible into shares of Common Stock or shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to the Options or the exercise price of
such Options.
4.15 RIGHTS AS STOCKHOLDERS. The Participants shall not have any rights
as stockholders with respect to any shares of Common Stock covered by or
relating to the Options granted pursuant to the Plan until the date the
Participants become the registered owners of such shares. Except as otherwise
expressly provided in Sections 4.13 and 4.14 hereof, no adjustment to the
Options shall be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
4.16 NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan shall
confer upon the Participants any right with respect to the continuation of their
Employment or interfere in any way with the right of the Company or an
Affiliate, subject to the terms of any separate Employment agreements to the
contrary, at any time to terminate such Employment or to increase or decrease
the compensation of the Participants from the rate in existence at the time of
the grant of the Options.
4.17 NO OBLIGATION TO EXERCISE. The Grant to the Participants of the
Options shall impose no obligation upon the Participants to exercise such
Options.
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5. RESTRICTIONS ON COMMON STOCK
The rights and obligations of the Participants and their Permitted
Transferees with respect to Common Stock obtained through the exercise of the
Options provided in the Plan shall be governed by the following terms and
conditions.
5.1 LIMITATION ON TRANSFER OF COMMON STOCK. The Participants shall not
Transfer any shares of Common Stock except as provided in the Plan. It shall be
a condition precedent to any Transfer of shares of Common Stock by the
Participants (but excluding Transfers referred to in Section 5.5 (Public
Offerings) hereof) that the Transferee, if not already a Participant in the
Plan, shall agree prior to the Transfer in writing with the Company to be bound
by the terms of the Plan and the Stock Option Grant Agreement as if it had been
an original signatory thereto.
5.2 PERMITTED DISPOSITION. The Participants shall be entitled to
Transfer shares of Common Stock, at any time and from time to time, (a) if such
Transfer is a testamentary transfer effected by operation of law or by will,
(b) to a trust for the benefit of such Participant or the Participant's spouse,
issue or siblings, or (c) pursuant to and in accordance with sections 5.5
(Public Offering), 5.6 (Puts), 5.7 (Right of First Refusal), 5.8 (Calls), 5.9
(Tag-Alongs) and 5.10 (Drag-Alongs).
5.3 EFFECT OF VOID TRANSFERS. In the event of any purported Transfer of
any shares of Common Stock in violation of the provisions of the Plan, such
purported Transfer shall, to the extent permitted by applicable law, be void and
of no effect, and, until such time as a Transfer in compliance with the Plan
shall have occurred, (a) no dividend of any kind whatsoever nor any distribution
pursuant to liquidation or otherwise shall be paid to the purported Transferee
in respect of such shares, (b) the voting rights of such shares, if any, on any
matter whatsoever shall remain vested in the Transferor, (c) the Transferor
shall continue
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to be bound with respect to its obligations hereunder as the holder of such
shares and (d) no such purported Transfer in violation of the Plan shall be
registered by the Company on its books of registry.
5.4 SECURITIES ACT; LEGENDS ON STOCK; NOTICE OF TRANSFER.
(a) LEGENDS ON STOCK. Upon the exercise of the Options,
each stock certificate representing shares of Common Stock (prior to a Public
Offering pursuant to Section 5.5) shall bear a legend in substantially the
following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, (the "Act") or
under any state securities or blue sky laws and may not be transferred
in the absence of such registration or any exception therefrom under
such Act or under such state securities or blue sky laws.
The shares represented by this certificate may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or otherwise
disposed of or encumbered except in compliance with the provisions of
the Kroll Holdings, Inc. Management Stock Option Plan, as it may be
amended. A copy of such Management Stock Option Plan, and any
amendments thereto, is on file and available for inspection at the
principal offices of Kroll Holdings, Inc.
(b) NOTICE OF TRANSFER. Prior to any Transfer of shares of Common
Stock by the Participants or their Permitted Transferees, the Participants or
their Permitted Transferees will give written notice to the Company of the
intention to effect such Transfer. The following provisions shall then apply:
(i) If in the opinion of the Company's counsel the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company shall, as promptly as practicable, so
notify such Participant and he shall thereupon
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be entitled, subject to the other provisions of the Plan, to Transfer
such shares in accordance with the terms of the notice delivered by him
to the Company.
(ii) If such counsel is unable to conclude that the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company will, as promptly as practicable, so notify
such Participant and thereafter he shall not be entitled to Transfer
such shares until either such shares have been effectively registered
under the Securities Act or the provisions of this subdivision (b) of
this Section 5.4 have otherwise been complied with, it being understood
that the Company will not be requested or required to register such
shares of Common Stock.
5.5 PUBLIC OFFERING. In the event of a Public Offering, the
Participants shall be entitled, without the consent of any other Stockholder, to
Transfer any or all of their shares of Common Stock, at any time and from time
to time following such Public Offering.
5.6 PARTICIPANTS' RIGHTS TO PUT SHARES TO THE COMPANY.
(a) PUT RIGHTS. Commencing one year from the Exercise Date with
respect to the shares of Common Stock obtained through exercising the Options
pursuant to the Plan, the Participants or their Permitted Transferees shall have
the right to sell to the Company, and the Company shall have the obligation to
purchase from the Participants or their Permitted Transferees, the shares of
Common Stock obtained as a result of exercising the Options in accordance with
the terms of this Section 5.6.
(b) PUT NOTICE. No more than once each twelve-month period, the
Participants or their Permitted Transferees may exercise their right to sell
their shares of Common Stock to the Company by delivering written notice (the
"Put Notice") to the Company no less than two days in advance of the effective
date of exercise of the Put Rights (the "Put Date") specifying
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the number of shares of Common Stock such Participant or his Permitted
Transferees wish to sell to the Company and the Put Date.
(c) NUMBER OF SHARES. The Participants and their Permitted Transferees
shall have the right to sell to the Company, and the Company shall be obligated
to purchase, in any calendar year, no more than 1/3 of the total number of
shares of Common Stock that each Participant obtained as a result of exercising
the Options Granted hereunder, less shares of Common Stock for which such
Participant has been paid in cash pursuant to Section 4.8(a) hereto.
(d) PAYMENT FOR SHARES. Following receipt of the Put Notice pursuant to
this Section 5.6, the Company shall tender to the respective Participants or
Permitted Transferees a certified check in an amount equal to the product of the
number of shares of Common Stock being sold and the Appraised Value of a share
of Common Stock. The Appraised Value shall be determined as of the Appraisal
Date either (i) immediately preceding the Put Date if such Put Date is on or
before June 30, or (ii) immediately succeeding the Put Date if such Put Date is
after June 30 but before January 1 of the following calendar year. The Company
may delay such payment for a reasonable time pending the availability of the
necessary financial information and the calculation of Appraised Value by the
Appraiser. Regardless of whether payment has been delayed by the Company
pursuant to this Section 5.6, the Participant or Permitted Transferee shall
deliver to the Company stock certificates for such shares of Common Stock, duly
endorsed in blank, as soon as practicable after delivery of the Put Notice.
(e) RESTRICTION ON RIGHTS TO PUT. The Company shall not be obligated to
purchase shares of Common Stock from the Participants or Permitted Transferees
if, at the time payment for such shares of Common Stock would be required to be
made, (i) such payments would result in a breach of, or could constitute an
event of default under, any Note Purchase
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Agreement; (ii) an event of default of any Note Purchase Agreement has occurred
and is continuing; or (iii) such payments would violate applicable law.
(f) EXPIRATION OF PUT RIGHTS. The Put Rights shall expire on the date
that a Public Offering of Company Stock occurs.
5.7 PARTICIPANTS' RIGHT TO TRANSFER AND COMPANY'S RIGHT OF FIRST
REFUSAL. Prior to a Public Offering and following the fifth anniversary of the
Exercise Date with respect to the shares of Common Stock obtained through
exercising the Options pursuant to the Plan, the Participants and their
Permitted Transferees shall have the right (subject to the other terms of the
Plan) to Transfer such shares of Common Stock held by such holder(s) in
accordance with the terms of this Section 5.7. In the event that such holder(s)
obtains from an independent purchaser a good faith bona fide offer to purchase
shares of Common Stock held by such holder for a minimum of five years, he shall
promptly notify the Company in writing of the name and address of such
independent purchaser and inform the Company of the status of such negotiations.
When and if such holder (a "Selling Stockholder") decides to Transfer any such
shares of Common Stock, such Selling Stockholder shall promptly deliver to the
Company a copy of such good faith BONA FIDE offer along with the identity of the
independent purchaser and a written notice that, unless the Company exercises
its rights granted in this Section 5.7, such Selling Stockholder will Transfer
his shares of Common Stock in accordance therewith (the "Stockholder Notice").
At any time during the ten business days following receipt of the Stockholder
Notice, the Company may give such Selling Stockholder notice of exercise of its
right to purchase all, but not less than all, of the shares of Common Stock
which the Selling Stockholder has given notice of his intention to Transfer in
the Stockholder Notice (the "Company Notice"). Upon receipt of the Company
Notice, the Selling Stockholder shall sell the shares of Common Stock described
in the Stockholder Notice to the Company at a price equal to the product of the
number of shares of Common Stock being sold and the Appraised
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Value of a share of Common Stock. The Appraised Value shall be determined as of
the Appraisal Date either (x) immediately preceding the date of the Company
Notice if such date is on or before June 30, or (y) immediately succeeding the
date of the Company Notice if such date is after June 30 but before January 1 of
the following calendar year. The Company may delay such payment for a reasonable
time pending the availability of the necessary financial information and the
calculation of Appraised Value by the Appraiser. Regardless of whether the
Company delays such payment pursuant to this Section 5.7, if the Company
exercises its right of first refusal under this Section 5.7, the Participant or
Permitted Transferee shall deliver to the Company stock certificates for such
shares of Common Stock, duly endorsed in blank, as soon as practicable after
receipt of the Company Notice. If the Selling Stockholder shall not receive the
Company Notice as provided in the foregoing sentence, he shall have the right to
Transfer all, but not less than all, of the shares of Common Stock offered for
Transfer in the Stockholder Notice to the independent purchaser specified in the
Stockholder Notice, for the consideration and in accordance with the terms and
conditions set out in such Stockholder Notice and in compliance with the terms
of the Plan, provided that such Selling Stockholder shall not Transfer any
shares of Common Stock to (i) any Person, or Affiliate of such Person, who
competes, or is expected to compete, with the Company or any of its Affiliates,
(ii) any Person, or Affiliate of such Person, who the Company determines (in its
sole discretion) might cause harm to the Company by virtue of becoming a
stockholder of the Company, (iii) any bank or other financial institution for
the purpose of pledging or granting a security interest in such shares of Common
Stock in order to secure indebtedness of such Selling Stockholder, (iv) any
other shareholder of the Company without the written consent of the Majority
Stockholder, or (v) any Person, or Affiliate of such Person, which has a
material adverse interest to, or is involved in a pending or threatened
litigation or legal proceeding with, the Company, the Majority Stockholder or
any of their Affiliates.
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5.8 COMPANY'S CALL RIGHTS
(a) In the event that a Participant ceases to be Employed for any
reason other than (i) death, (ii) Disability, or (iii) termination at or after
age 65 (other than a termination by the Company for Cause), the Company shall
have the right to purchase from such Participant and all of his Permitted
Transferees, and such Participant and all of his Permitted Transferees shall
have the obligation to sell to the Company, all (but not less than all) of such
Participant's and/or his Permitted Transferee's shares of Common Stock at a
price equal to the product of (x) the number of shares of Common Stock being
purchased and (y) the Appraised Value of a share of Common Stock. The Appraised
Value shall be determined as of the Appraisal Date either (i) immediately
preceding the Call Date if such Call Date is on or before June 30, or (ii)
immediately succeeding the Call Date if such Call Date is after June 30 but
before January 1 of the following calendar year. The Company may delay such
payment for a reasonable time pending the availability of the necessary
financial information and the calculation of Appraised Value by the Appraiser.
Regardless of whether the Company delays such payment pursuant to this Section
5.8, the Participant or Permitted Transferee shall deliver to the Company stock
certificates for such shares of Common Stock, duly endorsed in blank, as soon as
practicable following the Call Date.
(b) The Company's right to purchase shares of Common Stock shall be
exercised by the delivery of a written notice to such Participant or his
Permitted Transferees, specifying the "Call Date," which date shall be not less
than one and no more than ninety days after the date of such notice, on which
the Company shall purchase all (but not less than all) of such shares of Common
Stock held by the Participant and/or his Permitted Transferees.
(c) The Call Rights shall expire on the date that a Public Offering of
Company Stock occurs.
21
<PAGE> 22
5.9 PARTICIPANTS' TAG-ALONG RIGHTS.
(a) In the event of a Public Offering or a sale of all or substantially
all of the stock of the Company, the Participants or their Permitted Transferees
will be permitted to participate in such transaction by selling the number of
shares of Common Stock owned by each Participant and all of his Permitted
Transferees as a result of exercising the Options provided herein equal to the
product of the number of shares of Common Stock owned by such Participant and
all of his Permitted Transferees and a fraction, the numerator of which is the
total number of shares of Common Stock proposed to be sold by the Majority
Stockholder (before giving effect to this provision) and the denominator of
which is the total number of shares of Common Stock then owned by the Majority
Stockholder and his Permitted Transferees plus the total number of shares of
Company Stock owned on or before the fifth business day prior to the date of
such Public Offering or sale, by any other stockholder of the Company entitled
to participate in such sale, including without limitation the other Participants
of the Plan. The Company shall notify the Participants in writing of such Public
Offering or sale, indicating the price and other material terms and conditions
of the proposed sale and the intended closing date of such sale. Any purchase
from the Participants under this Section 5.9 shall be at the same price per
share of Common Stock and on the same terms and conditions as apply to the
purchase of shares from the Majority Stockholder. Each Participant shall give
the Company written notice of how many shares of Common Stock he and all of his
Permitted Transferees desire to sell within 10 days of receiving notice of the
proposed transaction. If the Company does not receive notice from any
Participant or his Permitted Transferees within such ten-day period, such
Participant and/or his Permitted Transferees shall be deemed to have elected not
to exercise the rights under this Section 5.9 and the Company may complete the
proposed Public Offering or sale at the price and on the terms and conditions of
the notice to the Participants.
22
<PAGE> 23
(b) The Company shall have the right, but not the obligation, to
satisfy the Participants' Tag-Along Rights by redeeming the number of shares of
Common Stock that each Participant is entitled to sell under this Section 5.9 in
lieu of allowing the Participants to participate in the sales transaction. On
the date specified by the Company in a written notice to the Participants for
such redemption, the Company shall tender to each Participant or Permitted
Transferee a certified check in the amount equal to the product of the number of
shares of Common Stock being redeemed and the price per share of Common Stock
being paid in the sales transaction and each such Participant or Permitted
Transferee shall deliver to the Company stock certificates for such shares of
Common Stock, duly endorsed in blank.
5.10 MAJORITY STOCKHOLDER'S DRAG-ALONG RIGHTS. In the event that the
Majority Stockholder or any of his Permitted Transferees agree to sell all or
substantially all of their shares of Company Stock, the Majority Stockholder
shall have the right, but not the obligation, to require the Participants and
all of their Permitted Transferees to sell, and the Participants and all of
their Permitted Transferees shall have the obligation to sell, under the same
terms and conditions that are applicable to the sale by the Majority Stockholder
and at the same time as such sale, up to that total number of shares of Common
Stock owned by each Participant and all of his Permitted Transferees obtained by
multiplying (a) the total number of shares of Common Stock that are proposed to
be sold (before giving effect to this provision) by the Majority Stockholder and
all of his Permitted Transferees, by (b) a fraction, the numerator of which is
the total number of shares of Common Stock owned on or before the fifth business
day prior to the date of such sale by such Participant and all of his permitted
Transferees and the denominator of which is the total number of shares of Common
Stock owned by the Majority Stockholder and all of his Permitted Transferees.
23
<PAGE> 24
6. CERTAIN VOTING AGREEMENTS.
6.1 OBLIGATION TO BE COUNTED FOR A QUORUM. Once the Options are
exercised, the Participants and all of their Permitted Transferees shall be
present in person or represented by proxy at all meetings of the stockholders of
the Company, so that all shares owned by such Participants or their Permitted
Transferees may be counted for the purpose of determining the presence of a
quorum at such meetings.
6.2 VOTING BY STOCKHOLDERS. Once the Options are exercised, the
Participants shall vote any shares of Common Stock owned by them, and to cause
all of their Permitted Transferees to vote any shares of Common Stock owned by
such Permitted Transferees, whether by note, ballot, proxy or written consent,
in any vote of the stockholders of the Company in the same manner as the
Majority Stockholder, or upon the death of the Majority Stockholder, in the same
manner as the holders of a majority of the shares held by the Permitted
Transferees of the Majority Stockholder.
7. MISCELLANEOUS
7.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be given and shall be deemed to have been duly given if
delivered in person, by cable, telegram, telex or facsimile transmission, to the
parties as follows:
If to the Participant:
To the address shown on the Stock Option Grant Agreement.
If to the Majority Stockholder:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: Jules B. Kroll
24
<PAGE> 25
If to the Company:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: General Counsel and Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.2 DESCRIPTIVE HEADINGS. The headings in the Plan are for convenience
of reference only and shall not limit or otherwise affect the meaning of the
terms contained herein.
7.3 SEVERABILITY. In the event that any one or more of the provisions,
subdivisions, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions, subdivisions,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the Company, Majority
Stockholder and Participants shall be enforceable to the fullest extent
permitted by law.
7.4 GOVERNING LAW. The Plan shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without regard to
the provisions governing conflict of laws.
January 31, 1996
25
<PAGE> 26
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 9th day of February, 1996 between KROLL
HOLDINGS, INC., a Delaware corporation, (the "Company") and _____________ (the
"Participant").
WHEREAS, the Company has adopted and maintains the Kroll Holdings, Inc.
Management Stock Option Plan (the "Plan") to promote the interests of the
Company and its stockholders by providing the Company's key employees with an
appropriate incentive to encourage them to continue in the employ of the Company
and to improve the growth and profitability of the Company;
WHEREAS, Section 4 of the Plan provides for the Grant to Participants
in the Plan of Options to purchase, or receive the appreciation in value of, as
the case may be, shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. GRANT OF OPTIONS. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant Options with respect to __________ shares of Common Stock of the
Company.
2. GRANT DATE. The Grant Date of the Options hereby Granted is January
1, 1995.
3. EXPIRATION OF OPTIONS. The Options hereby Granted shall expire on
the earlier of: (a) the 10th anniversary of the Grant Date; (b) the date the
Participant's Employment ceases due to voluntary termination of Employment
before the Participant attains age 65; or (c) 90 days after termination or
cessation of Employment due to the Participant's (i) death, (ii) Disability,
(iii) termination of Employment at or after age 65 other than for Cause, or (iv)
termination of Employment by the Company or an Affiliate other than for Cause.
4. TERMINATION OF EMPLOYMENT FOR CAUSE. In the event the Participant's
Employment is deemed to have been terminated for Cause, all Options, whether
vested or unvested, shall expire at the commencement of business as of the
date of such termination.
5. INCORPORATION OF PLAN. All terms and conditions of the Plan are
incorporated herein and made part hereof as if stated herein. If there is any
conflict between the terms and conditions of the Plan or this Agreement, the
terms and conditions of the Plan, as interpreted by the Committee, shall govern.
All capitalized terms used herein shall have the meaning given to such terms in
the Plan.
6. EXERCISE PRICE. The exercise price of each Option hereby Granted is
$400.00.
<PAGE> 27
7. VESTING DATE OF OPTIONS. The Vesting Date with respect to the
Options hereby Granted shall be as follows: (a) 25% of Options are exercisable
as of January 1, 1996; and (b) 18.75% become exercisable each January 1
thereafter, except that the Options shall become fully exercisable on (i) the
date of a Corporate Event; or (ii) the date a Participant's Employment ceases
due to (A) Disability, (B) death, (C) termination of Employment at or after age
65 other than for Cause, or (D) termination of Employment by the Company or any
of its Affiliates other than for Cause.
8. LIMITATION ON TRANSFER. During the lifetime of the Participant, the
Options shall be exercisable only by the Participant. No Option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution. All shares of Common Stock obtained pursuant to the Options
Granted herein shall not be transferred except as provided in, and in accordance
with, the Plan.
9. DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
10. INTEGRATION. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement, including without limitation the
Plan, supersedes all prior agreements and understandings between the parties
with respect to its subject matter.
11. OTHER STOCKHOLDERS' AGREEMENTS. The Participant or his respective
Permitted Transferees shall not enter into any stockholder agreement or
arrangement of any kind with any person with respect to the shares of Common
Stock received pursuant to the Options provided herein inconsistent with the
provisions of this Agreement (whether or not such agreement or arrangement is
with other stockholders that are not parties to this Agreement).
12. SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors, assigns and Transferees, PROVIDED that the
Participant may not assign to any Person any of his rights hereunder other than
in connection with a Transfer to such Person of shares in accordance with the
provisions hereof.
2
<PAGE> 28
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
regard to the provisions governing conflict of laws.
15. INJUNCTIVE RELIEF. The Participant acknowledges and agrees that a
violation of any of the terms of this Agreement, including without limitation
the Plan, will cause the Company irreparable injury for which adequate remedy at
law is not available. Therefore, the Participant agrees that the Company shall
be entitled to an injunction, restraining order or other equitable relief from
any court of competent jurisdiction, restraining the Participant and/or any of
his Permitted Transferees from committing any violations of the provisions of
this Agreement, including without limitation the Plan.
16. PARTICIPANT ACKNOWLEDGMENT. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Committee in respect of the
Plan, this Agreement and the Options shall be final and conclusive.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement and the Plan as of the day and year first
written above.
KROLL HOLDINGS, INC.
By:
--------------------------------
Nazzareno E. Paciotti
Chief Financial Officer
-----------------------------------
Address:
3
<PAGE> 1
EXHIBIT 10.33
================================================================================
PLAN OF REORGANIZATION AND STOCKHOLDERS AGREEMENT
by and among
AMERICAN INTERNATIONAL GROUP, INC.,
JULES B. KROLL
and
KROLL HOLDINGS, INC.
-------------
June 15, 1993
-------------
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
I. REORGANIZATION
1.1 AIG Contribution........................................................................ 2
1.2 Kroll Contribution...................................................................... 3
1.3 Effect of the Reorganization............................................................ 3
1.4 Closing................................................................................. 6
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Due Organization, Etc................................................................... 5
2.2 Licenses; Permits....................................................................... 6
2.3 Authorization; Execution and Delivery of
Agreement. ............................................................................ 6
2.4 No Conflicts; Consents.................................................................. 7
2.5 Capital Stock........................................................................... 9
2.6 No Brokers.............................................................................. 10
2.7 Litigation and Claims................................................................... 11
2.8 Financial Statements; Taxes............................................................. 11
2.9 Use of Proceeds......................................................................... 12
III. REPRESENTATIONS AND WARRANTIES OF AIG
3.1 Due Organization, Etc................................................................... 13
3.2 Authorization; Execution and Delivery of
Agreement.............................................................................. 13
3.3 No Consent.............................................................................. 14
3.4 No Brokers.............................................................................. 14
3.5 Litigation and Claims................................................................... 14
3.6 Investment Purposes..................................................................... 15
3.7 Accredited Investor..................................................................... 15
IV. REPRESENTATIONS AND WARRANTIES OF MR. KROLL
4.1 Title to the Kroll Group Stock.......................................................... 15
4.2 Authority............................................................................... 15
V. REGISTRATION RIGHTS
5.1 Piggy-Back Registration................................................................. 16
5.2 Filings; Information.................................................................... 29
5.3 Participation in Underwritten Registrations............................................. 22
5.4 Indemnification and Contribution Relating to
Registrations.......................................................................... 22
</TABLE>
i
<PAGE> 3
<TABLE>
Page
----
<S> <C>
VI. COVENANTS OF THE COMPANY
6.1 Financial Statements and Other Reports.................................................. 27
6.2 Composition of Board.................................................................... 28
6.3 Restrictions on the Company............................................................. 29
VII. COVENANTS OF AIG AND MR. KROLL
7.1 Term.................................................................................... 31
7.2 Restrictions on AIG..................................................................... 31
7.3 Voting.................................................................................. 33
7.4 Sale of Shares.......................................................................... 34
7.5 Tag-Along Rights........................................................................ 36
7.6 Confidentiality......................................................................... 37
7.7 Stock Legend............................................................................ 38
VIII. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
8.1 Conditions to the Obligations of AIG.................................................... 39
8.2 Conditions to the Obligations of the Company and Mr. Kroll.............................. 41
IX. GENERAL PROVISIONS
9.1 Public Disclosure and Confidentiality................................................... 43
9.2 Survival of Representations, Warranties and
Agreements............................................................................ 43
9.3 Termination............................................................................. 43
9.4 Notices................................................................................. 44
9.5 Specific Performance.................................................................... 45
9.6 Fees and Expenses....................................................................... 46
9.7 Entire Agreement........................................................................ 46
9.8 Waivers and Amendments.................................................................. 46
9.9 Governing Law........................................................................... 47
9.10 Binding Effect; No Assignment.......................................................... 47
9.11 Counterparts............................................................................ 47
9.12 Further Assurances...................................................................... 47
9.13 Captions................................................................................ 48
9.14 Construction and Representation by Counsel.............................................. 48
9.15 No Third-Party Beneficiaries............................................................ 48
9.16 Definitions............................................................................. 48
</TABLE>
ii
<PAGE> 4
SCHEDULES
---------
1.2 Common Stock Issued to the Existing Stockholders
2.1 Encumbrances and Partially Owned Subsidiaries
EXHIBITS
--------
A Form of Notes
iii
<PAGE> 5
PLAN OF REORGANIZATION AND STOCKHOLDERS AGREEMENT
-------------------------------------------------
PLAN OF REORGANIZATION AND STOCKHOLDERS AGREEMENT (the
"AGREEMENT") dated as of June 15, 1993 by and among AMERICAN INTERNATIONAL
GROUP, INC., a Delaware corporation ("AIG"), JULES B. KROLL and KROLL HOLDINGS,
INC., a Delaware corporation (the "COMPANY").
WHEREAS, Mr. Kroll owns 92% of the capital stock of each of
Kroll Associates, Inc., a Delaware corporation ("Associates"), Harrison/Kroll
Environmental Services, Inc., a Louisiana corporation ("H/K"), Palumbo Partners,
Inc., a Delaware corporation ("Palumbo"), and Kroll Associates U.K. Limited, a
corporation organized under the laws of England ("U.K.") (Associates, H/K,
Palumbo and O.K., together with the Subsidiaries (as hereinafter defined) of
each such entity, are hereinafter referred to, collectively, as the "KROLL
GROUP" and, individually, as a "MEMBER OF THE KROLL GROUP");
WHEREAS, AIG, Mr. Kroll and all of the other holders of
capital stock of the members of the Kroll Group (other than the Subsidiaries)
(such holders are hereinafter referred to as the "EXISTING STOCKHOLDERS") wish
to provide for the reorganization described herein (the "REORGANIZATION");
WHEREAS, in connection with the Reorganization, AIG will
contribute cash and notes to the Company and will receive, in exchange therefor,
23,100 shares (the "Shares") of the Company's Class A Common Stock, par value
$.01 per share ("'CLASS A COMMON STOCK");
<PAGE> 6
WHEREAS, in connection with the Reorganization, Mr. Kroll and
the Existing Stockholders will contribute all of the capital stock held by them
of the members of the Kroll Group (the "OUTSTANDING STOCK") and will receive, in
exchange therefor, shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), as a result of which the Company shall become a holding
company of the Kroll Group; and
WHEREAS, it is intended that the Reorganization shall
constitute a tax-free transaction in which the contribution to the Company of
cash, notes and the capital stock of the Kroll Group shall be made solely in
exchange for the capital stock of a corporation that, immediately following such
contribution, is controlled by the parties making such contributions, as
provided in Section 351 of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements of the parties hereto contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and subject to the satisfaction or waiver of the conditions
hereof, the parties hereto do hereby agree as follows:
I. REORGANIZATION
1.1. AIG CONTRIBUTION. Upon the terms and subject to the
conditions set forth in this Agreement, the Company agrees to issue and deliver
to AIG, the Shares. As
2
<PAGE> 7
consideration for the Shares, at the Closing (as hereinafter defined), AIG shall
contribute to the Company $14,999,990, of which $10,000,000 shall be paid in
immediately available funds and $4,999,990 shall be paid in the form of two
notes substantially in the form of Exhibit A to this Agreement (the
"Notes").
1.2. KROLL CONTRIBUTION. Upon the terms and subject to the conditions
set forth in this Agreement, the Company agrees to issue and deliver to Mr.
Kroll and each of the Existing Stockholders the number of shares of Common Stock
set forth opposite his name on Schedule 1.2 to this Agreement. As consideration
for such shares of Common Stock, at the Closing, Mr. Kroll and each of the
Existing Stockholders shall contribute to the Company all of the shares of
Outstanding Stock then held by him, free and clear of all Encumbrances (as
hereinafter defined), and together with all rights now and hereafter attaching
thereto. As used herein, "ENCUMBRANCE" shall mean any lien, pledge, claim,
option, encumbrance, mortgage, hypothecation, equity, charge, or any other
similar limitation, except any such limitation contemplated by this Agreement.
1.3. EFFECT OF THE REORGANIZATION. By virtue of the
Reorganization, on the Closing Date (as hereinafter defined), except as set
forth in Schedule 2.l, each member of the Kroll Group will be a wholly owned
subsidiary of the Company.
3
<PAGE> 8
1.4. CLOSING. (a) The Closing of the transactions provided for
in this Agreement (the "CLOSING") shall take place at the offices of Cleary,
Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York at 10:00 a.m.
on June 15, 1993 or such other place and at such other time as the parties may
agree after each of the conditions set forth in Article VIII of this Agreement
shall have been fulfilled or waived in accordance herewith (the "CLOSING DATE").
(b) At the Closing, the Company will deliver to AIG the
following:
(i) a stock certificate representing the Shares;
and
(ii) the documents referred to in Section 8.1 of
this Agreement.
(c) At the Closing, the Company will deliver to Mr. Kroll and
each of the Existing Stockholders a stock certificate representing the number of
shares of Common Stock to which he is entitled as set forth in Section 1.2 of,
and Schedule 1.2 to, this Agreement;
(d) At the Closing, AIG will deliver the following:
(i) to the Company, the consideration for the
Shares, in the forms and amounts as set
forth in Section 1.1; and
(ii) to the Company and Mr. Kroll, the documents
referred to in Section 8.2 of this
Agreement.
4
<PAGE> 9
(e) At the Closing, Mr. Kroll and each of the Existing
Stockholders will deliver the following:
(i) to the Company, all of the shares of
Outstanding Stock held by such individual;
and
(ii) to AIG, the documents referred to in Section
8.1 of this Agreement.
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of AIG and
Mr. Kroll that:
2.1. DUE ORGANIZATION, ETC. The Company and each member of the
Kroll Group is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and each has
all requisite corporate power and authority to own, operate and lease its
respective properties and assets and to conduct its respective businesses as now
conducted and is qualified to do business in each state or other jurisdiction
where the nature of its properties, assets or businesses requires such
qualification other than where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, business, operations, properties or assets
(collectively, the "CONDITION") of the Company or any member of the Kroll Group.
All of the outstanding shares of capital stock of each member
5
<PAGE> 10
of the Kroll Group are validly issued, fully paid and nonassessable, and, except
as set forth on Schedule 2.1 of this Agreement, all of such outstanding shares
shall, as of the Closing, be owned, directly or indirectly, by the Company free
and clear of all Encumbrances. As used herein, "SUBSIDIARY" means a corporation
or other business entity or arrangement a majority of the outstanding voting
securities or ownership interests of which is owned, directly or indirectly, by
the Company, by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries.
2.2. LICENSES; PERMITS. Each member of the Kroll Group has
obtained and maintains in full force and effect all permits, licenses, consents,
approvals, registrations, memberships, authorizations and qualifications under
all federal, state, local and foreign laws and regulations, and with all
federal, state, local and foreign governmental or regulatory authorities (each,
an "AUTHORITY"), required for the conduct by it of its businesses and the
ownership or possession by it of its properties and assets other than where the
failure to obtain or maintain such permits, licenses, consents, approvals,
registrations, memberships, authorizations or qualifications would not,
individually or in the aggregate, have a material adverse effect on the
Condition of the Company or any member of the Kroll Group.
2.3. AUTHORIZATION; EXECUTION AND DELIVERY OF AGREEMENT. (a)
The execution and delivery of this Agreement,
6
<PAGE> 11
the issuance of the Shares to AIG and the Common Stock to Mr. Kroll and the
Existing Stockholders and management under the Restricted Stock Plan (as
hereinafter defined) and the consummation of the transactions contemplated
hereby (i) are within the corporate power and authority of the Company, and (ii)
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(b) As of the Closing Date, the Shares shall be in due and
proper form, duly authorized by all necessary corporate action on the part of
the Company, and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration therefor set forth herein,
including payment in full of all amounts due on the Notes, the Shares will be
validly issued, fully paid and nonassessable.
2.4. NO CONFLICTS; CONSENTS. The execution and delivery of
this Agreement, the issuance of the Shares to AIG and the Common Stock to Mr.
Kroll and the Existing Stockholders and management under the Restricted Stock
Plan and the consummation of the transactions contemplated hereby do not
conflict with, or result in any violation of or default under, or permit the
acceleration of any obligation under, or the creation or imposition of any
Encumbrance on, any of the
7
<PAGE> 12
properties or assets of the Company or any member of the Kroll Group under, (i)
any provision of the certificate of incorporation or by-laws of the Company or
any member of the Kroll Group, (ii) any indenture, lease, mortgage, deed of
trust, loan agreement or other agreement or instrument, or any permit, of the
Company or any member of the Kroll Group or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation of any Authority to which the
Company or any member of the Kroll Group is a party or by which any of them is
bound, other than as set forth herein or where such conflict, violation,
default, acceleration or Encumbrance would not, individually or in the
aggregate, have a material adverse effect on the Condition of the Company and
the Kroll Group taken as a whole or on the benefits intended to be afforded to
AIG or Mr. Kroll under this Agreement. No consent, approval, order or
authorization of, or registration, declaration, filing with or notice to, any
Authority or third party is required to be made or obtained by the Company or
any member of the Kroll Group (including, without limitation, under any
environmental or occupational, health and safety laws) in order to execute or
deliver this Agreement, effect the Reorganization, issue the Shares or Common
Stock or consummate the transactions contemplated hereby except (i) the
amendment to the Stockholders' Agreement dated as of March 20, 1992 among the
Kroll Group, Robert J. McGuire and Joseph R. Rosetti, (ii) the amendment to the
Stockholders' Agreement
8
<PAGE> 13
dated as of December 31, 1992 among the Kroll Group, Robert J. McGuire, Joseph
R. Rosetti and Ernest Brod, (iii) the consent of Teachers Insurance and Annuity
Association of America and Herbert Kurz (collectively, "TIAA") under the Note
Purchase Agreement dated as of December 15, 1989 and as amended by Consent and
Amendment No. 1 dated November 4, 1991 (the "Note Purchase Agreement") and (iv)
where the failure to make or obtain any such consent, approval, order,
authorization, registration, declaration, filing or notice would not have a
material adverse affect on the Condition of the Company and the Kroll Group
taken as a whole or on the benefits intended to be afforded to AIG or Mr. Kroll
under this Agreement.
2.5. CAPITAL STOCK. (a) As of the Closing Date, the authorized
capital stock of the Company will consist solely of 153, 800 shares of Common
Stock, of which 67, 663 shares shall be issued to Mr. Kroll and the Existing
Stockholders and outstanding, and 46,200 shares of Class A Common Stock, of
which 23,100 shares shall be issued to AIG and outstanding. Upon the
consummation of the transactions contemplated by this Agreement all of the
issued and outstanding shares of Common Stock and Class A Common Stock will have
been validly issued and fully paid and non-assessable.
(b) As of the Closing Date, other than as contemplated by this
Agreement, there shall not be authorized or outstanding any subscriptions,
options, conversion rights,
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warrants or other agreements, securities or commitments of any nature whatsoever
(whether oral or written and whether firm or conditional) obligating the Company
or any Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, to any person any shares of Common Stock or any other shares of the
capital stock of the Company or any shares of the capital stock of any
Subsidiary, or any securities convertible into or exchangeable for any such
shares, or obligating any such person to grant, extend or enter into any such
agreement or commitment, except for 9,240 restricted shares of Common Stock
authorized for issuance under the Company's Restricted Stock Plan dated as of
the Closing Date (the "Restricted Stock Plan"), of which 7,700 shares of Common
Stock are being awarded as of the Closing Date and 1,540 shares of Common Stock
shall be reserved for supplemental awards to participants under the plan. Except
as provided herein, no class of capital stock of the Company is entitled to
preemptive rights.
2.6. NO BROKERS. No Broker, finder, investment banker or other
person or entity has acted on behalf of the Company in connection with the
transactions contemplated by this Agreement in such manner as to give rise to
any valid claim against AIG for any broker's fee, finder's fee or similar
compensation in connection with the transactions contemplated by this Agreement.
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2.7. LITIGATION AND CLAIMS. There is no claim, prosecution,
suit, action, arbitration, proceeding, investigation or review pending or, to
the knowledge of the Company, threatened against or affecting the Company, any
member of the Kroll Group or any of their respective properties or assets which
questions the validity of this Agreement, the Shares, the Common Stock or any
action taken or to be taken pursuant hereto, seeks to prohibit or impose any
limitations on AIG's ownership of the Shares or Mr. Kroll's ownership of the
Common Stock or which is reasonably likely to have a material adverse effect on
the transactions contemplated by this Agreement. Neither the Company nor any
member of the Kroll Group is in default with respect to any judgment, decree,
injunction, rule or order of any court, arbitrator or Authority outstanding
against or binding upon the Company or any member of the Kroll Group, other than
where any such defaults would not, individually or in the aggregate, have a
material adverse effect on the Condition of the Company or any member of the
Kroll Group.
2.8. FINANCIAL STATEMENTS; TAXES. (a) The combined financial
statements for the fiscal year ended December 31, 1992 (the "FINANCIAL
STATEMENTS") delivered to AIG were prepared in accordance with generally
accepted accounting principles, applied on a consistent basis during the periods
involved (except as may be set forth in the notes thereto), and on that basis
fairly present the combined
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financial position, assets and liabilities of the Kroll Group as at the dates
thereof and the results of their operations and changes in financial position
for the periods then ended, subject, in the case of any interim financial
statements, to normal year-end adjustments and any other adjustments described
therein.
(b) Except as otherwise set forth in the Financial Statements,
all tax returns, statements, reports, withholding obligations and forms
thereinafter collectively referred to as "RETURNS") required to be filed with
any Authority on or before the Closing Date by the Company or any member of the
Kroll Group have been filed or will be filed on or before the Closing Date in
accordance with all applicable laws; the Company and all relevant members of the
Kroll Group have timely paid all taxes shown as due and payable on the Returns;
and no action, suit, proceeding, investigation, audit or claim relating to taxes
is proposed or pending against the Company or any member of the Kroll Group that
would affect the Financial Statements; other than where such failure to file or
pay or where such action, suit, proceeding, investigation, audit or claim would
not, individually or in the aggregate, have a material adverse effect on the
Condition of the Company or any member of the Kroll Group.
2.9. USE OF PROCEEDS. The Company intends to use the proceeds
from the capital contribution for the Shares for general corporate purposes.
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III. REPRESENTATIONS AND WARRANTIES OF AIG
AIG represents and warrants to the Company and Mr.
Kroll that:
3.1. DUE ORGANIZATION, ETC. AIG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2. AUTHORIZATION; EXECUTION AND DELIVERY OF AGREEMENT. AIG
has a requisite corporate power and authority to execute this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of AIG. This
Agreement has been duly executed and delivered by AIG and this Agreement
constitutes, and, when executed and delivered by AIG, the Notes will constitute,
a legal, valid and binding obligation of AIG enforceable against AIG in
accordance with its terms. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor the compliance
with or fulfillment of the terms and provisions hereof will conflict with or
result in a breach or violation of, or constitute with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancelation or acceleration) under, any of the terms, conditions or provisions
of (i) any corporate governance documents of AIG, (ii) any agreement, indenture,
mortgage,
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lien, lease or other instrument or restriction of any kind to which AIG is a
party or by which AIG is otherwise bound or affected or (iii) any order, writ,
injunction, decree, statute, rule or regulation applicable to AIG.
3.3. NO CONSENT. No consent, approval, order or authorization
of, or registration, declaration, filing with or notice to, any Authority is
required to be made or obtained by AIG in order to execute or deliver this
Agreement or to consummate the transactions contemplated hereby.
3.4. NO BROKERS. No Broker, finder, investment banker or other
person or entity has acted on behalf of AIG in connection with the transactions
contemplated by this Agreement in such manner as to give rise to any valid claim
against the Company, any member of the Kroll Group or any Subsidiary for any
broker's fee, finder's fee or similar compensation in connection with the
transactions contemplated by this Agreement.
3.5. LITIGATION AND CLAIMS. There is no claim, prosecution,
suit, action, arbitration, proceeding, investigation or review pending or, to
the knowledge of AIG, threatened against or affecting AIG, or any of its
properties or assets which questions the validity of this Agreement or any
action taken pursuant hereto or which is reasonably likely to have a material
adverse effect on the transactions contemplated by this Agreement.
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3.6. INVESTMENT PURPOSES. AIG is acquiring the Shares solely
for its own account for the purpose of investment and not with a view to the
public distribution thereof.
3.7. ACCREDITED INVESTOR. AIG (i) has such knowledge and
experience in business and financial matters and with respect to investments in
securities to enable it to understand and evaluate the risks of such investments
and form an investment decision with respect thereto and is able to bear the
risk of such investment for an indefinite period and to afford a complete loss
thereof and (ii) is an "accredited investor" as defined in Rule 501 ta) of
Regulation D under the Securities Act of 1933, as amended (the "SECURITIES
ACT").
IV. REPRESENTATIONS AND WARRANTIES OF MR. KROLL
Mr. Kroll hereby represents and warrants to AIG and the
Company that:
4.1. TITLE TO THE KROLL GROUP STOCK. Mr. Kroll is the lawful
owner, of record and beneficially, of 92% of the capital stock of Associates,
H/K, Palumbo and U.K. and has good and marketable title to such shares, free and
clear of any Encumbrances.
4.2. AUTHORITY. Mr. Kroll has all requisite power and
authority and capacity to enter into this Agreement and to perform his
obligations hereunder and this
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Agreement is a legal, valid and binding obligation of Mr. Kroll, enforceable
against him in accordance with its terms.
V. REGISTRATION RIGHTS
5.1. PIGGY-BACK REGISTRATION. (a) If at any time after the
Closing the Company proposes to file a registration statement under the
Securities Act with respect to an offering of securities of the Company for the
account of Mr. Kroll, then the Company shall give written notice of such
proposed filing to AIG as soon as practicable (but in no event less than ten
business days before the anticipated filing date), and such notice shall offer
AIG the opportunity to include some or all of its Registrable Securities (as
hereinafter defined) in such registration (a "PIGGY-BACK REGISTRATION"). The
Company shall use its best efforts to cause the managing Underwriter or
Underwriters (as hereinafter defined) of a proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company included therein. As used herein, "REGISTRABLE
SECURITIES" means the Shares until (i) a registration statement covering such
Shares has been declared effective by the Securities and Exchange Commission
(the "COMMISSION") and the Shares have been disposed of pursuant to such
effective registration statement or (ii) such Shares are sold under
circumstances in which all of the applicable
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conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met. As used herein, "UNDERWRITER" means a securities dealer
who purchases any Registrable Securities as principal and not as part of such
dealer's market-making activities.
(b) The Company will bear all expenses of registrations
pursuant to Section 5.1(a) of this Agreement (other than underwriting discounts
and commissions and brokerage commissions and fees, if any, payable with respect
to Registrable Securities sold by AIG), including, without limitation,
registration fees, printing expenses, expenses of compliance with Blue Sky or
other state securities laws, and legal and audit fees incurred by the Company in
connection with such registration and amendments or supplements in connection
therewith.
(c) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of an offering described in Section 5.1(a) concludes
that the aggregate size of such offering is such that the price of the
securities offered would be materially and adversely affected by inclusion of
the Registrable Securities requested to be included by AIG, then the number of
Registrable Securities to be offered for the account of AIG shall be reduced to
the extent necessary to reduce the total amount of securities to be included in
such offering to the amount recommended by such managing Underwriter or
Underwriters; PROVIDED that the
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proportion by which the amount of such class of securities intended to be
offered by AIG is reduced shall not exceed the proportion by which the amount of
such class of securities intended to be offered by persons other than the
Company is reduced. As used herein, "Person" means an individual or a
corporation, partnership, association, trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
(d) To the extent not inconsistent with applicable law, AIG
agrees not to effect any public sale or distribution of the security being
registered (except as part of such registration) or a similar security of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 under the Securities Act,
during the ninety day period prior to, and during the 180 day period beginning
on the effective date of such registration statement, if and to the extent
requested by the Company in the case of a non-underwritten public offering or if
and to the extent requested by the managing Underwriter or Underwriters in the
case of an underwritten public offering.
(e) In the event AIG chooses to sell some or all of its
Registrable Securities pursuant to Section 5.1(a), AIG shall have the option to
convert those Shares it intends to sell in such Piggy-Back Registration to
Common Stock on a share for share basis and if the managing Underwriter or
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Underwriters of such offering concludes that the failure of AIG to convert such
Shares to common Stock would adversely affect the marketing of the securities
offered, AIG agrees to convert such Shares to Common Stock.
5.2. FILINGS; INFORMATION. Whenever AIG requests that any
Registrable Securities be registered pursuant to Section 5.1(a) hereof, the
Company will use its best efforts to include such Registrable Securities in such
registered sale and in connection with any such request:
(a) the Company will, if requested, prior to filing a
registration statement or prospectus or any amendment or supplement thereto,
furnish to AIG copies of such registration statement as proposed to be filed,
and thereafter furnish to AIG such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as AIG may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by AIG;
(b) After the filing of the registration statement relating to
the Registrable Securities, the Company will promptly notify AIG of any stop
order issued or threatened by the Commission and take all reasonable actions
required to
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prevent the entry of such stop order or to remove it if entered;
(c) the Company will immediately notify AIG, at any time when
a prospectus relating to Registrable Securities is required to be delivered
under the Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make available to AIG any such
supplement or amendment;
(d) the Company will enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(e) the Company will make available for inspection by AIG and
any attorney, accountant or other professional retained by AIG (collectively the
"INSPECTORS"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "RECORDS") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information
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reasonably requested by any Inspectors in connection with such registration
statement. Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a material misstatement or omission in such
registration statement or (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction; and
(f) the Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(g) The Company may require AIG to promptly furnish in writing
to the Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be required, in the opinion of counsel to the Company,
in connection with such registration.
AIG agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 5.2(c) hereof,
AIG will forthwith discontinue disposition of Registrable Securities pursuant to
the registration statement covering such Registrable Securities until AIG's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 5.2(c) hereof, and,
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if so directed by the Company, AIG will deliver to the Company all copies, other
than permanent file copies then in AIG's possession, of the most recent
prospectus covering the Registrable Securities at the time of receipt of such
notice.
5.3. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. AIG may not
participate in any underwritten registration hereunder unless AIG completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and this Agreement.
5.4. INDEMNIFICATION AND CONTRIBUTION RELATING TO
REGISTRATIONS. (a) The Company agrees to indemnify and hold harmless AIG, its
officers, directors and agents, and each Person, if any, who controls AIG within
the meaning of Section 20 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and
all losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact on the part of the Company contained
in any registration statement or prospectus relating to the Registrable
Securities (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission or alleged omission on the part of the Company to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading,
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except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information furnished in writing to the Company by AIG or on AIG's behalf
for use therein; PROVIDED, HOWEVER, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of AIG if
the Person asserting any such loss, claim, damage or liability purchased the
Registrable Securities from AIG and if it is determined that it was the
responsibility of AIG to provide such Person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage or liability.
(b) AIG agrees to indemnify and hold harmless the Company, its
officers, directors and agents and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to AIG, but only with reference to information relating to AIG furnished in
writing by AIG or on AIG's behalf for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus; PROVIDED HOWEVER that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of the Company if the Person asserting any such loss,
claim, damage
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or liability purchased the Registrable Securities from the Company and if it is
determined that it was the responsibility of the Company to provide such Person
with a current copy of the prospectus and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be entitled to be sought pursuant to Section 5.4(a) or 5.4(b),
such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against
whom such indemnity may be sought ("INDEMNIFYING PARTY") in writing and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all fees and expenses. The failure of an Indemnified Party to give
notice as described in the preceding sentence shall relieve the Indemnifying
Party of its obligation to indemnify the Indemnified Party, or to contribute to
the amount paid or payable by such Indemnified Party, under this Agreement to
the extent that the Indemnifying Party shall have been prejudiced as a result of
such failure. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have
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mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such Indemnified Parties, and
that all such fees and expenses shall be reimbursed as they are incurred. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 5.4 is
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein for any reason other than the failure to give
notice as provided in Section 5.4(c), then each such Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified
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Party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect both the relative benefits received by
the Company on the one hand and AIG on the other from the relevant offering, and
the relative fault of the Company on the one hand and of AIG on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits-received by the Company on the one hand
and AIG on the other shall be deemed to be in the same proportion as the total
proceeds from the offering (net of underwriting discounts and commissions but
before deducting expenses) received by the Company bears to that received by
AIG. The relative fault of the Company on the one hand and of AIG on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and AIG agree that it would not be just and
equitable if contribution pursuant to this Section 5.4(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
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paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of Section 11
(f) of the Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
VI. COVENANTS OF THE COMPANY
The Company covenants and agrees that:
6.1. FINANCIAL STATEMENTS AND OTHER REPORTS. For so long as
AIG owns Shares which represent more than 5% of the voting power of the
Company's outstanding voting securities:
(a) the Company will, as soon as practicable and in any event
within 45 days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, furnish to AIG consolidated statements of
income, retained earnings, cash flows and changes in stockholders' equity of the
Company and its Subsidiaries for the period from the beginning of the then
current fiscal year to the end of such quarterly period, and a consolidated
balance sheet of the Company and its Subsidiaries as of the end of such
quarterly
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period, setting forth in each case in comparative form figures for the
corresponding period or date in the preceding fiscal year, all in reasonable
detail and certified by an authorized financial officer of the Company, subject
to changes resulting from year-end adjustments;
(b) the Company will, as soon as practicable and in any event
within 90 days after the end of each fiscal year, furnish to AIG consolidated
statements of income, retained earnings, cash flows and changes in stockholders'
equity of the Company and its Subsidiaries for such year, and a consolidated
balance sheet of the Company and its Subsidiaries as of the end of such year,
setting forth in each case in comparative form the corresponding figures from
the preceding fiscal year, all in reasonable detail and examined and reported on
by independent public accountants of recognized standing selected by the
Company; and
(c) the Company will, promptly upon transmission thereof,
furnish to AIG copies of all such financial statements, proxy statements,
notices and reports as it shall send to all its stockholders generally and
copies of all such registration statements (without exhibits), other than
registration statements relating to employee benefit or dividend reinvestment
plans, and any regular and periodic reports as it may file with the Commission.
6.2. COMPOSITION OF BOARD. The Board of Directors of the
Company (the "Board") shall be comprised as of the Closing of four members and
AIG shall be entitled to designate
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one individual (which designee shall not include individuals whose membership on
the Board would be a violation of law) for membership on the Board. If during
the Voting Agreement Period (as hereinafter defined) the size of the Board is
changed, at each election of directors during the Voting Agreement Period, AIG
shall be entitled to designate such number of individuals for membership on the
Board such that the ratio of the total number of members of the Board designated
by AIG to the total number of members of the Board equals the ratio of the total
voting power of securities of the Company then beneficially owned by AIG to the
total voting power of securities of the Company then outstanding, rounded to the
nearest whole number.
6.3. RESTRICTIONS ON THE COMPANY. (a) If, during the Agreement
Period (as hereinafter defined), the Company issues additional Equity Securities
(as hereinafter defined) (an "ADDITIONAL ISSUANCE"), except for issuances
pursuant to (i) any currently outstanding stock option, warrant, convertible
security or other right to purchase shares of any equity securities of the
Company, (ii) any benefit plan or other employee or director arrangement adopted
or implemented after the date of this Agreement, (iii) an employee stock
ownership plan not in excess of 5% of the outstanding Equity Securities or (iv)
any stock split, stock dividend or similar distribution made available to
holders of Common Stock generally, then AIG shall be entitled to purchase from
the Company during the twenty-five day period following the date
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on which the Company has given AIG written notice of the occurrence of the
Additional Issuance, at a price per share equal to the fair market value per
share of the consideration to be received for the Equity Securities to be issued
in such Additional Issuance, that number of Equity Securities that equals the
product of (x) the total number of Equity Securities offered in the Additional
Issuance by (y) a fraction, the numerator of which equals the number of Equity
Securities owned by AIG immediately prior to the Additional Issuance and the
denominator of which equals the aggregate number of Equity Securities
outstanding immediately prior to the Additional Issuance, rounded to the nearest
whole share.
(b) During the period from the date hereof through December
31, 1994, the Company agrees to limit the salary paid by the Company to Mr.
Kroll to no more than $500,000 on an annual basis; PROVIDED, HOWEVER, that, in
the event the Board, in the good faith exercise of its business judgment,
determines that Mr. Kroll's performance has been exceptional and/or that the
financial results of the Kroll Group's operation has been extraordinarily good,
the Board may consider an increase to Mr. Kroll's salary. During such period,
any bonuses paid to Mr. Kroll shall be made on the same basis as currently in
place at Associates. Thereafter, the Board will determine Mr. Kroll's
compensation in the ordinary exercise of its fiduciary duties.
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VII. COVENANTS OF AIG AND MR. KROLL
7.1. TERM. The agreements contained in this Article VII, other
than those contained in Section 7.3, shall remain in effect (the "AGREEMENT
PERIOD") until the earlier to occur of the following events: (i) AIG does not
own Shares that represent more than 5% of the voting power of the Company's
outstanding voting securities and (ii) such agreements are terminated or
superseded pursuant to Sections 9.3 or 9.8.
7.2. RESTRICTIONS ON AIG. AIG agrees that, without the prior
written consent of the Company or as expressly contemplated by the Agreement,
AIG will not, and will cause each of its Affiliates (as hereinafter defined) not
to, singly or as part of a group, directly or indirectly:
(a) acquire or propose to acquire any equity securities of the
Company ("EQUITY SECURITIES") or any rights to acquire any Equity Securities;
(b) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are defined or used in Regulation 14A under the
Exchange Act) with respect to any Equity Securities (including by the execution
of actions by written consent), become a "participant" in any "election contest"
(as such terms are defined or used in Rule 14a-11 under the Exchange Act) with
respect to the Company or seek to advise, encourage or influence any person or
entity with respect to the voting of any Equity Securities;
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(c) initiate, propose or otherwise solicit, or participate in
the solicitation of, stockholders for the approval of one or more stockholder
proposals with respect to the Company as described in Rule 14a-8 under the
Exchange Act or knowingly induce any other individual or entity to initiate any
stockholder proposal relating to the Company;
(d) form, join or in any way participate in a "group" or act
in concert with any other person or entity with respect to any Equity Securities
of the Company;
(e) participate in or encourage the formation of any group
which owns or seeks or offers to acquire beneficial ownership of securities of
the Company or rights to acquire such securities or which seeks or offers to
affect control of the Company or for the purpose of circumventing any provision
of this Agreement;
(f) act in concert with any other entity with respect to any
Equity Securities or otherwise act, alone or in concert with others, to seek or
offer to control or influence, in any manner, the management, the Board or the
policies of the Company; PROVIDED, HOWEVER, that the participation in
deliberations of the Board by the individual or individuals designated by AIG
for election to the Board in accordance with Section 6.2 hereof shall not be
considered a violation of this Section 7.2(f); or
(g) solicit, seek or offer to negotiate with or make any
public statement or public proposal to the Company (or non-public statement or
proposal that would impose a legal
32
<PAGE> 37
obligation on the Company to make a public announcement), or otherwise make any
public announcement with respect to (i) any form of business combination or
transaction involving the Company, (ii) any form of restructuring,
recapitalization or similar transaction with respect to the Company, (iii) any
request to amend, waive or terminate the provisions of this Article VII or (iv)
any proposal, statement or action inconsistent with the terms of this Article
VII, or (v) knowingly encourage, aid or otherwise induce any person to take any
of the actions set forth in this Section 7.2. As used herein, an "AFFILIATE" of
a specified Person is a Person that directly, or indirectly, controls, or is
controlled by, or is under common control with, the Person specified.
7.3. VOTING. For a period of five years from the Closing (or
until such earlier time as AIG no longer owns Shares) (the "VOTING AGREEMENT
PERIOD"), AIG shall be present, in person or by proxy, at all meetings of
stockholders of the Company so that all Equity Securities beneficially owned by
AIG shall be counted for purposes of determining the presence of a quorum at
such meetings. The Voting Agreement Period shall be extended automatically for a
period of one year on the last day of each year of the Agreement Period (each a
"VOTING EXTENSION DATE") unless, prior to any Voting Extension Date, AIG
delivers to the Company a written notice of election stating that the Voting
Agreement Period shall not be extended for an additional one-year period. If AIG
elects not to extend the Voting Agreement Period on or prior to any Voting
33
<PAGE> 38
Extension Date, the Voting Agreement Period shall not thereafter be extended and
the provisions contained in this Section 7.3 shall terminate on the last day of
the Voting Agreement Period; PROVIDED, that in no event shall the remaining term
of the Voting Agreement Period exceed the Agreement Period. During the Voting
Agreement Period, in all elections of directors of the Company, each of AIG and
Mr. Kroll shall cast its or his votes in favor of election of the nominees of
the Board nominated in accordance with Section 6.2 hereof. Upon the date AIG is
no longer entitled to designate any nominees for election to the Board, AIG
shall cause those members of the Board that have been designated by AIG to
resign from the Board, effective immediately.
7.4. SALE OF SHARES. (a) During the five year period
following the Closing, AIG shall not sell, transfer or otherwise
dispose of any of the Shares to any Person other than the
Company.
(b) After the date that is five years from the date hereof,
AIG may sell, transfer or otherwise dispose of any Shares provided that (i) the
sale, transfer or disposition is made in accordance with the requirements of the
Securities Act, (ii) the sale, transfer or disposition is made in accordance
with Section 7.4(d) hereof, (iii) the transferee is not a Person that is,
directly or indirectly, engaged in any business or line of business that (in the
reasonable opinion of the Company) competes in any material way with any
business or line of business then engaged in by the Company or any of
34
<PAGE> 39
its Subsidiaries and (iv) AIG will use all reasonable efforts to see that no
Person owns more than 5% of the voting power of the Company's securities as a
result of any such sale, transfer or disposition.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
of this Section 7.4, (i) AIG may sell or otherwise transfer its Shares pursuant
to Article V or Section 7.5 and (ii) AIG may sell or otherwise transfer Shares
at any time to one or more Affiliates of AIG that agree to be bound by the terms
of this Agreement.
(d) Other than for sales and transfers described in paragraph
(c) of this Section 7.4, in the event that AIG desires to sell, transfer or
otherwise dispose of Shares as permitted by this Section 7.4, AIG shall notify
the Company and Mr. Kroll in writing at least sixty days prior to effecting such
transfer and in such notice shall state the number of Shares to be transferred,
the consideration to be received by AIG and the date on which the proposed
transfer is to occur (the "TRANSFER NOTICE"). The Company and Mr. Kroll shall
each have the option, exercisable by notice given in writing to AIG within
thirty days of the date of the Transfer Notice, to acquire all or part of the
Shares AIG desires to transfer for the consideration specified in the Transfer
Notice on a date no later than thirty days from the date the Company or Mr.
Kroll elects to exercise its or his option. In the event that both the Company
and Mr. Kroll elect to acquire all or part of the Shares specified in the
Transfer Notice and
35
<PAGE> 40
such elections would require the transfer of a greater number of Shares than are
so specified, then the Shares specified in such Transfer Notice shall be divided
between the Company and Mr. Kroll pro rata in proportion to the number of Shares
which each elected to purchase. If the Company and Mr. Kroll do not elect to
exercise any option granted pursuant to this paragraph (d), or the elections of
the Company and Mr. Kroll do not result in the purchase by them of the full
number of Shares specified in the Transfer Notice, AIG may transfer such number
of Shares, after giving effect to the elections, if any, of the Company and Mr.
Kroll, on the terms set forth in the Transfer Notice at any time within sixty
days of the date of the Purchase Notice. If AIG does not consummate the
transactions giving rise to such option within such sixty-day period then any
subsequent sale or transfer shall be subject again to this paragraph (d) as if
AIG had not provided notice to the Company and Mr. Kroll of a proposed sale or
transfer.
7.5. TAG-ALONG RIGHTS. Mr. Kroll agrees, in connection with
any binding agreement reached by him with any Person (other than an Affiliate of
Mr. Kroll or a Member of the Kroll Family (as hereinafter defined)) relating to
the sale by Mr. Kroll of all or a portion of his shares of Common Stock and if
requested by AIG, to cause the prospective purchaser to purchase from AIG up to
that number of the Shares then owned by AIG which equals the product of (x) the
total number of Shares then owned by AIG multiplied by (y) a fraction, the
numerator of which equals the number of shares
36
<PAGE> 41
of Common Stock to be purchased from Mr. Kroll and the denominator of which
equals the sum of the total number of shares of Common Stock then owned by Mr.
Kroll plus the number of shares of Common Stock then owned by any other
stockholder of the Company entitled to participate in such sale (the "SALE
RATIO"). Mr. Kroll shall notify AIG in writing of any such binding agreement,
indicating the price and other material terms and conditions of the proposed
sale, the intended closing date of such sale and the Sale Ratio. Any purchase
from AIG under this Section 7.5 shall be at the same price per Share and on the
same terms and conditions as apply to the purchase from Mr. Kroll. AIG will have
ten days from receipt of such notice to notify Mr. Kroll in writing of its
election to exercise its rights under this Section 7.5. If Mr. Kroll does not
receive notice from AIG within such ten-day period, AIG will be deemed to have
elected not to exercise its rights under this Section 7.5 and Mr. Kroll may
complete the proposed sale of his Common Stock at the price and on the terms and
conditions of his notice to AIG. As used herein, "MEMBER OF THE KROLL FAMILY"
shall mean any spouse, child, adopted or natural, grandchild, parent, sibling,
or in-law of Mr. Kroll.
7.6. CONFIDENTIALITY. AIG agrees that any information obtained
by it pursuant to this Agreement (including without limitation in accordance
with Section 5.2 and 6.1 of this Agreement), or as a result of the transactions
contemplated by the Agreement, shall be, and shall be kept, confidential and
shall not be used by AIG for any purpose,
37
<PAGE> 42
other than a registered sale of its Registrable Securities, unless and until
such information is made generally available to the public for a period of not
less than three days. AIG further agrees that it will, upon learning that
disclosure of any information is sought in a court of competent jurisdiction or
any other governmental agency, give notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of such
information.
7.7. STOCK LEGEND. Each of AIG and Mr. Kroll acknowledges and
agrees that the certificates for the Class A Common Stock and the Common Stock
of the Company shall bear the following legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
under any state securities or blue sky laws. The shares may not be
sold, transferred, pledged or hypothecated in the absence of an
effective registration statement for the shares under the Act or an
opinion of counsel for Kroll Holdings, Inc. that registration is not
required under the Act.
These shares are subject to certain limitations on transfer
set forth in an agreement dated June 15, 1993 between American
International Group, Inc., Jules B. Kroll and Kroll Holdings, Inc.
including, but not limited to, restrictions on transfer, pledge,
encumbrances or other dispositions. A copy
38
<PAGE> 43
of such agreement is on file with the Secretary of Kroll Holdings,
Inc."
VIII. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
8.1. CONDITIONS TO THE OBLIGATIONS OF AIG. The obligations of
AIG to consummate the transactions contemplated by this Agreement are subject to
the fulfillment, at or before the Closing Date, of each of the following
conditions (subject to the right of AIG to waive any such condition):
(a) The representations and warranties of each of the Company
and Mr. Kroll contained in this Agreement and in any statement, certificate,
exhibit, schedule or other document delivered by the Company and Mr. Kroll
pursuant hereto or in connection with the transactions contemplated hereby,
shall have been true and correct in all material respects as of the date of this
Agreement and shall be true and correct in all material respects at and as of
the Closing Date as if made on and as of the Closing Date (except to the extent
that any representation or warranty is made as of a specific date, in which case
such representation or warranty shall be true and correct as of such specified
date). The Company and Mr. Kroll shall have performed in all material respects
all of its obligations under this Agreement to be performed at or prior to the
Closing Date; and AIG shall have received at the time of the Closing
certificates from the Company and Mr. Kroll reasonably satisfactory in form to
AIG
39
<PAGE> 44
certifying to the satisfaction of all of the conditions set forth in this
Section 8.1(a).
(b) No action, suit or proceeding shall have been instituted
or threatened which seeks to restrain, prohibit or declare illegal the
transactions contemplated by this Agreement by an Authority. No temporary
restraining order or injunction shall have been issued by any court or
governmental body restraining or prohibiting, and no other Legal Requirement (as
hereinafter defined) shall have come into effect making illegal, the performance
of this Agreement or the consummation of any of the transactions contemplated
hereby. As used herein, "LEGAL REQUIREMENT" shall include laws, regulations,
ordinances, orders, decrees, permits, licenses, consents, approvals,
registrations, memberships, authorizations and qualifications required by any
Authority.
(c) All consents, approvals, permits and authorizations
required to be obtained from, and all filings required to be made with, any
Authority and all material consents, approvals, permits and authorizations
required to be obtained from, and all filings required to be made with, any
Person in connection with the consummation of the transactions contemplated
hereby shall have been obtained or made, and all waiting periods specified under
applicable Legal Requirements, and all extensions thereof, the passing of which
is required for such consummation shall have passed. Without limiting the
foregoing, the Consent of TIAA under the Note Purchase Agreement shall have been
obtained.
40
<PAGE> 45
(d) No proceeding shall have been instituted or consented to
by or against the Company or any subsidiary seeking to adjudicate any of them
bankrupt or insolvent, or seeking liquidation, winding up, reorganization or
other similar actions, or seeking the entry of an order to rely on the
appointment of a receiver, trustee or other similar official for it or any of
them and the Company shall not have taken any corporate action to authorize any
of the above.
(e) The Company shall have delivered a certificate or
certificates for the Shares in the name of AIG and such other instruments of
transfer or conveyance as are reasonably requested by AIG to vest in AIG or its
designee good, valid and marketable title to the Shares.
(f) All of the shares of Outstanding Stock shall have been
contributed to the Company.
(g) AIG shall have received an opinion of Cleary, Gottlieb,
Steen & Hamilton, counsel for the Company, dated the Closing Date and addressed
to AIG, substantially in the form of Exhibit B hereto.
8.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND MR.
KROLL. The obligations of the Company and Mr. Kroll to consummate the
transactions contemplated by this Agreement are subject to the fulfillment, at
or before the Closing Date , of the following conditions (subject to the right
of the Company or Mr. Kroll to waive any such condition as applied to it or
him):
41
<PAGE> 46
(a) The representations and warranties of AIG contained in
this Agreement shall have been true and correct in all material respects as of
the date of this Agreement and shall be true and correct in all material
respects as of the Closing Date as if made on and as of the Closing Date (except
to the extent that any representation or warranty is made as of a specific date,
in which case such representation or warranty shall be true and correct as of
such specified date). AIG shall have performed in all material respects all of
its obligations under this Agreement to be performed at or prior to the Closing
Date and the Company and Mr. Kroll shall have received at the time of the
Closing a certificate from AIG reasonably satisfactory in form to the Company
and Mr. Kroll certifying to the satisfaction of the condition set forth in this
Section 8.2(a).
(b) No action, suit or proceeding shall have been instituted
or threatened which seeks to restrain, prohibit or declare illegal, or to obtain
a material amount of damages arising from the transactions contemplated by this
Agreement and no temporary restraining order or injunction shall have been
issued by any court or governmental body restraining or prohibiting, and no
Legal Requirement shall have come into effect making illegal, performance of
this Agreement or the consummation of any of the transactions contemplated
hereby.
(c) All consents, approvals, permits and authorizations
required to be obtained from, and all filings required to be made with, any
Authority and all material
42
<PAGE> 47
consents, approvals, permits and authorizations required to be obtained from,
and all filings required to be made with, any Person in connection with the
consummation of the transactions contemplated hereby shall have been obtained or
made, and all waiting periods specified under applicable Legal Requirements, and
all extensions thereof, the passing of which is required for such consummation,
shall have been passed.
(d) All of the shares of Outstanding Stock and the cash and
notes described in Section 1.1 shall have been contributed to the Company.
IX. GENERAL PROVISIONS
9.1. PUBLIC DISCLOSURE AND CONFIDENTIALITY. Each party hereby
agrees that no press release or public announcement or communication will be
made or caused to be made concerning the execution or performance of this
Agreement or the terms hereof unless specifically approved in advance by both
parties.
9.2. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
None of the representations and warranties contained herein or in any other
document or instrument delivered in connection herewith shall survive the
Closing.
Articles V, VI, VII and IX of this Agreement shall survive the
Closing without limitation as to time, except as specifically provided herein.
9.3. TERMINATION. (a) Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be
43
<PAGE> 48
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing Date:
(i) By mutual written consent of the parties to
this Agreement;
(ii) By the Company or Mr. Kroll, if such party shall
have determined in good faith that one or more of the conditions set
forth in Section 8.2 cannot be fulfilled as a result of an occurrence
or event beyond the control of the Company and Mr. Kroll;
(iii) By AIG, if AIG shall have determined in
good faith that one or more of the conditions set forth in
Section 8.1 cannot be fulfilled as a result of an occurrence
or event beyond the control of AIG; or
(iv) By any party if the Closing shall not have
occurred by June 18, 1993 (other than as a result of a breach of this
Agreement by the party seeking termination).
(b) If this Agreement is terminated and the transactions
contemplated hereby are not consummated as provided above, this Agreement shall
become void and of no further force and effect, except for (i) any liability of
the breaching party for any willful breach of a covenant or agreement contained
in this Agreement causing or permitting such termination; and (ii) the
provisions of Section 7.6, which shall survive any such termination.
9.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if
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<PAGE> 49
delivered personally or sent by certified mail, telex or facsimile (and promptly
confirmed by certified mail, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to the Company or to Mr. Kroll to:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022
Attention: Robert P. Connolly, Esq.
Facsimile: (212) 644-5794
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Allan G. Sperling
Facsimile: (212) 225-3999
(b) if to AIG to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: Edward E. Matthews
Facsimile: (212) 509-5296
with a copy to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: General Counsel
Facsimile: (212) 514-6894
9.5. SPECIFIC PERFORMANCE. Because the remedy at law for any
breach of this Agreement that an aggrieved party has not otherwise waived would
be inadequate, the parties hereto hereby consent to the granting of an
injunction or other equitable relief, without the necessity of actual
45
<PAGE> 50
monetary loss being proved, in order that any breach or threatened breach of
this Agreement be restrained.
9.6. FEES AND EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated and except as provided herein,
each of the parties to this Agreement shall bear its own expenses incurred in
connection with the negotiation, preparation, execution and Closing of this
Agreement and the transactions provided for hereby.
9.7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding among the parties with respect to the Reorganization
and supersedes all prior discussions, agreements and undertakings, written or
oral, of any and every nature with respect thereto.
9.8. WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by authorized representatives of the
parties. No such written instrument shall be effective unless it expressly
recites that it is intended to amend, supersede, cancel, renew or extend this
Agreement or to waive compliance with one or more of the terms hereof, as the
case may be. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise
46
<PAGE> 51
thereof or the exercise of any other such right, power or privilege.
9.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, CONSTRUCTION, INTERPRETATION AND EFFECT, BY THE
LAWS OF THE STATE OF NEW YORK (EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE
OF DELAWARE NECESSARILY APPLY) (IN EACH CASE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW). The parties agree that any service of process to be made
hereunder may be made by certified mail, return receipt requested, addressed to
the party at the address appearing in Section 9.4 together with a copy to be
delivered to such party's attorneys as provided in Section 9.4.
9.10. BINDING EFFECT NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. This Agreement is not assignable without the
prior written consent of each of the parties hereto or by operation of law.
9.11. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts which together shall constitute one and
the same instrument.
9.12. FURTHER ASSURANCES. Each party shall, at the request of
the other party, at any time and from time to time following the Closing
promptly execute and deliver, or cause to be executed and delivered, to such
requesting party all such further instruments and take all such further action
as
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<PAGE> 52
may be reasonably necessary or appropriate to confirm or carry out the
provisions and intents of this Agreement and of the instruments delivered
pursuant to this Agreement.
9.13. CAPTIONS. All section titles or captions contained in
this Agreement or in any Exhibit or Schedule annexed hereto or referred to
herein, and the table of contents to this Agreement, are for convenience only,
shall not be deemed a part of this Agreement and shall not affect the meaning or
interpretation of this Agreement. All references herein to sections shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require.
9.14. CONSTRUCTION AND REPRESENTATION BY COUNSEL. The parties
hereto acknowledge and represent that in the negotiation and drafting of this
Agreement they have been represented by and relied upon the advice of counsel of
their choice. The parties hereto affirm that their counsel have had a
substantial role in the drafting and negotiation of this Agreement and,
therefore, the rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any exhibit or schedule attached hereto.
9.15. NO THIRD-PARTY BENEFICIARIES. It is understood and
agreed among the parties hereto that this Agreement and the representations,
warranties and covenants made herein are made expressly and solely for the
benefit of the other party hereto (or their respective successors or
48
<PAGE> 53
permitted assigns), and that no other person shall be entitled or be deemed to
be a third-party beneficiary of any party's rights under this Agreement.
9.16. DEFINITIONS. The following terms shall have the
respective meanings specified in the indicated Sections of this Agreement:
<TABLE>
<CAPTION>
Term Agreement Section
---- -----------------
<S> <C>
Additional Issuance 6.3(a)
Affiliate 7.2
Agreement Recitals
Agreement Period 7.1
AIG Recitals
Associates Recitals
Authority 2.2
Board 6.2
Class A Common Stock Recitals
Closing 1.4(a)
Closing Date 1.4(a)
Commission 5.1(a)
Common Stock Recitals
Company Recitals
Condition 2.1
Encumbrance 1.2
Equity Securities 7.2(a)
Existing Stockholders Recitals
Exchange Act 5.4(a)
Financial Statements 2.8(a)
H/K Recitals
Indemnified Party 5.4(c)
Indemnifying Party 5.4(c)
Inspectors 5.4(e)
Kroll Group Recitals
Legal Requirement 8.1(b)
Member of the Kroll family 7.5
member of the Kroll Group Recitals
Note Purchase Agreement 2.4
Notes 1.1
Outstanding Stock Recitals
Palumbo Recitals
Person 5.1(c)
Piggy-Back Registration 5.1(a)
Records 5.2(e)
Registrable Securities 5.1(a)
Reorganization Recitals
Restricted Stock Plan 2.5(b)
Returns 2.8(b)
</TABLE>
49
<PAGE> 54
<TABLE>
<S> <C>
Sale Ratio 7.5
Securities Act 3.7
Shares Recitals
Subsidiary 2.1
TIAA 2.4
Transfer Notice 7.4(d)
U.K. Recitals
Underwriter 5.1(a)
Voting Agreement Period 7.3
Voting Extension Date 7.3
</TABLE>
50
<PAGE> 55
IN WITNESS WHEREOF, the parties have duly executed this
Agreement, all as of the date first written above.
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ Kathleen E. Shannon
-----------------------------
Title: Vice President
JULES B. KROLL
By: /s/ Jules B. Kroll
-----------------------------
Jules B. Kroll
KROLL HOLDINGS, INC.
By: /s/ Jules B. Kroll
-----------------------------
Title:
<PAGE> 56
SCHEDULE 1.2
<TABLE>
<CAPTION>
Name Shares of Kroll Holdings, Inc.
- -----------------------------------------------------------------------------------
<S> <C>
Jules B. Kroll 61,500
Robert J. McGuire 3,272.5
Joseph R. Rosetti 2,310
Ernest Brod 577.5
</TABLE>
<PAGE> 57
SCHEDULE 2.1
Kroll Asia
- ----------
Kroll Associates, Inc. owns a 50% interest in this joint venture with
Jardine, Matheson & Co., Limited, Hong Kong Security Limited and Erskine Company
Limited.
Kroll France
- ------------
500 shares of capital stock outstanding. 499 shares held by Kroll
Associates U.K. Limited and 1 share held by Jules B. Kroll.
<PAGE> 58
EXHIBIT A
$2,999,990 New York, New York
June 15, 1993
For value received, AMERICAN INTERNATIONAL GROUP, INC., a
Delaware corporation ("AIG"), hereby promises to pay on the day six months
following the date hereof to KROLL HOLDINGS, INC., a Delaware corporation (the
"Company" ), in lawful money of the United States of America, the principal sum
of Two Million Nine Hundred Ninety-Nine Thousand Nine Hundred Ninety Dollars
($2,999,990), together with interest on such principal sum from and including
the date hereof to but excluding the date of payment at the rate of 3 1/2% per
annum, for the actual number of days elapsed on the basis of a year consisting
of 360 days.
This Note is one of the Notes referred to in, and is subject
to and governed by, the Agreement. As used herein, the "Agreement" means the
Plan of Reorganization and Stockholders Agreement dated as of June 15, 1993 by
and among AIG, Jules B. Kroll and the Company, as it may be supplemented,
amended or modified at any time from time to time in accordance with its
provisions.
Neither this Note nor any interest herein may be transferred
or assigned by the Company except with the prior written consent of AIG, and any
assignment or attempted assignment other than pursuant to the foregoing shall be
null and void.
AIG hereby waives all requirements as to diligence,
presentment, demand for payment, protest and notice of any kind with respect to
this Note; PROVIDED, however, that the Company shall forward this Note, marked
canceled, promptly following the Company's receipt of full payment hereunder.
Purchaser agrees that no extension of time for payment of this Note shall
release, discharge, modify, change or affect its liability under this Note.
This Note may be prepaid in whole or in part without penalty
upon two days' notice to the Company.
<PAGE> 59
This Note shall be governed by and construed and interpreted
in accordance with the law, without regard to principles governing choice of
law, of the State of New York.
AMERICAN INTERNATIONAL GROUP, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
2
<PAGE> 60
EXHIBIT A
$2,000,000 New York, New York
June 15, 1993
For value received, AMERICAN INTERNATIONAL GROUP, INC., a
Delaware corporation ("AIG"), hereby promises to pay on the ninetieth day
following the date hereof to KROLL HOLDINGS, INC., a Delaware corporation ( the
"Company"), in lawful money of the United States of America, the principal sum
of Two Million Dollars ($2,000,000), together with interest on such principal
sum from and including the date hereof to but excluding the date of payment at
the rate of 3 1/4% per annum, for the actual number of days elapsed on the basis
of a year consisting of 360 days.
This Note is one of the Notes referred to in, and is subject
to and governed by, the Agreement. As used herein, the "Agreement" means the
Plan of Reorganization and Stockholders Agreement dated as of June 15, 1993 by
and among AIG, Jules B. Kroll and the Company, as it may be supplemented,
amended or modified at any time from time to time in accordance with its
provisions.
Neither this Note nor any interest herein may be transferred
or assigned by the Company except with the prior written consent of AIG, and any
assignment or attempted assignment other than pursuant to the foregoing shall be
null and void.
AIG hereby waives all requirements as to diligence,
presentment, demand for payment, protest and notice of any kind with respect to
this Note; PROVIDED, however, that the Company shall forward this Note, marked
canceled, promptly following the Company's receipt of full payment hereunder.
AIG agrees that no extension of time for payment of this Note shall release,
discharge, modify, change or affect its liability under this Note.
This Note may be prepaid in whole or in part without penalty
upon two days' notice to the Company.
<PAGE> 61
This Note shall be governed by and construed and interpreted
in accordance with the law, without regard to principles governing choice of
law, of the State of New York.
AMERICAN INTERNATIONAL GROUP, INC.
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
2
<PAGE> 62
WAIVER AGREEMENT
This Waiver Agreement, dated as of November 8, 1994 (the "Waiver
Agreement"), is among American International Group, Inc. ("MG"), Jules B. Kroll
("JBK") and Kroll Holdings, Inc. ("Kroll"). All capitalized terms used herein
without definition shall have the respective meanings ascribed to them in the
Stockholder Agreement (as defined below).
WHEREAS, MG became a stockholder of Kroll pursuant to the Plan of
Reorganization and Stockholder Agreement, dated June 15, 1993 (the "Stockholder
Agreement"), by and among MG, JBK and Kroll,
WHEREAS, Section 6.3 of the Stockholder Agreement contains certain
restrictions with respect to the issuance of additional Equity Securities by
Kroll, and
WHEREAS, Kroll wishes to obtain MG's waiver of Section 6.3 of the
Stockholder Agreement with respect to the issuance of 1,648 (one thousand six
hundred and forty eight) shares (the "Shares") of its Common Stock to Brian M.
Jenkins, Deputy Chairman of Kroll.
NOW THEREFORE, the parties hereto hereby agree as follows:
MG hereby agrees to waive Section 6.3 of the Stockholder
Agreement to the extent required with respect to the issuance
of the Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
Agreement to be executed as of the day and year first written above and, in the
case of the corporate parties, on their behalf by a duly authorized officer.
AMERICAN INTERNATIONAL GROUP, INC.
By /s/ Edward E. Matthews
------------------------------
Title:
KROLL ASSOCIATES, INC.
By /s/ Jules Kroll
------------------------------
Title:
JULES B. KROLL
By /s/ Jules Kroll
------------------------------
<PAGE> 1
EXHIBIT 10.34
Retainer Agreement Between AIU Crisis Management Division and Kroll Associates
In accordance with the Action Plan of the Joint Task Force document, the
Contract details letter of April 19th and Kroll's response of April 23rd
detailing the relevant provisions of the previous retainer agreement of
September 1st, 1994.
Agreement between the parties is hereby reached.
Copies of the relevant documents are attached.
AIU Crisis Management Division Kroll Associates, Inc.
By: /s/ Ian Harrison By: /s/ Richard G. McCormick
---------------- ------------------------
Ian Harrison Richard G. McCormick
Title: Vice President Title: Managing Director
5/3/96 5/3/96
<PAGE> 2
KROLL ASSOCIATES
MEMORANDUM
MEMORANDUM
TO: Ian Harrison
FROM: Richard G. McCormick
DATE: April 15, 1996
RE: AIU and Kroll Crisis Management Plan
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
After Evan Greenberg gave his approval for the Plan as submitted on 4/11/96, the
following administrative issues were discussed and agreed upon at the 4/11 AIU
meeting.
1. The contract will start 4/1/96 and will run until 11/30/98. There will be
annual reviews to determine if modifications are necessary.
2. The 1996 retainer, $2,280,000.00, (4% of the 1995 AIU Special Services
gross written premium, $57,000,000.00), will be paid quarterly in advance,
on the first day of the quarter. We are using the AIU calendar year which
began on 12/1/95. There will be no payment for the first quarter. The
first payment, due 4/1/96, comprises only two months of the second quarter
or $380,000.00.
The two subsequent quarterly payments, during 1996 will be $570,000.00
each. The total to be paid for 1996 will be $1,520,000.00.
3. Kroll will charge AIU a response fee of $1,500.00 per day for all response
up to 250 days. All response after that will be charged at $1,200.00 per
day. Expenses will be as incurred, without mark-up. There will be no 7%
surcharge.
4. Kroll Marketing fees and expenses will be funded from the retainer. This
includes employees and contractors. There will only be two exceptions. In
Latin America where language requirements will necessitate heavy use of
consultants, Kroll and AIU will split these consultant fees and expenses,
50/50.
Additionally, the nine middle market contractors will work off their
$6,000.00 retainers against marketing fees. If they should exceed the
$6,000.00 because of heavy marketing, then these additional fees will be
charged at cost.
<PAGE> 3
RETAINER AGREEMENT
This Agreement entered into as of September 1, 1994 by and between AIU
Specialty Lines Group ("Specialty Lines") and Kroll Associates, Inc. ("Kroll").
WHEREAS, Specialty Lines is in the business of insurance underwriting;
WHEREAS, certain of Specialty Lines' affiliated companies are in the
business of providing insurance coverage;
WHEREAS, Kroll is in the business of providing consultation and advisory
services, including but not limited to crisis management, loss prevention,
information and research services and matters related thereto (as regards kidnap
and ransom ("K&R"), malicious product tampering incidents ("MPT"), emergency
evacuation ("EE"), and Property, terrorism and sabotage ("PTS"), the
"Services"); and
WHEREAS, Specialty Lines desires to retain Kroll to provide Services to
Specialty Lines' insureds and to perform Services for Specialty Lines and its
affiliates on the terms and conditions contained herein:
NOW THEREFORE, in consideration of the mutual promises contained herein,
Specialty Lines and Kroll agree as follows:
I.
PAYMENTS
Specialty Lines shall pay Kroll an annual amount (the "Annual Amount")
equal to $350,000 for each 12-month period following the date of this Agreement,
payable in monthly installments of $29,167 on the last day of each month. In
<PAGE> 4
accordance with Articles V and VI hereof, Specialty Lines shall also reimburse
Kroll each month, payable on the last day of each month, for the costs incurred
by Kroll in providing the Services in accordance with the rates and terms set
forth on Schedule A hereto.
II.
TERMINATION
Either party may terminate this Agreement effective at the end of any
12-month period following the effective date of this Agreement by giving at
least thirty (30) days prior written notice to the other party. In addition, in
the event of a breach by Kroll of its obligations set forth in Articles V and
VII hereof, Specialty Lines may terminate this Agreement if Kroll has not cured
such breach (or commenced cure, which it is diligently pursuing, if such breach
is not capable of cure within ninety (90) days) of written notice from Specialty
Lines identifying the breach being claimed. Upon termination of this Agreement,
Specialty Lines shall promptly pay to Kroll (prorated based on the effective
date of the termination of this Agreement) any payments owed to Kroll pursuant
to Article I of this Agreement or any addendum hereafter entered into under
which Kroll is to provide Services to Specialty Lines or an affiliated company.
III.
DUTIES OF KROLL
As consideration for the Annual Amount, Kroll shall (i) provide Services
to individuals or entities which have purchased insurance coverage from
Specialty Lines or an affiliated company
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<PAGE> 5
(each, an "Insured") as set forth in Article IV and (ii) provide marketing
support to Specialty Lines as set forth in Article V. In addition, at the
request of Specialty Lines, Kroll shall provide Services to Specialty Lines or
an affiliated company on terms to be agreed upon between the parties.
IV.
SERVICES TO INSUREDS
A. Specialty Lines agrees that Kroll is the specialist consultant of
choice for Specialty Lines' insureds under its K&R, EE, PTS and MPT insurance
policies. As such, Kroll shall be recommended to Insureds by Specialty Lines for
response and pre-incident consulting assignments. At the request of Specialty
Lines, Kroll shall enter into discussions with any Insured concerning the
Services that could be made available to the Insured by Kroll. In addition,
Kroll shall provide a twenty-four (24) hour crises telephone "hotline" in both
the U.S. and the U.K. for Specialty Lines' Insureds to call for assistance in
the event of a PTS, EE, K&R or MPT incident. When requested by an Insured, Kroll
shall respond to such an incident within twenty-four (24) hours of such request
subject only to Kroll's consultant being able to obtain the necessary travel
visa.
B. In accordance with Article I hereof, Specialty Lines will pay Kroll
directly for the Services which it provides to Insureds, except for pre-incident
consulting which will be decided on an individual basis. For pre-incident
consulting, Kroll agrees to charge Insureds $1,500 per day, per person utilized
on a consulting assignment, provided, however, that
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<PAGE> 6
Kroll may, in consultation with Specialty Lines, increase such fees on each
anniversary of the date hereof in such amounts as Kroll reasonably determines
are necessary to reflect an increase in Kroll's costs.
C. Kroll agrees that it shall, at the request of Specialty Lines, make the
Services available to an Insured on a guaranteed twenty-four (24) hour priority
basis, any other commitments or agreements of Kroll to the contrary
notwithstanding.
D. During the course of an incident where Kroll is retained by one of
Specialty Lines' Insureds, Kroll shall provide Specialty Lines with oral reports
on a periodic basis but not less than weekly) or as reasonably requested by
Specialty Lines summarizing the status of the incident, provided that the
Insured consents to Kroll's provision of such reports to Specialty Lines (which
consent shall be sought by Kroll or the retained consultant upon arrival at the
incident). At the conclusion of an incident, Kroll shall provide Specialty Lines
with a detailed summary report, outlining the events which occurred during the
course of the incident, provided that the Insured consents to Kroll's provision
of such reports to Specialty Lines (which consent shall be sought by Kroll or
the retained consultant upon arrival at the incident). Particular focus in such
reports shall be placed on the extortionist/tamperer's motives and methods, and
such report shall assess whether the incident was legitimate.
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<PAGE> 7
V.
MARKETING SUPPORT
A. Kroll shall provide the personnel listed on Schedule A under the
heading "Marketing Organization" (or such other qualified personnel satisfactory
to Specialty Lines) to provide marketing support services or pre-incident
consulting services to Specialty Lines. Such Marketing Organization personnel
will attend and give presentations and provide other marketing support
activities at seminars, meetings, luncheons and similar events in accordance
with reasonable schedules to be coordinated between Kroll and Specialty Lines,
and requested by Specialty Lines. Kroll agrees that such marketing personnel
will devote to marketing activities (and assistance on responses to incidents at
the request of Specialty Lines) on behalf of Specialty Lines at least the number
of working days indicated under the column headed "Working Days" on Schedule A.
Kroll shall provide marketing support in locations other than those specifically
listed in Article VI hereof as and when reasonably requested by Specialty Lines.
B. Each month, on the last day of such month, Specialty Lines shall pay to
Kroll one-twelfth of the total annual cost of such marketing personnel as
indicated on Schedule A. Specialty Lines shall also reimburse Kroll for the cost
of any retained consultants retained by Kroll to provide services pursuant to
this Article V. In addition, if during a 12-month, period any of the Kroll
marketing personnel listed on Schedule A devote to providing Services pursuant
to this Agreement a greater number of working days than indicated under the
Column headed "Working
- 5 -
<PAGE> 8
Days," Specialty Lines shall reimburse Kroll for the cost of such personnel at
the "Daily Rate" (as defined below) for up to the number of "Additional Working
Days" indicated on Schedule A for such person. The "Daily Rate" for the
applicable person listed on Schedule A shall equal the compensation for such
person divided by the total number of Working Days indicated for such person on
Schedule A. However, if during a 12-month period any of such personnel devotes
to Services pursuant to this Agreement a total number of working days which
exceeds the sum of the Working Days and Additional Working Days indicated on
Schedule A for such person, such excess days shall be paid for by Specialty
Lines at the rate of $1,000 per Working Day. Finally, if Kroll employees other
than those listed on Schedule A are specifically required by Specialty Lines to
provide Services pursuant to this Article V, Specialty Lines shall pay Kroll for
such Services at the rate of $1500 per working day. All of the foregoing
payments shall be made by Specialty Lines to Kroll on a monthly basis on the
last day of the applicable month. For all Services other than response services,
"working days" shall mean Monday through Friday, excluding national holidays of
the U.S.A.
C. Kroll shall endeavor on all occasions where appropriate to recommend
Specialty Lines' products to its clients. Kroll further agrees that it shall do
nothing to cause its clients not to purchase such insurance coverage or to
decline to consider Specialty Lines as a provider of such products. Specialty
Lines shall pay to Kroll, to the extent permitted by law, the applicable
brokerage commission for any policies purchased by
- 6 -
<PAGE> 9
clients referred by Kroll to Specialty Lines, as long as no other broker is
designated by the Insured for such policies. Kroll and Specialty Lines shall do
all things possible to ensure that payment by Specialty Lines and receipt by
Kroll of brokerage fees shall be proper and legal under all applicable laws.
D. Kroll will provide a report each month summarizing the marketing
activities performed by Kroll for Specialty Lines during the applicable month.
E. Kroll shall provide brochures outlining Kroll's capabilities with
respect to the Services, and outlining in general terms the problems posed by
these types of crises and various preventive and response measures. Kroll may
provide such other promotional materials as it may deem appropriate to market
the Services offered by it with respect to the K&R, PTS, EE and MPT insurance
products. Specialty Lines shall provide to Kroll all information it may have
concerning the foregoing which may be useful to Kroll in its preparation of such
brochures and promotional materials. Specialty Lines shall have the right to
review samples of all such brochures and materials and to request reasonable
changes thereto prior to production. Specialty Lines shall pay fifty percent
(50%) of the costs incurred during the term of this Agreement of such brochures
and materials provided that such brochures and materials are separate from and
in addition to the brochures and materials used by Kroll to market its other
services.
- 7 -
<PAGE> 10
VI.
MANAGEMENT AND RESPONSE SUPPORT
A. Kroll shall retain the personnel set forth on Schedule A under the
heading "Management and Response Organization" (or such other qualified
personnel satisfactory to Specialty Lines) to provide management and response
support for the Services which Kroll will provide pursuant to this Agreement.
Kroll agrees that such personnel will devote at least the number of working days
indicated for such person under the column headed "Working Days" on Schedule A
to the management of Kroll's Services under this Agreement. In addition, in
support of Specialty Lines' activities related to the PTS, EE, K&R and MPT
coverages, Kroll shall have qualified response personnel located in the
following areas: U.S., U.K., Europe, Latin America and Asia/Pacific. Such
staffing shall be in place upon signing of this Agreement and shall be
maintained on a continuous basis except for replacement of routine turnover
within a reasonable period of time.
B. Each month, on the last day of each month, Specialty Lines shall pay to
Kroll one-twelfth of the total annual cost of such management and response
personnel as indicated on Schedule A. Specialty Lines and Kroll will mutually
agree on the amount of retainers to be paid to retained consultants in order to
ensure the availability of such consultants' services. Specialty Lines shall
reimburse Kroll for the cost (including the cost of the retainers which have
been agreed upon) of any retained by Kroll to provide Services pursuant to this
Article VI. In addition, working days devoted to such Services by Kroll
- 8 -
<PAGE> 11
employees listed on Schedule A.II in excess of the number of Working Days
indicated on Schedule A shall be paid for by Specialty Lines at the Daily Rate
for such employees. Working days devoted to such Services by Kroll employees not
listed on Schedule A will be paid for by Specialty Lines at the rate of (a)
$1,000 per working day for response services and (b) $1,500 per working day for
all services other than response services. All of the foregoing payments shall
be made by Specialty Lines to Kroll on a monthly basis on the last day of the
applicable month. For response services, "working days" shall mean Monday
through Sunday, including national holidays.
VII.
EXPENSES, ETC.
Non-administrative out-of-pocket expenses Incurred by Kroll in the
performance of its obligations under this Agreement shall be reimbursed by
Specialty Lines based on their actual cost and will include, but shall not be
limited to, commercial airline fares, automobile rentals, lodging, and meals,
tolls and parking fees, postage, telephone and messenger/express courier costs,
database subscription costs, reproduction costs and mileage for personal vehicle
use. Kroll shall provide supporting documentation of such expenses (i.e. hotel
bills, airline tickets, etc.). Kroll shall provide such supporting documentation
on a timely basis. The policies governing reimbursable expenses incurred by
Kroll, and the documentation thereof, shall be generally consistent with the
policies followed by Specialty Lines, including airline travel.
- 9 -
<PAGE> 12
Certain of Kroll's Services are subject to the imposition of New York
State and New York City sales taxes when oral or written reports are delivered
by Kroll in New York State or, in the case of New York City sales taxes, New
York City.
VIII.
PRIVATE AGREEMENTS
Kroll shall not be required to consult with or account to Specialty Lines
for any services provided to an Insured by Kroll under any private agreement
Kroll may enter into with an Insured concerning services not covered under
Article V and VI hereof unless a conflict of interest exists between a Specialty
Lines' business and the services to be provided by Kroll, it being understood
that such services being performed by Kroll for the Insured under such private
agreement are for the benefit and for the account of the Insured, and the
Insured will have complete authority to accept or reject the advice of Kroll, in
the Insured's sole and absolute discretion.
IX.
INDEMNIFICATION
A. Specialty Lines acknowledges that Kroll makes no warrantee or
representation, either express or implied, as to results to be achieved by its
Services or as to the quality and fitness of the work of others. Specialty Lines
agrees (a) to indemnify Kroll and its officers, directors, employees, agents or
representatives from all liability, claims, demands and costs, including
reasonable attorneys' fees and disbursements, arising out of Kroll's performance
of Services for Insureds pursuant to
- 10 -
<PAGE> 13
this Agreement (including any addendum hereto) and (b) either to defend, at its
expense, or, at its option, to advance the cost of the reasonable expenses
incurred in the defense of any claims against Kroll or its officers, directors,
employees, agents or representatives working under its direction, relating to
Kroll's performance of Services for Insureds pursuant to this Agreement
(including any addendum hereto); provided however that this indemnity will not
be effective to the extent that, in an action against Kroll, or against Kroll's
officers, directors, employees, agents or representatives, it is finally
adjudicated that Kroll, its officers, directors, employees, agents or
representatives are liable for willful, wanton or reckless conduct, negligence
or ordinary negligence in the performance of their Services; in such event,
Kroll shall bear a share of the expenses incurred in its defense in accordance
with the foregoing, such share to be in the same proportion as the liability
attributed to Kroll or its officers, directors, employees, agents or
representatives bears to the total liability assigned in such action, and shall
reimburse Specialty Lines accordingly, with interest from the date such expense
was paid by Specialty Lines, at a rate equal to the discount rate on 13-week
United States Treasury bills as published in the Wall Street Journal on the day
preceding the date such reimbursement is made.
B. If any person or entity requests, subpoenas, or otherwise seeks to
obtain any testimony or materials within Kroll's custody, possession, or control
or the custody, possession, or control of any of its officers, directors,
- 11 -
<PAGE> 14
employees, agents or representatives, which relate or refer in any way to
Kroll's work under this Agreement, Kroll promptly shall inform Specialty Lines
of such request or subpoena of such testimony or materials. Should Specialty
Lines require Kroll to take any legal action to seek protection against
disclosure, Specialty Lines shall indemnify Kroll and/or the applicable party
for all costs, expenses and liability, including reasonable attorneys' fees and
disbursements incurred in connection with such legal action.
C. The foregoing obligation of Specialty Lines to indemnify shall survive
the completion or termination of any and all work or services provided by Kroll
and/or the termination of this Agreement and shall continue in full force and
effect with respect to any work or services provided by Kroll.
X
RELATIONSHIP OF THE PARTIES
During the term of this Agreement, Kroll shall not enter
into any agreement, contract, arrangement or understanding with any corporation,
partnership, association or any other person or entity which underwrites
insurance coverage (or any of such insurance underwriter) to provide crisis
management or marketing support with respect to EE, PTS, K&R or MPT insurance,
it being the express intent of both parties that Kroll represent Specialty Lines
exclusively with respect to providing marketing support in connection with these
insurance products. Any dispute as to whether the provisions of this Article X
preclude Kroll from entering into any such additional agreement, contract,
- 12 -
<PAGE> 15
arrangement or understanding with a party other then Specialty Lines or its
affiliates shall be settled pursuant to Article XII.
XI.
CONFIDENTIALITY
Specialty Lines and Kroll agree that neither of them shall knowingly
disclose to any third person or entity and confidential information belong to
the other party to this Agreement without such other party's prior written
consent. Each party further agrees that it shall maintain the confidentiality of
all confidential information of the other party to this Agreement and to prevent
the unauthorized disclosure of any confidential information to any third person
or entity. In no event shall either party hereto use less care to maintain the
confidentiality of the other party's confidential information that it uses to
maintain the confidentiality of its own confidential information.
As used herein, "confidential information" shall mean non-public
information regarding the business plan, business methods or techniques,
clients, marketing plans or financial results of Kroll (or an affiliate of
Kroll) or Specialty Lines (or an affiliate of Specialty Lines), as the case may
be, but shall not include (a) any information required by law to be disclosed or
(b) information (i) which is or becomes generally available to the public other
than as a result of a disclosure by the party to whom this obligation of
confidentiality is being applied, or (ii) which is or becomes available to the
party to whom this obligation of confidentiality is being applied, on a
non-confidential basis from a source other than the other party
- 13 -
<PAGE> 16
hereto or one of its representatives, provided that such source is not known to
the party against whom this obligation of confidentiality is being applied to be
bound by a confidentiality agreement with the other party hereto.
XII.
SETTLEMENT OF DISPUTES
Specialty Lines and Kroll agree to settle any dispute, controversy or
claim relating to this Agreement or the formation, application, interpretation
of breach hereof which is not capable of amicable settlement by the parties, by
confidential and private arbitration in New York County, New York, in accordance
with the then prevailing American Arbitration Association rules of procedure for
arbitration. A party desiring to submit any such dispute to arbitration in
accordance with this Article shall notify the other party in writing of its
election to arbitrate such dispute. The number of arbitrators shall be three,
one to be chosen by each party and the third, who shall be chairman, to be
chosen by the two arbitrators so chosen. Should either party fail to appoint its
arbitrator within thirty (30) days of receipt of a request to do so from the
other party, the non-failing party may apply to the American Arbitration
Association to appoint a second arbitrator and the two so chosen will proceed to
choose a third arbitrator. Should the two arbitrators chosen by the parties fail
to agree on a third arbitrator within thirty (30) days after the latter of the
two arbitrators has been appointed, either party may apply to the American
Arbitration Association to appoint a third arbitrator. The language of the
proceedings
- 14 -
<PAGE> 17
shall be English and the currency in which any award is rendered shall be United
States dollars.
The decision of a majority of the arbitrators (or of the third arbitrator
if there is no such majority) shall be final and binding and shall be
enforceable in any court of competent jurisdiction, and the parties hereby waive
any rights to appeal or to review of such decision by any court or tribunal and
also waive any objections to, or claims of immunity in respect of, such
enforcement.
Each party hereto hereby waives, to the maximum extent not prohibited by
law, any right it may have to claim or recover, in any arbitration or other
legal preceeding arising out of or relating to this Agreement, any
consequential, exemplary or punitive damages and in no case shall the
arbitrators have the power or authority to award consequential, exemplary or
punitive damages.
XIII.
AFFILIATES
As used in this Agreement, "affiliate" or "affiliated company" includes
any company that controls, is controlled by or is under common control with
Specialty Lines.
XIV.
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties hereto
with respect to its subject the matter covered herein and supersedes any prior
agreement between the parties with respect thereto. No other agreements,
representations,
- 15 -
<PAGE> 18
warranties or other matters, oral or written, purportedly agreed to or
represented by or on behalf of either party shall be deemed to bind the parties
hereto with respect to the subject matter hereof.
XV.
NOTICES
Except as otherwise provided, herein any written notice required by this
Agreement shall be deemed received when delivered personally or by courier
service to the party for whom intended, or five (5) days following deposit of
the same into the United States mail, registered or certified mail, return
receipt requested, and if to Specialty Lines to:
AIU Specialty Lines Group
70 Pine Street-15th Floor
New York, New York 10270
Attention: John Salinger
Copy to: Thomas Ripp, Esq.
8th Floor
and if to Kroll to:
Kroll Associates, Inc
900 Third Avenue
New York, New York 10022
Attention: Richard McCormick
Copy to: Robert P. Connolly, General Counsel
Either party may designate a different address by written notice to the other
given in accordance with this Section.
XVI.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to any principles of conflicts of
laws thereunder.
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<PAGE> 19
XVII.
FORCE MAJEURE
Kroll shall not be liable for any failure or delay in performing its
obligations hereunder resulting from any event beyond Kroll's reasonable control
including, but not limited to, acts of God; acts or omissions of civil
authorities; fires; floods; strikes or other labor actions; embargoes; acts of
terrorism or war or civil strike; riots; delays in transportation; need to
comply with regulations or directives of any government; and fuel, power,
materials or labor shortages.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement below
each by signature of its duly authorized representative to be effective the
first day of September, 1994.
AIU SPECIALTY LINES GROUP
By: /s/
-------------------------------------
Title: Division President
KROLL ASSOCIATES, INC.
By: /s/ Richard G. McCormick
-------------------------------------
Richard G. McCormick
Title: Managing Director
- 17 -
<PAGE> 1
Exhibit 10.35
[KROLL ASSOCIATES, INC. LETTERHEAD]
February 26, 1997
Mr. Robert J. McGuire
President
Kroll Associates
900 Third Avenue
New York, New York 10022
Dear Bob:
This letter is to confirm our agreement with respect to your
resignation from Kroll Associates, Inc. ("Kroll Associates"), the performance of
certain consulting services, your compensation arrangements and the purchase by
Kroll Holdings, Inc. ("Holdings") of your shares of common stock of Holdings and
any securities, cash or other property into which such common stock is converted
(the "Common Stock") and certain options to purchase the Common Stock (the
"Options").
You understand that Holdings is currently in negotiations with
Equifax, Inc., pursuant to which Equifax, Inc. may acquire the businesses
conducted by Holdings and its affiliates (the "Transaction"). The date, if any,
on which a definitive agreement is entered into with respect to the Transaction
is referred to herein as the "Execution Date" and the date of the consummation
of the transaction as the "Closing Date." Kroll Associates, Holdings, GTI
Holding Corporation and their subsidiaries and affiliates, are herein referred
to as the "Company."
On the date hereof, you hereby resign your position as a
member of the Board of Directors of Holdings and all other offices and positions
with the Company; provided, however, that you will remain with Kroll Associates
as President, with only such duties as the Chairman or the Board of Directors of
Kroll Associates may assign to you, until the date (the "Resignation Date")
which is the earlier of the Execution Date or June 1, 1997.
On the Resignation Date, you will resign as President of Kroll
Associates, but you shall be entitled to and Kroll Associates will pay you, as a
severance payment, your current salary and continue your medical and dental
coverage until December 31, 1997. After
<PAGE> 2
Mr. Robert J. McGuire
February 26, 1997
Page 2
December 31, 1997, you will be entitled, at your own cost, to continue your
coverage under such medical plan pursuant to COBRA. In addition, if Holdings and
its subsidiaries achieve their budgetary objectives under Holding's bonus plan
for 1997, you shall be entitled to a bonus payment equal to 25% of your annual
salary earned through the Resignation Date.
Holdings will purchase from you, and you will sell or
surrender to Holdings, the 3793.5 shares of Common Stock that you own as well as
your Options to purchase 350 shares of Common Stock as follows:
(i) if the Closing Date is before June 1, 1997, Holdings will
purchase from you on the business day immediately before the Closing
Date (A) your Common Stock for the greater of $650 per share or the per
share consideration amount paid by the purchaser in the Transaction
without regard to any contingent payment rights (the "Per Share
Consideration Amount") and (B) your Options for the excess of (1) the
greater of $650 per share or the Per Share Consideration Amount over
(2) $400 per share exercise price. Holdings shall pay to you the
amounts described above on the date immediately following the Closing
Date;
(ii) if the Closing Date does not occur on or before June 1,
1997, or if it does not occur at all, Holdings will purchase your
Common Stock for $650 per share and your Options for $250 per share
payable as follows: (1) 50% payable on June 1, 1997, and (B) 50%
payable on January 1, 1998;
You shall deliver to Holdings all shares of Common Stock,
endorsed in blank, and an acknowledgement of surrender of your Options
one business day prior to the Closing Date in the case of (i) above;
and on June 1, 1997 in the case of (ii) above;
In consideration of the above-described payments, you agree:
(i) to perform consulting services for the Company as may be
requested from time to time during the period beginning on the
Resignation Date through December 31, 1997 (the "Consulting Period");
(ii) not to participate directly or indirectly, with or
without compensation, participate in the ownership, management,
operation or control of any Competitor (as hereinafter defined) or be
employed by or perform consulting services for any Competitor prior to
March 1, 1998; provided, however, that if such Competitor renders
substantial services other than
<PAGE> 3
Mr. Robert J. McGuire
February 26, 1997
Page 3
Company Business, you shall not be prohibited from engaging in any such
activities solely in connection with such other services;
(iii) not to directly or indirectly solicit any customer of
the Company or any prospective customer of the Company, with a view to
inducing such customer or prospective customer to enter into an
agreement or otherwise do business with any Competitor with respect to
Company Business, or attempt to induce any such customer or prospective
customer to terminate its relationship with the Company or to not enter
into a relationship with the Company, as the case may be, prior to
March 1, 1998;
(iv) not to offer employment to any employee of the Company or
attempt to induce any such employee to leave the employ of the Company
prior to March 1, 1998; and
(v) not to release any trade secrets or customer or prospect
lists of the Company, or any other documents or other information
(whether or not such information is in writing) proprietary to the
Company or any customer of the Company this confidential or non-public,
to any person, except with the Company's consent or as may be required
pursuant to the order of a court of competent jurisdiction.
For purposes of this Agreement, "Company Business" is the
provision of international and domestic investigative and risk management
services or related fields and each other business in which the Company is
engaged during the Consulting Period, and a "Competitor" is any corporation,
firm, partnership, proprietorship, or other entity which engages in any Company
Business.
You agree that each of the covenants described above shall be
construed as a separate covenant, and that if, in any judicial proceeding, a
court shall refuse to enforce any of the separate covenants described herein,
then such unenforceable covenant shall be deemed eliminated from this Agreement
for the purpose of such proceeding or any other judicial proceeding to the
extent necessary to permit the remaining separate covenants described herein to
be enforced.
You agree to deliver promptly to Kroll Associates upon your
resignation as described above, or at any other time that Kroll Associates may
so request, all documents (and all copies thereof) relating to the business of
the Company, and all property associated therewith, which you may then possess
or have under your control.
<PAGE> 4
Mr. Robert J. McGuire
February 26, 1997
Page 4
My personal guarantee of February 25, 1995 remains effective
until you receive all the payments to which you are entitled pursuant to this
letter. This letter supersedes any and all other agreements between you and me,
and you and the Company respecting the subject matter hereof.
In the event any party to this agreement claims that any other
party has breached any of its provisions or the provisions of the General
Release and Waiver Agreement attached hereto, it may submit the matter for
adjudication pursuant to the rules for the resolution of employment disputes of
the American Arbitration Association. The party stated by the arbitrator to be
the prevailing party in any matter so brought shall bear the costs of the
arbitration and shall reimburse his or its adversary for all reasonable legal
fees.
Finally, in consideration of the payments you will receive
pursuant to the foregoing provisions, and in consideration of the promises you
have made for the benefit of the Company and me personally, you agree and I
agree on behalf of the Company and myself to execute the General Release and
Waiver Agreement attached hereto within two business days after you sign this
Agreement.
Very truly yours,
/s/ Jules B. Kroll
Jules B. Kroll
for Kroll Holdings, Inc.;
Kroll Associates, Inc.;
and for himself
Agreed to and accepted on this
26th day of February, 1997
/s/ Robert J. McGuire
-----------------------
Robert J. McGuire
<PAGE> 5
Exhibit 10.35
[KROLL HOLDINGS, INC. LETTERHEAD]
June 2, 1997
Mr. Robert J. McGuire
1085 Park Avenue
New York, New York 10128
Dear Bob:
This letter is to confirm our agreement to modify, in certain respects,
the letter agreement dated February 26, 1997 by and among Robert J. McGuire,
Kroll Holdings, Inc, Kroll Associates, Inc. and Jules B. Kroll (the
"Agreement"). All of the defined terms used in this letter are as defined in the
Agreement. Among other things, the Agreement provided that, if the Closing Date
did not occur on or before June 1, 1997 (and it has not) or if it did not occur
at all, Holdings was to purchase your Common Stock for $650 per share and your
Options for $250 per share payable as follows: (i) 50% payable on June 1, 1997
(the "First Installment") and (ii) 50% payable on January 1, 1998.
In consideration of your agreement to forbear receipt of the First
Installment on June 1, 1997, we have agreed to modify the Agreement as follows:
(i) Holdings will pay you $25,000 on June 2, 1997.
(ii) If the Closing Date is before July 15, 1997, Holdings
will purchase from you on the business day
immediately before the Closing Date (A) your Common
Stock for the greater of $650 per share or the per
share consideration amount paid by the purchaser in
the Transaction without regard to any contingent
payment rights (the "Per Share Consideration Amount")
and (B) your Options for the excess of (1) the
greater of $650 per share or the Per Share
Consideration Amount over (2) $400 per share exercise
price Holdings shall pay to you the amounts described
above on the date immediately following the Closing
Date.
<PAGE> 6
(iii) If the Closing Date does not occur on or before July
15, 1997, or if it does not occur at all, Holdings
will purchase your Common Stock for $650 per share
and your Options for $250 per share payable as
follows: (1) 50% payable on July 15, 1997, together
with interest on such amount from June 1, 1997 to
July 15, 1997 at a rate of 7 percent per annum, and
(B) 50% payable on January 1, 1998.
(iv) You shall deliver to Holdings all shares of Common
Stock, endorsed in blank, and an acknowledgment of
surrender of your Options one business day prior to
the Closing Date in the case of (ii) above, and on
July 15, 1997 in the case of (iii) above
(v) The personal guarantee of Jules B. Kroll dated
February 25, 1995 remains effective until you receive
all the payments to which you are entitled pursuant
to this letter and the Agreement.
All other terms of the Agreement remain in effect and unchanged.
Thank you for your cooperation in this matter, and we apologize for any
inconvenience this may cause you. If this letter reflects your understanding of
our agreement, please so indicate below.
Very truly yours,
/s/ Jules B. Kroll
Jules B. Kroll
for Kroll Holdings, Inc;
Kroll Associates, Inc.,
and for himself
Agreed to and accepted
on this 2nd day of June, 1997:
/s/ Robert J. McGuire
--------------------------------
Robert J. McGuire
<PAGE> 1
EXHIBIT 10.44
August 8, 1997
The O'Gara Company
9113 LeSaint Drive
Fairfield, Ohio 45014
Attn: Thomas M. O'Gara
Chairman
Dear Mr. O'Gara:
This letter agreement is delivered in connection with the execution and
delivery on today's date of that certain Plan and Agreement to Merge among the
O'Gara Company ("O'Gara"), VDE, INC., ("NEWCO"), Kroll Holdings, Inc. ("KHI")
and Jules Kroll ("Kroll") (the "Merger Agreement"). Capitalized terms used but
not defined herein shall have the same meanings assigned to them in the Merger
Agreement.
In order to induce O'Gara and NEWCO to enter into the Merger Agreement,
American International Group, Inc. ("AIG") hereby agrees to be present (in
person or by proxy) at the meeting of the shareholders of KHI to be held
pursuant to Article XI of the Merger Agreement, and to vote or cause to be voted
at such meeting all shares of KHI Capital Stock owned by AIG and all other
shares of KHI Capital Stock the voting of which is controlled by AIG
("collectively, the "AIG Shares") in favor of approval and adoption of the
Merger Agreement and the consummation of the Merger, provided that the foregoing
obligations shall be subject to execution by the Company and AIG of a
registration rights agreement providing for one demand registration and
unlimited piggyback registrations for AIG at the cost and expense of O'Gara
(other than underwriting discounts, if any) for a period of three (3) years from
the Effective Time of the Merger, customary limitations with respect to
underwriter cutbacks, pending announcements or transactions involving the issuer
and other such matters and such other terms and conditions as are customary and
reasonably acceptable to the parties, and further subject to one nominee of AIG
being recommended by the Board of Directors of O'Gara for appointment to the
Board of Directors of O'Gara as of the Effective Time of the Merger.
<PAGE> 2
The O'Gara Company
August 8, 1997
Page 2
In addition, AIG agrees not to sell, transfer, convey, assign, pledge,
hypothecate or otherwise dispose of any of the AIG Shares, or the right to vote
the AIG Shares, to or for the benefit of any Person prior to the sooner of (x)
the termination of the Merger Agreement and (y) the Effective Time of the
Merger, unless any such transferee agrees to be bound by this Agreement.
Sincerely yours,
AMERICAN INTERNATIONAL GROUP, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE> 1
EXHIBIT 10.46
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of the
____ day of October, 1997, is made and entered into by and between The O'Gara
Company, an Ohio corporation (the "Company"), and American International Group,
Inc., a Delaware corporation ("Shareholder").
W I T N E S S E T H:
WHEREAS, in accordance with that certain Plan and Agreement to Merge
dated August 8, 1997 ("Merger Agreement") among the Company, VDE, INC., Kroll
Holdings, Inc. ("KHI") and Jules Kroll ("Kroll"), shares of Common Stock, $.01
par value per share, of the Company (the "Common Stock") will be issued to the
Shareholder; and
WHEREAS, pursuant to the Merger Agreement and to induce the Shareholder
to vote its shares of the capital stock of KHI in favor of the transaction
contemplated by the Merger Agreement, the Company has agreed to provide the
registration rights hereinafter set forth;
NOW, THEREFORE, the parties hereby agree as follows:
1. Certain Definitions.
As used in this Agreement the following terms shall have the meanings
ascribed to them below:
1.1 "Commission": the United States Securities and Exchange
Commission, or any successor agency or commission.
1.2 "Exchange Act": the Securities and Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
1.3 "Holder" or "Holders": (a) the Shareholder or any
Permitted Transferee, individually, or (b) the Shareholder and all Permitted
Transferees, collectively.
1.4 "Permitted Transferee": a Person that controls, is
controlled by or is under common control with the Shareholder.
1.5 "Person": an individual, corporation, limited liability
company, joint venture, partnership, trust, unincorporated organization or other
entity, or a government or any agency or political subdivision thereof.
1.6 "Registrable Securities": any outstanding shares of Common
Stock held of record by the Holders. As to any
<PAGE> 2
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have been distributed (other than in a
privately negotiated sale) pursuant to a Rule 144 Open Market Transaction, (iii)
such securities shall cease to be outstanding, or (iv) such securities shall be
held beneficially by any person other than a Shareholder or a Permitted
Transferee (with satisfactory evidence of such beneficial ownership having been
provided to the Company).
1.7 "Rule 144 Open Market Transaction": the sale of securities
pursuant to Rule 144 (as it exists now or may hereafter be amended, or any
successor provision) under the Securities Act.
1.8 "Securities Act": the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
2. Registration Rights.
2.1 Demand Registration.
(a) Subject to Section 2.1(b) below, the Shareholder shall
have the right, on not more than one (1) occasion within three (3) years of the
Effective Time of the Merger to require the Company to file a registration
statement under the Securities Act covering all or part of any Holder's or
Holders' Registrable Securities by delivering a written request therefor to the
Company specifying the number of Registrable Securities to be included in such
registration, and the intended method of distribution thereof (the "Demand
Registration Request"). Subject to Sections 2.3, 2.4, 2.5 and 2.7, the Company
shall use its best efforts to effect the registration under the Securities Act
of the Registrable Securities which the Company has been so requested to
register in the Demand Registration Request, for disposition in accordance with
the intended method of disposition stated in the Demand Registration Request (a
"Demand Registration"). The Company shall not be obligated to effect more than
one (1) Demand Registration. A registration request pursuant to this Agreement
will not be deemed to have been effected unless the registration statement with
respect thereto shall have been declared effective and remained effective for
the period required by Section 2.4(a) of this Agreement.
(b) The demand registration rights granted the Shareholder in
Section 2.1(a) are subject to the following additional limitations: (i) the
Company shall not be obligated to file a registration statement relating to any
Demand Registration Request made more than three (3) years after the Effective
Time of the Merger; (ii) the Company shall not be
2
<PAGE> 3
required to file a registration statement pursuant to a Demand Registration
Request on Form S-1 at any time when registration on Form S-3 is available for
use by the Holders in connection with such registration; and (iii) if the Board
of Directors of the Company, in its good faith judgment, reasonably determines
that any registration of Registrable Securities should not be made or continued
due to a valid need not to disclose confidential information or because it would
interfere with any corporate reorganization or material financing, acquisition,
merger or other transaction involving the Company (collectively, a "Valid
Business Reason"), the Company may postpone filing a registration statement
relating to a Demand Registration Request and, in case any such registration
statement has been filed, if the Valid Business Reason has not resulted from
actions taken by the Company, the Company may cause such registration statement
to be withdrawn and its effectiveness terminated or may postpone amending or
supplementing such registration statement, in each case until such Valid
Business Reason no longer exists. The Company shall give written notice to the
Shareholder of its determination to postpone or withdraw a registration
statement for a Valid Business Reason, together with such disclosure to the
Shareholder of the nature of the Valid Business Reason as business necessity and
the requirements of applicable law will allow, and of the fact that the Valid
Business Reason for such postponement or withdrawal no longer exists, in each
case promptly after the occurrence thereof. If the Company shall give any notice
of postponement or withdrawal of any registration statement, the Company shall
not, during the period of postponement or withdrawal, register any capital stock
other than pursuant to a registration statement on Form S-4 or Form S-8. Each
Holder of Registrable Securities agrees that, upon receipt of any notice from
the Company that the Company has determined to withdraw any registration
statement pursuant to clause (iii) above, each Holder will discontinue its
disposition of Registrable Securities pursuant to such registration statement
and, if so directed by the Company, will deliver to the Company all copies,
other than permanent file copies, then in such Holder's possession of the
prospectus covering such Registrable Securities that was in effect at the time
of receipt of such notice. If the Company shall give any notice of withdrawal of
a registration statement, the Company shall, at such time as the Valid Business
Reason that caused such withdrawal no longer exists, file a new registration
statement covering the Registrable Securities that were covered by the withdrawn
registration statement. If the Company shall have withdrawn or prematurely
terminated a registration statement filed under Section 2.1(a) (whether pursuant
to clause (iii) above or as a result of any stop order, injunction or other
order or requirement of the Commission or any other governmental agency or
court), the Company shall not be considered to have effected a registration for
the purposes of this Section 2.1 and such withdraws or terminated registration
shall not constitute a Demand Registration unless and until the Company shall
have filed
3
<PAGE> 4
a new registration statement covering the Registrable Securities covered by the
withdrawn registration statement and such registration statement shall have been
declared effective and remained effective for the period required by Section
2.4(a) of this Agreement. If the Company shall give any notice of postponement
of a registration statement, the Company shall, at such time as the Valid
Business Reason that caused such postponement no longer exists, use its best
efforts to effect the registration under the Securities Act of Registrable
Securities in accordance with this Section 2.1.
(c) Subject to Section 2.3, the Company may elect to include
in any registration statement and offering made pursuant to this Section 2.1,
authorized but unissued shares of Common Stock or shares of Common Stock held by
the Company as treasury shares.
(d) If any Demand Registration involves an underwritten
offering, the Shareholder shall have the right to select the investment bankers
and underwriters or managing underwriters to administer the offering of such
Registrable Securities, provided such investment bankers and underwriters shall
be reasonably acceptable to the Company.
2.2 "Piggy-Back" Registrations. (a) If, at any time within three (3)
years after the Effective Time of the Merger, the Company proposes or is
required to register any shares of its Common Stock under the Securities Act
(other than pursuant to Section 2.1) on a registration statement on Form S-1,
Form S-2 or Form S-3, whether or not for its own account, the Company, on each
such occasion, shall give prompt written notice of its intention to do so to the
Shareholder. Upon the written request of the Shareholder made within fifteen
(15) days following the receipt of any such written notice (which request shall
specify the Registrable Securities intended to be disposed of by each Holder),
the Company shall, subject to Sections 2.2(b), 2.3, 2.4, 2.5 and 2.7 hereof, use
its best efforts to cause all Registrable Securities requested by the
Shareholder to be included in such registration under the Securities Act (with
the securities which the Company at the time proposes to register) to permit the
sale or other disposition by the Holders of such Registrable Securities.
(b)(i) If, at any time after giving written notice of its
intention to register any shares of Common Stock and prior to the effective date
of the registration statement filed in connection therewith the Company shall
determine for any reason not to register such shares of Common Stock, the
Company shall give written notice to the Shareholder and, thereupon, shall be
relieved of its obligation to register any Registrable Securities in connection
with such abandoned registration.
(ii) In case of a determination by the Company to delay the
registration of shares of its Common Stock pursuant to this Section 2.2, the
Company shall be permitted to delay the registration of Registrable Securities
for the same period as the delay in registering all other equity securities to
be included in such registration.
(iii) The Company shall not be obligated to register any
Holder's Registrable Securities pursuant to this Section 2.2 unless the sale or
other disposition of such Registrable Securities is made pursuant to the same
terms, conditions and method of distribution applicable to the securities which
the Company proposes to register.
(iv) If any registration pursuant to Section 2.2 involves an
underwritten offering, the Company shall have the right to select the investment
bankers and underwriters or managing underwriters to administer the offering,
and any Registrable Securities requested by the Shareholder to be included in
any such registration shall be offered pursuant to an underwriting agreement
with the managing underwriter so selected by the Company.
(c) The Shareholder shall have the right to withdraw its
request for inclusion of all or any portion of the Registrable Securities in any
registration statement pursuant to
4
<PAGE> 5
this Section 2.2 by giving written notice to the Company of its request to
withdraw (a "Withdrawal Election"); provided, however, that a Withdrawal
Election shall be irrevocable and the Shareholder shall no longer have any right
to include the withdrawn Registrable Securities in such registration statement.
2.3 Allocation of Securities Included in Registration Statement. (a) If
any requested registration pursuant to Section 2.1 involves an underwritten
offering and the managing underwriter shall advise the Company that, in its
view, the number of Registrable Securities requested to be included in such
registration (including those securities requested by the Company to be included
in such registration) exceeds the largest number (the "Section 2.1 Sale Number")
that can be sold in an orderly manner in such offering within a price range
acceptable to the Shareholder, the Company shall include in such registration:
(i) all Registrable Securities requested to be included in
such registration by the Shareholder, to the extent not in excess of the Section
2.1 Sale Number; and
(ii) To the extent that the number of Registrable Securities
requested to be included by the Shareholder is less than the Section 2.1 Sale
Number, such number of securities the Company proposes to register, if any, as
may be included without causing the Section 2.1 Sale Number to be exceeded.
If, as a result of the provisions of this Section 2.3(a), the Shareholder shall
not be entitled to include all Registrable Securities in a registration that the
Shareholder has requested to be included, the Shareholder may make a Withdrawal
Election; provided, however, that the Withdrawal Election shall be irrevocable
and, after making a Withdrawal Election, the Shareholder shall no longer have
any right to include the withdrawn Registrable Securities in the registration
statement; and provided further that if as a result of such Withdrawal Election
no Registrable Securities are to be included in such registration, such
registration shall not constitute a Demand Registration for purposes of
determining whether the limitation on the number of Demand Registrations set
forth in Section 2.1(a) has been met and the Company shall not thereafter be
required to complete such registration.
(b) If any registration pursuant to Section 2.2 involves an
underwritten offering and the managing underwriter shall advise the Company
that, in its view, the number of securities requested to be included in such
registration exceeds the number (the "Section 2.2 Sale Number) that can be sold
in an orderly manner in such offering within a price range acceptable to the
Company, the Company shall include in such offering (i) all the securities the
Company proposes to register, and (ii) to the extent that the shares of Common
Stock to be included by the Company are less than the Section 2.2 Sale Number,
such number of
5
<PAGE> 6
Registrable Securities requested to be included by the Shareholder as will bring
the total number of securities to be so registered to the Section 2.2 Sale
Number.
2.4 Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities, the Company shall, as expeditiously
as possible:
(a) prepare and file with the Commission a registration
statement with respect to all Registrable Securities required by this Agreement
to be covered thereby, and use its best efforts to cause such registration
statement to become and remain effective until the earliest to occur of (i) the
date on which all Registrable Securities covered by such registration statement
are sold, or (ii) the earlier of the date that is ninety (90) days after such
registration statement becomes effective; provided, however, that before filing
a registration statement or prospectus, or any amendments or supplements
thereto, the Company will furnish to counsel selected by the Shareholder copies
of all documents proposed to be filed, which documents will be subject to the
reasonable review and comments of such counsel;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus as may be
necessary to keep such registration statement effective for the period required
by Section 2.4(a) above and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all Registrable Securities
covered by such registration statement; provided, however, that before filing a
registration statement or prospectus, or any amendments or supplements thereto,
the Company will furnish to counsel selected by the Shareholder copies of all
documents proposed to be filed, which documents will be subject to the
reasonable review and comments of such counsel;
(c) furnish, without charge, to each seller of such
Registrable Securities and each underwriter, if any, of the securities covered
by such registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits), and the prospectus included in such registration statement (including
each preliminary prospectus) in conformity with the requirements of the
Securities Act, and other documents as such seller and underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or blue sky law of such jurisdictions as any sellers of Registrable
Securities or any managing
6
<PAGE> 7
underwriter, if any, shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such sellers or
underwriters to consummate the disposition of the Registrable Securities in such
jurisdictions, except that in no event shall the Company be required to (i)
qualify to do business as a foreign corporation in any jurisdiction where it
would not, but for the requirements of this paragraph (d), be required to be so
qualified, or (ii) subject itself to taxation in any such jurisdiction;
(e) promptly notify each Holder selling Registrable Securities
covered by such registration statement and each underwriter, if any: (i) when
the registration statement, any pre-effective amendment, the prospectus or any
prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission for amendments or supplements to the
registration statement or the prospectus related thereto or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdictions or the initiation of any proceeding for such purpose; and (v) of
the existence or occurrence of any fact or event which results or would
reasonably be expected to result in the registration statement, the prospectus
related thereto or any document incorporated therein by reference containing an
untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make any statement therein in
light of the circumstances under which it was made, not misleading, and in case
the notification relates to an event described in clause (v), the Company shall
promptly prepare and furnish to each such seller and each underwriter, if any, a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(f) comply with all applicable rules and regulations of the
Commission, and make generally available to its securities holders, as soon as
reasonably practicable after the effective date of the registration statement,
an earnings statement (which need not be audited) covering the period of at
least twelve consecutive months beginning with the first day of the Company's
first calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy
7
<PAGE> 8
the provisions of Section 11(a) of the Securities Act and the rules and
regulations thereunder;
(g) use its best efforts to cause all such Registrable
Securities covered by such registration statement to be listed on the principal
securities exchange on which Common Stock of the Company is then listed or, if
not so listed, on the National Association of Securities Dealers automated
quotation system; and
(h) enter into such customary agreements (including, if
applicable, an underwriting agreement in customary form containing, among other
provisions, standard provisions with respect to the indemnification of the
underwriters) and take such other actions as the Shareholder shall reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities.
2.5 Obligation to Discontinue. Each Holder of Registrable Securities
agrees that upon receipt of any notice from the Company of the happening of any
event described in clause (iii) of Section 2.4(e), such Holder will discontinue
such Holder's disposition of Registrable Securities pursuant to the registration
statement until the effectiveness of such registration statement is no longer
suspended or proceedings for that purpose are no longer pending. Each Holder of
Registrable Securities also agrees that upon receipt of any notice from the
Company of the happening of any event described in clause (iv) of Section
2.4(e), such Holder will discontinue such Holder's disposition of Registrable
Securities pursuant to the registration statement in the jurisdiction specified
in such notice until the qualification of the Registrable Securities in the
jurisdiction specified in such notice is no longer suspended or proceedings for
that purpose are no longer pending. Each Holder of Registrable Securities
further agrees that upon receipt of any notice from the Company of the happening
of an event of the kind described in clause (v) of Section 2.4(e), such Holder
will discontinue such Holder's disposition of Registrable Securities pursuant to
the registration statement until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.4(e) and, if so
directed by the Company, will use its best efforts to deliver to the Company, or
will agree to destroy and provide a certificate to the Company regarding such
destruction, all copies, other than permanent file copies, then in such Holder's
possession of the prospectus covering such Registrable Securities that was in
effect at the time of receipt of such notice.
2.6 Registration Expenses. The Company shall, whether or not any
registration pursuant to this Agreement becomes effective, pay all expenses
incident to the Company's performance of or compliance with this Article 2,
including, without limitation, (i) Commission or stock exchange registration and
filing fees, (ii) fees and expenses of compliance with state
8
<PAGE> 9
securities or blue sky laws and in connection with the preparation of a blue sky
survey, including without limitation, fees and expenses of blue sky counsel,
(iii) printing expenses, (iv) messenger and delivery expenses, (v) internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal and accounting duties), (vi)
fees and disbursements of counsel for the Company, (vii) fees and disbursements
of all independent public accountants (including the expenses of any audit
and/or "cold comfort" letter) and fees and expenses of other Persons, including
special experts, retained by the Company, and (viii) any fees and disbursements
of underwriters, if any, customarily paid by issuers or sellers of securities.
Notwithstanding the foregoing, the Shareholder shall pay or cause to be paid (a)
all underwriting discounts and commissions and transfer taxes, if any,
attributable to any Holder's Registrable Securities and (b) all fees and
disbursements, if any, of counsel to or other representatives of the
Shareholder.
2.7 Certain Limitations on Registration Rights. In the case of any
registration under Section 2.1 pursuant to an underwritten offer, or in the case
of a registration pursuant to Section 2.2 if the Company has determined to enter
into an underwriting agreement in connection therewith, all Registrable
Securities to be included in such registration shall be subject to an
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided
therein and completes and/or executes all questionnaires and other documents
which must be executed in connection therewith.
2.8 Limitations on Sale or Distribution of Other Securities. If
requested in writing by the Company or the managing underwriters, if any, of any
registration effected pursuant to Section 2.1 or 2.2, each Holder of Registrable
Securities agrees not to effect any public sale or distribution, including any
Rule 144 Open Market Transaction, of any Registrable Securities, or of any other
equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (other than
as part of such underwritten public offering) within 15 days before or 90 days
after the effective date of each underwritten offering made pursuant to such
registration statement.
2.9 Indemnification. (a) In the event of any registration of any
securities of the Company under the Securities Act pursuant to Article 2, the
Company shall, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, the Shareholder and each other seller of any
Registrable Securities covered by such registration statement, and their
respective directors, officers, fiduciaries, employees, stockholders, members
and general and limited partners (and the directors, officers, employees,
stockholders, members and
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<PAGE> 10
partners thereof), each other Person who participates as an underwriter or
qualified independent underwriter ("independent underwriter"), if any, in the
offering or sale of such securities, each officer, director, employee,
stockholder or partner of such underwriter or independent underwriter, and each
other Person, if any, who controls such seller or any such underwriter within
the meaning of the Securities Act, against any and all losses, claims, damages,
liabilities, actions or proceedings in respect thereof and expenses of
whatsoever nature (including, without limitation, costs and expenses of
investigation and defense, reasonable fees of counsel and any amounts paid in
any settlement effected with the Company's consent) (collectively, "Claims and
Damages") suffered or incurred by an indemnified party or to which any such
indemnified party may become subject under the Securities Act or otherwise,
insofar as such Claims and Damages arise out of or are based upon (i) any untrue
statement or alleged untrue statement under which such securities were
registered under the Securities Act or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any prospectus, or any preliminary, final or summary
prospectus or any amendment or supplement thereto, together with the documents
incorporated by reference therein, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading or (iii) any violation by the Company of the
Securities Act or any other federal, state or common law rule or regulation
applicable to the Company and related to any action or inaction required of the
Company in connection with any such registration; provided, that the Company
shall not be liable to any such indemnified party in any such case to the extent
such Claims or Damages arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact made in such registration statement or amendment thereof or
supplement thereto or in any such prospectus or any preliminary, final or
summary prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such indemnified party specifically
for use therein.
(b) If Registrable Securities are included in the securities
as to which any registration under Sections 2.1 or 2.2 is being effected, the
Shareholder and each seller of Registrable Securities (and, if the Company
requires as a condition to including any Registrable Securities in any
registration statement filed in accordance with Section 2.1 or 2.2, any
underwriter and independent underwriter, if any) shall, severally and not
jointly, indemnify and hold harmless, to the extent permitted by law, the
Company, its directors, officers,
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<PAGE> 11
fiduciaries, employees and stockholders, members and general and limited
partners with respect to Claims and Damages arising out of or based upon any
untrue statement or alleged untrue statement of any material fact in, or
omission or alleged omission of any material fact from, such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or its representatives by or on
behalf of the Shareholder specifically for use in such registration statement,
preliminary, final or summary prospectus or amendment or supplement or document
incorporated by reference into any of the foregoing.
(c) Indemnification similar to that specified in Section
2.10(a) and (b) (with appropriate modifications) shall be given by the Company
and each seller of Registrable Securities with respect to any required
registration or other qualification of securities in accordance with this
Agreement under any state securities and blue sky laws.
(d) Any person entitled to indemnification under this
Agreement shall notify promptly the indemnifying party in writing of the
commencement of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Section 2.10, but the failure of
any indemnified party to provide such notice shall not relieve the indemnifying
party of its obligations under this Section 2.10, except to the extent the
indemnifying party is damaged or prejudiced thereby. In case any action or
proceeding is brought against an indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to assume the defense thereof, to the extent that it chooses, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party that it so chooses, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof; provided, however, that if representation of both
parties by the same counsel is inappropriate under applicable standards of
professional conduct, then, in any such case, the indemnified party shall have
the right to assume or continue its own defense and the indemnifying party shall
be liable for all Claims and Damages arising thereunder and all reasonable
expenses therefor. If an indemnifying party has elected to assume the defense of
any action or proceeding or has otherwise acknowledged its obligation to
indemnify the indemnified party, such indemnifying party shall in no event be
liable for any settlement effected without its consent. No indemnifying party
shall consent to any settlement or the entry of any judgment without the prior
written consent of the indemnified party unless such settlement or judgment (i)
provides only for monetary damages, which shall be paid in full by the
indemnifying party, and (ii)
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<PAGE> 12
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of the underlying claim or litigation.
(e) The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
3. General.
3.1 Rule 144. The Company covenants that it will timely file
the reports required to be filed by it under the Securities Act or the Exchange
Act (including but not limited to the reports under Section 13 and 15 (d) of the
Exchange Act referred to in Rule 144(c)(1) under the Securities Act), and will
take such further action as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder of
Registrable Securities, the Company will promptly deliver to such Holder a
written statement as to whether it has complied with such requirements.
3.2 Amendments and Waivers. No amendment or waiver of any term or
provision of this Agreement shall be effective unless in writing signed by the
party to be charged. The waiver by any party of a breach of any term or
provision of this Agreement shall not be construed as a waiver of any subsequent
breach.
3.3 Notices. Except as otherwise provided in this Agreement, notices
and other communications under this Agreement shall be in writing and shall be
deemed to have been duly given on the date received by hand delivery, facsimile
transmission or registered mail, postage prepaid, addressed as follows:
to the Company:
The O'Gara Company
9113 LeSaint Drive
Fairfield, Ohio 45014
Attn: Abram Gordon, Esq.
Telephone No. (513) 874-2112
Facsimile No. (513) 874-1262
with a copy to:
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Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202
Attn: Thomas D. Heekin, Esq.
Telephone No. (513) 381-2838
Facsimile No. (513) 381-0205
and to the Shareholder:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attn: Howard T. Smith, Executive Vice President
Telephone No. (212) 720-6800
Facsimile No. (212) 509-4543
with a copy to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attn: Corporate Secretary
Telephone No. (212) 770-5123
Facsimile No. (212) 785-1584
The Company and the Shareholder, by written notice given in accordance with this
Section 3.3, may change the address to which such notice or other communications
are to be sent.
3.4 Legends. (a) Substantially the following legend shall be placed on
the certificates representing any shares of Common Stock issued to the
Shareholder by the Company pursuant to the Merger Agreement:
"The shares represented by this certificate are subject to the rights
and restrictions contained in a Registration Rights Agreement, dated as
of October __, 1997, copies of which are on file at the office of the
Secretary of the Company."
3.5 Company Representations. The Company represents and warrants to the
Shareholder that:
(a) The Company has all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby;
(b) The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company;
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<PAGE> 14
(c) This Agreement has been duly executed and delivered by the
Company and (assuming the due authorization, execution and delivery hereof by
the Shareholder) constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms;
(d) The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, (i) any provision of the
charter or organizational documents of the Company, (ii) any judgment, order,
decree, statute, law, ordinance, rule or regulation by which the Company is
bound or to which any of its properties or assets is subject, other than, in the
case of clause (ii), any such violation or default that would not reasonably be
expected to have a material adverse effect on the financial condition or
operations of the Company and its consolidated subsidiaries, taken as a whole,
and would not impair the ability of the Company to perform its obligations under
this Agreement; and
(e) No filing or registration with, or authorization, consent
or approval of, any governmental authority is required by or with respect to the
Company in connection with the execution and delivery by the Company of this
Agreement or the consummation by the Company of the transactions contemplated
hereby, except as otherwise expressly provided herein or in the Merger
Agreement.
3.6 Shareholder Representation. The Shareholder represents and warrants
to the Company that:
(a) The Shareholder has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby;
(b) The execution and delivery of this Agreement by the
Shareholder and the consummation by the Shareholder of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Shareholder;
(c) This Agreement has been duly executed and delivered by the
Shareholder and (assuming the due authorization, execution and delivery hereof
by the Company) constitutes a valid and binding obligation of the Shareholder,
enforceable against the Shareholder in accordance with its terms;
(d) The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under (i) any provision of the charter
or organizational documents of the Shareholder or (ii) any judgment,
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<PAGE> 15
order, decree, statute, law, ordinance, rule or regulation by which the
Shareholder is bound or to which any of its properties or assets is subject
other than, in the case of clause (ii), any such violations, defaults, rights,
liens, security interests, charges or encumbrances that would not reasonably be
expected to have a material adverse effect on the financial condition or
operations of the Shareholder and its consolidated subsidiaries, taken as a
whole, and would not impair the ability of the Shareholder to perform its
obligations under this Agreement.
(e) No filing or registration with, or authorization, consent
or approval of, any governmental authority is required by or with respect to the
Shareholder in connection with the execution and delivery by the Shareholder of
this Agreement or the consummation by the Shareholder of the transactions
contemplated hereby, except as otherwise expressly provided herein.
3.7 Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors and assigns of the parties hereto, whether so expressed or not. If
any Permitted Transferee shall acquire shares of Common Stock from the
Shareholder, whether by operation of law or otherwise (other than pursuant to
any offering registered under the Securities Act or any Rule 144 Open Market
Transaction), the Shareholder shall promptly notify the Company and such
Registrable Securities acquired from the Shareholder shall be held subject to
all of the terms of this Agreement, and by taking and holding such Registrable
Securities such Permitted Transferee shall be entitled to receive the benefits
of and be conclusively deemed to have agreed to be bound by and to perform all
of the terms and provisions of this Agreement. If the Company shall so request,
any such successor or assign shall agree in writing to acquire and hold the
Registrable Securities acquired from the Shareholder subject to all of the terms
hereof.
(b) This Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof and supersedes any
and all previous agreements among them relating to the subject matter hereof,
whether written, oral or implied.
(c) This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
(d) The Section and other headings contained in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation hereof.
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<PAGE> 16
(e) This Agreement may be executed in two or more
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
(f) Should any term or condition of this Agreement be
determined by a court of competent jurisdiction to be unenforceable for any
reason, including, without limitation, violation of statute or public policy,
such provision shall, if possible, be reformed by the parties hereto or, if the
parties cannot agree, by the appropriate court of competent jurisdiction to
comply with applicable legal requirements in a matter that is as close in its
intent and effect to the original provision as possible or, if such reformation
cannot be accomplished shall be stricken without affecting the validity of any
other term or condition of this Agreement.
(g) Each party hereto shall do and perform or cause to be done
and performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN INTERNATIONAL GROUP, INC.
By: ___________________________
Name: _________________________
Title: ________________________
By: ___________________________
Name: _________________________
Title: ________________________
THE O'GARA COMPANY
By: ___________________________
Name: _________________________
Title: ________________________
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<PAGE> 1
Exhibit 10.47
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of this
17th day of October, 1997, by and between The O'Gara Company, an Ohio
corporation (the "Company"), and Jules B. Kroll (the "Executive").
WHEREAS, the Executive and the Company desire to embody in
this Agreement the terms and conditions of Executive's employment by the
Company;
NOW, THEREFORE, in consideration of the premises and mutual
promises contained in this Agreement, including the revised compensation paid to
executive, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
1.01. Employment. The Company shall employ Executive as
Chairman of the Board of Directors and Chief Executive Officer. Executive hereby
accepts such employment. Executive agrees to devote his full business time and
best efforts to promote the interests of the Company.
1.02. Duties and Responsibilities. Executive shall have such
duties and responsibilities as are consistent with his position and shall
perform such services not inconsistent with his position as shall from time to
time be assigned to him by the Board of Directors of the Company, the Chief
Executive Officer of the Company, or any other officer of the Company in a
position superior to Executive.
ARTICLE II
Term
2.01. Term. The term of Executive's employment under this
Agreement (the "Term") shall commence on the Effective Time (as defined in the
Plan and Agreement to Merge VDE, Inc. with and into Kroll Holdings, Inc., dated
as of August 8, 1997), and shall continue for a period of three (3) years until
November 30, 2000, unless sooner terminated pursuant to Article V hereof.
Thereafter, the Term shall continue on a monthly basis unless terminated by
either party upon one month's prior written notice.
ARTICLE III
Compensation
3.01. Salary, Bonuses and Benefits. As compensation and
consideration for the performance by Executive of his obligations to the Company
under this Agreement, Executive shall be entitled to the compensation and
benefits described in the attached Exhibit A (subject, in each case, to the
provisions of ARTICLE V hereof).
<PAGE> 2
3.02. Expenses. The Company will reimburse Executive for
reasonable business-related expenses incurred by him in connection with the
performance of his duties hereunder during the Term, subject, however, to the
Company's policies relating to business-related expenses as in effect from time
to time during the Term.
ARTICLE IV
4.01. Exclusivity, Etc. Executive agrees to perform his
duties, responsibilities and obligations hereunder efficiently and to the best
of his ability. Executive agrees that he will devote his entire working time,
care and attention and best efforts to such duties, responsibilities and
obligations with the Company throughout the Term. Executive agrees that all of
his activities as an employee of the Company shall be in conformity with all
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
4.02. Other Business Ventures; Noncompetition.
(a) The term "Confidential Information", as employed in this
Agreement, means (i) any object, material, device, substance, data, report,
record, forecast, interpretation or information, whether written or oral, not in
the public domain and relating to or reflecting any product, design, process,
procedure, formula, research, idea, invention, discovery, improvement,
equipment, scientific or technical information, method of production, business
plan, financial information, listing of names, addresses or telephone numbers,
trade secret and/or know how, and all matters pertaining thereto, of the Company
whether or not contained in any written document, which are or have been
directly or indirectly communicated to, acquired by, or learned by the Executive
as a result of his relationship (whether as an employee or otherwise) with the
Company and (ii) any analysis, compilation, note, study, sample, drawing,
sketch, computer program, computer file or other document, whether prepared by
or under the direction of the Company, the Executive or others, and all copies,
facsimiles, replicas, photographs, and reproductions thereof, which contain,
relate to, or reflect any of the aforementioned items.
(b) The Executive shall not, directly or indirectly, either
disclose any Confidential Information, except to the extent required in the
performance of his duties as an employee of the Company and then only at the
direction of the Company, or use any Confidential Information for the benefit of
himself or any person, firm, corporation, or association other than the Company,
either during the Term or thereafter. Nothing contained in this Agreement is
deemed to conflict with Ohio Revised Code Section 1333.51 or 1333.81.
(c) All samples, drawings, sketches, documents and written
information of any kind reflecting any of the Confidential Information or
relating to the Company's business or products which come into the possession of
the Executive shall remain the sole property of the Company, and shall not be
copied, photocopied, reprinted or otherwise reproduced or disseminated by the
Executive except in the performance of his duties as an employee of the Company
and then only at the direction of the Company. Upon the earlier of the Company's
request therefor or the termination of the Executive's employment by the
Company, the Executive shall return all such samples, drawings, sketches,
documents and written information, and all copies, facsimiles, replicas,
photocopies, and reproductions of them, to the Company.
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<PAGE> 3
(d) The Executive hereby covenants and agrees to refrain,
during his employment by the Company and for a period of two (2) years after the
date of termination of the Executive's employment for Cause (as hereinafter
defined) or if the Executive terminates employment on his own volition, from
directly or indirectly owning any interest in or engaging in or performing any
services for any person, firm or corporation that directly or indirectly engages
in any business which competes with any aspect of the business of the Company,
wherever located, either as an individual on his own behalf, or as a partner,
employee or agent for any person or partnership, or as an employee, officer,
agent, director or shareholder of a corporation. The Executive will not at any
time during the period of the Executive's employment by the Company and for a
period of two (2) years thereafter induce or assist others to induce or attempt
to induce, in any manner, directly or indirectly, any employee, agent,
representative, customer or any other person or concern dealing with or in any
way associated with the Company to terminate or to modify in any other fashion
to the detriment of the Company such association with the Company. The Executive
hereby covenants and agrees to refrain, during his employment by the Company and
for a period of ten (10) years after the date of termination of the Executive's
employment with the Company from directly or indirectly owning any interest in
or engaging in or performing any services for any person, firm or corporation
that (i) uses the work "Kroll" as a business name or trade name, and (ii)
directly or indirectly engages in any business which competes with any aspect of
the business of the Company, wherever located, either as an individual on his
own behalf, or as a partner, employee or agent for any person or partnership, or
as an employee, officer, agent, director or shareholder of a corporation. The
Executive represents that his experience and capabilities are such that the
provisions of this paragraph will not prevent him from earning a livelihood.
(e) The parties hereto agree that the Executive's agreements
contained in paragraph (b) through (d) of this Article relate to matters of
unique character and peculiar value impossible of replacement, that breach of
such agreements by the Executive will cause the Company great and irreparable
injury therefor, that the remedy at law for any breach of the agreements
contained in (b) through (d) will be inadequate and that the Company, in
addition to any other relief available to it, shall be entitled to temporary
restraining orders and temporary and permanent injunctive relief or other
equitable relief without the necessity of proving actual damage or of providing
bond so as to prevent a breach of any of the agreements contained in (b) through
(d) of this Article and to secure the enforcement thereof.
ARTICLE V
Termination
5.01. Termination by the Company. The Company shall have the
right to terminate the Executive's employment at any time, with or without
"Cause." For purposes of this Agreement, "Cause" shall mean (i) substantial
failure by the Executive to perform his duties as described in Article I of this
Agreement, (ii) a breach by the Executive of any of the other terms and
conditions of this Agreement, (iii) conduct grossly insubordinate or disloyal to
the Company, or (iv) pleading no contest or guilty to a felony charge or being
convicted of a felony.
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<PAGE> 4
5.02. Death. In the event Executive dies during the Term, this
Agreement shall automatically terminate, such termination to be effective on the
date of Executive's death.
5.03. Disability. In the event that Executive shall suffer a
disability which shall have prevented him from performing satisfactorily his
obligations hereunder for a period of at least 90 consecutive days, or 180
non-consecutive days within any 365 day period, the Company shall have the right
to terminate Executive's employment, such termination to be effective upon the
giving of notice thereof to Executive in accordance with Section 6.03 hereof.
5.04. Effect of Termination. (a) In the event of termination
of Executive's employment for any reason, the Company shall pay to executive (or
his beneficiary in the event of his death) any base salary or other compensation
in accordance with the normal pay practices of the Company upon a termination of
employees for similar reasons.
(b) In the event of termination of Executive's employment (i)
by the Company for Cause, (ii) by Executive for any reason, (iii) because of
Executive's death, or (iv) pursuant to Section 5.03, because of Executive's
disability, neither the Executive nor any beneficiary of Executive shall be
entitled to any further compensation other than the amounts described in Section
5.04(a) hereof.
(c) In the event of termination of Executive's employment by
the Company other than for Cause, the Company shall pay Executive, in addition
to the amounts described in Section 5.04(a) hereof, the greater of (i) an amount
equal to the value of the continued payment of Executive's base salary for the
remainder of the Term (excluding renewal periods), or (ii) an amount equal to
one (1) year of Executive's base salary at the time of termination. Such amount
shall be payable, at the discretion of the Company, either (A) in a lump sum or
(B) in equal monthly installments.
(d) In the event that the company fails to renew the terms of
this Agreement for at least one year following the end of the Term, the Company
shall pay Executive an amount equal to one (1) year of Executive's base salary
at the time of termination. Such amount shall be payable, at the discretion of
the Company, either (A) in a lump sum or (B) in equal monthly installments.
ARTICLE VI
Miscellaneous
6.01. Mitigation: Offset. In the event that an amount becomes
payable to Executive pursuant to Section 5.04(c) above, such amount shall be
reduced, on a dollar-for-dollar basis, by (i) any outstanding amounts owed by
Executive to the Company and (ii) the amount of any compensation for services
earned by Executive during the remainder of the Term (if a severance payment is
due in accordance with Section 5.04(c)(i)) or during the one year period
following termination (if a severance payment is due in accordance with Sections
5.04(c)(ii) or 5.04(d)), from any source, whether paid currently or deferred. In
such event, Executive shall cooperate with the Company and shall provide such
information to the Company as it may reasonably require.
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<PAGE> 5
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
Agreement shall inure to the benefit of and be binding upon the Company and
their successors and assigns (but only to the extent the Agreement relates to
such entity), including, without limitation, any corporation or person which may
acquire all or substantially all of the Company's assets or business, or with or
into which the Company may be consolidated or merged. This Agreement shall also
inure to the benefit of, and be enforceable by, the Executive and his personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder if he had continued to
live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Executive's beneficiary, devisee, legatee or other designee, or
if there is no such designee, to the Executive's estate.
(b) The Company shall require any successor (whether
director or indirect, by operation of law, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
6.03 Notices. Any notice required or permitted hereunder shall
be in writing and shall be sufficiently given if personally delivered or if sent
by registered or certified mail, postage prepaid, with return receipt requested,
addressed: (a) in the case of the Company to the Chief Operating Officer; and
(b) in the case of Executive, to Executive's last known address as reflected in
the Company's records, or to such other address as Executive shall designate by
written notice to the Company. Any notice given hereunder shall be deemed to
have been given at the time of receipt thereof by the person to whom such notice
is given if personally delivered or at the time of mailing if sent by registered
or certified mail.
6.04. Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment during the Term and supersedes any and all prior
agreements and understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
6.05. Waiver. The waiver of either party of a breach of any
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
6.06. Headings. The Article and Section headings herein are
for convenience of reference only, do not constitute a part of this Agreement
and shall not be deemed to limit or affect any of the provisions hereof.
6.07. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Ohio without reference to the principles of conflict of laws.
-5-
<PAGE> 6
6.08. Agreement to Take Actions. Each party hereto shall
execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
6.09. Venue and Jurisdiction. Executive shall bring any legal
action against the Company in either Butler County Court of Common Pleas, State
of Ohio, U.S.A. or in United States District Court, Southern District of Ohio
(Western Division). Executive will not pursue legal action against the Company
in any other judicial venue. Executive submits to the jurisdiction of these
courts and waives any claim of improper venue, inconvenient forum or forum non
conveniens. Notwithstanding the foregoing, the Company may, at its sole
election, pursue legal action against Executive at any location it deems
appropriate.
6.10. Survivorship. The respective rights and obligations of
the parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.
6.11. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision or provisions of this Agreement, which
shall remain in full force and effect. If any provision of this Agreement is
held to be invalid, void or unenforceable, any court so holding shall substitute
a valid, enforceable provision that preserves, to the maximum lawful extent, the
terms and intent of this Agreement.
6.12. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement effective as of the date first written above.
THE O'GARA COMPANY
By: /s/ Abram S. Gordon
_____________________________________
Name: Abram S. Gordon
___________________________________
Title: Vice President
__________________________________
Executive /s/ Jules Kroll
_______________________________
-6-
<PAGE> 7
EXHIBIT A TO EMPLOYMENT AGREEMENT
Executive shall receive as compensation for his performance
under the attached Employment Agreement the following:
(a) Salary. The Company shall pay Executive a base salary
during the Term, payable in accordance with the normal payment procedures of the
Company and subject to such withholdings and other normal employee deductions as
may be required by law, at the annual rate of $375,000.00. The Board of
Directors of the Company shall review such compensation not less frequently than
annually during the Term.
(b) Annual Bonus. In addition to base salary, Executive shall
earn incentive compensation ("incentive compensation") and the Company shall pay
each fiscal year, or any fractional period thereof during the term, incentive
compensation in accordance with the plan approved by the Compensation Committee
and the Board of Directors each fiscal year.
(c) Stock Awards. Executive shall be entitled to receive up to
fifty percent (50%) of any incentive compensation in the form of shares of stock
of The O'Gara Company, an Ohio corporation ("TOC"). In addition, Executive shall
be eligible for grants of stock options in TOC, which grants shall be made at
the discretion of the Compensation Committee of the Board of Directors of TOC.
(d) Benefits. Executive shall participate during the Term in
such pension, life insurance, health, disability and major medical insurance
plans, and in such other employee benefit plans and programs, for the benefit of
the employees of the Company, as may be maintained from time to time during the
Term, in the Company's discretion, in each case to the extent and in the manner
available to other officers of the Company and subject to the terms and
provisions of such plans or programs.
(e) Vacation. Executive shall be entitled to a paid vacation
of at least three (3) weeks per annum, in accordance with Company policy (but
not necessarily consecutive vacation weeks) during the Term.
THE O'GARA COMPANY
By: /s/ Abram S. Gordon
_____________________________________
Name: Abram S. Gordon
___________________________________
Title: Vice President
__________________________________
/s/ Jules Kroll
________________________________________
Executive
-7-
<PAGE> 1
Exhibit 10.49
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of this
17th day of October, 1997, by and between The O'Gara Company, an Ohio
corporation (the "Company"), and Nazzareno E. Paciotti (the "Executive").
WHEREAS, the Executive and the Company desire to embody in
this Agreement the terms and conditions of Executive's employment by the
Company;
NOW, THEREFORE, in consideration of the premises and mutual
promises contained in this Agreement, including the revised compensation paid to
executive, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
1.01. Employment. The Company shall employ Executive as Chief
Financial Officer. Executive hereby accepts such employment. Executive agrees to
devote his full business time and best efforts to promote the interests of the
Company.
1.02. Duties and Responsibilities. Executive shall have such
duties and responsibilities as are consistent with his position and shall
perform such services not inconsistent with his position as shall from time to
time be assigned to him by the Board of Directors of the Company, the Chief
Executive Officer of the Company, or any other officer of the Company in a
position superior to Executive.
ARTICLE II
Term
2.01. Term. The term of Executive's employment under this
Agreement (the "Term") shall commence on the Effective Time (as defined in the
Plan and Agreement to Merge VDE, Inc. with and into Kroll Holdings, Inc., dated
as of August 8, 1997), and shall continue for a period of three (3) years until
November 30, 2000, unless sooner terminated pursuant to Article V hereof.
Thereafter, the Term shall continue on a monthly basis unless terminated by
either party upon one month's prior written notice.
ARTICLE III
Compensation
3.01. Salary, Bonuses and Benefits. As compensation and
consideration for the performance by Executive of his obligations to the Company
under this Agreement, Executive shall be entitled to the compensation and
benefits described in the attached Exhibit A (subject, in each case, to the
provisions of ARTICLE V hereof).
<PAGE> 2
3.02. Expenses. The Company will reimburse Executive for
reasonable business-related expenses incurred by him in connection with the
performance of his duties hereunder during the Term, subject, however, to the
Company's policies relating to business-related expenses as in effect from time
to time during the Term.
ARTICLE IV
4.01. Exclusivity, Etc. Executive agrees to perform his
duties, responsibilities and obligations hereunder efficiently and to the best
of his ability. Executive agrees that he will devote his entire working time,
care and attention and best efforts to such duties, responsibilities and
obligations with the Company throughout the Term. Executive agrees that all of
his activities as an employee of the Company shall be in conformity with all
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
4.02. Other Business Ventures; Noncompetition.
(a) The term "Confidential Information", as employed in this
Agreement, means (i) any object, material, device, substance, data, report,
record, forecast, interpretation or information, whether written or oral, not in
the public domain and relating to or reflecting any product, design, process,
procedure, formula, research, idea, invention, discovery, improvement,
equipment, scientific or technical information, method of production, business
plan, financial information, listing of names, addresses or telephone numbers,
trade secret and/or know how, and all matters pertaining thereto, of the Company
whether or not contained in any written document, which are or have been
directly or indirectly communicated to, acquired by, or learned by the Executive
as a result of his relationship (whether as an employee or otherwise) with the
Company and (ii) any analysis, compilation, note, study, sample, drawing,
sketch, computer program, computer file or other document, whether prepared by
or under the direction of the Company, the Executive or others, and all copies,
facsimiles, replicas, photographs, and reproductions thereof, which contain,
relate to, or reflect any of the aforementioned items.
(b) The Executive shall not, directly or indirectly, either
disclose any Confidential Information, except to the extent required in the
performance of his duties as an employee of the Company and then only at the
direction of the Company, or use any Confidential Information for the benefit of
himself or any person, firm, corporation, or association other than the Company,
either during the Term or thereafter. Nothing contained in this Agreement is
deemed to conflict with Ohio Revised Code SectionSection 1333.51 or 1333.81.
(c) All samples, drawings, sketches, documents and written
information of any kind reflecting any of the Confidential Information or
relating to the Company's business or products which come into the possession of
the Executive shall remain the sole property of the Company, and shall not be
copied, photocopied, reprinted or otherwise reproduced or disseminated by the
Executive except in the performance of his duties as an employee of the Company
and then only at the direction of the Company. Upon the earlier of the Company's
request therefor or the termination of the Executive's employment by the
Company, the Executive shall return all such samples, drawings, sketches,
documents and written information, and all copies, facsimiles, replicas,
photocopies, and reproductions of them, to the Company.
- 2 -
<PAGE> 3
(d) The Executive hereby covenants and agrees to refrain,
during his employment by the Company and for a period of two (2) years after the
date of termination of the Executive's employment for Cause (as hereinafter
defined) or if the Executive terminates employment on his own volition, from
directly or indirectly owning any interest in or engaging in or performing any
services for any person, firm or corporation that directly or indirectly engages
in any business which competes with any aspect of the business of the Company,
wherever located, either as an individual on his own behalf, or as a partner,
employee or agent for any person or partnership, or as an employee, officer,
agent, director or shareholder of a corporation. The Executive will not at any
time during the period of the Executive's employment by the Company and for a
period of two (2) years thereafter induce or assist others to induce or attempt
to induce, in any manner, directly or indirectly, any employee, agent,
representative, customer or any other person or concern dealing with or in any
way associated with the Company to terminate or to modify in any other fashion
to the detriment of the Company such association with the Company. The Executive
represents that his experience and capabilities are such that the provisions of
this paragraph will not prevent him from earning a livelihood.
(e) The parties hereto agree that the Executive's agreements
contained in paragraph (b) through (d) of this Article relate to matters of
unique character and peculiar value impossible of replacement, that breach of
such agreements by the Executive will cause the Company great and irreparable
injury therefor, that the remedy at law for any breach of the agreements
contained in (b) through (d) will be inadequate and that the Company, in
addition to any other relief available to it, shall be entitled to temporary
restraining orders and temporary and permanent injunctive relief or other
equitable relief without the necessity of proving actual damage or of providing
bond so as to prevent a breach of any of the agreements contained in (b) through
(d) of this Article and to secure the enforcement thereof.
ARTICLE V
Termination
5.01. Termination by the Company. The Company shall have the
right to terminate the Executive's employment at any time, with or without
"Cause." For purposes of this Agreement, "Cause" shall mean (i) substantial
failure by the Executive to perform his duties as described in Article I of this
Agreement, (ii) a breach by the Executive of any of the other terms and
conditions of this Agreement, (iii) conduct grossly insubordinate or disloyal to
the Company, or (iv) pleading no contest or guilty to a felony charge or being
convicted of a felony.
5.02. Death. In the event Executive dies during the Term, this
Agreement shall automatically terminate, such termination to be effective on the
date of Executive's death.
5.03. Disability. In the event that Executive shall suffer a
disability which shall have prevented him from performing satisfactorily his
obligations hereunder for a period of at least 90 consecutive days, or 180
non-consecutive days within any 365 day period, the Company shall have the right
to terminate Executive's employment, such termination to be effective upon the
giving of notice thereof to Executive in accordance with Section 6.03 hereof.
- 3 -
<PAGE> 4
5.04. Effect of Termination. (a) In the event of termination
of Executive's employment for any reason, the Company shall pay to executive (or
his beneficiary in the event of his death) any base salary or other compensation
in accordance with the normal pay practices of the Company upon a termination of
employees for similar reasons.
(b) In the event of termination of Executive's employment (i)
by the Company for Cause, (ii) by Executive for any reason, (iii) because of
Executive's death, or (iv) pursuant to Section 5.03, because of Executive's
disability, neither the Executive nor any beneficiary of Executive shall be
entitled to any further compensation other than the amounts described in Section
5.04(a) hereof.
(c) In the event of termination of Executive's employment by
the Company other than for Cause, the Company shall pay Executive, in addition
to the amounts described in Section 5.04(a) hereof, the greater of (i) an amount
equal to the value of the continued payment of Executive's base salary for the
remainder of the Term (excluding any renewal periods), or (ii) an amount equal
to one (1) year of Executive's base salary at the time of termination. Such
amount shall be payable, at the discretion of the Company, either (A) in a lump
sum or (B) in equal monthly installments.
(d) In the event that the Company fails to renew the terms of
this Agreement for at least one year following the end of the Term, the Company
shall pay Executive an amount equal to one (1) year of Executive's base salary
at the time of termination. Such amount shall be payable, at the discretion of
the Company, either (A) in a lump sum or (B) in equal monthly installments.
ARTICLE VI
Miscellaneous
6.01. Mitigation: Offset. In the event that an amount becomes
payable to Executive pursuant to Section 5.04(c) above, such amount shall be
reduced, on a dollar-for-dollar basis, by (i) any outstanding amounts owed by
Executive to the Company and (ii) the amount of any compensation for services
earned by Executive during the remainder of the Term (if a severance payment is
due in accordance with Section 5.04(c)(i)) or during the one year period
following termination (if a severance payment is due in accordance with Sections
5.04 (c)(ii) or 5.04(d)), from any source, whether paid currently or deferred.
In such event, Executive shall cooperate with the Company and shall provide such
information to the Company as it may reasonably require.
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
Agreement shall inure to the benefit of and be binding upon the Company and
their successors and assigns (but only to the extent the Agreement relates to
such entity), including, without limitation, any corporation or person which may
acquire all or substantially all of the Company's assets or business, or with or
into which the Company may be consolidated or merged. This Agreement shall also
inure to the benefit of, and be enforceable by, the Executive and his personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
- 4 -
<PAGE> 5
while any amount would still be payable to the Executive hereunder if he had
continued to live, all such amounts shall be paid in accordance with the terms
of this Agreement to the Executive's beneficiary, devisee, legatee or other
designee, or if there is no such designee, to the Executive's estate.
(b) The Company shall require any successor (whether director
or indirect, by operation of law, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
6.03 Notices. Any notice required or permitted hereunder shall
be in writing and shall be sufficiently given if personally delivered or if sent
by registered or certified mail, postage prepaid, with return receipt requested,
addressed: (a) in the case of the Company to the Chief Operating Officer; and
(b) in the case of Executive, to Executive's last known address as reflected in
the Company's records, or to such other address as Executive shall designate by
written notice to the Company. Any notice given hereunder shall be deemed to
have been given at the time of receipt thereof by the person to whom such notice
is given if personally delivered or at the time of mailing if sent by registered
or certified mail.
6.04. Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment during the Term and supersedes any and all prior
agreements and understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
6.05. Waiver. The waiver of either party of a breach of any
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
6.06. Headings. The Article and Section headings herein are
for convenience of reference only, do not constitute a part of this Agreement
and shall not be deemed to limit or affect any of the provisions hereof.
6.07. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Ohio without reference to the principles of conflict of laws.
6.08. Agreement to Take Actions. Each party hereto shall
execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
6.09. Venue and Jurisdiction. Executive shall bring any legal
action against the Company in either Butler County Court of Common Pleas, State
of Ohio, U.S.A. or in United States
- 5 -
<PAGE> 6
District Court, Southern District of Ohio (Western Division). Executive will not
pursue legal action against the Company in any other judicial venue. Executive
submits to the jurisdiction of these courts and waives any claim of improper
venue, inconvenient forum or forum non conveniens. Notwithstanding the
foregoing, the Company may, at its sole election, pursue legal action against
Executive at any location it deems appropriate.
6.10. Survivorship. The respective rights and obligations of
the parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.
6.11. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision or provisions of this Agreement, which
shall remain in full force and effect. If any provision of this Agreement is
held to be invalid, void or unenforceable, any court so holding shall substitute
a valid, enforceable provision that preserves, to the maximum lawful extent, the
terms and intent of this Agreement.
6.12. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement effective as of the date first written above.
THE O'GARA COMPANY
By: /s/ Abram S. Gordon
-------------------
Name: Abram S. Gordon
Title: Vice President
/s/ N.E. Paciotti
-----------------------
Executive
- 6 -
<PAGE> 7
EXHIBIT A TO EMPLOYMENT AGREEMENT
Executive shall receive as compensation for his performance
under the attached Employment Agreement the following:
(a) Salary. The Company shall pay Executive a base salary
during the Term, payable in accordance with the normal payment procedures of the
Company and subject to such withholdings and other normal employee deductions as
may be required by law, at the annual rate of $275,000.00. The Board of
Directors of the Company shall review such compensation not less frequently than
annually during the Term.
(b) Annual Bonus. In addition to base salary, Executive shall
earn incentive compensation ("incentive compensation") and the Company shall pay
each fiscal year, or any fractional period thereof during the term, incentive
compensation in accordance with any such plan approved by the Compensation
Committee and the Board of Directors each fiscal year.
(c) Stock Awards. Executive shall be entitled to receive up to
fifty percent (50%) of any incentive compensation in the form of shares of stock
of The O'Gara Company, an Ohio corporation ("TOC"). In addition, Executive shall
be eligible for grants of stock options in TOC, which grants shall be made at
the discretion of the Compensation Committee of the Board of Directors of TOC in
an amount commensurate with Executive's position and responsibilities with the
Company.
(d) Benefits. Executive shall participate during the Term in
such pension, life insurance, health, disability and major medical insurance
plans, and in such other employee benefit plans and programs, for the benefit of
the employees of the Company, as may be maintained from time to time during the
Term, in the Company's discretion, in each case to the extent and in the manner
available to other officers of the Company and subject to the terms and
provisions of such plans or programs.
(e) Vacation. Executive shall be entitled to a paid vacation
of at least three (3) weeks per annum, in accordance with Company policy (but
not necessarily consecutive vacation weeks) during the Term.
THE O'GARA COMPANY
By: /s/ Abram S. Gordon
----------------------------------
Name: Abram S. Gordon
Title: Vice President
/s/ N.E. Paciotti
-------------------------------------
Executive
- 7 -
<PAGE> 1
Exhibit 10.50
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of this
17th day of October, 1997, by and between The O'Gara Company, an Ohio
corporation (the "Company"), and Abram S. Gordon (the "Executive").
WHEREAS, the Executive and the Company desire to embody in
this Agreement the terms and conditions of Executive's employment by the
Company;
NOW, THEREFORE, in consideration of the premises and mutual
promises contained in this Agreement, including the revised compensation paid to
executive, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
1.01. Employment. The Company shall employ Executive as
General Counsel. Executive hereby accepts such employment. Executive agrees to
devote his full business time and best efforts to promote the interests of the
Company.
1.02. Duties and Responsibilities. Executive shall have such
duties and responsibilities as are consistent with his position and shall
perform such services not inconsistent with his position as shall from time to
time be assigned to him by the Board of Directors of the Company, the Chief
Executive Officer of the Company, or any other officer of the Company in a
position superior to Executive.
ARTICLE II
Term
2.01. Term. The term of Executive's employment under this
Agreement (the "Term") shall commence on the Effective Time (as defined in the
Plan and Agreement to Merge VDE, Inc. with and into Kroll Holdings, Inc., dated
as of August 8, 1997), and shall continue for a period of three (3) years until
November 30, 2000, unless sooner terminated pursuant to Article V hereof.
Thereafter, the Term shall continue on a monthly basis unless terminated by
either party upon one month's prior written notice.
ARTICLE III
Compensation
<PAGE> 2
3.01. Salary, Bonuses and Benefits. As compensation and
consideration for the performance by Executive of his obligations to the Company
under this Agreement, Executive shall be entitled to the compensation and
benefits described in the attached Exhibit A (subject, in each case, to the
provisions of ARTICLE V hereof).
3.02. Expenses. The Company will reimburse Executive for
reasonable business-related expenses incurred by him in connection with the
performance of his duties hereunder during the Term, subject, however, to the
Company's policies relating to business-related expenses as in effect from time
to time during the Term.
ARTICLE IV
4.01. Exclusivity, Etc. Executive agrees to perform his
duties, responsibilities and obligations hereunder efficiently and to the best
of his ability. Executive agrees that he will devote his entire working time,
care and attention and best efforts to such duties, responsibilities and
obligations with the Company throughout the Term. Executive also agrees that he
will not engage in any other business activities pursued for gain, profit or
other pecuniary advantage that are competitive with the activities of the
Company, except as permitted in Section 4.02 below. Executive agrees that all of
his activities as an employee of the Company shall be in conformity with all
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
4.02. Other Business Ventures; Noncompetition.
(a) The term "Confidential Information", as employed in this
Agreement, means (i) any object, material, device, substance, data, report,
record, forecast, interpretation or information, whether written or oral, not in
the public domain and relating to or reflecting any product, design, process,
procedure, formula, research, idea, invention, discovery, improvement,
equipment, scientific or technical information, method of production, business
plan, financial information, listing of names, addresses or telephone numbers,
trade secret and/or know how, and all matters pertaining thereto, of the Company
whether or not contained in any written document, which are or have been
directly or indirectly communicated to, acquired by, or learned by the Executive
as a result of his relationship (whether as an employee or otherwise) with the
Company and (ii) any analysis, compilation, note, study, sample, drawing,
sketch, computer program, computer file or other document, whether prepared by
or under the direction of the Company, the Executive or others, and all copies,
facsimiles, replicas, photographs, and reproductions thereof, which contain,
relate to, or reflect any of the aforementioned items.
(b) The Executive shall not, directly or indirectly, either
disclose any Confidential Information, except to the extent required in the
performance of his duties as an employee of the Company and then only at the
direction of the Company, or use any Confidential Information for the benefit of
himself or any person, firm,
<PAGE> 3
corporation, or association other than the Company, either during the Term or
thereafter. Nothing contained in this Agreement is deemed to conflict with Ohio
Revised Code SectionSection 1333.51 or 1333.81.
(c) All samples, drawings, sketches, documents and written
information of any kind reflecting any of the Confidential Information or
relating to the Company's business or products which come into the possession of
the Executive shall remain the sole property of the Company, and shall not be
copied, photocopied, reprinted or otherwise reproduced or disseminated by the
Executive except in the performance of his duties as an employee of the Company
and then only at the direction of the Company. Upon the earlier of the Company's
request therefor or the termination of the Executive's employment by the
Company, the Executive shall return all such samples, drawings, sketches,
documents and written information, and all copies, facsimiles, replicas,
photocopies, and reproductions of them, to the Company.
(d) The Executive hereby covenants and agrees to refrain,
during his employment by the Company and for a period of two (2) years after the
date of termination of the Executive's employment for Cause (as hereinafter
defined) or if the Executive terminates employment on his own volition, from
directly or indirectly owning any interest in or engaging in or performing any
services for any person, firm or corporation that directly or indirectly engages
in any business which competes with any aspect of the business of the Company,
wherever located, either as an individual on his own behalf, or as a partner,
employee or agent for any person or partnership, or as an employee, officer,
agent, director or shareholder of a corporation. The Executive will not at any
time during the period of the Executive's employment by the Company and for a
period of two (2) years thereafter induce or assist others to induce or attempt
to induce, in any manner, directly or indirectly, any employee, agent,
representative, customer or any other person or concern dealing with or in any
way associated with the Company to terminate or to modify in any other fashion
to the detriment of the Company such association with the Company. The Executive
represents that his experience and capabilities are such that the provisions of
this paragraph will not prevent him from earning a livelihood.
(e) The parties hereto agree that the Executive's agreements
contained in paragraph (b) through (d) of this Article relate to matters of
unique character and peculiar value impossible of replacement, that breach of
such agreements by the Executive will cause the Company great and irreparable
injury therefor, that the remedy at law for any breach of the agreements
contained in (b) through (d) will be inadequate and that the Company, in
addition to any other relief available to it, shall be entitled to temporary
restraining orders and temporary and permanent injunctive relief or other
equitable relief without the necessity of proving actual damage or of providing
bond so as to prevent a breach of any of the agreements contained in (b) through
(d) of this Article and to secure the enforcement thereof.
ARTICLE V
<PAGE> 4
Termination
5.01. Termination by the Company. The Company shall have the
right to terminate the Executive's employment at any time, with or without
"Cause." For purposes of this Agreement, "Cause" shall mean (i) substantial
failure by the Executive to perform his duties as described in Article I of this
Agreement, (ii) a breach by the Executive of any of the other terms and
conditions of this Agreement, (iii) conduct grossly insubordinate or disloyal to
the Company, or (iv) pleading no contest or guilty to a felony charge or being
convicted of a felony.
5.02. Death. In the event Executive dies during the Term, this
Agreement shall automatically terminate, such termination to be effective on the
date of Executive's death.
5.03. Disability. In the event that Executive shall suffer a
disability which shall have prevented him from performing satisfactorily his
obligations hereunder for a period of at least 90 consecutive days, or 180
non-consecutive days within any 365 day period, the Company shall have the right
to terminate Executive's employment, such termination to be effective upon the
giving of notice thereof to Executive in accordance with Section 6.03 hereof.
5.04. Effect of Termination. (a) In the event of termination
of Executive's employment for any reason, the Company shall pay to executive (or
his beneficiary in the event of his death) any base salary or other compensation
in accordance with the normal pay practices of the Company upon a termination of
employees for similar reasons.
(b) In the event of termination of Executive's employment (i)
by the Company for Cause, (ii) by Executive for any reason, (iii) because of
Executive's death, or (iv) pursuant to Section 5.03, because of Executive's
disability, neither the Executive nor any beneficiary of Executive shall be
entitled to any further compensation other than the amounts described in Section
5.04(a) hereof.
(c) In the event of termination of Executive's employment by
the Company other than for Cause, the Company shall pay Executive, in addition
to the amounts described in Section 5.04(a) hereof, the greater of (i) an amount
equal to the value of the continued payment of Executive's base salary for the
remainder of the Term (excluding any renewal periods), or (ii) an amount equal
to one (1) year of Executive's base salary at the time of termination. Such
amount shall be payable, at the discretion of the Company, either (A) in a lump
sum or (B) in equal monthly installments.
(d) In the event that the Company fails to renew the terms of
this Agreement for at least one (1) year following the end of the Term, the
Company shall pay Executive an amount equal to one (1) year of Executive's base
salary at the time of
<PAGE> 5
termination. Such amount shall be payable, at the discretion of the Company,
either (A) in a lump sum or (B) in equal monthly installments.
ARTICLE VI
Miscellaneous
6.01. Mitigation: Offset. In the event that an amount becomes
payable to Executive pursuant to Section 5.04(c) above, such amount shall be
reduced, on a dollar-for-dollar basis, by (i) any outstanding amounts owed by
Executive to the Company and (ii) the amount of any compensation for services
earned by Executive during the remainder of the Term (if a severance payment is
due in accordance with Section 5.04(c)(i)) or during the one year period
following termination (if a severance payment is due in accordance with Sections
5.04(c)(ii) or 5.04(d)), from any source, whether paid currently or deferred. In
such event, Executive shall cooperate with the Company and shall provide such
information to the Company as it may reasonably require.
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
Agreement shall inure to the benefit of and be binding upon the Company and
their successors and assigns (but only to the extent the Agreement relates to
such entity), including, without limitation, any corporation or person which may
acquire all or substantially all of the Company's assets or business, or with or
into which the Company may be consolidated or merged. This Agreement shall also
inure to the benefit of, and be enforceable by, the Executive and his personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder if he had continued to
live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Executive's beneficiary, devisee, legatee or other designee, or
if there is no such designee, to the Executive's estate.
(b) The Company shall require any successor (whether director
or indirect, by operation of law, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
6.03. Notices. Any notice required or permitted hereunder
shall be in writing and shall be sufficiently given if personally delivered or
if sent by registered or certified mail, postage prepaid, with return receipt
requested, addressed: (a) in the case of the Company to the Chief Operating
Officer; and (b) in the case of Executive, to Executive's last known address as
reflected in the Company's records, or to such other address as Executive shall
designate by written notice to the Company. Any notice given hereunder shall be
deemed to have been given at the time of receipt thereof by the person to whom
such notice is given if personally delivered or at the time of mailing if sent
by registered or certified mail.
<PAGE> 6
6.04. Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment during the Term and supersedes any and all prior
agreements and understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
6.05. Waiver. The waiver of either party of a breach of any
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
6.06. Headings. The Article and Section headings herein are
for convenience of reference only, do not constitute a part of this Agreement
and shall not be deemed to limit or affect any of the provisions hereof.
6.07. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Ohio without reference to the principles of conflict of laws.
6.08. Agreement to Take Actions. Each party hereto shall
execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
6.09. Venue and Jurisdiction. Executive shall bring any legal
action against the Company in either Butler County Court of Common Pleas, State
of Ohio, U.S.A. or in United States District Court, Southern District of Ohio
(Western Division). Executive will not pursue legal action against the Company
in any other judicial venue. Executive submits to the jurisdiction of these
courts and waives any claim of improper venue, inconvenient forum or forum non
conveniens. Notwithstanding the foregoing, the Company may, at its sole
election, pursue legal action against Executive at any location it deems
appropriate.
6.10. Survivorship. The respective rights and obligations of
the parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.
6.11. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision or provisions of this Agreement, which
shall remain in full force and effect. If any provision of this Agreement is
held to be invalid, void or unenforceable, any court so holding shall substitute
a valid, enforceable provision that preserves, to the maximum lawful extent, the
terms and intent of this Agreement.
<PAGE> 7
6.12. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement effective as of the date first written above.
THE O'GARA COMPANY
By: /s/ Wilfred T. O'Gara
---------------------
Name: Wilfred T. O'Gara
Title: CEO
/s/ Abram S. Gordon
-------------------------
Executive
<PAGE> 8
EXHIBIT A TO EMPLOYMENT AGREEMENT
Executive shall receive as compensation for his performance
under the attached Employment Agreement the following:
(a) Salary. The Company shall pay Executive a base salary
during the Term, payable in accordance with the normal payment procedures of the
Company and subject to such withholdings and other normal employee deductions as
may be required by law, at the annual rate of $135,000.00. The Board of
Directors of the Company shall review such compensation not less frequently than
annually during the Term.
(b) Annual Bonus. In addition to base salary, Executive shall
earn incentive compensation ("incentive compensation") and the Company shall pay
each fiscal year, or any fractional period thereof during the term, incentive
compensation in accordance with the plan approved by the Compensation Committee
and the Board of Directors each fiscal year.
(c) Stock Awards. Executive shall be entitled to receive up to
fifty percent (50%) of any incentive compensation in the form of shares of stock
of The O'Gara Company, an Ohio corporation ("TOC"). In addition, Executive shall
be eligible for grants of stock options in TOC, which grants shall be made at
the discretion of the Compensation Committee of the Board of Directors of TOC in
an amount commensurate with Executive's position and responsibilities.
(d) Benefits. Executive shall participate during the Term in
such pension, life insurance, health, disability and major medical insurance
plans, and in such other employee benefit plans and programs, for the benefit of
the employees of the Company, as may be maintained from time to time during the
Term, in the Company's discretion, in each case to the extent and in the manner
available to other officers of the Company and subject to the terms and
provisions of such plans or programs.
(e) Vacation. Executive shall be entitled to a paid vacation
of at least three (3) weeks per annum, in accordance with Company policy (but
not necessarily consecutive vacation weeks) during the Term.
.
THE O'GARA COMPANY
By: /s/ Wilfred T. O'Gara
--------------------------------
Name: Wilfred T. O'Gara
----------------------------
Title: CEO
----------------------------
/s/ Abram S. Gordon
------------------------------------
Executive
<PAGE> 9
<PAGE> 1
Exhibit 10.51
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is made and
entered into as of the 17th day of October, 1997, by and between O'Gara-Hess &
Eisenhardt Armoring Company (the "Company") and Michael J. Lennon (the
"Executive").
WITNESSETH
WHEREAS, the Company and the Executive are parties to an Employment
Agreement, dated as of August 28, 1996 ("Agreement"); and
WHEREAS, in connection with the pending merger of the Company's
affiliate into Kroll Holdings, Inc., the Company and Executive desire to amend
the terms of the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is here by
acknowledged, the parties agree as follows:
1. The first sentence of Section 1.01 of the Agreement is hereby
deleted and the following is inserted in its place:
"The Company shall employ Executive as Chief Operating
Officer."
2. Section 2.02 of the Agreement is hereby amended to extend the Term
through November 30, 2000.
3. Section 5.04 (c) of the Agreement is hereby deleted in its entirety
and the following inserted in its place:
(c) In the event of termination of Executive's
employment by the Company other than for Cause, the Company
shall pay Executive, in addition to the amounts described in
Section 5.04(a) hereof, the greater of (i) an amount equal to
the value of the continued payment of Executive's base salary
for the remainder of the Term (excluding any renewal periods),
or (ii) an amount equal to one (1) year of Executive's base
salary at the time of termination. Such amount shall be
payable, at the discretion of the Company, either (A) in a
lump sum or (B) in equal monthly installments.
4. The following is hereby added as Section 5.04(d) of the Agreement:
(d) In the event that the Company fails to renew the
terms of this Agreement for at least one year following the
end of the Term, the Company shall pay Executive an amount
equal to one (1) year of Executive's base salary at the time
of termination. Such amount shall be
<PAGE> 2
payable, at the discretion of the Company, either (A) in a
lump sum or (B) in equal monthly installments.
5. Section 6.01 of the Agreement is hereby deleted in its entirety and
the following inserted in its place:
6.01. Mitigation: Offset. In the event that an amount
becomes payable to Executive pursuant to Section 5.04(c)
above, such amount shall be reduced, on a dollar-for-dollar
basis, by (i) any outstanding amounts owed by Executive to the
Company and (ii) the amount of any compensation for services
earned by Executive during the remainder of the Term (if a
severance payment is due in accordance with Section
5.04(c)(i)) or during the one year period following
termination (if a severance payment is due in accordance with
Sections 5.04(c)(ii) or 5.04(d)), from any source, whether
paid currently or deferred. In such event, Executive shall
cooperate with the Company and shall provide such information
to the Company as it may reasonably require.
6. The annual salary set forth in Paragraph (a) of Exhibit A to the
Agreement is hereby changed to $185,000.00.
7. The following is hereby added at the end of Paragraph (e) of Exhibit
A to the Agreement: "in an amount commensurate with Executive's position and
responsibilities with the Company"
8. This Amendment shall be effective as of the Effective Time as
defined in the Plan and Agreement to Merge VDE, Inc. with and into Kroll
Holdings, Inc., dated as of August 8, 1997.
9. Any capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Agreement.
10. All of the terms and conditions of the Agreement, not amended
hereby, shall remain in full force and effect.
2
<PAGE> 3
The undersigned have executed this Amendment as of the date first above written.
O'Gara-Hess & Eisenhardt Armoring
Company
By: /s/ Abram S. Gordon
--------------------------------------
Its: Vice President
--------------------------------------
Executive:
/s/ Michael J. Lennon
-------------------------------------------
3
<PAGE> 1
Exhibit 10.52
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is made and
entered into as of the 17th day of October, 1997, by and between The O'Gara
Company (the "Company") and Thomas M. O'Gara (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive are parties to an Employment
Agreement, dated as of August 28, 1996 ("Agreement"); and
WHEREAS, in connection with the pending merger of the Company's
subsidiary into Kroll Holdings, Inc., the Company and Executive desire to amend
the terms of the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is here by
acknowledged, the parties agree as follows:
1. The first sentence of Section 1.01 of the Agreement is hereby
deleted and the following is inserted in its place:
"The Company shall employ Executive as Vice Chairman of the
Board of Directors."
2. Section 2.02 of the Agreement is hereby amended to extend the Term
through November 30, 2000.
3. The following is hereby added at the end of Section 4.02 (d) :
" Executive covenants and agrees to refrain, during his
employment by the Company and then a period of ten (10) years
after the date of termination of Executive's employment with
the Company from directly or indirectly owning any interest in
or performing any services for any firm or corporations that
(i) uses the word "O'Gara" as a business name or trade name,
and (ii) directly or indirectly engages in any business which
competes with any aspect of the business of the Company,
wherever located , either as an individual on his own behalf,
or as a partner, employee or agent for any person or
partnership, or as an employee, officer, agent, director, or
shareholder of a corporation."
4. Section 5.04 (c) of the Agreement is hereby deleted in its entirety
and the following inserted in its place:
<PAGE> 2
(c) In the event of termination of Executive's
employment by the Company other than for Cause, the Company
shall pay Executive, in addition to the amounts described in
Section 5.04(a) hereof, the greater of (i) an amount equal to
the value of the continued payment of Executive's base salary
for the remainder of the Term (excluding any renewal periods),
or (ii) an amount equal to one (1) year of Executive's base
salary at the time of termination. Such amount shall be
payable, at the discretion of the Company, either (A) in a
lump sum or (B) in equal monthly installments.
5. The following is hereby added as Section 5.04(d) of the Agreement:
(d) In the event that the Company fails to renew the
terms of this Agreement for at least one year following the
end of the Term, the Company shall pay Executive an amount
equal to one (1) year of Executive's base salary at the time
of termination. Such amount shall be payable, at the
discretion of the Company, either (A) in a lump sum or (B) in
equal monthly installments.
6. Section 6.01 of the Agreement is hereby deleted in its entirety and
the following inserted in its place:
6.01. Mitigation: Offset. In the event that an amount
becomes payable to Executive pursuant to Section 5.04(c)
above, such amount shall be reduced, on a dollar-for-dollar
basis, by (i) any outstanding amounts owed by Executive to the
Company and (ii) the amount of any compensation for services
earned by Executive during the remainder of the Term (if a
severance payment is due in accordance with Section
5.04(c)(i)) or during the one year period following
termination (if a severance payment is due in accordance with
Sections 5.04(c)(ii) or 5.04(d)), from any source, whether
paid currently or deferred. In such event, Executive shall
cooperate with the Company and shall provide such information
to the Company as it may reasonably require.
7. The annual salary set forth in Paragraph (a) of Exhibit A to the
Agreement is hereby changed to $275,000.00.
8. The following is hereby added at the end of Paragraph (e) of Exhibit
A to the Agreement: "in an amount commensurate with Executive's position and
responsibilities with the Company"
9. This Amendment shall be effective as of the Effective Time as
defined in the Plan and Agreement to Merge VDE, Inc. with and into Kroll
Holdings, Inc., dated as of August 8, 1997.
2
<PAGE> 3
10. Any capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Agreement.
11. All of the terms and conditions of the Agreement, not amended
hereby, shall remain in full force and effect.
The undersigned have executed this Amendment as of the date first above
written.
The O'Gara Company
By: /s/ Abram S. Gordon
--------------------------------
Its: Vice President
-------------------------------
Executive:
/s/ Thomas M. O'Gara
------------------------------------
3
<PAGE> 1
Exhibit 10.53
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is made and
entered into as of the 17 day of October, 1997, by and between The O'Gara
Company (the "Company") and Wilfred T. O'Gara (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive are parties to an Employment
Agreement, dated as of August 28, 1996 ("Agreement"); and
WHEREAS, in connection with the pending merger of the Company's
subsidiary into Kroll Holdings, Inc., the Company and Executive desire to amend
the terms of the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is here by
acknowledged, the parties agree as follows:
1. The first sentence of Section 1.01 of the Agreement is hereby
deleted and the following is inserted in its place:
"The Company shall employ Executive as President and Chief
Operating Officer."
2. Section 2.02 of the Agreement is hereby amended to extend the Term
through November 30, 2000.
3. The following is hereby added at the end of Section 4.02 (d) :
" Executive covenants and agrees to refrain, during his
employment by the Company and then a period of ten (10) years
after the date of termination of Executive's employment with
the Company from directly or indirectly owning any interest in
or performing any services for any firm or corporations that
(i) uses the word "O'Gara" as a business name or trade name,
and (ii) directly or indirectly engages in any business which
competes with any aspect of the business of the Company,
wherever located , either as an individual on his own behalf,
or as a partner, employee or agent for any person or
partnership, or as an employee, officer, agent, director, or
shareholder of a corporation."
4. Section 5.04 (c) of the Agreement is hereby deleted in its entirety
and the following inserted in its place:
<PAGE> 2
(c) In the event of termination of Executive's
employment by the Company other than for Cause, the Company
shall pay Executive, in addition to the amounts described in
Section 5.04(a) hereof, the greater of (i) an amount equal to
the value of the continued payment of Executive's base salary
for the remainder of the Term (excluding any renewal periods),
or (ii) an amount equal to one (1) year of Executive's base
salary at the time of termination. Such amount shall be
payable, at the discretion of the Company, either (A) in a
lump sum or (B) in equal monthly installments.
5. The following is hereby added as Section 5.04(d) of the Agreement:
(d) In the event that the Company fails to renew the
terms of this Agreement for at least one year following the
end of the Term, the Company shall pay Executive an amount
equal to one (1) year of Executive's base salary at the time
of termination. Such amount shall be payable, at the
discretion of the Company, either (A) in a lump sum or (B) in
equal monthly installments.
6. Section 6.01 of the Agreement is hereby deleted in its entirety and
the following inserted in its place:
6.01. Mitigation: Offset. In the event that an amount
becomes payable to Executive pursuant to Section 5.04(c)
above, such amount shall be reduced, on a dollar-for-dollar
basis, by (i) any outstanding amounts owed by Executive to the
Company and (ii) the amount of any compensation for services
earned by Executive during the remainder of the Term (if a
severance payment is due in accordance with Section
5.04(c)(i)) or during the one year period following
termination (if a severance payment is due in accordance with
Sections 5.04(c)(ii) or 5.04(d)), from any source, whether
paid currently or deferred. In such event, Executive shall
cooperate with the Company and shall provide such information
to the Company as it may reasonably require.
7. The annual salary set forth in Paragraph (a) of Exhibit A to the
Agreement is hereby changed to $350,000.00.
8. The following is hereby added at the end of Paragraph (e) of Exhibit
A to the Agreement: "in an amount commensurate with Executive's position and
responsibilities with the Company"
9. This Amendment shall be effective as of the Effective Time as
defined in the Plan and Agreement to Merge VDE, Inc. with and into Kroll
Holdings, Inc., dated as of August 8, 1997.
2
<PAGE> 3
10. Any capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Agreement.
11. All of the terms and conditions of the Agreement, not amended
hereby, shall remain in full force and effect.
The undersigned have executed this Amendment as of the date first above
written.
The O'Gara Company
By: /s/ Abram S. Gordon
----------------------------
Its: Vice President
---------------------------
Executive:
/s/ Wilfred T. O'Gara
-------------------------------
3
<PAGE> 1
EXHIBIT 10.54
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is made and
entered into as of the 17th day of October, 1997, by and between The O'Gara
Company (the "Company") and Nicholas P. Carpinello (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive are parties to an Employment
Agreement, dated as of August 28, 1996 ("Agreement"); and
WHEREAS, in connection with the pending merger of the Company's
subsidiary into Kroll Holdings, Inc., the Company and Executive desire to amend
the terms of the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is here by
acknowledged, the parties agree as follows:
1. The first sentence of Section 1.01 of the Agreement is hereby
deleted and the following is inserted in its place:
"The Company shall employ Executive as Controller and
Treasurer."
2. Section 2.02 of the Agreement is hereby amended to extend the Term
through November 30, 2000.
3. Section 5.04 (c) of the Agreement is hereby deleted in its entirety
and the following inserted in its place:
(c) In the event of termination of Executive's
employment by the Company other than for Cause, the Company
shall pay Executive, in addition to the amounts described in
Section 5.04(a) hereof, the greater of (i) an amount equal to
the value of the continued payment of Executive's base salary
for the remainder of the Term (excluding any renewal periods),
or (ii) an amount equal to one (1) year of Executive's base
salary at the time of termination. Such amount shall be
payable, at the discretion of the Company, either (A) in a
lump sum or (B) in equal monthly installments.
4. The following is hereby added as Section 5.04(d) of the Agreement:
(d) In the event that the Company fails to renew the
terms of this Agreement for at least one year following the
end of the Term, the
<PAGE> 2
Company shall pay Executive an amount equal to one (1) year of
Executive's base salary at the time of termination. Such
amount shall be payable, at the discretion of the Company,
either (A) in a lump sum or (B) in equal monthly installments.
5. Section 6.01 of the Agreement is hereby deleted in its entirety and
the following inserted in its place:
6.01. Mitigation: Offset. In the event that an amount
becomes payable to Executive pursuant to Section 5.04(c)
above, such amount shall be reduced, on a dollar-for-dollar
basis, by (i) any outstanding amounts owed by Executive to the
Company and (ii) the amount of any compensation for services
earned by Executive during the remainder of the Term (if a
severance payment is due in accordance with Section
5.04(c)(i)) or during the one year period following
termination (if a severance payment is due in accordance with
Sections 5.04(c)(ii) or 5.04(d)), from any source, whether
paid currently or deferred. In such event, Executive shall
cooperate with the Company and shall provide such information
to the Company as it may reasonably require.
6. The annual salary set forth in Paragraph (a) of Exhibit A to the
Agreement is hereby changed to $140,000.00.
7. The following is hereby added at the end of Paragraph (e) of Exhibit
A to the Agreement: "in an amount commensurate with Executive's position and
responsibilities with the Company"
8. This Amendment shall be effective as of the Effective Time as
defined in the Plan and Agreement to Merge VDE, Inc. with and into Kroll
Holdings, Inc., dated as of August 8, 1997.
9. Any capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Agreement.
10. All of the terms and conditions of the Agreement, not amended
hereby, shall remain in full force and effect.
2
<PAGE> 3
The undersigned have executed this Amendment as of the date first above written.
The O'Gara Company
By: /s/ Abram S. Gordon
----------------------------
Its: Vice President
---------------------------
Executive:
/s/ Nicholas P. Carpinello
--------------------------------
3
<PAGE> 1
Exhibit 10.55
[KROLL ASSOCIATES, INC. LETTERHEAD]
DEMAND PROMISSORY NOTE
$809,500 October 14, 1997
KROLL ASSOCIATES, INC., a Delaware corporation (the "Company"), FOR
VALUE RECEIVED, hereby promises to pay to the order of Jules B. Kroll (the
"Holder"), or his assigns the principal sum of $309,500 ON DEMAND, together with
interest thereon at the rate of 1/2% below the Prime Rate, as published in The
Wall Street Journal on the date of demand. If The Wall Street Journal is not
published on such date, then the interest rate shall be calculated based on the
Prime Rate, as published in The Wall Street Journal on the following day on
which it is published.
The Company hereby promises to pay principal and interest in lawful
money of the United States of America to the Holder, or its assigns at 900 Third
Avenue, New York, New York 10022, or at such other location in the City and
State of New York as may be specified by the Holder or its assigns, in same day
funds.
The Company waives presentment, protest and demand, and also notice of
protest, of demand, of nonpayment, of dishonor and of maturity. No single or
partial exercise of any right or power hereunder shall preclude other or further
exercise thereof or the exercise of any other right or power. This Demand
Promissory Note may not be changed or discharged orally, but only by an
agreement, in writing, which is signed by the person against which enforcement
of any waiver, change, modification or discharge is sought.
This Demand Promissory Note and the rights and obligations of the
parties hereunder shall be governed by, construed and enforced in accordance
with the laws of the State of New York applicable to contracts made and to be
entirely performed in such State. The Company agrees to pay any attorneys' fees
or other costs of collection incurred by the Holder of his assigns in enforcing
this Demand Promissory Note.
KROLL ASSOCIATES, INC.
By:
-----------------------------
Nazzareno E. Paciotti
Chief Financial Officer
<PAGE> 1
Exhibit 10.56
STEVEN J. BLOEMER [LOGO]
Vice President
Commercial Banking
KEY BANK
Mailcode: OH-18-17-0609
525 Vine Street
Cincinnati, OH 45202
October 21, 1997 Tel: 513 762-8207
Fax: 513 762-8222
Wilfred T. O'Gara
Chief Executive Officer
The O'Gara Company
9133 LeSaint Drive
Fairfield, OH 45014
Dear Bill:
KeyBank National Association (hereinafter called the "Bank") is pleased to
present a letter of commitment for your consideration to support the following
financial package:
- $7,000,000 Transaction Note for the replacement of debt financing that
must be paid with the closing of the Kroll Holdings, Inc. merger ("Kroll
Transaction")
- $7,000,000 Revolving Credit (increase of existing facility by $2,500,000)
for general corporate purposes
- $6,000,000 Line of Credit for the issuance of Standby Letters of Credit
(increase of existing facility by $2,000,000) to support performance
requirements upon receipt of customer deposits and other corporate
purposes as approved by the Bank
This is a commitment open for acceptance by The O'Gara Company (the "Borrower")
until 5:00 P.M. Eastern Standard Time on October 27, 1997. Upon acceptance of
the Commitment Letter, a non-refundable Commitment Fee in the amount of $25,000
will be required. After closing, the Bank will credit the balance, if any,
remaining after the payment of its due diligence expenses to the Facility Fee
under the Transaction Note. Should the credit facilities outlined herein not
close on or before November 30, 1997, the Bank has the right to terminate this
commitment. Upon termination of this commitment by the Bank, the entire
Commitment Fee will be retained by the Bank as reimbursement for its expense and
efforts in providing this commitment. The fees and expenses with respect to the
above mentioned facilities may include but are not limited to legal,
documentation, search, underwriting and other due diligence expenses.
THE ATTACHED TERM SHEETS, LOAN COVENANTS, AND CONDITIONS OF FUNDING ARE AN
INTEGRAL PART OF THE COMMITMENT.
This commitment shall not be binding upon the Bank unless it is accepted in
writing by the Borrower as provided herein, and delivered along with the
Commitment Fee to the Bank before the commitment expiration. This commitment
shall be governed by the laws of the State of Ohio, without regard to principles
of conflict of laws. TIME IS OF THE ESSENCE IN THIS COMMITMENT
Sincerely, Terms, conditions and time set forth
are hereby accepted:
/s/ Steven J. Bloemer /s/ Wilfred T. O'Gara
- ----------------------------- ------------------------------------
Steven J. Bloemer Wilfred T. O'Gara
Vice President Chief Executive Officer
SJB/ska
<PAGE> 1
Exhibit 11.1
THE O'GARA COMPANY
COMPUTATION OF PRO FORMA EARNINGS PER COMMON SHARE
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Weighted Average Pro Forma
Number of Common Pro Forma Earnings per
Shares Outstanding Net Income Common Share
------------------ ---------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Shares outstanding January 1, 1996...................... 4,490,383 $ - $ -
Dilutive stock options outstanding prior
to exercise........................................ 77,989 - -
Issuance of common stock upon exercise
of options......................................... 43,474 - -
Newly issued shares necessary to fund payment
of certain indebtedness and AAA distributions
(1,809,015 shares at $7.29 per share estimated
net proceeds to fund $13,181,658).................. 1,561,882 - -
Initial public offering of common stock................. 273,224
Issuance of shares through underwriter's
exercise of over-allotment option.................. 2,098
Pro forma net income.................................... - 4,449 -
--------- ---------- ------------
6,449,050 $ 4,449 $ 0.69
========= ========== ============
Six Months Ended June 30, 1996:
Shares outstanding December 31, 1995.................... 4,490,383 $ - $ -
Dilutive stock options outstanding prior
to exercise........................................ 121,463 - -
Newly issued shares necessary to fund payment
of certain indebtedness and AAA distributions
(1,809,015 shares at $7.29 per share estimated
net proceeds to fund $13,181,658).................. 1,561,882 - -
Pro forma net income.................................... - 2,453 -
--------- ---------- ------------
6,173,728 $ 2,453 $ 0.40
========= ========== ============
Weighted
Average Number
of Common Shares Earnings Per
Outstanding Net Income Common Share
---------------- ---------- -------------
Six Months Ended June 30, 1997:
Shares outstanding December 31, 1996.................... 6,659,846 $ - $ -
Weighted average shares issued in conjunction
with the acquisitions (614,917 shares issued)..... 463,766 - -
Weighted average shares resulting from stock
issued compensation................................ 2,487 - -
Dilutive stock options outstanding...................... 15,290 - -
Net income before extraordinary item - 2,682 0.38
Extraordinary item...................................... - 194 0.03
Net income.............................................. - 2,488 0.35
--------- ---------- ------------
7,141,389 $ 2,488 $ 0.35
========= ========== ============
</TABLE>
THE O'GARA COMPANY
COMPUTATION OF SUPPLEMENTAL PRO FORMA EARNINGS PER COMMON SHARE
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Supplemental
Pro Forma Supplemental
Weighted Average Pro Forma
Number of Common Pro Forma Earnings per
Shares Outstanding Net Income Common Share
------------------ ---------- --------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Shares outstanding January 1, 1996............................ 4,490,383 $ -- $ --
Dilutive stock options outstanding prior
to exercise.................................................. 77,989 -- --
Issuance of common stock upon exercise
of options................................................... 43,474 -- --
Newly issued shares necessary to fund payment
of certain indebtedness (573,879 shares at
$7.29 per share estimated net proceeds to
fund $4,181,658)............................................. 495,480 -- --
Initial public offering of common stock......................... 273,224
Issuance of shares through underwriter's
exercise of over-allotment option............................ 2,098 -- --
Pro forma net income............................................ -- 4,449
--------- ------ ------
5,382,648 $4,449 $ 0.83
========= ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
October 22, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Kroll Holdings, Inc.
New York, New York
We consent to the use in this Registration Statement of the O'Gara Company on
Form S-4 of our report dated March 13, 1997 (August 8, 1997 as to Notes 7 and 17
to the financial statements) appearing in the Prospectus, which is a part of
this Registration Statement, and of our report dated March 13, 1997 relating to
the financial statement schedule appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
October 22, 1997
<PAGE> 1
EXHIBIT 23.6
The Board of Directors
Kroll Holdings, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
New York, New York
October 22, 1997
