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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
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HOME SECURITY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 98-0169495
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
LEVEL 7, 77 PACIFIC HIGHWAY 2060
NORTH SYDNEY, NSW (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(011) (612) 9936-2424
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
AGGREGATE MARKET VALUE, AS OF SEPTEMBER 26, 1997, OF COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT: $37,475,562 BASED ON THE LAST REPORTED SALE
PRICE ON THE AMERICAN STOCK EXCHANGE.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON SEPTEMBER 26, 1997:
5,150,000
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ITEM 1. BUSINESS
OVERVIEW
Home Security International, Inc., a Delaware corporation (the "Company") is
a direct sales company which, through an extensive Distributor Network, sells,
installs and services residential security alarm systems, principally in
Australia and New Zealand, with expanding international operations in North
America, Europe and South Africa. The Company's mission is to offer consumers
a quality home security alarm package to protect their families and property.
The Company intends to expand its business services to include, in addition to
residential alarm systems, on-line monitoring services and extended
warranties. Outside of Australia and New Zealand, the Company has established
Distributor Networks in the United Kingdom, Belgium, the Netherlands, Germany,
Canada and South Africa. The Company has also successfully test marketed its
product in the United States through a sales representative, and opened two
U.S. distribution offices in San Diego, California and Columbus, Ohio. The
Company believes it is one of the fastest growing residential security alarm
businesses in Australia and New Zealand and that the characteristics of the
Australian and New Zealand market are representative of the conditions that
exist in other countries in which the Company operates or plans to commence
operations.
The Company's SecurityGuard Alarm system provides home protection to a
customer's premises through an interior heat sensitive detector, a centralized
processing unit with the ability to communicate signals to the Company's
central monitoring station, a battery back-up, a siren and window decals. In
addition to the installation of the SecurityGuard Alarm, the Company provides
customers with a "Home Protection Package" which contains smoke
alarm/detectors featuring dual ionization chambers to limit false alarms. The
SecurityGuard Alarm is a two time winner of the prestigious Australian Design
Award (1992 and 1996) and a winner of the Australian Design Mark (1996). The
Australian Design Mark and the Australian Design Award are awarded by
Standards Australia, an independent not-for-profit organization which utilizes
industry and design experts to evaluate products for excellence. To attain the
Australian Design Mark, a product must achieve excellence in four key areas:
(i) the design process; (ii) the product; (iii) the manufacture of the
product; and (iv) the product lifecycle. Generally, a product must first
achieve the Australian Design Mark to be eligible to receive the Australian
Design Award. In special circumstances products that are innovative and
original in design can achieve the Australian Design Award without first
receiving the Australian Design Mark. Due to its innovative design, in 1992
the SecurityGuard Alarm received the Australian Design Award prior to
receiving the Australian Design Mark. In 1996, the SecurityGuard Alarm was
only one of 37 products to achieve the Australian Design Mark, and thereafter
was only one of eight products to achieve Australian Design Award status in
that year.
The Company's growth is in large part due to its extensive Distributor
Network which focuses on recruitment, training, and motivation of its sales
force. The Distributor Network is an incentive/performance based reward system
giving individuals the opportunity to begin as sales agents and, through a
clearly defined step program, progress toward owning their own business. The
Distributor Network provides Company personnel with the motivation to achieve
more than just monetary rewards; they work for recognition, peer respect and
to attain the goal of becoming authorized distributors. The Company believes
the Distributor Network provides advantages over traditional distributorship
arrangements. Specifically, the Distributor Network allows the Company to grow
rapidly with minimal capital investment, which enhances the Company's long
term relationship with its distributors and minimizes the overhead costs
normally associated with an employee-based sales and marketing force.
The Company commenced business in Australia in 1988. At its inception, the
Company sold alarms through part-time dealers who purchased franchises from
the Company. In May 1991, the Company adopted a more traditional sales
structure by shifting to commission-based compensation for its agents, who
were given extensive in-house sales training. Although this approach allowed
the Company to expand and establish an office in Melbourne, Australia and had
to grow to five offices nationally within a year and a half, the growth and
the income generation of its sales force plateaued. In response to this
development, in early 1993 the Company implemented the Distributor Network
strategy which converted the existing Company owned and operated branches and
agents to independent distributor networks responsible for their own costs.
The Company believes that this change to the Distributor Network strategy is
responsible for the rapid growth in unit sales since that time. The
Distributor Network launched by its first distributor in September 1993, has
brought the Company to a
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total of eighty-eight distribution outlets in Australia and New Zealand, with
additional offices in Canada, South Africa, Belgium, Holland, Germany and the
United Kingdom.
In 1990, 50% of the Company was sold to FAI Insurance. On September 5, 1994
and on June 1, 1995, FAI Insurance acquired an additional 4.18% and 5.98% of
the Company, respectively, and entered into an agreement on June 1, 1995 to
acquire the remaining 39.84% of the Company, resulting in FAI Home Security
Holdings Pty Ltd. becoming a wholly owned subsidiary of FAI Insurance. In
November 1995, FAI Insurance sold its home security operations outside
Australia and New Zealand to Mr. Cooper. As a result of this transaction, FAI
was responsible for conducting the security alarm business in Australia and
New Zealand, and Mr. Cooper was responsible for conducting the security alarm
business outside Australia and New Zealand. Operations outside Australia and
New Zealand were initially limited to Canada and the United Kingdom. They now
include the United States, South Africa, Belgium, the Netherlands and Germany.
Pursuant to the June 1, 1995 agreement, Mr. Cooper agreed to continue to serve
as Chairman of the Board and Chief Executive Officer of the Australian and New
Zealand operations to ensure the continued dedication of his executive team to
achieve the current and projected profitability of the Australian and New
Zealand operations. In July 1996 the Company and Mr. Cooper (through his
wholly owned management company, Speakeasy Pty Ltd.) entered into a management
agreement providing, among other items, that Mr. Cooper be remunerated on a
commission per unit sold and bear all expenses and overhead, including rent,
administrative support and travel costs, related to the performance of his
duties as Chairman of the Board and Chief Executive Officer of the Company.
The management agreement terminated upon the completion of the Company's IPO
and was replaced by an executive employment agreement. On March 31, 1997, FAI
acquired the business and substantially all of the assets of the international
operations from Mr. Cooper for a purchase price of approximately $2,784,431.
See Item 13--"Certain Relationships and Related Transactions--Transactions
Involving Bradley D. Cooper" and "Management--Executive Employment
Agreements".
THE REORGANIZATION
The Company is a Delaware corporation incorporated on April 11, 1997. On
June 30, 1997, the Company acquired FAI's Australian and New Zealand
operations by purchasing the outstanding stock of the Australia and New
Zealand Group. The Company also acquired FAI's international operations
outside Australia and New Zealand by purchasing the International Assets. See
Item 13--"Certain Relationships and Related Transactions--Purchase of
International Assets". In order to effect the Reorganization, the Company (i)
entered into the Share Purchase Agreement through which the Company, in
exchange for the International Assets and 100% of the issued capital of the
Australia and New Zealand Group, executed a $911,892 non-interest bearing note
payable to FAI within thirty days of the effective date of the Company's IPO
(the "FAI Note"), assumed a $208,894 non-interest bearing note payable to FAI
within thirty days of the effective date of the Company's IPO (the "NZ Note")
and issued 4,499,999 shares of Common Stock of the Company to FAI and (ii)
through its wholly owned subsidiary, FAI Home Security Pty Ltd., entered into
the license agreement ("License Agreement") through which the Company obtained
a no cost license from FAI Insurance to use the "FAI" name and logo. After the
Reorganization, the Company had 4,500,000 shares of Common Stock outstanding
all of which were owned by FAI. Immediately prior to the Reorganization, the
Company made a final dividend distribution and part return of return to FAI in
the amount of approximately $5.8 million representing the retained earnings of
FAI Home Security Pty Ltd. and FAI Home Security (NZ) Trust on the date of the
Reorganization. See Item 13--"Certain Relationships and Related Transactions--
The Reorganization".
The Share Purchase Agreement. In June 1997, the Company entered into a Share
Purchase Agreement pursuant to which the Company agreed to purchase from FAI,
a wholly owned subsidiary of FAI Insurance, all of the outstanding shares of
the Australia and New Zealand Group plus the International Assets, which
included all of the fixed assets, inventories and intangible assets previously
owned by the Cooper International Group. See "Certain Transactions--Purchase
of International Assets". In exchange, the Company agreed to issue to FAI
4,499,999 shares of Common Stock of the Company plus the FAI Note in the
amount of $911,892 representing: (i) the net book value of the tangible (fixed
assets and inventories) International Assets ($641,138) and (ii) partial
consideration for the intangible International Assets ($270,754). In addition,
the Company (through its assumption of the NZ Note) agreed to pay FAI the sum
of $208,894 which represented the book
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value of the fixed assets and inventory (less any liabilities related to
warranty premiums) of the New Zealand operations. FAI Insurance was the
guarantor of FAI's obligations under the Share Purchase Agreement. The
completion of Share Purchase Agreement was contingent on FAI Home Security Pty
Ltd.'s execution of a supply agreement with Ness granting to FAI Home Security
Pty Ltd. the exclusive right to sell the SecurityGuard products throughout the
world (except the United States) and the non-exclusive right to sell the
SecurityGuard products in the United States through the year 2007. The Share
Purchase Agreement was also subject to the condition subsequent that the
Company and FAI effect an initial public offering.
The Company subsequently fulfilled its obligations under the Share Purchase
Agreement which included the completion of the internal restructuring of the
New Zealand operations and the execution of a revised manufacturing agreement
with Ness, and acquired 100% of the outstanding shares of the Australia and
New Zealand Group and the International Assets. See Note 1 "Business--Ness
Supply Agreement". In connection with the acquisition of the outstanding
shares of the Australia and New Zealand Group, the Company assumed the NZ
Note. Following the IPO, the FAI Note and the NZ Note were paid in full by the
Company.
The Initial Public Offering. The Initial Public Offering ("IPO") and an FAI
Insurance affiliate sold a total of 2,350,000 shares (including 200,000 shares
pursuant to an over-allotment option), all was successfully completed pursuant
to a prospectus dated July 15, 1997 through which the Company sold a total of
400,500 shares of Common Stock (including 150,000 shares pursuant to an over-
allotment option) at an issue price of $10.00. Prior to the IPO 250,000 shares
of Common Stock of the Company were sold to Bradley D. Cooper at the IPO price
of $10.00 for cash of $125,000 and a secured note of $2,375,000. The net
proceeds to the Company from the shares issued in the IPO was approximately
$3,355,316.
The License Agreement. The Company, through its wholly owned subsidiary FAI
Home Security Pty Ltd., an Australian corporation, entered into the License
Agreement with FAI pursuant to which FAI granted to the Company a non-
exclusive, non-transferrable, royalty free license to use the FAI name and
logo and certain other intellectual property solely for the purposes of
selling the SecurityGuard Alarm systems. The License Agreement has a perpetual
term and will terminate only upon breach by the Company. See Item 13 "Certain
Relationships and Related Transactions--Transactions with FAI".
BUSINESS STRATEGY
The Company's strategy is to grow by increasing its Distributor Network in
its existing markets as well as in new international markets. In addition, the
Company plans to expand its product and service offerings with extended
warranties and on-line alarm monitoring. The Company also seeks to become more
efficient and cost-effective by taking advantage of the increased economies of
scale afforded by its growth.
International Expansion. The Company plans to model its international
expansion on the Distributor Network which has largely driven the success of
its Australian operations and its first international expansion into New
Zealand. This plan will be implemented by the Company's existing senior
management team. The Company's Executive Vice President of International
Business Development will relocate to England in order to more effectively
direct the growth of the European operations, and a similar strategy will be
implemented for the North American operations when appropriate. The Company
intends to appoint a "Master Distributor" for each new country, who will be
responsible for operations in that country and will report directly to the
Company's head office in Australia. Prior to appointment, each Master
Distributor will have successfully completed an intensive twelve week training
program in Australia. Master Distributors will be required to bear all costs
of commencing operations in their respective jurisdiction, other than initial
recruitment and product approval expenses. This process will enable the
Company to expand rapidly into international markets without incurring
significant cost to the Company's management or financial resources.
Direct Approach To Households. The Company's growth strategy has been based
upon internal growth. The Company solicits sales mainly through a systematic
process of lead generation followed by telemarketing, as opposed to sales
through cold calling. The Company emphasizes customer satisfaction, in part
because satisfied customers generate additional customers.
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Increasing Account Density In Existing Markets. The Company believes that
increasing account density in the regions it currently serves, principally
Australia and New Zealand, will enhance the efficiency of its operations and
of its distributors. The Company's objective is to increase the number of
SecurityGuard Alarm installations in each distributor area in which it has
already secured customers. By servicing and marketing a higher number of
accounts in a given area, the Company believes that it will improve the
incremental operating margins associated with that area.
Additional Services and Recurring Revenue. The Company is seeking to sell
enhanced services to new and existing customers, thereby increasing the
Company's average income per customer. The Company currently offers 24 hour
emergency response and access to local security patrol services upon
telephonic notification that an alarm has sounded. During 1997, the Company
began offering enhanced services such as extended warranties and on-line
monitoring of alarm equipment. If successful, these programs will provide the
Company with a recurring revenue stream to complement the unit sales growth.
SECURITY ALARM INDUSTRY
The residential security alarm industry in Australia and New Zealand is
fragmented, consisting of a mixture of major international companies such as
Brambles Industries Limited, Chubb Security Holdings Australia Ltd. and Tempo
Services Ltd. and a number of small owner/operators. The residential market is
characterized by a low level of market penetration and rapid growth. An
industry trend toward subsidizing installation costs to increase
affordability, combined with other factors such as heightened concern about
crime and favorable demographic trends, have resulted in increased demand for
residential alarm services. In particular, the IBIS Information Service Report
on the Security and Investigative Services L7864, printed April 14, 1997 (the
"IBIS Report") states that, "The Household market remains the largest area of
untapped potential for the industry. Much of this market at present is left to
alarms with neighbors monitoring the system and checking the premises or
calling the police when the alarm is triggered. Increasingly a new service,
usually in the higher income suburbs, is to have homes of executives monitored
when they travel interstate or overseas."
The Company's management believes that growth in the residential security
alarm industry is attributable to a number of factors. First, it appears that
media coverage of crime, along with political discussions concerning its
causes and remedies, have increased public awareness of crime. Second, a
number of insurance companies offer premium discounts to customers with
security and fire detection systems or require companies to maintain such
systems as a condition of coverage. Third, although the residential security
alarm industry in Australia and New Zealand has experienced significant growth
in the last decade, the residential worldwide market remains relatively
unpenetrated.
The products and services marketed in the residential security alarm
industry range from alarm systems that provide basic intrusion and fire
detection to sophisticated systems incorporating features such as closed
circuit television and access control. Products provided use either hardwired
or wireless technology for systems installed on subscribers' premises and
digital, multiplex and wireless (radio) technologies for the transmission of
alarm signals to a central monitoring center. The Company believes that the
security alarm services industry is characterized by the following attributes:
High Degree of Fragmentation. While residential security alarm services in
Australia, New Zealand and worldwide are consolidating, the industry remains
highly fragmented, consisting of a large number of local and regional
companies within each jurisdiction. The fragmented nature of the industry can
be attributed to the low capital requirements associated with performing basic
installation and maintenance of security alarm systems. However, the business
of a full service, integrated security services company providing central
station monitoring services is capital intensive, and the Company believes
that the high fixed costs of establishing both central monitoring stations and
full service operations contribute to the small number of national competitors
in each international market.
Continued Product Diversification and Integration of Services. A recent
trend in the residential security alarm industry has been increased
integration of different types of products into single systems provided by
single
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vendors. The Company believes that this trend has resulted from the need for
enhanced security services on a more cost-effective basis. Whereas basic alarm
systems were once adequate for many businesses and homes, it appears that many
consumers now demand access control and monitoring systems integrated into a
single system to provide for their overall security needs. A security alarm
system which provides burglar and fire alarm monitoring and access control,
all integrated into one central system, not only provides enhanced security
services, but also is more cost-effective than separate systems installed by
separate vendors. In this environment, the Company believes that it can gain a
competitive advantage over smaller companies in the industry that do not have
the infrastructure or the expertise to support the larger and more
sophisticated integrated systems. Hence, the Company is aggressively
positioning itself to take advantage of this trend by expanding the services
offered to its customers to include the 24-hour monitoring services.
Advances in Digital Communications Technology. Prior to the development of
digital communications technology, alarm monitoring required a dedicated
telephone line, which made long-distance monitoring uneconomic. Consequently,
alarm monitoring companies were required to maintain a large number of
geographically dispersed monitoring stations in order to achieve a national or
regional presence. The development of digital communications technology
eliminated the need for dedicated telephone lines, reducing the cost of
monitoring services to the subscriber and permitting the monitoring of
subscriber accounts over a wide geographic area from a central monitoring
station. The elimination of local monitoring stations has not only decreased
the cost of providing alarm monitoring services, it has also substantially
increased the economies of scale for larger alarm service companies. In
addition, the concurrent development of microprocessor-based control panels
has substantially reduced the cost of the subscriber equipment available to
consumers in the residential and commercial markets and has substantially
reduced service costs because many diagnostic and maintenance functions can be
performed from a company's office without sending a technician to the
customer's premises.
THE SECURITYGUARD ALARM AND SERVICES
The Company's SecurityGuard Alarm is the only two-time winner of the
prestigious Australian Design Award within the security industry (1992 and
1996), and was the winner of the Australian Design Mark in 1992. The
SecurityGuard Alarm is molded in an extruded polycarbonate casing and features
double soldered circuitry, a sealed independent power source and automatic
testing of battery power supply. It is radio controlled with access through a
radio transmitted, sixteen digit, binary code bit stream. It has a security
key override switch, and a 120db (at 1 metre) horn speaker installed within
the alarm plus an external siren and blue flashing strobe light. The
oscillating siren is designed to prompt distress to an intruder. The alarm
system features infra-red detection cells that respond effectively to body
temperature and remote controls which are factory sealed and a tuner set to
optimum range, signal and strength. The SecurityGuard Alarm complies with the
relevant Australian/NZ Standards AS2201.1/5. The system carries guarantees of
quality and service on the terms and conditions comparable to others in the
industry.
The basic SecurityGuard Alarm system provides protection for two openings to
the premises through an interior heat sensitive motion detector, a centralized
processing unit ("CPU") with the ability to communicate signals to the
Company's central monitoring station, a battery back-up, a siren and window
decals. The Company provides a one year limited warranty on system parts and a
one year limited warranty on labor. Customers have the option of protecting
additional openings and adding additional sirens and motion detectors, remote
control "panic buttons" and fire protection by means of smoke and heat
detectors and alarms. The Company's average fee for a SecurityGuard Alarm
system, including systems purchased with such customer options, was
approximately AUD$2092 (US$1650) per account customer during 1996, including
all installation service charges.
The SecurityGuard Alarm installed by the Company is a custom-configured
wireless alarm system manufactured by Ness, a leading manufacturer of security
alarm systems in Australia. Wireless devices use radio signals from
transmitters incorporated into the protective devices to communicate
activation signals from such devices to the customer's CPU. By comparison,
hard-wire devices, which are characterized by substantially higher initial
costs to the customer, use actual wires to connect each of the protective
devices to the customer's
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CPU. Wireless devices can generally be installed more simply and quickly than
those that require alarm wiring, thus reducing labor costs. In addition,
wireless devices are also easy to relocate when the customer changes homes.
24 Hour Alarm Monitoring Services. The Company is beginning to market 24-
hour alarm monitoring services to its Australian customers. The Company is
planning to outsource the monitoring to a central monitoring station in
Sydney, Australia which will incorporate the use of advanced communications
and computer systems that route incoming alarm signals and telephone calls to
operators. Other international operations centers will be established as
required. Depending upon the type of service chosen by the customer, central
monitoring station personnel will respond to alarms by relaying information to
local security patrols or police departments, notifying the customer, or
taking other appropriate action. Non-emergency administrative signals will
include power failures, low battery signals, deactivation and reactivation of
the alarm monitoring system, and test signals, and will be processed
automatically by central monitoring station computers.
Extended Warranty. The Company is beginning to offer an extended warranty
service, initially only in Australia, to cover the normal cost of repair and
maintenance of the alarm system after the expiration of the initial one year
warranty.
Fire Safety. In addition to the installation of the SecurityGuard Alarm, the
Company provides customers with a "Home Protection Package" which contains
smoke alarm/detectors featuring dual ionization chambers to limit false
alarms. The smoke alarm/detectors incorporate low battery warning beeps and
when activated emit a loud persistent siren noise in the high frequency range
of the audible sound spectrum. Smoke alarm/detectors are recommended by all
fire and emergency services, and are now compulsory in new homes in certain
areas. In addition to the smoke alarm/detectors, the SecurityGuard Alarm is
sold with a rechargeable fire extinguisher and a one square meter fire
blanket.
Installation And Field Services. The Company requires the maintenance of
installation and field service personnel in each distributor office.
Distributors subcontract services and installation to third parties who are
trained by the Company to install and maintain the customer's SecurityGuard
Alarm. Installations of new alarm systems are performed promptly after the
completion of the sale. After completing an installation, the technician
instructs the customer on the use of the system and furnishes a written manual
and, in many instances, an instruction video. Additional follow-up instruction
is provided by sales consultants in the distributor offices as needed. The
increasing density of the Company's customer base as a result of the Company's
continuing strategy to "infill" its existing distributor service areas with
new customers permits more efficient scheduling and routing of field service
technicians, resulting in economies of scale at the distributor level. The
increased efficiency in scheduling and routing also allows the Company to
provide faster field service response and support, which leads to a higher
level of customer satisfaction.
"We Care" Culture. In 1995, the Company implemented its "We Care" customer
satisfaction program by recruiting, as its Director of Customer Care and
Compliance, an individual who had previously been a Senior Investigation
Officer of an Australian state government consumer affairs organization. The
We Care program consists of a number of measures intended to maximize customer
satisfaction, including an annual survey of customers, periodic awards to
distributors who maintain superior customer satisfaction, and the installation
of a toll-free number which customers can call with any questions or
complaints. The We Care program also includes a total quality management
program through which the Company analyzes and documents all processes
critical to customer satisfaction, including sales, installations, monitoring,
billing and customer service. The Company then implements improvements and
repeats the analysis process.
DISTRIBUTOR NETWORK
The Company's expected growth is based mainly upon the expansion of the
Distributor Network. The Company believes that this organization strategy
generates greater enthusiasm on the part of the sales people by
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giving them the opportunity to eventually run and develop their own
businesses. This motivation results from a compensation structure in which, as
an individual moves up the selling hierarchy, he or she receives a greater
proportion of the final selling price. Eventually the individual may be
entitled to receive a bonus or commission override of units sold by
subordinate distributor networks. The Distributor Network consists of the
following structured selling and training levels which are designed to
motivate and provide a clearly defined path to advancement:
Level 1--Independent Agent. The majority of the sales force or distribution
network are Independent Agents who contract directly with Distributors and
Area Distributors. Independent Agents are compensated solely by commissions
and are required to generate leads from which telemarketers arrange
appointments with potential clients. Independent Agents then follow up on the
pre-arranged appointments with potential purchasers with visits to their homes
where planned and scripted on-site presentations are made. Distributors and
Area Distributors pay Independent Agents a commission based on their
performance. For an Independent Agent to be promoted to a Dealer they are
required to achieve a predetermined level of sales within a specified period.
As of June 30, 1997, the Company had 640 Independent Agents (including 111
agents in training).
Level 2--Dealers. Dealers are authorized by the Company to sell security
systems directly to the public, and are supported by Area Distributors in
implementing the Company's SecurityGuard Direct Marketing Program. Dealers
must sell personally to the customer and cannot contract the sales process to
Independent Agents. Dealers follow up on pre-arranged appointments with
potential purchasers and make a planned and scripted on-site presentation
during a home visit. Dealers are compensated based upon their profit derived
from the difference in their selling price to the public and their purchase
cost per alarm unit, after paying for their own operating costs. For Dealers
to be promoted to Area Distributors they are required to achieve a
predetermined level of sales within a specified period. As of June 30, 1997,
the Company had 37 Dealers.
Level 3--Area Distributors. Area Distributors sell security systems to the
public through the Level 1 Independent Agents for which they receive profit
margins after commission, and Level 2 Dealers for which they receive
commission overrides for every sale. Area Distributors are responsible for the
implementation of the Direct Sales Marketing Program which includes
telemarketing, lead generation and recruitment. Prior to promotion, Area
Distributors are given the opportunity to assume more responsibility and run
the distributorship and contract with Level 2 Dealers. Level 1 Independent
Agents operate from the Area Distributor's premises and are paid performance
based commissions. The Area Distributors earn their profits from Independent
Agents after the payment of commission, cost of goods sold and operating
expenses. Level 2 Dealers, however, operate independently of the Area
Distributor and are merely supervised by the Area Distributor. For this
supervision, the Area Distributor receives a fixed commission override per
system purchased by the Level 2 Dealer in their network. There is no limit to
the number of Independent Agents or Dealers an Area Distributor can have. For
Area Distributors to be promoted to Distributors, they are required to achieve
a predetermined level of sales within a specified period. As of June 30, 1997,
the Company had 37 Area Distributors.
Level 4--Distributors. Distributors, with support from the Company, are
responsible for ensuring that Dealers and Independent Agents are motivated and
proficient in all aspects of direct sales by, among other items: (i) ensuring
all new sales consultants go through a specified training program which
includes proficiency tests, video taping and "on the job" observation and
critical analysis; (ii) organizing major conferences annually as well as
running weekly internal training seminars; (iii) professionally videotaping
major training conferences and seminars; (iv) professionally taping tele-
conferences of "distributed" meetings where distributors discuss topics on
business enhancement, such as lead generation; (v) running reward programs for
the introduction or recruitment of new staff members; and (vi) recognizing and
rewarding other staff for securing new customers. Distributors operate in a
similar manner as the Area Distributors within their network and may purchase
stock from the Company at a slightly lower price per share than the Area
Distributors. Distributors receive a commission override for all purchases by
Dealers or Area Distributors within their network. Independent Agents working
within a distributorship are paid the same commission structure as those
working for an Area Distributor. As of June 30, 1997, the Company had 28
Distributors.
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SALES AND MARKETING.
The Company's growth strategy is based upon the internal generation of
customer accounts by direct sales through the Direct Sales Marketing Program
by the Company's sales team. The Company believes that its Direct Sales
Marketing Program represents an effective internal growth strategy and is the
Company's primary competitive advantage over other security alarm companies.
From January 1993 through June 30, 1997, the Company generated approximately
130,000 customer accounts internally through the Direct Sales Market Program,
including over 11,630 new customer accounts during the fiscal quarter ended
June 30, 1997. The training, sales and distribution program involves on-going
recruitment, training and defined qualification levels for greater
recognition, commission and substantial bonus income, as an integral part of
the Company's successful growth and market penetration strategy.
The Company markets the SecurityGuard Alarm system through a direct
marketing campaign conducted by the Distributor Network, targeting a
demographic group consisting of "average moms and dads." The Company does not
generally use media advertising to advertise the alarm systems. Instead, the
Distributor Network representatives are required to generate leads by running
community crime awareness programs and shopping center promotions, installing
neighborhood "drop boxes", conducting periodic give-aways, and distributing
questionnaires. Telemarketers then telephone individuals who respond to these
measures and make appointments for home visits by sales representatives from
the Distributor Network. During these home visits, the Distributor Network
representative presents a mounted display of the alarm system and related
equipment and a description of their features. The Distributor Network also
establishes "Crime Awareness Programs" in order to educate residents in a
targeted neighborhood with regard to the crime level of the area and the
utility of the Company's products in preventing crime and reducing losses. The
Company believes that by making sales to multiple homes in a neighborhood and
establishing a Crime Awareness Program, crime prevention synergies and
additional sales opportunities are achieved as neighbors begin to work
together to minimize crime.
The Company's sales and marketing approach stresses three aspects of its
SecurityGuard Alarm system: deterrence, detection and ejection. The Company
believes that the mere existence of a security alarm system in a home deters
burglars and home invaders from attempting entry. If they do persist and enter
a home protected by a SecurityGuard Alarm, the device's heat and movement
sensors will detect their presence and activate the alarm. SecurityGuard
Alarm's volume is deliberately set at a level that causes extreme discomfort
to human beings and that should result in the invader leaving the premises. In
addition, the volume of the alarm is sufficient to alert not just those who
dwell in the invaded home, but their neighbors, increasing the likelihood that
the home invader will be seen and possibly apprehended. The alarm system
reacts instantaneously on detecting an intruder, reducing the intruder's
ability to search for or remove valuables. Unlike silent alarms which are
linked to police stations or other patrols, the SecurityGuard Alarm's
immediate shrill alarm does not furnish the home invader with a pre-
established or known response time. The Company's focus in designing its
systems has been not to assist in catching burglars or home intruders, but to
prevent protected homes from being burgled or invaded in the first place and
to minimize losses if they are invaded.
COMPETITION
The security alarm industry is highly competitive and fragmented. The
Company competes with numerous other companies for new customers. Although the
Company believes that it is the leading seller of residential alarm systems in
Australia and New Zealand, there is no assurance that the Company will
continue to have a competitive advantage in these countries. According to the
IBIS Report, the industry in Australia derives 90 percent of its revenue from
business and 10 percent from households, and is concentrated among four
manufacturers who account for approximately 68 percent of the market. The IBIS
report indicated that gross sales for the entire industry for 1995-1996 were
AUD$866 million (US$689.68 million) and that the real rate of growth during
that year was estimated at 3.5 percent. The loss of any competitive position
by the Company in its target market would have a material adverse effect on
the Company. In marketing the SecurityGuard Alarm outside of Australia and New
Zealand, the Company will compete with larger national and international
companies that are better capitalized than the Company.
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The Company's three major competitors for first-time purchasers of alarm
systems in Australia are Brambles Industries Ltd, Chubb Security Holdings
Australia Ltd, and Tempo Services Ltd. Competition for new accounts by many of
these competitors is based primarily on installation price, monthly monitoring
fee, the range of services offered, and reputation for quality. However, the
Company believes it has a superior marketing strategy because of its policy of
selling directly to the end user through the Distributor Network.
The Company believes that similar competition exists in markets throughout
the areas in which it seeks to operate. In the United States, the Company will
face competition from alarm installation and monitoring companies which are
better capitalized than the Company and which offer low-priced, subsidized
installations of security systems. However, the Company believes that it will
be able to successfully penetrate and compete in such markets using the same
system that it uses in Australia and New Zealand. The Company has expanded its
business services to include, in addition to residential alarm systems, on-
line monitoring services and extended warranties in Australia. Outside of
Australia and New Zealand, the Company has established distributor networks in
the United States, United Kingdom, Belgium, the Netherlands, Germany, Canada
and South Africa.
NESS SUPPLY AGREEMENT
Ness is a leading manufacturer of security alarms in Australia and New
Zealand, and is certified under ISO 9000. It has won six Australian designer
of the year awards, among other achievements. Only one other alarm
manufacturer in Australia has won an Australian design of the year award. Ness
has recently expanded with the opening of its Nesstronics plant, which
manufactures all of the printed circuit boards for SecurityGuard Alarm
products. Naz Circosta, a director of Ness, sits on the Board of Australian
Alarm Standards. Since the inception of Ness' relationship with the Company in
1989, senior management of the two companies have met regularly.
In September 1990, the Company entered into the manufacturing/supply
agreement with Westinghouse Brake and Signal Company (Australia) Pty Limited
(predecessor company to Ness) under which Ness agreed to manufacture the
SecurityGuard Alarm for the Company. That agreement, which was due to
terminate in the year 2000, also granted the Company the exclusive right to
sell the SecurityGuard Alarm throughout the world (except the United States)
and a non-exclusive right to the United States market. Prior to the IPO, the
Company, through its wholly owned subsidiary, FAI Home Security Pty Ltd.,
superseded this agreement with a new manufacturing agreement which granted to
the Company essentially the same rights which it had under the previous
agreement. This new agreement included a provision which precludes termination
prior to the year 2007 under normal circumstances. The new agreement provides
further that Ness may market and sell the SecurityGuard Alarm within the
Company's exclusive territory, but only upon the Company's written consent.
The Company shall not unreasonably withhold such consent. The manufacturing
agreement further provides that Ness will be permitted to market and sell the
SecurityGuard alarm in places where the Company does not intend to carry on
business. Ness's rights to sell the SecurityGuard Alarm in such areas
terminate if it supplies or sells to companies that sell products in that
country using a marketing method or strategy which is similar in nature to
that used by the Company. Ness currently manufactures and distributes security
alarm products other than the SecurityGuard Alarm. Ness does not currently
manufacture and distribute, nor has it given any indication that it intends to
manufacture and distribute, a wireless alarm product similar to the
SecurityGuard Alarm. Ness has given no indication of establishing any sales
presence in Australia, New Zealand or any other market. If Ness establishes a
sales agency in any major potential market this may in turn adversely affect
the Company. The loss of the Company's relationship with Ness, or a
significant reduction of Ness's manufacturing capability, or a lack of
progress in new product development, could have a material adverse effect upon
the Company.
TRADEMARKS AND INTELLECTUAL PROPERTY
The Company operates under the registered Company name "FAI Home Security"
in Australia, New Zealand, the United States, Europe and South Africa. The
Company has licensing arrangements with FAI Insurance to permit it to use the
"FAI" name and logos. The Company holds copyrights to significant marketing,
training, promotional and organizational material. See Item 13 "Certain
Relationships and Related Transactions--Transactions with FAI".
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GOVERNMENT REGULATION
The Company's domestic operations in Australia and New Zealand, as well as
its other worldwide operations, are subject to a variety of laws, regulations
and licensing requirements of federal, state and local authorities. In certain
jurisdictions, the Company is required to obtain licenses or permits, to
comply with standards governing employee selection and training, and to meet
certain standards in the conduct of its business. Many jurisdictions also
require certain of the Company's employees to obtain licenses or permits.
The alarm industry is also subject to requirements imposed by various
insurance, approval, licensing and standards organization. Depending upon the
type of customer served, the type of security service provided and the
requirements of the applicable local governmental jurisdiction, adherence to
the requirements and standards of such organizations is mandatory in some
instances and voluntary in others.
In most countries, the Company's advertising and sales practices are
regulated by various consumer protection laws. Such laws and regulations
include restrictions on the manner in which the Company promotes the sale of
its security alarm systems and the obligation of the Company to provide
purchasers of its alarm systems with certain rescission rights.
Recently, a trend has emerged on the part of local governmental authorities
to adopt various measures aimed at reducing the number of false alarms. Such
measures include (i) subjecting alarm monitoring companies to fines or
penalties for transmitting false alarms, (ii) licensing individual alarm
systems and the revocation of such licenses following a specified number of
false alarms, (iii) imposing fines on alarm customers for false alarms, (iv)
imposing limitations on the number of times the police will respond to alarms
at a particular location and (v) requiring further verification of an alarm
signal before the police will respond. See Item 1 "Risk Factors--Government
Regulation".
EMPLOYEES
At June 30, 1997, the Company employed 69 individuals, including 59 on a
full-time basis, 1 on a part-time basis and 9 employees on an hourly basis.
Currently, none of the Company's employees are represented by a labor union or
covered by a collective bargaining agreement. The Company believes it has an
excellent relationship with its employees.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially
from forward-looking statements which may be deemed to have been made in this
Form 10-K, or which are otherwise made by or on behalf of the Company. Such
factors include, but are not limited to, the risks detailed under the caption
"Risk Factors" below or otherwise described herein or detailed from time to
time in the Company's Securities and Exchange Commission filings.
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION IN THIS REPORT ON FORM 10-K IN EVALUATING THE COMPANY AND
ITS BUSINESS.
Risk of International Expansion. Although the Company's sales historically
have been focused on the Australian and New Zealand markets, the Company has
initiated an aggressive expansion program in Europe, South Africa and North
America. Although the Company recently opened two distribution offices in the
United States in San Diego, California and Columbus, Ohio, the Company has to
date conducted no material operations
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in the United States. The Company's sales are subject to certain risks
inherent in operating globally, including international monetary conditions,
tariffs, import licenses, trade policies, domestic and foreign tax policies
and foreign manufacturing regulations. A key component of the Company's
strategy is its deployment of its direct sales marketing program (the "Direct
Sales Marketing Program") in markets outside of Australia and New Zealand. In
addition, climatic conditions in countries in which the Company operates or
intends to commence operations may affect the performance of the alarm system
requiring modification of its design. There can be no assurance that the
Company will be able to market, sell and deliver its products and services
successfully in these new markets. Expansion into new markets also requires an
investment by the Company in distributor offices and personnel necessary to
service the customer accounts. The expenses associated with the opening of new
offices will be expensed in the period in which they are incurred and thus may
substantially affect the Company's operating results during that period. For
the Company to expand successfully into a new market, the Company must obtain
a sufficient number and density of customers in that market to support the
additional investment. There can be no assurance that the required customer
numbers and density will be achieved or that expansion into new markets will
not adversely affect the Company's future business and results of operations.
If the revenues generated by the Company and any joint ventures formed in new
and existing markets are not sufficient to offset the expense of establishing
and maintaining the infrastructure to facilitate expansion of the operations,
the Company's business, operating results and financial condition could be
materially adversely affected.
Reliance upon Major Supplier. Over 90% of the Company's purchases during
fiscal year 1997, 1996 and 1995 were made directly from Ness Security Products
Pty Ltd. ("Ness"), which manufactures the Company's SecurityGuard Alarm. The
Company currently has a manufacturing agreement with Ness which in the
ordinary course of events cannot be terminated until the year 2007, and
thereafter only upon 12 months notice of an intention to terminate. In
addition, the Company shares with Ness non-exclusive sales and distribution
rights to the United States market. The Company has the exclusive right to
sell the SecurityGuard alarm system throughout the world (except the United
States). Ness may market and sell the SecurityGuard Alarm within the Company's
exclusive territory, but only upon the Company's written consent, which shall
not be unreasonably withheld. The manufacturing agreement further provides
that Ness will be permitted to market and sell the SecurityGuard alarm in
places where the Company does not intend to carry on business. Ness's rights
to sell the SecurityGuard Alarm in such areas terminate if it supplies or
sells to companies that sell products in that country using a marketing method
or strategy which is similar in nature to that used by the Company. Ness has
given no indication of establishing any sales presence in Australia, New
Zealand or any other market. If Ness establishes a sales agency in any major
potential market this may in turn adversely affect the Company. The loss of
the Company's relationship with Ness, or a significant reduction of Ness's
manufacturing capability, or a lack of progress in new product development,
could have a material adverse effect upon the Company. See Item 1--"Business--
Ness Supply Agreement".
Government Regulation. The Company must receive approval from the various
regulatory and licensing authorities for each country, state or local area in
which it operates. The Company may be required to obtain formal approval to
operate the Direct Sales Marketing Program and for the construction, design,
functionality, acceptability or merchantable quality of the SecurityGuard
Alarm itself. Securing these approvals may take some time, which will affect
the speed of the Company's potential growth and its ability to establish a
presence in new markets. In certain jurisdictions, the Company has been
required to obtain licenses or permits, to comply with standards governing
employee selection and training, and to meet certain standards in the conduct
of its business. The loss of such licenses, or the imposition of conditions to
the granting or retention of such licenses, could have a material adverse
effect on the Company. Although the Company believes that it presently holds
the required licenses and is in substantial compliance with all licensing and
regulatory requirements in each jurisdiction in which it operates, there can
be no assurance the Company will be able to secure regulatory approval in all
the countries or smaller geographic areas in which it seeks to operate or that
it will continue receiving regulatory approval for its existing activities.
Recently, a trend has emerged on the part of local governmental authorities
to adopt various measures aimed at reducing the number of false alarms. Such
measures include: (i) subjecting alarm monitoring companies to fines or
penalties for transmitting false alarms, (ii) licensing individual alarm
systems and the revoking of such licenses following a specified number of
false alarms, (iii) imposing fines on alarm customers for false alarms, (iv)
imposing limitations on the number of times the police will respond to alarms
at a particular location, and (v) requiring
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verification of an alarm signal before the police will respond. Enactment of
such laws could adversely affect the Company's future business and results of
operations. See Item 1--"Business--Government Regulation".
Dependence On Key Management Executives. The success of the Company's
business is largely dependent upon the active participation of Bradley D.
Cooper and other executive officers. Although Mr. Cooper's principal
occupation is his employment with the Company, Mr. Cooper has significant
interests in other operating companies, and periodically gives speeches and
writes articles on sales motivation techniques, for which the Company receives
no payment. The loss or interruption of the continued services for any reason
of one or more of the Company's key officers or the inability of the Company
to hire or retain qualified executives may have a material adverse effect on
the Company's business. The Company has "key-man" life insurance policies on
Bradley D. Cooper (Chairman of the Board and Chief Executive Officer),
Terrence J. Youngman (President) and David Appleby (Vice President of
International Business Development) for $5 million, $1 million and $2 million
respectively. See Item 10--"Directors and Executive Officers of the
Registrant".
Competition. The security alarm industry is highly competitive and there can
be no assurance that the Company will be able to compete successfully in the
future. Although the Company has achieved rapid growth in the sale of
residential alarm systems in Australia and New Zealand, there is no assurance
that the Company will continue to have a competitive advantage or continued
success in these countries. The loss of any such competitive position would
have a material adverse effect on the Company. In marketing the SecurityGuard
Alarm outside Australia and New Zealand, the Company will compete with larger
national and international companies who are better capitalized and who
conduct media advertising, which the Company does not currently utilize. In
the United States, the Company faces competition from alarm installation and
monitoring companies which are better capitalized than the Company and which
offer low-priced, subsidized installations of security systems. Competitive
pressure may require the Company to reduce its prices to maintain the growth
rate it has experienced in Australia and New Zealand. Furthermore, new
competitors are continuing to enter the industry and the Company may encounter
additional competition from such future industry entrants. See Item 1--
"Business--Competition".
Quarterly Variations In Operating Results. The Company has historically
experienced fluctuations in its quarterly operating results and expects to
experience fluctuations of its quarterly operating results in the future.
These fluctuations have been caused by many factors, including, among others,
the opening and closing of branch and distributor offices, the volume and
timing of customer generation, competitive pricing pressures, local and
national crime rates, general economic conditions and seasonality. The Direct
Sales Marketing Program can be hampered by unfavorable weather conditions,
holidays and reduced hours of daylight. The Company's budgeted expenses are
based, to some extent, on its expectations of future sales and customer
growth. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall due to levels of new sales
that are lower than anticipated. Given the possibility of quarterly
fluctuations, the Company believes that comparisons of the results of its
operation for preceding quarters are not necessarily meaningful and that the
results for any one quarter should not be relied upon as an indication of
future performance. In the event that the Company's revenues or operating
results for any quarter are lower than expected by securities analysts or the
market in general, such shortfall could have an immediate and significant
adverse impact on the market price of the Company's Common Stock. See Item 7--
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Dependence on Consumer Financing. Approximately 74% of the Company's sales
made through distributors to consumers are financed on an installment basis.
The Company's distributors have the option of offering potential consumers
financing from an affiliate of FAI Insurance or other financing organizations.
Any changes in interest rates or credit quality requirements of financing
organizations, including affiliates of FAI Insurance, may adversely affect
sales of the Company's products and therefore have a material adverse effect
on the Company. The availability of appropriate consumer financing in new
international markets and the continued availability of consumer finance in
existing markets will be a significant factor of the Company's success and
growth in these markets. There can be no assurance that financing will be
available on terms which are attractive to consumers and suitable for the
Company's operations.
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Dependence On Customer Accounts for Growth. From January 1993 through June
30, 1997, the Company added approximately 130,000 accounts through the Direct
Sales Marketing Program, including over 11,630 new accounts during the fiscal
quarter ended June 30, 1997. The Company intends to offer extended warranty
packages and on-line monitoring services to existing customers and new
customers once an alarm is installed, and has begun initiatives to do so. The
Company's growth in revenues and earnings may in part be dependent on the
successful implementation of these programs.
Management of Growth. The Company's business strategy is to grow through the
addition of distributors and customers and through the establishment of
international operations outside of its current base of operations in
Australia and New Zealand. This expansion and the Reorganization have placed
and will continue to place substantial demands on the Company's management,
operational resources and its system of financial and internal controls. The
Company's future operating results will depend in part on the Company's
ability to continue to implement and improve operating and financial controls
and to expand, train and manage its employee, independent contractor and
distributor base. Additionally, management of growth may limit the time
available to the Company's management to attend to other operational,
financial and strategic issues. There can be no assurance that the Company
will successfully implement and maintain such operational and financial
systems or successfully obtain, integrate and utilize the required employees
and management, operational and financial resources to manage a developing and
expanding business in new markets. Failure to implement such systems
successfully and use such resources effectively could have a material adverse
effect on the Company's results of operations and financial condition.
Currency Fluctuations and Duty Rates. The Company's operations are conducted
throughout the world. Accordingly, the Company's financial performance could
be adversely affected by fluctuations in currency exchange rates as well as
changes in duty rates. The Company has had foreign currency transaction gains
and losses in recent periods. The Company has no hedging program, although it
may in the future hedge a portion of its foreign exchange risk. However, there
can be no assurance that the Company will engage in such transactions or, if
the Company does engage in such transactions, that it will be successful in
limiting such risk and that changes in exchange rates will not have a material
adverse effect on the Company or its results of operations. As the Company
will report its results in U.S. dollars, a significant movement in the value
of the U.S. dollar against certain international currencies and cross-
movements between the currencies of the countries in which the Company
operates could have a material adverse effect on the Company's reported
financial position and results of operations. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Risks of Liability. Most of the Company's alarm installation and monitoring
agreements and other agreements pursuant to which it sells its products and
services contain provisions and disclaimers limiting liability to customers.
These provisions and disclaimers are intended to reduce the risk of Company
liability for the acts or omissions of employees and Distributor Network
representatives or system failures. However, in the event of litigation with
respect to such matters, there can be no assurance that these liability
limiting provisions and disclaimers will be enforceable. While the Company
currently carries insurance of various types, including general liability and
errors and omissions insurance, the loss experience of the Company and other
security service companies may affect the availability and cost of such
insurance in the future. Certain of the Company's insurance policies and the
laws of some states or countries may limit or prohibit insurance coverage for
punitive or certain other types of damages, or liability arising from gross
negligence or wanton behavior. The cost and effect of litigation could have an
adverse material effect on the Company.
Geographic Concentration. Sales in Australia and New Zealand for the fiscal
years ending on June 30, 1995, June 30, 1996 and June 30, 1997 accounted for
approximately 95%, 94% and 94% respectively, of the Company's net sales. The
Company expects that such sales will continue to account for a significant
portion of the Company's net sales in the future. At June 30, 1997, over 90%
of the Company's existing customers were located in Australia and New Zealand.
The performance of the Company may be adversely affected by any change in
regional economic conditions or other factors affecting these markets. See
Item 1 "Business--Overview".
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Product Concentration. Sales of the SecurityGuard Alarm system and related
products and services accounted for substantially all of the Company's sales
in fiscal 1996 and fiscal 1997, and will continue to account for substantially
all sales in the foreseeable future. Decline in the demand for this product,
whether as a result of competition, technological change or otherwise, would
have a material adverse effect on the Company's business, financial condition
and results of operations. See Item 1 "Business--The SecurityGuard Alarm".
Recruitment of Sales Consultants. The Company is dependent on the continued
recruitment of new sales consultants for the Distributor Network. The Company
will face competition in the recruitment of sales consultants from other
organizations, not necessarily in the same industry. The Company's ability to
maintain or increase its sales growth in the future will depend in part upon
the number and quality of sales consultants that the Company can recruit,
train and retain. There can be no assurance that the Company will be able to
attract, train and retain a sufficient number of sales consultants.
Adverse Publicity. Companies in the direct sales industry are occasionally
the subject of print articles and broadcast programs which present a negative
view of such companies and that emphasize the use of high pressure sales
practices. Although the Company maintains an active training and compliance
program to deter abusive sales practices by its distributors and sales agents,
the Company and its agents occasionally have received adverse publicity. The
Company has been the subject of isolated news articles accusing its sales
agents of high pressure sales practices including focusing on customers' fears
by using photographs of burglarized homes to encourage purchases of the
product, and selling security systems at above market financing rates to
consumers who cannot afford such systems. Publicity of this nature could have
a material adverse affect on the Company's sales and earnings.
Voting Control. The Company is approximately 42% owned by an FAI Insurance
affiliate, 5% by Bradley D. Cooper and 53% is owned by the public. As a result
of its minority ownership interest, FAI Insurance may be able to control the
election of the Company's directors and to determine corporate actions
requiring stockholder approval, including significant corporate transactions,
and to exercise control over the other affairs of the Company. FAI Insurance
may also be able to block any proposal put to a vote of the shareholders
including proposals which require a supermajority. See Item 12 "Security
Ownership of Certain Beneficial Owners and Management".
Limitations on Enforceability of Judgments. A substantial portion of the
assets of the Company are, and for the foreseeable future will be, located
outside the United States. In addition, all or a substantial portion of the
assets of directors, executive officers and experts residing outside the
United States are or may be located outside of the United States, primarily in
Australia and New Zealand. As a result, it may not be possible to effect
service of process in the United States on such directors and executive
officers, such experts or on the Company's subsidiaries or to enforce, collect
or realize upon, in United States courts, judgments against such persons
obtained in United States courts and predicated upon civil liability under
United States Securities Laws. The Company has been advised by its special
Australian counsel, Minter Ellison, that there are doubts as to the
enforceability of civil liabilities of United States courts or the ability of
stockholders to pursue claims based on the contents of this Prospectus or
otherwise predicated on United States Federal Securities Laws against the
Company or its directors, executive officers and experts in Australian courts.
Foreign Taxation. Because the Company is a United States corporation which
has historically generated substantially all income from non-U.S. operations,
its income will generally be subject to taxation in different jurisdictions.
Certain operations of the Company conducted outside the United States or by
foreign subsidiaries are subject to taxation in foreign jurisdictions as well
as under various provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), which impose special taxes in certain circumstances on foreign
subsidiaries of United States corporations. While the Company will generally
receive foreign tax credits for taxes paid in foreign jurisdictions which can
be offset against United States tax liabilities, there can be no assurance
that the Company will generate sufficient United States income to fully
utilize such foreign tax credits.
Possible Need for Additional Equity Capital or Borrowings. Although the
Company believes that it currently has sufficient capital and cash flow to
finance its existing operations, the Company's program of
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international expansion may create a need for additional equity capital or
borrowings which may result in higher leverage or the dilution of then
existing holders' investments in the Common Stock. There can be no assurance
that such external funding, if necessary, will be available to the Company on
favorable terms. Any inability of the Company to obtain additional capital may
adversely affect the Company's ability to continue its international expansion
and, in the worst case, might affect the ongoing viability of the Company's
existing operations.
Anti-takeover Considerations. Certain provisions of the Company's By-Laws
and Delaware law could discourage potential acquisition proposals, delay or
prevent a change in control of the Company, and limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock. For example, these provisions allow a staggered board of
directors and the issuance, without stockholder approval, of preferred stock
with rights and privileges senior to the Common Stock. The issuance of
preferred stock could result in the dilution of the voting power of the shares
of Common Stock purchased in this Offering and could have a dilutive effect on
earnings per share. The Company is also subject to Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any of a broad range of business
ventures with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder.
Potential Adverse Effect of the IPO Warrants and Other Company Options. In
connection with the IPO, the Company issued warrants to purchase an aggregate
of 240,000 shares of Common Stock to the IPO Representatives which warrants
are exercisable at a price of $16.50 per share (the "IPO Warrants"). The IPO
Warrants are exercisable at any time from July 15, 1998 through July 15, 2002.
See "Description of Securities". Additionally, the Company has reserved 50,000
shares of Common Stock for issuance under its 1997 Non-Employee Director Stock
Option Plan and 750,000 shares of Common Stock for issuance under its employee
1997 Stock Option Plan. See Item 11 "Executive Compensation--Stock
Compensation Plans". To date, options for a total of 520,000 shares have been
issued under such plans, all at an exercise price of $10.00 per share. For the
terms of the IPO Warrants and other Company options, the holders thereof will
have, at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock without assuming the risk of ownership, with a
resulting dilution in the interest of the other security holders. As long as
the IPO Warrants and other Company options remain unexercised, the Company's
ability to obtain additional capital might be adversely affected. Moreover,
the holders of the IPO Warrants and other Company options may be expected to
exercise such warrants or options at a time when the Company would, in all
likelihood, be able to obtain any needed capital by a new offering of its
securities on terms more favorable than those under which the existing
warrants or options are exercisable. See Item 13 and "Certain Relationships
and Related Transactions".
Shares Eligible For Future Sale. Sales of shares of Common Stock by existing
shareholders, or by existing holders of outstanding options and warrants,
under Rule 144 of the Securities Act, or pursuant to the exercise of
registration rights or otherwise, could have an adverse effect on the price of
the Shares. The Company has 5,150,000 shares of Common Stock outstanding. Of
these shares, all of the 2,750,500 shares sold in the IPO are, available for
resale in the public market without restrictions, except for any such shares
purchased by affiliates of the Company. The Company, the FAI Insurance
affiliate and Bradley D. Cooper have previously executed lock-up agreements
that restrict the sale or disposition of their shares until July 10, 1998.
National may consent to a waiver of the lock-up period without any public
notice. Subject to the lockup agreements referred to above, on June 30, 1998,
approximately 2,150,000 shares held by the FAI Insurance affiliate, and one
year after the shares sold to Bradley D. Cooper are fully paid approximately
250,000 shares held by Mr. Cooper, will become eligible for sale in the public
market subject to compliance with Rule 144 under the Securities Act. In
addition, the holders of the IPO Warrants will be able to sell the Common
Stock publicly, issuable upon exercise thereof, through the exercise of
certain registration rights, subject to the satisfaction of certain conditions
or (for shares issued pursuant to the "cashless exercise" provisions thereof)
pursuant to Rule 144.
No Dividends. The Company does not anticipate paying dividends on its Common
Stock for the foreseeable future. Dividends will only be paid at such time as
the cash flow of the Company is sufficient to justify such payments, provided
that there are no restrictions on payment of dividends under credit or other
agreements.
15
<PAGE>
Possible Illiquidity of Trading Market. The Company has listed the Shares on
the American Stock Exchange. To continue to be listed on the American Stock
Exchange, the Company must continue to satisfy certain maintenance standards.
If the Company is unable to maintain the standards for continued quotation on
the American Stock Exchange, the Shares could be subject to removal from the
American Stock Exchange. As a result, an investor would find it more difficult
to dispose of the Shares, or to obtain accurate quotations as to their price.
Potential Volatility of Stock Price. The stock market has, from time to
time, experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. Such broad
market fluctuations may adversely affect the market price of the Shares. In
addition, the market price of the Shares may prove to be highly volatile.
Announcements of innovations or new commercial products by the Company or its
competitors, developments or disputes concerning proprietary rights,
regulatory developments in the United States or in foreign countries, as well
as period-to-period fluctuations in financial results, among other factors,
may have a significant impact on the market price of the Shares.
ITEM 2. PROPERTIES
The Company's executive office, administrative, sales and service office and
central monitoring station are located at Levels 7 and 3, 77 Pacific Highway,
North Sydney, Australia. The executive offices constitute approximately 661
square meters at a rental rate of AUD$380 (approximately US$298) per square
meter, per annum. The Company's lease at 77 Pacific Highway has expired.
However, the Company has entered into a letter of intent to execute a lease
for an additional 2.5 years over Level 7, 77 Pacific Highway and is seeking to
enter into a further long term lease when floor space contiguous to Level 7
becomes available. In the interim, the Company rents Level 3, 77 Pacific
Highway on a month by month basis. The Company believes that its existing
office space will be adequate to meet its needs of the immediate future. The
Company has offices in England at the second floor of Lodge House Kay Street,
Burnley, Lancashire. The lease expires on April 12, 2000 and has an annual
rent of STG(Pounds) 6,640 (approximately US$10,283). The Company believes this
leased space is adequate to meet its needs in Europe for the immediate future.
ITEM 3. LEGAL PROCEEDINGS
The Company experiences routine litigation in the normal course of its
business. The Company does not believe that any currently pending or
threatened litigation will have a material adverse effect on the financial
condition and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock, $.001 par value, is traded on the American Stock
Exchange under the symbol "HSI." Trading in the Company's stock commenced on
July 15, 1997, the effective date of its initial public offering. The initial
public offering price of the Company's Common Stock was $10.00 per share.
The following table sets forth the reported high and low sale prices for the
Company's Common Stock for the period from the date on which the Common Stock
first commenced trading on July 15, 1997 through September 26, 1997, as
reported by the American Stock Exchange.
16
<PAGE>
The following table sets forth the high and low closing sale prices of the
Common Stock as reported by the American Stock Exchange for the period
indicated.
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW
----------- ------ ------
<S> <C> <C>
First Quarter (July 15-September 26)........................ $15.00 $10.00
</TABLE>
On September 26, 1997, the last reported sale price of the Common Stock as
reported by the American Stock exchange was $13 5/8. Based on information
obtained from the Company's transfer agent, the Company has 9 holders of
record and the Company believes that the number of beneficial owners of its
Common Stock is in excess of 50.
RECENT SALE OF REGISTERED SECURITIES
On July 15, 1997, the Company's initial public offering of its common stock
was declared effective by the Commission ("Offering"). The Commission file
number assigned to the registration statement is 333-26399. The Offering
contemplated the sale of 2,400,000 shares plus up to 360,000 shares pursuant
to an over-allotment option. 2,400,000 shares were sold by the Company and the
Selling Shareholder (an affiliate of FAI Insurance) in the Offering in the
amounts of 250,000 and 2,150,000, respectively. In addition, the Selling
Shareholder and the Company sold 200,000 and 150,500 shares, respectively,
pursuant to the underwriter's exercise of the over-allotment option. The
Offering, including the sale of the over-allotment option shares terminated on
July 28, 1997. The managing underwriters in the Offering were National
Securities Corporation and Nolan Securities Corporation. The securities
registered in the Offering were Common Stock as follows:
<TABLE>
<CAPTION>
SELLING SHAREHOLDER COMPANY
------------------- ----------
<S> <C> <C>
Amount Registered......................... 2,350,000 410,000
Aggregate Price of the Offering Amount
Registered............................... $23,500,000 $4,100,000
Amount Sold............................... 2,350,000 400,500
Aggregate Offering Price of Amount Sold to
Date..................................... $23,500,000 $4,005,000
</TABLE>
DIVIDEND POLICY
Except for a final dividend distribution to FAI, made prior to the
Reorganization, of approximately $5.8 million (including a partial return of
capital of $0.6 million), the Company has paid no dividends on the Common
Stock and does not anticipate doing so for the foreseeable future. Dividends
will only be paid at such time as the cash flow of the Company is sufficient
to justify such payments. The Company anticipates that all earnings, if any,
for the foreseeable future will be retained to finance the growth and
development of the business. See "Business--The Reorganization", and "Certain
Transactions".
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
All the data presented in the Selected Financial Data is prepared from the
financial data of (i) Home Security International, Inc. and its predecessor
entities, including FAI Home Security Pty Limited, FAI Home Security (ENZED)
Limited, FAI Home Security (NZ) Trust and FAI Home Security (NZ) Limited
(collectively, "Company" or "Home Security International, Inc."); and (ii) FAI
Home Security (UK) Trust and FAI Home Security (Canada) Unit Trust
(collectively "Cooper International Group"). The selected financial data of
the Company for the year ended June 30, 1997 has been derived from the audited
consolidated financial statements of the Company, which include the results of
the International Operations from April 1, 1997, as being under common
control, after certain tangible and intangible assets were acquired through
FAI Home Security Holdings Pty Limited from the Cooper International Group.
See "Consolidated Financial Statements of Home Security International--Note
1". The selected financial data of the Company for the years ended June 30,
1994, 1995, 1996, have been derived from its audited consolidated financial
statements. The selected financial data of the Company for the year ended June
30, 1993 have been derived from the audited financial statements of FAI Home
Security Pty Limited. The selected combined financial data of the Cooper
International Group for the years ended June 30, 1995, 1996 and the nine
months ended March 30, 1997 have been derived from the audited combined
financial statements of the Cooper International Group.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------- NINE MONTHS
1993 1994 1995 1996 ENDED MARCH JUNE 30, 1997
$US $US $US $US 30, 1997 $US
------ ------ ------ ------ ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
HOME SECURITY
INTERNATIONAL, INC.(1)
- -----------------------
Statement of Income Data
Net sales.............. 11,093 10,629 21,437 26,701 33,465
Net income (loss)...... 492 (74) 1,470 1,659 2,291
Earnings per common
share (2)............. $0.33 $0.37 $0.51
Balance Sheet Data
Total assets........... 1,748 2,281 7,671 13,384 15,957
Long term assets....... 687 927 2,228 6,443 11,589
Total long term
liabilities........... -- 557 -- -- 5
Shareholders' equity
(deficit)............. 408 369 3,912 9,894 9,790
COOPER INTERNATIONAL
GROUP
- --------------------
Statement of Income Data
Net sales.............. -- -- 877 1,750 1,398
Net income (loss)...... -- -- (2,155) (2,470) (1,357)
Balance Sheet Data
Total assets........... -- -- 743 847
Long term assets....... -- -- 142 110
Total long term
liabilities........... -- -- -- --
Shareholders' equity
(deficit)............. -- -- 47 (2,103)
<CAPTION>
UNAUDITED YEARS
ENDED JUNE 30,
-----------------------------
1993 1994 1995 1996
$US(3) $US(3) $US(3) $US(3)
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HOME SECURITY
INTERNATIONAL, INC. AND
COOPER INTERNATIONAL
GROUP COMBINED
- ------------------------
Statement of Income Data
Net sales.............. 11,093 10,629 22,314 28,451
Net income (loss)...... 492 (74) (685) (811)
Balance Sheet Data
Total assets........... 1,748 2,281 8,413 14,231
Long term assets....... 687 927 2,370 6,553
Total long term
liabilities........... -- 557 -- --
Shareholders' equity
(deficit)............. 480 369 3,959 7,791
</TABLE>
- --------
(1) Formerly Australia and New Zealand Group.
(2) These calculations have not included the effect of stock options.
(3) Information presented is historical combined only without giving effect to
the Reorganization or any pro forma adjustments.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a direct sales company which, through an extensive
distributor network, sells, installs and services residential security alarm
systems principally in Australia and New Zealand, with expanding international
operations in North America, Europe and South Africa. The Company's mission is
to offer consumers a quality home security alarm package to protect their
families and property. In addition to residential alarm systems, the Company
is expanding its business services to include on-line monitoring services and
extended warranties. Outside of Australia and New Zealand, the Company has
established distributor networks in the United Kingdom, Belgium, the
Netherlands, Germany and Canada. The Company has also successfully test
marketed its product in the United States and has recently opened distribution
offices in San Diego, California and Columbus, Ohio. To date the Company has
not conducted any material operations in the United States.
In 1993, the Company changed its organization structure from one based upon
Company owned and operated branches, with Company employed sales
representatives making sales to end users at high margins, to the Distributor
Network model. The change to the Distributor Network model resulted in a
decline in gross margin from approximately $625 to $350 for each SecurityGuard
Alarm system sold, based on 1993 prices. However, under the Distributor
Network structure, the Company no longer incurs selling costs and overhead
related to the distribution of its SecurityGuard Alarm product, and the
capital costs of opening new operations are passed on to its distributors.
Accordingly, this change provided the Company with the capability of expanding
rapidly with minimal funding requirements. Since this change in structure, the
Company has experienced significant increases in unit sales of alarm systems.
Unit sales in Australia and New Zealand for fiscal years 1992, 1993, 1994,
1995, 1996 and 1997 were 5,069, 11,744, 12,235, 25,280, 31,669 and 36,892,
respectively. Unit sales for the International Operations for fiscal years
1995, 1996 and 1997 were 1,157, 2,797 and 2,649, respectively.
Revenues are currently derived primarily from SecurityGuard Alarm sales in
Australia and New Zealand through the Distributor Network in which
distributors sell to the end users on a direct sales basis, rather than
through retail outlets. The percentage of revenues attributable to sales in
Australia and New Zealand during the fiscal years 1994, 1995, 1996 and 1997
were 100%, 96%, 94% and 94%, respectively. The Company assumes the
responsibility of servicing the end user once an alarm has been installed by
the distributor. After installation the end users are considered to be the
customers of the Company. To a much lesser extent, revenue is derived from
sales of promotional, training and marketing material to the Distributor
Network, and from the recent introduction of extended warranties to end users.
In addition, the Company expects that the planned introduction of on-line
monitoring in Australia will provide an additional revenue stream from the
existing and future base of installed alarms. Additionally, while the Company
expects that an increased proportion of its revenue will be derived from its
international expansion, there can be no assurance that the success of the
Distributor Network and corresponding operating results in Australia and New
Zealand can be replicated throughout the world. International expansion
efforts outside Australia and New Zealand and the introduction of additional
services, including extended warranties and on-line monitoring may cause an
increase in expenses from time to time, without necessarily generating a
corresponding increase in revenue.
The Company's revenues from SecurityGuard Alarm sales are recorded net of
any discounts and withdrawals (the cancellation of an installation that has
been sold by an agent on behalf of an end user). Revenues related to on-line
monitoring services and extended warranties are recognized over the life of
the agreement with the customer. In September 1996, the Company implemented a
price increase throughout Australia and New Zealand of AUD$200 (US$160) which
increased the price of the home protection package to the end user from
AUD$1,892 (US$1,507) to AUD$2,092 (US$1,667). In the face of increased
competition in the industry, there can be no assurance that the Company will
not face increased pricing pressure, which in turn could lead to changes in
the selling price of the Company's SecurityGuard Alarm or other services. The
impact of any such price changes on the Company's revenue or operating results
cannot be accurately determined. In
19
<PAGE>
addition, prior to the Reorganization, the Company had an existing royalty
agreement with FAI Insurance which provided for the payment of commissions for
each alarm unit sold in exchange for the use of "FAI" name and logo. Pursuant
to the Reorganization, the agreement was replaced by the no cost License
Agreement with FAI Insurance for the use of the "FAI" name and logo. In July
1996, the number of senior executives receiving commissions based on the
number of alarm units sold, as well as the rate of such commissions payable to
these executives increased substantially. Commissions paid to executives for
the year ended June 30, 1997 was $192,686 as compared to $1,418,426 for the
year ended June 30, 1996. See "Business--Executive Employment Agreements."
This caused a material increase in the cost of goods sold. There can be no
assurance that these types of changes will not occur in the future. If any
such changes do not, in turn, generate sufficient increases in the number of
final users, the Company's results could be materially adversely affected.
The Company expects to maintain or slightly increase profits in the near
future from alarm sales in Australia and New Zealand, and realize a gradual
improvement in operating results from the expansion of its operations in the
United Kingdom, Belgium, the Netherlands, Germany, Canada, South Africa and
the United States. The introduction of extended warranties and on-line
monitoring are expected to make a positive contribution to the Company's
overall operating results in the near future.
RESULTS OF OPERATIONS
Due to the Reorganization which occurred in June, 1997, the Company's
financial statements have been prepared using the U.S. GAAP "common control"
concept. Under this concept, the financial statements of the Company include
the results of operations of the Company's predecessor entities (FAI Home
Security Pty Limited, FAI Home Security (ENZED) Limited, FAI Home Security
(NZ) Trust and FAI Home Security (NZ) Limited) as if the Company had owned
such entities before the Reorganization. Additionally, the Company has
included in its June 30, 1997 financial statements the results for three
months of operations (April 1, 1997-June 30, 1997) of the business and assets
purchased by FAI on March 31, 1997 from the Cooper International Group and
subsequently transferred to the Company as part of the Reorganization. The
inclusion of the operating results of that business for the three month period
had no material impact on the Company's results for the year ended June 30,
1997.
Comparison of fiscal years ended June 30, 1997 and June 30, 1996
Revenue: Total revenue increased by $6.8 million or 25% from $26.7 million
for the fiscal year ended June 30, 1996 to $33.5 million for the fiscal year
ended June 30, 1997. This increase was primarily due to continued growth of
unit sales in the New Zealand market. Net sales in the Australian market
increased by approximately $0.6 million (or 2.5% from $21.9 million for the
fiscal year ended June 30, 1996 to $22.5 million for the fiscal year ended
June 30, 1997).
Cost of Goods Sold: Cost of goods sold increased by $6.7 million. As a
percentage of total revenue, cost of goods sold increased from 66% for the
fiscal year ended June 30, 1996 to 73% for the fiscal year ended June 30,
1997. This increase was due, in part, to the increased cost of goods from the
manufacturer for an updated version of the SecurityGuard Alarm with enhanced
features, increases in commission and bonus payments to senior executives
related to sales volumes and partly due to increases in royalty fees paid to
related parties for use of the FAI brand name. This royalty is based on retail
sale prices, which increased 10% per unit in the period, rather than the sale
price charged to distributors. Royalty charges as a percentage of revenues
increased from 10% for the fiscal year ended June 30, 1996 to 11% for the
fiscal year ended June 30, 1997. Excluding related party expenses such as
royalty charges, cost of goods sold, as a percentage of revenues, increased
from 56% of total revenue for the fiscal year ended June 30, 1996 to 62% for
the fiscal year ended June 30, 1997. See Item 13 "Certain Relationships and
Related Transactions--Transactions with FAI".
Product costs are expected to increase in proportion to annual increases in
the Australian Consumer Price Index, in accordance with the terms of the
supply agreement with the manufacturer.
20
<PAGE>
General and Administrative Expenses: General and administrative expenses
were $6.6 million (net of management fees received) for both the fiscal years
ended June 30, 1996 and 1997. As a percentage of revenue, total general and
administrative expenses decreased to 18% in the fiscal year ended June 30,
1997 compared to 25% for the fiscal year ended June 30, 1996.
The decrease as a percentage of revenue for the fiscal year ended June 30,
1997 compared to the fiscal year ended June 30, 1996, reflects the economies
of scale of operating the Distributor Network, since increases in revenue did
not entail a proportionate increase in overhead. Furthermore, the decrease in
general and administrative expenses reflects changes to the Chief Executive
Officer's employment agreement made during fiscal 1997, which made him
responsible for all costs of support staff, travel, accommodation and other
expenses related to the performance of his duties as Chief Executive Officer
of the Company. Since these expenses are encompassed by the commission
structure used to compensate the Chief Executive Officer, they are now
included in cost of goods sold rather than general and administrative expense.
Additionally, the Company received a management fee of $0.5 million (net of
management fees paid to FAI Finance Corporation (NZ) Ltd.) from FAI in
connection with the management of the international operations. See Item 13--
"Certain Relationships and Related Transactions--Transactions Involving
Bradley D. Cooper".
General and administrative expenses also include a charge of $0.4 million
for the amortization of goodwill which was expensed in the fiscal year ended
June 30, 1997 compared to $0.2 million for the fiscal year ended June 30,
1996.
Income from Operations: Income from operations increased from $2.5 million
for the fiscal year ended June 30, 1996 to $3.1 million for the fiscal year
ended June 30, 1997.
If royalty payments to related parties for the use of the FAI brand name and
other related party charges were excluded (as they will be under the new
license agreement), net income from operations would have increased from $5.3
million for the fiscal year ended June 30, 1996 to $6.8 million for the fiscal
year ended June 30, 1997. Item 13--See "Certain Relationships and Related
Transactions--Transactions with FAI".
Interest Income: Interest income was approximately $0.8 million for the
fiscal year ended June 30, 1997 compared to $0.2 million for the fiscal year
ended June 30, 1996. This was due to the higher loan balances of loans to a
related party, FAI Finance Corporation (NZ) Limited during the year ended June
30, 1996. See Item 13--"Certain Relationships and Related Transactions--
Transactions with FAI".
Income Tax Expense: The effective rate of tax increased from 39% for the
fiscal year ended June 30, 1996 to 42% for the fiscal year ended June 30,
1997. This was due to the non-deductibility of goodwill amortization of $0.4
million during fiscal year ended June 30, 1997.
Net Income: Net income increased from $1.7 million for the fiscal year ended
June 30, 1996 to $2.3 million for the fiscal year ended June 30, 1997.
Comparison of fiscal year ended June 30, 1996 and June 30, 1995
Revenue: Total revenue increased by 25% from $21.4 million for the fiscal
year ended June 30, 1995 to $26.7 million for the fiscal year ended June 30,
1996. Revenues in the fiscal year ended June 30, 1995 included $6.2 million in
direct retail sales and in-house finance sales, as compared to $1.9 million in
fiscal year ended June 30, 1996. This increase in revenues was primarily the
result of the increase in the amount of units sold into the Australian market
during the fiscal year ended June 30, 1996 compared to the fiscal year ended
June 30, 1995.
Cost Of Goods Sold: Cost of goods sold remained stable at 66% of total
revenue although increasing in absolute terms from $14.2 million to $17.6
million for the fiscal years ended June 30, 1995 and 1996, respectively.
Product costs from the manufacturer remained stable throughout the fiscal year
ended June 30, 1996.
21
<PAGE>
General and Administrative Expenses: General and administrative expenses
were $6.6 million (net of management fees) in the fiscal year ended June 30,
1996 and $5.1 million for the fiscal year ended June 30, 1995. As a percentage
of revenue, general and administrative expenses increased 1% to 25% during the
fiscal year ended June 30, 1996 compared to the fiscal year ended December 31,
1995. This increase reflects the completion of the shift to the Distributor
Network for fiscal year ended June 30, 1996 from direct retail sales utilized
during the year ended June 30, 1995, and the benefits of certain economies of
scale.
Income from Operations: Income from operations remained relatively constant
as a percentage of revenue at 10%, but showed an increase in absolute figures
from $2.1 million for fiscal year ended June 30, 1995 to $2.5 million for
fiscal year ended June 30, 1996. If royalty payments to related parties for
the use of the FAI brand name are excluded, net income from operations
increased 29% to $5.3 million for fiscal year ended June 30, 1996 from $4.1
million for the fiscal year ended June 30, 1995. See Item 13--"Certain
Relationships and Related Transactions--Transactions with FAI".
Interest Income: Interest income was approximately $251,000 for the fiscal
year ended June 30, 1996, compared to $65,000 for the fiscal year ended June
30, 1995. This increase was due to an increase in funds on deposit during the
year and a significant increase in interest received from loans to a related
party, FAI Finance Corporation (NZ) Limited. See Item 13--"Certain
Relationships and Related Transactions--Transactions with FAI".
Income Tax Expense: The effective rate of tax increased to 39% for the
fiscal year ended June 30, 1996 from 33% for the fiscal year ended June 30,
1995. This was due to an increase in Australia's basic corporate tax rate.
Net Income: Net income increased by $190,000, or by 13%, from $1.5 million
for the fiscal year ended June 30, 1995 to $1.7 million for the fiscal year
ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The principal source of liquidity of the Company's predecessor companies
historically has been, and the Company's principal source of liquidity in the
future is expected to continue to be, cash flows from operations. Cash flow
provided by operating activities increased from approximately $0.5 million for
the fiscal year ended June 30, 1996 to approximately $4.8 million for the
fiscal year ended June 30, 1997. This was primarily due to the extension of
commercial payment terms by Ness, the Company's major supplier. Under a
previous commercial arrangement with Ness, the Company's trade payable account
was paid before it was due, resulting in a reduction of cash (as a result of
the reduction in accounts payable) of $0.5 million. The return to ordinary
trading terms is reflected in the increase in accounts payable of
approximately $2.2 million.
The increase in inventory levels during fiscal 1997 reflected the increased
levels of stock required in the New Zealand warehouse as a result of increased
sales and the inclusion of the inventory relating to the International
operations not included prior to April, 1997. Additionally, the improvement in
cash flows provided by operations reflects improved profitability of the
Australian and New Zealand operations during the fiscal year ended June 30,
1997 as compared to fiscal year ended June 30, 1996.
In the past, FAI Insurances Ltd has significantly reduced the historical
cash flow and operating profit of the predecessor companies through the
charging of a royalty for the use of the FAI name. The royalty charges levied
were approximately $3.6 million and $2.8 million during the fiscal year ending
June 30, 1997 and June 30, 1996, respectively. In addition, the cash flow
generated from operating activities by the predecessor companies has
historically been used to make loans to other entities within the FAI
Insurance group. However, with the completion of the Reorganization in June
1997, the Company is no longer required to make royalty payments to FAI
Insurance, and the Company will not be required to make any further loans to
FAI Insurance or entities affiliated with FAI Insurance. See Item 1--
"Business--The Reorganization" and Item 13--"Certain Relationships and Related
Transactions--Transactions with FAI Insurance".
22
<PAGE>
Net cash provided by (used in) investing activities increased from a deficit
of approximately ($1.4 million) during the fiscal year ended June 30, 1996 to
$0.6 million during the fiscal year ended June 30, 1997. This was a result of
the Reorganization in June 1997 and the settlement of related party balances.
Net cash used by financing activities increased from $0 in fiscal year ended
June 30, 1996 to $5.5 million in fiscal year ended June 30, 1997. This was
attributable to the payment of dividends, including a partial return of
capital, to FAI Insurance immediately prior to the Reorganization.
Net cash flow provided by Operating activities was $3.5 million, $0.5
million and $4.8 million for fiscal years ending 1995, 1996, and 1997. The
decrease in cash flow from fiscal year 1995 to 1996 relates to decrease in
accounts payable and the payment in advance to Ness, as well as increases in
tax payments.
The net cash flow generated by (used in) investing activities was ($2.6
million), ($1.4 million) and $0.6 million for fiscal years ending 1995, 1996,
and 1997. The movements in cash flow relating to investing activities relate
to receipts and borrowings from related parties and cash not acquired from
predecessor entities.
The net cash flow used in financing activities was $0, $0, and $5.5 million
for fiscal years ending 1995, 1996, and 1997, respectively. The movements in
1997 relate to dividends and Trust distributions from the predecessor
companies constituting the partial return of capital and profits to FAI
Insurance.
The Company currently has no credit facility with a bank or other financial
institution, although it believes appropriate facilities would be available on
reasonable terms if needed. The Company believes that internally generated
cash flows and the proceeds of this Offering will be adequate to support
currently planned business operations over the next twelve months. The
Company's strategy for growth is based on the expansion of its Distribution
Network into existing and new markets, with the costs of such expansion
largely borne by the distributors.
Notwithstanding that the Company's costs in expanding its Distribution
Network are expected to be minimal, the Company may be required to obtain
additional capital to fund growth outside of its existing operations if the
cash flow generated by the Australian and New Zealand operations is
insufficient to meet the cash requirements of developing the International
Operations. Potential sources of such capital may include proceeds from bank
financing or additional offerings of the equity or debt securities of the
Company. There can be no assurance that such capital will be available on
acceptable terms from these or other potential sources. The lack of such
capital could have a material adverse effect on the Company's operations. See
Item 1--"Risk Factors--Possible Need for Additional Equity Capital or
Borrowings".
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
23
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Home Security International, Inc.:
Report of Independent Public Accountants................................. 25
Consolidated Statements of Income for the Years Ended June 30, 1995, 1996
and 1997................................................................ 26
Consolidated Balance Sheets as at June 30, 1996 and 1997................. 27
Consolidated Statements of Cashflows for the Years Ended June 30, 1995,
1996 and 1997........................................................... 28
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended June 30, 1995, 1996 and 1997...................................... 29
Notes to Financial Statements............................................ 30
Cooper International Group:
Report of Independent Public Accountants................................. 40
Combined Statements of Income for the Period Ended June 30, 1995, Year
Ended June 30, 1996 and the Nine Months Ended March 30, 1997............ 41
Combined Statements of Cashflows for the Period Ended June 30, 1995, Year
Ended June 30, 1996 and the Nine Months Ended March 30, 1997............ 42
Combined Statements of Changes in Shareholders' Equity for the Period
Ended June 30, 1995, Year Ended June 30, 1996 and the Nine Months Ended
March 30, 1997.......................................................... 43
Notes to Financial Statements............................................ 44
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Boards of Directors and Shareholders of Home Security International,
Inc.:
We have audited the accompanying consolidated balance sheets of Home
Security International, Inc., as of June 30, 1997 and 1996 and related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. These 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 in Australia, which are substantially similar to generally accepted
auditing standards in the United States of America. 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 Home
Security International, Inc. as of June 30, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting
principles in the United States of America.
Arthur Andersen
Sydney,
September 22, 1997
25
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------
NOTE 1995 $US 1996 $US 1997 $US
---- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.......................... 2 21,437,325 26,700,922 33,464,595
Cost of goods sold
--related party................... 12 (1,989,371) (2,750,468) (3,647,376)
--other........................... (12,229,324) (14,834,094) (20,626,411)
----------- ----------- -----------
Gross profit....................... 7,218,630 9,116,360 9,190,808
Management fees received--related
parties........................... 12 321,355 -- 559,002
General and administrative
expenses.......................... (5,412,853) (6,606,377) (6,612,318)
----------- ----------- -----------
Income from operations............. 2,127,132 2,509,983 3,137,492
Non operating income--other........ -- -- 6,740
Interest income--related party..... 12 -- 75,087 755,613
- --other............................ 65,211 175,719 81,790
Interest expense--related party.... 12 -- (47,625) (60,046)
----------- ----------- -----------
Income before taxes................ 2,192,343 2,713,164 3,921,589
Income tax expense................. 11 (722,523) (1,054,170) (1,629,973)
----------- ----------- -----------
Net income......................... 1,469,820 1,658,994 2,291,616
=========== =========== ===========
Earnings per common share.......... $ 0.327 $ 0.369 $ 0.509
Weighted average number of shares
outstanding....................... 4,500,000 4,500,000 4,500,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
---------------------
1996 1997
ASSETS NOTE $US $US
- ------ ---- ---------- ----------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents.................... 369,837 118
Accounts receivable--related party........... 12 4,380,060 2,025,455
Accounts receivable--trade, net.............. 3 1,099,733 615,560
Inventories.................................. 4 339,602 1,277,104
Prepaid expenses and other current assets.... 5 751,426 449,458
---------- ----------
Total current assets....................... 6,940,658 4,367,695
---------- ----------
Non-current assets.............................
Plant and equipment, net..................... 6 12,706 869,571
Intangibles, net............................. 7 5,948,255 10,142,077
Deferred income taxes........................ 11 475,505 549,393
Other non-current assets..................... 6,531 3,748
Receivable--related party.................... 12 -- 24,366
---------- ----------
Total non-current assets................... 6,442,997 11,589,155
---------- ----------
Total assets............................... 13,383,655 15,956,850
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
Current liabilities
Bank overdraft............................... -- 31,795
Payables--trade.............................. 2,414,042 4,018,147
Accrued liabilities.......................... 956,307 1,105,612
Lease liability.............................. -- 19,068
Income tax payable........................... -- 467,961
Deferred income.............................. 119,479 479,307
---------- ----------
Total current liabilities.................. 3,489,828 6,121,890
---------- ----------
Non-current liabilities
Lease liability.............................. -- 44,877
---------- ----------
Total liabilities.......................... 3,489,828 6,166,767
Shareholders' equity
Preferred stock $.001 value; 1,000,000 shares
authorized, none outstanding................
Common stock $.001 value; 20,000,000 shares
authorized; 1997: 4,500,000 shares
outstanding (Predecessor entity 1996: 2
shares of A$1.00 value) .................... 2 4,500
Additional paid-in capital................... 6,016,944 10,238,691
Foreign currency translation reserve......... 386,693 (406,534)
Retained earnings (accumulated losses)....... 3,490,188 (46,574)
---------- ----------
Total shareholders' equity................. 9,893,827 9,790,083
---------- ----------
Total liabilities and shareholders' equity. 13,383,655 15,956,850
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30
----------------------------------
1995 1996 1997
$US $US $US
---------- ---------- ----------
<S> <C> <C> <C>
Cashflow from operating activities
Net income............................... 1,469,820 1,658,994 2,291,616
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation............................. 12,350 11,192 42,100
Amortization of goodwill................. 47,884 226,498 391,924
Deferred taxes and income tax payable.... 478,995 (1,143,650) 427,573
Provision for losses on accounts
receivable.............................. 9,552 58,213 100,715
(Increase) decrease in operating assets:
Accounts receivable--trade............... (245,402) (21,925) (203,120)
Inventories.............................. 60,656 (239,731) (965,610)
Prepaid expenses and other assets........ (262,407) (305,224) (33,054)
Increase (decrease) in operating
liabilities:
Accounts payable......................... 1,740,323 (489,880) 2,159,629
Accrued liabilities...................... 195,823 734,742 627,011
---------- ---------- ----------
Net cash provided by operating activities.. 3,507,594 489,229 4,838,784
---------- ---------- ----------
Cashflow from investing activities
Proceeds from sale of plant and
equipment............................... -- 112,062 --
Additions to plant and equipment......... (43,632) (70,701) (871,894)
Receipts/(payments) from/(to) related
parties................................. (2,509,175) (1,429,568) 2,137,680
Purchase of goodwill..................... -- -- (271,826)
Proceeds from sale of investment......... -- -- 1,914
Cash in predecessor entities not
acquired................................ -- -- (410,302)
---------- ---------- ----------
Net cash provided by/(used in) investing
activities................................ (2,552,807) (1,388,207) 585,572
---------- ---------- ----------
Cashflow from financing activities
Provided by (payments on) short-term
debt.................................... (927) (3,129) 295,353
Dividend and trust distribution paid..... -- -- (5,294,296)
Return of capital........................ -- -- (581,928)
Increase in bank overdraft............... -- -- 31,795
---------- ---------- ----------
Net cash (used in) financing activities.... (927) (3,129) (5,549,076)
---------- ---------- ----------
Net increase/(decrease) in cash held....... 953,860 (902,107) (124,721)
---------- ---------- ----------
Cash at the beginning of the financial
year...................................... 247,000 1,229,501 369,837
Effect of exchange rate change on cash
held...................................... 28,641 42,443 (244,998)
---------- ---------- ----------
Cash at the end of the financial year...... 1,229,501 369,837 118
========== ========== ==========
Supplemental disclosures of cash flow
information:
Interest paid.............................. 874 59,945 515,763
Income taxes paid.......................... 212,736 1,279,393 946,230
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE>
HOME SECURITY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL STOCK FOREIGN
ISSUED ADDITIONAL CURRENCY RETAINED TOTAL
---------------- PAID-IN TRANSLATION EARNINGS SHAREHOLDERS'
SHARES AMOUNT CAPITAL RESERVE UNAPPROPRIATED EQUITY
--------- ------ ---------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994.. 2 2 -- -- 361,374 361,376
Foreign currency
translation adjustment. (4,240) (4,240)
Additional paid-in
capital................ 2,085,090 2,085,090
Net income 1995......... 1,469,820 1,469,820
--------- ----- ---------- -------- ---------- ----------
BALANCE, JUNE 30, 1995.. 2 2 2,085,090 (4,240) 1,831,194 3,912,046
Foreign currency
translation adjustment. 390,933 390,933
Additional paid-in
capital................ 3,931,854 3,931,854
Net income 1996......... 1,658,994 1,658,994
--------- ----- ---------- -------- ---------- ----------
BALANCE, JUNE 30, 1996.. 2 2 6,016,944 386,693 3,490,188 9,893,827
Foreign currency
translation adjustment. (553,335) (553,335)
Additional paid-in
capital................ 1 1 4,803,675 4,803,676
Net income 1997......... 2,291,616 2,291,616
Dividends and Trust
Distributions and
return of capital...... (581,928) (5,294,296) (5,876,224)
Reorganization
Adjustments............ 4,499,997 4,497 (239,892) (534,082) (769,477)
--------- ----- ---------- -------- ---------- ----------
BALANCE, JUNE 30, 1997.. 4,500,000 4,500 10,238,691 (406,534) (46,574) 9,790,083
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Business--
Home Security International, Inc. ("HSI") was incorporated in Delaware,
United States of America on April 11, 1997. On June 30, 1997 HSI acquired FAI
Home Security Pty Limited (incorporated in New South Wales, Australia on August
13, 1990) and FAI Home Security (ENZED) Limited (incorporated in Auckland, New
Zealand on April 24, 1997) as well as certain tangible and intangible assets of
the United Kingdom (including certain European countries), South Africa, Canada
and the United States of America Home Security operations ("International
Operations") (all collectively called "the Company"). The background to the
reorganization and acquisition is as follows:
FAI Home Security (ENZED) Limited acquired all of the intangible assets,
fixed assets and inventory, net of warranty provision from FAI Home Security
(NZ) Trust on April 30, 1997. The consideration for the acquisition was the
issue of fully paid ordinary shares for the value of the intangibles, and a
note payable ("NZ Note") of $208,894 for the net tangible assets acquired. FAI
Home Security (NZ) Trust then sold these shares and the NZ Note to FAI Home
Security Holdings Pty Ltd on June 30, 1997.
The International Operations were acquired by FAI Home Security Holdings Pty
Limited on March 31, 1997 from FAI Home Security (UK) Trust, FAI Home Security
(Canada) Unit Trust and their subsidiaries FAI Home Security USA, Inc and FAI
Home Security (AFRICA)(PROPRIETARY) Ltd (the "Cooper International Group").
As part of the reorganization on June 30, 1997 HSI acquired from FAI Home
Security Holdings Pty Ltd all of the shares of FAI Home Security Pty Limited
and FAI Home Security (ENZED) Limited, plus the NZ Note and the inventory,
fixed assets and intangible assets of the International Operations (the
"International Assets") in exchange for the issue of 4,499,999 shares, the
issue of a $911,892 note payable to FAI Home Security Holdings Pty Limited
("FAI Note") equivalent to the book value of assets acquired, being $641,138,
plus $270,754, and a further note payable in the amount of $208,894 for the NZ
Note.
The main business activity of the Company, is the sale, service and
monitoring of security alarm systems, which are sold via a distributor network
to residential and small business premises in the countries of operations.
The security alarm system, "SecurityGuard", and other major components are
supplied exclusively by Ness Security Products Pty Limited, an unrelated
company based in Sydney, Australia.
b) Principles of Consolidation and Basis of Preparation--
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
of America ("US GAAP").
The acquisition was accounted for as a reorganization of entities under
common control on an historic cost basis in a manner similar to a pooling of
interests because the Company has the same shareholdings immediately after the
acquisition that the predecessor entities had immediately prior to the
acquisition.
The consolidated statement of income for the year ended 30 June 1997 includes
the financial statements of the Company and FAI Home Security (NZ) Limited and
FAI Home Security (NZ) Trust as those entities were under common control. Three
months of operations of International Operations have been included as being
under common control, after the International Assets were acquired by FAI Home
Security Holdings Pty Limited on March 31, 1997.
The consolidated statement of cashflows for the year ended 30 June 1997
includes cashflows attributable to the Company (including entities under common
control). Net operating assets not acquired from predecessor entities are
excluded from net cash provided by operating activities.
30
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The financial statements for the years ended 30 June 1996 and 1995
incorporate the financial statements of the Company and FAI Home Security (NZ)
Limited and FAI Home Security (NZ) Trust.
All intercompany accounts and transactions have been eliminated.
c) Cash and Cash Equivalents--
Cash equivalents consist of short-term investments with maturities of three
months or less and are stated at cost which approximates market.
d) Foreign Currencies--
The consolidated financial statements of the Company are translated into US
dollars to reflect the local currency of the parent entity, Home Security
International Inc. The assets and liabilities of the Company are translated at
the balance sheet date exchange rate. The profit and loss items of the Company
have been translated at the average exchange rates throughout each period. The
resulting translation effects are reflected in shareholders' equity.
The local currency of FAI Home Security (ENZED) Limited and its predecessor
entities is New Zealand dollars and the local currency of FAI Home Security Pty
Limited is Australian dollars.
e) Use of Estimates--
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates, and such differences
may be material to the financial statements.
f) Income Taxes--
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS No. 109 "Accounting for Income Taxes") which requires an asset
and liability method of accounting for income taxes. Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amount of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the year in
which those temporary differences are expected to be recovered or settled.
Under SFAS 109, 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.
g) Revenue Recognition--
Revenue is recognized at the time of shipment of products and is shown net of
returns and rebates. The Company warrants its products against defects in
design, materials and workmanship for one year and provides a security call-out
service for emergency response for five years. A provision for estimated future
costs relating to warranty expenses and security call-outs is recorded when
products are shipped. The Company also sells extended product warranties for
periods of one to two years and the income derived is recognized on a straight-
line basis over the life of the warranties.
h) Allowance for Doubtful Accounts--
Management reviews the collectibility of accounts receivable on a regular
basis. Amounts, if any, which are determined to be uncollectible are provided
for in the financial statements in the period such determination is made.
31
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
i) Inventories--
Inventories consist of wholesale stock and sales aids and are stated at the
lower of cost (first-in, first-out method), or market.
j) Plant and Equipment--
Plant and equipment are recorded at cost. Maintenance and repairs are
expensed in the period to which they relate. Depreciation on plant and
equipment is calculated using the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures........................................... 8
Office equipment................................................. 8
Plant............................................................ 5
Computer equipment............................................... 3.5
Motor vehicles................................................... 6.5
Leasehold improvements........................................... 3
</TABLE>
k) Research and Development--
The Company has no significant research and development activities.
l) Pension and Other Benefit Plans--
The Company contributes to a pension plan on behalf of its employees. The
pension plan is an accumulation fund and the Company has no liability to
members under the plan. The Company has no other pension or other post-
employment benefit plans.
m) Intangible Assets--
Intangible assets represent the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over twenty years. The
carrying value of intangible assets is periodically reviewed by the Company
based on the expected future undiscounted operating cash flows of the related
business unit. Based upon its most recent analysis, the Company believes that
no material impairment of intangible assets exists at June 30, 1997.
n) Earnings per Share--
Earnings per share for 1997 has been calculated by dividing net income by the
weighted average number of shares of common shares outstanding in the year as
if the Company had issued the common shares to FAI Home Security Holdings Pty
Ltd as part of the reorganization as of the beginning of the year.
Earnings per share for 1995 and 1996 have been calculated by dividing net
income by the number of shares following the reorganization in 1997.
32
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: NET SALES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------
1995 1996 1997
$US $US $US
---------- ---------- ----------
<S> <C> <C> <C>
Direct retail sales......................... 5,773,208 1,366,926 --
Distributor sales........................... 15,452,646 25,053,110 33,183,267
Other....................................... 426,901 497,637 516,601
---------- ---------- ----------
Gross sales................................. 21,652,755 26,917,673 33,699,868
Less: returns and rebates................... (215,430) (216,751) (235,273)
---------- ---------- ----------
Net sales................................... 21,437,325 26,700,922 33,464,595
</TABLE>
NOTE 3: ACCOUNTS RECEIVABLE--TRADE
<TABLE>
<CAPTION>
JUNE 30
-------------------
1996 1997
$US $US
--------- --------
<S> <C> <C>
Accounts receivable........................................ 1,245,808 745,280
Less: allowances for doubtful accounts..................... (146,075) (129,720)
--------- --------
1,099,733 615,560
</TABLE>
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
JUNE 30
-----------------
1996 1997
$US $US
------- ---------
<S> <C> <C>
Wholesale stock............................................... 117,115 879,476
Sales aids.................................................... 222,487 397,628
------- ---------
339,602 1,277,104
</TABLE>
NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
JUNE 30
-----------------
1996 1997
$US $US
------- ---------
<S> <C> <C>
Prepayments................................................... 50,620 210,556
Director's loan............................................... 105,432 14,076
Sundry debtors................................................ 595,374 224,826
------- ---------
751,426 449,458
</TABLE>
The Director's loan relates to costs incurred by FAI Home Security Pty Limited
on behalf of Mr. Bradley Cooper, and was unsecured, repayable on demand and
non-interest bearing.
33
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30
---------------------
1996 1997
$US $US
--------- ----------
<S> <C> <C>
Furniture and fixtures................................... 3,098 168,457
Office equipment......................................... 11,966 157,051
Plant.................................................... -- 47,607
Motor vehicles........................................... -- 164,884
Computer equipment....................................... 4,329 255,764
Leasehold improvements................................... -- 114,140
Less: Accumulated depreciation........................... (6,687) (38,332)
--------- ----------
12,706 869,571
NOTE 7: INTANGIBLES
<CAPTION>
JUNE 30
---------------------
1996 1997
$US $US
--------- ----------
<S> <C> <C>
Initial goodwill on investment........................... 2,086,864 2,086,864
Increment of goodwill.................................... 4,135,773 8,716,208
Amortization of goodwill................................. (274,382) (660,995)
--------- ----------
5,948,255 10,142,077
</TABLE>
Goodwill represents the excess of the purchase price paid by the ultimate
parent entity, FAI Insurances Limited, intermediate parent entities, such as
FAI Home Security Holdings Pty Limited and FAI Home Security (Aust) Unit Trust,
and Home Security International, Inc over the fair value of assets acquired
when FAI Insurances Limited acquired its additional shareholding in FAI Home
Security Holdings Pty Limited from Mr. Bradley Cooper in 1995, and the goodwill
associated with the acquisition of the International Assets in March 1997. The
goodwill includes additional consideration paid in 1996 and 1997, relating to
the 1995 acquisition under the purchase agreement.
NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the combined balance sheets for cash and
cash equivalents, and accounts receivable and payable approximate their
respective fair values due to the short maturities of those instruments.
NOTE 9: LEASE COMMITMENTS
The operating lease commitments of the Company consist of property rentals
and computer equipment leases. The property lease for the Sydney offices
expired in July 1996 and continued on a month to month basis until commitments
were signed to commence on April 1, 1997 for a 2.5 year period.
<TABLE>
<CAPTION>
JUNE 30
----------------------
1995 1996 1997
$US $US $US
------- ------ -------
<S> <C> <C> <C>
Payable not later than one year......................... 175,650 47,243 181,166
Payable later than one year but not later than two
years.................................................. 49,651 18,194 181,166
Payable later than two years but not later than three
years.................................................. 38,197 5,325 179,243
Payable later than three years but not later than four
years.................................................. 38,197 -- 173,717
Payable later than four years but not later than five
years.................................................. 22,282 -- 126,143
------- ------ -------
323,977 70,762 841,435
------- ------ -------
</TABLE>
34
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: SEGMENT INFORMATION
The Company operates principally in one industry segment which includes the
sale, service and monitoring of security alarm systems. The Company's area of
operations is principally in Australia and New Zealand with start-up operations
in the United Kingdom, Canada, USA and South Africa. No single customer
accounts for more than 10% of the Company's revenues. Information about the
Company's operations split by geographic location is shown below.
<TABLE>
<CAPTION>
JUNE 30
----------------------------------
1995 1996 1997
$US $US $US
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
Australia............................... 17,358,783 21,937,533 22,488,078
New Zealand............................. 4,078,542 4,763,389 10,327,184
United Kingdom.......................... 547,083
South Africa............................ --
Canada.................................. 102,250
United States........................... --
---------- ---------- ----------
Total net sales......................... 21,437,325 26,700,922 33,464,595
Income (loss) from operations before
related party royalty payment:
Australia............................... 3,012,295 3,707,419 3,956,520
New Zealand............................. 1,104,208 1,553,032 2,839,174
United Kingdom.......................... 90,175
South Africa............................ (8,481)
Canada.................................. (40,400)
United States........................... (52,120)
---------- ---------- ----------
4,116,503 5,260,451 6,784,868
less related party royalty................ (1,989,371) (2,750,468) (3,647,376)
---------- ---------- ----------
2,127,132 2,509,983 3,137,492
Income (Loss) from Operations:
Australia............................... 1,393,175 1,448,608 1,457,489
New Zealand............................. 733,957 1,061,375 1,690,829
United Kingdom.......................... 90,175
South Africa............................ (8,481)
Canada.................................. (40,400)
United States........................... (52,120)
---------- ---------- ----------
2,127,132 2,509,983 3,137,492
Capital expenditure:
Australia............................... 43,632 70,701 856,205
New Zealand............................. 9,696
United Kingdom.......................... --
South Africa............................ --
Canada.................................. 43,648
United States........................... --
---------- ---------- ----------
43,632 70,701 909,549
</TABLE>
35
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30
-------------------------------
1995 1996 1997
$US $US $US
--------- ---------- ----------
<S> <C> <C> <C>
Depreciation:
Australia..................................... 12,350 11,192 36,453
New Zealand................................... 3,757
United Kingdom................................ --
South Africa.................................. --
Canada........................................ 2,225
United States................................. --
--------- ---------- ----------
12,350 11,192 42,435
Amortization: 47,884 226,498 391,925
Identifiable Assets:
Australia..................................... 5,248,481 6,528,704 14,892,968
New Zealand................................... 1,192,778 6,485,114 430,468
United Kingdom................................ 418,863
South Africa.................................. 24,368
Canada........................................ 183,631
United States................................. 6,434
--------- ---------- ----------
6,441,259 13,013,818 15,956,732
Corporate Assets.............................. 1,229,501 369,837 118
--------- ---------- ----------
7,670,760 13,383,655 15,956,850
</TABLE>
Identifiable assets are those assets that are identified with the operation
in each geographic area. Corporate assets are principally cash and short-term
deposits.
NOTE 11: INCOME TAX
The actual income tax expense attributable to net income differed from the
amounts computed by applying the local federal tax rate to net income/(loss)
before taxes as a result of the following:
<TABLE>
<CAPTION>
JUNE 30
-----------------------------
1995 1996 1997
$US $US $US
------- --------- ---------
<S> <C> <C> <C>
Expected income tax expense at statutory rates... 723,473 940,639 1,351,883
Tax effect of permanent and other differences:
Over provision for income tax in prior years... (21,192) (862) (8,538)
Non-deductible expenses and other items........ 12,820 32,854 145,535
Amortization of goodwill....................... 17,238 81,539 141,093
Change in tax rates in deferred tax benefits... (9,816) -- --
------- --------- ---------
722,523 1,054,170 1,629,973
The tax expense is split between:
Current...................................... 643,893 699,653 1,711,286
Deferred..................................... 78,630 354,517 (81,313)
</TABLE>
36
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Tax losses have been purchased by FAI Home Security Pty Limited at June 30,
1996 from FAI Home Security Holdings Pty Limited and FAI Insurances Limited for
$110,202 and $766,344 respectively. These tax losses were utilized during the
financial year.
<TABLE>
<CAPTION>
JUNE 30
----------------
1996 1997
$US $US
------- -------
<S> <C> <C>
Deferred tax assets are comprised of timing differences on:
Provisions not currently deductible for tax purposes for:
Doubtful debts........................................... 35,803 46,982
Warranty................................................. 124,203 118,293
Security call-out........................................ 143,860 126,563
Extended warranty........................................ 14,946 172,550
Other ................................................... 72,122 60,851
Sundry accruals............................................ 23,546 29,638
Quarantined overseas expenses.............................. 70,345 --
Tax losses carried forward................................. 8,903 --
Prepayments................................................ (18,223) (5,484)
------- -------
Net deferred tax assets...................................... 475,505 549,393
</TABLE>
NOTE 12: RELATED PARTY TRANSACTIONS
FAI Finance Corporation (NZ) Limited, FAI Home Security (NZ) Trust, FAI Home
Security (NZ) Limited and FAI Home Security (ENZED) Limited are related by the
majority holding of the ultimate parent entity, FAI Insurances Limited as of
June 30, 1997.
FAI Home Security (UK) Trust and FAI Home Security (Canada) Unit Trust were
formerly related to FAI Home Security Pty Limited by the ultimate holdings of
the ultimate parent entity, FAI Insurances Limited. In November 1995, the
trusts were acquired by Bradley D. Cooper. On March 31, 1997 FAI Home Security
Holdings Pty Ltd. acquired all of the intangible assets, inventories and fixed
assets of these trusts and their subsidiaries FAI Home Security USA, Inc. and
FAI Home Security (AFRICA)(Proprietary) Limited.
Interest has been charged on all amounts due to or payable from all related
parties with the exception of the amount payable to FAI Home Security Pty
Limited by its previous parent, FAI Home Security Holdings Pty Limited, which
was non-interest bearing. Interest has been charged in arrears at an annualized
commercial rate on a monthly balance.
Management fees charged to or received from related parties are an
apportionment of overhead costs incurred by the relevant related entity. FAI
Home Security Pty Limited incurs staff and administration costs, whereas a
related entity FAI Finance Corporation (NZ) Limited incurred costs to
administer the New Zealand customer loans book.
During the years ended June 30, 1995, 1996 and 1997 royalties were paid to
the ultimate parent entity, FAI Insurances Limited, for naming rights in
relation to all business conducted by the Company. The basis of royalty
payments was 6% of the final retail value of sales made by the Company entities
and its distributors. Pursuant to the Reorganization and the IPO becoming
effective, no further royalties will be charged for the use of the FAI trade
name from July 1, 1997.
37
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAI General Insurances Ltd., a subsidiary of FAI Insurances Ltd., leases
office space to FAI Home Security Pty Limited at a commercial rate.
<TABLE>
<CAPTION>
JUNE 30
-----------------------------
1995 1996 1997
$US $US $US
--------- --------- ---------
<S> <C> <C> <C>
Amounts due from related parties:
Current Assets:
FAI Home Security Holdings Pty Limited.......... 2,609,651 1,465,364 2,025,455
FAI Finance Corporation (NZ) Ltd. .............. -- 2,877,353 --
FAI Secure Home Finance Pty Limited............. 66,004 37,343 --
--------- --------- ---------
2,675,655 4,380,060 2,025,455
Non Current Assets:
FAI Secure Home Finance Pty Limited............. -- -- 24,366
</TABLE>
The above loans are unsecured, bear interest at the Westpac Bank indicator
rate and are repayable on demand, with the exception of FAI Home Security
Holdings Pty Limited. Loans to FAI Home Security Holdings Pty Limited were non-
interest bearing until June 30, 1997, but bear interest since that date. The
loan to FAI Home Security Holdings Pty Limited at June 30, 1997 is net of a
note payable to that company in respect of the acquisition of tangible and
intangible assets of the Cooper International Group (the FAI note). The loan to
FAI Home Security Holdings Pty Limited was repaid in full on July 31, 1997.
<TABLE>
<CAPTION>
JUNE 30
-----------------------------
1995 1996 1997
$US $US $US
--------- --------- ---------
<S> <C> <C> <C>
Net income is stated after the following items:
Interest on direct advances to:
FAI Insurances Limited......................... -- 47,625 60,046
Royalty fees paid to:
FAI Insurances Limited......................... 1,989,371 2,750,468 3,647,376
Interest on loans received from:
FAI Finance Corporation (NZ) Ltd............... -- 75,087 755,613
Management fees paid to:
FAI Finance Corporation (NZ) Ltd............... -- 43,628 58,394
Management fees received from:
FAI Home Security Holdings Pty Limited......... -- -- 559,002
FAI Home Security (UK) Trust................... 74,198 -- --
FAI Home Security (Canada) Unit Trust.......... 140,977 -- --
FAI Secure Home Finance Pty Limited............ 106,180 -- --
Office rentals paid to:
FAI General Insurances Ltd..................... 150,652 218,613 213,240
Computer rentals paid to:
FAI Home Security Holdings Pty Limited......... 76,923 96,925 92,937
</TABLE>
NOTE 13: STOCK OPTION PLANS
The Company has two stock option plans.
1997 Stock Option Plan. The Company has adopted the 1997 Stock Option Plan
(the "1997 Plan"), under which the Compensation Committee may grant options to
purchase up to an aggregate of 750,000 shares of Common Stock to management,
employees and advisors of the Company. The 1997 Plan provides for the grant of
stock options ("Options"), including incentive stock options within the meaning
of Section 422 of the United
38
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
States Internal Revenue Code of 1986, as amended (the "Code"), and non-
statutory stock options that do not qualify as stock options under Section 422
of the Code ("Non-Statutory Options"). Subsequent to June 30, 1997, the Company
issued 250,000 Options to Bradley D. Cooper, exercisable at a rate of 20% per
year commencing on the first anniversary date of the IPO, at an exercise price
of $10.00 per share. In addition, subsequent to June 30, 1997, the Company
issued an additional 250,000 Options for issuance to key employees of the
Company, other than Bradley D. Cooper, which are also exercisable at a rate of
20% per year commencing on the first anniversary date of the effective date of
the Company's IPO, at an exercise price of $10.00 per share.
1997 Non-Employee Director Stock Option Plan. The Company has adopted the
1997 Non-Employee Director Stock Option Plan (the "Director Plan"), under which
50,000 share of Common Stock have been authorized for issuance. Upon the
closing of the Company's IPO, all non-employee directors received options to
purchase 5,000 shares of Common Stock at $10.00 per share under the Director
Plan. On the day after each annual meeting of the shareholders of the Company,
provided that he or she then continues to serve as a member of the Board of
Directors, all non-employee directors will receive options to purchase an
additional 2,500 shares of Common Stock at an exercise price equivalent to the
market price of the stock on the date of such grant. All such grants will be
Non-Statutory Options. Subsequent to June 30, 1997, 20,000 options were issued
to non-executive directors. The options granted under the Director Plan are
exercisable beginning six months from the date of grant.
NOTE 14: POST BALANCE SHEET EVENTS
a) Home Security International, Inc. (HSI) issued a prospectus dated July 15,
1997 for the sale of 2,400,000 shares of Common Stock, $.001 par value, at an
initial public offering (IPO) price of $10.00 per Share. 250,000 shares were to
be issued by HSI, and 2,150,000 Shares were to be sold by FAI Home Security
Holdings Pty Ltd ("FAI" or the "Selling Shareholder"), a wholly owned
subsidiary of FAI Insurances Ltd. ("FAI Insurance"). This initial public
offering was successfully completed, and the underwriters exercised their right
to make an overallotment of 150,500 shares of Common Stock at the $10.00 issue
price. Neither the share issue nor net proceeds since received of $4,005,000
less costs of the IPO and underwriting commission paid totalling 649,684, have
been reflected in these financial statements. FAI sold an additional 200,000
shares, so that its shareholding was reduced from 100% of the issued capital
prior to the IPO to approximately 41.7%. HSI successfully applied for listing
of the Common Stock on the American Stock Exchange and was granted the symbol
"HSI".
b) A condition precedent for the public offering on July 15, 1997 was the
sale of 250,000 shares of Common Stock of the Company to Bradley D. Cooper at
the initial public offering price of $10.00 for a total purchase price of
$2,500,000, payable $125,000 in cash and the balance in the form of a
promissory note payable. This transaction took place immediately prior to the
IPO and, has not been reflected in these financial statements.
c) The following sets forth the effect of the initial public offering (IPO)
and the sale to Bradley D. Cooper on consolidated Shareholders' Equity:
<TABLE>
<CAPTION>
CAPITAL STOCK
ISSUED CAPITAL STOCK,
---------------- ADDITIONAL
($.001 PAR ADDITIONAL PAID-IN
VALUE) PAID-IN SECURED CAPITAL
SHARES AMOUNT CAPITAL NOTE SECURED NOTE
--------- ------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997.. 4,500,000 4,500 10,238,691 -- 10,243,191
Issue of shares to
public................. 400,500 400 4,004,600 -- 4,005,000
Issue of shares to
Bradley D. Cooper...... 250,000 250 2,499,750 (2,375,000) 125,000
Less share issue costs.. -- -- (649,684) -- (649,684)
--------- ----- ---------- ---------- ----------
BALANCE, JULY 15, 1997.. 5,150,500 5,150 16,093,357 (2,375,000) 13,270,399
--------- ----- ---------- ---------- ----------
</TABLE>
39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees of
FAI Home Security (Canada) Unit Trust and FAI Home Security (UK) Trust ("Cooper
International Group"):
We have audited the accompanying combined statements of income, changes in
shareholders' equity and cash flows of Cooper International Group for the nine
months ended March 30, 1997, for the year ended June 30, 1996 and for the
period from date of declaration to June 30, 1995. These financial statements
are the responsibility of the Group'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 in Australia, which are substantially similar to generally accepted
auditing standards in the United States of America. 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 results of operations of Cooper International Group
and its cash flows for the nine months ended March 30, 1997, the year ended
June 30, 1996 and for the period from date of declaration to June 30, 1995, in
conformity with generally accepted accounting principles in the United States
of America.
Arthur Andersen
Sydney, NSW
September 22, 1997
40
<PAGE>
COOPER INTERNATIONAL GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
PERIOD ENDED JUNE 30 MARCH 30
JUNE 30 1995 1996 1997
NOTE $US $US $US
---- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net sales........................ 2 876,693 1,750,028 1,397,997
Cost of goods sold............... (446,246) (1,028,583) (770,155)
---------- ---------- ----------
Gross profit..................... 430,447 721,445 627,842
General and administrative
expenses
--other........................ (2,378,947) (3,199,590) (1,140,054)
--related party................ 6(a) (206,344) -- --
--FAI Group.................... 6(b) -- -- (560,172)
---------- ---------- ----------
Income (loss) from operations.... (2,154,844) (2,478,145) (1,072,384)
Interest income.................. -- 7,927 6,514
Interest expense-FAI Group....... 6(b) -- -- (290,997)
---------- ---------- ----------
Income (loss) before taxes....... (2,154,844) (2,470,218) (1,356,867)
Income tax expense............... 5 -- -- --
---------- ---------- ----------
Net income (loss)................ (2,154,844) (2,470,218) (1,356,867)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
COOPER INTERNATIONAL GROUP
COMBINED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
NINE
PERIOD ENDED YEAR ENDED MONTHS ENDED
JUNE 30 JUNE 30 MARCH 30
1995 1996 1997
$US $US $US
------------ ---------- ------------
<S> <C> <C> <C>
Cashflow from operating activities
Net Income (Loss)...................... (2,154,844) (2,470,218) (1,356,867)
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation........................... 11,307 45,847 21,119
Provision for losses on accounts
receivable............................ 15,810 129,602 123,773
(Increase) decrease in operating
assets:
Accounts receivable--trade............. (184,230) (38,558) (366,219)
Inventories............................ (347,800) (115,504) 15,026
Prepaid expenses and other assets...... (11,645) (114,911) (21,051)
Increase (decrease) in operating
liabilities:
Accounts payable....................... 281,256 143,349 206,385
Accrued liabilities.................... 56,501 2,928 82,066
---------- ---------- ----------
Net cash used in operating activities.... (2,333,645) (2,417,465) (1,295,768)
---------- ---------- ----------
Cashflow from investing activities
Proceeds from sale of plant and
equipment............................. -- -- 8,472
Additions to plant and equipment....... (152,878) (15,475) (19,569)
---------- ---------- ----------
Net cash used in investing activities.... (152,878) (15,475) (11,097)
---------- ---------- ----------
Cashflow from financing activities
Increase (decrease) in bank overdraft.. -- 20,943 --
Provided by (payments on) FAI Group
debt.................................. -- 1,655,291 805,179
Receipts from related parties.......... 355,971 425,908 481,752
Capital subscribed..................... 2,207,436 344,598 --
---------- ---------- ----------
Net cash provided by financing
activities.............................. 2,563,407 2,446,740 1,286,931
---------- ---------- ----------
Net increase/(decrease) in cash held..... 76,884 13,800 (19,934)
---------- ---------- ----------
Cash at the beginning of the financial
year.................................... -- 69,982 82,214
Effect of exchange rate change on cash
held.................................... (6,902) (1,568) (2,074)
---------- ---------- ----------
Cash at the end of the period............ 69,982 82,214 60,206
---------- ---------- ----------
Supplemental disclosures of cash flow
information:
Interest paid............................ -- -- 290,997
Income taxes paid........................ -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements
42
<PAGE>
COOPER INTERNATIONAL GROUP
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
CURRENCY TOTAL
TRUST TRUST UNITS TRANSLATION ACCUMULATED SHAREHOLDERS'
SETTLEMENT ISSUED RESERVE LOSSES EQUITY
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
October 14, 1994........ 15 690,446 -- -- 690,461
March 28, 1995.......... 1,516,975 1,516,975
Foreign currency
translation adjustment. (5,871) (5,871)
Net loss 1995........... (2,154,844) (2,154,844)
--------- ------- ------- ---------- ----------
Balance June 30, 1995... 1,516,990 690,446 (5,871) (2,154,844) 46,721
Foreign currency
translation adjustment. (24,080) (24,080)
Forgiveness of debt..... 344,598 344,598
Net loss 1996........... (2,470,218) (2,470,218)
--------- ------- ------- ---------- ----------
Balance June 30, 1996... 1,861,588 690,446 (29,951) (4,625,062) (2,102,979)
Foreign currency
translation adjustment. (64,301) (64,301)
Net loss nine months to
March 1997............. (1,356,867) (1,356,867)
--------- ------- ------- ---------- ----------
Balance March 30, 1997.. 1,861,588 690,446 (94,252) (5,981,929) (3,524,147)
========= ======= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
43
<PAGE>
COOPER INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Business--
FAI Home Security (UK) Trust was declared in Manchester, England on March 28,
1995 and FAI Home Security (Canada) Unit Trust was declared in Toronto, Canada
on October 14, 1994.
The main business activity of FAI Home Security (UK) Trust and FAI Home
Security (Canada) Unit Trust, collectively "the Group", is the sale, service
and monitoring of security alarm systems, which are sold via a distributor
network to residential and small business premises in North America, Europe and
South Africa.
The security alarm system, "SecurityGuard", and other major components are
supplied exclusively by Ness Security Products Pty Ltd, an unrelated company
based in Sydney, Australia.
b) Principles of Consolidation and Combined Statements--
The two entities are subsidiaries of the current ultimate beneficiary, Cooper
Investment Trust. Accordingly, the accompanying financial statements have been
presented on a combined basis, and include the consolidated accounts of FAI
Home Security (UK) Trust, and its wholly-owned subsidiary, FAI Home Security
(Africa) Pty Ltd, and the consolidated accounts of FAI Home Security (Canada)
Unit Trust, and its wholly-owned subsidiary, FAI Home Security (USA) Inc.
All intercompany accounts and transactions have been eliminated.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America.
c) Net Income/(Loss) per Common Share--
There has been no calculation of Net Income/(Loss) per common share because
of the combined group structure.
d) Foreign Currencies--
The combined financial statements of the Group are translated into US dollars
to reflect the local currency of the proposed ultimate parent entity, Home
Security International Inc. The profit and loss items of the Group have been
translated at the average exchange rates throughout each period. The resulting
translation effects are reflected in shareholders' equity.
The local currency of FAI Home Security (UK) Trust is British Pound Sterling,
the local currency of FAI Home Security (Canada) Unit Trust is Canadian
dollars, and the local currency of FAI Home Security (Africa) Pty Ltd is South
African Rand. FAI Home Security (USA) Inc. reports its financial statements in
United States dollars.
e) Use of Estimates--
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates, and such differences
may be material to the financial statements.
f) Income Taxes--
The group accounts for income taxes under Statement of Financial Accounting
standards (SFAS No. 109 "Accounting for Income Taxes") which requires an asset
and liability method of accounting for income taxes.
44
<PAGE>
COOPER INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, 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.
g) Revenue Recognition--
Revenue is recognized at the time of shipment of products and is shown net of
returns and rebates.
h) Allowance for Doubtful Accounts--
Management reviews the collectibility of accounts receivable on a regular
basis. Amounts, if any, which are determined to be uncollectible are provided
for in the financial statements in the period such determination is made.
i) Plant and Equipment--
Plant and equipment are recorded at cost. Maintenance and repairs are
expensed in the period to which they relate. Depreciation on plant and
equipment is calculated using the straight-line method with the exception of
Canada which uses the declining balance method for all assets except leasehold
improvements, over the following estimated useful lives:
<TABLE>
<CAPTION>
UNITED KINGDOM CANADA
YEARS YEARS
-------------- ------
<S> <C> <C>
Furniture and fixtures.............................. 4 5
Office equipment.................................... 4 5
Plant............................................... 4 --
Computer equipment.................................. -- 3.33
Motor vehicles...................................... 4 --
Leasehold improvements.............................. -- 5
</TABLE>
j) Research and Development--
The Group has no significant research and development activities.
k) Pension and Other Benefit Plans--
The Group has no pension or other post-employment benefit plans.
NOTE 2: NET SALES
<TABLE>
<CAPTION>
NINE
PERIOD YEAR MONTHS
ENDED ENDED ENDED
JUNE 30 JUNE 30 MARCH 30
1995 1996 1997
$US $US $US
------- --------- ---------
<S> <C> <C> <C>
Direct retail sales.............................. 377,983 539,845 88,626
Distributor sales................................ 513,368 1,251,325 1,330,031
Other............................................ -- 12,996 1,834
------- --------- ---------
Gross sales...................................... 891,351 1,804,166 1,420,491
Less: returns and rebates (14,658) (54,138) (22,494)
------- --------- ---------
Net sales........................................ 876,693 1,750,028 1,397,997
</TABLE>
45
<PAGE>
COOPER INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: LEASE COMMITMENTS
<TABLE>
<CAPTION>
JUNE 30 MARCH 30
------------- --------
1995 1996 1997
$US $US $US
------ ------ --------
<S> <C> <C> <C>
Operating leases exist for the premises and motor
vehicles in Canada and United Kingdom.
The future minimum payments on operating leases are as
follows:
Payable no later than one year....................... 21,004 45,163 53,620
Payable later than one year but not later than two
years............................................... 14,988 35,836 39,124
Payable later than two years but not later than three
years............................................... 5,749 7,688 13,081
Payable later than three years but not later than
four years.......................................... -- -- --
Payable later than four years but not later than five
years............................................... -- -- --
------ ------ -------
41,741 88,687 105,825
</TABLE>
46
<PAGE>
COOPER INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: SEGMENT INFORMATION
The Group operates principally in one industry segment which includes the
sale, service and monitoring of security alarm systems. The Group's area of
operations includes Canada, South Africa, United Kingdom and United States and
no single customer accounts for more than 10% of the Group's revenues.
Information about the Group's operations split by geographic location is shown
below.
<TABLE>
<CAPTION>
NINE
PERIOD YEAR MONTHS
ENDED ENDED ENDED
JUNE 30 JUNE 30 MARCH 30
1995 1996 1997
$US $US $US
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
--United Kingdom.......................... 386,639 698,508 960,847
--South Africa............................ -- -- 23,975
--Canada.................................. 490,054 999,268 437,647
--United States........................... -- 52,252 34,148
---------- ---------- ----------
876,693 1,750,028 1,456,617
less: Eliminations -- -- (58,620)
---------- ---------- ----------
Total Net Sales............................. 876,693 1,750,028 1,397,997
Operating Profit/(Loss):
--United Kingdom.......................... (1,606,332) (1,995,479) (597,883)
--South Africa............................ -- -- (3,917)
--Canada.................................. (548,512) (429,911) (391,521)
--United States........................... -- (52,755) (79,063)
---------- ---------- ----------
(2,154,844) (2,478,145) (1,072,384)
less: Eliminations -- -- --
---------- ---------- ----------
Total Operating Profit/(Loss)............... (2,154,844) (2,478,145) (1,072,384)
Capital Expenditure
--United Kingdom.......................... 91,042 10,350 --
--South Africa............................ -- -- 661
--Canada.................................. -- -- 18,908
--United States........................... -- -- --
---------- ---------- ----------
91,042 10,350 19,569
Depreciation
--United Kingdom.......................... 5,371 28,280 8,800
--South Africa............................ -- -- --
--Canada.................................. 5,936 17,567 12,319
--United States........................... -- -- --
---------- ---------- ----------
11,307 45,847 21,119
</TABLE>
47
<PAGE>
COOPER INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: INCOME TAXES
The Group has estimated, unconfirmed income tax loss carry forwards available
to offset future taxable income, the tax benefit of which has not been recorded
in these financial statements, expiring as follows (using the balance sheet
date exchange rate):
<TABLE>
<CAPTION>
JUNE 30
------------------- MARCH 30
1995 1996 1997
$US $US $US
--------- --------- ---------
<S> <C> <C> <C>
2002........................................ 2,154,997 2,154,997 2,154,997
2003........................................ -- 2,470,150 2,470,150
2004........................................ -- -- 1,356,867
--------- --------- ---------
2,154,997 4,625,147 5,982,014
</TABLE>
These income tax losses are not available to the Home Security International,
Inc.
NOTE 6: RELATED PARTY TRANSACTIONS
(a) RELATED PARTY TRANSACTIONS
FAI Home Security (UK) Trust and FAI Home Security (Canada) Unit Trust were
related to FAI Home Security Holdings Pty Limited by the ultimate holdings of
the ultimate parent company FAI Insurances Ltd. until November 11, 1995 at
which time the trusts were sold to entities related to Mr. Cooper.
<TABLE>
<CAPTION>
JUNE 30 MARCH 30
--------------- --------
1995 1996 1997
$US $US $US
------- ------- --------
<S> <C> <C> <C>
Portion of debt forgiven by FAI Home Security
Holdings Pty Limited to--
FAI Home Security Trust.............................. -- 344,598 --
The debt forgiven by FAI Home Security Holdings Pty Limited was part of the
total consideration for the sale of international operations that occurred on
November 15, 1995.
Management fees paid to FAI Home Security Pty Limited
by--
FAI Home Security (UK) Trust......................... 71,283 -- --
FAI Home Security (Canada) Trust..................... 135,061 -- --
The management fees relate to an apportionment of costs incurred by FAI Home
Security Pty Limited on behalf of FAI Home Security (UK) Trust and FAI Home
Security (Canada) Unit Trust.
(b) TRANSACTIONS WITH FAI GROUP
On November 11, 1995 the FAI Group sold its interest in the International
Group to Mr. Cooper at which time the international group ceased to be related
to the FAI Group. FAI Home Security Holdings Pty Limited contracted to provide
management services to the International Group at market rates. The loans
outstanding from the International Group to FAI Home Security Holdings Pty
Limited became interest bearing after the sale carrying an interest rate of 10%
per annum.
<CAPTION>
JUNE 30 MARCH 30
--------------- --------
1995 1996 1997
$US $US $US
------- ------- --------
<S> <C> <C> <C>
Management fees received by FAI Home Security
Holdings Pty Limited
from--
FAI Home Security (UK) Trust......................... -- -- 448,138
FAI Home Security (Canada) Trust..................... -- -- 112,034
</TABLE>
48
<PAGE>
COOPER INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
The management fees relate to an apportionment of costs incurred by FAI Home
Security Holdings Pty Limited on behalf of FAI Home Security (UK) Trust and FAI
Home Security (Canada) Unit Trust.
<TABLE>
<CAPTION>
JUNE 30 MARCH 30
--------- --------
1995 1996 1997
$US $US $US
---- ---- --------
<S> <C> <C> <C>
Interest paid to FAI Home Security Holdings Pty Limited by:
FAI Home Security (UK) Trust................................ -- -- 238,246
FAI Home Security (Canada) Trust............................ -- -- 52,751
</TABLE>
The interest was charged on the balance of the loans outstanding from FAI
Home Security Holdings Pty Limited from June 30, 1996.
NOTE 7: POST BALANCE SHEET EVENTS
The Group has entered into the International asset purchase agreement with
FAI Home Security Holdings Pty Limited. Under the agreement FAI Home Security
Holdings Pty Limited has agreed to purchase from the Group all of its
intangible and tangible assets, (including but not limited to inventories,
fixed assets, licences, goodwill but excluding accounts receivable) in exchange
for a cash payment of approximately $2,784,431 as at March 31, 1997.
NOTE 8: CONTINGENT LIABILITIES
In the United Kingdom an estimated 400 alarm units have been sold with an
extended warranty period of 10 years by a distributor of FAI Home Security (UK)
Trust. FAI Home Security (UK) Trust has undertaken with the Office of Fair
Trading to honor this warranty in full.
The Company's historical experience with these warranties has been that less
than 10% of units sold will require a service call outside the normal 12 month
warranty period. Based upon these assumptions 400 units at the maximum service
cost of US$70 per visit over the 10 year period would give rise to a potential
liability of $28,000.
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as of June
30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Bradley D. Cooper 38 Chairman of the Board of Directors, Chief
Executive Officer
Terrence J. Youngman 44 President
Robert D. Appleby 47 Executive Vice President of International
Business Development
Mark Whitaker 30 Chief Financial Officer, Treasurer,
Executive Vice President of Finance
Geoffrey D. Knowles 32 Executive Vice President of Marketing
Felicity A. Hilbert 27 Executive Vice President of Operations
Timothy M. Mainprize 47 Director
Steven A. Rothstein 46 Director
Steven Rabinovici(1)(2) 45 Director
Dennis J. Puleo(1)(2) 51 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Bradley D. Cooper is the founder of the Company and has been its Chief
Executive Officer since its inception in 1985. Mr. Cooper became Chairman of
the Board of the Company in 1997. Mr. Cooper is also a director and major
shareholder of the Phoenix Leisure Group Pty Ltd, which holds the Australian
license for Rossignol Skis. He is the founding director and major shareholder
of Theme Products Pty Ltd, which holds exclusive licenses to manufacture,
market and distribute children's furniture in Australia for such childhood
favorites as Warner Bros. (Looney Tunes), Sesame Street, and Thomas the Tank
Engine. He is Chairman of Vision Publishing Pty Ltd, a business publishing and
conference company, as well as being a director of the Elizabethan Theatre
Trust (of which Her Majesty Queen Elizabeth II is patron).
Mr. Terrence J. Youngman is the President of the Company responsible for
management of all senior departmental managers and overall Company operations,
a position he has held since 1996. Mr. Youngman served as General Manager from
1995 to 1996 and Finance Administration Manager from 1992 to 1995. In 1991 and
1992 Mr. Youngman served as a Finance Accountant for Furniture Australia (BTS
Subsidiaries).
Mr. Robert D. Appleby is the Executive Vice President of International
Business Development for the Company and has served in this position since
1993. His responsibilities include the recruitment, training, development and
motivation of the Company's distributors in Australia and overseas. Prior to
his present position, Mr. Appleby served as the Company's International Sales
Director.
Mr. Mark Whitaker is the Company's Chief Financial Officer, Treasurer and
Executive Vice President of Finance and has served in this capacity since
December 1996. In 1995 and 1996, Mr. Whitaker served as Assistant General
Manager, from 1993 to 1995 as a Group Accountant and from 1992 to 1993 as a
Financial Accountant for the Company. Prior to his employment with the Company,
Mr. Whitaker was employed by Hewlett Packard (in England) as a financial
accountant from 1991 to 1992.
Mr. Geoffrey D. Knowles has served as Executive Vice President of Marketing
for the Company since 1994. Mr. Knowles is responsible for the development and
implementation of all sales and marketing material, training
50
<PAGE>
programs and internal competitions for all sales personnel. Mr. Knowles served
as Assistant General Manager of the Company in 1993 to 1994 and National Sales
Manager during 1993. From 1986 to 1992 Mr. Knowles was the Managing Director of
Knowles Enterprises Pty. Ltd., a company which sold electrical appliances.
Ms. Felicity A. Hilbert has served as the Company's Executive Vice President
of Operations, responsible for the operational management of the Company, the
Customer Service department and the Extended Services department in Australia
and overseas, since 1996. From 1994 to 1996 Ms. Hilbert served as the
International Operations Manager and from 1993-1994 served as Distributor
Relations Manager and National Administration Manager. From 1992 to 1993 Ms.
Hilbert served as an Administrative Assistant for the Company's Melbourne
branch. Ms. Hilbert was employed by Tilt Lift Equipment Pty. Ltd., a company
which specializes in providing commercial construction products and services
from 1988 to 1992.
Mr. Timothy M. Mainprize was elected a director of the Company in April 1997,
and was appointed as a director of FAI in January 1995. Mr. Mainprize had been
with FAI Insurance since 1988 and was appointed a director of FAI Insurance in
1993. Mr. Mainprize is Chief Financial Officer of FAI Insurance. He is also
responsible for the Information Technology and is a member of the Investment
Committee of FAI Insurance.
Mr. Steven Rothstein was elected a director of the Company in April 1997. He
became a member of the Board of National Securities Corporation in May 1995 and
was appointed Chairman on August 1, 1995. He is also the Chairman, CEO,
President and a director of Olympic Cascade Financial Corporation, the parent
company of National. From 1979 through 1989, Mr. Rothstein was a registered
representative and limited partner at Bear Stearns and Company, Inc. in
Chicago, Illinois and Los Angeles, California. From 1989 to 1992, Mr. Rothstein
was a Senior Vice President in the Chicago office of Oppenheimer and Company,
Inc. In December 1992 he joined Rodman and Renshaw, Inc., a Chicago-based
broker/dealer, serving as Managing Director, and joined H.J. Meyers, Inc., a
New York Stock Exchange member firm in March 1994. Mr. Rothstein is a 1972
graduate of Brown University, Providence, Rhode Island. Presently, Mr.
Rothstein is a board member of American Craft Brewing International Limited,
Gateway Data Sciences, Inc., New World Coffee, Inc., SigmaTron International,
Inc. and Vita Food Products, Inc. Mr. Rothstein has been designated by National
as its director nominee pursuant to rights granted to National in the
Underwriting Agreement relating to the IPO.
Mr. Steven Rabinovici was elected a director of the Company in April 1997. He
has been Chairman of the Board and Chief Executive Officer of Complete
Management, Inc. ("CMI"), since December 28, 1995. From December 31, 1992
through December 27, 1995 he was the President, Chief Executive Officer and a
director of CMI. From July 1990 through December 31, 1992, he was an
independent health care and business consultant. On July 21, 1992, MEBE
Enterprises, Inc., the owner and operator of a single Roy Rogers fast food
restaurant, filed for protection under Chapter 11 of the Bankruptcy Code. Mr.
Rabinovici was a founder and principal of MEBE Enterprises, Inc. Earlier in his
career, Mr. Rabinovici had more than 10 years experience in hospital
administration, including approximately two years as associate administrator of
Brookdale Hospital Medical Center, a 1,000 bed teaching hospital, and two years
as the administrator of the Division of Psychiatry, Cornell University New York
Hospital. Mr. Rabinovici has a Bachelors degree from City University of New
York, Brooklyn College, a Masters degree in Public Health from Columbia
University School of Public Health and a Juris Doctorate degree from New York
Law School.
Mr. Dennis Puleo was elected a director of the Company in April 1997. He has
worked as a real estate agent for Century 21 since 1991 and holds real estate
licenses in Florida and Massachusetts. During this time, Mr. Puleo has also
worked as an independent consultant in the areas of sales, marketing and
franchising.
STAGGERED BOARD OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is divided into three classes of directors serving staggered three-
year terms.
Class I Directors. The following people serve as Class I directors with their
term expiring in 1998: Steven A. Rothstein and Steven Rabinovici.
51
<PAGE>
Class II Directors. The following people serve as Class II directors with
their term expiring in 1999: Timothy M. Mainprize and Dennis J. Puleo.
Class III Directors. The following person serves as a Class III director with
his term expiring in 2000: Bradley D. Cooper.
All directors of each class hold their positions until the annual meeting of
shareholders held during the year in which the terms of the directors in such
class expire, or until their respective successors are elected and qualified.
COMPENSATION OF DIRECTORS
Non-employee directors receive $10,000 annual compensation and are reimbursed
for out-of-pocket expenses incurred in attending each committee or board
meeting. Upon the closing of the Company's IPO, each non-employee director
received, pursuant to the 1997 Non Employee Director Stock Option Plan, options
to purchase 5,000 shares of the Company's Common Stock at an exercise price of
$10.00 per share. Thereafter, pursuant to the Plan commencing with the 1997
Annual Meeting of Stockholders, each non-employee director will be granted
options to purchase 2,500 shares of Common Stock at an exercise price equal to
the closing market price on the date of such meeting. All options will be
exercisable six months after the effective date of grant of said options and
expire on the fifth anniversary of such date.
DIRECTORS COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee, each consisting exclusively of non-employee directors. The Audit
Committee is responsible for recommending to the Board of Directors the
engagement of the independent auditors of the Company and reviewing with the
independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors. The Compensation Committee is
responsible for reviewing and approving all compensation arrangements for
officers of the Company, and is also responsible for administering the 1997
Employee Stock Option Plan.
EXECUTIVE EMPLOYMENT AGREEMENTS
Executive Employment Agreements Prior to IPO
Prior to the IPO, the Company had agreements for the period July 1, 1996 to
June 30, 1997 with Messrs. Bradley D. Cooper, David Appleby and Geoffrey
Knowles relating to their employment or other affiliation with the Company.
These agreements are described below. Each of the agreements has been
superseded by an employment agreement which became effective upon completion of
the IPO. See "Executive Employment Agreement After IPO" below.
Pursuant to a management agreement between FAI Home Security Pty Ltd. and
Speakeasy Pty Ltd. ("Speakeasy"), a company beneficially owned by Mr. Cooper,
Mr. Cooper received, on a monthly basis, a commission of approximately $19.25
for each sale of a Security Guard product within Australia and New Zealand to a
member of the public (provided the product has not been returned by the
consumer and no refund of purchase price has been made). Speakeasy bears all of
Mr. Cooper's business expenses including rent, administrative support and
travel costs, and the Company is not obligated to pay or reimburse Mr. Cooper
for any out-of-pocket expenses while he is on Company business. The total
remuneration received by Speakeasy for the twelve month period ended June 30,
1997 was approximately $692,192. See Item 13--"Certain Relationships and
Related Transactions--Transactions Involving Bradley D. Cooper."
52
<PAGE>
The executive employment agreement with Mr. Appleby provided that he would
receive no base salary. Instead, Mr. Appleby received, on a monthly basis, a
commission of approximately $13 for each sale of a SecurityGuard product within
Australia and New Zealand to a member of the public (provided the product has
not been returned by the consumer and no refund of purchase price has been
made) and a bonus for reaching specified unit sale targets. For the twelve
months ended June 30, 1997, Mr. Appleby received remuneration, based on the
number of units sold, of $474,564 and a bonus of $78,170.
The executive employment agreement with Mr. Knowles provided that Mr. Knowles
would receive a base salary of approximately $97,713, plus the use of a fully
maintained motor vehicle. Pursuant to the agreement, Mr. Knowles was also
entitled to a bonus based upon the achievement of sales targets. This bonus was
calculated based on $1.58 per unit on unit sales exceeding 7500 per quarter and
$4.70 per unit on unit sales exceeding 8750 in any quarter. For the twelve
months ended June 30, 1997, Mr. Knowles received a bonus, based on the number
of units sold, of $173,500.
Mr. Youngman's agreement provided for a base salary of $120,222 and did not
entitle him to any bonus.
Executive Employment Agreement After IPO
Certain executive employment agreements, which became effective upon the
completion of the IPO and continue through June 30, 2000, have been executed
with the Company by the following key executives: Messrs. Bradley D. Cooper,
Terrence J. Youngman, David Appleby, Mark Whitaker and Geoffrey Knowles and Ms.
Felicity Hilbert.
The executive employment agreement with Mr. Cooper provides that he shall
receive a base salary of $700,000 per year plus a bonus equivalent to 10% of
Net Profit After Tax ("NPAT"), as calculated prior to his bonus entitlement. In
addition, Mr. Cooper may receive an additional bonus, as may be determined by
the Company's Board of Directors and its Compensation Committee. Mr. Cooper
bears all expenses including rent, administrative support and travel costs and
the Company is not obligated to pay or reimburse Mr. Cooper for any out of
pocket expenses incurred while he is on Company business. Mr. Cooper is
eligible to receive stock options in accordance with the Company's 1997 Stock
Option Plan or any other executive stock option plan as may be established from
time to time by the Company's board of directors. The total remuneration
received by Mr. Cooper is reviewed by the Company's Compensation Committee on
an annual basis, and is subject to adjustment based on such review. In the
event of termination during the first three years of the agreement, the Company
must pay to Mr. Cooper an amount equal to Mr. Cooper's total remuneration
(exclusive of bonuses) received or earned during the 12 month period preceding
such termination.
Messrs. Appleby and Knowles' executive employment agreements provide for them
to receive certain commissions per alarm unit sold. The terms of such
agreements are substantially similar to those of the executive employment
agreements in effect before the effective date of the IPO, and also allow
Messrs. Appleby and Knowles to participate in the Company's 1997 Stock Option
Plan or any other executive stock option plan as may be established from time
to time by the Company's board of directors. They may also be paid a bonus. The
total remuneration, including any bonus, received by Messrs. Appleby and
Knowles under their respective agreements is reviewed by the Company's
Compensation Committee on an annual basis, and is subject to adjustment based
on such review.
The executive employment agreements for Messrs. Whitaker and Ms. Hilbert are
similar to the executive employment agreement with Messrs. Cooper, Appleby and
Knowles, with the exception that they do not receive a commission on each alarm
unit sold. Mr. Youngman's executive employment agreement is substantially
similar to his employment agreement in effect before the IPO (i.e., providing
for a base salary while he receives no entitlement to a fixed bonus).
53
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to the
Chief Executive Officer and to the other executive officers of the Company
whose total annual salary and bonus for the year ended June 30, 1997 exceeded
$100,000 (together, the "Named Executive Officers"). The salaries listed below
are annualized.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS BONUS
- --------------------------- ------------------- ------------ ----------
<S> <C> <C> <C> <C>
Bradley D. Cooper(1).............. 1997 US$ 692,192 0 0
Chairman of the Board and Chief
Executive Officer 1996 US$ 59,708
Terry J. Youngman................. 1997 US$ 120,227 0 0
President 1996 US$ 120,227
Robert D. Appleby(1).............. 1997 US$ 474,564 0 US$ 78,170
Executive Vice-President of 1996 US$ 113,826 US$ 78,860
International Business
Development
Geoffrey D. Knowles(1)............ 1997 US$ 97,713 0 US$173,500
Vice President of Marketing 1996 US$ 110,693
</TABLE>
- --------
(1) On July 1, 1996, Messrs. Cooper, Appleby and Knowles agreed with the
Company to change their compensation packages to provide for a bonus
commission for each alarm unit sold by the Company. This significantly
increased the compensation packages for these individuals for fiscal 1997.
In addition, such officers signed new employment agreements effective with
July 1997 IPO. See Item 10--Directors and Executive Officers of the
Registrant "--Executive Employment Agreements".
STOCK COMPENSATION PLANS
1997 Stock Option Plan. The Company has adopted the 1997 Stock Option Plan
(the "1997 Plan"), under which the Compensation Committee may grant options to
purchase up to an aggregate of 750,000 shares of Common Stock to management,
employees and advisors of the Company. The 1997 Plan provides for the grant of
stock options ("Options"), including incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and non-statutory stock options that do not qualify as stock options under
Section 422 of the Code ("Non-Statutory Options"). The Company has issued
250,000 Options to Bradley D. Cooper, exercisable at a rate of 20% per year
commencing on the first anniversary date of the IPO, at an exercise price of
$10.00 per share. In addition, the Company has issued an additional 250,000
Options for issuance to key employees of the Company, other than Bradley D.
Cooper, which are also exercisable at a rate of 20% per year commencing on the
first anniversary date of the effective date of the Company's IPO, at an
exercise price of $10.00 per share. Specifically, the Company issued Messrs.
Youngman, Whitaker and Ms. Hilbert 90,000, 80,000 and 80,000 options,
respectively, immediately after the Company's IPO.
1997 Non-Employee Director Stock Option Plan. The Company has adopted the
1997 Non-Employee Director Stock Option Plan (the "Director Plan"), under which
50,000 shares of Common Stock have been authorized for issuance. Upon the
closing of the Company's IPO, all four non-employee directors received options
to purchase 5,000 shares of Common Stock at $10.00 per share under the Director
Plan. Commencing with the first annual meeting of shareholders following the
IPO, all non-employee directors continuing to serve as such will receive, on
the day following each annual meeting, options to purchase an additional 2,500
shares of Common Stock at an exercise price equivalent to the market price of
the stock on the date of such grant. All such grants will be Non-Statutory
Options. The options granted under the Director Plan are exercisable beginning
six months from the date of grant.
54
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 15, 1997 by
(i) each executive officer of the Company, (ii) each director of the Company
or nominee for director, (iii) all executive officers and directors as a
group, and (iv) each person known by the Company to be the beneficial owner of
more than five percent of the Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1)
----------------------
NUMBER OF
SHARES PERCENT
------------ ---------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Bradley D. Cooper(2).............................. 250,000 4.9%
Level 7, 77 Pacific Highway
North Sydney, NSW 2060 Australia
Terrence J. Youngman(3)........................... 0 0
Robert D. Appleby................................. 0 0
Mark Whitaker(3).................................. 0 0
Geoffrey D. Knowles............................... 0 0
Felicity A. Hilbert(3)............................ 0 0
Steven Rabinovici(4).............................. 0 0
Timothy M. Mainprize(4)(5)........................ 0 0
Dennis J. Puleo(4)................................ 0 0
Steven A. Rothstein(4)............................ 0 0
All executive officers and directors as a group
(10 persons)..................................... 250,000 4.9%
FIVE PERCENT SHAREHOLDERs
FAI Home Security Holdings Pty Ltd.(5)............ 2,150,000 41.7%
Level 7, 77 Pacific Highway
North Sydney, NSW 2060 Australia
Robertson, Stephens & Company Investment
Management L.P.(6)............................... 818,900 15.9%
555 California St. Suite 2600
San Francisco, CA 94194
</TABLE>
- --------
*Less than one percent.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting power and sole investment power with respect to all
the shares beneficially owned.
(2) Does not include options granted to Mr. Cooper for 250,000 shares of
Common Stock, none of which are exercisable within 60 days of this filing.
See "Management--Stock Compensation Plans".
(3) Does not include options for an aggregate of 250,000 shares of Common
Stock granted to Messrs. Youngman, Whitaker and Hilbert of 90,000, 80,000
and 80,000 respectively, none of which will be exercisable within 60 days
of this filing. See "Management--Stock Compensation Plans".
(4) Does not include options granted to non employee directors of 5,000 per
individual director, none of which are exercisable within 60 days of this
filing.
(5) Controlled by FAI Insurance, a publicly traded company in Australia with
American Depository Receipts traded on the New York Stock Exchange. Mr.
Mainprize is a director and Chief Financial Officer of FAI Insurance.
(6) Includes 622,600 shares held of record by The Robertson Stephens Orphan
Fund of which Robertson, Stephens & Co. Investment Management, L.P. and
Bayview Investors, Ltd. are the General Partners, 136,300 shares held of
record by The Robertson Stephens Orphan Offshore Fund of which Robertson,
Stephens & Co. Investment Management, L.P. is the General Partner, and
60,000 shares held of record by the Robertson Stephens Global Low-Priced
Stock Fund of which Robertson Stephens & Co. Investment Management L.P. is
investment adviser. Based on information filed on Schedule 13D dated as of
July 23, 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than 10% of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission reports of ownership and changes in ownership of common
stock and other equity securities of the Company. Officers, directors and
greater-than-10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during fiscal 1997, all filing requirements applicable
to its officers, directors and greater-than-10% beneficial owners were
complied with.
55
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS INVOLVING BRADLEY D. COOPER
Prior to September 1994, FAI Insurance acquired 50% of the stock of FAI from
Bradley D. Cooper. On September 5, 1994 and June 1, 1995 FAI Insurance acquired
from Mr. Cooper an additional 4.18% and 5.98% of FAI, respectively, for
approximately $2,552,000. Further, on June 1, 1995, FAI Insurance acquired from
Mr. Cooper the remaining 39.84% of FAI (including the operations outside
Australia and New Zealand) which it did not already own. The agreement was set
out in a letter dated June 1, 1995 and more fully documented in agreements
dated November 11, 1995 and April 24, 1996. The agreements provided for a
purchase price of approximately $6,280,800 payable over 49 months (subject to
downward adjustment in the event certain Earnings Before Interest and Taxes
(EBIT) targets were not achieved). By May 1997, the purchase price was paid in
full by FAI. As a result of these transactions, FAI became a wholly owned
subsidiary of FAI Insurance.
On November 11, 1995, Mr. Cooper through the Cooper International Group (See
"Certain Transactions--Purchase of International Assets") acquired the FAI
operations outside of Australia and New Zealand for $220. At the time of
acquisition by Mr. Cooper, the operations outside Australia and New Zealand
were indebted to FAI for approximately $2.0 million. Pursuant to the purchase
agreement, this intercompany debt was assumed by the Cooper International Group
and was converted to a fixed term loan bearing interest at 10% and repayable by
November 11, 1997.
Since November 11, 1995 the loan by FAI to the Cooper International Group has
increased by approximately $850,000 representing interest charges and charges
for management services provided by FAI to the Cooper International Group. The
balance of the loan outstanding at June 30, 1996 and June 30, 1997 were
$2,012,472 and $2,845,560, respectively.
On March 31, 1997 FAI Home Security Holdings Pty Limited reacquired from Mr.
Cooper the International Assets. See "Certain Transactions--Purchase of
International Assets". FAI's purchase of the International Assets did not
include the amount due under the fixed term loan to FAI and the right to
repayment was not transferred by FAI to the Company in connection with the
Reorganization or otherwise.
On July 1, 1996, FAI entered into a management agreement with Speakeasy Pty
Limited (as the trustee for the Speakeasy Investment Trust, of which Bradley D.
Cooper is the primary beneficiary), whereby the services of Mr. Cooper were
made available to the Company. In exchange for services provided, Speakeasy Pty
Limited was paid a commission of approximately $19.25 on each alarm unit sold
by the Company. For the fiscal year ended June 30, 1997, the Company paid to
Speakeasy Pty Limited approximately $692,192. This management agreement
terminated on the closing of the Company's IPO and was replaced by an
employment agreement between the Company and Mr. Cooper. See Item 10 "Directors
and Executive Officers of the Registrant--Executive Employment Agreements".
On July 15, 1997 Mr. Cooper purchased 250,000 shares of the Company's Common
Stock at $10.00 per share. Five percent (5%) of the purchase price for the
shares was paid by Mr. Cooper in cash and the remainder was paid through a
five-year note to the Company bearing interest at 7.0% per annum, payable semi-
annually, secured by the shares purchased. The note is repayable on the fifth
anniversary of its issuance. The interest payable on the note is due on a full
recourse basis.
During the years ended June 30, 1996 and 1997, the Company made certain
personal loan advances to Mr. Cooper. These loan advances were on a non-
interest bearing basis and repayable on demand. The balance of these personal
loans on June 30, 1996 and on June 30, 1997 were $105,432 and $14,076,
respectively.
TRANSACTIONS WITH FAI INSURANCE
The Company leases from FAI General Insurances Limited, a subsidiary of FAI
Insurance, approximately 661 square meters of office space for its principal
executive and operational offices located at Levels 7 and 3, 77 Pacific
Highway, North Sydney NSW 2060. Under the terms of the agreement, the Company
pays an annual rent of AUD$380 (approximately US$298) per square meter per
annum. See Item 2 "Properties".
Prior to the Reorganization, the Company had an existing royalty agreement
with FAI Insurance which provided for the payment of royalty commissions for
each alarm unit sold for the use of the "FAI" name and logo. For the fiscal
years ended June 30, 1995, June 30, 1996 and June 30, 1997 the royalty fee paid
by the
56
<PAGE>
Company to FAI Insurance was $1,989,371, $2,750,468 and 3,697,376,
respectively. Pursuant to the Reorganization, the Company terminated the old
agreement with FAI Insurance and entered into the no cost License Agreement
with FAI Insurance for the use of the "FAI" name and logo. See Item 1
"Business--The Reorganization".
Pursuant to the Reorganization, the Company assumed the FAI Note and the NZ
Note, both non-interest bearing notes payable within 30 days of the Company's
IPO. As of the date of this Prospectus, both the FAI Note and the NZ Note were
paid in full by the Company following the IPO.
From time to time the Company entered into intercompany loan transactions
with other companies within the FAI Group. The balance of these inter-company
loans as of June 30, 1995, 1996 and 1997 amounted to $2,675,655, $4,380,060,
and $2,025,427, respectively.
PURCHASE OF INTERNATIONAL ASSETS
On March 31, 1997, FAI acquired substantially all of the assets of Bradley D.
Cooper's international operations (the "International Assets") owned by Mr.
Cooper, including assets held by a Canadian Trust, FAI Home Security (CANADA)
Unit Trust, and a United Kingdom trust, FAI Home Security (UK) Trust, (which
include operations in Belgium, the Netherlands and Germany) and their
respective United States and South African corporate subsidiaries, FAI Home
Security USA, Inc. and FAI Home Security (AFRICA) (PROPRIETARY) Ltd.,
respectively (collectively, the "Cooper International Group"). Pursuant to an
Asset Purchase Agreement, to which each member of the Cooper International
Group was a party, the Cooper International Group sold to FAI all of its
intangible assets, inventories and fixed assets for the purchase price of
approximately $2.8 million. The intangible assets purchased included a license
from FAI to distribute the SecurityGuard product worldwide outside Australia
and New Zealand, including Belgium, the Netherlands, Germany, Canada, the
United Kingdom, South Africa and the United States. Prior to the IPO, the
Company acquired the International Assets from FAI pursuant to the Share
Purchase Agreement. See Item 1 "Business--The Reorganization".
THE REORGANIZATION
During April 1997, the Board of Directors and sole stockholder of the Company
approved the Reorganization which was implemented prior to the Company's IPO.
For a description of the transactions comprising the Reorganization, see Item 1
"Business--The Reorganization". In addition, prior to the Reorganization and
the IPO of the Company, the Company, through its predecessor entities, made a
final dividend distribution to FAI totalling approximately $5,876,224
(including a partial return of capital of $581,928). As a result of the
Company's restatement of its financial statements in accordance with Generally
Accepted Accounting Principles to reflect all entities under "common control",
the dividend is reflected in the Company's financial statements as of June 30,
1997, even though actually paid prior to the Reorganization by the Company's
predecessor entities. See Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operation," and Item
8 "Financial Statements and Supplementary Data--Home Security International
Inc.'s Consolidated Statements of Income for the year ended June 30, 1997".
TRANSACTIONS BETWEEN FAI INSURANCE AND NATIONAL
In April 1997, FAI Insurance loaned $200,000 to Steven A. Rothstein, a
director of the Company and the Chairman of National Securities Corporation,
pursuant to a promissory note bearing interest at 12% per annum. In May 1997,
FAI Overseas Investments Pty Limited, an affiliate of FAI Insurance ("FAI
Overseas"), loaned Olympic Cascade Financial Corporation ("Olympic"), of which
Mr. Rothstein is chairman and which is the parent company of National,
approximately $900,000 in exchange for an 18-month promissory note bearing
interest at 15% and the issuance to FAI Overseas of a warrant to acquire 30,000
shares of Olympic common stock. This $900,000 note was paid in full on
September 17, 1997.
TRANSACTION POLICY
All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and affiliates will be approved by
a majority of the Board of Directors, including a majority of the independent
and disinterested outside directors on the Board of Directors, and will be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
57
<PAGE>
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed With This Report:
1. Financial Statements. The financial statements filed as a part of this
report are listed in Item 8, "Financial Statements and Supplementary Data,"
herein.
2. Financial Statement Schedules. There are no financial statement
schedules filed as part of this report, since the required information is
included in the financial statements, including notes thereto, or the
circumstances requiring inclusion of such schedules are not present.
3. Exhibits. The following exhibits are filed herewith or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-
K. As used in the list of Exhibits below, "Registrant" refers to Home
Security International, Inc.
EXHIBIT INDEX.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Share Purchase Agreement between the Company and FAI
2.2 Asset Purchase Agreement between FAI Home Security Holdings New
Zealand Limited and FAI Home Security (ENZED) Limited
2.3 NZ Share Sale Agreement between FAI Home Security Holdings New
Zealand Limited and FAI
2.4 Trade Mark License Agreement with FAI
3.1(1) Certificate of Incorporation
3.2(1) Bylaws of Registrant
4.2(1) Form of Registrant's Common Stock Certificate
10.1 1997 Stock Option Plan
10.2 1997 Non-Employee Directors' Stock Option Plan
10.3(1) International Asset Purchase Agreement between FAI and Cooper
International Group
10.4 Manufacturing Agreement between FAI Home Security Pty Ltd., and Ness
10.5 Executive Service Agreement with Bradley D. Cooper
10.7 Employment Agreement, dated July 15, 1997, between the Company and
Terrance J. Youngman
10.8 Employment Agreement, dated July 15, 1997, between the Company and
Robert D. Appleby
10.9 Employment Agreement, dated July 15, 1997, between the Company and
Mark Whitaker
10.10 Employment Agreement, dated July 15, 1997, between the Company and
Geoffrey D. Knowles
10.11 Employment Agreement, dated July 15, 1997, between the Company and
Felicity A. Hilbert.
10.12(1) Option Agreement Between Bradley D. Cooper and FAI Insurances
Limited. (FAI Insurance's purchase of 10.16% of FAI Home Security
Holdings Pty Ltd. from Bradley D. Cooper).
10.13(1) Sale Agreement between Bradley D. Cooper, FAI Insurances Ltd, FAI
Home Security Holding Pty Ltd. and Kamarasi Pty Ltd. (FAI
Insurance's purchase of 39.84% of FAI Home Security Holdings Pty.
Ltd. from Bradley D. Cooper).
10.14(1) Management Services Agreement with Speakeasy Ltd.
10.15 Promissory Note Payable to Bradley D. Cooper
10.16 FAI Note
10.17 ENZED Note
21(1) List of Subsidiaries
27.1 Financial Data Schedule--Home Security International Group (Fiscal
Year Ended June 30, 1996)
27.2 Financial Data Schedule--Cooper International Group (Nine Months
Ended March 31, 1997)
</TABLE>
- --------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-26399), as amended, filed with the Securities
Exchange Commission on July 14, 1997.
58
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Home Security International, Inc.,
(Registrant)
/s/ Bradley D. Cooper
By: _________________________________
Bradley D. Cooper
Chairman and Chief Executive
Officer
(Principal Executive Officer)
Date: September 29, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Bradley D. Cooper Chairman and Chief Executive September 29, 1997
____________________________________ Officer (Principal
Bradley D. Cooper Executive Officer)
/s/ Mark Whitaker Chief Financial Officer, September 29 1997
____________________________________ Executive Vice President of
Mark Whitaker Finance and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Timothy M. Mainprize Director September 29, 1997
____________________________________
Timothy M. Mainprize
/s/ Steven A. Rothstein Director September 29, 1997
____________________________________
Steven A. Rothstein
/s/ Steve Rabinovici Director September 29, 1997
____________________________________
Steve Rabinovici
/s/ Dennis J. Puleo Director September 29, 1997
____________________________________
Dennis J. Puleo
</TABLE>
59
<PAGE>
EXHIBIT 2.1
FAI HOME SECURITY HOLDINGS PTY LIMITED (ACN 003 125 264)
('VENDOR')
HOME SECURITY INTERNATIONAL INC.
('PURCHASER')
FAI INSURANCES LIMITED (ACN 004 304 545)
('FAI')
CERVALE PTY LIMITED (ACN 056 258 201)
('CERVALE')
SHARE PURCHASE AGREEMENT
RELATING TO THE PURCHASE OF SHARES IN FAI HOME SECURITY PTY LIMITED
AND FAI HOME SECURITY (ENZED) LIMITED
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 SYDNEY
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
Ref: MAP
<PAGE>
SHARE PURCHASE AGREEMENT
AGREEMENT dated 1997
BETWEEN FAI HOME SECURITY HOLDINGS PTY LIMITED (ACN 003 125 264) a company
incorporated in New South Wales and having its registered office at
185 Macquarie Street, Sydney NSW 2000 ('VENDOR')
AND HOME SECURITY INTERNATIONAL INC. a company incorporated in Delaware,
United States of America and having its registered office at St
Moritz Hotel, 50 Central Park South, New York, NY 10019
('PURCHASER')
AND FAI INSURANCES LIMITED (ACN 004 304 545) a company incorporated in
New South Wales and having its registered office at 185 Macquarie
Street, Sydney NSW 2000 ('FAI')
AND CERVALE PTY LIMITED (ACN 056 258 201) in its own capacity and as
trustee of the Cooper Investment Trust of 28 Coronation Avenue,
Mosman, New South Wales ('CERVALE')
RECITALS
A. The Australian Company has an authorised share capital of
A$1,000,000 divided into 1,000,000 ordinary shares of $1.00 each, of
which 2 fully paid ordinary shares are on issue.
B. The NZ Company at Completion will have 1,000,000 ordinary shares on
issue.
C. The Vendor has agreed to sell and the Purchaser has agreed to
purchase the Shares subject to and on the terms and conditions
contained in this agreement.
D. FAI has agreed to guarantee certain obligations of the Vendor under
this agreement.
E. Cervale has agreed to provide certain warranties under this
agreement.
AGREEMENT
1. DEFINITIONS AND INTERPRETATION
1.1 In this agreement except where the context otherwise requires the
following words and expressions have the meanings indicated.
<PAGE>
'ACCOUNTING STANDARDS' means the Australian Accounting Standards from time
to time and if and to the extent that any matter is not covered by
Australian Accounting Standards means generally accepted accounting
principles applied from time to time in Australia for a company similar to
the Company.
'ACCOUNTS' means the audited balance sheet of each of the Group Companies
as at the First Accounts Date and the unaudited balance sheet of each of
the Group Companies as at the Second Accounts Date and the audited profit
and loss statement of each of the Group Companies for the financial year
ended on the First Accounts Date and the unaudited profit and loss
statement of each of the Group Companies for the six months ending on the
Second Accounts Date, together with the reports of the directors in respect
of those accounts.
'ARTICLES' means the articles of association of the Australian Company.
'ASSETS' has the meaning given in the Asset Purchase Agreement, except that
in relation to the Canada Tangible Assets, the SA Tangible Assets, the UK
Tangible Assets and the USA Tangible Assets (together, the 'Tangible
Assets'), means the Tangible Assets held by the Vendor and in existence on
the Completion Date.
'ASSET WARRANTIES' means those Warranties set out in SCHEDULE 7.
'ASSET PURCHASE AGREEMENT' means the agreement between the Vendor, Cervale
Pty Limited and various entities associated with Cervale Pty Limited, a
copy of which forms Annexure A to this agreement.
'AUSTRALIAN COMPANY' means FAI Home Security Pty Limited (ACN 050 064 214),
full details of which are set out in part 1 of SCHEDULE 1.
'AUSTRALIAN SHARES' means all of the issued shares in the capital of the
Australian Company as at the Completion Date.
'BUSINESS' means the business of selling, installing and servicing
residential security alarm systems through a distributorship network
conducted by the Group.
'BUSINESS CONTRACTS' has the meaning given in the Asset Purchase Agreement.
'BUSINESS LIABILITIES' has the meaning given in the Asset Purchase
Agreement.
'CLAIM' includes a claim, notice, demand, action, proceeding, litigation,
investigation, judgment, damage, loss, cost, expense or liability however
arising, whether present, unascertained, immediate, future or contingent,
whether based in contract, tort or statute and whether involving a third
party or party to this agreement.
'COMPANIES' means the Australian Company and the NZ Company, and in
SCHEDULE 6, 'Company' has the meaning given in CLAUSE 7.3.
'COMPANY WARRANTIES' means those Warranties set out in SCHEDULE 6.
2
<PAGE>
'COMPLETION' means completion of the sale and purchase of the Shares in
accordance with CLAUSE 6.
'COMPLETION DATE' means the day upon which Completion occurs under CLAUSE
6.
'CONDITIONS PRECEDENT' means the conditions precedent to Completion of this
agreement set out in CLAUSE 3.1.
'CONDITIONS SUBSEQUENT' means the conditions subsequent to this agreement
set out in CLAUSE 3.4.
'CONFIDENTIAL INFORMATION' means:
(a) all data bases, source codes, methodologies, manuals, artwork,
advertising manuals, trade secrets and all financial, accounting,
marketing and technical information, customer and supplier lists,
know-how, technology, operating procedures and other information, used
by or relating to any Group Company and its transactions and affairs
which is not in the public domain;
(b) all notes and reports incorporating or derived from information
referred to in paragraph (a); and
(c) all copies of the information, notes and reports referred to in
paragraphs (a) and (b).
'CONSIDERATION' means the consideration referred to in CLAUSE 4.
'CONSTITUTION' means the constitution of the NZ Company.
'CONTINGENT LIABILITIES' has the meaning given in the Accounting
Standards.
'DELIVER' includes procure the delivery of.
'EQUIPMENT LEASES' has the meaning given in the Asset Purchase Agreement.
'FIRST ACCOUNTS DATE' means 30 June 1996.
'FLOAT' means the initial public offer registered under the Securities
Act 1933 (US) by the Purchaser of 500,000 ordinary shares in the
Purchaser and concurrent sale of 5,500,000 ordinary shares in the
Purchaser by the Vendor.
'GROUP' means the Australian Company, the NZ Company, the NZ Trust and
FAI Home Security (NZ) Limited in its capacity as trustee of the NZ
Trust.
'GROUP COMPANY' means any entity forming part of the Group.
3
<PAGE>
'INTELLECTUAL PROPERTY RIGHTS' means all intellectual property and
proprietary rights (whether registered or unregistered) including:
(a) business names;
(b) trade or service marks (whether registered or unregistered);
(c) any right to have information kept confidential; and
(d) patents, patent applications, drawings, discoveries, inventions,
improvements, trade secrets, technical data, formulae, computer
programs, data bases, know-how, logos, registered and unregistered
designs, design rights, copyright and similar industrial or
intellectual property rights.
'INTERNATIONAL PROPERTY LEASES' has the same meaning as is given to
'Property Leases' in the Asset Purchase Agreement.
'LIABILITIES' means all liabilities, losses, damages, outgoings, costs and
expenses of whatever description.
'NESS CONTRACT' means a contract to be entered into between the Australian
Company and Ness Security Products Pty Limited granting to the Australian
Company and its nominees, the exclusive right to sell the SecurityGuard
product throughout the world (except the United States of America) and the
non-exclusive right to sell the SecurityGuard product in the United States
of America.
'NZ ASSET SALE AGREEMENT' means the agreement entered into in respect of
the sale of the assets and other items of the FAI Home Security (NZ) Trust
to FAI Home Security (ENZED) Limited dated on or about the date of this
agreement.
'NZ COMPANY' means FAI Home Security (ENZED) Limited, full details of which
are set out in part 2 of SCHEDULE 1.
'NZ COMPLETION' means the completion of all transactions contemplated by
the following agreements:
(a) the NZ Asset Sale Agreement;
(b) the NZ Share Sale Agreement.
'NZ DEBT' has the meaning given in the NZ Asset Sale Agreement.
'NZ SHARE SALE AGREEMENT' means the agreement entered into in respect of the
sale of the NZ Shares by FAI Home Security (NZ) Trust to the Vendor dated on
or about the date of this agreement.
4
<PAGE>
'NZ SHARES' means all of the issued shares in the capital of the NZ
Company as at the Completion Date.
'NZ TRUST' means the trust known as the FAI Home Security (NZ) Trust, as
established by a deed of trust dated 30 June 1995.
'PARTIES' means the parties to this agreement.
'PLANT AND EQUIPMENT' means all computer equipment, scanners, printers,
plant, equipment, motor vehicles, machinery, furniture, fixtures and
fittings used by any Group Company, including without limitation, the
plant and equipment described in SCHEDULE 3.
'PROPERTY LEASES' means the property leases referred to in SCHEDULE 5.
'RECORDS' means all original and copy records, documents, books, files,
reports, accounts, plans, correspondence, letters and papers of every
description and other material belonging or relating to or used by any
Group Company, including certificates of incorporation, minute books,
statutory books and registers, books of account, taxation returns, title
deeds, customer lists, price lists, computer programs and software, trading
and financial records.
'RELATED BODY CORPORATE' has the meaning given to that term by sections 9
and 50 of the Corporations Law.
'SEC' means the Securities Exchange Commission.
'SECOND ACCOUNTS DATE' means 31 December 1996.
'SECURITYGUARD' means the home security alarm devices which at the date of
this Agreement are manufactured by Ness Security Products Pty Limited and
known as 'SecurityGuard' and SecurityGuard II'.
'SELL' includes procure the sale of.
'SHARES' means all of the NZ Shares and the Australian Shares.
'TAX', 'TAXES' or 'TAXATION' means all forms of taxes, duties (including
without limitation, state stamp duties), imposts, charges, withholdings,
rates, levies or other governmental impositions of whatever nature whenever
and by whatever authority imposed, assessed or charged together with all
costs, charges, interest, penalties, fines, expenses and other additional
statutory charges incidental or related to the imposition.
'UNDERWRITING AGREEMENT' means an agreement in the form set out in SCHEDULE
9 pursuant to which the Underwriter underwrites the Float.
'UNDERWRITER' means National Securities Corporation, Inc.
5
<PAGE>
'Warranties' means each of the covenants, representations and warranties
referred to in clause 7 and set out in Schedule 6 and Schedule 7.
1.2 In this agreement unless the contrary intention appears:
(a) the singular includes the plural and vice versa and words importing a
gender include other genders;
(b) reference to any legislation or any provision of any legislation
includes any amendment, modification, consolidation or re-enactment of
the legislation or any legislative provision substituted for, and all
legislation and statutory instruments of, and regulations issued
under, the legislation;
(c) other grammatical forms of defined words and expressions have
corresponding meanings;
(d) a reference to a clause, paragraph, schedule or annexure is a
reference to a clause or paragraph of, or schedule or annexure to,
this agreement and a reference to this agreement includes its
schedules and annexures;
(e) words importing persons include firms, bodies corporate,
unincorporated associations or authorities;
(f) a reference to a person includes a reference to the person's
executors, administrators, successors, substitutes and assigns;
(g) an agreement, representation, warranty or indemnity given or
undertaken by 2 or more persons binds them and is given jointly and
severally;
(h) headings are for ease of reference only and do not affect the
construction of this agreement;
(i) a reference to an amount of money is a reference to the amount in the
lawful currency of the Commonwealth of Australia;
(j) a reference to writing includes typewriting, printing, lithography,
photography and any other mode of representing or reproducing words,
figures or symbols in a permanent and visible form;
(k) a document expressed to be an annexure means a document a copy of
which has been initialled for the purposes of identification by or on
behalf of the parties.
6
<PAGE>
2. SALE AND PURCHASE
2.1 Subject to the terms and conditions of this agreement, the Vendor as
beneficial owner agrees to sell the Shares to the Purchaser and the
Purchaser agrees to purchase the Shares from the Vendor for the
Consideration.
2.2 The Shares must be transferred at Completion free from all liens, mortgages
charges and encumbrances whatsoever and together with all rights, including
dividend rights, attached or accruing to them after the Completion Date.
2.3 FAI guarantees the obligations of the Vendor under this agreement including
without limitation clause 2.1 but not including those obligations in
relation to the Assets or the Asset Warranties.
2.4 Subject to the terms and conditions of this agreement, the Vendor agrees to
assign the benefit of the NZ Debt to the Purchaser on Completion.
2.5 Subject to the terms and conditions of this agreement, the Vendor agrees
to assign the Assets to the Purchaser on Completion.
3. CONDITIONS PRECEDENT AND SUBSEQUENT
3.1 Completion of the sale of the Shares is conditional upon the satisfaction
of each of the following conditions precedent:
(a) NZ Completion has occurred;
(b) the Ness Contract has been entered into by the Australian Company; and
(c) if necessary, the Purchaser has obtained approval on terms
satisfactory to it to Completion of the sale to the Purchaser of the
NZ Shares from the Overseas Investment Commission of New Zealand
pursuant to the Overseas Investment Regulations 1985.
3.2 If the Conditions are not satisfied on or before 30 June 1997 or a later
date agreed by the parties in writing then either the Purchaser or the
Vendor may at any time before Completion terminate this agreement by giving
notice in writing to the other.
3.3 On service of a notice under clause 3.2 this agreement has no further
effect and all parties are released from their obligations to further
perform this agreement.
3.4 The Purchaser or the Vendor may terminate this agreement by giving notice
to the other if:
(a) the Underwriting Agreement is terminated before completion of the
Underwriting Agreement; or
7
<PAGE>
(b) either or both of the following conditions subsequent are not
fulfilled within 24 hours after Completion:
(i) the Float has gone effective;
(ii) the Underwriting Agreement has been executed.
3.5 If this agreement terminates in accordance with clause 3.4, the rights and
obligations of the Parties under this agreement, except for this clause
3.5, will terminate and,unless the Vendor waives its rights under this
clause 3.5, the Parties must take all necessary steps to:
(a) vest title and possession of the Shares in the Vendor;
(b) divest the Vendor of the shares in the Purchaser referred to in
clause 4; and
(c) otherwise restore the rights and obligations of the Parties to those
rights and obligations that they would have had if this agreement had
not been entered into without loss or gain to any of the Parties,
including without limitation taking all steps necessary to obtain a
refund of any stamp duty paid in accordance with section 41(7) of the
Stamp Duties Act 1920.
4. CONSIDERATION
4.1 In consideration for the sale of the Shares and the Assets, the Purchaser
agrees to issue and allot to the Vendor on Completion 8,999,999 ordinary
shares in the capital of the Purchaser and to pay the Vendor within 14 days
after the Completion Date an amount in Australian currency equal to the sum
of A$368,982 and the book value of the Tangible Assets (denominated in
Australian Currency) at the Completion Date.
4.2 In consideration for the assignment of the benefit of the NZ Debt, the
Purchaser agrees to pay to the Vendor within 14 days after the Completion
Date an amount equal to the value of the NZ Debt, as set out in an Audit
Certificate to be provided by Arthur Andersen at Completion.
5. POSITION PENDING COMPLETION
5.1 Subject to clause 5.2, Pending Completion the Vendor must procure that the
Business is carried on in all respects in the ordinary and usual course and
in the same manner as prior to the date of this agreement including,
without limitation, maintaining all insurance policies current at the time
of this agreement and, in particular, procure that no Group Company, except
with the prior written consent of the Purchaser:
(a) transfers or otherwise disposes or agrees to transfer or dispose of
the whole or any part of the Business;
(b) makes a material change in the nature of, or ceases carrying on, the
Business;
(c) sells or otherwise disposes of any material asset of the Group; or
8
<PAGE>
(d) enters into any material, unusual or abnormal contract or commitment.
5.2 The Purchaser acknowledges that:
(a) the Purchaser is not entitled to the retained profits of the
Australian Company up to and including the Completion Date and that
there will be a dividend declared and paid out prior to Completion. If
the Australian Company has insufficient cash to pay the dividend, the
Purchaser agrees to procure payment of the amount outstanding at the
earliest opportunity but within six months of the Completion Date;
(b) the NZ Company has not traded and will not trade prior to the
Completion Date;
(c) notwithstanding paragraphs 5.1(b), (c) and (d), NZ Completion must
occur prior to Completion;
(d) any loans outstanding to the Vendor or its Related Bodies Corporate
from either of the Companies or the Purchaser or to either of the
Companies or the Purchaser from the Vendor or its Related Bodies
Corporate will be repaid with 30 days after Completion.
6. COMPLETION
6.1 Completion will occur immediately prior to the verification by the SEC to
the Underwriter and the Purchaser that the Float become effective.
6.2 At Completion the Vendor must:
(a) deliver to the Purchaser duly executed and completed transfers in
favour of the Purchaser, or as it directs in writing, of the Shares in
registrable form (except for the impression of stamp duty) together
with the relevant share certificates;
(b) deliver to the Purchaser any power of attorney or other authority
under which the transfers of the Shares are executed;
(c) cause a meeting of the board of directors of each Company to be held
and procure the board of directors of each Company to resolve that the
transfers of the Shares (subject to the payment of stamp duty on the
transfers) be approved and registered;
(d) cause the persons named in part 1 of Schedule 2 (or such other persons
as the Purchaser notifies to the Vendor prior to Completion) to be
validly appointed respectively as directors and the secretary of the
Australian Company and immediately on such appointment, cause each of
the persons named in part 2 of Schedule 2 against whose name it is
indicated that the person is to resign, to:
(i) resign from office as director or secretary of the Australian
Company; and
9
<PAGE>
(ii) deliver to the Purchaser a letter executed under seal (in the
form required by the Purchaser) acknowledging that he or she has
no claim against any Group Company for breach of contract, loss
of office, redundancy, unfair dismissal, compensation, loans or
otherwise except payments properly payable to him or her as an
employee for accrued and unpaid salary, holiday pay and long
service leave up to the Completion Date;
(e) deliver to the Purchaser all Records complete and up-to-date and
complying with all statutory requirements;
(f) deliver to the Purchaser the common seal of each Company; and
(g) deliver to the Purchaser any ASC Forms 312 and any analogous forms
under NZ legislation necessary to convey to the Purchaser clear title
to the Shares;
(h) stamped original counterparts of the International Property Leases
and, to the extent available to the Vendor, of the Business Contracts
and Equipment Leases;
(i) any documents required to transfer the Statutory Licences to the
Purchaser or its nominees; and
(j) do all other things necessary or desirable to place the Purchaser in
effective control of each of the Companies and the Business.
6.3 At Completion the Purchaser must allot to the Vendor 8,999,999 ordinary
shares in the capital of the Purchaser.
6.4 Immediately after Completion:
(a) the Vendor will enter into the Underwriting Agreement; and
(b) the Vendor will sell 5,500,000 ordinary shares in the Purchaser to the
Underwriter in accordance with the terms of the Underwriting
Agreement.
6.5 After Completion and until the Shares are registered in the name of the
Purchaser, the Vendor must convene and attend general meetings of the
Company, vote at those meetings and take all other action in the capacity
of the registered holder of the Shares as the Purchaser may lawfully
require from time to time by notice in writing to the Vendor.
6.6 For the purposes of clause 6.5 only, the Vendor appoints the Purchaser as
its attorney to convene and attend general meetings of the Company, vote at
those meetings and take all other action in the capacity of the registered
holder of the Shares.
10
<PAGE>
6.7 The Vendor assigns, and the Purchaser accepts the assignment of the benefit
of the NZ Debt with effect from the Completion Date.
7. WARRANTIES
7.1 The Vendor and FAI jointly and severally represent and warrant to the
Purchaser that each of the Company Warranties is true and accurate at the
date of this agreement and will be true and accurate on each day up to and
including the Completion Date.
7.2 The Vendor and Cervale jointly and severally represent and warrant to the
Purchaser that each of the Asset Warranties is true and accurate at the
date of this agreement and will be true and accurate on each day up to and
including the Completion Date.
7.3 Each of the Warranties is separate and independent and is not limited by
reference to any other Warranty or any other provision in this agreement.
7.4 Each of the Company Warranties:
(a) applies in relation to each Group Company and, except where expressly
otherwise provided, separately in relation to each Group Company as if
each reference in SCHEDULE 6 to the 'Company' is a reference to that
Group Company; and
(b) remains in full force and effect on and after the Completion Date
despite Completion.
7.5 Each of the Asset Warranties remains in full force and effect on and after
the Completion Date despite Completion.
7.6 Provided that all matters disclosed in SCHEDULE 8 have been disclosed
separately to the Purchaser at least three days prior to the date of
execution of this agreement, the Purchaser acknowledges that none of the
matters disclosed in SCHEDULE 8 or any other matter referred to or
contemplated by this agreement, including, without limitation, NZ
Completion, can give rise to a breach of Warranty. No other information
relating to any Group Company of which the Purchaser has knowledge, actual
or constructive, prejudices any Claim of the Purchaser under the Warranties
nor operates to reduce any amount recoverable.
7.7 Subject to CLAUSE 7.8, if there is a breach of or inaccuracy in any of the
Warranties on or before Completion the Purchaser may immediately terminate
this agreement by notice in writing to the Vendor but is not entitled to
any other remedy.
7.8 The Vendor must immediately notify the Purchaser in writing of any facts or
circumstances of which it becomes aware which constitute or may constitute
a breach of any Warranty ('NOTIFIED BREACH'). The Purchaser must notify the
Vendor within 15 days of receipt of such notice, or before Completion,
whichever occurs earlier, whether or not it has elected to terminate this
agreement as a result of a Notified Breach in accordance with CLAUSE 7.7.
The Purchaser acknowledges that if it
11
<PAGE>
makes no election within 15 days of receipt of such notice, or before
Completion, whichever occurs earlier, then the Purchaser waives any rights
it may have to terminate this Agreement in respect of the Notified Breach.
7.9 The rights and remedies of the Purchaser in respect of any breach of the
Warranties or of the terms of this agreement are not affected by
Completion.
7.10 The Vendor and FAI jointly and severally indemnify the Purchaser from all
Claims:
(a) made by any third party in relation to a matter which constitutes, or
in circumstances that constitute, a breach of any of the Company
Warranties or any other covenant or representation in this agreement;
or
(b) which the Purchaser or any Company suffers or incurs by reason of any
of the Company Warranties or any other covenant or representation made
in this agreement being untrue or inaccurate in any respect or by
reason of any failure by the Vendor or FAI to fulfil its obligations
under this agreement.
7.11 The Vendor and Cervale jointly and severally indemnify the Purchaser from
all Claims:
(a) made by any third party in relation to a matter which constitutes, or
in circumstances that constitute, a breach of any of the Asset
Warranties or any other covenant or representation in this agreement;
or
(b) which the Purchaser or any Company suffers or incurs by reason of any
of the Asset Warranties or any other covenant or representation made
in this agreement being untrue or inaccurate in any respect or by
reason of any failure by the Vendor or Cervale to fulfil its
obligations under this agreement.
7.12 Notwithstanding any other provision of this agreement:
(a) the Vendor shall not have any liability in respect of any Claim under
the Warranties unless reasonable particulars of the Claim are given to
the Vendor before the third anniversary of Completion;
(b) the liability of the Vendor in respect of any Claim under the
Warranties shall be reduced to the extent that the Claim has arisen as
a result of any act or omission after Completion by the Purchaser;
(c) the Vendor shall not be liable in respect of any Claim under the
Warranties unless the aggregate of all Claims made against the Vendor
under the Warranties exceeds the sum of A$100,000, but thereafter the
Vendor will be liable for the whole amount payable in respect of all
claims, and not just the excess over A$100,000.
12
<PAGE>
7.13 The Purchaser acknowledges and agrees that, except for the Warranties, the
Vendor has not given, nor has the Purchaser relied upon, any
representation, warranty, statement or document or other conduct by the
Vendor or its representatives in connection with the Companies or the
Business.
7.14 The Purchaser must (at the cost of the Vendor) take such action as the
Vendor may request in relation to a Notified Breach, including without
limitation:
(a) prosecute any action or proceedings, including the making of any
counter-claim or cross-claim against any person;
(b) conduct any negotiations and participate in any investigation in
respect of such notified breach;
(c) not accept, pay or compromise such notified breach without the
Vendor's prior written consent; and
(d) co-operate and procure its solicitors, accountants and other
representatives to co-operate with the Vendor and its counsel,
accountants or other representatives in respect of such notified
breach.
8. BUSINESS CONTRACTS AND EQUIPMENT LEASES
8.1 Subject to Completion and the Vendor at its cost obtaining all necessary
consents, the Vendor assigns and the Purchaser accepts an assignment of the
benefit of the Business Contracts, International Property Leases and the
Equipment Leases with effect from the Completion Date.
8.2 The Purchaser must assume, perform and observe the covenants and
obligations of the Vendor under the Business Contracts, International
Property Leases and Equipment Leases arising after Completion and
indemnifies the Vendor against any Liabilities arising as a result of any
breach or non-performance or non-observance of any terms and conditions of
any Business Contract or of any International Property Lease or of any
Equipment Lease after the Completion Date.
8.3 The Vendor and Cervale jointly and severally indemnify the Purchaser
against all Liabilities incurred by the Purchaser as a result of any breach
or default under any of the Business Contracts, International Property
Leases or Equipment Leases occurring on or prior to the Completion Date.
8.4 The Vendor must use its reasonable endeavours to obtain all required
transfers to the Purchaser of all Statutory Licences, International
Property Leases, Equipment Leases and Business Contracts but if, despite
their reasonable endeavours, the Vendor is unable to procure any such
transfers the Vendor must:
(a) hold the benefit of the relevant Statutory Licence, International
Property Lease, Equipment Lease or Business Contract on trust for the
benefit of the Purchaser; and
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(b) fully co-operate with the Purchaser in any reasonable arrangements
designed to provide for the Purchaser the benefit of the relevant
Statutory Licence, International Property Lease, Equipment Lease or
Business Contract.
8.5 On Completion, the Purchaser must assume the obligations of the Vendor
under CLAUSES 9 AND 10 of the Asset Purchase Agreement as if references to
'HSI' are references to 'the Purchaser' and references to the 'Vendor' or
'Vendors' are references to the Vendor (as defined in this agreement).
9. COSTS
The Purchaser must pay all costs in relation to the preparation and
execution of this agreement, including, without limitation, all stamp duty
on this agreement and any other instrument or other document executed to
give effect to any provisions of this agreement.
10. DURATION OF PROVISIONS
The covenants, conditions, provisions and Warranties contained in this
agreement do not merge or terminate at Completion and to the extent that
they have not been fulfilled and satisfied remain in full force and effect.
11. ASSIGNMENT
None of the rights of the parties under this agreement may be assigned or
transferred.
12. ENTIRE AGREEMENT
This agreement contains the entire understanding of the parties as to its
subject matter and any and all previous understandings or agreements on
that subject matter cease to have any effect from the date of this
agreement.
13. NO WAIVER
13.1 The failure of a party to exercise or delay in exercising a right, power or
remedy under this agreement does not prevent its exercise.
13.2 A provision of or right under this agreement may not be waived except by a
waiver in writing signed by the party granting the waiver, and will be
effective only to the extent specifically set out in that waiver.
14
<PAGE>
14. GOVERNING LAW AND JURISDICTION
14.1 This agreement is governed by the law of New South Wales.
14.2 Each party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of New South Wales.
15. FURTHER ACTION
Each party must, both before and after the Completion Date, do everything
reasonably necessary or desirable to give full effect to this agreement.
16. COUNTERPARTS
This agreement may be executed in any number of counterparts and all those
counterparts taken together are regarded as one instrument.
17. NOTICES
17.1 A notice required or authorised to be given or served on a party under this
agreement must be in writing and may be given or served by facsimile, post
or hand to that party at its facsimile number or address appearing in this
clause or such other facsimile number or address as the party may have
notified the other party or parties in writing:
Vendor
Attention: Mr Terry Youngman
Address: Level 7, 77 Pacific Highway, North Sydney, NSW, 2000
Facsimile No: 612 9936 2425
Purchaser
Attention: Mr Ralph Stephenson
Address: St Moritz
50 Central Park South
New York, NY 10019
FAI
Attention: Mr Chris MacDonnell
Address: 185 Macquarie Street, Sydney, NSW, 2000
Facsimile No: 9373 0012
17.2 A notice is deemed to have been given or served on the party to whom it was
sent:
(a) in the case of hand delivery, on delivery;
15
<PAGE>
(b) in the case of pre-paid post, four days after the date of despatch;
(c) in the case of facsimile transmission, at the time of despatch if,
following transmission, the sender receives a transmission
confirmation report or, if the sender's facsimile machine is not
equipped to issue a transmission confirmation report, the recipient
confirms in writing that the notice has been received.
17.3 A notice given or served under this agreement is sufficient if:
(a) in the case of a company, it is signed by a director, officer or
secretary of that company; or
(b) in the case of an individual, it is signed by that party.
17.4 The provisions of this clause are in addition to any other mode of service
permitted by law.
17.5 In this clause 'NOTICE' includes a demand, request, consent, approval,
offer and any other instrument or communication made, required or
authorised to be given under this agreement.
16
<PAGE>
SCHEDULE 1
DETAILS OF THE COMPANIES
PART 1 - AUSTRALIAN COMPANY
NAME: FAI Home Security Pty Limited
ACN: 050 064 214
REGISTERED OFFICE: 12th Floor, FAI Insurance Building, 185
Macquarie Street, Sydney
DATE OF INCORPORATION: 13 August 1990
AUTHORISED SHARE CAPITAL: $1,000,000 divided into 1,000,000 shares of
$1.00 each of which 2 fully paid ordinary
shares are on issue.
ISSUED CAPITAL: 2 fully paid ordinary shares of $1.00 each
PART 2 - NZ COMPANY
NAME: FAI Home Security (ENZED) Limited
COMPANY NO: AK 852342
REGISTERED OFFICE: Level 15, Coopers & Lybrand Tower, 23-29
Albert Street, Auckland
DATE OF INCORPORATION: 24 April 1997
ISSUED CAPITAL AS AT COMPLETION: 1,000,000 ordinary shares
17
<PAGE>
SCHEDULE 2
PART 1
DIRECTORS AND SECRETARIES TO BE APPOINTED - AUSTRALIAN COMPANY
DIRECTORS Terence James Youngman
PART 2
CURRENT DIRECTORS AND SECRETARIES - AUSTRALIAN COMPANY
DIRECTORS Current: Timothy Maxwell Mainprize
Bradley David Cooper
To Resign:
SECRETARY Current: Robert Frederick Baulderstone
To Resign
18
<PAGE>
SCHEDULE 3
PLANT AND EQUIPMENT
(clause 1.1)
PART 1 - AUSTRALIAN COMPANY
19
<PAGE>
PART 2 - NZ COMPANY
SHARE PURCHASE AGREEMENT - SCHEDULE 3 PART 2 - NZ COMPANY
<TABLE>
<CAPTION>
FAI Home Security (NZ) Trust Depreciation Schedule Y/E 30/6/96
Fixed Assets retained at warehouse after sales to Distributors Sep 95 and move from ASB Bldg. Nov 95.
Date Open Cost of Sale Sale Profit/Loss Deprec
---- ---- ------- ---- ---- ----------- ------
Details Cost Purchased Wdv 1/7/95 additions Date Proceeds on disposal Rate red. Val
- ------- ------ --------- ---------- --------- ---- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Furniture $ $ $ $
- ---------
Hydestar shelving 890 01/07/95 890 9.50%
Canteen chairs 6, desk/chair 1,451 01/07/95 1,451 15.00%
Bookcase 253 01/07/95 253 9.50%
Appleton Sign 704 01/09/95 704 9.50%
Hydestar shelving 1,233 01/03/96 1,233 9.50%
Computer Software
Attache Modules 1,531 01/07/95 1,531 40.00%
Purchase Order Module 2,973 01/07/95 2,973 40.00%
Wordperfect 663 01/07/95 663 40.00%
Datagroup 991 01/07/95 991 40.00%
Windows for Workgroups 175 01/09/95 175 40.00%
Office Equipment
- ----------------
DX2-66 and Lotus 4,037 01/07/95 4,037 40.00%
Nokia Road Fitting 332 01/07/95 332 50.00%
Fax 516 01/07/95 516 33.00%
PCXB Computer, software 10,176 01/07/95 10,178 40.00%
Modem 0 01/07/95 1,271 30 Nov 95 1,271 40.00%
Ansutek weighing scale 340 01/07/95 340 33.00%
Photo-copier 2,100 01/07/95 2,100 33.00%
Shelving 699 31/08/96 699
Depreciation charge to March 97
29,064 0 30,335 1,271 0
</TABLE>
<TABLE>
<CAPTION>
Accum. Clos
------ ----
Details Months Deprec Deprec. Wdv 30/6/96
- ------- ------ ------ ------- -----------
<S> <C> <C> <C> <C>
Furniture $ $ $
- ---------
Hydestar shelving 12 85 805
Canteen chairs 6, desk/chair 12 218 1,233
Bookcase 12 24 229
Appleton Sign 10 56 648
Hydestar shelving 4 39 1,194
Computer Software
Attache Modules 12 612 919
Purchase Order Module 12 1,189 1,784
Wordperfect 12 265 398
Datagroup 12 396 595
Windows for Workgroups 12 70 105
Office Equipment
- ----------------
DX2-66 and Lotus 12 1,615 2,422
Nokia Road Fitting 12 166 166
Fax 12 170 346
PCXB Computer, software 12 4,070 6,106
Modem 0 0 0
Ansutek weighing scale 12 112 228
Photo-copier 12 693 1,407
Shelving
Depreciation charge to March 97 4,800 (4,800)
14,580 0 14,484
</TABLE>
155180/1
20
<PAGE>
SCHEDULE 4
INTELLECTUAL PROPERTY RIGHTS
(Company Warranty 12)
1. Copyright and Confidential Information in all databases, source codes,
software, methodologies, training material, promotional material, system
manuals, compilations, artwork and advertising materials used in the
Business, including without limitation the following:
3. Business Names
FAI Home Security
21
<PAGE>
SCHEDULE 5
PROPERTY LEASES
PART 1 - AUSTRALIAN COMPANY
PROPERTY: Level 7, 77 Pacific Highway, North Sydney, NSW, 2000
LEASE DATED: 1 August 1993
LESSOR: FAI General Insurance Company Limited
RENT: A$15,214.61 per month
TERM: 3 years plus 3 year option
PROPERTY: Level 3, 77 Pacific Highway, North Sydney, NSW, 2000
LEASE DATED: 1 October 1996
LESSOR: FAI General Insurance Company Limited
RENT: A$468.34 per month
TERM: currently being negotiated
PART 2 - NZ COMPANY
PROPERTY: Unit 3, 66 Hobill Avenue, Manakau City, Auckland
LEASE DATED: 10 February 1995
LESSOR: GA & BM Coe and AD & HR Lewer, Furniss Road, 3RD Waiuku,
New Zealand
RENT: NZ$1,312.00 per month
TERM: 2 years plus two further options to renew each of two years.
22
<PAGE>
SCHEDULE 6
COMPANY WARRANTIES
Note: Pursuant to clause 7.4, each of the Warranties applies in relation to each
Group Company and, except where expressly otherwise provided, separately in
relation to each Group Company as if each reference in this SCHEDULE 6 to the
'Company' is a reference to that Group Company;
WARRANTY 1
(Vendor authority to sell)
1.1 The Vendor is the registered and beneficial owner of the Australian Shares
and will at Completion be the registered and beneficial owner of the NZ
Shares and there will be at Completion no mortgages, liens, claims, charges
or other encumbrances, or interests of any person, over or affecting the
Shares.
1.2 The Vendor has the power to enter into and perform this agreement and the
agreement constitutes a legal, valid and binding obligation on the Vendor
enforceable in accordance with its terms.
WARRANTY 2
(The Company)
2.1 The Australian Company and the NZ Company:
(a) are accurately described in SCHEDULE 1;
(b) have full corporate power to own their properties, assets and business
and to carry on their businesses as now conducted; and
(c) have or will at Completion have good and marketable title to all of
the assets included in the Accounts.
2.2 No meeting has been convened, resolution proposed, petition presented or
order made for the winding up of the Company and no receiver,
administrator, receiver and manager, provisional liquidator, liquidator or
other officer of the court has been appointed or threatened to be appointed
in relation to the Company or any part of its undertaking or assets.
WARRANTY 3
(Share capital)
3.1 The Australian Shares comprise the whole of the issued share capital of the
Australian Company, are fully paid and were properly issued.
3.2 At Completion, the NZ Shares will comprise the whole of the issued share
capital of the NZ Company, and will be fully paid and properly issued.
23
<PAGE>
3.3 There are no options or other entitlements over the Shares or any unissued
shares of the Company or securities convertible into shares of the Company.
WARRANTY 4
(Financial statements)
4. The Accounts:
(a) disclose a true and fair view of the affairs, financial position and
assets and liabilities of the Group as at the First Accounts Date and
the Second Accounts Date and of the income, expenses and results of
operations of the Group for the financial year ended on the First
Accounts Date and the Second Accounts Date;
(b) were prepared in accordance with the Accounting Standards, the
requirements of the Corporations Law, analogous New Zealand
requirements and standards, and all other applicable laws and on a
basis that is materially consistent with the audited accounts of the
Group for the financial year preceding the financial year ended on the
First Accounts Date.
WARRANTY 5
(Liabilities including, without limitation, Tax liabilities)
5.1 Otherwise than as set out in the Articles, the Company has not given any
guarantees, indemnities or letters of comfort in respect of the
obligations of any person.
5.2 The Company has not granted or created any mortgage, charge, debenture,
lien, finance lease or other encumbrance.
5.3 The Company does not have any material commitments and is not aware of any
unusual or actual or Contingent Liabilities except as disclosed in the
Accounts.
WARRANTY 6
(No changes since accounts date)
6.1 Since the Second Accounts Date:
(a) there has been no material adverse change in the assets, liabilities,
turnover, earnings, financial condition, trading position or prospects
of the Company;
(b) the Australian Company and the NZ Trust have carried on the Business
in the ordinary and usual course and have not entered into any
contracts or arrangements other than in the ordinary course of
carrying on the Business;
(c) the Company has not incurred or undertaken any actual or contingent
liabilities or obligations, including Taxation, that have not been
paid or satisfied except in the ordinary course of business. For the
purposes of this warranty and warranty 9.2,
24
<PAGE>
the Vendor and FAI acknowledge that any corporate restructuring
occurring within or involving the Group prior to the sale of Shares
contemplated by this agreement does not form part of the ordinary
course of business of the Company and therefore any liabilities,
including without limitation, in respect of Taxation arising in
connection with any such corporate restructuring shall be to the
account of the Vendor and/or FAI, and not to the account of the
Companies;
(d) the Company has not acquired or disposed of or dealt with any assets
nor has it entered into any agreement or option to acquire or dispose
of any assets other than in the normal course of business for full
market value;
(e) except in the ordinary course of business, the Company has not
borrowed money;
(f) the Company has not paid or agreed to pay any retiring allowance,
superannuation or benefit to any of its officers or employees except
where the law requires it or in accordance with a superannuation or
retirement scheme in force at the Accounts Date;
(g) the Company has not entered into any contract of service with any of
its officers or employees or increased, or agreed to increase, the
rate of compensation payable to any of its officers, employees or
agents [disclosure for Brad Cooper?];
(h) the rights attaching to the Shares have not altered and no alteration
has been made to the capital structure of the Company;
(i) the Company has not implemented any new accounting or valuation method
for its business, assets, property or rights;
(j) no major supplier of the Company has:
(i) materially reduced the level of its supplies to the Company;
(ii) indicated an intention to cease or materially reduce the volume
of its trading with the Company after Completion; or
(iii) materially altered the terms on which it trades with the
Company;
(k) no major customer of the Company has:
(i) materially reduced the level of its custom from the Company;
(ii) indicated an intention to cease or materially reduce the volume
of its trading with the Company after Completion;
(iii) materially altered the terms on which it trades with the
Company;
25
<PAGE>
(l) no loans have been made nor bonuses paid by the Company to employees,
nor have any advances or loan money been accepted from any employees;
(m) no resolutions have been passed by the members or directors of the
company except in the ordinary course of business of the Company and
those necessary to give effect to this agreement.
WARRANTY 7
(Records)
7.1 The Records:
(a) are in the possession of the Australian Company and the NZ Company;
(b) have been fully, properly and accurately kept and maintained and are up
to date;
(c) accurately record the details of all of the transactions, finances,
assets and liabilities of the Company; and
(d) as far as necessary, have been prepared in accordance with the
requirements of the Corporations Law and the Accounting Standards and
where applicable, analogous New Zealand requirements and standards.
WARRANTY 8
(Debts)
All debts owed to the Company at Completion, less the amount of any
relevant provision for bad and doubtful debts made on a basis consistent
with the provision for bad and doubtful debts in the Accounts, will be
good and fully collectable in the ordinary course of business.
WARRANTY 9
(Taxation)
9.1 The Company has paid, or the Accounts fully provide for, all Taxes which
the Company is or may become liable to pay for the period up to and
including the Second Accounts Date.
9.2 The only liabilities for Tax of the Company arising in respect of the
period after the Second Accounts Date and ending on the Completion Date
will be liabilities arising out of the ordinary course of carrying on the
Business.
9.3 All Tax information required by law (including but not limited to records,
returns, elections and notices) to be lodged or kept by the Company has
been lodged with the appropriate authorities or kept as required.
9.4 The Company is not involved in any audit of any of its tax returns or any
dispute with any Taxation authority responsible for the assessment and
collection of Tax and neither FAI nor the Vendor is aware of any
circumstances which may give rise to such an audit or dispute.
9.5 The Company has maintained sufficient and accurate records and all other
information required to support all Tax information which has been or may
be lodged with any Taxation authority
26
<PAGE>
9.6 All documents and transactions to which the Company is a party that are
required to be stamped, or that the Company has an interest in enforcing,
have been duly stamped.
9.7 The Company has lodged or supplied all information regarding Taxes as and
when requested by a Taxation authority.
WARRANTY 10
(Ownership of assets)
10.1 Except for those assets the subject of the equipment leases listed in
SCHEDULE 3, all of the property and assets included in the Accounts or
which the Company uses in the conduct of the Business are legally and
beneficially owned by the Company.[need to disclose Ness Romalpa clause]
WARRANTY 11
(Properties and property leases)
11.1 The Property described in SCHEDULE 5 comprises all the land and buildings
used by the Company. The Company does not own any real property.
11.2 The Company beneficially owns the benefit of a valid and enforceable
leasehold interest under the Property Lease in accordance with its terms.
The Property Lease has not been amended or modified and is not liable to
forfeiture or termination. [disclose status of lease]
11.3 The Company has duly and punctually performed and is not in breach of any
covenants or conditions of any lease, licence or other occupational
arrangement granted to it and there are no circumstances which exist which
may cause any such lease or other occupational arrangement to be
terminated.
WARRANTY 12
(Plant, machinery and equipment)
12.1 Other than the equipment or vehicles the subject of the equipment leases
described in SCHEDULE 3 ('EQUIPMENT LEASES'), the Company owns all Plant
and Equipment.
12.2 Each item of Plant and Equipment is:
(a) in a good and safe state of repair and condition and satisfactory
working order for its age and has been regularly and properly
maintained;
(b) in the Company's possession or control; and
(c) recorded in the plant register of the Company.
12.3 The Company has duly and punctually observed and performed the terms and
conditions of each Equipment Lease. No Equipment Lease is liable to
forfeiture or termination.
12.4 Except for the Equipment Leases the Company has not entered into any hire
purchase, leasing or credit sale agreement.
WARRANTY 13
(Intellectual property rights)
27
<PAGE>
13.1 SCHEDULE 4 contains a complete and accurate list of all Intellectual
Property Rights used by the Group.
13.2 Except under the licences disclosed in SCHEDULE 7, the Company owns all the
Intellectual Property Rights used by it including the Intellectual Property
Rights listed in SCHEDULE 4 ('OWNED INTELLECTUAL PROPERTY RIGHTS').
13.3 Except for licences of its data bases and owned software granted by the
Company in the ordinary course of business, the Company has not dealt with
or granted to any person any rights in respect of the Owned Intellectual
Property Rights by way of licence or in any other way.
13.4 Neither FAI nor the Vendor is aware of any infringements by the Company of
the Intellectual Property Rights of any other person, nor are they aware of
any infringements of the Owned Intellectual Property Rights.
13.5 Neither FAI nor the Vendor is aware of any allegation or basis on which an
allegation could be made that the Company has infringed the Intellectual
Property Rights of any person or on which the validity or effectiveness of
the Owned Intellectual Property Rights may be challenged.
13.6 Other than in the ordinary course of business, there are no outstanding
royalties, licence fees or other similar fees payable by the Company in
connection with the use of any Intellectual Property Rights.
13.7 Each of the licences under which the Company uses the Intellectual Property
Rights is valid, binding and enforceable. The Company has complied at all
times with the terms of each licence and no licensor has any right to
terminate any licence.
WARRANTY 14
(Compliance with applicable laws)
14.1 The Business is and has been conducted in accordance with all applicable
laws, does not contravene any laws and no allegation of any contravention
of any applicable laws is known to the Company, FAI or the Vendor.
14.2 The Company holds all statutory licences, consents, registrations,
approvals, permits and authorisations necessary for the carrying on of the
Business. So far as the Vendor and FAI are aware, there is no fact or
matter which might prejudice the continuance or renewal, or result in the
revocation or variation in any material respect, of any such licences,
consents, registrations, approvals, permits and other authorisations.
WARRANTY 15
(Contracts)
15.1 The Company has duly performed and observed all its obligations, and the
other parties have duly performed and observed all their obligations, under
all contracts, arrangements or understandings to which the Company is a
party.
WARRANTY 16
(Litigation)
16.1 Neither the Company nor any person for whose acts or defaults the Company
may be vicariously liable is involved in, or threatened with, any claim,
litigation, prosecution or arbitration in any court, tribunal or otherwise
with an individual value in excess of
28
<PAGE>
$100,000 which have been brought other than in the ordinary course of
business and there are no facts or circumstances of which either the Vendor
or FAI is aware which are likely to give rise to any such litigation or
arbitration.
16.2 There are no unsatisfied judgments, awards, claims or demands against the
Company, with an individual value in excess of $100,000 which have been
brought other than in the ordinary course of business.
16.3 To the knowledge of the Vendor and FAI, the Company is not being
investigated for any breach or alleged breach of the law.
WARRANTY 17
(Superannuation and employee benefits)
17.1 Except for its commitments to contribute to the FAI Staff Productivity
Superannuation ('FUND'), the Company has no obligation, liability or duty
to make any payment to any person in respect of any superannuation,
retirement benefits, pensions, annuities, life assurance schemes or
arrangements for the benefit of any present or former directors or
employees of the Company or their respective dependants.
17.2 The Fund is established under a trust deed dated 17 November 1988, as
amended from time to time ('TRUST DEED').
17.3 The Company has complied with all of its obligations under the Trust Deed
including making all contributions to the Fund required to be made under
the Trust Deed. There is no outstanding liability of the Company and the
Fund is fully funded to meet all potential claims for benefits by the
members of the Fund.
17.4 The assets of the Fund are sufficient, having regard to appropriate
actuarial valuation methods and assumptions, to provide prospective
benefits to the extent to which they will relate to periods of service or
membership prior to Completion.
17.5 Full and proper records and accounts of the Fund have been kept, are up-to-
date, and disclose a true and fair view of the affairs of the Fund.
17.6 Neither the Company nor the trustees of the Fund have received notice of
any claim or dispute in relation to the Fund.
17.7 The transfer of the Shares to the Purchaser will not cause an increase in
the obligations of the Company to make contributions to the Fund.
WARRANTY 18
(Employees)
18.1 Except as disclosed in SCHEDULE 7, all contracts of employment to which the
Company is a party can be terminated by the Company by notice of 30 days or
less.
29
<PAGE>
18.2 The Company has complied in all material respects with all contractual,
statutory, legal and fiscal obligations of and in relation to its
employment of its employees, including without limitation all withholding
obligations, all codes of practice, collective agreements and awards.
18.3 The Company does not operate any bonus, profit share or employee incentive
plans or schemes for its employees other than pursuant to individual
employment contracts.
18.4 All employee entitlements have been provided for in the Accounts.
WARRANTY 19
(Conduct of business)
19.1 To the knowledge of the Vendor and FAI, no practice carried on by the
Company or contract, arrangement or understanding to which the Company is a
party:
(a) is or should be notified or authorised under the Trade Practices Act
1974 or has been the subject of an inquiry under that Act; or
(b) infringes any other competition, anti-restrictive trade practice,
anti-trust or other consumer protection laws applicable to the Company
in Australia or overseas.
19.2 Neither FAI nor the Vendor is aware that any of the Company's officers,
agents or employees have paid or been paid any bribe or used any of the
Company's assets unlawfully to obtain any advantage for any person.
WARRANTY 20
(No Subsidiaries)
20.1 The Company:
(a) neither holds nor beneficially owns shares or other securities in the
capital of another company;
(b) has not agreed to buy any securities in any other Australian, NZ or
overseas company; or
(c) is not and has not agreed to become a member of any partnership,
unincorporated association, joint venture or consortium.
WARRANTY 21
(Effect of sale of shares)
21.1 To the knowledge of the Vendor and FAI the transfer of the Shares to the
Purchaser will not result in any supplier or customer of the Company
ceasing or being entitled to substantially reduce its level of business
with the Company.
21.2 The entry into and performance of this agreement does not and will not:
30
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(a) result in the breach of any of the terms, conditions or provisions of
any agreement or arrangement to which the Company is a party;
(b) relieve any person from any obligation to the Company;
(c) result in the creation, imposition, crystallisation or enforcement of
any encumbrance on any of the assets of the Company;
(d) result in any indebtedness of the Company becoming due and payable;
(e) contravene the Articles or the Constitution.
WARRANTY 22
(Accuracy and completeness of disclosed information)
22.1 All information which the Vendor, FAI, their advisers or the Company have
given to the Purchaser or its advisers relating to the Business,
activities, affairs, assets and liabilities of the Company, as well as the
facts in the Recitals and Schedules, was when given and is now complete and
accurate in all respects.
22.2 All information which is known to the Vendor and FAI relating to the
Shares, the Company, the Business or otherwise the subject matter of this
agreement and which is material to a purchaser of the Shares has been
disclosed to the Purchaser.
22.3 Neither FAI nor the Vendor is aware of any fact or circumstance which might
reasonably be expected to effect in any material adverse way the financial
position, operations, profitability or prospects of the Company or the
Business.
WARRANTY 23
(Effect of entering into this agreement)
23.1 Neither the carrying out of the Float nor the entry into or performance of
this agreement or any other agreement or document contemplated by this
agreement will result or has resulted in:
(a) any breach of section 205(1) of the Corporations Law; or
(b) any breach of the Foreign Acquisitions and Takeovers Act (1975)
(Commonwealth).
31
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SCHEDULE 7
ASSET WARRANTIES
(clause 7)
[Note: References to schedules in this schedule 7 are to schedules in the Asset
Purchase Agreement]
WARRANTY 1
(Vendor)
1.1 The execution, delivery and performance of this agreement by the Vendor
will constitute legally valid and binding obligations on the Vendor,
enforceable in accordance with its terms.
1.2 The sale of the Assets pursuant to this agreement does not result in a
breach of any obligation or constitute a default under or result in the
imposition of any Encumbrance under any agreement or undertaking, by which
the Vendor is bound.
1.3 Neither the Vendor nor any of its members has any interest directly or
indirectly in any company or business which is or is likely to be
competitive with the Business.
1.4 No meeting has been convened, resolution proposed, petition presented or
order made for the winding up of the Vendor and no receiver, receiver and
manager, provisional liquidator, liquidator or other officer of the Court
has been appointed in relation to the Assets or any of them and no
mortgagee has taken or attempted or indicated in any manner an intention to
take possession of any of the Assets.
WARRANTY 2
(Accounts and Records)
2.1 The Accounts:
(a) disclose a true and fair view of the affairs, financial position and
assets and liabilities of the Vendors as at the Accounts Date and of
the income, expenses and results of the operations of the Vendors for
the six month period (or the financial year in the case of FAI Canada)
ended on the Accounts Date; and
(b) were prepared in accordance with applicable accounting standards and
legal requirements on a basis that is materially consistent with the
audited accounts of the Vendors for the twelve month period preceding
the six month period (or the financial year ended in the case of FAI
Canada) ended on the Accounts Date.
2.2 Since the Accounts Date:
(a) the Business has been carried on in the ordinary and usual course and
no contracts or commitments differing from those ordinarily made in
the conduct of the Business have been entered into or incurred;
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(b) there has been no material adverse change in the Assets, the financial
condition or the profitability of the Business.
2.3 The Records:
(a) have been fully, properly and accurately kept and completed; and
(b) do not contain material inaccuracies or discrepancies of any kind.
WARRANTY 3
(Title to Assets)
3.1 The Vendor is the absolute legal and beneficial owner of all the Assets and
at Completion all the Assets will vest in the Purchaser free from all
Encumbrances.
3.2 SCHEDULE 3 contains an accurate list of all of the Plant and Equipment
owned by the Business and used in the conduct of the Business.
WARRANTY 4
(Plant and Equipment)
4.1 The Plant and Equipment:
(a) is in a good and safe state of repair and condition;
(b) is in good working order;
(c) is capable and will be capable, over the period of time during which
it will be written down to a nil value in the accounts of the
Business, of doing the work for which it was designed or purchased;
(d) is used in and not surplus to the requirements of the Business.
4.2 The Assets are:
(a) all located at the Site;
(b) the only assets used by the Vendor in the Business; and
(c) the only assets required for the conduct of the Business.
WARRANTY 5
(Compliance with statutory requirements)
5.1 The Vendor holds all statutory licences, consents, approvals and
authorisations necessary for the carrying on of the Business and the use of
the Site and has complied with the terms of those licences, consents,
approvals and authorisations.
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5.2 The present conduct of the Business and use of the Assets does not, to the
knowledge of the Vendor, breach or contravene any law, statute, ordinance,
rule, regulation, by-law, scheme or permit.
WARRANTY 6
(Property Lease)
6.1 With respect to the Property Lease:
(a) there are no subsisting breaches;
(b) the Vendor has observed the obligations and covenants of the lessee
and has not received a notice which has not been complied with;
(c) it is valid and subsisting;
(d) the Vendor has exclusive occupation and quiet enjoyment of the Site
and holds all necessary licenses, permits and approvals for the
conduct of the Business from the Site.
6.2 The use of the Site for the carrying on of the Business:
(a) does not, to the knowledge of the Vendor, breach any applicable law,
statute, ordinance, rule, regulation, by-law, planning scheme,
development consent, order, permit or determination of any
governmental authority;
(b) is permitted under the terms of the Property Lease; and
(c) is in conformity with all local government building, health, fire and
public utility laws and regulations.
6.3 No development, alterations or works have been carried out in relation to
the Site which would require any permission or consent under any statute or
regulation which has not been obtained and all conditions attaching to any
such permission or consent have been fully complied with.
WARRANTY 7
(Equipment Leases)
7.1 The agreements described in SCHEDULE 5 constitute all the plant and
equipment leases or hire purchase agreements used in the Business.
7.2 With respect to each Equipment Lease:
(a) there are no subsisting breaches and the Vendor has received no notice
of any breach of the Equipment Lease;
34
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(b) it is valid and subsisting; and
(c) it has not been amended or modified.
WARRANTY 8
(Employees)
8.1 In respect of each Employee:
(a) the details of that Employee's salary, bonus and other benefits and
other material terms of employment listed in SCHEDULE 7 are true and
correct in all respects;
(b) the Vendor has complied in all respects with all obligations imposed
on it by statutes, orders, regulations, collective agreements and
awards;
(c) the Vendor has made all payments in respect of occupational
superannuation required under any statute or award;
(d) except as required by law, that Employee's employment with the
Business may be terminated by the employer by notice of 30 days or
less.
WARRANTY 10
(Superannuation)
10.1 Except for the Vendor's Fund:
(a) there are no superannuation, retirement or provident schemes or other
arrangements providing for any payment to Employees on their
retirement, resignation or death or on the occurrence of any permanent
or temporary disability in operation in relation to the Business;
(b) the Vendor does not contribute to any other schemes which will provide
the Employees or their respective dependants with pensions, annuities
or lump sum payments upon retirement or death or otherwise; and
(c) the Vendor is not under any legal liability or ex-gratia arrangement
or promise to pay pensions, gratuities, superannuation allowances or
the like to any Employees.
WARRANTY 11
(Business Contracts)
11.1 There are no agreements, arrangements or understandings (whether written or
unwritten) affecting the Assets or the carrying on of the Business that:
(a) the Purchaser will be unable to terminate after the Completion Date on
giving 30 days' notice or less without penalty;
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(b) are material to the operation of the Business and have not been
disclosed in writing to the Purchaser;
(c) are outside the ordinary and proper course of business of the Business
or otherwise contain any unusual, abnormal or onerous provision;
(d) are incapable of being fulfilled or performed on time without undue or
unusual expenditure of money or effort;
(e) entitle the other party to terminate the agreement, or impose terms
less favourable to the Business, by reason of the change in ownership
of the Business.
11.2 To the best of the knowledge, information and belief of the Vendor, no
customer or supplier of the Business will cease to purchase from or sell to
the Business by reason of the change in ownership of the Business.
WARRANTY 12
(Litigation)
12.1 To the knowledge of the Vendor, there is no Claim threatened or pending
against the Vendor in respect of the Business or the Assets nor does there
exist or has there occurred any fact, matter or circumstance likely to give
rise to any Claim or Liability which could affect the ability of the
Business to continue operating or which may materially adversely affect the
Goodwill.
12.2 There are no unsatisfied or outstanding judgments, orders or awards
affecting the Vendor, the Business or any of the Assets or to which it is
or may become a party.
WARRANTY 13
(Intellectual Property Rights)
13.1 The Vendor's use of the Intellectual Property Rights does not infringe,
breach an obligation of confidence or wrongfully use any confidential
information, trade secrets, copyright, letters patent, trade marks, service
marks, trade names, designs, business names or other similar industrial,
commercial or intellectual property rights of any corporation or person and
no Claims have been asserted challenging the Vendor's use of the
Intellectual Property Rights.
13.2 The Vendor has not licensed, assigned, authorized or permitted any person
or corporation to use the Intellectual Property Rights or the Business
Name.
WARRANTY 14
(Material disclosure)
14.1 All information concerning the Business and the Assets which might
reasonably be expected to be material for disclosure to a prudent intending
purchaser of the Business in
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<PAGE>
determining whether or not to purchase the Business or the price at which a
purchaser would be prepared to purchase the Business has been disclosed in
writing to the Purchaser.
37
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SCHEDULE 8
DISCLOSURES AGAINST WARRANTIES
(Clause 7.5)
Belgium
Notification was received on April 17, 1997 that the Belgium Distributor, Mr
Guy Iwens, does not have a security licence. This is due to an oversight by our
administration when his operations were being established. Although we are not
directly exposed as it is Mr Iwens company not ours, we are obliged to accept
responsibility for any penalties he may incur. Our advice, yet to be confirmed,
is that the maximum penalty is $45,000 and that product can be legally sold
without an outside siren until the licence is approved. This will take
approximately six months. No provision has been made in the accounts for this
contingent liability.
United Kingdom
Mr Allan Wilson, a distributor in Aberdeen, was giving unauthorised 10 year
warranties when selling systems. There is no way of knowing whether this
happened with every sale, but the total number of systems installed in Aberdeen
was 486. In addition to this monitoring systems were attached in many cases.
These drain the battery on the Security Guard system and result in additional
costs to us.
Allan Wilson also submitted deferred payment credit forms to Avco Finance for
customers who had already paid him by other means. This meant that Avco also
paid him for these systems. To date it is estimated something between 40 to 50
deals for which Avco have had to be reimbursed by our U.K. office.
The number of complaints regarding bad credit deals have definitely declined
in the past few weeks, as the 6 month deferred terms should have all come to
light by now.
Mr Mike Dixon, a distributor in Cheltenham, has also offered extended warranty
at the time of sale. In his case he has offered 5 years warranty including a
free service call every 12 months. To date two customers have emerged and there
is no way of knowing how many such customers exist.
Canada
A Statement of Claim dated November 17, 1995, from the Ontario Court of Justice
(General Division).
The Plaintiff: Mr Robert W. Cooper
The Defendants: FAI Home Security (Canada) Inc and FAI Security Group Pty
Limited (now renamed FAI Home Security Pty Limited)
Mr. R Cooper alleged he left secure employment for a position offered to him at
the Canadian operation. FAI Home Security (Canada) then failed to honour its
commitment. Mr Bill Gadd, the President of FAI Home Security (Canada) Inc.,
advised no such position had ever been offered.
In the Statement of Claim Mr Cooper has claimed:
a) Fraudulent misrepresentation CAN$150,000
b) Negligent misrepresentation CAN$150,000
c) Breach of contract CAN$150,000
d) Reneging on promised work in March 1995 CAN$4,000
Plus interest and legal costs
On 14 March 1997 an Offer to Settle of CAN$40,000 was received from Mr R.
Cooper's solicitor in addition to the Settlement offer was an amendment to the
Statement of Claim to provide for CAN$500,000 for punitive damages. No
provision has been made in the accounts for this contingent liability.
Australia and New Zealand
1. Threat by Security Industry Registrar not to renew Security Industry
License for FAI Home Security (NZ) Ltd
On September 20, 1996, the Asst. Commissioner for NZ Police, Ian Holyoake,
wrote to the company expressing concern at information he had received
concerning the company's sales tactics. The Asst. Commissioner stated that
he was considering lodging an objection to the renewal of the licence held
by FAI Home Security (NZ) Ltd.
All licences are due for renewal on 31st March each year. The said licence
has been subject to an application for renewal and no notification has been
received that any objection has been lodged. At a meeting with the Asst.
Commissioner held in December 1996, it was stated that an investigation of
the information provided did not substantiate the allegations.
It is not necessary for FAI Home Security (NZ) Ltd to hold license to
provide products to NZ distributors. FAI Home Security (NZ) Ltd does not
directly retail its products and services to the NZ public.
An objection has been lodged against the renewal of the security industry
license held by Safetech Ltd the FAI area distributor for Dunedin. That
application for renewal has been withdrawn and no objection hearing will
ensue.
Dunedin and environs will now be serviced by the Christchurch area
distributor.
2. Legal Action against the Consumers Institute of New Zealand and others
During 1996 the Consumers Institute of NZ caused to be published, an
article in its magazine (which is distributed to its members) alleging
unfair selling practices by FAI Home Security (NZ) Ltd. At all relevant
times FAI Home Security (NZ) Ltd has never sold its products and services
to the New Zealand public.
The company's solicitors advised that the article was defamatory and were
instructed to commencing proceedings in the High Court of NZ against the
Consumers Institute, its editor (Mr David Russell) and its directors. These
proceedings, which were commenced in 1996 allege breaches of the Fair
Trading Act and seek damages in the sum of $1.8 million dollars (NZ) on
behalf of all NZ distributors and area distributors.
Due to our continued growth and increased sales the proceedings have been
'stayed' as quantification of financial losses has proved most difficult.
There are no other matters of any material consequence, either current or
pending, known to me for or against either FAI Home Security P/L or FAI
Home Security (NZ) Ltd, as at this date.
Claims Against Ness Security
For Faulty Product
There are two claims against Ness Security that currently exist. IT should be
stated that these claims are being settled amicably. These claims are based on
product fault not geographical region. However, the majority of sales are
generated in Australia and New Zealand.
1. A problem exist in Security Guard I which results in "AL" appearing on the
LED screen. This is due to a design fault that indicates one of the Passive
Infrared Detectors has a low battery when in fact it does not. The solution
to this problem is to replace the Printed Circuit Board (PCB) with a
SecurityGuard II PCB. As there are many thousands of these in the field
this claim is an ongoing one currently running at about 80 service visits
per month. Ness reimburse FAI Home Security $30 per service visit and
supply PCBs at no charge.
2. A faulty capacitor was used in the production of the SecurityGuard II PCB.
This resulted in the SecurityGuard II "locking up". We have an agreement
with Ness to be reimbursed at the rate of $50 per call. To date only one
claim has been lodged $52,000 for 1,047 call outs covering the period from
October 1996 till February 1997. It is expected that all faulty capacitors
would be detected by July 1997. Until this time Ness will approve all bulk
claims, after July all faulty capacitor claims will be considered based on
their individual merits. It is estimated up to 20,000 units were installed
prior to the fault being detected. However, not all capacitors are faulty.
Ness Battery Claim
In the second half of 1995 Ness's battery supplier, Century Yuasa, supplied
4,290 batteries that were potentially faulty. The fault resulted in acid leaking
from the battery and dripping from the SecurityGuard housing onto the customers
floor.
Due to the potential damage to both people and property it was decided by the
management of FAI Home Security to replace all potentially faulty batteries.
FAI Home Security negotiated directly with Century Yuasa for a settlement of
$121,909.64 who also supplied the replacement batteries at no charge.
A Deed of Release between FAI Home Security and Century Yuasa on January 10,
1996.
Due to their pro-active approach FAI Home Security received very few claims for
compensation and have no matters outstanding relative to this claim.
Claim for Compensation from Ness for Non-performance
A claim was lodged with Ness by FAI Home Security to recover costs both incurred
and proposed due to Ness's delay in arranging European product approval required
for Belgium, the Netherlands and Germany. This greatly impacted the
international expansion plan as it prevented the commencement of operations in
the stated countries.
After very lengthy negotiations it was agreed the compensation would be made up
of both cash and stock. Cash of $257,000 plus a total of 300 systems supplied
free of charge at the rate of 50 systems per month commencing from February 21,
1997.
A Deed of Settlement was signed and sealed on February 21, 1997.
Changes since Accounts Date
. The Australian Company acquired the assets referred to in Part 1 of
Schedule 3 from the Vendor for book value on 22 April 1997.
. On 18 May 1997, Brad Cooper entered into employment contracts with the
Purchaser and the Australian Company. These have been disclosed separately
to the Purchaser.
. In accordance with clause 3 of the Asset Purchase Agreement, Brad Cooper
has repaid to the Company the sum of A$244,127.
Ownership of Assets
Pursuant to the terms of the NESS Contract, title to certain assets will not
pass until payment is received.
[PI Claims - over $100,000]
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SCHEDULE 9
UNDERWRITING AGREEMENT
(Clause 3.4(a))
#43#
39
<PAGE>
EXECUTED as an agreement
THE COMMON SEAL of HOME )
SECURITY INTERNATIONAL INC. )
is affixed in accordance with its articles )
of association in the presence of )
- --------------------------------- ---------------------------------
Secretary Director
- --------------------------------- ---------------------------------
Name of secretary (print) Name of director (print)
THE COMMON SEAL of FAI HOME )
SECURITY HOLDINGS PTY LIMITED )
is affixed in accordance with its articles )
of association in the presence of )
- --------------------------------- ----------------------------------
Secretary Director
- --------------------------------- ----------------------------------
Name of secretary (print) Name of director (print)
THE COMMON SEAL of FAI )
INSURANCES LIMITED )
is affixed in accordance with its articles )
of association in the presence of )
- --------------------------------- ---------------------------------
Secretary Director
- --------------------------------- ---------------------------------
Name of secretary (print) Name of director (print)
40
<PAGE>
THE COMMON SEAL of )
CERVALE PTY LIMITED )
is affixed in accordance with its articles )
of association in the presence of )
- --------------------------------- -------------------------------
Secretary Director
- --------------------------------- -------------------------------
Name of secretary (print) Name of director (print)
41
<PAGE>
EXHIBIT 2.2
DATED 1997
FAI HOME SECURITY HOLDINGS NEW ZEALAND LIMITED
AND
FAI HOME SECURITY (ENZED) LIMITED
NZ ASSET PURCHASE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 SYDNEY
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
Ref: MAP:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. DEFINITIONS AND INTERPRETATION......................................... 1
1.1 Definitions....................................................... 1
1.2 Interpretation.................................................... 4
1.3 Payments.......................................................... 5
2. SALE AND PURCHASE...................................................... 5
2.1 Sale of the Business.............................................. 5
2.2 Business Assets................................................... 5
3. SPECIFIED CONDITIONS................................................... 6
3.1 Condition Precedent............................................... 6
3.2 Termination....................................................... 6
3.3 Termination....................................................... 6
3.4 Condition Subsequent.............................................. 6
3.5 Effect of Termination............................................. 7
4. PURCHASE PRICE......................................................... 7
4.1 Price for Business Assets......................................... 7
4.2 Application of Purchase Price for Business
Assets............................................................ 7
4.3 Final Purchase Price is the Lowest Price.......................... 8
5. COMPLETION............................................................. 8
5.1 Time for Completion............................................... 8
5.2 Possession and title.............................................. 8
5.3 Interdependency................................................... 8
5.4 Delivery by Vendor................................................ 8
5.5 Benefit of Property Leases, Equipment Leases, Business Contracts
and Statutory Licences............................................ 9
5.6 Purchaser's Obligations........................................... 9
6. GENERAL OBLIGATIONS.................................................... 9
6.1 Money Received by Vendor.......................................... 9
6.2 Money Received by Purchaser....................................... 9
6.3 Third Party Consents.............................................. 10
7. CONTRACTS AND LIABILITIES.............................................. 10
7.1 Business Contracts................................................ 10
7.2 Where No Consent.................................................. 10
7.3 Business Liabilities.............................................. 11
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
8. RISK.................................................................... 11
9. EMPLOYEES............................................................... 11
9.1 New Employment..................................................... 11
9.2 Liability.......................................................... 11
9.3 Cooperation........................................................ 11
9.4 Notification to Purchaser of Employees
Transferring....................................................... 12
9.5 Employment Offer................................................... 12
10. GOODS AND SERVICES TAX.................................................. 12
11. BOOKS AND RECORDS....................................................... 12
12. VENDOR'S WARRANTIES..................................................... 12
13. PURCHASER'S WARRANTIES.................................................. 13
14. MISCELLANEOUS........................................................... 13
14.1 Entire Agreement.................................................. 13
14.2 Costs............................................................. 13
14.3 Notices........................................................... 13
14.4 Governing Law..................................................... 14
14.5 Counterparts...................................................... 14
14.6 Non-Waiver........................................................ 14
14.7 Further assurance................................................. 14
14.8 Non-merger........................................................ 15
SCHEDULE 1
LEASED PROPERTIES....................................................... 16
SCHEDULE 2
WARRANTIES.............................................................. 17
</TABLE>
ii
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NZ ASSET PURCHASE AGREEMENT
THIS AGREEMENT dated 1997
BETWEEN FAI HOME SECURITY HOLDINGS NEW ZEALAND LIMITED a company duly
incorporated in New Zealand and having its registered office at
Auckland, as trustee for the FAI Home Security (NZ) Trust ('VENDOR')
AND FAI HOME SECURITY (ENZED) LIMITED a company duly incorporated in New
Zealand and having its registered office at Auckland ('PURCHASER')
RECITALS
A. The Vendor carries on the business of selling, installing and servicing
residential security alarm systems through a distributorship network
operating in Auckland and elsewhere in New Zealand.
B. The Vendor has agreed to sell to the Purchaser and the Purchaser has agreed
to purchase from the Vendor all of the assets of the business described in
Recital A on the terms and conditions set out in this agreement.
AGREEMENT
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement (including the recitals) and the schedules unless the
context otherwise requires the following expressions shall bear the
following meanings:
'AUTHORISATIONS' means any certificate, licence, approval, permit,
authority or exemption from, by or with a Governmental Agency necessary to
carry on the Business as currently operated;
'BOOKS AND RECORDS' include all notices, correspondence, orders, enquiries,
books of account and other documents and all computer disks or tapes or
other records in relation to the Business;
'BUSINESS' means the business described in Recital A carried on by the
Vendor at the date of this agreement and carried on by the Purchaser after
Completion;
'BUSINESS ASSETS' means the assets of the Business agreed to be transferred
to the Purchaser pursuant to CLAUSE 2;
<PAGE>
'BUSINESS CONTRACTS' means all the contracts and engagements of the Vendor
relating to the Business and which are not fully performed as at Completion
together with all other such contracts and engagements which were entered
into by the Vendor after the date of this agreement and prior to the
Completion Date and which are not fully performed as at Completion but
excludes Business Payables;
'BUSINESS DAY' means a day (other than a Saturday or Sunday) on which
registered banks (as that expression is defined in the Reserve Bank of New
Zealand Act 1989) are customarily open for business in Auckland;
'BUSINESS GOODWILL' means all the goodwill of the Vendor in relation to the
Business;
'BUSINESS INFORMATION' means all information and records including all
customer lists and databases, sales information, business plans and
forecasts and all computer software and computer records held by the Vendor
in relation to the Business;
'BUSINESS LIABILITIES' means the obligations of the Vendor under the
Business Contracts, including Warranty Provisions, but excluding Business
Payables;
'BUSINESS PAYABLES' means all liabilities of the Vendor other than the
Warranty Provisions;
'BUSINESS PLANT AND MACHINERY' means all the plant, machinery, equipment,
computer and communication hardware, loose tools, fittings, furniture,
partitioning, books, stationery, vehicles and other goods used by or in the
Business as at Completion;
'BUSINESS RECEIVABLES' means all payments due to the Vendor in relation to
the Business as at Completion;
'BUSINESS STOCKS' means all stocks, stocks in transit, raw materials, work
in progress, finished goods or completed services and other stock in trade
and packaging material held or ordered by the Vendor for the purposes of
the Business as at Completion;
'COMPLETION' means the completion of the sale and purchase of the Business
Assets in the manner specified in CLAUSES 4 AND 5;
'COMPLETION DATE' means the date on which Completion occurs in accordance
with CLAUSE 5;
'EMPLOYEE ENTITLEMENTS' means, in respect of an Employee, all accrued:
(a) wages, salary, commissions and bonuses;
(b) sick leave, loadings and contributions to superannuation, statutory
compensation or other funds;
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<PAGE>
(c) long service leave and annual leave (including loadings),
owing and due to or in respect of that Employee in respect of that
Employee's contract of employment with the Vendor whether arising under
contract, statute, award or otherwise;
'EMPLOYEES' means all the employees employed by the Vendor in the Business
at the date of this agreement;
'ENCUMBRANCE' means any mortgage, charge, pledge, lien or other security
interest or encumbrance (other than title retention in respect of trading
stock or seller's liens arising in the ordinary course of the Business);
'EQUIPMENT LEASES' means all those leases of, and agreements to hire,
Business Plant and Machinery which is used in the Business but not owned by
the Vendor;
'FAI HSH' means FAI Home Security Holdings Pty Limited (ACN 003 125 264);
'FINAL PURCHASE PRICE' means the final purchase price for the relevant
Business Assets determined pursuant to CLAUSE 4.3;
'FLOAT' means the initial public offer registered under the Securities Act
1933 (US) by HSI of 500,000 ordinary shares in HSI and concurrent sale of
5,500,000 ordinary shares in HSI by FAI HSH;
'HSI' means Home Security International Inc.
'GOVERNMENTAL AGENCY' means the government of any country and any state,
territory, municipality or other political subdivision of a country, and
any administrative or judicial body, department, commission, authority,
tribunal, agency or entity of any such government;
'INTELLECTUAL PROPERTY' means all intellectual property and proprietary
rights (whether registered or unregistered) owned or used by the Vendor in
the conduct of the Business.
'LEASED EQUIPMENT' means the subject matter of the Equipment Leases;
'NZ DEBT' means the debt payable by the Purchaser to the Vendor pursuant to
CLAUSE 4.2(b);
'NZ SHARE SALE AGREEMENT' means the agreement entered into between the
Vendor and FAI HSH on or about the date of this agreement pursuant to which
the Vendor has agreed to sell to FAI HSH and FAI HSH has agreed to buy all
of the issued capital of the Purchaser;
'PROPERTY LEASES' means the leases to the Vendor of the properties, the
principal terms of which are set out in Schedule 1;
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'PURCHASE PRICE' means the price payable for the Business specified in
CLAUSE 4.1;
'SPECIFIED CONDITIONS' means the conditions outlined in CLAUSE 3.1;
'STATUTORY LICENCES' means any statutory licences, consents, approvals or
authorisations required to carry on the Business, including without
limitation those referred to in SCHEDULE 3;
'UNDERWRITER' means National Securities Corporation, Inc.
'UNDERWRITING AGREEMENT' means an agreement in the form set out in SCHEDULE
4 pursuant to which the Underwriter underwrites the Float;
'WARRANTIES' means the warranties given by the Vendor, pursuant to CLAUSE
12 and all other warranties, undertakings, covenants and representations
given or made by the Vendor, under this agreement or which have become
terms of this agreement;
'WARRANTY PROVISIONS' means the book value of the provisions for warranty
expenses and security call-out included in the Books and Records of the
Vendor.
1.2 INTERPRETATION
In the construction and interpretation of this agreement and the schedules,
except to the extent that the context requires modification:
(a) references to recitals, clauses and schedules are to recitals, clauses
and schedules of this agreement;
(b) the headings are for convenience only and shall not affect the
interpretation of this deed;
(c) words importing the singular number include the plural and vice versa
and references to any gender includes every gender and references to
persons includes corporations and unincorporated bodies of persons,
government or semi-government bodies or agencies or political
subdivisions of them;
(d) references to 'written' and 'in writing' includes any means of visible
representation;
(e) reference to any document includes all modifications and replacement
documents from time to time;
(f) references to any statute or regulation are to New Zealand statutes
and regulations and shall with all necessary modifications apply to
any modification or re-enactment;
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(g) references to time are to New Zealand time;
(h) references to 'dollars' and '$' are references to New Zealand dollars;
and
(i) the schedules form part of this agreement and shall have the same
force and effect as if expressly set out in the body of this agreement
and any reference to this agreement shall include the schedules.
1.3 PAYMENTS
If the date for payment of any amount under this agreement, or the date for
the doing of any act required by this agreement, is not a Business Day,
then that payment shall be made or act shall be done on the next day which
is a Business Day. Unless specified to the contrary in this agreement, all
payments to be made under this agreement shall be paid in immediately
available funds by no later than 3.00 pm on the due date for payment.
2. SALE AND PURCHASE
2.1 SALE OF THE BUSINESS
Subject to the terms and conditions of this agreement, on the Completion
Date the Vendor shall sell and the Purchaser shall purchase the Business
Assets and the Purchaser shall assume the Business Liabilities.
2.2 BUSINESS ASSETS
There shall be included in the sale under CLAUSE 2.1 of this agreement the
following Business Assets:
(a) the Business Goodwill;
(b) the Business Plant and Machinery;
(c) the Business Stocks and (to the extent permitted by law or contract)
the Vendor's rights to (and copies of) advertising and promotional
material held lawfully by the Vendor for the purposes of the Business
as at Completion;
(d) the benefit of the Business Contracts (but not any Business
Receivables);
(e) the Business Information;
(f) to the extent permitted by law, the benefit of the Statutory Licences.
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3. SPECIFIED CONDITIONS
3.1 CONDITION PRECEDENT
Completion of this agreement is conditional upon:
(a) the approval by a special resolution of the shareholders of the
Purchaser of the transactions contemplated in this agreement pursuant
to section 129 of the Companies Act 1993; and
(b) if necessary, the approval, on terms satisfactory to HSI, to
Completion of the sale to the Purchaser of the NZ Shares from the
Overseas Investment Commission of New Zealand pursuant to the Overseas
Investment Regulations 1985.
3.2 TERMINATION
If the conditions set out in CLAUSE 3.1 are not satisfied on or before 30
June 1997, or a later date agreed by the parties in writing, then either
the Purchaser or the Vendor may at any time before Completion terminate
this agreement by giving notice in writing to the other.
3.3 TERMINATION
On service of a notice under CLAUSE 3.2 this agreement has no further
effect and all parties are released from their obligations to further
perform this agreement.
3.4 CONDITION SUBSEQUENT
The Purchaser or the Vendor may terminate this agreement by giving notice
to the other if:
(a) the Underwriting Agreement is terminated before completion of the
Underwriting Agreement; or
(b) either or both of the following conditions subsequent are not
fulfilled within 24 hours after Completion:
(i) the Float has gone effective;
(ii) the Underwriting Agreement has been executed.
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3.5 EFFECT OF TERMINATION
If this agreement terminates in accordance with CLAUSE 3.4, the rights and
obligations of the Parties under this agreement, except for this CLAUSE
3.5, will terminate and, unless the Vendor waives its rights under this
clause 3.5, the Parties must take all necessary steps to:
(a) vest title and possession of the Business Assets in the Vendor; and
(b) otherwise restore the rights and obligations of the Parties to those
rights and obligations that they would have had if this agreement had
not been entered into without loss or gain to any of the Parties.
4. PURCHASE PRICE
4.1 PRICE FOR BUSINESS ASSETS
The consideration for the purchase of the Business Assets ('PURCHASE
PRICE') is:
(a) the market value, as confirmed by an audit certificate to be provided
at Completion by Arthur Andersen, plus GST (if any) of the intangible
assets of the Business, namely:
(i) the Business Information and Statutory Licences;
(ii) the Business Goodwill, including the benefit of the Business
Contracts (but not any Business Receivables); and
(b) the market value of the Business Plant and Machinery and the Business
Stocks, net of the Warranty Provision as confirmed by an audit
certificate to be provided at Completion by Arthur Andersen.
4.2 APPLICATION OF PURCHASE PRICE FOR BUSINESS ASSETS
The Purchase Price for:
(a) the Business Assets referred to in CLAUSE 4.1(a) shall be paid or
satisfied by the Purchaser issuing to the Vendor 999,999 fully paid
ordinary shares; and
(b) the Business Assets referred to in CLAUSE 4.1(b) shall be paid or
satisfied by the Purchaser paying to the Vendor, within 30 days
following the Completion Date, the amount set out in the Audit
Certificate provided pursuant to CLAUSE 4.1(b) ('NZ DEBT').
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4.3 FINAL PURCHASE PRICE IS THE LOWEST PRICE
The parties agree that the Final Purchase Price for the Business Assets is
the lowest price that the parties would have agreed upon as at the date of
this agreement for this sale by the Vendor of the Business Assets upon the
basis of payment in full on the Completion Date.
5. COMPLETION
5.1 TIME FOR COMPLETION
Completion shall occur immediately prior to completion of the NZ Share Sale
Agreement.
5.2 POSSESSION AND TITLE
Possession of and title to the Business Assets shall be given and taken
with effect from the close of business on the Completion Date at which time
the Vendor sells, transfers and assigns the Business Assets to the
Purchaser and the Purchaser shall buy and take over the Business Assets.
5.3 INTERDEPENDENCY
Completion shall consist of the parties taking all the steps specified in
CLAUSES 5.4 AND 5.5. The carrying out of the Completion steps will be
deemed to take place simultaneously and no delivery or payment will be
deemed to have been made until all deliveries and payments under this
agreement due to be made at Completion have been made.
5.4 DELIVERY BY VENDOR
At Completion the Vendor shall deliver to the Purchaser:
(a) all the Business Assets which are capable of transfer by delivery,
with the intent that title shall pass by delivery;
(b) the Books and Records;
(c) the Business Information;
(d) subject to CLAUSE 5.5 all leases and documents giving rights in
relation to the Property Leases (including any documents varying,
revising or renewing such leases) and duly executed deeds of
assignment of the Property Leases consented to by the Landlords; and
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(e) such other documents as may reasonably be required by the Purchaser
(and to be notified to the Vendor, at least five Business Days prior
to the Completion Date) to be produced at Completion to complete the
sale and purchase of the Business Assets.
5.5 BENEFIT OF PROPERTY LEASES, EQUIPMENT LEASES, BUSINESS CONTRACTS AND
STATUTORY LICENCES
The Vendor must use its reasonable endeavours to obtain all necessary
consents to the assignment of the Property Leases, Equipment Leases,
Business Contracts and Statutory Licences but if, despite its reasonable
endeavours, the Vendor is unable to procure any such assignment, the Vendor
must:
(a) hold the benefit of the relevant Property Lease, Equipment Lease,
Business Contract or Statutory Licence on trust for the benefit of the
Purchaser; and
(b) fully co-operate with the Purchaser in any reasonable arrangements
designed to provide for the Purchaser the benefit of the relevant
Property Lease, Equipment Lease, Business Contract or Statutory
Licence.
5.6 PURCHASER'S OBLIGATIONS
At Completion the Purchaser shall:
(a) deliver to the Vendor a share certificate for 999,999 fully paid
ordinary shares in the Purchaser; and
(b) assume responsibility for payments under the Equipment Leases and
Property Leases which are still in force, at the Completion Date,
details of which have been provided to the Purchaser prior to
execution of this agreement.
6. GENERAL OBLIGATIONS
6.1 MONEY RECEIVED BY VENDOR
All money relating to the Business belonging to the Purchaser which is
received by the Vendor after the Completion Date shall be passed or paid to
the Purchaser as soon as practicable.
6.2 MONEY RECEIVED BY PURCHASER
All money relating to the Business belonging to the Vendor which is
received by the Purchaser after the Completion Date shall be passed or paid
to the Vendor as soon as practicable.
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6.3 THIRD PARTY CONSENTS
Where any consent or agreement of a third party is required to enable the
Purchaser to perform a Business Contract, the Vendor shall be responsible
for obtaining and shall use its best endeavours (both before and, if
necessary, after the Completion Date) to obtain that consent or agreement
and the Purchaser shall give the Vendor all reasonable assistance and shall
do all reasonable things (both before and after Completion) as the Vendor
may require for that purpose.
7. CONTRACTS AND LIABILITIES
7.1 BUSINESS CONTRACTS
With effect from the Completion Date, the Vendor assigns to the Purchaser
all the rights it may have against the other party or parties to the
Business Contracts (other than the Vendor's right to collect any Business
Receivable) and (to the extent permitted by law) the Authorisations and the
Purchaser accepts responsibility for the performance of the Business
Contracts as and from Completion. The Purchaser shall after the Completion
Date carry out and complete for its own account all of the Business
Contracts to the extent that they have not been performed prior to the
Completion Date. The Vendor covenants to indemnify the Purchaser against
any Loss arising under any of the Business Contracts as a result of any act
or omission of the Vendor before Completion. The Purchaser covenants to
indemnify the Vendor against any Loss arising under any of the Business
Contracts as a result of any act or omission of the Purchaser after
Completion.
7.2 WHERE NO CONSENT
In respect of any Business Contract where the consent of the relevant other
contracting party to the substitution in place of the Vendor of the
Purchaser as a party to the contract with effect from the Completion Date
is not obtained prior to the Completion Date, the Vendor shall continue to
use its best endeavours to have those contracts assigned to the Purchaser,
and in any event, will hold the relevant contracts on trust for the
Purchaser and the Purchaser shall perform those contracts and all money
paid by the relevant other contracting party in respect of those contracts
shall be payable to and be retained by the Purchaser. The Purchaser will
indemnify the Vendor against any Loss arising under the Business Contracts
the subject of this CLAUSE 7.2 as a result of any act or omission of the
Purchaser after the Completion Date (other than any Loss arising due to any
breach by the Vendor of those Business Contracts, including any breach
which may occur as a result of the Vendor having the Purchaser perform the
Vendor's obligations on its behalf).
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7.3 BUSINESS LIABILITIES
The Purchaser shall with effect from the Completion Date assume
responsibility for the Business Liabilities remaining after the Completion
Date and shall indemnify the Vendor against all such liabilities after the
Completion Date but all other liabilities (actual or contingent, liquidated
or unliquidated) arising, accruing or assessed in connection with the
Business in respect of any period prior to the Completion Date shall be and
remain the responsibility of the Vendor which covenants to indemnify the
Purchaser and keep the Purchaser indemnified against all such other
liabilities.
8. RISK
Upon Completion being effected in accordance with CLAUSE 5, the Business
shall be at the sole risk of the Purchaser.
9. EMPLOYEES
9.1 NEW EMPLOYMENT
It is the intention of the parties that the employment of all the Employees
with the Vendor shall be terminated with effect from Completion and
Employee Entitlements paid out by the Vendor. The Purchaser shall, before
Completion, offer all the Employees employment with the Purchaser from
Completion on terms and conditions no less favourable than those applying
to the Employees prior to Completion and on a basis which preserves their
accrued rights other than Employee Entitlements and continuity of
employment and in all respects treats service before Completion as part of
their service with the Purchaser.
9.2 LIABILITY
Any Loss suffered or incurred by either party which results from or is
caused by the termination of the Employees' employment with the Vendor as a
result of the transactions contemplated in this agreement, shall be borne
by the Vendor which covenants with the Purchaser to indemnify and keep the
Purchaser indemnified against all such Losses including any liabilities
relating to redundancy or procedural defects in the termination process.
9.3 COOPERATION
The parties shall use all reasonable endeavours to give effect to the
intention expressed in CLAUSE 9.1 and to minimise any Loss referred to in
CLAUSE 9.2.
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9.4 NOTIFICATION TO PURCHASER OF EMPLOYEES TRANSFERRING
As soon as possible following execution of this agreement, the Vendor shall
advise the Purchaser, in writing, of the names, positions and current terms
of employment of those Employees who have indicated that they will accept
an offer of employment from the Purchaser.
9.5 EMPLOYMENT OFFER
Not less than one week prior to the Completion Date, the Purchaser's offers
of employment to the Employees shall be made in writing and shall comprise
terms that are no less favourable than those applying to Employees prior to
Completion. The parties shall cooperate to ensure that those offers are
delivered to the Employees on or before the date being one week prior to
the intended Completion Date (or on or before such other date as may be
agreed by the parties). The Vendor will co-operate with the Purchaser in
the making of the offers of employment referred to in this clause and shall
use its best endeavours to persuade each of the Employees to accept the
Purchaser's offer of employment.
10. GOODS AND SERVICES TAX
The parties acknowledge that the Business is intended to be sold as a going
concern and should therefore be zero-rated in terms of section 11 of the
Goods and Services Tax Act 1985 ('ACT') and:
(a) the Purchaser warrants that, on the Completion Date, it will be a
'Registered Person' for the purposes of the Act; and
(b) the Vendor warrants that it is a 'Registered Person' for the purposes
of the Act.
11. BOOKS AND RECORDS
The Vendor shall on Completion deliver to the Purchaser all the Books and
Records relating to the Business.
12. VENDOR'S WARRANTIES
The Vendor warrants to the Purchaser in relation to the Business and the
Business Assets in the terms set out in SCHEDULE 2 as at the Completion
Date.
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13. PURCHASER'S WARRANTIES
The Purchaser warrants and represents to the Vendor that:
(a) the Purchaser is a company duly incorporated and organised, validly
existing and in good standing under the laws of New Zealand; and
(b) the Purchaser has the legal right and power to enter into this
agreement and to buy the Business Assets from the Vendor on and
subject to the terms of this agreement.
14. MISCELLANEOUS
14.1 ENTIRE AGREEMENT
This agreement contains all terms of the arrangement between the parties,
and supersedes and extinguishes all prior agreements, discussions and
arrangements between the parties, with respect to the matters covered by
this agreement.
14.2 COSTS
The Purchaser shall bear the legal and other costs in the preparation and
implementation of this agreement.
14.3 NOTICES
Any notice or other written communication requiring to be given to either
of the parties to this agreement in relation to the provisions of this
agreement shall be in writing signed by the party giving the notice or by
any officer of that party and shall be given as follows:
TO THE VENDOR:
Attention: Mr Mark Whittaker
Facsimile: 9936 2425
TO THE PURCHASER:
Attention: Mr Terry Youngman
Facsimile: 9936 2425
or in respect of a party to such other address as that party may by at
least five Business Days' notice advise the other part as its address for
service.
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Any notices shall be determined to be duly given or made:
(a) if delivered by hand, upon delivery;
(b) if sent by facsimile, upon transmission being confirmed by the
facsimile machine transmitting the notice or communication;
(c) if sent by airmail post to an address in another country, on the
seventh Business Day after being put in the post, addressed to the
intended recipient; or
(d) if sent by ordinary post to another address in the same country, on
the second Business Day after being put in the post, addressed to the
intended recipient.
14.4 GOVERNING LAW
The governing law of this agreement and of the relations of the parties
arising from it shall be New Zealand law.
The parties to this agreement hereby accept the jurisdiction of the High
Court at Auckland, New Zealand, and any proceedings issued in respect of
any claim, dispute or other matter whatever arising out of this agreement
shall be issued out of the High Court at Auckland.
14.5 COUNTERPARTS
This agreement may be signed in any number of counterparts, all of which
taken together shall constitute one and the same instrument. Any party may
enter into this agreement by signing any counterpart.
14.6 NON-WAIVER
Failure or omission by a party at any time to enforce or require strict or
timely compliance with any provisions of this agreement shall not affect or
impair that provision in any way or the rights of that party to avail
itself of the remedies it may have in respect of any breach of that
provision.
14.7 FURTHER ASSURANCE
Each party undertakes to do all acts and things and execute and sign all
deeds and documents which may be required to be executed or signed or both
to carry out or give effect of the provisions of this agreement.
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14.8 NON-MERGER
The warranties, undertakings, agreements, covenants and indemnities given
under or pursuant to this agreement shall not merge on Completion of the
sale and purchase of the Business Assets or otherwise, but shall remain
enforceable to the fullest extent despite any rule of law to the contrary.
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SCHEDULE 1
LEASED PROPERTIES
PROPERTY: Unit 3, 66 Hobill Avenue, Manakau City, Auckland
LEASE DATED: 10 February 1995
LESSOR: GA & BM Coe and AD & HR Lewer, Furniss Road, 3RD Waiuku,
New Zealand
RENT: $1,312.50 (incl. GST)
TERM: 2 years plus two further options to renew each of two years.
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SCHEDULE 2
WARRANTIES
1. INCORPORATION, QUALIFICATION AND STANDING
1.1 The Vendor is duly incorporated, validly existing and in good standing
under the laws of New Zealand and the Vendor has full corporate power to
own, lease and operate the Business Assets and to conduct the Business in
all jurisdictions where the Business is conducted and to enter into and
perform this agreement.
1.2 The execution, delivery and performance of this agreement by the Vendor has
been duly and validly authorized by all necessary corporate action on its
part and this agreement and each other agreement, document and instrument
delivered or to be delivered by the Vendor in connection with or pursuant
to this agreement will constitute legally valid and binding obligations of
the Vendor, enforceable in accordance with their terms.
1.3 The sale of the Business Assets and the Business pursuant to this agreement
is not in violation of any trust, agreement, judgment or order, does not
result in a breach of any obligation (including but not limited to any
statutory, contractual or fiduciary obligation) or constitute a default
under or result in the imposition of any encumbrance under any agreement or
undertaking, by which the Vendor is bound.
2. THE BUSINESS ASSETS
2.1 Except for the assets covered by the Equipment Leases, the Vendor is the
absolute legal and beneficial owner of and has good, marketable and
insurable title to all the Business Assets and at Completion full title in
all the Business Assets will vest in the Purchaser free from all liens,
mortgages, charges, security interests, restrictions, conditions, claims,
options, imperfections of title or other encumbrances whatsoever (whether
arising by way of statute or otherwise).
3. GOODWILL
3.1 The Vendor has not done or omitted to do any act which would adversely
affect the Business Goodwill.
4. CONDUCT OF BUSINESS UP TO COMPLETION
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4.1 The Vendor will between the date of this agreement and Completion:
(i) ensure the Business is prudently carried on in the ordinary and
normal course as a going concern with all due skill and care in a
businesslike manner and, without limitation, that all sums payable
under the Business Contracts are paid on the due date;
(ii) incur for the Business no liabilities (prospective, contingent or
actual) or other obligations which are of an unusual nature or amount
to or constitute a material commitment other than those incurred in
the normal course of business;
(iii) make no alteration to the terms of employment of the Employees
(including the basis of the remuneration payable to them); and
(iv) supply customers of the Business with the usual products and services
of the Business.
EXECUTED as an agreement.
SIGNED by FAI HOME SECURITY )
HOLDINGS NEW ZEALAND LIMITED )
in the presence of )
- ----------------------------------- -----------------------------------
Signature of witness FAI HOME SECURITY HOLDINGS NEW
ZEALAND LIMITED
- -----------------------------------
Name of witness (print)
SIGNED by FAI HOME SECURITY )
(ENZED) LIMITED in the presence of )
- ----------------------------------- -----------------------------------
Signature of witness FAI HOME SECURITY (ENZED) LIMITED
- -----------------------------------
Name of witness (print)
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EXHIBIT 2.3
FAI HOME SECURITY HOLDINGS NEW ZEALAND LIMITED
FAI HOME SECURITY HOLDINGS PTY LIMITED
NZ SHARE SALE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
MAP: 10603090
<PAGE>
NZ SHARE SALE AGREEMENT
AGREEMENT dated 1997
BETWEEN FAI HOME SECURITY HOLDINGS NEW ZEALAND LIMITED as trustee for the FAI
Home Security (NZ) Trust of Level 15, Coopers & Lybrand Tower, 23-29
Albert Street, Auckland, New Zealand ('VENDOR')
AND FAI HOME SECURITY HOLDINGS PTY LIMITED ACN 003 125 264 of Level 12,
FAI Insurance Building, 185 Macquarie Street, Sydney, New South Wales,
2000 ('PURCHASER')
RECITALS
A. The Company will on completion of the NZ Asset Purchase Agreement have on
issue 1,000,000 ordinary shares.
B. The Shares will at completion of the NZ Asset Purchase Agreement be legally
owned by the Vendor.
C. The Vendor has agreed to sell and the Purchaser has agreed to purchase the
Shares subject to and on the terms and conditions contained in this
Agreement.
AGREEMENT
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
'COMPANY' means FAI Home Security (ENZED) Limited.
'COMPLETION' means completion of the sale and purchase of the Shares in
accordance with CLAUSE 5.
'COMPLETION DATE' means the day upon which the Conditions are satisfied.
'CONDITIONS' means the conditions precedent to completion of this agreement
set out in CLAUSE 3.1.
'FLOAT' has the meaning given in the NZ Asset Purchase Agreement.
'NZ ASSET PURCHASE AGREEMENT' means the agreement between the Vendor and
the Company dated on or about the date of this agreement.
<PAGE>
'NZ DEBT' has the meaning set out in the NZ Asset Purchase Agreement.
'SHARE PURCHASE AGREEMENT' means the agreement for the sale and purchase of
the Shares in the Company and in FAI Home Security Pty Limited (ACN 050 064
214) and certain other assets between the Purchaser, Home Security
International, Inc., FAI Insurances Limited and Cervale Pty Limited.
'SHARES' means all of the issued shares in the capital of the Company.
'UNDERWRITING AGREEMENT' has the meaning given in the NZ Asset Purchase
Agreement.
2. SALE AND PURCHASE
2.1 Subject to the terms and conditions of this agreement, the Vendor as
beneficial owner agrees to sell the Shares to the Purchaser and the
Purchaser agrees to purchase the Shares from the Vendor for the
Consideration.
2.2 The Shares must be transferred at Completion free from all liens,
mortgages, charges and encumbrances whatsoever and together with all
rights, including dividends and rights attached or accruing to them on and
after the date of this agreement.
2.3 Subject to the terms and conditions of this agreement, the Vendor agrees to
assign the benefit of the NZ Debt to the Purchaser on Completion.
3. CONDITIONS PRECEDENT AND SUBSEQUENT
3.1 Completion of the sale of the Shares is conditional upon:
(a) if necessary, the approval, on terms satisfactory to HSI, to
Completion of the sale to the Purchaser of the NZ Shares from the
Overseas Investment Commission of New Zealand pursuant to the Overseas
Investment Regulations 1985; and
(b) completion of the NZ Asset Purchase Agreement.
3.2 If the Conditions are not satisfied on or before 30 June 1997 or a later
date agreed by the parties in writing then either the Purchaser or the
Vendor may at any time before Completion terminate this agreement by giving
notice in writing to the other.
3.3 On service of the notice under CLAUSE 3.2 this agreement has no further
effect and all parties are released from their obligations to further
perform this agreement.
3.4 The Purchaser or the Vendor may terminate this agreement by giving notice
to the other if:
(a) the Underwriting Agreement is terminated before completion of the
Underwriting Agreement; or
(b) either or both of the following conditions subsequent are not fulfilled
within 24 hours after Completion:
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(i) the Float has gone effective;
(ii) the Underwriting Agreement has been executed.
3.5 If this agreement terminates in accordance with CLAUSE 3.4, the rights and
obligations of the Parties under this agreement, except for this CLAUSE
3.5, will terminate and, unless the Vendor waives its rights under this
clause 3.5, the Parties must take all necessary steps to:
(a) vest title and possession of the Shares in the Vendor;
(b) otherwise restore the rights and obligations of the Parties to those
rights and obligations that they would have had if this agreement had
not been entered into without loss or gain to any of the Parties.
4. CONSIDERATION
4.1 The consideration for the Shares is the market value of the Shares, as set
out in an audit certificate to be provided by Arthur Andersen at
Completion. The consideration is to be paid by way of loan from the Vendor
to the Purchaser repayable within 12 months or as otherwise agreed and,
sending repayment, bearing interest at the Bank Bill Rate plus two
percentage points.
4.2 In consideration for the assignment of the benefit of the NZ Debt, the
Purchaser agrees to pay to the Vendor on Completion an amount equal to the
value of the NZ Debt, as set out in an audit certificate to be provided by
Arthur Andersen at Completion.
5. COMPLETION
5.1 Completion will take place immediately after completion of the NZ Asset
Purchase Agreement and immediately prior to completion of the Share
Purchase Agreement.
5.2 At Completion the Vendor must deliver to the Purchaser duly executed and
completed transfers in favour of the Purchaser, or as it directs in
writing, of the Shares in registerable form, together with the relevant
share certificates;
5.3 The Vendor assigns, and the Purchaser accepts the assignment of, the
benefit of the NZ Debt with effect from the Completion Date.
6. ASSIGNMENT
The rights of the parties under this agreement may not be assigned or
transferred.
7. GOVERNING LAW AND JURISDICTION
7.1 This agreement is governed by the laws of New South Wales.
7.2 Each party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of New South Wales.
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EXECUTED as an agreement.
THE COMMON SEAL of FAI HOME )
SECURITY HOLDINGS NEW ZEALAND LIMITED )
is affixed in accordance with its articles of )
association in the presence of )
................................... ........................................
Secretary Director
................................... ........................................
Name of secretary (print) Name of director (print)
THE COMMON SEAL of FAI HOME )
SECURITY HOLDINGS PTY LIMITED )
is affixed in accordance with its articles of )
association in the presence of )
................................... ........................................
Secretary Director
................................... ........................................
Name of secretary (print) Name of director (print)
5
<PAGE>
EXHIBIT 2.4
FAI INSURANCES LIMITED
(`FAI')
FAI HOME SECURITY PTY LIMITED
(`FHS')
TRADE MARK LICENCE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 SYDNEY
Telephone (02)9210 4444
Facsimile (02)9235 2711
Ref MAP:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions.............................................. ii
2. LICENCE.................................................. 2
3. FHS's OBLIGATIONS........................................ 3
4. INTELLECTUAL PROPERTY RIGHTS............................. 4
5. WARRANTY................................................. 5
6. REGISTERED USER.......................................... 5
7. TERM AND TERMINATION..................................... 5
8. NOTICES.................................................. 8
9. EXCLUSION OF IMPLIED RELATIONSHIPS....................... 9
10. ASSIGNMENT............................................... 9
11. FURTHER ASSURANCES, CONSENTS AND APPROVALS............... 9
12. REPRESENTATIONS AND WARRANTIES........................... 9
13. SEVERABILITY............................................. 9
14. WAIVER................................................... 9
15. ENTIRE AGREEMENT......................................... 10
16. COUNTERPARTS............................................. 10
17. GOVERNING LAW AND JURISDICTION........................... 10
18. EXECUTION BY ALL PARTIES................................. 10
</TABLE>
<PAGE>
TRADE MARK LICENCE AGREEMENT
AGREEMENT dated 1997
BETWEEN FAI INSURANCES LIMITED ACN 004 304 545 of Level 12, 185 Macquosie
Street, Sydney, New South Wates, Australia ("FAI")
AND FAI HOME SECURITY PTY LIMITED (ACN 050 064 214) of level 7, 77
Pacific Highway, North Sydney, New South Wales, Australia ('FHS')
RECITALS
A. FAI owns and has extensive reputation and goodwill in the FAI name and
logo.
B. FHS was formed to operate the FAI Home Security Business in Australia. It
wishes to use the FAI name and logo in various business names and marks,
and in the company names of members of the HSI Group.
C. FAI has agreed to grant FHS the right to use FAI's name and logo in
conjunction with the words 'Home Security' on the terms and conditions of
this Agreement.
AGREEMENT
1. DEFINITIONS
In this Agreement:
'HSI DEALER' means any dealer, distributor or agent appointed by HSI (or
any HSI Group Company) from time to time to promote the sales, installation
and service of residential security alarm systems.
'HSI' means Home Security International, Inc.
'HSI GROUP', means HSI and its wholly owned subsidiaries including FHS.
'HSI GROUP COMPANY' means a member of the HSI Group.
'LICENCE' means the licence granted by FAI to FHS in CLAUSE 2.1.
'TRADE MARK' means:
<PAGE>
(a) the FAI name;
(b) the FAI logo, depicted as
(c) the combination of the FAI name and logo, depicted as:
[LOGO OF FAI]
(d) each application for registration of the FAI name and logo (as
depicted above), listed in the Schedule, and each resulting
registration, as amended from time to time by agreement between the
parties.
2. LICENCE
FAI grants to FHS a licence to use the Trade Mark as:
(a) a trade mark; and
(b) part of a corporate name.
2.2 FHS may only use the Trade Mark in conjunction with the words 'Home
Security', or other equivalent description of the business of selling,
installing and servicing residential security alarm systems worldwide.
2.3 The Licence is:
(a) non-exclusive;
(b) non-transferable; and
(c) royalty free.
2.4 FHS may grant sub-licences of the Licence to any HSI Dealer and any HSI
Group Company (each a 'SUB-LICENSEE') but only if FHS:
(a) ensures that each Sub-licensee has imposed on it; and
(b) uses reasonable efforts to ensure that each Sub-licensee complies
with,
obligations consistent with and no less stringent than those imposed on
FHS under this Agreement, including FHS's obligations under clause 3.
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<PAGE>
2.5 This Agreement does not restrict FAI's right to use or license the use of
the Trade Mark to any other person.
3. FHS'S OBLIGATIONS
3.1 FHS agrees:
(a) to use the Trade Mark in accordance with the Licence and any
reasonable directions issued by FAI (including directions contained in
any guidelines prepared by FAI from time to time) and required:
(i) to maintain the value (including the validity and
distinctiveness) of the Trade Mark and to ensure that the Trade
Mark is not brought into disrepute or otherwise affects or has
the potential to affect the good name or standing of FAI; and
(ii) to ensure that FAI'S rights in the Trade Mark are not impaired or
infringed;
(b) not to permit, procure or encourage any other person to use the Trade
Mark other than in accordance with paragraph (a);
(c) if and as requested by FAI, to submit to FAI for review samples of all
marketing and other materials bearing the Trade Mark, specifying the
time (no less than 7 days) by which FHS requires a response on that
material;
(d) to promptly correct any failure to comply with paragraph (a) or any
direction by FAI resulting from a review under paragraph (c),
including by complying with any timely and reasonable directions
issued by FAI in relation to materials submitted to FAI under
paragraph (c);
(e) to report to FAI any suspected or actual unauthorised use of the Trade
Mark (including by any HSI Group Company or HSI Dealer) of which it
becomes aware;
(f) to provide all assistance reasonably requested by FAI to protect FAI's
rights in the Trade Mark;
(g) not to represent that it owns or has any rights in relation to the
Trade Mark other than as set out in this Agreement;
(h) not to question or challenge the validity of FAI's ownership of the
Trade Mark;
(i) without limiting the rights of use granted under clause 2.1, not to
apply for registration of any trade mark, business name or company
name that incorporates any logo the same as, substantially identical
with or deceptively similar to the Trade Mark, without the consent of
FAI; and
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(j) to use its reasonable efforts to ensure each HSI Group Company and HSI
Dealer complies with the obligations contained in PARAGRAPHS (A) to
(I).
3.2 FHS must:
(a) promptly notify FAI (and the HSI Group Company or HSI Dealer) if it
becomes aware that any HSI Group Company or HSI Dealer on two or more
occasions does not, in relation to the Trade Mark:
(i) substantially comply with any obligation required to be imposed
on it under this Agreement in accordance with CLAUSE 2.3; and
(ii) remedy any breach of that obligation immediately after receiving
notice from FHS requiring it to do so (which notice FHS must give
promptly),
(a 'TRADE MARK BREACH'); and
(b) (i) promptly terminate the appointment of any HSI Dealer that has
committed a Trade Mark Breach if FAI notifies FHS that in FAI's
reasonable opinion the HSI Dealer's Trade Mark Breach may
adversely affect the value (including the validity or
distinctiveness) of the Trade Mark; and
(ii) include in any HSI Dealer agreement a provision which allows
termination in accordance with SUB-PARAGRAPH (I); and
(c) (i) promptly terminate the Sub-licence of any HSI Group Company that
has committed a Trade Mark Breach if FAI notifies FHS that in
FAI's reasonable opinion the HSI Group Company's Trade Mark
Breach may adversely affect the value (including the validity or
distinctiveness) of the Trade Mark; and
(ii) include in any HSI Group Company agreement a provision which
allows termination in accordance with SUB-PARAGRAPH (I); and
4. INTELLECTUAL PROPERTY RIGHTS
4.1 FHS acknowledges that FAI (or its successors or assigns) owns:
(a) the Trade Mark; and
(b) all existing and future copyright in the FAI logo.
4.2 FHS agrees to include, as set out in CLAUSE 4.3, on and in promotional and
other materials that include reference to the Trade Mark ('MATERIALS'), an
accurate statement ('TRADE MARK STATEMENT') in the following or
substantially similar terms:
4
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FAI is a trade mark of 'FAI Insurances Limited'.
4.3 The Trade Mark Statement must appear clearly and prominently on and in
Materials as follows:
(a) at least once at the foot of any printed Materials;
(b) in the credits or otherwise at the end of all audio-visual Materials
(including video cassettes and CD-Roms) produced (whether for
promotional, training or other purposes) by or on behalf of FHS, an
HSI Group Company or an HSI Dealer; and
(c) on any other Materials - as reasonably agreed between the parties.
5. WARRANTY
FAI warrants that:
(a) it has all rights required to grant the Licence; and
(b) use of the Trade Mark in connection with the Home Security Business
will not infringe the rights of any person.
6. REGISTERED USER
FHS agrees to:
(a) cooperate at the request of FAI in applying to become a registered
user of any registered Trade Mark under relevant trade marks
legislation in any country; and
(b) bear all costs arising out of any application for it to become a
registered user as referred to in PARAGRAPH (A).
7. TERM AND TERMINATION
7.1 This Agreement will start immediately following the successful completion
of the float of HSI and will continue until terminated under CLAUSE 7.2,
7.3 or 7.4.
7.2 If FHS breaches any material provision of this Agreement and fails to
remedy the breach within 21 days after receiving notice from FAI requiring
it to do so, FAI may terminate this Agreement with immediate effect by
giving written notice to FHS.
5
<PAGE>
7.3 FAI may immediately terminate this agreement if:
(a) FHS disposes of the whole or any part of its assets, operations or
business;
(b) any step is taken to enter into any arrangement between FHS and its
creditors;
(c) FHS ceases to be able to pay its debts as they become due;
(d) FHS ceases to carry on business;
(e) any step is taken by a mortgagee to enter into possession or dispose
of the whole or any part of FHS's assets or business (other than a
vexatious or frivolous step or any step which is disposed of by a
court within 7 days of it occurring);
(f) any step is taken to appoint a receiver, a receiver and manager, a
trustee in bankruptcy, a liquidator, a provisional liquidator,
administrator or other like person of the whole or any part of FHS's
assets or business (other than a vexatious or frivolous step or any
step which is disposed of by a court within 7 days of it occurring);
(g) there is any change in FHS's direct or indirect beneficial control; or
(h) fails to take action under CLAUSE 7.4 as required.
7.4 FHS must, unless FAI otherwise agrees, immediately terminate any sub-
licence granted pursuant to CLAUSE 2.4 if:
(a) the Sub-licensee to whom the particular sub-licence has been granted
(in this CLAUSE 7.4, referred to the 'RELEVANT SUB-LICENSEE') disposes
of the whole or any part of its assets, operations or business;
(b) any step is taken to enter into any arrangement between the Relevant
Sub-licensee and its creditors;
(c) the Relevant Sub-licensee ceases to be able to pay its debts as they
become due;
(d) the Relevant Sub-licensee ceases to carry on business;
(e) any step is taken by a mortgagee to enter into possession or dispose
of the whole or any part of the Relevant Sub-licensee's assets or
business (other than a vexatious or frivolous step or any step which
is disposed of by a court within 7 days of it occurring);
(f) any step is taken to appoint a receiver, a receiver and manager, a
trustee in bankruptcy, a liquidator, a provisional liquidator,
administrator or other like person of the whole or any part of the
Relevant Sub-licensee's assets or business (other
6
<PAGE>
than a vexatious or frivolous step or any step which is disposed of by
a court within 7 days of it occurring); or
(g) there is any change in the Relevant Sub-licensee's direct or indirect
beneficial control.
7.5 Unless the parties otherwise agree, on termination of this Agreement:
(a) the Licence terminates;
(b) FHS must:
(i) immediately cease using and have no further right to use,
including on any signs or promotional material:
(A) the Trade Mark; or
(B) any trade mark that is substantially identical with or
confusingly similar to the Trade Mark;
(ii) remove all signs bearing the Trade Mark;
(iii) destroy all other material bearing the Trade Mark in its
possession or control;
(iv) provide all assistance requested by FAI to cancel any
registration of FHS as a registered user of the Trade Mark; and
(v) use its best efforts to ensure that each HSI Group Company and
HSI Dealer ceases using and is aware that it has no further
right to use, including on any signs or promotional material,
the Trade Mark.
7.6 Each party agrees that any reasonable costs of changing any official
register to comply with clause 7.5(B)(IV) will be borne:
(a) in the case of a termination under CLAUSE 7.2, by the breaching
party; and
(b) in any other case, by the parties jointly.
7.7 Termination of this Agreement will not affect any accrued rights of any
party.
<PAGE>
8. NOTICES
8.1 A notice required to be given by one party to any other party under this
Agreement must be in writing, addressed to that other party and:
(a) left at that party's address;
(b) sent by pre-paid post (airmail if posted to or from a place outside
Australia) to that party's address; or
(c) transmitted by facsimile to the facsimile number which that party has
specified by notice to the other parties.
8.2 A notice given to a party in accordance with CLAUSE 8.1 is treated as
having been given and received:
(a) if delivered to a party's address, on the day of delivery if a
business day, otherwise on the following business day;
(b) if sent by pre-paid mail, on the third business day after posting (or
on the seventh business day if posted to or from a place outside
Australia); and
(C) if transmitted by facsimile to a party's address and a correct and
complete transmission report is received, at the time and on the day
of transmission if a business day, otherwise on the next following
business day.
8.3 For the purpose of CLAUSE 8.1 the address and facsimile number of each
party is as set out below or any other address or facsimile of which that
party may from time to time give notice to each other party:
FAI INSURANCES LIMITED
Address: Level 12, 185 Pacific Highway, Sydney
Attention: Mr Robert Baulderstone
Fax: 9373 0012
FHS
Address: Level 7, 77 Pacific Highway, North Sydney
Attention: Mr Terry Youngman
Fax: 9936 2425
8
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9. EXCLUSION OF IMPLIED RELATIONSHIPS
Nothing expressed or implied in this Agreement will constitute or be
construed to constitute a party as a partner, agent, employee or
representative of another party or place a party in a fiduciary
relationship with another party.
10. ASSIGNMENT
A party must not assign or novate any rights under this Agreement to any
person without the prior written consent of the other party.
11. FURTHER ASSURANCES, CONSENTS AND APPROVALS
11.1 Each party must, at its own expense, do everything reasonably necessary to
give full effect to this Agreement and refrain from doing anything that may
hinder the performance of this Agreement.
11.2 A Party may give or withhold its approval or consent conditionally or
unconditionally in its discretion unless this Agreement states otherwise.
12. REPRESENTATIONS AND WARRANTIES
FHS agrees that no party makes any representation or warranty to any other
party other than as expressly referred to in this Agreement and other than
in respect of any such express representation or warranty, each party
enters into this Agreement entirely on the basis of its own investigations
and decisions and not in reliance on any act or representation made by any
other party.
13. SEVERABILITY
Part or all of any provision of this Agreement that is illegal or
unenforceable may be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
14. WAIVER
The failure of a party at any time to require performance of any obligation
under this Agreement is not a waiver of that party's right:
(a) to insist on performance of, or claim damages for breach of, that
obligation unless that party acknowledges in writing that the failure
is a waiver; and
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(b) at any other time to require performance of that or any other
obligation under this Agreement.
15. ENTIRE AGREEMENT
15.1 This Agreement constitutes the entire agreement of the parties about its
subject matter and supersedes any previous understandings or agreements on
that subject matter.
15.2 This Agreement may only be altered by the written agreement of all parties.
16. COUNTERPARTS
This Agreement may be executed in any number of counterparts and all those
counterparts taken together will be regarded as one instrument.
17. GOVERNING LAW AND JURISDICTION
17.1 This Agreement is governed by the law of New South Wales.
17.2 Each party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of New South Wales.
18. EXECUTION BY ALL PARTIES
This Agreement will not be binding on any party until it is executed by or
for all the parties.
SCHEDULE
EXECUTED as an agreement.
THE COMMON SEAL of FAI )
INSURANCES LIMITED is affixed in )
accordance with its articles of association )
in the presence of )
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------
Secretary ------------------------------------------------
Director
- -----------------------------------------------
Name of secretary (print) ------------------------------------------------
Name of director (print)
THE COMMON SEAL of FAI HOME )
SECURITY PTY LIMITED )
is affixed in accordance with its articles of )
association in the presence of )
- ----------------------------------------------- -----------------------------------------------
Secretary Director
- ----------------------------------------------- -----------------------------------------------
Name of secretary (print) Name of director (print)
</TABLE>
11
<PAGE>
Exhibit 10.1
HOME SECURITY INTERNATIONAL, INC.
1997 EMPLOYEES' STOCK OPTION PLAN
1. Purpose of the 1997 Employees' Stock Option Plan
The purpose of the Plan is to enable the Company to attract, retain and
motivate its employees by providing for or increasing the proprietary interests
of such employees in the Company through increased stock ownership.
The Plan provides for options which either (i) qualify as incentive stock
options ("Incentive Options") within the meaning of that term in Section 422 of
the Internal Revenue Code of 1986, as amended, or (ii) do not so qualify under
Section 422 of the Code ("Nonstatutory Options") (collectively "Options"). Any
Option granted under this Plan will be clearly identified at the time of grant
as to whether it is intended to be either an Incentive Option or a Nonstatutory
Option.
2. Definitions.
The following terms, when appearing in the text of this Plan in capitalized
form, will have the meanings set out below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as heretofore or
hereafter amended.
(c) "Committee" means the committee appointed by the Board pursuant to
Section 3 below.
(d) "Company" means Home Security, Inc. or any "parent" as that term is
defined by Section 424(e) of the Code or "subsidiary corporation", as that term
is defined by Section 424(f) of the Code, thereof, unless the context requires
it to be limited to Home Security, Inc.
(e) "Disabled Grantee" means a Grantee who is disabled within the meaning
of Section 422(c)(6) of the Code.
(f) "Employees" means the class of employees consisting of individuals
regularly employed by the Company on a full-time salaried basis who are
primarily management or highly compensated employees, or such other employees as
the Committee shall so determine.
(g) "Executive Officer" means those individuals who, on the last day of
the taxable year at issue: (i) served as the Company's chief executive officer
or was acting in a similar
1
<PAGE>
capacity, regardless of compensation level; and (ii) the four most highly
compensated executive officers (other than the chief executive officer) all as
determined pursuant to 26 C.F.R (S) 1.162-27(c)(2).
(h) "Fair Market Value" means, with respect to the common stock of the
Company, the price at which the stock would change hands between an informed,
able and willing buyer and seller, neither of which is under a compulsion to
enter into the transaction. Fair Market Value will be determined in good faith
by the committee in accordance with a valuation method which is consistent with
the guidelines set forth in Treasury Regulation 1.421-7(e)(2) or any applicable
regulations issued pursuant to Section 422(a) of the Code. Fair Market Value
will be determined without regard to any restriction other than a restriction
which, by its terms, will never lapse.
(i) "Grantee" means an eligible Employee under this Plan who has been
granted an Option.
(j) "Incentive Option" means an Option that qualifies for the benefit
described in Section 421 of the Code, by virtue of compliance with the
provisions of Section 422 of the Code.
(k) "Nonstatutory Option" means an Option that is not an Incentive Option.
(l) "Option" means either an Incentive Option or a Nonstatutory Option
granted under this Plan.
(m) "Option Agreement" means the agreement entered into between the
Company and an individual Grantee and specifying the terms and conditions of the
Option granted to the Grantee, which terms and conditions will recite or
incorporate by reference: (i) the provisions of this Plan which are not subject
to variation; and (ii) the variable terms and conditions of each Option granted
hereunder which will apply to that Grantee.
(n) "Optionee" means a Grantee, and, under the appropriate circumstances,
his guardian, representative, heir, distributee, legatee or successor in
interest, including any transferee.
(o) "Plan" means this 1997 Employees' Stock Option Plan, as the same may
from time to time be amended.
(p) "Stock" means the Company's common stock.
3. Administration of the Plan.
--------------------------
The Plan shall be administered by a Committee of the Board.
2
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(a) Committee Membership. The Plan shall be administered by a committee
appointed by the Board, to be known as the Compensation Committee (the
"Committee"). The Committee shall be not less than two members and comprised
solely of Non-employee Directors, as defined by Rule 16b-3(b)(3)(i) of the
Securities and Exchange Act of 1934 ("1934 Act"), or any successor definition
adopted by the Securities and Exchange Commission, and who shall each also
qualify as an Outside Director for purposes of Section 162(m) of the Code. Any
vacancy occurring on the Committee may be filled by appointment by the Board.
The Board at its discretion may from time to time appoint members to the
Committee in substitution of members previously appointed, may remove members of
the Committee and may fill vacancies, however caused, in the Committee. If no
Committee is constituted, all members of the Board who would otherwise qualify
as Committee members shall constitute the Committee.
(b) Committee Procedures. The Committee shall select one of its members as
chairman and shall hold meetings at such times and places as it may determine. A
quorum of the Committee shall consist of a majority of its members, and the
Committee may act by vote of a majority of its members present at a meeting at
which there is a quorum, or without a meeting by written consent signed by all
members of the Committee. If any powers of the Committee hereunder are limited
or denied by the Board, the same powers may be exercised by the Board.
(c) Committee Responsibilities. The Committee will interpret the Plan,
presc ribe, amend and rescind any rules or regulations necessary or appropriate
for the administration of the Plan, and make such other determinations and take
such other actions it deems necessary or advisable, except as otherwise
expressly reserved for the Board.
Subject to the limitations imposed by the Board, and the terms of the Plan,
the Committee may periodically determine which Employees should receive Options
under the Plan, whether the options shall be Incentive Options or Nonstatutory
Options, the number of shares covered by such options, the per share purchase
price for such shares, and the terms thereof, including but not limited to
transferability of such Options, and shall have full power to grant such
Options. In making its determinations, the Committee shall consider, among other
relevant factors, the importance of the duties of the Grantee to the Company,
his or her experience with the Company, and his or her future value to the
Company.
All decisions, interpretations and other actions of the Committee shall be
final and binding on all Grantees, Optionees and all persons deriving their
rights from a Grantee or Optionee. No member of the Board or the Committee shall
be liable for any action or failed to be taken in good faith or determination
made pursuant to the Plan.
4. Stock Subject to Plan.
This Plan authorizes the Committee to grant Options to Employees up to the
aggregate amount of 750,000 shares of Stock, subject to eligibility and any
limitations specified herein. Adjustment in the shares subject to the Plan shall
be made provided in Section 9. Any shares
3
<PAGE>
covered by an Option which, for any reason, expires, terminates or is canceled
may be re-optioned under the Plan.
5. Eligibility
-----------
(a) General Rule. All employees defined in section 2(f) shall be
eligible to be granted Options.
(b) Ten Percent Stockholders. An employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company, its parent or subsidiaries shall not be eligible for designation as
a Grantee of an Incentive Option unless (i) the exercise price for each share of
Stock subject to such Incentive Option is at least one hundred ten percent
(110%) of the Fair Market Value of a share of Stock on the date of grant, and
(ii) such Incentive Option, by its terms, is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Attribution Rules. For purposes of Subsection (b) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters (whether by the whole or
half blood), spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall be
deemed to be owned proportionately by or for its shareholders, partners or
beneficiaries.
(d) Outstanding Stock. For purpose of Subsection (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
(e) Term of Plan. The Committee may make such grants at any time and in
any amounts that it, in its discretion, may designate, subject to the other
relevant limitations set out in this Plan. No Options will be granted under
this Plan after the day prior to the tenth (10th) anniversary of the date this
Plan is adopted or the date this Plan is approved by the stockholders of the
Company whichever date occurs first.
(f) Individual limits of Executive Officers. Subject to the provisions of
Section 9 hereof the number of Option shares granted in a fiscal year of the
Company to each Executive Officer, shall not exceed ________ shares for any
fiscal year for which such person is classified as an Executive Officer.
(g) Incentive Option Limitation. The aggregate Fair Market Value of the
Stock for which Incentive Options granted to any one Employee under this Plan
and under all incentive stock option plans of the Company, its parents(s) and
subsidiaries, may by their terms first become exercisable during any calendar
year shall not exceed $100,000, determining Fair Market Value of the Stock
subject to any Option as of the time that Option is granted. If the date on
which one or more Incentive Options could be first exercised would be
accelerated pursuant to any other provision of the Plan or any Stock Option
Agreement referred to in Section 6(a), or an
4
<PAGE>
amendment thereto, and the acceleration of such exercise date would result in a
violation of the restriction set forth in the preceding sentence, then
notwithstanding any such other provision; the exercise date of such Incentive
Options shall be accelerated only to the extent, if any, that is permitted under
Section 422 of the Code and the exercise date of the Incentive Options with the
lowest Option prices shall be accelerated first. Any exercise date which cannot
be accelerated without violating the $100,000 restriction of this section shall
nevertheless be accelerated, and the portion of the option becoming exercisable
thereby shall be treated as a Nonstatutory Option.
6. Terms and Conditions of All Options Under the Plan.
--------------------------------------------------
Each Option granted shall be subject to all applicable terms and conditions
of the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in the Option grant. The Committee will designate from among the
Employees, those who will be granted Options.
(a) Option Agreements. All Options granted under the Plan shall be
evidenced by a written Option Agreement.
(b) Number of Shares. Each Option Agreement shall specify the number of
shares of the Stock each such Employee will be entitled to purchase pursuant to
the Option and shall provide for the adjustment of such number in accordance
with Section 9. Each Option Agreement shall state the minimum number of shares
which must be exercised at any time, if any.
(c) Nature of Option. Each Option Agreement shall specify the intended
nature of the Option as an Incentive Stock Option, a Nonstatutory Option or
partly of each type.
(d) Exercise Price. Each Option Agreement shall specify the exercise
price. The exercise price of either the Incentive Stock Option or the
Nonstatutory Option shall not be less than on hundred percent (100%) of the Fair
Market Value of a share of Stock on the date of grant. Subject to the
foregoing, the exercise price under any Option shall be determined by the
Committee in its sole discretion. The exercise price shall be payable in the
form described in Section 7.
(e) Term of Option. The Option Agreement shall specify the term of the
Option. The term of any Option granted under this Plan is subject to
expiration, termination, and cancellation as set forth within this Plan.
(f) Exercisability. Subject to the provisions of the Plan, the Committee
may grant Options which are vested, or which become vested upon the happening of
an event or events as specified by the Committee. Each Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. Exercisable Options may be exercised in
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whole or in part. Such Option shall not be exercisable after the expiration of
such term which shall be fixed by the Committee ending not later than ten years
from the date such Option is granted.
(g) Withholding Taxes. If, upon exercise of any Nonstatutory Option (or
any Incentive Option which is treated as a Nonstatutory Option because it fails
to meet the requirements set forth herein and in the Code for Incentive Stock
Options), the Optionee fails to tender full payment to the Company for any
federal income tax withholding required in connection with such exercise, the
Committee shall withhold from the Optionee sufficient shares having a Fair
market Value (determined under Section 2(h)) equal to any amount which the
Company is required to withhold under the Code.
(h) Requirement of Certificate. An Optionee shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until he has received a certificate or
certificates therefor.
(i) Termination and Acceleration of Option.
For Incentive Options:
(i) If the employment of a Grantee who is not a Disabled Grantee
is terminated without cause, or such Grantee voluntarily quits or
retires under any retirement plan of the Company, any then outstanding
and exercisable stock option held by such Grantee shall be
exercisable, in accordance with the provisions of the Option
Agreement, by such Grantee at any time prior to the expiration date of
such Option or within three months after the date of termination of
employment or service, whichever is the shorter period;
(ii) If the employment of a Grantee who is a Disabled Optionee is
terminated without cause, any then outstanding and exercisable Option
held by such an Optionee shall be exercisable, in accordance with the
provisions of the Option Agreement, by such a Grantee at any time
prior to the expiration date of such Option or within one year after
the date of such termination of employment or service, whichever is
the shorter period;
(iii) Following the death of a Grantee during employment, any
outstanding and exercisable Options held by such an Grantee at the
time of death shall be exercisable, in accordance with the provisions
of the Option Agreement referred to in Section 6(a), by the person or
persons entitled to do so under the Will of the Grantee, or, if the
Optionee shall fail to make testamentary disposition of the stock
option or shall die intestate, by the legal representative of the
Grantee at any time prior to the expiration date of such Option or
within one year after the date of death,whichever is the shorter
period.
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For all Options issued hereunder:
(i) If the Company terminates the employment of a Grantee for
cause, all outstanding Options held by the Grantee at the time of such
termination shall automatically terminate unless the Committee
notifies the Grantee that his or her Options will not terminate. A
termination "for cause" shall be defined under each written Option
Agreement issued pursuant to Section 6(a). The Company assumes no
responsibility and is under no obligation to notify a Transferee of
early termination of an Option on account of a Grantee's termination
of employment
(ii) Whether termination of employment or other service is a
termination "for cause" and whether a Grantee is a Disabled Grantee
shall be determined in each case, in its discretion, by the Committee
and any such determination by the Committee shall be final and
binding.
7. Payment for Shares
------------------
(a) Cash. Payment in full for shares purchased under an Option may be made
in cash (including check, bank draft or money order) at the time that the Option
is exercised.
(b) Stock. In lieu of cash an Optionee may, with the consent of the
Committee, make payment for Stock purchased under an Option, with Stock, in
whole or in part, by either of the following methods:
(i) By tendering to the Company in good form for transfer, shares of
Stock valued at Fair Market Value on the date the Option is exercised. Such
shares will have been owned by the Optionee or the Optionee's representative for
the time specified by the Committee but in no case shall the Optionee, or his
representative have held a beneficial interest in such tendered shares for a
period of less than six months prior to the exercise of the Option.
(ii) By requesting the Company to withhold from the number of shares
of Stock otherwise issuable upon exercise of the Option that number of shares
having an aggregate Fair Market Value on the date of exercise equal to the
exercise price for all of the shares of Stock subject to such exercise.
(c) Promissory Notes. The Board has authority and reserves the right to
make an independent determination as to whether the Company shall assist any
Grantee to whom an Option is granted hereunder in the payment of the purchase
price payable on exercise of an Option. Upon application by a Grantee and to the
extent that the Board independently determines that the Company shall provide
assistance, payment may be made all or in part with a full recourse promissory
note executed by the Grantee. The interest rate, security and other terms and
conditions of such note shall be determined by the Board. In no event shall the
stock certificate(s) representing such
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shares be released to the Grantee until such note is paid in full.
8. Use of Proceeds from Stock.
--------------------------
Cash proceeds from the sale of Stock pursuant to Options granted under the
Plan shall constitute general funds of the Company.
9. Adjustments.
-----------
Changes or adjustments in the Option price, number of shares subject to an
Option or other specifics as the Committee should decide will be considered or
made pursuant to the following rules:
(a) Upon Changes in Stock. If the outstanding Stock is increased or
decreased, or is changed into or exchanged for a different number or kinds of
shares or securities, as a result of one or more reorganizations,
recapitalization, stock splits, reverse stock splits, split-up, combination of
shares, exchange of shares, change in corporate structure, or otherwise,
appropriate adjustments will be made in the exercise price or the number and/or
kind of shares or securities for which Options may thereafter be granted under
this Plan and for which Options then outstanding under this Plan may thereafter
be exercised. The Committee will make such adjustments as it may deem fair,
just and equitable to prevent substantial dilution or enlargement of the rights
granted to or available for Optionees. No adjustment provided for in this
Section 9 will require the Company to issue or sell a fraction of a share or
other security. Nothing in this Section will be construed to require the
Company to make any specific or formula adjustment.
(b) Prohibited Adjustment. If any such adjustment provided for in this
Section 9 requires the approval of stockholders in order to enable the Company
to grant or amend Options, then no such adjustment will be made without the
required stockholder approval. Notwithstanding the foregoing, if the effect of
any such adjustment would be to cause an Incentive Option to fail to continue to
qualify under Section 422 of the Code or to cause a modification, extension or
renewal of such Option within the meaning described in Section 424 of the
Code, the Committee may elect that such adjustment not be made but rather shall
use reasonable efforts to effect such other adjustment of each then outstanding
Option as the Committee, in its sole discretion, shall deem equitable and which
will not result in any disqualification, modification, extension or renewal
(within the meaning of Section 424 of the Code) of such Incentive Option.
(c) Further Limitations. Nothing in this Section will entitle the
Optionee to adjustment of his Option in the following circumstances:
(i) The issuance or sale of additional shares of the Stock, through
public offering or otherwise;
(ii) The issuance or authorization of an additional class of capital
stock of the Company;
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<PAGE>
(iii) The conversion of convertible preferred stock or debt of the
Company into Stock; and
(iv) The payment of dividends except as provided in Section 9 (a).
The grant of an Option shall not effect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
10. Legal Requirements:
-------------------
(a) Compliance with all laws. The Company will not be required to issue
or deliver any certificates for shares of Stock prior to (a) the listing of any
such Stock to be acquired pursuant to the exercise of any Option on any stock
exchange on which the Stock may then be listed, and (b) the compliance with any
registration requirements or qualification of such shares under any federal
securities laws, including without limitation the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder, or state securities
laws and regulations, the regulations of any stock exchange or interdealer
quotation system on which the Company's securities may then be listed, or
obtaining any ruling or waiver from any government body which the Company will,
in its sole discretion, determine to be necessary or advisable, or which, in the
opinion of counsel to the Company, is otherwise required.
(b) Compliance with Specific Code Provisions. It is the intent of the
Company that the Plan and its administration conform strictly to the
requirements of Section 422 of the Code with respect to Incentive Options.
Therefore, notwithstanding any other provisions of this Plan, nothing herein
will contravene any requirement set forth in Section 422 of the Code with
respect to Incentive Options and if inconsistent provisions are otherwise found
herein, they will be deemed void and unenforceable or automatically amended to
conform, as the case may be.
(c) Plan Subject to Delaware Law. All questions arising with respect to
the provisions of the Plan will be determined by application for the Code and
the laws of the state of Delaware except to the extent that Delaware laws are
preempted by any federal law.
11. Rights as a Shareholder.
-----------------------
An Optionee, or anyone claiming rights derived from an Optionee, shall have
no rights as a shareholder with respect to any Stock covered by his Option until
the date of issuance of the stock certificate to him after receipt of the
consideration in full set forth in the Option Agreement. Except as provided in
Section 9 hereof or as may be required by Section 7(c) or 10(a), no adjustments
will be made for dividends, whether ordinary or extraordinary, whether in cash,
securities, or other property, for distributions for which the record date is
prior to the date on which the Option is exercised.
12. Restrictions on Shares.
----------------------
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Prior to the issuance or delivery of any shares of the Stock under the
Plan, the person exercising the Option may be required to:
(a) represent and warrant that the shares of the Stock to be acquired upon
exercise of the Option are being acquired for investment for the account of
such person and not with a view to resale or other distribution thereof;
(b) represent and warrant that such person will not, directly or
indirectly, sell, transfer, assign, pledge (except for a pledge of shares
issued or delivered upon payment in whole or in part of the Option price
with a promissory note as contemplated by Section 7), hypothecate or
otherwise dispose of any such shares unless the sale, transfer, assignment,
pledge, hypothecation or other disposition of the shares is pursuant to the
provisions of this Plan and effective registrations under the 1933 Act and
any applicable state or foreign securities laws or pursuant to appropriate
exemptions from any such registrations; and
(c)execute such further documents as may be reasonably required by the
Committee upon exercise of the Option or any part thereof, including but
not limited to any stock restriction agreement that the Committee may
choose to require.
Nothing in this Plan shall assure any Optionee that shares issuable under this
Option are registered on a Form S-8 under the Securities Act of 1933 ("1933
Act") or on any other Form. The certificate or certificates representing the
shares of the Stock to be issued or delivered upon exercise of an Option may
bear a legend evidencing the foregoing and other legends required by any
applicable securities laws. Furthermore, nothing herein or any Option granted
hereunder will require the Company to issue any Stock upon exercise of any
Option if the issuance would, in the opinion of counsel for the Company,
constitute a violation of the 1933 Act, as amended, applicable state securities
laws, or any other applicable rule or regulation then in effect. The Company
shall have no liability for failure to issue shares upon any exercise of Options
because of a delay pending the meeting of any such requirements.
13. Transferability.
----------------
The Committee shall retain the authority and discretion to permit a Non-
Statutory Option, but in no case an Incentive Option, to be transferable as long
as such transfers are made to one or more of the following: family members,
including children of Grantee, spouse of Grantee, or grandchildren of Grantee or
trusts for such family members ("Transferee"), provided that such transfer is a
bona fide gift (as defined in Rule 16 b-3) and accordingly, the Grantee receives
no consideration for the transfer, and that the Options transferred continue to
be subject to the same terms and conditions that were applicable to the Options
immediately prior to the transfer. Options are also subject to transfer by will
or the laws of descent and distribution. Options granted pursuant to this Plan
shall not be otherwise transferred, assigned, pledged, hypothecated or disposed
of in any way, whether by operation of law or otherwise. The designation of a
beneficiary shall not constitute a transfer.
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<PAGE>
14. No Right to Continued Employment.
--------------------------------
This Plan, and any Option granted under this Plan, will not confer upon any
Optionee any right with respect to continued employment by the Company nor shall
they alter, modify, limit or interfere with any right or privilege of the
Company under any employment agreement heretofore or hereinafter executed with
any Optionee, including the right to terminate any Optionee's employment at any
time for or without cause, to change his level of compensation or to change his
responsibilities or position.
15. Corporate Reorganizations.
-------------------------
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the company as a result of which the
outstanding securities of the class then subject to Options hereunder are
changed into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of substantially all the property of the Company
to, or the acquisition of stock representing more than eighty percent (80%) of
the voting power of the stock of the Company then outstanding, by another
corporation or person, the Plan will terminate and all Options will lapse. The
result described above will not occur if provision is made in writing in
connection with such transaction for the continuance of the Plan and/or for the
assumption of Options earlier granted, or the substitution for such Options of
options covering the stock of a successor employer corporation, or a parent or
a subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices, in which event the Plan and Options theretofore granted will
continue in the manner and under the terms so provided. If the Plan and
unexercised Options shall terminate pursuant to the foregoing, all persons
entitled to exercise any unexercised portions of Options then outstanding shall
have the right, at such time prior to the consummation of the transaction
causing the termination as the Company shall designate, to exercise the
unexercised portions of their options, including the portions thereof which
would but for this Section 15, not yet be exercisable.
16. Modification, Extension and Renewal.
-----------------------------------
(a) Options. Subject to the conditions of, and within the limitations
prescribed in the Plan herein, the Committee may modify, extend, cancel or renew
outstanding Options. Notwithstanding the foregoing, no modification will,
without the prior written consent of the Optionee, alter, impair or waive any
rights or obligations associated with any Option earlier granted under the Plan.
(b) Plan. The Board at any time, and from time to time, may interpret,
amend or discontinue the Plan, subject to the limitation, however, that, except
as provided in Section 9 (relating to adjustments upon changes in Stock), no
amendment shall be made, except upon approval by vote of a majority of the
outstanding shares of the company, which will:
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<PAGE>
(1) Increase the number of shares reserved for Options under the
Plan; or
(2) Reduce the minimum permissible exercise price or
(3) Change the requirements for eligibility for participation under
the Plan;
(4) Extend the ten year duration of this Plan.
17. Plan Date and Duration.
----------------------
The Plan shall take effect on the date it is adopted by the Board subject
to approval by the stockholders of the Company prior to December 31, 1997.
Options may not be granted under this Plan more than ten years after the date of
the adoption of this Plan, or of shareholder approval thereof, whichever is
earlier.
HOME SECURITY INTERNATIONAL, INC.,
A Delaware Corporation
Adopted by the Board of Directors of Home Security International, Inc. on
________, 19 ____.
Approved by the Stockholders of Home Security International, Inc. on _____,
19 ____.
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Exhibit 10.2
HOME SECURITY INTERNATIONAL,INC.
1997 DIRECTORS' STOCK OPTION PLAN
1. Purpose:
This Stock Option Plan ("the Plan") is designed to enable Home Security
International, Inc., a Delaware corporation (the "Company") and its subsidiaries
to attract, retain, and motivate the members of its Board of Directors who are
non-employee directors ("Directors") by providing for or increasing the
proprietary interest of such individuals in the Company, and by more closely
aligning their interests with those of the Company's shareholders.
2. Eligibility:
The persons who shall be eligible to receive Options shall be Directors of
the Company (the "Eligible Directors") who are not full-time employees of or
consultants to the Company.
3. Stock:
Subject to the provisions of Section 9 (relating to the adjustment upon
changes in stock), there will be reserved for issuance upon the exercise of
Options to be granted from time to time under the Plan an aggregate of 50,000
shares of Common Stock, no par value, of the Company ("Stock"). In the event
that any outstanding Option under the Plan for any reason expires or is canceled
or terminated, the shares of stock allocable to the unexercised portion of such
Option may again be subject to an Option under the Plan.
4. Administration:
This Plan shall be administered by the Compensation Committee (the
"Committee"), comprised solely of Non-Employee Directors as defined by Rule 16b-
3(b)(3)(i) of the Securities Exchange Act of 1934 ("1934 Act"), or any successor
definition adopted by the Securities and Exchange Commission, and who shall each
also qualify as an Outside Director for purposes of Section 162(m) of the Code.
Any vacancy occurring on the Committee may be filled by appointment by the
Board. The Board at its discretion may from time to time appoint members to the
Committee in substitution of members previously appointed, may remove members of
the Committee and may fill vacancies, however caused, in the Committee. If no
Committee is constituted, all members of the Board who would otherwise qualify
as Committee members shall constitute the Committee. The interpretation and
construction by the Committee of any provisions of the Plan or of any Option
granted under it shall be final unless otherwise determined by the Board of
Directors. No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option granted under it.
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<PAGE>
5. Terms and Conditions of Options:
Stock Options granted pursuant to the Plan shall be evidenced by agreements
("Agreements") in such form as the Committee shall from time to time recommend
and the Board of Directors shall from time to time approve, which Agreements
shall comply with and be subject to the following terms and conditions:
(a) On the next business day following the close of each of the regular
annual shareholders meetings for each of the years 1997, 1998 and 1999 (each
such date is hereafter the "Date of Grant"), each Eligible Director ("Grantee")
shall receive an Option for 2,500 shares of Stock, provided such Eligible
Director continues to serve in the capacity of director.
(b) Each Option shall state the Option price which shall be 100% of the
fair market value of the shares of Stock of the Company on the applicable Date
of Grant. The fair market value is defined for the purposes of this Plan as the
last sales price on the day preceding the Date of Grant.
(c) Payment for Options may be made as follows:
(i) Cash. Payment in full for shares purchased under an Option
may be made in cash (including check, bank draft or money order) at the
time that the Option is exercised.
(ii) Stock. In lieu of cash an Optionee may, with the consent of
the Committee, make payment for Stock purchased under an Option, in whole
or in part, by:
(A) tendering to the Company in good form for transfer,
shares of Stock valued at fair market value on the date the Option is
exercised (any Stock so tendered must be held by the Option holder for
a period of at least six months prior to the tender), or
(B) by requesting the Company to withhold from the number
of shares of Stock otherwise issuable upon exercise of the Option that
number of shares having an aggregate fair market value on the date of
exercise equal to the exercise price for all of the shares of Stock
subject to such exercise (for purposes of this subsection, fair market
value is defined as the last sales price on the day preceding the
exercise of the Option).
(iii) Promissory Notes. The Board has authority and reserves the
right to make an independent determination as to whether the Company shall
assist any Grantee in the payment of the purchase price payable on exercise
of an Option. Upon application by a Grantee and to the extent that the
Board independently determines that the Company shall provide assistance,
payment may be made all or in part with a full recourse promissory note
executed by the Grantee. The interest rate, security and other terms and
2
<PAGE>
conditions of such note shall be determined by the Board. In no event
shall the stock certificate(s) representing such shares be released to the
Grantee until such note is paid in full.
(d) No stock acquired under this Plan may be disposed of within six months
from the Date of Grant.
(e) The term of any Option shall be ten (10) years from the date it was
granted.
(f) In no event shall any Option be exercisable prior to the approval of
this Plan by the holders of a majority of the shares of the Company's Stock
present, or represented and entitled to vote, at the annual shareholders'
meeting following the grant of options, duly held in accordance with the
applicable laws of the State of Delaware.
(g) Subject to the approval of the Board of Directors, the Committee shall
have and retain the authority and discretion to permit an Option to be
transferable as long as such transfers are made to one or more of the
following: family members, including children of the Grantee, the spouse of the
Grantee, or grandchildren of the Grantee or trusts for such family members
("Transferees"), provided that such transfer is a bona fide gift and
accordingly, the Grantee receives no consideration for the transfer, and that
the Options transferred continue to be subject to the same terms and conditions
that were applicable to the Options immediately prior to the transfer. Options
are also subject to transfer by will or the laws of descent and distribution.
Options shall not be otherwise transferred, assigned, pledged, hypothecated or
disposed of in any way, whether by operation of law or otherwise. A Transferee
may not subsequently transfer an Option. The designation of a beneficiary shall
not constitute a transfer.
(h) An Option shall terminate and shall not be exercisable if the person to
whom it is granted ceases to be a Director of the Company, except that, subject
to the limitation hereafter stated in this paragraph 5(h):
(i) if his directorship is terminated by any reason other than his
death or on account of any act of fraud, intentional misrepresentation,
embezzlement, misappropriation or conversion of assets or opportunities of the
Company or any direct or indirect majority-owned subsidiary of the Company, he,
or his successors or assigns, may at any time within three months after
termination of his directorship exercise his Option, but only to the extent that
it was exercisable by him on the date of termination of his office, and
(ii) if he dies while a Director of the Company, or within three
months after termination of his office, his Option may be exercised by his
successors or assigns at any time within 18 months following his death, but only
to the extent that such Option was exercisable by him on the date of termination
of his office.
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<PAGE>
An Option may not be exercised to any extent by anyone after the expiration
of its term. Anything in this paragraph 5(h) to the contrary notwithstanding, an
Option shall not terminate solely by reason of the fact that the person to whom
it is granted ceases to be a Director of the Company if such person shall become
or remain an officer of the Company as provided in the By-laws simultaneously
with his ceasing to be a Director; and in such event the subsequent ceasing of
such person to be an officer of the Company at a time when such person is not a
Director of the Company shall have the same effect as if such person were then
to have ceased to be a Director of the Company. The Company assumes no
responsibility and is under no obligation to notify a Transferee of early
termination of an Option on account of a Director's termination of office.
(i) Neither a person to whom an Option is granted, nor his Transferee,
legal representative, heir, legatee, or distributee shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until he has received a certificate or
certificates therefor. Under no circumstances shall any certificate be issued
within six months of the Date of Grant. Except as provided in Section 9 hereof,
no adjustments will be made for dividends, whether ordinary or extraordinary,
whether in cash, securities, or other property, for distributions for which the
record date is prior to the date on which the Option is exercised.
(j) If, upon exercise of any Option, the Grantee fails to tender payment to
the Company for any federal or state income tax or withholding, the Committee
shall withhold from the Grantee sufficient shares or fractional shares having a
fair market value equal to any amount that the Company is required to withhold
under the Code or State law.
(k) The minimum number of shares with respect to which an Option may be
exercised in part at any time is 100.
6. Restrictions on Shares:
Prior to the issuance or delivery of any shares of Stock under the Plan, the
person exercising the Option may be required to:
(a) represent and warrant that the shares of Stock to be acquired upon
exercise of the Option are being acquired for investment for the account of
such person and not with a view to resale or other distribution thereof;
(b) represent and warrant that such person will not, directly or
indirectly, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any such shares unless the transfer, sale, assignment, pledge
(except for a pledge of shares issued or delivered upon payment in whole or
in part of the Option price with a promissory note as contemplated by
Section 5(c)(iii)), hypothecation or other disposition of the shares is
pursuant to the provisions of this Plan, effective registrations under the
1933 Act and any applicable state or foreign securities laws, or pursuant
to appropriate exemptions from any such registrations; and
4
<PAGE>
(c) execute such further documents as may be reasonably required by the
Committee upon exercise of the Option or any part thereof, including but
not limited any stock restriction agreement that the Committee may choose
to require.
The certificate or certificates representing the shares of Stock to be issued or
delivered upon exercise of an Option may bear a legend evidencing the foregoing
and other legends required by any applicable securities laws. Furthermore,
nothing herein or any Option granted hereunder will require the Company to issue
any Stock upon exercise of any Option if the issuance would, in the opinion of
counsel for the Company, constitute a violation of the Securities Act of 1933,
as amended, the Delaware securities laws, or any other applicable rule or
regulation then in effect and the Company shall have no liability for failure to
issue shares upon any exercise of Options because of a delay pending the meeting
of any such requirements.
7. Use of Proceeds from Stock:
Cash proceeds from the sale of stock pursuant to Options granted under the
Plan shall constitute general funds of the Company.
8. No Implied Covenants:
Neither this Plan nor any action taken hereunder shall be construed as
giving any Director any right to be retained in office.
9. Adjustment Upon Changes in Stock:
If any change is made in the Stock subject to the Plan, or subject to any
Option granted under the Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, split-up, combination of shares, exchange of
shares, change in corporate structure, or otherwise) appropriate adjustments
shall be made by the Board of Directors as to the kind and maximum number of
shares subject to the Plan, and the kind and number of shares and price per
share of Stock subject to outstanding Options.
10. Modification, Extension and Renewal:
Subject to the conditions of, and within the limitations prescribed in,
Section 15, hereof, the Committee may cancel, modify, extend or renew
outstanding Options. Notwithstanding the foregoing, no modification will,
without the prior written consent of the Grantee, alter, impair or waive any
rights or obligations associated with any Option earlier granted under the Plan.
Further, but subject to Section 9, the Committee may not change the number of
shares of the Company's Stock issuable under the Plan or the class of persons
who are eligible to participate in the Plan.
5
<PAGE>
11. Compliance with Other Laws and Regulations:
The Plan, the Options granted hereunder, and the obligation of the Company
to sell and deliver Stock under such Options, shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals by any
government or regulatory authority or investigative agency as may be required.
The Company shall not be required to issue or deliver any certificates for
shares of Stock prior to (a) the listing of any such Stock to be acquired
pursuant to the exercise of any Option on any stock exchange on which the Stock
may then be listed; and (b) the compliance with any registration requirements or
qualification of such shares under any federal or state securities laws, or the
obtaining of any ruling or waiver from any government body that the Company or
its subsidiaries shall, in their sole discretion, determine to be necessary or
advisable, or that, in the opinion of counsel to the Company or its
subsidiaries, is otherwise required.
12. Corporate Reorganizations:
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a result of which the
outstanding securities of the class then subject to Options hereunder are
changed into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of substantially all the property of the Company
to, or the acquisition of stock representing more than eighty percent (80%) of
the voting power of the stock of the Company then outstanding, by another
corporation or person, the Plan will terminate and all Options will lapse. The
result described above will not occur if provision is made in writing in
connection with such transaction for the continuance of the Plan and/or for the
assumption of Options earlier granted, or the substitution for such Options of
options covering the stock of a successor corporation, or a parent or a
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices, in which event the Plan and Options theretofore granted will
continue in the manner and under the terms so provided.
13. Financial Assistance:
Upon an independent determination of the Board consistent with Section
5(c)(iii) herein, the Company may assist a Grantee in purchasing an Option
granted hereunder by lending the amount of such purchase price to such Grantee
on such terms and at such rates of interest and upon such security (or
unsecured) as is authorized by the Board.
14. Governing Law:
All questions arising with respect to the provisions of the Plan will be
determined by application of the Code and the laws of the state of Delaware
except to the extent that Delaware laws are preempted by any federal law.
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<PAGE>
15. Amendment of the Plan:
The Board of Directors at any time, and from time to time, may amend the
Plan, subject to the limitation, however, that, except as provided in Section 9
(relating to adjustments upon changes in Stock), no amendment shall be made,
except upon approval by vote of a majority of the outstanding shares of the
Company, which will:
(a) Increase the number of shares reserved for Options under the Plan; or
(b) Reduce the Option price below 100% of fair market value at the time an
Option is granted;
(c) Change the requirements for eligibility for participation under the Plan;
or
(d) Extend the ten year duration of this Plan.
16. Termination or Suspension of the Plan:
The Board of Directors at any time may suspend or terminate the Plan.
Unless previously terminated by the Board, this Plan shall terminate on and no
further Options will be granted after the tenth (10th) anniversary of the
Effective Date of the Plan, as described in Section 17 hereof.
Rights and obligations under any Option granted while the Plan is in effect
shall not be altered or impaired by suspension or termination of the Plan,
except by consent of the person to whom the Option was granted.
17. Effective Date:
This Plan shall become effective on the date it is adopted by the Company's
Board of Directors, provided that the shareholders approve the Plan within
twelve months thereafter.
The Plan shall take effect on the date it is adopted by the Board subject
to approval by the stockholders of the Company prior to May 1, 1997. Options may
not be granted under this Plan more than ten years after the date of the
adoption of this Plan, or of shareholder approval thereof, whichever is earlier.
HOME SECURITY INTERNATIONAL, INC.,
A Delaware Corporation
Adopted by the Board of Directors of Home Security International, Inc. on
__________, 19_____.
Approved by the Stockholders of Home Security International, Inc. on
________, 19____.
7
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Exhibit 10.4
MANUFACTURING AGREEMENT
-----------------------
THIS AGREEMENT is made on 1997
BETWEEN NESS SECURITY PRODUCTS PTY LIMITED (A.C.N. 069 984 372) of 4/167
Prospect Highway, Seven Hills ("Ness")
AND FAI HOME SECURITY PTY LIMITED (A.C.N. 050 064 214) of Level 7, 77
Pacific Highway, North Sydney ("FAI")
AND FAI HOME SECURITY HOLDINGS PTY LIMITED (A.C.N. 003 125 264) of Level
7, 77 Pacific Highway, North Sydney ("FAIH")
RECITAL
Ness manufactures products known as "SecurityGuard" and "SecurityGuard II". Ness
has agreed to supply certain products to FAI and FAI has agreed to purchase
certain products on the terms and conditions contained in this Agreement.
AGREEMENT
1 DEFINITIONS & INTERPRETATIONS
1.1 Definitions
(a) "ACDC" means Australian Commercial Disputes Centre Limited, a company
incorporated in New South Wales with its registered office at Level 4, 50
Park Street, Sydney.
(b) "CPI" means the All Groups Consumer Price Index for Sydney published by the
Australian Bureau of Statistics as a general measure of movements in Prices
over time.
(c) "Business Information" means all information present or future which is
confidential to a party and which relates to the Components, construction,
manufacture and supply of the Product whether furnished orally, in writing
or in any electrical, magnetic, visual or physical configuration by the
parties including, without limiting the generality of the foregoing all
technical data, specifications, formulations and diagrams, designs,
specifications and all related financial information.
(d) "Component" means a component of the Product.
(e) "Escrowed Business Information" means any and all Business
<PAGE>
Information and other information necessary or desirable for the
manufacture of the Products, including, without limitation, the identity of
the source of any Components together with any knowhow which resides with
Ness.
(f) "Extended Warranty" means the warranty contained in the certificate annexed
to this Agreement and marked "A".
(g) "Original Agreement" means the Manufacturing Agreement between FAI Security
Holdings Pty Limited (now known as FAI Home Security Holdings Pty Limited)
and Westinghouse Brake and Signal Company (Australia) Limited
("Westinghouse") which was constructively assigned by FAI Home Security
Holdings Pty Limited to FAI and formally assigned by Westinghouse to Ness.
(h) "Product Rights" means Ness' Product Rights.
(i) "Related Body Corporate" has the meaning given to it in the Corporations
Law.
(j) "Product" means:
(i) the home security alarm devices which at the date of this Agreement
are manufactured by Ness and called "SecurityGuard" and
"SecurityGuard II";
(ii) any development, modification or improvement of the Product made,
conceived or acquired by or on behalf of Ness from time to time; and
(iii) any product which partially or wholly replaces or incorporates the
Products from time to time.
(k) "Term" means the period determined pursuant to Clause 9.
(l) "Ness' Product Rights" means all rights, including, without limitation, all
intellectual property rights subsisting in and relating to the Product
including all Business Information, any technical and manufacturing
specifications, all present and future copyright in designs, plans and
diagrams of and relating to the Product and/or the Components (not being
stand alone parts or components currently available for purchase from third
parties).
(m) Where any word or phrase is given a defined meaning any other part of
speech or other grammatical form in respect of that word or phrase has a
corresponding meaning.
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1.2 Interpretation
(a) A reference to:
(i) a business day means a day during which banks are open for
general banking business in New South Wales; and
(ii) this Agreement includes the recitals and any schedules, annexures
and exhibits to this Agreement and where amended means this
Agreement as so amended.
(b) Where the context requires, this Agreement must be interpreted as if
a word which denotes:
(i) the singular denotes the plural and vice versa;
(ii) any gender denotes any other relevant gender; and
(iii) a person denotes an individual, a body corporate, a partnership,
an unincorporated association, a joint venture, a government or
a government body.
(c) Unless the context otherwise requires, a reference to:
(i) any legislation includes any regulation or instrument made under
it and where amended re-enacted or replaced means that amended
re-enacted or replacement legislation;
(ii) any other agreement or instrument where amended or replaced
means that agreement or instrument as amended or replaced;
(iii) a Clause, schedule, annexure or exhibit is a reference to a
Clause of, annexure to, schedule to or exhibit to this
Agreement;
(iv) a group of persons includes any one or more of them;
(v) any thing or amount is a reference to the whole and each part of
it; and
(vi) the CPI includes any generally accepted index for measuring
movements in consumer prices which substantially replaces the
CPI and references to the Australian Bureau of Statistics
includes any government agency, department or bureau which
replaces that Bureau.
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1.3 Successors and Assigns
A person includes the trustee, executor, administrator, successor in
title and assignee of that person.
1.4 Headings
Headings must be ignored in the interpretation of this Agreement.
1.5 References to and Calculations of Time
(a) (i) a time of day means that time of day in New South Wales;
(ii) a day means a period of time commencing at midnight and
ending 24 hours later; and
(iii) a month means a calendar month which is a period
commencing at the beginning of one of the 12 months of the
year and ending immediately before the beginning of the
first day of the next month.
(b) Where a period of time is specified and dates from a given day
or the day of an act or event it must be calculated exclusive of
that day.
(c) Where something is done or received after 5.00 pm on any day it
will be deemed to have been done on the following day.
(d) A provision of this Agreement which has the effect of requiring
anything to be done on or by a date which is not a business day
must unless the context otherwise requires be interpreted as if
it required it to be done on or by the immediately preceding
business day.
2 ORIGINAL AGREEMENT
Ness, FAIH and FAI agree that the Original Agreement does not apply to
them. FAIH, FAI and Ness acknowledge that FAIH has no subsisting rights or
obligations under the Original Agreement.
3 MANUFACTURE
3.1 Manufacture and Supply
(a) During the Term and on the terms and conditions contained in this
Agreement, Ness shall manufacture and supply the Product:
(i) exclusively to FAI throughout the world except the United
States of America; and
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(ii) non-exclusively to FAI in the United States of America.
(b) Subject to the limitations set out in clauses 3.1(a) and (c),
Ness shall, by imposing a condition of sale on each purchaser of
the Product and by all other practical means, use all reasonable
endeavours to ensure that the Product is not sold to any person
who sells or intends to sell the Product in a country where FAI
has exclusive rights. At the request of FAI Ness must take all
reasonable action requested to enforce such a condition of sale
including prosecution of any Purchaser who breaches the condition
of sale described in this clause and pay to FAI any compensation
or damages (including an accounting of profit) recovered by Ness
from the purchaser as a result of such action less any costs
incurred by Ness in connection with that prosecution. FAI will
indemnify Ness for 50% of any liability, loss, cost or expense
incurred by Ness in such prosecution which is not recovered by
Ness.
(c) Ness may market and sell the Product within FAI's exclusive
Territory if FAI has given its written consent. FAI may impose
conditions which Ness must satisfy as part of FAI's consent. A
breach by Ness of any conditions upon which consent is granted
will be deemed to be a breach of this Agreement by Ness. FAI will
not withhold its consent or impose conditions if it would be
unreasonable for FAI to do so having regard to the parties
intention that Ness should be permitted to supply and sell
products in places where FAI does not intend to market the
Product or has ceased to market the Product for a period of six
months.
(d) FAI will consent to Ness supplying Product in a country (the
"Relevant Country") under clause 3.1(c) if:
(i) Ness notifies FAI in writing that Ness intends to supply
Product in the Relevant Country (the "Exclusivity Notice");
(ii) FAI does not commence marketing the Product in the Relevant
Country within 6 months of the date of the Exclusivity
Notice or within 6 months of the date that all
authorisations are obtained to sell the Product in the
Relevant Country, whichever is the later (the "Commencement
Period"); and
(iii) Ness starts supplying Product in the Relevant Country
within 3 months of the date the Commencement Period ends.
(e) Ness' right to supply Product in a Relevant Country will cease
if, at any time:
(i) Ness does not supply Product to bonafide Purchasers in the
Relevant Country during any consecutive six month period;
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and/or;
(ii) Ness supplies and sells or sells to purchasers who sell
Product in the Relevant Country using a marketing method or
strategy which is adopted, or is similar in nature to that
used, by FAI
(f) If Ness breaches this clause 3.1 in any way, Ness must:
(i) recall any products delivered to any country due to a breach
of Ness' obligations; and
(ii) account to FAI for any profits derived by Ness from the
sale of any Product into a country in breach of Ness'
obligations.
(g) If Ness sells Product to anyone other than FAI, it must not
charge a price which is less than the price being charged to FAI
nor offer terms of trade or warranties more favourable than those
offered to FAI for an equivalent or lesser volume.
3.2 Product Warranties
(a) Ness shall ensure and warrants to FAI that each Product
manufactured:
(i) is fully functional;
(ii) does not contain any latent or patent defects;
(iii) is properly and professionally finished;
(iv) is of merchantable quality;
(v) is reasonably fit for use as a security alarm device;
(vi) is thoroughly tested by Ness to ensure compliance with each
characteristic described in paragraphs (i) to (v) above.
(vii) is packaged in single colour external packaging of
sufficient strength to provide adequate protection during
transportation from the point of manufacture to the point
of installation at the end user's premises or such other
manner as FAI approves in writing (FAI acknowledges that
the packaging used by Ness at the date of this Agreement
satisfies this condition).
(b) The warranties given by Ness under this agreement are provided on
the basis the installation, adjustment and operation of the
Products are in accordance with Ness's instructions. Warranty
coverage does not
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<PAGE>
include any defect or performance deficiency (including failure
to conform to product descriptions or specifications) which
results in whole or in part from:
(i) improper storage or handling of the products by FAI, its
employees, agents or contractors;
(ii) any design, specification or instruction furnished by FAI
or its employees, agents or contractors;
(iii) any alteration of the Products by persons other than Ness
or its authorised agents;
(iv) combining Ness' products with any another product furnished
by third parties;
(v) improper or extraordinary use of the Product, improper
maintenance of the Products or failure to comply with any
applicable instructions or recommendations of Ness.
(c) Ness' liability for a breach of the warranty given pursuant to
Clause 3.2(a) shall:
(i) Subject to clause 3.2(c)(ii) be limited to repair and/or
replacement of faulty components of the Product at
workshops nominated by Ness and each Product returned for
warranty repair shall be appropriately packaged by the
sending party in a manner suitable for the protection of
the Product from physical damage during the normal course
of transportation and be accompanied with the appropriate
documentation as to identify the nature of the fault. Any
work carried out at any time on any returned Product which
proves to be faulty due to abuse, misuse, improper
installation, setting to operation, or which is not faulty
will be charged to FAI at the hourly rate charged by Ness
for warranty work at that time;
(ii) Nothing in clause 3.2(c)(i) limits any liability Ness may
have at law or under any other term of the Agreement.
(iii) endure for a period of twelve months from the date the
Product is delivered by Ness, (the "Warranty Period") other
than Ness' liability for a breach of warranty under clause
3.2(c)(ii) which will be ongoing;
(iv) be in addition to the Extended Warranty described in Clause
12.
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(d) Product returned for service both during and after the Warranty
Period shall be forwarded to Ness freight pre-paid and returned
freight chargeable to FAI. Where a genuine fault is identified
and the Warranty applies Ness will reimburse FAI for freight
costs both ways.
(e) Ness agrees to supply to FAI Products to be used by FAI as
service exchange units of the Product so that, at all times, FAI
has thirty Products available to exchange for Products being
serviced. These Products are to be supplied by Ness at no cost to
FAI to optimise the supply of service stock to FAI's
dealers/franchisees. Ness may use any Product repaired under any
warranty contained in this Agreement to satisfy its obligations
under this Clause.
3.3 Sale and Purchase
Ness shall sell and FAI shall purchase the Product on the following
terms:
(a) subject to this Clause 3.3 and to Clause 3.4 the initial price
for each Product will be the price agreed from time to time in
writing by Ness and FAI;
(b) if the cost to Ness of any Component increases by more than 10
per cent, Ness may by written notice to FAI notify FAI of the
amount of the increase and within 28 days of such notice FAI
shall either:
(i) agree to the price of each Product being increased by the
amount by which the cost to Ness of the Component has
increased, or
(ii) arrange supply of the Component to Ness at a price which is
not greater than an amount equal to the price of the
Component immediately prior to the proposed price increase
plus 10 per cent.
(c) if the cost to Ness of any Component decreases more than 10 per
cent, Ness shall advise FAI of the amount of such decrease and
the price of each Product shall be reduced by deducting the
decrease in the component cost from the price of each Product.
(d) Ness shall only be required to accept the Component supplied
pursuant to Clause 3.3(b)(ii) if such Component is in the opinion
of Ness (not acting capriciously) of no lesser quality than the
Component previously sourced by Ness.
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(e) On 1st January in each year during the Term, Ness may increase
the price charged by Ness for the Product to a price not
exceeding the price first applicable in the preceding 12 month
period multiplied by a fraction the numerator of which is the CPI
Index at the date of the price increase (the "increase date") and
the denominator of which is the CPI Index at the date which is
twelve months prior to the increase date.
3.4 Delivery
(a) On or about the last day of each calendar month after the date of
this agreement FAI will submit to Ness an estimate (the "FAI
Estimate") of the quantity of the Product which FAI expects to
purchase during the following six month period.
(b) In each calender month during the Term Ness must supply to FAI
up to one fifth of FAI's Estimate (current at that time) in
accordance with FAI's orders no later than 7 days from the date
of placement of each order.
(c) If, in any calender month, FAI orders more than one fifth but
less than one third of the FAI Estimate (current at that time),
Ness must supply to FAI the quantity of Product which exceeds one
fifth but is less than one third of the FAI Estimate within
thirty (30) days of the placement of the order.
(d) FAI shall pay (in Australian dollars) for each Product delivered
and invoiced to FAI within 14 days of delivery or within 42 days
of the date of order, whichever is the later.
(e) If, at any time, Ness fails to deliver Product in accordance with
this Clause 3.4, FAI may, in addition to any other remedy,
require Ness to obtain the Product or a product approved by FAI
from a third party introduced by FAI and/or Ness by serving a
written notice (the "Procurement Notice") to that effect on Ness.
(f) If Ness fails to deliver all outstanding requirements of the
Product and all other orders of the Product to FAI in accordance
with this clause 3.4 at any time after the expiry of thirty (30)
days from the date on which a Procurement Notice is served, FAI
may, in addition to any other remedy, deliver the Escrowed
Business Information to a person for the purpose of enabling that
person to manufacture the Product for FAI.
(g) If Clause 3.4(f) applies:
(i) FAI will not be bound by Clause 5.2;
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(ii) Ness will provide any assistance FAI requires to enable the
Products or the product referred to in clause 3.4(f) to be
sourced by someone other than Ness; and
(iii) Ness will not be entitled to any compensation for the use
of the Escrowed Business Information.
(iv) FAI's rights under this clause 3.4(g) will cease when Ness
resumes deliveries in accordance of the terms of this
clause 3.4.
(v) FAI will only be entitled to disclose the Escrowed Business
Information to a third party for the purposes of this
clause. FAI will ensure that prior to such disclosure that
third party will covenant in a deed that it will keep that
information confidential and not disclose that information
except as necessary in order to manufacture the Product
pursuant to this clause and that third party will return
the Escrowed Business Information and cease to use it as
soon as FAI's rights cease under this clause in accordance
with subclause (iv) above.
At the request of Ness, FAI must take all reasonable action
requested to enforce confidentiality of the Escrowed
Business Information in compliance with this clause
including prosecution of any party who breaches
confidentiality and pay to Ness any compensation or damages
recovered by FAI from the breaching party as a result of
such action less any costs incurred by FAI in connection
with that prosecution.
(h) FAI cannot exercise its rights under Clause 3.4(f) if FAI is in
breach of a material obligation imposed on FAI under this
Agreement.
3.5 Force Majeure
Neither party may exercise their rights and remedies upon the default
of the other party if that default is caused by an act or event that
is beyond the reasonable control of the other party such as an act of
God, act of civil or military authorities, fire, flood, strike, war,
riot, or other cause beyond the reasonable control of the relevant
party.
3.6 Price Exclusive
The price of each Product sold to FAI by Ness shall be exclusive of
all freight charges, insurance, customs duty, sales tax or any other
duty tax or fee payable in relation to the sale, export, installation
or maintenance (other than warranty claims) of the Product all of
which are payable by FAI.
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3.7 Index Numbers
If at any time during the Term the index numbers for the CPI have not
been issued by the Australian Bureau of Statistics as required to
calculate the amount by which the price for the Product shall be
increased Ness shall apply to the officer in charge of the Sydney
office of the Australian Bureau of Statistics to determine an index
issued by the Australian Bureau of Statistics to be used in
substitution for such index numbers.
3.8 FAI Estimate
FAI will, at the end of each calender month, inform Ness if FAI
expects there to be a difference between the FAI Estimate current at
that time and the actual quantity of Products which FAI expects to
order in the unexpired period to which the FAI Estimate relates.
3.9 Risk and Title Retentions
(a) Risk of loss or damage to any Product shall pass to FAI upon
FAI's designated carrier obtaining possession of the Product.
Until the Product has been paid for in full, FAI must take out
adequate property insurance.
(b) Title in any Product supplied to FAI shall not pass to FAI until
FAI has paid to Ness the purchase price for such Product and,
until such time, the Product shall be stored by FAI and by any
person who distributes Product for FAI in such a manner that they
are readily identifiable as belonging to Ness. FAI acknowledges
that it possesses the Product as bailee of Ness and that any
right FAI may have to sell the Product in the ordinary course of
its business shall cease forthwith upon the occurrence to FAI of
any event affecting FAI referred to in Clause 8.2 or upon receipt
of written notice from Ness.
3.10 Nominee of FAI
(a) If requested by FAI, Ness shall supply the Product to a Related
Body Corporate of FAI on the same terms and conditions as set
out in this Agreement and such other conditions as Ness
reasonably requires to secure the payment for any Product having
regard to the financial position of any such Related Body
Corporate.
(b) If requested by FAI, Ness will supply the Product to a nominee
of FAI (other than a Related Body Corporate of FAI) on such
conditions as Ness requires.
(c) The terms of any agreement made with such a nominee shall not
extend beyond the expiry date of this Agreement unless otherwise
agreed by Ness.
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4 NEW MODEL
Ness will not replace the Product with a new product nor substantially
modify the Product without FAI's prior written approval.
5 EXCLUSIVITY
5.1 Ness
To the extent permitted by law during the Term Ness shall not as
principal agent or otherwise (and shall procure that its Related
Bodies Corporate do not) directly or indirectly sell anywhere in the
world, with the exception of the United States of America, any
security alarm product which is substantially similar to the Product
except to the extent that Ness is permitted to do so pursuant to this
Agreement.
5.2 FAI
To the extent permitted by law during the Term FAI shall not as
principal agent or otherwise (and shall procure that its Related
Bodies Corporate do not) directly or indirectly purchase any security
alarm product which is substantially similar to the Product except to
the extent that FAI is permitted to do so pursuant to this Agreement.
5.3 ACCC Notification
Clause 5.2 only applies if Ness notifies the Australian Competition
and Consumer Commission ("ACCC") of the existence and terms of clause
5.2 pursuant to Section 93 of the Trade Practices Act.
5.4 ACCC Notification
Clause 5.1 only applies if FAI notifies the Australian Competition and
Consumer Commission ("ACCC") of the existence and terms of clause 5.1
pursuant to Section 93 of the Trade Practices Act.
5.5 Severance
Clause 5.1 or Clause 5.2 will cease to apply and will be severed from
this Agreement if the ACCC makes any claim that Clause 5.1 or Clause
5.2 (as the case may be) offends Sections 45 or 46 of the Trade
Practices Act. The balance of this Agreement will continue in full
force despite the severance of Clause 5.1 or Clause 5.2 or both.
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6 CONFIDENTIALITY
6.1 Secrecy
The parties agree that any Business Information concerning the
manufacture of the Product and the development of the new models shall
be kept as a trade secret and that harm may be caused to FAI and Ness
by the unauthorised disclosure of information relating to the Product
(including other Business Information). The parties must hold in
strictest confidence all such information and shall not divulge,
provide or otherwise make available or allow or permit any of their
respective employees, agents or representatives (including any person
appointed to manufacture the Product under clause 3.4) to divulge,
provide or otherwise make available information constituting or
relating to the Product Rights or the Business Information in whole or
in part in any form whatsoever other than to their respective
employees, agents, representatives and distributors for the specific
purpose of performing their obligations pursuant to this Agreement.
6.2 Protection of Secrets
Ness and FAI shall each do all things and take all steps reasonably
necessary to prevent the unauthorised use and/or copying of
information relating to or constituting Product Rights and/or Business
Information.
6.3 Permitted Disclosure
FAI and Ness agree that nothing in Clauses 6.1 or 6.2 prohibits the
disclosure of information relating to or constituting Product Rights
and/or Business Information:
(a) to any person acting for or advising upon such rights or
interests providing such person is bound to keep such information
confidential;
(b) with the prior written consent of the other party;
(c) by operation of law provided that all practicable legal steps
have been taken to prevent such disclosure;
(d) by Ness to its licenced manufacturers and/or related companies
provided such recipients agree to keep such information secret
and to Ness' licenced distributors in countries where FAI does
not have exclusive rights in relation to the Product;
(e) by FAI in relation to published marketing material in the
ordinary course of marketing the Product;
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(f) by Ness in the ordinary course and for the purpose of
manufacturing Products for FAI;
(g) which is in the public domain through no fault of the party
receiving the information, and
(h) pursuant to Clause 3.4(f).
(i) to the extent that such disclosure is required for regulatory
approvals.
6.4 Notice of Infringements
Each party shall immediately notify the other should it become aware
of any actual or threatened unauthorised use of any Product Rights or
Business Information by any third party or of any actual or threatened
allegations that the Product infringes any intellectual property
rights of any person.
6.5 Assistance
FAI shall at the expense of Ness provide all necessary support and
assistance reasonably requested by Ness, including becoming a party in
any legal proceedings if requested by Ness to facilitate or assist in
the protection of Ness' Product Rights.
6.6 Escrowed Business Information
Ness must at the request of FAI from time to time deliver the Escrowed
Business Information to FAI and FAI must not:
(a) copy the Escrowed Business Information; or
(b) use or divulge the Escrowed Business information in any way
unless it is entitled to exercise its rights under Clause 3.4(f)
7 WARRANTIES
7.1 From Ness
Ness hereby warrants to FAI that:
(a) it has full title and authority to enter into this Agreement;
(b) it shall use its best endeavours through the currency of this
Agreement to fulfil all the purposes and objectives herein
contained;
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(c) it shall not be a party or be related in any way to any business,
act, matter or thing whereby FAI's rights under this Agreement
may be prejudicially affected.
7.2 From FAI
FAI hereby warrants to Ness that:
(a) it has full title and authority to enter into this Agreement;
(b) it shall use its best endeavours through the currency of this
Agreement to fulfil all the purposes and objectives herein
contained;
(c) it shall not be a party or be related in any way to any business,
act, matter or thing whereby Ness' rights under this Agreement
may be prejudicially affected.
7.3 Insurance
Ness shall obtain and maintain all reasonably necessary insurances
including product liability insurance to a value of not less than $10
million for each and every claim in relation to the Product. Ness must
upon request by FAI supply to FAI copies of relevant Insurance
Policies and Certificates of Currency. FAI may, if Ness fails to do
so, pay the cost of renewing any relevant Insurance Policy and Ness
indemnifies FAI against any such costs.
8 TERMINATION AND EXPIRY
8.1 Expiry
This Agreement shall expire on the expiry of the Term or earlier
termination pursuant to this Clause.
8.2 Grounds of Termination
This Agreement may be terminated forthwith by notice in writing by the
party not in default to the other party if an event of default occurs
in relation to that other party. An "event of default" will occur upon
the happening of any one or more of the following events:
(a) if, subject to clause 3.4(d), FAI does not pay any correct
invoice for the purchase price of any Product within 14 days of
the date upon which FAI receives written notice from Ness
requiring it to do so;
(b) if a party defaults in observing any of its obligations under
the Agreement and such default, being capable of remedy remains
unremedied for a Period of 21 days (or 14 days in the case of an
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obligation to pay money) after written notice from the other
party requiring that such default be remedied;
(c) (i) the appointment of a liquidator or provisional liquidator
in respect of a party because it is or may become
insolvent;
(ii) the winding up of a party, at the instigation of a party's
creditors or any class of its creditors;
(iii) the appointment of an Administrator in respect of a party;
(iv) the entry by a party into a scheme of arrangement or
composition with or assignment for the benefit of all or
any class of its creditors, or a moratorium involving any
of them;
(v) a party being or stating that it is unable to pay its debts
when they fall due;
(vi) the appointment of a receiver or receiver and manager in
respect of any property of a party;
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<PAGE>
(vii) an application being made which is not dismissed within
5 business days for an order, a resolution being passed or
proposed, a meeting being convened or any other action
being taken in relation to a party to cause anything
described in this Clause 8.2(c), or
(viii) anything analogous to or similar in effect happening to
any party to cause anything described in Clause 8.2(c)
under the law of any relevant jurisdiction,
The party affected by an event described in Clause 8.2(c) will be
regarded as the party in default and no notice of breach will be
required in those circumstances.
8.3 Special Ground of Termination
Unless otherwise agreed in writing by FAI, this Agreement may be
terminated by FAI with immediate effect by notice in writing to Ness
if the application of Clause 3.3(b) or clause 3.3(e) has the effect of
increasing the price of each Product by more than 20 per cent of the
price applying on the date which is 12 months before the date of the
increase or if FAI becomes entitled to exercise its rights under
Clause 3.4(f).
8.4 Effect of Termination or Expiration
(a) Any termination or expiration of this Agreement shall:
(i) be without prejudice to any other remedies which either
party may have against the other arising out of such breach
or default of the Agreement;
(ii) not affect any rights or obligations of either party,
arising under this Agreement prior to termination or any
obligations of confidentiality under clause 3.4 and clause
6; and
(iii) in the event of termination due to a breach by Ness, bind
Ness not to sell any products similar in design or
construction to the Product or which might reasonably be
regarded as a competitor of or substitute for the Product
outside the United States of America or other countries
specified by both parties in writing for a period of six
months from the date of such Termination or Expiration.
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<PAGE>
(b) Upon termination or expiration of this Agreement, for any reason,
FAI shall purchase all Product ordered and forecast for purchase
by FAI provided that the Product are delivered by Ness in
accordance with this Agreement. All warranties given by Ness will
subsist in relation to Products delivered after the termination
or expiry of this Agreement.
9 TERM
This Agreement will commence on the date it is executed by the parties and
will continue until one party gives the other at least twelve months prior
written notice that, at the end of that period of notice (which must not be
earlier than the tenth anniversary of the execution date), the Agreement
will terminate.
10 GOVERNING LAW & JURISDICTION
Subject to Clause 11:
(a) this Agreement is governed by and shall be construed in accordance
with the laws of New South Wales;
(b) the parties irrevocably and unconditionally submit to the
non-exclusive jurisdiction of the Courts of New South Wales and any
Courts which have jurisdiction to hear appeals from any of those
Courts and the parties waive any right to object to any proceedings
being brought in those Courts because the venue is inconvenient, the
Courts lack jurisdiction or any other reason; and
(c) any process or other document relating to proceedings relating to this
Agreement may be served by any method contemplated by Clause 13.5.
11 ARBITRATION
If at any time during or after the term of this Agreement a party to this
Agreement delivers a written notice to the other party requesting that a
dispute, controversy or claim arising out of or relating to this Agreement
be referred to arbitration, unless the party receiving such notice informs
the other party in writing within seven days of such notice that it does
not wish to arbitrate such dispute, controversy or claim it shall be
referred to arbitration administered by the ACDC. The arbitrator shall be
agreed between the parties from a panel suggested by ACDC or, failing
agreement, an arbitrator appointed by the Secretary-General of ACDC and
shall be conducted in accordance and subject to the terms of the Commercial
Arbitration Act 1984. Nothing in this clause 11 will prevent a party from
seeking interlocutory relief in a Court of Law.
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<PAGE>
12 EXTENDED WARRANTY
12.1 Appointment
Ness irrevocably appoints and authorises FAI as its agent to offer
the Extended Warranty in relation to the Product for a period which
extends up to 2 years past the Term of this agreement.
12.2 Undertaking
FAI undertakes to Ness that:
(a) FAI will comply with the requirements of any law relating to the
Extended Warranty and/or the way in which it is offered;
(b) FAI will, on behalf of Ness, perform all of the obligations on
the part of Ness to be performed under the Extended Warranty;
(c) FAI must provide to Ness any information concerning the Extended
Warranty and Ness' potential liability under the Extended
Warranty requested by Ness.
12.3 Indemnity
FAI hereby indemnifies Ness at all times against all costs (including
legal costs on a full indemnity basis) losses, liabilities, damages,
actions, suits, proceedings, claims, demands and expenses of whatever
kind and nature directly or indirectly arising by reason of or in
connection with:
(a) any breach of the undertakings contained in Clause 12.2;
(b) the Extended Warranty;
(c) any failure by FAI to perform, on behalf of Ness, any of the
obligations contained in the Extended Warranty.
12.4 Insurance
Ness' obligations under this Clause 12 are subject to and conditional
upon Ness using its best endeavours to obtain confirmation from the
Insurance and Superannuation Commission that the Extended Warranty is
not a contract of insurance.
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<PAGE>
12.5 Other Liabilities
The Indemnity contained in clause 12.3 does not limit any liability
Ness may have at law or under any other term of this Agreement,
including any liability in tort contract or otherwise for any
special, indirect, incidental or consequential damages suffered as a
result of any breach of Warranty by Ness or a claim by a third party.
13 GENERAL
13.1 Assignment
(a) Ness will not transfer or assign the benefit of this Agreement
or the rights and obligations hereby conferred without the prior
written consent of FAI.
(b) FAI will not transfer or assign the benefit of this Agreement or
the rights and obligations hereby conferred without the prior
written consent of Ness.
13.2 Entire Agreement
This Agreement constitutes the entire Agreement between the parties
and this Agreement may be amended only in writing signed by the
parties or their duly authorised representatives.
13.3 Severance
If any provision of this Agreement is unlawful or unenforceable, such
provisions shall be deemed severable and all other provisions hereof
shall remain in force.
13.4 Counterparts
This Agreement may consist of a number of counterparts and the
counterparts taken together constitute one and the same instrument.
13.5 Notice
(a) Any notice, demand, certification or other communication under
this Agreement shall be given in writing and in the English
language and may be given by an authorised officer of the
sender.
(b) In addition to any means authorised by law, any communication
may be given by:
(i) being left at the party's current address for service;
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(ii) being sent to the party's current address for service by
pre-paid airmail; or
(iii) by facsimile to the party's current number for service.
(c) The addresses and numbers for service are initially:
FAI Home Security Pty Limited & FAI Home Security
Holdings Pty Limited
Address: Level 7, 77 Pacific Highway,
North Sydney
Attn: Mr. Terry Youngman
Fax: 9936 2425
Phone: 9936 2424
Ness Pty Limited
Address: 167 Prospect Highway, Seven Hills
Attn: Mr. Naz Circosta
Fax: 9838 8508
Phone: 9624 3655
(d) A communication given by post shall be deemed received on the
fifth Business Day after posting.
(e) A communication sent by facsimile shall be deemed received when
the sender's facsimile machine produces a transmission report
stating that the facsimile was sent to the addressee's facsimile
number.
(f) Communications sent by facsimile shall be deemed given in the
form transmitted unless the message is not fully received in a
legible form and the addressee immediately notifies the sender
of that fact.
(g) If a communication is received by either party after 4.00 pm or
on a day which is not a Business Day it will be deemed to have
been received on the next Business Day.
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<PAGE>
EXECUTED AS AN AGREEMENT
The Common Seal of )
NESS SECURITY PRODUCTS PTY )
LIMITED was hereunto affixed by )
authority of its Board of Directors )
.................................... ...............................
Dr John Saunders - Director Mr Nazareno Circosta - Director
The COMMON SEAL of )
FAI HOME SECURITY PTY LIMITED )
was hereunto affixed by authority of )
its Board of Directors in the presence )
of: )
.................................... ...............................
Director Director/Secretary
.................................... ...............................
Name of authorised person Name of authorised person
(Block letters) (Block letters)
The COMMON SEAL of )
FAI HOME SECURITY HOLDINGS )
PTY LIMITED was hereunto affixed )
by authority of its Board of Directors )
in the presence of: )
.................................... ...............................
Director Director/Secretary
.................................... ...............................
Name of authorised person Name of authorised person
(Block letters) (Block letters)
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<PAGE>
<TABLE>
<C> <S> <C>
1 DEFINITIONS & INTERPRETATIONS...........................................- 1 -
1.1 Definitions....................................................- 1 -
1.2 Interpretation.................................................- 3 -
1.3 Successors and Assigns.........................................- 4 -
1.4 Headings.......................................................- 4 -
1.5 References to and Calculations of Time.........................- 4 -
2 ORIGINAL AGREEMENT......................................................- 4 -
3 MANUFACTURE.............................................................- 4 -
3.1 Manufacture and Supply.........................................- 4 -
3.2 Product Warranties.............................................- 5 -
3.3 Sale and Purchase..............................................- 7 -
3.4 Delivery.......................................................- 8 -
3.5 Force Majeure..................................................- 9 -
3.6 Price Exclusive................................................- 9 -
3.7 Index Numbers..................................................- 9 -
3.8 FAI Estimate...................................................- 9 -
3.9 Risk and Title Retentions......................................- 9 -
3.10 Nominee of FAI................................................- 10 -
4 NEW MODEL..............................................................- 10 -
5 EXCLUSIVITY............................................................- 10 -
5.1 Ness..........................................................- 10 -
5.2 FAI...........................................................- 10 -
5.3 ACCC Notification.............................................- 10 -
5.4 ACCC Notification.............................................- 11 -
5.5 Severance.....................................................- 11 -
6 CONFIDENTIALITY........................................................- 11 -
6.1 Secrecy.......................................................- 11 -
6.2 Protection of Secrets.........................................- 11 -
6.3 Permitted Disclosure..........................................- 11 -
6.4 Notice of Infringements.......................................- 12 -
6.5 Assistance....................................................- 12 -
6.6 Escrowed Business Information.................................- 12 -
7 WARRANTIES.............................................................- 12 -
7.1 From Ness.....................................................- 12 -
7.2 From FAI......................................................- 13 -
7.3 Insurance.....................................................- 13 -
8 TERMINATION AND EXPIRY.................................................- 13 -
8.1 Expiry........................................................- 13 -
8.2 Grounds of Termination........................................- 13 -
8.3 Special Ground of Termination.................................- 14 -
8.4 Effect of Termination or Expiration...........................- 14 -
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
9 TERM.................................................- 15 -
10 GOVERNING LAW & JURISDICTION.........................- 15 -
11 ARBITRATION..........................................- 15 -
12 EXTENDED WARRANTY....................................- 15 -
12.1 Appointment...............................- 15 -
12.2 Undertaking...............................- 16 -
12.3 Indemnity.................................- 16 -
12.4 Insurance.................................- 16 -
12.5 Other Liabilities.........................- 16 -
13 GENERAL..............................................- 16 -
13.1 Assignment................................- 16 -
13.2 Entire Agreement..........................- 17 -
13.3 Severance.................................- 17 -
13.4 Counterparts..............................- 17 -
13.5 Notice....................................- 17 -
</TABLE>
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<PAGE>
EXHIBIT 10.4
DATED day of 1997
NESS SECURITY PRODUCTS PTY. LIMITED
(A.C.N. 069 984 372)
FAI HOME SECURITY PTY LIMITED
(A.C.N. 050 064 214)
FAI HOME SECURITY HOLDINGS PTY LIMITED
(A.C.N. 003 125 264)
MANUFACTURING
AGREEMENT
DIBBS CROWTHER & OSBORNE
Attorneys and Solicitors
Level 13, 50 Carrington Street,
Sydney N.S.W. 2000
Australia
DX 101 Sydney
Tel: (02) 9290 8200
Fax: (02) 9290 2964
Ref: JPL:960763
<PAGE>
EXHIBIT 10.5
HOME SECURITY INTERNATIONAL INC.
BRADLEY DAVID COOPER
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
MAP:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS............................................................ 1
2. APPOINTMENT AND POSITION............................................... 2
3. EXECUTIVE'S DUTIES..................................................... 2
4. THE EXECUTIVE'S REMUNERATION AND OTHER BENEFITS........................ 3
5. OPTIONS................................................................ 3
6. BONUS.................................................................. 3
8. ILLNESS OR INJURY...................................................... 3
9. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY..................... 4
10. ASSIGNMENT OF INTELLECTUAL PROPERTY.................................... 5
11. TERMINATION............................................................ 5
12. REDUNDANCY............................................................. 6
13. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT........................... 6
14. RESTRAINT ON THE EXECUTIVE'S CONDUCT................................... 6
15. COMPLIANCE............................................................. 7
16. SEVERABILITY........................................................... 7
17. WAIVER................................................................. 8
18. NOTICE................................................................. 8
19. GOVERNING LAW.......................................................... 8
20. ENTIRE AGREEMENT....................................................... 8
21. ALTERATION............................................................. 8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
22. THIS AGREEMENT IS CONFIDENTIAL......................................... 9
23. HEADINGS............................................................... 9
</TABLE>
ii
<PAGE>
EXECUTIVE SERVICE AGREEMENT
AGREEMENT dated 1997
BETWEEN: HOME SECURITY INTERNATIONAL, INC., a company incorporated in Delaware,
United States of America, and having its registered office at 50
Central Plaza South, New York, New York ('COMPANY')
AND: BRADLEY DAVID COOPER of 28 Coronation Avenue, Mosmen, New South Wales,
Australia ('EXECUTIVE')
RECITALS
The Company has offered the Executive employment on the terms of this Agreement
and the Executive has accepted that offer.
AGREEMENT
1. DEFINITIONS
1.1 In this Agreement:
'CONFIDENTIAL INFORMATION' means all confidential information including,
but not limited to trade secrets and confidential know-how of which the
Executive becomes aware or generates (both before and after the day this
Agreement is signed) in the course of, or in connection with, employment
with the Company, its subsidiaries and predecessors.
'EXTERNAL BUSINESSES' means any businesses or other commercial activities
engaged in by the Executive otherwise than in the course of his engagement
under this agreement.
'HSI DEALER' means any dealer, distributor or agent appointed by the
Company (or any subsidiary of the Company) from time to time to promote the
sales, installation and/or service of the SecurityGuard Product.
'HSI GROUP' means the Company and its wholly owned subsidiaries.
'HSI GROUP COMPANY' means a member of the HSI Group.
'INTELLECTUAL PROPERTY RIGHTS' means all intellectual property rights
including without limitation:
(a) patents, copyright, registered designs, trademarks and the right to
have confidential information kept confidential; and
<PAGE>
(b) any application or right to apply for registration of any of those
rights
'SALE' means the sale by an HSI Dealer of a SecurityGuard product to a
member of the public where the product has not been returned by the
consumer, nor has there been a refund of the price paid for the
SecurityGuard Product.
'SECURITYGUARD PRODUCT' means the home security alarm devices which at the
date of this agreement are manufactured by Ness Security Products Pty
Limited and known as 'SecurityGuard' and 'SecurityGuard II'.
'TOTAL REMUNERATION' means the benefits due under CLAUSE 4.1 from time to
time.
1.2 In this Agreement, unless the contrary intention appears:
(a) the singular includes the plural and vice versa;
(b) a reference to a clause or schedule is a reference to a clause or
schedule to this Agreement and a reference to this Agreement includes
any schedules;
(c) a reference to a document or agreement, including this Agreement,
includes a reference to that document or agreement as novated, altered
or replaced from time to time;
(d) a reference to '$' is a reference to Australian currency; and
(e) a reference to writing includes typewriting, printing, photocopying
and any other method of representing words, figures or symbols in a
permanent visible form.
2. APPOINTMENT AND POSITION
2.1 The Company must employ the Executive in the position of Chief Executive
Officer.
2.2 The Executive's employment will commence immediately following the
successful completion of the float of the Company.
3. EXECUTIVE'S DUTIES
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires.
(b) subject to CLAUSE 3.3, devote substantially all of his time and
attention to the business of the Company;
(c) use all reasonable efforts to promote the interests of the Company;
2
<PAGE>
(d) act in the Company's best interests;
(e) comply with all policies of the Company in place from time to time;
(f) comply with all law applicable to the Executive's position and the
duties assigned to the Executive;
(g) report to the person or persons nominated by the Company from time to
time;
(h) perform work in connection with any subsidiaries of the Company as
directed anywhere throughout the world; and
(i) if required by the Company, accept employment with an HSI Group
Company, either exclusively or in conjunction with employment by the
Company.
3.2 Without limiting the Executive's duties to the Company, the Executive must
not:
(a) act in conflict with the Company's best interests; or
(b) compete with the Company.
3.3 The Executive may spend a reasonable amount of time on a weekly basis
working on the External Businesses. If the Executive is not performing his
obligations under clauses 3.1 and 3.2 to the satisfaction of the board of
the Company because of his rights under this clause 3.3, then the board of
the Company may review the time spent by the Executive working on the
External Businesses.
4. THE EXECUTIVE'S REMUNERATION AND OTHER BENEFITS
4.1 The Company must pay the Executive a remuneration package of US$700,000 per
annum, which is to be paid monthly. The Executive may request the Company
from time to time to pay part or all of the Total Remuneration by way of
life insurance, superannuation, contributions to a pension plan, income
protection insurance or such other components as may otherwise be agreed
between the parties.
4.2 For the avoidance of doubt, the Company is not obliged to pay or reimburse
the Executive for any out of pocket expenses incurred by the Executive in
relation to the business of the Company or otherwise.
4.3 The Company must review the Total Remuneration not less than once each year
and may vary the Total Remuneration following that review.
4.4 The Executive's Total Remuneration set out in clause 4.1 is inclusive of
any payments required to be made by the Company pursuant to any applicable
legal, statutory or regulatory requirement arising from work performed by
the Executive in accordance with this agreement in any jurisdiction in
which the Executive is required to work pursuant to clause 3.1.
4.5 The Company may and, if requested by the Executive must, set off against
the Total Remuneration (net of tax) any or all interest which has become
due to the Company by the Executive on the loan to be made by the Company
to the Executive in respect of 95% of the allotment price for the 250,000
shares in the Company to be allotted to the Executive.
5. OPTIONS
The Executive may be issued with options in accordance with SCHEDULE 1.
3
<PAGE>
6. BONUS
The Company must pay a bonus to the Executive in accordance with Schedule
2. The Company may pay a further bonus to the Executive in accordance with
Schedule 3.
7. EXECUTIVE'S LEAVE
The Company must grant the Executive leave in accordance with applicable
law.
8. ILLNESS OR INJURY
8.1 The Company must grant the Executive up to 10 days' paid sick leave each
year if the Executive is unable to perform the Executive's duties due to
illness or injury.
If the Executive is unable to perform the Executive's duties due to illness
or injury:
(a) for more than the period of the Executive's untaken paid sick leave,
but less than three months in any one period of 52 consecutive weeks,
the Executive's employment under this Agreement will continue but the
Company is not obliged to remunerate the Executive in accordance with
clause 4.1; or
(b) for equal to or more than three months in any one period of 52
consecutive weeks, the Company may terminate this Agreement by giving
to the Executive in addition to the Total Remuneration received or
earned until that point in accordance with clause 4.1, an amount
equal to the Total Remuneration received or earned by the Executive
during the three month period immediately preceding termination.
8.3 The Executive acknowledges that the Executive is not entitled to any
payment from the Company if this Agreement is terminated under clause 8.2
except for:
(a) any remuneration due under CLAUSE 4 but unpaid at the date of the
termination; and
(b) any amount required under clause 11.1 to be paid; and
(c) any amount required under applicable law to be paid, less any amount
required to be paid under clause 11.1.
9. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY
9.1 The Executive may use Confidential Information solely for the purpose of
performing the Executive's duties with the Company.
9.2 The Executive must keep confidential all Confidential Information but may
disclose Confidential Information:
(a) to persons who:
4
<PAGE>
(i) are aware and agree that the Confidential Information must be
kept confidential; or
(ii) have signed any confidentiality agreement required by the Company
from time to time,
and either:
(iii) have a need to know relative to the running to the Business (and
only to the extent that each has a need to know); or
(iv) have been approved by the person or persons nominated by the
Company from time to time;
(b) that the Executive is required to disclose in the course of the
Executive's duties with the Company;
(c) that was public knowledge when this Agreement was signed or became so
at a later date (other than as a result of a breach of confidentiality
by the Executive); or
(d) that the Executive is required by law to disclose.
9.3 The Executive must immediately notify the Company of any suspected or
actual unauthorised use, copying or disclosure of Confidential Information.
9.4 The Executive must provide assistance reasonably requested by the Company
in relation to any proceedings the Company may take against any person for
unauthorised use, copying or disclosure of Confidential Information.
10. ASSIGNMENT OF INTELLECTUAL PROPERTY
10.1 The Executive:
(a) presently assigns to the Company all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated
by the Executive (whether alone or with the Company, its other
employees or contractors) for use by the Company; and
(b) acknowledges that by virtue of this clause all such existing rights
are vested in the Company and, on their creation, all such future
rights will vest in the Company.
10.2 The Executive must do all things reasonably requested by the Company to
enable the Company to assure further the rights assigned under CLAUSE 10.1.
5
<PAGE>
11. TERMINATION
11.1 Subject to CLAUSES 8.3 and 12, the Executive's employment may be terminated
after three years from the date of commencement of the Executive's
employment under this agreement:
(a) by the Executive giving to the Company three months' notice; or
(b) by the Company giving to the Executive three months' notice.
11.2 The Executive's employment may be terminated by the Company at any time
without notice if the Executive:
(a) disobeys a lawful direction of the Company;
(b) is guilty of other serious misconduct;
(c) breaches CLAUSE 9;
(d) other than CLAUSE 9, breaches any other material provision of this
Agreement including CLAUSES 3.1 or 3.2;
(e) is found guilty by a court of a criminal offence.
11.3 Termination under this clause does not affect any accrued rights or
remedies of either party.
12. REDUNDANCY
If the Executive's employment is terminated for redundancy, the Executive
agrees that:
(a) the Company may terminate this Agreement by giving to the Executive in
addition to the Total Remuneration received or earned until that point
in accordance with CLAUSE 4.1, an amount equal to the Total
Remuneration received or earned by the Executive during the 12 month
period immediately preceding termination.
(b) the Executive is not entitled to any payment from the Company except
for:
(i) any remuneration due under CLAUSE 4 but unpaid at the date of the
termination; and
(ii) any amount required under applicable law to be paid, less any
amount paid under CLAUSE 12 (a).
6
<PAGE>
13. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT
13.1 If the Executive's employment is terminated for any reason:
(a) the Company may set off any amounts the Executive owes the Company
against any amounts the Company owes the Executive at the date of
termination except for amounts the Company is not entitled by law to
set off;
(b) the Executive must return all the Company's property (including
property leased by the Company) to the Company on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles;
(c) the Executive's obligations under CLAUSE 9 continue after termination
except in respect of information that is part of the Executive's
general skill and knowledge; and
(d) the Executive must not record any Confidential Information in any form
after termination.
14. RESTRAINT ON THE EXECUTIVE'S CONDUCT
14.1 During the Restraint Period after termination of the Executive's
employment, the Executive must not in any area in which the Company has
operated during the preceding 24 months or to the Executive's knowledge
intends to operate in the ensuing 24 months.
(a) engage in or prepare to engage in any business or activity that is the
same or similar to that part or parts of the business carried on by
the Company in which the Executive was employed at any time during the
Executive's last 24 months with the Company; or
(b) solicit, canvass, approach or accept any approach from any person who
was at any time during the Executive's last 24 months with the Company
a client of the Company in that part or parts of the business carried
on by the Company in which the Executive was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company; or
(c) interfere with the relationship between the Company and its customers,
employees or suppliers; or
(d) induce or assist in the inducement of any employee of the Company to
leave their employment.
14.2 In CLAUSE 14.1, 'Restraint Period' means:
(a) 12 months after termination of the Executive's employment;
(b) 9 months after termination of the Executive's employment;
7
<PAGE>
(c) 6 months after termination of the Executive's employment.
14.3 CLAUSE 14.1 has the effect of several separate and individual covenants and
restraints consisting of each separate covenant and restraint set out in
CLAUSE 14.1 combined with each separate period of time set out in CLAUSE
14.2.
14.4 If any of the several separate and independent covenants and restraints
referred to in CLAUSE 14.3 are or become invalid or unenforceable for any
reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
14.5 In CLAUSE 14.1 'engage in' means to participate, assist or otherwise be
directly or indirectly involved as a member, shareholder, unitholder,
director, consultant, advisor, contractor, principal, agent, manager,
employee, beneficiary, partner, associate, trustee or financier.
14.6 The Company may require the Executive to provide evidence confirming to the
satisfaction of the Company that the Executive is not in breach of this
clause.
14.7 The Executive acknowledges that each restriction specified in CLAUSE 14.1
is in the circumstances reasonable and necessary to protect the Company's
legitimate interests.
15. COMPLIANCE
The exercise of or compliance with any discretion, right or obligation
under this Agreement is subject to compliance with all applicable laws.
16. SEVERABILITY
Part or all of any clause of this Agreement that is illegal or
unenforceable will be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
17. WAIVER
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time
to insist on performance of that or any other provision of this Agreement.
18. NOTICE
18.1 A party giving notice under this Agreement must do so in writing.
18.2 A notice given in accordance with CLAUSE 18.1 is taken to be received if:
(a) hand delivered, on delivery;
(b) sent by prepaid post, 3 days after the date of posting;
8
<PAGE>
(c) sent by telex, when the machine on which the telex is transmitted
receives at the end of transmission, the answerback code of the
recipient unless, within 8 Business Hours after that transmission, the
recipient informs the sender that it has not received the entire
notice;
(d) sent by facsimile, when the sender's facsimile system generates a
message confirming successful transmission of the total number of
pages of the notice unless, within 8 Business Hours after that
transmission, the recipient informs the sender that it has not
received the entire notice.
19. GOVERNING LAW
This Agreement is governed by the law applicable in the United States of
America and the parties irrevocably and unconditionally submit to the
exclusive jurisdiction of the courts of the United States of America.
20. ENTIRE AGREEMENT
This Agreement (including its schedules):
(a) constitutes the entire agreement between the parties as to its subject
matter; and
(b) in relation to that subject matter, supersedes any prior understanding
or agreement between the parties and any prior condition, warranty,
indemnity or representation imposed, given or made by a party.
21. ALTERATION
This Agreement (including its schedules) may only be altered in writing
signed by each party.
22. THIS AGREEMENT IS CONFIDENTIAL
The terms of this Agreement and any subsequent amendments are confidential
and may not be disclosed by the Executive to any other person, other than
for the purpose of obtaining professional legal or accounting advice,
without the written approval of the Company.
23. HEADINGS
Headings are for ease of reference only and do not affect the meaning of
this agreement.
9
<PAGE>
SCHEDULE 1 - OPTIONS (CLAUSE 5)
As determined by resolution of the Board of Directors from time to time pursuant
to the terms and conditions of the Company's Executive Option Plan.
SCHEDULE 2 - BONUS (CLAUSE 6)
10% of the audited net profit of the HSI Group after tax. The bonus is to be
paid monthly, calculated on the basis of net profits after tax, as disclosed in
the monthly management accounts of the HSI Group. If, when the audited accounts
of the HSI Group are released, it is apparent that the amount actually paid in
the preceding 12 months is more or less than 10% of the audited net profit of
the HSI Group after tax as per those annual accounts, then the parties must,
within 30 days of release of those accounts, make the necessary adjustment
between them to reduce or increase the amount actually paid to equal 10% of the
audited net profit of the HSI Group after tax.
SCHEDULE 3 - BONUS (CLAUSE 6)
As determined by a resolution of the Board of Directors of the Company.
10
<PAGE>
EXECUTED as an agreement.
THE COMMON SEAL of )
HOME SECURITY INTERNATIONAL )
INC. is affixed in accordance with its articles )
of association in the presence of )
- -------------------------------- --------------------------------
Secretary Director
- -------------------------------- --------------------------------
Name of secretary (print) Name of director (print)
SIGNED by BRADLEY DAVID COOPER )
in the presence of )
- -------------------------------- --------------------------------
Signature of witness BRADLEY COOPER
- --------------------------------
Name of witness (print)
11
<PAGE>
Exhibit 10.7
HOME SECURITY INTERNATIONAL, INC.
("Company")
TERRENCE YOUNGMAN
("Executive")
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
<PAGE>
TABLE OF CONTENTS
1. Definitions.............................................................. 1
2. Appointment and Position................................................. 2
3. Executive's Duties....................................................... 2
4. The Executive's Salary and other Benefits................................ 3
5. Options.................................................................. 3
6. Bonus.................................................................... 3
7. Executive's Vehicle...................................................... 3
8. Expenses................................................................. 4
9. Executive's Leave........................................................ 4
10. Illness or Injury........................................................ 4
11. Confidential Information and Intellectual Property....................... 5
12. Assignment of Intellectual Property...................................... 5
13. Termination.............................................................. 6
14. Redundancy............................................................... 6
15. What Happens After Termination of Employment............................. 7
16. Restraint on the Executive's Conduct..................................... 7
17. Compliance............................................................... 8
18. Severability............................................................. 8
19. Waiver................................................................... 8
20. Notice................................................................... 8
21. Governing Law............................................................ 9
22. Entire Agreement......................................................... 9
23. Alteration............................................................... 9
24. This Agreement is Confidential........................................... 9
25. Headings................................................................. 9
<PAGE>
AGREEMENT dated ____________ 1997
BETWEEN HOME SECURITY INTERNATIONAL INC. ('Company')
AND TERRENCE YOUNGMAN ('Executive')
RECITAL
The Executive has commenced employment with the Company. The Company and the
Executive wish to record the terms on which the Executive will continue that
employment by the Company.
AGREEMENT
1. Definitions
1.1 In this Agreement:
'Confidential Information' means all confidential information including,
but not limited to trade secrets and confidential know-how of which the
Executive becomes aware or generates (both before and after the day this
Agreement is signed) in the course of, or in connection with, employment
with the Company; and
'HSI Group' means the Company and its wholly owned subsidiaries.
'HSI Group Company' means a member of the HSI Group.
'Intellectual Property Rights' means all intellectual property rights
including without limitation patents, copyright, registered designs,
trademarks and the right to have confidential information kept confidential
and any application or right to apply for registration of any of those
rights.
'Total Remuneration' means the salary and benefits due under clause 4.1
from time to time.
1.2 In this Agreement, unless the contrary intention appears:
(a) the singular includes the plural and vice versa;
(b) a reference to a clause or schedule is a reference to a clause or
schedule to this Agreement and a reference to this Agreement includes
any schedules;
(c) a reference to a document or agreement, including this Agreement,
includes a reference to that document or agreement as novated, altered
or replaced from time to time;
(d) a reference to '$' is a reference to Australian currency; and
<PAGE>
( ) a reference to writing includes typewriting, printing, photocopying
and any other method of representing words, figures or symbols in a
permanent visible form.
2. Appointment and Position
2.1 The Company must employ the Executive in the position of President, or
other position determined by the Company from time to time in accordance
with this Agreement.
2.2 The Executive's employment will commence immediately following the
successful completion of the float of HSI.
3. Executive's Duties
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires.
(b) serve the Company faithfully and diligently to the best of the
Executive's ability;
(c) use all reasonable efforts to promote the interests of the Company;
(d) act in the Company's best interests;
(e) comply with all policies of the Company in place from time to time;
(f) comply with all law applicable to the Executive's position and the
duties assigned to the Executive;
(g) report to the person or persons nominated by the Company from time to
time;
(h) perform work in connection with any subsidiaries of the company as
directed anywhere throughout the world.
(i) if required by the Company, accept employment with an HSI Group
Company, either exclusively or in conjunction with employment by the
Company.
3.2 Without limiting the Executive's duties to the Company, the Executive must
not:
(a) act in conflict with the Company's best interests; or
(b) compete with the Company.
<PAGE>
3
4. The Executive's Salary and other Benefits
4.1 The Company must pay the Executive an annual salary of A$125,000.
4.2 In addition to the Executive's Total Remuneration, the Company must make
contributions for the Executive into a superannuation fund agreed between
the parties or, if there is no agreement, into a superannuation fund
nominated by the Company, on account of the minimum level of superannuation
contributions which the Company must make for the Executive for the
purposes of the Superannuation Guarantee (Administration) Act 1992 and the
Superannuation Guarantee Charge Act 1992 (collectively 'SGC Legislation')
as amended from time to time ('contributions').
4.3 Upon commencing employment, the Executive must do everything necessary for
the Company to make the contributions.
4.4 The Total Remuneration does not include any fringe benefits tax payable
under the Fringe Benefits Tax Assessment Act 1986 in respect of:
(a) any component of the Total Remuneration; and
(b) any other benefit the Company provides to the Executive from time to
time under this Agreement.
4.5 The Company must review the Total Remuneration not less than once each year
and may vary the remuneration following that review and alter its
components.
5. Options
The Executive may be issued with options in accordance with Schedule 1.
6. Bonus
The Company may pay a bonus to the executive in accordance with Schedule 2.
7. Executive's Vehicle
7.1 In addition to the Executive's Total Remuneration, the Company will provide
a vehicle to the Executive on the following terms.
(a) the Company must pay for:
(i) all registration and insurance costs; and
(ii) all oil, petrol and normal maintenance; and
(b) the Executive must:
(i) maintain service records for the vehicle;
<PAGE>
4
(ii) not do anything that would breach or cause a breach of a lease
or other Company obligation, or cause an insurer to refuse to
provide insurance cover for the vehicle, including third party
insurance cover;
(iii) pay any fines imposed in connection with the use of the
vehicle; and
(iv) not alter the vehicle without the approval of the Company.
7.2 The Executive must only permit a person to drive the vehicle if that
person:
(a) holds a valid drivers licence; and
(b) does not suffer any medical condition which impairs the person's
ability to drive.
8. Expenses
The Company must pay for or reimburse the Executive for the Executive's
reasonable travel and out of pocket expenses approved by the Company.
9. Executive's Leave
The Company must grant the Executive leave in accordance with applicable
law.
10. Illness or Injury
10.1 Subject to clause 10.2, the Company must grant the Executive up to 10 days'
paid sick leave each year if the Executive is unable to perform the
Executive's duties due to illness or injury.
10.2 If the Executive is unable to perform the Executive's duties due to illness
or injury:
(a) for more than the period of the Executive's accumulated untaken paid
sick leave, but less than 6 months in any one period of 52 consecutive
weeks, the Executive's employment under this Agreement will continue
but the Company is not obliged to remunerate the Executive in
accordance with clause 4.1; or
(b) for equal to or more than 6 months in any one period of 52 consecutive
weeks, the Company may terminate this Agreement under clause 13.2.
10.3 The Executive acknowledges that the Executive is not entitled to any
payment from the Company if this Agreement is terminated under clause 10.3
except for:
(a) any remuneration due under clause 4 but unpaid at the date of the
termination; and
(b) any amount required under clause 13.2 to be paid; and
(c) any amount required under applicable law to be paid less any amount
required clause 13.2 to be paid.
<PAGE>
5
11. Confidential Information and Intellectual Property
11.1 The Executive may use Confidential Information solely for the purpose of
performing the Executive's duties with the Company.
11.2 The Executive must keep confidential all Confidential Information but may
disclose Confidential Information to:
(a) persons who:
(i) are aware and agree that the Confidential Information must be
kept confidential, or
(ii) have signed any confidentiality agreement required by the
Company from time to time;
and either:
(iii) have a need to know relative to the operation of the business
(and only to the extent that each has a need to know); or
(iv) have been approved by the person or persons nominated by the
Company from time to time.
(b) that the Executive is required to disclose in the course of the
Executive's duties with the Company;
(c) that was public knowledge when this Agreement was signed or became so
at a later date (other than as a result of a breach of confidentiality
by the Executive); or
(d) that the Executive is required by law to disclose.
11.3 The Executive must immediately notify the Company of any suspected or
actual unauthorised use, copying or disclosure of Confidential Information.
11.4 The Executive must provide assistance reasonably requested by the Company
in relation to any proceedings the Company may take against any person for
unauthorised use, copying or disclosure of Confidential Information.
12. Assignment of Intellectual Property
12.1 The Executive:
(a) presently assigns to the Company all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated
by the Executive (whether alone or with the Company, its other
employees or contractors) for use by the Company; and
<PAGE>
6
(b) acknowledges that by virtue of this clause all such existing rights
are vested in the Company and, on their creation, all such future
rights will vest in the Company.
12.2 The Executive must do all things reasonably requested by the Company to
enable the Company to assure further the rights assigned under clause 12.1.
13. Termination
13.1 Subject to clauses 10.3 and 14, the Executive's employment may be
terminated after three years from the date of commencement of the
Executive's employment under this agreement:
(a) by the Executive giving to the Company three months' notice; or
(b) by the Company giving to the Executive three months' notice.
13.2 The Executive's employment may be terminated at any time:
(a) by the Executive giving to the Company 6 months', notice or by
forfeiting an amount equal to the Executive's Total Remuneration for
that period of notice; or
(b) by the Company giving to the Executive 6 months' notice or by paying
the Executive an amount equal to the Executive's Total Remuneration in
lieu of notice.
13.3 The Executive's employment may be terminated by the Company at any time
without notice if the Executive:
(a) disobeys a lawful direction of the Company;
(b) is guilty of other serious misconduct;
(c) breaches clause 11:
(d) other than clause 11, breaches any other material provision of this
Agreement including clauses 3.1 or 3.2; or
(e) is found guilty by a court of a criminal offence.
13.4 Termination under this clause does not affect any accrued rights or
remedies of either party.
14. Redundancy
If the Executive's employment is terminated for redundancy, the Executive
agrees that:
(a) clause 13.2 will apply; and
(b) the Executive is not entitled to any payment from the Company except
for:
<PAGE>
7
(i) any remuneration due under clause 4 but unpaid at the date of
the termination;
(ii) any amount required under clause 13.2 to be paid; and
(iii) any amount required under applicable law to be paid less any
amount required under clause 13.2 to be paid.
15. What Happens After Termination of Employment
If the Executive's employment is terminated for any reason:
(a) the Company may set off any amounts the Executive owes the Company
against any amounts the Company owes the Executive at the date of
termination except for amounts the Company is not entitled by law
to set off;
(b) the Executive must return all the Company's property (including
property leased by the Company) to the Company on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles;
(c) the Executive's obligations under clause 11 continue after termination
except in respect of information that is part of the Executive's
general skill and knowledge; and
(d) the Executive must not record any Confidential Information in any form
after termination.
16. Restraint on the Executive's Conduct
16.1 During the Restraint Period, the Executive must not in any area in which
the Company has operated during the preceding 24 months or to the
Executive's knowledge intends to operate in the ensuing 24 months.
(a) engage or prepare to engage in any business or activity that is the
same or similar to that part or parts of the business carried on by
the Company in which the Executive was employed at any time during the
Executive's last 24 months with the Company; or
(b) solicit, canvass, approach or accept any approach from any person who
was at any time during the Executive's last 24 months with the Company
a client of the Company in that part or parts of the business carried
on by the Company in which the Executive was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company; or
(c) interfere with the relationship between the Company and its customers,
employees or suppliers; or
(d) induce or assist in the inducement of any employee of the Company to
leave their employment.
<PAGE>
8
16.2 In clause 16.1 "Restraint Period" means:
(a) 12 months after termination of the Executive's employment,
(b) 9 months after termination of the Executive's employment;
(c) 6 months after termination of the Executive's employment.
16.3 Clause 16.1 less the effect of several separate and individual covenants
and restraints consisting of each separate covenant and restraint set out
in clause 16.1 combined with each separate period of time set out in clause
16.2.
16.4 If any of the several separate and independent covenants and restraints
referred to in clause 16.3 are or become invalid or unenforceable for any
reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
16.5 In clause 16.1 "engage in" means to participate, assist or otherwise be
directly or indirectly involved as a member, shareholder, unitholder,
director, consultant, advisor, contractor, principal, agent, manager,
employee, beneficiary, partner, associate, trustee or financier.
16.6 The Company may require the Executive to provide evidence confirming to the
satisfaction of the Company that the Executive is not in breach of this
clause.
16.7 The Executive acknowledges that each restriction specified in clause 16.1
is in the circumstances reasonable and necessary to protect the Company's
legitimate interests.
17. Compliance
The exercise of or compliance with any discretion, right or obligation
under this Agreement is subject to compliance with all applicable laws.
18. Severability
Part or all of any clause of this Agreement that is illegal or
unenforceable will be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
19. Waiver
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time
to insist on performance of that or any other provision of this Agreement.
20. Notice
20.1 A party giving notice under this Agreement must do so in writing.
20.2 A notice given in accordance with clause 20.1 is taken to be received:
(a) if hand delivered, on delivery;
<PAGE>
9
(b) if sent by prepaid post 3 days after the date of posting;
(c) if sent by telex, when the machine on which the telex is transmitted
receives at the end of transmission, the answerback code of the
recipient unless, within 8 Business Hours after the transmission, the
recipient informs the sender that it has not received the entire
notice;
(d) if sent by facsimile, when the sender's facsimile system generates a
message confirming successful transmission of the total number of
pages of the notice unless, within 8 Business Hours after that
transmission, the recipient informs the sender that it has not
received the entire notice.
21. Governing Law
This Agreement is governed by the law applicable in the United States of
America and the parties irrevocably and unconditionally submit to the
exclusive jurisdiction of the courts of the United States of America.
22. Entire Agreement
This Agreement (including its schedules):
(a) constitutes the entire agreement between the parties as to its subject
matter; and
(b) in relation to that subject matter, supersedes any prior understanding
or agreement between the parties and any prior condition, warranty,
indemnity or representation imposed, given or made by a party.
23. Alteration
This Agreement (including its schedules) may only be altered in writing
signed by each party.
24. This Agreement is Confidential
The terms of this Agreement and any subsequent amendments are confidential
and may not be disclosed by the Executive to any other person, other than
for the purpose of obtaining professional legal or accounting advice,
without the written approval of the Company.
25. Headings
Headings are for ease of reference only and do not affect the meaning of
this Agreement.
SCHEDULE 1 - Options (Clause 5)
As determined by resolution of the Board of Directors from time to time pursuant
to the terms and conditions of the Company's Option Plan.
<PAGE>
10
SCHEDULE 2 -- Bonus (Clause 6)
As determined by resolution of the Board of Directors from time to time
EXECUTED as an agreement
SIGNED on behalf of HOME )
SECURITY INTERNATIONAL, INC. )
by BRADLEY COOPER )
in the presence of )
/s/ Mark Whitaker
- --------------------------------- ---------------------------------
Witness Bradley David Cooper
Mark Whitaker
- ---------------------------------
Name of witness (print)
SIGNED by TERRENCE YOUNGMAN )
in the presence of )
/s/ Mark Whitaker /s/ Terrence Youngman
- --------------------------------- ---------------------------------
Signature of witness Terrence Youngman
Mark Whitaker
- ---------------------------------
Name of witness (print)
<PAGE>
Exhibit 10.8
HOME SECURITY INTERNATIONAL, INC.
('Company')
DAVID APPLEBY
('Executive')
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
<PAGE>
TABLE OF CONTENTS
1. Definitions..........................................................1
2. Appointment and Position.............................................2
3. Executive's Duties...................................................2
4. The Executive's Salary and other Benefits............................3
5. Options..............................................................3
6. Bonus................................................................3
7. Expenses.............................................................4
8. Executive's Leave....................................................4
9. Illness or Injury....................................................4
10. Confidential Information and Intellectual Property...................5
11. Assignment of Intellectual Property..................................5
12. Termination..........................................................6
13. Redundancy...........................................................6
14. What Happens After Termination of Employment.........................7
15. Restraint on the Executive's Conduct.................................7
16. Compliance...........................................................8
17. Severability.........................................................8
18. Waiver...............................................................8
19. Notice...............................................................8
20. Governing Law........................................................9
21. Entire Agreement.....................................................9
22. Alteration...........................................................9
23. This Agreement is Confidential.......................................9
24. Headings.............................................................9
<PAGE>
AGREEMENT dated 1997
BETWEEN HOME SECURITY INTERNATIONAL INC. ("COMPANY")
AND DAVID APPLEBY ("EXECUTIVE")
RECITAL
The Executive has commenced employment with the Company. The Company and the
Executive wish to record the terms on which the Executive will continue that
employment by the Company.
AGREEMENT
1. Definitions
1.1 In this Agreement:
"Confidential Information" means all confidential information including,
but not limited to trade secrets and confidential know-how of which the
Executive becomes aware or generates (both before and after the day this
Agreement is signed) in the course of, or in connection with, employment
with the Company; and
"FHS Dealer" means any dealer, distributor or agent appointed by the
Company (or any related body corporate of the Company) from time to time to
promote the sales, installation and/or service of the SecurityGuard
Product.
"HSI Group" means the Company and its wholly owned subsidiaries.
"HSI Group Company" means a member of the HSI Group.
"Intellectual Property Rights" means all intellectual property rights
including without limitation patents, copyright, registered designs,
trademarks and the right to have confidential information kept confidential
and any application or right to apply for registration of any of those
rights.
"Sale" means the sale by an FHS Dealer of a SecurityGuard product to a
member of the public where the product has not been returned by the
consumer, nor has there been a refund of the price paid for the
SecurityGuard Product.
"SecurityGuard Product" means the home security alarm devices which at the
date of this agreement are manufactured by Ness Security Products Pty
Limited and known as "SecurityGuard" and "SecurityGuard II".
"Total Remuneration" means the salary and benefits due under clause 4.1
from time to time.
1.2 In this Agreement, unless the contrary intention appears:
(a) the singular includes the plural and vice versa;
<PAGE>
2
(b) a reference to a clause or schedule is a reference to a clause or
schedule to this Agreement and a reference to this Agreement includes
any schedules.
(c) a reference to a document or agreement, including this Agreement,
includes a reference to that document or agreement as novated, altered
or replaced from time to time.
(d) a reference to "$" is a reference to Australian currency; and
(e) a reference to writing includes typewriting, printing, photocopying
and any other method of representing words, figures or symbols in a
permanent visible form.
2. Appointment and Position
2.1 The Company must employ the Executive in the position of Executive Vice
President of International Business Development, or other position
determined by the Company from time to time in accordance with this
Agreement.
2.2 The Executive's employment will commence immediately following the
successful completion of the float of HSI.
3. Executive's Duties
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires;
(b) serve the Company faithfully and diligently to the best of the
Executive's ability;
(c) use all reasonable efforts to promote the interests of the Company;
(d) act in the Company's best interests;
(e) comply with all policies of the Company in place from time to time;
(f) comply with all law applicable to the Executive's position and the
duties assigned to the Executive;
(g) report to the person or persons nominated by the Company from time to
time; and
(h) perform work in connection with any subsidiaries of the Company as
directed anywhere throughout the world.
(i) if required by the Company, accept employment with an HSI Group
Company, either exclusively or in conjunction with employment by the
Company.
<PAGE>
3
3.2 Without limiting the Executive's duties to the Company, the Executive must
not:
(a) act in conflict with the Company's best interests, or
(b) compete with the Company.
4. The Executive's Salary and other Benefits
4.1 The Company must remunerate the Executive in accordance with Schedule I.
4.2 In addition to the Executive's Total Remuneration, the Company must make
contributions for the Executive into a superannuation fund agreed between
the parties or, if there is no agreement, into a superannuation fund
nominated by the Company, on account of the minimum level of superannuation
contributions which the Company must make for the Executive for the
purposes of the Superannuation Guarantee (Administration) Act 1992 and the
Superannuation Guarantee Charge Act 1992 (collectively "SGC Legislation")
as amended from time to time ("contributions").
4.3 Upon commencing employment, the Executive must do everything necessary for
the Company to make the contributions.
4.4 The Total Remuneration does not include any fringe benefits tax payable
under the Fringe Benefits Tax Assessment Act 1986 in respect of:
a. any component of the Total Remuneration; and
b. any other benefit the Company provides to the Executive from time to
time under this Agreement.
4.5 The Company must review the Total Remuneration not less than once each year
and may vary the remuneration following that review and alter its
components.
5. Options
The Executive may be issued with options in accordance with Schedule 2.
6. Bonus
The Company may pay a bonus to the Executive in accordance with Schedule 3.
7. Expenses
The Company must pay for or reimburse the Executive for the Executive's
reasonable travel and out of pocket expenses approved by the Company.
<PAGE>
4
8. Executive's Leave
The Company must grant the Executive leave in accordance with applicable
law.
9. Illness or Injury
9.1 Subject to clause 9.2, the Company must grant the Executive up to 10 days
paid sick leave each year if the Executive is unable to perform the
Executive's duties due to illness or injury.
9.2 If the Executive is unable to perform the Executive's duties due to illness
or injury:
(a) for more than the period of the Executive's accumulated untaken paid
sick leave, but less than 6 months in any one period of 52 consecutive
weeks, the Executive's employment under this Agreement will continue
but the Company is not obliged to remunerate the Executive in
accordance with clause 4.1; or
(b) for equal to or more than 6 months in any one period of 52 consecutive
weeks, the Company may terminate this Agreement under clause 12.2.
9.3 The Executive acknowledges that the Executive is not entitled to any
payment from the Company if this Agreement is terminated under clause 9.3
except for:
(a) any remuneration due under clause 4 but unpaid at the date of the
termination; and
(b) any amount required under clause 12.2 to be paid; and
(c) any amount required under applicable law to be paid less any amount
required under clause 12.2 to be paid.
10. Confidential information and Intellectual Property
10.1 The Executive may use Confidential Information solely for the purpose of
performing the Executive's duties with the Company.
10.2 The Executive must keep confidential all Confidential Information but may
disclose Confidential Information to:
(a) persons who
(i) are aware and agree that the Confidential Information must be
kept confidential; or
(ii) have signed any confidentiality agreement required by the
Company from time to time;
and either:
(iii) have a need to know relative to the operation of the business
(and only to the extent that each has a need to know); or
<PAGE>
(iv) have been approved by the person or persons nominated by the
Company from time to time.
(b) that the Executive is required to disclose in the course of the
Executive's duties with the Company;
(c) that was public knowledge when this Agreement was signed or became so
at a later date (other than as a result of a breach of confidentiality
by the Executive); or
(d) that the Executive is required by law to disclose.
10.3 The Executive must immediately notify the Company of any suspected or
actual unauthorised use, copying or disclosure of Confidential Information.
10.4 The Executive must provide assistance reasonably requested by the Company
in relation to any proceedings the Company may take against any person for
unauthorised use, copying or disclosure of Confidential Information.
11. Assignment of Intellectual Property
11.1 The Executive:
(a) presently assigns to the Company all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated
by the Executive (whether alone or with the Company, its other
employees or contractors) for use by the Company, and
(b) acknowledges that by virtue of this clause all such existing rights
are vested in the Company and on their creation, all such future
rights will vest in the Company.
11.2 The Executive must do all things reasonably requested by the Company to
enable the Company to assure further the rights assigned under clause 11.1
12. Termination
12.1 Subject to clauses 9.3 and 13, the Executive's employment may be terminated
after three years from the date of commencement of the Executive's
employment under this agreement:
(a) by the Executive giving to the Company three months' notice; or
(b) by the Company giving to the Executive three months' notice.
12.2 The Executive's employment may be terminated at any time:
(a) by the Executive giving to the Company 6 months' notice or by
forfeiting an amount equal to the Executive's Total Remuneration for
that period of notice; or
<PAGE>
6
(b) by the Company giving to the Executive 6 months' notice or by paying
the Executive an amount equal to the Executive's Total Remuneration in
lieu of notice.
12.3 The Executive's employment may be terminated by the Company at any time
without notice if the Executive:
(a) disobeys a lawful direction of the Company.
(b) is guilty of other serious misconduct.
(c) breaches clause 10;
(d) other than clause 10, breaches any other material provision of this
Agreement including clauses 3.1 or 3.2; or
(e) is found guilty by a court of a criminal offense.
12.4 Termination under this clause does not affect any accrued rights or
remedies of either party.
13. Redundancy
If the Executive's employment is terminated for redundancy, the Executive
agrees that:
(a) clause 12.2 will apply; and
(b) the Executive is not entitled to any payment from the Company except
for:
(i) any remuneration due under clause 4 but unpaid at the date of
the termination;
(ii) any amount required under clause 12.2 to be paid; and
(iii) any amount required under applicable law to be paid less any
amount required under clause 12.2 to be paid.
14. What Happens After Termination of Employment
If the Executive's employment is terminated for any reason:
(a) the Company may set off any amounts the Executive owes the Company
against any amounts the Company owes the Executive at the date of
termination except for amounts the Company is not entitled by law to
set off;
(b) the Executive must return all the Company's property (including
property leased by the Company) to the Company on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles.
<PAGE>
7
(c) the Executive's obligations under clause 10 continue after termination
except in respect of information that is part of the Executive's
general skill and knowledge; and
(d) the Executive must not record any Confidential Information in any form
after termination.
15. Restraint on the Executive's Conduct
15.1 During the Restraint Period, the Executive must not in any area in which
the Company has operated during the preceding 24 months or to the
Executive's knowledge intends to operate in the ensuing 24 months.
(a) engage or prepare to engage in any business or activity that is the
same or similar to that part or parts of the business carried on by
the Company in which the Executive was employed at any time during the
Executive's last 24 months with the Company; or
(b) solicit, canvass, approach or accept any approach from any person who
was at any time during the Executive's last 24 months with the Company
a client of the Company in that part or parts of the business carried
on by the Company in which the Executive was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company, or
(c) interfere with the relationship between the Company and its customers,
employees or suppliers; or
(d) induce or assist in the inducement of any employee of the Company to
leave their employment.
15.2 In clause 15.1, "Restraint Period" means:
(a) 12 months after termination of the Executive's employment;
(b) 9 months after termination of the Executive's employment;
(c) 6 months after termination of the Executive's employment.
15.3 Clause 15.1 has the effect of several separate and individual covenants and
restraints consisting of each separate covenant and restraint set out in
clause 15.1 combined with each separate period of time set out in clause
15.2.
15.4 If any of the several separate and independent covenants and restraints
referred to in clause 15.3 are or become invalid or unenforceable for any
reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
15.5 In clause 15.1 "engage in" means to participate, assist or otherwise be
directly or indirectly involved as a member, shareholder, unitholder,
director, consultant, advisor, contractor, principal, agent, manager,
employee, beneficiary, partner, associate, trustee or financier.
<PAGE>
8
15.6 The Company may require the Executive to provide evidence confirming to the
satisfaction of the Company that the Executive is not in breach of this
clause.
15.7 The Executive acknowledges that each restriction specified in clause 15.1
is in the circumtances reasonable and necessary to protect the Company's
legitimate interests.
16. Compliance
The exercise of or compliance with any discretion, right or obligation
under this Agreement is subject to compliance with all applicable laws.
17. Severability
Part or all of any clause of this Agreement that is illegal or
unenforceable will be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
18. Waiver
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time
to insist on performance of that or any other provision of this Agreement.
19. Notice
19.1 A party giving notice under this Agreement must do so in writing.
19.2 A notice given in accordance with clause 19.1 is taken to be received:
(a) if hand delivered, on delivery;
(b) if sent by prepaid post 3 days after the date of posting;
(c) if sent by telex, when the machine on which the telex is transmitted
receives at the end of transmission, the answerback code of the
recipient unless, within 3 Business Hours after that transmission, the
recipient informs the sender that it has not received the entire
notice.
20. Governing Law
This Agreement is governed by the law applicable in the United States of
America and the parties irrevocably and unconditionally submit to the
exclusive jurisdiction of the courts of the United States of America
<PAGE>
9
21. Entire Agreement
This Agreement (including its schedules):
(a) constitutes the entire agreement between the parties as to its subject
matter; and
(b) in relation to that subject matter, supersedes any prior understanding
or agreement between the parties and any prior condition, warranty,
indemnity or representation imposed, given or made by a party.
22. Alteration
This Agreement (including its schedules) may only be altered in writing
signed by each party.
23. This Agreement is Confidential
The terms of this Agreement and any subsequent amendments are confidential
any may not be disclosed by the Executive to any other person, other than
for the purpose of obtaining professional legal or accounting advice,
without the written approval of the Company.
24. Headings
Headings are for ease of reference only and do not affect the meaning of
this Agreement.
SCHEDULE 1 - Total Remuneration (Clause 4.1)
The Company must pay the Executive on a monthly basis an amount to be determined
by the Remuneration Committee of the Company from time to time for each Sale
during the preceding calendar month. The initial rate must be determined by
Remuneration Committee within 30 days of the close of the initial public
offering by the Company. The Executive may request the Company from time to time
to pay part or all of the Total Remuneration by way of life insurance,
superannuation, contributions to a pension plan, income protection insurance or
such other components as may otherwise be agreed between the parties.
SCHEDULE 2 - Options (Clause 5)
As determined by resolution of the Board of Directors from time to time pursuant
to the terms and conditions of the Company's Option Plan.
SCHEDULE 3 - Bonus (Clause 6)
As determined by resolution of the Board of Directors from time to time
<PAGE>
11
EXECUTED as an agreement.
SIGNED on behalf of HOME )
SECURITY INTERNATIONAL, INC. by )
its President, TERRENCE YOUNGMAN )
in the presence of )
- --------------------------------- ---------------------------------
Witness Terrence Youngman
- ---------------------------------
Name of witness (print)
SIGNED by DAVID APPLEBY )
in the presence of )
/s/ Felicity Hilbert /s/ David Appleby
- --------------------------------- ---------------------------------
Signature of witness David Appleby
Felicity Hilbert
- ---------------------------------
Name of witness (print)
<PAGE>
Exhibit 10.9
HOME SECURITY INTERNATIONAL, INC.
("Company")
MARK WHITAKER
("Executive")
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
<PAGE>
TABLE OF CONTENTS
1. Definitions.............................................................. 1
2. Appointment and Position................................................. 2
3. Executive's Duties....................................................... 2
4. The Executive's Salary and other Benefits................................ 3
5. Options.................................................................. 3
6. Bonus.................................................................... 3
7. Executive's Vehicle...................................................... 3
8. Expenses................................................................. 4
9. Executive's Leave........................................................ 4
10. Illness or Injury........................................................ 4
11. Confidential Information and Intellectual Property....................... 5
12. Assignment of Intellectual Property...................................... 5
13. Termination.............................................................. 6
14. Redundancy............................................................... 6
15. What Happens After Termination of Employment............................. 7
16. Restraint on the Executive's Conduct..................................... 7
17. Compliance............................................................... 8
18. Severability............................................................. 8
19. Waiver................................................................... 8
20. Notice................................................................... 8
21. Governing Law............................................................ 9
22. Entire Agreement......................................................... 9
23. Alteration............................................................... 9
24. This Agreement is Confidential........................................... 9
25. Headings................................................................. 9
<PAGE>
AGREEMENT dated ____________ 1997
BETWEEN HOME SECURITY INTERNATIONAL INC. ('Company')
AND MARK WHITAKER ('Executive')
RECITAL
The Executive has commenced employment with the Company. The Company and the
Executive wish to record the terms on which the Executive will continue that
employment by the Company.
AGREEMENT
1. Definitions
1.1 In this Agreement:
'Confidential Information' means all confidential information including,
but not limited to trade secrets and confidential know-how of which the
Executive becomes aware or generates (both before and after the day this
Agreement is signed) in the course of, or in connection with, employment
with the Company; and
'HSI Group' means the Company and its wholly owned subsidiaries.
'HSI Group Company' means a member of the HSI Group.
'Intellectual Property Rights' means all intellectual property rights
including without limitation patents, copyright, registered designs,
trademarks and the right to have confidential information kept confidential
and any application or right to apply for registration of any of those
rights.
'Total Remuneration' means the salary and benefits due under clause 4.1
from time to time.
1.2 In this Agreement, unless the contrary intention appears:
(a) the singular includes the plural and vice versa;
(b) a reference to a clause or schedule is a reference to a clause or
schedule to this Agreement and a reference to this Agreement includes
any schedules;
(c) a reference to a document or agreement, including this Agreement,
includes a reference to that document or agreement as novated, altered
or replaced from time to time;
(d) a reference to '$' is a reference to Australian currency; and
<PAGE>
(e) a reference to writing includes typewriting, printing, photocopying
and any other method of representing words, figures or symbols in a
permanent visible form.
2. Appointment and Position
2.1 The Company must employ the Executive in the position of Chief Financial
Officer, Treasurer and Vice President of Finance or other position
determined by the Company from time to time in accordance with this
Agreement.
2.2 The Executive's employment will commence immediately following the
successful completion of the float of HSI.
3. Executive's Duties
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires.
(b) serve the Company faithfully and diligently to the best of the
Executive's ability;
(c) use all reasonable efforts to promote the interests of the Company;
(d) act in the Company's best interests;
(e) comply with all policies of the Company in place from time to time;
(f) comply with all law applicable to the Executive's position and the
duties assigned to the Executive;
(g) report to the person or persons nominated by the Company from time to
time;
(h) perform work in connection with any subsidiaries of the company as
directed anywhere throughout the world.
(i) if required by the Company, accept employment with an HSI Group
Company, either exclusively or in conjunction with employment by the
Company.
3.2 Without limiting the Executive's duties to the Company, the Executive must
not:
(a) act in conflict with the Company's best interests; or
(b) compete with the Company.
<PAGE>
3
4. The Executive's Salary and other Benefits
4.1 The Company must pay the Executive an annual salary of A$100,000.
4.2 In addition to the Executive's Total Remuneration, the Company must make
contributions for the Executive into a superannuation fund agreed between
the parties or, if there is no agreement, into a superannuation fund
nominated by the Company, on account of the minimum level of superannuation
contributions which the Company must make for the Executive for the
purposes of the Superannuation Guarantee (Administration) Act 1992 and the
Superannuation Guarantee Charge Act 1992 (collectively 'SGC Legislation')
as amended from time to time ('contributions').
4.3 Upon commencing employment, the Executive must do everything necessary for
the Company to make the contributions.
4.4 The Total Remuneration does not include any fringe benefits tax payable
under the Fringe Benefits Tax Assessment Act 1986 in respect of:
(a) any component of the Total Remuneration; and
(b) any other benefit the Company provides to the Executive from time to
time under this Agreement.
4.5 The Company must review the Total Remuneration not less than once each year
and may vary the remuneration following that review and alter its
components.
5. Options
The Executive may be issued with options in accordance with Schedule 1.
6. Bonus
The Company may pay a bonus to the executive in accordance with Schedule 2.
7. Executive's Vehicle
7.1 In addition to the Executive's Total Remuneration, the Company will provide
a vehicle to the Executive on the following terms.
(a) the Company must pay for:
(i) all registration and insurance costs; and
(ii) all oil, petrol and normal maintenance; and
(b) the Executive must:
(i) maintain service records for the vehicle;
<PAGE>
4
(ii) not do anything that would breach or cause a breach of a lease
or other Company obligation, or cause an insurer to refuse to
provide insurance cover for the vehicle, including third party
insurance cover;
(iii) pay any fines imposed in connection with the use of the
vehicle; and
(iv) not alter the vehicle without the approval of the Company.
7.2 The Executive must only permit a person to drive the vehicle if that
person:
(a) holds a valid drivers licence; and
(b) does not suffer any medical condition which impairs the person's
ability to drive.
8. Expenses
The Company must pay for or reimburse the Executive for the Executive's
reasonable travel and out of pocket expenses approved by the Company.
9. Executive's Leave
The Company must grant the Executive leave in accordance with applicable
law.
10. Illness or Injury
10.1 Subject to clause 10.2, the Company must grant the Executive up to 10 days'
paid sick leave each year if the Executive is unable to perform the
Executive's duties due to illness or injury.
10.2 If the Executive is unable to perform the Executive's duties due to illness
or injury:
(a) for more than the period of the Executive's accumulated untaken paid
sick leave, but less than 6 months in any one period of 52 consecutive
weeks, the Executive's employment under this Agreement will continue
but the Company is not obliged to remunerate the Executive in
accordance with clause 4.1; or
(b) for equal to or more than 6 months in any one period of 52 consecutive
weeks, the Company may terminate this Agreement under clause 13.2.
10.3 The Executive acknowledges that the Executive is not entitled to any
payment from the Company if this Agreement is terminated under clause 10.3
except for:
(a) any remuneration due under clause 4 but unpaid at the date of the
termination; and
(b) any amount required under clause 13.2 to be paid; and
(c) any amount required under applicable law to be paid less any amount
required clause 13.2 to be paid.
<PAGE>
5
11. Confidential Information and Intellectual Property
11.1 The Executive may use Confidential Information solely for the purpose of
performing the Executive's duties with the Company.
11.2 The Executive must keep confidential all Confidential Information but may
disclose Confidential Information to:
(a) persons who:
(i) are aware and agree that the Confidential Information must be
kept confidential, or
(ii) have signed any confidentiality agreement required by the
Company from time to time;
and either:
(iii) have a need to know relative to the operation of the business
(and only to the extent that each has a need to know); or
(iv) have been approved by the person or persons nominated by the
Company from time to time.
(b) that the Executive is required to disclose in the course of the
Executive's duties with the Company;
(c) that was public knowledge when this Agreement was signed or became so
at a later date (other than as a result of a breach of confidentiality
by the Executive); or
(d) that the Executive is required by law to disclose.
11.3 The Executive must immediately notify the Company of any suspected or
actual unauthorised use, copying or disclosure of Confidential Information.
11.4 The Executive must provide assistance reasonably requested by the Company
in relation to any proceedings the Company may take against any person for
unauthorised use, copying or disclosure of Confidential Information.
12. Assignment of Intellectual Property
12.1 The Executive:
(a) presently assigns to the Company all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated
by the Executive (whether alone or with the Company, its other
employees or contractors) for use by the Company; and
<PAGE>
6
(b) acknowledges that by virtue of this clause all such existing rights
are vested in the Company and, on their creation, all such future
rights will vest in the Company.
12.2 The Executive must do all things reasonably requested by the Company to
enable the Company to assure further the rights assigned under clause 12.1.
13. Termination
13.1 Subject to clauses 10.3 and 14, the Executive's employment may be
terminated after three years from the date of commencement of the
Executive's employment under this agreement:
(a) by the Executive giving to the Company three months' notice; or
(b) by the Company giving to the Executive three months' notice.
13.2 The Executive's employment may be terminated at any time:
(a) by the Executive giving to the Company 6 months', notice or by
forfeiting an amount equal to the Executive's Total Remuneration for
that period of notice; or
(b) by the Company giving to the Executive 6 months' notice or by paying
the Executive an amount equal to the Executive's Total Remuneration in
lieu of notice.
13.3 The Executive's employment may be terminated by the Company at any time
without notice if the Executive:
(a) disobeys a lawful direction of the Company;
(b) is guilty of other serious misconduct;
(c) breaches clause 11:
(d) other than clause 11, breaches any other material provision of this
Agreement including clauses 3.1 or 3.2; or
(e) is found guilty by a court of a criminal offence.
13.4 Termination under this clause does not affect any accrued rights or
remedies of either party.
14. Redundancy
If the Executive's employment is terminated for redundancy, the Executive
agrees that:
(a) clause 13.2 will apply; and
(b) the Executive is not entitled to any payment from the Company except
for:
<PAGE>
7
(i) any remuneration due under clause 4 but unpaid at the date of
the termination;
(ii) any amount required under clause 13.2 to be paid; and
(iii) any amount required under applicable law to be paid less any
amount required under clause 13.2 to be paid.
15. What Happens After Termination of Employment
If the Executive's employment is terminated for any reason:
(a) the Company may set off any amounts the Executive owes the Company
against any amounts the Company owes the Executive at the date of
termination except for amounts the Company is not entitled by law
to set off;
(b) the Executive must return all the Company's property (including
property leased by the Company) to the Company on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles;
(c) the Executive's obligations under clause 11 continue after termination
except in respect of information that is part of the Executive's
general skill and knowledge; and
(d) the Executive must not record any Confidential Information in any form
after termination.
16. Restraint on the Executive's Conduct
16.1 During the Restraint Period, the Executive must not in any area in which
the Company has operated during the preceding 24 months or to the
Executive's knowledge intends to operate in the ensuing 24 months.
(a) engage or prepare to engage in any business or activity that is the
same or similar to that part or parts of the business carried on by
the Company in which the Executive was employed at any time during the
Executive's last 24 months with the Company; or
(b) solicit, canvass, approach or accept any approach from any person who
was at any time during the Executive's last 24 months with the Company
a client of the Company in that part or parts of the business carried
on by the Company in which the Executive was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company; or
(c) interfere with the relationship between the Company and its customers,
employees or suppliers; or
(d) induce or assist in the inducement of any employee of the Company to
leave their employment.
<PAGE>
8
16.2 In clause 16.1 "Restraint Period" means:
(a) 12 months after termination of the Executive's employment,
(b) 9 months after termination of the Executive's employment;
(c) 6 months after termination of the Executive's employment.
16.3 Clause 16.1 less the effect of several separate and individual covenants
and restraints consisting of each separate covenant and restraint set out
in clause 16.1 combined with each separate period of time set out in clause
16.2.
16.4 If any of the several separate and independent covenants and restraints
referred to in clause 16.3 are or become invalid or unenforceable for any
reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
16.5 In clause 16.1 "engage in" means to participate, assist or otherwise be
directly or indirectly involved as a member, shareholder, unitholder,
director, consultant, advisor, contractor, principal, agent, manager,
employee, beneficiary, partner, associate, trustee or financier.
16.6 The Company may require the Executive to provide evidence confirming to the
satisfaction of the Company that the Executive is not in breach of this
clause.
16.7 The Executive acknowledges that each restriction specified in clause 16.1
is in the circumstances reasonable and necessary to protect the Company's
legitimate interests.
17. Compliance
The exercise of or compliance with any discretion, right or obligation
under this Agreement is subject to compliance with all applicable laws.
18. Severability
Part or all of any clause of this Agreement that is illegal or
unenforceable will be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
19. Waiver
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time
to insist on performance of that or any other provision of this Agreement.
20. Notice
20.1 A party giving notice under this Agreement must do so in writing.
20.2 A notice given in accordance with clause 20.1 is taken to be received:
(a) if hand delivered, on delivery;
<PAGE>
9
(b) if sent by prepaid post, 3 days after the date of posting;
(c) if sent by telex, when the machine on which the telex is transmitted
receives at the end of transmission, the answerback code of the
recipient unless, within 8 Business Hours after the transmission, the
recipient informs the sender that it has not received the entire
notice;
(d) if sent by facsimile, when the sender's facsimile system generates a
message confirming successful transmission of the total number of
pages of the notice unless, within 8 Business Hours after that
transmission, the recipient informs the sender that it has not
received the entire notice.
21. Governing Law
This Agreement is governed by the law applicable in the United States of
America and the parties irrevocably and unconditionally submit to the
exclusive jurisdiction of the courts of the United States of America.
22. Entire Agreement
This Agreement (including its schedules):
(a) constitutes the entire agreement between the parties as to its subject
matter; and
(b) in relation to that subject matter, supersedes any prior understanding
or agreement between the parties and any prior condition, warranty,
indemnity or representation imposed, given or made by a party.
23. Alteration
This Agreement (including its schedules) may only be altered in writing
signed by each party.
24. This Agreement is Confidential
The terms of this Agreement and any subsequent amendments are confidential
and may not be disclosed by the Executive to any other person, other than
for the purpose of obtaining professional legal or accounting advice,
without the written approval of the Company.
25. Headings
Headings are for ease of reference only and do not affect the meaning of
this Agreement.
SCHEDULE 1 - Options (Clause 5)
As determined by resolution of the Board of Directors from time to time pursuant
to the terms and conditions of the Company's Option Plan.
<PAGE>
10
SCHEDULE 2 -- Bonus (Clause 6)
As determined by resolution of the Board of Directors from time to time
EXECUTED as an agreement
SIGNED on behalf of HOME )
SECURITY INTERNATIONAL, INC. )
by TERRANCE YOUNGMAN )
in the presence of )
/s/ Mark Whitaker /s/ Terrence Youngman
- --------------------------------- ---------------------------------
Witness Terrence Youngman
Mark Whitaker
- ---------------------------------
Name of witness (print)
SIGNED by TERRENCE YOUNGMAN )
in the presence of )
/s/ Terrence Youngman /s/ Mark Whitaker
- --------------------------------- ---------------------------------
Signature of witness Mark Whitaker
Terrence Youngman
- ---------------------------------
Name of witness (print)
<PAGE>
Exhibit 10.10
HOME SECURITY INTERNATIONAL, INC.
("Company")
GEOFFREY KNOWLES
("Executive")
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
<PAGE>
TABLE OF CONTENTS
1. Definitions.............................................................. 1
2. Appointment and Position................................................. 2
3. Executive's Duties....................................................... 2
4. The Executive's Salary and other Benefits................................ 3
5. Options.................................................................. 3
6. Bonus.................................................................... 3
7. Expenses................................................................. 4
8. Executive's Leave........................................................ 4
9. Illness or Injury........................................................ 4
10. Confidential Information and Intellectual Property....................... 5
11. Assignment of Intellectual Property...................................... 5
12. Termination.............................................................. 6
13. Redundancy............................................................... 6
14. What Happens After Termination of Employment............................. 7
15. Restraint on the Executive's Conduct..................................... 7
16. Compliance............................................................... 8
17. Severability............................................................. 8
18. Waiver................................................................... 8
19. Notice................................................................... 8
20. Governing Law............................................................ 9
21. Entire Agreement......................................................... 9
22. Alteration............................................................... 9
23. This Agreement is Confidential........................................... 9
24. Headings................................................................. 9
<PAGE>
AGREEMENT dated ____________ 1997
BETWEEN HOME SECURITY INTERNATIONAL INC. ('Company')
AND GEOFFREY KNOWLES ('Executive')
RECITAL
The Executive has commenced employment with the Company. The Company and the
Executive wish to record the terms on which the Executive will continue that
employment by the Company.
AGREEMENT
1. Definitions
1.1 In this Agreement:
'Confidential Information' means all confidential information including,
but not limited to trade secrets and confidential know-how of which the
Executive becomes aware or generates (both before and after the day this
Agreement is signed) in the course of, or in connection with, employment
with the Company; and
'FHS Dealer' means any dealer, distributor or agent appointed by the
Company (or any related body corporate of the Company) from time to time to
promote the sales, installation and/or service of the SecurityGuard
Product.
'HSI Group' means the Company and its wholly owned subsidiaries.
'HSI Group Company' means a member of the HSI Group.
'Intellectual Property Rights' means all intellectual property rights
including without limitation patents, copyright, registered designs,
trademarks and the right to have confidential information kept confidential
and any application or right to apply for registration of any of those
rights.
'Sale' means the sale by an FHS Dealer of a SecurityGuard product to a
member of the public where the product has not been returned by the
consumer, nor has there been a refund of the price paid for the
SecurityGuard Product.
'SecurityGuard Product' means the home security alarm devices which at the
date of this agreement are manufactured by Ness Security Products Pty
Limited and known as 'SecurityGuard' and 'SecurityGuard II'.
'Total Remuneration' means the salary and benefits due under clause 4.1
from time to time.
1.2 In this Agreement, unless the contrary intention appears:
(a) the singular includes the plural and vice versa;
(b) a reference to a clause or schedule is a reference to a clause or
schedule to this Agreement and a reference to this Agreement includes
any schedules;
(c) a reference to a document or agreement, including this Agreement,
includes a reference to that document or agreement as novated, altered
or replaced from time to time;
(d) a reference to '$' is a reference to Australian currency; and
<PAGE>
( ) a reference to writing includes typewriting, printing, photocopying
and any other method of representing words, figures or symbols in a
permanent visible form.
2. Appointment and Position
2.1 The Company must employ the Executive in the position of Vice President of
Marketing, or other position determined by the Company from time to time in
accordance with this Agreement.
2.2 The Executive's employment will commence immediately following the
successful completion of the float of HSI.
3. Executive's Duties
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires.
(b) serve the Company faithfully and diligently to the best of the
Executive's ability;
(c) use all reasonable efforts to promote the interests of the Company;
(d) act in the Company's best interests;
(e) comply with all policies of the Company in place from time to time;
(f) comply with all law applicable to the Executive's position and the
duties assigned to the Executive;
(g) report to the person or persons nominated by the Company from time to
time;
(h) perform work in connection with any subsidiaries of the company as
directed anywhere throughout the world.
(i) if required by the Company, accept employment with an HSI Group
Company, either exclusively or in conjunction with employment by the
Company.
3.2 Without limiting the Executive's duties to the Company, the Executive must
not:
(a) act in conflict with the Company's best interests; or
(b) compete with the Company.
<PAGE>
3
4. The Executive's Salary and other Benefits
4.1 The Company must remunerate the Executive in accordance with Schedule 1.
4.2 In addition to the Executive's Total Remuneration, the Company must make
contributions for the Executive into a superannuation fund agreed between
the parties or, if there is no agreement, into a superannuation fund
nominated by the Company, on account of the minimum level of superannuation
contributions which the Company must make for the Executive for the
purposes of the Superannuation Guarantee (Administration) Act 1992 and the
Superannuation Guarantee Charge Act 1992 (collectively 'SGC Legislation')
as amended from time to time ('contributions').
4.3 Upon commencing employment, the Executive must do everything necessary for
the Company to make the contributions.
4.4 The Total Remuneration does not include any fringe benefits tax payable
under the Fringe Benefits Tax Assessment Act 1986 in respect of:
(a) any component of the Total Remuneration; and
(b) any other benefit the Company provides to the Executive from time to
time under this Agreement.
4.5 The Company must review the Total Remuneration not less than once each year
and may vary the remuneration following that review and alter its
components.
5. Options
The Executive may be issued with options in accordance with Schedule 2.
6. Bonus
The Company may pay a bonus to the executive in accordance with Schedule 3.
<PAGE>
4
7. Expenses
The Company must pay for or reimburse the Executive for the Executive's
reasonable travel and out of pocket expenses approved by the Company.
8. Executive's Leave
The Company must grant the Executive leave in accordance with applicable
law.
9. Illness or Injury
9.1 Subject to clause 9.2, the Company must grant the Executive up to 10 days'
paid sick leave each year if the Executive is unable to perform the
Executive's duties due to illness or injury.
9.2 If the Executive is unable to perform the Executive's duties due to illness
or injury:
(a) for more than the period of the Executive's accumulated untaken paid
sick leave, but less than 6 months in any one period of 52 consecutive
weeks, the Executive's employment under this Agreement will continue
but the Company is not obliged to remunerate the Executive in
accordance with clause 4.1; or
(b) for equal to or more than 6 months in any one period of 52 consecutive
weeks, the Company may terminate this Agreement under clause 12.2.
9.3 The Executive acknowledges that the Executive is not entitled to any
payment from the Company if this Agreement is terminated under clause 9.3
except for:
(a) any remuneration due under clause 4 but unpaid at the date of the
termination; and
(b) any amount required under clause 12.2 to be paid; and
(c) any amount required under applicable law to be paid less any amount
required clause 12.2 to be paid.
<PAGE>
5
10. Confidential Information and Intellectual Property
10.1 The Executive may use Confidential Information solely for the purpose of
performing the Executive's duties with the Company.
10.2 The Executive must keep confidential all Confidential Information but may
disclose Confidential Information to:
(a) persons who:
(i) are aware and agree that the Confidential Information must be
kept confidential, or
(ii) have signed any confidentiality agreement required by the
Company from time to time;
and either:
(iii) have a need to know relative to the operation of the business
(and only to the extent that each has a need to know); or
(iv) have been approved by the person or persons nominated by the
Company from time to time.
(b) that the Executive is required to disclose in the course of the
Executive's duties with the Company;
(c) that was public knowledge when this Agreement was signed or became so
at a later date (other than as a result of a breach of confidentiality
by the Executive); or
(d) that the Executive is required by law to disclose.
10.3 The Executive must immediately notify the Company of any suspected or
actual unauthorised use, copying or disclosure of Confidential Information.
10.4 The Executive must provide assistance reasonably requested by the Company
in relation to any proceedings the Company may take against any person for
unauthorised use, copying or disclosure of Confidential Information.
11. Assignment of Intellectual Property
11.1 The Executive:
(a) presently assigns to the Company all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated
by the Executive (whether alone or with the Company, its other
employees or contractors) for use by the Company; and
<PAGE>
6
(b) acknowledges that by virtue of this clause all such existing rights
are vested in the Company and, on their creation, all such future
rights will vest in the Company.
11.2 The Executive must do all things reasonably requested by the Company to
enable the Company to assure further the rights assigned under clause 12.1.
12. Termination
12.1 Subject to clauses 9.3 and 13, the Executive's employment may be
terminated after three years from the date of commencement of the
Executive's employment under this agreement:
(a) by the Executive giving to the Company three months' notice; or
(b) by the Company giving to the Executive three months' notice.
12.2 The Executive's employment may be terminated at any time:
(a) by the Executive giving to the Company 6 months', notice or by
forfeiting an amount equal to the Executive's Total Remuneration for
that period of notice; or
(b) by the Company giving to the Executive 6 months' notice or by paying
the Executive an amount equal to the Executive's Total Remuneration in
lieu of notice.
12.3 The Executive's employment may be terminated by the Company at any time
without notice if the Executive:
(a) disobeys a lawful direction of the Company;
(b) is guilty of other serious misconduct;
(c) breaches clause 10:
(d) other than clause 10, breaches any other material provision of this
Agreement including clauses 3.1 or 3.2; or
(e) is found guilty by a court of a criminal offence.
12.4 Termination under this clause does not affect any accrued rights or
remedies of either party.
13. Redundancy
If the Executive's employment is terminated for redundancy, the Executive
agrees that:
(a) clause 12.2 will apply; and
(b) the Executive is not entitled to any payment from the Company except
for:
<PAGE>
7
(i) any remuneration due under clause 4 but unpaid at the date of
the termination;
(ii) any amount required under clause 12.2 to be paid; and
(iii) any amount required under applicable law to be paid less any
amount required under clause 12.2 to be paid.
14. What Happens After Termination of Employment
If the Executive's employment is terminated for any reason:
(a) the Company may set off any amounts the Executive owes the Company
against any amounts the Company owes the Executive at the date of
termination except for amounts the Company is not entitled by law
to set off;
(b) the Executive must return all the Company's property (including
property leased by the Company) to the Company on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles;
(c) the Executive's obligations under clause 10 continue after termination
except in respect of information that is part of the Executive's
general skill and knowledge; and
(d) the Executive must not record any Confidential Information in any form
after termination.
15. Restraint on the Executive's Conduct
15.1 During the Restraint Period, the Executive must not in any area in which
the Company has operated during the preceding 24 months or to the
Executive's knowledge intends to operate in the ensuing 24 months.
(a) engage or prepare to engage in any business or activity that is the
same or similar to that part or parts of the business carried on by
the Company in which the Executive was employed at any time during the
Executive's last 24 months with the Company; or
(b) solicit, canvass, approach or accept any approach from any person who
was at any time during the Executive's last 24 months with the Company
a client of the Company in that part or parts of the business carried
on by the Company in which the Executive was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company; or
(c) interfere with the relationship between the Company and its customers,
employees or suppliers; or
(d) induce or assist in the inducement of any employee of the Company to
leave their employment.
<PAGE>
8
15.2 In clause 15.1 "Restraint Period" means:
(a) 12 months after termination of the Executive's employment,
(b) 9 months after termination of the Executive's employment;
(c) 6 months after termination of the Executive's employment.
15.3 Clause 15.1 less the effect of several separate and individual covenants
and restraints consisting of each separate covenant and restraint set out
in clause 15.1 combined with each separate period of time set out in clause
15.2.
15.4 If any of the several separate and independent covenants and restraints
referred to in clause 15.3 are or become invalid or unenforceable for any
reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
15.5 In clause 15.1 "engage in" means to participate, assist or otherwise be
directly or indirectly involved as a member, shareholder, unitholder,
director, consultant, advisor, contractor, principal, agent, manager,
employee, beneficiary, partner, associate, trustee or financier.
15.6 The Company may require the Executive to provide evidence confirming to the
satisfaction of the Company that the Executive is not in breach of this
clause.
15.7 The Executive acknowledges that each restriction specified in clause 15.1
is in the circumstances reasonable and necessary to protect the Company's
legitimate interests.
16. Compliance
The exercise of or compliance with any discretion, right or obligation
under this Agreement is subject to compliance with all applicable laws.
17. Severability
Part or all of any clause of this Agreement that is illegal or
unenforceable will be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
18. Waiver
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time
to insist on performance of that or any other provision of this Agreement.
19. Notice
19.1 A party giving notice under this Agreement must do so in writing.
19.2 A notice given in accordance with clause 19.1 is taken to be received:
(a) if hand delivered, on delivery;
<PAGE>
9
(b) if sent by prepaid post, 3 days after the date of posting;
(c) if sent by telex, when the machine on which the telex is transmitted
receives at the end of transmission, the answerback code of the
recipient unless, within 8 Business Hours after the transmission, the
recipient informs the sender that it has not received the entire
notice;
(d) if sent by facsimile, when the sender's facsimile system generates a
message confirming successful transmission of the total number of
pages of the notice unless, within 8 Business Hours after that
transmission, the recipient informs the sender that it has not
received the entire notice.
20. Governing Law
This Agreement is governed by the law applicable in the United States of
America and the parties irrevocably and unconditionally submit to the
exclusive jurisdiction of the courts of the United States of America.
21. Entire Agreement
This Agreement (including its schedules):
(a) constitutes the entire agreement between the parties as to its subject
matter; and
(b) in relation to that subject matter, supersedes any prior understanding
or agreement between the parties and any prior condition, warranty,
indemnity or representation imposed, given or made by a party.
22. Alteration
This Agreement (including its schedules) may only be altered in writing
signed by each party.
23. This Agreement is Confidential
The terms of this Agreement and any subsequent amendments are confidential
and may not be disclosed by the Executive to any other person, other than
for the purpose of obtaining professional legal or accounting advice,
without the written approval of the Company.
24. Headings
Headings are for ease of reference only and do not affect the meaning of
this Agreement.
SCHEDULE 1 - Total Remuneration (Clause 4.1)
The Company must pay the Executive on a monthly basis an amount to be determined
by the Remuneration Committee of the Company from time to time for each Sale
during the preceding calendar month. The initial rate must be determined by the
Remuneration Committee within 30 days of the close of the initial public
offering by the Company. The Executive may request the Company from time to time
to pay part or all of the Total Remuneration by way of life insurance,
superannuation, contributions to a pension plan, income protection insurance or
such other components as may otherwise be agreed between the parties.
SCHEDULE 2 - Options (Clause 5)
As determined by resolution of the Board of Directors from time to time pursuant
to the terms and conditions of the Company's Option Plan.
SCHEDULE 3 - Bonus (Clause 6)
As determined by resolution of the Board of Directors from time to time.
EXECUTED as an agreement
SIGNED on behalf of HOME )
SECURITY INTERNATIONAL, INC. by )
its President, TERRENCE YOUNGMAN )
in the presence of )
- --------------------------------- ---------------------------------
Witness Terrence Youngman
- ---------------------------------
Name of witness (print)
SIGNED by GEOFFREY KNOWLES )
in the presence of )
- --------------------------------- ---------------------------------
Signature of witness Geoffrey Knowles
- ---------------------------------
Name of witness (print)
<PAGE>
<PAGE>
Exhibit 10.11
HOME SECURITY INTERNATIONAL, INC.
("Company")
FELICITY HILBERT
("Executive")
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
<PAGE>
TABLE OF CONTENTS
1. Definitions.............................................................. 1
2. Appointment and Position................................................. 2
3. Executive's Duties....................................................... 2
4. The Executive's Salary and other Benefits................................ 3
5. Options.................................................................. 3
6. Bonus.................................................................... 3
7. Executive's Vehicle...................................................... 3
8. Expenses................................................................. 4
9. Executive's Leave........................................................ 4
10. Illness or Injury........................................................ 4
11. Confidential Information and Intellectual Property....................... 5
12. Assignment of Intellectual Property...................................... 5
13. Termination.............................................................. 6
14. Redundancy............................................................... 6
15. What Happens After Termination of Employment............................. 7
16. Restraint on the Executive's Conduct..................................... 7
17. Compliance............................................................... 8
18. Severability............................................................. 8
19. Waiver................................................................... 8
20. Notice................................................................... 8
21. Governing Law............................................................ 9
22. Entire Agreement......................................................... 9
23. Alteration............................................................... 9
24. This Agreement is Confidential........................................... 9
25. Headings................................................................. 9
<PAGE>
AGREEMENT dated ____________ 1997
BETWEEN HOME SECURITY INTERNATIONAL INC. ('Company')
AND FELICITY HILBERT ('Executive')
RECITAL
The Executive has commenced employment with the Company. The Company and the
Executive wish to record the terms on which the Executive will continue that
employment by the Company.
AGREEMENT
1. Definitions
1.1 In this Agreement:
'Confidential Information' means all confidential information including,
but not limited to trade secrets and confidential know-how of which the
Executive becomes aware or generates (both before and after the day this
Agreement is signed) in the course of, or in connection with, employment
with the Company; and
'HSI Group' means the Company and its wholly owned subsidiaries.
'HSI Group Company' means a member of the HSI Group.
'Intellectual Property Rights' means all intellectual property rights
including without limitation patents, copyright, registered designs,
trademarks and the right to have confidential information kept confidential
and any application or right to apply for registration of any of those
rights.
'Total Remuneration' means the salary and benefits due under clause 4.1
from time to time.
1.2 In this Agreement, unless the contrary intention appears:
(a) the singular includes the plural and vice versa;
(b) a reference to a clause or schedule is a reference to a clause or
schedule to this Agreement and a reference to this Agreement includes
any schedules;
(c) a reference to a document or agreement, including this Agreement,
includes a reference to that document or agreement as novated, altered
or replaced from time to time;
(d) a reference to '$' is a reference to Australian currency; and
<PAGE>
(e) a reference to writing includes typewriting, printing, photocopying
and any other method of representing words, figures or symbols in a
permanent visible form.
2. Appointment and Position
2.1 The Company must employ the Executive in the position of Vice President of
Operations, or other position determined by the Company from time to time
in accordance with this Agreement.
2.2 The Executive's employment will commence immediately following the
successful completion of the float of HSI.
3. Executive's Duties
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires.
(b) serve the Company faithfully and diligently to the best of the
Executive's ability;
(c) use all reasonable efforts to promote the interests of the Company;
(d) act in the Company's best interests;
(e) comply with all policies of the Company in place from time to time;
(f) comply with all law applicable to the Executive's position and the
duties assigned to the Executive;
(g) report to the person or persons nominated by the Company from time to
time;
(h) perform work in connection with any subsidiaries of the company as
directed anywhere throughout the world.
(i) if required by the Company, accept employment with an HSI Group
Company, either exclusively or in conjunction with employment by the
Company.
3.2 Without limiting the Executive's duties to the Company, the Executive must
not:
(a) act in conflict with the Company's best interests; or
(b) compete with the Company.
<PAGE>
3
4. The Executive's Salary and other Benefits
4.1 The Company must pay the Executive an annual salary of A $70,000.
4.2 In addition to the Executive's Total Remuneration, the Company must make
contributions for the Executive into a superannuation fund agreed between
the parties or, if there is no agreement, into a superannuation fund
nominated by the Company, on account of the minimum level of superannuation
contributions which the Company must make for the Executive for the
purposes of the Superannuation Guarantee (Administration) Act 1992 and the
Superannuation Guarantee Charge Act 1992 (collectively 'SGC Legislation')
as amended from time to time ('contributions').
4.3 Upon commencing employment, the Executive must do everything necessary for
the Company to make the contributions.
4.4 The Total Remuneration does not include any fringe benefits tax payable
under the Fringe Benefits Tax Assessment Act 1986 in respect of:
(a) any component of the Total Remuneration; and
(b) any other benefit the Company provides to the Executive from time to
time under this Agreement.
4.5 The Company must review the Total Remuneration not less than once each year
and may vary the remuneration following that review and alter its
components.
5. Options
The Executive may be issued with options in accordance with Schedule 1.
6. Bonus
The Company may pay a bonus to the executive in accordance with Schedule 2.
7. Executive's Vehicle
7.1 In addition to the Executive's Total Remuneration, the Company will provide
a vehicle to the Executive on the following terms.
(a) the Company must pay for:
(i) all registration and insurance costs; and
(ii) all oil, petrol and normal maintenance; and
(b) the Executive must:
(i) maintain service records for the vehicle;
<PAGE>
4
(ii) not do anything that would breach or cause a breach of a lease
or other Company obligation, or cause an insurer to refuse to
provide insurance cover for the vehicle, including third party
insurance cover;
(iii) pay any fines imposed in connection with the use of the
vehicle; and
(iv) not alter the vehicle without the approval of the Company.
7.2 The Executive must only permit a person to drive the vehicle if that
person:
(a) holds a valid drivers licence; and
(b) does not suffer any medical condition which impairs the person's
ability to drive.
8. Expenses
The Company must pay for or reimburse the Executive for the Executive's
reasonable travel and out of pocket expenses approved by the Company.
9. Executive's Leave
The Company must grant the Executive leave in accordance with applicable
law.
10. Illness or Injury
10.1 Subject to clause 10.2, the Company must grant the Executive up to 10 days'
paid sick leave each year if the Executive is unable to perform the
Executive's duties due to illness or injury.
10.2 If the Executive is unable to perform the Executive's duties due to illness
or injury:
(a) for more than the period of the Executive's accumulated untaken paid
sick leave, but less than 6 months in any one period of 52 consecutive
weeks, the Executive's employment under this Agreement will continue
but the Company is not obliged to remunerate the Executive in
accordance with clause 4.1; or
(b) for equal to or more than 6 months in any one period of 52 consecutive
weeks, the Company may terminate this Agreement under clause 13.2.
10.3 The Executive acknowledges that the Executive is not entitled to any
payment from the Company if this Agreement is terminated under clause 10.3
except for:
(a) any remuneration due under clause 4 but unpaid at the date of the
termination; and
(b) any amount required under clause 13.2 to be paid; and
(c) any amount required under applicable law to be paid less any amount
required clause 13.2 to be paid.
<PAGE>
5
11. Confidential Information and Intellectual Property
11.1 The Executive may use Confidential Information solely for the purpose of
performing the Executive's duties with the Company.
11.2 The Executive must keep confidential all Confidential Information but may
disclose Confidential Information to:
(a) persons who:
(i) are aware and agree that the Confidential Information must be
kept confidential, or
(ii) have signed any confidentiality agreement required by the
Company from time to time;
and either:
(iii) have a need to know relative to the operation of the business
(and only to the extent that each has a need to know); or
(iv) have been approved by the person or persons nominated by the
Company from time to time.
(b) that the Executive is required to disclose in the course of the
Executive's duties with the Company;
(c) that was public knowledge when this Agreement was signed or became so
at a later date (other than as a result of a breach of confidentiality
by the Executive); or
(d) that the Executive is required by law to disclose.
11.3 The Executive must immediately notify the Company of any suspected or
actual unauthorised use, copying or disclosure of Confidential Information.
11.4 The Executive must provide assistance reasonably requested by the Company
in relation to any proceedings the Company may take against any person for
unauthorised use, copying or disclosure of Confidential Information.
12. Assignment of Intellectual Property
12.1 The Executive:
(a) presently assigns to the Company all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated
by the Executive (whether alone or with the Company, its other
employees or contractors) for use by the Company; and
<PAGE>
6
(b) acknowledges that by virtue of this clause all such existing rights
are vested in the Company and, on their creation, all such future
rights will vest in the Company.
12.2 The Executive must do all things reasonably requested by the Company to
enable the Company to assure further the rights assigned under clause 12.1.
13. Termination
13.1 Subject to clauses 10.3 and 14, the Executive's employment may be
terminated after three years from the date of commencement of the
Executive's employment under this agreement:
(a) by the Executive giving to the Company three months' notice; or
(b) by the Company giving to the Executive three months' notice.
13.2 The Executive's employment may be terminated at any time:
(a) by the Executive giving to the Company 6 months', notice or by
forfeiting an amount equal to the Executive's Total Remuneration for
that period of notice; or
(b) by the Company giving to the Executive 6 months' notice or by paying
the Executive an amount equal to the Executive's Total Remuneration in
lieu of notice.
13.3 The Executive's employment may be terminated by the Company at any time
without notice if the Executive:
(a) disobeys a lawful direction of the Company;
(b) is guilty of other serious misconduct;
(c) breaches clause 11:
(d) other than clause 11, breaches any other material provision of this
Agreement including clauses 3.1 or 3.2; or
(e) is found guilty by a court of a criminal offence.
13.4 Termination under this clause does not affect any accrued rights or
remedies of either party.
14. Redundancy
If the Executive's employment is terminated for redundancy, the Executive
agrees that:
(a) clause 13.2 will apply; and
(b) the Executive is not entitled to any payment from the Company except
for:
<PAGE>
7
(i) any remuneration due under clause 4 but unpaid at the date of
the termination;
(ii) any amount required under clause 13.2 to be paid; and
(iii) any amount required under applicable law to be paid less any
amount required under clause 13.2 to be paid.
15. What Happens After Termination of Employment
If the Executive's employment is terminated for any reason:
(a) the Company may set off any amounts the Executive owes the Company
against any amounts the Company owes the Executive at the date of
termination except for amounts the Company is not entitled by law
to set off;
(b) the Executive must return all the Company's property (including
property leased by the Company) to the Company on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles;
(c) the Executive's obligations under clause 11 continue after termination
except in respect of information that is part of the Executive's
general skill and knowledge; and
(d) the Executive must not record any Confidential Information in any form
after termination.
16. Restraint on the Executive's Conduct
16.1 During the Restraint Period, the Executive must not in any area in which
the Company has operated during the preceding 24 months or to the
Executive's knowledge intends to operate in the ensuing 24 months.
(a) engage or prepare to engage in any business or activity that is the
same or similar to that part or parts of the business carried on by
the Company in which the Executive was employed at any time during the
Executive's last 24 months with the Company; or
(b) solicit, canvass, approach or accept any approach from any person who
was at any time during the Executive's last 24 months with the Company
a client of the Company in that part or parts of the business carried
on by the Company in which the Executive was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company; or
(c) interfere with the relationship between the Company and its customers,
employees or suppliers; or
(d) induce or assist in the inducement of any employee of the Company to
leave their employment.
<PAGE>
8
16.2 In clause 16.1 "Restraint Period" means:
(a) 12 months after termination of the Executive's employment,
(b) 9 months after termination of the Executive's employment;
(c) 6 months after termination of the Executive's employment.
16.3 Clause 16.1 less the effect of several separate and individual covenants
and restraints consisting of each separate covenant and restraint set out
in clause 16.1 combined with each separate period of time set out in clause
16.2.
16.4 If any of the several separate and independent covenants and restraints
referred to in clause 16.3 are or become invalid or unenforceable for any
reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
16.5 In clause 16.1 "engage in" means to participate, assist or otherwise be
directly or indirectly involved as a member, shareholder, unitholder,
director, consultant, advisor, contractor, principal, agent, manager,
employee, beneficiary, partner, associate, trustee or financier.
16.6 The Company may require the Executive to provide evidence confirming to the
satisfaction of the Company that the Executive is not in breach of this
clause.
16.7 The Executive acknowledges that each restriction specified in clause 16.1
is in the circumstances reasonable and necessary to protect the Company's
legitimate interests.
17. Compliance
The exercise of or compliance with any discretion, right or obligation
under this Agreement is subject to compliance with all applicable laws.
18. Severability
Part or all of any clause of this Agreement that is illegal or
unenforceable will be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
19. Waiver
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time
to insist on performance of that or any other provision of this Agreement.
20. Notice
20.1 A party giving notice under this Agreement must do so in writing.
20.2 A notice given in accordance with clause 20.1 is taken to be received:
(a) if hand delivered, on delivery;
<PAGE>
9
(b) if sent by prepaid post, 3 days after the date of posting;
(c) if sent by telex, when the machine on which the telex is transmitted
receives at the end of transmission, the answerback code of the
recipient unless, within 8 Business Hours after the transmission, the
recipient informs the sender that it has not received the entire
notice;
(d) if sent by facsimile, when the sender's facsimile system generates a
message confirming successful transmission of the total number of
pages of the notice unless, within 8 Business Hours after that
transmission, the recipient informs the sender that it has not
received the entire notice.
21. Governing Law
This Agreement is governed by the law applicable in the United States of
America and the parties irrevocably and unconditionally submit to the
exclusive jurisdiction of the courts of the United States of America.
22. Entire Agreement
This Agreement (including its schedules):
(a) constitutes the entire agreement between the parties as to its subject
matter; and
(b) in relation to that subject matter, supersedes any prior understanding
or agreement between the parties and any prior condition, warranty,
indemnity or representation imposed, given or made by a party.
23. Alteration
This Agreement (including its schedules) may only be altered in writing
signed by each party.
24. This Agreement is Confidential
The terms of this Agreement and any subsequent amendments are confidential
and may not be disclosed by the Executive to any other person, other than
for the purpose of obtaining professional legal or accounting advice,
without the written approval of the Company.
25. Headings
Headings are for ease of reference only and do not affect the meaning of
this Agreement.
SCHEDULE 1 - Options (Clause 5)
As determined by resolution of the Board of Directors from time to time pursuant
to the terms and conditions of the Company's Option Plan.
<PAGE>
10
SCHEDULE 2 -- Bonus (Clause 6)
As determined by resolution of the Board of Directors from time to time
EXECUTED as an agreement
SIGNED on behalf of HOME )
SECURITY INTERNATIONAL, INC. )
by TERRANCE YOUNGMAN )
in the presence of )
/s/ Mark Whitaker /s/ Terrence Youngman
- --------------------------------- ---------------------------------
Witness Terrence Youngman
Mark Whitaker
- ---------------------------------
Name of witness (print)
SIGNED by TERRENCE YOUNGMAN )
in the presence of )
/s/ Jan Luckman /s/ Felicity Hilbert
- --------------------------------- ---------------------------------
Signature of witness Felicity Hilbert
Jan Luckman
- ---------------------------------
Name of witness (print)
<PAGE>
EXHIBIT 10.15
PROMISSORY NOTE
---------------
June ___, 1997
Five (5) years from the date of this Note ("Date"), for value received,
BRADLEY D. COOPER ("Debtor") promises to pay to the order of HOME SECURITY
INTERNATIONAL, INC. ("HSI"), in lawful money of the United States, the Principal
Sum. This Note shall bear interest at the rate of 7% per year compounded
semi-annually. Interest accrued under this Note shall be due and payable
semi-annually commencing on a date 6 months after Date and continuing thereafter
on a semi-annual basis until maturity. The principal and interest on this note
shall be payable at Level 7, 77 Pacific Highway, North Sydney, N.S.W. 2060,
Australia, or at such other place as HSI may otherwise direct in writing.
Principal Sum. The term "Principal Sum" shall mean the purchase price of the
250,000 shares of HSI Common Stock to be purchased by Debtor prior to the
commencement of the initial public offering of 3,000,000 shares of HSI Common
Stock ("Purchase Price"), less the cash payment of 5% of the Purchase Price paid
to HSI by Debtor as of the Date. The Purchase Price shall be determined by
multiplying 250,000 by the initial public offering price as determined by the
representative of the underwriters, National Securities Corporation, and the
Pricing Committee of HSI and FAI Home Security Holdings Pty Ltd on the pricing
date of HSI's initial public offering.
Note Secured by Shares. Debtor will deposit with HSI, as collateral for payment
of the Principal Sum, certificates for 250,000 shares of HSI Common Stock with
endorsed stock powers ("Collateral"). Should any part of Collateral be offered
for sale in satisfaction of Debtor's obligations under this Note and should HSI
become the purchaser Debtor waives and releases all rights of redemption in and
to such Collateral. Notwithstanding anything to the contrary stated herein,
HSI's sole recourse for the payment of the Principal Sum shall be the
Collateral; provided, however, that HSI shall have full recourse against Debtor
for the payment of interest accrued under the Note.
Prepayment. Debtor shall have the right to prepay the Obligation set forth in
this Note in whole or in part at any time without penalty. Prepayments shall
first be applied to accrued interest, and then to the remaining Principal Sum.
Compliance with Usury Laws. If, for any reason, the interest imposed upon
monies owing under the terms of this Note should be in excess of the amount
allowed by applicable law, then such excess monies shall not be deemed to be
usurious or interest, and shall be applied toward the reduction of
<PAGE>
principal to the extent principal monies are owed. Any excess over and above
principal monies owed shall be refunded to Debtor.
No Waivers by HSI. Debtor agrees that its liabilities hereunder are absolute
and unconditional without regard to the liability of any other party and that no
delay on the part of HSI in exercising any power or right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
power or right hereunder preclude other or further exercise thereof or the
exercise of any other power or right.
Default. Any non-payment of interest or principal when due, that is not cured
within 10 calendar days of written notice of HSI to Debtor at Debtor's home
address in HSI records, shall be deemed a default under this Note, and thereby
entitling HSI to exercise all remedies under this Note, including exercising
control over the Collateral, in addition to any other remedies that may be
available to HSI.
Attorneys' Fees. If payment of any portion of this Note shall not be made when
due, and any action is brought to enforce collection, Debtor agrees to pay such
additional sum as attorney fees as the court in such action may adjudge
reasonable.
Construction; Jurisdiction. This Note shall be governed as to validity,
interpretation, construction, effect, and in all other respects by, and
construed in accordance with, the laws and decisions of the State of Delaware
("State"). Debtor hereby submits to personal jurisdiction within the State for
the enforcement of Debtor's obligation hereunder, and waives any and all
personal rights under the law of any other state to object to jurisdiction for
the purpose of litigation to enforce such obligation of Debtor.
Headings. All headings used herein are solely for the convenience of the
parties, are not part of this Note, and shall not be used for the interpretation
or determination of the validity of this Note or any provisions hereof.
IN WITNESS WHEREOF, Debtor, intending to be legally bound hereby, has
caused this Note to be duly executed the day and year first above written.
DEBTOR:
--------------------------
Bradley D. Cooper
<PAGE>
Exhibit 10.16
PROMISSORY NOTE
Within 12 months after the date of this note, FAI Home Security Holdings Pty
Limited (ACN 003 125 264) of Level 12, 185 Macquarie Street, Sydney, promises to
pay FAI Home Securities Holdings New Zealand Limited (AK587559) or order the
sum of A$283,554.75.
Dated the 30 day of June 1997.
Signed for FAI Home Security Holdings Pty )
Limited by an authorised officer )
/s/ DAVID APPLEBY
- ---------------------------
Signature of Officer
DAVID APPLEBY
- ---------------------------
Name of Officer (print)
<PAGE>
Exhibit 10.17
PROMISSORY NOTE
Within 30 days after the date of this note. FAI Home Security (ENZED) Limited
(AK852342) of Level 15, Coopers & Lybrand Tower, 23-29 Albert Street, Auckland,
promises to pay FAI Home Security Holdings New Zealand Limited (AK587559) or
order the sum of A$283,554.75.
Dated this 30 day of June 1997.
Signed for FAI Home Security (ENZED) Limited )
by an authorised officer )
/s/ DAVID APPLEBY
- -------------------------
Signature of Officer
DAVID APPLEBY
- -------------------------
Name of Officer (print)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
FAI Home Security Australia and NZ Group and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 118 369,837
<SECURITIES> 0 0
<RECEIVABLES> 745,280 1,245,808
<ALLOWANCES> (129,720) 146,075
<INVENTORY> 1,277,104 339,602
<CURRENT-ASSETS> 4,367,695 6,940,658
<PP&E> 907,903 19,393
<DEPRECIATION> 38,332 6,687
<TOTAL-ASSETS> 15,956,850 13,383,655
<CURRENT-LIABILITIES> 6,121,890 3,489,828
<BONDS> 0 0
0 0
0 0
<COMMON> 4,500 2
<OTHER-SE> 9,785,585 9,893,825
<TOTAL-LIABILITY-AND-EQUITY> 15,956,850 13,383,655
<SALES> 32,947,994 26,203,285
<TOTAL-REVENUES> 33,404,595 26,700,922
<CGS> 24,273,787 17,584,562
<TOTAL-COSTS> 24,273,787 17,584,562
<OTHER-EXPENSES> 6,612,318 6,606,377
<LOSS-PROVISION> 101,411 58,213
<INTEREST-EXPENSE> 60,040 47,625
<INCOME-PRETAX> 3,921,589 2,713,164
<INCOME-TAX> 1,629,973 1,054,170
<INCOME-CONTINUING> 2,291,616 1,658,994
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,291,616 1,658,994
<EPS-PRIMARY> 0.509<F1> 0<F1>
<EPS-DILUTED> 0<F1> 0<F1>
<FN>
<F1> There has been no EPS calculated because of the combined group structure.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Cooper International Group and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0<F1>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,396,163
<TOTAL-REVENUES> 1,397,997
<CGS> 770,155
<TOTAL-COSTS> 770,155
<OTHER-EXPENSES> 1,700,226
<LOSS-PROVISION> 123,773
<INTEREST-EXPENSE> 290,997
<INCOME-PRETAX> (1,356,867)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,356,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,356,867)
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1> There is no common stock issued as the combined group structure relates to
trusts.
<F2> There has been no EPS calculated because of the combined group structure.
</FN>
</TABLE>
