<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1997
REGISTRATION NO. 333-26399
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HOME SECURITY INTERNATIONAL, INC.
(NAME OF REGISTRANT IN ITS CHARTER)
DELAWARE 1731
(STATE OR JURISDICTION (PRIMARY STANDARD 98-0169495
OF INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION NO.)
ORGANIZATION) NUMBER)
LEVEL 7, 77 PACIFIC HIGHWAY
NORTH SYDNEY, NSW 2060
(011) (61-2) 9936-2424
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
RALPH STEPHENSON
50 CENTRAL PARK SOUTH
NEW YORK, NEW YORK
(212) 486-2713
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------
ARTHUR DON, ESQ. ALAN I. ANNEX, ESQ.
FERNANDO R. CARRANZA, ESQ. MARTHA ZAWACKI, ESQ.
D'ANCONA & PFLAUM CAMHY KARLINSKY & STEIN LLP
30 NORTH LASALLE STREET 1740 BROADWAY, SIXTEENTH FLOOR
SUITE 2900 NEW YORK, NEW YORK 10019-4315
CHICAGO, ILLINOIS 60602 (212) 977-6600
(312) 580-2000 --------------- FAX (212) 977-8389
FAX (312) 580-0923
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock(2)........................... 3,450,000 $14.00 $48,300,000 $14,636.36
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Representatives' Warrants(3).............. 300,000 $ .001 $ 300 --
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Common Stock issuable upon exercise of
Representatives' Warrants(4)............. 300,000 $23.10 $ 6,930,000 $ 2,100
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Total..................................... $55,230,300 $16,736.36
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933
(the "Act").
(2) Includes 450,000 shares of Common Stock issuable upon exercise of the
Underwriter's Over-Allotment Option.
(3) No registration fee required pursuant to Rule 457 under the Act.
(4) Pursuant to Rule 416 under the Act there are also being registered such
additional securities as may become issuable pursuant to the antidilution
provisions of the Representatives' Warrants.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JUNE 10, 1997
PROSPECTUS
3,000,000 SHARES
[LOGO]
HOME SECURITY INTERNATIONAL, INC.
COMMON STOCK
-----------
Of the 3,000,000 shares (the "Shares") of Common Stock, $.001 par value (the
"Common Stock"), offered hereby (the "Offering"), 250,000 Shares are being sold
by Home Security International, Inc., a Delaware corporation (the "Company"),
and 2,750,000 Shares are being sold by FAI Home Security Holdings Pty Ltd.
("FAI" or the "Selling Shareholder"), a wholly owned subsidiary of FAI
Insurances Ltd. ("FAI Insurance"). See "Principal and Selling Shareholders".
The Company will not receive any proceeds from the sale of Shares by the
Selling Shareholder. Prior to this Offering, there has been no public market
for the Common Stock and there can be no assurance that an active trading
market will develop or be maintained after the completion of this Offering. It
is currently estimated that the initial public offering price will be between
$12.00 and $14.00 per Share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Company has
applied for listing of the Common Stock on the American Stock Exchange and has
requested the symbol "HSI".
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND "DILUTION" ON
PAGE 14.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
COMPANY'S
UNDERWRITING PROCEEDS SELLING SHAREHOLDER'S PROCEEDS TO
PRICE TO DISCOUNTS AND TO UNDERWRITING DISCOUNTS SELLING
THE PUBLIC COMMISSIONS(1) COMPANY(2) AND COMMISSIONS(1) SHAREHOLDER(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share............... $ $ $ $ $
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Total(3)................ $ $ $ $ $
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</TABLE>
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(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Excludes a non-
accountable expense allowance payable to National Securities Corporation
("National") and Nolan Securities Corporation ("Nolan"), the
representatives (the "Representatives") of the several underwriters (the
"Underwriters"), equal to 2% of the proceeds of this Offering and the value
of the five year warrants (the "Representatives' Warrants") entitling the
Representatives to purchase up to 300,000 shares of Common Stock at an
exercise price of 165% of the initial public offering price. See
"Underwriting".
(2) Before deducting estimated expenses payable by the Selling Shareholder of
approximately $1,452,000, including the Representatives' non-accountable
expense allowance of $715,000 (assuming that the over-allotment option is
not exercised) and estimated expenses payable by the Company of
approximately $132,000, including the Representatives' non-accountable
expense allowance of $65,000 (assuming that the over-allotment option is
not exercised).
(3) The Company and the Selling Shareholder have granted the Underwriters a 45-
day option to purchase up to an aggregate of 450,000 additional shares of
Common Stock to cover over-allotments, if any. If the over-allotment option
is exercised, the first 250,000 shares of the over-allotment will be sold
by the Selling Shareholder and the remaining 200,000 shares will be sold by
the Company. If the Underwriters exercise such option in full, the total
Price to the Public, Company's Underwriting Discounts and Commissions,
Proceeds to the Company, Selling Shareholder's Underwriting Discounts and
Commissions and Proceeds to the Selling Shareholder will be $ ,
$ , $ , $ $ and $ , respectively.
See "Underwriting".
-----------
The Shares offered by this Prospectus are offered by the several Underwriters
subject to prior sale, when and if delivered to and accepted by the
Underwriters, and subject to the right to reject any order in whole or in part
and to certain other conditions. It is expected that delivery of the Shares
will be made at the offices of National, 1001 Fourth Avenue, Seattle,
Washington, on or about , 1997.
NATIONAL SECURITIES CORPORATION
NOLAN SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS JUNE 10, 1997.
<PAGE>
[INSIDE FRONT COVER]
[Picture of the Company's [Picture of the Company's
SecurityGuard Alarm System] technological and design awards]
The Company's award-winning SecurityGuard Alarm System.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON
STOCK OF THE COMPANY INCLUDING ENTERING STABILIZING BIDS OR
IMPOSING PENALTY BIDS. SEE "UNDERWRITING".
----------------
THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING
FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
----------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements and notes thereto appearing
elsewhere in this Prospectus. As used throughout the Prospectus, unless the
context otherwise requires, the term "Company" refers to Home Security
International, Inc., its wholly owned subsidiaries and its predecessor
entities. Each prospective investor is urged to read this Prospectus in its
entirety. Except as otherwise indicated, the information in this Prospectus (i)
assumes the Underwriters' over-allotment option is not exercised, (ii) excludes
shares of Common Stock issuable upon exercise of the Representatives' Warrants
and (iii) assumes the consummation of the Reorganization immediately prior to
the effectiveness of the Offering.
THE COMPANY
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 anticipates opening a U.S. distribution office by September
1997. 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 (the "SecurityGuard Alarm") 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. 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). 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 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"). See "Business--Distribution Network". 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 towards 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's major operations are currently carried on in Australia and New
Zealand through wholly owned subsidiaries in those countries. The principal
executive office of the Company is located at Level 7, 77 Pacific Highway,
North Sydney, NSW 2060 Australia and its telephone number is (011) (61-2) 9936-
2424.
3
<PAGE>
THE REORGANIZATION
The Company, wholly owned by FAI, is a newly organized Delaware corporation
incorporated on April 11, 1997. Immediately prior to the effective date of this
Offering, the Company acquired FAI's Australian and New Zealand operations by
purchasing the outstanding stock of two of its wholly owned subsidiaries, FAI
Home Security Pty Ltd., an Australian corporation, and FAI Home Security
(ENZED) Ltd., a New Zealand corporation, (collectively, the "Australia and New
Zealand Group"). The Company also acquired FAI's international operations
outside Australia and New Zealand by purchasing substantially all of the assets
of FAI's operations in Belgium, the Netherlands, Germany, Canada, the United
Kingdom, South Africa and the United States (the "International Assets"). See
"Certain Transactions--Purchase of International Assets". In order to effect
this transaction (the "Reorganization"), the Company (i) entered into a share
purchase agreement (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 an $833,251 non-interest bearing note
payable within fourteen days of the effective date of this Offering to FAI (the
"FAI Note"), assumed a $131,615 non-interest bearing note payable within
fourteen days of the effective date of this Offering to FAI (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., an Australian
Corporation, entered into a license agreement (the "License Agreement") through
which the Company obtained a no cost license from FAI Insurance to use the
"FAI" name and logo. Immediately prior to the effective date of this Offering,
the Company will also make a final dividend distribution to FAI (representing
the retained earnings of FAI Home Security Pty Ltd. on the date of the
Reorganization) in the amount of approximately $3 million. See "Dividend
Policy", "Certain Transactions--The Reorganization" and "Business--The
Reorganization". As of the Reorganization, the Company had 4,500,000 shares of
Common Stock outstanding, all of which were owned by FAI. The information
contained in this Prospectus, unless otherwise indicated, gives effect to the
Reorganization as if completed prior to the date hereof and assumes that the
Company, as a separate legal entity, owned and operated the assets acquired in
the Reorganization during the periods presented.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by:
The Company................... 250,000 shares of Common Stock.
The Selling Shareholder....... 2,750,000 shares of Common Stock.
Common Stock to be Outstanding
Prior to the Offering (2)...... 4,750,000 shares of Common Stock.
Common Stock to be Outstanding
After the Offering (1)(2)...... 5,000,000 shares of Common Stock.
Use of Proceeds................. The net proceeds of the shares of Common Stock
sold by the Company will be used to retire
debt acquired by the Company pursuant to the
reorganization and for general corporate
purposes. The Company will receive no proceeds
from the sale of the shares of Common Stock
sold by the Selling Shareholder.
Proposed American Stock Exchange HSI
Symbol.........................
</TABLE>
- --------
(1) Assumes no exercise of (i) the Underwriters' over-allotment option or (ii)
the Representatives' Warrants issued to the Representatives to acquire
300,000 shares of Common Stock at an exercise price of $ per share
(165% of the initial public offering price of the Common Stock). See
"Description of Securities--Representatives' Warrants".
(2) Assumes the purchase of 250,000 shares of Common Stock by Bradley D. Cooper
prior to the effective date of this Offering at the initial public offering
price. See "Certain Transactions--Transactions Involving Bradley D.
Cooper".
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The selected combined financial data of the Australia and New Zealand Group
for the fiscal years ended June 30, 1994, 1995 and 1996 have been derived from
the audited combined financial statements of FAI Home Security Pty Limited and
FAI Home Security (NZ) Trust. The selected combined financial data of the
Australia and New Zealand Group for the fiscal years ended June 30, 1992 and
1993 have been derived from the audited financial statements of FAI Home
Security Pty Limited. The selected combined financial data of the International
Group for the fiscal years ended June 30, 1995 and 1996 have been derived from
the audited combined financial statements of FAI Home Security (UK) Trust and
FAI Home Security (Canada) Unit Trust. The selected combined financial data for
the nine month periods ended March 31, 1996 and March 31, 1997, are unaudited
for the Australia and New Zealand Group and the International Group, and in the
opinion of management include all adjustments necessary for a fair presentation
of such data. The selected combined financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements and
notes thereto included elsewhere in the Prospectus. There were no cash
dividends or distributions made by the Company or its predecessor entities
during the periods presented below:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
YEARS ENDED JUNE 30, NINE MONTHS NINE MONTHS
------------------------------------- ENDED MARCH 31, ENDED MARCH 31,
1992 1993 1994 1995 1996 1996 1997
$US $US $US $US $US $US $US
------ ------ ------ ------ ------ --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
AUSTRALIA AND NEW
ZEALAND GROUP
- -----------------
Statement of Income Data
Net sales.............. 4,475 11,093 10,629 21,437 26,701 18,806 23,232
Net income (loss)...... 316 492 (74) 1,470 1,659 1,215 1,838
Balance Sheet Data
Total assets........... 546 1,748 2,281 7,671 13,384 20,985
Long term assets....... 97 687 927 2,228 6,443 9,196
Total long term
liabilities........... -- -- 557 -- -- 47
Shareholders' equity
(deficit)............. (93) 408 369 3,912 9,894 14,044
INTERNATIONAL GROUP
- -------------------
Statement of Income Data
Net sales.............. -- -- -- 877 1,750 1,392 1,398
Net income (loss)...... -- -- -- (2,155) (2,470) (1,774) (1,357)
Balance Sheet Data
Total assets........... -- -- -- 743 847 1,048
Long term assets....... -- -- -- 142 110 103
Total long term
liabilities........... -- -- -- -- -- --
Shareholders' equity
(deficit)............. -- -- -- 47 (2,103) (3,524)
<CAPTION>
UNAUDITED UNAUDITED
UNAUDITED YEARS ENDED JUNE 30, NINE MONTHS PRO FORMA NINE
------------------------------------- ENDED MARCH 31, MONTHS ENDED
1992 1993 1994 1995 1996 1996 MARCH 31, 1997
$US(1) $US(1) $US(1) $US(1) $US(1) $US(1) $US(2)
------ ------ ------ ------ ------ --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
AUSTRALIA AND NEW
ZEALAND AND
INTERNATIONAL GROUP
COMBINED
- -------------------
Statement of Income Data
Net sales.............. 4,475 11,093 10,629 22,314 28,451 20,198 24,630
Net income (loss)...... 316 492 (74) (685) (811) (559) 2,104
Earnings per common
share (3)............. $0.42
Balance Sheet Data
Total assets........... 546 1,748 2,281 8,413 14,231 19,079
Long term assets....... 97 687 927 2,370 6,553 11,472
Total long term
liabilities........... -- -- 557 -- -- 47
Shareholders' equity
(deficit)............. (93) 480 369 3,959 7,791 13,559
</TABLE>
- --------
(1) Information presented is historical combined only without giving effect to
the Reorganization or any pro forma adjustments.
(2) Adjusted to give effect to the Reorganization, the issuance of the 250,000
shares offered hereby, assuming an estimated initial public offering price
of $13.00 per share, after the deduction of estimated underwriting
discounts and Offering expenses and assuming Bradley D. Cooper's purchase
of 250,000 shares of Common Stock at the initial public offering price
prior to the effective date of this Offering. See "Pro Forma Consolidated
Financial Statements for Home Security International."
(3) Pro forma earnings per share is computed by dividing pro forma net income
by 5,000,000, the number of shares to be issued.
5
<PAGE>
RISK FACTORS
An investment in the Shares being offered hereby involves a high degree of
risk and is not recommended for any investor who cannot bear to lose his or
her entire investment. In evaluating an investment in the Shares, investors
should carefully consider the following factors, in addition to the other
information in this Prospectus.
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 anticipates opening a distribution office in the
United States, the Company has to date conducted no material operations 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 1996 and fiscal year 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 "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
6
<PAGE>
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 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 "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 intends to purchase, subject to
availability, "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 "Management".
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 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.
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
"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
7
<PAGE>
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 "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.
Any changes in interest rates or credit quality requirements of financing
organizations 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.
Dependence On Customer Accounts for Growth. From January 1993 through the
nine months ended March 31, 1997, the Company added approximately 108,000
accounts through the Direct Sales Marketing Program, including over 9,000 new
accounts during the third fiscal quarter of 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 "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
8
<PAGE>
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 three
calendar years ending on December 31, 1996 and for the three fiscal quarters
ending on March 31, 1997 accounted for approximately 95% 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 March 31, 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 "Business--Overview".
Product Concentration. Sales of the SecurityGuard Alarm system and related
products and services accounted for substantially all of the Company's sales in
the current fiscal year and fiscal 1996, 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 "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.
Publicity of this nature could have a material adverse affect on the Company's
sales and earnings.
Benefits to Affiliates. A significant portion of the proceeds of this
Offering will be paid to the Selling Shareholder. Prior to the effectiveness of
this Offering, and after giving effect to the Reorganization, FAI will own
4,500,000 shares of the outstanding Common Stock of the Company. Pursuant to
this Offering, FAI will then immediately sell 2,750,000 of such shares of
Common Stock to the public and the proceeds of such sale will go directly to
FAI. See "Use of Proceeds", "Dilution" and "Certain Transactions".
Voting Control. Following completion of this Offering and the completion of
the Reorganization, approximately 40% of the Company will be owned by the
Selling Shareholder and Bradley D. Cooper and 60% will be owned by the public
(assuming no exercise of the Underwriters' over-allotment option). As a result
of its minority ownership interest, the Selling Shareholder 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.
The Selling Shareholder may also be able to block any proposal put to a vote of
the shareholders including proposals which require a supermajority. See
"Principal and Selling Shareholders".
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
9
<PAGE>
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 generally the Company will
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 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. See
"Description of Securities--Certain Provisions of the Company's Charter and
Delaware Law".
Dilution. As of the effective date of this Offering, the Company had a pro
forma net tangible book value per share of Common Stock of $0.11 (after giving
effect to the Reorganization and the sale of 250,000 shares of Common Stock to
Bradley D. Cooper prior to the effective date of the Offering). Based on the
estimated initial public offering price of $13.00 per share, purchasers of
Common Stock in the Offering will experience an immediate dilution of $12.32
per share. Additional dilution to future net tangible book value per share may
occur upon the exercise of the Representatives' Warrants, and other options
and warrants that are outstanding or will be issued by the Company. The
Selling Shareholder of the Company acquired its shares of Common Stock for
$2.25 per share, consideration substantially less than the public offering
price of the shares of Common Stock offered hereby. See "Capitalization",
"Dilution" and "Certain Transactions".
Potential Adverse Effect of Representatives' Warrants and Other Company
Options. In connection with this Offering, the Company has authorized the
issuance of the Representative's Warrants and has reserved 300,000 shares of
Common Stock for issuance upon exercise of such warrants. The Representatives'
Warrants will entitle the holders thereof to acquire 300,000 shares of Common
Stock at an exercise price of 165% of the initial public offering price per
share ($21.45 per share assuming an initial public offering price of $13.00
per share). The Representatives' Warrants will be exercisable at any time from
the first anniversary of the date of this Prospectus until the fifth
anniversary of the date of this Prospectus. Additionally, upon completion of
this Offering, the Company shall issue additional options to purchase Common
Stock under a Director's Stock Option Plan and employee stock options under an
Employee Stock Option Plan. The Company has reserved 50,000 shares of Common
Stock for issuance under its Director's Stock Option Plan and 750,000 shares
of Common Stock for
10
<PAGE>
issuance under its Employee Stock Option Plan. See "Management--Stock
Compensation Plans". For the term of the Representatives' 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 Shares without
assuming the risk of ownership, with a resulting dilution in the interest of
the other security holders. As long as the Representatives' Warrants and other
Company options remain unexercised, the Company's ability to obtain additional
capital might be adversely affected. Moreover, the holders of the
Representatives' 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 "Description of Securities" and
"Certain Transactions".
Shares Eligible For Future Sale. Sales of shares of Common Stock by existing
shareholders, or by existing holders of the 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 and the Selling Shareholder have agreed with the Representatives to
have the current shareholders of the Company, including Bradley D. Cooper,
prior to this Offering execute lock-up agreements with the Representatives
that restrict the sale or disposition of such shares for 360 days following
the date of this Prospectus. National may consent to a waiver of the lock-up
period without any public notice. One year after the date of the
Reorganization, approximately 1,750,000 shares held by the Selling
Shareholder, 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 warrants to purchase Common Stock
will, subject to the satisfaction of certain conditions, be able to sell
Common Stock publicly through the exercise of certain registration rights. See
"Description of Securities" and "Underwriting".
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, and
provided that there are no restrictions on payment of dividends under credit
or other agreements.
Possible Illiquidity of Trading Market. Prior to this Offering there has
been no public market for the Common Stock, and there can be no assurance that
an active public market for the Shares will develop or be sustained after this
Offering. The Company has applied for listing of 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.
Arbitrary Determination of Offering Price. The initial public offering price
for the Common Stock, as well as the exercise price of the Representatives'
Warrants, were determined by negotiations between the Company and the
Representatives, and should not be regarded as indicative of any future market
price of the Shares. Among the factors considered in determining the initial
public offering price were the history and the prospects of the Company and
the industry in which it operates, the past and present operating results of
the Company and the trends of such results, the previous experience of the
Company's executive officers and the general condition of the securities
markets at the time of this Offering. However, the public offering price of
the Common Stock and the exercise price of the Representatives' Warrants do
not necessarily bear any relationship to the Company's assets, book value,
earnings or any other established criterion of value. See "Underwriting".
Representatives' Influence on the Market. A significant amount of the Shares
offered hereby may be sold to customers of the Representatives. Such customers
subsequently may engage in transactions for the sale or purchase of such
Shares through or with the Representatives. If they participate in the market,
the Representatives may exert a dominating influence on the market for the
Shares. Such market making activity may be discontinued at any time. The price
and liquidity of the Common Stock may be significantly affected by the degree,
if any, of the Representatives' participation in such market. See "Description
of Securities" and "Underwriting".
11
<PAGE>
Possible 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. 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.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 250,000 shares of
Common Stock being offered by the Company are estimated to be approximately
$2,858,000, assuming an estimated initial public offering price of $13.00 per
share and after deducting the underwriting discounts and commission and
Offering expenses payable by the Company. The Company intends to use the net
proceeds: (i) to retire the FAI Note in the amount of $833,251 (as of March
31, 1997) representing the partial purchase price (fixed assets and
inventories) of the International Assets and (ii) to retire the NZ Note
(representing the fixed assets and inventories of the New Zealand operations)
in the amount of $131,615 (as of March 31, 1997) due to FAI, resulting from
the Company's purchase of 100% of the issued capital of FAI's Australia and
New Zealand Group. Both notes are non-interest bearing, payable within
fourteen days from the effective date of this Offering, and subject to change
based on the inventory values and currency exchange rates in effect at the
time of Reorganization. The remaining proceeds of $1,893,134 will be used for
general corporate purposes, including working capital. See "Business--The
Reorganization." Pending such use, the net proceeds received by the Company in
the Offering may be invested in short-term, investment-grade, interest bearing
securities.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholder in this Offering.
DIVIDEND POLICY
Except for a final dividend distribution to FAI in the amount of
approximately $3 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".
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997: (i) on an actual basis prior to the Reorganization, (ii) as adjusted
to give effect to the Reorganization and the sale of 250,000 shares of Common
Stock to Bradley D. Cooper prior to the effective date of this Offering, and
(iii) pro forma as adjusted to reflect the issuance and sale by the Company of
250,000 shares of Common Stock (assuming an initial public offering price of
$13.00 per share) after deducting estimated underwriting discounts and
commissions and Offering expenses payable by the Company. The capitalization
information set forth in the table below is unaudited and qualified by, and
should be read in conjunction with, the financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------
AS ADJUSTED AS FURTHER
FOR THE ADJUSTED FOR
ACTUAL REORGANIZATION (1) THIS OFFERING (2)
$ $ $
------ ------------------ -----------------
<S> <C> <C> <C>
Short Term Debt .................. -- 964,866 --
Long Term Debt ................... -- 47,280 47,280
Stockholder's Equity:
Preferred Stock, $.001 value;
1,000,000 shares authorized;
none outstanding .............. -- -- --
Common Stock, $.001 value;
20,000,000 shares authorized; 1
share outstanding, 4,750,000
shares outstanding as adjusted
for the Reorganization and the
sale of 250,000 shares of
Common Stock to Bradley D.
Cooper; 5,000,000 pro forma
shares outstanding as further
adjusted for this Offering..... 1 4,750 5,000
Additional Paid in Capital........ 10,695,963 13,553,713
---- ---------- ----------
Total Shareholder's Equity........ 1 10,700,713 13,558,713
Total Capitalization.............. 1 11,712,859 13,605,993
==== ========== ==========
</TABLE>
- --------
(1) Does not include: (i) 300,000 shares issuable upon exercise of the
Representatives' Warrants to be issued upon completion of this Offering at
an exercise price of $ (165% of the initial public offering price per
share) and (ii) up to 200,000 shares subject to the Underwriter's over-
allotment option to be sold by the Company. See "Underwriting" and
"Certain Transactions".
(2) Assumes the Company's: (i) execution and completion of the Share Purchase
Agreement (which provides for the purchase of the International Assets),
and (ii) execution of the License Agreement (through the Company's wholly
owned subsidiary, FAI Home Security Pty Ltd.) See "Business--The
Reorganization".
13
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1997 was $545,066
or $0.11 per share of Common Stock (after giving effect to the issuance of
4,499,999 shares of Common Stock to FAI pursuant to the Reorganization and the
sale of 250,000 shares of Common Stock to Bradley D. Cooper prior to the
effective date of the Offering). See "Prospectus Summary--The Reorganization".
Net tangible book value per share is determined by dividing the tangible net
worth of the Company (tangible assets less all liabilities) by the total
number of outstanding shares of Common Stock. Dilution per share is determined
by subtracting pro forma net tangible book value per share from the amount
paid for a share of Common Stock in the Offering. After giving effect to the
issuance and sale by the Company of the 250,000 shares of Common Stock offered
hereby (at an estimated initial public offering price of $13.00), and the
application of the estimated net proceeds therefrom after deducting Offering
expenses payable by the Company, the pro forma net tangible book value of the
Company as of March 31, 1997 would have been $3,403,066 or $0.68 per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Estimated initial public offering price..................... $13.00
Net tangible book value per share after Reorganization and
before Offering............................................ $0.11
Increase per share attributable to the new investors........ $0.57
-----
Pro forma net tangible book value per share after the Of-
fering................................................... $ 0.68
------
Dilution to purchasers of Common Stock in this Offering... $12.32
======
</TABLE>
The computations in the table set forth above assume that the over-allotment
option is not exercised. If the over-allotment option is exercised in full,
the pro forma net tangible book value at March 31, 1997 would have been
$5,795,066 or $1.11 per share of Common Stock.
The following table summarizes, as of the completion of this Offering (after
giving effect to the issuance of 4,499,999 shares of Common Stock to FAI
pursuant to the Reorganization), the difference between the effective cash
contribution paid by the existing shareholders of the Company and the
purchaser of securities in this Offering with respect to the number of shares
purchased, the total consideration paid and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)(2).... 4,750,000 95% $10,700,713 77% $ 2.25
New investors (1)............... 250,000 5% $ 3,250,000 23% $13.00
--------- ---- ----------- ----
Total........................... 5,000,000 100% $13,950,713 100%
========= ==== =========== ====
</TABLE>
- --------
(1) Sales by the Selling Shareholder in this Offering will reduce the number
of shares held by existing shareholders to 2,000,000 shares or 40% of the
total number of shares of Common Stock outstanding after this Offering,
and will increase the number of shares held by new investors to 3,000,000
or 60% of the total number of shares of Common Stock outstanding after
this Offering. See "Principal and Selling Shareholders". The calculations
in the tables set forth above assume: (i) no exercise of the Underwriters'
over-allotment option by either the Company or the Selling Shareholder;
(ii) no exercise of the Representatives' Warrants described herein and
(iii) no issuance of any management or employee stock options by the
Company. See "Description of Securities--Warrants and Options".
(2) Includes the sale of 250,000 shares of Common Stock of the Company to
Bradley D. Cooper prior to the effective date of this Offering at the
initial public offering price for a total purchase price of $3,250,000,
payable $162,500 in cash and the balance in the form of an estimated
promissory note payable. Average Price Per Share is calculated using only
the cash consideration of $162,500. See "Certain Transactions--
Transactions Involving Bradley D. Cooper."
14
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data of the Australia and New Zealand Group
for the fiscal years ended June 30, 1994, 1995 and 1996 have been derived from
the audited combined financial statements of FAI Home Security Pty Limited and
FAI Home Security (NZ) Trust. The selected combined financial data of the
Australia and New Zealand Group for the fiscal years ended June 30, 1992 and
1993 have been derived from the audited financial statements of FAI Home
Security Pty Limited. The selected combined financial data of the
International Group for the fiscal years ended June 30, 1995 and 1996 have
been derived from the audited combined financial statements of FAI Home
Security (UK) Trust and FAI Home Security (Canada) Unit Trust. The selected
combined financial data for the nine month periods ended March 31, 1996 and
March 31, 1997, are unaudited for the Australia and New Zealand Group and the
International Group, and in the opinion of management include all adjustments
necessary for a fair presentation of such data. The selected combined
financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements and notes thereto included
elsewhere in the Prospectus. There were no cash dividends or distributions
made by the Company or its predecessor entities during the periods presented
below:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
YEARS ENDED JUNE 30, NINE MONTHS NINE MONTHS
------------------------------------- ENDED MARCH 31, ENDED MARCH 31,
1992 1993 1994 1995 1996 1996 1997
$US $US $US $US $US $US $US
------ ------ ------ ------ ------ --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
AUSTRALIA AND NEW
ZEALAND GROUP
- -----------------
Statement of Income Data
Net sales.............. 4,475 11,093 10,629 21,437 26,701 18,806 23,232
Net income (loss)...... 316 492 (74) 1,470 1,659 1,215 1,838
Balance Sheet Data
Total assets........... 546 1,748 2,281 7,671 13,384 20,985
Long term assets....... 97 687 927 2,228 6,443 9,196
Total long term
liabilities........... -- -- 557 -- -- 47
Shareholders' equity
(deficit)............. (93) 408 369 3,912 9,894 14,044
INTERNATIONAL GROUP
- -------------------
Statement of Income Data
Net sales.............. -- -- -- 877 1,750 1,392 1,398
Net income (loss)...... -- -- -- (2,155) (2,470) (1,774) (1,357)
Balance Sheet Data
Total assets........... -- -- -- 743 847 1,048
Long term assets....... -- -- -- 142 110 103
Total long term
liabilities........... -- -- -- -- -- --
Shareholders' equity
(deficit)............. -- -- -- 47 (2,103) (3,524)
<CAPTION>
UNAUDITED UNAUDITED
UNAUDITED YEARS ENDED JUNE 30, NINE MONTHS PRO FORMA NINE
------------------------------------- ENDED MARCH 31, MONTHS ENDED
1992 1993 1994 1995 1996 1996 MARCH 31, 1997
$US(1) $US(1) $US(1) $US(1) $US(1) $US(1) $US(2)
------ ------ ------ ------ ------ --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
AUSTRALIA AND NEW
ZEALAND AND
INTERNATIONAL GROUP
COMBINED
- -------------------
Statement of Income Data
Net sales.............. 4,475 11,093 10,629 22,314 28,451 20,198 24,630
Net income (loss)...... 316 492 (74) (685) (811) (559) 2,104
Earnings per common
share (3)............. $0.42
Balance Sheet Data
Total assets........... 546 1,748 2,281 8,413 14,231 19,079
Long term assets....... 97 687 927 2,370 6,553 11,472
Total long term
liabilities........... -- -- 557 -- -- 47
Shareholders' equity
(deficit)............. (93) 480 369 3,959 7,791 13,559
</TABLE>
- --------
(1) Information presented is historical combined only without giving effect to
the Reorganization or any pro forma adjustments .
(2) Adjusted to give effect to the Reorganization, the issuance of the 250,000
shares offered hereby, assuming an estimated initial public offering price
of $13.00 per share, after the deduction of estimated underwriting
discounts and Offering expenses and assuming Bradley D. Cooper's purchase
of 250,000 shares of Common Stock at the initial public offering price
prior to the effective date of this Offering. See "Pro Forma Consolidated
Financial Statements for Home Security International."
(3) Pro forma earnings per share is computed by dividing pro forma net income
by 5,000,000, the number of shares to be issued.
15
<PAGE>
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 where it anticipates opening a
distribution office by September 1997. 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. 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 and 1996 were 5,069, 11,744, 12,235, 25,280 and 31,669,
respectively. Unit sales for the International Operations for fiscal years
1995 and 1996 were 2,797 and 1,575, 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 and 1996 and for
the nine months ended March 31, 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. The Company expects international expansion efforts outside
Australia and New Zealand and entry into additional services including
extended warranties and on-line monitoring will cause an increase in expenses
from time to time, without 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$1,666). 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 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
16
<PAGE>
commissions based on the number of alarm units sold, as well as the rate of
such commissions payable to these executives increased substantially. 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 experience continued, although not significant,
increased profits in the near future from alarm sales in Australia and New
Zealand, and a gradual improvement from loss to profitability in operating
results from the expansion of its operations in the United Kingdom, Belgium,
the Netherlands, Germany, Canada and South Africa and the expected
commencement of a Distributor office in 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 OPERATION
AUSTRALIA AND NEW ZEALAND OPERATIONS
Comparison of nine months ended March 31, 1997 and March 31, 1996
Revenue: Total revenue increased by $4.4 million or 24% from $18.8 million
for the nine months ended March 31, 1996 to $23.2 million for the nine months
ended March 31, 1997. This increase was primarily due to continued growth of
unit sales in the New Zealand market.
Cost Of Goods Sold: Cost of goods sold increased by $4.6 million or 39% of
total revenue from $12.2 million to $16.8 million. This represented an
increase in the percentage of total revenue by approximately 7% from 65% to
72% for the nine months ended March 31, 1996 and 1997, respectively. This
increase was due, in part, to increases in royalty fees charged 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 sales increased
from 10% for the nine months ended March 31, 1996 to 12% for the nine months
ended March 31, 1997. See "Certain Transactions--Transactions with FAI."
Cost of goods sold (excluding related party expenses such as royalty
charges), as a percentage of sales, increased from 54% of total revenue for
the nine months ended March 31, 1996 to 61% for the nine months ended March
31, 1997. This was due to the increased cost of goods from the manufacturer
for an updated version of the SecurityGuard Alarm with enhanced features, and
an increase in commission and bonus payments to senior executives related to
sales volumes. See "Business--Executive Employment Agreements."
The Company expects product costs, excluding royalty charges, to increase in
proportion to annual increases in the Australian Consumer Price Index. The
increase will be in accordance with the terms of the supply agreement with the
manufacturer.
General and Administrative Expenses: General and administrative expenses
were $4.0 million for the nine months ended March 31, 1997, compared to $4.7
million for the nine months ended March 31, 1996. As a percentage of revenue,
total general and administrative expenses decreased to 17% in the nine months
ended March 31, 1997 compared to 25% for the nine months ended March 31, 1996.
This decrease as a percentage of revenue for the nine months ended March 31,
1997 compared to the nine months ended March 31, 1996, reflected 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, 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. In
addition, the Company received a management fee of $0.5 million from FAI in
connection with the management of the international operations. See "Certain
Transactions--Transactions Involving Bradley D. Cooper."
Net Income from Operations: Net income from operations increased from $1.9
million for the nine months ended March 31, 1996 to $2.4 million for the nine
months ended March 31, 1997.
17
<PAGE>
If royalty payments to related parties for the use of the FAI brand name,
and other related party charges, were excluded, net income from operations
would have increased from $3.8 million for the nine months ended March 31,
1996 to $5.1 million for the nine months ended March 31, 1997. See "Certain
Transactions--Transactions with FAI".
Interest Income: Interest income was approximately $0.6 million for the nine
months ended March 31, 1997 compared to $0.2 million for the nine months ended
March 31, 1996. This was due to interest received on loans to a related party
FAI Finance Corporation (NZ) Limited which increased significantly between the
periods. See "Certain Transactions--Transactions with FAI".
Income Tax Expense: The effective rate of tax decreased from 40% for the
nine months ended March 31, 1996 to 38% for the nine months ended March 31,
1997.
Net Income: Net income increased from $1.2 million for the nine months ended
March 31, 1996 to $1.8 million for the nine months ended March 31, 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 $1.8 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.
General and Administrative Expenses: General and administrative expenses
were $6.6 million 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.
Net Income from Operations: Net 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 "Certain 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 on loans to a related
party, FAI Finance Corporation (NZ) Limited. See "Certain 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.
Comparison of fiscal year ended June 30, 1995 and June 30, 1994
Revenue: Total revenue increased by $10.8 million from $10.6 million for the
fiscal year ended June 30, 1994 to $21.4 million for the fiscal year ended
June 30, 1995. This increase in revenue represents a 102% sales
18
<PAGE>
increase. The increase in revenue does not reflect fully the increase in
actual number of units sold due to lower margins as a result of the gradual
change in the Company structure and distribution strategy to the Distributor
Network.
Cost Of Goods Sold: Cost of goods sold increased from $6.7 million to $14.2
million. This increase in cost of goods represented an increase as a
percentage of revenue from 63% to 66% of total revenue for the fiscal years
ended June 30, 1994 and June 30, 1995 respectively. During this period the
Company began to implement the Distributor Network. Product costs per alarm
unit from the manufacturer remained stable throughout the fiscal year ended
June 30, 1995.
General and Administrative Expenses: General and administrative expenses
were $5.1 million in the fiscal year ended June 30, 1995, compared to $4.0
million for the fiscal year ended June 30, 1994. As a percentage of revenue,
total general and administrative expenses decreased to 24% for the fiscal year
ended June 30, 1995 as compared to 37% for the fiscal year ended December 31,
1994. This decrease as a percentage of sales reflected in part the economies
of scale and improved cost effectiveness of operating through the Distributor
Network.
Net Income/(Loss) from Operations: Net income from operations increased from
a loss of $0.1 million for the fiscal year ended June 30, 1994 to income of
$2.1 million for the fiscal year ended June 30, 1995. This improvement of $2.2
million in net income as a percentage of revenue represents a change from a
percentage loss of 1% to income of 10%. If royalty payments to related parties
for the use of the FAI brand name are excluded, net income from operations
increased from $0.9 million for the fiscal year ended June 30, 1994 to $4.1
million for the fiscal year ended June 30, 1995. See "Certain Transactions--
Transactions with FAI."
Interest Income: Interest income was approximately $65,000 for the fiscal
year ended June 30, 1995 compared to approximately $7,000 for the fiscal year
ended June 30, 1994. This change was due to a significant increase in funds
being placed upon deposit.
Income Tax Expense: The effective rate of tax decreased from 51% to 33% due
to the utilization of prior tax losses.
Net Income: Net income increased from a loss of $0.1 million for the fiscal
year ended June 30, 1994 to $1.5 million for the fiscal year ended June 30,
1995.
OPERATIONS OUTSIDE AUSTRALIA AND NEW ZEALAND
Comparison of nine months ended March 31, 1996 and nine months ended March
31, 1997
Revenue: Total revenue remained stable at $1.4 million for the nine months
ended March 31, 1996 compared to the nine months ended March 31, 1997. During
the period six unprofitable distributors throughout the UK were closed and one
branch operation assumed Distributor status. Four new operators were
established in the UK, the Netherlands and Belgium. The retail price of the
SecurityGuard Alarm was increased 22% from (Pounds)899 (US$1,392) to
(Pounds)1099 (US$1,702) to further increase operating revenues in the UK.
Cost Of Goods Sold: Cost of goods sold has decreased from 77% of revenue for
the nine months ended March 31, 1996 to 55% for the nine months ended March
31, 1997. This decrease was primarily attributable to the settlement of a
claim of $202,835 with its major supplier, Ness, arising from Ness' failure to
fill confirmed orders for the SecurityGuard product to the Company's European
operations. In addition, the cost of goods sold as a percentage of revenue
declined due to an increase in the retail price of the product.
General and Administrative Expenses: General and administrative expenses
were $1.7 million for the nine months ended March 31, 1997 compared to $2.0
million for the nine months ended March 31, 1996. As a percentage of sales,
this figure represented an improvement or decrease in expenses from 150% for
the nine months ended March 31, 1996 compared to 122% for the nine months
ended March 31, 1997. The decrease in expenses primarily reflects the
restructuring of the international operations outside of Australia and New
Zealand. In addition, a charge of $0.6 million was charged by FAI Home
Security Holdings Pty Ltd. to the Cooper International Group (not a related
party to FAI Home Security Holdings Pty Ltd.) for the provision of management
services in the nine months ended March 31, 1997. This charge included an
amount of $0.4 million for the provision of management services during the
nine month period ended March 31, 1996, but was charged during the nine month
period ended March 31, 1997. See "Certain Transactions--Transactions involving
Bradley D. Cooper."
19
<PAGE>
Net Loss from Operations: Net loss from operations decreased from $1.8
million for the nine months ended March 31, 1996 to $1.1 million for the nine
months ended March 31, 1997. As a percentage of revenue, this is an
improvement from 127% to 77%.
Interest Expense: Interest expense was $0.3 million for the nine months
ended March 31, 1997, due to interest payable on loans from FAI Home Security
Holdings Pty Ltd., partially consisting of $0.1 million related to the nine
month period ended March 31, 1996 which was brought to account in the period
ended March 31, 1997.
Income Tax Benefit: Tax losses relating to the nine months ended March 31,
1996 and for the nine months ended March 31, 1997 have not been recognized as
a future tax benefit. As a result of the Reorganization, the Company will not
be able to use these tax credits.
Net Loss: Net loss from operations was reduced by 24%, from $1.8 million for
the nine months ended March 31, 1996 to $1.4 million for the nine months ended
March 31, 1997. This represents an improvement in performance as a percentage
of revenue from 127% to 97% for the nine months ended March 31, 1995 and 1996
respectively. The net loss for the nine month period ended March 31, 1997
would have decreased to $0.8 million if management charges and interest
charged by FAI Home Security Holdings Pty Ltd. and reflected in the period
ended March 31, 1997, but relating to the nine month period ended March 31,
1996, were eliminated.
Comparison of fiscal year ended June 30, 1996 and seven month period ended
June 30, 1995
Revenue: Total revenue increased by $0.9 million or 100% from $0.9 million
for the seven month period ended June 30, 1995 to $1.8 million for the fiscal
year ended June 30, 1996. Only seven months of revenues are shown as of June
1995 because the Canadian sales only commenced in November 1994 and the UK
sales commenced in February 1995. If these seven month figures are annualized
and it is assumed that revenues were generated at a stable rate, revenues for
a full fiscal year ended June 30, 1995 would be approximately $1.5 million,
compared to $1.8 million for the fiscal year ended June 30, 1996.
Cost Of Goods Sold: Cost of goods sold increased $0.6 million, from $0.4
million to $1.0 million. This represented an increase in cost of goods sold as
a percentage of total revenue from 51% for the seven month period ended June
30, 1995 to 59% for the fiscal year ended June 30, 1996. This increase is
mainly attributable to the conversion of the Canadian operation from a branch
operation to a distributorship utilizing the Distributor Network system.
Another factor in this increase was the cost of lead generation trials
conducted in the United Kingdom in the fiscal year ended June 30, 1996 in
order to determine market acceptance and feasibility in different areas.
General and Administrative Expenses: General and administrative expenses
increased by $0.6 million to $3.2 million in the fiscal year ended June 30,
1996 compared to $2.6 million for the seven month period ended June 30, 1995.
As a percentage of revenue, this represented a decrease of 112% from 295% in
the seven month period ended June 30, 1995 compared to 183% in the fiscal year
ended June 30, 1996. If these seven month figures are annualized and it is
assumed that expenses were incurred at a stable rate, expenses for a full
fiscal year ended June 30, 1995 would be approximately $4.4 million, compared
to $3.2 million for the fiscal year ended June 30, 1996.
Net Loss from Operations: The net loss from operations increased from $2.2
million for the seven month period ended June 30, 1995 to $2.5 million for the
fiscal year ended June 30, 1996.
Income Tax Benefit: Tax losses relating to the seven month period ended June
30, 1995 and for the fiscal year ended June 30, 1996 have not been recognized
as a future tax benefit. As a result of the Reorganization, the Company will
not be able to use these tax credits.
Net Loss: Net loss increased from $2.2 million for the fiscal year ended
June 30, 1995 to $2.5 million for the fiscal year ended June 30, 1996. If
these seven month figures applicable to the fiscal year ended June 30, 1995
are annualized and it is assumed that revenues and expenses were generated and
incurred at a stable rate,
20
<PAGE>
the net loss for a full fiscal year ended June 30, 1995 would be approximately
$3.7 million, compared to $2.5 million for 1996, suggesting an improvement in
performance of an estimated $1.2 million or 32%.
LIQUIDITY AND CAPITAL RESOURCES
Australia and New Zealand Operations
The Australian and New Zealand operation's principal source of liquidity
historically has been, and the Company's principal source is expected to
continue to be, cash flows from operations. Cash flow provided by operating
activities increased from approximately $190,000 for the nine month period
ending March 31, 1996 to approximately $3,346,000 for the nine month period
ending March 31, 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, its trade account was paid before it was due,
resulting in a reduction of cash (as a result of the reduction in accounts
payable) of approximately $801,000 during the nine months ended March 31, 1996.
The return to ordinary commercial terms during the nine month period ended
March 31, 1997 is reflected in the increase in accounts payable of
approximately $934,000. Additionally, the improvement in cash flow provided by
operating activities also reflects improved profitability of the operations
during the nine month period ended March 31, 1997, as compared to the nine
month period ended March 31, 1996. Specifically, the Company improved its
economies of scale, improved recruitment with the Distributor Network and
enhanced its training programs resulting in a higher ratio of installed alarms
to sales calls.
Additionally, the historical cash flow and operating profit of the Australian
and New Zealand operations have been significantly reduced through the charging
of a royalty by FAI Insurance Ltd. The royalty charges levied upon the
Australian and New Zealand operations were approximately $1,922,000 and
$2,669,000 during the nine month periods ending March 31, 1996, and March 31,
1997, respectively. The cash flow generated from operating activities by the
Australian and New Zealand operations have historically been used to make loans
to other entities within the FAI Insurances group. See "Certain Transactions--
Transactions with FAI."
Following the completion of the Reorganization, the cash flow generated from
operating activities by the Australian and New Zealand operations will be at
the disposal of the Company. Additionally, upon completion of the
Reorganization, the Company will no longer be required to make royalty payments
to FAI Insurances Ltd. See "Certain Transactions--Transactions with FAI."
Net Cash flow provided by Operating Activities was $98,590, $3,507,594 and
$489,229 for the fiscal years ending June 1994, 1995 and 1996, respectively.
The increase in cashflow from fiscal year 1994 to 1995 was a result of the
change in net earnings of $1,543,679 and an increase in the accounts payable
relating to improved trading terms with the major supplier. The decrease in
cash flow from fiscal year 1995 to 1996 relates to the decrease in accounts
payable and the payment of outstandings in advance to Ness.
Net Cash flow generated by (used in) investing activities was ($29,979),
($43,632), $41,361 for the fiscal years ending June 1994, 1995, 1996. The
surplus in fiscal year 1996 relates to the sale of fixed assets in NZ resulting
from the conversion of branch operations to distributorships. Net Cash flow
provided by (used in) financing activities was $164,866, ($2,510,102),
($1,432,697) for the fiscal years ending June 1994, 1995 and 1996,
respectively. The provision and use of funds relate to receipts and borrowings
from related parties.
Operations outside Australia and New Zealand ("International Operations")
The International Operations have been net users of cash due to the incurring
of operating losses associated with the start up nature of these businesses.
The cash used in operating activities was reduced from approximately $2,225,000
during the nine month period ended March 31, 1996 to approximately $1,296,000
during the nine month period ended March 31, 1997. This was primarily due to
the reduction in operating losses
21
<PAGE>
as the start up operations have begun to mature and unsuccessful distribution
operations have been discontinued; a slow down in the growth of trade
receivables due to the reduction of extended credit terms provided to start up
distributors; and an increase in the use of trade credit due to the return to
commercial payment terms with Ness.
The cash flow requirements of the International operations have historically
been funded through the subscription of capital and loans from shareholders
and their related parties. See "Certain Transactions--Transactions involving
Bradley D. Cooper." The Company expects that the International Operations will
contribute to profits of the Company in fiscal 1998.
The net cash used in operating activities was ($2,333,645) and ($2,417,465)
for the fiscal years ending June 30, 1995 and 1996, respectively, and was due
to the losses incurred during both fiscal years.
The net cash used in investing activities was ($152,878), ($15,475) for the
fiscal years ending June 30, 1995 and 1996, respectively. The use of funds
related mainly to the additions of plant and equipment.
The net cash provided by financing activities was $2,563,407 and $2,446,740
for the fiscal years ending June 1995 and 1996, respectively. The receipt of
funds was in part attributable to borrowings from related parties to fund
shortfalls relating to trading losses. See "Certain Transactions--Transactions
Involving Bradley D. Cooper."
Post Reorganization Company Operations
Following the Reorganization, the Company will no longer be required to make
loans to other entities within the FAI group nor will it be required to make
royalty payments to FAI Insurances Ltd. See "Business--The Reorganization--The
License Agreement."
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
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 "Risk Factors--Possible Need for Additional Equity Capital or
Borrowings."
22
<PAGE>
BUSINESS
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. The Company is expanding 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 anticipates opening a U.S. distribution
office by September 1997. 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. 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). 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 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 the Company achieved
enough success with this approach to expand and establish an office in
Melbourne, Australia and had grown to five offices nationally a year and a
half later, its 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. This change to the Distributor Network strategy is
responsible for the rapid growth in unit sales since that time. Specifically,
the Distributor Network launched by its first distributor in September 1993,
has brought the Company to a 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 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
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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. While these operations were initially conducted in
Canada and England, 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 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 achieving 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 for, among other
items, that Mr. Cooper be remunerated on a commission per unit sold and bear
all expenses and overheads, 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 will
terminate upon the completion of this Offering and will be replaced by an
executive employment agreement. See "Management--Executive Employment
Agreements". 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 "Certain Transactions--
Transactions Involving Bradley D. Cooper" and "Management--Executive
Employment Agreements".
THE REORGANIZATION
The Company, wholly owned by FAI, is a Delaware corporation incorporated on
April 11, 1997. Immediately prior to the effectiveness of this Offering, 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 "Certain 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 the $833,251 FAI Note, assumed the
$131,615 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 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 effective date of
this Offering, the Company will also make a final dividend distribution to FAI
in the amount of approximately $3 million representing the retained earnings
of FAI Home Security Pty Ltd. on the date of the Reorganization. See "Certain
Transactions--The Reorganization".
The Share Purchase Agreement. In June 1997, subject to certain conditions,
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, FAI would receive 4,499,999 shares of Common Stock of the Company
plus the FAI Note in the amount of $833,251 representing: (i) the net book
value of the tangible (fixed assets and inventories) International Assets
(approximately $562,497) and (ii) partial consideration for the intangible
International Assets (approximately $270,754). In addition, the Company
(through its assumption of the NZ Note) agreed to pay FAI the sum of $131,615
which represents the fixed assets and inventory of the New Zealand operations.
The FAI Note and the NZ Note which will be retired out of the proceeds of this
Offering are subject to change based on the inventory valuation and currency
exchange rates in effect at the time of the Reorganization. See "Use of
Proceeds". FAI Insurance is 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, FAI and the Representatives enter into
a firm commitment underwriting agreement pursuant to
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which the Representatives agrees to sell 3,000,000 shares of Common Stock of
the Company in an initial public offering, consisting of 250,000 shares to be
sold by the Company and 2,750,000 shares to be sold by FAI, and that such
initial public offering became effective.
Prior to the effectiveness of this Offering, the Company fulfilled its
obligations under the Share Purchase Agreement including 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
"Business--Ness Supply Agreement". In connection with the acquisition of the
outstanding shares of the Australia and New Zealand Group, the Company acquired
the NZ Note payable to FAI from FAI Home Security (ENZED) Ltd. in the amount of
$131,615 (at March 31, 1997) representing the net book value of FAI Home
Security (ENZED) Ltd.'s, the New Zealand entity in the Australia and New
Zealand Group, inventory and fixed assets less any liabilities related to
warranty premiums.
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 "Certain 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 business 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.
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 also seeking to
sell enhanced services to new and existing customers, thereby increasing the
Company's average income per customer. The Company currently
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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 14 April 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 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 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.
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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, 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 (1992 and 1996), and was the winner of the
Australian Design Mark in 1996. 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 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 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
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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 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 structure, he or she receives a greater proportion of the
final selling price, and eventually can 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
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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 March 31, 1997,
the Company had 437 Independent Agents.
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 March 31, 1997,
the Company had 30 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 March 31,
1997, the Company had 34 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 the
same as 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 March 31, 1997, the Company had 27 Distributors.
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 March 31, 1997, the Company generated approximately
118,000 customer accounts internally through the Direct Sales Market Program,
including over 9,000 new customer accounts during the third fiscal quarter of
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.
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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 through
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.
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
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warranties in Australia. Outside of Australia and New Zealand, the Company has
established distributor networks in the 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 effectiveness of this
Offering, 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 "Certain Transactions--
Transactions with FAI".
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.
31
<PAGE>
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 "Risk Factors--Government
Regulation."
EMPLOYEES
At March 31, 1997, the Company employed 52 individuals, including 51 on a
full-time basis and 1 on a part-time 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.
PROPERTY
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$303) per square
meter per annum expiring on September 30, 1999. 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.
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.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as of
December 31, 1996 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 45 Director
Dennis J. Puleo 51 Director
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) 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. In 1997, Mr. Cooper became
Chairman of the Board of the Company. 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 in Australia for such
childhood favorites as Warner Bros. (Looney Tunes), Sesame Street, and Thomas
the Tank Engine to manufacture, market and distribute children's furniture. 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
33
<PAGE>
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. As Executive Vice President of Marketing, Mr.
Knowles is responsible for the development and implementation of all sales and
marketing material, training 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. From 1988 to 1992 Ms. Hilbert was employed by Tilt Lift Equipment Pty.
Ltd., a company which specializes in providing commercial construction
products and services.
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
and 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.
in Beverly Hills, California, 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 was
designated a director of the Company pursuant to the Underwriting Agreement.
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.
34
<PAGE>
STAGGERED BOARD OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation, upon the closing of
this offering the Board of Directors will be divided into three classes of
directors serving staggered three-year terms.
Class I Directors. The following people will serve as Class I directors with
their term expiring in 1998: Steven A. Rothstein and Steven Rabinovici.
Class II Directors. The following people will serve as Class II directors
with their term expiring in 1999: Timothy M. Mainprize and Dennis J. Puleo.
Class III Directors. The following people will serve as Class III directors
with their term expiring in 2000: Bradley D. Cooper.
All directors of each class will 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.
EXECUTIVE EMPLOYMENT AGREEMENTS
Executive Employment Agreements Prior to Offering
Presently, the Company has executive employment agreements for the period
July 1, 1996 to June 30, 1997 with Messrs. Bradley D. Cooper, David Appleby
and Geoffrey Knowles.
Pursuant to an existing executive employment agreement between FAI Home
Security Pty Ltd. and Speakeasy Pty Ltd. ("Speakeasy"), a company beneficially
owned by Mr. Cooper, Mr. Cooper receives, 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 in the nine
month period ended March 31, 1997 was approximately $416,000. See "Certain
Transactions--Transactions Involving Bradley D. Cooper." Mr. Cooper's current
agreement will continue until completion of this Offering.
The existing executive employment agreement with Mr. Appleby provides that
Mr. Appleby shall receive, 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). For the nine months
ended March 31, 1997, Mr. Appleby has received a renumeration, based on the
number of units sold, of $205,498.
The existing executive employment agreement with Mr. Knowles provides that
Mr. Knowles shall receive a base salary of approximately $98,138, plus the use
of a fully maintained motor vehicle. Pursuant to the agreement, Mr. Knowles is
also entitled to a bonus. For the nine months ended March 31, 1997, Mr.
Knowles has received renumeration, based on the number of units sold, of
$126,772.
Executive Employment Agreement Upon Effectiveness of Offering
In addition, certain executive employment agreements, which will become
effective upon the completion of this Offering 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,
Geoffrey Knowles and Ms. Felicity Hilbert.
The executive employment agreement with Mr. Cooper ("Cooper Employment
Agreement") will provide that Mr. Cooper 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. 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
35
<PAGE>
any out of pocket expenses incurred while he is on Company business. Mr.
Cooper will also 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 will be reviewed by the Company's
Compensation Committee on an annual basis, and is subject to adjustment based
on such review.
Messrs. Appleby and Knowles' executive employment agreements will provide
for them to receive certain commissions per alarm unit sold. The terms of such
agreements will be substantially similar to those of the executive employment
agreements in effect before the effective date of the Offering, and will 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. Youngman, Whitaker and Ms.
Hilbert will be 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.
COMPENSATION OF DIRECTORS
Directors are not currently paid fees, but are entitled to reimbursement for
travel expenses incurred in traveling to and from board meetings. Following
completion of this Offering, non-employee directors will receive $10,000
annual compensation and be reimbursed for out-of-pocket expenses incurred in
attending each committee or board meeting. Upon the closing of this Offering,
each non-employee director will receive options to purchase 5,000 shares of
the Company's Common Stock at an exercise price equal to the initial public
offering price. Thereafter, 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
Effective upon completion of this Offering, the Board of Directors will
establish an Executive Committee, an Audit Committee and a Compensation
Committee, each consisting exclusively of non-employee directors. The
Executive Committee is empowered to act with all authority granted to the
Board of Directors between board meetings, except with respect to those
matters required by Delaware law or by the Company's By-laws, to be subject to
the power and authority of the Board of Directors as a whole. The Audit
Committee will be 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
will be responsible for reviewing and approving all compensation arrangements
for officers of the Company, and will also be responsible for administering
the Employee Stock Option Plan.
LIMITATION OF DIRECTOR'S LIABILITY AND INDEMNIFICATION
Article Ninth of the Company's Certificate of Incorporation provides that
the liability of the Company's directors to the Company for monetary damages
is eliminated to the fullest extent permissible under Delaware law. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief, rescission or damages. The Company's By-laws
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and officers of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as
36
<PAGE>
expressed in the Securities Act and is, therefore, unenforceable. At the
present time, there is no pending litigation involving a director, officer,
employee or other agent of the Company in which indemnification would be
required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.
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, 1996 exceeded
$100,000 (together, the "Named Executive Officers"). The salaries listed below
are annualized.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS BONUS
- --------------------------- ------------------- ------------ ---------
<S> <C> <C> <C> <C>
Bradley D. Cooper................... 1996 US$ 59,708 0 0
Chairman of the Board and Chief
Executive Officer
Terry J. Youngman................... 1996 US$ 120,227 0 0
President
Robert D. Appleby................... 1996 US$ 113,826 0 US$78,860
Executive Vice-President of
International Business Development
Geoffrey D. Knowles................. 1996 US$ 110,693 0 0
Vice President of Marketing
</TABLE>
On July 1, 1996, Messrs. Cooper, Appleby and Knowles agreed with the Company
to change their compensation packages so that in the future they will be paid
a bonus commission for each alarm unit sold by the Company. This will
significantly increase the compensation packages for these individuals for the
current and future fiscal years. See "Management--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
incentive stock options ("Incentive 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 incentive stock options under
Section 422 of the Code ("Non-Statutory Options"). Immediately upon the
commencement of the Offering, the Company will reserve 250,000 Incentive
Options for issuance to Bradley D. Cooper, exercisable at a rate of 20% per
year commencing on the first anniversary date of the effective date of the
Offering, at an exercise price equivalent to the initial public offering
price. In addition, the Company has reserved an additional 250,000 Incentive
Options for issuance to key employees of the Company, excluding Bradley D.
Cooper, which will also be exercisable at a rate of 20% per year commencing on
the first anniversary date of the effective date of the Offering, to be
granted upon the commencement of the Offering at an exercise price equivalent
to the initial public offering price. Such options are subject to
authorization by the Company's Compensation Committee.
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.
Immediately upon the closing of this Offering, all non-employee directors will
receive options to purchase 5,000 shares of Common Stock at the initial public
offering price under the Director Plan. Thereafter, 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 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. To date, no options have been granted under the Director Plan.
37
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS INVOLVING BRADLEY D. COOPER
Prior to September 1994, FAI Insurance acquired 50% of FAI Home Security
Holdings Pty Ltd. On September 5, 1994 and June 1, 1995 FAI Insurance acquired
4.18% and 5.98% of FAI Home Security Holdings Pty Ltd., respectively, for
approximately $2,552,000. Further, on June 1, 1995, FAI Insurance acquired the
remaining 39.84% of FAI Home Security Holdings Pty Ltd. (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 17, 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). As a result of
these transactions the Company became a wholly owned subsidiary of FAI
Insurances Limited.
On November 17, 1995, Mr. Cooper through the Cooper International Group (See
"Certain Transactions--Purchase of International Assets") acquired the FAI
Home Security Holdings Pty Ltd. operations outside of Australia and New
Zealand for $47. At the time of acquisition by Mr. Cooper, the operations
outside Australia and New Zealand were indebted to their immediate parent, FAI
Home Security Holdings Pty Ltd., 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 17, 1997.
Since November 17, 1995 the loan to the Cooper International Group has
increased by approximately $850,000 representing interest charges and charges
for management services provided by FAI Home Security Holdings Pty Ltd. to the
Cooper International Group. The balance of the loan outstanding for the fiscal
year ended June 30, 1996 and for the nine months ended March 31, 1997 were
$2,012,472 and $2,845,560, respectively.
On March 31, 1997 FAI Home Security Holdings Pty Ltd. reacquired from Mr.
Cooper the Cooper International Group. 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.
On July 1, 1996, FAI entered into a management agreement with Speakeasy Pty
Ltd. (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 Ltd. was paid a commission of approximately $19.25 on each alarm unit sold
by the Company. For the nine months ended March 31, 1997, the Company paid to
Speakeasy Pty Ltd. approximately $415,707. This management will terminate on
the closing of the Offering and be replaced by the Cooper Executive Agreement.
See "Business--Executive Employment Agreements".
Subsequent to the Reorganization and prior to the commencement of the
Offering, Mr. Cooper will purchase 250,000 shares of the Company's Common
Stock at the initial public offering price of the Common Stock. Five percent
(5%) of the purchase price for the shares will be paid by Mr. Cooper in cash
and the remainder will be paid through a note to the Company bearing interest
at 7.0% per annum, secured by the shares purchased. The interest payable on
the note is due on a full recourse basis.
During the fiscal year ended June 30, 1996 and the nine month period ended
March 31, 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 March 31,
1997 were $105,432 and $168,112, respectively. These loan balances were repaid
in full in May 1997.
TRANSACTIONS WITH FAI
The Company leases from FAI 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 from FAI. Under
38
<PAGE>
the terms of the lease, the Company pays an annual rent of AUD$380
(approximately US$303) per square meter per annum. See "Business--Property."
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 and June 30, 1996 the royalty fee paid by the
Company to FAI Insurance was $1,989,371 and $2,750,468, respectively. For the
nine months ended March 31, 1997 the Company paid to FAI Insurance a royalty
fee of approximately $2,668,985. 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 "Business--The Reorganization".
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 as of March 31, 1997 amounted to
$2,675,655, $4,380,060, and $8,887,455, 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 (via his beneficial ownership in the Cooper Investment Trust),
through 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 $2,784,431. 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 effective date of the Offering, the Company acquired the
International Assets from FAI pursuant to the Share Purchase Agreement. See
"Business--The Reorganization".
THE REORGANIZATION
During April 1997, the Board of Directors and sole stockholder of the
Company approved the Reorganization which was implemented immediately prior to
the effectiveness of this Offering. The closing of this Offering will not
occur without implementation of the Reorganization. In addition, immediately
prior to the effective date of this Offering, the Company will make a final
dividend distribution to FAI in the amount of approximately $3,057,280
representing the retained earnings of FAI Home Security Pty Ltd. on the date
of the Reorganization. See "Business--The Reorganization".
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.
39
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus 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, (iv) each person known by the Company to be the
beneficial owner of more than five percent of the Common Stock, and (v) the
Selling Shareholder, and as adjusted to reflect the sale of the shares offered
pursuant to this Offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(2)
---------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES PERCENT SHARES OFFERED SHARES PERCENT
------------ --------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS
Bradley D. Cooper(3).... 250,000 5.2% 0 250,000 5%
Level 7, 77 Pacific
Highway
North Sydney, NSW 2060
Australia
Terrence J. Youngman(4). 0 0 0 0 *
Robert D. Appleby(4).... 0 0 0 0 *
Mark Whitaker(4)........ 0 0 0 0 *
Geoffrey D. Knowles(4).. 0 0 0 0 *
Felicity A. Hilbert(4).. 0 0 0 0 *
Steven Rabinovici....... 0 0 0 0 *
Timothy M. Mainprize.... 0 0 0 0 *
Dennis J. Puleo......... 0 0 0 0 *
Steven A. Rothstein..... 0 0 0 0 *
All executive officers
and directors as a
group
(10 persons)........... 250,000 5.2% 250,000 5%
FIVE PERCENT SELLING
SHAREHOLDER
FAI Home Security
Holdings Pty Ltd.(5)... 4,500,000 94.8% 2,750,000 1,750,000 35%
Level 7, 77 Pacific
Highway
North Sydney, NSW 2060
Australia
</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) Subject to stock option grants which may be awarded to officers and
directors under the 1997 Stock Option Plan and the 1997 Non-Employee
Director Stock Option Plan, none of which will be exercisable within 60
days of this Offering. See "Management--Stock Compensation Plans".
(3) Does not include options expected to be granted to Mr. Cooper for 250,000
shares of Common Stock. See "Management--Stock Compensation Plans".
(4) Does not include options for an aggregate of 250,000 shares of Common
Stock expected to be granted to Messrs. Youngman, Appleby, Whitaker and
Knowles and Ms. Hilbert. See "Management--Stock Compensation Plans".
(5) Controlled by FAI Insurance, a publicly traded company in Australia with
American Depository Receipts traded on the New York Stock Exchange.
40
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company is 20,000,000 shares of Common
Stock, $.001 par value, and 1,000,000 shares of Preferred Stock, $.001 par
value. Immediately prior to the effectiveness of this Offering, after giving
effect to the Reorganization and the purchase of 250,000 shares of Common
Stock by Bradley D. Cooper. 4,750,000 shares of Common Stock of the Company
will be issued and outstanding and held by two (2) shareholders of record.
Upon the closing of this Offering, there will be no shares of Preferred Stock
outstanding. The holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets available therefor at such time and in such
amounts as the Board may, from time to time, determine. Each stockholder is
entitled to one vote for each share of Common Stock held of record, on all
matters submitted to a vote of stockholders. As is permitted by Delaware law,
there will not be cumulative voting in connection with the election of
directors. Holders of Common Stock have no preemptive rights or rights to
convert their Common Stock into any other securities under the Company's
charter documents. There are no sinking fund provisions applicable to the
Common Stock. Upon liquidation, dissolution or winding up of the Company, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the Common Stock outstanding at that time. All
outstanding shares of Common Stock are, and the Common Stock to be outstanding
upon completion of this Offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock, as well as to fix the number
of shares constituting any series and the designation of such series, without
any further vote or action by the stockholders. The Board of Directors,
without stockholder approval, may issue Preferred Stock with voting and
conversion rights which could materially adversely affect the voting power of
the holders of Common Stock. The issuance of Preferred Stock could also
decrease the amount of earnings and assets available for distribution to
holders of Common Stock. In addition, the issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company. At present, the Company has no plans to issue any shares of Preferred
Stock. See "Risk Factors--Anti-Takeover Considerations".
REPRESENTATIVES' WARRANTS
In connection with this Offering, the Company has authorized the issuance of
the Representatives' Warrants and has reserved 300,000 shares of Common Stock
for issuance upon exercise of such warrants (including the shares issuable
upon exercise of the Representatives' Warrants). The Representatives' Warrants
will entitle the holders thereof to acquire 300,000 shares of Common Stock at
an exercise price of 165% of the initial offering price per share of Common
Stock ($21.45 per share of Common Stock assuming an estimated initial public
offering price of $13.00 per share of Common Stock). The Representatives'
Warrants will be exercisable at any time from the first anniversary of the
date of this Prospectus until the fifth anniversary of the date of this
Prospectus. The Representatives' Warrants contain provisions that protect the
holders against dilution by adjustment of the exercise price. Such adjustments
will occur in the event, among others, that the Company makes certain
distributions to holders of its Common Stock. The Company is not required to
issue fractional shares upon the exercise of the Representatives' Warrant. The
holder of a Representatives' Warrant will not possess any rights as a
shareholder of the Company until such holder exercises the Representatives'
Warrant.
For the life of the Representatives' Warrants, the holders thereof have the
opportunity to profit from a rise in the market price of the Common Stock
without assuming the risk of ownership of the shares of Common Stock issuable
upon the exercise of the warrants or options. These warrant and option holders
may be expected to exercise their warrants or options at a time when the
Company would, in all likelihood, be able to obtain any needed capital by an
offering of Common Stock on terms more favorable than those provided for by
the warrants or options. Further, the terms on which the Company could obtain
additional capital during the life of the warrants or options may be adversely
affected.
41
<PAGE>
The Representatives' Warrants provide certain rights with respect to the
registration under the Securities Act of the 600,000 shares of Common Stock
issuable upon exercise of the Representatives' Warrants. The Company has
agreed that during the entire period between the first anniversary and fifth
anniversary of the date of this Prospectus it will register the issuance of
such shares upon the exercise of the Representatives' Warrants (and, if
necessary, their resale) so as to permit their public resale without
restriction. These holders of the Representatives' Warrants have, for a term
of five years from the date of this Prospectus, the right to demand two
registrations by the Company of their shares and unlimited number of
incidental, or "piggyback," registration rights. These registration rights
could result in substantial future expense to the Company and could adversely
affect the Company's ability to complete future equity or debt financing.
Furthermore, the registration and sale of Common Stock of the Company held by
or issuable to the holders of registration rights, or even the potential of
such sales, could have an adverse effect on the market price of the securities
offered hereby.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND DELAWARE LAW
Classified Board of Directors. The Company's By-laws provides for the Board
of Directors to be divided into three classes of directors, as nearly equal in
number as is reasonably possible, serving staggered terms so that directors'
initial terms will expire at the 1998, 1999 or 2000 annual meeting of the
stockholders. Starting with the 1997 annual meeting of the stockholders, one
class of directors will be elected each year for a three-year term. See
"Management--Directors and Executive Officers." The Company believes that a
classified Board of Directors will help to assure the continuity and stability
of the Board of Directors and the Company's business strategies and policies
as determined by the Board of Directors, since a majority of the directors at
any given time will have had prior experience as directors of the Company. The
Company believes that this, in turn, will permit the Board of Directors to
more effectively represent the interests of stockholders. See "Management--
Limitation of Director's Liability and Indemnification".
Delaware Anti-Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Laws which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or after such
date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or
associate of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar and Warrant Agent is the Bank of
New York, 101 Barclay Street, New York, New York 10286.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
5,000,000 shares of Common Stock. All of the 3,000,000 shares sold in this
Offering will be freely tradeable without restriction or further registration
under the Securities Act unless held by "affiliates" of the Company as that
term is defined in Rule 144 under the Securities Act. The remaining 2,000,000
shares will be subject to certain restrictions, as defined under Rule
42
<PAGE>
144 (the "Restricted Shares"). Specifically, 1,750,000 shares issued to the
Selling Shareholder pursuant to the Reorganization will be restricted for one
year after the Reorganization. The 250,000 shares sold to Bradley D. Cooper
will also be restricted for a period of one year following the date on which
full payment of such shares is made. The Restricted Shares were issued and
sold by the Company in private transactions in reliance upon exemptions under
the Securities Act. Restricted Shares generally may be sold in the public
market only if registered under the Securities Act and sold in compliance with
Rule 144. After the one year holding periods applicable to the shares held by
the Selling Shareholder and Mr. Cooper, the Restricted Shares may be subject
to volume and other resale limitations described below.
SALE OF RESTRICTED SHARES
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated for purposes of Rule 144) who beneficially owns
restricted shares with respect to which at least one year has elapsed since
the later of the date the shares were acquired from the Company or from an
affiliate of the Company, is entitled to sell, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock of the Company (approximately 30,000 shares immediately after this
Offering), or (ii) the average weekly trading volume in Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 also are
subject to certain manner-of-sale provisions and notice requirements and to
the availability of current public information about the Company. A person who
is not an affiliate, has not been an affiliate within three months prior to
sale and who beneficially owns restricted securities with respect to which at
least two years have elapsed since the later of the date the shares were
acquired from the Company or from an affiliate of the Company, is entitled to
sell such shares under Rule 144(k) without regard to any of the volume
limitations or other requirements described above.
Restricted Shares that have been issued in reliance on Rule 701 (such as
shares of Common Stock issued under the Company's stock option plans) may be
resold by persons other than affiliates of the Company, beginning
approximately 90 days after the date of this Prospectus, subject only to the
manner of sale provisions of Rule 144, and may be resold by affiliates of the
Company under Rule 144 without compliance with its one-year holding period
requirement.
Rule 144 under the Securities Act would permit, subject to certain
conditions, the sale by the current holders of Restricted Shares of all or a
portion of their shares to certain "qualified institutional buyers," as
defined in Rule 144A.
LOCK-UP AGREEMENT
Except as noted, all current shareholders of the Company, including the
Selling Shareholder and all of the Company's directors and officers and
affiliates of certain of the Company's directors, have agreed with the Company
at the request of the Underwriters not to sell or otherwise dispose of any
shares of Common Stock in the public market for a period of 360 days after the
date of this Prospectus without the prior written consent of the
Representative. See "Underwriting." Subject to the 360 day period described
above and subject to compliance with the volume and other limitations of Rule
144 described above, the Restricted Shares will be eligible for sale in the
public market on various dates beginning on , 1997 with respect to the
1,750,000 issued to the Selling Shareholder pursuant to the Reorganization
and, with respect to the 250,000 shares sold to Bradley D. Cooper, beginning
on the date one year after such shares are fully paid for.
EFFECT OF SALES OF SHARES
Prior to this Offering there has been no public market for the Common Stock.
The Company cannot predict the effect, if any, that sales of shares of Common
Stock, or the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock in the public market could adversely affect prevailing market
prices and could enjoin the Company's ability to raise capital through a role
of its securities.
43
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation and Nolan Securities Corporation are acting as the
representatives (together, the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement among the
Company, the Representatives and the Selling Shareholder (the "Underwriting
Agreement"), to purchase from the Company, and the Company and the Selling
Shareholder have agreed to sell to the Underwriters, the shares of Common
Stock set forth in the table below at the price set forth on the cover of page
of this Prospectus under "Proceeds to Company."
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
National Securities Corporation
Nolan Securities Corporation
Total....................................................... 3,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Common Stock are subject to certain conditions. The
Underwriters are committed to purchase all the Common Stock offered by this
Prospectus, if any are purchased by the Representatives.
The Representatives have advised the Company and the Selling Shareholder
that the Underwriters propose to offer the Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to selected dealers at such price less a concession not in excess of
$ per share of Common Stock [8% of the initial public offering Price],
and that the Underwriters and such dealers may reallow a concession to other
dealers, including the Underwriters, not in excess of $ per share of
Common Stock. After the commencement of the Offering, the public offering
price, the concessions to selected dealers and the reallowance to other
dealers may be changed by the Representatives.
The Company and the Selling Shareholder have granted the Underwriters an
option, expiring at the close of business 45 days after the closing of this
Offering to purchase up to an aggregate of 200,000 additional shares of Common
Stock from the Company and 250,000 shares of Common Stock from the Selling
Shareholder at the public offering price set forth on the cover page of this
Prospectus less underwriting discounts and the 2% non-accountable expense
allowance. If the over-allotment option is exercised, the first 250,000 shares
to be purchased by the Representatives shall be sold to them by the Selling
Shareholder. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional Common Stock as the percentage it was
obligated to purchase pursuant to the Underwriting Agreement. The Underwriters
may exercise the option only to cover over-allotments, if any, incurred in the
sales of the Common Stock.
The Representatives have informed the Company and the Selling Shareholder
that they do not expect the Underwriters to confirm sales of shares of Common
Stock offered by this Prospectus to any accounts over which they exercise
discretionary authority.
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Selling Shareholder and their respective controlling persons
on the one hand, and the Underwriters and their respective controlling persons
on the other hand, against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
The Company and the Selling Shareholder have agreed to pay the
Representatives a non-accountable expense allowance equal to two percent (2%)
of the gross proceeds from the sale of the Company's Common Stock.
44
<PAGE>
The Company has agreed to sell to the Representatives, for an aggregate of
$60, warrants to purchase from the Company up to 300,000 shares of Common
Stock at an exercise price per share initially equal to 165% of the public
offering price. The Representatives' Warrants are exercisable beginning one
year from the effective date of this Prospectus, expire five years from the
effective date of this Prospectus, and are not transferable, except to either
a partner or an officer of an Underwriter or by will or by operation of law.
The Representatives' Warrant provides for adjustment in the exercise price of
the Representatives' Warrant in the event of certain mergers, acquisitions,
stock dividends and capital changes. In addition, the Company has granted
rights to the holders of the Representatives' Warrants to register the Common
Stock underlying the Representatives' Warrants under the Securities Act.
The Company and its officers and directors and all shareholders have agreed
with the Representatives that for a period of 360 days following the closing
of this Offering (the "Lock-up Period"), neither the Company nor any such
persons shall offer, issue, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of any securities of the Company without the
consent of National. See "Description of Securities."
The Company has agreed that, for a period of five (5) years from the closing
of the sale of Common Stock offered hereby the Representatives shall have the
right to designate for election one member of the Company's Board of
Directors. However, if the Representatives so chooses, the Representatives may
instead designate an observer, who shall receive all notices of meeting by the
Company's Board of Directors and all other correspondence and communications
sent by the Company to its Board of Directors and be entitled to attend all
meetings of the Company's Board of Directors. The Company has agreed to
reimburse the Representatives' designee for out-of-pocket expenses incurred in
connection with attending meetings of the Company's Board of Directors. Steven
A. Rothstein has been designated by the Representatives for nomination for
election to the Company's Board of Directors.
Certain persons participating in this Offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition
of penalty bids, which may involve the purchase of Common Stock of the Company
on the American Stock Exchange or otherwise. Such transactions may stabilize
or maintain the market price of the Common Stock at a level about that which
might otherwise prevail in the open market and, if commenced, may be
discontinued at any time.
The offering price set forth on the cover page of this Prospectus should not
be considered an indication of the actual value of the Common Stock. Such
price is subject to change as a result of market conditions and other factors
and no assurance can be given that the Common Stock can be resold at the
offering price.
Prior to this Offering, there has been no public market for the Shares.
Accordingly, the initial public offering price was determined by negotiations
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price were the history and the
prospects of the Company and the industry in which it operates, the past and
present operating results of the Company and the trends of such results, the
previous experience of the Company's executive officers and the general
condition of the securities markets at the time of the Offering.
In April 1997, FAI Insurance loaned $200,000 to Steven A. Rothstein, a
director of the Company and the Chairman of National, pursuant to a three
month 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 Steven A. Rothstein is chairman and which is the parent
company of National, approximately $900,000 pursuant to an 18-month promissory
note bearing interest at 15%. In connection with such loan, Olympic issued to
FAI Overseas a warrant to acquire 30,000 shares of Olympic common stock at an
exercise price of $5.25 per share, the market price on the date of grant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement, which are filed as exhibits to the registration
statement filed in connection with this Offering.
45
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Shares offered hereby will be
passed upon for the Company by D'Ancona & Pflaum. Certain legal matters will be
passed upon for the Underwriters by Camhy Karlinsky & Stein LLP, New York, New
York.
EXPERTS
The audited financial statements included in this Prospectus have been
audited by Arthur Andersen, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in auditing and accounting in giving such
reports. Arthur Don, a member of D'Ancona & Pflaum, will act as the initial
Secretary for the Company, a non-executive position as defined in the Company's
By-laws.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Statement under the Securities
Act, with respect to the shares of Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement and the
exhibits and schedules thereto for further information with respect to the
Company and the Common Stock offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily complete, and in
each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement, including exhibits and
schedules filed therewith, may be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained from the public reference section of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 upon payment of the prescribed fees. Such materials may also be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Home Security International, Inc.:
Australia and New Zealand Operations:
Report of Independent Public Accountants................................ F-3
Combined Statements of Income for the Years Ended June 30, 1994, 1995
and 1996 and the Nine Months Ended March 31, 1996 and 1997............. F-5
Combined Balance Sheets as at June 30, 1995 and 1996 and as at March 31,
1997................................................................... F-6
Combined Statements of Cashflows for the Years Ended June 30, 1994, 1995
and 1996 and the Nine Months Ended March 31, 1996 and 1997............. F-7
Combined Statements of Changes in Shareholders' Equity for the Years
Ended June 30, 1994, 1995 and 1996 and the Nine Months Ended March 31,
1997................................................................... F-8
Notes to Financial Statements........................................... F-9
International Operations:
Report of Independent Public Accountants................................ F-18
Combined Statements of Income for the Period Ended June 30, 1995, Year
Ended June 30, 1996 and the Nine Months Ended March 31, 1996 and 1997.. F-20
Combined Balance Sheets as at June 30, 1995 and 1996 and the Nine Months
Ended March 31, 1997................................................... F-21
Combined Statements of Cashflows for the Period Ended June 30, 1995,
Year Ended June 30, 1996 and the Nine Months Ended March 31, 1996 and
1997................................................................... F-22
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 31, 1997......................................................... F-23
Notes to Financial Statements........................................... F-24
Proforma Consolidated Financial Statements for Home Security
International, Inc..................................................... F-34
Report of Independent Public Accountants for Home Security
International, Inc..................................................... F-39
Balance Sheet of Home Security International, Inc. for the Period Ended
April 11, 1997......................................................... F-40
Statement of Changes in Shareholders' Equity of Home Security
International, Inc. for the Period Ended April 11, 1997................ F-40
Notes to Financial Statements........................................... F-41
</TABLE>
F-1
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the reorganization transactions discussed in Note 13 to the combined
financial statements of FAI Home Security Pty Limited, FAI Home Security (NZ)
Limited and FAI Home Security (NZ) Trust have been completely effected, we
expect to be in a position to render the following audit report.
Arthur Andersen
Sydney
May 2, 1997
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Boards of Directors and Trustees of FAI Home Security Pty Limited, FAI
Home Security (NZ) Limited and FAI Home Security (NZ) Trust ("FAI Home
Security Australia and New Zealand Group"):
We have audited the accompanying combined balance sheets of the FAI Home
Security Australia and New Zealand Group as of June 30, 1996 and 1995, and
related combined statements of income, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. 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 financial position of the FAI Home Security
Australia and New Zealand Group as of June 30, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting
principles in the United States of America.
The financial statements of the FAI Home Security Australia and New Zealand
Group as of and for the nine months ended March 31, 1997 and 1996, which are
presented solely for comparative purposes, were not audited by Independent
Public Accountants.
Arthur Andersen
Sydney,
May 2, 1997 except with respect to the reorganization transaction as discussed
in Note 13, as to which the date is 1997
F-4
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
------------------------
YEAR ENDED JUNE 30 (UNAUDITED)
------------------------------------
NOTE 1994 $US 1995 $US 1996 $US 1996 $US 1997 $US
---- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 2 10,629,018 21,437,325 26,700,922 18,806,320 23,232,294
Cost of goods sold
--related party........ 12 (937,922) (1,989,371) (2,750,468) (1,921,984) (2,668,985)
--other................ (5,790,471) (12,229,324) (14,834,094) (10,246,933) (14,109,950)
---------- ----------- ----------- ----------- -----------
Gross profit............ 3,900,625 7,218,630 9,116,360 6,637,403 6,453,359
General and
administrative
expenses............... (3,954,935) (5,091,498) (6,606,377) (4,736,804) (4,045,935)
---------- ----------- ----------- ----------- -----------
Income (loss) from
operations............. (54,310) 2,127,132 2,509,983 1,900,599 2,407,424
Interest income--related
party.................. 12 -- -- 75,087 20,364 491,051
- --other................. 6,973 65,211 175,719 135,400 63,951
Interest expense--
related party.......... 12 (1,542) (47,625) (20,279) --
---------- ----------- ----------- ----------- -----------
Income (loss) before
taxes.................. (48,879) 2,192,343 2,713,164 2,036,084 2,962,426
Income tax expense...... 11 (24,980) (722,523) (1,054,170) (820,873) (1,124,066)
---------- ----------- ----------- ----------- -----------
Net income (loss)....... (73,859) 1,469,820 1,658,994 1,215,211 1,838,359
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
--------------------- MARCH 31
1995 1996 1997
ASSETS NOTE $US $US $US
- ------ ---- --------- ---------- -----------
<S> <C> <C> <C> <C>
Current assets (UNAUDITED)
Cash and cash equivalents............. 1,229,501 369,837 236,485
Accounts receivable--related party.... 12 2,675,655 4,380,060 8,887,455
Accounts receivable--trade, net....... 3 1,090,412 1,099,733 1,112,840
Inventories........................... 4 90,040 339,602 599,873
Prepaid expenses and other current
assets............................... 5 357,072 751,426 952,413
--------- ---------- -----------
Total current assets................ 5,442,680 6,940,658 11,789,066
--------- ---------- -----------
Non-current assets......................
Plant and equipment, net.............. 6 65,124 12,706 739,840
Intangibles, net...................... 7 2,038,980 5,948,255 7,933,713
Deferred income taxes................. 11 120,989 475,505 518,152
Other non-current assets.............. 2,987 6,531 3,951
--------- ---------- -----------
Total non-current assets............ 2,228,080 6,442,997 9,195,656
--------- ---------- -----------
Total assets........................ 7,670,760 13,383,655 20,984,722
========= ========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
Current liabilities
Bank overdraft........................ -- -- --
Payables--related parties............. 12 -- -- 1,749,570
Payables--trade....................... 2,711,243 2,414,042 3,379,768
Accrued liabilities................... 293,598 956,307 1,031,383
Lease liability....................... -- -- 23,303
Income tax payable.................... 753,873 -- 336,987
Deferred income....................... -- 119,479 372,484
--------- ---------- -----------
Total current liabilities........... 3,758,714 3,489,828 6,893,495
--------- ---------- -----------
Non-current liabilities
Lease liability....................... -- -- 47,280
--------- ---------- -----------
Total liabilities................... 3,758,714 3,489,828 6,940,775
Shareholders' equity
Common stock.......................... 2 2 2
Additional paid-in capital............ 2,085,090 6,016,944 8,332,079
Foreign currency translation
adjustment........................... (4,240) 386,693 383,319
Retained earnings..................... 1,831,194 3,490,188 5,328,547
--------- ---------- -----------
Total shareholders' equity.......... 3,912,046 9,893,827 14,043,947
--------- ---------- -----------
Total liabilities and shareholders'
equity............................. 7,670,760 13,383,655 20,984,722
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
COMBINED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31
JUNE 30 ---------------------
-------------------------------- (UNAUDITED)
1994 1995 1996 1996 1997
$US $US $US $US $US
-------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Cashflow from operating
activities
Net Income (Loss)..... (73,859) 1,469,820 1,658,994 1,215,211 1,838,359
Adjustments to
reconcile net income
(loss) to net cash
from operating
activities:
Depreciation.......... 2,868 12,350 11,192 8,103 33,422
Amortization of
goodwill............. -- 47,884 226,498 167,808 273,685
Deferred taxes and
income tax payable... 84,938 478,995 (1,143,650) (313,421) 322,492
Provision for losses
on accounts
receivable........... 61,703 9,552 58,213 147,617 23,895
(Increase) decrease in
operating assets:
Accounts receivable--
trade................ (162,833) (245,402) (21,925) (251,936) (14,959)
Inventories........... 148,884 60,656 (239,731) (122,904) (259,667)
Prepaid expenses and
other assets......... 35,498 (262,407) (305,224) (200,929) (201,814)
Increase (decrease) in
operating
liabilities:
Accounts payable...... 22,425 1,740,323 (489,880) (801,465) 933,636
Accrued liabilities... (21,034) 195,823 734,742 341,758 396,959
-------- ---------- ---------- --------- ----------
Net cash provided by
(used in) operating
activities............. 98,590 3,507,594 489,229 189,842 3,346,008
-------- ---------- ---------- --------- ----------
Cashflow from investing
activities
Proceeds from sale of
plant and equipment.. -- -- 112,062 111,128 --
Additions to plant and
equipment............ (29,979) (43,632) (70,701) (68,889) (762,408)
-------- ---------- ---------- --------- ----------
Net cash provided
by/(used in) investing
activities............. (29,979) (43,632) 41,361 42,239 (762,408)
-------- ---------- ---------- --------- ----------
Cashflow from financing
activities
Provided by (payments
on) short-term debt.. (920) (927) (3,129) (3,091) 2,559
Increase (decrease) in
bank overdraft....... (44,036) -- -- -- --
Receipts/(payments)
from/(to) related
parties.............. 209,822 (2,509,175) (1,429,568) (789,243) (2,722,800)
-------- ---------- ---------- --------- ----------
Net cash provided
by/(used in) financing
activities............. 164,866 (2,510,102) (1,432,697) (792,334) (2,720,241)
-------- ---------- ---------- --------- ----------
Net increase/(decrease)
in cash held........... 233,477 953,860 (902,107) (560,253) (136,642)
-------- ---------- ---------- --------- ----------
Cash at the beginning of
the financial year..... 1,009 247,000 1,229,501 1,229,501 369,838
Effect of exchange rate
change on cash held.... 12,514 28,641 42,443 41,128 3,289
-------- ---------- ---------- --------- ----------
Cash at the end of the
financial year......... 247,000 1,229,501 369,837 710,376 236,485
======== ========== ========== ========= ==========
Supplemental disclosures
of cash flow
information:
Interest paid........... 2,458 874 59,945 62,494 314,915
Income taxes paid....... -- 212,736 1,279,393 973,484 595,981
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL STOCK ISSUED
-----------------------
($1 AUSTRALIAN DOLLAR FOREIGN
PAR VALUE) 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, 1993.. 2 2 -- -- 435,233 435,235
Foreign currency
translation adjustment.
Additional paid in
capital................
Net income 1994......... (73,859) (73,859)
---------- ---------- --------- ------- --------- ----------
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. (3,374) (3,374)
Additional paid-in
capital................ 2,315,135 2,315,135
Net income nine months
to March 31, 1997...... 1,838,359 1,838,359
---------- ---------- --------- ------- --------- ----------
BALANCE, MARCH 31, 1997
(Unaudited)............ 2 2 8,332,079 383,319 5,328,547 14,043,947
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Business--
FAI Home Security Pty Limited was declared in New South Wales, Australia on
August 13, 1990 and FAI Home Security (NZ) Trust was declared in Auckland, New
Zealand on June 30, 1995.
The main business activity of FAI Home Security Pty Limited and FAI Home
Security (NZ) 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 Australia and New Zealand.
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 Combined Statements--
The two entities are subsidiaries of the same current ultimate parent, FAI
Insurances Limited. Accordingly, the accompanying financial statements have
been presented on a combined basis, and include the accounts of FAI Home
Security (NZ) Trust and the consolidated accounts of FAI Home Security Pty
Limited, and its wholly owned subsidiary, FAI Home Security (NZ) Ltd.
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) 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) Net Income/(Loss) per Common Share--
There has been no calculation of Net Income/(Loss) per common share because
of the combined group structure.
e) 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 assets and liabilities of the Group are
translated at the balance sheet date exchange rate. 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 (NZ) Trust and FAI Home Security
(NZ) Limited is New Zealand dollars and the local currency of FAI Home
Security Pty Limited is Australian dollars.
f) 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-9
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
g) 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. 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.
h) Revenue Recognition--
Revenue is recognized at the time of shipment of products and is shown net
of returns and rebates. The Group 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. FAI Home Security Pty Limited 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. FAI Home
Security (NZ) Ltd has previously provided finance to customers for a period of
one to four years and the interest component of the sale has been deferred and
is recognized on a diminishing balance basis.
I) 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.
j) Inventories--
Inventories consist of sales aids, service stock and stock for re-sale and
are stated at the lower of cost (first-in, first-out method), or market. No
stock for re-sale is held by FAI Home Security Pty Limited as units are
shipped straight from the supplier, Ness Security Pty Limited. Stock for re-
sale is warehoused by FAI Home Security (NZ) Trust.
k) 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
</TABLE>
l) Research and Development--
The Group has no significant research and development activities.
F-10
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
m) Pension and Other Benefit Plans--
The Group contributes to a pension plan on behalf of its employees. The
pension plan is an accumulation fund and the Group has no liability to members
under the plan. The Group has no other pension or other post-employment
benefit plans.
n) 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 Group
based on the expected future undiscounted operating cash flows of the related
business unit. Based upon its most recent analysis, the Group believes that no
material impairment of intangible assets exists at March 31, 1997.
NOTE 2: NET SALES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30 MARCH 31
---------------------------------- ----------------------
1994 1995 1996 1996 1997
$US $US $US $US $US
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Direct retail sales..... 6,511,763 5,773,208 1,366,926 1,301,848 --
Distributor sales....... 3,832,356 15,452,646 25,053,110 17,311,308 23,019,224
Other................... 367,879 426,901 497,637 342,835 340,363
---------- ---------- ---------- ---------- ----------
Gross sales............. 10,711,998 21,652,755 26,917,673 18,955,991 23,359,587
Less: returns and
rebates................ (82,980) (215,430) (216,751) (149,671) (127,293)
---------- ---------- ---------- ---------- ----------
Net sales............... 10,629,018 21,437,325 26,700,922 18,806,320 23,232,294
</TABLE>
NOTE 3: ACCOUNTS RECEIVABLE--TRADE
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------------- (UNAUDITED)
1995 1996 1997
$US $US $US
--------- --------- -----------
<S> <C> <C> <C>
Accounts receivable..... 1,150,273 1,245,808 1,264,258
Less: allowances for
doubtful accounts...... (59,861) (146,075) (151,418)
--------- --------- ---------
1,090,412 1,099,733 1,112,840
</TABLE>
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------ ------- -----------
<S> <C> <C> <C>
Service stock.................................. -- 39,430 35,312
Sales aids..................................... -- 222,487 261,640
Goods for re-sale.............................. 90,040 77,685 302,921
------ ------- -------
90,040 339,602 599,873
</TABLE>
F-11
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
--------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Prepayments......................................... 60,029 50,620 55,564
Director's loan..................................... -- 105,432 168,112
Sundry debtors...................................... 297,043 595,374 728,737
------- ------- -------
357,072 751,426 952,413
</TABLE>
The Directors loan relates to costs incurred by FAI Home Security Pty Limited
on behalf of Mr. Bradley Cooper, and is unsecured, repayable on demand and
non-interest bearing. The loan was repaid in full in May 1997.
NOTE 6: PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
--------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- ------ -----------
<S> <C> <C> <C>
Furniture and fixtures............................. 31,454 3,098 160,071
Office equipment................................... 43,359 11,966 235,933
Plant.............................................. -- -- 24,419
Motor vehicles..................................... -- -- 186,490
Computer equipment................................. 6,736 4,329 173,072
Less: Accumulated depreciation..................... (16,425) (6,687) (40,145)
------- ------ -------
65,124 12,706 739,840
</TABLE>
NOTE 7: INTANGIBLES
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------------- (UNAUDITED)
1995 1996 1997
$US $US $US
--------- --------- -----------
<S> <C> <C> <C>
Initial goodwill on investment................ 2,086,864 2,086,864 2,086,864
Increment of goodwill......................... -- 4,135,773 6,394,926
Amortization of goodwill...................... (47,884) (274,382) (548,077)
--------- --------- ---------
2,038,980 5,948,255 7,933,713
</TABLE>
Goodwill represents the excess of the purchase price paid by the ultimate
parent entity, FAI Insurances Limited, and intermediate parent entities, FAI
Home Security Holdings Pty Limited and FAI Home Security (Aust) Unit Trust,
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. The goodwill associated with this acquisition,
including additional consideration paid in 1996 under the purchase agreement,
has been pushed down to the Group. Additional consideration of $928,000 has
been negotiated with Mr. Bradley Cooper subsequent to March 31, 1997 to
satisfy all the remaining obligations under the agreement. This amount has not
been brought to account at March 31, 1997.
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.
F-12
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: LEASE COMMITMENTS
The operating lease commitments of the Group consisted of property rentals
and computer equipment leases in June 1995. The property leases of the Sydney
offices subsequently expired or had been terminated by June 1996 leaving only
leases for computer equipment and the New Zealand warehouse lease commitments
outstanding at June 30, 1996 and March 31, 1997.
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- ------ -----------
<S> <C> <C> <C>
Payable not later than one year..................... 175,650 47,243 27,442
Payable later than one year but not later than two
years.............................................. 49,651 18,194 11,999
Payable later than two years but not later than
three years........................................ 38,197 5,325 732
Payable later than three years but not later than
four years......................................... 38,197 -- --
Payable later than four years but not later than
five years......................................... 22,282 -- --
------- ------ ------
323,977 70,762 40,174
------- ------ ------
</TABLE>
NOTE 10: 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 is in Australia and New Zealand 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>
MARCH 31
JUNE 30 ---------------------
--------------------------------- (UNAUDITED)
1994 1995 1996 1996 1997
$US $US $US $US $US
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales:
--Australia........... 9,802,521 17,358,783 21,937,533 15,533,189 15,847,086
--New Zealand......... 826,497 4,078,542 4,763,389 3,273,131 7,385,208
---------- ---------- ---------- ---------- ----------
10,629,018 21,437,325 26,700,922 18,806,320 23,232,294
Operating profit before
related party royalty
payment:
--Australia........... 719,189 3,012,295 3,707,419 2,967,607 3,257,754
--New Zealand......... 164,423 1,104,208 1,553,032 854,977 1,818,655
---------- ---------- ---------- ---------- ----------
883,612 4,116,503 5,260,451 3,822,584 5,076,409
Operating profit/(loss):
--Australia........... (138,226) 1,393,175 1,448,608 1,368,257 1,436,009
--New Zealand......... 83,916 733,957 1,061,375 532,342 971,415
---------- ---------- ---------- ---------- ----------
(54,310) 2,127,132 2,509,983 1,900,599 2,407,424
Capital expenditure..... 29,979 43,632 70,701 68,889 762,408
Depreciation............ 2,868 12,350 11,192 8,103 33,422
Amortization............ -- 47,884 226,498 167,808 273,685
</TABLE>
F-13
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
--------------------- (UNAUDITED)
1995 1996 1997
$US $US $US
--------- ---------- -----------
<S> <C> <C> <C>
Identifiable Assets:
--Australia............................... 5,371,593 8,441,011 13,752,258
--New Zealand............................. 1,192,778 6,485,114 13,615,611
--------- ---------- ----------
6,564,371 14,926,125 27,367,869
Less:
Eliminations.............................. (123,112) (1,912,307) (6,619,633)
Corporate assets.......................... 1,229,501 369,837 236,485
--------- ---------- ----------
Total Assets............................ 7,670,760 13,383,655 20,984,722
</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>
MARCH 31
JUNE 30 ------------------
--------------------------- (UNAUDITED)
1994 1995 1996 1996 1997
$US $US $US $US $US
------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Expected income tax expense at
statutory rates.............. (16,130) 723,473 940,639 707,269 1,030,975
Tax effect of permanent and
other differences:...........
Over provision for income tax
in prior years............... (3,744) (21,192) (862) (852) (8,606)
Other......................... 44,854 12,820 32,854 55,560 15,507
Amortization of goodwill...... -- 17,238 81,539 58,896 86,190
Change in tax rates in
deferred tax benefits........ -- (9,816) --
------- ------- --------- ------- ---------
24,980 722,523 1,054,170 820,873 1,124,066
</TABLE>
The federal tax rate was 33% in New Zealand throughout this period whereas
the Australian federal tax rate rose from 33% to 36% subsequent to June 1995.
The tax expense is split between:
<TABLE>
<S> <C> <C> <C> <C> <C>
Current............................ 17,107 643,893 699,653 639,620 1,081,419
Deferred........................... 7,873 78,630 354,517 181,253 42,647
</TABLE>
F-14
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
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.
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
---------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Deferred tax assets are comprised of timing
differences on:
Provisions not currently deductible for tax
purposes for:
Doubtful debts.............................. 23,343 35,803 26,807
Warranty.................................... 42,583 124,203 122,372
Security call-out........................... -- 143,860 150,725
Extended warranty........................... -- 14,946 121,216
Other ...................................... 39,722 72,122 52,260
Sundry accruals............................... 16,953 23,546 35,700
Quarantined overseas expenses................. 20,063 70,345 --
Tax losses carried forward.................... -- 8,903 9,072
Prepayments................................... (21,675) (18,223) --
------- ------- -------
Net deferred tax assets......................... 120,989 475,505 518,152
</TABLE>
NOTE 12: RELATED PARTY TRANSACTIONS
FAI Home Security (NZ) Trust Ltd was established in July 1995 and the initial
trust settlement was made by FAI Home Security (NZ) Ltd which is the trustee of
FAI Home Security (NZ) Trust.
FAI Finance Corporation (NZ) Ltd, FAI Home Security (NZ) Trust and FAI Home
Security (NZ) Limited are related by the ultimate holding of the ultimate
parent entity, FAI Insurances Limited.
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.
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 intermediate parent, FAI Home Security Holdings Pty Limited,
which is 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) Ltd incurs costs to administer the
New Zealand customer loans book.
Royalties are paid to the ultimate parent entity, FAI Insurances Limited for
naming rights in relation to all business conducted by the FAI Home Security
Group. The basis of royalty payments is 6% of the final retail value of sales
made by the FAI Home Security Group entities and its distributors. Pursuant to
the restructuring and the initial public offering becoming effective, no
further royalties will be charged for the use of the FAI trade name.
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
------------------- (UNAUDITED)
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 --
FAI Finance Corporation (NZ) Ltd.............. -- 2,877,353 8,860,232
FAI Secure Home Finance Pty Limited........... 66,004 37,343 27,223
--------- --------- ---------
2,675,655 4,380,060 8,887,455
</TABLE>
F-15
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The above loans are unsecured, bear interest at the Westpac Bank indicator
rate with the exception of FAI Home Security Holdings Pty Limited which is
non-interest bearing, and are repayable on demand.
Amounts due to related party:
<TABLE>
<S> <C> <C> <C>
Current Liabilities
FAI Home Security Holdings Pty Limited...................... -- -- 1,749,570
</TABLE>
The above loan is unsecured, non-interest bearing and is repayable on
demand.
<TABLE>
<CAPTION>
MARCH 31
JUNE 30 -------------------
--------------------------- (UNAUDITED)
1994 1995 1996 1996 1997
$US $US $US $US $US
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest on direct advances
paid by FAI Home Security Pty
Limited to:
FAI Insurances Limited...... 1,542 -- 47,625 20,279 --
Royalty fees paid by FAI Home
Security Pty Limited to:
FAI Insurances Limited...... 937,922 1,989,371 2,750,468 1,921,984 2,668,985
Interest on loans received by
FAI Home Security (NZ) Trust
from:
FAI Finance Corporation (NZ)
Ltd........................ 67,174 18,021 464,790
Interest on loans received by
FAI Home Security (NZ) Limited
from:
FAI Finance Corporation (NZ)
Ltd........................ 7,913 2,343 26,261
Management fees paid by FAI
Home Security (NZ) Ltd to:
FAI Finance Corporation (NZ)
Ltd........................ 43,628 24,778 44,650
Management fees received by
FAI Home Security Pty Limited
from:
FAI Home Security Holdings
Pty Limited................ 508,813
Management fees received by
FAI Home Security Pty Limited
from:
FAI Home Security (UK)
Trust...................... 74,198
FAI Home Security (Canada)
Unit Trust................. 140,977
FAI Secure Home Finance Pty
Limited.................... 5,323 106,180
Computer rentals paid by:
FAI Home Security Pty
Limited to--
FAI Home Security Holdings
Pty Limited................ 292,396 76,923 96,925 92,937
</TABLE>
NOTE 13: POST BALANCE SHEET EVENTS
Prior to the completion of the float of Home Security International Inc.
(HSI), the following agreements or events will occur which affect the Group:
(a) FAI Home Security Holdings Pty Limited has entered into a share
purchase agreement with HSI under which it has agreed to sell its shares in
FAI Home Security Pty Limited and FAI Home Security (ENZED) Limited plus
the note receivable from FAI Home Security (ENZED) Limited in the amount of
$131,615 in exchange for the issue of 4,499,999 shares in HSI plus a note
payable to FAI Home Security Holdings Pty Limited in the amount of
$131,615. A portion of the 4,499,999 shares is attributable to a
transaction external to the Australia and New Zealand Group. The agreement
is conditional on the completion of the New Zealand asset and share sale
agreement described in (b) below. The agreement may be terminated in the
event that the underwriting agreement is terminated prior to its
completion, the float of HSI is not effective or an underwriting agreement
is not executed.
F-16
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(b) FAI Home Security (NZ) Trust has entered an asset sale agreement with
FAI Home Security (ENZED) Ltd under which it has agreed to sell its
intangible assets for the issue of 999,999 fully paid ordinary shares in
FAI Home Security (ENZED) Ltd. The other assets, including fixed assets and
inventories but excluding business receivables, are to be purchased for
market value net of the warranty provision and FAI Home Security (ENZED)
Limited must pay FAI Home Security (NZ) Trust, within 14 days following the
completion date ("NZ Debt"). The NZ Debt created by the sale will be
assigned to FAI Home Security Holdings Pty Limited for an amount equal to
its book value. Further, the NZ Debt is to be assigned by FAI Home Security
Holdings Pty Limited to HSI at an amount equal to its book value.
(c) FAI Home Security (NZ) Trust has entered a share sale agreement with
FAI Home Security Holdings Pty Limited under which it has agreed to sell
its shares in FAI Home Security (ENZED) Ltd for market value as agreed
between the parties.
(d) FAI Home Security Pty Limited will declare a dividend payable to FAI
Home Security Holdings Pty Limited prior to completion under the share
purchase agreement. The dividend payable will be equal to its retained
profits at completion date.
NOTE 14: CONTINGENT LIABILITIES
FAI Home Security Pty Limited is a party to a deed of cross guarantee with
FAI Home Security Holdings Pty Limited and other wholly-owned subsidiaries of
FAI Insurances Limited. As a condition of the deed all parties have guaranteed
the repayments to all current and future creditors in the event of these
companies being wound up.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the reorganization transactions discussed in Note 12 to the combined
financial statements of FAI Home Security (UK) Trust and FAI Home Security
(Canada) Unit Trust have been completely effected, we expect to be in a
position to render the following audit report.
Arthur Andersen
Sydney
May 2, 1997
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees of
FAI Home Security (Canada) Unit Trust and FAI Home Security (UK) Trust ("FAI
Home Security International Group"):
We have audited the accompanying combined balance sheets of the FAI Home
Security International Group as of June 30, 1996 and 1995, and related
combined statements of income, shareholders' equity and cash flows 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 financial position of the FAI Home Security
International Group as of June 30, 1996 and 1995, and the results of its
operations and its cash flows for 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.
The accompanying financial statements have been prepared assuming that the
FAI Home Security International Group will continue as a going concern. As
discussed in Note 14 to the financial statements, the FAI Home Security
International Group has suffered recurring losses from operations and has a
capital deficiency that raises substantial doubt about its ability to continue
as a going concern. In the event that the sale of the FAI Home Security
International Group's businesses to FAI Home Security Holdings Pty Limited
were to occur in accordance with the agreements outline in Note 12, then the
FAI Home Security International Group would not own any businesses to enable
it to generate sufficient cashflows to enable it to repay its remaining
liabilities. The FAI Home Security International Group will be dependent upon
future business development or obtaining support from other sources to enable
it to continue to operate as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets or the amounts and classification of
liabilities that might be necessary should the International Group be unable
to continue as a going concern.
The financial statements of the FAI Home Security International Group as of
and for the nine months ended March 31, 1997 and 1996, which are presented
solely for comparative purposes, were not audited by Independent Public
Accountants.
Arthur Andersen
Sydney, NSW
May 2, 1997 except with respect to
the reorganization transactions as discussed
in Note 12, as to which the date is , 1997
F-19
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
PERIOD ENDED YEAR ENDED ----------------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 1996 1996 1997
NOTE $US $US $US $US
---- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... 2 876,693 1,750,028 1,392,142 1,397,997
Cost of goods sold...... (446,246) (1,028,583) (1,076,801) (770,155)
---------- ---------- ---------- ----------
Gross profit............ 430,447 721,445 315,341 627,842
General and
administrative expenses
--other............... (2,378,947) (3,199,590) (2,088,969) (1,140,054)
--related party....... 11(a) (206,344) -- -- --
--FAI Group........... 11(b) -- -- -- (560,172)
---------- ---------- ---------- ----------
Income (loss) from
operations............. (2,154,844) (2,478,145) (1,773,628) (1,072,384)
Interest income......... -- 7,927 -- 6,514
Interest expense-FAI
Group.................. 11(b) -- -- -- (290,997)
---------- ---------- ---------- ----------
Income (loss) before
taxes.................. (2,154,844) (2,470,218) (1,773,628) (1,356,867)
Income tax expense...... 10 -- -- -- --
---------- ---------- ---------- ----------
Net income (loss)....... (2,154,844) (2,470,218) (1,773,628) (1,356,867)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
---------------------- (UNAUDITED)
1995 1996 1997
NOTE $US $US $US
---- ---------- ---------- -----------
ASSETS
- ------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents......... 69,982 82,214 60,206
Accounts receivable--trade, net... 3 169,633 93,177 309,380
Inventories....................... 4 349,287 435,278 459,868
Prepaid expenses and other current
assets........................... 5 11,645 126,556 115,955
---------- ---------- ----------
Total current assets............ 600,547 737,225 945,409
---------- ---------- ----------
Non-current assets
Plant and equipment, net.......... 6 142,059 109,627 102,629
---------- ---------- ----------
Total assets........................ 742,606 846,852 1,048,038
========== ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
Current liabilities
Bank overdraft.................... -- 21,205 --
Payables--related parties......... 11(a) 357,181 439,503 949,163
Payables--FAI Group............... 11(b) -- 2,012,472 2,845,560
Payables--trade................... 282,008 417,880 724,008
Accrued liabilities............... 56,696 58,771 53,454
---------- ---------- ----------
Total current liabilities........... 695,885 2,949,831 4,572,185
---------- ---------- ----------
Shareholders' equity
Trust settlement.................. 1,516,990 1,861,588 1,861,588
Trust units issued................ 690,446 690,446 690,446
Foreign currency translation
adjustment....................... (5,871) (29,951) (94,252)
Accumulated losses................ (2,154,844) (4,625,062) (5,981,929)
---------- ---------- ----------
Total shareholders' equity...... 46,721 (2,102,979) (3,524,147)
---------- ---------- ----------
Total liabilities and shareholders'
equity............................. 742,606 846,852 1,048,038
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-21
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
COMBINED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
PERIOD ENDED YEAR ENDED ----------------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 1996 1996 1997
$US $US $US $US
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cashflow from operating
activities
Net Income (Loss)........... (2,154,844) (2,470,218) (1,773,628) (1,356,867)
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation................ 11,307 45,847 34,720 21,119
Provision for losses on
accounts receivable........ 15,810 129,602 (178,082) 123,773
(Increase) decrease in
operating assets:
Accounts receivable--trade.. (184,230) (38,558) (439,966) (366,219)
Inventories................. (347,800) (115,504) (33,325) 15,026
Prepaid expenses and other
assets..................... (11,645) (114,911) 85,223 (21,051)
Increase (decrease) in
operating liabilities:
Accounts payable............ 281,256 143,349 28,900 206,385
Accrued liabilities......... 56,501 2,928 51,388 82,066
---------- ---------- ---------- ----------
Net cash used in operating
activities................... (2,333,645) (2,417,465) (2,224,771) (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) (27,496) (19,569)
---------- ---------- ---------- ----------
Net cash used in investing
activities................... (152,878) (15,475) (27,496) (11,097)
---------- ---------- ---------- ----------
Cashflow from financing
activities
Increase (decrease) in bank
overdraft.................. -- 20,943 -- --
Provided by (payments on)
FAI Group debt............. -- 1,655,291 1,687,571 805,179
Receipts from related
parties.................... 355,971 425,908 191,321 481,752
Capital subscribed.......... 2,207,436 344,598 344,598 --
---------- ---------- ---------- ----------
Net cash provided by financing
activities................... 2,563,407 2,446,740 2,223,490 1,286,931
---------- ---------- ---------- ----------
Net increase/(decrease) in
cash held.................... 76,884 13,800 (28,777) (19,934)
---------- ---------- ---------- ----------
Cash at the beginning of the
financial year............... -- 69,982 69,982 61,010
Effect of exchange rate change
on cash held................. (6,902) (1,568) (2,341) 19,130
---------- ---------- ---------- ----------
Cash at the end of the period. 69,982 82,214 38,864 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
F-22
<PAGE>
FAI HOME SECURITY 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 -- -- 2,207,436
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 31, 1997
(Unaudited)............ 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
F-23
<PAGE>
FAI HOME SECURITY 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) 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) Net Income/(Loss) per Common Share--
There has been no calculation of Net Income/(Loss) per common share because
of the combined group structure.
e) 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 assets and liabilities of the Group are
translated at the balance sheet date exchange rate. 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.
f) 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-24
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
g) 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. 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.
h) Revenue Recognition--
Revenue is recognized at the time of shipment of products and is shown net of
returns and rebates.
i) 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.
j) Inventories--
Inventories consist of sales aids, service stock and stock for resale and are
stated at the lower of cost (first-in, first-out method), or market. Stock for
resale is warehoused by both entities.
k) 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>
l) Research and Development--
The Group has no significant research and development activities.
m) Pension and Other Benefit Plans--
The Group has no pension or other post-employment benefit plans.
F-25
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: NET SALES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD YEAR MARCH 31
ENDED ENDED --------------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 1996 1996 1997
$US $US $US $US
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Direct retail sales................... 377,983 539,845 569,322 88,626
Distributor sales..................... 513,368 1,251,325 867,300 1,330,031
Other................................. -- 12,996 9,152 1,834
------- --------- --------- ---------
Gross sales........................... 891,351 1,804,166 1,445,774 1,420,491
Less: returns and rebates (14,658) (54,138) (53,632) (22,494)
------- --------- --------- ---------
Net sales............................. 876,693 1,750,028 1,392,142 1,397,997
</TABLE>
NOTE 3: ACCOUNTS RECEIVABLE--TRADE
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
----------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- -------- -----------
<S> <C> <C> <C>
Accounts receivable.............................. 185,443 238,589 578,706
Less: allowances for doubtful accounts........... (15,810) (145,412) (269,326)
------- -------- --------
169,633 93,177 309,380
</TABLE>
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
--------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Service stock....................................... -- 30,023 10,600
Sales aids.......................................... 47,274 37,372 111,705
Goods for resale.................................... 302,013 367,883 337,563
------- ------- -------
349,287 435,278 459,868
</TABLE>
NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------ ------- -----------
<S> <C> <C> <C>
Prepayments.......................................... 5,193 19,934 47,307
Pre-paid VAT......................................... -- 106,622 65,536
Sundry debtors....................................... 6,452 -- 3,112
------ ------- -------
11,645 126,556 115,955
</TABLE>
NOTE 6: PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
---------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Furniture and fixtures............................ 42,739 65,718 82,395
Plant and equipment............................... 98,775 98,117 97,117
Motor vehicles.................................... 11,895 -- --
less: Accumulated depreciation.................... (11,350) (54,208) (76,883)
------- ------- -------
142,059 109,627 102,629
</TABLE>
F-26
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: 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 these instruments.
NOTE 8: LEASE COMMITMENTS
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
------------- (UNAUDITED)
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>
F-27
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: 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 MONTHS ENDED
PERIOD MARCH 31
ENDED YEAR ENDED ----------------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 $US 1996 $US 1996 $US 1997 $US
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales:
--United Kingdom.............. 386,639 698,508 539,297 960,847
--South Africa................ -- -- -- 23,975
--Canada...................... 490,054 999,268 850,888 437,647
--United States............... -- 52,252 1,957 34,148
---------- ---------- ---------- ----------
876,693 1,750,028 1,392,142 1,456,617
less: Eliminations -- -- -- (58,620)
---------- ---------- ---------- ----------
Total Net Sales................. 876,693 1,750,028 1,392,142 1,397,997
Operating Profit/(Loss):
--United Kingdom.............. (1,606,332) (1,995,479) (1,547,913) (597,883)
--South Africa................ -- -- -- (3,917)
--Canada...................... (548,512) (429,911) (205,144) (391,521)
--United States............... -- (52,755) (20,571) (79,063)
---------- ---------- ---------- ----------
(2,154,844) (2,478,145) (1,773,628) (1,072,384)
less: Eliminations -- -- -- --
---------- ---------- ---------- ----------
Total Operating Profit/(Loss)... (2,154,844) (2,478,145) (1,773,628) (1,072,384)
Capital Expenditure
--United Kingdom.............. 91,042 10,350 21,331 --
--South Africa................ -- -- -- 661
--Canada...................... -- -- 5,130 18,908
--United States............... -- -- 1,035 --
---------- ---------- ---------- ----------
91,042 10,350 27,496 19,569
Depreciation
--United Kingdom.............. 5,371 28,280 21,532 8,800
--South Africa................ -- -- -- --
--Canada...................... 5,936 17,567 13,188 12,319
--United States............... -- -- -- --
---------- ---------- ---------- ----------
11,307 45,847 34,720 21,119
</TABLE>
F-28
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31
JUNE 30 (UNAUDITED)
----------------
1995 1996 1997
$US $US $US
------- -------- -----------
<S> <C> <C> <C>
Identifiable Assets:
--United Kingdom................................ 346,555 402,887 707,491
--South Africa.................................. -- -- 18,791
--Canada........................................ 326,069 406,303 484,260
--United States................................. -- 63,366 16,819
------- -------- ---------
672,624 872,556 1,227,361
less:
Eliminations.................................... -- (107,918) (239,529)
Corporate Assets................................ 69,982 82,214 60,206
------- -------- ---------
Total Assets.................................. 742,606 846,852 1,048,038
</TABLE>
Identifiable assets are those assets that are identified with the operations
in each geographic area. Corporate assets are principally cash and short-term
deposits.
NOTE 10: INCOME TAXES
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------------- (UNAUDITED)
1995 1996 1997
$US $US $US
-------- ---------- -----------
<S> <C> <C> <C>
Deferred tax assets are comprised of:
Deferred tax benefits associated with
losses.................................... 695,472 1,492,539 1,919,240
Valuation allowance........................ (695,472) (1,492,539) (1,919,240)
-------- ---------- ----------
Net deferred tax assets.................... -- -- --
</TABLE>
The Group has 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 31
------------------- (UNAUDITED)
1995 1996 1997
$US $US $US
--------- --------- ---------
<S> <C> <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>
NOTE 11: RELATED PARTY TRANSACTIONS
(a) RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
--------------- (UNAUDITED)
1995 1996 1997
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Current Liabilities:
Cooper Investment Trust........................... -- 439,503 949,163
FAI Home Security Holdings Pty Limited............ 357,181 -- --
------- ------- -------
357,181 439,503 949,163
</TABLE>
F-29
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Cooper Investment Trust loan is unsecured, non-interest bearing and
subordinated to June 30, 1998.
The amount due to FAI Home Security Holdings Pty Limited is non-interest
bearing and repayable on demand.
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 15, 1995 at
which time the trusts were sold to entities related to Mr. Cooper.
<TABLE>
<CAPTION>
MARCH 31
JUNE 30 (UNAUDITED)
--------------- ------------
1995 1996 1996 1997
$US $US $US $US
------- ------- ------- ----
<S> <C> <C> <C> <C>
Portion of debt forgiven by FAI Home Security
Holdings Pty Limited
to--
FAI Home Security (UK) Trust..................... -- 344,598 344,598 --
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 -- -- --
</TABLE>
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 15, 1995 the FAI Group sold its interest in the International
Group to Mr. Cooper at which time it ceased to be related to the FAI Group.
FAI Home Security Holdings Pty Ltd. 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 Ltd. became interest
bearing after the sale carrying an interest rate of 10% per annum.
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------- (UNAUDITED)
1995 1996 1997
$US $US $US
---- --------- -----------
<S> <C> <C> <C>
Current Liabilities:
FAI Home Security Holdings Pty Limited............. -- 2,012,472 2,845,560
</TABLE>
The amount due to FAI Home Security Holdings Pty Limited has been
subordinated to June 30, 1998.
<TABLE>
<CAPTION>
MARCH 31
JUNE 30 (UNAUDITED)
--------- ------------
1995 1996 1996 1997
$US $US $US $US
---- ---- ---- -------
<S> <C> <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>
F-30
<PAGE>
FAI HOME SECURITY 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>
MARCH 31
JUNE 30 (UNAUDITED)
--------- ------------
1995 1996 1996 1997
$US $US $US $US
---- ---- ---- -------
<S> <C> <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 charged on the balance of the loans outstanding from FAI Home
Security Holdings Pty Limited from June 30, 1996.
NOTE 12: 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. The
Group's liabilities to related parties are not to be assumed by FAI Home
Security Holdings Pty Limited under the agreement.
NOTE 13: 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.
NOTE 14: GOING CONCERN
At March 31, 1997 the Group's liabilities exceeded its assets by $3,524,147.
As a consequence of the sale of its businesses as outlined in Note 12, the
Group will still have a net asset deficiency and not own any businesses to
enable it to generate sufficient cashflows to enable it to repay its remaining
liabilities. Whilst the Group's loans payable to related parties have been
subordinated to the repayment of all other creditors for the period to June 30,
1998, the Group will be dependent upon future business acquisitions and
obtaining continuing support from other sources to enable it to continue to
operate as a going concern.
F-31
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The unaudited proforma financial statements of the Company comprising the
proforma consolidated balance sheet at March 31, 1997 and proforma statements
of income for the nine months ended March 31, 1997 and year ended June 30,
1996 have been prepared in accordance with US generally accepted accounting
principles (GAAP), based upon the historical combined statements of income of
FAI Home Security Pty Limited and FAI Home Security (ENZED) Ltd (previously
trading through the FAI Home Security (NZ) Trust), (collectively the Australia
and New Zealand, ANZ Group), and FAI Home Security (UK) Trust, FAI Home
Security (Canada) Unit Trust and their respective South African and United
States subsidiaries (collectively Cooper International Group), after giving
effect to the pro forma adjustments described in the notes thereto as if the
reorganization had been in effect on July 1, 1995 in respect of the statements
of income and March 31, 1997 in respect of the balance sheet. Accordingly, the
goodwill and the other assets and liabilities recognised in the proforma will
differ from those existing when the reorganization is effective. A summary of
the reorganization transactions follows:
(I) FAI Home Security Pty Limited sells its shares in FAI Home Security
(NZ) Ltd to FAI Deposit Co. Pty Limited for $1,950 which is settled in
cash;
Payment of a dividend by FAI Home Security Pty Limited to FAI Home
Security Holdings Pty Limited equal to the retained earnings at the date of
the reorganization;
(II) FAI Home Security (NZ) Trust has entered into an asset sale
agreement with FAI Home Security (ENZED) Ltd under which it has agreed to
sell its intangible assets for the issue of 999,999 fully paid ordinary
shares in FAI Home Security (ENZED) Ltd. The other assets including fixed
assets and inventories but excluding business receivables, are purchased
for market value, net of the warranty provision, ("NZ Debt") which is
$131,615 based on the March 31, 1997 financial statements;
(III) FAI Home Security (NZ) Trust sells its note receivable from FAI
Home Security (ENZED) Ltd and shares in FAI Home Security (ENZED) Ltd to
FAI Home Security Holdings Pty Ltd for the market value of the shares plus
an amount equal to the value of the NZ Debt;
(IV) FAI Home Security Holdings Pty Limited has entered into the
International asset purchase agreement to acquire from the Cooper
International 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 $2,784,431
based on March 31, 1997 financial statements. The Cooper International
Group liabilities to related parties are not assumed by either FAI Home
Security Holdings Pty Limited or Home Security International Inc. ("HSI").
The acquisition of Cooper International Group is accounted for under the
purchase method;
(V) FAI Home Security Pty Limited and FAI Home Security (ENZED) Ltd, plus
the note receivable from FAI Home Security (ENZED) Ltd and the assets of
Cooper International Group (defined in (IV) above) are acquired by HSI from
FAI Home Security Holdings Pty Limited in exchange for the issue of
4,499,999 shares, the issue of a note payable to FAI Home Security Holdings
Pty Limited equivalent to the book value of assets acquired, being
$562,497, plus $270,754, and a further note payable by HSI to FAI Home
Security Holdings Pty Limited in the amount of $131,615 based on the March
31, 1997 financial statements. The amalgamation of the Australia and New
Zealand Group and the Cooper International Group with HSI has been
accounted for as a reorganization of entities under common control and as
such the assets and liabilities are recognised at their book values;
(VI) HSI via its shareholding in FAI Home Security Pty Limited acquires a
licence from FAI Insurances Limited to use the name FAI Home Security
throughout its operations at no ongoing charge.
F-32
<PAGE>
The unaudited proforma statements of income do not purport to represent what
the results of operations of the Company would actually have been if the events
or transactions described above had in fact been in effect throughout the
entire said periods or to project the results of operations of the Company for
any future date or period.
The unaudited proforma statements of income and balance sheet should be read
in conjunction with the historical combined financial statements of the ANZ
Group and International Group, including the notes thereto, and other financial
information included elsewhere in the Prospectus.
F-33
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
RECONCILIATION OF UNAUDITED HISTORICAL STATEMENTS OF INCOME TO REORGANIZED
UNAUDITED HISTORICAL STATEMENT OF INCOME FOR NINE MONTHS ENDED MARCH 31, 1997.
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL REORGANIZATION REORGANIZED
INTERNATIONAL ANZ COMBINED ADJUSTMENTS HISTORICAL
$US $US $US $US NOTE $US
------------- ----------- ----------- -------------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 1,397,997 23,232,294 24,630,291 (537) (1) 24,629,754
---------- ----------- ----------- -----------
Cost of sales--related
party.................. -- (2,668,985) (2,668,985) (2,668,985)
--other............. (770,155) (14,109,950) (14,880,105) (14,880,105)
---------- ----------- ----------- ------- -----------
Gross profit............ 627,842 6,453,359 7,081,201 (537) 7,080,664
General and
administration
expenses............... (1,700,226) (4,045,935) (5,746,161) 65,812 (1) (5,680,349)
---------- ----------- ----------- ------- -----------
Income from operations.. (1,072,384) 2,407,424 1,335,040 65,275 1,400,315
Interest income, net.... (284,483) 555,002 270,519 (60,728) (1) 209,791
---------- ----------- ----------- ------- -----------
Income before income
taxes.................. (1,356,867) 2,962,426 1,605,559 4,547 1,610,106
Income tax expense...... -- (1,124,066) (1,124,066) (1) (1,124,066)
---------- ----------- ----------- ------- -----------
Net income (loss)....... (1,356,867) 1,838,359 481,493 4,547 486,040
</TABLE>
RECONCILIATION OF UNAUDITED HISTORICAL STATEMENTS OF INCOME TO REORGANIZED
UNAUDITED HISTORICAL STATEMENT OF INCOME FOR YEAR ENDED JUNE 30, 1996.
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL REORGANIZATION REORGANIZED
INTERNATIONAL ANZ COMBINED ADJUSTMENTS HISTORICAL
$US $US $US $US NOTE $US
------------- ----------- ----------- -------------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 1,750,028 26,700,922 28,450,950 21,278 (1) 28,472,228
---------- ----------- ----------- -----------
Cost of sales--related
party.................. -- (2,750,468) (2,750,468) (2,750,468)
--other............. (1,028,583) (14,834,094) (15,862,677) 20,468 (1) (15,842,209)
---------- ----------- ----------- -------- -----------
Gross profit............ 721,445 9,116,360 9,837,805 41,746 9,879,551
General and
administration
expenses............... (3,199,590) (6,606,377) (9,805,967) 122,420 (1) (9,683,547)
---------- ----------- ----------- -------- -----------
Income from operations.. (2,478,145) 2,509,983 31,838 164,166 196,004
Interest income, net.... 7,927 203,181 211,108 (107,016) (1) 104,092
---------- ----------- ----------- -------- -----------
Income before income
taxes.................. (2,470,218) 2,713,164 242,946 57,150 300,096
Income tax expense...... -- (1,054,170) (1,054,170) (14,615) (1) (1,068,785)
---------- ----------- ----------- -------- -----------
Net income (loss)....... (2,470,218) 1,658,994 (811,224) 42,535 (768,689)
</TABLE>
- --------
(1) Represents the statement of income for nine months ended March 31, 1997 and
year ended June 30, 1996 of FAI Home Security (NZ) Ltd which is sold as
part of the reorganization.
F-34
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA STATEMENT OF INCOME FOR NINE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
REORGANIZED PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (UNAUDITED)
$US $US NOTES $US
----------- ----------- ----- ------------
<S> <C> <C> <C> <C>
Net sales......................... 24,629,754 24,629,754
----------- ------------
Cost of sales--related parties.... (2,668,985) 2,668,985 (1) --
--other...................... (14,880,105) (14,880,105)
----------- ------------
Gross profit...................... 7,080,664 9,749,649
General and administrative
expenses......................... (5,680,349) (83,323) (2) (5,763,672)
----------- ------------
Income from Operations............ 1,400,315 3,985,977
Interest income, net.............. 209,791 (173,791) (3) 36,000
----------- ------------
Income before income taxes........ 1,610,106 4,021,977
Income tax expense................ (1,124,066) (793,511) (4) (1,917,577)
----------- ------------
Net Income........................ 486,040 2,104,400
Pro forma Number of Common stock
Outstanding...................... 5,000,000
Pro forma Earnings per common
share............................ $ 0.421
</TABLE>
- --------
(1) Reversal of royalty expenses charged by FAI Home Security Holdings Pty
Limited of $2,668,985 for use of FAI name as FAI Insurances Limited has
agreed to provide the license for no ongoing charge.
(2) Represents amortization of intangible assets of $2,221,934 from the
purchase of assets of the Cooper International Group using an amortization
period of 20 years. This amortization period has been used as it is
consistent with the period used by FAI Home Security Pty Limited for
similar assets acquired. Amortization charge for the period is $83,323.
(3) Reversal of interest charge on loan with FAI Home Security Holdings Pty
Limited for $290,997 as the loan will not be assumed by the company when it
acquires the Cooper International Group operations, similarly interest
income, $464,788, on Australia and New Zealand Group loans within the FAI
Group will no longer be received on reorganization.
(4) The tax effect of the royalty reversal, and interest income reversal from
ANZ Group. The interest charge reversal and amortization of intangible
assets have no tax effect. Taxation expense has been calculated at the
Australian tax rate of 36%.
F-35
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PROFORMA STATEMENT OF INCOME FOR YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
REORGANIZED PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (UNAUDITED)
$US $US NOTES $US
----------- ----------- ----- -----------
<S> <C> <C> <C> <C>
Net sales.................. 28,472,228 28,472,228
----------- -----------
Cost of sales--related
parties................... (2,750,468) 2,750,468 (5) --
--other............... (15,842,209) (15,842,209)
----------- -----------
Gross profit............... 9,879,551 12,630,019
General and administrative
expenses.................. (9,683,547) (194,684) (6)(a)(b)(c) (9,878,231)
----------- -----------
Income from Operations..... 196,004 2,751,788
Interest income, net....... 104,092 (19,220) (7) 84,872
----------- -----------
Income before income taxes. 300,096 2,836,660
Income tax expense......... (1,068,785) (936,013) (8) (2,004,798)
----------- -----------
Net Income (loss).......... (768,689) 831,862
Pro Forma Number of Common
stock Outstanding......... 5,000,000
Pro Forma Earnings per
common share.............. $ 0.166
</TABLE>
- --------
(5) Reversal of royalty expenses charged by FAI Home Security Holdings Pty
Limited of $2,750,468 for use of FAI name as FAI Insurances Limited has
agreed to provide the licence for no ongoing charge.
(6)(a) Represents depreciation and amortization on fixed assets acquired by
FAI Home Security Pty Limited as at March 31, 1997 from FAI Home
Security Holdings Pty Limited of $180,512.
(6)(b) Represents amortization of intangible assets of $2,221,934 from the
purchase of assets of the Cooper International Group using an
amortization period of 20 years. Amortization charge for the period is
$111,097.
(6)(c) Reversal of computer rental charge of $96,925 incurred previously for
use of FAI Home Security Holdings Pty Limited fixed assets which have
been purchased as part of the reorganization.
(7) Reversal of interest charge on loan with FAI Insurances Limited for
$47,625 and the interest income on the loans with FAI Finance Corporation
(NZ) Ltd for $66,845 as the loans will not be assumed by the company when
it acquires the Australia and New Zealand operations.
(8) The tax effect of the depreciation and amortization on fixed assets,
computer rental, royalty and interest income reversal; the interest charge
reversal and amortization of intangible assets having no tax effect. The
taxation expense has been calculated at the Australian rate of 36%.
F-36
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
RECONCILIATION OF UNAUDITED HISTORICAL BALANCE SHEET OF FAI HOME SECURITY
PTY LIMITED TO UNAUDITED PROFORMA BALANCE SHEET OF ANZ GROUP PRIOR TO
ACQUISITION BY HSI.
<TABLE>
<CAPTION>
ACQUISITION
OF COOPER
REORGANIZATION ANZ GROUP INTERNATIONAL
HISTORICAL ADJUSTMENTS REORGANIZED GROUP PRO FORMA PROFORMA
ANZ $US $US $US ADJUSTMENTS (UNAUDITED)
ASSETS $US (1) NOTE (2) (3) $US NOTE $US
- ------ ---------- -------------- ---- ----------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash
equivalents........... 236,485 (193,288) (a)(b) 43,197 4,858,228 (4)(5)(6) 4,901,425
Accounts receivable,
net--trade............ 1,112,840 (410,109) (b) 702,731 702,731
Accounts receivable,
net--related party.... 8,887,455 (2,242,877) (b) 6,644,578 (6,644,578) (5) --
Note receivable--
related party......... -- 131,615 (b) 131,615 (131,615) (7) --
Inventories............ 599,873 -- 599,873 459,868 1,059,741
Other current assets... 952,413 (9,871) (b) 942,542 942,542
---------- ---------- ---------- --------- ---------- ----------
Total current assets. 11,789,066 (2,724,530) 9,064,536 459,868 (1,917,965) 7,606,439
Plant and equipment,
net.................... 739,840 -- 739,840 102,629 842,469
Deferred income taxes... 518,152 (48,105) (b) 470,047 470,047
Other long term assets.. 3,951 -- 3,951 3,951
Intangibles, net........ 7,933,713 -- 7,933,713 2,221,934 10,155,647
Investments............. -- -- (a) -- --
---------- ---------- ---------- --------- ---------- ----------
Total assets......... 20,984,722 (2,772,635) 18,212,087 2,784,431 (1,917,965) 19,078,553
========== ========== ========== ========= ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Current liabilities
Accounts payable--
trade................. 3,379,768 (663,996) (b) 2,715,772 2,715,772
Accounts payable--
related party......... 1,749,570 3,057,280 (c) 4,806,850 (4,806,850) (5) --
Note payable--related
party................. -- 263,230 (b) 263,230 833,251 (131,615) (7) 964,866
Accrued liabilities.... 1,031,383 (26,841) (b) 1,004,542 1,004,542
Income taxes payable... 336,987 54,606 (b) 391,593 391,593
Deferred income........ 372,484 -- 372,484 372,484
Lease liability........ 23,303 -- 23,303 23,303
---------- ---------- ---------- --------- ---------- ----------
Total current
liabilities......... 6,893,495 2,684,279 9,577,774 833,251 (4,938,465) 5,472,560
Long term lease
liability.............. 47,280 -- 47,280 47,280
---------- ---------- ---------- --------- ---------- ----------
Total liabilities.... 6,940,775 2,684,279 9,625,054 833,251 (4,938,465) 5,519,840
Shareholders' equity
Common stock........... 2 (2) (b) -- 5,000 (4)(6) 5,000
Additional paid-in
capital............... 8,332,079 254,954 (b) 8,587,033 1,951,180 6,103,000 (4) 15,581,213
Secured note issue..... -- -- -- -- (3,087,500) (6) (3,087,500)
Foreign currency
translation
adjustment............ 383,319 (383,319) -- --
Retained earnings...... 5,328,547 (5,328,547) (b)(c) -- --
---------- ---------- ---------- --------- ---------- ----------
Total shareholders'
equity.............. 14,043,947 (5,456,914) 8,587,033 1,951,180 3,020,500 13,558,713
---------- ---------- ---------- --------- ---------- ----------
Total liabilities and
shareholders'
equity.............. 20,984,722 (2,772,635) 18,212,087 2,784,431 (1,917,965) 19,078,553
========== ========== ========== ========= ========== ==========
</TABLE>
- -------
(1) Represents the reorganization of the Australia and New Zealand Group,
which is accounted for as a reorganization of entities under common control
including the following adjustments;
F-37
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) The sale of the investment of FAI Home Security Pty Limited in FAI Home
Security (NZ) Ltd for book value of $1,950 which has been eliminated from
the combined historical ANZ balance sheets.
(b) The acquisition of FAI Home Security (ENZED) Ltd. Prior to this transaction
FAI Home Security (ENZED) Ltd purchases fixed assets, inventories,
intangible assets and contract liabilities of FAI Home Security (NZ) Trust
in exchange for the issue of 999,999 fully paid ordinary shares and an
agreement to pay an amount equal to the market value of fixed assets,
inventories, net of warranty provision (NZ Debt). Using the historic
financial statements of March 31, 1997 the NZ debt would total $131,615.
The remaining assets and liabilities of FAI Home Security (NZ) Trust and
the total balance sheet of FAI Home Security (NZ) Ltd which are not
purchased or assumed by FAI Home Security (ENZED) Ltd are eliminated from
the historical ANZ Group combined balance sheet.
(c) Payment of a dividend by FAI Home Security Pty Limited to FAI Home Security
Holdings Pty Limited out of retained earnings at March 31, 1997 of
$3,057,280.
(2) Represents the purchase by HSI of FAI Home Security Pty Limited and FAI
Home Security (ENZED) Ltd from FAI Home Security Holdings Pty Limited in
exchange for the issue of 4,499,999 shares in HSI and the purchase of the
NZ Debt of $131,615 for an amount equal to its book value. The NZ Debt was
previously purchased by FAI Home Security Holdings Pty Limited from FAI
Home Security (NZ) Trust for $131,615.
(3) Represents HSI's purchase of fixed assets, inventories and intangible
assets of Cooper International Group from FAI Home Security Holdings Pty
Limited in exchange for the issue of shares in HSI described in (2) above,
and the issue of a note payable equivalent to the book value of assets,
plus $270,754 (FAI Note). Based on the financial statements as at March 31,
1997 the total note payable is $833,251.
(4) HSI issues 250,000 shares, par value $0.001, to the public at $13.00 per
share with total proceeds of $3,250,000 and pays share issue costs of
$392,000, representing net issue proceeds of $2,858,000.
(5) Repayment of all balances due to and receipt of all balances due from FAI
Insurances Group excluding the notes payable to the FAI Insurances Group
that have been issued as part of the reorganization.
(6) HSI issues 250,000 shares at par value $0.001 to Bradley Cooper in exchange
for cash of $162,500 and the issue of a 6.9% semi-annual interest bearing
note secured by the shares issued to the value of $3,087,500.
(7) Represents the elimination of the note payable from FAI Home Security
(ENZED) Ltd to HSI in the amount of $131,615 and the note receivable by HSI
from FAI Home Security (ENZED) Ltd in the amount of $131,615.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Home Security International, Inc.:
We have audited the accompanying balance sheet of the Home Security
International, Inc. and statement of shareholders' equity as of April 30, 1997.
The financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based
on our audit.
We conducted our audit 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Home Security
International, Inc. as of April 30, 1997 in conformity with generally accepted
accounting principles in the United States of America.
Arthur Andersen
Sydney, NSW
June 5, 1997
F-39
<PAGE>
HOME SECURITY INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, 1997
$US
--------------
<S> <C>
ASSETS
Cash and cash equivalents........................................ 1
---
Total assets................................................. 1
===
SHAREHOLDERS' EQUITY
Common stock..................................................... 1
---
Total shareholders' equity................................... 1
===
</TABLE>
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
CAPITAL STOCK ISSUED EQUITY
----------------------- APRIL 30, 1997
SHARES AMOUNT $US
---------- ---------- --------------
<S> <C> <C> <C>
Authorized capital......................
--Preferred stock (1,000,000 at par
value $0.001 per share)..............
--Common stock (20,000,000 at par
value $0.001 per share)..............
Issued capital..........................
Common stock (par value $0.001 per
share)............................... 1 -- --
Share premium reserve................. 1 1
---------- ---------- ---
1 1 1
========== ========== ===
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<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" or "the company") was incorporated
in Delaware, United States of America on April 11, 1997.
The company did not trade from the date of incorporation to April 30, 1997.
One share has been issued for $1.00 to FAI Home Security Holdings Pty
Limited on April 28, 1997.
NOTE 2: POST BALANCE SHEET EVENTS
Prior to the completion of the float of the company the following agreements
or events will occur which affect the company:
(a) HSI has entered into a share purchase agreement with FAI Home
Security Holdings Pty Limited under which FAI Home Security Holdings Pty
Limited has agreed to sell its shares in FAI Home Security Pty Limited and
FAI Home Security (ENZED) Limited and a note receivable from FAI Home
Security (ENZED) in the amount of $131,615 plus the tangible and intangible
assets of the Cooper International Group, in exchange for the issue of
4,499,999 shares in the company plus a note payable to FAI Home Security
Holdings Pty Limited in the amount of $964,866.
The agreement is conditional on the completion of the New Zealand asset
and share agreement described in (b) below. The agreement may be terminated
prior to its completion, the float of HSI is not effective or an
underwritten agreement is not executed.
(b) FAI Home Security (NZ) Trust has entered an asset sale agreement with
FAI Home Security (ENZED) Ltd under which it has agreed to sell its
intangible assets for the issue of 999,999 fully paid ordinary shares in
FAI Home Security (ENZED) Ltd. The other assets, including fixed assets and
investments but excluding business receivables, are purchased for book
value net of the warranty provision and FAI Home Security (ENZED) Limited
must pay FAI Home Security (NZ) Trust, within 14 days following the
completion date ("NZ Debt"). The NZ Debt created by the sale will be
assigned to FAI Home Security Holdings Pty Limited for an amount equal to
its book value. Further, the NZ Debt is assigned by FAI Home Security
Holdings Pty Limited to HSI at an amount equal to its book value.
(c) FAI Home Security (NZ) Trust has entered a share sale agreement with
FAI Home Security Holdings Pty Limited under which it has agreed to sell
its shares in FAI Home Security (ENZED) Ltd for market value as agreed
between the parties.
F-41
<PAGE>
[INSIDE BACK COVER]
[HSI LOGO]
[Picture of world map indicating locations of the Company's
distribution operations]
The Company has established
distribution operations in the
countries indicated in the dark
blue shading.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA-
TION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Combined Financial Data.......................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business.................................................................. 23
Management................................................................ 33
Executive Compensation.................................................... 37
Certain Transactions...................................................... 38
Principal and Selling Shareholders........................................ 40
Description of Securities................................................. 41
Shares Eligible for Future Sale........................................... 42
Underwriting.............................................................. 44
Legal Matters............................................................. 46
Experts................................................................... 46
Additional Information.................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
HOME SECURITY INTERNATIONAL, INC.
LOGO
COMMON STOCK
----------------
PROSPECTUS
----------------
NATIONAL SECURITIES
CORPORATION
NOLAN SECURITIES CORPORATION
JUNE 10 , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the Representatives' nonaccountable
expense allowance, payable in connection with the sale of the Shares being
registered hereby. All amounts are estimates, except the registration fee and
the NASD filing fee:
<TABLE>
<S> <C>
SEC Registration Fees (includes State)......................... $ 16,736
NASD Listing Fee............................................... $ 5,629
Blue Sky expenses and legal fees............................... $ 15,000
Accountants' Fees and Expenses................................. $ 200,000
American Stock Exchange Listing Fee............................ $ 50,000
Legal Fees and Expenses........................................ $ 250,000
Printing and Engraving......................................... $ 150,000
Transfer Agent and Registration Fees........................... $ 6,000
Miscellaneous.................................................. $ 110,635
---------
Total...................................................... $ 804,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102(b) of the Delaware General Corporations Law (the "DGCL") permits
a provision in the certificate of incorporation of each corporation organized
thereunder eliminating or limiting, with certain exceptions, the personal
liability of a director to the corporation or its stockholders for monetary
damages for certain breaches of fiduciary duty as a director. The Certificate
of Incorporation of the Registrant eliminates the personal liability of
directors to the fullest extent permitted by the DGCL.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any nonderivative suit or proceeding, if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection
with the defense or settlement of such action or suit, provided such person
meets the standard of conduct described in the preceding paragraph, except
that no indemnification is permitted in respect of any claim where such person
has been found liable to the corporation, unless the Court of Chancery or the
court in which such action or suit as brought approves such indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
Reference is made to Section 7 of Article VII of the Registrant's By-laws
and Article Seventh of the Certificate of Incorporation of the Registrant for
the provisions which the Registrant has adopted relating to indemnification of
officers, directors, employees and agents, which provides for the
indemnification of such persons to the full extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
Reference is also made to Section 7 of the Underwriting Agreement filed as
Exhibit 1 to this Registration Statement which provides for the
indemnification of the Company, its controlling persons, directors and certain
of its officers by the Underwriters against certain liabilities, including
liabilities under the securities laws.
Prior to the close of this Offering, the Registrant will have purchased
directors' and officers' liability insurance.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of Aggregate Form of
Purchasers Date of Sale Securities Shares Purchase Consideration
- ---------- ------------------- ---------- --------- Price -----------------------
-----------
FAI Home Security
Holdings Pty Ltd. 4/11/97 Common Stock 1 $ .001 Cash
FAI Home Security [at Reorganization] Common Stock 4,499,999 $10,538,213 Common Stock of FAI
Holdings Pty Ltd. Home Security Pty Ltd.
and FAI Home Security
(ENZED) Ltd.
Bradley D. Cooper [at Reorganization] Common Stock 250,000 $ 3,250,000 $162,500 Cash and
$3,087,500 Note Payable
</TABLE>
The sales of all of the aforementioned securities were made, or at the time
the Reorganization will be made, in reliance upon the exemption from the
registration provisions of the Act afforded by section 4(2) thereof and/or
Regulation D promulgated thereunder, as a transaction by an issuer not
involving a public offering. To the best of the Registrant's knowledge, the
purchasers of securities described above acquired them, or will acquire them,
for their own account.
ITEM 16. EXHIBITS
(a) EXHIBITS
<TABLE>
<C> <S>
+ 1 Form of Underwriting Agreement
2.1 Form of Share Purchase Agreement between the Company and FAI
2.2 Form of Asset Purchase Agreement between FAI Home Security (NZ)
Limited and FAI Home Security (ENZED) Limited
2.3 Form of NZ Share Sale Agreement between FAI Home Security (NZ) Limited
and FAI
2.4 Form of Trade Mark License Agreement with FAI
+ 3.1 Certificate of Incorporation
+ 3.2 Bylaws of Registrant
+ 4.1 Form of Representatives' Warrant Agreement including Form of
Representatives' Warrant
* 4.2 Form of Registrant's Common Stock Certificate
* 5.1 Opinion and Consent of D'Ancona & Pflaum
10.1 Form of 1997 Stock Option Plan
10.2 Form of 1997 Non-Employee Directors' Stock Option Plan
10.3 Form of International Asset Purchase Agreement between FAI and Cooper
International Group
10.4 Form of Manufacturing Agreement between FAI Home Security Pty Ltd.,
and Ness
10.5 Form of Executive Service Agreement with Bradley D. Cooper
+10.6 Form of Executive Service Agreement
10.7 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).
10.8 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).
10.9 Management Services Agreement with Speakeasy Ltd.
*10.10 Promissory Note Payable to Bradley D. Cooper
21 List of Subsidiaries
*23.1 Consent of D'Ancona & Pflaum--included in Exhibit 5
23.2 Consent of Arthur Andersen
+24.1 Power of Attorney--Contained on Page II-4 of this Registration
Statement
*27 Financial Data Schedule
</TABLE>
- --------
*To be filed by Amendment.
+Previously Filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
a) The Company will file, during any period in which it offers or sells
securities, all post-effective amendments to this Registration Statement as
to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in this Prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
b) For determining liability under the Securities Act, the company will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
c) The Company will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
Offering.
d) The Company will provide to any underwriter at the closing specified in
any underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
f) In the event that a claim for indemnification against such liabilities is
asserted (other than the expenses of a successful defense), the Company will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and the Company will be governed by the final adjudication of
such issues.
g) The Company will treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Company under Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it effective.
For determining any liability under the Securities Act, treat each post-
effective amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement, and that
offering of the securities at that time as the initial bona fide offering of
those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that is has reasonable grounds to believe the registrant
meets all of the requirements of filing on Form S-1 and authorized this
registration statement to be signed on its behalf by the undersigned in the
Cities of Sydney, Australia and New York, New York on June 10, 1997.
Home Security International, Inc.,
/s/ Bradley D. Cooper
By: ____________________________
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Bradley D. Cooper Chairman and Chief Executive June 10, 1997
____________________________________ Officer (Principal
Bradley D. Cooper Executive Officer)
/s/ Mark Whitaker Chief Financial Officer, June 10, 1997
____________________________________ Executive Vice President of
Mark Whitaker Finance and Treasurer
(Principal Financial and
Accounting Officer)
* Director June 10, 1997
____________________________________
Timothy M. Mainprize
* Director June 10, 1997
____________________________________
Steven A. Rothstein
* Director June 10, 1997
____________________________________
Steve Rabinovici
* Director June 10, 1997
____________________________________
Dennis J. Puleo
</TABLE>
/s/ Bradley D. Cooper
*By: ___________________________
Bradley D. Cooper
Attorney in Fact
II-4
<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
13
<PAGE>
(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,
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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;
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(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
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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)
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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
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$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.
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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:
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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).
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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;
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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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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.
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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]
38
<PAGE>
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
<PAGE>
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;
2
<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;
3
<PAGE>
'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;
4
<PAGE>
(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.
5
<PAGE>
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.
6
<PAGE>
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').
7
<PAGE>
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
8
<PAGE>
(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.
9
<PAGE>
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).
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
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.
13
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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)
18
<PAGE>
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:
3
<PAGE>
(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.
4
<PAGE>
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.
2
<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
3
<PAGE>
(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
<PAGE>
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
<PAGE>
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
9
<PAGE>
(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>
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Exhibit 10.1
HOME SECURITY INTERNATIONAL, INC.
1997 Stock Option Plan
1. Purpose of the Plan. Under this 1997 Stock Option Plan (the "Plan") of
Home Security International, Inc. (the "Company"), options may be granted to
eligible employees, directors and advisors to purchase shares of the Company's
capital stock. The Plan is designed to enable the Company and its subsidiaries
to attract, retain, and motivate their employees, directors and advisors by
providing for or increasing the proprietary interest of such individuals in the
Company. The Plan provides for options which qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as options which do not so qualify ("Nonstatutory
Options"). Any option granted under this Plan shall be clearly identified as
either an Incentive Option or a Nonstatutory Option.
2. Stock Subject to Plan. The aggregate number of shares which may be
issued under options is 750,000 shares of the Company's common stock subject
to the adjustments hereinafter provided. Such number of shares shall be reserved
by the Company for options granted under this plan. The shares which may be
issued or delivered under the Plan may be either authorized but unissued shares
or treasury shares or partly each. Shares of stock subject to the unexercised
portions of any options granted under this Plan which expire or terminate or are
cancelled may again be subject to options under the Plan.
3. Eligibility. The employees eligible to be considered for the grant of
Incentive Options hereunder are any person (including directors) regularly
employed by the Company or its subsidiaries on a full-time, salaried basis. All
such employees and all nonemployed directors or advisors of the Company or its
subsidiaries shall be eligible to receive Nonstatutory Options hereunder.
4. $100,000 Incentive Option Exercise Limitation. The aggregate fair
market value of the stock for which Incentive Options granted to any one
eligible employee under this Plan and under all incentive stock option plans of
the Company, its parent(s) and subsidiaries, may be 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 10, or an 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.
5. Option Price. The purchase price at which each stock option may be
exercised (the "Option Price") shall be such price as the Administrator (as
hereinafter defined), in its discretion, shall determine, and, in the case of
Incentive Options, shall not be less than one hundred percent (100%) of the fair
market value per share of the common stock covered by the
<PAGE>
Incentive Option on the date of grant, except that in the case of an Incentive
Option granted to an employee who, immediately prior to such grant, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any subsidiary (a "Ten Percent Employee"),
the Option Price shall not be less than one hundred ten percent (110%) of such
fair market value on the date of grant. For purposes of this Section 5, the
fair market value of the common stock shall be determined as provided in Section
11. For purposes of this Section 5, an individual (a) shall be considered as
owning not only shares of the common stock owned individually but also all
shares that are at the time owned, directly or indirectly, by or for the spouse,
ancestors, lineal descendants and brothers and sisters (whether by the whole or
half blood) of such individual, and (b) shall be considered as owning
proportionately any shares owned, directly or indirectly by or for any
corporation, partnership, estate or trust in which such individual shall be a
shareholder, partner or beneficiary.
6. Exercise of Option. The option agreement may provide for partial
exercise in installments. Exercisable options may be exercisable in full or in
part. The period of time in which an option may be exercised shall be the
period designated in the option. In the case of an Incentive Option such period
shall not exceed ten (10) years from the date the option is granted and with
respect to a Ten Percent Employee, such period of time shall not exceed five (5)
years from the date the Incentive Option is granted. No Nonstatutory Option
shall be exercisable after the expiration of ten years from the date of grant.
An option to the extent exercisable at any time may be exercised in whole or in
part.
7. Payment of Option Price. Payment for stock purchased under any
exercise of an option granted under this Plan shall be made in full in cash
concurrently with such exercise. Alternatively:
a. Such payment may be made in whole or in part with shares of the
same class of stock as that then subject to the option and that have
been held by the optionee for at least six months, delivered in lieu
of cash concurrently with such exercise, the shares so delivered to be
valued on the basis of the fair market value of stock (determined in a
manner provided in Section 11 hereof) on the day preceding the date of
exercise provided that the Company is not then prohibited from
purchasing or acquiring shares of such stock; and/or
b. Such payment may be made in whole or in part by delivering to the
Company a promissory note in the form of note attached hereto as
Exhibit A; provided that if the Company becomes subject to the
Securities and Exchange Act of 1934, payment by promissory note shall
be subject to any applicable margin restrictions which may then be in
effect as to the Company and, shall be subject to the provisions of
Section 23 herein. Any such promissory note shall be adequately
secured by property other than the underlying Shares.
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<PAGE>
Notwithstanding the above, the Company can reject any form of payment
that would cause the Company to recognize a charge to its earnings.
8. Nontransferability. Any option granted under this Plan shall by
its terms be nontransferable by the optionee other than by will or the laws of
descent and distribution and is exercisable during the optionee's lifetime only
by him or by his guardian or legal representative.
9. Termination of Option. In the case of Incentive Options:
a. If the employment or other service to the Company of an optionee
(whether employee, nonemployed director, or advisor) who is not
disabled within the meaning of Section 422(c)(6) of the Code (a
"Disabled Optionee") is voluntarily terminated without cause or a
subsidiary or an optionee retires under any retirement plan of the
Company or a subsidiary, any then outstanding stock option held by
such an optionee shall be exercisable, to the extent exercisable on
the date of termination of employment or service, by such an optionee
at any time prior to the expiration date of such stock option or
within three months after the date of termination of employment or
service, whichever is the shorter period.
b. If the employment of an optionee who is a Disabled Optionee is
voluntarily terminated without cause or if the service of a
nonemployed director or advisor terminates because such individual
becomes a Disabled Optionee, any then outstanding stock option held by
such an optionee shall be exercisable in full, to the extent
exercisable on the date of termination of employment or service, by
such an optionee at any time prior to the expiration date of such
stock option or within one year after the date of such termination of
employment or service, whichever is the shorter period;
c. Following the death of an optionee during employment or of a
nonemployed director or advisor while serving as a director or advisor
of the Company or a subsidiary, any outstanding stock option held by
such an optionee at the time of death shall be exercisable in full, to
the extent exercisable on the date of the death of the optionee, by
the person or person entitled to do so under the Will of the optionee,
or if the optionee shall fail to make testamentary disposition of the
stock option or shall die intestate, by the legal representative of
the optionee at any time prior to the expiration date of such stock
option or within one year after the date of death, whichever is the
shorter period.
For all options issued hereunder, if the Company terminates the
employment of an optionee for cause, all outstanding options held by the
optionee at the time of such termination shall automatically terminate unless
the Administrator notifies the optionee that his options will not terminate. A
termination "for cause" is a termination on account of the optionee's
fraudulent, dishonest or felonious conduct resulting in losses to the Company or
substantial potential or actual liability of the Company to another person.
3
<PAGE>
Whether termination of employment or other service is a termination
"for cause" and whether an optionee is disabled within the meaning of Section
422(c)(6) of the Code shall be determined in each case, in its discretion, by
the Administrator and any such determination by the Administrator shall be final
and binding.
10. Written Option Agreement. All options granted pursuant to the
Plan shall be evidenced by written option agreements. Such option agreements
shall comply with and be subject to all of the terms, conditions, and
limitations set forth in this Plan and such further provisions, not inconsistent
with this Plan, as the Administrator shall deem appropriate.
11. Determination of Fair Market Value. Fair market value of the
common stock shall be determined in good faith by the Administrator 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 of the Code. Fair market value shall be determined
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
12. Adjustments. If the outstanding shares of stock of the class
then subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalization, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities for which options may thereafter
be exercised. The Administrator shall 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 12 shall require the Company to issue or sell a fraction of a share
or other security.
If any such adjustment provided for in this Section 12 requires the
approval of shareholders in order to enable the Company to Grant Incentive
Options, then no such adjustment shall be made without the required shareholder
approval. Notwithstanding the foregoing, in the case of Incentive Options, if
the effect of any such adjustment would be to cause the stock option to fail to
continue to qualify as an Incentive Option or to cause a modification, extension
or renewal of such stock option within the meaning of Section 424 of the Code,
the Administrator may elect that such adjustment not be made but rather shall
use reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Administrator, 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.
13. Administration. The Plan shall be administered by a person or
persons (the "Administrator") appointed by the Board of Directors of the
Company. Any vacancy occurring in the position of Administrator shall be filled
by appointments by the Board.
The Administrator may interpret the Plan, prescribe, amend and rescind
any rules or regulations necessary or appropriate for the administration of the
Plan, and make such other
4
<PAGE>
determination and take such other action it deems necessary or advisable, except
as otherwise expressly reserved for the Board of Directors of the Company.
Without limiting the generality of the foregoing, the Administrator may, in its
discretion, treat all or any portion of any period during which a participant is
on military or other approved leave of absence from the Company or a subsidiary
as a period of employment of such participant by the Company or such subsidiary,
as the case may be, for purposes of accrual of his rights under his awards;
provided, however, that no Incentive Options may be awarded to an employee while
he is on leave of absence.
14. Limitations Respecting Incentive Options. It is the intent of
the Company and its subsidiaries to conform strictly to the requirements of Code
Section 422 with regard to Incentive Options granted pursuant to this Plan.
Therefore, notwithstanding any other provision of this Plan, nothing herein with
regard to Incentive Options shall contravene any requirement set forth in Code
Section 422 and if inconsistent provisions are otherwise found herein, they
shall be deemed void and unenforceable or automatically amended to conform, as
the case may be.
15. Right as a Shareholder. An optionee, or his executor,
administrator or legatee if he be deceased, shall have no rights as a
shareholder with respect to any stock covered by his option under the date of
issuance of the stock certificate to him or such stock after receipt of the
consideration in full set forth in the option agreement or as may be approved by
the Administrator. Except as provided in Section 12 hereof, no adjustments
shall be made for dividends, whether ordinary or extraordinary, whether in cash,
securities, or other property, for distributions in which the record date is
prior to the date for which the stock certificate is issued.
16. Modification, Extension and Renewal. Subject to the conditions
of, and within the limitations prescribed in, Section 14, hereof, the
Administrator may modify, extend or renew options which are outstanding as
granted under the Plan if otherwise consistent herewith. Notwithstanding the
foregoing, no modification shall, without the prior written consent of the
optionee, alter, impair or waive any rights or obligations of any option
theretofore granted under the Plan.
17. Investment Purposes, Etc.. Prior to the issuance or delivery of
any shares of the common stock under the Plan, the person exercising the stock
option may be required to (a) represent and warrant that the shares of the
common stock to be acquired upon exercise of the stock 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 (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) unless the transfer, sale, assignment, pledge,
hypothecation or other disposition of the shares is pursuant to effective
registrations under the 1933 Act and 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
Administrator upon exercise of the option or any part thereof, including but not
limited to stock transfer restrictions. The certificate or certificates
representing
5
<PAGE>
the shares of the common stock to be issued or delivered upon exercise of a
stock 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 shall require the Company or an subsidiary 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 Illinois securities laws, or any other applicable rule or
regulation then in effect.
18. No Right to Continued Employment. This Plan, and any option
granted under this Plan, shall not confer upon any optionee any right with
respect to continued employment by or service to the Company or any subsidiary,
nor shall they alter, modify, limit or interfere with any right or privilege of
the Company or any subsidiary under any employment or service contract
heretofore or hereinafter executed with any optionee, including the right to
terminate any optionee's employment, directorship, or advisory service, at any
time for or without cause.
19. Disposition of Incentive Option Shares. Except (a) as provided
in options to the Company and other holders of the stock contained in stock
transfer restriction agreements to which the Company is a party, or (b) in
connection with reorganizations or other transactions described in Section 12
hereof, no stock acquired by the exercise of an Incentive Option granted under
the Plan shall be transferable, otherwise than by will or the laws of descent
and distribution, within two (2) years after the date the option was granted or
within one (1) year after the transfer of such share of stock to the optionee
pursuant to the exercise of the option. Each certificate representing the
acquired shares shall bear a legend to this effect.
20. 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, 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 which the Company or it subsidiaries shall, in
their sole discretion, determine to be necessary or advisable, or which, in the
opinion of counsel to the Company or its subsidiaries, is otherwise required.
21. 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 the 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 shall terminate, and all
options theretofore granted hereunder shall terminate, unless provision be made
in writing in connection with such transaction for the continuance of the
6
<PAGE>
Plan and/or for the assumption of options theretofore 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 shall continue in the manner and under the
terms so provided. If the Plan and unexercised options shall terminate pursuant
to the foregoing sentence, all persons entitled to exercise any unexercised
portions of options then outstanding shall have the right, at such prior to the
consummation of the transaction causing such termination as the Company shall
designate, to exercise the unexercised portions of their options, including the
portions thereof which would, but for this Section 21, not yet be exercisable.
22. Financial Assistance. The Company is vested with authority under
this Plan to assist any employee to whom an option is granted hereunder
(including any director or officer of the Company or any of its subsidiaries who
is also an employee) in the payment of the purchase price payable on exercise of
that option, by lending the amount of such purchase price to such employee on
such terms and at such rates of interest and upon such security (or unsecured)
as shall have been authorized by or under authority of the Board.
23. Withholding. 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 for Incentive Options), the optionee
fails to tender payment to the Company for any federal income tax withholding,
the Administrator shall withhold from the optionee sufficient shares or
fractional shares having a fair market value (determined under Section 11) equal
to any amount which the Company is required to withhold under the Code. The
Administrator shall also withhold any required cash amounts upon exercise of
Stock Appreciation Rights.
24. Amendment and Termination. The Board may alter, amend, suspend
or terminate this Plan, provided that no such action shall deprive an optionee,
without his consent, of any option granted to the optionee pursuant to this Plan
or of any of such optionee's rights under such option. Except as herein
provided no such action of the Board, unless approved by the shareholders of the
Company within twelve months prior to twelve months after such action, may:
a. increase the maximum number of shares for which options granted under
this plan may be exercised;
b. reduce the minimum permissible exercise price;
c. extend the ten-year duration of this Plan set forth herein; or
d. alter the class of employees eligible to receive options under the
Plan.
25. Plan Date and Duration. The Plan shall take effect on the date
it is adopted by the Board of Directors of the Company. Options may not be
granted under this Plan more than ten
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years after the date of the adoption of this Plan, or of shareholder approval
thereof, whichever is earlier.
26. Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
state of Illinois except to the extent that Illinois laws are preempted by any
federal statute, regulation, judgment or court order, including but not limited
to, the Code.
HOME SECURITY INTERNATIONAL, INC.,
a Delaware corporation
Adopted by the Board of Directors of Home Security International, Inc. on
_______________, 19___.
Approved by the Shareholders of Home Security International, Inc. on
_____________________, 19___.
8
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EXHIBIT A
---------
PROMISSORY NOTE
$______________ _______________, 19___
FOR VALUE RECEIVED, ________________________ promises to pay to Home
Security International, Inc., a Delaware corporation (the "Company"), or order,
the principal sum of _____________________________________ ($____________),
together with interest on the unpaid principal hereof from the date hereof at
the rate of ________ % per annum, compounded semiannually.
Principal and interest shall be due and payable on
__________________________. Should the undersigned fail to make full payment of
any installment of principal or interest for a period of 10 days or more after
the due date thereof, the whole unpaid balance on this Note of principal and
interest shall become immediately due at the option of the holder of this Note.
Payments of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
__________________________. This Note is secured by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee or consultant of
the Company for any reason, this Note shall, at the option of the Company, be
accelerated, and the whole unpaid balance on this Note of principal and accrued
interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
-------------------------------------
(Name)
<PAGE>
Exhibit 10.2
HOME SECURITY INTERNATIONAL, INC.
1997 Non-Employee Directors' Stock Option Plan
1. Purpose of the Plan. Under this 1997 Non-Employee Directors' Stock
Option Plan (the "Plan") of Home Security International, Inc. (the "Company"),
options may be granted to eligible non-employee directors to purchase shares of
the Company's capital stock. The Plan is designed to enable the Company and its
subsidiaries to attract, retain, and motivate their non-employee 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. The Plan provides for options that do not qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). As such, all options granted under the Plan are to be
nonstatutory options.
2. Stock Subject to Plan. The aggregate number of shares that may be
issued pursuant to options hereunder is 50,000 shares of the Company's common
stock, subject to the adjustments hereinafter provided. Such number of shares
shall be reserved by the Company for options granted under this plan. The shares
that may be issued or delivered under the Plan may be either authorized but
unissued shares or treasury shares or a combination of both types of shares.
Shares of stock subject to the unexercised portions of any options granted under
this Plan that expire or terminate or are canceled may again be subject to
options under the Plan.
3. Eligibility. All members of the Company's Board of Directors (the
"Board") who are not full-time employees of the Company ("Non-Employee
Directors") shall participate in the Plan.
4. Automatic Grants. Each Non-Employee Director shall receive an option to
purchase 5,000 shares of the Company's common stock as of the next business day
following the close of each annual meeting of the Company's shareholders that
occurs after the Effective Date and during the term of the Plan; provided that
such Non-Employee Director continues to serve as a director of the Company on
such business day.
5. Option Price. The purchase price at which each stock option may be
exercised (the "Option Price") shall be 100% of the fair market value of the
Company's stock on the date of such grant, as determined under Section 11.
6. Exercise of Option. The options granted under the Plan shall be
exercisable six months after the date of grant. No option shall be exercisable
after the expiration of ten years from the date of the grant. An option, to the
extent exercisable at any time, may be exercised in whole or in part.
7. Payment of Option Price. Payment for stock purchased under any
exercise of an option granted under this Plan shall be made in full in cash
concurrently with such exercise. Alternatively:
<PAGE>
a. Such payment may be made in whole or in part with shares of the
same class of stock as that then subject to the option and that have
been held by the optionee for at least six months, delivered in lieu
of cash concurrently with such exercise, the shares so delivered to be
valued on the basis of the fair market value of stock (determined in a
manner provided in Section 11 hereof) on the day preceding the date of
exercise provided that the Company is not then prohibited from
purchasing or acquiring shares of such stock; and/or
b. Such payment may be made in whole or in part by delivering to the
Company a promissory note in the form of note attached hereto as
Exhibit A; provided that if the Company becomes subject to the
Securities and Exchange Act of 1934, payment by promissory note shall
be subject to any applicable margin restrictions which may then be in
effect as to the Company and, shall be subject to the provisions of
Section 23 herein. Any such promissory note shall be adequately
secured by property other than the underlying Shares.
Notwithstanding the above, the Company can reject any form of payment that would
cause the Company to recognize a charge to its earnings.
8. Nontransferability. Any option granted under this Plan shall, by its
terms, be nontransferable by the grantee other than by will or the laws of
descent and distribution, and during the grantee's lifetime shall be exercisable
only by him, his guardian, or his legal representative.
9. Termination of Option. An option shall terminate and shall not be
exercised if the grantee ceases to be a member of the Board. Notwithstanding the
above:
a. If the grantee's directorship is terminated by reason other than any
act of (a) fraud or intentional misrepresentation, or (b)
embezzlement, misappropriation, or conversion of assets or
opportunities of the Company or its subsidiaries, grantee may exercise
his option, at any time within the three month period following the
date he ceased to be a director; and
b. If the grantee dies while a director or within three months after
ceasing to be a director, and prior to the expiration date of the
option, his option may be exercised at any time within 18 months
following his death by the person or persons to whom his rights under
the option passed by will or by the laws of descent or distribution,
but only to the extent that it was exercisable on the date that he
ceased to be a director; in no case, however, shall the 18-month
period extend beyond the expiration date of the option.
10. Written Option Agreement. All options granted pursuant to the Plan
shall be evidenced by written option agreements. Such option agreements shall
comply with and be
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<PAGE>
subject to all of the terms, conditions, and limitations set forth in this Plan
and such further provisions, not inconsistent with this Plan, as the
Administrator shall deem appropriate.
11. Determination of Fair Market Value. Fair market value of the common
stock shall be determined in good faith by the Administrator. Fair market value
shall be determined without regard to any restriction (other than a restriction
that, by its terms, will never lapse).
12. Adjustments. If the outstanding shares of stock of the class then
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities for which options may thereafter
be exercised. The Administrator shall 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 grantees. No adjustment provided for in this Section
12 shall require the Company to issue or sell a fraction of a share or other
security.
13. Administration. The Plan shall be administered by a person or persons
(the "Administrator") appointed by the Board of Directors of the Company. Any
vacancy occurring in the position of Administrator shall be filled by
appointments by the Board.
The Administrator may interpret the Plan, prescribe, amend and rescind any
rules or regulations necessary or appropriate for the administration of the
Plan, and make any other determination and take any other action as it, in its
sole discretion, deems necessary or advisable, except as otherwise expressly
reserved for the Board of Directors of the Company.
14. Rights as a Shareholder. A grantee, or his executor, administrator or
legatee if he be deceased, 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 or such stock after receipt of the consideration in full set
forth in the option agreement, or as may be approved by the Administrator.
Except as provided in Section 12 hereof, no adjustments shall be made for
dividends, whether ordinary or extraordinary, whether in cash, securities, or
other property, for distributions in which the record date is prior to the date
for which the stock certificate is issued.
15. Modification, Extension and Renewal. The Administrator may modify,
extend or renew options that are outstanding as granted under the Plan if
otherwise consistent herewith. Notwithstanding the foregoing, no modification
shall, without the prior written consent of the grantee, alter, impair or waive
any rights or obligations of any option theretofore granted under the Plan.
16. Investment Purposes, Etc. Prior to the issuance or delivery of any
options or shares of the common stock under the Plan, the person being granted
or exercising the stock option may be required to (a) represent and warrant that
the shares of the common stock to be
3
<PAGE>
acquired upon exercise of the stock 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, hypothecation or
other disposition of the shares is pursuant to effective registrations under the
Securities Act of 1933 and applicable state or foreign securities laws or
pursuant to appropriate exemptions from any such registrations; (c) execute such
further documents as may be reasonably required by the Administrator upon
exercise of the option or any part thereof, including but not limited to stock
transfer restrictions. The certificate or certificates representing the shares
of the common stock to be issued or delivered upon exercise of a stock option
may bear a legend evidencing the foregoing and other legends required by any
applicable securities laws. Furthermore, nothing herein, nor any option granted
hereunder, shall require the Company or an subsidiary 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
Illinois or any other state's applicable securities laws, or any other
applicable rule or regulation then in effect.
17. No Right to Service. Neither this Plan nor any option granted under
this Plan shall confer upon any grantee any right with respect to continued
service to the Company or any subsidiary, nor shall they alter, modify, limit or
interfere with any right or privilege of the Company or any subsidiary under any
service contract heretofore or hereinafter executed with any grantee, including
the right to terminate any grantee's directorship, at any time for or without
cause.
18. 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 it 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.
19. 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 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 shall terminate, and all options
theretofore granted hereunder shall terminate, unless provision be made in
writing in connection with such transaction for the continuance of the
4
<PAGE>
Plan and/or for the assumption of options theretofore 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 shall continue in the manner and under the
terms so provided. If the Plan and unexercised options shall terminate pursuant
to the foregoing sentence, 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 such termination as the Company
shall designate, to exercise the unexercised portions of their options.
20. Withholding. If, upon exercise of any option, the grantee fails
to tender payment to the Company for any federal or state income tax
withholding, the Administrator shall withhold from the grantee sufficient shares
or fractional shares having a fair market value (as determined under Section 11)
equal to any amount that the Company is required to withhold under the Code or
State law.
21. Amendment and Termination. The Board may alter, amend, suspend
or terminate this Plan, provided that no such action shall deprive a grantee,
without his consent, of any option granted to the grantee pursuant to this Plan
or of any of such grantee's rights under such option. Notwithstanding the above,
however, the Plan shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. Except as herein
provided, no such action of the Board, unless approved by the shareholders of
the Company within twelve months prior to twelve months after such action, may:
a. increase the maximum number of shares for which options granted under this
plan may be exercised;
b. reduce the minimum permissible exercise price;
c. extend the ten-year duration of this Plan set forth herein; or
d. alter the class of directors eligible to receive options under the Plan.
22. No Discretion. No member of the Board shall exercise any
discretion with regard to the amount, price, or timing of option grants under
the Plan in contravention of the formula plan requirements of Rule 16b-3(c)(2).
23. Effective Date and Duration. The Plan shall take effect on April
1, 1997 (the "Effective Date"), subject to the adoption of the Plan by the Board
of Directors and the approval of the Plan by the Company's shareholders within
twelve months of the Effective Date. Options may not be granted under this Plan
more than ten years after the date of the Effective Date.
5
<PAGE>
24. Governing Law. All questions arising with respect to the provisions
of the Plan shall be determined by application of the laws of the State of
Illinois, except to the extent that Illinois laws are preempted by any federal
statute, regulation, judgment or court order, including but not limited to, the
Code.
25. Headings. The titles of Sections of the Plan are provided for
convenience only, and are not to be used in the construction or interpretation
of this document.
HOME SECURITY INTERNATIONAL, INC.
a Delaware corporation
Adopted by the Board of Directors of Home Security International, Inc. on
_____________________, 19_____.
Approved by the Shareholders of Home Security International, Inc. on
____________________________, 19_____.
6
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
$____________________ __________________, 19___
FOR VALUE RECEIVED, ________________________ promises to pay to Home
Security International, Inc., a Delaware corporation (the "Company"), or order,
the principal sum of _____________________________________ ($____________),
together with interest on the unpaid principal hereof from the date hereof at
the rate of ________ % per annum, compounded semiannually.
Principal and interest shall be due and payable on_____________________.
Should the undersigned fail to make full payment of any installment of principal
or interest for a period of 10 days or more after the due date thereof, the
whole unpaid balance on this Note of principal and interest shall become
immediately due at the option of the holder of this Note. Payments of principal
and interest shall be made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
_________________. This Note is secured by a pledge of the Company's Common
Stock under the terms of a Security Agreement of even date herewith and is
subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee or consultant of
the Company for any reason, this Note shall, at the option of the Company, be
accelerated, and the whole unpaid balance on this Note of principal and accrued
interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
--------------------------------------
(Name)
<PAGE>
EXHIBIT 10.3
FAI HOME SECURITY (UK) LIMITED
('FAI UK')
FAI HOME SECURITY (AFRICA) (PROPRIETARY) LIMITED
('FAI SA')
FAI HOME SECURITY (CANADA) INC.
('FAI CANADA')
FAI HOME SECURITY USA INC.
('FAI USA')
CERVALE PTY LIMITED
('CERVALE')
FAI HOME SECURITY HOLDINGS PTY LIMITED
('FHSH')
INTERNATIONAL 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
Reference MAP:
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATION........................................ 1
2. AGREEMENT TO SELL..................................................... 12
3. CONSIDERATION......................................................... 12
4. TITLE AND RISK........................................................ 12
5. TRADING RESPONSIBILITIES.............................................. 12
6. COMPLETION............................................................ 13
7. WARRANTIES............................................................ 14
8. BUSINESS CONTRACTS AND EQUIPMENT LEASES............................... 16
9. EMPLOYEES............................................................. 17
10. BOOK DEBTS............................................................ 17
11. CHANGE OF NAME........................................................ 18
12. GUARANTEE............................................................. 18
13. MOTOR VEHICLES........................................................ 19
14. COSTS................................................................. 19
15. PUBLICITY............................................................. 19
16. DURATION OF PROVISIONS................................................ 19
17. ASSIGNMENT............................................................ 19
18. ENTIRE AGREEMENT...................................................... 19
19. NO WAIVER............................................................. 20
20. GOVERNING LAW AND JURISDICTION........................................ 20
21. FURTHER ACTION........................................................ 20
22. COUNTERPARTS.......................................................... 20
<PAGE>
23. NOTICES............................................................... 20
SCHEDULE 1 - BUSINESS NAMES................................................ 22
SCHEDULE 2 - DISTRIBUTORS, AREA DISTRIBUTORS AND DEALERS................... 23
SCHEDULE 3 - PLANT AND EQUIPMENT........................................... 24
SCHEDULE 4 - WARRANTIES.................................................... 27
SCHEDULE 5 - EQUIPMENT LEASES.............................................. 33
SCHEDULE 6 - DISCLOSURES................................................... 34
SCHEDULE 7 - EMPLOYEES..................................................... 35
SCHEDULE 8 - STATUTORY LICENCES............................................ 36
SCHEDULE 9 - PROPERTY LEASES............................................... 37
ii
<PAGE>
INTERNATIONAL ASSET PURCHASE AGREEMENT
AGREEMENT dated 1997
BETWEEN FAI HOME SECURITY (UK) LIMITED in its own capacity and as trustee of
the FAI Home Security (UK) Trust of Level 1, Southside, Anchorage 2,
Anchorage Quay, Slord Quays, Manchester, United Kingdom ('FAI UK')
AND FAI HOME SECURITY (AFRICA) (PROPRIETARY) LIMITED of 8 De Winnaar
Street, Halfway House, 1685, South Africa ('FAI SA')
AND FAI HOME SECURITY (CANADA) INC. in its own capacity and as trustee of
the Canadian Trust of 1815 Ironstone Manor, Unit 5, Pickering,
Ontario, Canada ('FAI CANADA')
AND FAI HOME SECURITY USA INC. of St Moritz Hotel, 50 Central Park South,
New York, NY 10019 ('FAI USA')
(FAI UK, FAI SA, FAI Canada and FAI USA are collectively referred to
in this agreement as the 'VENDORS')
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')
AND 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 ('FHSH')
RECITALS
A. On 29 March 1997, the Vendors agreed to sell to FHSH, and FHSH agreed to
purchase all of the Assets ('AGREEMENT FOR SALE') with effect from 31 March
1997 on terms and conditions agreed between them on 29 March 1997 and
hereby formally recorded in this Agreement for Sale.
B. The parties have entered into this Agreement to record the terms and
conditions of the Agreement for Sale and give effect to the Agreement for
Sale.
AGREEMENT
<PAGE>
1. DEFINITIONS AND INTERPRETATION
1.1 In this deed:
'ACCOUNTS' means the audited balance sheet of the Vendors as at the
Accounts Date and the audited profit and loss account of the Vendors for
the six month period ended (or financial year in the case of FAI Canada) on
the Accounts Date together with the reports of the directors in respect of
those accounts.
'ACCOUNTS DATE' means 31 December 1996.
'ASSETS' means the UK Assets, the SA Assets, the Canada Assets and the USA
Assets, but for the avoidance of doubt, does not include Book Debts.
'BOOK DEBTS' means the trade and other debts owing to any of the Vendors in
respect of their businesses;
'BUSINESS' means the business of selling, installing and servicing
residential security alarm systems through distributorship networks
conducted by the Vendors using the Assets from the Sites;
'BUSINESS CONTRACTS' means the Distribution Agreements and all other
agreements, arrangements or understandings and orders entered into, made or
accepted by or on behalf of the Vendors in the course of conduct of the
Business that are not fully performed at the Completion Date, including
without limitation the rights of the Vendors, as nominees of FAI Home
Security Pty Limited (ACN 050 064 214), to market the SecurityGuard Product
exclusively, other than the Property Leases and the Equipment Leases;
'BUSINESS NAMES' means the names listed in SCHEDULE 1;
'BUSINESS LIABILITIES' means the Canada Business Liabilities, the SA
Business Liabilities, the UK Business Liabilities and the USA Business
Liabilities;
'CANADA ASSETS' means the Canada Tangible Assets and the Canada Intangible
assets;
'CANADA BUSINESS' means the business of selling, installing and servicing
residential security alarm systems through a distributorship network
conducted by FAI Canada using the Canada Assets from the Canada Site;
'CANADA BUSINESS CONTRACTS' means the Canada Distribution Agreements and
all other agreements, arrangements or understandings and orders entered
into, made or accepted by or on behalf of FAI Canada in the course of
conduct of the Canada Business that are not fully performed at the
Completion Date, including without limitation the right of FAI Canada, as
nominee of FAI Home Security Pty Limited (ACN 050 064 214), to market the
SecurityGuard Product exclusively throughout Canada, other than the Canada
Property Lease and the Canada Equipment Leases;
2
<PAGE>
'CANADA BUSINESS LIABILITIES' means all outstanding current liabilities
incurred by FAI Canada in the ordinary course of the Canada Business as at
the Completion Date, and disclosed in the books of account of FAI Canada as
at 31 March 1997 as provided for, the book value of which the parties
acknowledge does not exceed A$499,045;
'CANADA CONSIDERATION' means the consideration referred to in CLAUSE 3.3;
'CANADA DISTRIBUTION AGREEMENTS' means the distributor agreements, area
distributor agreements and dealer agreements between FAI Canada and the
distributors, area distributors and dealers set out in part 1 of SCHEDULE
2;
'CANADA EQUIPMENT LEASES' means each of the lease and hire purchase
agreements listed in part 1 of SCHEDULE 5;
'CANADA GOODWILL' means the goodwill of the Canada Business including, but
not limited to:
(a) the Canada Records;
(b) the right to exclusively carry on the Canada Business at the Canada
Site in succession to FAI Canada under the name 'FAI Home Security
(Canada)', including Canada Statutory Licences;
'CANADA INTANGIBLE ASSETS' means:
(a) the Canada Goodwill;
(b) the Canada Intellectual Property;
(c) subject to the consent of the Lessor, the benefit of the Canada
Property Lease;
(d) subject to the consent of the other party to each Canada Business
Contract (where required), the benefit of that Business Contract;
(e) subject to the consent of the other party to each Canada Equipment
Lease (where required), the benefit of that Canada Equipment Lease;
and
(f) the Canada Records and the Canada Systems.
'CANADA INTELLECTUAL PROPERTY' means all intellectual property and
proprietary rights (whether registered or unregistered) owned by FAI Canada
in the conduct of the Canada Business including:
(a) the Business Names;
(b) all trade marks (if any); and
3
<PAGE>
(c) all patents, patent applications, inventions, know-how, registered and
unregistered designs, copyright and similar industrial or intellectual
property rights;
'CANADA PLANT AND EQUIPMENT' means all fixed plant, equipment, motor
vehicles, machinery, spare parts, furniture, fittings and other assets or
chattels owned by FAI Canada and used in the conduct of the Canada
Business, including those items listed in Part 1 of SCHEDULE 3;
'CANADA PROPERTY LEASE' means the lease referred to in Part 1 of Schedule
9.
'CANADA RECORDS' means all original and copy records, sales brochures and
catalogues, documents, books, files, accounts, customer records, lists and
databases, plans and correspondence belonging to or used by FAI Canada in
the conduct of the Canada Business other than corporate accounting and
statutory records;
'CANADA SITE' means the property which is the subject of the Canada
Property Lease;
'CANADA STATUTORY LICENCES' means any statutory licences, consents,
approvals or authorisations required to carry on the Canada Business,
including without limitation those referred to in part 1 of SCHEDULE 8;
'CANADA STOCK' means all stocks of raw materials, packaging materials,
finished goods and other stock-in-trade owned by FAI Canada used in the
conduct of the Canada Business.
'CANADA SYSTEMS' means all of the following used in the conduct of the
Canada Business and owned by FAI Canada: all accounting systems including
all accounting, invoicing, debt control, credit control, debt collection,
computer records, software and all ancillary data systems;
'CANADA TANGIBLE ASSETS' means the Canada Plant and Equipment and the
Canada Stock, the book value of which is claimed by FAI Canada to be
A$318,308;
'CLAIM' means any claim, notice, demand, action, proceeding, litigation,
investigation or judgment whether based in contract, tort, statute or
otherwise;
'COMPLETION' means completion of the sale and purchase of the Assets
pursuant to this Agreement;
'COMPLETION DATE' means the date of this Agreement;
'DISTRIBUTION AGREEMENT' means the distributor agreements, area distributor
agreements and dealer agreements between the Vendors and the distributors,
area distributors and dealers set out in SCHEDULE 2;
'EFFECTIVE DATE' means 31 March 1997.
'EMPLOYEE ENTITLEMENTS' means, in respect of an Employee, all accrued:
4
<PAGE>
(a) wages, salary, commissions and bonuses;
(b) sick leave, loadings and contributions to superannuation, statutory
compensation or other funds;
(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 Vendors whether arising under
contract, statute, award or otherwise;
'EMPLOYEES' means all the persons employed by the Vendors in the conduct of
the Business, being the persons listed in SCHEDULE 7;
'ENCUMBRANCE' means any mortgage, lien, charge, pledge, claim or other
encumbrance;
'EQUIPMENT LEASES' means each of the lease and hire purchase agreements
listed in SCHEDULE 5;
'GOODWILL' means the goodwill of the Business including, but not limited
to:
(a) the Records;
(b) the right to exclusively carry on the Business at the Sites in
succession to the Vendors under the name 'FAI Home Security',
including the Statutory Licences;
'LEASED EQUIPMENT' means the equipment used, but not owned, by the Vendors
in the conduct of the Business under the Equipment Leases;
'LIABILITIES' means all liabilities, losses, damages, outgoings, costs and
expenses of whatever description;
'MOTOR VEHICLES' means the motor vehicles forming part of the Plant and
Equipment;
'PARTY' means a party to this agreement;
'PROPERTY LEASES' means the Canada Property Lease and UK Property Lease;
'RECORDS' means all original and copy records, sales brochures and
catalogues, documents, books, files, accounts, plans and correspondence
belonging to or used by the Vendors in the conduct of the Business other
than corporate accounting and statutory records;
'SA ASSETS' means the SA Tangible Assets and the SA Intangible assets;
5
<PAGE>
'SA BUSINESS' means the business of selling, installing and servicing
residential security alarm systems through a distributorship network
conducted by FAI SA using the SA Assets from the SA Site;
'SA BUSINESS CONTRACTS' means the SA Distribution Agreements and all other
agreements, arrangements or understandings and orders entered into, made or
accepted by or on behalf of FAI SA in the course of conduct of the SA
Business that are not fully performed at the Completion Date, including
without limitation the right of FAI SA, as nominee of FAI Home Security Pty
Limited (ACN 050 064 214), to market the SecurityGuard Product exclusively
throughout SA, other than the SA Property Lease and the SA Equipment
Leases;
'SA BUSINESS LIABILITIES' means all outstanding current liabilities
incurred by FAI SA in the ordinary course of the SA Business as at the
Completion Date and disclosed in the books of account of FAI SA as at 31
March 1997 as provided for, the book value of which the parties acknowledge
does not exceed A$6,744;
'SA CONSIDERATION' means the consideration referred to in CLAUSE 3.2;
'SA DISTRIBUTION AGREEMENTS' means the distributor agreements, area
distributor agreements and dealer agreements between FAI SA and the
distributors, area distributors and dealers set out in part 2 of SCHEDULE
2;
'SA EQUIPMENT LEASES' means each of the lease and hire purchase agreements
listed in part 2 of SCHEDULE 5;
'SA GOODWILL' means the goodwill of the SA Business including, but not
limited to:
(a) the SA Records;
(b) the right to exclusively carry on the SA Business at the SA Site in
succession to FAI SA under the name 'FAI Home Security (SA)',
including the SA Statutory Licences;
'SA INTANGIBLE ASSETS' means:
(a) the SA Goodwill;
(b) the SA Intellectual Property;
(c) subject to the consent of the other party to each SA Business Contract
(where required), the benefit of that Business Contract;
(d) subject to the consent of the other party to each SA Equipment Lease
(where required), the benefit of that SA Equipment Lease; and
(e) the SA Records and the SA Systems.
6
<PAGE>
'SA INTELLECTUAL PROPERTY' means all intellectual property and proprietary
rights (whether registered or unregistered) owned by FAI SA in the conduct
of the SA Business including:
(a) the Business Names;
(b) all trade marks (if any); and
(c) all patents, patent applications, inventions, know-how, registered and
unregistered designs, copyright and similar industrial or intellectual
property rights;
'SA PLANT AND EQUIPMENT' means all fixed plant, equipment, motor vehicles,
machinery, spare parts, furniture, fittings and other assets or chattels
owned by FAI SA and used in the conduct of the SA Business, including those
items listed in Part 2 of SCHEDULE 3;
'SA RECORDS' means all original and copy records, sales brochures and
catalogues, documents, books, files, accounts, customer records, lists and
databases, plans and correspondence belonging to or used by FAI SA in the
conduct of the SA Business other than corporate accounting and statutory
records;
'SA SITE' means the property which is the subject of the SA Property Lease;
'SA STATUTORY LICENCE' means any statutory licences, consents, approvals or
authorisations required to carry on the SA Business, including without
limitation those referred to in part 2 of SCHEDULE 8;
'SA STOCK' means all stocks of raw materials, packaging materials, finished
goods and other stock-in-trade owned by FAI SA used in the conduct of the
SA Business.
'SA SYSTEMS' means all of the following used in the conduct of the SA
Business and owned by FAI SA: all accounting systems including all
accounting, invoicing, debt control, credit control, debt collection,
computer records, software and all ancillary data systems;
'SA TANGIBLE ASSETS' means the SA Plant and Equipment and the SA Stock, the
book value of which is claimed by FAI SA to be A$3,383;
'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;
'SITES' means the properties which are the subject of the Property Leases;
'STATUTORY LICENCES' means the Canada Statutory Licences, the SA Statutory
Licences, the UK Statutory Licences and the USA Statutory Licences;
'TANGIBLE ASSETS' means the Canada Tangible Assets, the SA Tangible Assets,
the UK Tangible Assets and the USA Tangible Assets or any of them;
7
<PAGE>
'TRANSFERRING EMPLOYEES' means the Employees who accept the FHSH's offer of
employment, referred to in CLAUSE 9.2;
'UK ASSETS' means the UK Tangible Assets and the UK Intangible assets;
'UK BUSINESS' means the business of selling, installing and servicing
residential security alarm systems through a distributorship network
conducted by FAI UK using the UK Assets from the UK Site;
'UK BUSINESS CONTRACTS' means the UK Distribution Agreements and all other
agreements, arrangements or understandings and orders entered into, made or
accepted by or on behalf of FAI UK in the course of conduct of the UK
Business that are not fully performed at the Completion Date, including
without limitation the right of FAI UK, as nominee of FAI Home Security Pty
Limited (ACN 050 064 214), to market the SecurityGuard Product exclusively
throughout the UK, other than the UK Property Lease and the UK Equipment
Leases;
'UK BUSINESS LIABILITIES' means all outstanding current liabilities
incurred by FAI UK in the ordinary course of the UK Business as at the
Completion Date and disclosed in the books of account of FAI UK as at 31
March 1997 as provided for, the book value of which the parties acknowledge
does not exceed A$458,288;
'UK CONSIDERATION' means the consideration referred to in CLAUSE 3.1;
'UK DISTRIBUTION AGREEMENTS' means the distributor agreements, area
distributor agreements and dealer agreements between FAI UK and the
distributors, area distributors and dealers set out in part 3 of SCHEDULE
2;
'UK EQUIPMENT LEASES' means each of the lease and hire purchase agreements
listed in part 3 of SCHEDULE 5;
'UK GOODWILL' means the goodwill of the UK Business including, but not
limited to:
(a) the UK Records;
(b) the right to exclusively carry on the UK Business at the UK Site in
succession to FAI UK under the name 'FAI Home Security (UK)',
including the UK Statutory Licences;
'UK INTANGIBLE ASSETS' means:
(a) the UK Goodwill;
(b) the UK Intellectual Property;
(c) subject to the consent of the lessor, the benefit of the UK Property
Lease;
8
<PAGE>
(d) subject to the consent of the other party to each UK Business Contract
(where required), the benefit of that Business Contract;
(e) subject to the consent of the other party to each UK Equipment Lease
(where required), the benefit of that UK Equipment Lease; and
(f) the UK Records and the UK Systems.
'UK INTELLECTUAL PROPERTY' means all intellectual property and proprietary
rights (whether registered or unregistered) owned by FAI UK in the conduct
of the UK Business including:
(a) the Business Names;
(b) all trade marks (if any); and
(c) all patents, patent applications, inventions, know-how, registered and
unregistered designs, copyright and similar industrial or intellectual
property rights;
'UK PLANT AND EQUIPMENT' means all fixed plant, equipment, motor vehicles,
machinery, spare parts, furniture, fittings and other assets or chattels
owned by FAI UK and used in the conduct of the UK Business, including those
items listed in Part 3 of SCHEDULE 3;
'UK PROPERTY LEASE' means the lease referred to in Part 2 of Schedule 9;
'UK RECORDS' means all original and copy records, sales brochures and
catalogues, documents, books, files, accounts, customer records, lists and
databases, plans and correspondence belonging to or used by FAI UK in the
conduct of the UK Business other than corporate accounting and statutory
records;
'UK SITE' means the property which is the subject of the UK Property Lease;
'UK STATUTORY LICENCES' means any statutory licences, consents, approvals
or authorisations required to carry on the UK Business, including without
limitation those referred to in part 3 of SCHEDULE 8;
'UK STOCK' means all stocks of raw materials, packaging materials, finished
goods and other stock-in-trade owned by FAI UK used in the conduct of the
UK Business.
'UK SYSTEMS' means all of the following used in the conduct of the UK
Business and owned by FAI UK: all accounting systems including all
accounting, invoicing, debt control, credit control, debt collection,
computer records, software and all ancillary data systems;
'UK TANGIBLE ASSETS' means the UK Plant and Equipment and the UK Stock, the
book value of which is claimed by FAI UK to be A$319,565;
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<PAGE>
'USA ASSETS' means the USA Tangible Assets and the USA Intangible assets;
'USA BUSINESS' means the business of selling, installing and servicing
residential security alarm systems through a distributorship network
conducted by FAI USA using the USA Assets from the USA Site;
'USA BUSINESS CONTRACTS' means the USA Distribution Agreements and all
other agreements, arrangements or understandings and orders entered into,
made or accepted by or on behalf of FAI USA in the course of conduct of the
USA Business that are not fully performed at the Completion Date, including
without limitation the right of FAI USA, as nominee of FAI Home Security
Pty Limited (ACN 050 064 214), to market the SecurityGuard Product
throughout the USA, other than the USA Property Lease and the USA Equipment
Leases;
'USA BUSINESS LIABILITIES' means all outstanding current liabilities
incurred by FAI USA in the ordinary course of the USA Business as at the
Completion Date and disclosed in the books of account of FAI USA as at 31
March 1997 as provided for, the book value of which the parties acknowledge
does not exceed A$26,192;
'USA CONSIDERATION' means the consideration referred to in CLAUSE 3.4;
'USA DISTRIBUTION AGREEMENTS' means the distributor agreements, area
distributor agreements and dealer agreements between FAI USA and the
distributors, area distributors and dealers set out in part 4 of SCHEDULE
2;
'USA EQUIPMENT LEASES' means each of the lease and hire purchase agreements
listed in part 4 of SCHEDULE 5;
'USA GOODWILL' means the goodwill of the USA Business including, but not
limited to:
(a) the USA Records;
(b) the right to exclusively carry on the USA Business at the USA Site in
succession to FAI USA under the name 'FAI Home Security USA',
including the US Statutory Licences;
USA INTANGIBLE ASSETS' means:
(a) the USA Goodwill;
(b) the USA Intellectual Property;
(c) subject to the consent of the other party to each USA Business
Contract (where required), the benefit of that Business Contract;
10
<PAGE>
(d) subject to the consent of the other party to each USA Equipment Lease
(where required), the benefit of that USA Equipment Lease; and
(e) the USA Records and the USA Systems.
'USA INTELLECTUAL PROPERTY' means all intellectual property and proprietary
rights (whether registered or unregistered) owned by FAI USA in the conduct
of the USA Business including:
(a) the Business Names;
(b) all trade marks (if any); and
(c) all patents, patent applications, inventions, know-how, registered and
unregistered designs, copyright and similar industrial or intellectual
property rights;
'USA PLANT AND EQUIPMENT' means all fixed plant, equipment, motor vehicles,
machinery, spare parts, furniture, fittings and other assets or chattels
owned by FAI USA and used in the conduct of the USA Business, including
those items listed in Part 4 of SCHEDULE 3;
'USA RECORDS' means all original and copy records, sales brochures and
catalogues, documents, books, files, accounts, customer records, lists and
databases, plans and correspondence belonging to or used by FAI USA in the
conduct of the USA Business other than corporate accounting and statutory
records;
'USA SITE' means the property which is the subject of the USA Property
Lease;
'USA STATUTORY LICENCE' means any statutory licences, consents, approvals
or authorisations required to carry on the USA Business, including without
limitation those referred to in part 4 of SCHEDULE 8;
'USA STOCK' means all stocks of raw materials, packaging materials,
finished goods and other stock-in-trade owned by FAI USA used in the
conduct of the USA Business.
'USA SYSTEMS' means all of the following used in the conduct of the USA
Business and owned by FAI USA: all accounting systems including all
accounting, invoicing, debt control, credit control, debt collection,
computer records, software and all ancillary data systems;
'USA TANGIBLE ASSETS' means the USA Plant and Equipment and the USA Stock,
the book value of which is claimed by FAI USA to be A$9,041;
'VENDORS' means FAI UK, FAI SA, FAI Canada and FAI USA;
'WARRANTIES' means each of the representations and warranties listed in
SCHEDULE 4;
In this agreement unless the contrary intention appears:
11
<PAGE>
(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; and
(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.
2. AGREEMENT TO SELL
2.1 FAI UK agrees to sell to FHSH the UK Assets for the UK Consideration.
2.2 FAI SA agrees to sell to FHSH the SA Assets for the SA Consideration.
2.3 FAI Canada agrees to sell to FHSH the Canada Assets for the Canada
Consideration.
2.4 FAI USA agrees to sell to FHSH the USA Assets for the USA Consideration.
12
<PAGE>
3. CONSIDERATION
3.1 Subject to clauses 3.7 and 3.8, in consideration for the UK Assets, at
Completion FHSH must pay to or at the direction of FAI UK an amount of
A$1,064,019 plus an amount equal to the value of UK Business Liabilities.
3.2 Subject to clauses 3.7 and 3.8, in consideration for the SA Assets, at
Completion FHSH must pay to or at the direction of FAI SA an amount of
A$77,685 plus an amount equal to the value of SA Business Liabilities.
3.3 Subject to clauses 3.7 and 3.8, in consideration for the Canada Assets, at
Completion FHSH must pay to or at the direction of FAI Canada an amount of
A$936,641 plus an amount equal to the value of Canada Business Liabilities.
3.4 Subject to clauses 3.7 and 3.8, in consideration for the USA Assets, at
Completion FHSH must pay to or at the direction of FAI USA an amount of
A$119,158 plus an amount equal to the value of USA Business Liabilities.
3.5 FAI UK directs that an amount equal to A$212,002, representing part of the
cash consideration referred to in CLAUSE 3.1, be paid to Cervale.
3.6 Cervale directs that the amount to be paid to it pursuant to CLAUSES 3.1
and 3.5 be paid to or at the direction of FHSH.
3.7 If the book value of the Tangible Assets of any Vendor is less than the
amount referred to in the relevant definition of Tangible Assets in clause
1.1, then the amount to be paid by FHSH to that Vendor under this clause 3
must be reduced by the amount of the difference.
3.8 If the book value of the Business Liabilities of any Vendor is more than
the amount referred to in the relevant definition of Business Liabilities
in clause 1.1, then the amount to be paid by FHSH to that Vendor under this
clause 3 is limited to the amount referred to in that definition.
4. TITLE AND RISK
4.1 Title to the Assets will pass to FHSH on the Effective Date.
4.2 The sale and purchase of the Assets will be effective as and from the
Effective Date and risk to the Assets will be given and taken as at the
Effective Date. Possession of the Assets will be given and taken at
Completion.
5. TRADING RESPONSIBILITIES
5.1 Subject to Completion, all income and profits of the Business earned or
receivable, or otherwise referable to, any period:
(a) up to and including the Effective Date belong to the Vendors;
(b) after the Effective Date belong to FHSH.
13
<PAGE>
6. COMPLETION
6.1 Completion will take place on the date of this Agreement at Level 12, 185
Macquarie Street, Sydney, New South Wales.
6.2 At or promptly after Completion, the Vendors must deliver to FHSH:
(a) possession and control of the Assets;
(b) duly executed transfers of the Business Names in registrable form
together with the relevant certificates of registration;
(c) certificates of registration and duly executed notices of disposition
in respect of the Motor Vehicles;
(d) if the lessor's consent has been obtained to the assignment by
Completion, duly executed deeds of assignment and duly executed forms
of Transfer of Lease in respect of the Property Leases;
(e) the Records;
(f) stamped original counterparts of the Property Leases, and, to the
extent available to the Vendors, of the Business Contracts and
Equipment Leases;
(g) a list of the Book Debts pursuant to CLAUSE 10.2;
(h) any documents required to transfer the Statutory Licences to FHSH or
its nominees; and
(i) any other document or thing reasonably necessary to give full effect
to this agreement as it relates to each Vendor.
6.3 As soon as practicable after Completion, the Vendors must deliver to FHSH
all documents necessary to release the Canada Assets from the registrations
made over that property under the Personal Property Services Act (Canada),
namely, the following registration numbers:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
FILE NO. REGISTRATION NO. SECURED PROPERTY
-------------------------------------------------------------------
<S> <C> <C>
830009916 970417 1317 1031 4894 All personal property i.e.
consumer goods, inventory,
equipment, accounts and
other.
-------------------------------------------------------------------
817129395 951002 1853 1529 2217 Grand Cherokee Jeep
-------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------
970305 1926 1529 9599
- -------------------------------------------------------------------------
817042122 950927 1646 1737 4132 Chevrolet Cavalier
- -------------------------------------------------------------------------
815691933 950727 1656 1737 0613 Chevrolet Astro Van
- -------------------------------------------------------------------------
</TABLE>
6.4 The Vendors must use their reasonable endeavours to obtain all required
transfers to FHSH of all Statutory Licences, Property Leases, Equipment
Leases and Business Contracts but if, despite their reasonable endeavours,
any of the Vendors are unable to procure any such transfers the relevant
Vendor must:
(a) hold the benefit of the relevant Statutory Licence, Property Lease,
Equipment Lease or Business Contract on trust for the benefit of FHSH;
and
(b) fully co-operate with FHSH in any reasonable arrangements designed to
provide for FHSH the benefit of the relevant Statutory Licence,
Property Lease, Equipment Lease or Business Contract.
7. WARRANTIES
7.1 The Vendors and Cervale jointly and severally represent and warrant to FHSH
that each of the 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 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.
7.3 Each of the Warranties:
(a) is given by each of the Vendors and, except where expressly otherwise
provided, applies separately in relation to each Vendor as if each
reference in SCHEDULE 4 to 'Vendors' is to that Vendor; and
(b) remains in full force and effect on and after the Completion Date
despite Completion.
7.4 Provided that all matters disclosed in SCHEDULE 6 have been disclosed
separately to FHSH prior to the date of execution of this agreement, FHSH
acknowledges that none of the matters disclosed in SCHEDULE 6 or any other
matter referred to or contemplated by this agreement can give rise to a
breach of Warranty. No other information relating to any Assets of which
FHSH has knowledge, actual or constructive, prejudices any Claim of FHSH
under the Warranties nor operates to reduce any amount recoverable.
15
<PAGE>
7.5 Subject to CLAUSE 7.6, if there is a breach of or inaccuracy in any of the
Warranties on or before Completion FHSH may immediately terminate this
agreement by notice in writing to all of the Vendors but is not entitled to
any other remedy.
7.6 The Vendors or Cervale must immediately notify FHSH in writing of any facts
or circumstances of which it becomes aware which constitute or may
constitute a breach of any Warranty ('NOTIFIED BREACH'). FHSH must notify
the Vendors and Cervale within 7 days of receipt of such notice whether or
not it has elected to terminate this agreement as a result of a Notified
Breach in accordance with CLAUSE 7.5. FHSH acknowledges that if it makes no
election within seven days of receipt of such notice, then FHSH waives any
rights it may have to terminate this Agreement in respect of the Notified
Breach.
7.7 The rights and remedies of FHSH in respect of any breach of the Warranties
or of the terms of this agreement are not affected by Completion.
7.8 The Vendors and Cervale jointly and severally indemnify FHSH 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 Warranties or
any other covenant or representation in this agreement; or
(b) which FHSH suffers or incurs directly or indirectly by reason of any
of the 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 Vendors or Cervale to fulfil its obligations under
this agreement.
7.9 Notwithstanding any other provision of this agreement:
(a) the maximum aggregate liability of the Vendors under the Warranties
shall be limited to an amount equal to A$500,000;
(b) the Vendors shall not have any liability in respect of any Claim under
the Warranties unless reasonable particulars of the Claim are given to
the Vendors before the first anniversary of Completion;
(c) the liability of the Vendors 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 FHSH;
(d) the Vendors shall not be liable in respect of any Claim under the
Warranties unless the aggregate of all Claims made against the Vendors
under the Warranties exceeds the sum of A$20,000, but thereafter the
Vendors will be liable for the whole amount payable in respect of all
claims, and not just the excess over A$20,000.
7.10 FHSH acknowledges and agrees that, except for the Warranties, the Vendors
have not given, nor has FHSH relied upon, any representation, warranty,
statement or document or other
16
<PAGE>
conduct by the Vendors or their representatives in connection with the
Assets or the Business.
7.11 FHSH must (at the cost of the Vendors) take such action as the Vendors 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
Vendors' prior written consent; and
(d) co-operate and procure its solicitors, accountants and other
representatives to co-operate with the Vendors and their counsel,
accountants or other representatives in respect of such notified
breach.
8. BUSINESS CONTRACTS AND EQUIPMENT LEASES
8.1 Subject to Completion and the Vendors at their cost obtaining all necessary
consents:
(a) FAI UK assigns and FHSH accepts an assignment of the benefit of the UK
Business Contracts and UK Equipment Leases with effect from the
Effective Date;
(b) FAI SA assigns and FHSH accepts an assignment of the benefit of the SA
Business Contracts and SA Equipment Leases with effect from the
Effective Date;
(c) FAI Canada assigns and FHSH accepts an assignment of the benefit of
the Canada Business Contracts and Canada Equipment Leases with effect
from the Effective Date;
(d) FAI USA assigns and FHSH accepts an assignment of the benefit of the
USA Business Contracts and USA Equipment Leases with effect from the
Effective Date;
8.2 Subject to clause 8.5, FHSH must assume, perform and observe the covenants
and obligations of each Vendor under the Business Contracts and Equipment
Leases arising after the Effective Date and indemnifies each 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 Equipment Lease after the Effective Date.
8.3 The Vendors indemnify FHSH against all Liabilities incurred by FHSH as a
result of any breach or default under any of the Business Contracts or
Equipment Leases occurring on or prior to the Effective Date.
17
<PAGE>
8.4 The Vendors must use their reasonable endeavours to obtain all necessary
consents to the assignment of the benefit of the Business Contracts and
Equipment Leases to FHSH but if, despite their reasonable endeavours, any
of the Vendors are unable to procure all necessary consents to the
assignment of the benefit of any Business Contract or Equipment Lease to
FHSH, the relevant Vendor must:
(a) hold the benefit of the Business Contract or Equipment Lease on trust
for the benefit of FHSH; and
(b) fully co-operate with FHSH in any reasonable arrangements designed to
provide for FHSH the benefit of the Business Contract or Equipment
Lease including enforcement of any and all rights of the relevant
Vendor against the party to that Business Contract or to that
Equipment Lease.
8.5 Nothing in clause 8.2 requires FHSH to assume liability for any Claims:
(a) arising out of any act or omission prior to the Effective Date
relating to the Business Contracts; or
(b) arising from any warranties given or issued in respect of the
SecurityGuard product prior to the Effective Date.
9. EMPLOYEES
9.1 The Vendors must on the Completion Date:
(a) release each Transferring Employee from his or her employment with the
Vendor;
(b) ensure that all contributions due to be made by the Vendors to the
Vendor's superannuation funds on or before the Effective Date in
respect of each Transferring Employee have been duly made.
9.2 On or before the Completion Date, each Vendor and FHSH must jointly issue
to each Employee (unless that Employee has ceased to be an employee of the
Vendor before that date) a letter under which FHSH offers to employ that
Employee as and from the Effective Date on terms substantially similar to
the terms of employment existing at the date of this agreement between the
Vendor and that Employee.
9.3 The Vendors shall be responsible for all Employee Entitlements of all the
Employees on and before the Effective Date.
9.4 From and after the Effective Date FHSH shall be responsible for all
Employee Entitlements of the Transferring Employees, and shall treat the
period of service (including any period of service deemed by award, statute
or contract) which each Transferring Employee has had with the Vendor as
deemed service with FHSH.
18
<PAGE>
10. BOOK DEBTS
10.1 FHSH must:
(a) for the period of 6 months following Completion, seek payment of the
Book Debts outstanding at Completion in accordance with generally
accepted commercial practices; and
(b) account to the Vendor on a monthly basis after the Completion Date for
all amounts received by FHSH referable to the Book Debts.
10.2 The Vendor must provide to FHSH at Completion a list of the Book Debts as
at Completion setting out for each debtor:
(a) the name;
(b) the address;
(c) the amount owing; and
(d) the due date for payment of the Debt.
10.3 Nothing in this CLAUSE 10:
(a) obliges FHSH to take action to recover any Book Debt, by way of
recovery or enforcement proceedings; or
(b) precludes the Vendor from taking action (including by legal
proceedings) at any time to recover any Book Debt that the Vendor
regards as a doubtful debt (but not any other debt).
10.4 Amounts received by FHSH from any debtor of the Business must be applied in
payment of the oldest outstanding debt of that debtor unless otherwise
indicated in writing by that debtor.
11. CHANGE OF NAME
Each Vendor must change its name as soon as possible after Completion and
in any event within seven days to a name which does not include:
(a) the words 'FAI Home Security'; or
(b) words forming part of:
(i) any of the trade marks of the Business; or
19
<PAGE>
(ii) any of the Business Names; or
(c) any other words which may be misleading or deceptively similar to or
likely to be confused with any of the trade marks of the Business or
Business Names.
12. GUARANTEE
12.1 In consideration for FHSH entering into this agreement at the request of
Cervale, Cervale:
(a) guarantees to FHSH the due and punctual performance by each Vendor of
all of its obligations under this agreement; and
(b) indemnifies FHSH from and against any liabilities which may be
incurred or sustained by FHSH in connection with any default or delay
by any of the Vendors in the due and punctual performance of any of
its obligations under this agreement.
12.2 The liability of Cervale under this CLAUSE 12 is not affected by any act,
omission or thing which, but for this provision, might in any way operate
to release or otherwise exonerate or discharge Cervale from any of its
obligations including (without limitation) the grant to any of the Vendors
or any other person of any time, waiver or other indulgence, or the
discharge or release of any of the Vendors or any other person from any
obligation.
12.3 This CLAUSE 12 shall be a continuing guarantee and indemnity and shall,
notwithstanding Completion, remain in full force and effect for so long as
the Vendor has any liability or obligation to FHSH under this agreement and
until all of those liabilities or obligations have been fully discharged.
13. MOTOR VEHICLES
13.1 FHSH must bear the cost of preparing any notice of disposal required in
relation to any Motor Vehicle sold under this agreement.
13.2 FHSH must bear the cost of preparing and lodging any notice of acquisition
or other documents required to be lodged under the relevant motor vehicle
legislation and all stamp and other duties payable with respect to the
transfer of ownership of any Motor Vehicle under this agreement.
14. COSTS
14.1 FHSH must bear the costs in relation to the preparation and execution of
this agreement.
14.2 FHSH must pay all stamp duty on this agreement and on any instrument or
other document executed to give effect to any provisions of this agreement.
20
<PAGE>
15. PUBLICITY
No announcement or communication of any kind relating to the negotiations
of the parties or the subject matter or terms of this agreement will be
made or authorised by or on behalf of any party without the prior written
approval of each of the other parties unless that announcement or
communication is required to be made by law.
16. 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.
17. ASSIGNMENT
None of the rights of the parties under this agreement may be assigned or
transferred.
18. 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.
19. NO WAIVER
19.1 The failure of a party to exercise or delay in exercising a right, power or
remedy under this agreement does not prevent its exercise.
19.2 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.
20 GOVERNING LAW AND JURISDICTION
20.1 This agreement is governed by the law of New South Wales.
20.2 Each party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of New South Wales
21
<PAGE>
21. 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.
22. COUNTERPARTS
This agreement may be executed in any number of counterparts and all those
counterparts taken together are regarded as one instrument.
23. NOTICES
23.1 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:
Vendors Attention: Mr Brad Cooper
Facsimile No: 9936 2425
FHSH Attention: Mr Terry Youngman
Facsimile No: 9936 2425
Guarantor: Attention: Mr Brad Cooper
Facsimile: 99362425
23.2 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;
(b) in the case of pre-paid post, 4 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.
23.3 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.
22
<PAGE>
23.4 The provisions of this clause are in addition to any other mode of service
permitted by law.
23.5 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.
23
<PAGE>
SCHEDULE 1 - BUSINESS NAMES
FAI HOME SECURITY CANADA
FAI HOME SECURITY SA
FAI HOME SECURITY UK
FAI HOME SECURITY USA
SECURE HOME FINANCE (CANADA)
SECURE HOME FINANCE
FAI SECURITY GROUP
FAI SECURITY GROUP (CANADA)
FAI SECURITY
EXTRA WATCH
SECURITYGUARD
24
<PAGE>
SCHEDULE 2 - DISTRIBUTORS, AREA DISTRIBUTORS AND DEALERS
(CLAUSE 13)
<TABLE>
<S> <C> <C> <C> <C>
Brampton AD Dufferin - Peel Security PHONE: 0011 1905 455 4885 SPD: 322
Barry Stranks 39-160 Wilkinson Road FAX: 0015 1905 455 9447 SPD: 417
Brampton ONTARIO CANADA L6T 4Z4 MOBILE: 0011 1416 573 1062
PAGER:
Ottawa AD National Capital Security P/L PHONE: 0011 1613 727 8900 SPD: 323
John Murrayu 202-223 Colannade Road FAX: 0015 1613 727 9767 SPD: 421
Ottawa ONTARIO CANADA K2E 7K3 MOBILE: 0011 1613 794 5400
PAGER:
Pickering D Domestic Home Security Inc PHONE: 0011 1905 420 9980 SPD: 327
Tim Ash Tribute Corporate Centre,
815 Ironstone Manor, Unit 5 FAX: 0015 1905 837 2872 SPD: 423
Anthony Capomolla Pickering ONTARIO CANADA L2R 4J2 MOBILE: 0011 1416 452 0898
PAGER:
St Catherines AD Niagara Security Systems PHONE: 0011 1905 688 0936 SPD: 292
Bill Goodman 110 Highland Avenue FAX: 0015 1905 685 0529 SPD: 422
St Catherines ONTARIO CANADA L2R 4J2 MOBILE: 0011 1905 984 0865
PAGER:
Waterloo/Kitchener AD Continental Security PHONE: 0011 1519 885 4356 SPD: 325
Dave Bolton 295 Weber Street FAX: 0015 1519 885 4332 SPD: 424
Waterloo/Kitchener ONTARIO
CANADA N2J 3H8 MOBILE: 0011 1519 575 3038
PAGER:
Woking D FAI Home Security (XXI) Ltd PHONE: 0011 44 1483 751 885 SPD: 559
Dean Reilly 1st Floor, Cavendish House, 40 Goldsworth Road FAX: 0015 1483 769 733 SPD: 428
Woking SURREY UK GU21 1JT MOBILE:
PAGER:
Burnely HO FAI Home Security (UK) Limited PHONE: 0011 44 128 9607 SPD:
Sharon McDonald Northbridge Centre, Elm Street FAX: 0015 44 128 245 1633 SPD: 425
Corina Burnely LANCS UK BB101 PD MOBILE:
PAGER:
Amsterdam D FAI Home Security (Amsterdam) PHONE: 0011 3120 688 6266 SPD: 551
Dragan Keresevic SOS Security, Den Brielstraat 2C - 1055 RV FAX: 0015 3120 688 7265 SPD: 429
Amsterdam MOBILE:
PAGER:
Belgium D FAI Home Security (Belgium) PHONE: 0011 3225 568 680 SPD: 552
Guy Iwens Vestingstraat 1, bus 310, 3200 Aarschot FAX: 0015 3225 571 457 SPD: 430
Belgium MOBILE:
PAGER:
The Netherlands D VH Home Security PHONE: 0011 31 102 844 242 SPD: 550
Erik Van Heel Lentedans 49b, 2907 AX Capelle a/d Ijssel FAX: 0015 31 102 844 245 SPD: 431
The Netherlands MOBILE: 0011 31 653 494 820
PAGER: 0011 31 102 844 249
South Africa FAI Home Security PHONE: 0011 27 82 858 0426 SPD:
88 Everfair Avenue, Randjesfontein FAX: 0015 27 11 315 2795 SPD: 438
South Africa SOUTH AFRICA 1685 MOBILE:
PAGER:
</TABLE>
25
<PAGE>
SCHEDULE 3 - PLANT AND EQUIPMENT
(clause 1)
FAI HOME SECURITY (CANADA) INC
CAPITAL ASSETS
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Date
Acquired Description Cost
<S> <C> <C>
Sep 94 Photocopier and fax machine $ 5,745.13
Oct 94 TV, VCR & slide projector $ 1,300.76
Oct 94 Refrigerator $ 400.00
Nov 94 Video recorder $ 1,133.98
Feb 95 Document feeder for photocopier $ 1,775.53
Apr 95 Microwave $ 228.85
Apr 95 3 Filing cabinets $ 667.44
Apr 95 Portable slide projector and case $ 1,267.92
Oct 95 Laser fax machine $ 1,722.60
Nov 95 Corkboard and 2 filing cabinets $ 1,055.16
Dec 95 2 Filing cabinets $ 527.04
----------
TOTAL OFFICE EQUIPMENT $15,824.41
==========
Date
Acquired Description Cost
Sep 94 Office furniture sets - Bill, Brian, Alison, Randy $ 8,640.00
Boardroom table and chairs, 4 filing cabinets
2 desks*, 1 credenza*, 1 whiteboard*
(* THESE WERE LEFT IN THE PICKERING OFFICE)
Sep 94 Receptionist workstation $ 1,080.00
Sep 94 8 Grey folding tables $ 673.92
(4 of these were left in Pickering)
Sep 94 12 Chairs* 5 arm chairs, 1 bookcase, 4 whiteboards*
1 coat-rack* (* left in Pickering) $ 2,047.68
Oct 94 Inspirational pictures $ 1,049.28
Nov 94 6 Guest chairs*, 1 whiteboard* (*left in Pickering) $ 543.24
Feb 95 1 Desk and chair (left in Pickering) $ 381.24
Feb 95 Legal filing cabinet $ 160.92
Apr 95 20 Telemarketing desks (left in Pickering) $ 2,721.60
Apr 95 2 Desks and chairs (left in Pickering) $ 713.88
May 95 4 Chairs, coffee table (reception area) $ 804.60
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
May 95 Office dividers $ 545.40
July 95 Laminating machine $ 350.00
Aug 95 Office set - desk, chair, bookcase $ 996.84
----------
TOTAL FURNITURE AND FIXTURES $20,708.60
==========
</TABLE>
SCHEDULE 3 - PLANT AND EQUIPMENT
(clause 1)
FAI HOME SECURITY (CANADA) INC
CAPITAL ASSETS
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Date
Acquired Description Cost
<S> <C> <C>
Jul 94 Computer and laser printer (Bill Gadd) $ 5,320.08
Sep 94 4 Computers (486 DX2-66)/ 3 printers $16,271.28
Oct 94 CD Rom $ 307.80
Dec 94 Modem $ 592.92
Jan 95 Hard drive backup system $ 534.60
Jan 95 Laser printer $ 2,378.60
Mar 95 3 Computers (486 DX2-66) $ 5,687.28
Sep 95 2 Bubblejet printers $ 864.00
Jan 96 New computer hard drive $ 348.41
Feb 96 Additional 8MG of RAM $ 410.40
Sep 96 Bubblejet printer $ 215.99
Sep 96 Laser printer $ 1,235.50
----------
TOTAL COMPUTER EQUIPMENT $34,166.86
==========
</TABLE>
1 computer and bubblejet printer was left in Pickering
<TABLE>
<CAPTION>
Date
Acquired Description Cost
<S> <C> <C>
Jul 94 Windows & DOS $ 235.44
Oct 94 WordPerfect, Lotus 1-2-3 $ 440.69
Oct 94 ACCPAC Plus - GL, AR, AP, Payroll $4,008.91
Oct 94 Canada phone - TM leads $ 140.39
Dec 94 ACCPAC Windowing systems manager, inventory $1,056.24
Apr 95 Corel Draw $ 475.19
May 95 InstallTrack software $ 446.04
Jul 95 Canada phone - TM leads $ 279.00
Dec 95 Canada phone - TM leads $ 101.52
---------
TOTAL COMPUTER SOFTWARE $7,183.42
=========
</TABLE>
27
<PAGE>
SCHEDULE 3 - PLANT AND EQUIPMENT
(Clause 1)
FAI HOME SECURITY (CANADA) INC
CAPITAL ASSETS
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Date
Acquired Description Cost
<S> <C> <C>
Sep 94 Complete meridian norstar telephone system.
Includes 10 phones 5 - M7208, 3 - M7310,
2 - M7324 $ 6,960.87
Oct 94 Installation charges for phone system - Pickering $ 1,380.00
Oct 94 2 additional phones and installation (M7310) $ 685.80
Dec 94 3 additional phones and installation (M7208) $ 1,272.00
Mar 95 2 additional phones and installation (M7280) $ 800.40
Mar 95 14 Telemarketing phones and installation* $ 2,309.68
(* These were left in Pickering)
May 95 Reception module phone (M7324) $ 439.00
----------
TOTAL TELEPHONE EQUIPMENT $13,847.75
==========
</TABLE>
28
<PAGE>
SCHEDULE 4 - WARRANTIES
(clause 7)
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:
29
<PAGE>
(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;
(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 FHSH 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
30
<PAGE>
(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.
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)
31
<PAGE>
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;
(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 9
(Superannuation)
9. 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.
32
<PAGE>
Warranty 10
(Business Contracts)
10.1 There are no agreements, arrangements or understandings (whether written or
unwritten) affecting the Assets or the carrying on of the Business that:
(a) FHSH will be unable to terminate after the Completion Date on giving
30 days' notice or less without penalty;
(b) are material to the operation of the Business and have not been
disclosed in writing to FHSH;
(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.
10.2 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 11
(Litigation)
11.1 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.
11.2 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 12
(Intellectual Property Rights)
12.1 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
33
<PAGE>
and no Claims have been asserted challenging the Vendor's use of the
Intellectual Property Rights.
12.2 The Vendor has not licensed, assigned, authorized or permitted any person
or corporation to use the Intellectual Property Rights or the Business
Name.
Warranty 13
(Material disclosure)
13. 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 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 FHSH.
34
<PAGE>
SCHEDULE 5 - EQUIPMENT LEASES
UK
Photocopier (Pounds)2,500 per annum
Ford Mondeo (full details to be provided)
Toyota Carina (full details to be provided)
South Africa
NIL
Canada
Cars?
USA
NIL
35
<PAGE>
SCHEDULE 6 - DISCLOSURES
(clause 7.4)
36
<PAGE>
SCHEDULE 7 - EMPLOYEES
(clause 9)
<TABLE>
<CAPTION>
UNITED KINGDOM
Employees Annual Salaries Length of Service
<S> <C> <C>
Sharon McDonald (Pounds)25,000 + car 2 years, 3 months
Corinna Mair (Pounds)14,000 1 year, 10 months
Dave Freear (contract) (Pounds)12,000 2 years, 3 months (inc. time on
contract)
Peter Hopkin (Pounds)20,000 + car 11 months (self employed)
Dean Reilly (Pounds)26,000 (rechargeable from his company
- must be employed by us for
work permit).
CANADA
Brian Ferguson $60,000 $46,000 at 31 December 1996
Alison LeBlanc $36,500
Dave Cunningham $40,000 $35,000 at 31 December 1996
Kimberly Parker $30,000
Bill Gadd (consulting fees $5,000 every two weeks
</TABLE>
37
<PAGE>
EXECUTED as an agreement.
THE COMMON SEAL of FAI HOME )
SECURITY (UK) LIMITED is affixed in )
accordance with its constitution in )
the presence of )
- ------------------------------------------ -----------------------------------
Secretary Director
- ------------------------------------------ -----------------------------------
Name of secretary (print) Name of director (print)
THE COMMON SEAL of FAI HOME )
SECURITY (AFRICA) (PROPRIETARY) LIMITED )
is affixed in accordance with its )
constitution in the presence of )
- ------------------------------------------ -----------------------------------
Secretary Director
- ------------------------------------------ -----------------------------------
Name of secretary (print) Name of director (print)
38
<PAGE>
THE COMMON SEAL of FAI HOME )
SECURITY (CANADA) INC. is affixed )
in accordance with its constitution )
in the presence of )
- ------------------------------------- -------------------------------------
Secretary Director
- ------------------------------------- -------------------------------------
Name of secretary (print) Name of director (print)
THE COMMON SEAL of FAI HOME )
SECURITY USA INC. is affixed in )
accordance with its constitution in )
the presence of )
- ------------------------------------- -------------------------------------
Secretary Director
- ------------------------------------- -------------------------------------
Name of secretary (print) Name of director (print)
THE COMMON SEAL of CERVALE )
PTY LIMITED is affixed in accordance )
with its constitution in the presence )
of )
39
<PAGE>
- ----------------------------------- ----------------------------------------
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 )
constitution in the presence of )
- ----------------------------------- ----------------------------------------
Secretary Director
- ------------------------------------ -----------------------------------------
Name of secretary (print) Name of director (print)
40
<PAGE>
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.
-2-
<PAGE>
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.
-3-
<PAGE>
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
-4-
<PAGE>
(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;
-5-
<PAGE>
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
-6-
<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.
-7-
<PAGE>
(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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<PAGE>
(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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<PAGE>
(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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(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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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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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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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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<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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<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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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
[LETTERHEAD]
Mr Rodney Adler
Chief Executive
FAI Insurance
Level 12, 185 Macquaire Street
SYDNEY NSW 2000
Dear Rodney
This letter is to confirm that my agreement entered into where FAI Insurance
have agreed to purchase 10% of my shareholding and to pay the purchase price via
instalments over a three year period, with each installment being $600,000.
I hereby give you my irrevocable undertaking that you will have the sole
discretion to pro rata the second, third and fourth instalments downwards, ie.
to decrease the amount if you are not satisfied with the royalty payment
generated and that would be payable to FAI during each of these three years.
I will sign if necessary a power of attorney over to you and this letter is my
undertaking to provide you with the absolute guarantee that I will accept your
judgement as each of these payments fall due. The above statement is to override
the agreement signed between us and is to also be identical for any bonus
payments which will become due if we reach certain volume points as mentioned in
the agreement.
Yours faithfully
/s/ Brad Cooper
- ---------------
Brad Cooper
CHIEF EXECUTIVE
- ---------------
<PAGE>
OPTION AGREEMENT
BRADLEY DAVID COOPER
(Cooper)
FAI INSURANCES LIMITED
ACN 004 304 545
(FAI)
Gadens Ridgeway
Lawyers
Skygarden Building
77 Castlereagh Street
SYDNEY NSW 2000
Telephone: 232-5566
Facsimile: 931-4888
941422
SPR
<PAGE>
INDEX
CLAUSE NO. CONTENTS
1. Definitions and Interpretation
2. Grant of Option
3. Time of the Essence
4. Exercise of Option
5. Option Price and Bonus
6. Completion
7. Option Fee
8. Assignability
9. Notices
10. Stamp Duty and Costs
11. Governing Law and Jurisdiction
12. Waiver
13. Cumulative Rights
14. Further Assurance
15. Execution by Counterparts
16. Entire Understanding
17. Disclosure Agreement
<PAGE>
THIS AGREEMENT is made on 5 September 1994
PARTIES:
1. BRADLEY DAVID COOPER of 79 The Esplanade, Balmoral Beach, NSW 2088
("Cooper").
2. FAI INSURANCES LIMITED ACN 004 304 545 of Level 12, 185 Macquarie Street,
Sydney, NSW 2000 ("FAI").
RECITALS:
A. Cooper is the beneficial owner of 251 ordinary shares and 13 "C" class
ordinary shares in FAI Security Holdings which has a total issued capital
of 502 ordinary shares of $1.00 par value each and 26 "C" class ordinary
shares of $1.00 par value each.
B. Cooper has agreed to grant FAI an option to purchase from him approximately
10% of the total issued capital of FAI Security Holdings on the terms and
conditions in this Agreement.
IT IS AGREED:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement unless the context otherwise requires:
"Additional Price" means the extra consideration payable by FAI to Cooper
depending on the Sales by FAI Security Holdings and any of its subsidiaries
determined in accordance with clause 5 and payable in accordance with
clause 6;
"Completion" means completion of the exercise of the Option in accordance
with clause 6;
"Completion Date" means the date(s) on which Completion will take place as
determined in accordance with clause 6.1;
"FAI Security Holdings" means FAI Security Holdings Pty Limited ACN 003 125
264;
"Notice" means the notice of exercise of the Option given by FAI to Cooper
pursuant to clause 4.1;
"Option" means the option granted under clause 2;
"Option Fee" means the amount specified in Item 2;
"Option Price" means the amount specified in Item 4;
"Option Shares" means the ordinary shares and "C" class ordinary shares in
the capital of FAI Security Holdings specified in Item 1 of which Cooper is
the legal owner;
<PAGE>
2.
"Option Time" means the time specified in Item 3;
"Sales" means the total number of security units installed by FAI Security
Holdings and any of its subsidiaries throughout Australian and New Zealand
territories for the most recent twelve month period ending on the
Completion Dates.
1.2 In this Agreement unless the context otherwise requires:
reference to a person includes any other entity recognized by law and vice
versa;
words importing the singular number include the plural number and vice
versa;
words importing one gender include every gender;
any reference to any of the parties by their defined terms includes that
party's executors, administrators or permitted assigns or, being a company,
its successors or permitted assigns;
every agreement or undertaking expressed or implied by which more than one
person agrees or undertakes any obligation or derives any benefit binds or
enures for the benefit of those persons jointly and each of them severally;
clause headings are for reference purposes only;
reference to an Item is a reference to an Item in the Schedule to this
Agreement;
reference to an Exhibit, Annexure or Schedule is a reference to the
corresponding Exhibit, Annexure or Schedule to this Agreement;
reference to a statute includes all regulations under and amendments to
that statute and any statute passed in substitution for that statute or
incorporating any of its provisions to the extent that they are
incorporated.
2. GRANT OF OPTION
2.1 In consideration of the payment of the Option Fee by FAI to Cooper (receipt
of which is acknowledged) Cooper grants to FAI an option to purchase all of
the Option Shares for the Option Price together with the Additional Price
(if any).
2.2 The Option Shares will be sold free of any encumbrance, equity or right of
third party and with all rights attached to them at the date of exercise of
the Option.
3. TIME OF THE ESSENCE
3.1 Time is of the essence of this Agreement.
3.2 The Option will terminate if it is not exercised prior to the Option Time.
<PAGE>
3.
4. EXERCISE OF OPTION
4.1 FAI may exercise the Option by notice in writing given to Cooper at any
time prior to the Option Time only in respect of all of the Option Shares
(the "Notice").
4.2 On delivery of the Notice by FAI to Cooper there will come into existence a
legally binding agreement to which Cooper will sell and FAI will purchase
by instalments the Option Shares for the Option Price together with the
Additional Price (if any) on the Completion Dates in accordance with
clause 6.
5. OPTION PRICE AND ADDITIONAL PRICE
(i) In addition to the instalment of the Option Price payable on any
Completion Date, FAI may pay Cooper an Additional Price in respect of
that year depending on the number of Sales for the relevant year
determined as follows:
<TABLE>
<CAPTION>
Completion Date Sales Additional Price
<S> <C> <C>
Second Completion Date 14,000 - 18,000 $100,000.00
18,001 - 20,000 $200,000.00
20,001 - 23,000 $350,000.00
23,001 and above $500,000.00
Third Completion Date 14,000 - 18,000 $100,000.00
18,001 - 20,000 $200,000.00
20,001 - 23,000 $350,000.00
23,001 and above $500,000.00
Fourth Completion Date 14,000 - 18,000 $100,000.00
18,001 - 20,000 $200,000.00
20,001 - 23,000 $350,000.00
23,001 and above $500,000.00
</TABLE>
6. COMPLETION
6.1 Completion will take place in accordance with the following table.
<TABLE>
<CAPTION>
Completion Instalment of Instalment of Instalment
Date Option Shares Option Price No
<S> <C> <C> <C>
First Completion 21 ordinary $1,000,000 1
Date: 5/9/94 shares and (being $1,250,000
2 "C" class less Option Fee)
ordinary shares
Second Completion 10 ordinary $600,000.00+ 2
Date: 5/9/95 shares Additional Price
</TABLE>
<PAGE>
4.
<TABLE>
<S> <C> <C> <C>
Third Completion 10 ordinary $600,000.00+ 3
Date: 5/9/96 shares Additional Price
Fourth Completion 10 ordinary $600,000.00+ 4
Date: 5/9/97 shares Additional Price
</TABLE>
6.2 On each Completion Date:
(a) Cooper will deliver to FAI:
(i) duly executed transfers in respect of the instalment of the
Option Shares determined in accordance with clause 6.1 in favour
of FAI (or such other person(s) as FAI may direct in writing);
and
(ii) the certificates in respect of those Option Shares to be
transferred; and
(b) FAI will pay the instalment of the Option Price determined in
accordance with clause 6.1 together with the Additional Price (if any)
to Cooper (or as Cooper otherwise directs in writing) in cash or by
bank cheque.
6.3 FAI may in its absolute discretion pay any anticipated Additional Price
prior to the relevant Completion Date on such terms as it may determine.
6.4 Completion will take place at the offices of FAI or such other place as may
be agreed between FAI and Cooper.
7. OPTION FEE
7.1 The Option Fee is payable immediately on execution of this Agreement and is
non-refundable if the Option is not exercised in accordance with this
Agreement.
7.2 If the Option is exercised in accordance with this Agreement, the Option
Fee will be deducted from the first instalment of the Option Price as set
out in clause 6.1.
8. ASSIGNABILITY
This Agreement is personal to FAI and FAI may not assign its rights under
this Agreement to any person.
9. NOTICES
9.1 Any notice, approval, request, demand or other communication ("notice") to
be given for the purposes of this Agreement must be in writing and will be
served personally or sent by ordinary or registered mail (airmail if
overseas) to the address of the party specified in Item 5, or such other
address as that party may notify the other party, in writing, from time to
time or by facsimile transmission to the facsimile number of that party
specified in Item 5 (if any) or such other facsimile number as that party
may notify the other party, in writing, from time to time.
<PAGE>
5.
9.2 A notice given:
(a) personally will be served upon delivery;
(b) by post (other than overseas airmail) will be served three (3)
business days after posting;
(c) by overseas airmail will be served seven (7) business days after
posting;
(d) by facsimile transmission will be served upon receipt of a
transmission report by the machine from which the facsimile was sent
indicating that the facsimile had been sent in entirety to the
facsimile number specified in Item 5 or such other number as may have
been notified by the receiving party to the other party and if the
facsimile has not been completely transmitted by 5:00 p.m. (determined
by reference to the time of day at the recipient's address) it will be
deemed to have been served on the next business day.
9.3 Any notice which, by virtue of the above provisions, has been served on a
Saturday, Sunday or public holiday will be served on the first business day
(determined by reference to the recipient's address) after that day.
9.4 A notice may be given by an authorised officer, employee or agent of the
party giving the notice.
10. STAMP DUTY AND COSTS
10.1 FAI will pay all stamp duty on or arising in connection with this Agreement
and any other related documentation.
10.2 FAI will bear all legal and other costs and expenses arising directly or
indirectly with respect to the preparation, execution, completion and
performance of this Agreement or any other related documentation.
11. GOVERNING LAW AND JURISDICTION
This Agreement will be governed by and be construed in accordance with the
laws of New South Wales for the time being in force, and the parties agree
to submit to the non-exclusive jurisdiction of the courts of that
jurisdiction.
12. WAIVER
The failure or omission of a party at any time to:
(a) enforce or require the strict observance of or compliance with any
provision or this Agreement; or
(b) exercise any election or discretion under this Agreement,
will not operate as a waiver of them or of the rights of a party, whether
express or implied, arising under this Agreement.
<PAGE>
6.
13. CUMULATIVE RIGHTS
The rights or remedies conferred on any party by this Agreement are in
addition to all rights and remedies of that party or law or in equity.
14. FURTHER ASSURANCE
Each party will sign, execute and complete all such further documents as
may be necessary to effect, perfect or complete the provisions of this
Agreement and the transactions to which it relates.
15. EXECUTION BY COUNTERPARTS
15.1 This Agreement may consist of one or more counterpart copies.
15.2 All counterparts of this Agreement, when taken together, constitute the one
document.
16. ENTIRE UNDERSTANDING
16.1 This Agreement contains the entire understanding and agreement between the
parties as to the subject matter of this Agreement.
16.2 All previous negotiations, understandings, representations, warranties
(other than warranties set out in this Agreement), memoranda or commitments
in relation to, or in any way affecting, the subject matter of this
Agreement are merged in and superseded by this Agreement and will be of no
force or effect whatsoever and no party will be liable to any other party
in respect of such matters.
16.3 No oral explanation or information provided by any party to another will
affect the meaning or interpretation of this Agreement or constitute any
collateral agreement, warranty or understanding between any of the parties.
17. DISCLOSURE OF AGREEMENT
Neither party will disclose, divulge or otherwise publicise the terms or
provisions of this Agreement without the prior written approval of each
other party except for the purpose of, and to the extent that, such
disclosure is required by law.
SCHEDULE
ITEM 1
Option Shares 51 ordinary shares and 2 "C" class ordinary
shares in the capital of FAI Security Holdings Pty Limited,
ACN 003 125 264 numbered as follows:
ordinary shares - to
"C" class ordinary shares - to
ITEM 2
Option Fee $250,000.00
<PAGE>
7.
ITEM 3
Option Time 5.00 pm 30 June 1995
ITEM 4
Option Price $3,050,000
ITEM 5
Notices Brad Cooper/ Cooper: Address 79 the esplanade.
Fax Balmoral Beach.
Tel Sydney 2088 NSW.
FAI: Address 185 Macquarie Street
Fax Sydney 2000
Tel 02-373-0000
FAI Security
Holdings: Address Level 7, 77 Pacific Highway
Fax North Sydney 206
Tel 02-955-1444
EXECUTED as an agreement.
SIGNED on behalf of FAI INSURANCES )
LIMITED by its authorised )
representative in the presence of: )
)
/s/ R. F. Baulderstone ) /s/ R. S. Adler
- ---------------------------------- ) --------------------------------------
Signature of witness ) Signature of authorised representative
)
)
R. F. Baulderstone ) R. S. Adler
- ---------------------------------- ) --------------------------------------
Name of witness - please print ) Name of authorised representative
) - please print
)
77 Pacific Highway )
- ---------------------------------- )
Address of witness )
North Sydney )
<PAGE>
8.
SIGNED by BRAD COOPER in the )
presence of: )
)
/s/ T. M. Mainprize )
- ------------------------------ )
Signature of witness )
)
T. M. Mainprize )/s/ Brad Cooper
- ------------------------------ )--------------------------
Name of witness-please print )
)
66 Wyong Rd. )
Mosman N.S.W. )
- ------------------------------ )
Address of witness
<PAGE>
[LETTERHEAD OF GADENS RIDGEWAY]
Our Ref RES Sean Rush 941422
Direct Line 931-4713
6 February 1995
Mr R Adler
FAI Insurances Limited
Level 12
185 Macquarie Street
SYDNEY NSW 2000
Dear Mr Adler:
OPTION AGREEMENT WITH MR BRAD COOPER
FAI SECURITY HOLDINGS PTY LIMITED
After a recent review of the option agreement with Mr Brad Cooper, it has come
to our attention that the definition of "Sales" is relatively imprecise in that
FAI Security Holdings does not actually install security units but rather sells
them to distributors who themselves install the security units.
Accordingly, I would appreciate it if FAI Insurances Limited could agree to an
amendment to the option agreement to address this imprecision. I suggest the
definition of "Sales" on page 2 of the agreement be amended as follows:
"Sales" means the total number of security units sold by FAI Security
Holdings to its distributors throughout the Australian and New Zealand
territories for the most recent twelve month period ending on the
Completion Dates.
If FAI Insurances Limited is agreeable to the above amendment, please sign the
enclosed copy of this letter on behalf of FAI Insurances Limited and return to
Gadens Ridgeway.
Thank you for your assistance.
Yours faithfully
Sean Rush
for GADENS RIDGEWAY
---------------
Encl
[LETTERHEAD OF GADENS RIDGEWAY]
<PAGE>
2.
SIGNED on behalf of FAI )
INSURANCES LIMITED by its )
authorised representative in the )/s/ Rodney S. Adler
presence of: )----------------------------------
) Signature of authorised
/s/ R. F. Baulderstone ) representative
- ------------------------------------)
Signature of witness ) Rodney S. Adler
)----------------------------------
/s/ R. F. Baulderstone ) Name of authorised representative
____________________________________) - please print
Name of witness - please print )
)
77 Pacific Highway, North Sydney )
- ------------------------------------
Address of Witness
<PAGE>
EXHIBIT 10.8
AGREEMENT
between
BRADLEY DAVID COOPER
("Cooper")
FAI INSURANCES LIMITED
ACN 004 304 545
("FAI")
FAI HOME SECURITY HOLDINGS PTY LIMITED
ACN 003 126 264
("FAI Security")
KAMARASI PTY LIMITED
ACN
("FAI International")
Kevin Munro & Associates
Solicitors
Level 6, Kelco House
364 Kent Street
SYDNEY NSW 2000
Telephone: 290.3838
Facsimile: 290.3737
<PAGE>
THIS AGREEMENT is made on 11 November 1995
BETWEEN Bradley David Cooper of 28 Coronation Avenue, Mosman, New South Wales,
2088 ("Cooper")
AND FAI Insurances Limited, ACN 004 304 545 of Level 12, 185 Macquarie Street,
Sydney, New South Wales, 2000 ("FAI")
AND FAI Home Security Holdings Pty Limited, ACN 003 125 264 of
New South Wales ("FAI Security")
AND Kamarasi Pty Limited, ACN as trustee for the FAI Home
Security (Australia) Trust of ("FAI International").
RECITALS
A. By letter dated 1 June 1995 Cooper agreed to sell the Sale Shares to FAI
and FAI agreed to buy the Sale Shares from Cooper on the terms referred to
in the said letter.
B. FAI Security (either directly or through its subsidiary) sells home
security packages throughout Australia and New Zealand.
C. FAI International (either directly or through its subsidiaries) sells
security units throughout the world excluding Australia and New Zealand.
D. The parties now wish to state in more formal terms the Agreement as reached
in June 1995 and to set out the "fair market value" and its payment
schedule and to agree to certain matters in respect of FAI International
and FAI Security.
IT IS AGREED
1. INTERPRETATION
1.1 Definitions
In this Agreement, unless the context requires otherwise:
<PAGE>
2
"Completion" means completion by the parties of the sales and purchases as
provided in Clause 6.
"Completion Date" means 1995 or such other date as FAI and Cooper may
agree.
"Corporations Law" means the Corporations Law as it applies in New South
Wales.
"Encumbrance" means any mortgage, charge (whether fixed or floating),
pledge, lien, hypothecation, title retention or conditional sale agreement,
hire or hire purchase agreement, option, restriction as to transfer, use or
possession, easement, subordination of any right to any other person in any
other encumbrance or security interest whatsoever.
"FAI International Trust" means the trust known as the FAI Home Security
(Australia) Trust of which Kamarasi Pty Limited is trustee.
"FAI Security Group" means FAI Security and any subsidiary company.
"June Agreement" means the agreement to sell the Sale Shares pursuant to
the letter dated 1 June 1995 as annexed in Schedule C to this Agreement.
"Sale Shares" means 200 fully paid ordinary shares and 11 fully paid "C"
Class shares in the capital of FAI Security being 39.96% of the issued
share capital of FAI Security and being the only shares not owned by FAI.
"Sale Units" means 60 fully paid ordinary units in the capital of the FAI
International Trust being 60% of the issued unit capital of the FAI
International Trust and being the only share owned by FAI.
"Shares" means 502 fully paid ordinary shares and 26 fully paid "C" Class
shares in the capital of FAI Security being the whole of the issued share
capital of FAI Security.
"Units" means 100 units of $1.00 each in the capital of the FAI
International Trust being the whole of the issued capital of that Trust.
1.2 Interpretation
In this Agreement, unless the context otherwise requires:
a) words Importing the singular include the plural and vice versa;
<PAGE>
3
b) any gender includes the other genders and vice versa in each case;
c) if a word or phrase is defined, cognate words and phrases have
corresponding definitions;
d) a reference to a person includes the legal personal representatives,
successors and assigns of that person and also corporations and other
entities recognised by law;
e) any reference to a statute or statutory provision is to be construed as
if it referred also to that statute statutory provision as for the time
being amended or re-enacted;
f) a reference to a clause or Schedule is a reference to a clause of or a
schedule to this Agreement;
g) a reference to an agreement or document (including without limitation,
a reference to this Agreement) is to the agreement or document as
amended, varied, supplemented, novated or replaced except to the extent
prohibited by this Agreement or that other agreement or document;
h) a reference to a party to this Agreement or another agreement or
document includes the party successors and permitted substitutes or
assigns (and, where applicable, the party's personal representatives);
i) a reference to FAI includes a reference to an associated entity of FAI
unless the content otherwise requires.
j) a reference to Cooper includes a reference to any company in which
Cooper has a beneficial interest unless the content otherwise requires.
2. SALE AND PURCHASE: FAI SECURITY
Cooper sold and FAI purchased, with effect from 1 June 1995, the Sale
Shares free from all Encumbrances.
3. PRICE AND PAYMENT
3.1 Pursuant to the June Agreement, Cooper and FAI acknowledge that the "fair
market value" for the Sale Shares shall be $8,000,000 and shall, subject to
the provisions of this agreement, be paid by FAI to Cooper as follows:
a) on the Completion Date the sum of $2,800,000;
<PAGE>
4
b) the sum of $1,600,000 payable by 12 equal calendar month instalments
commencing one calendar month after the Completion Date;
c) the sum of $1,400,000 payable by 12 equal calendar month instalments
commencing 13 calendar months after the Completion Date;
d) the sum of $1,100,000 payable by 12 equal calendar month instalments
commencing 25 calendar months after the Completion Date;
e) the sum of $1,100,000 payable by 12 equal calendar month instalments
commencing 37 calendar months after the Completion Date.
3.2 All payments required to be made under this Agreement must be tendered
either in cash or by a draft or cheque drawn by a bank as defined in the
Banking Act of the Commonwealth of Australia.
3.3 The payments referred to in Clause 3.1b) to e) shall be reduced and shall
be subject to adjustment as provided for in Clause 3.4 if the following
criteria are not met.
<TABLE>
<CAPTION>
Criteria Related Payment
--------------------------------------------------------------
If FAI Security Group has not achieved
earnings before interest and income tax
("EBIT") as follows:
$ per calendar month during
each stipulated financial
year
<S> <C> <C> <C> <C> <C>
i) Financial Year Ending
("FYE") 30.6.96 540,000 Clause 3.1 b) monthly payment
ii) FYE 30.6.97 540,000 Clause 3.1 c) "
iii) FYE 30.6.98 650,000 Clause 3.1 d) "
iv) FYE 30.6.99 700,000 Clause 3.1 e) "
</TABLE>
3.4 The method of calculation of adjustment for purposes of Clause 3.3 is as
follows:
a) Subject to Clause 3.4 b), c) and d) based on management accounts of FAI
Security Group the $ sum difference by which stipulated calendar EBIT
for a relevant calendar month is not
<PAGE>
5
achieved, shall be calculated as a % of the stipulated EBIT and that %
shall be applied to the Related Payment to calculate the amount by
which the Related Payment is to be reduced and the Related Payment
shall be adjusted.
b) Where on an emerging cumulative basis target monthly EBITS during a
given financial year are achieved and there has been an earlier
downward adjustment pursuant to Clause 3.4 a), the next due related
payment shall be increased by such amount of money so as to reinstate
Cooper to that monetary position as if no downward adjustment had
occurred.
c) In respect to each FYE, once audited accounts are available, the end
of year audited EBIT shall be substituted for those calculations made
by use of management accounts during the relevant period and an
adjustment shall be made at the time of the next due payment,
d) No related payment shall be made on a monthly basis during the FYE
30.6.99. Payments in respect of FYE 30.6.99 shall, subject to any
necessary adjustments, be made after the audited accounts referred to
in c) above become available.
e) Notwithstanding the above, FAI agrees that if as at 30 June 1999 the
sum total of the monthly EBITS stipulated in Clause 3.3 are achieved
then it shall pay the final monthly payment adjusted to ensure Cooper
receives the total due consideration as set out in Clause 3.1 and if
they are not met then Cooper shall make an adjusting payment to FAI.
3.5 Cooper acknowledges that a fundamental factor in respect of the
determination of a "fair market value" for the Sale Shares as specified in
Clause 3.1 is the current and projected profitability of FAI Security as
set out in Clause 3.3.
Fundamental to FAI Security achieving current and projected profitability
is the continuance of the time, skill and commitment of the executive
employees that constitute the executive team from time to time. Cooper
warrants to ensure such continuity and FAI relies upon this warranty and as
owner of FAI Security will facilitate Cooper in this regard.
4. SALE AND PURCHASE: FAI INTERNATIONAL
On and subject to the terms of this Agreement, FAI sells and Cooper or his
nominee purchases, with effect from the Completion Date the Sale Units free
from all Encumbrances.
<PAGE>
6
5. PRICE AND PAYMENT
The purchase price for the Sale Units shall be $80.00 and is payable in
full by Cooper on the Completion Date.
6. COMPLETION
6.1 Completion of the sale and purchase of the Sale Shares and Sale Units will
take place on the Completion Date at the offices of FAI at 185 Macquarie
Street, Sydney or at any other place as Cooper and FAI may agree.
6.2 Prior to or at Completion, Cooper and FAI shall procure that:
a) a duly convened board meeting of FAI International is held at which a
quorum of directors is present and acting throughout at which such
person as FAI may nominate by notice to Cooper is appointed as a
director of FAI International subject to the receipt of duly signed
consent to act of such person.
b) a duly executed declaration of trust in respect of the Sale Shares in
the form as annexed in Schedule A is delivered to FAI.
c) a duly executed declaration of trust in respect of the Sale Units in
the form as annexed in Schedule B is delivered to Cooper or his
nominee.
6.3 FAI International is indebted to FAI or associated entities for an amount
not exceeding $2.5 million and this amount shall be paid in full by FAI
International on or before the date being two (2) years from the Completion
Date. In the event that FAI International defaults in the repayment then
FAI shall be entitled to set-off against any amount otherwise payable by
FAI without prejudice to any other rights to Cooper under this Agreement
the amount by which FAI International is in default or part thereof.
7. CONFIDENTIALITY
7.1 Subject to Clause 7.2, FAI undertakes to Cooper that it and its employees
and agents will keep confidential all information concerning the terms and
conditions of the Agreement and will not disclose the information to any
person other than such persons as Cooper may in writing approve and will
not make any use of, or enable any other person to make use of, that
information without the prior written consent of Cooper.
7.2 The provisions of Clause 7.1 do not apply to any disclosure:
<PAGE>
7
a) which is required by law or by the rules of any stock exchange; or
b) which the directors of FAI consider necessary or desirable in the
context of reporting to its shareholders or to the Australian Stock
Exchange.
7.3 Cooper undertakes to FAI that he will keep confidential all information
concerning the terms and conditions of the Agreement and will not disclose
the information to any person other than such persons as FAI may in writing
approve and will not make any use of, or enable any other person to make
use of, that information without the prior written consent of FAI.
8. INTEREST ON DEFAULT
8.1 If FAI or Cooper default in the payment of any money payable under this
Agreement, FAI and Cooper shall, if so demanded by the non-defaulting
party, pay interest at the default rate on the amount in default from the
time it fell due until that amount has been paid in full.
8.2 The right to require payment of interest under this clause will be without
prejudice to any other rights and remedies of Cooper or FAI.
8.3 For the purpose of this clause the default rate shall be the rate from time
to time specified by FAI's bankers as the 30 day bank bill rate plus 1.5%.
9. DIRECTORS
9.1 Right to appoint Directors
So long as Cooper is a director of FAI Security, FAI shall have the right
to appoint one director to FAI International.
9.2 Right to Remove
FAI has the sole right to remove the director appointed by either party
provided that this clause shall be read subject to the provisions of the
Corporations Law.
9.3 Alternate Directors
The director appointed by FAI may, with the prior written and continuing
consent of FAI, appoint a person to be an alternate director in his place
generally during any period which the director thinks fit.
<PAGE>
8
10. MEETINGS AND VOTING: FAI INTERNATIONAL
10.1 Election of Chairman and Company Secretary
So long as Cooper directly or indirectly holds a majority of the shares in
FAI International, Cooper shall have the right to nominate the chairman and
company secretary of FAI International and such nominees shall be
appointed.
10.2 Casting Vote
The chairman of a board meeting of FAI International does have a second or
casting vote in addition to that director's vote in the event of an
equality of votes.
10.3 Board Meetings
a) Unless otherwise resolved by all directors entitled to attend, a board
meeting is to be convened at least twice in each year and each director
is to be given at least three business days' notice of the date and
agenda of each meeting.
b) No business is to be considered by a board meeting unless it is
specified in the notice convening the board meeting without the consent
of all the directors entitled to attend the board meeting (whether or
not present).
10.4 Calling of Meetings
Unless otherwise resolved by all directors entitled to attend:
a) notice of all meetings of the directors are to be communicated to all
directors by the secretary:
i) in writing by letter, facsimile or telex; or
ii) by telephone, if confirmed within three business days by letter,
facsimile or telex;
and given at least three business days prior to such meeting save as
otherwise resolved by a majority of the directors; and
b) any director may by written notice convene a board meeting.
10.5 Directors' Voting
a) Decisions made at a board meeting shall be made by a vote of the
directors present and voting at the board meeting.
<PAGE>
9
b) Subject to Clause 10.2, each director shall have one vote.
10.6 Minutes
a) Shareholders: FAI International shall cause minutes of each
shareholders' meeting to be promptly prepared and copies circulated to
Cooper and FAI.
b) Board Meeting: FAI International shall cause minutes of each board
meeting to be promptly prepared and tabled for approval at the next
board meeting and, if approved, the chairman is to sign those minutes
which then are prima facie evidence of the proceedings and decisions of
the board meeting to which they relate.
10.7 Telephone Meetings
A director may, and on the request of a director, the secretary is to
convene a board meeting by the linking by telephone or live audio visual
transmission (or similar) of a number of directors not less than a quorum.
10.8 Circular Resolutions
a) If all the directors or all of the shareholders sign a document
containing a statement that they are in favour of a resolution in terms
set out in the document, a resolution in those terms is deemed to have
been passed at a board meeting or a shareholders' meeting, as the case
may be, held at the date and time at which the document was last signed
by a director or shareholder, as the case may be.
b) Two or more separate documents containing statements in identical terms
each of which is signed by one or more directors or shareholders, as
the case may be, are together deemed to constitute one document
containing a statement in those terms signed by these persons at the
respective dates and times at which they signed the separate documents.
c) A reference to "all the directors" or all the shareholders" does not
include a director or shareholder who would not be entitled to vote on
the resolution at a board meeting or shareholders meeting, as the case
may be.
<PAGE>
10
11. ACCOUNTS: FAI INTERNATIONAL
11.1 Proper Account
a) FAI International agrees to engage FAI to provide accounting services
including the keeping of proper books of account (which may include
computer records) of FAI International and entries made of all such
matters transactions and things which are usually entered in books of
accounts kept by entities engaged in concerns of a similar nature and
including, without limitation, particulars of all business
transactions and of all such names, times and places as may be
necessary or useful for the administration of FAI International.
b) FAI International will pay FAI's reasonable costs associated with the
performance of the service. FAI International shall receive a credit
for any licence fees paid to FAI under Clause 14 in respect to
services for the FYE 30.6.96 provided by FAI under Clause 11.1 a).
11.2 Preparation of Annual Accounts
a) FAI shall:
i) cause accounts to be prepared in relation to each Financial Year
for FAI International;
ii) ensure that the accounts are prepared in accordance with Approved
Accounting Standards; and
iii) forward copies of the draft form of accounts to each director as
soon as practicable and in any case within two months of the end
of the relevant financial year;
b) FAI has the right to terminate the provisions of its services herein
after the issuing of three calendar months' notice in writing.
12. FAI SECURITY AND FAI INTERNATIONAL SHARES
FAI and Cooper are desirous to continue their harmonious working
relationship each with the other and if either party is intending to sell
in whole or part their respective shareholding each will liaise with the
other in good faith to determine if there is interest to so purchase the
subject shares.
<PAGE>
11
13. FAI LICENCE
13.1 FAI hereby grants FAI International a licence to use the name "FAI" in
respect of FAI International's business of selling home security systems
worldwide (excluding Australia and New Zealand).
13.2 The licence shall be continuous but subject to cancellation by either party
at three yearly intervals calculated from the Completion Date. Any
cancellation to be effective shall be conveyed in writing three months in
advance of a potential three year expiry date.
13.3 In consideration of the grant of the licence, FAI International hereby
agrees to pay to FAI or its nominee a licence fee of $10 per security unit
sold by FAI International or any of its subsidiaries.
13.4 The licence fee shall commence 1 January 1996 and be paid on a quarterly
basis in arrears with the first payment due and payable on 1 March 1996.
13.5 Notwithstanding anything herein contained the licence may be cancelled by
FAI on 30 days' notice in writing if:
a) Cooper breaches the terms of this Agreement or fails to pay the
licence fee referred to herein on the due date;
b) FAI International takes any action which in FAI's reasonable opinion
brings the FAI name into disrepute or in any way affects or has the
potential to affect the good name or standing of FAI.
13.6 FAI International shall provide FAI with all information reasonably
required by FAI to satisfy itself as to the correctness of the licence fee
paid and in this regard shall give FAI and its consultants full and free
access to all its books of account, balance sheets and financial accounts
and shall provide copies thereof upon request.
14. RESTRAINT OF TRADE
For the purpose of protecting FAI in respect of the goodwill of FAI
Security Group, Cooper (and any associate as defined pursuant to Section
26AAB of the Income Tax assessment Act, 1936) undertakes to FAI he will not
for a period of five years or such other period as a competent court will
determine to be enforceable after the due date of the final payment to be
made to Cooper pursuant to this agreement and within the Commonwealth of
Australia or New Zealand do any one or more of the following:
A) be directly or indirectly engaged, concerned or interested whether on
his own account or as a member, shareholder,
<PAGE>
12
consultant, agent, beneficiary, partner, trustee or otherwise in any
enterprise, corporation, firm, trust, joint venture, or syndicate which
is engaged, concerned or interested in or carrying on any business the
same as or substantially similar to or in competition with that
conducted by the FAI Security Group;
B) on his own account or for any person, enterprise, firm, trust, joint
venture, or syndicate entice away from the FAI Security Group any
customer of FAI Security Group;
C) on its or his own account or for any person, enterprise, firm, trust,
joint venture, or syndicate entice away from the FAI Security Group any
supplier to FAI Security Group;
D) personally or by his employees or agents or by circulars, letters or
advertisements whether on his own account or for any person,
enterprise, firm, trust, joint venture, or syndicate interfere with the
business of FAI Security Group or divulge to any person any information
concerning the business of FAI Security Group or FAI or any of their
respective dealings, transactions or affairs.
15. COSTS
Each party shall pay their own professional costs and the stamp duty
attributable to their respective purchases.
16. MERGER
The rights and obligations of the parties will not merge on the completion
of any transaction contemplated by this Agreement. They will survive the
execution and delivery of any assignment or other document entered into for
the purpose of implementing any such transaction.
17. ASSIGNMENT
The rights and obligations of each party under this Agreement are personal.
They cannot be assigned, encumbered or otherwise dealt with and no party
shall attempt, or purport, to do so without the prior written consent of
all parties.
<PAGE>
13
18. SEVERANCE
18.1 Each provision, whether or not it is part of a clause, of this Agreement is
severable from the others and no severance of a provision affects any other
provision.
18.2 If a court of competent jurisdiction determines that, in relation to any of
the severable restraints or provisions in this Agreement.
a) periods of restraint are unlawful or unreasonable but that a shorter
period or lesser periods (as the case maybe) would be lawful or
reasonable; and/or
b) the geographic areas are unreasonably large but a lesser area or areas
would be lawful or reasonable,
then the restraints are to be read down so as to refer to that shorter
period or lesser area or areas (as the case may be) as the court considers
valid in respect of those restraints.
19. FURTHER ASSURANCES
Each party shall do all such things and execute all such deeds,
instruments, transfers or other documents as may be necessary or desirable
to give full effect to the provisions of this Agreement and the
transactions contemplated by it.
20. AMENDMENT
This Agreement may only be varied or replaced by a document in writing duly
executed by the parties.
21. WAIVER
No failure to exercise nor any delay in exercising any rights, power or
remedy by a party operates as a waiver. A single or partial exercise of
any right, power or remedy does not preclude any other or further exercise
of that or any other right, power or remedy. A waiver is not valid or
binding on the party granting that waiver unless made in writing.
22. NOTICES
Any notice, demand, consent or other communication ("Notice") given or made
under this Agreement:
a) must be in writing and signed by a person duly authorised by the
sender;
<PAGE>
14
b) must either be delivered to the intended recipient by prepaid post or
by hand, telex or fax to the address, telex number of fax number below
or the address, telex number or fax number last notified by the
intended recipient to the sender:
i) to Cooper
ii) to FAI
c) will be taken to be duly given or made:
i) in the case of delivery in person, when delivered;
ii) in the case of delivery in post two business days after the date
of posting;
iii) in the case of fax, on receipt by the sender of a transmission
control report from the despatching machine showing the relevant
number of pages, the correct destination fax machine number and
the result of the transmission as "OK" or otherwise successful,
but if the result is that a Notice would be taken to be given or made
on a day which is not a business day in the place to which the Notice
is sent or is later than 4.00 p.m. (local time) it will be taken to
have been duly given or made at the commencement of business on the
next business day in that place.
23. GOVERNING LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the
laws of New South Wales and each of the parties hereby submits to the non-
exclusive jurisdiction of the New South Wales Courts.
24. COUNTERPARTS
This Agreement may be executed in any number of counterparts. All
counterparts will be taken to constitute one instrument.
EXECUTED by the parties as an Agreement in Sydney.
<PAGE>
15
Signed for and on behalf of FAI )
INSURANCES LIMITED in the presence )
of: )
)
/s/ Catherine M. Rider ) /s/ R. S. Adler
- ---------------------------------- ) --------------------------------------
Signature of Witness ) Name
)
)
Catherine M. Rider )
- ---------------------------------- )
Name of Witness - please print )
)
)
)
Signed for and on behalf of FAI )
HOME SECURITY HOLDINGS PTY LIMITED )
in the presence of: )
)
/s/ V. M. Dominello ) /s/ T. Youngman
- ---------------------------------- ) --------------------------------------
Signature of Witness ) Name
)
)
V. M. Dominello )
- ---------------------------------- )
Name of Witness - please print )
)
)
)
SIGNED SEALED AND DELIVERED by )
BRADLEY DAVID COOPER in the )
presence of: )
)
/s/ Kovelle Steele ) /s/ Paul Martin Etherington
- ---------------------------------- ) --------------------------------------
Signature of Witness ) Name Bradley David Cooper
) by his attorney
) Paul Martin Etherington
Kovelle Steele ) Registered Book: 4096 No 818
- ---------------------------------- )
Name of Witness - please print )
)
)
)
<PAGE>
16.
Signed for and on behalf of KAMARASI )
PTY LIMITED in the presence of: )
)
/s/ Kovelle Steele )
- ------------------------------ )
Signature of Witness ) /s/ Paul Martin Etherington
) ---------------------------
) Name
Kovelle Steele ) BRADLEY DAVID COOPER
- ------------------------------ ) by his attorney
Name of Witness-please print ) PAUL MARTIN ETHERINGTON
) Registered Book: 4096 No. 818
)
)
<PAGE>
SCHEDULE A
LIMITED
DECLARATION OF TRUST
By this Deed, , of
(the "Trustee"), declares that the fully
paid shares of $1.00 in the capital of Limited
ACN (the "Company") which is registered in the name of the
Trustee on the register of members of the Company is held by the Trustee in
trust for of (the
"Owner") by which the $ for the purchase of such shares was provided and
the Trustee covenants with the Owner and its successors and assigns as follows:
1. That the Trustee will at all times and from time to time hereafter deal
with, transfer and dispose of the said shares and the dividends and
proceeds thereof and any rights or privileges now or hereafter attaching to
such shares in accordance with the instructions from time to time given to
the Trustee by the Owner and not otherwise.
2. That the Trustee will at all times and from time to time hereafter whenever
requested by the Owner sign execute and deliver any transfer, proxy form,
receipt, notice or other instrument relating to the said shares or any such
dividends proceeds rights and privileges attaching to such shares which may
be submitted to the Trustee by the Owner.
3. That the Trustee will not vote at any meeting of the Company in respect of
such shares contrary to the direction of the Owner.
4. That any request direction or instruction or other expression of wish which
is signed or which is signed or purported to be signed on the Owner's
behalf by any of its officers or directors shall be deemed to have been
fully executed by the Owner.
5. That the Owner has the right to appoint a new trustee of the said share
upon retirement of the Trustee and that the Trustee will retire when so
requested or directed by the Owner.
6. Notwithstanding anything else contained in this Deed the Trustee is
absolutely prohibited from being a beneficiary under this Deed or from
taking any direct or indirect benefit under this Deed and this clause shall
not be capable of amendment.
<PAGE>
DATED this day of
SIGNED SEALED AND DELIVERED )
by )
in the presence of: )
)
)
- ------------------------------------) ---------------------------
Signature of Witness )
)
)
- ------------------------------------)
Name of Witness, please print )
)
)
- ------------------------------------)
Address of Witness )
<PAGE>
SCHEDULE B
LIMITED
DECLARATION OF TRUST
By this Deed, , of
(the "Trustee"), declares that the
fully paid units of $1.00 in the
Trust (the "Trust") which is registered in the name of the Trustee on the
register of Unitholders of the Trust is held by the Trustee in trust for
of (the "Owner")
by which the $ for the purchase of such units was provided and
the Trustee covenants with the Owner and its successors and assigns as follows:
1. That the Trustee will at all times and from time to time hereafter deal
with, transfer and dispose of the said units and the dividends and
proceeds thereof and any rights or privileges now or hereafter attaching to
such units in accordance with the instructions from time to time given to
the Trustee by the Owner and not otherwise.
2. That the Trustee will at all times and from time to time hereafter whenever
requested by the Owner sign execute and deliver any transfer, proxy form,
receipt, notice or other instrument relating to the said units or any such
dividends proceeds rights and privileges attaching to such units which may
be submitted to the Trustee by the Owner.
3. That the Trustee will not vote at any meeting of Unitholders of the Trust
in respect of such units contrary to the direction of the Owner.
4. That any request direction or instruction or other expression of wish which
is signed or which is signed or purported to be signed on the Owner's
behalf by any of its officers or directors shall be deemed to have been
fully executed by the Owner.
5. That the Owner has the right to appoint a new trustee of the said units
upon retirement of the Trustee and that the Trustee will retire when so
requested or directed by the Owner.
6. Nothwithstanding anything else contained in this Deed the Trustee is
absolutely prohibited from being a beneficiary under this Deed or from
taking any direct or indirect benefit under this Deed and this clause shall
not be capable of amendment.
<PAGE>
DATED this day of
THE COMMON SEAL of )
)
LIMITED was affixed to this document )
in accordance with its articles of )
association in the presence of: )
)
)
- ---------------------------------------) ------------------------------------
Signature of Secretary ) Signature of Director
)
)
)
- ---------------------------------------) ------------------------------------
Name of Secretary, please print ) Name of Director, please print
<PAGE>
Brad Cooper
Level 7
77 Pacific Highway
SCHEDULE C NORTH SYDNEY NSW 2060
1 June 1995
Mr R S Adler
FAI Insurances Limited
Level 12
185 Macquarie Street
SYDNEY NSW 2000
Dear Rodney
This is to confirm our agreement that I am today transferring to FAI Insurances
Limited (ACN: 004 304 545) all of my shareholding in FAI Home Security Holdings
Pty Limited (ACN: 003 125 264) consisting of 200 Ordinary shares and 11 C-Class
shares. This is in consideration of FAI Insurances Limited agreeing to make
early payment to me of $1,500,000.00 (being the discounted figure payable for
the transfer of 30 Ordinary shares) due pursuant to the option agreement between
us dated 5 September 1994, but not due for payment to me until 1996 and 1997.
Further, this transfer is conditional upon us reaching agreement as to the fair
market value of the shares and the purchase price for the shares will be between
$7,000,000.00 and $9,000,000.00 and payment being made to me of that agreed
purchase price on or before 15 October 1996 to be paid in accordance with the
attached Schedule which we have discussed.
Pursuant to this agreement, a duly executed share transfer for the shares is
attached.
Please confirm your acceptance of the above terms by signing and returning the
enclosed copy of this letter.
Yours faithfully
/s/ Brad Cooper
Brad Cooper
CHIEF EXECUTIVE
On behalf of FAI Insurances Limited, I accept the terms of this Offer.
/s/ Rodney S Adler
- --------------------
Rodney S Adler
Chief Executive
<PAGE>
SCHEDULE OF PAYMENTS
INSTALMENT DATE PERCENTAGE (%)
NO PAYMENT DUE OF TOTAL PAYMENT
- --------------------------------------------------------------------------------
1. 15 October, 1995 35%
- --------------------------------------------------------------------------------
2. Payable by 12 equal calendar
monthly instalments commencing 20%
15 November, 1995
- --------------------------------------------------------------------------------
3. Payable by 12 equal calendar
monthly instalments commencing 17%
15 November, 1996
- --------------------------------------------------------------------------------
4. Payable by 12 equal calendar
monthly instalments commencing 14%
15 November, 1997
- --------------------------------------------------------------------------------
5. Payable by 12 equal calendar
monthly instalments commencing 14%
15 November, 1998
- --------------------------------------------------------------------------------
<PAGE>
TRANSFER OF SHARES
------------------
I, BRADLEY DAVID COOPER of Level 7, 77 Pacific Highway, North Sydney, NSW, 2060
hereby transfers to FAI INSURANCES LIMITED (ACN: 004 104 545) of Level 12, 185
Macquarie Street, Sydney, NSW, 2000 ("Transferee") 200 Ordinary Shares and 11
C-Class Shares FAI HOME SECURITY HOLDINGS PTY, LIMITED (ACN: 003 125 264) to
hold unto the said Transferee, subject to the several conditions on which I hold
the same. And I the said Transferee do hereby agree to take the said Shares
subject to the conditions aforesaid.
AS WITNESS our hands this 1 day of June, 1995.
SIGNED by the Transferor ) /s/ Brad Cooper
in the presence of: ) ----------------------------
/s/ Paul Martin Etherington
P.M. Etherington
SIGNED by the Transferee )
in the presence of: ) ----------------------------
<PAGE>
DATED 24 April 1996
------------------------------------------------------------
BETWEEN
- -------
BRADLEY DAVID COOPER
--------------------
FAI INSURANCE LIMITED
---------------------
FAI HOME SECURITY HOLDINGS PTY LIMITED
--------------------------------------
KAMARASI PTY LIMITED
--------------------
FAI DEPOSIT CO PTY LIMITED
--------------------------
FAI HOME SECURITY (CANADA) INC.
-------------------------------
FAI HOME SECURITY (UK) LIMITED
------------------------------
CERVALE PTY LIMITED
-------------------
AND
- ---
ANGUS GORDON ERIC MACIVER
-------------------------
-------------------------
SALE AGREEMENT
DEED OF VARIATION
-------------------------
LANDERER & COMPANY
Solicitors
Level 31
133 Castlereagh Street
SYDNEY NSW 2000
TEL: 261 4242
FAX: 261 8516
DX: 1247 SYDNEY
REF: bb10770
<PAGE>
DEED dated: 24 April 1996
- ----
BETWEEN: BRADLEY DAVID COOPER of 28 Coronation Avenue, Mosman, New South
- ------- Wales ("Cooper")
FAI INSURANCES LIMITED ACN 004 304 545 of 12th Floor, FAI Insurance
Building, 185 Macquarie Street, Sydney, New South Wales ("FAI")
FAI HOME SECURITY HOLDINGS PTY LIMITED ACN 003 125 264 of Level 7,
FAI Insurance Building, 77 Pacific Highway, North Sydney, New South
Wales ("FAI Security")
KAMARASI PTY LIMITED ACN 064 394 038 in its own capacity and as
trustee of the FAI International Trust of 12th Floor, FAI Insurance
Building, 185 Macquarie Street, Sydney, New South Wales ("FAI
International")
FAI DEPOSIT CO PTY LIMITED ACN 008 647 489 Of 12th Floor, FAI
Insurance Building, 185 Macquarie Street, Sydney, New South Wales
("FAI Deposit")
CERVALE PTY LIMITED ACN 056 258 201 as trustee of the Cooper
Investment Trust established by the trust deed between Brian
Thornton Connell as settlor and Cervale Pty Limited as trustee
dated 22 June 1992 of 28 Coronation Avenue, Mosman, New South Wales
("Cervale")
FAI HOME SECURITY (CANADA) INC., in its own capacity and as trustee
of the Canadian Trust of 1815 Ironstone Manor, Unit 5, Pickering,
Ontario, Canada ("Canadian Trustee")
FAI HOME SECURITY (UK) LIMITED in its own capacity and as trustee
of the UK Trust of Level 1, South Side, Anchorage 2, Anchorage
Quay, Salford Quays, Manchester ("UK Trustee")
AND: ANGUS GORDON ERIC MACIVER of c/ - 12th Floor, FAI Insurance
- --- Building, 185 Macquarie Street, Sydney, New South Wales ("Maciver")
<PAGE>
2.
RECITALS:
- --------
A. Cooper, FAI, FAI Security and FAI International entered into the Sale
Agreement which provided for (among other things) the sale and purchase of
the Sale Shares and the Sale Units.
B. It was not the intention of FAI to sell nor the intention of Cooper to buy
FAI's interest in the FAI International Trust but only FAI's interest in
the Canadian Trust and the UK Trust.
C. FAI and Cooper wish to amend the terms of the Sale Agreement to correctly
reflect their intentions and the other parties to this Deed agree to do so
on the terms set out in this Deed.
THE PARTIES AGREE:
- -----------------
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 (a) In this Deed (including the recitals) unless the context otherwise
requires:
"Deed" means this Deed and any document that varies or supplements it;
"Sale Agreement" means the agreement entered into by Cooper, FAI, FAI
Security and FAI International on 17 November 1995 and relating to
(among other things) the sale and purchase of the Sale Shares and the
Sale Units;
"Variation Date" means 17 November 1995.
(b) Unless the context indicates a contrary intention, all terms defined
in the Sale Agreement which are not separately defined herein shall
have the same meaning when used in this Deed.
1.2 Clause 1.2 of the Sale Agreement shall be incorporated mutais mutandis
into this Deed.
1.3 This Deed is collateral and supplemental to the Sale Agreement.
2. VARIATION OF SALE AGREEMENT
---------------------------
2.1 With effect on and from the Variation Date, each of FAI Deposit, Cervale,
the Canadian Trustee, the UK Trustee and Maciver are to be treated as being
parties to the Sale Agreement as varied by Clause 2.2 of this Deed.
2.2 With effect on and from the Variation Date, the Sale Agreement is varied as
follows:
<PAGE>
3.
(a) Definitions
-----------
(i) Insert the following new definition of "Canadian Sale Units" in
Clause 1.1 immediately before the definition of "Completion" where
it appears in that Clause:
"Canadian Sale Units" means the 950,099 common units held by FAI
International and the 1 discretionary unit held by FAI Security in
the capital of the Canadian Trust which are to be sold in accordance
with Clause 4(a)(iii).
(ii) Insert the following new definition of "Canadian Trust" in Clause
1.1 immediately after the definition of "Canadian Sale Units" where
it appears in that Clause:
"Canadian Trust" means the trust known as the FAI Home Security
(Canada) Unit Trust established by the trust deed between H Stewart
Ash as settlor and the Canadian Trustee as trustee dated 14 October
1994.
(iii) Insert the following new definition of "Canadian Trustee Shares" in
Clause 1.1 immediately after the definition of "Canadian Trust"
where it appears in that Clause:
"Canadian Trustee Shares" means the 60 fully paid common shares
held by Maciver in the capital of the Canadian Trustee which are to
be sold in accordance with Clause 4.1(v).
(iv) Insert the following new definition of "Cervale Sale Units" in
clause 1.1 immediately after the definition of "Canadian Trustee
Shares" where it appears in that clause:
"Cervale Sale Units" means the 40 fully paid ordinary units held by
Cervale Pty Limited in the capital of the FAI International Trust
which are to be sold in accordance with clause 4(a)(vii).
(v) Delete the definition of "Completion Date" where it appears in
Clause 1.1 and insert the following new definition of "Completion
Date" in its place.
"Completion Date" means 17 November 1995 or such other date as FAI
and Cooper may agree.
(vi) Insert the following new definition of "FAI International Share" in
Clause 1.1 immediately after the definition of "Encumbrance" where
it appears in that Clause:
<PAGE>
4.
""FAI International Share" means the fully paid ordinary share held
by Cooper in the capital of FAI International which is to be sold
in accordance with Clause 4(a)(vi).".
(vii) Delete the definition of "FAI International Trust" where it appears
in Clause 1.1 and insert the following new definition of "FAI
International Trust" in its place:
""FAI International Trust" means the trust known as the FAI Home
Security (Australia) Trust established by the trust deed between
Randal Jon Dennings as settlor and FAI International as trustee
dated 14 October 1994.".
(viii) Delete the definition of "Sale Units" where it appears in Clause
1.1 and insert the following new definition of "Sale Units" in its
place:
""Sale Units" means the 60 fully paid units in the capital of the
FAI International Trust which prior to the Completion Date are held
by FAI Deposit and are to be sold in accordance with Clauses
4(a)(i) and (ii).".
(ix) Insert the following new definition of "Trustee Companies" in
Clause 1.1 immediately after the definition of "Shares" where it
appears in that Clause:
""Trustee Companies" means both of the Canadian Trustee and the UK
Trustee and "Trustee Company" shall mean either one of them as the
context requires.".
(x) Insert the following new definition of "UK Trust" in Clause 1.1
immediately after the definition of "Trustee Companies" where it
appears in that Clause:
""UK Trust" means the trust known as the FAI Home Security (UK)
Trust established by the UK Trust Deed.".
(xi) Insert the following new definition of "UK Trust Deed" in Clause
1.1 immediately after the definition of "UK Trust" where it appears
in that Clause:
""UK Trust Deed" means the trust deed made by the UK Trustee as
trustee dated 28 March 1995.".
(xii) Insert the following new definition of "UK Trustee Shares" in
Clause 1.1 immediately after the definition of "UK Trust Deed"
where it appears in that Clause:
<PAGE>
5.
""UK Trustee Shares" means the 100 fully paid ordinary shares in the
capital of the UK Trustee held by FAI Security, being the whole of the
issued capital in that company, which are to be sold in accordance
with Clause 4(a)(iv).".
(b) Price and Payment
-----------------
Add the following sentence at the conclusion of clause 3.4(a):
"The adjustment in this paragraph is subject to an emerging cumulative
basis target monthly EBITS being taken into account in determining the
current monthly calculation."
(c) Sale and Purchase
-----------------
Delete Clause 4 and its heading in its entirety and insert in its
place:
"4. SALE AND PURCHASE: FAI INTERNATIONAL AND OTHERS
(a) On and subject to the terms of this Agreement and with
effect from the Completion Date:
(i) FAI Deposit sells and Cooper purchases the Sale Units
free from all Encumbrances for the consideration of
$60.00;
(ii) Cooper sells and FAI Deposit purchases the Sale Units
free from all Encumbrances for the consideration of
$60.00;
(iii) FAI International and FAI Security sell and Cooper or
his nominee purchases the Canadian Sale Units free
from all Encumbrances for the consideration of
$60.00;
(iv) FAI Security sells and Cooper or his nominee
purchases the UK Trustee Shares free from all
Encumbrances for the consideration of $100.00;
(v) Maciver sells and Cooper or his nominee purchases the
Canadian Trustee Shares free from all Encumbrances
for the consideration of $60.00;
(vi) Cooper sells and FAI Security purchases the FAI
International Share free from all Encumbrances for
the consideration of $1.00;
<PAGE>
6.
(vii) Cervale sells and FAI Deposit purchases the Cervale
Sale Units free from all Encumbrances for the
consideration of $40.00.
(viii) the UK Trustee declares that:
(A) in accordance with Clause 4.1 of the UK Trust
Deed, FAI International is wholly excluded from
any future benefit for the purposes of the UK
Trust;
(B) in accordance with Clause 3 of the UK Trust
Deed, Cooper (or his nominee) is added as a
Beneficiary (as that term is defined in the UK
Trust Deed) for the purposes of the UK Trust.
(b) Cervale and FAI Deposit jointly and severally
consent to the transfer of the Sale Units as
provided in Clauses 4(a)(i), (ii) and (vii) of this
Agreement despite the provisions of Clauses 6 and 7
of the trust deed dated 14 October 1994 establishing
the FAI International Trust.
(c) The Canadian Trustee, FAI International and FAI
Security jointly and severally consent to the
transfer of the Canadian Sale Units as provided in
Clause 4(a)(iii) of this Agreement despite the
provisions of Sections 3.9 and 3.10 of the trust
deed dated 14 October 1994 establishing the Canadian
Trust.".
(d) Price and Payment
-----------------
Delete Clause 5 and its heading in its entirety and insert in
its place:
"5. PAYMENT
The consideration of $60.00 to be paid by Cooper for the
Sale Units pursuant to Clause 4(a)(i) of this Agreement is
payable by Cooper on the Completion Date. The consideration
required in Clauses 4(a)(ii) to (vii) to be paid by the
purchasers specified in those Clauses is payable by them
immediately on the day agreed by the respective vendors,
also specified in those Clauses, for payment.".
(e) Completion
----------
Delete Clause 6 and its heading in its entirety and insert in its
place:
"6. COMPLETION
<PAGE>
7.
6.1 The parties agree that the Completion of the sale and
purchase of the shares and units pursuant to Clauses 4(a)(i)
to (vii) will be taken to have occurred on the Completion
Date.
6.2 Cooper and FAI will procure (on request of FAI) that duly
convened board meetings of the Trustee Companies are held at
which a quorum of directors of those companies are present
and acting throughout each meeting, and at which any person
nominated by FAI by notice to Cooper to be a director of
that Trustee Company, is appointed as a director of that
Trustee Company (subject to the receipt of a duly signed
consent of that person to act as a director).".
6.3 (a) The Trustee Companies confirm that they are jointly
and severally indebted to FAI or associated entities
for $2,500,000 (the "FAI International Debt") and this
amount shall be paid in full by the Trustee Companies
on or before the date being two (2) years from the
Completion Date. In the event that the Trustee
Companies default in the repayment of the FAI
International Debt or any interest payable thereon then
FAI shall (without prejudice to any other rights) be
entitled to set-off against any amount otherwise
payable by FAI to Cooper under this Agreement
the amount by which the Trustee Companies are in
default in payment of the FAI International Debt or
part thereof or any interest payable thereon and FAI
shall not after default has occurred be obliged to pay
any part of the said $8,000,000 then or thereafter
otherwise payable to Cooper if at any relevant time the
Trustee Companies shall be in default of their
obligations to repay the FAI International Debt or
interest thereon until the Trustee Companies rectify
such default and pay the outstanding amount of FAI
International Debt together with all interest accrued
thereon in full.
(b) The Trustee Companies shall pay interest on the FAI
International Debt at the rate of $10 per centum ($10%)
per annum payable monthly in arrears on the first day
of each and every consecutive calendar month commencing
on the Completion Date until the FAI International Debt
shall be repaid in full.
(c) Cooper hereby irrevocably authorises FAI to deduct any
interest payable by the Trustee Companies under this
Agreement from any money payable by FAI to Cooper from
time to time under the terms of this Agreement.".
<PAGE>
8.
(f) Directors
---------
(i) Delete Clause 9.1 and its heading in its entirety and insert in its
place:
"9.1 Right to Appoint Directors
So long as Cooper is a director of FAI Security, FAI shall have
the right to appoint one director to each Trustee Company.".
(ii) Delete Clause 9.2 and its heading in its entirety and insert in its
place:
"9.2 Right to Remove
FAI has the sole right to remove the directors appointed by
either party provided that this Clause shall be read subject to
the provisions of the law relating to companies in the
jurisdiction in which a Trustee Company is registered.
(g) Meetings and Voting
-------------------
(i) Delete the heading of Clause 10 and insert in its place:
"10. MEETINGS AND VOTING: TRUSTEE COMPANIES".
(ii) Delete Clause 10.1 and its heading in its entirety and insert in its
place:
"10.1 Election of Chairman and Company Secretary
So long as Cooper directly or indirectly holds a majority of
the shares in either Trustee Company, Cooper shall have the
right to nominate the chairman and company secretary of such
Trustee Company and such nominees shall be appointed.".
(iii) Delete Clause 10.2 and its heading in its entirety and insert in its
place:
"10.2 Casting Vote
The chairman of a board meeting of a Trustee Company does have
a second or casting vote in addition to that director's vote in
the event of an equality of votes.".
(iv) Delete Clause 10.6 and its heading in its entirety and insert in its
place:
"10.6 Minutes
<PAGE>
9.
a) Shareholders: Each Trustee Company shall cause minutes
of each shareholders' meeting to be promptly prepared
and copies circulated to Cooper and FAI.
b) Board Meetings: Each Trustee Company shall cause minutes of
each board meeting to be promptly prepared and tabled for
approval at the next board meeting and, if approved, the
chairman is to sign those minutes which then are prima
facie evidence of the proceedings and decisions of the
board meeting to which they relate.".
(h) Accounts
--------
Delete Clause 11 and its heading in its entirety and insert in its place:
"11. ACCOUNTS: TRUSTEE COMPANIES
11.1 Proper Account
a) Each Trustee Company agrees to engage FAI to provide
accounting services including the keeping of proper books
of account (which may include computer records) of each
Trustee Company and entries made of all such matters,
transactions and things which are usually entered in books
of account kept by entities engaged in concerns of a
similar nature and including, without limitation,
particulars of all business transactions and of all such
names, times and places as may be necessary or useful for
administration of each Trustee Company.
b) Each Trustee will pay FAI's reasonable costs associated
with the performance of the service. Each Trustee Company
shall receive a credit for any licence fees paid to FAI
under Clause 14 of this Agreement in respect of services
for the FYE 30.6.96 provided by FAI under Clause 11.1a) of
this Agreement.
11.2 Preparation of Annual Accounts
a) FAI shall:
(i) cause accounts to be prepared in relation to each
financial year for each Trustee Company;
<PAGE>
10.
(ii) ensure that the accounts are prepared in accordance
with approved accounting standards; and
(iii) only forward copies of the draft form of accounts to
each director as soon as practicable and in any case
within two months of the end of the relevant
financial year.
b) FAI has the right to terminate the provision of its
services herein after the issuing of three calendar months'
notice in writing.".
(i) FAI Security and FAI International Shares
-----------------------------------------
Delete Clause 12 and its heading in its entirety and insert in its
place:
"12. SHARES OF FAI SECURITY AND THE TRUSTEE COMPANIES
FAI and Cooper are desirous to continue their harmonious
working relationship each with the other and, if either Cooper
intends to sell in whole or in part his shareholding in any
Trustee Company, or FAI intends to sell in whole or in part its
shareholding in FAI Security, the party intending to sell will
liaise with the other in good faith to determine if the other
has an interest to purchase the relevant shares to be sold.".
(j) FAI Licence
-----------
Delete Clause 13 and its heading in its entirety and insert in its
place:
"13. FAI LICENCE
13.1 FAI hereby grants to each Trustee Company a licence to
use the name "FAI" in respect of its business of selling
home security systems worldwide (excluding Australia and
New Zealand).
13.2 Each licence shall be continuous but subject to
cancellation by either party to that licence at three
yearly intervals calculated from the Completion Date.
Any cancellation to be effective shall be conveyed in
writing three months in advance of a potential three year
expiry date.
13.3 Each Trustee Company agrees to pay to FAI or its nominee
a licence fee in respect of the licence granted to it
under Clause 13.1 of $10 per security unit sold by it or
any of its subsidiaries.
<PAGE>
11.
13.4 The licence fees shall commence 1 January 1996 and shall be
paid in arrears, with the first payment due and payable on
16 April 1996 and each subsequent payment on the 16th of
the first month of each quarter thereafter.
13.5 Notwithstanding anything herein contained, either or both
licences may be cancelled by FAI on 30 days' notice in
writing if:
a) Cooper breaches the terms of this Agreement;
b) there is a failure to pay any of the licence fees
referred to in Clause 13.3 of this Agreement when due;
c) any Trustee Company takes any action which in FAI's
reasonable opinion brings the FAI name into disrepute
or in any way affects or has the potential to affect
the good name or standing of FAI.
13.6 The Trustee Companies shall provide FAI with all
information reasonably required by FAI to satisfy itself as
to the correctness of the licence fees paid and in this
regard shall give FAI and its consultants full and free
access to all their books of account, balance sheets and
financial accounts and shall provide copies thereof upon
request".
(k) Schedules
---------
Delete Schedules A and B in their entirety.
3. ACKNOWLEDGMENTS AND AGREEMENTS
------------------------------
3.1 Cooper acknowledges that he has received from FAI that part of the purchase
price for the Sale Shares which is payable by FAI up to and including the
date of this Deed in accordance with the provisions of the Sale Agreement
as varied by this Deed. FAI acknowledges that it has received from Cooper
the purchase price for the Sale Units as required pursuant to Clauses
4(a)(i) and Clause 5 of the Sale Agreement as varied by this Deed.
3.2 The parties agree that the consideration payable pursuant to Clauses
4(a)(ii) to (vii) of the Sale Agreement as varied by this Deed is payable
by each of those persons who are required to pay those amounts under those
Clauses on the date of this Deed.
3.3 Each party acknowledges and agrees that except to the extent of the
variations effected by the provisions of this Deed, the provisions of the
Sale Agreement will remain in full force and effect.
<PAGE>
12.
4. FURTHER ASSURANCE
-----------------
Without limiting the obligations imposed upon each party under this Deed
and the Sale Agreement as varied by this Deed, each party agrees to execute
all instruments and do all other acts and deliver such instruments of title
(including, without limitation, share certificates, unit certificates and
any other instruments evidencing the right to ownership of shares or units
or any interest in the shares or units) and instruments of conveyance or
transfer and do any other acts or things necessary or desirable to give
effect to the provisions of this Deed and the Sale Agreement as varied by
this Deed.
5. MISCELLANEOUS
-------------
5.1 A covenant, warranty, agreement, representation, provision or obligation in
this Deed which is made or given by or which applies to more than one
person or which extends to or is for the benefit of more than one person
binds and extends to or is for the benefit of, as the case may be, all of
them jointly and each of them severally.
5.2 The validity, interpretation and performance of this Deed will be governed
by the law of the State of New South Wales and of the Commonwealth of
Australia. The parties submit to the non-exclusive jurisdiction of the
Courts of the State of New South Wales and of the Commonwealth of Australia
in respect of any dispute that arises in connection with this Deed.
5.3 This Deed contains the entire understanding between the parties in relation
to its subject matter. There are no express or implied conditions,
warranties, promises, representations or obligations, written or oral, in
relation to this Deed other than those expressly stated in it or
necessarily implied by law.
5.4 If any provision of this Deed is invalid, void or unenforceable, all other
provisions which are capable of separate enforcement without regard to an
invalid, void or unenforceable provision are and will continue to be of
full force and effect in accordance with their terms.
5.5 Each party will pay its own costs and disbursements in connection with the
negotiation, preparation and execution of this Deed.
5.6 No party may assign or otherwise transfer the benefit of this Deed without
the prior written consent of the other party or parties.
5.7 Each party must do all things and execute all further documents necessary
to give full effect to this Deed.
5.8 This Deed may be executed in any number of counterparts. All counterparts,
taken together, constitute one instrument. A party may execute this Deed
by signing any counterpart.
<PAGE>
13.
EXECUTED as a deed.
SIGNED SEALED AND DELIVERED )
- ---------------------------
by BRADLEY DAVID COOPER )
--------------------
in the presence of : )
/s/ Michael J. Storey /s/ Bradley David Cooper
- ----------------------------- -----------------------------
Witness
Michael J. Storey
- -----------------------------
Print name of Witness
THE COMMON SEAL of )
- ---------------
FAI INSURANCES LIMITED )
- ----------------------
is affixed by authority of its Board )
of Directors and in the presence of: )
/s/ R. F. Baulderstone /s/ T.M. Mainprize
- ------------------------------------ -----------------------------
Secretary/Director/Authorised Person Director
R. F. Baulderstone T.M. Mainprize
- ----------------------------------- -----------------------------
Print name of signatory Print name of signatory
THE COMMON SEAL of FAI HOME )
- --------------- --------
SECURITY HOLDINGS PTY LIMITED ) [COMMON SEAL]
- -----------------------------
is affixed by authority of its Board )
of Directors and in the presence of: )
/s/ R. F. Baulderstone /s/ T.M. Mainprize
- ------------------------------------ -----------------------------
Secretary/Director/Authorized Person Director
R. F. Baulderstone T.M. Mainprize
- ----------------------------------- -----------------------------
Print name of signatory Print name of signatory
<PAGE>
14.
THE COMMON SEAL of )
- ---------------
KAMARASI PTY LIMITED )
- --------------------
is affixed by authority of its Board ) [COMMON SEAL]
of Directors and in the presence of: )
/s/ R. F. Baulderstone /s/ T. M. Mainprize
- ------------------------------------- ----------------------------------
Secretary/Director/Authorized Person Director
R. F. Baulderstone T. M. Mainprize
- ------------------------------------- ----------------------------------
Print name of signatory Print name of signatory
THE COMMON SEAL of FAI )
- --------------- --- [FAI DEPOSIT CO.
DEPOSIT CO PTY LIMITED ) FTY LIMITED
- ---------------------- A.C.N. 008 647 499
is affixed by authority of its Board )
of Directors and in the presence of: ) SEAL]
/s/ R. F. Baulderstone /s/ T. M. Mainprize
- ------------------------------------- ----------------------------------
Secretary/Director/Authorized Person Director
R. F. Baulderstone T. M. Mainprize
- ------------------------------------- ----------------------------------
Print name of signatory Print name of signatory
THE COMMON SEAL of )
- ---------------
CERVALE PTY LIMITED )
- -------------------
is affixed by authority of its Board )
of Directors and in the presence of: )
[THE COMMON SEAL OF]
/s/ T. J. Youngman /s/ Bradley Cooper
- ------------------------------------- ----------------------------------
Secretary/Director/Authorized Person Director
T. J. Youngman Bradley Cooper
- ------------------------------------- ----------------------------------
Print name of signatory Print name of signatory
<PAGE>
15.
Signed for and on behalf of FAI HOME
SECURITY (CANADA) INC by its Attorney
BRADLEY DAVID COOPER who states that he
has no notice of the revocation of the
Power of Attorney under the authority
of which he has executed this instrument
/s/ Bradley David Cooper
---------------------------------------
Attorney
---------------------------------------
Print name of signatory
Signed for and on behalf of FAI HOME
SECURITY (UK) LIMITED by its Attorney
BRADLEY DAVID COOPER who states that he
has no notice of the revocation of the
Power of Attorney under the authority
of which he has executed this instrument
/s/ Bradley David Cooper
---------------------------------------
Attorney
---------------------------------------
Print name of signatory
SIGNED SEALED AND DELIVERED )
by ANGUS GORDON ERIC )
MACIVER in the presence of: )
/s/ Michele Clare Silvers /s/
- ----------------------------- ----------------------------------------
Witness
/s/ Michele Clare Silvers
- -----------------------------
Print name of witness
<PAGE>
EXHIBIT 10.9
MEMORANDUM
TO : NIRAN PEIRIS
FROM : RODNEY S ADLER
DATE : 21 NOVEMBER, 1996
RE : FAI HOME SECURITY
- --------------------------------------------------------------------------------
As you know, we don't pay Brad Cooper a salary any longer as I would like him to
be rewarded only on commission. We have been discussing for several months the
level of that commission and I recently agreed that he should receive $25.00 per
unit sold.
This incorporates Brad personally looking after all the overheads of the Head
Office division, meaning that we have effectively outsourced the management of
FAI Home Security to Brad Cooper's private company. That means - himself, his
various secretaries and a few other individuals will be taken off the FAI
payroll.
I calculated that this basically costs us $10.00 per sale and therefore could
you make sure exactly who is covered by this new outsourcing arrangement so that
no problems/misunderstandings are created.
I would like this to be effective from 1st July, 1996 and before any payment is
made to Brad could you please advise me what this amounts to.
/s/ RODNEY S ADLER
RODNEY S ADLER
<PAGE>
Exhibit 21
List of Subsidiaries of Home Security International, Inc.
Immediately prior to the effectiveness of this Offering, after giving
effect to this Reorganization, the subsidiaries of the Company shall be:
1. FAI Home Security Pty Ltd., incorporated in Australia on August 13, 1990
which does business under the name "FAI Home Security".
2. FAI Home Security (ENZED) Ltd., incorporated in Auckland, New Zealand on
April 24, 1997 which will do business under the name "FAI Home Security".
<PAGE>
EXHIBIT 23.2
ARTHUR
ANDERSEN
10 June 1997 ------------------------
Arthur Andersen
A Member Firm of
Andersen Worldwide SC
------------------------
The Board of Directors 141 Walker Street
Home Security International Inc. North Sydney 2060
Level 7 GPO Box 4329 Sydney NSW 2001
77 Pacific Highway 02 9964 6000
NORTH SYDNEY NSW 2060 02 9922 2065 Fax
DX 1340 Sydney
Dear Sirs
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Amendment No. 1 to Form S-1 Registration for Home Security International Inc.
Yours faithfully
/s/ Arthur Andersen
