<PAGE>
As filed with the Securities and Exchange Commission on May 2, 1997
Registration No. XXX-XXXXX
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
HOME SECURITY INTERNATIONAL, INC.
(Name of Registrant in its Charter)
Delaware 1731 Applied For
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Level 7, 77 Pacific Highway
North Sydney, NSW 2060
(011) (612) 9-936-2424
(Address and telephone number of principal executive offices
and principal place of business or intended principal place of business)
Ralph Stephenson
St. Moritz Hotel
50 Central Park South
(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
_____________________________
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
(see following page)
---------------------------------
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
Title of Each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities To Be Registered be Offering Price Aggregate Registration Fee
Registered Per Unit (1) Offering Price (1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2) 6,900,000 $ 6.50 $44,850,000 $13,590.91
- ----------------------------------------------------------------------------------------------------------------
Representative's Warrants (3) 600,000 $ .001 $ 600 ---
- ----------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of 600,000 $10.725 $ 6,435,000 $ 1,950.00
Representative's Warrants (4)
- ----------------------------------------------------------------------------------------------------------------
Total $51,285,600 $15,540.91
===============================================================================================================
</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 900,000 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 Representative's Warrants.
<PAGE>
DRAFT
May 1, 1997 (1:06pm)
[Red Herring on Side Legend]
PROSPECTUS
----------
SUBJECT TO COMPLETION DATED MAY 2, 1997
HOME SECURITY INTERNATIONAL, INC.
[LOGO]
6,000,000 Shares
COMMON STOCK
___________________________________
Of the 6,000,000 shares (the "Shares") of Common Stock, $.001 par value
(the "Common Stock"), offered hereby (the "Offering"), 500,000 Shares are being
sold by Home Security International, Inc., a Delaware corporation (the
"Company"), and 5,500,000 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 $6.50 per Share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"HSEC".
_______________________________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 AND "DILUTION" BEGINNING ON PAGE 18.
_____________________________________________
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.
<TABLE>
<CAPTION>
==================================================================================
Price to Underwriting Proceeds to Proceeds
the Public Discounts and Commissions (1) Company (2) to Selling
Shareholder
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share... $ 6.50 $ 0.52 $ 5.98 $ 5.98
- ----------------------------------------------------------------------------------
Total (3)... $39,000,000 $260,000 $2,990,000 $32,890,000
==================================================================================
</TABLE>
(1) Excludes a non-accountable expense allowance payable to National Securities
Corporation, the representative (the "Representative") of the several
underwriters (the "Underwriters"), equal to 2% of the proceeds of this
Offering and the value of the five year warrants (the "Representative's
Warrants") entitling the Representative to purchase up to 600,000 shares of
Common Stock at a price of 165% of the initial public offering price. 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"). See
"Underwriting".
(2) Before deducting estimated expenses payable by the Company of approximately
$569,000, including the Representative's non-accountable expense allowance
of $65,000 ($117,000 if the over-allotment option granted to the
Underwriters is exercised in full).
(3) The Company and the Selling Shareholder have granted the Underwriters a 45-
day option to purchase up to an aggregate of 900,000 additional shares of
Common Stock to cover over-allotments, if any. If the over-allotment option
is exercised, 400,000 shares will be sold by the Company and 500,000 shares
will be sold by the Selling Shareholder. If the Underwriters exercise such
option in full, the total Price to the Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholder will be $44,850,000, $468,000, $5,382,000 and $2,990,000,
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 Securities Corporation, 1001
Fourth Avenue, Seattle, Washington, on or about _____________________, 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997.
<PAGE>
[INSIDE FRONT COVER]
_______________________________________
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 Representative's 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 and Canada. The Company has also successfully test
marketed its product in the United States through a sales representative, and
anticipates opening a distribution office by June of 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"), which
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, 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"). 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,
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.
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 $864,586 note payable to FAI (the
"FAI Note"), assumed a $26,071 note payable to FAI (the "NZ Note") and issued
8,999,999 shares of Common Stock of the Company to FAI, (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,
and (iii) executed certain other Reorganization agreements. See "Business - The
Reorganization". After the Reorganization, the Company had 9,000,000 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.
4
<PAGE>
The Offering
Common Stock Offered by:
The Company..................................500,000 shares of Common Stock.
The Selling Shareholder....................5,500,000 shares of Common Stock.
Common Stock to be Outstanding Prior
to the Offering............................9,000,000 shares of Common Stock.
Common Stock to be Outstanding After
the Offering (1)...........................9,500,000 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 NASDAQ National Market Symbol...............HSEC
___________
(1) Assumes no exercise of (i) the Underwriters' over-allotment option or (ii)
the Representative's Warrants issued to the Representative to acquire
600,000 shares of Common Stock at an exercise price of $10.725 per share.
See "Description of Securities".
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables present summary combined financial data of the Australia
and New Zealand Group and the International Group. For a description of the
Combined Financial Statements from which the following financial data have been
derived, see the introduction to "Selected Combined Financial Data". The
summary combined financial data set forth below should be read in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Combined Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Unaudited
Pro forma Six
Year Ended Months Ended
June 30 December 31
1992 1993 1994 1995 1996 1996
$US $US $US $US $US $US
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data
Net sales 16,028,751
Australia and New Zealand Group 4,475,199 11,092,655 10,629,018 21,437,325 26,700,922
International Group 876,693 1,750,028
Net income (loss) 1,296,548
Australia and New Zealand Group 315,692 491,620 (73,859) 1,469,820 1,658,994
International Group (2,154,844) (2,470,218)
Earnings per common share (1) - - - - - 0.136
Unaudited
Pro forma
June 30 December 31
1992 1993 1994 1995 1996 1996
$US $US $US $US $US $US
(2)
Balance Sheet Data
Total assets 18,379,501
Australia and New Zealand Group 545,736 1,747,881 2,281,126 7,670,760 13,383,655
International Group 742,606 846,852
Long term assets 11,645,992
Australia and New Zealand Group 97,039 687,070 926,993 2,228,080 6,442,997
International Group - - - 142,059 109,627
Total long term liabilities 67,060
Australia and New Zealand Group - - 557,454 - -
International Group - - - - -
Shareholders' equity (deficit) 13,144,540
Australia and New Zealand Group (93,197) 408,268 368,942 3,912,046 9,893,827
International Group - - - 46,721 (2,102,979)
</TABLE>
(1) Pro forma earnings per common share is computed by dividing pro forma net
income by 9,500,000, the number of shares to be issued.
(2) Adjusted to give effect to the issuance of the 500,000 shares offered
hereby, assuming an initial public offering price of $6.50 per share, after
the deduction of estimated underwriting discounts and offering expenses.
See "Use of Proceeds" and "Capitalization".
6
<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 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 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 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. 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 has given
no indication of
7
<PAGE>
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 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
consider or 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".
8
<PAGE>
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
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. A majority of the Company's sales, which
are 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 to December
1996, the Company added approximately 100,000 accounts through the Direct Sales
Marketing Program, including over 9,300 new accounts during the last quarter of
1996. 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 in the sale of extended warranties. The
Company's growth in revenues and earnings may in part be dependent on the
successful implementation of these programs.
9
<PAGE>
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
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 accounted for approximately 95% of
the Company's net revenues. The Company expects that such sales will continue
to account for a significant portion of the Company's net revenues in the
future. At December 31, 1996, over 90,000 or 90% of the Company's existing
customers were located in Australia and New
10
<PAGE>
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
9,000,000 shares of the outstanding Common Stock of the Company. Pursuant to
this Offering, FAI will then immediately sell 5,500,000 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 37% of the Company will be owned by the
Selling Shareholder and 63% 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
11
<PAGE>
in United States courts and predicated upon civil liability under United States
Securities Laws. The Company has been advised by its special Australian
counsel, Minter Ellison, that there are doubts as to the enforceability of civil
liabilities of United States courts or the ability of stockholders to pursue
claims based on the contents of this Prospectus or otherwise predicated on
United States Federal Securities Laws against the Company or its directors,
executive officers and experts in Australian courts.
Foreign Taxation. Because the Company is a United States corporation which
has historically generated substantially all income from non-U.S. operations,
its income will generally be subject to taxation in different jurisdictions.
Certain operations of the Company conducted outside the United States or by
foreign subsidiaries are subject to taxation in foreign jurisdictions as well as
under various provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), which impose special taxes in certain circumstances on foreign
subsidiaries of United States corporations. While 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 $0.04 (after giving
effect to the Reorganization). Based on the estimated initial public offering
price of $6.50 per share, purchasers of Common Stock in the Offering will
experience an immediate dilution of $6.21 per share. Additional dilution to
future net tangible book value per share may occur upon the exercise of the
Representative's Warrants, and other options and warrants that are outstanding
or will be issued by the Company. The current shareholders of the Company,
including the Company's officers and directors, acquired their shares of Common
Stock for nominal consideration or for consideration substantially less than the
public
12
<PAGE>
offering price of the shares of Common Stock offered hereby. See
"Capitalization", "Dilution" and "Certain Transactions".
Potential Adverse Effect of Representative's Warrants and Other Company
Options. In connection with this Offering, the Company has authorized the
issuance of the Representative's Warrants and has reserved 600,000 shares of
Common Stock for issuance upon exercise of such warrants. The Representative's
Warrants will entitle the holders thereof to acquire 600,000 shares of Common
Stock at an exercise price of 165% of the initial public offering price per
share ($10.725 per share assuming an initial public offering price of $6.50 per
share). The Representative's 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. For the term of the Representative's 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 Representative's Warrants and other Company options
remain unexercised, the Company's ability to obtain additional capital might be
adversely affected. Moreover, the holders of the Representative's 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 has agreed
with the Representative to have all of the current shareholders of the Company
prior to this Offering execute lock-up agreements with the Representative that
restrict the sale or disposition of such shares for thirteen (13) months
following the date of this Prospectus. The Representative may consent to a
waiver of the lock-up period without any public notice. Following the expiration
of the lock-up agreements, or such earlier date to which the Representative may
agree, approximately 3,500,000 shares (assuming no exercise of the over-
allotment option) will become eligible for sale in the public market subject to
compliance with Rule 144 or Rule 701 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 has paid no dividends on its 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, 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 Shares have been approved for listing on the Nasdaq National
Market. To continue to be listed on the Nasdaq National Market, the Company
must continue to satisfy certain maintenance standards. If the Company is
unable to maintain the standards for continued quotation on the Nasdaq National
13
<PAGE>
Market, the Shares could be subject to removal from the Nasdaq National Market.
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 Representative's
Warrants, were determined by negotiations between the Company and the
Representative, 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 Representative's Warrants do not necessarily bear
any relationship to the Company's assets, book value, earnings or any other
established criterion of value. See "Underwriting".
Representative's Influence on the Market. A significant amount of the Shares
offered hereby may be sold to customers of the Representative. Such customers
subsequently may engage in transactions for the sale or purchase of such Shares
through or with the Representative. If it participates in the market, the
Representative 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 Representative's participation in such market. See "Description of
Securities" and "Underwriting".
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.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 500,000 shares of Common
Stock being offered by the Company are estimated to be approximately $2,421,000,
assuming an estimated initial public offering price of $6.50 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 $864,586 representing the partial purchase
price of the International Assets and (ii) to retire the NZ Note in the amount
of $26,071 due to FAI, resulting from the Company's purchase of 100% of the
issued capital of FAI's Australia and New Zealand Group. The remaining proceeds
of $1,530,343 will be used for general corporate purposes, including working
capital. See "Business - The Reorganization."
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholder in this Offering.
DIVIDEND POLICY
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.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of December
31, 1996: (i) on an actual basis prior to the Reorganization, (ii) as adjusted
to give effect to the Reorganization, and (iii) pro forma as adjusted to reflect
the issuance and sale by the Company of 500,000 shares of Common Stock (assuming
an initial public offering price of $6.50 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>
December 31, 1996
---------------------------------------------
As Adjusted
for the As Adjusted
Actual Reorganization for this Offering
------ -------------- -----------------
(2) (1)
<S> <C> <C> <C>
Long Term Debt ............................. $ $ $
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, 9,000,000 shares
outstanding as adjusted for the
Reorganization; 9,500,000 pro forma
shares outstanding as further
adjusted for this Offering........... 1 9,000 9,500
Additional Paid in Capital.................. 10,714,540 13,135,040
Total Shareholder's Equity.................. 1 10,723,540 13,144,540
Total Capitalization........................ 1 $10,723,540 $13,144,540
= =========== ===========
</TABLE>
- -------------------------------
(1) Does not include: (i) 600,000 shares issuable upon exercise of the
Representative's 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 400,000 shares subject to
the Underwriter's over-allotment option to be sold by the Company.
See "Underwriting" and "Certain Transactions".
16
<PAGE>
(2) Includes the Company's: (i) execution and completion of the Share Purchase
Agreement (which includes 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".
17
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$351,831 or $0.04 per share of Common Stock (after giving effect to the issuance
of 8,999,999 shares of Common Stock to FAI pursuant to the Reorganization). 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
500,000 shares of Common Stock offered hereby (at an estimated initial public
offering price of $6.50), 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 December 31, 1996 would have
been $2,772,831 or $0.29 per share. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price.......................... $6.50
Net tangible book value per share after
reorganization and before Offering..................... $0.04
Increase per share attributable to the new investors... 0.25
----
Pro forma net tangible book value per share after
the Offering........................................... 0.29
----
Dilution to purchasers of Common Stock in this
Offering............................................... $6.21
</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 December 31, 1996 would have been
$5,164,831 or $0.52 per share of Common Stock.
The following table summarizes, as of the completion of this Offering (after
giving effect to the issuance of 8,999,999 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)..... 9,000,000 95% $10,723,540 77 % $1.19
New investors (1)............. 500,000 5% $ 3,250,000 23 % $6.50
--------- ---- ----------- ----
Total......................... 9,500,000 100% $13,973,540 100%
========= ==== =========== ====
</TABLE>
- ---------------------
(1) Sales by the Selling Shareholder in this Offering will reduce the number of
shares held by existing shareholders to 3,500,000 shares or 37% 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 6,000,000 or
63% of the total number of shares of Common Stock outstanding after this
Offering. See "Principal and Selling Shareholders". Does not include
shares issuable upon exercise of the Representatives' Warrants described
herein. The calculations in the tables set forth above assume no: (i)
exercise of the Underwriters' over-allotment option by either the Company
or the Selling Shareholder, and (ii) issuance of any management or employee
stock options by the Company. See "Description of Securities -- Warrants
and Options".
18
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data for the fiscal years ended June 30, 1994,
1995 and 1996 have been derived from the Combined Financial Statements included
elsewhere in this Prospectus which have been audited. The selected combined
financial data for the six month period ended December 31, 1996, is unaudited,
but 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 this Prospectus. There were
no cash dividends or distributions made by the Company during the periods
presented below:
<TABLE>
<CAPTION>
Unaudited Pro forma
Year Ended Six Months Ended
June 30 December 31
1992 1993 1994 1995 1996 1996
$US $US $US $US $US $US
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data
Net sales 16,028,751
Australia and New Zealand Group 4,475,199 11,092,655 10,629,018 21,437,325 26,700,922
International Group 876,693 1,750,028
Net income (loss) 1,296,548
Australia and New Zealand Group 315,692 491,620 (73,859) 1,469,820 1,658,994
International Group - (2,154,844) (2,470,218)
Earnings per common share (1) - - - - - $0.136
</TABLE>
<TABLE>
<CAPTION>
Unaudited
Year Ended Pro forma
June 30 December 31
1992 1993 1994 1995 1996 1996
$US $US $US $US $US $US
(2)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets 18,379,501
Australia and New Zealand Group 545,736 1,747,881 2,281,126 7,670,760 13,383,655
International Group - - - 742,606 846,852
Long term assets 11,645,992
Australia and New Zealand Group 97,039 687,070 926,993 2,228,080 6,442,997
International Group - - - 142,059 109,627
Total long term liabilities 67,060
Australia and New Zealand Group - - 557,454 - -
International Group - - - - -
Shareholders' equity (deficit) 13,144,540
Australia and New Zealand Group (93,197) 408,268 368,942 3,912,046 9,893,827
International Group - - - 46,721 (2,102,979)
</TABLE>
(1) Pro forma earnings per share is computed by dividing pro forma net income
by 9,500,000, the number of shares to be issued.
(2) Adjusted to give effect to the issuance of the 500,000 shares offered
hereby, assuming an initial Public Offering price of $6.50 per share, after
the deduction of estimated underwriting discounts and Offering expenses.
See "Use of Proceeds" and "Capitalization".
19
<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 June of 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 allowed the Company to act as a wholesaler
selling to the Distributor Network with lower margins, but 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 with sales in Australia and New Zealand for the last quarter of
1996 at 8,724 alarm units at a value of AUD$6.3 million (US$5.0 million)
compared to unit sales of 5,610 in the last quarter of 1994 for revenue of
AUD$9.1 million (US$6.9 million).
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 or distributor basis,
rather than through retail outlets. 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
20
<PAGE>
agreement with the customer. In September 1996, the Company implemented a price
increase throughout Australia and New Zealand of AUD200 (US$159.28) which
increased the price of the home protection package to the end user from AUD1,892
(US$1,506.79) to AUD2,092 (US$1,666.07). 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 commissions based on the
number of alarm units sold, as well as the rate of such commissions payable to
these executives increased substantially. 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 other countries. 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 six months ended December 31, 1996 and December 31, 1995
Revenue: Total revenue increased by $2.6 million or 21% from $12.6 million for
the six months ended December 31, 1995 to $15.2 million for the six months ended
December 31, 1996. This increase was due to continued growth of unit sales in
the Australian and New Zealand markets.
Cost Of Goods Sold: Cost of goods sold increased by $2.9 million or 36% of
total revenue from $8.0 million to $10.9 million. This represented an increase
of 8% of total revenue for the six months ended December 31, 1995 from 63% to
72% for the six months ended December 31, 1996. 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 six months ended
December 31, 1995 to 12% for the six months ended December 31, 1996.
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 six months
ended December 31, 1995 to 60% for the six months ended December 31, 1996. This
was due to the increased cost of goods from the manufacturer for an updated
21
<PAGE>
version of the SecurityGuard Alarm with enhanced features, and an increase in
commission and bonus payments to senior executives related to sales volumes.
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
$2.5 million for the six months ended December 31, 1996, compared to $3.1
million for the six months ended December 31, 1995. As a percentage of revenue,
total general and administrative expenses decreased to 17% in the six months
ended December 31, 1996 compared to 25% for the six months ended December 31,
1995.
This decrease as a percentage of sales reflected the economies of scale of
operating the Distributor Network for the six months ended December 31, 1996
compared to the six months ended December 31, 1995, since increases in revenue
did not have a proportionate increase in overhead.
Net Income from Operations: Net income from operations increased from $1.5
million for the six months ended December 31, 1995 to $1.7 million for the six
months ended December 31, 1996.
If royalty payments to related parties for the use of the FAI brand name were
excluded, net income from operations would have increased from $2.7 million for
the six months ended December 31, 1995 to $3.5 million for the six months ended
December 31, 1996.
Interest Income: Interest income was approximately $339,000 for the six months
ended December 31, 1996 compared to $77,000 for the six months ended December
31, 1995. This was due to interest received on loans to related parties which
increased significantly between the intervening periods.
Income Tax Expense: The effective rate of tax decreased from 40% for the six
months ended December 31, 1995 to 38% for the six months ended December 31,
1996.
Net Income: Net income increased from $0.9 million for the six months ended
December 31, 1995 to $1.3 million for the six months ended December 31, 1996.
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 during the fiscal year ended June 30,
1996 compared to the fiscal year ended June 30, 1995.
22
<PAGE>
Cost Of Goods Sold: Cost of goods sold remained relatively stable as a
percentage of total revenue, decreasing by 1% to 66% of total revenue, from
$14.2 million to $17.6 million for the fiscal years ended June 30, 1995 and
1996. This was a result of the Company's implementation of the Distribution
Network.
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.
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.
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 a significant increase in interest received on
loans to related parties.
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 increase.
The increase in revenue does not reflect fully the increase in actual number of
units sold 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
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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.
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 interest
received on loans to related parties.
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, 1995 to $1.5 million for the fiscal year ended June 30, 1996.
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Operations outside Australia and New Zealand Comparison of six months ended
December 31, 1996 and six months ended December 31, 1995
Revenue: Total revenue declined by 10%, or $0.1 million, from $1.0 million for
the six months ended December 31, 1995 to $0.9 million for the six months ended
December 31, 1996. The decline was mainly a result of a reduction in the number
of operations within the United Kingdom. Six unprofitable distributors
throughout the UK were closed and one branch operation assumed Distributor
status. 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.
The improved performance of the UK operations, resulting from the increased
retail price, and the concentration of experienced personnel in one location,
enabled the establishment of two additional distributor operations in the
Netherlands, and the recruitment of distributors for the German and Belgium
markets.
Cost Of Goods Sold: Cost of goods sold has remained relatively stable at 61% of
revenue or $0.5 million, and $0.6 million for the six months ended December 31,
1996 and 1995 respectively.
General and Administrative Expenses: General and administrative expenses were
$1.4 million for the six months ended December 31, 1996 compared to $2.0 million
for the six months ended December 31, 1995. As a percentage of sales, this
figure represented an improvement or decrease from 200% for the six months ended
December 31, 1995 compared to 158% for the six months ended December 31, 1996.
The decrease in expenses reflects the restructuring of the international
operations outside of Australia and New Zealand from seven to two locations. In
addition, a charge of $0.5 million was paid to a related party for the provision
of management services in the six months ended December 31, 1996.
Net Loss from Operations: Net loss from operations decreased from $1.6 million
for the six months ended December 31, 1995 to $1.0 million for the six months
ended December 31, 1996. As a percentage of revenue, this is an improvement from
161% to 120%.
Interest expense: Interest expense was approximately $0.2 million for the six
months ended December 31, 1996, due to interest payable on loans to related
parties.
Income Tax Benefit: Tax losses relating to the six months ended December 31,
1995 and for the six months ended December 31, 1996 have not been realized 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 19%, from $1.6 million for
the six months ended December 31, 1995 to $1.3 million for the six months ended
December 31, 1996. This represents an improvement in performance as a percentage
of revenue from 161% to 147% for the six months ended December 31, 1995 and 1996
respectively.
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Comparison of fiscal year ended June 30, 1996 and period ended June 30, 1995
Revenue: Total revenue increased by $873,335 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
remained stable, revenues for a full fiscal year ended June 30, 1995 would be
approximately $1.5 million, compared to $1.8 million for 1996.
Cost Of Goods Sold: Cost of goods sold increased $0.6 million, from $0.4 million
to $1.0 million, or 8% of total revenue. This represented an increase in cost of
goods sold as a percentage of total revenue from 51% for the 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 a number a lead generation trials
conducted in 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 $614,298 to $3.2 million in the fiscal year ended June 30, 1996
compared to $2.6 million for the period ended June 30, 1995. As a percentage of
revenue, this represented a decrease of 112% from 295% in the 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
remained stable, revenues for a full fiscal year ended June 30, 1995 would be
approximately $4.4 million, compared to $3.2 million for 1996.
Net Loss from Operations: The net loss from operations increased from $2.2
million for the 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 period ended June 30, 1995 and
for the fiscal year ended June 30, 1996 have not been realized 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 are annualized and it is assumed that revenues and expenses
remained stable, 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%.
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Liquidity and Capital Resources
The Company's principal source of funds have been, and is expected to
continue to be, cash flows from operations. Cash flow from operating activities
increased from a deficit of approximately $705,000 for the period ending
December 31, 1995 to a surplus of approximately $20,000 for the period ending
December 31, 1996. This was primarily due to an increase in the effectiveness of
the Company's operations. Specifically, the Company improved its economies of
scale, improved recruitment within the Distributor Network and enhanced its
training programs resulting in a higher ratio of installed alarms to sales
calls. In addition, the Company reviewed its operation outside Australia and New
Zealand and discontinued unsuccessful distributor operations. Management
continues to closely scrutinize operations in order to further improve
operational effectiveness.
In addition, during this period, the Company paid compensation to certain
Distributor Network agents as regulatory approval for the SecurityGuard Alarm
system had not been received in certain jurisdictions. This compensation payment
adversely affected the Company's cash flow and was balanced by the Company
withholding payment from the manufacturer, who is responsible for securing
regulatory approval, for other supplies. This situation has now been resolved
and a delayed settlement for amounts outstanding arranged with the manufacturer.
Net cash used by investing activities for the six months period ending
December 31, 1996 was approximately $29,000 compared to a surplus of
approximately $15,000 for the six months period to December 31, 1995. Cash used
by financing activities for the period ending December 31, 1996 was $1.0 million
reflecting net borrowings by related parties, compared to approximately $1.3
million surplus for the six months ended December 31, 1995.
The Company currently has no credit facility with a bank or other financial
institution. 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 current base of operations if
the Company is not successful in matching the internal funding success of its
Australia and New Zealand operations in its worldwide 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.
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THE 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 and Canada. The Company has also successfully test marketed
its product in the United States through a sales representative, and anticipates
opening a distribution office in June of 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, 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 1990, 50% of the Company was sold to FAI. 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 Sydney, 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
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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.
Initially, the Company operated primarily throughout Australia and New
Zealand. In November 1995, FAI sold its home security operations outside
Australia and New Zealand to Mr. Cooper. As a result of this transaction, FAI
was responsible for conducting the security alarm business in Australia and New
Zealand, and Mr. Cooper was responsible for conducting the security alarm
business outside Australia and New Zealand. While these operations were
initially conducted in Canada and England, they now include the United States,
South Africa, Belgium, the Netherlands and Germany. In July 1996 the Company and
Mr. Cooper (through his wholly owned management company, Speakeasy Pty Ltd.)
entered into a joint management agreement providing for, among other items, that
Mr. Cooper remain as Chairman of the Board and Chief Executive Officer of the
Company and bear all expenses and overheads, including rent, administrative
support and travel costs, related to these roles. The management agreement was
terminated during May 1997 and replaced with an executive service agreement. On
March 31, 1997, FAI acquired the business and substantially all of the assets of
the international operations from Mr. Cooper for a purchase price of
approximately $2,700,955. See "Certain Transactions" and "Management - Executive
Employment Agreements".
The Reorganization
The Company, wholly owned by FAI, is a newly organized 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 $864,586 FAI Note, assumed the
$26,071 NZ Note and issued 8,999,999 shares of Common Stock of the Company to
FAI, (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, and (iii) executed
certain other Reorganization agreements. After the Reorganization, the Company
had 9,000,000 shares of Common Stock outstanding all of which were owned by FAI.
The Share Purchase Agreement. In 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 asset, inventories and
intangible assets previously owned by the Cooper International Group. See
"Certain Transactions - Purchase of International Assets". In exchange, FAI
would receive 8,999,999 shares of Common Stock of the Company plus the FAI Note
in
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the amount of $864,586 representing: (i) the net book value of the tangible
International Assets (approximately $593,832 at December 31, 1996) and (ii)
partial consideration for the intangible International Assets (approximately
$270,754, subject to adjustment for currency rate fluctuations through
completion of the Share Purchase Agreement at December 31, 1996). In addition,
the Company (through its assumption of the NZ Note) agreed to pay FAI the sum of
$26,071. The FAI Note will be retired out of the proceeds of this Offering. See
"Use of Proceeds". FAI Insurance is the guarantor of FAI's obligation 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 Australian entity in the
Australia and New Zealand Group, 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 Representative enter into a firm commitment
underwriting agreement pursuant to which the Representative agrees to sell
6,000,000 shares of Common Stock of the Company in an initial public offering,
consisting of 500,000 shares to be sold by the Company and 5,500,000 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 and acquired 100% of the
outstanding shares of the Australia and New Zealand Group and the International
Assets. 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 $26,071 (at December 31,
1996) 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. This note will be retired by the Company out of the proceeds of this
Offering. See "Use of Proceeds".
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.
Business Strategy
The Company's strategy is to grow by increasing its Distributor Network in
its existing markets (Australian and New Zealand) 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
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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 offers 24
hour emergency response and access to local security patrol services upon
telephonic notification that an alarm has sounded. During 1997, the Company
intends to offer 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
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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
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 comprehensive guarantees of quality and
service on the terms and conditions similar to those 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 such
systems in Australia. Wireless devices use radio signals from transmitters
incorporated into the protective devices to communicate activation signals
from
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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; Extended Warranty. 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 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.
During 1997, the Company intends 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 1 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
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<PAGE>
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 a 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 growth is based upon the expansion of the Distributor Network.
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 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.
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
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<PAGE>
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.
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.
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.
Sales. The Company's SecurityGuard Alarm home protection philosophy has
three aspects: deter, detect and eject. 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
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<PAGE>
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.
Marketing. The Company's successful growth strategy is based upon the
internal generation of customer accounts by direct sales through the Direct
Sales Marketing Program by the Company's highly motivated and trained 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
December 31, 1996, the Company generated approximately 93,000 customer
accounts internally through the Direct Sales Market Program, including over
8,700 new customer accounts during the fourth quarter of 1996. The training,
sales and distribution program involves on-going recruitment, training and
defined qualification levels for greater recognition, commission and
substantial bonus income, as an integral part of the Company's successful
growth and market penetration strategy.
The Company markets the SecurityGuard Alarm system through a direct
marketing campaign conducted by approximately 500 Independent Agents,
targeting a demographic group consisting of "average moms and dads". The
Company does not generally use media advertising to advertise the alarm
systems. Instead, distributors are required to generate leads through running
community crime awareness programs and shopping center based promotions,
installing neighborhood "drop boxes", conducting periodic give-aways, and
distributing questionnaires. Sales consultants then telephone individuals who
respond to these measures and make appointments for home visits. During these
home visits, the sales consultant presents a mounted display of the alarm
system and related equipment and a description of their features. Sales
consultants also establish "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 are achieved as neighbors begin to work together to minimize crime.
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
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<PAGE>
Company. In marketing the SecurityGuard Alarm outside of Australia and New
Zealand, the Company will compete with larger national and international
companies who are better capitalized.
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.
Ness Supply Agreement
Ness is a leading manufacturer of security alarms in Australia and New
Zealand. Ness is an approved ISO 9000 company, and achieved this
accreditation on its first attempt. 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 manufacturers all of
the printed circuit boards for SecurityGuard Alarm products which were
previously supplied from overseas manufacturers. 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 precluded 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 has
given no indication of establishing any sales presence in Australia,
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<PAGE>
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 and Europe. The Company has
copyright to significant marketing, training, promotional and organizational
material.
Government Regulation
The Company's domestic operations in Australia and New Zealand, as well as
its other worldwide operations, are subject to a variety of laws, regulations
and licensing requirements of federal, state and local authorities. In
certain jurisdictions, the Company is required to obtain licenses or permits,
to comply with standards governing employee selection and training, and to
meet certain standards in the conduct of its business. Many jurisdictions
also require certain of the Company's employees to obtain licenses or permits.
The alarm industry is also subject to requirements imposed by various
insurance, approval, licensing and standards organization. Depending upon the
type of customer served, the type of security service provided and the
requirements of the applicable local governmental jurisdiction, adherence to
the requirements and standards of such organizations is mandatory in some
instances and voluntary in others.
In most countries, the Company's advertising and sales practices are
regulated by various consumer protection laws. Such laws and regulations
include restrictions on the manner in which the Company promotes the sale of
its security alarm systems and the obligation of the Company to provide
purchasers of its alarm systems with certain rescission rights.
Recently, a trend has emerged on the part of local governmental authorities
to adopt various measures aimed at reducing the number of false alarms. Such
measures include (i) subjecting alarm monitoring companies to fines or
penalties for transmitting false alarms, (ii) licensing individual alarm
systems and the revocation of such licenses following a specified number of
false alarms, (iii) imposing fines on alarm customers for false alarms, (iv)
imposing limitations on the number of times the police will respond to alarms
at a particular location and (v) requiring further verification of an alarm
signal before the police will respond. See "Risk Factors -- Government
Regulation".
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<PAGE>
Employees
At December 31, 1996, the Company employed 41 individuals, including 40 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 AUD380 (approximately
US$302.63) per square meter per annum expiring 30 September 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 Hose, 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.
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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
---- --- --------
<S> <C> <C>
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 the world renowned 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
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<PAGE>
Street, and Thomas the Tank Engine to manufacture, market and distribute
children's furniture and innovative new Zeds beds for kids. 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). From 1987-1991 Mr. Youngman served as corporate secretary for
Divresy Chemical, an Australian company specializing in the manufacture and
sale of commercial chemicals.
Mr. Robert D. Appleby is the Executive Vice President of International
Business Development for the Company and has served in this position since
1993. His responsibilities include the recruitment, training, development and
motivation of the Company's distributors in Australia and overseas. Prior to
his present position, Mr. Appleby served as the Company's International Sales
Director.
Mr. Mark Whitaker is the Company's Chief Financial Officer, Treasurer
and Executive Vice President of Finance and has served in this capacity since
December 1996. In 1995 and 1996, Mr. Whitaker served as Assistant General
Manager, from 1993 to 1995 as a Group Accountant and from 1992 to 1993 as a
Financial Accountant for the Company. Prior to his employment with the
Company, Mr. Whitaker was employed by Hewlett Packard (in England) as a
financial accountant from 1991 to 1992. From 1990 to 1991 Mr. Whitaker was a
Cost Accountant for the British Philatellic Bureau and from 1989 to 1990 he
was employed by the international accounting firm of Ernst & Young.
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 1986-1992 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.
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Mr. Timothy M. Mainprize 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 was a partner of a leading
chartered accounting firm and worked in London and Japan for several years.
Mr. Mainprize is Chief Financial Officer of FAI Insurance and he is also
responsible for the Information Technology and Investment Divisions of FAI
Insurance.
Mr. Steven Rothstein 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 Securities Corporation. 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. He resigned
from H.J. Meyers and Company in March 1995 to associate with National
Securities. 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. Steven Rabinovici 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 has worked as a real estate agent for Century 21 since
1991 and holds real estate licenses in Florida and Massachusetts. During this
time, Mr. Puleo has also worked as an independent consultant in the areas of
sales, marketing and franchising.
Staggered Board of Directors
Pursuant to the Company's Certificate of Incorporation, 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.
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<PAGE>
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 have been executed with the Company by key
executives Messrs. Bradley D. Cooper, Terrence J. Youngman, David Appleby, Mark
Whitaker, Geoffrey Knowles and Ms. Felicity Hilbert. These agreements are for a
period of three years commencing in 1997 and provide for the grant of stock
options under the 1997 Stock Option Plan to each of the executives.
The executive employment agreement with Mr. Cooper ("Cooper Employment
Agreement") provides that Mr. Cooper shall receive, on a monthly basis, a
commission for each sale of a SecurityGuard product 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). Mr. Cooper bears all expenses including rent,
administrative support and travel costs and the Company is not obligated to pay
or reimburse Mr. Cooper for any out of pocket expenses incurred while he is on
Company business. Mr. Cooper is 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. Mr. Cooper may also be paid a bonus at the Company's discretion.
The total remuneration received by Mr. Cooper is reviewed by the Company on an
annual basis, and is subject to adjustment based on such review.
Messrs. Appleby and Knowles also have entered into executive employment
agreements which provide for them to receive certain commissions per alarm unit
sold. The terms of such agreements are substantially similar to the Cooper
Employment Agreement, allowing 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 at the Company's discretion. The total remuneration
received by Messrs. Appleby and Knowles under their respective agreements is
reviewed by the Company on an annual basis, and is subject to adjustment based
on such review.
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<PAGE>
The executive employment agreements for the remaining executives of the
Company are similar to the executive employment agreement with Messrs. Cooper,
Appleby and Knowles, with the exception that they do not receive a commission on
each alarm unit sold.
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 10,000 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 5,000 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
The Company has adopted provisions in its By-laws that eliminate, to the
fullest extent permissible under Delaware law, the liability of its directors to
the Company for monetary damages. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief, rescission or
damages. The Company's Bylaws 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.
45
<PAGE>
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 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.
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<PAGE>
Executive Compensation
The following table sets forth the compensation paid by the Company
to the Chief Executive Officer 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 Officer"). The salaries listed below
are annualized.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term
------------------- Compensation
Name and Principal Position Year Salary Stock 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 "Business-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 1,500,000 shares of Common Stock to management,
employees and advisors of the Company. The 1997 Plan provides
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<PAGE>
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"). To
date, no options have been granted under the 1997 Plan.
1997 Non-Employee Director Stock Option Plan. The Company has adopted the
1997 Non-Employee Director Stock Option Plan (the "Director Plan"), under
which 100,000 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 10,000 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 5,000 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.
48
<PAGE>
CERTAIN TRANSACTIONS
Transaction involving Bradley D. Cooper
On June 1, 1995, Mr. Cooper sold 30 shares of FAI to FAI Insurance for $1.5
million. In November of that same year, Mr. Cooper sold his remaining
interest (200 Ordinary Shares and 11 "C" class shares) in FAI to FAI Insurance
for approximately $8 million plus the shares in FAI's United Kingdom and
Canadian, operating entities. At the time, the United Kingdom and Canadian
operations constituted all of FAI's operations outside of Australia and New
Zealand. As a result of this transaction, FAI became the 100% beneficial
owner of the Australian and New Zealand operations. "Business - History".
From time to time, the Cooper Investment Trust (of which Mr. Cooper and his
family are the main beneficiaries) loaned to the Company various amounts on an
unsecured basis, at no interest, repayable on demand. At December 31, 1996,
the total amount outstanding owed to the Cooper Investment Trust by the
Company was $891,262. From time to time, the Cooper Investment Trust also
borrowed from the Company various amounts on an unsecured basis, at no
interest, repayable on demand. At December 31, 1996, the total amount
outstanding and owing to the Company was $315,313.
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 on each alarm unit sold by the Company. For
the six months ended December 31, 1996, the Company paid to Speakeasy Pty Ltd.
approximately $354,673. This management agreement has been replaced by the
Cooper Executive Agreement through which Mr. Cooper receives a commission on
each alarm system sold. See "Business - Executive Employment Agreements".
Prior to the Reorganization, Mr. Cooper, through his beneficial interest in
the Cooper International Group, was indebted to FAI pursuant to a fixed term
loan bearing interest at 10% per annum and repayable by November 17, 1997.
FAI's purchase of the International Assets from the Cooper International Group
did not include this amount due under this fixed term loan to FAI. As of
December 31, 1996, the current loan balance outstanding is $3,066,484.
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
49
<PAGE>
from FAI. Under the terms of the lease, the Company pays an annual rent of
AUD380 (US$302.63) 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
year ended June 30, 1996 the royalty fee paid by the Company to FAI Insurance
was $2,750,468. For the six months ended December 31, 1996 the Company paid
to FAI Insurance a royalty fee of approximately $1,776,402. 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".
Purchase of International Assets
On March 31, 1997, FAI acquired substantially all of the assets of Bradley
D. Cooper's international operations, 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 $2,700,955. 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. See "Business--The
Reorganization".
50
<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)
-------------------------------- -----------------------
Executive Officers and Number of Number of Number of
Directors Shares Percent Shares Offered Shares Percent
---------------------- -------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
Bradley D. Cooper 0 0 0 0 0
Terrence J. Youngman 0 0 0 0 0
Robert D. Appleby 0 0 0 0 0
Mark Whitaker 0 0 0 0 0
Geoffrey D. Knowles 0 0 0 0 0
Felicity A. Hilbert 0 0 0 0 0
Steven Rabinovici 0 0 0 10,000 *
Timothy M. Mainprize 0 0 0 10,000 *
Dennis J. Puleo 0 0 0 10,000 *
Steven A. Rothstein 0 0 0 10,000 *
All executive officers and - - - -
directors as a group
Five percent
Shareholders and
Selling Shareholder
FAI Home Security
Holdings Pty Ltd.(3) 9,000,000 100% 5,500,000 3,500,000 37%
</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.
51
<PAGE>
(2) Subject to stock option plans which may be awarded to officers and
directors under the 1997 Stock Option Plan and the 1997 Non-Employee
Director Stock Option Plan.
(3) Controlled by FAI Insurance, a publicly traded company in Australia with
ADR's traded on the New York Stock Exchange.
52
<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, 9,000,000 shares of Common Stock of the Company
will be issued and outstanding and held by one (1) shareholder 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".
Warrants and Options
Representative's Warrants. In connection with this Offering, the Company
has authorized the issuance of the Representative's Warrants and has reserved
600,000 shares of Common Stock for issuance upon exercise of such warrants
(including the shares issuable upon exercise of the Representative's
Warrants). The Representative's Warrants will entitle the holders thereof to
acquire 600,000 shares of
53
<PAGE>
Common Stock at an exercise price of 165% of the initial offering price per
share of Common Stock ($10.725 per share of Common Stock assuming an estimated
initial public offering price of $6.50 per share of Common Stock). The
Representative's 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 Representative's 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 Representative's
Warrant. The holder of a Representative's Warrant will not possess any rights
as a shareholder of the Company until such holder exercises the
Representative's Warrant.
Effect of Outstanding Warrants. For the life of the Representative's
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.
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.
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
54
<PAGE>
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.
Registration Rights
The Representative's 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 Representative's 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 Representative's Warrants (and, if
necessary, their resale) so as to permit their public resale without
restriction. These holders the Representative's 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.
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.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
9,500,000 shares of Common Stock. All of the 6,000,000 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 3,500,000
shares outstanding will be "restricted securities" as that term is defined
under Rule 144 (the "Restricted Shares"). 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. 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 60,000 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.
56
<PAGE>
Lock-up Agreement
Except as noted, all current shareholders of the Company, including 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 thirteen (13) months after the date of this
Prospectus without the prior written consent of the Representative. See
"Underwriting." Subject to the (13) month 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.
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.
57
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation ("National") is acting as the representative (the
"Representative"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement among the Company and the Representative (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
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."
Underwriter Number of Shares
----------- ----------------
National Securities Corporation
Total....................................6,000,000
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 Representative.
The Representative has advised the Company 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 Representative.
The Company has 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 400,000 additional shares of Common Stock from the Company and
500,000 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. 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.
58
<PAGE>
The Representative has informed the Company it does 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 and its 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 has agreed to pay the Representative a non-accountable
expense allowance equal to two percent (2%) of the gross proceeds from the
sale of the Company's Common Stock.
The Company has agreed to sell to the Representatives, for an aggregate
of $60, warrants to purchase from the Company up to 600,000 shares of Common
Stock at an exercise price per share initially equal to 165% of the public
offering price. The Representative's 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 Representative's Warrant provides for adjustment in the exercise price of
the Representative's 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 Representative's Warrants to register the Common
Stock underlying the Representative's Warrants under the Securities Act.
The Company and its officers and directors and all shareholders have
agreed with the Representative that for a period of 13 months 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
Representative's consent. 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 Representative shall
have the right to designate for election one member of the Company's Board of
Directors. However, if the Representative so chooses, the Representative 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 Representative's designee for out-of-pocket expenses incurred in
connection with attending meetings of the Company's Board of Directors. No
person has yet been designated by the Representative 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 Nasdaq National
Market or otherwise. Such transactions may stabilize or maintain the market
price of the Common Stock at a level
59
<PAGE>
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 Representative. 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.
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.
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
60
<PAGE>
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.
61
<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 Six Months Ended December 31, 1995 and 1996........... F-5
Combined Balance Sheets as at June 30, 1995 and 1996 and as at December
31, 1996............................................................... F-6
Combined Statements of Cashflows for the Years Ended June 30, 1994, 1995
and 1996 and the Six Months Ended December 31, 1995 and 1996........... F-7
Combined Statements of Changes in Shareholders' Equity for the Years
Ended June 30, 1994, 1995 and 1996 and the Six Months Ended December
31, 1996............................................................... 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 Six Months Ended December 31, 1995 and
1996................................................................... F-20
Combined Balance Sheets as at June 30, 1995 and 1996 and the Six Months
Ended December 31, 1996................................................ F-21
Combined Statements of Cashflows for the Period Ended June 30, 1995,
Year Ended June 30, 1996 and the Six Months Ended December 31, 1995 and
1996................................................................... F-22
Combined Statements of Changes in Shareholders' Equity for the Period
Ended June 30, 1995, Year Ended June 30, 1996 and the Six Months Ended
December 31, 1996...................................................... F-23
Notes to Financial Statements........................................... F-24
Proforma Consolidated Financial Statements for Home Security
International, Inc..................................................... F-34
</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 six months ended December 31, 1996 and 1995, 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 transactions as
discussed in Note 13.
F-4
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
----------------------
YEAR ENDED JUNE 30 (UNAUDITED)
------------------------------------
NOTE 1994 $US 1995 $US 1996 $US 1995 $US 1996 $US
---- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 2 10,629,018 21,437,325 26,700,922 12,564,644 15,176,245
Cost of goods sold
--related party........ 12 (937,922) (1,989,371) (2,750,468) (1,256,045) (1,776,402)
--other................ (5,790,471) (12,229,324) (14,834,094) (6,746,176) (9,161,644)
--- ---------- ----------- ----------- ---------- ----------
Gross profit............ 3,900,625 7,218,630 9,116,360 4,562,423 4,238,199
General and
administrative
expenses............... (3,954,935) (5,091,498) (6,606,377) (3,098,930) (2,509,880)
--- ---------- ----------- ----------- ---------- ----------
Income (loss) from
operations............. (54,310) 2,127,132 2,509,983 1,463,493 1,728,319
Interest income......... 6,973 65,211 250,806 77,351 339,208
Interest expense--
related party.......... 12 (1,542) -- (47,625) (19,908) --
--- ---------- ----------- ----------- ---------- ----------
Income (loss) before
taxes.................. (48,879) 2,192,343 2,713,164 1,520,936 2,067,527
Income tax expense...... 11 (24,980) (722,523) (1,054,170) (607,412) (791,961)
--- ---------- ----------- ----------- ---------- ----------
Net income (loss)....... (73,859) 1,469,820 1,658,994 913,524 1,275,566
</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
--------------------- DECEMBER 31
1995 1996 1996
CURRENT ASSETS NOTE $US $US $US
- -------------- ---- ---- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash and cash equivalents............... 1,229,501 369,837 90,256
Accounts receivable--related party...... 12 2,675,655 4,380,060 7,061,032
Accounts receivable--trade, net......... 3 1,090,412 1,099,733 983,912
Inventories............................. 4 90,040 339,602 492,039
Prepaid expenses and other current
assets................................. 5 357,072 751,426 915,959
--- --------- ---------- ----------
Total current assets................ 5,442,680 6,940,658 9,543,198
--- --------- ---------- ----------
Non-current assets......................
Plant and equipment, net.............. 6 65,124 12,706 10,747
Intangibles, net...................... 7 2,038,980 5,948,255 8,149,775
Deferred income taxes................. 11 120,989 475,505 404,052
Other non-current assets.............. 2,987 6,531 6,595
--- --------- ---------- ----------
Total non-current assets............ 2,228,080 6,442,997 8,571,169
--- --------- ---------- ----------
Total assets........................ 7,670,760 13,383,655 18,114,367
=== ========= ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
Current Liabilities
Bank overdraft........................ -- -- 208,789
Payables--related parties............. 12 -- -- 32,456
Payables--trade....................... 2,711,243 2,414,042 2,845,877
Accrued liabilities................... 293,598 956,307 918,414
Income tax payable.................... 753,873 - 222,627
Deferred income....................... -- 119,479 263,000
--- --------- ---------- ----------
Total current liabilities........... 3,758,714 3,489,828 4,491,163
--- --------- ---------- ----------
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) 386,693 525,369
Retained earnings..................... 1,831,194 3,490,188 4,765,754
--- --------- ---------- ----------
Total shareholders' equity.......... 3,912,046 9,893,827 13,623,204
--- --------- ---------- ----------
Total liabilities and shareholders'
equity............................. 7,670,760 13,383,655 18,114,367
=== ========= ========== ==========
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31
JUNE 30 ----------------------
-------------------------------- (UNAUDITED)
1994 1995 1996 1995 1996
$US $US $US $US $US
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cashflow from operating
activities
Net Income (Loss)..... (73,859) 1,469,820 1,658,994 913,524 1,275,566
Adjustments to
reconcile net income
(loss) to net cash
from operating
activities:
Depreciation.......... 2,868 12,350 11,192 6,660 3,362
Amortization of
goodwill............. -- 47,884 226,498 100,449 171,813
Deferred taxes and
income tax payable... 84,938 478,995 (1,143,650) 411,314 177,235
Provision for losses
on accounts
receivable........... 61,703 9,552 58,213 -- (37,249)
(Increase) decrease in
operating assets:
Accounts receivable--
trade................ (162,833) (245,402) (21,925) (101,432) 182,970
Inventories........... 148,884 60,656 (239,731) (68,000) (145,609)
Prepaid expenses and
other assets......... 35,498 (262,407) (305,224) (225,928) (194,530)
Increase (decrease) in
operating
liabilities:
Accounts payable...... 22,425 1,740,323 (489,880) (1,360,183) 536,130
Accrued liabilities... (21,034) 195,823 734,742 191,862 90,741
-------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities............. 98,590 3,507,594 489,229 (131,734) 2,060,429
-------- ---------- ---------- ---------- ----------
Cashflow from investing
activities
Proceeds from sale of
plant and equipment.. -- -- 112,062 110,233 --
Additions to plant and
equipment............ (29,979) (43,632) (70,701) (67,534) (1,005)
-------- ---------- ---------- ---------- ----------
Net cash provided
by/(used in) investing
activities............. (29,979) (43,632) 41,361 42,699 (1,005)
-------- ---------- ---------- ---------- ----------
Cashflow from financing
activities
Provided by (payments
on) short-term debt.. (920) (927) (3,129) (2,024) --
Increase (decrease) in
bank overdraft....... (44,036) -- -- -- 208,789
Receipts/(payments)
from/(to) related
parties.............. 209,822 (2,509,175) (1,429,568) (474,581) (2,557,121)
-------- ---------- ---------- ---------- ----------
Net cash provided
by/(used in) financing
activities............. 164,866 (2,510,102) (1,432,697) (476,605) (2,348,332)
-------- ---------- ---------- ---------- ----------
Net increase/(decrease)
in cash held........... 233,477 953,860 (902,107) (565,640) (288,908)
-------- ---------- ---------- ---------- ----------
Cash at the beginning of
the financial year..... 1,009 247,000 1,229,501 1,229,501 369,837
Effect of exchange rate
change on cash held.... 12,514 28,641 42,443 6,892 9,327
-------- ---------- ---------- ---------- ----------
Cash at the end of the
financial year......... 247,000 1,229,501 369,837 670,753 90,256
-------- ---------- ---------- ---------- ----------
Supplemental disclosures
of cash flow
information:
Interest paid........... 2,458 874 59,945 802 180,465
Income taxes paid....... -- 212,736 1,279,393 148,890 253,106
</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)
BALANCE, JUNE 30, 1994.. 2 2 -- -- 361,374 361,376
Foreign currency
translation adjustment. (4,240)
Additional paid-in
capital................ 2,085,090
Net income 1995......... 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
Additional paid-in
capital................ 3,931,854
Net income 1996......... 1,658,994
BALANCE, JUNE 30, 1996.. 2 2 6,016,944 386,693 3,490,188 9,893,827
Foreign currency
translation adjustment. 138,676
Additional paid-in
capital................ 2,315,135
Net income six months to
December 31, 1996...... 1,275,566
BALANCE, DECEMBER 31,
1996 (Unaudited)....... 2 2 8,332,079 525,369 4,765,754 13,623,204
</TABLE>
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, rebates and commissions. 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 consists 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
</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 December 31, 1996.
NOTE 2: NET SALES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30 DECEMBER 31
-------------------------------- ---------------------
1994 1995 1996 1995 1996
$US $US $US $US $US
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Direct retail sales...... 6,459,527 5,714,611 1,347,818 1,241,557 --
Distributor sales........ 3,801,612 15,295,813 24,855,467 11,121,808 14,981,674
Other.................... 367,879 426,901 497,637 201,279 194,571
---------- ---------- ---------- ---------- ----------
10,629,018 21,437,325 26,700,922 12,564,644 15,176,245
</TABLE>
NOTE 3: ACCOUNTS RECEIVABLE--TRADE
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
-------------------- (UNAUDITED)
1995 1996 1996
$US $US $US
--------- --------- -----------
<S> <C> <C> <C>
Accounts receivable..... 1,150,273 1,245,808 1,084,954
Less: allowances for
doubtful accounts...... (59,861) (146,075) (101,042)
--------- --------- ---------
1,090,412 1,099,733 983,912
</TABLE>
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
-------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------ ------- -----------
<S> <C> <C> <C>
Service stock.................................. -- 39,430 53,729
Sales aids..................................... -- 222,487 298,413
Goods for re-sale.............................. 90,040 77,685 139,897
------ ------- -------
90,040 339,602 492,039
</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 DECEMBER 31
--------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Prepayments......................................... 60,029 50,620 68,672
Director's loan..................................... -- 105,432 315,313
Sundry debtors...................................... 297,043 595,374 531,974
------- ------- -------
357,072 751,426 915,959
</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.
NOTE 6: PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------- ------ -----------
<S> <C> <C> <C>
Furniture and fixtures............................. 31,454 3,098 519
Office equipment................................... 43,359 11,966 --
Plant.............................................. -- -- 20,526
Computer equipment................................. 6,736 4,329 --
Less: Accumulated depreciation..................... (16,425) (6,687) (10,298)
------- ------ -------
65,124 12,706 10,747
</TABLE>
NOTE 7: INTANGIBLES
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
-------------------- (UNAUDITED)
1995 1996 1996
$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 6,556,990
Amortization of goodwill...................... (47,884) (274,382) (494,079)
--------- --------- ---------
2,038,980 5,948,255 8,149,775
</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 an earn out agreement,
has been pushed down to the group.
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 December 31, 1996.
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
-------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------- ------ -----------
<S> <C> <C> <C>
Payable not later than one year..................... 175,650 47,243 27,837
Payable later than one year but not later than two
years.............................................. 49,651 18,194 12,172
Payable later than two years but not later than
three years........................................ 38,197 5,325 743
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 40,752
------- ------ ------
</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>
DECEMBER 31
JUNE 30 ---------------------
--------------------------------- (UNAUDITED)
1994 1995 1996 1995 1996
$US $US $US $US $US
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales:
--Australia........... 9,802,521 17,358,783 21,937,533 10,250,776 10,574,168
--New Zealand......... 826,497 4,078,542 4,763,389 2,313,868 4,602,077
---------- ---------- ---------- ---------- ----------
10,629,018 21,437,325 26,700,922 12,564,644 15,176,245
Operating profit before
related party royalty
payment:
--Australia........... 719,189 3,012,295 3,707,419 1,956,117 2,326,249
--New Zealand......... 164,423 1,104,208 1,553,032 763,421 1,178,472
---------- ---------- ---------- ---------- ----------
883,612 4,116,503 5,260,451 2,719,538 3,504,721
Operating profit/(loss):
--Australia........... (138,226) 1,393,175 1,448,608 912,609 1,074,780
--New Zealand......... 83,916 733,957 1,061,375 550,884 653,539
---------- ---------- ---------- ---------- ----------
(54,310) 2,127,132 2,509,983 1,463,493 1,728,319
Capital expenditure..... 29,979 43,632 70,701 67,534 1,005
Depreciation............ 2,868 12,350 11,192 6,660 3,362
Amortization............ -- 47,884 226,498 100,449 171,813
</TABLE>
F-13
<PAGE>
FAI HOME SECURITY AUSTRALIA AND NEW ZEALAND GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------------- (UNAUDITED)
1995 1996 1996
$US $US $US
--------- ---------- -----------
<S> <C> <C> <C>
Identifiable Assets:
--Australia............................... 5,371,593 8,441,011 12,081,972
--New Zealand............................. 1,192,778 6,485,114 11,061,911
--------- ---------- ----------
6,564,371 14,926,125 23,143,883
Less:
Eliminations.............................. (123,112) (1,912,307) (5,119,772)
Corporate assets.......................... 1,229,501 369,837 90,256
--------- ---------- ----------
Total Assets............................ 7,670,760 13,383,655 18,114,367
</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>
DECEMBER 31
JUNE 30 ---------------
--------------------------- (UNAUDITED)
1994 1995 1996 1995 1996
$US $US $US $US $US
------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Expected income tax expense at
statutory rates.................. (16,130) 723,473 940,639 529,409 720,872
Tax effect of permanent and other
differences:.....................
Over provision for income tax in
prior years...................... (3,744) (21,192) (862) -- --
Other............................. 44,854 12,820 32,854 41,841 9,237
Amortization of goodwill.......... -- 17,238 81,539 36,162 61,852
Change in tax rates in deferred
tax benefits..................... -- (9,816) -- -- --
------- ------- --------- ------- -------
24,980 722,523 1,054,170 607,412 791,961
</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............................. 17,107 643,893 699,653 528,782 863,414
Deferred............................ 7,873 78,630 354,517 78,630 (71,453)
</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 DECEMBER 31
---------------- (UNAUDITED)
1995 1996 1996
$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 21,430
Warranty.................................... 42,583 124,203 96,959
Security call-out........................... -- 143,860 125,437
Extended warranty........................... -- 14,946 78,669
Other ...................................... 39,722 72,122 72,740
Sundry accruals............................... 16,953 23,546 24,307
Quarantined overseas expenses................. 20,063 70,345 --
Tax losses carried forward.................... -- 8,903 9,196
Prepayments................................... (21,675) (18,223) (24,686)
------- ------- -------
Net deferred tax assets......................... 120,989 475,505 404,052
</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 DECEMBER 31
------------------- (UNAUDITED)
1995 1996 1996
$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 7,031,530
FAI Secure Home Finance Pty Limited........... 66,004 37,343 29,502
--------- --------- ---------
2,675,655 4,380,060 7,061,032
</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......................... -- -- 32,456
</TABLE>
The above loan is unsecured, non-interest bearing and is repayable on
demand.
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------------------- -------------------
1994 1995 1996 (UNAUDITED)
$US $US $US
1995 1996
$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 19,908 --
Royalty fees paid by FAI Home
Security Pty Limited to:
FAI Insurances Limited...... 937,922 1,989,371 2,750,468 1,256,045 1,776,402
Interest on loans received by
FAI Home Security (NZ) Trust
from:
FAI Finance Corporation (NZ)
Ltd........................ 67,174 256,611
Interest on loans received by
FAI Home Security (NZ) Trust
from:
FAI Finance Corporation (NZ)
Ltd........................ 7,913 16,107
Management fees paid by FAI
Home Security (NZ) Ltd to:
FAI Finance Corporation (NZ)
Ltd........................ 43,628 6,616 29,685
Management fees received by
FAI Home Security Pty Limited
from:
FAI Home Security Holdings
Pty Limited................ 455,168
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 50,385
</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
$26,071 in exchange for the issue of 8,999,999 shares in HSI plus a note
payable to FAI Home Security Holdings Pty Limited in the amount of $26,071.
A portion of the 8,999,999 shares are 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 purchased for book
value net of the warranty provision and FAI Home Security (ENZED) Limited
must pay FAI Home Security (NZ) Trust, within 30 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.
(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 FAI Home Security 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 six months ended December 31, 1996 and 1995, 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 transactions as discussed
in Note 12.
F-19
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
PERIOD ENDED YEAR ENDED ----------------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 1996 1995 1996
NOTE $US $US $US $US
---- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... 2 876,693 1,750,028 1,004,181 854,493
Cost of goods sold...... (446,246) (1,028,583) (609,778) (524,307)
--- ---------- ---------- ---------- ----------
Gross profit............ 430,447 721,445 394,403 330,186
General and
administrative expenses
--other............... (2,378,947) (3,199,590) (2,012,891) (898,413)
--related party....... 11 (206,344) (455,168)
--- ---------- ---------- ---------- ----------
Income (loss) from
operations............. (2,154,844) (2,478,145) (1,618,488) (1,023,395)
Interest income......... -- 7,927 -- 5,085
Interest expense-related
party.................. 11 -- -- -- (237,175)
--- ---------- ---------- ---------- ----------
Income (loss) before
taxes.................. (2,154,844) (2,470,218) (1,618,488) (1,255,485)
Income tax expense...... 10 -- -- -- --
--- ---------- ---------- ---------- ----------
Net income (loss)....... (2,154,844) (2,470,218) (1,618,488) (1,255,485)
</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 DECEMBER 31
---------------------- (UNAUDITED)
1995 1996 1996
NOTE $US $US $US
---- ---------- ---------- -----------
CURRENT ASSETS
- --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. 69,982 82,214 19,500
Accounts receivable--trade, net....... 3 169,633 93,177 263,508
Inventories........................... 4 349,287 435,278 472,725
Prepaid expenses and other current
assets............................... 5 11,645 126,556 118,495
--- ---------- ---------- ----------
Total current assets.............. 600,547 737,225 874,228
--- ---------- ---------- ----------
Non-current assets
Plant and equipment, net............ 6 142,059 109,627 121,107
--- ---------- ---------- ----------
Total assets.......................... 742,606 846,852 995,335
--- ---------- ---------- ----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
Current liabilities
Bank overdraft...................... -- 21,205 2,043
Payables--related parties........... 11 357,181 2,451,975 3,613,973
Payables--trade..................... 282,008 417,880 666,068
Accrued liabilities................. 56,696 58,771 220,361
--- ---------- ---------- ----------
Total current liabilities............. 695,885 2,949,831 4,502,445
--- ---------- ---------- ----------
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) (178,597)
Accumulated losses.................. (2,154,844) (4,625,062) (5,880,547)
--- ---------- ---------- ----------
Total shareholders' equity........ 46,721 (2,102,979) (3,507,110)
--- ---------- ---------- ----------
Total liabilities and shareholders'
equity............................... 742,606 846,852 995,335
--- ---------- ---------- ----------
</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>
SIX MONTHS ENDED
DECEMBER 31
PERIOD ENDED YEAR ENDED ----------------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 1996 1995 1996
$US $US $US $US
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cashflow from operating
activities
Net Income (Loss)........... (2,154,844) (2,470,218) (1,618,488) (1,255,485)
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation................ 11,307 45,847 21,487 22,317
Provision for losses on
accounts receivable........ 15,810 129,602 -- 62,187
(Increase) decrease in
operating assets:
Accounts receivable--trade.. (184,230) (38,558) (158,134) (282,119)
Inventories................. (347,800) (115,504) (160,894) (42,814)
Prepaid expenses and other
assets..................... (11,645) (114,911) 115,189 17,094
Increase (decrease) in
operating liabilities:
Accounts payable............ 281,256 143,349 (50,126) 227,868
Accrued liabilities......... 56,501 2,928 43,866 152,853
---------- ---------- ---------- ----------
Net cash used in operating
activities................... (2,333,645) (2,417,465) (1,807,100) (1,098,099)
---------- ---------- ---------- ----------
Cashflow from investing
activities
Additions to plant and
equipment.................. (152,878) (15,475) (27,659) (28,425)
---------- ---------- ---------- ----------
Net cash used in investing
activities................... (152,878) (15,475) (27,659) (28,425)
---------- ---------- ---------- ----------
Cashflow from financing
activities
Increase (decrease) in bank
overdraft.................. -- 20,943 263 (19,163)
Receipts from related
parties.................... 355,971 2,081,199 1,515,223 1,075,797
Capital subscribed.......... 2,207,436 344,598 344,598 --
---------- ---------- ---------- ----------
Net cash provided by financing
activities................... 2,563,407 2,446,740 1,860,084 1,056,634
---------- ---------- ---------- ----------
Net increase/(decrease) in
cash held.................... 76,884 13,800 25,325 (69,890)
---------- ---------- ---------- ----------
Cash at the beginning of the
financial year............... -- 69,982 69,982 82,214
Effect of exchange rate change
on cash held................. (6,902) (1,568) (2,251) 7,176
---------- ---------- ---------- ----------
Cash at the end of the period. 69,982 82,214 93,056 19,500
---------- ---------- ---------- ----------
Supplemental disclosures of
cash flow information:
Interest paid................. -- -- -- --
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
Foreign currency
translation adjustment. (5,871)
Net loss 1995........... (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)
Forgiveness of debt..... 344,598
Net loss 1996........... (2,470,218)
Balance June 30, 1996... 1,861,588 690,446 (29,951) (4,625,062) (2,102,979)
Foreign currency
translation adjustment. (148,646)
Net loss six months to
December 1996.......... (1,255,485)
Balance December 31,
1996 (Unaudited)....... 1,861,588 690,446 (178,597) (5,880,547) (3,507,110)
</TABLE>
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 in recognized is 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, rebates and commissions.
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>
SIX MONTHS ENDED
PERIOD YEAR DECEMBER 31
ENDED ENDED -----------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 1996 1995 1996
$US $US $US $US
------- --------- --------- -------
<S> <C> <C> <C> <C>
Direct retail sales......................... 377,983 539,845 433,143 48,167
Distributor sales........................... 498,710 1,197,187 565,008 805,881
Other....................................... -- 12,996 6,030 445
------- --------- --------- -------
876,693 1,750,028 1,004,181 854,493
</TABLE>
NOTE 3: ACCOUNTS RECEIVABLE--TRADE
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------- -------- -----------
<S> <C> <C> <C>
Accounts receivable.............................. 185,443 238,589 471,108
Less: allowances for doubtful accounts........... (15,810) (145,412) (207,600)
------- -------- --------
169,633 93,177 263,508
</TABLE>
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Service stock....................................... -- 30,023 69,326
Sales aids.......................................... 47,274 37,372 36,609
Goods for resale.................................... 302,013 367,883 366,790
------- ------- -------
349,287 435,278 472,725
</TABLE>
NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
-------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------ ------- -----------
<S> <C> <C> <C>
Prepayments.......................................... 5,193 19,934 58,332
Pre-paid VAT......................................... -- 106,622 60,163
Sundry debtors....................................... 6,452 -- --
------ ------- -------
11,645 126,556 118,495
</TABLE>
NOTE 6: PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
---------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------- ------- -----------
<S> <C> <C> <C>
Furniture and fixtures............................ 42,739 65,718 82,506
Plant and equipment............................... 98,775 98,117 84,419
Motor vehicles.................................... 11,895 -- --
less: Accumulated depreciation.................... (11,350) (54,208) (45,818)
------- ------- -------
142,059 109,627 121,107
</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 DECEMBER 31
------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------ ------ -----------
<S> <C> <C> <C>
Operating leases exist for the premises in Canada
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 42,798
Payable later than one year but not later than two
years............................................ 14,988 35,836 28,302
Payable later than two years but not later than
three years...................................... 5,749 7,688 2,259
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 73,359
</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>
SIX MONTHS ENDED
PERIOD DECEMBER 31
ENDED YEAR ENDED ----------------------
JUNE 30 JUNE 30 (UNAUDITED)
1995 $US 1996 $US 1995 $US 1996 $US
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales:
--United Kingdom.............. 386,639 698,508 449,617 690,082
--South Africa................ -- -- -- 23,153
--Canada...................... 490,054 999,268 554,564 333,708
--United States............... -- 52,252 -- (36,165)
---------- ---------- ---------- ----------
876,693 1,750,028 1,004,181 1,010,778
less: Eliminations -- -- -- (156,285)
---------- ---------- ---------- ----------
Total Net Sales................. 876,693 1,750,028 1,004,181 854,493
Operating Profit/(Loss):
--United Kingdom.............. (1,606,332) (1,995,479) (1,442,158) (521,145)
--South Africa................ -- -- -- (56,692)
--Canada...................... (548,512) (429,911) (157,853) (353,317)
--United States............... -- (52,755) (18,477) (42,325)
---------- ---------- ---------- ----------
(2,154,844) (2,478,145) (1,618,488) (973,479)
less: Eliminations -- -- -- (49,916)
---------- ---------- ---------- ----------
Total Operating Profit/(Loss)... (2,154,844) (2,478,145) (1,618,488) (1,023,395)
Capital Expenditure
--United Kingdom.............. 91,042 10,350 23,066 6,939
--South Africa................ -- -- -- 638
--Canada...................... -- -- 4,593 20,848
--United States............... -- -- -- --
---------- ---------- ---------- ----------
91,042 10,350 27,659 28,425
Depreciation
--United Kingdom.............. 5,371 28,280 12,696 12,914
--South Africa................ -- -- -- --
--Canada...................... 5,936 17,567 8,791 9,403
--United States............... -- -- -- --
---------- ---------- ---------- ----------
11,307 45,847 21,487 22,317
</TABLE>
F-28
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 (UNAUDITED)
----------------
1995 1996 1996
$US $US $US
------- -------- -----------
<S> <C> <C> <C>
Identifiable Assets:
--United Kingdom................................ 346,555 402,887 694,159
--South Africa.................................. -- -- 98,303
--Canada........................................ 326,069 406,303 470,033
--United States................................. -- 63,366 11,419
------- -------- ---------
672,624 872,556 1,273,914
less:
Eliminations.................................... -- (107,918) (298,079)
Corporate Assets................................ 69,982 82,214 19,500
------- -------- ---------
Total Assets.................................. 742,606 846,852 995,355
</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 DECEMBER 31
-------------------- (UNAUDITED)
1995 1996 1996
$US $US $US
-------- ---------- -----------
<S> <C> <C> <C>
Deferred tax assets are comprised of:
Deferred tax benefits associated with
losses.................................... 695,472 1,492,539 2,037,317
Valuation allowance........................ (695,472) (1,492,539) (2,037,317)
-------- ---------- ----------
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 date exchange
rate):
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
------------------- (UNAUDITED)
1995 1996 1996
$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................................... -- -- 1,743,526
--------- --------- ---------
2,154,997 4,625,147 6,368,673
</TABLE>
NOTE 11: RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------- (UNAUDITED)
1995 1996 1996
$US $US $US
------- --------- -----------
<S> <C> <C> <C>
Current Liabilities:
Cooper Investment Trust......................... -- 439,503 891,262
FAI Home Security Holdings Pty Limited.......... 357,181 2,012,472 2,722,711
------- --------- ---------
357,181 2,451,975 3,613,973
</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 is
repayable on demand.
The amount due to FAI Home Security Holdings Pty Limited has been
subordinated to June 30, 1998 and was non-interest bearing to June 30, 1996.
FAI Home Security (UK) Trust and FAI Home Security (Canada) Unit Trust were
formerly related to FAI Home Security Holdings Pty Limited by the ultimate
holdings of the ultimate parent company FAI Insurances Ltd.
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 (UNAUDITED)
--------------- ---------------
1995 1996 1995 1996
$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.................. -- 344,598 348,884 --
The debt forgiven by FAI Home Security Holdings Pty Limited was part of the
total consideration for the sale of international operations that occurred on
November 15, 1995.
Management fees paid to FAI Home Security Pty
Limited by--
FAI Home Security (UK) Trust.................. 71,283
FAI Home Security (Canada) Trust.............. 135,061
The management fees relate to an apportionment of costs incurred by FAI Home
Security Pty Limited on behalf of FAI Home Security (UK) Trust and FAI Home
Security (Canada) Unit Trust.
Management fees received by FAI Home Security
Holdings Pty Limited from--
FAI Home Security (UK) Trust.................. 364,134
FAI Home Security (Canada) Trust.............. 91,034
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.
Interest paid to FAI Home Security Holdings
Pty Limited by:--
FAI Home Security (UK) Trust.................. 194,247
FAI Home Security (Canada) Trust.............. 42,928
</TABLE>
The interest has been charged in arrears on the balance of the loans
outstanding from FAI Home Security Holdings Pty Limited from June 30, 1996 and
have been calculated at market rates.
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 agrees 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 $2,700,955 as at March 31, 1997. The Group's
liabilities to related parties are not 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.
F-30
<PAGE>
FAI HOME SECURITY INTERNATIONAL GROUP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 14: GOING CONCERN
At December 31, 1996 the Group's liabilities exceeded its assets by
$3,507,109. 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 December 31, 1996 and proforma
statements of income for the six months ended December 31, 1996 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 United States and
South African 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 December 31, 1996 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;
FAI Home Security Pty Limited acquires fixed assets (owned and leased)
with a book value of $782,549 from FAI Home Security Holdings Pty Limited
for cash of $676,512 and assumption of the existing lease liabilities of
$106,037 based on December 31, 1996 financial statements;
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
$26,071 based on the December 31, 1996 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 $2,815,766
based on December 31, 1996 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
8,999,999 shares, the issue of a note payable to FAI Home Security Holdings
Pty Limited equivalent to the book value of assets acquired, being
$593,832, plus $270,754, and a further note payable by HSI to FAI Home
Security Holdings Pty Limited in the amount of $26,071 based on the
December 31, 1996 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 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 SIX MONTHS ENDED DECEMBER 31,
1996.
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL REORGANIZATION REORGANIZED
INTERNATIONAL ANZ COMBINED ADJUSTMENTS HISTORICAL
$US $US $US NOTE $US $US
------------- ---------- ---------- ---- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 854,493 15,176,245 16,030,738 (1) (1,987) 16,028,751
---------- ---------- ---------- ----------
Cost of sales--related
party.................. -- (1,776,402) (1,776,402) (1) (1,776,402)
--other............. (524,307) (9,161,644) (9,685,951) (1) (9,685,951)
---------- ---------- ---------- ----------
Gross profit............ 330,186 4,238,199 4,568,385 (1,987) 4,566,398
General and
administration
expenses............... (1,353,581) (2,509,880) (3,863,461) (1) 46,384 (3,817,077)
---------- ---------- ---------- ----------
Income from operations.. (1,023,395) 1,728,319 704,924 44,397 749,321
Interest income, net.... (232,090) 339,208 107,118 (1) (40,773) 66,345
---------- ---------- ---------- ----------
Income before income
taxes.................. (1,255,485) 2,067,527 812,042 3,624 815,666
Income tax expense...... -- (791,961) (791,961) (1) (1,192) (793,153)
---------- ---------- ---------- ----------
Net income (loss)....... (1,255,485) 1,275,566 20,081 2,432 22,513
</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 NOTE $US $US
------------- ----------- ----------- ---- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 1,750,028 26,700,922 28,450,950 (1) 21,278 28,472,228
---------- ----------- ----------- -----------
Cost of sales--related
party.................. -- (2,750,468) (2,750,468) (1) (2,750,468)
--other............. (1,028,583) (14,834,094) (15,862,677) (1) 20,468 (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) (1) 122,420 (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 (1) (107,016) 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) (1) (14,615) (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 six months ended December 31, 1996
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 SIX MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
REORGANIZED PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (UNAUDITED)
$US NOTES $US $US
----------- ----- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................... 16,028,751 16,028,751
---------- -----------
Cost of sales--related
parties.................... (1,776,402) (1) 1,776,402 --
--other................ (9,685,951) (9,685,951)
---------- -----------
Gross profit................ 4,566,398 6,342,800
General and administrative
expenses................... (3,817,077) (2)(a)(b)(c) (125,063) (3,942,140)
---------- -----------
Income from Operations...... 749,321 2,400,660
Interest income, net........ 66,345 (3) 237,175 303,520
---------- -----------
Income before income taxes.. 815,666 2,704,180
Income tax expense.......... (793,153) (4) (614,479) (1,407,632)
---------- -----------
Net Income.................. 22,513 1,296,548
Pro forma Number of Common
stock Outstanding.......... 9,500,000
Pro forma Earnings per
common share............... $ 0.136
</TABLE>
- --------
(1) Reversal of royalty expenses charged by FAI Home Security Holdings Pty
Limited of $1,776,402 for use of FAI name as FAI Insurances Limited has
agreed to provide the license for no ongoing charge.
(2)(a) Represents depreciation and amortization on fixed assets acquired by
FAI Home Security Pty Limited from FAI Home Security Holdings Pty
Limited of $119,900.
(2)(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. 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 $55,548.
(2)(c) Reversal of computer rental charge of $50,385 incurred previously for
use of FAI Home Security Holdings Pty Limited fixed assets which have
been purchased as part of the reorganization.
(3) Reversal of interest charge on loan with FAI Home Security Holdings Pty
Limited for $237,175 as the loan will not be assumed by the company when
it acquires the Cooper International Group operations.
(4) The tax effect of the depreciation and amortization on fixed assets,
computer rental, and royalty. 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 NOTES $US $US
----------- ----- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................. 28,472,228 28,472,228
----------- -----------
Cost of sales--related
parties................... (2,750,468) (5) 2,750,467 --
--other............... (15,842,209) (15,842,209)
----------- -----------
Gross profit............... 9,879,551 12,630,019
General and administrative
expenses.................. (9,683,547) (6)(a)(b)(c) (194,684) (9,878,231)
----------- -----------
Income from Operations..... 196,004 2,751,788
Interest income, net....... 104,092 (7) 47,625 151,717
----------- -----------
Income before income taxes. 300,096 2,903,505
Income tax expense......... (1,068,785) (8) (960,077) (2,028,862)
----------- -----------
Net Income (loss).......... (768,689) 874,643
Pro Forma Number of Common
stock Outstanding......... 9,500,000
Pro Forma Earnings per
common share.............. $ 0.092
</TABLE>
- --------
(5) Reversal of royalty expenses charged by FAI Home Security Holdings Pty
Limited of $2,750,467 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 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 Home Security Holdings Pty
Limited for $47,625 as the loan will not be assumed by the company when it
acquires the Cooper International operations.
(8) The tax effect of the depreciation and amortization on fixed assets,
computer rental and royalty. 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) (2) (3)(6) NOTE $US $US
------ ---------- -------------- ----------- ------------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash
equivalents........... 90,256 (90,130) 126 (4)(5) 4,268,858 4,268,984
Accounts receivable,
net--trade............ 983,912 (392,720) 591,192 591,192
Accounts receivable,
net--related party.... 7,061,032 (1,683,389) 5,377,643 (5) (5,377,643) --
Note receivable--
related party......... 26,071 26,071 (7) (26,071) --
Inventories............ 492,039 -- 492,039 472,725 964,764
Other current assets... 915,959 (7,390) 908,569 908,569
---------- ---------- ---------- --------- ----------
Total current assets. 9,543,198 (2,147,558) 7,395,640 472,725 (1,134,856) 6,733,509
Plant and equipment,
net.................... 10,747 782,549 793,296 121,107 914,403
Deferred income taxes... 404,052 (50,767) 353,285 353,285
Other long term assets.. 6,595 -- 6,595 6,595
Intangibles, net........ 8,149,775 -- 8,149,775 2,221,934 10,371,709
Investments............. -- -- -- --
Total assets......... 18,114,367 (1,415,776) 16,698,591 2,815,766 (1,134,856) 18,379,501
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Current liabilities
Bank overdraft......... 208,789 -- 208,789 208,789
Accounts payable--
trade................. 2,845,877 (200,009) 2,645,868 2,645,868
Accounts payable--
related party......... 32,456 3,497,329 3,529,785 (5) (3,529,785) --
Note payable--related
party................. -- 52,142 52,142 864,586 (7) (26,071) 890,657
Accrued liabilities.... 918,414 -- 918,414 918,414
Income taxes payable... 222,627 24,044 246,671 246,671
Deferred income........ 263,000 (44,475) 218,525 218,525
Lease liability........ -- 38,977 38,977 38,977
---------- ---------- ---------- ----------
Total current
liabilities......... 4,491,163 3,368,008 7,859,171 864,586 (3,555,856) 5,167,901
Long term lease
liability.............. -- 67,060 67,060 67,060
---------- ---------- ---------- ----------
Total liabilities.... 4,491,163 3,435,068 7,926,231 (3,555,856) 5,234,961
Shareholders' equity
Common stock........... 2 (2) -- (4) 9,500 9,500
Additional paid-in
capital............... 8,332,079 440,281 8,772,360 1,951,180 (4) 2,411,500 13,135,040
Foreign currency
translation
adjustment............ 525,369 (525,369) -- -- --
Retained earnings...... 4,765,754 (4,765,754) -- -- --
---------- ---------- ---------- --------- ----------
Total shareholders'
equity.............. 13,623,204 (4,850,844) 8,772,360 1,951,180 2,421,000 13,144,540
Total liabilities and
shareholders'
equity.............. 18,114,367 (1,415,776) 16,698,591 2,815,766 (1,134,856) 18,379,501
</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;
(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 December 31, 1996 the NZ debt
would total $26,071. The remaining assets and liabilities of FAI Home
Security (NZ) Trust and 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) Purchase of fixed assets (owned and leased) from FAI Home Security
Holdings Pty Limited of $782,549 for cash consideration of $676,512 and
the assumption of finance lease liabilities for a total of $106,037.
(d) Payment of a dividend out of retained earnings at December 31, 1996 of
$2,820,817.
(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 8,999,999 shares in HSI and the purchase of the
NZ Debt of $26,071 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 $26,071.
(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 a cash payment equivalent to the book value of assets, plus $270,754.
Based on the financial statements as at December 31, 1996 the total cash
payment is $864,586.
(4) HSI issues 500,000 shares to the public at $6.50 per share total proceeds
of $3,250,000 and pays share issue costs of $829,000, representing net
issue proceeds of $2,421,000.
(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) Deferred tax losses not accounted for within the Cooper International
Group are not transferable to HSI on acquisition.
(7) Represents the elimination of the note payable from FAI Home Security
(ENZED) Ltd to HSI in the amount of $26,071 and the note receivable by FAI
Home Security (ENZED) Ltd from HSI in the amount of $26,071.
F-38
<PAGE>
OUTSIDE BACK COVER
================================================================================
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
solicitation would be unlawful or to any person to whom it is unlawful. Neither
the delivery 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 affairs of the Company or that information contained in this Prospectus is
correct as of any time subsequent to the date hereof.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Prospectus Summary........................................................... 3
Risk Factors................................................................. 7
Use of Proceeds..............................................................15
Dividend Policy..............................................................15
Capitalization...............................................................16
Dilution.....................................................................18
Selected Combined Financial Data.............................................19
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................20
Business.....................................................................28
Management...................................................................41
Executive Compensation.......................................................47
Certain Transactions.........................................................49
Principal and Selling Shareholders...........................................51
Description of Securities....................................................53
Shares Eligible for Future Sale..............................................56
Underwriting.................................................................58
Legal Matters................................................................60
Experts......................................................................60
Additional Information.......................................................60
Index to Financial Statements...............................................F-1
- ------------------------------------------------------------------------------
Until ________, 1997 (25 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating 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.
HOME SECURITY INTERNATIONAL, INC.
[LOGO]
6,000,000 Shares of Common Stock
---------------------------------
PROSPECTUS
---------------------------------
June ___, 1997
NATIONAL SECURITIES
CORPORATION
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. 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 Article Ninth 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.
II-1
<PAGE>
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-2
<PAGE>
Item 25. 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>
<CAPTION>
<S> <C>
SEC Registration Fees (includes State)...... $ 20,000
NASD Listing Fee............................ $ 8,000
Blue Sky expenses and legal fees............ $ 15,000
Accountants' Fees and Expenses.............. $ 75,000
Nasdaq National Market Listing Fee.......... $ 50,000
Legal Fees and Expenses..................... $200,000
Printing and Engraving...................... $120,000
Transfer Agent and Registration Fees........ $ 6,000
Miscellaneous............................... $ 10,000
Total................................ $504,000
========
</TABLE>
II-3
<PAGE>
Item 26. Recent sales of unregistered securities
Item 27. Exhibits
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
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 Representative's Warrant Agreement including Form of
Representative's 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
*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-7 of this
Registration Statement
</TABLE>
* To be filed by Amendment.
II-4
<PAGE>
Item 28. 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.
II-5
<PAGE>
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-6
<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 May 3, 1997.
Home Security International, Inc.,
By: /s/ Bradley D. Cooper
-------------------------------
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors and
officers of Home Security International, Inc., a Delaware corporation, which
is filing a Registration Statement on Form S-1 with the Securities and
Exchange Commission, under the provisions of the Securities Act of 1933, as
amended, hereby constitute and appoint Bradley D. Cooper, Terrence J. Youngman
and Mark Whitaker, and each of them, each of their true and lawful attorneys-
in-fact and agents; with full power of substitution and resubstitution, for
him or her in his or her name, place and stead, in any and all capacities, to
sign such Registration Statement and any or all pre-effective and post-
effective amendments to the Registration Statements, including a Prospectus or
an amended Prospectus therein, and all other documents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all interests
and purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
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.
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bradley D. Cooper Chairman and Chief Executive May 2, 1997
- -------------------------- Officer (Principal Executive
Officer)
/s/ Mark Whitaker Chief Financial Officer, May 2, 1997
- -------------------------- Executive Vice President of
Finance and Treasurer (Principal
Financial and Accounting
Officer)
/s/ Timothy M. Mainprize Director May 2, 1997
- --------------------------
/s/ Steven A. Rothstein Director May 2, 1997
- --------------------------
/s/ Steve Rabinovici Director May 2, 1997
- --------------------------
/s/ Dennis J. Puleo Director May 2, 1997
- --------------------------
</TABLE>
II-8
<PAGE>
EXHIBIT 1
6,000,000 Common Shares
HOME SECURITY INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
New York, New York
June __, 1997
National Securities Corporation
As Representative of the Several Underwriters
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Home Security International, Inc., a Delaware corporation (the
"Company") and FAI Home Security Holdings, Inc. (the "Selling Shareholder")
hereby agree with National Securities Corporation ("National") and each of the
underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 11), for whom National is acting as representative (in such capacity,
National shall hereinafter be referred to as "you" or the "Representative") with
respect to (i) the sale by the Company and the purchase by the Underwriters,
acting severally and not jointly, of 500,000 shares of common stock, par value
[$.001] per share (the "Common Stock") of the Company and (ii) the sale by the
Selling Shareholder and the purchase by the Underwriters, acting severally and
not jointly, of 5,500,000 shares of Common Stock. Such 6,000,000 shares of
Common Stock shall hereinafter be referred to as the "Firm Shares." Upon your
request, as provided in Section 2(b) of this Agreement, the Company shall also
issue and sell to the Underwriters, acting severally and not jointly, up to
400,000 shares of common stock and the Selling Shareholder shall also sell to
the Underwriters, acting severally and not jointly, up to an additional 500,000
shares of Common Stock, such Common Stock to be sold for the purpose of covering
over-allotments, if any. Such 900,000 shares are hereinafter referred to as the
"Option Shares." The Firm Shares and the Option Shares are hereinafter referred
to collectively as the "Shares." The Company also proposes to issue and sell to
you warrants (the "Representative's
<PAGE>
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 600,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of
the Representative's Warrants are hereinafter referred to as the
"Representative's Shares." The Firm Shares, the Option Shares, the
Representative's Warrants and the Representative's Shares are more fully
described in the Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company and the Selling
Shareholder.
A. The Company and the Selling Shareholder represent and warrant to,
and agree with, each of the Underwriters as of the date hereof, and as of the
Closing Date and the Option Closing Date, if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. __________), including any
related preliminary prospectus (the "Preliminary Prospectus"), and a related
registration statement filed with the Commission pursuant to Rule 462(b) of the
Regulations (as defined below) for the registration of the Securities, the
Representative's Warrants and the Representative's Shares (collectively,
hereinafter referred to as the "Registered Securities") under the Securities Act
of 1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the Regulations (as defined below) of the Commission under the
Act. The Company will not file any other amendment thereto to which the
Underwriters shall have objected in writing after having been furnished with a
copy thereof. Except as the context may otherwise require, such registration
statements as amended, on file with the Commission at the time the registration
statements become effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Regulations), are
hereinafter called the "Registration Statement," and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof,
"Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part thereof, and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and the Prospectus at the time of filing thereof conformed in all material
respects with
-2-
<PAGE>
the requirements of the Act and the Regulations, and none of the Preliminary
Prospectus, the Registration Statement or the Prospectus at the time of filing
thereof contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined in Section 2(c)
hereof) and each Option Closing Date (as defined in Section 2(b) hereof), if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, and will conform in all material
respects to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of any Underwriter expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company and all subsidiaries in which it owns an
interest, direct or indirect (the "Subsidiaries"), have been duly organized and
are validly existing as corporations in good standing under the laws of the
respective states of their incorporation. The Company does not own or control,
directly or indirectly, any corporation, partnership, trust, joint venture or
other business entity other than the subsidiaries listed in Exhibit 21 of the
Registration Statement. Each of the Company and the Subsidiaries is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations require such qualification or licensing. Each of the
Company and the Subsidiaries has all requisite power and authority (corporate
and other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the Prospectus;
each of the Company and the Subsidiaries is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and foreign
laws, rules and regulations; and neither the Company nor any of the Subsidiaries
has received any notice of
-3-
<PAGE>
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the business affairs, operations, properties, or
results of operations of the Company and the Subsidiaries, taken as a whole.
The disclosures in the Registration Statement concerning the effects of federal,
state, local, and foreign laws, rules and regulations on the Company's and the
Subsidiaries' businesses as currently conducted and as contemplated are correct
in all material respects and do not omit to state a material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement,
including, but not limited to, any voting trust agreement, stockholders
agreement or other agreement or instrument, affecting the Common Stock or rights
or obligations of securityholders of the Company or the Subsidiaries or
providing for any of the Company or the Subsidiaries to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement, the
Representative's Warrant Agreement and as described in the Prospectus. The
Common Stock, the Representative's Warrants and the Representative's Shares and
all other securities issued or issuable by each of the Company or the
Subsidiaries conform or, when issued and paid for, will conform, in all material
respects to all statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding shares of capital
stock of the Company or any of the Subsidiaries have been duly authorized and
validly issued and are fully paid and nonassessable. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company and
the related notes thereto included in the Prospectus, neither the Company nor
any Subsidiary has outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements and the options or other rights granted and
exercised thereunder as set forth in the Prospectus conforms in all material
respects with the requirements of the Act. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and the holders thereof have no rights of
rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company.
(f) The Registered Securities are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued,
-4-
<PAGE>
paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform in all material
respects to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Registered Securities has been duly and validly taken; and the certificates
representing the Registered Securities will be in due and proper form. Upon the
issuance and delivery pursuant to the terms hereof of the Registered Securities
to be sold by the Company hereunder, the Underwriters or the Representative, as
the case may be, will acquire good and marketable title to such Registered
Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect, or other restriction or equity of any kind
whatsoever. No stockholder of the Company has any right which has not been
waived in writing to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and sale of
the Shares, the Option Shares and the Representative's Warrants to be sold by
the Company as contemplated herein.
(g) The financial statements of each of the Company and the
Subsidiaries, together with the related notes and schedules thereto, included in
the Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position, changes in stockholders' equity and the
results of operations of the Company and the Subsidiaries at the respective
dates and for the respective periods to which they apply and such financial
statements have been prepared in conformity with generally accepted accounting
principles and the Regulations, consistently applied throughout the periods
involved. There has been no material adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
business, affairs, operations, properties, or results of operation of the
Company and the Subsidiaries taken as a whole whether or not arising in the
ordinary course of business since the date of the financial statements included
in the Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and the
Subsidiaries taken as a whole conform in all respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. Financial
information set forth in the Prospectus under the headings "Prospectus
Summary -- Summary Financial Information," "Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(h) Each of the Company and the Subsidiaries have (i) paid all
federal, state, local, franchise, and foreign taxes for which it is liable,
including, but not limited to, withholding taxes and amounts payable under
Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), and have furnished all information returns it is required to furnish
pursuant to the Code, (ii) has established adequate reserves for such taxes
which are not due and
-5-
<PAGE>
payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(i) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriters or the Representative in connection with (i)
the issuance by the Company of the Registered Securities, the Representative's
Warrants and the Representative's Shares, (ii) the purchase by the Underwriters
of the Registered Securities from the Company and the purchase by the
Representative of the Representative's Warrants or the Representative's Shares
from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement or the Representative's Warrant Agreement, or
(iv) resales of the Registered Securities in connection with the distribution
contemplated hereby.
(j) Each of the Company and the Subsidiaries maintains insurance
policies, including, but not limited to, general liability, property and product
liability insurance and surety bonds which insures the Company and the
Subsidiaries and their respective professional staffs against such losses and
risks generally insured against by comparable businesses. Neither the Company
nor any of the Subsidiaries (A) has failed to give notice or present any
insurance claim with respect to any matter, including, but not limited to, the
Company's or any of the Subsidiaries' businesses, property or professional
staff, under any insurance policy or surety bond in a due and timely manner, (B)
have any disputes or claims against any underwriter of such insurance policies
or surety bonds or have failed to pay any premiums due and payable thereunder,
or (C) have failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company or any of the
Subsidiaries.
(k) There is no claim, action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation, governmental or other
proceeding (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or threatened
against (or circumstances that may give rise to the same), or involving the
properties or businesses of, the Company or any of the Subsidiaries which (i)
questions the validity of the capital stock of the Company or any of the
Subsidiaries, this Agreement or the Representative's Warrant Agreement, or of
any action taken or to be taken by the Company or any of the Subsidiaries or the
Selling Shareholder pursuant to or in connection with this Agreement or the
Representative's Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the business, affairs, position,
stockholders' equity, operation, properties, or results of operations of the
Company and the Subsidiaries taken as a whole.
-6-
<PAGE>
(l) The Company has the full legal right, corporate power and
authority to authorize, issue, deliver, and sell the Registered Securities and
to enter into this Agreement and the Representative's Warrant Agreement, and to
consummate the transactions provided for in such agreements; and this Agreement
and the Representative's Warrant Agreement have each been duly and properly
authorized, executed, and delivered by the Company. Each of this Agreement and
the Representative's Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with
their respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law), and none of the Company's issue and sale of the Registered Securities,
execution, delivery or performance of this Agreement and the Representative's
Warrant Agreement, the consummation of the transactions contemplated herein and
therein, or the conduct by the Company and the Subsidiaries of their businesses
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company or any of the Subsidiaries
pursuant to the terms of (i) the certificates of incorporation or bylaws of the
Company or any of the Subsidiaries, as amended and restated, (ii) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or any other agreement
or instrument to which the Company or any of the Subsidiaries is a party or by
which any of them may be bound or to which their properties or assets (tangible
or intangible) is or may be subject, or any indebtedness of either the Company
or any of the Subsidiaries, or (iii) any statute, judgment, decree, order, rule
or regulation applicable to the Company or any of the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company of any of their activities or properties.
(m) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Registered Securities
pursuant to the Prospectus and the Registration Statement, the performance of
this Agreement, the Representative's Warrant Agreement, and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Registered Securities, except such as have
been or may be obtained under the Act or may be required under state securities
or Blue Sky laws in connection with the Underwriters' purchase and distribution
of the Registered Securities to be sold hereunder.
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(n) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company or any of the Subsidiaries is a
party or by which any of them may be bound or to which either of their assets,
properties or businesses may be subject have been duly and validly authorized,
executed and delivered by the Company or any of the Subsidiaries, as the case
may be, and constitute the legal, valid and binding agreements of the Company or
any of the Subsidiaries, as the case may be, enforceable against the Company or
any of the Subsidiaries, as the case may be, in accordance with their respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). The descriptions in
the Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(o) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus, neither the Company nor any of the
Subsidiaries (i) has incurred any material liabilities or obligations, indirect,
direct or contingent, or entered into any material verbal or written agreement
or other transaction which is not in the ordinary course of business or which
could result in a material reduction in the future earnings of the Company or
any of the Subsidiaries; (ii) has sustained any material loss or interference
with its business or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) has paid or declared any
dividends or other distributions with respect to its capital stock, (iv) neither
the Company nor any of the Subsidiaries is in default in the payment of
principal or interest on any outstanding debt obligations; (v) has had any
change in its capital stock (other than upon the sale of the Firm Shares, the
Option Shares and the Representative's Shares hereunder and upon the exercise of
options and warrants described in the Registration Statement) (other than in the
ordinary course of business) of, or indebtedness material to, the Company or any
of the Subsidiaries; (vi) has issued any securities or incurred any liability or
obligation, primary or contingent, for borrowed money; or (vii) has experienced
any material adverse change in the condition (financial or otherwise) of their
respective businesses, properties, results of operations, or prospects.
(p) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company and the Subsidiaries have sufficient trademarks,
trade names, patent rights, copyrights, licenses, approvals and governmental
authorizations to conduct their respective businesses
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as now conducted; (ii) the expiration of any trademarks, trade names, patent
rights, copyrights, licenses, approvals or governmental authorizations would not
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company or any of the
Subsidiaries; (iii) the Company has no knowledge of any infringement by it or
its subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and (iv) there is no
claim being made against the Company or any of the Subsidiaries regarding
trademark, trade name, patent, copyright, license, trade secret or other
infringement which could have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company or any of the Subsidiaries.
(q) None of the Company or any of the Subsidiaries are, or with
the giving of notice or lapse of time or both, will be, in violation of or in
default under their respective charters or bylaws, and no default exists in the
due performance and observance of any term, covenant or condition of any
license, contract, indenture, mortgage, installment sale agreement, lease, deed
of trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries may be bound or to which the property or assets
(tangible or intangible) of the Company or any of the Subsidiaries are subject
or affected.
(r) To the Company's knowledge, there are no pending
investigations involving the Company or any of the Subsidiaries by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or any
of the Subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or to its
knowledge threatened against or involving the Company or any of the
Subsidiaries. No representation question exists respecting the employees of the
Company or any of the Subsidiaries. No collective bargaining agreement, or
modification thereof is currently being negotiated by the Company or any of the
Subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
the Subsidiaries. No labor dispute with the employees of the Company or any of
the Subsidiaries exists or is imminent.
(s) Except as described in the Prospectus, neither the Company
nor any of the Subsidiaries maintains, sponsors or contributes to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multi-employer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor any
of the Subsidiaries maintains or contributes to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a
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"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or any of the Subsidiaries to
any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401(a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. Neither the Company nor any of the Subsidiaries has ever
completely or partially withdrawn from a "multi-employer plan."
(t) None of the Company, nor any of the Subsidiaries, nor any of
their employees, directors, stockholders, or affiliates (within the meaning of
the Regulations) of any of the foregoing has taken or will take directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Registered
Securities.
(u) Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, or other restrictions or equities of any kind whatsoever other than
those referred to in the Prospectus and liens for taxes not yet due and payable.
(v) Arthur Andersen LLP ("Arthur Andersen"), whose report is
filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the
Regulations.
(w) There are no claims, payments, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Registered
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company, the Subsidiaries, or any of
their respective officers, directors, stockholders, employees or affiliates that
may affect the Underwriters' compensation as determined by the Commission and
the National Association of Securities Dealers, Inc. (the "NASD").
(x) The Registered Securities have been approved for quotation on
the NASDAQ National Market System, subject only to official notice of insurance.
(y) Each of the Company and the Subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
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accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) None of the Company, the Subsidiaries, nor any of their
respective officers, employees, agents or any other person acting on behalf of
the Company or any of the Subsidiaries has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company or any of the Subsidiaries (or assist
the Company or any of the Subsidiaries in connection with any actual or proposed
transaction) which might subject the Company, the Subsidiaries, or any other
such person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign). Each of the Company's and the
Subsidiaries' internal accounting controls are sufficient to cause the Company
and the Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977,
as amended.
(aa) Except as set forth in the Prospectus, no officer, director
or stockholder of the Company, the Subsidiaries, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Regulations) of any of the foregoing persons or entities has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or any of the Subsidiaries, or
(B) purchases from or sells or furnishes to the Company or any of the
Subsidiaries any goods or services, or (ii) a beneficiary interest in any
contract or agreement to which the Company or any of the Subsidiaries is a party
or by which the Company or any of the Subsidiaries may be bound or affected.
Except as set forth in the Prospectus there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company, the
Subsidiaries, and any officer, director, principal shareholder (as such term is
used in the Prospectus) of the Company, or any affiliate or associate of any of
the foregoing persons or entities.
(bb) None of the Company or any of the Subsidiaries intends to
conduct their respective businesses in a manner in which it would become an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended (the "1940 Act").
(cc) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel (as defined in
Section 4(d) herein) shall be
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deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(dd) The minute books of each of the Company and the Subsidiaries
have been made available to the Underwriters and contain a complete summary of
all meetings and actions of the directors and stockholders of each of the
Company and the Subsidiaries, since the time of their respective incorporation,
and reflect all transactions referred to in such minutes accurately in all
material respects.
(ee) Neither the Company nor any of the Subsidiaries has
distributed nor will distribute prior to the Closing Date any offering material
in connection with the offering and sale of the Securities in this offering
other than the Prospectus, the Registration Statement and the other materials
permitted by the Act. Except as described in the Prospectus, no holders of any
securities of the Company or any of the Subsidiaries or of any options, warrants
or other convertible or exchangeable securities of the Company or any of the
Subsidiaries have the right to include any securities issued by the Company or
any of the Subsidiaries as part of the Registration Statement or to require the
Company or any of the Subsidiaries to file a registration statement under the
Act and no person or entity holds any anti-dilution rights with respect to any
securities of the Company or any of the Subsidiaries.
(ff) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported or incorporated by reference in
the Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(gg) The Company has purchased "key man" life insurance on the
life of Bradley Cooper in the amount of [$ ] and the Company is named as
the sole beneficiary of such insurance policy.
B. The Selling Shareholder represents and warrants to, and agrees
with, the each of the Underwriters as of the date hereof, and as of the Closing
Date, and as of the Option Closing Date, if any, as follows:
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(a) The Selling Shareholder has (i) caused a certificate or
certificates for the number of shares of Common Stock to be sold by the Selling
Shareholder hereunder to be delivered to D'Ancona & Pflaum (in its capacity as
escrow agent, the "Escrow Agent"), duly endorsed in blank or together with blank
stock powers duly executed, with the signature of the Selling Shareholder
appropriately guaranteed, such certificate or certificates to be held in escrow
by the Escrow Agent pursuant to an escrow agreement for delivery, pursuant to
the provisions hereof, on the Closing Date and the Option Closing Date, if any,
and (ii) granted an irrevocable power of attorney to the Escrow Agent to
purchase all requisite stock transfer tax stamps, to sign this Agreement
(including agreeing on the price at which the Stock and the Additional Stock are
to be sold to the Underwriters) and thereafter to modify and amend this
Agreement, to waive any condition to the obligations of the Selling Shareholder
and to execute all other instruments and documents and to perform all other acts
necessary to carry out the provisions of this Agreement on behalf of the Selling
Shareholder (such escrow agreement together with such irrevocable powers of
attorney being herein called the "Escrow Agreement").
(b) There is no claim, action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation, governmental or other
proceeding, domestic or foreign, pending or threatened against the Selling
Shareholder or any of business, properties, or assets owned by the Selling
Shareholder. The Selling Shareholder is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree; nor is the
Selling Shareholder required to take any action in order to avoid such violation
or default.
(c) The Selling Shareholder has all the requisite power and
authority to execute, deliver, and perform this Agreement and the Escrow
Agreement. This Agreement and the Escrow Agreement have been duly executed and
delivered by the Selling Shareholder, are the legal, valid, and binding
obligations of the Selling Shareholder and are enforceable as to the Selling
Shareholder in accordance with their respective terms. No consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the Selling Shareholder
for the execution, delivery, or performance of this Agreement (except filings
under the Act which have been or will be made before the Closing Date and such
consents consisting only of consents under "blue sky" or securities law which
have been obtained at or prior to the date of this Agreement) or the Escrow
Agreement by the Selling Shareholder. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
the Selling Shareholder is a party, or to which any of the properties or assets
of the Selling Shareholder are subject, is required for the execution, delivery,
or performance of this Agreement or the Escrow Agreement; and the execution,
delivery, and performance of this Agreement and the Escrow Agreement will not
violate, result in a breach of, conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any party to terminate or call
default under any such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate, result in a breach of, or conflict
with, any law, rule, regulation, order,
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judgment, or decree binding on the operations, business, properties, or assets
of the Selling Shareholder are subject.
(d) The Selling Shareholder has good title to the Firm Shares and
Option Shares, as the case may be, to be sold by it pursuant to this Agreement,
free and clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts (except those created by this
Agreement and the Escrow Agreement), and when delivered in accordance with this
Agreement, the Underwriters will receive good title to the Firm Shares or Option
Shares purchased by them from the Selling Shareholder, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts.
2. Purchase, Sale and Delivery of the Common Stock and
Representative's Warrants.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company and Selling Shareholder agree to sell to each
Underwriter, and each Underwriter, severally and not jointly, agrees to purchase
from the Company and Selling Shareholder that aggregate principal amount of Firm
Shares set forth opposite the name of such Underwriter, the Company or the
Selling Shareholder in Schedule A hereto at a price equal to 92% of the
principal amount thereof, subject to such adjustment as the Representative in
its discretion shall make to eliminate any fractional sales or purchases, plus
any additional amount of Firm Shares which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Selling Shareholder hereby grants an option to
the Underwriters, severally and not jointly, to purchase all or any part of an
additional 500,000 shares of Common Stock and the Company hereby grants an
option to the Underwriters, severally and not jointly, to purchase all or any
part of an additional 400,000 shares of Common Stock at a price equal to 92% of
the principal amount thereof from the Closing Date. The Company, the Selling
Shareholder and the Representative hereby agree that the first 500,000 option
shares to be purchased by the Representative shall be sold to it by the Selling
Shareholder. The option granted hereby will expire 45 days after (i) the date
the Registration Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the Regulations, or (ii) the date of this Agreement if
the Company has elected to rely upon Rule 430A under the Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Shares upon notice by the Representative to the Company
and the Selling Shareholder setting forth the aggregate principal amount of
Option Shares as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for any such Option Shares.
Any such time and date of delivery (an "Option Closing
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Date") shall be determined by the Representative, but shall not be later than
seven full business days after the exercise of said option, nor in any event
prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon
by the Representative, the Company and the Selling Shareholder. Nothing herein
contained shall obligate the Underwriters to exercise the over-allotment option
described above. No Option Shares shall be delivered unless the Firm Shares
shall be simultaneously delivered or shall theretofore have been delivered as
herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the offices of National, 1001
Fourth Avenue, Suite 2200, Seattle, Washington, or at such other place as shall
be agreed upon by the Representative and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York time) on June ______, 1997 or at such
other time and date as shall be agreed upon by the Representative and the
Company, but no more than four (4) business days after the date hereof (such
time and date of payment and delivery being herein called the "Closing Date").
In addition, in the event that any or all of the Option Shares are purchased by
the Underwriters, payment of the purchase price for, and delivery of
certificates for, such Option Shares shall be made at the above mentioned office
of National or at such other place as shall be agreed upon by the
Representative, the Company and the Selling Shareholder on each Option Closing
Date as specified in the notice from the Representative to the Company.
Delivery of the certificates for the Firm Shares and the Option Shares, if any,
shall be made to the Underwriters against payment by the Underwriters, of the
purchase price for the Firm Shares and the Option Shares, if any, to the order
of the Company and the Selling Shareholder. In the event such option is
exercised, each of the Underwriters, acting severally and not jointly, shall
purchase that proportion of the total number of Option Shares then being
purchased which the number of Firm Shares set forth in Schedule A hereto
opposite the name of such Underwriter bears to the total number of Firm Shares,
subject in each case to such adjustments as the Representative in their
discretion shall make to eliminate any sales or purchases of fractional shares.
Certificates for the Firm Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriters may
request in writing at least three (3) business days prior to Closing Date or the
relevant Option Closing Date, as the case may be. The certificates for the Firm
Shares and the Option Shares, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative the Representative's Warrants at a purchase price of $.0001 per
warrant, which warrants shall entitle the holders thereof to purchase the
Representative's Shares. The Representative's Warrants shall expire four (4)
years after the effective date of the Registration Statement and shall be
exercisable for a period of four (4) years commencing one (1) year from
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the effective date of the Registration Statement at the exercise prices
described in the first paragraph hereof. The Representative's Warrant Agreement
and form of Warrant Certificate shall be substantially in the form filed as
Exhibit 4.2 to the Registration Statement. Payment for the Representative's
Warrants shall be made on the Closing Date.
3. Public Offering of the Firm Shares. As soon after the
Registration Statement becomes effective as the Representative deem advisable,
the Underwriters shall make a public offering of the Firm Shares (other than to
residents of or in any jurisdiction in which qualification of the Firm Shares is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. The Representative may from time to time increase or
decrease the public offering price after distribution of the Firm Shares has
been completed to such extent as the Representative, in its sole discretion,
deems advisable. The Underwriters may enter into one or more agreements as the
Underwriters, in each of their sole discretion, deem advisable with one or more
broker-dealers who shall act as dealers in connection with such public offering.
4. Covenants of the Company and Selling Shareholder. The Company and
the Selling Shareholder covenant and agree with each of the Underwriters as
follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Firm
Shares by the Underwriters of which the Representative shall not previously have
been advised and furnished with a copy, or to which the Representative shall
have objected or which is not in compliance with the Act, the Exchange Act or
the Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Registered Securities for offering
or sale in any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments from the
Commission, and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
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for additional information. If the Commission or any state securities
commission authority shall enter a stop order or suspend such qualification at
any time, the Company will use its best efforts to obtain promptly the lifting
of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) in accordance with the requirements of the
Act.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Registered Securities
which differs from the corresponding prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement to which the
Representative or Camhy Karlinsky & Stein LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Registered Securities for offering and sale under the
securities laws of such jurisdictions as the Representative may reasonably
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or become subject to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, as now and hereafter amended, and by
the Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus, or any amendments or supplements thereto.
If at any time when a prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of which, in
the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus,
as then amended or supplemented, includes an untrue statement of a material fact
or omits to state any material fact required to be
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stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend or supplement the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its securityholders, in the manner specified in Rule
158(b) of the Regulations, and to the Representative, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its securityholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representative:
(i) concurrently with furnishing such quarterly reports to
its securityholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission,
the Nasdaq National Market or any securities exchange;
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(v) every press release and every material news item or
article of interest to the financial community in respect of each of
the Company and the Subsidiaries or their respective affairs which was
released or prepared by or on behalf of the Company or any of the
Subsidiaries; and
(vi) any additional information of a public nature
concerning the Company or any of the Subsidiaries (and any future
subsidiaries) or their respective businesses which the Representative
may reasonably request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer agent (the "Transfer
Agent") and, if necessary under the jurisdiction of incorporation of the
Company, a registrar (which may be the same entity as the transfer agent) for
the Common Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), each
Preliminary Prospectus, the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Representative may reasonably request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true copies of duly
executed, legally binding and enforceable Lock-up Agreements. On or before the
Closing Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate stop transfer orders on the Company's
ledgers.
(l) The Company shall use its best efforts to cause its officers,
directors, stockholders or affiliates (within the meaning of the Regulations)
not to take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Common Stock substantially in the manner, and subject to the conditions, set
forth under "Use of Proceeds" in the Prospectus.
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(n) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Regulations.
(o) The Company shall cause the Common Stock to be quoted on the
NASDAQ National Market System and for a period of two (2) years from the date
hereof shall use its best efforts to maintain the quotation of the Common Stock
to the extent outstanding.
(p) For a period of two (2) years from the Closing Date, the
Company shall furnish to the Representative, at the Company's sole expense,
daily consolidated transfer sheets relating to the Common Stock.
(q) For a period of five (5) years after the effective date of
the Registration Statement the Company shall, at the Company's sole expense,
take all necessary and appropriate actions to further qualify the Company's
securities in all jurisdictions of the United States in order to permit
secondary sales of such securities pursuant to the Blue Sky laws of those
jurisdictions which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
(r) The Company (i) prior to the effective date of the
Registration Statement, has filed a Form 8-A with the Commission providing for
the registration of the Common Stock under the Exchange Act and (ii) as soon as
practicable, will use its best efforts to take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and
Moody's OTC Manual and to continue such inclusion for a period of not less than
five (5) years.
(s) The Company agrees that for a period of thirteen (13) months
following the effective date of the Registration Statement it will not, without
the prior written consent of National, offer, issue, sell, contract to sell,
grant any option for the sale of or otherwise dispose of any Common Stock, or
securities convertible into Common Stock, except for the issuance of the Option
Shares, the Representative's Warrants, and shares of Common Stock upon the
exercise of currently outstanding warrants or options issued under any stock
option plan in effect on the Closing Date or options to purchase shares of
Common Stock granted pursuant to any stock option plan in effect on the Closing
Date.
(t) Until the completion of the distribution of the Securities,
none of the Company nor any of the Subsidiaries shall, without the prior written
consent of National or Underwriters' Counsel, issue, directly or indirectly
issue any press release or other communication or hold any press conference with
respect to the Company, any of the Subsidiaries, their respective
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activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from
the date hereof, and (ii) the sale to the public of the Representative's Shares,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 (or other appropriate form) for the registration
under the Act of the Representative's Shares.
(v) The Company agrees that upon the request of National it shall
use its best efforts, which shall include, but shall not be limited to, the
solicitation of proxies, to elect two (2) designees of National to the Company's
Board of Directors for a period of five (5) years following the Closing,
provided that such designees are reasonably acceptable to the Company. In the
event National does not exercise its right to designate a member of the Board of
Directors, then it shall have the right to designate one person to attend all
meetings of the Board of Directors, then it shall have the right to designate
one person to attend all meetings of the Board of Directors of the Company, and
all committees thereof, as an observer. Such observer shall be entitled to
receive notices of all such meetings, and all correspondence and communications
sent by the Company to members of its Board of Directors and to attend all such
meetings. The Company shall reimburse the designees of National for out-of-
pocket expenses incurred in connection with attendance at such meetings.
(w) The Company agrees that within forty-five (45) days after the
Closing it shall retain a public relations firm which is acceptable to National.
The Company shall keep such public relations firm, or any replacement, for a
period of three (3) years from the Closing. Any replacement public relations
firm shall be retained only with the consent of National.
(x) The Company agrees that any and all future transactions
between the Company or any of the Subsidiaries and their respective officers,
directors, principal stockholders and the affiliates of the foregoing persons
will be on terms no less favorable to the Company or any of the Subsidiaries
than could reasonably be obtained in arm's length transactions with independent
third parties, and that any such transactions also be approved by a majority of
the Company's or any of the Subsidiaries', as the case may be, outside
independent directors disinterested in the transaction.
(y) The Company shall prepare and deliver, at the Company's sole
expense, to National within the one hundred and twenty (120) day period after
the later of the effective date of the Registration Statement or the latest
Option Closing Date, as the case may be, bound volumes containing all
correspondence with regulatory officials, agreements, documents and all other
materials in connection with the offering as requested by the Underwriters'
Counsel.
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(z) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Common Stock in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date
and each Option Closing Date (to the extent not previously paid) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement and the Representative's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, filing, delivery and mailing (including the
payment of postage with respect thereto) of the Registration Statement and the
Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement, the Powers of Attorney, and related documents, including the cost of
all copies thereof and of the Preliminary Prospectuses and the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriters and
such dealers as the Underwriters may request, in quantities as hereinabove
stated, (iii) the printing, engraving, issuance and delivery of the certificates
representing the Registered Securities, (iv) the qualification of the Common
Shares and the Representative's Shares under state or foreign securities or Blue
Sky laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and reasonable disbursements and fees of counsel in
connection therewith, (v) advertising costs and expenses, including but not
limited to the costs and expenses incurred in connection with the "road show,"
information meetings and presentations, bound volumes and prospectus memorabilia
and "tombstone" advertisement expenses, (vi) fees and expenses of the transfer
agent and registrar, (vii) issue and transfer taxes, if any, (viii) experts,
(ix) the fees payable to the Commission, the NASD and (xi) the fees and expenses
incurred in connection with the listing of the Securities and the
Representative's Shares on the NASDAQ National Market System and any other
market or exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company and the Selling Shareholder shall reimburse and indemnify the
Representative for all of its actual out-of-pocket expenses on an accountable
basis, including the fees and disbursements of Underwriters' Counsel and all
Blue Sky counsel fees and Blue Sky filing fees, less any amounts already paid
pursuant to Section 5(c) hereof.
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(c) The Company and the Selling Shareholder further agree, with
respect to the Firm Shares sold by each, that, in addition to the expenses
payable by the Company pursuant to subsection (a) of this Section 5, they will
pay to the Representative on the Closing Date by certified or bank cashier's
check or, at the election of the Representative, by deduction from the proceeds
of the offering contemplated herein a non-accountable expense allowance equal to
two percent (2%) of the gross proceeds received by the Company and Selling
Shareholder from the sale of the Firm Shares, $__________ of which has been paid
to date. In the event the Representative elects to exercise the over-allotment
option described in Section 2(b) hereof, the Company and Selling Shareholder
agree to pay to the Representative on the Option Closing Date (by certified or
bank cashier's check or, at the Representative's election, by deduction from the
proceeds of the offering) a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received by the Company and the Selling
Shareholder from the sale of the Option Shares.
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and Selling Shareholder herein as
of the date hereof and as of the Closing Date and each Option Closing Date, if
any, as if they had been made on and as of the Closing Date or each Option
Closing Date, if any; the accuracy on and as of the Closing Date and each Option
Closing Date, if any, of the statements of officers of the Company and Selling
Shareholder made pursuant to the provisions hereof; and the performance by the
Company and by the Selling Shareholder on and as of the Closing Date and each
Option Closing Date, if any, of their respective covenants and obligations
hereunder:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York City time, on the date [prior to the date] of
this Agreement or such later date and time as shall be consented to in writing
by the Representative, and, at Closing Date and each Option Closing Date, if
any, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or contemplated by the Commission and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriters' Counsel. If the
Company has elected to rely upon Rule 430A of the Regulations, the price of the
Firm Shares and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Regulations within the prescribed time period, and prior to Closing Date the
Company shall have provided evidence satisfactory to the Representative of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Regulations.
(b) The Representative shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in
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the Representative's opinion, is material, or omits to state a fact which, in
the Representative's opinion, is material and is required to be stated therein
or is necessary to make the statements therein not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's reasonable opinion, is material, or omits to
state a fact which, in the Representative's reasonable opinion, is material and
is required to be stated therein or is necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriters shall have
received from Underwriters' Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Registered Securities, the
Registration Statement, the Prospectus and other related matters as the
Representative may request and Underwriters' Counsel shall have received from
the Company such papers and information as they request to enable them to pass
upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of D'Ancona & Pflaum ("D'Ancona & Pflaum"), counsel to the
Company, dated the Closing Date addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) each of the Company and the Subsidiaries (A) has been
duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, (B)
is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) to the best of
such counsel's knowledge after due inquiry, has all requisite
corporate power and authority and has obtained any and all
necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental
or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or
similar matters, the absence of which would have a material
adverse effect on the Company), to own or lease its properties
and conduct its business as described in the Prospectus;
(ii) the Company owns one hundred percent (100%) of the
outstanding capital stock of the Subsidiaries free and clear of
any liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind
whatsoever;
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(iii) except as described in the Prospectus, and to the best
of such counsel's knowledge after due inquiry, neither the
Company nor any of the Subsidiaries owns an interest in any
corporation, limited liability company, partnership, joint
venture, trust or other business entity;
(iv) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and
any amendment or supplement thereto, under "Capitalization" and
"Description of Capital Stock," and to the best of such counsel's
knowledge after due inquiry, neither the Company nor any of the
Subsidiaries is a party to or bound by any instrument, agreement
or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this
Agreement and the Representative's Warrant Agreement, and as
described in the Prospectus; the Registered Securities, and all
other securities issued or issuable by the Company or any of the
Subsidiaries conform in all material respects to the statements
with respect thereto contained in the Registration Statement and
the Prospectus; all issued and outstanding securities of the
Company or any of the Subsidiaries have been duly authorized and
validly issued and are fully paid and, to the best of such
counsel's knowledge after due inquiry, nonassessable; the holders
thereof are not subject to personal liability by reason of being
such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security
of the Company or any of the Subsidiaries, or to the best of such
counsel's knowledge after due inquiry, similar contractual rights
granted by the Company or any of the Subsidiaries or applicable
securities laws; the Registered Securities to be sold by the
Company hereunder and under the Representative's Warrant
Agreement are not and will not be subject to any preemptive or
other similar rights of any securityholder of the Company or any
of the Subsidiaries; the holders thereof will not be subject to
any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the
Registered Securities has been duly and validly taken; the
certificates representing the Registered Securities and the
Representative's Warrants are in due and proper form; the
Representative's Warrants constitute valid and binding
obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of
securities of the Company called for thereby (except as the
enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or
contribution may be
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<PAGE>
limited by applicable law); upon the issuance and delivery
pursuant to this Agreement and the Representative's Warrant
Agreement of the Registered Securities to be sold by the Company
hereunder and thereunder, the Company will convey against payment
therefore as provided herein, to the Underwriters or the
Representative, as the case may be, good and marketable title
thereto free and clear of all liens and other encumbrances;
(v) the Registration Statement is effective under the Act;
if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof
or suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act;
(vi) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and other financial
and statistical data included therein as to which no opinion need
be rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations. Such counsel shall
state that such counsel has participated in conferences with
officers and other representatives of the Company and the
Representative and representatives of the independent public
accountants for the Company, at which conferences the contents of
the Preliminary Prospectus, the Registration Statement, the
Prospectus, and any amendments or supplements thereto were
discussed, and, although such counsel is not passing upon and
does not assume any responsibility for the accuracy, completeness
or fairness of the statement and Prospectus, and any amendments
or supplements thereto, on the basis of the foregoing, no facts
have come to the attention of such counsel which lead them to
believe that either the Registration Statement or amendment
became effective or the Preliminary Prospectus or Prospectus or
amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading (it being
understood that such counsel need express no opinion with respect
to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the
Registration Statement or Prospectus, and any amendments or
supplements thereto);
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<PAGE>
(vii) to the best of such counsel's knowledge after due
inquiry, (A) there are no agreements, contracts or other
documents required by the Act to be described in the Registration
Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the
Registration Statement and the Prospectus and filed as exhibits
thereto; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company or any of the
Subsidiaries is a party or by which any of them is bound are
accurate in all material respects and fairly represent the
information required to be shown by Form S-1; (C) there is not
pending or threatened against the Company or any of the
Subsidiaries any action, arbitration, suit, proceeding,
litigation, governmental or other proceeding (including, without
limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, against the Company or any
of the Subsidiaries which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are
accurately summarized in all material respects), (y) questions
the validity of the capital stock of the Company or any of the
Subsidiaries or this Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company
or any of the Subsidiaries pursuant to or in connection with any
of the foregoing; and (D) there is no action, suit or proceeding
pending or threatened against the Company or any of the
Subsidiaries before any court or arbitrator or governmental body,
agency or official in which there is a reasonable possibility of
an adverse decision which may result in a material adverse change
in the financial condition, business, affairs, stockholders'
equity, operations, properties, business or results of operations
of the Company or any of the Subsidiaries, which could adversely
affect the present or prospective ability of the Company to
perform its obligations under this Agreement or the
Representative's Warrant Agreement or which in any manner draws
into question the validity or enforceability of this Agreement or
the Representative's Warrant Agreement;
(viii) the Company has the corporate power and authority to
enter into each of this Agreement and the Representative's
Warrant Agreement and to consummate the transactions provided for
herein and therein; and each of this Agreement and the
Representative's Warrant Agreement has been duly authorized,
executed and delivered by the Company; each of this Agreement and
the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party
thereto, constitutes a legal, valid and binding agreement of the
Company
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enforceable against the Company in accordance with its terms
(except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting
enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable
law), and none of the Company's execution, delivery or
performance of this Agreement and the Representative's Warrant
Agreement, its consummation of the transactions contemplated
herein or therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or
supplements thereto conflicts with or results in any breach or
violation of any of the terms or provisions of, or constitutes a
default under, or will result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the
Company or any of the Subsidiaries pursuant to the terms of (A)
the articles of incorporation or by laws of the Company or any of
the Subsidiaries, as amended, (B) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or any
other agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which any of
them is bound, or (C) any federal, state or local statute, rule
or regulation applicable to the Company or any of the
Subsidiaries or any judgment, decree or order known to such
counsel of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or any
of their activities or properties;
(ix) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or
other body (other than such as may be required under federal
securities or Blue Sky laws, as to which no opinion need be
rendered) is required in connection with the issuance of the
Registered Securities as contemplated by the Prospectus and the
Registration Statement, the performance of the Agreement and the
Representative's Warrant Agreement and the transactions
contemplated hereby and thereby;
(x) to the best of such counsel's knowledge after due
inquiry, the properties and businesses of the Company and the
Subsidiaries conform in
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all material respects to the description thereof contained in the
Registration Statement and the Prospectus;
(xi) to the best knowledge of such counsel, and except as
disclosed in the Registration Statement and the Prospectus, none
the Company nor any of the Subsidiaries is in breach of, or in
default under, any term or provision of any license, contract,
indenture, mortgage, installment sale agreement, deed of trust,
lease, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries is bound or to which the property or assets
(tangible or intangible) of the Company or any of the
Subsidiaries is subject; and none the Company nor any of the
Subsidiaries is in violation of any term or provision of its
articles of incorporation or bylaws, as amended, nor to the best
of such counsel's knowledge after due inquiry, in violation of
any franchise, license, permit, judgment, decree, order, statute,
rule or regulation, which would have a material adverse effect on
the Company;
(xii) the statements in the Prospectus under "Dividend
Policy" and "Description of Capital Stock," have been reviewed by
such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xiii) the Common Stock has been approved for listing on the
NASDAQ National Market System, subject only to official notice of
issuance;
(xiv) to the best of such counsel's knowledge and based upon
a review of the outstanding securities and the contracts
furnished to such counsel by the Company, no person, corporation,
trust, partnership, association or other entity has the right to
include and/or register any securities of the Company in the
Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in
such registration statement; and
(xv) the Company is not an "investment company" or
"promoter" or "principal underwriter" for or, to such counsel's
knowledge, an
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"affiliated person" of, an "investment company" as such terms are
defined in the 1940 Act.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws, rules and regulations of
the United States and the laws, rules and regulations of the State of Delaware,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws provided, however, that
if the laws, rules and regulations of jurisdictions other than the United States
and Delaware on which such other counsel opines differ materially from the laws,
rules and regulations of the United States and Delaware, the opinion of such
other counsel shall be modified to contain all provisions customarily included
in such opinions in such jurisdiction; (B) as to matters of fact, to the extent
they deem proper, on certificates and written statements of responsible officers
of the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel if
requested. The opinion of such counsel shall state that knowledge shall not
include the knowledge of a director or officer of the Company who is affiliated
with such firm in his or her capacity as an officer or director of the Company.
The opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel.
At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of D'Ancona & Pflaum, counsel to the Company,
dated the Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming as of such Option
Closing Date the statements made by D'Ancona & Pflaum in their opinion delivered
on the Closing Date.
(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of D'Ancona & Pflaum, counsel to the Selling Shareholder,
dated the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel to the effect that:
(i) the Selling Shareholder has full power and authority to
execute, deliver, and perform this Agreement and the Escrow Agreement.
This Agreement and the Escrow Agreement have been duly executed and
delivered by the Selling Shareholder and are the legal, valid, and
binding obligations of the Selling Shareholder, and (subject to
applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) are enforceable as to
it in accordance with their respective terms. No consent,
authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is
required by the Selling Shareholder for the execution, delivery, or
performance of this Agreement (except filings under the Act, all of
which have been made, and
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such consents consisting only of consents under "blue sky" or
securities laws) or the Escrow Agreement by the Selling Shareholder.
No consent of any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding known to such counsel to which
the Selling Shareholder is a party, or to which the Selling
Shareholder's properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement or the Escrow
Agreement; and the execution, delivery, and performance of this
Agreement and the Escrow Agreement will not violate, result in a
breach of, conflict with, or (with or without the giving of notice or
the passage of time or both) entitle any party to terminate or call a
default under any such contract, agreement, instrument, lease,
license, arrangement, or understanding, or violate, result in a breach
of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on the Selling Shareholder or to which the Selling
Shareholder's operations, business, properties, or assets are subject;
and
(ii) Upon the issuance and delivery pursuant to this Agreement of
the Registered Securities to be sold by the Selling Shareholder, the
Selling Shareholder will convey, against payment therefor as provided
herein, to the Underwriters and the Representative, respectively, good
and marketable title to the Registered Securities free and clear of
all liens and other encumbrances.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws, rules and regulations of
the United States and the laws, rules and regulations of the State of Delaware,
to the extent such counsel deems proper and to the extent specified in such
option, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws provided, however, that
if the laws, rules and regulations of jurisdictions other than the United States
and Delaware on which such other counsel opines differ materially from the laws,
rules and regulations of the United States and Delaware, the opinion of such
other counsel shall be modified to contain all provisions customarily included
in such opinions in such jurisdiction; (B) as to matters of fact, to the extent
they deem proper, on certificates and written statements of responsible officers
of the Company and certificates or other written statements of officers of
department of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel if
requested. The opinion of such counsel shall state that knowledge shall not
include the knowledge of a director or officer of the Company who is affiliated
with such firm in his or her capacity as an officer or director of the Company.
The opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel.
At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of D'Ancona & Pflaum, counsel to the Selling
Shareholder, dated the Option Closing Date, addressed to the Underwriters and in
form and substance satisfactory to the Underwriters' Counsel confirming as of
such Option Closing Date the statements made by
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D'Ancona & Pflaum in their opinion delivered on the Closing Date with respect to
the Selling Shareholder.
(f) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company herein contained.
(g) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities any of the
Company and the Subsidiaries, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by any of the
Company or the Subsidiaries, from the latest date as of which the financial
condition of the Company and the Subsidiaries is set forth in the Registration
Statement and Prospectus which is adverse to the Company and the Subsidiaries
taken as a whole; (iii) none of the Company or the Subsidiaries shall be in
default under any provision of any instrument relating to any outstanding
indebtedness which default has not been waived; (iv) none of the Company or the
Subsidiaries shall have issued any securities (other than Registered Securities)
or declared or paid any dividend or made any distribution in respect of its
capital stock of any class, nor has there been any change in the capital stock,
or any material increase in the debt (long or short term) or liabilities or
obligations of any of the Company or the Subsidiaries (contingent or otherwise);
(v) no material amount of the assets of any of the Company or the Subsidiaries
shall have been pledged or mortgaged, except as set forth in the Registration
Statement and Prospectus; (vi) no action, suit or proceeding, at law or in
equity, shall have been pending or threatened (or circumstances developed giving
rise to same) against any of the Company or the Subsidiaries, or affecting any
of their respective properties or businesses before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may materially adversely affect the
business, operations, prospects or financial condition or any income of the
Company or any of the Subsidiaries, except as set forth in the Registration
Statement and Prospectus; and (vii) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed on
behalf of the Company by the principal executive officer of the Company, dated
the Closing Date or Option Closing Date, as the case may be, to the effect that
such executive has carefully examined the Registration Statement, the
Prospectus, this Agreement and the Representative's Warrant Agreement, and that:
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(i) The representations and warranties of the Company in
this Agreement and, the Representative's Warrant Agreement are
true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all
conditions contained in this Agreement and the Representative's
Warrant Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case
may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and
no proceedings for that purpose have been instituted or are
pending or, to the best of each of such person's knowledge after
due inquiry, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all
statements and information required by the Act to be included
therein, and none of the Registration Statement, the Prospectus
nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and neither the Preliminary Prospectus or
any supplement, as of their respective dates, thereto included
any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (a) none of the Company or the Subsidiaries has
incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary
course of its business, any material liabilities or obligations,
direct or contingent; (b) none of the Company or the Subsidiaries
has paid or declared any dividends or other distributions on its
capital stock; (c) none of the Company or the Subsidiaries has
entered into any transactions not in the ordinary course of
business; (d) there has not been any change in the capital stock
or material increase in long-term debt or any increase in the
short-term borrowings (other than any increase in the short-term
borrowings in the ordinary course of business) of any of the
Company or the Subsidiaries, (e) none of the Company or the
Subsidiaries has sustained any loss or damage to its property or
assets, whether or not insured, (f) there is no litigation which
is pending or threatened (or circumstances giving rise to same)
against the Company, or any of the Subsidiaries or any affiliated
party of any of the foregoing which is required to be set forth
in
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an amended or supplemented Prospectus which has not been set
forth, and (g) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the date of
such certificate.
(i) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate from the Selling
Shareholder, dated the Closing Date or the Option Closing Date, as the case may
be, to the effect that the Selling Shareholder has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that the
representations and warranties of the Selling Shareholder in this Agreement are
true and correct, as if made on and as of the Closing Date or the Option Closing
Date, as the case may be, and the Selling Shareholder has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be.
(j) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters.
(k) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriters and Underwriters' Counsel, from Arthur Andersen:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of
the Act and the Exchange Act and the applicable Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company and the
Subsidiaries included in the Registration Statement comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Regulations thereunder and that
the Representative may rely upon the opinion of Arthur Andersen
with respect to the financial statements and supporting schedules
included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim
financial statements of the Company and the Subsidiaries (with an
indication of the date of the latest available unaudited interim
financial statements), a reading of the latest available minutes
of the stockholders and board of directors and the various
committees of the board of directors of the Company and the
Subsidiaries, consultations with officers and other employees of
each of the Company
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and the Subsidiaries responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A)
the unaudited financial statements and supporting schedules of
the Company and the Subsidiaries, if any, included in the
Registration Statement, do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements of the Company and the Subsidiaries included in the
Registration Statement, or (B) at a specified date not more than
five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or
material increase in long-term debt any of the Company or the
Subsidiaries, or any material decrease in the stockholders'
equity or net current assets or net assets of the Company as
compared with amounts shown in the ____________, 19__, balance
sheet included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of
such change or decrease;
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to each of
the Company and the Subsidiaries set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of each of the Company
and the Subsidiaries and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from
the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other material matters incident to
the transaction contemplated hereby as the Representative may
reasonably request.
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Arthur Andersen a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm that statements made in the letter furnished pursuant to
Subsection (i) of this Section 6, except that the specified date referred to
shall be a date not more than five (5) days prior to Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (iv)
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of Subsection (k) of this Section 6 with respect to certain amounts, percentages
and financial information as specified by the Representative and deemed to be a
part of the Registration Statement pursuant to Rule 430A(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (iv).
(m) On the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Registered Securities.
(n) No order suspending the sale of the Registered Securities in
any jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on the Closing Date or each Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall have
executed and delivered to the Representative, (i) the Representative's Warrant
Agreement, substantially in the form filed as [EXHIBIT 4.2] to the Registration
Statement, in final form and substance satisfactory to the Representative, and
(ii) the Representative's Warrants in such denominations and to such designees
as shall have been provided to the Company.
(p) On or before Closing Date, the shares of Common Stock shall
have been duly approved for quotation on the American Stock Exchange.
(q) On or before Closing Date, there shall have been delivered to
the Representative all of the Lock-up Agreements in final form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company and the Selling Shareholder, as of the date
hereof and as of the Option Closing Date, if any, agree to indemnify and hold
harmless each of the Underwriters (for purposes of this Section 7,
"Underwriters" shall include the officers, directors, partners, employees,
agents and counsel of the Underwriters, including specifically each person who
may be substituted for an Underwriter as provided in Section 11 hereof), and
each person, if any, who controls the Underwriter ("controlling person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all loss, liability, claim, damage, and expense whatsoever
(including, but not limited to, reasonable attorneys' fees and any and all
reasonable expense whatsoever incurred in investigating, preparing or defending
against any
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litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
the Selling Shareholder or based upon written information furnished by or on
behalf of the Company or the Selling Shareholder in any jurisdiction in order to
qualify the Registered Securities under the securities laws thereof or filed
with the Commission, any state securities commission or agency, The NASDAQ Stock
Market Inc. or any securities exchange; or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of the Prospectus, in the light
of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be; or (ii) any breach of any representation,
warranty, covenant or agreement of the Company or the Selling Shareholder
contained in this Agreement. The indemnity agreement in this subsection (a)
shall be in addition to any liability which the Company or the Selling
Shareholder may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly,
to indemnify and hold harmless the Company, the Selling Shareholder, each of
their directors, each of their officers who has signed the Registration
Statement, and each other person, if any, who controls the Company or the
Selling Shareholder, within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company and the Selling Shareholder to the
Underwriters but only with respect to statements or omissions, if any, made in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to any Underwriter by such Underwriter or the
Representative expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any such application, provided that such written information or
omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus directly relating to the transactions
effected by the Underwriters in connection with this Offering. The Company and
the Selling Shareholder acknowledge that the statements with respect to the
public offering of the Securities set forth under the heading "Underwriting" and
the stabilization legend in the Prospectus have been furnished by the
Underwriters expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriters or the Representative
for inclusion in the Prospectus. The indemnity agreement in this subsection (b)
shall be in addition to any liability which the Underwriters may have at common
law or otherwise.
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(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure to so notify an indemnifying party shall not relieve it from any
liability which it may have otherwise or which it may have under this Section 7,
except to the extent that it has been prejudiced in any material respect by such
failure). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded, based on the
advice of counsel, that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the reasonable fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Registered Securities, or (B) if the allocation provided by clause (A) above
is not permitted by applicable law, in such proportion as
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is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of each of the contributing parties, on
the one hand, and the party to be indemnified on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company and/or the Selling Shareholder, on the one hand,
is a contributing party and the Underwriters on the other hand, are the
indemnified party, the relative benefits received by the Company or Selling
Shareholder on the one hand, and the Underwriters, on the other, shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Registered Securities (before deducting expenses other than underwriting
discounts and commissions) bear to the total underwriting discounts received by
the Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and/or the Selling Shareholder, on the one
hand, or by the Underwriters on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to above in this subdivision (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subdivision (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Registered Securities purchased by the
Underwriters hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 12(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company or the Selling Shareholder within the meaning of the Act,
each officer of the Company or the Selling Shareholder who has signed the
Registration Statement, and each director of the Company or the Selling
Shareholder shall have the same rights to contribution as the Company, subject
in each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement contained
in certificates of officers of the Company or the Selling Shareholder submitted
pursuant hereto, shall be deemed to be representations, warranties and
agreements of the Company or the Selling Shareholder at the Closing Date and as
of each Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company or the Selling Shareholder and the
respective indemnity
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and contribution agreements contained in Section 7 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter, the Company, the Selling Shareholder, or any
controlling person of any of the Underwriter, the Company or the Selling
Shareholder, and shall survive termination of this Agreement or the issuance and
delivery of the Registered Securities to the Underwriters and the
Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 4:00
p.m., New York City time, on the date hereof. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such Registered Securities for offering or the
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Registered
Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in the Representative's reasonable opinion, will in the immediate future
materially disrupt the financial markets; or (ii) any material adverse change in
the financial markets shall have occurred; or (iii) if trading on the New York
Stock Exchange, the American Stock Exchange, or in the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been required
on the over-the-counter market by the NASD or by order of the Commission or any
other government authority having jurisdiction; or (iv) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (v) if a banking
moratorium has been declared by a state or federal authority; or (vi) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
delivery of the Registered Securities; or (vii) if there shall have been such a
material adverse change in the prospects or conditions of the Company or any of
the Subsidiaries, or such material adverse change in the general market,
political or economic conditions, in the United States or elsewhere as in the
Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Registered Securities.
(b) If this Agreement is terminated by the Representative in
accordance with any of the provisions of Section 6, Section 10(a) or Section 12,
the Company and/or the Selling Shareholder shall promptly reimburse and
indemnify the Underwriters pursuant to Section 5(b) hereof. Notwithstanding any
contrary provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation, pursuant to
Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
-40-
<PAGE>
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth. If, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Securities to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Securities to be purchased on such date, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company or Selling Shareholder
shall fail at the Closing Date or at any Option Closing Date, as applicable, to
sell and deliver the number of Registered Securities which it is obligated to
sell hereunder on such date, then this Agreement shall terminate (or, if such
default shall occur with respect to any Option Shares to be purchased on an
Option Closing Date, the Underwriters may at the Representative's option, by
notice from the Representative to the Company and the Selling Shareholder
terminate the Underwriters' obligation to purchase Option Shares from the
Company and the Selling Shareholder on such date) without any liability on the
part of any non-defaulting party other than pursuant to Section 5, Section 7 and
Section 10 hereof. No action taken pursuant to this Section shall relieve the
Company or the Selling Shareholder from liability, if any, in respect of such
default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative, c/o National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven Rothstein, with a copy, which
shall not
-41-
<PAGE>
constitute notice, to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor,
New York, New York 10019, Attention: Alan I. Annex, Esq. CAMHY KARLINSKY & STEIN
LLP, 1740 BROADWAY, NEW YORK, NEW YORK 10019-4315. Notices to the Company and
the Selling Shareholder shall be directed to the Company at [address], with a
copy, which shall not constitute notice, to D'Ancona & Pflaum, 30 NORTH LASALLE
STREET, SUITE 2900, CHICAGO, ILLINOIS 60602, Attention: Arthur Don.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon the Underwriters, the Company and the Selling Shareholder,
and the controlling persons, directors and officers referred to in Section 7
hereof and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Registered Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative,
the Company and the Selling Shareholder.
-42-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Underwriters, the Company and the Selling Shareholder, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
HOME SECURITY INTERNATIONAL, INC.
By:_____________________________________
Name:
Title:
FAI HOME SECURITY HOLDINGS, INC.
________________________________________
CONFIRMED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:________________________________________________
Name: Steven A. Rothstein
Title: Chairman
For itself and as Representative of the Underwriters named in Schedule A hereto.
-43-
<PAGE>
SCHEDULE A
FIRM SHARES
-----------
<TABLE>
<CAPTION>
Number of Shares Total
Number of Shares to to be Purchased Number of
Name of be Purchased from from the Selling Shares to
Underwriters the Company Shareholder be Purchased
- --------------------- ------------------- ---------------- ------------
<S> <C> <C> <C>
National Securities
Corporation.........
TOTAL................ 500,000 5,000,000 250,000
</TABLE>
EXH. A-1
<PAGE>
SCHEDULE B
OPTION SHARES
-------------
<TABLE>
<CAPTION>
Number of Shares Total
Number of Shares to to be Purchased Number of
Name of be Purchased from from the Selling Shares to
Underwriters the Company Shareholder be Purchased
- --------------------- ------------------- ---------------- ------------
<S> <C> <C> <C>
National Securities
Corporation.........
TOTAL................ 400,000 500,000 900,000
</TABLE>
EXH. B-1
<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 the 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) 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$339,973 and the book value of the 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 to either of the Companies 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 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 7.7. The Purchaser acknowledges that if it
11
<PAGE>
makes no election within seven days of receipt of such notice, 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 maximum aggregate liability of the Vendor under the Company
Warranties shall be limited to an amount equal to A$2,500,000 and
under the Asset Warranties shall be limited to an amount equal to
A$500,000;
(b) 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 first anniversary of Completion;
(c) 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;
(d) 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 and the Equipment Leases with effect from
the Completion Date.
8.2 HSI must assume, perform and observe the covenants and obligations of the
Vendor under the Business Contracts and Equipment Leases 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 Equipment Lease after the Completion
Date.
8.3 The Vendors indemnify the Purchaser against all Liabilities incurred by the
Purchaser as a result of any breach or default under any of the Business
Contracts or Equipment Leases occurring on or prior to the Completion Date.
8.4 The Vendor must use its reasonable endeavours to obtain all required
transfers to the Purchaser of all Statutory Licences, International
Property Leases, Equipment Leases and Business Contracts but if, despite
their reasonable endeavours, the Vendor is unable to procure any such
transfers the Vendor must:
(a) hold the benefit of the relevant Statutory Licence, International
Property Lease, Equipment Lease or Business Contract on trust for the
benefit of the Purchaser; and
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<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: [23 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:
LESSOR: FAI General Insurance Company Limited
RENT:
TERM: currently being negotiated
PROPERTY: Level 3, 77 Pacific Highway, North Sydney, NSW, 2000
LEASE DATED:
LESSOR: FAI General Insurance Company Limited
RENT:
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: $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 7.3, 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. 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 8.2,
24
<PAGE>
the Vendor and FAI acknowledge that any corporate restructuring
occurring within or involving the Group prior to the sale of Shares
contemplated by this agreement does not form part of the ordinary
course of business of the Company and therefore any liabilities,
including without limitation, in respect of Taxation arising in
connection with any such corporate restructuring shall be to the
account of the Vendor and/or FAI, and not to the account of the
Companies;
(d) the Company has not acquired or disposed of or dealt with any assets
nor has it entered into any agreement or option to acquire or dispose
of any assets other than in the normal course of business for full
market value;
(e) except in the ordinary course of business, the Company has not
borrowed money;
(f) the Company has not paid or agreed to pay any retiring allowance,
superannuation or benefit to any of its officers or employees except
where the law requires it or in accordance with a superannuation or
retirement scheme in force at the Accounts Date;
(g) the Company has not entered into any contract of service with any of
its officers or employees or increased, or agreed to increase, the
rate of compensation payable to any of its officers, employees or
agents [disclosure for Brad Cooper?];
(h) the rights attaching to the Shares have not altered and no alteration
has been made to the capital structure of the Company;
(i) the Company has not implemented any new accounting or valuation method
for its business, assets, property or rights;
(j) no major supplier of the Company has:
(i) materially reduced the level of its supplies to the Company;
(ii) indicated an intention to cease or materially reduce the volume
of its trading with the Company after Completion; or
(iii) materially altered the terms on which it trades with the
Company;
(k) no major customer of the Company has:
(i) materially reduced the level of its custom from the Company;
(ii) indicated an intention to cease or materially reduce the volume
of its trading with the Company after Completion;
(iii) materially altered the terms on which it trades with the
Company;
25
<PAGE>
(l) no loans have been made nor bonuses paid by the Company to employees,
nor have any advances or loan money been accepted from any employees;
[disclosure re Brad Cooper?]
(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. 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
(Taxation)
8.1 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.
8.2 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.
8.3 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.
8.4 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.
8.5 The Company has maintained sufficient and accurate records and all other
information required to support all Tax information which has been or may
be lodged with any Taxation authority
26
<PAGE>
8.6 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.
8.7 The Company has lodged or supplied all information regarding Taxes as and
when requested by a Taxation authority.
WARRANTY 9
(Ownership of assets)
9. 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 10
(Properties and property leases)
10.1 The Property described in SCHEDULE 5 comprises all the land and buildings
used by the Company. The Company does not own any real property.
10.2 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]
10.3 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 11
(Plant, machinery and equipment)
11.1 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.
11.2 Each item of Plant and Equipment is in a good and safe state of repair and
condition and satisfactory working order for its age and has been regularly
and properly maintained;
11.3 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.
11.4 Except for the Equipment Leases the Company has not entered into any hire
purchase, leasing or credit sale agreement.
WARRANTY 12
(Intellectual property rights)
27
<PAGE>
12.1 SCHEDULE 4 contains a complete and accurate list of all Intellectual
Property Rights used by the Group.
12.2 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').
12.3 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. [Need to make
disclosure].
12.4 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.
12.5 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.
12.6 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.
12.7 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 13
(Compliance with applicable laws)
13.1 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.
13.2 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 14
(Litigation)
14.1 Neither the Company nor any person for whose acts or defaults the Company
may be vicariously liable is involved in, or threatened with, any claim,
litigation, prosecution or arbitration in any court, tribunal or otherwise
with an individual value in excess of
28
<PAGE>
$100,000 which have been brought other than in the ordinary course of
business and there are no facts or circumstances of which either the Vendor
or FAI is aware which are likely to give rise to any such litigation or
arbitration [disclose PI claims?].
14.2 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.
14.3 To the knowledge of the Vendor and FAI, the Company is not being
investigated for any breach or alleged breach of the law.
WARRANTY 15
(Superannuation and employee benefits)
15.1 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.
15.2 The Fund is established under a trust deed dated 17 November 1988, as
amended from time to time ('TRUST DEED').
15.3 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.
15.4 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.
15.5 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.
15.6 Neither the Company nor the trustees of the Fund have received notice of
any claim or dispute in relation to the Fund.
15.7 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 16
(Employees)
16.1 Except as disclosed in SCHEDULE 7, all contracts of employment to which the
Company is a party can be terminated by the Company by notice of 30 days or
less.
29
<PAGE>
16.2 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.
16.3 The Company does not operate any bonus, profit share or employee incentive
plans or schemes for its employees. [To be checked. May need to make
disclosure.]
16.4 All employee entitlements have been provided for in the Accounts.
WARRANTY 17
(Conduct of business)
17.1 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 either of 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.
17.2 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 18
(No Subsidiaries)
18. 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 19
(Effect of sale of shares)
19.1 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.
19.2 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 20
(Accuracy and completeness of disclosed information)
20.1 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 in writing to the Purchaser.
20.2 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 21
(Effect of entering into this agreement)
21. 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)
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 HSI free from all Encumbrances.
3.2 SCHEDULE 3 contains an accurate list of all of the Plant and Equipment
owned by the Business and used in the conduct of the Business.
WARRANTY 4
(Plant and Equipment)
4.1 The Plant and Equipment:
(a) is in a good and safe state of repair and condition;
(b) is in good working order;
(c) is capable and will be capable, over the period of time during which
it will be written down to a nil value in the accounts of the
Business, of doing the work for which it was designed or purchased;
(d) is used in and not surplus to the requirements of the Business.
4.2 The Assets are:
(a) all located at the Site;
(b) the only assets used by the Vendor in the Business; and
(c) the only assets required for the conduct of the Business.
WARRANTY 5
(Compliance with statutory requirements)
5.1 The Vendor holds all statutory licences, consents, approvals and
authorisations necessary for the carrying on of the Business and the use of
the Site and has complied with the terms of those licences, consents,
approvals and authorisations.
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5.2 The present conduct of the Business and use of the Assets does not, to the
knowledge of the Vendor, breach or contravene any law, statute, ordinance,
rule, regulation, by-law, scheme or permit.
WARRANTY 6
(Property Lease)
6.1 With respect to the Property Lease:
(a) there are no subsisting breaches;
(b) the Vendor has observed the obligations and covenants of the lessee
and has not received a notice which has not been complied with;
(c) it is valid and subsisting;
(d) the Vendor has exclusive occupation and quiet enjoyment of the Site
and holds all necessary licenses, permits and approvals for the
conduct of the Business from the Site.
6.2 The use of the Site for the carrying on of the Business:
(a) does not, to the knowledge of the Vendor, breach any applicable law,
statute, ordinance, rule, regulation, by-law, planning scheme,
development consent, order, permit or determination of any
governmental authority;
(b) is permitted under the terms of the Property Lease; and
(c) is in conformity with all local government building, health, fire and
public utility laws and regulations.
6.3 No development, alterations or works have been carried out in relation to
the Site which would require any permission or consent under any statute or
regulation which has not been obtained and all conditions attaching to any
such permission or consent have been fully complied with.
WARRANTY 7
(Equipment Leases)
7.1 The agreements described in SCHEDULE 5 constitute all the plant and
equipment leases or hire purchase agreements used in the Business.
7.2 With respect to each Equipment Lease:
(a) there are no subsisting breaches and the Vendor has received no notice
of any breach of the Equipment Lease;
34
<PAGE>
(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)
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.
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) HSI will be unable to terminate after the Completion Date on giving 30
days' notice or less without penalty;
35
<PAGE>
(b) are material to the operation of the Business and have not been
disclosed in writing to HSI;
(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. 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
36
<PAGE>
determining whether or not to purchase the Business or the price at which a
purchaser would be prepared to purchase the Business has been disclosed in
writing to HSI.
37
<PAGE>
SCHEDULE 8
DISCLOSURES AGAINST WARRANTIES
(Clause 7.5)
38
<PAGE>
SCHEDULE 9
UNDERWRITING AGREEMENT
(Clause 7.3(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 (NZ) LIMITED
AND
FAI HOME SECURITY (ENZED) LIMITED
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>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT dated 1997
BETWEEN FAI HOME SECURITY (NZ) LIMITED a company duly incorporated in New
Zealand and having its registered office at Auckland, as trustee for
the FAI Home Security (NZ) Trust ('VENDOR')
AND FAI HOME SECURITY (ENZED) LIMITED a company duly incorporated in New
Zealand and having its registered office at Auckland ('PURCHASER')
RECITALS
A. The Vendor carries on the business of selling, installing and servicing
residential security alarm systems through a distributorship network
operating in Auckland and elsewhere in New Zealand.
B. The Vendor has agreed to sell to the Purchaser and the Purchaser has agreed
to purchase from the Vendor all of the assets of the business described in
Recital A on the terms and conditions set out in this agreement.
AGREEMENT
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement (including the recitals) and the schedules unless the
context otherwise requires the following expressions shall bear the
following meanings:
'AUTHORISATIONS' means any certificate, licence, approval, permit,
authority or exemption from, by or with a Governmental Agency necessary to
carry on the Business as currently operated;
'BOOKS AND RECORDS' include all notices, correspondence, orders, enquiries,
books of account and other documents and all computer disks or tapes or
other records in relation to the Business;
'BUSINESS' means the business described in Recital A carried on by the
Vendor at the date of this agreement and carried on by the Purchaser after
Completion;
'BUSINESS ASSETS' means the assets of the Business agreed to be transferred
to the Purchaser pursuant to CLAUSE 2;
<PAGE>
'BUSINESS CONTRACTS' means all the contracts and engagements of the Vendor
relating to the Business and which are not fully performed as at Completion
together with all other such contracts and engagements which were entered
into by the Vendor after the date of this agreement and prior to the
Completion Date and which are not fully performed as at Completion but
excludes Business Payables;
'BUSINESS DAY' means a day (other than a Saturday or Sunday) on which
registered banks (as that expression is defined in the Reserve Bank of New
Zealand Act 1989) are customarily open for business in Auckland;
'BUSINESS GOODWILL' means all the goodwill of the Vendor in relation to the
Business;
'BUSINESS INFORMATION' means all information and records including all
customer lists and databases, sales information, business plans and
forecasts and all computer software and computer records held by the Vendor
in relation to the Business;
'BUSINESS LIABILITIES' means the obligations of the Vendor under the
Business Contracts, including Warranty Provisions, but excluding Business
Payables;
'BUSINESS PAYABLES' means all liabilities of the Vendor other than the
Warranty Provisions;
'BUSINESS PLANT AND MACHINERY' means all the plant, machinery, equipment,
computer and communication hardware, loose tools, fittings, furniture,
partitioning, books, stationery, vehicles and other goods used by or in the
Business as at Completion;
'BUSINESS RECEIVABLES' means all payments due to the Vendor in relation to
the Business as at Completion;
'BUSINESS STOCKS' means all stocks, stocks in transit, raw materials, work
in progress, finished goods or completed services and other stock in trade
and packaging material held or ordered by the Vendor for the purposes of
the Business as at Completion;
'COMPLETION' means the completion of the sale and purchase of the Business
Assets in the manner specified in CLAUSES 4 AND 5;
'COMPLETION DATE' means the date on which Completion occurs in accordance
with CLAUSE 5;
'EMPLOYEE ENTITLEMENTS' means, in respect of an Employee, all accrued:
(a) wages, salary, commissions and bonuses;
(b) sick leave, loadings and contributions to superannuation, statutory
compensation or other funds;
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<PAGE>
(c) long service leave and annual leave (including loadings),
owing and due to or in respect of that Employee in respect of that
Employee's contract of employment with the Vendor whether arising under
contract, statute, award or otherwise;
'EMPLOYEES' means all the employees employed by the Vendor in the Business
at the date of this agreement;
'ENCUMBRANCE' means any mortgage, charge, pledge, lien or other security
interest or encumbrance (other than title retention in respect of trading
stock or seller's liens arising in the ordinary course of the Business);
'EQUIPMENT LEASES' means all those leases of, and agreements to hire,
Business Plant and Machinery which is used in the Business but not owned by
the Vendor;
'FAI HSH' means FAI Home Security Holdings Pty Limited (ACN 003 125 264);
'FINAL PURCHASE PRICE' means the final purchase price for the relevant
Business Assets determined pursuant to CLAUSE 4.3;
'FLOAT' means the initial public offer registered under the Securities Act
1933 (US) by HSI of 500,000 ordinary shares in HSI and concurrent sale of
5,500,000 ordinary shares in HSI by FAI HSH;
'HSI' means Home Security International Inc.
'GOVERNMENTAL AGENCY' means the government of any country and any state,
territory, municipality or other political subdivision of a country, and
any administrative or judicial body, department, commission, authority,
tribunal, agency or entity of any such government;
'INTELLECTUAL PROPERTY' means all intellectual property and proprietary
rights (whether registered or unregistered) owned or used by the Vendor in
the conduct of the Business.
'LEASED EQUIPMENT' means the subject matter of the Equipment Leases;
'NZ DEBT' means the debt payable by the Purchaser to the Vendor pursuant to
CLAUSE 4.2(b);
'NZ SHARE SALE AGREEMENT' means the agreement entered into between the
Vendor and FAI HSH on or about the date of this agreement pursuant to which
the Vendor has agreed to sell to FAI HSH and FAI HSH has agreed to buy all
of the issued capital of the Purchaser;
'PROPERTY LEASES' means the leases to the Vendor of the properties, the
principal terms of which are set out in Schedule 1;
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) the approval, on terms satisfactory to HSI, to Completion of the sale
to the Purchaser of the NZ Shares from the Overseas Investment
Commission of New Zealand pursuant to the Overseas Investment
Regulations 1985.
3.2 TERMINATION
If the conditions set out in CLAUSE 3.1 are not satisfied on or before 30
June 1997, or a later date agreed by the parties in writing, then either
the Purchaser or the Vendor may at any time before Completion terminate
this agreement by giving notice in writing to the other.
3.3 TERMINATION
On service of a notice under CLAUSE 3.2 this agreement has no further
effect and all parties are released from their obligations to further
perform this agreement.
3.4 CONDITION SUBSEQUENT
The Purchaser or the Vendor may terminate this agreement by giving notice
to the other if:
(a) the Underwriting Agreement is terminated before completion of the
Underwriting Agreement; or
(b) either or both of the following conditions subsequent are not
fulfilled within 24 hours after Completion:
(i) the Float has gone effective;
(ii) the Underwriting Agreement has been executed.
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3.5 EFFECT OF TERMINATION
If this agreement terminates in accordance with CLAUSE 3.4, the rights and
obligations of the Parties under this agreement, except for this CLAUSE
3.5, will terminate and, unless the Vendor waives its rights under this
clause 3.5, the Parties must take all necessary steps to:
(a) vest title and possession of the Business Assets in the Vendor; and
(b) otherwise restore the rights and obligations of the Parties to those
rights and obligations that they would have had if this agreement had
not been entered into without loss or gain to any of the Parties.
4. PURCHASE PRICE
4.1 PRICE FOR BUSINESS ASSETS
The consideration for the purchase of the Business Assets ('PURCHASE
PRICE') is:
(a) the market value, as agreed between the parties, 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 8.2 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 10.1 and to minimise any Loss referred to in
CLAUSE 10.2.
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 )
(NZ) LIMITED in the presence of )
- ----------------------------------- -----------------------------------
Signature of witness FAI HOME SECURITY (NZ) 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 (NZ) 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 (NZ) 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 hold
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) between the Purchaser and Home Security International, Inc.
'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) 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
agreed between the parties.
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 (NZ) 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) 210 4444
Facsimile (02) 235 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 29, 101 Miller
Street, North Sydney, New South Wales, 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 starts on the date it is executed by both parties and
continues 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 Chris MacDonnell
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
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<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>
11
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HOME SECURITY INTERNATIONAL, INC.
**************
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is Home Security International, Inc.
SECOND: The registered office of the Corporation is to be located at 1209
Orange Street in the City of Wilmington in the County of New Castle, in the
State of Delaware. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: (a) The total number of shares of stock which the Corporation is
authorized to issue is as follows:
CLASS NUMBER OF SHARES PAR VALUE
- ----- ---------------- ---------
Common 20,000,000 $.001
Preferred 1,000,000 $.001
(b) The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
The Preferred Shares shall be issued from time to time in one or more
series, with such distinctive serial designations as shall be stated and
expressed in the resolution or resolutions
<PAGE>
providing for the issue of such shares from time to time adopted by the Board of
Directors; and in such resolution or resolutions providing for the issue of
shares of each particular series; the Board of Directors is expressly authorized
to fix the annual rate or rates of dividends for the particular series; the
dividend payment dates for the particular series and the date from which
dividends on all shares of such series issued prior to the record date for the
first dividend payment date shall be cumulative; the redemption price or prices
for the particular series; the voting powers for the particular series; the
rights, if any, of holders of the shares of the particular series to convert the
same into shares of any other series or class or other securities of the
corporation, with any provisions for the subsequent adjustment of such
conversion rights; and to classify or reclassify any unissued preferred shares
by fixing or altering from time to time any of the foregoing powers, preferences
and rights and qualifications, limitations or restrictions.
All the Preferred Shares of any one series shall be identical with each
other in all respects, except that shares of any one series issued at different
times may differ as to the dates from which dividends thereon shall be
cumulative; and all preferred shares shall be of equal rank, regardless of
series, and shall be identical in all respects except as to the particulars
fixed by the Board of directors as hereinabove provided or as fixed herein.
FIFTH: The name and address of the Incorporator are as follows:
NAME ADDRESS
---- -------
Fernando R. Carranza c/o D'Ancona & Pflaum
30 N. LaSalle Street
Suite 2900
Chicago, IL 60602
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<PAGE>
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders.
(1) The number of directors of the Corporation shall be such as from time
to time shall be fixed by, or in the manner provided in, the By-laws. Election
of directors need not be by ballot unless the By-laws so provide.
(2) The Board of Directors shall have power without the assent or vote of
the stockholders to make, alter, amend, change, add to or repeal the by-laws of
the Corporation; to fix and vary the amount to be reserved for any proper
purpose; to authorize and cause to be executed mortgages and liens on all or any
part of the property of the Corporation; to determine the use and disposition of
any surplus or net profits; to fix the times for the declaration and payment of
dividends; and to determine from time to time whether, and to what times and
places, and under what conditions the accounts and books of the corporation
(other than the stock ledger) or any of them, shall be open to the inspection of
the stockholders.
(3) The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such
contract or act, and any contract or act that shall be approved or be ratified
by the vote of the holders of a majority of the stock of the Corporation which
is represented in person or by proxy at such meeting and entitled to vote
thereat (provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the Corporation and
upon all the stockholders as though it had been
3
<PAGE>
approved or ratified by every stockholder of the Corporation, whether or not the
contract or act would otherwise be open to legal attack because of directors'
interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of the
State of Delaware, to the provisions of this Certificate, and to the provisions
of any By-laws from time to time made by the stockholders or by the Board of
Directors; provided, however, that no by-laws so made shall invalidate any prior
act of the directors which would have been valid if such by-law had not been
made.
SEVENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value
4
<PAGE>
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders of this Corporation, as the case
may be, and also on this Corporation.
NINTH: The liability of the Corporation's directors to the Corporation or
its stockholders shall be eliminated to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as the same may be amended and
supplemented. Each person who serves as a director of the Corporation while this
Article NINTH is in effect shall be deemed to be doing so in reliance on the
provision of this Article NINTH, and neither the amendment or repeal of this
Article NINTH, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article NINTH, shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal. The provisions of this Article NINTH are cumulative
and shall be in addition to and independent of any and all other limitations on
or eliminations of the liabilities of directors of the Corporation, as such,
whether such limitations or eliminations arise under or are created by any law,
rule, regulation, by-law, agreement, vote of shareholders or disinterested
directors or otherwise.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed
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<PAGE>
by law, and all rights and powers conferred herein on stockholders, directors
and officers are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of April,
1997.
---------------------------
Fernando R. Carranza
Incorporator
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<PAGE>
EXHIBIT 3.2
B Y - L A W S
OF
HOME SECURITY INTERNATIONAL, INC.
ARTICLE I
OFFICES
SECTION 1. The registered office shall be established and maintained at
the office of or The Corporation Trust Company System, Inc., in the city of
Wilmington, in the County of New Castle, and said corporation shall be the
registered agent of this corporation in charge thereof. The corporation may
have other offices, either within or without the State of Delaware, at such
place or places as the board of directors may from time to time appoint or the
business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of directors
shall be held at such place as may be fixed from time to time by the board of
directors, or at such place either within or without the State of Delaware as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may
be held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a board of directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. Annual meetings of stockholders, commencing with the year 1997,
shall be held on the third Tuesday in November or at such other time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting, at which they shall elect a board of directors and transact such
other business as may properly be brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
<PAGE>
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered by each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 5. Special meetings of the stockholders for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the chairman of the board, the president or
secretary, or a majority of the board of directors, or at the request in writing
of stockholders owning not less than 1/10th of the shares of any class of the
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
SECTION 6. Written notice of a special meeting stating the place, date and
hour of the meeting, and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting.
SECTION 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 8. The holders of such number of the shares of issued and
outstanding stock as are entitled to cast one-third of the votes thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders, entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
SECTION 9. When a quorum is present at any meeting, a majority of the
votes cast by holders of stock having voting power present in person or
represented by proxy shall decide any question (other than election of
directors) brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the certificate of incorporation, a
different
2
<PAGE>
vote is required in which case such express provision shall govern and control
the decision of such question.
SECTION 10. Each stockholder shall at every meeting of the stockholders
shall be entitled to vote in person or by proxy, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
SECTION 11. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 12. The board of directors, in advance of any stockholders'
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding
at the stockholders' meeting may, and on the request of any stockholder entitled
to vote thereat shall, appoint one or more inspectors. In case any person
appointed fails to appear or act, the vacancy may be filled by appointment made
by the board of directors in advance of the meeting or at the meeting by the
persons presiding thereat. Each inspector, before entering upon the discharge
of his duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, question or matter determined by them
and execute a certificate of any fact found by them. Any report or certificate
made by them shall be prima facie evidence of the facts stated and of the vote
as certified by them.
ARTICLE III
DIRECTORS
SECTION 1. The members of the governing board shall be called directors of
the Corporation. The number of directors which shall constitute the whole board
of directors shall be
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<PAGE>
not less than two nor more than seven. Effective upon the closing of an initial
public offering of the Corporation under the Securities Act of 1933, as amended
("Effective Date"), the Corporation shall designate the slate of directors to be
elected by the shareholders, and such directors shall be divided into three (3)
classes designated as Class I, Class II and Class III, respectively. Each class
shall consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire board of directors. The initial term of office
of the Class I directors shall expire at the annual meeting of the shareholders
held in the year 1998. The initial term of office of the Class II directors
shall expire at the annual meeting of shareholders held in the year 1999. The
initial term of office of the Class III directors shall expire at the annual
meeting of shareholders held in the year 2000. At each annual meeting of the
shareholders after the annual meeting held in the year 1997, successors to the
class of directors whose term expires at the annual meeting shall be elected for
a three (3) year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly as possible, but in no case shall a decrease
in the number of directors shorten the term of any incumbent director. A
director shall hold office until the annual meeting for the year in which his
term expires and until his successor shall be elected and qualified, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. The annual meeting of shareholders shall be held each year on a
date and at a time designated by the Board of Directors of the Corporation.
Directors need not be stockholders.
SECTION 2. Any vacancy on the Board of Directors that results from an
increase in the number of directors or by reason of the vacancy following the
annual meeting of the shareholders held in the year 1998, may be filled by a
majority of the Board of Directors then in office, provided that a quorum is
present, and any other vacancy occurring in the Board of Directors may be filled
by a majority of the directors then in office, even if less than a quorum. Any
directors elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of that
class. Any director elected to fill a vacancy not resulting from an increase in
the number of directors shall have the same remaining term as that of his
predecessor. If there are no directors in office, then an election of directors
may be held in the manner provided by statute.
Directors chosen under this section shall hold office until the next annual
meeting of the stockholders of the corporation, and until their successors shall
be elected and qualified.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid.
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<PAGE>
SECTION 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders. Without in any way limiting the
generality of the foregoing, the board of directors is specifically granted the
authority to approve the hiring of all salaried employees of the corporation.
No such salaried employee may be hired without such prior approval.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
SECTION 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 6. Regular meetings of the directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
SECTION 7. Special meetings of the board may be called by the President on
one (1) days' notice to each director, either personally or by telecopy or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors unless the
board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
SECTION 8. At all meetings of the board of directors a majority of the
then duly elected directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors the directors present thereat, may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. Prior to the Effective Date, unanimous written consent of all
directors shall constitute a valid action of the Board.
SECTION 9. Unless otherwise restricted by the certificate of incorporation
or these by-laws any action required or permitted to be taken at any meeting of
the board of directors, or of
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any committee thereof, may be taken without a meeting, if all members of the
board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the board
or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these By-Laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution or resolutions
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the board
of directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws, or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 12. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, for attendance at each meeting of the board of
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directors. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of shares entitled to cast a
majority of the votes for the election of directors. A director elected or
appointed by the holders of a particular class of stock may be removed only by
the vote of the holders of a majority of the shares of such class.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the board of
directors and shall be a chairman of the board, a president, a vice president, a
secretary and a treasurer. The secretary shall be a non-executive officer
position. The board of directors may also choose additional vice presidents, and
one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
SECTION 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a chairman of the board, a president, one
or more vice presidents, a secretary and one or more assistant secretaries and a
treasurer.
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SECTION 3. The board of directors may appoint such other officers and
agents as it may deem necessary who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the board.
SECTION 4. The salaries of all officers of the corporation shall be fixed
by the board of directors.
SECTION 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the whole board of directors. Any vacancy occurring in any office
of the corporation shall be filled by the board of directors.
CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board of Directors shall be the chief
executive officer of the corporation, shall preside at all meetings of
stockholders and the board of directors, shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe. He shall have general charge of the business of the corporation and
shall see to it that all orders and resolutions of the board of directors are
performed and carried into effect. He shall direct the activities of the other
officers in the execution of those duties not specifically associated with their
office.
PRESIDENT
SECTION 7. The President shall be the chief operating officer of the
corporation, shall preside (in the absence of the chairman of the board or in
the event of his inability or refusal to act) at all meetings of the
stockholders and the board of directors, shall, subject to the direction of the
chairman of the board, have general and active management of the business of the
corporation and shall execute all orders and resolutions of the board of
directors, subject, however, to the right of the directors to delegate any
specific power, except such as may by statute exclusively be conferred to any
other officer or officers of the corporation.
SECTION 8. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
SECTION 9. In the absence of the president or in the event of his
inability or refusal to act, the vice president (or in the event there be more
than one vice president, the vice presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the
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powers of and be subject to all the restrictions upon the president. The vice
presidents shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 10. The secretary shall be a non-executive officer position. The
secretary shall attend all meetings of the board of directors and all meetings
of the stockholders and record all the proceedings of the meetings of the
corporation and of the board of directors in a book to be kept for that purpose
and shall perform like duties for the standing committees when required. He
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors, and shall perform such other duties
as may be prescribed by the board of directors or president, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
SECTION 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER
AND ASSISTANT TREASURERS
SECTION 12. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuables in the name and to the credit of the corporation in such
depositaries as may be designated by the board of directors.
SECTION 13. The treasurer shall have exclusive authority to open bank
accounts or otherwise transact the financial business of the corporation;
provided, however, that the president shall have complete access to the
financial records of the corporation and shall be provided unaudited quarterly
financial statements of the corporation.
SECTION 14. The treasurer shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements and shall render to the president and the board of directors at
its regular meetings, or when the board of directors
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so requires, an account of all his transactions as treasurer and of the
financial condition of the corporation.
SECTION 15. If required by the board of directors, the treasurer shall
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful performance of
the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
SECTION 16. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman of the board or the president or a vice president, and the treasurer or
an assistant treasurer, or the secretary or an assistant secretary, of the
corporation, certifying the number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon the face
or back of the certificates issued to represent any such partly paid shares, the
total amount of the consideration to be paid therefor, and the amount paid
thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements there may be set forth on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so request the powers, designations, preferences and
relative, participating, optional or other special rights of each class or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed
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upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued be the corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
LOST CERTIFICATES
SECTION 3. The board of directors may direct a new certificate or
certificates to be issued in the place of any certificate or certificates
theretofore issued by the corporation, alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as condition precedent to the issuance thereof, require the owner
of such lost, stolen or destroyed certificate or certificates, or his legal
representatives, to advertise the same in such manner as it shall require and/or
to give the corporation a bond, in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its book;
provided, however, that such duty shall be subject to Federal and state
securities and other applicable laws, the certificate of incorporation, and any
legends and stop transfer instructions with respect to such old certificate.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
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REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
SECTION 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
SECTION 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers, person or persons as the board of
directors may from time to time designate.
FISCAL YEAR
SECTION 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
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SEAL
SECTION 6. The corporate seal shall have inscribed thereon the name of the
corporation and the words "CORPORATE SEAL DELAWARE". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
INDEMNIFICATION
SECTION 7. (a) Indemnification of Officers, Directors, Employees and
Agents; insurance. Any person who was or is a party or is threatened to made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprises,
shall be indemnified by the corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of Delaware or the Court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of Delaware,
or such other court shall deem proper.
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(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b) hereof, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification pursuant to paragraphs (a) and (b) of this Section
7 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in the first two paragraphs
of this Section 7. Such determination shall be made by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or if such a quorum is not obtainable (or, even
if obtainable a quorum of disinterested directors so directs) by independent
legal counsel in written opinion, or by the stockholders.
(e) Expenses (including attorney's fees) incurred by a director, officer,
employee or agent of the corporation in defending a civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Section 7.
(f) The indemnification and advancement of expenses provided by this
Section 7 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any By-
Law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provision of this Section 7.
(h) For the purpose of this Section 7, all words and phrases used herein
shall have the meanings ascribed to them under Section 145 of the General
Corporation Law of the State of Delaware.
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ARTICLE VIII
AMENDMENTS
SECTION 1. These by-laws may be altered, amended or repealed or new By-
Laws may be adopted by the stockholders or by the board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
director or at any special meeting of the stockholders or board of directors if
notice of the such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such special meeting. If the power to adopt, amend or
repeal by-laws is conferred upon the board of directors by the certificate of
incorporation, it shall not divest or limit the power of the stockholders to
adopt, amend or repeal by-laws.
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EXHIBIT 4.1
-------------------------------
HOME SECURITY INTERNATIONAL, INC.
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of June ___, 1997
-------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of June , 1997, between
HOME SECURITY INTERNATIONAL INC., a Delaware corporation (the "Company"), and
NATIONAL SECURITIES CORPORATION and its assignees or designees (each hereinafter
referred to variously as a "Holder" or "Representative").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") between the Representative and the
Company, to act as the representative of the several underwriters listed therein
(the "Underwriters") in connection with the Company's proposed public offering
of 6,000,000 shares of common stock of the Company, par value $.001, (the
"Common Stock"), at a public offering price of $6.50 per share (the "Public
Offering").
WHEREAS, pursuant to the Underwriting Agreement, the Company proposes
to issue warrants to the Representative to purchase up to an aggregate of
600,000 shares of Common Stock (the "Representative's Warrants").
WHEREAS, the Representative's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Representative in consideration
for, and as part of the Underwriters' compensation in connection with, the
Representative acting as the representative pursuant to the Underwriting
Agreement.
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NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate of Sixty Dollars ($60.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant. The Representative is hereby collectively granted the
right to purchase, at any time from June __, 1998 until 5:30 p.m., New York
time, on June __, 2002 (5 years from the Effective Date of the registration
statement and any supplement thereto, on Form S-1, No. _________), at which time
the Representative's Warrants expire, up to an aggregate 600,000 shares of
Common Stock (subject to adjustment as provided in Section 8 hereof), at an
initial exercise price (subject to adjustment as provided in Section 11 hereof)
of $9.10 (140% of the public offering price) (the "Exercise Price").
2. Representative's Warrant Certificates. The Representative's
Warrant certificates (the "Warrant Certificates") delivered and to be delivered
pursuant to this Agreement shall be in the form set forth in Exhibit A, attached
hereto and made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this Agreement.
3. Registration of Warrant. The Representative's Warrants shall be
numbered and shall be registered on the books of the Company when issued.
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4. Exercise of Representative's Warrant.
4.1 Method of Exercise. The Representative's Warrants initially
are exercisable at the Exercise Price (subject to adjustment as provided in
Section 11 hereof) per Representative's Warrant set forth in Section 8 hereof
payable by certified or official bank check in New York Clearing House funds.
Upon surrender of a Representative's Warrant Certificate with the annexed Form
of Election to Purchase duly executed, together with payment of the Exercise
Price for the shares of Common Stock purchased at the Company's principal
offices in Delaware (presently located at
________________________________________) the registered holder of a
Representative's Warrant Certificate ("Holder" or "Holders") shall be entitled
to receive a certificate or certificates for the shares of Common Stock so
purchased. The purchase rights represented by each Representative's Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of Common Stock underlying the
Representative's Warrants). In the case of the purchase of less than all of the
shares of Common Stock purchasable under any Representative's Warrant
Certificate, the Company shall cancel said Representative's Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Representative's
Warrant Certificate of like tenor for the balance of the shares of Common stock
purchasable thereunder.
4.2 Exercise by Surrender of Representative's Warrant. In
addition to the method of payment set forth in Section 4.1 and in lieu of any
cash payment required thereunder, the Holder(s) of the Representative's Warrants
shall have the right at any time and from time to time to exercise the
Representative's Warrants in full or in part by surrendering the Warrant
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Certificate in the manner specified in Section 4.1 in exchange for the number of
shares of Common Stock equal to the product of (x) the number of shares of
Common Stock as to which the Representative's Warrants are being exercised,
multiplied by (y) a fraction, the numerator of which is the Market Price (as
defined in Section 9.3 (e) hereof) of the shares of Common Stock minus the
Exercise Price of the shares of Common Stock and the denominator of which is the
Market Price per share of Common Stock. Solely for the purposes of this Section
4.2, Market Price shall be calculated either (i) on the date on which the form
of election attached hereto is deemed to have been sent to the Company pursuant
to Section 15 hereof ("Notice Date") or (ii) as the average of the Market Price
for each of the five trading days immediately preceding the Notice Date,
whichever of (i) or (ii) results in a greater Market Price.
5. Issuance of Certificates. Upon the exercise of the
Representative's Warrant, the issuance of certificates for shares of Common
Stock, properties or rights underlying such Representative's Warrant shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax,
other than income taxes, which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 7
and 9 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting
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the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Representative's Warrant Certificates and the certificates
representing the shares of Common Stock or other securities, property or rights
issued upon exercise of the Representative's Warrant shall be executed on behalf
of the Company by the manual or facsimile signature of the then present
President or any Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or any Assistant Secretary of the Company. Representative's
Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
6. Transfer of Representative's Warrant. The Representative's
Warrant shall be transferable only on the books of the Company maintained at its
principal office, where its principal office may then be located, upon delivery
thereof duly endorsed by the Holder or by its duly authorized attorney or
representative accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration transfer, the Company shall
execute and deliver the new Representative's Warrant to the person entitled
thereto.
7. Restriction On Transfer of Representative's Warrant. The Holder
of a Representative's Warrant Certificate, by its acceptance thereof, covenants
and agrees that the Representative's Warrant is being acquired as an investment
and not with a view to the distribution thereof, and that the Representative's
Warrant may not be sold, transferred, assigned,
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<PAGE>
hypothecated or otherwise disposed of, in whole or in part, for the term of the
Representative's Warrant, except to officers or partners of the Underwriters, or
by operation of law.
8. Exercise Price and Number of Securities. Except as otherwise
provided in Section 10 hereof, each Representative's Warrant is exercisable to
purchase one share of Common Stock at an initial exercise price equal to the
Exercise Price. The Exercise Price and the number of shares of Common Stock for
which the Representative's Warrant may be exercised shall be the price and the
number of shares of Common Stock which shall result from time to time from any
and all adjustments in accordance with the provisions of Section 11 hereof.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each
Representative's Warrant Certificate and each certificate representing shares of
Common Stock and any of the other securities issuable upon exercise of the
Representative's Warrant (collectively, the "Warrant Shares") shall bear the
following legend unless (i) such Representative's Warrant or Warrant Shares are
distributed to the public or sold to the underwriters for distribution to the
public pursuant to Section 9 hereof or otherwise pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Act"), or
(ii) the Company has received an opinion of counsel, in form and substance
reasonably satisfactory to counsel for the Company, that such legend is
unnecessary for any such certificate:
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS
CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON
EXERCISE THEREOF MAY NOT BE OFFERED
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OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL
BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S
WARRANT REPRESENTED BY THE CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE REPRESENTATIVE'S
WARRANT AGREEMENT REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing after
the effective date of the Registration Statement and expiring five (5) years
thereafter, the Company proposes to register any of its securities under the Act
(other than in connection with a merger or pursuant to Form S-4 or Form S-8 or
successor form thereto) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement, to the
Holders of the Warrant Shares of its intention to do so. If any of the Holders
of the Warrant Shares notify the Company within twenty (20) days after mailing
of any such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford such Holders of the
Warrant Shares the opportunity to have any such Warrant Shares registered under
such registration statement. In the event that the managing underwriter for said
offering advises the Company in writing that in its opinion the number of
securities requested to be included in such
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<PAGE>
registration exceeds the number which can be sold in such offering without
causing a diminution in the offering price or otherwise adversely affecting the
offering, the Company will include in such registration (a) first, the
securities the Company proposes to sell, (b) second, the securities held by the
entities that made the demand for registration, (c) third, the Warrant Shares
requested to be included in such registration which in the opinion of such
underwriter can be sold, pro rata among the Holders of Warrant Shares on the
basis of the number of Representative's Warrant Shares requested to be
registered by such Holders, and (d) fourth, other securities requested to be
included in such registration.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 9.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
9.3 Demand Registration.
(a) At any time commencing one (1) year after the effective
date of the Registration Statement and expiring five (5) years from the
effective date of the Registration Statement, the Holders of the
Representative's Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of the Representative's Warrants and/or Warrant Shares
shall have the right (which right is in addition to the registration rights
under Section 9.2 hereof), exercisable by written notice to the Company, to have
the Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration
8
<PAGE>
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale by such Holders and any other Holders of the Representative's
Warrant and/or Warrant Shares who notify the Company within fifteen (15) days
after the Company mails notice of such request pursuant to Section 9.3(b) hereof
(collectively, the "Requesting Holders") of their respective Warrant Shares for
the earlier of (i) six (6) consecutive months or (ii) until the sale of all of
the Warrant Shares requested to be registered by the Requesting Holders.
(b) The Company covenants and agrees to give written notice
of any registration request under this Section 9.3 by any Holder or Holders
representing a Majority of the Representative's Warrants and/or Warrant Shares
to all other registered Holders of the Representative's Warrants and the Warrant
Shares within ten (10) days from the date of the receipt of any such
registration request.
(c) In addition to the registration rights under Section 9.2
and subsection (a) of this Section 9.3, at any time commencing one (1) year
after the effective date of the Registration Statement and expiring five (5)
years from the effective date of the Registration Statement, the Holders of a
Majority of the Representative's Warrants and/or Warrant Shares shall have the
right on one occasion, exercisable by written request to the Company, to have
the Company prepare and file with the Commission a registration statement so as
to permit a public offering and sale by such Holders of their respective Warrant
Shares for the earlier of (i) six (6) consecutive months or (ii) until the sale
of all of the Warrant Shares requested to be registered by
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<PAGE>
such Holders; provided, however, that the provisions of Section 9.4(b) hereof
shall not apply to any such registration request and registration and all costs
incident thereto shall be at the expense of the Holder or Holders making such
request. If the Holders have exercised their rights under Section 9.3(a) then
the Holders may not exercise their rights under Section 9.3(c) for a period of
six (6) months following the effective date of any registration statement filed
pursuant to Section 9.3(a).
(d) Notwithstanding anything to the contrary contained
herein, if the Company shall not have filed a registration statement for the
Warrant Shares within the time period specified in Section 9.4(a) hereof
pursuant to the written notice specified in Section 9.3(a) of the Holders of a
Majority of the Representative's Warrants and/or Warrant Shares, the Company, at
its option, may repurchase (i) any and all Warrant Shares at the higher of the
Market Price (as defined in Section 9.3(e)) per share of Common Stock on (x) the
date of the notice sent pursuant to Section 9.3(a) or (y) the expiration of the
period specified in Section 9.4(a) and (ii) any and all Representative's Warrant
at such Market Price less the Exercise Price of such Representative's Warrant.
Such repurchase shall be in immediately available funds and shall close within
two (2) days after the later of (i) the expiration of the period specified in
Section 9.4(a) or (ii) the delivery of the written notice of election specified
in this Section 9.3(d).
(e) Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
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<PAGE>
Common Stock is listed or admitted to trading, or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the
average closing sale price as furnished by the NASD through The Nasdaq Stock
Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no longer reporting
such information, or if the Common Stock is not quoted on Nasdaq, as determined
in good faith by resolution of the Board of Directors of the Company, based on
the best information available to it.
9.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Sections 9.2 or 9.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions, and
excluding roadshow expenses if the only shares to be registered in such
Registration Statement are Warrant Shares), fees and expenses in connection with
all registration statements filed pursuant to Sections 9.2 and 9.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses
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<PAGE>
(including those of the Company) in connection with the registration statement
filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Shares to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within
12
<PAGE>
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
or their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which the
Underwriters have agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Representative's Warrant prior to the
initial filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Warrant Shares to be included in any registration statement filed
pursuant to Section 9.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 9.3 hereof (other than registration statements filed prior
to an exercise of registration rights by a Holder of Representatives Warrants
and/or Warrant Shares pursuant to Section 9.2 hereof), without the prior written
consent of National Securities Corporation or as otherwise required by the terms
of any existing registration rights granted prior to the date of this Agreement
by the Company to the holders of any of the Company's securities.
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<PAGE>
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall enter into an underwriting agreement with
the managing underwriters (in the case of registration rights exercised pursuant
to Section 9.3 hereof, selected for such underwriting by Holders holding a
Majority of the Warrant Shares requested to
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<PAGE>
be included in such underwriting, which may be the Representative). Such
agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Shares and may, at their option, require that
any or all the representations, warranties and covenants of the Company to or
for the benefit of such underwriters shall also be made to and for the benefit
of such Holders. Such Holders shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters except as
they may relate to such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority" in
reference to the Representative's Warrants or Warrant Shares shall mean in
excess of fifty percent (50%) of the then outstanding Representative's Warrants
or Warrant Shares that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
or (ii) have not been resold to the public pursuant to a registration statement
filed with the Commission under the Act.
10. Obligations of Holders. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Section 9 hereof
that each of the selling Holders shall:
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<PAGE>
(a) Furnish to the Company such information regarding themselves,
the Warrant Shares held by them, the intended method of sale or other
disposition of such securities, the identity of and compensation to be paid to
any underwriters proposed to be employed in connection with such sale or other
disposition, and such other information as may reasonably be required to effect
the registration of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus relating to
the Warrant Shares covered by a registration statement is required to be
delivered under the Act, of the happening of any event with respect to such
selling Holder as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
11. Adjustments to Exercise Price and Number of Securities. The
Exercise Price in effect at any time and the number and kind of securities
purchased upon the exercise of the Representative's Warrant shall be subject to
adjustment from time to time only upon the happening of the following events:
11.1 Stock Dividend, Subdivision and Combination. In case the
Company shall (i) declare a dividend or make a distribution on its outstanding
shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock
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<PAGE>
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
11.2 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 11, the number
of Warrant Shares issuable upon the exercise at the adjusted Exercise Price of
each Representative's Warrant shall be adjusted to the nearest number of whole
shares of Common Stock by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Representative's Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
11.3 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Articles of Incorporation of the Company as amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value.
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11.4 Merger or Consolidation. In case of any consolidation of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding Common Stock), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder of each Representative's Warrant
then outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Representative's Warrant) to receive, upon exercise of such
Representative's Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger by a holder
of the number of shares of Common Stock for which such Representative's Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 11. The above
provision of this subsection shall similarly apply to successive consolidations
or mergers.
11.5 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Representative's
Warrant or the Warrant Shares;
(b) Upon the issuance or sale of Common Stock (or any other
security convertible, exercisable, or exchangeable into shares of Common Stock)
upon the direct or indirect conversion, exercise, or exchange of any options,
rights, warrants, or other securities or
18
<PAGE>
indebtedness of the Company outstanding as of the date of this Agreement or
granted pursuant to any stock option plan of the Company in existence as of the
date of this Agreement, pursuant to the terms thereof; or
(c) If the amount of said adjustment shall be less than two
cents ($.02) per share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to at least two
cents ($.02) per Representative's Warrant.
11.6 Exchange and Replacement of Representative's Warrant
Certificates. Each Representative's Warrant Certificate is exchangeable, without
expense, upon the surrender thereof by the registered Holder at the principal
executive office of the Company for a new Representative's Warrant Certificate
of like tenor and date representing in the aggregate the right to purchase the
same number of Warrant Shares in such denominations as shall be designated by
the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Representative's Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Representative's Warrant, if mutilated, the Company will make and deliver a
new Warrant Certificate of like tenor, in lieu thereof.
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12. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Representative's Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
13. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Representative's
Warrant, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. Every transfer agent
("Transfer Agent") for the Common Stock and other securities of the Company
issuable upon the exercise of the Representative's Warrant will be irrevocably
authorized and directed at all times to reserve such number of authorized shares
of Common Stock and other securities as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with every Transfer Agent
for the Common Stock and other securities of the Company issuable upon the
exercise of the Representative's Warrant. The Company will supply every such
Transfer Agent with duly executed stock and other certificates, as appropriate,
for such purpose. The Company covenants and agrees that, upon exercise of the
Representative's Warrant and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Representative's Warrant shall be
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outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Representative's Warrant to be
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock issued to the public in connection herewith may then be
listed and/or quoted on the Nasdaq National Market.
14. Notices to Representative's Warrant Holders. Nothing contained
in this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however, at
any time prior to the expiration of the Representative's Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
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(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then in any one or more of said events, the Company shall give written notice of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
15. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made and sent when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) if to the registered Holder of the Representative's
Warrant, to the address of such Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in Section 4
hereof or to such other address as the Company may designate by notice to the
Holders.
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16. Supplements; Amendments; Entire Agreement. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
holders of Representative's Warrant Certificates (other than the Representative)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Representative may deem necessary or desirable and
which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Representative's Warrant Certificates.
17. Successors. All of the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
18. Survival of Representations and Warranties. All statements in
any schedule, exhibit or certificate or other instrument delivered by or on
behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
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19. Governing Law. This Agreement and each Representative's Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
20. Severability. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Representative's
Warrant Certificates or Warrant Shares any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Underwriters and any other Holder(s) of
the Representative's Warrant Certificates or Warrant Shares.
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23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS OF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ATTEST: HOME SECURITY INTERNATIONAL, INC.
___________________________
By:
-------------------------------------
Name:
Title:
NATIONAL SECURITIES CORPORATION
By:
-------------------------------------
Name: Steven A. Rothstein
Title: Chairman
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EXHIBIT A
[FORM OF REPRESENTATIVE'S WARRANT CERTIFICATE]
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, JUNE ___, 2002
Representative's Warrant No. _____
__________ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________, or registered
assigns, is the registered holder of Warrants to purchase initially, at any
time from June ___, 1998 until 5:30 p.m., New York time on June ___, 2002
("Expiration Date"), up to _______ shares of fully-paid and non-assessable
common stock, par value $.001 ("Common Stock") of Home Security International,
Inc., a Delaware corporation (the "Company") at the initial exercise price,
subject to adjustment in certain events, of $9.10 per share (the "Exercise
Price") upon surrender of this Representative's Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of June ___, 1997 among the Company and National Securities Corporation (the
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or official bank check in New York Clearing House funds payable to the order of
the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Representative's Warrant evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
EXH A-1
<PAGE>
The Representative's Warrant evidenced by this Warrant Certificate are
part of a duly authorized issue of Representative's Warrant issued pursuant to
the Warrant Agreement, which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the
Representative's Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Representative's
Warrant; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Representative's Warrant shall be issued to the transferee(s) in exchange for
this Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Representative's Warrant
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such numbered unexercised
Representative's Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
EXH A-2
<PAGE>
This Warrant Certificate does not entitle any holder thereof to any of
the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of June ___, 1997.
ATTEST: HOME SECURITY INTERNATIONAL, INC.
______________________ By:
------------------------------------
Name:
Title:
EXH A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.11]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Shares of Common
Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
Home Security International, Inc. (the "Company") in the amount of $_____, all
in accordance with the terms of Section 3.1 of the Representative's Warrant
Agreement dated as of June __, 1997 among the Company and National Securities
Corporation. The undersigned requests that a certificate for such securities be
registered in the name of ___________________________________, whose address is
_______________________________________________________________ and that such
certificate be delivered to _________________, whose address is
__________________________ ______________________, and if said number of shares
shall not be all the shares purchasable hereunder, that a new Warrant
Certificate for the balance of the shares purchasable under the within Warrant
Certificate be registered in the name of the undersigned warrantholder or his
assignee as below indicated and delivered to the address stated below.
Dated: __________________________
Signature: ___________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
Address: __________________________
__________________________
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed: __________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-4
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________ here sells, assigns and transfers unto
[NAME OF TRANSFEREE] this Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
__________________________ Attorney, to transfer the within Warrant Certificate
on the books of the within-named Company, with full power of substitution.
Dated: __________________________
Signature: _____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
Address: _______________________________
_______________________________
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed: __________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-5
<PAGE>
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 1,500,000 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
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<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
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<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___.
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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 100,000 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
2
<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
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, (not including any potential liability arising from
any litigation against FAI Canada), the book value of which the parties
acknowledge is 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 other party to each Canada Business
Contract (where required), the benefit of that Business Contract;
(d) subject to the consent of the other party to each Canada Equipment
Lease (where required), the benefit of that Canada Equipment Lease;
and
(e) 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 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 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, (not including any potential liability arising from any
litigation against FAI SA), the book value of which the parties acknowledge
is 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, (not including any potential liability arising from any
litigation against FAI UK), the book value of which the parties acknowledge
is 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 over the property at Northbridge
Centre, Elm Street, Burnley, Lancashire, BP101 PD, United Kingdom, held by
FAI UK at the date of this agreement;
'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;
9
<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, (not including any potential liability arising from any
litigation against FAI USA), the book value of which the parties
acknowledge is 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 clause 3.7, in consideration for the UK Assets, at Completion
FHSH must pay to or at the direction of FAI UK an amount of A$1,186,277 and
FHSH must assume liability for the UK Business Liabilities or pay to FAI UK
an equivalent amount in cash.
3.2 Subject to clause 3.7, in consideration for the SA Assets, at Completion
FHSH must pay to or at the direction of FAI SA an amount of A$86,611 and
FHSH must assume liability for the SA Business Liabilities or pay to FAI SA
an equivalent amount in cash.
3.3 Subject to clause 3.7, in consideration for the Canada Assets, at
Completion FHSH must pay to or at the direction of FAI Canada an amount of
A$1,044,263 and FHSH must assume liability for the Canada Business
Liabilities or pay to FAI Canada an equivalent amount in cash.
3.4 Subject to clause 3.7, in consideration for the USA Assets, at Completion
FHSH must pay to or at the direction of FAI USA an amount of A$132,849 and
FHSH must assume liability for the USA Business Liabilities or pay to FAI
USA an equivalent amount in cash.
3.5 FAI UK directs that an amount equal to A$244,127, 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.
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.
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<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 FHSH must assume, perform and observe the covenants and obligations of each
Vendor under the Business Contracts and Equipment Leases 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>
84. 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.
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;
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and/or;
(ii) Ness supplies and sells or sells to purchasers who sell
Product in the Relevant Country using a marketing method or
strategy which is adopted, or is similar in nature to that
used, by FAI
(f) If Ness breaches this clause 3.1 in any way, Ness must:
(i) recall any products delivered to any country due to a breach
of Ness' obligations; and
(ii) account to FAI for any profits derived by Ness from the
sale of any Product into a country in breach of Ness'
obligations.
(g) If Ness sells Product to anyone other than FAI, it must not
charge a price which is less than the price being charged to FAI
nor offer terms of trade or warranties more favourable than those
offered to FAI for an equivalent or lesser volume.
3.2 Product Warranties
(a) Ness shall ensure and warrants to FAI that each Product
manufactured:
(i) is fully functional;
(ii) does not contain any latent or patent defects;
(iii) is properly and professionally finished;
(iv) is of merchantable quality;
(v) is reasonably fit for use as a security alarm device;
(vi) is thoroughly tested by Ness to ensure compliance with each
characteristic described in paragraphs (i) to (v) above.
(vii) is packaged in single colour external packaging of
sufficient strength to provide adequate protection during
transportation from the point of manufacture to the point
of installation at the end user's premises or such other
manner as FAI approves in writing (FAI acknowledges that
the packaging used by Ness at the date of this Agreement
satisfies this condition).
(b) The warranties given by Ness under this agreement are provided on
the basis the installation, adjustment and operation of the
Products are in accordance with Ness's instructions. Warranty
coverage does not
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include any defect or performance deficiency (including failure
to conform to product descriptions or specifications) which
results in whole or in part from:
(i) improper storage or handling of the products by FAI, its
employees, agents or contractors;
(ii) any design, specification or instruction furnished by FAI
or its employees, agents or contractors;
(iii) any alteration of the Products by persons other than Ness
or its authorised agents;
(iv) combining Ness' products with any another product furnished
by third parties;
(v) improper or extraordinary use of the Product, improper
maintenance of the Products or failure to comply with any
applicable instructions or recommendations of Ness.
(c) Ness' liability for a breach of the warranty given pursuant to
Clause 3.2(a) shall:
(i) Subject to clause 3.2(c)(ii) be limited to repair and/or
replacement of faulty components of the Product at
workshops nominated by Ness and each Product returned for
warranty repair shall be appropriately packaged by the
sending party in a manner suitable for the protection of
the Product from physical damage during the normal course
of transportation and be accompanied with the appropriate
documentation as to identify the nature of the fault. Any
work carried out at any time on any returned Product which
proves to be faulty due to abuse, misuse, improper
installation, setting to operation, or which is not faulty
will be charged to FAI at the hourly rate charged by Ness
for warranty work at that time;
(ii) Nothing in clause 3.2(c)(i) limits any liability Ness may
have at law or under any other term of the Agreement.
(iii) endure for a period of twelve months from the date the
Product is delivered by Ness, (the "Warranty Period") other
than Ness' liability for a breach of warranty under clause
3.2(c)(ii) which will be ongoing;
(iv) be in addition to the Extended Warranty described in Clause
12.
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(d) Product returned for service both during and after the Warranty
Period shall be forwarded to Ness freight pre-paid and returned
freight chargeable to FAI. Where a genuine fault is identified
and the Warranty applies Ness will reimburse FAI for freight
costs both ways.
(e) Ness agrees to supply to FAI Products to be used by FAI as
service exchange units of the Product so that, at all times, FAI
has thirty Products available to exchange for Products being
serviced. These Products are to be supplied by Ness at no cost to
FAI to optimise the supply of service stock to FAI's
dealers/franchisees. Ness may use any Product repaired under any
warranty contained in this Agreement to satisfy its obligations
under this Clause.
3.3 Sale and Purchase
Ness shall sell and FAI shall purchase the Product on the following
terms:
(a) subject to this Clause 3.3 and to Clause 3.4 the initial price
for each Product will be the price agreed from time to time in
writing by Ness and FAI;
(b) if the cost to Ness of any Component increases by more than 10
per cent, Ness may by written notice to FAI notify FAI of the
amount of the increase and within 28 days of such notice FAI
shall either:
(i) agree to the price of each Product being increased by the
amount by which the cost to Ness of the Component has
increased, or
(ii) arrange supply of the Component to Ness at a price which is
not greater than an amount equal to the price of the
Component immediately prior to the proposed price increase
plus 10 per cent.
(c) if the cost to Ness of any Component decreases more than 10 per
cent, Ness shall advise FAI of the amount of such decrease and
the price of each Product shall be reduced by deducting the
decrease in the component cost from the price of each Product.
(d) Ness shall only be required to accept the Component supplied
pursuant to Clause 3.3(b)(ii) if such Component is in the opinion
of Ness (not acting capriciously) of no lesser quality than the
Component previously sourced by Ness.
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(e) On 1st January in each year during the Term, Ness may increase
the price charged by Ness for the Product to a price not
exceeding the price first applicable in the preceding 12 month
period multiplied by a fraction the numerator of which is the CPI
Index at the date of the price increase (the "increase date") and
the denominator of which is the CPI Index at the date which is
twelve months prior to the increase date.
3.4 Delivery
(a) On or about the last day of each calendar month after the date of
this agreement FAI will submit to Ness an estimate (the "FAI
Estimate") of the quantity of the Product which FAI expects to
purchase during the following six month period.
(b) In each calender month during the Term Ness must supply to FAI
up to one fifth of FAI's Estimate (current at that time) in
accordance with FAI's orders no later than 7 days from the date
of placement of each order.
(c) If, in any calender month, FAI orders more than one fifth but
less than one third of the FAI Estimate (current at that time),
Ness must supply to FAI the quantity of Product which exceeds one
fifth but is less than one third of the FAI Estimate within
thirty (30) days of the placement of the order.
(d) FAI shall pay (in Australian dollars) for each Product delivered
and invoiced to FAI within 14 days of delivery or within 42 days
of the date of order, whichever is the later.
(e) If, at any time, Ness fails to deliver Product in accordance with
this Clause 3.4, FAI may, in addition to any other remedy,
require Ness to obtain the Product or a product approved by FAI
from a third party introduced by FAI and/or Ness by serving a
written notice (the "Procurement Notice") to that effect on Ness.
(f) If Ness fails to deliver all outstanding requirements of the
Product and all other orders of the Product to FAI in accordance
with this clause 3.4 at any time after the expiry of thirty (30)
days from the date on which a Procurement Notice is served, FAI
may, in addition to any other remedy, deliver the Escrowed
Business Information to a person for the purpose of enabling that
person to manufacture the Product for FAI.
(g) If Clause 3.4(f) applies:
(i) FAI will not be bound by Clause 5.2;
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(ii) Ness will provide any assistance FAI requires to enable the
Products or the product referred to in clause 3.4(f) to be
sourced by someone other than Ness; and
(iii) Ness will not be entitled to any compensation for the use
of the Escrowed Business Information.
(iv) FAI's rights under this clause 3.4(g) will cease when Ness
resumes deliveries in accordance of the terms of this
clause 3.4.
(v) FAI will only be entitled to disclose the Escrowed Business
Information to a third party for the purposes of this
clause. FAI will ensure that prior to such disclosure that
third party will covenant in a deed that it will keep that
information confidential and not disclose that information
except as necessary in order to manufacture the Product
pursuant to this clause and that third party will return
the Escrowed Business Information and cease to use it as
soon as FAI's rights cease under this clause in accordance
with subclause (iv) above.
At the request of Ness, FAI must take all reasonable action
requested to enforce confidentiality of the Escrowed
Business Information in compliance with this clause
including prosecution of any party who breaches
confidentiality and pay to Ness any compensation or damages
recovered by FAI from the breaching party as a result of
such action less any costs incurred by FAI in connection
with that prosecution.
(h) FAI cannot exercise its rights under Clause 3.4(f) if FAI is in
breach of a material obligation imposed on FAI under this
Agreement.
3.5 Force Majeure
Neither party may exercise their rights and remedies upon the default
of the other party if that default is caused by an act or event that
is beyond the reasonable control of the other party such as an act of
God, act of civil or military authorities, fire, flood, strike, war,
riot, or other cause beyond the reasonable control of the relevant
party.
3.6 Price Exclusive
The price of each Product sold to FAI by Ness shall be exclusive of
all freight charges, insurance, customs duty, sales tax or any other
duty tax or fee payable in relation to the sale, export, installation
or maintenance (other than warranty claims) of the Product all of
which are payable by FAI.
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3.7 Index Numbers
If at any time during the Term the index numbers for the CPI have not
been issued by the Australian Bureau of Statistics as required to
calculate the amount by which the price for the Product shall be
increased Ness shall apply to the officer in charge of the Sydney
office of the Australian Bureau of Statistics to determine an index
issued by the Australian Bureau of Statistics to be used in
substitution for such index numbers.
3.8 FAI Estimate
FAI will, at the end of each calender month, inform Ness if FAI
expects there to be a difference between the FAI Estimate current at
that time and the actual quantity of Products which FAI expects to
order in the unexpired period to which the FAI Estimate relates.
3.9 Risk and Title Retentions
(a) Risk of loss or damage to any Product shall pass to FAI upon
FAI's designated carrier obtaining possession of the Product.
Until the Product has been paid for in full, FAI must take out
adequate property insurance.
(b) Title in any Product supplied to FAI shall not pass to FAI until
FAI has paid to Ness the purchase price for such Product and,
until such time, the Product shall be stored by FAI and by any
person who distributes Product for FAI in such a manner that they
are readily identifiable as belonging to Ness. FAI acknowledges
that it possesses the Product as bailee of Ness and that any
right FAI may have to sell the Product in the ordinary course of
its business shall cease forthwith upon the occurrence to FAI of
any event affecting FAI referred to in Clause 8.2 or upon receipt
of written notice from Ness.
3.10 Nominee of FAI
(a) If requested by FAI, Ness shall supply the Product to a Related
Body Corporate of FAI on the same terms and conditions as set
out in this Agreement and such other conditions as Ness
reasonably requires to secure the payment for any Product having
regard to the financial position of any such Related Body
Corporate.
(b) If requested by FAI, Ness will supply the Product to a nominee
of FAI (other than a Related Body Corporate of FAI) on such
conditions as Ness requires.
(c) The terms of any agreement made with such a nominee shall not
extend beyond the expiry date of this Agreement unless otherwise
agreed by Ness.
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4 NEW MODEL
Ness will not replace the Product with a new product nor substantially
modify the Product without FAI's prior written approval.
5 EXCLUSIVITY
5.1 Ness
To the extent permitted by law during the Term Ness shall not as
principal agent or otherwise (and shall procure that its Related
Bodies Corporate do not) directly or indirectly sell anywhere in the
world, with the exception of the United States of America, any
security alarm product which is substantially similar to the Product
except to the extent that Ness is permitted to do so pursuant to this
Agreement.
5.2 FAI
To the extent permitted by law during the Term FAI shall not as
principal agent or otherwise (and shall procure that its Related
Bodies Corporate do not) directly or indirectly purchase any security
alarm product which is substantially similar to the Product except to
the extent that FAI is permitted to do so pursuant to this Agreement.
5.3 ACCC Notification
Clause 5.2 only applies if Ness notifies the Australian Competition
and Consumer Commission ("ACCC") of the existence and terms of clause
5.2 pursuant to Section 93 of the Trade Practices Act.
5.4 ACCC Notification
Clause 5.1 only applies if FAI notifies the Australian Competition and
Consumer Commission ("ACCC") of the existence and terms of clause 5.1
pursuant to Section 93 of the Trade Practices Act.
5.5 Severance
Clause 5.1 or Clause 5.2 will cease to apply and will be severed from
this Agreement if the ACCC makes any claim that Clause 5.1 or Clause
5.2 (as the case may be) offends Sections 45 or 46 of the Trade
Practices Act. The balance of this Agreement will continue in full
force despite the severance of Clause 5.1 or Clause 5.2 or both.
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6 CONFIDENTIALITY
6.1 Secrecy
The parties agree that any Business Information concerning the
manufacture of the Product and the development of the new models shall
be kept as a trade secret and that harm may be caused to FAI and Ness
by the unauthorised disclosure of information relating to the Product
(including other Business Information). The parties must hold in
strictest confidence all such information and shall not divulge,
provide or otherwise make available or allow or permit any of their
respective employees, agents or representatives (including any person
appointed to manufacture the Product under clause 3.4) to divulge,
provide or otherwise make available information constituting or
relating to the Product Rights or the Business Information in whole or
in part in any form whatsoever other than to their respective
employees, agents, representatives and distributors for the specific
purpose of performing their obligations pursuant to this Agreement.
6.2 Protection of Secrets
Ness and FAI shall each do all things and take all steps reasonably
necessary to prevent the unauthorised use and/or copying of
information relating to or constituting Product Rights and/or Business
Information.
6.3 Permitted Disclosure
FAI and Ness agree that nothing in Clauses 6.1 or 6.2 prohibits the
disclosure of information relating to or constituting Product Rights
and/or Business Information:
(a) to any person acting for or advising upon such rights or
interests providing such person is bound to keep such information
confidential;
(b) with the prior written consent of the other party;
(c) by operation of law provided that all practicable legal steps
have been taken to prevent such disclosure;
(d) by Ness to its licenced manufacturers and/or related companies
provided such recipients agree to keep such information secret
and to Ness' licenced distributors in countries where FAI does
not have exclusive rights in relation to the Product;
(e) by FAI in relation to published marketing material in the
ordinary course of marketing the Product;
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(f) by Ness in the ordinary course and for the purpose of
manufacturing Products for FAI;
(g) which is in the public domain through no fault of the party
receiving the information, and
(h) pursuant to Clause 3.4(f).
(i) to the extent that such disclosure is required for regulatory
approvals.
6.4 Notice of Infringements
Each party shall immediately notify the other should it become aware
of any actual or threatened unauthorised use of any Product Rights or
Business Information by any third party or of any actual or threatened
allegations that the Product infringes any intellectual property
rights of any person.
6.5 Assistance
FAI shall at the expense of Ness provide all necessary support and
assistance reasonably requested by Ness, including becoming a party in
any legal proceedings if requested by Ness to facilitate or assist in
the protection of Ness' Product Rights.
6.6 Escrowed Business Information
Ness must at the request of FAI from time to time deliver the Escrowed
Business Information to FAI and FAI must not:
(a) copy the Escrowed Business Information; or
(b) use or divulge the Escrowed Business information in any way
unless it is entitled to exercise its rights under Clause 3.4(f)
7 WARRANTIES
7.1 From Ness
Ness hereby warrants to FAI that:
(a) it has full title and authority to enter into this Agreement;
(b) it shall use its best endeavours through the currency of this
Agreement to fulfil all the purposes and objectives herein
contained;
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(c) it shall not be a party or be related in any way to any business,
act, matter or thing whereby FAI's rights under this Agreement
may be prejudicially affected.
7.2 From FAI
FAI hereby warrants to Ness that:
(a) it has full title and authority to enter into this Agreement;
(b) it shall use its best endeavours through the currency of this
Agreement to fulfil all the purposes and objectives herein
contained;
(c) it shall not be a party or be related in any way to any business,
act, matter or thing whereby Ness' rights under this Agreement
may be prejudicially affected.
7.3 Insurance
Ness shall obtain and maintain all reasonably necessary insurances
including product liability insurance to a value of not less than $10
million for each and every claim in relation to the Product. Ness must
upon request by FAI supply to FAI copies of relevant Insurance
Policies and Certificates of Currency. FAI may, if Ness fails to do
so, pay the cost of renewing any relevant Insurance Policy and Ness
indemnifies FAI against any such costs.
8 TERMINATION AND EXPIRY
8.1 Expiry
This Agreement shall expire on the expiry of the Term or earlier
termination pursuant to this Clause.
8.2 Grounds of Termination
This Agreement may be terminated forthwith by notice in writing by the
party not in default to the other party if an event of default occurs
in relation to that other party. An "event of default" will occur upon
the happening of any one or more of the following events:
(a) if, subject to clause 3.4(d), FAI does not pay any correct
invoice for the purchase price of any Product within 14 days of
the date upon which FAI receives written notice from Ness
requiring it to do so;
(b) if a party defaults in observing any of its obligations under
the Agreement and such default, being capable of remedy remains
unremedied for a Period of 21 days (or 14 days in the case of an
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obligation to pay money) after written notice from the other
party requiring that such default be remedied;
(c) (i) the appointment of a liquidator or provisional liquidator
in respect of a party because it is or may become
insolvent;
(ii) the winding up of a party, at the instigation of a party's
creditors or any class of its creditors;
(iii) the appointment of an Administrator in respect of a party;
(iv) the entry by a party into a scheme of arrangement or
composition with or assignment for the benefit of all or
any class of its creditors, or a moratorium involving any
of them;
(v) a party being or stating that it is unable to pay its debts
when they fall due;
(vii) the appointment of a receiver or receiver and manager in
respect of any property of a party;
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(viii) 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
(ix) 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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(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: 4/31 Seven Hills Road, 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)
-22-
<PAGE>
<TABLE>
<C> <S> <C>
1 DEFINITIONS & INTERPRETATIONS...........................................- 1 -
1.1 Definitions....................................................- 1 -
1.2 Interpretation.................................................- 3 -
1.3 Successors and Assigns.........................................- 4 -
1.4 Headings.......................................................- 4 -
1.5 References to and Calculations of Time.........................- 4 -
2 ORIGINAL AGREEMENT......................................................- 4 -
3 MANUFACTURE.............................................................- 4 -
3.1 Manufacture and Supply.........................................- 4 -
3.2 Product Warranties.............................................- 6 -
3.3 Sale and Purchase..............................................- 8 -
3.4 Delivery.......................................................- 9 -
3.6 Price Exclusive...............................................- 10 -
3.7 Index Numbers.................................................- 11 -
3.8 FAI Estimate..................................................- 11 -
3.9 Risk and Title Retentions.....................................- 11 -
3.10 Nominee of FAI................................................- 11 -
5 EXCLUSIVITY............................................................- 12 -
5.1 Ness..........................................................- 12 -
5.2 FAI...........................................................- 12 -
5.3 ACCC Notification.............................................- 12 -
5.5 Severance.....................................................- 12 -
6 CONFIDENTIALITY........................................................- 13 -
6.1 Secrecy.......................................................- 13 -
6.2 Protection of Secrets.........................................- 13 -
6.3 Permitted Disclosure..........................................- 13 -
6.4 Notice of Infringements.......................................- 14 -
6.5 Assistance....................................................- 14 -
7 WARRANTIES.............................................................- 14 -
7.1 From Ness.....................................................- 14 -
7.2 From FAI......................................................- 15 -
7.3 Insurance.....................................................- 15 -
8 TERMINATION AND EXPIRY.................................................- 15 -
8.1 Expiry........................................................- 15 -
8.2 Grounds of Termination........................................- 15 -
8.3 Special Ground of Termination.................................- 17 -
8.4 Effect of Termination or Expiration...........................- 17 -
</TABLE>
-23-
<PAGE>
<TABLE>
<C> <S> <C>
9 TERM.................................................- 18 -
10 GOVERNING LAW & JURISDICTION.........................- 18 -
11 ARBITRATION..........................................- 18 -
12 EXTENDED WARRANTY....................................- 19 -
12.1 Appointment...............................- 19 -
12.3 Indemnity.................................- 19 -
12.4 Insurance.................................- 19 -
12.5 Other Liabilities.........................- 20 -
13 GENERAL..............................................- 20 -
13.1 Assignment................................- 20 -
13.2 Entire Agreement..........................- 20 -
13.3 Severance.................................- 20 -
13.4 Counterparts..............................- 20 -
13.5 Notice....................................- 20 -
</TABLE>
-24-
<PAGE>
EXHIBIT 10.4
DATED day of 1997
NESS SECURITY PRODUCTS PTY. LIMITED
(A.C.N. 069 984 372)
FAI HOME SECURITY PTY LIMITED
(A.C.N. 050 064 214)
FAI HOME SECURITY HOLDINGS PTY LIMITED
(A.C.N. 003 125 264)
MANUFACTURING
AGREEMENT
DIBBS CROWTHER & OSBORNE
Attorneys and Solicitors
Level 13, 50 Carrington Street,
Sydney N.S.W. 2000
Australia
DX 101 Sydney
Tel: (02) 9290 8200
Fax: (02) 9290 2964
Ref: JPL:960763
<PAGE>
EXHIBIT 10.5
HOME SECURITY INTERNATIONAL INC.
BRADLEY DAVID COOPER
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
MAP:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS............................................................ 1
2. APPOINTMENT AND POSITION............................................... 2
3. EXECUTIVE'S DUTIES..................................................... 2
4. THE EXECUTIVE'S REMUNERATION AND OTHER BENEFITS........................ 3
5. OPTIONS................................................................ 3
6. BONUS.................................................................. 3
8. ILLNESS OR INJURY...................................................... 3
9. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY..................... 4
10. ASSIGNMENT OF INTELLECTUAL PROPERTY.................................... 5
11. TERMINATION............................................................ 5
12. REDUNDANCY............................................................. 6
13. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT........................... 6
14. RESTRAINT ON THE EXECUTIVE'S CONDUCT................................... 6
15. COMPLIANCE............................................................. 7
16. SEVERABILITY........................................................... 7
17. WAIVER................................................................. 8
18. NOTICE................................................................. 8
19. GOVERNING LAW.......................................................... 8
20. ENTIRE AGREEMENT....................................................... 8
21. ALTERATION............................................................. 8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
22. THIS AGREEMENT IS CONFIDENTIAL......................................... 9
23. HEADINGS............................................................... 9
</TABLE>
ii
<PAGE>
EXECUTIVE SERVICE AGREEMENT
AGREEMENT dated 1997
BETWEEN: HOME SECURITY INTERNATIONAL, INC., a company incorporated in Delaware,
United States of America, and having its registered office at [ ]
('COMPANY')
AND: BRADLEY DAVID COOPER of [ ] ('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 HSI.
3. EXECUTIVE'S DUTIES
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires.
(b) 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 on a monthly basis A$30 for each Sale
during the preceding calendar month. 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.
5. OPTIONS
The Executive may be issued with options in accordance with SCHEDULE 1.
3
<PAGE>
6. BONUS
The Company may pay a bonus to the Executive in accordance with Schedule 2
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)
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 10.6
HOME SECURITY INTERNATIONAL , INC.
('COMPANY')
('EXECUTIVE')
EXECUTIVE SERVICE AGREEMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
MAP:
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. Definitions........................................................... 1
2. Appointment and Position.............................................. 2
3. Executive's Duties.................................................... 2
4. The Executive's Salary and other Benefits............................. 3
5. Options............................................................... 3
6. Bonus................................................................. 3
7. Executive's Vehicle................................................... 3
8. Expenses.............................................................. 5
9. Executive's Leave..................................................... 5
10. Illness or Injury..................................................... 5
11. Confidential Information and Intellectual Property.................... 5
12. Assignment of Intellectual Property................................... 6
13. Termination........................................................... 6
14. Redundancy............................................................ 7
15. What Happens After Termination of Employment.......................... 7
16. Restraint on the Executive's Conduct.................................. 8
17. Compliance............................................................ 9
18. Severability.......................................................... 9
19. Waiver................................................................ 9
20. Notice................................................................ 9
21. Governing Law......................................................... 10
22. Entire Agreement...................................................... 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
23. Alteration............................................................ 10
24. This Agreement is Confidential........................................ 10
25. Headings.............................................................. 10
</TABLE>
ii
<PAGE>
AGREEMENT dated 1997
BETWEEN HOME SECURITY INTERNATIONAL INC. ('COMPANY')
AND ('EXECUTIVE')
RECITAL
The Executive has commenced employment with the Company. The Company and the
Executive wish to record the terms on which the Executive will continue that
employment by the Company.
AGREEMENT
1. DEFINITIONS
1.1 In this Agreement:
'CONFIDENTIAL INFORMATION' means all confidential information including,
but not limited to trade secrets and confidential know-how of which the
Executive becomes aware or generates (both before and after the day this
Agreement is signed) in the course of, or in connection with, employment
with the Company; and
'HSI GROUP' means the Company and its wholly owned subsidiaries.
'HSI GROUP COMPANY' means a member of the HSI Group.
'INTELLECTUAL PROPERTY RIGHTS' means all intellectual property rights
including without limitation patents, copyright, registered designs,
trademarks and the right to have confidential information kept confidential
and any application or right to apply for registration of any of those
rights.
'TOTAL REMUNERATION' means the salary and benefits due under CLAUSE 4.1
from time to time.
1.2 In this Agreement, unless the contrary intention appears:
(a) the singular includes the plural and vice versa;
(b) a reference to a clause or schedule is a reference to a clause or
schedule to this Agreement and a reference to this Agreement includes
any schedules;
<PAGE>
(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 _________________,
or other position determined by the Company from time to time in
accordance with this Agreement.
2.2 The Executive's employment will commence immediately following the
successful completion of the float of HSI.
3. EXECUTIVE'S DUTIES
3.1 The Executive must:
(a) perform to the best of the Executive's abilities and knowledge the
duties assigned to the Executive by the Company from time to time,
whether during or outside the Company's normal business hours and at
such places as the Company requires;
(b) serve the Company faithfully and diligently to the best of the
Executive's ability;
(c) use all reasonable efforts to promote the interests of the Company;
act in the Company's best interests;
(e) comply with all policies of the Company in place from time to time;
(f) comply with all law applicable to the Executive's position and the
duties assigned to the Executive;
(g) report to the person or persons nominated by the Company from time to
time; and
(h) perform work in connection with any subsidiaries of the company as
directed anywhere throughout the world.
(i) if required by the Company, accept employment with an HSI Group
Company, either exclusively or in conjunction with employment by the
Company.
2
<PAGE>
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 acknowledges that the Executive has no authority to bind the
Company in contract except in accordance with the written company policy as
amended from time to time.
4. The Executive's Salary and other Benefits
4.1 The Company must remunerate the Executive in accordance with Schedule 1.
4.2 The Executive's Total Remuneration will include contributions made by the
Company for the Executive into a superannuation fund agreed between the
parties or, if there is no agreement, into a superannuation fund nominated
by the Company, on account of the minimum level of superannuation
contributions which the Company must make for the Executive for the
purposes of the Superannuation Guarantee (Administration) Act 1992 and the
Superannuation Guarantee Charge Act 1992 (collectively 'SGC Legislation')
as amended from time to time ('contributions'). If there is any increase in
the minimum level of superannuation contributions which the Company must
make for the purposes of the SGC Legislation, the components of the
Executive's Total Remuneration will be varied to ensure that there is no
increase in the Executive's Total Remuneration.
4.3 Upon commencing employment, the Executive must do everything necessary for
the Company to make the contributions.
4.4 The Total Remuneration does include any fringe benefits tax payable under
the Fringe Benefits Tax Assessment Act 1986 in respect of:
(a) any component of the Total Remuneration; and
(b) any other benefit the Company provides to the Executive from time
to time under this Agreement.
4.5 The Company must review the remuneration not less than once each year and
may vary the remuneration following that review and alter its components.
5. Options
The Executive may be issued with options in accordance with Schedule 2.
3
<PAGE>
6. Bonus
The Company may pay a bonus to the Executive in accordance with Schedule 3.
7. Executive's Vehicle
7.1 If the Company provides a vehicle to the Executive:
(a) the Company must pay for:
(i) all registration and insurance costs; and
(ii) all oil, petrol and normal maintenance; and
(b) the Executive must:
(i) maintain service records for the vehicle;
(ii) not do anything that would breach or cause a breach of a lease
or other Company obligation, or cause an insurer to refuse to
provide insurance cover for the vehicle, including third party
insurance cover;
(iii) pay any excess on any claim made against the insurance cover for
the vehicle and any fines imposed in connection with the use of
the vehicle; and
(iv) not alter the vehicle without the approval of the Company.
7.2 The Executive must only permit a person to drive the vehicle if that
person:
(a) is approved by the Company;
(b) holds a valid drivers licence; and
(c) does not suffer any medical condition which impairs the person's
ability to drive.
7.3 The Company may, at anytime, withdraw approval given under Clause 7.2(a).
7.4 The Company may withdraw the vehicle if:
(a) the Executive suffers any medical condition which impairs the
Executive's ability to drive;
(b) the Executive does not hold a valid drivers licence;
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(c) the vehicle is involved in what the Company considers to be an
excessive number of accidents;
(d) the Executive takes extended leave;
(e) the Executive does not require the vehicle to perform the Executive's
duties with the Company; or
(f) the Executive breaches CLAUSES 7.1(b) or 7.2.
8. EXPENSES
The Company must pay for or reimburse the Executive for the Executive's
reasonable travel and out of pocket expenses approved by the Company.
9. EXECUTIVE'S LEAVE
The Company must grant the Executive leave in accordance with applicable
law.
10. ILLNESS OR INJURY
10.1 Subject to CLAUSE 10.2, the Company must grant the Executive up to 10 days'
paid sick leave each year if the Executive is unable to perform the
Executive's duties due to illness or injury.
10.2 If the Executive is unable to perform the Executive's duties due to illness
or injury:
(a) for more than the period of the Executive's accumulated untaken paid
sick leave, but less than 3 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 3 months in any one period of 52 consecutive
weeks, the Company may terminate this Agreement under CLAUSE 13.1
10.3 The Executive acknowledges that the Executive is not entitled to any
payment from the Company if this Agreement is terminated under CLAUSE 10.3
except for:
(a) any remuneration due under CLAUSE 4 but unpaid at the date of the
termination; and
(b) any amount required under CLAUSE 13.1 to be paid; and
(c) any amount required under applicable law to be paid less any amount
required under CLAUSE 13.1 to be paid.
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11. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY
11.1 The Executive may use Confidential Information solely for the purpose of
performing the Executive's duties with the Company.
11.2 The Executive must keep confidential all Confidential Information but may
disclose Confidential Information to:
(a) persons who:
(i) are aware and agree that the Confidential Information must be
kept confidential; or
(ii) have signed any confidentiality agreement required by the
Company from time to time;
and either:
(iii) have a need to know relative to the operation of the business
(and only to the extent that each has a need to know); or
(iv) have been approved by the person or persons nominated by the
Company from time to time.
(b) that the Executive is required to disclose in the course of the
Executive's duties with the Company;
(c) that was public knowledge when this Agreement was signed or became so
at a later date (other than as a result of a breach of confidentiality
by the Executive); or
(d) that the Executive is required by law to disclose.
11.3 The Executive must immediately notify the Company of any suspected or
actual unauthorised use, copying or disclosure of Confidential Information.
11.4 The Executive must provide assistance reasonably requested by the Company
in relation to any proceedings the Company may take against any person for
unauthorised use, copying or disclosure of Confidential Information.
12. ASSIGNMENT OF INTELLECTUAL PROPERTY
12.1 The Executive:
(a) presently assigns to the Company all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated
by the Executive (whether alone
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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.
12.2 The Executive must do all things reasonably requested by the Company to
enable the Company to assure further the rights assigned under CLAUSE 12.1.
13. TERMINATION
13.1 The Executive's employment may be terminated at any time:
(a) by the Executive giving to the Company 6 months' notice or by
forfeiting an amount equal to the Executive's Total Remuneration for
that period of notice; or
(b) by the Company giving to the Executive 6 months' notice or by paying
the Executive an amount equal to the Executive's Total Remuneration in
lieu of notice.
13.2 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 11;
(d) other than CLAUSE 11, breaches any other material provision of this
Agreement including CLAUSES 3.1 or 3.2; or
(e) is found guilty by a court of a criminal offence.
13.3 Termination under this clause does not affect any accrued rights or
remedies of either party.
14. REDUNDANCY
If the Executive's employment is terminated for redundancy, the Executive
agrees that:
(a) CLAUSE 13.1 will apply; and
(b) the Executive is not entitled to any payment from the Company except
for:
(i) any remuneration due under CLAUSE 4 but unpaid at the date of the
termination;
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(ii) any amount required under CLAUSE 13.1 to be paid; and
(iii) any amount required under applicable law to be paid less any
amount required under CLAUSE 13.1 to be paid.
15. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT
If the Executive's employment is terminated for any reason:
(a) the Company may set off any amounts the Executive owes the Company
against any amounts the Company owes the Executive at the date of
termination except for amounts the Company is not entitled by law to
set off;
(b) the Executive must return all the Company's property (including
property leased by the Company) to the Company on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles;
(c) the Executive's obligations under CLAUSE 11 continue after termination
except in respect of information that is part of the Executive's
general skill and knowledge; and
(d) the Executive must not record any Confidential Information in any form
after termination.
16. RESTRAINT ON THE EXECUTIVE'S CONDUCT
16.1 During the Restraint Period, the Executive must not in any area in which
the Company has operated during the preceding 24 months or to the
Executive's knowledge intends to operate in the ensuing 24 months.
(a) engage or prepare to engage in any business or activity that is the
same or similar to that part or parts of the business carried on by
the Company in which the Executive was employed at any time during the
Executive's last 24 months with the Company; or
(b) solicit, canvass, approach or accept any approach from any person who
was at any time during the Executive's last 24 months with the Company
a client of the Company in that part or parts of the business carried
on by the Company in which the Executive was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company; or
(c) interfere with the relationship between the Company and its customers,
employees or suppliers; or
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(d) induce or assist in the inducement of any employee of the Company to
leave their employment.
16.2 In CLAUSE 16.1, 'Restraint Period' means:
(a) 12 months after termination of the Executive's employment;
(b) 9 months after termination of the Executive's employment;
(c) 6 months after termination of the Executive's employment.
16.3 CLAUSE 16.1 has the effect of several separate and individual covenants and
restraints consisting of each separate covenant and restraint set out in
CLAUSE 16.1 combined with each separate period of time set out in CLAUSE
16.2.
16.4 If any of the several separate and independent covenants and restraints
referred to in CLAUSE 16.3 are or become invalid or unenforceable for any
reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
16.5 In CLAUSE 16.1 'engage in' means to participate, assist or otherwise be
directly or indirectly involved as a member, shareholder, unitholder,
director, consultant, advisor, contractor, principal, agent, manager,
employee, beneficiary, partner, associate, trustee or financier.
16.6 The Company may require the Executive to provide evidence confirming to the
satisfaction of the Company that the Executive is not in breach of this
clause.
16.7 The Executive acknowledges that each restriction specified in CLAUSE 16.1
is in the circumstances reasonable and necessary to protect the Company's
legitimate interests.
17. COMPLIANCE
The exercise of or compliance with any discretion, right or obligation
under this Agreement is subject to compliance with all applicable laws.
18. SEVERABILITY
Part or all of any clause of this Agreement that is illegal or
unenforceable will be severed from this Agreement and the remaining
provisions of this Agreement continue in force.
19. WAIVER
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time
to insist on performance of that or any other provision of this Agreement.
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20. NOTICE
20.1 A party giving notice under this Agreement must do so in writing.
20.2 A notice given in accordance with CLAUSE 20.1 is taken to be received:
(a) if hand delivered, on delivery;
(b) if sent by prepaid post, 3 days after the date of posting;
(c) if sent by telex, when the machine on which the telex is transmitted
receives at the end of transmission, the answerback code of the
recipient unless, within 8 Business Hours after that transmission, the
recipient informs the sender that it has not received the entire
notice;
(d) if sent by facsimile, when the sender's facsimile system generates a
message confirming successful transmission of the total number of pages
of the notice unless, within 8 Business Hours after that transmission,
the recipient informs the sender that it has not received the entire
notice.
21. GOVERNING LAW
This Agreement is governed by the law applicable in the United States of
America and the parties irrevocably and unconditionally submit to the
exclusive jurisdiction of the courts of the United States of America.
22. ENTIRE AGREEMENT
This Agreement (including its schedules):
(a) constitutes the entire agreement between the parties as to its subject
matter; and
(b) in relation to that subject matter, supersedes any prior understanding
or agreement between the parties and any prior condition, warranty,
indemnity or representation imposed, given or made by a party.
23. ALTERATION
This Agreement (including its schedules) may only be altered in writing
signed by each party.
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24. THIS AGREEMENT IS CONFIDENTIAL
The terms of this Agreement and any subsequent amendments are confidential
and may not be disclosed by the Executive to any other person, other than
for the purpose of obtaining professional legal or accounting advice,
without the written approval of the Company.
25. HEADINGS
Headings are for ease of reference only and do not affect the meaning of
this Agreement.
SCHEDULE 1 - TOTAL REMUNERATION (CLAUSE 4.1)
A remuneration package to the value of $_______ gross.
Base salary:
Superannuation:
Vehicle:
and other benefits as agreed from time to time
SCHEDULE 2 - OPTIONS (CLAUSE 5)
As determined by resolution of the Board of Directors from time to time pursuant
to the terms and conditions of the Company's Option Plan.
SCHEDULE 3 - BONUS (CLAUSE 6)
As determined by resolution of the Board of Directors from time to time
EXECUTED as an agreement.
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THE COMMON SEAL of )
HOME SECURITY INTERNATIONAL, )
INC. is affixed in accordance with its
Constitution in the presence of )
.............................. ...................................
Secretary Director
.............................. ...................................
Name of secretary (print) Name of director (print)
SIGNED by )
in the presence of )
.............................. ...................................
Signature of witness
..............................
Name of witness (print)
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EXHIBIT 23.2
ARTHUR
ANDERSEN
May 2, 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 7001
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
registration statement.
Yours faithfully
/s/ Arthur Andersen
