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As filed with the Securities and Exchange Commission on November 5, 1999
Registration No. 333-59421
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Post-Effective Amendment No. 1 on
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
HOME SECURITY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 98-0169495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Level 7, 77 Pacific Highway
North Sydney, NSW 2060
(011) (61-2) 9936-2424
(Address, including zip code, and telephone number,
including area code of registrant's principal executive offices)
Arthur Don, Esq.
111 E. Wacker Drive Ste 2800
Chicago, Illinois 60601
(312) 602-2000
(Name, address and telephone number of agent for service)
Copies to:
Arthur Don, Esq.
Fernando R. Carranza, Esq.
D'Ancona & Pflaum
111 E. Wacker Drive, Ste. 2800
Chicago, Illinois 60601
(312) 602-2000
FAX (312) 602-3000
---------------
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, 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 of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
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, 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. [_]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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2,150,000 shares of
Common Stock of
Home Security International, Inc.
The selling stockholder identified in this prospectus, and any of its
pledgees, donees, transferees or other successors in interest, may offer to sell
up to an aggregate of 2,150,000 shares of common stock of Home Security
International, Inc. These shares of common stock may be offered by the selling
stockholder:
. in transactions on the American Stock Exchange or such other
markets on which we may be from time to time list our shares of
common stock
. in privately negotiated transactions
. through a combination of these methods
This prospectus is part of a registration statement that we are filing at
this time to fulfill our contractual obligations with the selling stockholder.
We will not receive any of the proceeds from the sale of the common stock by the
selling stockholder.
Our common stock is listed on the American Stock Exchange under the symbol
"HSI."
You should carefully read the section named "Risk Factors" beginning on
page five before investing in our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. It is illegal for any person to tell
you otherwise.
The date of this prospectus is November 5, 1999.
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Table of contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Incorporation by reference................................................................... 2
Where you can information about us........................................................... 3
Prospectus Summary........................................................................... 4
Risk Factors................................................................................. 5
Use of Proceeds ............................................................................. 12
Selling Stockholder.......................................................................... 12
Plan of Distribution......................................................................... 12
Legal Matters................................................................................ 13
Experts ..................................................................................... 13
Forward-Looking Statements .................................................................. 13
</TABLE>
__________________
Incorporation by reference
The Securities and Exchange Commission allows us to "incorporate by
reference" information filed with it, which means that we can disclose important
information to you by referring you directly to those documents. The
information incorporated by reference is considered to be part of this
prospectus. In addition, information that we file with the Commission in the
future will automatically update and supersede information contained in this
prospectus and any accompanying prospectus supplement. We are incorporating by
reference:
. our Annual Report on Form 10-K for the fiscal year ended June 30, 1999
. our Quarterly Report on Form 10-Q for the three months ended September 30,
1999
. any future filings made with the Commission under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934 until all of the shares are
sold.
Upon your request, we will furnish to you at no charge a copy of any
documents incorporated by reference. Requests should be addressed to Level 7, 77
Pacific Highway, North Sydney, NSW 2060, Attn: Mark Whitaker or by telephoning
us at (011) (612) 9936-2424.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
any different information. You should not assume that the information in this
prospectus or the documents incorporated by reference is accurate as of any date
other than the date on the front of the prospectus or those documents.
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Where you can find more information about us
We have filed a Registration Statement on Form S-3, including amendments,
relating to the securities offered by this prospectus with the Securities and
Exchange Commission. This prospectus does not contain all of the information
set forth in the Registration Statement and its accompanying exhibits.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete; however, all material
information with respect to these contracts and documents are disclosed in this
prospectus. In each instance, we refer you to the copy of the contract or other
document filed as an exhibit to the Registration Statement, each of those
statements being qualified in all respects by the actual contract or other
document.
For further information with respect to us and the securities offered in
this prospectus, we refer you to the Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the public reference facilities maintained by the Securities
and Exchange Commission at:
Room 1024, Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
and will also be available for inspection and copying at the regional offices of
the SEC located at:
Citicorp Atrium Center and and 7 World Trade Center
500 West Madison Street, Suite 1400 New York, New York 10048
Chicago, Illinois 60661
Copies of this material may also be obtained at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission at:
450 Fifth Street, N.W.
Washington, D.C. 20549
This material may also be accessed electronically by means of the Securities and
Exchange Commission's home page on the internet at http://www.sec.gov.
We are governed by the reporting requirements of the Securities Exchange
Act of 1934 and, in accordance therewith, we file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission.
These reports, proxy statements and other information can be inspected and
copied at the public reference facilities of the Commission set forth above, and
copies of these materials can be obtained from the Commission's Public Reference
Section at prescribed rates. We furnish our stockholders with annual reports
containing audited financial statements and any other periodic reports we deem
appropriate or as may be required by law.
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Prospectus Summary
Home Security International, Inc.
We are a direct sales company which sells, installs and services a residential
security alarm system marketed under the trade name SecurityGuard. We use an
extensive distributor network to sell SecurityGuard alarm systems.
The SecurityGuard system includes: an alarm, heat sensitive motion
detectors, flashing lights, a siren, window decals, a smoke detector, a fire
extinguisher, a fire blanket and a centralized processing unit that communicates
signals to a centralized monitoring station. SecurityGuard's major components
are manufactured exclusively by Ness Security Products Pty Limited, our
subsidiary.
Our continued success depends on our direct sales marketing program by our
network. Our network is a structured hierarchy of independent agents, area
distributors and distributors, all of whom are compensated solely on the basis
of sales.
We are continually seeking new methods of generating revenue, some of these
include:
. the sale of extended warranties to existing customers
. the introduction of on-line alarm monitoring services to our major
markets
We also expect to increase sales by increasing the size of our network in
those countries where we currently do business, as well as, expand our network
to new international markets.
Our principal executive office is Level 7, 77 Pacific Highway, North
Sydney, Australia 2060, and our telephone number is (011) (612) 9936-2424.
Additional information regarding us, including our audited financial
statements and a more detailed description of our business, is contained in the
documents incorporated by reference in this prospectus. See "Where you can find
more information about us" on page three.
The Offering
We are registering an aggregate of 2,150,000 shares of our common stock
to be offered for sale by the selling stockholder described in this prospectus.
We are registering the common stock covered by this prospectus in order to
fulfill our contractual obligations under a registration rights agreement with
the selling stockholder. Our registration of the common stock does not
necessarily mean that the selling stockholder will sell all or any portion of
the common stock.
We will not receive any proceeds if the selling stockholder decides to
sell any of the common stock offered under this prospectus.
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Recent Developments
In October 1999, our board of directors elected Mr. Harry Singer as a director.
Mr. Singer has been the President of Ultra Soap International, Inc., a
manufacturer and distributor of incentive premium packages that are utilized
extensively within the direct sales industry, since 1992.
Risk Factors
Before you purchase shares of our common stock from the selling
stockholder, you should be aware that there are various risks in making such an
investment, including those described below. You should carefully consider
these risk factors together with all of the information included or incorporated
by reference in this prospectus before you decide to purchase shares of our
common stock. This section includes or refers to certain forward-looking
statements. You should refer to the explanation of the qualifications and
limitations on such forward-looking statements discussed on page 13.
Our distributor network may not be successful in other markets.
Although we have been successful in selling the SecurityGuard System in
Australia and New Zealand, we cannot be sure that our expansion programs in
Europe, South Africa and North America will be successful. Although we believe
that our distributor network limits our costs related to expansion in that our
sales representatives are paid by commission, we still must bear certain start-
up costs, such as the cost of obtaining regulatory approval of the SecurityGuard
System. Our operating results during any given period may be substantially
affected by our costs in setting up distributor networks in new markets.
Furthermore, we cannot be sure that our direct sales marketing program and our
distributor network will be successful in these new markets.
Our operating results and financial condition may be adversely effected by our
expansion into new markets.
If the revenues generated by us in new and existing markets are not
sufficient to offset our expenses, then our operating results and financial
condition could be adversely affected in a material way. In order for us to
expand successfully into a new market, we must obtain a sufficient number and
density of customers in that market to support the additional investment made by
us. We must also establish a relationship with a local financing company that
will finance the purchase of products by our customers. We cannot be sure that
the required customer numbers and density in any new market will be achieved or
that a relationship with a local financing company in that market will be
established.
Additionally, in an effort to expand, we open ourselves up to certain risks
inherent in operating globally, such as:
. international monetary conditions
. tariffs
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. import licenses
. trade policies
. domestic
. foreign tax policies and foreign manufacturing regulations.
Lastly, our SecurityGuard System may require design modifications if it becomes
affected by the climates of the areas in which we do business.
Our ability to make sales is dependent on consumer financing.
For the fiscal year ended June 30, 1999, approximately 70% of our sales of
SecurityGuard Systems to consumers by participants of our distributor network
were financed on an installment basis. Our distributors in Australia and New
Zealand have the option of offering potential consumers financing from our 50%
subsidiary, FAI Finance Corporation Pty Limited, or other financing
organizations. We have arranged for a local financing company to make financing
available to purchasers in each of the other markets in which our distributor
network operates. The availability of consumer financing in new international
markets and the continued availability of consumer financing in existing markets
will be a significant factor in determining whether we succeed in these markets.
Any changes in interest rates or credit quality requirements of financing
organizations may adversely affect our sales and, therefore, have a material
adverse effect on us. We have no assurance that financing will be available on
terms which are attractive to consumers and suitable for our operations.
Currency fluctuations may adversely effect our reported financial results.
Although our principal operations are concentrated in Australia and New
Zealand, we conduct our business throughout the world. Accordingly,
fluctuations in currency exchange rates may adversely affect our financial
performance. Furthermore, because we report our financial results in U.S.
dollars, a significant movement in the value of the U.S. dollar against certain
international currencies, particularly the Australian dollar ("AUD"), could have
a material adverse effect on our reported financial position and the results of
our operations. Recently, the AUD has declined in value relative to the U.S.
dollar from .6810 on June 30, 1998 to a low of .5495 during the fiscal year
ended June 30, 1999 and as of September 24, 1999 was valued at .6517 as compared
to the U.S. dollar. This change in valuation has resulted in our reporting
lower revenues than budgeted when translated into U.S. dollars for the fiscal
year ended June 30, 1999.
Although we are not in the business of currency hedging, we may from time
to time engage in hedging arrangements. Nevertheless, there is no assurance that
we will be successful in limiting the risks related to currency fluctuations and
that changes in exchange rates will not have a material adverse effect on the
results of our operations.
Our success depends on our ability to integrate our acquisitions.
Our success will depend, in part, on our ability to integrate our
acquisition of FAI Financial Corporation Pty Limited and the recent acquisition
of Ness Security Products Pty into
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our core sales business. There is no assurance that we will be able to
successfully integrate these businesses into our operations without incurring
substantial costs, delays or other problems. Nor can we be certain that either
FAI Financial Corporation Pty Limited or Ness Security Products Pty will have a
positive effect on our profitability in an amount sufficient to justify our
investment in them or that we will be able to realize expected operating and
economic efficiencies in the operation of either FAI Financial Corporation Pty
Limited or Ness Security Products Pty following their acquisitions.
In addition, our integrating these acquisitions may require a substantial
amount of time from key management personnel. If we do not manage these
acquisitions effectively, then our business, financial condition and results of
operations could be affected adversely in a material way.
Our success depends on our ability to manage our expansion and growth.
An important element of our business strategy has been and continues to be
expansion of our distributor network beyond its present base of operations.
This expansion has placed, and will continue to place, substantial demands on
our management, operational resources and system of financial controls. Our
future operating results will depend in part on our ability to continue to
implement and maintain operating and financial systems and to expand, train and
manage our employees and members of our distributor network.
Additionally, to the extent we spend time managing growth, this may limit
the time we spend managing other operational, financial and strategic issues.
We cannot be sure that we will successfully implement and maintain the necessary
operational and financial systems. Nor can we be sure that we will successfully
obtain, integrate and utilize the personnel, management, operational and
financial resources required to manage a developing and expanding business in
new markets. If we fail to implement these systems successfully and use our
resources effectively, then the results of our operations and financial
condition may be materially and adversely effected.
Various aspects of our operations may be adversely affected by government
regulation.
We must receive approval from the various regulatory and licensing
authorities for each country, state and local area in which we operate. We 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 system. The time that it takes
to secure these approvals in any market will affect our growth and ability to
establish a presence in that market.
In certain jurisdictions, we have been required to obtain licenses or
permits prior to beginning our operations there. If we are unable to secure the
necessary licenses or permits, or if conditions are established that affect the
granting or retention of needed licenses or permits, then our operations may be
materially and adversely effected.
In certain jurisdictions, we may also be required to comply with standards
governing
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employee selection and training, and to meet certain standards in the conduct of
our business. Although we believe that we are presently in substantial
compliance with all licensing and regulatory requirements in each jurisdiction
in which we operate, we cannot be sure that we will be able to secure the
necessary regulatory approvals in all of the countries or smaller geographic
areas in which we seek to operate or that we will continue receiving regulatory
approvals for our existing activities. Recently, a trend has emerged on the part
of local governmental authorities to adopt various laws and regulations aimed at
reducing the number of false alarms. Enactment of such measures could materially
affect our future business and the results of our operations.
We depend on our key management executive.
The success of our business is largely dependent upon the active
participation of Bradley D. Cooper and other executive officers. The loss or
interruption of their continued services for any reason or if we are unable to
hire or retain qualified executives may materially and adversely effect our
business. Although Mr. Cooper's principal occupation is as our Chief Executive
Officer and Chairman, he has significant interests in other operating companies,
and periodically gives speeches and writes articles on sales motivation
techniques.
We have "key-man" life insurance policies on Messrs. Cooper, Terrence J.
Youngman (President), David Appleby (Vice President of International Business
Development) and Geoffrey D. Knowles (Vice President of Marketing) for $4.1
million, $1.4 million, $2.1 million and $2.1 million respectively.
Our business may be adversely effected by a failure to recruit independent
dealers and agents.
We are dependent on the continued recruitment of new dealers and
independent agents to serve as sales agents in our distributor network. Our
distributor network faces competition in recruiting sales agents from other
organizations, some of which are not in the security alarm industry. Our
ability to maintain or increase our sales growth in the future will depend in
part upon the number and quality of dealers and independent agents that our
distributor network can recruit and we can train. We cannot be sure that our
distributor network will recruit and retain a sufficient number of dealers and
independent agents.
Our industry is highly competitive.
The security alarm industry in each market where we operate is highly
competitive and we cannot be sure that we will be able to compete successfully
in the future. Although we have achieved rapid growth in the sale of the
SecurityGuard System in Australia and New Zealand, we cannot be sure that we
will have continued success in these countries. Although we believe that the
Distributor Network provides us with a competitive advantage over other security
alarm companies in Australia and New Zealand, the loss of any such competitive
position could have a material adverse effect on us. In marketing the
SecurityGuard System outside Australia and New Zealand, we compete with larger
national and international companies who may be better capitalized and who
conduct media advertising, which we do not currently do.
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In the United States, we face competition from alarm installation and
monitoring companies which are better capitalized than us and which offer low-
priced installations of security systems. Competitive pressure may require us to
reduce our prices to achieve in other countries the growth rate we have
experienced in Australia and New Zealand. Furthermore, new competitors are
continuing to enter the industry and we may encounter additional competition
from such future industry entrants.
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Our operating results fluctuate from quarter to quarter.
We have historically experienced fluctuations in our quarterly operating
results and we expect to experience fluctuations of our quarterly operating
results in the future. These fluctuations were caused by many factors, such as:
the opening and closing of distributor offices, the volume and timing of
customer generation, competitive pricing pressures, local and national crime
rates in the markets in which the Distributor Network operates, general economic
conditions, foreign currency fluctuations and seasonality. Unfavorable weather
conditions, holidays and reduced hours of daylight can hamper our sales. Our
budgeted expenses are based, to some extent, on our expectations of future sales
and customer growth. We 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, we believe that
comparisons of the results of our 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. If our revenues or
operating results for any quarter are lower than expected by securities analysts
or the market in general, then the market price of our Common Stock could be
immediately and significantly impacted in an adverse way.
The Company has experienced a significant decline in cash flow from
operations in the last quarter of fiscal 1999 and the first quarter of fiscal
2000, due in part to the reduction in distributor offices and unit sales. These
quarterly fluctuations have reduced the amount of available cash at a time when
the Company has upcoming payment obligations of $400,000 due on December 31,
1999 and $8,298,000 due on June 30, 2000, on a promissory note related to the
Company's purchase of the manufacturer of its security alarms. Accordingly,
given the possibility of future quarterly fluctuations, the Company may be
required to refinance these payments due on terms which may include a
combination of new debt or equity of the Company, and may be less favorable than
the present promissory note.
A change in regional economic conditions in Australia or New Zealand could
adversely affect our financial performance.
Any change in regional economic conditions in Australia and New Zealand or
other factors affecting these markets may adversely affect our performance.
Sales in Australia and New Zealand for the fiscal years ended June 30, 1997,
June 30, 1998 and June 30, 1999 accounted for approximately 94%, 87% and 86%,
respectively, of our total unit sales. We expect that sales in Australia and
New Zealand will continue to account for a significant portion of our net sales
in the future.
Any change in regional economic conditions in Australia and New Zealand or
other factors affecting these markets may adversely affect our performance.
Any decrease in demand for our product, Security Guard, could adversely effect
our sales.
Sales of the SecurityGuard alarm system and related services accounted for
substantially all of our sales, and will continue to account for substantially
all sales in the foreseeable future. Any decline in the demand for this
product, whether as a result of competition, technological change or otherwise,
would adversely affect our business, financial condition and results of
operations, in a material way,
If our standard contract provisions limiting our liability to our customers were
not enforced by a court, we could be exposed to substantial liability and could
incur substantial litigation cost.
Most of the alarm installation agreements and other agreements which we and
our
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distributor detwork use in selling the SecurityGuard alarm system and related
services contain provisions and disclaimers limiting liability to customers.
These provisions and disclaimers are intended to reduce our risk of liability
for the acts or omissions of employees or Distributor Network representatives
and for system failures. However, in the event of litigation with respect to
such matters, we cannot be sure that these liability limiting provisions and
disclaimers will be enforceable.
While we currently carry insurance of various types, including general
liability and errors and omissions insurance, our loss experience or that of
other security service companies may affect the availability and cost of our
insurance in the future. Certain of our insurance policies and the laws of some
jurisdictions may limit or prohibit insurance coverage for punitive or certain
other types of damages, or liability arising from gross negligence or wanton
behavior. We could be adversely effected in a material way by the cost and
effect of litigation.
Our sales and financial condition could be adversely affected by adverse
publicity.
Direct sales companies are occasionally the subject of print articles and
broadcast programs which present a negative view of such companies and that
emphasize their use of high pressure sales practices. Although we maintain an
active training and compliance program to deter abusive sales practices by
participants in our Distributor Network, we have occasionally received adverse
publicity. We have been the subject of isolated news articles accusing our
sales agents of high pressure sales practices including focusing on customers'
fears by using photographs of burglarized homes to encourage purchases of the
SecurityGuard System, and for charging above market financing rates to consumers
who cannot afford the product. Our sales could be adversely affected in a
material way by publicity of this nature.
It may not be possible for our stockholders to pursue litigation against our
officers or directors in the United States.
A substantial portion of our assets 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. As a result, effective service of process in the United
States may not be possible on such directors and executive officers, such
experts or on our subsidiaries.
Additionally, one may not be able to enforce, collect or realize upon,
judgments against such persons obtained in United States courts which are
predicated upon civil liability under United States securities laws. We were
advised by our special Australian counsel, Dibbs, Crowther & Osborne, that there
are doubts as to the enforceability of civil liabilities imposed by United
States courts and as to the ability of stockholders to pursue in Australian
courts claims based on the contents of this Prospectus or otherwise predicated
on United States federal securities laws against us or our directors, executive
officers and experts.
We are subject to taxation in the United and in the jurisdictions in which we do
business.
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Because we are a United States corporation which generates substantially
all of its income from non-U.S. operations, our income will generally be subject
to taxation in different jurisdictions. Certain of our operations conducted
outside the United States or by foreign subsidiaries, in addition to being
subject to taxation in foreign jurisdictions, are also subject to various
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The
Code impose special taxes in certain circumstances on foreign subsidiaries of
United States corporations. While we will generally receive foreign tax credits
for taxes paid in foreign jurisdictions which can be offset against United
States tax liabilities, we cannot be sure that we will generate sufficient
United States income to fully utilize such foreign tax credits.
We have issued warrants and stock options which may reduce our stockholders'
interest.
We have issued:
. warrants to the representatives of the underwriters of our initial
public offering permitting them to purchase an aggregate of 240,000
shares of common stock at an exercise price of $16.50 per share
. warrants to purchase an aggregate of 360,000 shares of common stock
at an exercise price of $13.00 per share , as part of our acquisition
of Ness Security Products Pty Limited
. additional warrants to purchase an aggregate of 200,000 shares of
common stock at an exercise price of $13.00 per share, as part of our
acquisition of Ness Security Products Pty Limited
We have reserved for issuance:
. additional warrants to purchase an aggregate of 200,000 shares of
common stock at an exercise price of $13.00 per share to be issued on
January 1, 2000 under certain circumstances, as part of our
acquisition of Ness Security Products Pty Limited
. 1,150,000 shares of common stock for issuance under our employee
1997 Stock Option Plan of which 710,000 shares are subject to
outstanding options which are exercisable at a price of $10.00 per
share
. 50,000 shares of common stock for issuance under our 1997 Non-
Employee Director Stock Option Plan of which the option to purchase
20,000 shares at an exercise price of $10.00 per share was granted and
options to purchase 7,500 shares were granted at $10.6875 per share
The holders of the options described above have the opportunity to profit from a
rise in the market price of our common stock without assuming the risk of
ownership, thus resulting in a possible dilution in the interest of other
security holders.
Our ability to obtain additional capital might be adversely affected as
long as these
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warrants and options remain unexercised. Moreover, the holders of the warrants
and options may exercise such securities at a time when we would, in all
likelihood, be able to obtain any needed capital by a new offering of our
securities on terms more favorable than those under which the existing warrants
or options are exercisable.
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Use of Proceeds
We will not receive any proceeds from the sale of the shares of common
stock sold by the selling stockholder.
Selling Stockholder
The selling stockholder is FAI Home Security Holdings Pty Limited which was
the parent of our predecessor entity. The selling stockholder's ultimate parent
company was FAI Insurances Limited, an Australian Listed Company.
In January 1999, HIH Insurance Limited (HIH) acquired the shares in FAI
Insurances Limited. As a result of the acquisition FAI Insurances Limited was
delisted on February 12, 1999. HIH has therefore become the ultimate parent and
is a public company whose shares are widely held by the Australian public and is
listed on the Australian Stock Exchange.
The selling stockholder beneficially owns 2,730,000 shares of our common
stock, amounting to 46.8% of our currently outstanding shares of common stock,
2,150,000 of which are being offered in this prospectus. The remaining 580,000
shares held by the selling stockholder are not being registered for sale under
this prospectus. The 2,150,000 shares offered in this prospectus may be offered
from time to time by the selling stockholder, or by any of its pledgees, donees,
transferees or other successors in interest.
We have assumed that the selling stockholder will sell 2,150,000 shares in
determining the number and percentage of shares of common stock that the selling
stockholder will own upon completion of the offering to which the prospectus
relates. If the selling stockholder sells 2,150,000 of its shares, it will then
only own 580,000 shares, amounting to approximately 10% of our outstanding
shares of common stock.
Plan of Distribution
All of the 2,150,000 shares of our common stock being offered under this
prospectus will be sold by the selling stockholder. The selling stockholder
will pay all expenses in connection with the registration of the shares offered
hereby up to a maximum of $75,000. Such shares of our common stock have been
included in the registration statement of which this prospectus forms a part.
The 2,150,000 shares of our common stock being offered by the selling
stockholder pursuant to this prospectus may be offered and sold from time to
time as market conditions permit on the American Stock Exchange or such other
markets upon which we may list shares of our common stock from time to time, at
prices and terms then prevailing or at prices related to the then current market
price, or in negotiated transactions. The shares of our common stock may be
sold by one or more of the following methods, without limitations:
. a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the
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transaction
. purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers
. face-to-face transactions between sellers and purchasers without a
broker/dealer.
In effecting sales, brokers or dealers engaged by the selling stockholder
may arrange for other brokers or dealers to participate. These brokers or
dealers may receive commissions or discounts from the selling stockholder in
amounts to be negotiated. These brokers and dealers and any other participating
brokers and dealers may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales.
Because the selling stockholder may be deemed to be an "underwriter" within
the meaning of Section 2(11) of the Securities Act, the selling stockholder will
be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the shares, the selling
stockholder, any selling broker or dealer and any "affiliated purchasers" may be
subject to Regulation M under the Exchange Act, which regulation would prohibit,
with certain exceptions, any such person from bidding for or purchasing any
security which is the subject of such distribution until his participation in
that distribution is completed. In addition, Regulation M prohibits any
stabilizing bid or stabilizing purchase for the purpose of pegging, fixing or
stabilizing the price of common stock in connection with this offering.
We have entered into an agreement with the selling stockholder to register
the shares of common stock offered hereby under applicable federal and state
securities laws. The agreements between us and the selling stockholder provide
for cross-indemnification of the selling stockholder and us for losses, claims,
damages, liabilities and expenses arising, under certain circumstances, out of
registration of these shares.
To comply with certain states' securities laws, if applicable, the shares
of common stock registered hereunder will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states these shares of common stock may not be sold or
offered unless they have been registered or qualified for sale in such states or
an exception for registration or qualification is available and is complied
with.
Legal Matters
Certain legal matters in connection with the shares of common stock offered
hereby will be passed upon for us by D'Ancona & Pflaum. Arthur Don, a member of
D'Ancona & Pflaum, acts as our Secretary, a non-executive position as defined in
our By-laws.
15
<PAGE>
Experts
The audited financial statements included in this prospectus have been
audited by Arthur Andersen and Deloitte & Touche, 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.
Forward-Looking Statements
Some statements incorporated by reference or made in this prospectus are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When we use
the words "anticipate," "assume," "believe," "estimate," "expect," "intend" and
other similar expressions, they generally identify forward-looking statements.
Forward-looking statements include, for example, statements relating to
development activities, business strategy and prospects, future capital
expenditures, sources and availability of capital, governmental regulations and
their effect on us and competition.
You should exercise caution in interpreting and relying on forward-
looking statements since they involve known and unknown risks, uncertainties and
other factors which are, in some cases, beyond our control and could materially
affect our actual results, performance or achievement. Some of the factors that
could cause our actual results, performance or achievements to differ materially
from those expressed or implied by our forward-looking statements include, but
are not limited to, the matters discussed under the heading "Risk Factors."
We caution you that, while forward-looking statements reflect our good
faith beliefs, they are not guarantees of future performance. In addition, we
disclaim any obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
16
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
You should rely only on the information contained in this prospectus,
incorporated herein or by reference or contained in a prospectus supplement.
Neither we nor the selling stockholder has authorized anyone else to provide you
with different or additional information. The selling stockholder is not making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus, or incorporated
herein by reference, or in any prospectus supplement is accurate as of any date
other than the date on the front of the documents.
2,150,000 shares of
common stock of
Home Security International, Inc.
The date of this prospectus is November 5, 1999
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Part II
Information Not Required In Prospectus
Item 14. Other expenses of issuance and distribution
The following table sets forth the costs and expenses, payable in connection
with the sale of the shares of common stock being registered hereby. All amounts
are estimates: the total estimated fees set forth below shall be paid in full by
the selling stockholder.
SEC Registration Fees (includes State)............................. $ 6,500
Accountants' Fees and Expenses..................................... $25,000
Legal Fees and Expenses............................................ $40,000
Printing and Engraving............................................. $10,000
-------
Total............................................................ $81,500
Item 15. Indemnification of officers and directors
Section 102(b) of the Delaware General Corporations Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized thereunder eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Certificate of Incorporation of the Registrant eliminates the personal liability
of directors to the fullest extent permitted by the DGCL.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any nonderivative suit or proceeding, if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit, provided such person meets the
standard of conduct described in the preceding paragraph, except that no
indemnification is permitted in respect of any claim where such person has been
found liable to the corporation, unless the Court of Chancery or the court in
which such action or suit as brought approves such indemnification and
determines that such person is fairly and reasonably entitled to be indemnified.
Reference is made to Section 7 of Article VII of the Registrant's By-laws
and Article Seventh of the Certificate of Incorporation of the Registrant for
the provisions which the Registrant has adopted relating to indemnification of
officers, directors, employees and agents, which provides for the
indemnification of such persons to the full extent permitted by Delaware
II-1
<PAGE>
law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
Reference is also made to Section 7 of the Underwriting Agreement filed as
Exhibit 1 to this Registration Statement which provides for the indemnification
of the Company, its controlling persons, directors and certain of its officers
by the Underwriters against certain liabilities, including liabilities under the
securities laws.
Reference is also made to Section 7 of the underwriting agreement between the
Company, National and Nolan Securities Corporation, which also provides for the
indemnification of the Company, its controlling persons, directors and National
and Nolan against certain liabilities under the securities laws.
The Registrant has purchased directors' and officers' liability insurance.
Item 16. Exhibits
(a) Exhibits. The following exhibits are filed herewith or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K. As
used in the list of Exhibits below, "Registrant" refers to Home Security
International, Inc.
2.1 Share Purchase Agreement relating to the purchase of shares in
FAI Home Security Pty Limited and FAI Home Security (ENZED)
Limited (4)
2.2 NZ Asset Purchase Agreement between FAI Home Security Holdings
New Zealand Limited and FAI Home Security (ENZED) Limited (4)
2.3 NZ Share Sale Agreement between FAI Home Security Holdings New
Zealand and FAI Home Security Holdings Pty Limited (4)
3.1 Certificate of Incorporation of the Registrant (1)
3.2* Amended and Restated By-laws of the Registrant
4.1 IPO Representatives Warrant Agreement (1)
4.2 Warrant dated as of September 30, 1998, issued by the
Registrant to International Home Security Investments Limited
(9)
4.3* Warrant dated as of October 1, 1999, issued by the Registrant
to International Home Security Investments Limited
II-2
<PAGE>
5.1 Opinion of D'Ancona & Pflaum LLC (filed previously)
10.1 Amended and Restated 1997 Employee Stock Option Plan
10.2 Amended and Restated 1997 Non-Employee Directors' Stock Option
Plan
10.3 International Asset Purchase Agreement between FAI Insurances
and Cooper International Group (2)
10.4 Manufacturing Agreement among Ness Security Products Pty
Limited, FAI Home Security Pty Limited and FAI Home Security
Holdings Pty Limited (4)
10.5 Executive Service Agreement with Bradley D. Cooper (4)
10.6 Amendment to Executive Service Agreement with Bradley D.
Cooper (4)
10.7 Executive Service Agreement dated July 15, 1997 between the
Registrant and Terrence J. Youngman (4)
10.8 Executive Service Agreement dated July 15, 1997 between the
Registrant and Robert D. Appleby (4)
10.9 Executive Service Agreement dated July 15, 1997 between the
Registrant and Mark Whitaker (4)
10.10 Executive Service Agreement dated July 15, 1997 between the
Registrant and Geoffrey D. Knowles (4)
10.11 Option Agreement dated September 5, 1994 between Bradley D.
Cooper and FAI Insurances Limited (2)
10.12 Sale Agreement dated November 11, 1995, among Bradley D.
Cooper, FAI Insurances Ltd, FAI Home Security Holding Pty Ltd.
and Kamarasi Pty Ltd. (2)
10.13 Management Services Agreement with Speakeasy Ltd. (2)
10.14 Promissory Note Payable to Bradley D. Cooper (4)
10.15 Promissory Note Payable to FAI Home Security Holdings Pty
Limited (4)
10.16 Promissory Note Payable to FAI Home Security (ENZED) Limited
(4)
II-3
<PAGE>
10.17 Share Sale Agreement dated December 31, 1997 by and between
FAI Insurances Limited and FAI Home Security Pty. Limited (6)
10.18 Shareholders Agreement dated December 31, 1997 by and between
FAI Insurances Limited and FAI Home Security Pty. Limited (6)
10.19 Consultancy Engagement Agreement effective October 1, 1997,
among the Registrant, Speakeasy Pty. Ltd. and Bradley D.
Cooper (7)
10.20 Stock Purchase Agreement dated July 17, 1998 between the
Registrant and International Home Security Investments Limited
(8)
10.21 Stock Purchase Agreement dated as of July 17, 1998, and
amended as of September 30, 1998, by and between the
Registrant and Integral Investments Limited (9)
10.22 Secured Promissory Note dated as of September 30, 1998,
executed by the Registrant in favor of Integral Investments
Limited (9)
10.23 Share Buy Back Agreement between Ness Security Products Pty
Ltd. and Integrated International Home Security Limited (10)
10.24 Employment Agreement between Ness Security Products Pty
Limited; Nazareno Circosta and Home Security International,
Inc. (10)
10.25 Termination Agreement between Nazareno Circosta and Ness
Security Products Pty Limited (10)
10.26 Non-Competition Agreement between Nazareno Circosta and Home
Security International, Inc. (10)
10.27 Share Buy Back Agreement between Circosta Pty Limited and Ness
Security Products Pty Limited (10)
21.1 List of Subsidiaries (11)
23.1* Consent of Arthur Andersen
23.2* Consent of Deloitte & Touche
27.1 Financial Data Schedule (EDGAR version only) (11)
_______________
*Filed herewith
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1
II-4
<PAGE>
(Registration No. 333-26399), as amended, filed with the Securities and
Exchange Commission on May 2, 1997
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-26399), as amended, filed with the
Securities and Exchange Commission on June 10, 1997
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-26399), as amended, filed with the
Securities and Exchange Commission on June 25, 1997
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on September 29, 1997
(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on November 14, 1997
(6) Incorporated by reference to the Registrant's Report on Form 8-K filed with
the Securities and Exchange Commission on January 15, 1998
(7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on February 17, 1998
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-54921), filed with the Securities and
Exchange Commission on July 20, 1998
(9) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on November 16, 1998
(10) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 17, 1999
(11) Incorporated by reference to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on September 28, 1999
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-5
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(d) 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 registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities is asserted (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding), is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit
II-6
<PAGE>
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on behalf by the undersigned, thereunto duly authorized,
in the City of Sydney on the 5th day of November, 1999.
Home Security International, Inc.
By: /s/ Bradley D. Cooper
------------------------
Bradley D. Cooper
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- --------------------------- -------------------------
<S> <C> <C>
/s/ Bradley D. Cooper
- ----------------------------
Bradley D. Cooper Chairman and Chief November 5, 1999
Executive
Officer (Principal
Executive
Officer)
/s/ Mark Whitaker
- ----------------------------
Mark Whitaker Executive Vice President of November 5, 1999
Finance and Treasurer
(Principal
Financial and Accounting
Officer)
____________________________
Paul Brown Director November 5, 1999
/s/ Steve Rabinovici
- ----------------------------
Steve Rabinovici Director November 5, 1999
/s/ Harry Singer
- ----------------------------
Harry Singer Director November 5, 1999
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
-------------
3.2 Amended and Restated By-laws of the Registrant
4.3 Warrant dated as of October 1, 1999, issued by the Registrant to
International Home Security Investments Limited
23.1 Consent of Arthur Andersen
23.2 Consent of Deloitte & Touche
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
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. 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 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.
<PAGE>
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 not less than two nor more than five. The number of
directors which shall constitute the whole board of directors shall be
determined by resolution adopted by a majority vote of the directors. 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
<PAGE>
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.
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.
<PAGE>
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,
Chairman or Secretary on one (1) days' notice to each director, either
personally or by electronic mail, telecopy or telegram; special meetings shall
be called by the President, Chairman 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 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.
<PAGE>
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 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, only with cause, by the holders of a majority of the shares entitled to
vote at an 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.
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
ARTICLE VIII
AMENDMENTS
SECTION 1. These by-laws may be altered, amended or repealed or new by-
laws may be adopted by the majority vote of the board of directors at any
regular or special meeting of the board of directors if notice of the such
alteration, amendment, repeal or adoption of new by-laws be contained in the
notice of such meeting. In addition, these by-laws may be altered, amended or
repealed or new by-laws may be adopted by a vote of the holders of two-thirds of
the outstanding stock of the Corporation entitled to vote at any annual or
special meeting of the stockholder of the Corporation if notice of the such
alteration, amendment, repeal or adoption of new by-laws be contained in the
notice of such meeting.
<PAGE>
EXHIBIT 43
----------
AT THE TIME OF THIS WARRANT CERTIFICATE, NEITHER THE RIGHTS REPRESENTED BY THIS
WARRANT CERTIFICATE NOR THE SHARES EXERCISABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE MAY NOT BE
SOLD, ASSIGNED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER
THE ACT OR AN APPLICABLE EXEMPTION THEREFROM, UPON THE 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.
HOME SECURITY INTERNATIONAL, INC.
Warrant to Purchase Common Stock
--------------------------------
This Warrant Certificate certifies that INTERNATIONAL HOME SECURITY
INVESTMENTS LIMITED, a British Virgin Islands company ("Holder"), is the
------
registered holder of 200,000 warrants (the "Warrants") to purchase shares of
--------
Common Stock, U.S. $.001 par value per share (the "Shares"), of HOME SECURITY
------
INTERNATIONAL, INC., a Delaware corporation (the "Company"), on the terms and
-------
subject to the conditions set forth below. Each Warrant entitles Holder, upon
exercise, to receive from the Company one share (the "Conversion Ratio") of
----------------
fully paid, nonassessable Common Stock of the Company for U.S. $13.00 (the
"Warrant Exercise Price").
----------------------
DEFINITIONS
-----------
SECTION I. Definitions. The following words and terms as used in this
-----------
Warrant Certificate shall have the following meanings:
"Affiliate" means, with respect to a Person, any other Person that,
---------
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person.
"Board" means the Board of Directors of the Company.
-----
"Business Day" means a day other than a Saturday, a Sunday or a day on
------------
which banking institutions in the City of New York are authorized or obligated
by law or required by executive order to be closed.
"Common Stock", when used with reference to stock of the Company, means all
------------
shares now or hereafter authorized of any class of the common stock of the
Company.
"Convertible Securities" shall mean any securities issued by the Company
----------------------
after the date hereof which are convertible into, or exchangeable for, directly
or indirectly, shares of Common Stock.
<PAGE>
"Person" means a domestic or foreign individual or corporation,
------
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as the same may be
--------------
amended from time to time, and the regulations thereunder.
"Trading Day" shall mean any day on which the American Stock Exchange is
-----------
open for trading on a regular basis.
SECTION II. Termination of Warrants. All of the Warrants evidenced by
-----------------------
this Warrant Certificate shall be fully vested and exercisable as of the date
hereof. The Warrants represented by this Warrant Certificate may not be
exercised after 5:00 p.m., Chicago, Illinois local time, on the fifth
anniversary of the date hereof (October 1, 2004) and, to the extent not
exercised on or before 5:00 p.m., Chicago, Illinois, local time, on such date,
such Warrants shall become void.
SECTION III. Exercise of Warrant. Subject to the terms and conditions
-------------------
hereof, the Warrants may be exercised by Holder, at any time after the date
hereof, in blocks of not less than twenty five thousand (25,000) shares, by (i)
delivery of a written notice to the Company, in the form of the Subscription
Notice attached as Exhibit A hereto, (ii) payment by Holder to the Company of an
---------
amount equal to the Warrant Exercise Price times the number of Warrants so
exercised (plus any applicable issue or transfer taxes) in cash or by certified
or official bank check in immediately available funds, (iii) the surrender of
this Warrant Certificate, properly endorsed, at the principal office of the
Company (or at such other agency or office of the Company as the Company may
designate by notice to Holder) and (iv) delivery to the Company by Holder of a
letter in the form of Exhibit B hereto, provided however, that Holder may not
---------
exercise any portion of the Warrants more than twice in any calendar quarter
without the prior written consent of the Chief Executive Officer of the Company,
which shall not be unreasonably withheld. Upon the Business Day following each
exercise of Holder's rights to purchase Shares, Holder shall be deemed to be the
holder of record of the Shares issuable upon such exercise, notwithstanding that
the transfer books of the Company shall then be closed or certificates
representing such Shares shall not then have been actually delivered to Holder.
As soon as practicable after each such exercise of this Warrant, the Company
shall issue and deliver to Holder a certificate or certificates for the Shares
issuable upon such exercise, registered in the name of Holder or its designee.
If, at the time of exercise, Holder has not elected to exercise all Warrants
that have not already been previously exercised pursuant to the terms of this
Warrant Certificate, upon the Company's receipt of each of the documents
referred to in this Section III, in addition to the issuance of a stock
certificate representing the Shares, including any legends restricting the
transfer of such Shares under the Securities Act, issuable upon exercise of the
Warrants, the Company shall issue a new Warrant Certificate to Holder, on the
same terms as set forth herein, representing the number of Warrants that have
not been previously exercised. Fractional shares of Common Stock shall not be
issued upon the exercise of the Warrants. In lieu thereof, the Company shall
pay Holder cash in an amount equal to such fractional share interest multiplied
by the closing price of a share of Common Stock as of the date of exercise.
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SECTION IV. Covenants as to Common Stock. The Company covenants and
----------------------------
agrees that all Shares which may be issued upon the exercise of any Warrant
represented by this Warrant Certificate will, upon issuance and payment of the
Warrant Exercise Price applicable to such Shares, be validly issued, fully paid
and nonassessable. The Company further covenants and agrees that during the
period within which the any portion of this Warrant Certificate may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide for the exercise of the
entire outstanding portion of this Warrant Certificate and that the par value of
said Shares will at all times be less than or equal to the applicable Warrant
Exercise Price.
SECTION V. Reorganization, Reclassification, Issuance of Additional Shares
---------------------------------------------------------------
of Common Stock, Etc. (a) In case of any capital reorganization, or of any
- --------------------
reclassification of the capital stock, of the Company (other than a change in
par value or from par value to no par value or from no par value to par value or
as a result of a split-up or combination) or in case of the consolidation or
merger of the Company with or into any other corporation or entity (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in the Common Stock being changed into or exchanged for
stock or other securities or property of any other person), or of the sale of
the properties and assets of the Company as, or substantially as, an entirety to
any other corporation, this Warrant Certificate shall, after such capital
reorganization, reclassification of capital stock, consolidation, merger or
sale, entitle Holder to purchase the kind and number of shares of stock or other
securities or property of the Company, or of the corporation or entity resulting
from such consolidation or surviving such merger or to which such sale shall be
made, as the case may be, to which the holder hereof would have been entitled if
it had held the Common Stock issuable upon the exercise hereof immediately prior
to such capital reorganization, reclassification of capital stock,
consolidation, merger or sale, and in any such case appropriate provision shall
be made with respect to the rights and interests of Holder hereunder to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the number or class of shares purchasable upon the exercise of
this Warrant Certificate) shall thereafter be applicable, as nearly as may be in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of the rights represented hereby. The Company shall not effect
any such consolidation, merger or sale, unless prior to or simultaneously with
the consummation thereof the successor corporation or entity (if other than the
Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets shall assume by written instrument executed and
mailed or delivered to Holder at the address of Holder appearing on the books of
the Company, the obligation to deliver to Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, Holder may
be entitled to purchase.
SECTION VI. Antidilution Provisions. (a) The Conversion Ratio shall be
-----------------------
subject to adjustment from time to time as provided in this Section VI. For
purposes of this Section VI, the term "Common Stock" includes the Shares and any
------------
other class of equity interest in the Company having no preference over the
Shares as to distributions which may be authorized in the future by an amendment
to the Company's Certificate of Incorporation. (b) In case the Company shall,
at any time after the date this Warrant Certificate was first issued, with
respect to all of the holders of its outstanding Common Stock (i) declare a
dividend on the outstanding Common Stock payable in shares or rights to acquire
shares of its Common Stock, (ii) subdivide the outstanding Common Stock, (iii)
combine the outstanding Common Stock into a smaller number of shares, or
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(iv) issue any shares of its capital stock by reclassification of the Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation but excluding the
events set forth in Section V hereof or the issuance of shares of Common Stock
by the Company in connection with a merger when the Company is the surviving
corporation of the merger and no such reclassification of the Common Stock has
occurred), then, in each case, the Conversion Ratio and the number of Shares
issuable upon exercise of this Warrant Certificate in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination, or reclassification, shall be proportionately adjusted so that
Holder after such time shall be entitled to receive the aggregate number and
kind of Shares which, if this Warrant Certificate had been exercised immediately
prior to such time, it would have owned upon such exercise and been entitled to
receive by virtue of such dividend, sub-division, combination, or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur. (c) Irrespective of any adjustments in the Conversion
Ratio, the Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in this Warrant
Certificate. (d) Whenever the Company issues an announcement to the public, or
otherwise communicates with the Company's stockholders with respect to any event
which will result in an adjustment as provided for in Section V or VI hereof,
the Company shall promptly cause written notice thereof to be sent by
internationally recognized overnight courier to Holder, at its address as it
shall appear in the records of the Company, which notice shall be accompanied by
an officer's certificate setting forth the adjusted Conversion Ratio and the
number of Shares purchasable upon the exercise of this Warrant after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
SECTION VII. Taxes. The Company shall not be required to pay any tax or
-----
taxes payable by Holder and attributable to the initial issuance of shares of
Common Stock upon any exercise, in whole or part, of this Warrant Certificate.
SECTION VIII. Warrant Holder Not Deemed a Shareholder. No holder, as
---------------------------------------
such, of this Warrant Certificate shall be entitled to vote or receive dividends
or be deemed the holder of shares of the Company for any purpose, nor shall
anything contained in this Warrant Certificate be construed to confer upon the
holder hereof, as such, any of the rights of a shareholder of the Company or any
right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance of record to the
holder of this Warrant Certificate of the Shares which he is then entitled to
receive upon the due exercise of this Warrant Certificate.
SECTION IX. No Limitation on Corporate Action. No provisions of this
---------------------------------
Warrant and no right or option granted or conferred hereunder shall in any way
limit, affect or abridge the exercise by the Company of any of its corporate
rights or powers to recapitalize, amend its Certificate of Incorporation,
reorganize, consolidate or merge with or into another corporation, or to
transfer, all or any part of its property or assets, or the exercise or any
other of its corporate rights and powers. Notwithstanding the foregoing, the
Company agrees that until all the Shares have been registered pursuant to an
effective registration statement filed with the SEC, or sold pursuant to Rule
144 under the Securities Act or otherwise, it shall keep current in filing all
4
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reports, statements, and other materials required to be filed with the SEC (each
an "SEC Report") to permit holders of the Shares to sell such securities under
----------
Rule 144. For purposes of this Section IX, the Company shall be deemed to be
current if it is granted an extension to file any SEC Report by the SEC and the
Company subsequently files such SEC Report within the permitted extension
period, provided however, that the Company shall not be deemed to be current if
it is granted more than two such extensions in any twelve month period.
SECTION X. Not Transferable. This Warrant Certificate and the Warrants
----------------
represented hereby are not transferable to any other Person, without the prior
written consent of the Company, which shall not be unreasonably withheld;
provided, however, that Holder may, without the prior consent of the Company,
transfer this Warrant Certificate and the Warrants represented hereby, or any
portion thereof, to an Affiliate of Paul Brown.
SECTION XI. Lost, Stolen, Mutilated or Destroyed Warrant Certificate. If
--------------------------------------------------------
this Warrant Certificate is lost, stolen, mutilated or destroyed, the Company
shall, on such term as to indemnity or otherwise as it may in its discretion
impose (which shall, in the case of a mutilated Warrant Certificate, include the
surrender thereof), issue a new Warrant Certificate of like denomination and
tenor as the Warrant Certificate so lost, stolen, mutilated or destroyed. Any
such new Warrant Certificate shall constitute an original contractual obligation
of the Company, whether or not the allegedly lost, stolen, mutilated or
destroyed Warrant Certificate shall be at any time enforceable by anyone.
SECTION XII. Notices. All notices and other communications under this
-------
Warrant Certificate shall (a) be in writing, (b) be sent by (i) registered or
certified mail, postage prepaid, return receipt requested, (ii) telecopier, or
(iii) delivered by hand, (c) be given at the following respective addresses and
telecopier and telephone number and to the attention of the following persons:
if to the Company at:
Home Security International, Inc.
7/77 Pacific Highway
North Sydney, NSW 2060
Australia
Attention: Mark Whitaker, Chief Financial Officer
Telecopier No.: 61 2 9936 2355
with a copy to:
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
Attention: Fernando R. Carranza, Esq.
Telecopier No.: (312) 580-0923
5
<PAGE>
if to Holder:
International Home Security Investments Limited
c/o Alliance Investments S.A.M.
Le Panorama Bloc AB
57 Rue Grimaldi
MC 98000 MONACO
Attention: Paul Brown
Telecopier No.: 377 93 25 25 83
With a copy to:
Neal, Gerber and Eisenberg
Two North LaSalle
Suite 2200
Chicago, Illinois 60602
Attention: William Holzman, Esq.
Telecopier No.: 312-269-1747
or at such other address or telecopier or telephone number or to the attention
of such other person as the party to whom such information pertains may
hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address", and (d) be effective or deemed
delivered or furnished (i) if given by mail, on the third Business Day after
such communication is deposited in the mail, addressed as above provided, (ii)
if given by telecopier, when such communication is transmitted to the
appropriate number determined as above provided in this Section XII, (iii) if
given by hand delivery, when left at the address of the addressee addressed as
above provided, except that notices of a change of address, telecopier or
telephone number, shall not be deemed furnished until received.
SECTION XIII. Miscellaneous. (1) This Warrant Certificate and any term
-------------
hereof may be changed, waived, discharged, or terminated only by an instrument
in writing signed by the party or holder hereof against which enforcement of
such change, waiver, discharge or termination is sought.
(2) The headings in this Warrant Certificate are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof
SECTION XIV. Governing Law. This Warrant Certificate shall be governed by
-------------
and construed in accordance with the laws of the State of Delaware without
regard to its rules of conflicts of laws.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officers as of the 1/st/ day of October, 1999.
HOME SECURITY INTERNATIONAL, INC.
By: /s/ Mark Whitaker
------------------------------
Name: Mark Whitaker
Title: Chief Financial Officer
ATTEST:
By: /s/ Arthur Don
------------------------------
Name: Arthur Don
Title: Secretary
7
<PAGE>
EXHIBIT A
---------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES
TO EXERCISE THIS WARRANT
The undersigned hereby exercises the right to purchase __________ of the
Shares covered by this Warrant Certificate, dated October 1, 1999, according to
the conditions thereof and herewith makes payment of the Warrant Exercise Price
of such Shares, in full.
[HOLDER]
By: ____________________________
Name: __________________________
[Address]
Dated: ______________________
8
<PAGE>
EXHIBIT B
---------
Home Security International, Inc.
Attention: Chief Executive Officer
Re: Exercise of Warrant Certificate, dated October 1, 1999
------------------------------------------------------
To whom it may concern:
In connection with the undersigned's purchase of Common Stock of Home
Security International, Inc. upon exercise of a Warrant Certificate therefor,
the undersigned confirms and agrees as follows:
1. The undersigned has sufficient knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of its prospective investment in the shares of Common
Stock.
2. The undersigned understands that it is purchasing the shares
of Common Stock pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), or
any state securities or Blue Sky laws.
3. The undersigned is an "accredited investor" as defined in
Rule 501(a) of Regulation D under the Act.
4. The undersigned agrees that it will not offer, sell,
transfer or exchange such shares of Common Stock, except in accordance
with the registration requirements under the Act or pursuant to an
available exemption therefrom.
If administrative or legal proceedings are commenced or threatened in
connection with which this notice is or would be relevant, the undersigned
irrevocably authorizes Home Security International, Inc. to produce this notice
or a copy thereof to any interested party in such proceedings.
Date:_______________________
By: __________________________________
Name: _______________________________
9
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the incorporation
by reference of our reports dated September 28, 1999 for Home Security
International, Inc. and dated August 20, 1998 for FAI Finance Corporation Pty
Limited, both appearing in Home Security International, Inc's Form 10-K, into
this registration statement on Form S-3 (No. 333-59421) and to all references to
our firm included in this registration statement.
Arthur Andersen
Sydney
November 5, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectuses
constituting part of this registration statement on Form S-3 (No. 333-59421) of
Home Security International, Inc. of our report relating to our audit of the
consolidated balance sheets of Integrated International Home Security Limited as
of June 30, 1999 and 1998 and the related consolidated statements of income,
cashflows and changes in shareholders' equity for the year then ended, which
report is dated August 9, 1999 and appears in the Form 10-K of Home Security
International, Inc.
November 5, 1999
British Virgin Islands
