SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996 Commission File No. 1-11257
CHECKPOINT SYSTEMS, INC.
(Exact name of Registrant as specified in its Articles of Incorporation)
Pennsylvania 22-1895850
(State of Incorporation) (IRS Employer Identification No.)
101 Wolf Drive, PO Box 188, Thorofare, New Jersey 08086
--------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
609-848-1800
---------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
Common Share Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or on any
amendment to this Form 10-K.
X
---
As of March 7, 1997 the aggregate market value of the Common Stock held by
non-affiliates of the Registrant was approximately $749,000,000.
As of March 7, 1997, there were 34,571,528 shares of the Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Certain portions of the Company's definitive proxy statement for its
Annual Meeting of Shareholders, presently scheduled to be held on April 23,
1997.
<PAGE>
PART I
Item 1. BUSINESS
Checkpoint is a designer, manufacturer and distributor of integrated electronic
security systems -- utilizing proprietary radio frequency ("RF") technologies --
designed primarily to help retailers prevent losses caused by theft of
merchandise. The Company markets a wide range of these systems, including
electronic article surveillance ("EAS") systems, closed circuit television
("CCTV") systems, point-of-sale ("POS") monitoring systems and electronic access
control systems ("EAC"). Over the past five years, the Company has achieved
substantial growth. This was accomplished by current management through internal
expansion and acquisitions, the introduction of new products, broadened and more
direct distribution (particularly in its international markets) and increased
and more efficient manufacturing capability. The Company holds or licenses over
200 patents and proprietary technologies relating to its products and their
manufacture.
The Company's key product offerings use a low-cost disposable, paper-thin, RF
target which triggers an alarm when passed through the Company's sensors at the
point of exit from the retail site. These disposable targets, which are
manufactured using the Company's proprietary technology at its state-of-the-art
facility in Puerto Rico, can be easily installed on products or within packaging
at the retail outlet or at the product manufacturing source and can be easily
deactivated without locating the tag. Sales of these disposable targets and
field service of their associated sensors and deactivation units provide a
significant and growing source of recurring revenues and accounted for
approximately 33% of the Company's net revenues for fiscal year 1996. The
Company's manufacturing facilities have the current capacity to produce up to
three billion disposable RF targets per year at a low cost. The Company's
business strategy focuses on capitalizing on retailers' increasing attention to
theft prevention through use of the Company's proprietary RF technology-based
products.
The Company's diversified product lines are designed to help retailers prevent
losses caused by theft (both by customers and employees) while at the same time
enabling retailers to capitalize on consumer impulse buying by openly displaying
high volume, high margin merchandise, and to reduce associated selling costs
through lower staff requirements. The Company's broad and flexible product
lines, marketed and serviced by its extensive sales and service organization,
have helped the Company emerge as the preferred supplier to such hard goods
retail chains as Target, Circuit City, Lucky's Grocery, Ralph's, Rite-Aid, Ross,
Eckerd Drugs, and Walgreens in the U.S., and Dixons, All Sport, British Shoe,
Cortes Ingles, FNAC, and GB in the United Kingdom and Western Europe.
Beginning in September 1991, the Company's current management started to
reposition the Company through the introduction of new products, broadened and
more direct distribution (particularly in its international markets) and
increased and more efficient manufacturing capability. The Company's strategy is
to continue to increase its sales penetration in existing markets and develop a
significant presence in new geographic markets. These objectives will be
attained by continually enhancing and expanding its RF technologies and
products, providing superior service to its customers and expanding its direct
sales activities through acquisitions and start-up operations. The Company is
focused on providing its customers with a wide variety of fully integrated
electronic security system solutions characterized by superior quality, ease of
use, good value and merchandising opportunity for the retailer.
2
<PAGE>
The Company has its principal executive offices at 101 Wolf Drive, Thorofare,
New Jersey 08086, (609-848-1800). Unless the context requires otherwise, the
"Company" means Checkpoint Systems, Inc. and its subsidiaries on a consolidated
basis.
COMPANY HISTORY
In 1969, the Company was incorporated in Pennsylvania as a wholly-owned
subsidiary of Logistics Industries Corporation. In 1977, Logistics, pursuant to
the terms of its merger into Lydall, Inc., distributed the Company's Common
Stock to Logistics' shareholders as a dividend. In February, 1986, the Company
acquired Sielox Systems, Inc., which developed, produced and marketed access
control systems for use in commercial and institutional applications. In August
1990, Sielox's operations were combined with the Company's.
The Company acquired its Canadian Distributor in November of 1992 and
Argentinean Distributor in March of 1993. In addition, the Company set up direct
operations in Mexico during March of 1993 and in Australia during June of 1993.
All of these subsidiaries market EAS systems for use in retail and library
applications.
In July 1993, the Company purchased all the outstanding capital stock of ID
Systems International B.V. and ID Systems Europe B.V., related Dutch Companies
("ID Systems Group") engaged in the manufacture, distribution and sale of EAS
systems. The acquisition gave the Company direct access to six Western European
countries which include The Netherlands, United Kingdom, Sweden, Germany, France
and Belgium.
In February 1995 the Company purchased Alarmex, Inc. which designs and provides
CCTV, POS monitoring, burglar and fire alarm systems and also provides related
central station monitoring services to over 8,200 retail sites in the United
States.
On November 1, 1995, the Company acquired Eagle Security, its distributor in
Oslo, Norway and on January 31, 1997 the Company acquired 2M Security ApS, its
distributor for retail security products throughout Denmark. The acquisition of
Eagle and 2M increases the Company's EAS penetration in Scandinavia and broadens
its presence in Europe.
On November 30, 1995, the company purchased from ADT (UK) Limited ("ADT") all of
the capital stock of Actron Group Limited ("Actron"), a wholly-owned subsidiary
of ADT. Actron manufactured, sold and distributed radio frequency electronic
security systems to the retail industry throughout Western Europe. During 1996
Actron's operations were combined into the Company's operations in Western
Europe.
On March 21, 1996, the Company purchased all of the capital stock of Mercatec
Sistemas e Comercio de Equipamentos Electronicos Ltds. ("Mercatec"). Mercatec is
a leading supplier of EAS systems and CCTV systems to retailers in Brazil. This
acquisition along with the Company's Argentinean operations, further increases
the Company's direct presence in South America.
On November 18, 1996, the Company purchased all of the capital stock of Vysions
Systems, Inc. in Ontario, Canada. Vysion is a leading CCTV systems integrator
and solutions provider for the Canadian market. This acquisition combined with
the Company's existing EAS operations further increases the Company's direct
presence and product offerings to the Canadian market.
3
<PAGE>
On December 27, 1996, the Company acquired Checkpoint Systems Japan, Co., Ltd.,
its exclusive distributor for retail products throughout Japan. This acquisition
gives the Company its first direct presence in the growing Asian market.
On March 11, 1997, the Company announced that it had entered into a definitive
merger agreement (dated March 11, 1997) to acquire all the outstanding shares
of capital stock of Ultrak, Inc. (NASDAQ: ULTK). Ultrak, Inc. will merge into
a new, wholly-owned subsidiary of the Company, and the surviving company will
operate under the name "Ultrak, Inc." In connection with the merger, the
Company will issue 1.15 shares of its common stock for each outstanding share of
Ultrak, Inc. and up to 3.6756 shares of its common stock for each outstanding
share of Ultrak preferred stock. As of March 7, 1997, Ultrak, Inc., had issued
and outstanding, 14,036,656 shares of common stock and 195,351 shares of
preferred stock. The merger is expected to be accounted for as a pooling of
interests and is intended to qualify as a tax-free reorganization. Management
anticipates that this transaction will be consummated by the end of June, 1997.
Ultrak, Inc. designs, manufactures, markets and services CCTV and related
products for use in security and surveillance, industrial vision, mobile
video, traffic management, dental and medical, and other applications.
Ultrak, Inc. had sales of approximately $137 million and $101 million for
calendar years 1996 and 1995, respectively.
In connection with the transaction with Ultrak, the Company granted to
Ultrak an option to purchase 19.9 percent of the outstanding common stock of
Checkpoint at a price of $20.94 per share, which option is exercisable only upon
the occurrence of certain future events. In addition, Ultrak, Inc. granted to
the Company an option to purchase 19.9 percent of the outstanding common stock
of Ultrak, Inc. at a price of $24.08 per share, which option is exercisable only
upon the occurrence of certain future events. George K. Broady, the President
and Chief Executive Officer of Ultrak, Inc. and its largest shareholder, has
also entered into a Shareholder's Agreement pursuant to which, among other
things, Mr. Broady agrees to vote all of his shares in favor of the proposed
transaction. Copies of the definitive merger agreement, the stock option in
favor of Ultrak, the stock option in favor of Checkpoint, and Mr. Broady's
Shareholder's Agreement are filed with this Form 10-K as Exhibits 10.1, 10.2,
10.3, and 10.4, respectively. A copy of the press release issued by the Company
on March 11, 1997 relating to the Ultrak transaction is attached as Exhibit 99.1
to this Form 10-K.
In connection with the above transaction, the Company plans to divest a portion
of the operations of its Security Systems Group subsidiary. This divestiture is
being initiated in order to avoid a potential distribution conflict with Ultrak,
Inc.'s established dealer and distributor base.
Since it is currently impracticable to provide the financial statements and pro
forma financial information required by items 7(a) and (b) of Form 8-K at this
time, no such financial information is being filed with this Annual Report on
Form 10-K. Rather such financial statements and information will be filed on a
Current Report on Form 8-K as soon as practicable, but not later than 60 days
after the date the definitive merger agreement was signed.
On March 13, 1997, the Company announced that its Board of Directors has
(i) voted to terminate its existing shareholders' rights agreement dated as of
December 15, 1988 ("1988 Plan"), and will be redeeming the outstanding rights at
a price of $.005 per Right, and (ii) adopted a new shareholder's rights plan
pursuant to a written agreement dated as of March 10, 1997 ("1997 Plan") between
the Company and American Stock Transfer and Trust Company as
4
<PAGE>
Rights Agent. The redemption of the Rights outstanding under the 1988 Plan will
be effected by a payment of $.005 per Right to all holders of the Company's
common stock as of the close of business on March 24, 1997, and will be paid on
April 8, 1997.
The Rights under the 1997 Plan will attach to existing common shares as of the
close of business on March 24, 1997. No separate certificate representing the
new Rights will be distributed until the occurrence of certain triggering events
as defined in the 1997 Plan. The Rights may be exercised by the holders at a
price of $100.00 per share of common stock, subject to adjustment. The terms of
the Rights are set forth in the 1997 Plan.
A copy of the Rights Agreement between the Company and American Stock Transfer
and Trust Company, as Rights agent, dated as of March 10, 1997 is attached to
this Form 10-K as Exhibit 4.1. Attached to the 1997 Plan as Exhibit B is a
summary of rights to purchase common stock pursuant to the 1997 Plan. A copy of
the press release issued by the Company with respect to the adoption of the 1997
Plan and the redemption of the 1988 Rights is attached to this Form 10-K as
Exhibit 99.2.
The 1988 Plan and the Rights issued thereunder, are being terminated and
redeemed, respectively, since that agreement no longer provides any effective
protection for the Company or its shareholders against any hostile or coercive
takeover attempt. The exercise price for the Rights under the 1988 Plan is
$20.00 per share of common stock, a price that is below the average trading
price of the Company's common stock since January 1, 1996.
Principal Product Categories
- ----------------------------
Electronic Article Surveillance
EAS systems act as a deterrent to, and control the increasing problem of theft
in such establishments as retail stores and libraries. Over the past two
decades, retail establishments have recognized that the most effective
theft-prevention method is to monitor articles. Other means of theft prevention,
(special mirrors, security guards, closed-circuit television systems and
surveillance cameras) monitor people, not the articles to be protected, and this
limitation among others is addressed by EAS systems.
The Company's diversified product lines are designed to help retailers prevent
losses caused by theft (both by customers and employees) while at the same time
enabling retailers to capitalize on consumer impulse buying by openly displaying
higher volume, higher margin merchandise, and to reduce associated selling costs
through lower staff requirements. Sophisticated data collection systems
(primarily bar-code scanners) available to retailers have highlighted the
shrinkage problem and, consequently, retailers now realize that the
implementation of an effective electronic security system can significantly
increase profitability. Accordingly, the retail industry is becoming
increasingly focused on theft prevention.
EAS systems are generally comprised of three components: detectable and
deactivatable security circuits (embedded in tags or labels), referred to as
"targets", which are attached to or placed in the articles to be protected;
electronic detection equipment, referred to as "sensors", which recognize the
targets when they enter a detection area, usually located in the exit path; and
deactivation equipment that disarms the target when patrons follow proper
check-out procedures.
5
<PAGE>
Access Control Systems
Electronic access control systems restrict access to areas requiring protection
from intrusion by unauthorized personnel by granting access only to selected
individuals at specified times. Continued developments in Electronic
Signatures(R) processing and software technology have enhanced the
sophistication of electronic access control systems while bringing down the
cost.
Access control systems use an "electronic credential", that incorporates a
unique identification number to be interpreted by a reading device. The most
advanced systems utilize cards with embedded digital circuits as the credential.
Each card possesses a personal identification number (PIN). Once the cardholder
presents the card containing the PIN, an intelligent controller, which is also a
part of the access control system, determines security clearance/access levels.
This data along with the time and location are recorded by the system computer
for later analysis.
POS Monitoring and CCTV Systems
Point-of-sale systems sold by the Company through its Security Systems Group
(formerly Alarmex) subsidiary record and store videotape check-out transactions
which enable retailers to monitor check-out events for questionable
transactions.
Products
- --------
Product Descriptions
EAS Systems
Checkpoint offers a wide variety of EAS solutions to meet the requirements of
different retail store configurations. A Checkpoint EAS system is primarily
comprised of sensors and deactivation units, which respond to or act upon the
Company's targets.
The Company's EAS products are designed and built to comply with applicable
Federal Communications Commissions ("FCC") regulations governing radio
frequencies, signal strengths and other factors. The Company's present EAS
products requiring FCC certification comply with applicable regulations. In
addition, the Company's present EAS products meet other regulatory
specifications for the countries in which they are sold.
Pie Charts Showing Consolidated Net Revenues by Products:
1996 1995 1994
---- ---- ----
Net Revenues $291,769 $204,741 $128,331
Service and Other 12% 11% 13%
CCTV/POS Monitoring 13% 16% 2%
Access Control 3% 3% 5%
Deactivation 13% 12% 12%
Sensors 27% 23% 27%
Targets-Reusable 8% 9% 12%
Targets-Disposable 24% 26% 29%
--- --- ---
100% 100% 100%
=== === ===
6
<PAGE>
Sensors
The Company's sensor product lines are used principally in retail establishments
and libraries. In retail establishments, EAS system sensors are usually
positioned at the exits from the areas in which protected articles are
displayed. Each sensor unit includes either one or two vertical posts placed at
pre-set distances (i.e. 3 to 6 feet) apart.
In libraries, sensors are positioned at the exit paths, and gates or turnstiles
control traffic. Targets are placed inside books and other materials to be
protected. A target passing through the sensor triggers an alarm, which locks
the gate or turnstile. The target can easily be deactivated or passed around the
sensor by library personnel.
EAS system components include fourteen styles of sensors (each includes a
transmitter, receiver and alarm), and the customer's choice of patented
disposable paper targets, reusable flexible targets and reusable hard plastic
targets. The EAS system's transmitter emits an RF signal and the receiver
measures the change in that signal caused by an active target, causing the
system to activate the alarm. For fiscal years 1996, 1995, and 1994 the
percentage of the Company's net revenues from sensors was 27%, 23%, and 27%,
respectively.
Introduced in 1990, the QS2000(R) is the latest evolution in the Company's
proven Quicksilver(TM) sensor product line. With the addition of
microprocessor-based radio frequency signal processing, the QS2000 has been
engineered to provide excellent target detection with enhanced
target-discrimination capabilities. The QS2000 analyzes RF signals in its
detection zone and can discriminate between unique target signals and
environmental interference. This development greatly reduces false and "phantom"
alarms while increasing target detection. The QS2000 is also available in a
weatherized version for outdoor use. The QX2000 is a similar system to the
microprocessor based QS2000 system with the added flexibility of modular
electronics design. The modular design provides an improved service capability
in addition to permitting the system to operate at three different RF
frequencies.
Introduced in 1993, the Condor(R) sensor is the most technically advanced RF
system on the market today. A significant feature of this system is the
combination of a receiver and transmitter in a single post. Utilizing a
microprocessor and two digital signal processors, the Condor has an aisle width
of 12 feet using two posts. One sensor is capable of three feet detection on
either side of the sensor. Additional features include the ability to mount
full-sized merchandising panels, a customer counter, an alarm counter and a
variable alarm tone.
Also introduced in 1993, the QS1500(TM) and QS1600(TM) are value-priced,
reusable target systems designed primarily for providing wide aisle
protection for the apparel marketplace. The QS1500 has three feet of
detection on either side of a single post, or it can protect up to six feet
between two posts. For wider detection, the QS1600 with two pedestals can
detect targets at distances of up to twelve feet, which is ideal for
shopping mall environments. This system is an inexpensive answer to wide
aisle detection.
- --------------------------
The symbol(R) represents a registered trademark of the Company.
7
<PAGE>
The Company also offers chrome-finished Quicksilver sensors, solid-oak
Signature(R) sensors, featuring an earlier generation of components, the QS45
and QS55(R), wide aisle systems that can span up to five and one half feet, and
the In-Line Supermarket, which is a narrow aisle system designed specifically
for hypermarkets. Most of the Company's sensors can be used with the various
targets available.
In 1994, the Company introduced the QS4000(TM) sensor. With digital signal
processing, this advanced sensing system adjusts its detection to changing
environmental conditions. This new sensor model may be placed in close proximity
to deactivation units or near tagged merchandise so that stores can maximize
selling space. The QS4000 protects aisle widths up to 42 inches using disposable
targets, and up to 60 inches using reusable targets.
As a result of the Company's acquisition of Actron in November of 1995 the
Company added the Corvus product line to its product offering. The Corvus system
is installed at the checkout counter and used primarily in the Hypermarket
industry throughout Europe.
Deactivation Units
Deactivation units are used to eliminate the ability of the tag to be identified
by the RF field in the sensor and set off an alarm. Deactivation usually occurs
at the check-out point. In 1986, the Company introduced Counterpoint(R), a
noncontact deactivation unit which eliminated the need to search for and remove
or manually detune disposable targets. Since 1989, the Company has expanded its
deactivation products with electronic modules that can be installed into
numerous bar code scanners including those manufactured by SpectraPhysics Retail
Systems, Symbol Technologies, Inc., Metrologic, Inc., National Cash Register,
Inc., ICL Systems, Inc., IBM (International Business Machines) and Fujitsu Ltd.
These modules allow the reading of bar code information, while deactivating
targets in a single step. These deactivation units allow retail personnel to
focus on the customer and minimize errors at check-out. During 1993, the Company
developed an improved deactivation unit, Counterpoint(R) IV, which increased
deactivation height to twelve inches and improved the rate of product
deactivation. In 1994, the Company increased the deactivation height beyond
twelve inches with the introduction of Counterpoint V. In 1996, the Company
introduced Counterpoint VII, which will replace versions IV, V, and VI (sold in
Europe). The CPVII's performance is equal to or better than the other devices
and more cost effective. These product improvements significantly increased the
reliability of accurate deactivation. For 1996, 1995, and 1994, the percentage
of the Company's net revenues from deactivation units was 13%, 12%, and 12%,
respectively. Five convenient deactivation configurations -- horizontal
counter-mounted slot scanners, vertical mounted scanners, hand-held scanners,
weigh scale scanners and deactivation pads -- are available for a variety of POS
environments. Most of these units transmit an audible tone that alerts the user
that a target has been detected. The tone stops when the target has been
deactivated.
With the exception of the Counterpoint deactivation pad, all of the above
scanners read bar code information while deactivating hidden Cheklink(R)
targets in a single step. Ideal for high-volume environments, these
scanners mount easily at POS, and can deactivate multiple targets on a
single item.
- -------------------------
The symbol(R) represents a registered trademark of the Company.
8
<PAGE>
The Counterpoint deactivation pad is placed at the check-out counter, and
targets are deactivated automatically by simply passing protected items across
the low profile pad which audibly signals that targets have been deactivated.
There is no need to see the targets in order to deactivate them. Two sizes of
the pads are available, both of which have a very low profile (3/4" or less) on
the counter top.
Targets
All targets contain an electronic circuit that, unless deactivated (disposable
targets) or removed (reusable targets), triggers an alarm when passed through
the sensors. Customers can choose from a wide variety of targets, depending on
their merchandise mix. Targets can be applied either in-store, at the
distribution center, or at the point of manufacture.
Disposable Targets
Disposable security targets are affixed to merchandise by pressure sensitive
adhesive or other means. These targets range in size from 1.125" x 1.5" to 2.0"
x 3.0", enabling retailers to protect smaller, frequently-pilfered items.
Disposable targets must be deactivated at the point-of-sale, either manually or
electronically, or passed around the sensors. Checkpoint provides labels
compatible with a wide variety of standard price-marking/bar-coding printers.
Checkpoint's labels can be integrated with printers from Sato, Zebra, Monarch,
Printronix and Soabar. When used with electronic deactivation equipment, the
targets represent the Cheklink(R) concept, developed to combine pricing,
merchandising, data collection and protection in a single step. Targets can be
applied at the vendor level, in the distribution center or in-store. Under the
Company's Impulse(R) program tags can be embedded in products or packaging at
the point-of-manufacture or packaging. For fiscal years 1996, 1995, and 1994,
the percentage of the Company's net revenues from disposable targets was 24%,
26%, and 29%, respectively.
In 1992, the Company was licensed to sell and provide targets in roll form for
the Model 4021 label applicator (Pathfinder(R)) printer manufactured by Monarch
Marking Systems. This product is a sophisticated electronic portable bar code
label printer and applicator ideal for use in high volume mass merchandise,
drugstore and supermarket applications. In addition, Pathfinder has a
self-contained keyboard which allows for easy entry of various types of label
data including: bar code, price and size. The Pathfinder also has built-in
scanning capability that can scan existing package bar codes, then print
identical Checkpoint labels for application without obscuring important product
information.
In January 1997, the Company entered into working relationships with both Avery
Dennison, a worldwide manufacturer of pressure-sensitive adhesives, and Shore to
Shore, a leader in merchandise identification for the retail and apparel
industries. Both Avery Dennison and Shore to Shore will offer their customers
merchandise labels and tags that contain embedded RF security circuits provided
by the Company. Avery Dennison will embed the RF circuits into customized tag
and label designs using a fully automated proprietary process. Shore to Shore
will integrate the RF circuits into merchandise tags which are available with a
customer's current graphic media and bar code and variable information.
A picture illustrating
the Company's sustainable
competitive advantage.
9
<PAGE>
The Company has entered into a business agreement with Hobart Corporation, a
manufacturer and distributor of weigh scales, label printers and meat wrappers
used in supermarket meat rooms. The Company's Hobart tag, 1315 Series, is
compatible with the Hobart weigh scales Model 5000 T/TE and Model 18VP. This
labor-saving tag is integrated with the Hobart Weigh Scale/Printer to display
the weight and price of the item.
In addition, the Company has an agreement with A&H Manufacturing, the dominant
U.S. supplier of costume jewelry cards, which grants A&H the right to embed
Checkpoint targets in cards during manufacturing.
Reusable Targets
Reusable security targets fall into two categories: (i) Flexible targets are
plastic-laminated tags used in a variety of markets that are removed at the
point-of-sale, and (ii) Hard targets consist of a target and a locking mechanism
within a plastic case. They are used primarily in the apparel market and present
a visible psychological deterrent. Both flexible and hard targets use a
nickel-plated steel pin which is pushed through the protected item with a
magnetic fastener. These targets can also be attached with a lanyard using the
magnetic fastener. An easy-to-use detacher unit removes reusable targets from
protected articles without damage. For 1996, 1995, and 1994, the percentage of
the Company's net revenues from reusable targets was 8%, 9%, and 12%,
respectively.
The Company also supplies the "UFO" hard target. In the opinion of the Company's
management, the UFO hard target design, combined with a superior locking device,
makes the UFO a difficult hard target to defeat. The UFO tag, due to its
patented design, combines a unique conical shape with an interior antenna which,
due to its placement at an angle, provides a tag which can be detected in the
system better than tags in which the interior antenna is placed in a flat
position. During 1993, the Company began manufacturing the Teardrop hard target,
which is made to function only with the QS1500 and QS1600 systems, primarily
used in the apparel market.
During 1993, the Company also introduced a line of fluid tags marketed under the
name ChekInk(R) which provides a cost-effective second line of defense against
shoplifters. Unauthorized removal of these targets will cause sealed vials of
dye to break open, rendering the garment unusable. ChekInk serves as a practical
alternative to chaining down valuable merchandise. Ideal for use in department
stores, mass merchandisers, and sporting goods stores, ChekInk can be removed
quickly and easily at check-out in the same manner as the reusable targets.
During 1994, the Company entered into a business agreement with MW Trading ApS,
a manufacturer and distributor of home entertainment security products, to
license and manufacture these products for the North and South American
marketplace.
A chart showing: Annual Disposable Targets Applied at Vendor Level,
Distribution Center, or In-Store (Units in Millions)
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ----- -----
Units 538 691 734 959 1,371 2,078
10
<PAGE>
Access Control Systems
The Threshold(R) product line consists of eight systems, ranging from a small
non-computer based to large scale networked Microsoft Windows(R) based
offerings. These sophisticated systems provide a maximum degree of control,
monitoring and reporting for any size requirement. For fiscal years 1996, 1995,
and 1994, the percentage of the Company's net revenue from access control
systems was 3%, 3%, and 5% respectively.
The Threshold product line features a Distributed Network Architecture(TM) which
provides that no single point of failure will effect the entire system. These
systems are capable of controlling up to 500 doors for access control and up to
50,000 cardholders. The incorporation of alarm and control point monitoring
(i.e. turning lights on or off) are also integral features of all eight
Threshold offerings.
The Company's remote software packages allow the connection of controllers, a
microprocessor based device, from anywhere in the country via standard telephone
lines. This functionality opens major markets for communications, utilities and
other large scale customers with remote facilities to manage.
The newest additions to the Threshold line incorporate the power of Microsoft's
Windows(R) operating systems. Threshold 95(R) and Threshold NT(R) make use of a
Graphical User Interface (GUI) for easy to use operator intervention. These two
systems allow the integration of third party software packages, like video
imaging, to enhance the basic access control offering. The video imaging feature
attaches a video snap shot of card users in the systems. These images are stored
in the users record and can be called to the monitor when a card is presented to
any reader.
All electronic access control systems can also monitor other occurrences, such
as a change in the status of environmental systems, motors, safety devices or
any controller with a digital output. While monitoring these controllers, any
output can, by a pre-programmed decision, cause an alarm to sound or another
event to occur.
The Company has several proprietary proximity card/tag and reader systems for
any environment. The Mirage(R) family of readers provides the fastest card
verification in the industry with the ability to mount to metal without signal
degradation. The Mirage SG(R) provides the same reliable read performance in a
smaller more aesthetically pleasing package.
The Mirage proximity cards are comprised of a custom-integrated circuit attached
to an antenna and implanted in a plastic card or key tag. This circuit is
powered by RF energy transmitted by the Company's reader located near the
entrance of a controlled door. Access is granted by the attached controller when
a properly powered card transmits its code to the reader.
The integrity of the internal card code is protected and cannot be copied or
duplicated. In addition, a Mirage reader can be protected from environmental
damage or vandalism by installing it inside a wall or behind glass. Mirage
readers are used throughout the entire Threshold product line.
11
<PAGE>
POS Monitoring and CCTV Systems
In December 1991, the Company licensed the worldwide rights to a POS monitoring
system that is marketed under the name Viewpoint(R). Viewpoint records and
stores on videotape every transaction at each check-out point, both the visual
and the individual transaction data. Viewpoint connects directly to the
point-of-sale network using a PC compatible computer and fixed CCTV cameras
usually mounted inside domes affixed to a retailer's ceiling. Because all
transaction data is stored in the computer's relational data base,
user-generated reports can match questionable transactions to events recorded on
the tape. The system also features a remote dial-in capability that allows users
to monitor multiple store locations from one site, significantly lowering
personnel costs. Viewpoint can be linked to Checkpoint EAS systems in order to
record incidents that have caused the EAS system to register an alarm. For
fiscal years 1996, 1995, and 1994, the percentage of the Company's net revenues
from both Viewpoint and CCTV sales was 13%, 16% and 2%.
Principal Markets and Marketing Strategy
- ----------------------------------------
The Company markets its products primarily to retailers in the following market
segments: hard goods (supermarkets, drug stores, mass merchandiser and
music/electronics) and soft goods (apparel). The Company is a market leader in
the supermarkets, drugstores and mass merchandiser market segments with such
customers as American Stores, Target Stores, Rite-Aid, Eckerd Drugs and
Walgreens.
In early 1995, the Company acquired Alarmex which designs and provides CCTV, POS
monitoring and burglar and fire alarm systems to over 8,200 retail sites in the
U.S. With the acquisition of Alarmex, the Company is able to offer its customers
a broader and more sophisticated range of CCTV and POS monitoring products.
Industry sources estimate that "shrinkage" (the value of goods which are not
paid for) is a $27 billion annual problem for the U.S. retail industry and a
concern of at least a comparable magnitude throughout the rest of the world.
Shrinkage is caused primarily by shoplifting and employee theft.
Sophisticated data collection systems (primarily bar-code scanners), available
to retailers, have highlighted the shrinkage problem and, as a result, retailers
now recognize that the implementation of an effective electronic security system
can significantly increase profitability. Accordingly, the retail industry is
becoming increasingly focused on theft prevention.
Industry sources estimate there are approximately 330,000 major retail locations
in the United States that would benefit from the installation of an EAS system
and the Company estimates that less than one-third of these locations have
installed systems. The Company believes, moreover, that in the hard goods market
approximately 18% of such sites are EAS protected. While industry sources expect
the growth of EAS systems in the retail soft goods market to be about 5% to 10%
annually, the retail hard goods market is expected to grow at approximately 20%
per year over the next five years, thus providing an even more significant
growth opportunity.
Retailers generally apply the targets used in EAS systems at the retail site.
Retailers have expressed interest in moving the insertion or application of the
targets to the point of manufacture ("source tagging"). Manufacturers have been
receptive to source tagging in light of the potential increase in product volume
(that is, more sales at the retail
12
<PAGE>
level due to easier customer access to products). According to one fragrance
manufacturer's study, self-service fragrance sales are 60% greater than sales of
products kept under lock and key. In addition, a study, conducted for the
Company by Management Horizons, a division of Price Waterhouse, reported that
consumers made to wait in line or search for a salesperson to buy batteries or
camera film are likely to forego the purchase. The Company believes that source
tagging provides retailers, manufacturers and retail customers with distinct
benefits, principal among which are: enhanced protection from theft, activation
and deactivation without the need for special training of store employees, more
open display of merchandise resulting in increased sales for manufacturers and
reduced costs for retail products.
The Company is focused on providing its customers with a wide variety of fully
integrated electronic security system solutions characterized by superior
quality, ease of use, good value and merchandising opportunity for the retailer.
More specifically, the Company's strategy includes the following:
- Expanding its direct sales and service capabilities in strategic
geographic areas;
- Broadening its electronic security product lines;
- Increasing its penetration of the hard goods retail market (currently
estimated to be less than 20% penetrated by the EAS industry);
- Continuing to promote source tagging on a worldwide basis;
- Continuing to improve the Company's highly integrated and state-of-
the-art manufacturing processes and technologies;
- Continuing to explore strategic acquisitions or start-up opportunities in
the following areas: international direct distribution, a second source of
manufacturing capacity and product line diversification within the
Company's core businesses; and
- Structuring programs for national account prospects involving a variety of
leasing options which promote sales of disposable tags.
The Company promotes its products primarily through (i) comprehensive tag and
equipment sales and product brochures, (ii) emphasizing environmental benefits
by promoting reduced packaging through source tagging, (iii) extensive trade
show participation and (iv) targeting specific retail markets that offer
substantial opportunity for growth (i.e., supermarkets/hypermarkets).
Pie Chart Showing 1996 Domestic EAS Retail Revenues:
1996
----
Net Revenues-Retail $96,539,000
Drug 36%
Supermarket 13%
Mass Merchandise 12%
Music 7%
Apparel 5%
Video 4%
Book Stores 4%
Shoe 2%
Other Retail 17%
---
100%
13
<PAGE>
The Company developed the concept of source tagging more than ten years ago.
Since then, the Company has focused on developing all of the elements required
for successful source tagging. Studies conducted by retail trade associations
and major universities indicate that source tagging provides four major benefits
to retailers. First, source tagging greatly enhances security, creating a
package-integrated theft deterrent that is virtually tamper-proof. Second,
source tagging has presented retailers with an array of merchandise display
options previously impractical because of the threat of theft. This benefit has
been found to have a positive impact on sales with reported increases as much as
200 percent. Source tagging also eliminates the labor costs associated with
manual, in-store application of security labels, as well as eliminating
excessive packaging materials used solely to deter theft.
Strategies to increase acceptability of source tagging are as follows: (i)
intensify vertical market focus into key product segments where RF technology is
the only logical choice, such as liquors; (ii) expand source tagging activities
into international markets; (iii) increase staffing for source tagging efforts
supporting manufacturers and suppliers to speed implementation; and (iv) expand
RF target products to accommodate more packaging schemes. During 1996, over 110
million disposable tags were sold directly to approximately 450 worldwide
manufacturers participating in the Company's source tagging program.
The Company attempts to anticipate the needs of its retail customers and to
answer those needs by taking advantage of the versatility of RF technology.
RF-EAS/ID combines an intelligent chip with the Company's RF circuit to deliver
a tag capable of storing, processing and communicating product information while
simultaneously protecting merchandise from theft. This product represents
rational progression of the Company's ongoing focus on RF technology, and the
Company believes this will revolutionize retail operations as well as provide
benefits to manufacturers and distributors in the retail supply chain.
In order to accelerate the development of the RF-EAS/ID technology the Company,
on February 12, 1997, entered into a joint research and development agreement
with Mitsubishi Materials Corporation, a Japanese company based in Tokyo. This
multi year agreement, which creates a joint product research and development
project, is dedicated solely to developing radio frequency intelligent tagging
solutions for retail and library applications. The project will combine funding,
personnel resources and RF ID technology portfolios of the two companies.
A picture describing
the Company's Impulse
integrated security.
Distribution
- ------------
EAS Systems
The Company sells its EAS systems principally throughout North America, South
America, and Europe. During 1996, EAS revenues from outside the United States
represented approximately 49% of the Company's net revenues.
In the United States, the Company markets its EAS products almost entirely
through its own sales personnel and independent representatives. The Company, at
December 29, 1996, employed 110 salespeople who sell the Company's products to
the domestic retail market and who are compensated by salary plus commissions.
The Company's independent representatives sell
14
<PAGE>
the Company's products to the domestic library market on a commission basis. At
the end of 1996, the Company had three such independent representatives. Four
members of the Company's sales management staff are assigned to manage and
assist these independent representatives. Of total EAS domestic revenues during
1996, 95% was generated by the Company's own sales personnel.
Internationally, the Company markets its EAS products principally through
various foreign subsidiaries which sell directly to the end user and through
independent distributors. The Company's foreign subsidiaries, as of December 29,
1996, employed a total of 188 salespeople who sell the Company's products to the
retail and library markets. The Company's international sales operations are
currently located in Western Europe, Canada, Mexico, Argentina, Brazil, and
Australia ("see Principal Markets and Marketing Strategy").
Until 1993, the Company's sales in Western Europe were made principally through
distributors. In mid 1993, the Company acquired ID Systems Group, a competing
EAS company located in Western Europe. On November 30, 1995, the Company
acquired all of the share capital of Actron, another competing EAS company based
in Western Europe and combined Actron's operations with the Company's existing
European operations.
Independent distributors accounted for 13% of the Company's EAS international
revenues during 1996. Foreign distributors sell the Company's products to both
the retail and library markets. The Company's distribution agreements generally
appoint an independent distributor for a specified term, as an exclusive
distributor for a specified territory. The agreements require the distributor to
purchase a specified dollar amount of the Company's products over the term of
the agreement. The Company sells its products to independent distributors at
prices below those charged to end-users because the distributors make volume
purchases and assume marketing, customer training, maintenance and financing
responsibilities.
Access Control Systems
The Company's electronic access control sales personnel market its electronic
access control products to approximately 162 independent dealers. The Company
employs six salespeople who are compensated by salary plus commissions. Under
the independent dealer program, the dealer takes title to the Company's products
and sells them to the end-user customer. The dealer installs the systems and
provides ongoing service to the end-user customer.
POS Monitoring Systems/CCTV
The Company markets the POS monitoring and CCTV products throughout the world
through its own sales personnel. Sales of the POS monitoring and CCTV products
are sold to the Company's existing EAS retail customers along with those
retailers that currently do not have the Company's EAS products.
Salespeople
- -----------
The Company presently employs approximately 319 salespeople. On the average, the
sales people have over four years experience in the industry. The Company
invests heavily in sales training programs and experiences little turnover among
its top performers.
15
<PAGE>
Backlog
- -------
The Company's backlog of orders was approximately $8,400,000 at December 29,
1996, as compared with approximately $8,000,000 at December 31, 1995. The
Company anticipates that substantially all of the backlog at the end of 1996
will be delivered during 1997. In the opinion of management, the amount of
backlog is not indicative of intermediate or long-term trends in the Company's
business. The Company's business generally follows the retail cycle so that
revenues are weighted toward the last half of the calendar year as retailers
prepare for the holiday season.
Technology
- ----------
The Company believes that its patented and proprietary technologies are
important to its business and strategies for growth and provide it with distinct
competitive advantages. The Company holds or licenses over 200 patents and
proprietary technologies relating to its products and their manufacture.
Substantially all of the Company's revenues were derived from products or
technologies which are patented or licensed. The Company's competitive position
is supported by its extensive manufacturing experience and know-how and, to a
lesser degree, its technology and patents. There can be no assurance, however,
that a competitor could not develop a product comparable to that of the Company.
EAS
Until October 1995, the Company was the exclusive worldwide licensee of Arthur
D. Little, Inc. ("ADL") for certain patents and improvements thereon related to
EAS products and manufacturing processes. On October 1, 1995, the Company
acquired these patents for $1.9 million plus a certain percent of future EAS RF
products sold. Prior to October 1, 1995, the Company paid a royalty to ADL of
approximately 2% of net revenues generated by the sale and lease of the licensed
products, with the actual amount of the royalty depending upon revenue volume.
Royalties amounted to approximately 1.4%, 1.5%, and 1.8% of EAS net revenues for
fiscal years 1996, 1995, and 1994, respectively. The Company licenses certain
sensors, magnetic labels and fluid tags. These license arrangements have various
expiration dates and royalty terms, but are not considered by the Company to be
material.
Electronic Access Control
The Company is the worldwide licensee of certain patents and technical knowledge
related to proximity card and card reader products. It pays a royalty equal to
2% of the net revenues from the licensed products. Such royalties are payable
through January 29, 2000, or until all of the subject patents have been
adjudicated invalid. Royalty expense for fiscal years 1996, 1995, and 1994 was
less that 1% of the Company's EAC net revenues.
POS Monitoring Systems/CCTV
The Company has a worldwide license to distribute a point-of-sale front-end
monitoring system being marketed under the name Viewpoint. Marketing of this
product began during 1992. The Company pays a one time site license fee for each
site installed.
16
<PAGE>
Manufacturing, Raw Materials and Inventory
- ------------------------------------------
EAS
The Company manufactures most of its products in state-of-the-art facilities
located in Puerto Rico and the Dominican Republic and has a highly integrated
manufacturing capability. The Company's manufacturing strategy is to rely
primarily on in-house capability and to vertically integrate manufacturing
operations to the extent economically practical. This integration and in-house
capability provides significant control over costs, quality and responsiveness
to market demand which, it believes, results in a distinct competitive
advantage.
As part of its total quality management program, the Company practices
concurrent engineering techniques in the design and development of its products
involving engineering, manufacturing, marketing and customers early in the
development process.
While the Company sold over 2.0 billion disposable RF targets in 1996, it has
the current manufacturing capacity to produce as many as three billion
disposable RF targets per year at a low cost. During 1997 the Company is
planning to expand its current manufacturing capacity to five billion disposable
RF labels per year. The cost for this increased capacity is expected to
approximate $12.3 million which includes $6.0 million for plant expansion and
$6.3 million for production equipment.
In addition to the Company's own manufacturing production of disposable labels
the Company amended an agreement originally entered into on February 14, 1996
with Tokai Aluminum Foil Co. Ltd. ("Tokai") which gave them a non-exclusive
license for the sale of disposable labels. This amendment which became effective
February 13, 1997 makes the Company the exclusive purchaser of the entire
production output of security tags of Tokai. For 1997 the Company anticipates
purchasing over 500 million labels from Tokai with increases to over 1 billion
in 1998. The combination of additional production capacity being added by the
Company along with purchases of disposable labels from Tokai will increase the
Company's flexibility to meet anticipated customer demand.
The Company purchases raw materials from outside suppliers and assembles
electronic components for the majority of its sensor product lines at its
facilities in Puerto Rico. For its target production, the Company purchases raw
materials and components from outside sources and completes the manufacturing
process at its facilities in Puerto Rico (disposable targets) and the Dominican
Republic (reusable targets). Certain components of sensors are manufactured at
the Company's facilities in the Dominican Republic and shipped to Puerto Rico
for final assembly. The principal raw materials and components used by
Checkpoint in the manufacture of its targets are electronic components for its
systems, aluminum foil, resins, and paper used for its disposable tags, ferric
chloride solutions for the Company's etching operation of disposable tags and
printed circuit boards. While most of these materials are purchased from several
suppliers, there are numerous alternative sources for all such materials. In
general, there is an adequate supply of raw materials to satisfy the needs of
the industry. The Company's general practice is to maintain a level of inventory
sufficient to meet anticipated demand for its products.
17
<PAGE>
Access Control Systems
The Company purchases raw materials from outside suppliers and assembles the
electronic components for controllers, proximity cards and proximity readers at
its facilities in the Dominican Republic and Puerto Rico. For non-proximity
electronic access control components, the Company subcontracts manufacturing
activities. All electronic access control final system assembly and testing is
performed at the Company's facilities in Thorofare, New Jersey.
POS Monitoring Systems/CCTV
The Company does not manufacture any of the components for the Viewpoint product
line other than small interface circuit boards. The Company purchases all the
hardware components of the Viewpoint products from major distributors. Limited
inventory levels are maintained since the Company places orders with these
distributors as customer orders are received. The software component of the
system is added at the customer's site.
The acquisition of Alarmex provides the Company with facilities and expertise
dedicated to CCTV systems.
Competition
- -----------
EAS
Currently, EAS systems are sold to two principal markets: retail establishments
and libraries. The Company's principal global competitor in the EAS industry is
Sensormatic Electronics Corporation ("Sensormatic"). Sensormatic is a fully
integrated supplier of electronic security systems, with an approximate 58% of
the worldwide market share. Management estimates that the Company's market share
in the EAS industry is approximately 26%. With total revenues of approximately
$995 million for its most recent fiscal year, Sensormatic has economic and other
resources greater than those of the Company.
Within the U.S. market additional competitors include Sentry Technology
Corporation, principally in the retail market, and Minnesota Mining and
Manufacturing Company, principally in the library market. Within the Company's
international markets, mainly Western Europe, Esselte Meto, NEDAP, along with
Sensormatic, are the Company's most significant competitors. On November 30,
1995, the Company acquired all of the stock of Actron which, prior to
acquisition, had been a principal competitor of the Company in Western Europe.
The Company believes that its product line offers more diversity than its
competition in protecting different kinds of merchandise with soft disposable
targets and hard and flexible reusable targets, all of which operate with the
same RF system. As a result, the Company believes it appeals to a wider segment
of the market than does its competition and competes in marketing its products
primarily on the basis of their versatility, reliability, affordability,
accuracy and integration into operations. This combination provides many system
solutions which allow for protection of various kinds of merchandise from theft.
Electronic Access Control
The Company's electronic access control products compete with other
manufacturers of electronic access control systems as well as with conventional
security systems.
18
<PAGE>
Major competitors are Casi, Software House Inc., and Cardkey Systems. Software
House and Cardkey are subsidiaries of much larger companies that have
substantially greater resources than the Company. The Company believes that its
products offer higher reliability and value than those of its competitors.
POS Monitoring Systems/CCTV
The Company's POS Monitoring and CCTV products, which are sold through its
Security Systems Group subsidiary, compete primarily with similar products
offered by Sensormatic and Knogo. The Company believes that its products
represent a technological advancement over those of its competitors,
particularly with respect to recording and retrieval of transaction information.
Research and Development
- ------------------------
The Company has increased its research and development activities during the
past four years over the prior levels. The Company expended approximately
$6,408,000, $6,862,000, and $4,877,000 in research and development activities
during 1996, 1995, and 1994, respectively. The emphasis of these activities is
the continued broadening of the product lines offered by the Company and an
expansion of the markets and applications for the Company's products. The
Company's continued growth in revenue can be attributed, in part, to the
products and technologies resulting from these efforts.
Another important source of new products and technologies has been the
acquisition of companies and products during the last few years. The Company
expects to continue to make acquisitions of related businesses or products
consistent with its overall product and marketing strategies.
Since 1991, the Company has introduced approximately 71 new products. The
Company continues to expand its product line with improvement in disposable tag
performance and less intrusive wide aisle RF detection sensors. In addition, the
Company holds or licenses over 200 patents and proprietary technologies relating
to its products and their manufacture.
Employees
- ---------
As of December 29, 1996 the Company had 2,628 employees, including 16 officers,
65 persons engaged in research and development activities and 359 persons
engaged in sales and marketing activities. In the United States fewer than 8 of
the Company's employees are represented by a union.
19
<PAGE>
Pie Chart Showing Employees By Function:
1996
----
Sales 12%
Service 16%
Manufacturing 53%
Administrative 17%
Research & Development 2%
---
Total 100%
Pie Chart Showing Employees By Location:
United States - EAS/EAC 19%
United States - CCTV 6%
Caribbean 51%
Western Europe 14%
International - Other (1) 10%
---
Total 100%
(1) Other includes Canada, Mexico, Argentina, Australia, Brazil, and Japan
20
<PAGE>
Financial Information About Domestic and Foreign Operations
- -----------------------------------------------------------
The following table sets forth certain information concerning the Company's
domestic and foreign operations for each of the last three fiscal years.
Geographic Area 1996 1995(1) 1994
=============== ==== ==== ====
(Thousands)
Net revenues from From United States $170,381 $149,319 $88,211
unaffiliated and Puerto Rico
customers
Net revenues from Western Europe, $121,388 $ 55,422 $40,120
foreign subsidiaries Canada, Mexico,
South America, and
Australia
Export net revenues Primarily Western $ 24,505 $ 21,785 $10,430
Europe and Japan
Domestic earnings From United States, $ 29,487 $ 17,626 $ 6,931
before income taxes Puerto Rico, and
Dominican Republic
Foreign earnings Western Europe, $ 390 $ (1,028) $ 1,446
(loss) before income Canada, Mexico,
taxes South America, and
Australia
Domestic identifiable In United States, $371,400 $225,877 $92,285
assets Puerto Rico, and
Dominican Republic
Foreign identifiable Western Europe, $150,253 $136,274 $35,640
assets Canada, Mexico,
South America, and
Japan
(1) Includes the effect of the acquisition of Actron which occurred on
November 30, 1995.
Pie Charts Showing Consolidated Net Revenues by Market:
1996 1995 1994
------ ------ ------
Net Revenues $291,769 $204,741 $128,331
International-Other(1) 15% 13% 17%
Western Europe 35% 25% 22%
Access Control-Domestic 3% 3% 5%
Library-Domestic 2% 3% 5%
Retail-Domestic 45% 56% 51%
--- --- ---
100% 100% 100%
(1) Other includes Canada, Mexico, Argentina, Australia, Brazil, and Japan
21
<PAGE>
Item 2. PROPERTIES
The Company's headquarters and distribution center are located in leased
facilities in Thorofare, New Jersey. Of the total 104,000 square feet,
approximately 64,000 square feet are used for office space and approximately
40,000 square feet are used for storage facilities. The Company has entered into
a twelve year lease for the facilities starting in 1995. The rent for the first
five years starting in 1995 is $692,000 annually.
The Company's principal manufacturing facility, for the production of most of
its products, is located in Ponce, Puerto Rico. This two-story building, which
was completed in 1990, is owned by the Company and contains approximately 90,000
square feet. Included in the 90,000 square feet is approximately 11,000 square
feet of office space and approximately 14,000 square feet of warehouse space.
The Company leases an additional facility containing approximately 31,000 square
feet. The lease expires in 2005 with an average annual rent over the term of the
lease of approximately $80,000.
During 1997 the Company is planning to expand its current manufacturing capacity
to five billion disposable RF labels from the current three billion capacity per
year. The cost for this increased capacity is expected to approximate $12.3
million which includes $6.0 million for plant expansion (45,000 square feet) and
$6.3 million for production equipment.
The Company also leases two manufacturing facilities in the Dominican Republic.
One facility, located in La Vega, contains approximately 63,000 square feet. It
includes approximately 17,000 square feet of office space and approximately
20,000 feet of warehouse space. Certain components of the Company's sensors,
hard targets and proximity cards are assembled at this site. The lease for this
property expires in December 2007 with an annual rent of $30,115. The other
facility, located in Los Alcarrizos, contains approximately 34,000 square feet.
It includes approximately 235 square feet of office space and approximately
5,000 square feet of warehouse space. This facility performs the bending,
chroming and wiring of antenna loops used in the Company's Quicksilver sensor
products. This facility also performs certain injection molding production used
in the assembly of the Company's reusable security targets. The lease for the
Los Alcarrizos property expires in December 2002 with an annual rent of $41,259.
The leases for both locations have been prepaid for their entire terms.
The Company's Security Systems Group subsidiary leases two facilities in Eden
Prairie, Minnesota. One facility contains approximately 24,000 square feet of
office and warehouse space. Assembly and distribution functions are performed at
this site. The lease on this facility expires in March 2000 with an annual rent
of approximately $120,000. The other facility contains approximately 16,000
square feet of office space. Customer service, sales support and administrative
functions are performed at this site. The lease on this facility expires in
March 2000 with an annual rent of approximately $190,000.
The Company's foreign subsidiaries maintain various sales and distribution
locations principally in Australia, Argentina, Brazil, Canada, France, Germany,
Japan, Mexico, The Netherlands, Sweden, Norway, Spain, Switzerland, and the
United Kingdom. The locations have an average of 5,200 square feet of office
space and an average of 4,500 square feet of warehouse space. The lease terms of
these foreign subsidiaries range from one to eighteen years with an aggregate
average annual lease expense of
22
<PAGE>
$89,000 in 1996.
In November 1996, the Company's European Distribution Center became
operational. The facility, located in Mechelen, Belgium, has approximately
13,000 square feet of office space and 33,000 square feet of warehouse space.
The Company's Belgium sales subsidiary occupies approximately 3,000 square feet
of the office space. The lease for this facility expires in 2004 with an annual
rent of approximately $291,000.
Item 3. LEGAL PROCEEDINGS
The Company is involved in certain legal and regulatory actions all of which
have arisen in the ordinary course of business. While the Company is unable to
predict the outcome of these matters, it does not believe that the ultimate
resolution of such matters will have a material adverse effect on its
consolidated financial position or results of operation.
On February 14, 1996, the United States Federal Trade Commission began an
investigation of the retail security industry. The probe was launched under the
premise of anticompetitive practices within the industry whereby certain
retail-trade groups limited the autonomy of smaller retailers by supporting
specific security systems. The Company, along with Sensormatic Electronics
Corporation, Minnesota Mining and Manufacturing Company, and other industry
participants, received subpoenas requesting certain documents and communications
necessary for the investigation. The Company does not believe that any legal or
regulatory infraction will be found on its part.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote of security
holders.
23
<PAGE>
Item A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain current information concerning the
executive officers of the Company, including their ages, position and tenure as
of the date hereof:
OFFICER
NAME AGE SINCE POSITIONS WITH THE COMPANY
---- --- ----- --------------------------
Kevin P. Dowd 48 1988 President and Chief Executive Officer
Steven G. Selfridge 41 1988 Executive Vice President
Luis A. Aguilera 48 1982 Senior Vice President-
Manufacturing
Mitchell T. Codkind 37 1992 Vice President - Corporate
Controller and Chief Accounting
Officer
William J. Reilly, Jr. 48 1989 Senior Vice President
Michael E. Smith 41 1990 Senior Vice President
Neil D. Austin 50 1989 Vice President - General Counsel
and Secretary
Lukas A. Geiges 58 1995 Senior Vice President -
International Development
Jeffrey A. Reinhold 39 1995 Vice President - Chief Financial
Officer and Treasurer
David K. Shoemaker 40 1995 Vice President - Business
Development
Nicholas W. Martino 41 1996 Vice President - Marketing
Dennis O'Malley 42 1996 Vice President - Worldwide
Customer Service
Alun H. Wilson 53 1996 Vice President - Latin America
and Asia Pacific
Raymond DeZarate 39 1996 Vice President - Western Division
Paul G. Harrington 48 1996 Vice President - Eastern Division
Francis X. Glavin 35 1997 Vice President - Information
Systems
24
<PAGE>
Mr. Dowd has been President and Chief Operating Officer of the Company since
August 1993 and Chief Executive Officer and Director of the Company since
January 1995. He was Executive Vice President of the Company from May 1992 to
August 1993. Mr. Dowd was Executive Vice President Marketing, Sales and Service
from April 1989 to May 1992 and Vice President of Sales from August 1988 to
August 1989. Prior to joining the Company, Mr. Dowd was Director - Industrial
Products Group, Mars Electronics from January 1987 to July 1988.
Mr. Selfridge has been Executive Vice President since January 1996. He was
Senior Vice President - Operations and Chief Financial Officer and Treasurer
from August 1993 to January 1996. He was Chief Financial Officer and Vice
President - Finance and Treasurer of the Company from December 1990 to August
1993; and Vice President - Finance and Treasurer of the Company since September
1989. Mr. Selfridge was Corporate Controller, Chief Accounting Officer and
Secretary from April 1988 to September 1989 and Controller of Domestic
Operations from July 1986 to April 1988. Mr. Selfridge is a Certified Public
Accountant.
Mr. Aguilera has been Senior Vice President - Manufacturing since August 1993.
He was Vice President - Manufacturing of the Company from April 1982 to August
1993, and Vice President and General Manager of the Company's Puerto Rico
subsidiary since February 1979.
Mr. Codkind has been Vice President since April 1995 and Corporate Controller
since January 1992. He was Controller of Domestic Operations from January 1990
to January 1992 and Accounting Manager of Domestic Operations from June 1986 to
January of 1990. Mr. Codkind is a Certified Public Accountant.
Mr. Reilly has been Senior Vice President since August 1993. He was Vice
President - Sales of the Company from April 1989 to August 1993. Mr. Reilly was
Eastern Regional Sales Manager from March 1989 to April 1989. Prior to joining
the Company, Mr. Reilly was U.S. Sales Manager for Multitone Electronics PLC,
London, U.K. from 1982 to 1989.
Mr. Smith has been Senior Vice President since August 1993. He was Vice
President - Marketing from August 1990 to August 1993. Mr. Smith was Director of
Marketing from April 1989 to August 1990 and Program Manager - National/Major
Accounts from December 1988 to April 1989. Prior to joining the Company, Mr.
Smith was Marketing Manager with Mars Electronics International from June 1987
to November 1988.
Mr. Austin has been Vice President - General Counsel and Secretary since 1989.
Prior to joining the Company, Mr. Austin was a managing consultant with Mercer,
Meidinger, Hansen Inc. from 1987 to 1989.
Mr. Geiges has been Senior Vice President - International Development since
April 1994. Prior to joining the Company, Mr. Geiges was a consultant to the
Actron AG Board of Directors from 1993 to March 1994 and Chairman of the Board
of Directors and President of Actron AG from 1988 to 1993.
Mr. Reinhold has been Chief Financial Officer since January 1996 and has been
Vice President and Treasurer of the Company since April 1995. Prior to joining
the Company, Mr. Reinhold spent thirteen years at First Fidelity Bank, N.A.
where he held a variety of management positions in various lending departments
and loan workout. Mr. Reinhold was Senior Vice President and Division Manager -
Middle Market Lending from 1994 to March 1995.
25
<PAGE>
Mr. Shoemaker has been Vice President - Business Development since August 1995
and has held various sales, marketing and development positions since 1988.
Mr. Martino has been Vice President - Marketing since January 1996. Prior to
joining the Company, Mr. Martino was Vice President - North American Sales with
Metrologic Instruments, Inc. from 1992 to 1995, and General Manager with
Amacoil, Inc. from 1989 to 1992.
Mr. O'Malley has been Vice President - Worldwide Customer Service since January
1996. Mr. O'Malley was Director of Customer Service from September 1993 to
January 1996 and Manager of Credit and Collections from November 1991 to
September 1993. Prior to joining Checkpoint, Mr. O'Malley was Manager of Credit
Management Services with Traveler's Express Company, Inc. from 1988 to 1991.
Mr. Wilson has been Vice President - Latin America and Asia Pacific since May
1996. Prior to joining the Company, Mr. Wilson was President, North Asia -
Whirlpool Asia for the Whirlpool Corporation from August 1994 until July 1995,
Vice President Sales and Marketing, Whirlpool Southeast Asia Pte. from June 1993
until August 1994, General Manager, Asia Pacific - Whirlpool Overseas
Corporation from January 1993 until June 1993; and Director, Sales and
Distribution - Whirlpool Overseas Corporation from July 1990 until January 1993.
Mr. DeZarate has been Vice President - Western Division since July 1996. He was
Director, National Account Sales from March 1995 until July 1996, National
Account Manager from July 1993 until March 1995; and Manager, District Sales
from June 1991 until July 1993.
Mr. Harrington has been Vice President - Eastern Division since July 1996. He
was Director, Domestic Sales from April 1995 until July 1996. Prior to joining
the Company, Mr. Harrington was Division Manager for Althin Medical Inc. from
September 1990 to April 1995.
Mr. Glavin has been Vice President - Information Systems since February 1997. He
was named Director of Information Systems in January 1992. Mr. Glavin joined
Checkpoint in December of 1990 as MIS Manager.
26
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange
("NYSE") under the symbol CKP. Trading on such exchange commenced on October 29,
1993, prior to which Checkpoint's Common Stock was traded on the Nasdaq National
Market ("NASDAQ") under the symbol CHEK. The following table sets forth, for the
periods indicated, the high and low sale prices for the Company's Common Stock
as reported on the NYSE Composite Tape after giving retroactive effect to the
February 1996 two for one Stock Split.
High Low
---- ---
Closing Price
1995:
First Quarter ............................. $12 1/2 $ 7 15/16
Second Quarter ............................. 11 7/8 8 3/16
Third Quarter ............................. 13 7/16 10 1/16
Fourth Quarter ............................. 19 1/2 12
1996:
First Quarter............................. $25 $18
Second Quarter............................ 38 7/8 24 1/2
Third Quarter............................. 36 3/4 24 7/8
Fourth Quarter............................ 26 7/8 21 1/2
Graph Showing High/Low Price Per Share:
1995 High Low
- ----- ----- -----
1st Quarter 12-1/2 7-15/16
2nd Quarter 11-7/8 8- 3/16
3rd Quarter 13-7/16 10- 1/16
4th Quarter 19-1/2 12
1996 High Low
- ----- ----- -----
1st Quarter 25 18
2nd Quarter 38-7/8 24-1/2
3rd Quarter 36-3/4 24-7/8
4th Quarter 26-7/8 21-1/2
As of March 7, 1997, there were 1,769 record holders of the Company's Common
Stock.
The Company has never paid a cash dividend on the Common Stock, does not
anticipate paying any cash dividend in the near future and is limited by
existing covenants in the Company's debt instruments from paying dividends. The
Company has retained, and expects to continue to retain, its earnings for
reinvestment in its business. The declaration and payment of dividends in the
future, and their amounts, will be determined by the Board of Directors in light
of conditions then existing, including the Company's earnings, its financial
condition and requirements (including working capital needs) and other factors.
27
<PAGE>
Item 6. SELECTED ANNUAL FINANCIAL DATA
1996 1995 1994 1993 1992
======== ======== ======== ======== ========
(Thousands, except per share data)
FOR YEARS ENDED:
Net revenues $291,769 $204,741 $128,331 $ 93,034 $ 72,166
Earnings before
income taxes $ 29,877 $ 16,598 $ 8,377 $ 2,071 $ 4,891
Income taxes $ 9,430 $ 5,189 $ 2,094 $ 456 $ 463
Net earnings $ 20,447 $ 11,409 $ 6,283 $ 1,615 $ 4,428
Earnings per
common share(1) $ .60 $ .42 $ .29 $ .08 $ .23
AT YEAR-END:
Working capital $285,753 $148,074 $ 39,427 $ 27,984 $ 25,792
Long-term debt $153,356 $155,674 $ 35,556 $ 24,302 $ 9,322
Shareholders'
equity $300,794 $137,658 $ 61,303 $ 53,779 $ 51,061
Total assets $521,653 $362,151 $127,925 $104,999 $ 74,333
SELECTED QUARTERLY FINANCIAL DATA
QUARTERS (unaudited)
-----------------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
(Thousands, except per share data)
1996
- ----
Net revenues $66,994 $74,792 $73,765 $76,218 $291,769
Gross profit $27,438 $32,333 $30,064 $33,910 $123,745
Net earnings $ 2,946 $ 6,210 $ 5,358 $ 5,933 $ 20,447
Earnings per
common share(3) $ .10 $ .19 $ .15 $ .17 $ .60
1995
- ----
Net revenues $37,360 $49,744 $52,802 $64,835 $204,741
Gross profit $16,091 $21,944 $24,769 $27,893 $ 90,697
Net earnings $ 204 $ 3,369 $ 4,529 $ 3,307(2) $ 11,409
Earnings per
common share(1)(3) $ .01 $ .12 $ .15 $ .11 $ .42
(1) After giving retroactive effect to the February 1996 two for one Stock
Split.
(2) Included in net earnings is a $1.3 million pre-tax restructuring
charge.
(3) Quarterly earnings per common share are computed independently; therefore
the sum of the quarters may not equal full year earnings per share.
Graph Showing Net Revenues/Gross Profits/Net Earnings
1996
- ----
Net revenues $66,994 $74,792 $73,765 $76,218 $291,769
Gross profit $27,438 $32,333 $30,064 $33,910 $123,745
Net earnings $ 2,946 $ 6,210 $ 5,358 $ 5,933 $ 20,447
28
<PAGE>
1995
- ----
Net Revenues $37,360 $49,744 $52,802 $64,835 $204,741
Gross Profit $16,091 $21,944 $24,769 $27,893 $ 90,697
Net Earnings $ 204 $ 3,369 $ 4,529 $ 3,307 $ 11,409
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The Company is a designer, manufacturer and distributor of integrated electronic
security systems -- utilizing proprietary RF technologies -- designed primarily
to help retailers prevent losses caused by theft of merchandise. Beginning in
September 1991, the Company's current management adopted a strategy which
focused on introducing new products to meet retailers' needs, moving to direct
distribution internationally through strategic acquisitions, increasing the
number of direct sales and service personnel, and making substantial investments
in its manufacturing facilities in the Caribbean, to increase its manufacturing
capacity and further integrate the manufacturing of its disposable targets. As a
result of this strategy the Company has experienced a compound annual revenue
growth of over 40% since 1991. During 1996, two strategic acquisitions were
made: (i) On March 21, 1996, the Company purchased Mercatec Sistemas e Comercio
de Equipamentos Electronicos Ltds. ("Mercatec"). Mercatec is a leading supplier
of EAS systems and CCTV systems to retailers in Brazil. This acquisition, along
with the Company's Argentinean operations, further increases the Company's
direct presence in South America, and (ii) On December 27, 1996, the Company
acquired Checkpoint Systems Japan, Co., Ltd., its exclusive distributor for
retail products throughout Japan. This acquisition gives the Company its first
direct presence in the growing Asian market.
Net Revenues
The Company's unit volume is driven by product offerings, number of direct
sales personnel, recurring revenues and, to some extent, prices. Since 1991, the
Company's unit volume of sales has increased dramatically. During that time the
Company has introduced approximately 71 new products. Increases in the Company's
U.S. direct sales personnel and, through various acquisitions, the establishment
of a direct sales force in eighteen other countries, have resulted in the
Company's total sales force growing to 319 as of December 1996 as compared to 47
as of September 1991. In addition, sales of the Company's disposable targets and
field service revenues related to sensors and deactivation units provide a
significant and growing source of recurring revenues. The Company's increasing
base of installed systems also results in additional unit volume. For fiscal
year 1996, approximately 33% of the Company's net revenues were attributed to
sales of disposable targets and service to its installed base of customers.
29
<PAGE>
Cost of Revenues
The principal elements comprising cost of revenues are product cost, development
cost and field and installation cost.
Across all of the Company's product lines, product costs average approximately
45% of net revenues. The components of cost of revenues are as follows: 71% --
material, 15% -- labor, and 14% -- manufacturing overhead. The primary raw
materials used in the manufacture of the Company's products include electronic
components for its systems, aluminum foil, resins, and paper used for its
disposable tags, ferric chloride solutions for the Company's etching operation
of disposable tags and printed circuit boards. Although aluminum, resins and
paper are subject to some commodity pricing, in recent years the Company has
generally been able to offset price increases through volume purchasing and
manufacturing efficiencies.
The Company believes that its manufacturing know-how and efficiencies relating
to disposable and reusable tags give it a significant cost advantage over its
competitors. The Company expects volume increases to result in a decrease of
product cost as a percentage of net revenues because of the Company's
substantial available manufacturing capacity and its ability to more broadly
distribute its fixed manufacturing costs over more units.
For fiscal year 1996, field service and installation costs approximated 10% of
net revenues and include ongoing product service costs and installation costs.
The Company believes that it has and will continue to make product design
changes which improve product performance and result in easier installation,
thereby reducing these costs as a percentage of net revenues over time.
Selling, General and Administrative Expenses
For fiscal year 1996, sales, marketing and customer service comprised
approximately 60% of all selling, general and administrative expenses. Selling,
general and administrative expenses have increased significantly due to an
expansion of the Company's sales force both domestically and internationally
(through acquisitions) from a September 1991 sales force of 47 people to a
December 1996 sales force of 319.
Taxes
The Company's net earnings generated by the operations of its Puerto Rican
subsidiary are exempt from Federal income taxes under section 936 of the
Internal Revenue Code ("Section 936") and are substantially exempt from Puerto
Rican income taxes. As a result, the Company's effective tax rate for fiscal
1996 was 31.6%. The Company anticipates that its effective tax rate may increase
in fiscal year 1997 and beyond due to (i) increased charges of goodwill
amortization which are not deductible for federal tax purposes, (ii) a change in
U.S. tax laws resulting in the repeal of Section 936 and (iii) additional
taxable income attributable to foreign jurisdictions where tax rates may be
marginally higher than in the U.S.
On August 20, 1996, the Small Business Job Protection Act of 1996 was signed
into law. The Act generally repeals the Puerto Rico Possessions tax credit (Sec
936) for taxable years beginning after December 31, 1995. However, the Act
provides grandfather rules for corporations which are existing credit claimants.
30
<PAGE>
Since the Company is an existing credit claimant and uses the wage credit
method, the possession tax credit, attributable to business income for the
possession, continues to be determined as under present law for taxable years
beginning after December 31, 1995 and before January 1, 2002. For taxable years
beginning after December 31, 2001 and before January 1, 2006, the corporation's
possession business income that is eligible for the wage credit is subject to an
income cap. For taxable years beginning in 2006 and thereafter, the credit is
eliminated. This act does not have a material impact on the current financial
position of the Company or the effective tax rate for fiscal year 1997.
Exposure to International Operations
Prior to fiscal year 1993, substantially all the Company's international
sales were made to distributors and were paid in U.S. dollars. As a result of
the Company's strategy to increase its direct sales to customers (as opposed to
sales through independent distributors), approximately 83% of the Company's
international sales for fiscal year 1996 were made in local currencies. This
increase in sales denominated in currencies other than U.S. dollars increases
the Company's potential exposure to currency fluctuations which can adversely
affect results. During fiscal year 1996, currency exchange gains amounted to
$1.0 million compared to currency exchange losses of $.2 million for fiscal year
1995.
The Company sells product for international sales to its international
subsidiaries. The subsidiaries, in turn, sell these products to customers in
their respective geographic areas of operation in local currencies. This method
of sales and resale gives rise to the risk of gains or losses as a result of
currency exchange rate fluctuations.
In order to reduce the Company's exposure, resulting from currency fluctuations,
the Company has been purchasing currency exchange forward contracts on a regular
basis. These contracts guarantee a predetermined exchange rate at the time the
contract is purchased. This allows the Company to shift the risk, whether
positive or negative, of currency fluctuations from the date of the contract to
a third party. As of December 29, 1996 the Company had currency exchange forward
contracts totaling approximately $27.8 million. The contracts are in the various
local currencies covering the Company's Western European operations, Australia,
and Canada. The Company's operations in Argentina, Mexico, and Brazil were not
covered by forward exchange contracts at December 29, 1996.
The Company is considering increasing the amount of currencies covered by
forward exchange contracts during fiscal year 1997. In addition, the Company is
evaluating the use of currency options in order to reduce the impact that
exchange rate fluctuations have on the Company's gross margins for sales made by
the Company's international operations. The combination of forward exchange
contracts and currency options should result in reducing the Company's risks
associated with significant exchange rate fluctuations.
Seasonality
The Company's customers are substantially dependent on retail sales which are
seasonal and subject to significant fluctuations which are difficult to predict.
The Company's sales are impacted by such seasonality and fluctuations.
Historically, the Company has experienced lower sales in the first and second
quarters of each year.
31
<PAGE>
Acquisition of Actron Group Limited
On November 30, 1995 the Company completed the purchase from ADT (UK) Limited
all capital stock of Actron Group Limited, a wholly owned subsidiary of ADT,
from ADT. The original purchase price was $54.0 Million subsequently adjusted to
$51.5 million. Actron previously manufactured, sold and distributed radio
frequency electronic security systems to the retail industry throughout Western
Europe. For the year ended December 31, 1994 Actron had revenues of
approximately $50 million. The Company believes that the acquisition of Actron
has resulted in (i) consolidation of critical mass in the Western European
market leading to a more rational product offering and pricing, (ii) cost
savings as duplicative expenses have been eliminated through consolidation,
(iii) additional patent protection and (iv) a lower cost structure.
Pending Merger with Ultrak, Inc.
On March 11, 1997 the Company announced that it had entered into a
definitive merger agreement to acquire all the outstanding shares of Ultrak,
Inc. In connection with the merger, the Company will issue 1.15 shares of the
Company's common stock for each outstanding share of Ultrak, Inc.'s common stock
and up to 3.6756 shares of Company's common stock for each outstanding share of
Ultrak, Inc. preferred stock. As of March 7, 1997, Ultrak, Inc., had issued and
outstanding, 14,036,656 shares of common stock and 195,351 shares of preferred
stock. The merger is expected to be accounted for as a pooling of interests.
Management anticipates that this transaction will be consummated by the end of
June, 1997. Ultrak, Inc. designs, manufactures, markets and services CCTV and
related products for use in security and surveillance, industrial vision, mobile
video, traffic management, dental and medical, and other applications. Ultrak,
Inc. had sales of approximately $137 million and $101 million for the years
ended 1996 and 1995, respectively (see footnote 19 of Notes to Consolidated
Financial Statements for additional information).
Results of Operations
- ---------------------
Fiscal Year 1996 Compared to Fiscal Year 1995
- ---------------------------------------------
Overview
During 1996 revenues increased by approximately $87.0 million (or 42.5%) over
the fiscal year 1995. The increase in revenues was due primarily to increased
sales of the Company's EAS product line within the Company's international
distribution channels which was positively impacted by the Company's acquisition
of Actron (completed in November of 1995). Cost of revenues increased as a
percentage of sales (from 55.7% to 57.6%). The increase in cost of revenues was
primarily the result of (i) higher field service costs resulting from increased
service personnel, primarily from the Actron acquisition, combined with domestic
chain wide rollouts and, (ii) the sale of inventory acquired with the Actron
acquisition which carry a lower margin than the Company's existing EAS products.
Selling, general and administrative ("SG&A") expenses increased $22.0 million
but declined as a percentage of revenues by 2.9% (from 35.0% to 32.1%). Income
from operations increased $11.0 million (from $19.1 million to $30.1 million).
Net earnings for fiscal year 1996 increased by $9.0 million (from $11.4 million
to $20.4 million) resulting in earnings per share of $.60 for fiscal year 1996
versus $.42 achieved in fiscal year 1995.
32
<PAGE>
Net Revenues
Net revenues increased approximately $87.0 million (or 42.5%) over fiscal year
1995 (from $204.7 million to $291.8 million). Domestic and international net
revenues accounted for approximately 50% each of total net revenues compared to
62.3% and 37.7% in fiscal year 1995. Domestic retail Electronic Article
Surveillance ("EAS") net revenues increased $14.7 million (or 18.0%) primarily
as a result of increased unit sales resulting from various chain wide
installations. International EAS net revenues increased $68.7 million (or 89.0%)
as a result of: higher unit sales volume generated by the Company's operations
in Europe ($53.7 million) which was primarily impacted by the Company's
acquisition of Actron which was completed in November of 1995. In addition, the
Company's Canadian, Mexican and Argentinean operations realized significant
sales increases of $6.9 million, $1.9 million and $3.1 million respectively.
Sales of the Company's Security Systems Group products (formerly Alarmex) and
CCTV product lines increased slightly (from $33.2 million to $35.2 million) over
fiscal year 1995. The Company's Access Control product line had sales growth of
20.6% (from $7.1 million to $8.5 million) compared to the fiscal year 1995.
Cost of Revenues
Cost of revenues increased approximately $54.0 million (or 47.3%) over fiscal
year 1995 (from $114.0 million to $168.0 million). As a percentage of net
revenues, cost of revenues increased 1.9% (from 55.7% to 57.6%) compared to
fiscal year 1995. The increase in cost of revenues was primarily the result of
i) higher field service costs resulting from increased service personnel,
primarily from the Actron acquisition, combined with domestic chain wide
rollouts, ii) sales of Actron related products which carry higher product costs
and, to a lesser extent, iii) a loss of manufacturing efficiencies caused by
Hurricane Hortense which forced the closure of the production facility in Ponce,
Puerto Rico for eight days.
Fiscal Year 1996 Compared to Fiscal Year 1995 and 1994
- ------------------------------------------------------
Pie Charts Showing Consolidated Earnings Summary
1996 1995 1994
---- ---- ----
Net Revenues $291,769 $204,741 $128,331
Cost of Revenues 58% 56% 52%
Selling, General and
Administrative, Net of Other
Income and Expense 35% 38% 43%
Net Earnings 7% 6% 5%
-------- -------- --------
100% 100% 100%
Selling, General and Administrative Expenses
SG&A expenses increased $22.1 million (or 30.8%) over fiscal year 1995 (from
$71.6 million to 93.7 million). As a percentage of net revenues, however, SG&A
expenses decreased by 2.9% (from 35.0% to 32.1%). The higher expenses (in
dollars) were due to: (i) approximately $11.8 million increase in variable
selling costs to support the increase in revenues (ii) approximately $7.7
million increase in general and administrative costs, and (iii) approximately
$2.6 million related to the amortization of goodwill and intangibles generated
from the Actron acquisition.
33
<PAGE>
Interest Expense and Interest Income
Interest expense for fiscal year 1996 increased $4.5 million (from $5.1 million
to $9.6 million) primarily as a result of interest on the $120 million 5.25%
convertible subordinated debentures issued in October of 1995. Interest income
for fiscal year 1996 increased by $5.5 million (from $2.8 million to $8.3
million) as a result of the cash investment of the remaining proceeds of the
$120 million debentures previously mentioned combined with the proceeds from the
Company's equity offering during the second quarter of 1996 (see "Management's
Discussion and Analysis Liquidity and Capital Resources" for additional
information).
Income Taxes
The effective tax rate of 31.6% is marginally higher than the effective tax rate
used in fiscal year 1995 of 31.3%. This is primarily due to higher charges for
amortization of goodwill and intangibles resulting from the Actron acquisition
which are not tax deductible.
Net Earnings
Net earnings were $20.4 million or $.60 per share versus $11.4 million or $.42
per share for fiscal year 1995. The weighted average number of common and common
equivalent shares used in the earnings per share computation for fiscal year
1996 increased substantially compared to the fiscal year 1995 (from 27.4 million
to 34.1 million) primarily due to (i) shares issued during the second quarter of
1996 in connection with the Company's secondary equity offering previously
mentioned (4,600,000 shares of common stock sold), and (ii) the exercise of
stock options and an increase in common stock equivalents (stock options
outstanding).
Exposure to International Operations
Approximately 83% of the Company's international sales during fiscal year 1996
were made in local currencies. Sales denominated in currencies other than U.S.
dollars increased the Company's potential exposure to currency fluctuations
which can affect results. For fiscal year 1996, currency exchange gains amounted
to approximately $1.0 million compared to losses of $.2 million for fiscal year
1995.
RESULTS OF OPERATIONS
- ---------------------
Fiscal Year 1995 Compared to Fiscal Year 1994
- ---------------------------------------------
Overview
In fiscal year 1995 revenues increased by approximately $76.4 million (or 59.6%)
over fiscal year 1994. For the year, cost of revenues in the Company's
operations (excluding Alarmex and Actron) were slightly lower than in 1994 as a
percentage of sales (from 51.7% to 50.8%). Including the Alarmex operations and
the one month of operations for Actron, cost of revenues increased by 4.0% (from
51.7% to 55.7%). Selling, general and administrative ("SG&A") expenses increased
$21.4 million but declined as a percentage of revenues by 4.2% (from 39.2% to
35.0%). Income from operations increased $7.4 million (from $11.7 million to
$19.1 million). Net earnings for fiscal year 1995 increased by $5.1 million
(from $6.3 million to $11.4 million) resulting in earnings per share of $.42 for
fiscal year 1995 versus $.29 achieved in fiscal year 1994.
34
<PAGE>
Net Revenues
Net revenues increased approximately $76.4 million (or 59.6%) over fiscal year
1994 (from $128.3 million to $204.7 million). Domestic and international net
revenues accounted for approximately 62.3% and 37.7%, respectively, of total net
revenues compared to 60.6% and 39.4% in fiscal year 1994. Domestic retail EAS
net revenues increased $16.2 million (or 24.6%) primarily as a result of
increased unit sales resulting from several chain wide installations.
International EAS net revenues increased $26.7 million (or 52.7%) primarily as a
result of: higher unit sales volume generated by the Company's operations in
Europe ($24.8 million) including sales to a major customer in Spain ($10.7
million) and one month of sales of Actron ($2.6 million). Sales by the Company's
Alarmex subsidiary, which was acquired during the first quarter of 1995,
contributed $33.2 million in revenues. The Company's Access Control product line
had sales growth of 16% (from $6.1 million to $7.1 million) compared to fiscal
year 1994.
Cost of Revenues
Cost of revenues increased approximately $47.6 million (or 71.8%) over fiscal
year 1994 (from $66.4 million to $114.0 million). As a percentage of net
revenues, cost of revenues increased 4.0% (from 51.7% to 55.7%) compared to
fiscal year 1994. This increase was primarily due to lower gross margins
generally associated with the Alarmex operations and to a lesser extent the one
month of operating results from Actron. Cost of revenues related to the
Company's traditional EAS product lines decreased by almost 1% (from 51.7% to
50.8%) primarily resulting from increased production volumes and manufacturing
efficiencies offset partially by volume pricing to significant customers which
are implementing EAS systems chain wide combined with pricing pressure on the
Company's Western European operations.
Selling, General and Administrative Expenses
SG&A expenses increased $21.4 million (or 42.6%) over fiscal year 1994 (from
$50.2 million to $71.6 million). As a percentage of net revenues, however, SG&A
expenses decreased by 4.2% (from 39.2% to 35.0%). The higher expenses (in
dollars) were due to: (i) approximately $13.3 million increase in expenditures
supporting the Company's EAS business, (ii) approximately $6.4 million of SG&A
expenses related to the Alarmex operations including amortization of goodwill
and (iii) approximately $1.7 million related to the one month of operations and
restructuring charges from the Actron acquisition.
Interest Expense
Interest expense for fiscal year 1995 increased $2.0 million (from $3.1 million
to $5.1 million) primarily as a result of interest on the issuance of a $15
million note in connection with the Alarmex acquisition completed in February of
1995, combined with interest expense generated from the issuance of $120 million
in convertible subordinated debentures completed in October of 1995.
35
<PAGE>
Income Taxes
The effective tax rate of 31.3% is higher than the effective tax rate used in
fiscal year 1994 of 25.0%. This is primarily due to (i) higher taxable income
attributable to foreign jurisdictions where tax rates are marginally higher than
the U.S., (ii) a marginally higher tax rate on the earnings generated by the
Company's Alarmex subsidiary versus the Company's domestic EAS operations and
(iii) losses resulting from the one month of operations of Actron which did not
generate any tax benefit.
Net Earnings
Net earnings were $11.4 million or $.42 per share versus $6.3 million or $.29
per share for fiscal year 1994. The number of weighted average number of common
and common equivalent shares used in the earnings per share computation
(adjusted for the two-for-one stock split of February 22, 1996) for fiscal year
1995 has increased substantially compared to the prior year (from 21.6 million
to 27.4 million) primarily from: Company shares issued as part of the Alarmex
acquisition (401,434); and shares issued during the second quarter of 1995 in
connection with the Company's equity offering (6,173,200).
Exposure To International Operations
Approximately 72% of the Company's international sales during fiscal year 1995
were made in local currencies. Sales denominated in currencies other than U.S.
dollars increased the Company's potential exposure to currency fluctuations
which can affect results. For fiscal year 1995, currency exchange losses
amounted to approximately $.2 million compared to losses of $.8 million for
fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity needs have related to, and are expected to continue to
relate to, capital investments, acquisitions and working capital requirements.
The Company has met its liquidity needs over the last three years primarily
through funds provided by long-term borrowings, issuance of convertible
subordinated debt, and through two separate issuances of common stock in
underwritten public offerings. The Company believes that cash provided from
operating activities and funding available under its current credit agreements,
together with the remaining proceeds generated from the sale of shares of the
Company's Common Stock and the issuance of convertible subordinated debt, should
be adequate for its presently foreseeable working capital and capital investment
requirements.
36
<PAGE>
Chart Showing Balance Sheet - 1996:
$521,653
Current Assets 67%
Property, Plant and Equipment 11%
Intangibles and Other Assets 22%
---
Assets 100%
Current Liabilities 12%
Long Term Debt and Deferred Taxes 30%
Shareholders' Equity 58%
---
Liabilities and Shareholders' Equity 100%
During 1996 the Company completed an underwritten public offering of 4.6 million
common shares generating proceeds (after expenses of the offering) to the
Company of approximately $136 million. The proceeds of the offering are expected
to be used for general corporate purposes including the following: (i) for
potential strategic acquisitions and related start-up operations to enhance both
product line diversification within the Company's core business and greater
distribution opportunities and alliances and (ii) to provide the necessary
capital to enable the Company to internally finance the leasing of equipment to
retailers under long-term leases.
The Company's operating activities during fiscal year 1996 consumed
approximately $17.5 million compared to $14.8 million during fiscal year 1995.
This use of cash was primarily the result of (i) an increase in leasing of the
Company's EAS equipment to retailers under long-term operating and sales type
leasing arrangements (referred to by management as Comprehensive Tag Programs),
(ii) an increase in accounts receivable resulting from increased sales, and (ii)
payments made on accounts payable acquired as part of the Actron transaction and
restructuring costs that the Company initiated as part of the integration of its
European operations.
The Company's capital expenditures during fiscal year 1996 totaled $10.4 million
compared to $9.4 million during fiscal year 1995. The Company expects to
continue to make investments in property, plant and equipment at levels higher
than the last several years. These capital expenditures will generally relate to
expanding, improving and maintaining plant efficiency at the Company's various
production facilities located in the Caribbean and enhancing distribution
capabilities and efficiencies worldwide. As part of this expansion the Company
plans to increase the current annual production capacity of disposable labels
from 3 billion to 5 billion by the second half of 1997.
The Company has never paid a cash dividend and has no plans to do so in the
foreseeable future. Certain covenants in the Company's debt instruments prohibit
the amounts available for cash dividends.
37
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants...................................... 39
Consolidated Balance Sheets as of December 29, 1996 and
December 31, 1995................................................... 40
Consolidated Earnings Statements for each of the years
in the three-year period ended December 29, 1996.................... 41
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 29, 1996.............. 42
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 29, 1996.................... 43
Notes to Consolidated Financial Statements............................. 44-61
Financial Schedule
Schedule II - Valuation and Qualifying Accounts........................ 64
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders Checkpoint Systems, Inc.
We have audited the consolidated financial statements and financial statement
schedule of Checkpoint Systems, Inc. and subsidiaries listed in item 14(a) of
this Form 10-K. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Checkpoint
Systems, Inc. and subsidiaries as of December 29, 1996 and December 31, 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 29, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 7, 1997,
except as to the information presented in note 19, for which the date is
March 12, 1997
39
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 29, December 31,
1996 1995
------------ ------------
ASSETS (Thousands)
CURRENT ASSETS
Cash and cash equivalents $185,836 $ 77,456
Accounts receivable, net of allowances
of $4,282,000 and $1,906,000 96,891 73,065
Inventories, net 53,073 54,941
Other current assets 9,608 7,479
Deferred income taxes 2,736 1,718
-------- --------
Total current assets 348,144 214,659
PROPERTY, PLANT AND EQUIPMENT, net 59,211 56,025
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED, net 71,622 61,456
INTANGIBLES, net 15,572 14,930
OTHER ASSETS 27,104 15,081
-------- --------
TOTAL ASSETS $521,653 $362,151
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,677 $ 16,643
Accrued compensation and related taxes 8,667 5,762
Income taxes 7,920 4,921
Unearned revenues 10,264 8,155
Other current liabilities 14,702 27,102
Short-term borrowings and current portion
of long-term debt 8,161 4,002
-------- --------
Total current liabilities 62,391 66,585
LONG-TERM DEBT, LESS CURRENT MATURITIES 33,356 35,674
CONVERTIBLE SUBORDINATED DEBENTURES 120,000 120,000
DEFERRED INCOME TAXES 5,112 2,234
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized
500,000 shares, none issued -- --
Common stock, par value $.10 per share,
authorized 100,000,000 shares, issued
36,134,622 and 30,019,758 3,613 3,002
Additional capital 230,580 83,126
Retained earnings 78,645 58,198
Common stock in treasury, at cost,
1,598,000 shares (5,664) (5,664)
Foreign currency adjustments (6,380) (1,004)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 300,794 137,658
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $521,653 $362,151
======== ========
See accompanying notes to consolidated financial statements.
40
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED EARNINGS STATEMENTS
1996 1995 1994
---- ---- ----
(Thousands, except per share data)
Net Revenues $291,769 $204,741 $128,331
Cost of Revenues 168,024 114,044 66,360
-------- -------- --------
Gross Profit 123,745 90,697 61,971
Selling, General and Administrative
Expenses 93,676 71,642 50,243
-------- -------- --------
Operating Income 30,069 19,055 11,728
Interest Income 8,339 2,791 529
Interest Expense 9,557 5,050 3,118
Foreign Exchange Gain/(Loss) 1,026 (198) (762)
-------- -------- --------
Earnings Before Income Taxes 29,877 16,598 8,377
Income Taxes 9,430 5,189 2,094
-------- -------- --------
Net Earnings $ 20,447 $ 11,409 $ 6,283
======== ======== ========
Net Earnings Per Share(1) $ .60 $ .42 $ .29
======== ======== ========
(1) After giving retroactive effect to the February 1996 Stock Split.
See accompanying notes to consolidated financial statements.
41
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Common Additional Retained Treasury Currency
Stock Capital Earnings Stock Adjust. Total
------ ---------- -------- -------- -------- -----
(Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 26, 1993 $1,097 $ 18,346 $40,506 $(5,664) $ (506) $ 53,779
Net Earnings 6,283 6,283
Exercise of Stock
Options 31 3,246 3,277
Foreign Currency
Adjustments (2,036) (2,036)
------ -------- ------- ------- ------- --------
Balance,
December 25, 1994 1,128 21,592 46,789 (5,664) (2,542) 61,303
Net Earnings 11,409 11,409
Exercise of Stock
options 44 5,200 5,244
Stock Issuances 329 57,835 58,164
Stock Split,
Effective
February 22,1996 1,501 (1,501) --
Foreign Currency
Adjustments 1,538 1,538
------ -------- ------- ------- ------- --------
Balance,
December 31, 1995 3,002 83,126 58,198 (5,664) (1,004) 137,658
Net Earnings 20,447 20,447
Exercise of Stock
options 151 11,984 12,135
Stock Issuances 460 135,470 135,930
Foreign Currency
Adjustments (5,376) (5,376)
------ -------- ------- ------- ------- --------
Balance,
December 29, 1996 $3,613 $230,580 $78,645 $(5,664) $(6,380) $300,794
====== ======== ======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Thousands)
<S> <C> <C> <C>
Cash inflow (outflow) from operating
activities:
Net earnings $ 20,447 $ 11,409 $ 6,283
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Net book value of rented equipment sold 4,391 1,502 1,652
Revenue Equipment placed under
operating lease (13,987) (11,680) (9,059)
Long-term customer contracts (10,804) (2,017) (919)
Depreciation and amortization 18,322 12,178 8,023
Deferred Taxes 363 362 633
Provision for losses on accounts
receivable 2,219 1,188 1,221
Restructuring charge -- 1,254 --
(Increase) decrease in current assets:
Accounts receivable (25,148) (25,600) (11,289)
Inventories 3,032 (11,738) (4,036)
Other current assets (3,046) 1,706 828
Increase (decrease) in current liabilities:
Accounts payable (5,246) (1,820) (669)
Accrued compensation and related
taxes 935 2,460 728
Income taxes 2,847 2,256 1,431
Unearned revenues 1,848 1,612 712
Other current liabilities (13,649) 2,175 (3,151)
-------- ------- -------
Net cash used by operating
activities (17,476) (14,753) (7,612)
Cash outflow from investing -------- ------- -------
activities:
Acquisition of property, plant and
equipment (10,454) (9,379) (4,532)
Acquisitions, net of cash acquired (5,898) (65,997) (1,786)
Other investing activities (3,530) (4,276) (2,266)
-------- ------- -------
Net cash used by investing
activities (19,882) (79,652) (8,584)
Cash inflow (outflow) from financing -------- ------- -------
activities:
Proceeds from stock issuances 148,065 59,910 3,277
Proceeds of debt 1,653 157,281 28,306
Payment of debt (3,980) (46,274) (14,443)
-------- ------- -------
Net cash provided by financing
activities 145,738 170,917 17,140
Net increase in cash and -------- ------- -------
cash equivalents 108,380 76,512 944
Cash and cash equivalents:
Beginning of year 77,456 944 --
-------- ------- -------
End of Year $185,836 $77,456 $ 944
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- ----------------------
The Company is a multinational designer, manufacturer and distributor of
integrated electronic security systems--utilizing proprietary RF
technologies--designed primarily to help retailers prevent losses caused by
theft of merchandise. The Company markets a wide range of these systems,
including EAS systems, CCTV systems, POS monitoring systems and access control
systems, primarily to retailers in the following market segments: hard goods
(supermarkets, drug stores, mass merchandising and music/electronics) and soft
goods (apparel).
Principles of Consolidation
- ----------------------------
The consolidated financial statements include the accounts of Checkpoint
Systems, Inc. and its wholly-owned subsidiaries ("Company"). All material
intercompany transactions are eliminated in consolidation.
Use of Estimates
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fiscal Year
- ----------
The Company's fiscal year is the 52 or 53 week period ending the last Sunday of
December. References to 1996, 1995, and 1994 are for: the 52 weeks ended
December 29, 1996, the 53 weeks ended December 31, 1995, and the 52 weeks ended
December 25, 1994.
Reclassifications
- -----------------
Certain reclassifications have been made to the 1995 and 1994 financial
statements and related footnotes to conform to the 1996 presentation.
Stock Split
- -----------
On January 4, 1996, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100% tax-free stock dividend distributed
on February 22, 1996 to stockholders of record as of January 18, 1996.
Stockholders' equity at December 31, 1995 has been adjusted to give retroactive
effect to the stock split by reclassifying from additional capital to common
stock the par value of the additional shares arising from the split. All share
and per share amounts have been restated to retroactively reflect the stock
split.
44
<PAGE>
Revenue Recognition
- -------------------
Revenue from the sale of equipment is recognized upon shipment of equipment or
the acceptance of a customer order to purchase equipment currently rented.
Revenue from the sale of point-of-sale monitoring and CCTV systems is recognized
on a percentage of completion basis. Equipment leased to customers under
sales-type leases is accounted for as the equivalent of a sale. The present
value of such lease revenues is recorded as net revenues, and the related cost
of the equipment is charged to cost of revenues. The deferred finance charges
applicable to these leases are recognized over the terms of the leases using the
straight-line method which approximates the effective interest method. Rental
revenue from equipment under operating leases is recognized over the term of the
lease. Service revenue is recognized on a straight-line basis over the
contractual period or as services are performed. Sales to third party leasing
companies are recognized as the equivalent of a sale. These sales were all made
on a non-recourse basis.
Cash and Cash Equivalents
- -------------------------
Cash in excess of operating requirements is invested in short-term, income
producing instruments. Cash equivalents include commercial paper and other
securities with original maturities of 90 days or less. Book value approximates
fair value because of the short maturity of those instruments.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are carried at cost. Depreciation and amortization
generally are provided on a straight-line basis over the estimated useful lives
of the assets; for certain manufacturing equipment, the units-of-production
method is used. Buildings, equipment rented to customers, leasehold
improvements, and leased equipment under capitalized leases use the following
estimated useful lives of 27.5 years, 5 years, 7 years, and 5 years,
respectively. Machinery and equipment estimated useful life ranges from 5 to 10
years. Maintenance, repairs and minor renewals are expensed as incurred.
Additions, improvements and major renewals are capitalized. The cost and
accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition is included in income.
Excess of Purchase Price Over Fair Value of Net Assets Acquired
- ---------------------------------------------------------------
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over their economic useful lives which is
considered to range between 20 and 30 years. The Company's policy is to record
an impairment loss against the net unamortized cost in excess of net assets of
businesses acquired in the period when it is determined that the carrying amount
of the asset may not be recoverable. An evaluation is made at each balance sheet
date (quarterly) and it is based on such factors as the occurrence of a
significant event, a significant change in the environment in which the business
operates or if the expected future net cash flows (undiscounted and without
interest) would become less than the carrying amount of the asset. Accumulated
amortization approximated $6,696,000 and $3,756,000 at December 29, 1996 and
December 31, 1995, respectively.
45
<PAGE>
Research and Development Costs
- ------------------------------
Research and development costs are expensed as incurred, and approximated
$6,408,000, $6,862,000, and $4,877,000 in 1996, 1995, and 1994, respectively.
Royalty Expense
- ---------------
Royalty expenses incurred approximated $3,951,000, $2,863,000, and $2,227,000 in
1996, 1995, and 1994, respectively.
Per Share Data
- --------------
Per share data is based on the weighted average number of common and common
equivalent shares (stock options) outstanding during the year. The number of
shares used in the per share computations were 34,087,000 (1996), 27,374,000
(1995), and 21,612,000 (1994) after giving retroactive effect to the February
1996 stock split.
Intangibles
- -----------
Intangibles consist of patents, rights, customer lists and software development
costs. The costs relating to the acquisition of patents, rights and customer
lists are amortized on a straight-line basis over their useful lives which range
between seven and ten years, or legal life, whichever is shorter. Accumulated
amortization approximated $4,511,000 and $1,806,000 at December 29, 1996 and
December 31, 1995, respectively.
The costs of internally developed software are expensed until the technological
feasibility of the software has been established. Thereafter, all software
development costs are capitalized and subsequently reported at the lower of
unamortized cost or net realizable value. The costs of capitalized software are
amortized over the products' estimated useful lives or five years, whichever is
shorter. Capitalized software development costs were $4,563,000 and $2,842,000
at December 29, 1996 and December 31, 1995, respectively, net of accumulated
amortization costs of $1,586,000 and $1,323,000 at December 29, 1996 and
December 31, 1995, respectively.
Taxes on Income
- ---------------
Income taxes for 1996, 1995 and 1994 are determined in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109. Under this method, deferred
tax liabilities and assets are determined based on the difference between
financial statement and tax basis of assets and liabilities using enacted
statutory tax rates in effect at the balance sheet date. Changes in enacted tax
rates are reflected in the tax provision as they occur. A valuation allowance is
recorded to reduce deferred tax assets when realization of a tax benefit is less
likely than not.
Accounting for Foreign Currency Translation and Transactions
- ------------------------------------------------------------
The Company's balance sheet accounts of foreign subsidiaries are translated
into U.S. dollars at the rate of exchange in effect at the balance sheet
dates. Revenues, costs and expenses of the Company's foreign subsidiaries
are translated into U.S. dollars at the average rate of exchange in effect
during each reporting period. The resulting translation adjustment is
46
<PAGE>
recorded as a separate component of stockholders' equity. In addition, gains or
losses on long-term intercompany transactions are excluded from the results of
operations and accumulated in the aforementioned separate component of
consolidated stockholders' equity. All other foreign transaction gains and
losses are included in the results of operations.
Aggregate foreign currency transaction gain/(loss) in 1996, 1995, and 1994 were
$1,026,000,($198,000), and ($762,000), respectively, and are included in
"Foreign Exchange Gain or Loss" in the Consolidated Earnings Statement.
2. INVENTORIES
Inventories consist of the following:
1996 1995
---- ----
(Thousands)
Raw materials $10,912 $ 7,282
Work-in-process 1,106 275
Finished goods 41,055 47,384
------- -------
Totals $53,073 $54,941
======= =======
3. PROPERTY, PLANT AND EQUIPMENT
The major classes are:
1996 1995
---- ----
(Thousands)
Land $ 1,387 $ 892
Building 10,056 9,784
Equipment rented to customers 28,675 19,793
Machinery and equipment* 57,205 51,610
Leasehold improvements 2,475 1,956
Leased equipment under capital
leases 15 15
------- -------
$99,813 $84,050
Accumulated depreciation
and amortization (40,602) (28,025)
------- -------
$59,211 $56,025
======= =======
*Machinery and equipment include $5,514,000 and $1,750,000 for construction in
progress associated with the expansion of the Puerto Rico manufacturing facility
in 1996 and 1995, respectively.
47
<PAGE>
4. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
The short-term debt and current portion of long-term debt at December 29,
1996 and at December 31, 1995 consisted of the following:
1996 1995
----------------- ------------------
(Thousands)
Current portion of Long-term Debt $4,150 $3,310
Line of credit in connection
with foreign exchange contracts
at 6.0% and 7.0% 1,653 --
Line of credit held by Japanese
subsidiary with interest at 1.625% 433 --
Line of credit held by Japanese
subsidiary with interest at 3.0% 1,925 --
Line of credit held by Argentine
subsidiary with interest at 13.0% -- 692
------ ------
Total short-term debt and
current portion long-term debt $8,161 $4,002
====== ======
5. LONG-TERM DEBT
The long-term debt at December 29, 1996 and December 31, 1995 consisted of the
following:
1996 1995
----------------- -----------------
(Thousands)
Seven year $7 million term
note with interest at 4.9% $ 3,150 $ 4,200
Six year $8 million term note
with interest at 6.5% 4,235 5,647
Eight year $12 million private
placement note with interest
at 8.27% 12,000 12,000
Eight year $15 million private
placement note with interest
at 9.35% 15,000 15,000
Other loans with interest rates
ranging from 1.75% to 7.87% and
maturity dates through
January 2000 3,121 2,137
------- -------
Total 37,506 38,984
Less current portion (4,150) (3,310)
------- -------
Total long-term portion $33,356 $35,674
======= =======
48
<PAGE>
The Company has a Revolving Credit Agreement with its principal lending bank
which currently provides a line of credit of up to $60,000,000 with a floating
interest rate (which equaled 5.85% at December 29, 1996) through June 1, 1998.
At December 29, 1996, there were no outstanding borrowings under this credit
agreement.
In December 1992, the Company entered into a $7,000,000 seven year loan
agreement at a fixed rate of 4.9% with its principal lending bank. Three equal
installments of $350,000 are due during each year for a total of $1,050,000 per
year with interest due monthly. At December 29, 1996, $3,150,000 was
outstanding.
In February 1994, the Company entered into a $8,000,000 six year loan agreement
at a fixed rate of 6.5% with its principal lending bank. Three equal
installments of $470,588 are due during each year for a total of $1,411,764 per
year with interest due monthly. At December 29, 1996, $4,235,000 was
outstanding.
In March 1994, the Company entered into a $12,000,000 private placement debt
funding agreement at a fixed rate of 8.27%. Principal payments of $4,000,000
annually are to be made starting in year 2000 with interest due semi-annually.
In February 1995, the Company issued and sold $15,000,000 aggregate principal
amount of 9.35% series B Notes (the notes) pursuant to a Note Agreement dated as
of January 15, 1995, among the Company and Principal Mutual Life Insurance
Company. The Notes are due January 30, 2003 and bear interest from the issue
date (computed on the basis of a 360 day year) payable semi-annually on January
30 and July 30 of each year commencing July 30, 1995. Notes of $3,000,000 are
due on each January 30 commencing January 30, 1999 and ending January 30, 2002,
with the remaining principal payable on January 30, 2003. The Notes are
uncollateralized and rank pari passu with the Company's other funded debt.
The above loan agreements contain certain restrictive covenants which, among
other things, requires maintenance of specified minimum financial ratios
including debt to capitalization, interest coverage and tangible net worth. In
addition, these agreements limit the Company's ability to pay cash dividends.
The aggregate maturities on all long-term debt are:
(Thousands)
1997 $ 4,150
1998 2,771
1999 5,462
2000 7,158
2001 7,158
Thereafter 10,807
-------
Total $37,506
=======
6. SUBORDINATED DEBENTURES
In November 1995, the Company completed the private placement of $120,000,000 of
Convertible Subordinated Debentures with an annual interest rate of 5.25%. The
debentures are uncollateralized, subordinated to all
49
<PAGE>
senior indebtedness and convertible at any time into shares of the Company's
stock at a conversion price of $18.38 per share (equivalent to approximately
54.4 shares of Common Stock for each $1,000 principal amount of Debentures). The
debentures will mature on November 1, 2005 and are redeemable, in whole or in
part, at the option of the Company on or after November 1, 1998. The net
proceeds generated to the Company from this transaction approximated
$116,000,000. The conversion price reflects the February 1996 Stock Split.
On April 19, 1996, the Company completed its Shelf Registration Statement on
Form S-3 covering the resale of $47,250,000 5.25% Convertible Subordinated
Debentures due 2005 ("Debentures") and 2,571,428 shares of the Company's stock,
$.10 par value per share, issuable upon conversion of the debentures. The
Registration Statement also covered the registration of 350,000 shares of the
Company's Common Stock presently issuable upon exercise of certain options
granted by the Company.
7. STOCK OPTIONS
Under a stock option plan for all employees adopted by the shareholders of the
Company in 1987 ("1987 Plan"), the Company granted either incentive stock
options ("ISOs") or non-incentive stock options to purchase up to 4,000,000
shares of Common Stock (amended in 1990 from a previous level of 2,000,000)
after giving effect to the February 1996 stock split.
The Company amended, restated and renamed the 1987 plan in 1992 ("1992 Plan")
allowing the Company to grant either ISOs or non-incentive stock options to
purchase up to 6,000,000 shares of Common Stock (amended in 1992 from a previous
level of 4,000,000 shares) after giving effect to the February 1996 stock split.
In 1995, the Company amended the 1992 Plan allowing the Company to grant either
ISOs or non-incentive stock options to purchase up to 9,000,000 shares of Common
Stock (amended in 1995 from a previous level of 6,000,000 shares) after giving
affect to the February 1996 Stock Split. Under the 1992 Plan, only employees are
eligible to receive ISOs and both employees and non-employee directors of the
Company are eligible to receive non-incentive stock options. Non-incentive stock
options issued under the 1992 Plan through December 29, 1996 total 4,573,900
shares. At December 29, 1996, December 31, 1995 and December 25, 1994 a total of
690,114, 1,592,152, and 417,000 shares, respectively, were available for grant
after giving effect to the February 1996 stock split.
All ISO's under the 1992 Plan expire not more than 10 years (plus six months in
the case of non-incentive options) from the date of grant. Both ISO's and
non-incentive options require a purchase price of not less than 100% of the fair
market value of the stock at the date of grant.
The 1992 Plan is administered by the Compensation and Stock Option Committee of
the Company's Board of Directors. All of the options outstanding at December 29,
1996 were issued pursuant to the 1987 Plan or the 1992 Plan. Options that were
fully vested and exercisable totaled 3,222,222 as of December 29, 1996.
In addition, the Company has granted options in favor of two consultants
totaling 400,000. These options remain outstanding as of December 29, 1996.
50
<PAGE>
The following schedule summarizes stock option activity and status, after giving
retroactive effect to the February 1996 Stock Split:
Number of Shares
------------------------------------
1996 1995 1994
------------------------------------
Outstanding at beginning of year.... 3,835,048 2,892,302 3,186,928
Granted............................. 923,538 1,824,848 397,000
Exercised........................... (1,514,864) (882,102) (596,626)
Canceled............................ (21,500) -- (95,000)
----------- ---------- ----------
Outstanding at end of year.......... 3,222,222 3,835,048 2,892,302
=========== ========== ==========
Weighted-Average Price
------------------------------------
1996 1995 1994
------------------------------------
Outstanding at beginning of year.... $ 8.12 $ 5.59 $ 5.42
Granted............................. $27.31 $11.06 $ 6.58
Exercised........................... $ 7.16 $ 5.90 $ 5.27
Canceled............................ $27.87 -- $ 5.05
Outstanding at end of year.......... $13.94 $ 8.12 $ 5.59
Following is a summary of stock options outstanding as of December 29, 1996:
Options Outstanding and Exercisable
-----------------------------------------------------
Weighted Average
Number Remaining Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price
- ------------------------ ----------- ---------------- --------------
$2.43-6.75.............. 798,738 4.30 $ 4.51
$7.28-11.44............. 961,446 8.00 $ 9.44
$12.44-19.38............ 621,000 9.21 $13.60
$21.94-31.38............ 841,038 9.80 $27.88
---------
3,222,222
=========
Generally the Company's stock options are vested upon grant.
51
<PAGE>
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company continues to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. Since all options were
granted at market value, there is no compensation cost to be recognized.
Had compensation cost for the Company's stock option plans been determined based
upon the fair value at the grant date using the Black Scholes option pricing
model prescribed under FAS 123, the Company's net income and earnings per share
would approximate the pro forma amounts as follows:
1996 1995
---- ----
Net Income (000's)
As reported $20,447 $11,409
Pro forma $12,647 $ 4,609
Earnings per share
As reported $0.60 $0.42
Pro forma $0.37 $0.17
The following assumptions were used in estimating fair value for 1996 and 1995:
dividend yield - none, volatility - 47.42%, risk-free interest rate - 6.05%, and
an expected life - 3.1 years.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments in 1996, 1995, and 1994, respectively, included payments for
interest of $9,457,783, $2,970,761, and $2,410,000 and income taxes of
$5,978,000, $1,806,000, and $375,000.
52
<PAGE>
In February 1995, the Company purchased all of the capital stock of
Alarmex, Inc. together with a related company, Bayport Controls, Inc.
(collectively "Alarmex"), for $13,498,000. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ................... $21,595,000
Cash paid and direct costs incurred
for the capital stock............................ $13,498,000
-----------
Liabilities assumed.............................. $ 8,097,000
===========
In November 1995, the Company purchased all of the capital stock of Actron Group
Limited. In conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired.................... $81,000,000
Cash paid and direct costs incurred
for the capital stock............................ $54,000,000
-----------
Liabilities assumed.............................. $27,000,000
===========
In 1996, the Company acquired all of the capital stock of (i) Mercatec Sistemas
e Comercio de Equipmentos Electronicos Ltds., (ii) Vysion Systems, Inc., and
(iii)Checkpoint Systems Japan CO., LTD.
In conjunction with these acquisitions, the aggregate fair value of assets
acquired, cash paid and direct costs incurred, and liabilities assumed were as
follows:
Fair value of assets acquired.................... $15,376,000
Cash paid and direct costs incurred
for the capital stock............................ $ 6,724,000
-----------
Liabilities assumed............................. $ 8,652,000
===========
9. SHAREHOLDERS' EQUITY
In December 1988, the Company's Board of Directors approved a Shareholders'
Rights Plan (the "Plan"), and declared a dividend distribution of one common
share purchase right ("Right") for each outstanding share of the Company's
Common Stock to shareholders of record on December 29, 1988. The Rights are
designed to ensure all Company shareholders fair and equal treatment in the
event of a proposed takeover of the Company, and to guard against partial tender
offers and other abusive tactics to gain control of the Company without paying
all shareholders a fair price.
The Rights are exercisable only as a result of certain actions (defined by the
Plan) of an Acquiring Person or Adverse Person, as defined. Initially, upon
payment of the exercise price (currently $20, reflective of the February 1996
Stock Split), each Right will be exercisable for one share of Common Stock. Upon
the occurrence of certain events as specified in the Plan, each Right will
entitle its holder (other than an Acquiring Person or an Adverse Person) to
purchase a number of the Company's or Acquiring
53
<PAGE>
Person's common shares having a market value of twice the Right's exercise
price. The Rights expire on December 28, 1998. Generally, within ten days after
a person becomes an Acquiring Person or is determined to be an Adverse Person,
the Company can redeem the Rights (See also Note 19).
The Company completed the sale of approximately 6.2 million shares of Common
Stock during the second quarter of 1995 pursuant to an underwritten public
offering. The net proceeds received by the Company from this offering were
approximately $54.7 million. Of these proceeds, $25 million was used to reduce
the amount outstanding under the Company's revolving credit line.
The Company completed the sale of 4.6 million shares of Common Stock during the
second quarter of 1996 pursuant to an underwritten public offering. The net
proceeds received by the Company from this offering were approximately $136
million.
10. INCOME TAXES
The Company's net earnings generated by the operations of its Puerto Rican
subsidiary are exempt from Federal income taxes under Section 936 of the
Internal Revenue Code and substantially exempt from Puerto Rican income taxes.
The Company has a local tax exemption agreement with Puerto Rico granting a 90%
local tax exemption on both the target and sensor manufacturing operations
through 2008.
Repatriation of the Puerto Rico subsidiary's unremitted earnings could result in
the assessment of Puerto Rico "tollgate" taxes at a maximum rate of 3.5% of the
amount repatriated. During 1996, 1995, and 1994, a provision was made for
tollgate taxes. The Company has not provided for tollgate taxes on $24,760,144
of its subsidiary's unremitted earnings since they are expected to be reinvested
indefinitely.
The domestic and foreign components of earnings before income taxes are:
1996 1995 1994
---- ---- ----
Domestic $29,487 $17,626 $ 6,931
Foreign 390 (1,028) 1,446
------- ------- -------
Total $29,877 $16,598 $ 8,377
======= ======= =======
The related provision for income taxes consist of:
1996 1995 1994
---- ---- ----
Currently Payable (Thousands)
Federal $6,691 $4,003 $ 914
State 350 335 --
Puerto Rico 354 319 444
Foreign 1,672 170 103
Deferred
Federal (898) (81) 176
State (50) (71) (33)
Puerto Rico 399 136 --
Foreign 912 378 490
------ ------ ------
Total Provision $9,430 $5,189 $2,094
====== ====== ======
54
<PAGE>
Deferred tax liabilities (assets) at December 29, 1996 and December 31, 1995 and
consist of:
1996 1995
---- ----
(Thousands)
Depreciation $ 1,208 $ 1,398
Deferred maintenance 119 220
Intangibles 2,498
Other 1,287 616
------- -------
Gross deferred tax liabilities 5,112 2,234
------- -------
Inventory (1,816) (1,104)
Accounts receivable (535) (245)
Net operating loss carryforwards (19,412) (15,788)
Warranty (296) (35)
Other (89) (334)
------- -------
Gross deferred tax assets (22,148) (17,506)
------- -------
Valuation allowance 19,412 15,788
------- -------
Net deferred tax liability $ 2,376 $ 516
======= =======
The net operating loss carryforwards as of December 29, 1996 in the amount of
$75,862,000 includes $11,369,000 of loss carryforwards that were acquired in
connection with the acquisition of the ID Systems Group and $50,379,000 that
were acquired in connection with the acquisition of Actron. If realization of
the benefit of such carryforwards occur, the Company will apply such benefit to
goodwill in connection with the acquisition.
Of the total foreign net operating loss carryforwards available, $52,293,000
expire beginning January 1997 through December 2006 and the remaining portion
may be carried forward indefinitely.
A reconciliation of the statutory U.S. Federal income tax rate with the
effective income tax rate follows:
1996 1995 1994
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 34.0%
Tax exempt earnings of subsidiary in
Puerto Rico (12.4) (18.0) (13.3)
Non-deductible goodwill 3.5 2.1 2.1
Research and Experimentation tax credit -- -- (0.8)
Foreign losses with no benefit 6.1 7.4 --
State and local income taxes, net
of federal benefit 2.0 4.3 3.5
Benefit of foreign sales corporation (2.4) (0.6) --
Other (0.3) 1.1 (0.5)
------ ------ ------
Effective tax rate 31.5% 31.3% 25.0%
====== ====== ======
55
<PAGE>
11. EMPLOYEE BENEFIT PLANS
Under the Company's defined contribution savings plans, eligible employees (see
below) may make basic (up to 6% of an employee's earnings) and supplemental
contributions to a trust. The Company matches 50% of participant's basic
contributions. Company contributions vest to participants in increasing
percentages over three to six years of service. The Company's contributions
under the plans approximated $577,000, $626,000, and $628,000, in 1996, 1995,
and 1994, respectively.
Generally, any full-time, non-union employee of the Company (other than someone
holding the position of Vice President or higher) who has completed one month of
service, and any part-time non-union employee of the Company who has completed
one year of service, other than employees of the Company's subsidiaries, may
participate in the Company's United States Savings Plan. All full-time employees
of the Puerto Rico subsidiary who have completed three months of service may
participate in the Company's Puerto Rico Savings Plan. Part-time employees are
not entitled to participate in the Company's Puerto Rico Savings Plan.
Under the Company's non-qualified Employee Stock Purchase Plan, employees, other
than employees of the Company's subsidiaries in Australia, Argentina, Europe and
Mexico may contribute up to $80 per week to a trust for the purchase of Company
Common Stock at fair market value. The Company matches employee contributions up
to a maximum of $20.75 per week. The Company's contributions under this plan
approximated $231,000, $108,000, and $110,000 in 1996, 1995, and 1994,
respectively.
Under the Company's Profit Incentive Plan, bonuses are provided for certain
executives based on a percentage of the amount by which consolidated net
earnings exceed a specified portion of shareholders' equity at the beginning of
the year. During 1995, bonuses were provided for certain executives in the
amount of $614,000. In 1996 and 1994, net earnings did not exceed the required
criteria and, accordingly, no bonuses were provided.
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates internationally, giving rise to significant exposure to
market risks from changes in foreign exchange rates. Derivative financial
instruments are utilized by the Company to reduce the risk, as explained in this
note. The Company does not hold or issue financial instruments for trading
purposes.
Notional Amounts of Derivatives
- -------------------------------
The notional amounts of derivatives are not a complete measure of the Company's
exposure to foreign exchange fluctuation. The amounts exchanged are calculated
on the basis of the notional amounts and the other terms of the derivatives,
which relate to exchange rates.
Foreign Exchange Risk Management
- --------------------------------
The Company enters into currency exchange forward contracts to hedge short-term
receivables denominated in currencies other than the U.S. dollars from its
foreign sales subsidiaries (principally pound sterling, Dutch guilder,
56
<PAGE>
Belgian franc, French franc, German mark, and Canadian dollar). The term of the
currency exchange forward contracts is rarely more than one year. Unrealized and
realized gains and losses on these contracts are included in net income.
Notional amounts of currency exchange forward contracts outstanding were
$27,807,000 at December 29, 1996, with various maturity dates ranging through
the end of 1997. At December 31, 1995, the notional amounts of currency exchange
forward contracts outstanding were $14,040,000. Counterparties to these
contracts are major financial institutions, and credit loss from counterparty
nonperformance is not anticipated.
Additionally, there were no deferrals of gains or losses on currency exchange
forward contracts at December 29, 1996.
Fair Values
- -----------
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 29, 1996.
1996 1995
----------------- ----------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
(amounts in thousands)
Long-term debt (including*
current maturities) ($41,517) ($43,119) ($39,676) ($43,188)
Subordinated debentures* (120,000) (151,200) (120,000) (142,200)
Currency exchange
forward contracts** 292 292 (33) (33)
*The carrying amounts are reported on the balance sheet under the
indicated captions.
**The carrying amounts represent the net unrealized gain (loss) associated
with the contracts at the end of the period. Such amounts are included in
"Other Current Liabilities."
Long-term debt is carried at the original offering price, less any payments of
principal. The Company entered into its outstanding loan agreements at a fixed
rate of interest. Rates currently available to the Company for long-term
borrowings with similar terms and remaining maturities are used to estimate the
fair value of existing borrowings as the present value of expected cash flows.
The long-term debt agreements have various due dates with none of the agreements
extending beyond the year 2003.
Convertible subordinated debentures are carried at the original offering price,
less any payments of principal. The debentures are unsecured, subordinated to
all senior indebtedness and convertible at any time into shares of the Company's
stock. The debentures will mature on November 1, 2005 and are redeemable, in
whole or in part, at the option of the Company on or after November 1, 1998. In
order to estimate the fair value of these debentures, the Company used currently
quoted market prices.
57
<PAGE>
13. RESTRUCTURING PLAN
In December 1995, as a result of the Actron acquisition, the Company announced a
restructuring plan to reorganize its workplace on an international basis to
eliminate redundancies. In connection with the restructuring, approximately 28
manufacturing and field service positions in the Company's international
operations were eliminated. The Company incurred a charge of $1,410,000 in
connection with this restructuring.
14. COMMITMENTS AND CONTINGENCIES
The Company leases its offices, distribution center and certain production
facilities. Rental expense for all operating leases approximated $6,408,000,
$4,211,000, and $2,307,000 in 1996, 1995, and 1994, respectively. Future minimum
payments for operating leases having non-cancelable terms in excess of one year
at December 29, 1996 are: $5,836,000 (1997), $5,139,000 (1998), $4,211,000
(1999), $2,856,000 (2000) and $7,781,000 thereafter.
The Company entered into a twelve year lease agreement for a newly constructed
facility in 1994 for the Company's worldwide headquarters including
administrative offices, research and development activities and warehouse
distribution. These lease payments have been included in the future minimum
payments for operating leases above.
Until October, 1995, the Company was the exclusive worldwide licensee of Arthur
D. Little, Inc. ("ADL") for certain patents and improvements thereon related to
EAS products and manufacturing processes. On October 1, 1995, the Company
acquired these patents for $1.9 million plus a percent ranging from 1% to 1.5%
of future EAS RF products sold through 2008. Prior to October 1, 1995, the
Company paid a royalty to ADL of approximately 2% of net revenues generated by
the sale and lease of the licensed products, with the actual amount of the
royalty depending upon revenue volume.
The Company is the worldwide licensee of certain patents and technical knowledge
related to proximity card and card reader products. It pays a royalty equal to
2% of the net revenues from the licensed products. Such royalties are payable
through January 29, 2000, or until all of the subject patents have been
adjudicated invalid.
The Company has a worldwide license to distribute a point-of-sale front-end
monitoring system being marketed under the name Viewpoint. Marketing of this
product began during 1992. The Company pays a one time site license fee for each
site installed.
Effective January 1, 1995, A.E. Wolf, former Chief Executive Officer, and
current Chairman of the Board of Directors entered into a non-compete agreement
with the Company. In consideration of this agreement, the Company will pay Mr.
Wolf five annual installments of $25,000 each commencing January 1, 1995.
15. EXPORT SALES
The Company's export sales to foreign distributors which are principally in
Europe and Japan approximated $23,569,000, $21,785,000, and $10,430,000, in
1996, 1995, and 1994, respectively. Sales by the Company's foreign subsidiaries
in Argentina, Australia, Canada, Western Europe, Brazil, and Mexico totaled
$121,387,000 in 1996, and $55,422,000 in 1995. Sales to one foreign distributor
of the Company's products amounted to $6,465,000, $10,721,000, and $287,000 in
1996, 1995, and 1994 respectively.
58
<PAGE>
16. CONCENTRATION OF CREDIT RISK
The Company's foreign subsidiaries, along with many foreign distributors,
provide diversified international sales thus minimizing credit risk to one or a
few distributors. In addition, the Company maintains foreign credit insurance to
provide coverage for potential foreign political or economic risks.
Domestically, the Company's sales are well diversified among numerous retailers
in the apparel, shoe, drug, mass merchandise, video, music, supermarket and home
entertainment market. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from its
customers.
17. ACQUISITIONS
On February 1, 1995 the Company purchased Alarmex, Inc. for approximately $13.5
million ($10 million in cash and the balance in 401,434 shares of restricted
Common Stock of the Company). Alarmex designs and provides CCTV, POS monitoring,
burglar and fire alarm systems and also provides related central station
monitoring services to over 9,000 retail sites in the United States. Acquired
research and development costs of approximately $92,000 were expensed as a
result of the acquisition. The purchase price resulted in an excess of
acquisition cost over net assets acquired of approximately $10,400,000, which is
being amortized over twenty years.
On November 30, 1995, the Company purchased all of the capital stock of Actron
Group Limited ("Actron") which was engaged in the manufacture, distribution and
sale of security products and services. Actron's operations were combined with
the Company's operations during 1996. The purchase price of the capital stock
was approximately $54,000,000. This acquisition was accounted for under the
purchase method and, accordingly, the results of operations of this business
have been included with those of the Company since the date of acquisition. The
purchase price resulted in an excess of acquisition cost over net assets
acquired of approximately $40,600,000 which is being amortized over thirty
years.
In connection with the acquisition of Actron, accruals were established to
integrate Actron's operations with the Company's existing sales and production
locations. Included in this accrual are (i) costs associated with the
elimination of approximately 70 manufacturing and field service positions from
Actron operations, (ii) costs related to the closure of redundant sales
locations and (iii) ancillary costs. This accrual is included as part of the
purchase price and is included in the "Other Current Liabilities" section of the
Company's 1995 consolidated balance sheet. The integration of Actron's
operations, completed in 1996, amounted to $10,900,000. Actual charges to
complete the integration exceeded the original estimates by approximately
$500,000. This difference increased the excess of acquisition cost over net
assets acquired in 1996.
The following unaudited summary of operations presents the consolidated results
of operations as if the acquisition of Alarmex, Inc. and the Actron Group had
occurred at the beginning of the years presented. The following results are not
necessarily indicative of what would have occurred had the acquisition been
consummated as of that date or of future results.
59
<PAGE>
1996(actual) 1995(proforma)
------------ --------------
(Thousands, except per share data)
Net revenues $291,769 $251,136
Earnings (loss) before
income taxes $ 29,877 $ 726
Net earnings (loss) $ 20,447 $ (4,341)
Earnings (loss) per share $ .60 $ (.16)
18. GEOGRAPHIC SEGMENTS
The following tables shows sales, operating earnings and other financial
information by geographic area for the years 1996 and 1995.
United States
and Puerto Rico Europe Other(1) 1996
--------------- ---------- -------------
(Thousands)
1996
Net Revenues from Unaffiliated
Customers $145,876 $101,671 $44,222
Operating Income(Loss) $ 27,810 $ (1,058) $ 3,317
Identifiable Assets $375,353 $100,798 $45,502
United States
and Puerto Rico Europe Other(1) 1995
--------------- ----------- -------------
(Thousands)
1995
Net Revenues from Unaffiliated
Customers $149,319 $ 36,669 $18,753
Operating Income(Loss) $ 20,024 $ (1,877) $ 908
Identifiable Assets $225,877 $118,076 $18,198
(1) Other includes the Company's operations in Canada, Mexico, Argentina,
Australia, Brazil, and Japan.
19. SUBSEQUENT EVENTS
On January 31, 1997, the Company acquired 2M Security ApS for approximately $2.3
Million. 2M Security System ApS has been the Company's exclusive distributor for
retail security products throughout Denmark since 1992.
On February 12, 1997, the Company and Mitsubishi Materials Corporation signed a
multi-year agreement that creates a joint product research and development
project solely dedicated to developing radio frequency intelligent tagging
solutions for retail and library applications. The project will combine funding,
personnel resources and the RF ID technology portfolios of the two companies.
The development team, consisting of 17 product development engineers and
technical personnel, will develop an intelligent tag solution using the
Company's low-cost RF tags, Mitsubishi's materials technology, and newly
developed read-write electronics.
60
<PAGE>
On March 11, 1997 the Company announced that it had entered into a
definitive merger agreement to acquire all the outstanding shares of Ultrak,
Inc. In connection with the merger, the Company plans to issue 1.15 shares of
its common stock for each outstanding share of Ultrak, Inc. and up to 3.6756
shares of its common stock for each outstanding share of Ultrak, Inc. preferred
stock. As of March 7, 1997, Ultrak, Inc., had issued and outstanding, 14,036,656
shares of common stock and 195,351 shares of preferred stock. The merger is
expected to be accounted for as a pooling of interests. Management anticipates
that this transaction will be consummated by the end of June, 1997. Ultrak, Inc.
designs, manufactures, markets and services CCTV and related products for use in
security and surveillance, industrial vision, mobile video, traffic management,
dental and medical, and other applications. Ultrak, Inc. has sales of
approximately $137 million and $101 million for the years ended 1996 and 1995,
respectively.
In connection with the above transaction the Company plans to divest a portion
of the operations of its Security Systems Group subsidiary. This divestiture is
being initiated in order to avoid a potential distribution conflict with Ultrak,
Inc.'s established dealer and distributor base.
On March 13, 1997, the Company announced this its Board of Directors has
(i) voted to terminate its existing shareholders' rights agreement dated as of
December 15, 1988 ("1988 Plan"), and will be redeeming the outstanding rights at
a price of $.005 per Right, and (ii) adopted a new shareholder's rights plan
pursuant to a written agreement dated as of March 10, 1997 ("1997 Plan") between
the Company and American Stock Transfer and Trust Company as Rights Agent. The
redemption of the Rights outstanding under the 1988 Plan will be effected by a
payment of $.005 per Right to all holders of the Company's common stock as of
the close of business on March 24, 1997, and will be paid on April 8, 1997. The
Rights under the 1997 Plan will attach to existing common shares as of the close
of business on March 24, 1997. No separate certificate representing the new
Rights will be distributed until the occurrence of certain triggering events as
defined in the 1997 Plan. The Rights may be exercised by the holders at a price
of $100.00 per share of common stock, subject to adjustment. The terms of the
Rights are set forth in the 1997 Plan.
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K which is included in Part I hereof as Item A in
accordance with General Instruction G(3)); Item 11, Executive Compensation; Item
12, Security Ownership of Certain Beneficial Owners and Management: Item 13,
Certain Relationships and Related Transactions, is hereby incorporated by
reference to the Registrant's definitive proxy statement for its Annual Meeting
of Shareholders presently scheduled to be held on April 23, 1997, which
management expects to file with the Securities and Exchange Commission within 90
days of the end of the Registrant's fiscal year.
Note that the sections of the definitive proxy statement entitled "Compensation
Committee Report on Executive Compensation" and "Stock Price Performance Graph",
pursuant to Reg. S-K Item 402(a)(9) are not deemed "soliciting material" or
"filed" as part of this report.
61
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements PAGE
------------------------
The following consolidated financial statements are
included in Part II, Item 8:
Report of Independent Accountants............................. 39
Consolidated Balance Sheets as of December 29, 1996 and
December 31, 1995........................................... 40
Consolidated Earnings Statements for each of the years
in the three-year period ended December 29, 1996............ 41
Consolidated Statements of Shareholders' Equity for each
of the years in the three-year period ended
December 29, 1996........................................... 42
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 29, 1996............ 43
Notes to Consolidated Financial Statements.................... 44-61
(a) 2. Financial Schedule
-------------------------
The following consolidated schedule is required to be filed
by Part IV, Item, 14(a)2:
Schedule II - Valuation and Qualifying Accounts............... 64
All other schedules are omitted either because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto:
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
----------------------------------------------------------------
Exhibit 3(a) Articles of Incorporation are hereby incorporated
by reference to Item 14(a), and 3(i) of the
Registrant's Form 10-K, filed with the SEC on March
14, 1991.
Exhibit 4 Instruments defining the rights of security holders,
including indentures, are incorporated by reference to
Item 6(a) of the Registrant's Form 10-Q/A, filed with
the SEC on December 13, 1995.
Exhibit 4.1 Rights Agreement by and between the Registrant and
American Stock Transfer and Trust Company dated as of
March 10, 1997.
Exhibit 10 Material Contracts, are hereby incorporated by
reference to Items 14(a)(3)(v), (vi) and (viii)
of the Registrant's Form 10-K, filed with the
SEC on March 6, 1984; Item 14(a)(3)(iv) of the
Registrant's Form 10-K, filed with the SEC on
February 13, 1985; Item 14(a)(3)(iv) of the
Registrant's Form 10-K, filed with the SEC on
March 11, 1987; Item 20(4.9) of Registrant's
Post-Effective Amendment Number 1 to Form S-8
filed with the SEC on January 20, 1988; Item
2(1) of the Registrant's Form 8-A filed with
the SEC on December 31, 1988; Appendix A to the
Company's Definitive Proxy Statement, filed
March 23, 1992; Item 10 of the Registrant's
Form 8-K, filed on August 25, 1992; and Item
10(a) of the Registrant's Form 8-K, filed on
July 12, 1993. Item 14(a)(3) (Exhibits 10(a)
(c), (e) and (f) of the Registrant's Form 10-K/A).
62
<PAGE>
filed with the SEC on March 14, 1995, amending Annual
Report on Form 10-K for the fiscal year ended December
25, 1994; Item 13 of the Registrant's Form S-3, filed
with the SEC on February 20, 1996; and Item 6(a) of
the Registrant's Form 10-Q, filed with the SEC on
August 8, 1995.
Exhibit 10(a) Amended and Restated Profit Incentive Plan.
Exhibit 10.1 Agreement and Plan of Reorganization dated March
11, 1997 between the Registrant and Ultrak, Inc.
Exhibit 10.2 Checkpoint Stock Option Agreement dated March 11,
1997 in favor of Ultrak, Inc.
Exhibit 10.3 Ultrak Stock Option Agreement dated March 11,
1997 in favor of Registrant.
Exhibit 10.4 Shareholder's Agreement dated March 11, 1997
between the Registrant and George K. Broady.
Exhibit 11 Computation of per share data.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 23 Consent of Independent Accountants
Exhibit 24 Power of Attorney, contained in signature page.
Exhibit 27 Financial Data Schedule.
Exhibit 99.1 March 11, 1997 Press Release re: Ultrak.
Exhibit 99.2 March 13, 1997 Press Release re: shareholder's
rights plans.
63
<PAGE>
CHECKPOINT SYSTEMS, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Year Classification of Year Expenses (1) Year
- ---- -------------- ---------- ---------- ---------- ----------
1996 Allowance for
doubtful accounts $1,906 $2,980 $ 604 $4,282
------ ------ ------ ------
1995 Allowance for
doubtful accounts $1,570 $1,801 $1,465 $1,906
------ ------ ------ ------
1994 Allowance for
doubtful accounts $2,237 $1,221 $1,888 $1,570
------ ------ ------ ------
(1) The deduction of $1,888,000 in 1994 includes a significant portion of
uncollectable accounts associated with the 1993 acquisition of the ID Systems
Group.
64
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Thorofare, New
Jersey, on March 17, 1997.
CHECKPOINT SYSTEMS, INC.
/s/ Kevin P. Dowd
- -----------------
Kevin P. Dowd
President, Chief Executive Officer,
Chief Operating Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kevin P. Dowd and Jeffrey A. Reinhold and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution in their place and stead, in any and all capacities, to sign any
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Kevin P. Dowd President, Chief March 17, 1997
- ----------------------- Executive Officer,Chief
Kevin P. Dowd Operating Officer, and
Director
/s/ Steven G. Selfridge Executive Vice President March 17, 1997
- -----------------------
Steven G. Selfridge
/s/ Jeffrey A. Reinhold Vice President - Finance, March 17, 1997
- ----------------------- Chief Financial Officer,
Jeffrey A. Reinhold and Treasurer
65
<PAGE>
SIGNATURES AND POWER OF ATTORNEY (continued)
/s/ Mitchell T. Codkind Vice President - March 17, 1997
- ----------------------- Corporate Controller
Mitchell T. Codkind and Chief Accounting Officer
/s/ Robert O. Aders Director March 17, 1997
- -------------------
Robert O. Aders
/s/ Roger D. Blackwell Director March 17, 1997
- ----------------------
Roger D. Blackwell
/s/ Richard J. Censits Director March 17, 1997
- ----------------------
Richard J. Censits
/s/ David W. Clark Director March 17, 1997
- -----------------
David W. Clark
/s/ Allan S. Kalish Director March 17, 1997
- -------------------
Allan S. Kalish
/s/ Elisa Margaona Director March 17, 1997
- ------------------
Elisa Margaona
/s/ Raymond R. Martino Director March 17, 1997
- ----------------------
Raymond R. Martino
/s/ Jermain B. Porter Director March 17, 1997
- ---------------------
Jermain B. Porter
/s/ Albert E. Wolf Director March 17, 1997
- ------------------
Albert E. Wolf
66
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
EXHIBIT 4.1 Rights Agreement by and between the Registrant and
American Stock Transfer and Trust Company dated as of
March 10, 1997.
EXHIBIT 10(a) Amended and Restated Profit Incentive Plan
EXHIBIT 10.1 Agreement and Plan of Reorganization dated March 11, 1997
between the Registrant and Ultrak, Inc.
EXHIBIT 10.2 Checkpoint Stock Option Agreement dated March 11, 1997
in favor of Ultrak, Inc.
EXHIBIT 10.3 Ultrak Stock Option Agreement dated March 11, 1997 in
favor of Registrant.
EXHIBIT 10.4 Shareholder's Agreement dated March 11, 1997 between the
Registrant and George K. Broady.
EXHIBIT 11 Computation of Per Share Data
EXHIBIT 21 Subsidiaries
EXHIBIT 23 Consent of Independent Accountants
EXHIBIT 24 Power of Attorney, Contained in Signature
EXHIBIT 27 Financial Data Schedule
EXHIBIT 99.1 March 11, 1997 Press Release re: Ultrak.
EXHIBIT 99.2 March 13, 1997 Press Release re: shareholder's
rights plans.
67
EXHIBIT 4.1
RIGHTS AGREEMENT
by and between
CHECKPOINT SYSTEMS, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Rights Agent
Dated as of March 10, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Certain Definitions........................................................................... 1
2. Appointment of Rights Agent................................................................... 5
3. Issue of Right Certificates................................................................... 5
4. Form of Right Certificates.................................................................... 6
5. Countersignature and Registration............................................................. 7
6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates.................................................. 7
7. Exercise of Rights; Purchase Price; Expiration Date of Rights................................. 8
8. Cancellation and Destruction of Right Certificates............................................ 10
9. Reservation and Availability of Common Shares................................................. 10
10. Common Shares Record Date..................................................................... 11
11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights................... 12
12. Certificate of Adjusted Purchase Price or Number of Shares.................................... 16
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.......................... 16
14. Additional Covenants.......................................................................... 19
15. Fractional Rights and Fractional Shares....................................................... 20
16. Rights of Action.............................................................................. 21
17. Agreement of Rights Holders................................................................... 21
18. Right Certificate Holder Not Deemed a Stockholder............................................. 22
19. Concerning the Rights Agent................................................................... 22
20. Merger or Consolidation or Change of Name of Rights Agent..................................... 22
21. Duties of Rights Agent........................................................................ 23
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
22. Change of Rights Agent........................................................................ 24
23. Issuance of New Right Certificates............................................................ 25
24. Redemption.................................................................................... 25
25. Exchange...................................................................................... 26
26. Notice of Certain Events...................................................................... 27
27. Notices....................................................................................... 28
28. Supplements and Amendments.................................................................... 28
29. Successors.................................................................................... 29
30. Determinations and Actions by the Board of Directors.......................................... 29
31. Benefits of this Agreement.................................................................... 29
32. Severability.................................................................................. 30
33. Specific Exemption............................................................................ 30
34. Governing Law................................................................................. 30
35. Counterparts.................................................................................. 30
36. Descriptive Headings.......................................................................... 30
</TABLE>
Exhibit A -- Form of Right Certificate
Exhibit B -- Summary of Rights Agreement
(ii)
<PAGE>
RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT, dated as of March 10, 1997 (the "Agreement"), by
and between Checkpoint Systems, Inc., a Pennsylvania corporation (the
"Company"), and American Stock Transfer & Trust Company, a New York corporation
(the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as such term is hereinafter defined) for each share of
common stock, $0.10 par value, of the Company (the "Common Shares") outstanding
at the close of business on March 24, 1997 (the "Record Date"), and has
authorized the issuance of one Right with respect to each Common Share that
shall become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date, the Exchange Date and the Final
Expiration Date (as such terms are hereinafter defined), each Right representing
the right to purchase one Common Share, upon the terms and subject to the
conditions hereinafter set forth (the "Rights").
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
a. "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 20% or more of the
Common Shares then outstanding, but shall not include (i) the Company, (ii) any
Subsidiary (as such term is hereinafter defined) of the Company, or (iii) any
employee benefit plan of the Company or of any Subsidiary of the Company or any
Person organized, appointed or established by the Company for or pursuant to the
terms of any such plan. Notwithstanding the foregoing, (i) no Person shall
become an "Acquiring Person" solely as the result of an acquisition of Common
Shares by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 20% or more of the Common Shares then outstanding; provided, however, that if
a Person becomes the Beneficial Owner of 20% or more of the Common Shares then
outstanding by reason of share acquisitions by the Company and shall, after such
share acquisitions, become the Beneficial Owner of any additional Common Shares,
then such Person shall be deemed to be an "Acquiring Person", and (ii) no Person
shall be deemed an "Acquiring Person" if the Board of Directors determines that
such Person became such inadvertently, including but not limited to
circumstances where such Person (A) is unaware that he/she owned a percentage of
the Common Shares that would cause him/her to become an "Acquiring Person" or
(B) is aware of his/her percentage ownership but not of its consequences under
this Agreement and has no intention to control the Company and who with
reasonable promptness reduces his/her ownership below 20%.
b. "Affiliate", "Associate" and "control" shall have
the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
<PAGE>
c. A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly,
within the meaning of Rule 13d-3 or Rule 13d-5 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this
Agreement;
(ii) which such Person or any of such
Person's Affiliates or Associates, directly or indirectly, has the
right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding whether or not in writing (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own", (A)
securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange, (B) securities issuable upon exercise of Rights at any time
prior to the occurrence of a Triggering Event (as such term is
hereinafter defined) or (C) securities issuable upon exercise of Rights
from and after the occurrence of a Triggering Event which Rights were
acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a)
or Section 23 hereof (the "Original Rights") or pursuant to Section
11(i) hereof in connection with an adjustment made with respect to any
Original Rights;
(iii) which such Person or any of such
Person's Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of pursuant to any agreement, arrangement or
understanding whether or not in writing; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own", any security under this subparagraph (iii) as a
result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding (1) arises
solely from a revocable proxy given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the Exchange
Act and (2) is not also then reportable by such Person on Schedule 13D
under the Exchange Act (or any comparable or successor report); or
(iv) which are beneficially owned, directly
or indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding whether or
not in writing (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in the
proviso to subparagraph (iii) of this paragraph (c)) or disposing of
any securities of the Company.
If a Person shall be deemed to be the Beneficial Owner of any securities which
are not outstanding, such securities shall be deemed to be outstanding for
purposes of determining the percentage of Common Shares beneficially owned by
such Person.
-2-
<PAGE>
d. "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.
e. "Close of business" on any given date shall mean
5:00 P.M., New York, New York time, on such date; provided, however, that if
such date is not a Business Day it shall mean 5:00 P.M., New York, New York
time, on the next succeeding Business Day.
f. "Common Shares" when used with reference to the
Company (or without express reference to another Person) shall mean the shares
of common stock, $0.10 par value, of the Company or any other shares of capital
stock of the Company into which the Common Shares are reclassified or changed.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock or other equity securities or equity or other
beneficial interests of such Person with the greatest aggregate voting power.
g. "Common Stock Equivalent" shall mean a share, or
fraction of a share, of any authorized class of preferred stock of the Company
having dividend, voting, liquidation and other rights which result, in the
judgment of the Board of Directors, in such share, or fraction of a share, being
approximately equivalent in value to one Common Share as of the Event Date (as
such term is hereinafter defined); provided, however, that, if no preferred
stock has been authorized or, if authorized, in the judgment of the Board of
Directors there are not sufficient authorized but unissued shares of preferred
stock available for the creation of Common Stock Equivalents, "Common Stock
Equivalent" shall mean such cash, reduction in Purchase Price (as such term is
hereinafter defined), other equity securities, debt securities, other assets or
any combination of the foregoing, that the Board of Directors shall determine to
be approximately equivalent in value to one Common Share as of the Event Date.
As used herein, "Event Date" shall mean (i) for purposes of any determination
made pursuant to Section 11(a)(iii) hereof, the date of occurrence of a Section
11(a)(ii) Event (as such term is hereinafter defined), and (ii) for purposes of
any determination made pursuant to Section 25(c) hereof, the Exchange Date.
h. "Distribution Date" shall have the meaning set
forth in Section 3(a) hereof.
i. "Exchange" shall have the meaning set forth in
Section 25 hereof.
j. "Exchange Date" shall have the meaning set forth
in Section 7(a) hereof.
k. "Exchange Ratio" shall have the meaning set forth
in Section 25 hereof.
l. "Final Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
m. "Person" shall mean any individual, firm,
corporation, partnership or other entity and shall include any successor by
merger or otherwise of such Person.
-3-
<PAGE>
n. "Principal Party" shall have the meaning set forth
in Section 13(b) hereof.
o. "Purchase Price" shall have the meaning set forth
in Section 4 hereof.
p. "Record Date" shall have the meaning set forth in
the recital of this Agreement.
q. "Redemption Date" shall have the meaning set forth
in Section 7(a) hereof.
r. "Redemption Price" shall have the meaning set
forth in Section 24(a) hereof.
s. "Registered Common Shares" shall have the meaning
set forth in Section 13(b) hereof.
t. "Right Certificates" shall have the meaning set
forth in Section 3(a) hereof.
u. "Rights" shall have the meaning set forth in the
recital of this Agreement.
v. "Section 11(a)(ii) Event" shall mean the event
described in Section 11(a)(ii) hereof.
w. "Section 13 Event" shall mean any event described
in clauses (x), (y) or (z) of Section 13 hereof.
x. "Securities Act" shall mean the Securities Act of
1933, as amended.
y. "Share Acquisition Date" shall mean the date of
the first public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.
z. "Subsidiary" shall mean, with reference to any
Person, any corporation or other Person of which a majority of the voting power
of the voting equity securities or equity or other beneficial interests is
owned, directly or indirectly, by such Person, or which is otherwise controlled
by such Person.
aa. "Summary of Rights" shall have the meaning set
forth in Section 3(b) hereof.
ab. "Trading Day" shall have the meaning set forth in
Section 11(d) hereof.
-4-
<PAGE>
ac. "Triggering Event" shall mean any Section
11(a)(ii) Event or Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable. In the event the Company appoints one or more Co-Rights
Agent, the respective duties of the Rights Agent and any Co-Rights Agent shall
be as the Company shall determine.
Section 3. Issue of Right Certificates.
a. Until the earlier of (i) the close of business on
the tenth day after the Share Acquisition Date (or, if the tenth day after the
Share Acquisition Date occurs before the Record Date, the close of business on
the Record Date) or (ii) the close of business on the tenth business day (or
such later day as may be determined by action of the Board of Directors prior to
such time as any Person becomes an Acquiring Person) after the date that a
tender or exchange offer by any Person is first published, sent or given within
the meaning of Rule 14d-2 of the General Rules and Regulations under the
Exchange Act (or any comparable or successor rule) if, upon consummation
thereof, such Person would be an Acquiring Person (the earlier of such dates,
including any such date which is after the date of this Agreement and prior to
the issuance of the Rights, being herein referred to as the "Distribution
Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph
(b) of this Section 3) by the certificates for Common Shares registered in the
names of the holders thereof (which certificates shall also be deemed to be
certificates for Rights) and not by separate certificates, and (y) the Rights
will be transferable only in connection with the transfer of the underlying
Common Shares. As soon as practicable after the Distribution Date, the Rights
Agent will send, by first-class, insured, postage prepaid mail, to each record
holder of Common Shares as of the close of business on the Distribution Date, at
the address of such holder shown on the records of the Company, one or more
Right certificates, in substantially the form of Exhibit A hereto (the "Right
Certificates"), evidencing one Right for each Common Share so held, subject to
adjustment as provided herein. As of the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
b. As promptly as practicable after the Record Date,
the Company will send a copy of a Summary of Rights in substantially the form
attached hereto as Exhibit B (the "Summary of Rights"), by first-class, postage
prepaid mail, to each record holder of Common Shares as of the close of business
on the Record Date, at the address of such holder shown on the records of the
Company. With respect to certificates for Common Shares outstanding as of the
Record Date, until the Distribution Date, the Rights will be evidenced by such
certificates for Common Shares together with a copy of the Summary of Rights,
and the registered holders of Common Shares shall also be the registered holders
of the associated Rights. Until the Distribution Date (or the earliest of the
Redemption Date, Exchange Date or Final Expiration Date), the surrender for
transfer of any certificate for Common Shares outstanding on the Record Date,
with or without a copy of the Summary of Rights attached thereto shall also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate.
c. Rights shall be issued in respect of all Common
Shares which become outstanding (including, without limitation, reacquired
Common Shares referred to in the penultimate sentence of this paragraph (c))
after the Record Date but prior to the earliest of the Distribution Date,
-5-
<PAGE>
the Redemption Date, the Exchange Date or the Final Expiration Date.
Certificates representing such Common Shares shall also be deemed to be
certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement by and between
Checkpoint Systems, Inc. (the "Company") and American Stock Transfer &
Trust Company, dated as of March 10, 1997 (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a copy
of which is on file at the principal executive offices of the Company.
Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement, as in effect on the
date of mailing, without charge, promptly after receipt of a written
request therefor. As described in the Rights Agreement, Rights
beneficially owned by (i) an Acquiring Person or any Associate or
Affiliate thereof (as such terms are defined in the Rights Agreement),
(ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes
such, or (iii) under certain circumstances, a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee before or concurrently with the Acquiring Person becoming
such, shall be null and void.
With respect to such certificates containing the foregoing legend, until the
earliest of the Distribution Date, the Redemption Date, the Exchange Date or the
Final Expiration Date, the Rights associated with the Common Shares represented
by such certificates shall be evidenced by such certificates alone and the
registered holders of Common Shares shall also be the holders of the associated
Rights, and the surrender for transfer of any such certificates shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding. Rights shall again become
outstanding with respect to such Common Shares at such time as they may be
reissued by the Company.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase shares, certification and assignment to be printed
on the reverse thereof) shall be substantially in the form set forth in Exhibit
A hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed or any securities
association on whose interdealer quotation system the Rights may from time to
time be authorized for quotation, or to conform to usage. Subject to the
provisions of Section 23 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of Common Shares as shall be set forth
therein at the price per Common Share set forth therein (the "Purchase Price"),
but the amount and type of securities purchasable upon the exercise of each
Right and the Purchase Price shall be subject to adjustment as provided herein.
-6-
<PAGE>
Section 5. Countersignature and Registration.
a. The Right Certificates shall be executed on behalf
of the Company by its Chief Executive Officer, its President or any Vice
President, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent, and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such person was not such an officer.
b. On the Distribution Date, if the Rights Agent is
not the sole transfer agent for the Common Shares, the Company will furnish the
Rights Agent with the name and address of, and the number of Rights held by,
each holder of Rights. Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at the office of the Rights Agent designated for such
purpose, books for registration and transfer of the Right Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights as evidenced on the face
of each of the Right Certificates and the date and certificate number of each of
the Right Certificates.
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates.
a. Subject to the provisions of Section 7(e) and
Section 15 hereof, at any time after the close of business on the Distribution
Date, and at or prior to the close of business on the earliest of the Redemption
Date, the Exchange Date or the Final Expiration Date, any Right Certificate or
Certificates (other than Right Certificates representing Rights which have been
exchanged pursuant to Section 25 hereof) may be transferred, split up, combined
or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of Common Shares (or other
securities or other assets, as the case may be) as the Right Certificate or
Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged, with the form of assignment and
certificate appropriately executed, at the office of the Rights Agent designated
for such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Right Certificate or Certificates until the registered holder shall have
completed and signed the certificate contained in the form of assignment set
forth on the reverse side of each such Right Certificate and shall have provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to Section 7(e)
and Section 15 hereof, countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as
-7-
<PAGE>
so requested. The Company may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
b. Upon receipt by the Company and the Rights Agent
of evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will execute and
deliver a new Right Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.
a. The Rights shall not be exercisable prior to the
Distribution Date. Subject to Section 7(e) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein, including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii), Section 24(b) and
Section 25(b)) in whole or in part at any time after the Distribution Date upon
surrender of the Right Certificate, with the form of election to purchase on the
reverse side thereof duly executed, to the Rights Agent at the office of the
Rights Agent designated for such purpose, together with payment of the Purchase
Price for each Common Share (or other securities, cash or other assets, as the
case may be) as to which the Rights are exercised, at or prior to the earliest
of (i) the close of business on March 10, 2007 (the "Final Expiration Date"),
(ii) the time at which the Rights are redeemed as provided in Section 24 hereof
(the "Redemption Date") or (iii) the time at which the Rights are exchanged as
provided in Section 25 hereof (the "Exchange Date"); provided, however, that if
the number of Rights exercised would entitle the holder thereof to receive any
fraction of a Common Share greater than one-half of a share, the holder thereof
shall not be entitled to exercise such rights unless such holder concurrently
purchases from the Company (and in such event the Company shall sell to such
holder) an additional fraction of a Common Share at a price equal to the same
fraction of the current Purchase Price which, when such fraction is added to the
number of Common Shares to be received upon such exercise, will equal a whole
number of Common Shares.
b. The Purchase Price for each Common Share pursuant
to the exercise of the Rights shall initially be $100.00. The Purchase Price
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) below.
c. Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares (or other
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax or governmental
charge required to be paid by the holder of such Right Certificate in accordance
with Section 9(e) hereof, the Rights Agent shall, subject to Section 21(j)
hereof, thereupon promptly (i) requisition from any transfer agent of the Common
Shares (or make available, if the Rights Agent is the transfer agent for such
shares) certificates for the number of Common Shares to be purchased, and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, (ii) when appropriate, requisition from
-8-
<PAGE>
the Company the amount of cash, if any, to be paid in lieu of issuance of
fractional shares in accordance with Section 15 hereof, (iii) after receipt of
such certificates, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate registered in such name or names as
may be designated by such holder, and (iv) when appropriate, after receipt
thereof, deliver such cash, if any, to or upon the order of the registered
holder of such Right Certificate. The payment of the Purchase Price shall be
made in cash or by certified or bank official check or money order payable to
the order of the Company. In the event that the Company is obligated to issue
other securities of the Company or distribute other property pursuant to Section
11(a) hereof, the Company will make all arrangements necessary so that such
other securities or property are available for distribution by the Rights Agent,
if and when appropriate.
d. In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to the registered
holder of such Right Certificate or to his duly authorized assigns, subject to
the provisions of Section 15 hereof.
e. Notwithstanding anything in this Agreement to the
contrary, from and after the occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or any Associate or Affiliate of
an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person (or
of any such Associate or Affiliate) to holders of equity interests in such
Acquiring Person (or of any such Associate or Affiliate) or to any Person with
whom the Acquiring Person has any agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
in its discretion has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall be null and void without any further action and no holder of such Rights
shall have any rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise. No Right Certificate shall be issued
pursuant to Section 3 or Section 23 hereof that represents Rights beneficially
owned by an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof and no Right
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person whose Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate. Any Right Certificate delivered to the Rights
Agent for transfer to any of the foregoing Persons, or which represents void
Rights, shall be canceled. The Company shall use reasonable efforts to effect
compliance with the provisions of this Section 7(e), but shall have no liability
to any holder of Right Certificates or other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder.
f. Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported transfer as set forth in Section 6 hereof or exercise as set forth
in this Section 7 unless such registered holder shall have (i) completed and
signed the certificate contained in the form of assignment or election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such assignment or exercise and (ii) provided such additional evidence of
-9-
<PAGE>
the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Common Shares.
a. Subject to the Company's rights under Section
11(a)(iii) hereto to otherwise fulfill its obligations hereunder, the Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Common Shares and/or any authorized and issued
Common Shares held in its treasury, the number of Common Shares that will be
sufficient to permit the exercise in full of all outstanding Rights; provided,
however, that such action need not be taken with respect to Common Shares (or
other securities) issuable upon exercise of the Rights until after such time as
the Rights become exercisable.
b. So long as the Common Shares issuable upon the
exercise of Rights may be listed on any national securities exchange or
authorized for quotation on any interdealer quotation system of any securities
association, the Company shall use its best efforts to cause, from and after
such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange or quoted on such system upon official
notice of issuance upon such exercise.
c. The Company shall use its best efforts to (i)
file, as soon as practicable following the earliest date after the occurrence of
a Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(ii) or 11(a)(iii) hereof, or as soon as is required by law
following the Distribution Date, as the case may be (provided the Company shall
not have elected to make the exchange permitted by Section 25 hereof for all
outstanding Rights (other than the Rights that shall have become null and void
pursuant to Section 7(e) hereof)), a registration statement under the Securities
Act with respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities and (B) the Final
Expiration Date. The Company will also take such action as may be appropriate
under, or to ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights. The Company
may temporarily suspend, for a period of time not to exceed ninety (90) days
after the date set forth in clause (i) of the first sentence of this Section
9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall give notice to the Rights Agent and issue a public
announcement stating that the exercisability of the Rights
-10-
<PAGE>
has been temporarily suspended, as well as a notice to the Rights Agent and a
public announcement at such time as the suspension is no longer in effect. In
addition, if the Company shall determine that a registration statement is
required following the Distribution Date but prior to the occurrence of a
Section 11(a)(ii) Event hereof, the Company may temporarily suspend the
exercisability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law or a registration
statement shall not have been declared effective.
d. The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all Common Shares delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
e. The Company further covenants and agrees that it
will pay when due and payable any and all federal and state transfer taxes and
governmental charges which may be payable in respect of the issuance or delivery
of the Right Certificates or of any Common Shares (or other securities or
property) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax or other governmental charge which may be
payable in respect of any transfer or delivery of Right Certificates to a Person
other than, or the issuance or delivery of certificates for Common Shares (or
other securities or property) in a name other than that of, the registered
holder of the Right Certificates evidencing Rights surrendered for exercise or
to issue or deliver any certificates for Common Shares (or other securities or
property) in a name other than that of the registered holder upon the exercise
of any Rights until any such tax or charge shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's satisfaction that no such tax
or charge is due.
Section 10. Common Shares Record Date. Each person in whose name any
certificate for Common Shares (or other securities) is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Common Shares (or other securities) represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and all
applicable transfer taxes and governmental charges) was made; provided, however,
that if the date of such surrender and payment is a date upon which the Common
Shares (or other securities) transfer books of the Company are closed or a date
on which the exercisability of the Rights is suspended pursuant to Section 9(c),
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Common Shares (or other securities) transfer books of the Company are open
or the next succeeding Business Day on which such suspension is no longer in
effect. Prior to the exercise of the Rights evidenced thereby, the holder of a
Right Certificate, as such, shall not be entitled to any rights of a shareholder
of the Company with respect to Common Shares (or other securities) for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
-11-
<PAGE>
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights
The Purchase Price, the number and kind of shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
a. (i) In the event the Company shall, at any time
after the date of this Agreement, (A) declare a dividend on
the Common Shares payable in Common Shares, (B) subdivide or
split the outstanding Common Shares into a greater number of
shares, (C) combine or consolidate the outstanding Common
Shares into a smaller number of shares or effect a reverse
stock split, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such
reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section
11(a) and in Section 7(e) hereof, the Purchase Price in effect
at the time of the record date for such dividend or of the
effective date of such subdivision, split, consolidation,
combination or reclassification shall be proportionately
adjusted so that the holder of Rights exercised after such
time shall be entitled to receive, upon payment of the
Purchase Price then in effect, the aggregate number and kind
of Common Shares or shares of capital stock, as the case may
be, which, if such Rights had been exercised immediately prior
to such date and at a time when the Common Shares (or other
capital stock, as the case may be) transfer books of the
Company were open, such holder would have acquired upon such
exercise and been entitled to receive with respect to such
Common Shares or shares of capital stock, as the case may be,
by virtue of such dividend, subdivision, split, consolidation,
combination or reclassification at an aggregate Purchase Price
(i.e., the product of the number of Common Shares or shares of
capital stock, as the case may be, multiplied by the Purchase
Price) equal to the aggregate Purchase Price prior to such
dividend, subdivision, split, consolidation, combination or
reclassification.
(ii) Subject to Sections 11(a)(iii) and 25
hereof, in the event that any Person, alone or together with
its Affiliates and Associates, shall become an Acquiring
Person, then proper provision shall be made so that each
holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have a right to receive, upon exercise
thereof at a price equal to the then current Purchase Price
multiplied by the number of Common Shares for which a Right is
then exercisable in accordance with the terms of this
Agreement, such number of Common Shares as shall equal the
result obtained by (x) multiplying the then current Purchase
Price by the number of Common Shares for which a Right is then
exercisable and (y) dividing that product by 50% of the
current market price (determined pursuant to Section 11(d)(i)
hereof) per Common Share on the date such Person, alone or
together with its Affiliates and Associates, became an
Acquiring Person.
(iii) Subject to Section 25 hereof, in the
event that the number of Common Shares which are authorized by
the Company's articles of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the exercise in full
of the Rights in accordance with the foregoing subparagraph
(ii), the Rights shall not be exercisable for Common
-12-
<PAGE>
Shares, but proper provision shall be made so that each holder
of a Right, except as provided in section 7(e) hereof, shall
thereafter have a right to receive, upon exercise thereof in
accordance with the terms of this Agreement at the price
determined pursuant to subparagraph (ii), such number of
Common Stock Equivalents (or, in the judgment of the Board of
Directors, such combination of Common Stock Equivalents and
Common Shares) as shall equal the number of Common Shares
determined pursuant to subparagraph (ii).
b. In case the Company shall fix a record date for
the issuance of rights, options or warrants to all holders of Common Shares
entitling them to subscribe for or purchase (for a period expiring within 45
calendar days after such record date) Common Shares or securities convertible
into Common Shares at a price per Common Share (or having a conversion price per
share, if a security convertible into Common Shares, less than the current
market price (as determined pursuant to Section 11(d) hereof) per Common Share
on such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Common Shares outstanding on such record date, plus the number of
Common Shares which the aggregate offering price of the total number of Common
Shares so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current market
price and the denominator of which shall be the number of Common Shares
outstanding on such record date, plus the number of additional Common Shares to
be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding and conclusive for all purposes. Common Shares owned by or held
for the account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
c. In case the Company shall fix a record date for a
distribution to all holders of Common Shares (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend), assets, stock (other than a dividend
payable in Common Shares) or subscription rights, options or warrants (excluding
those referred to in or excluded pursuant to Section 11(b) hereof), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the current market price (as
determined pursuant to Section 11(d) hereof) per one Common Share on such record
date, less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding and conclusive for all
purposes) of the portion of the cash, assets, stock or evidences of indebtedness
so to be distributed or of such subscription rights, options or warrants
applicable to one Common Share and the denominator of which shall be such
current market price (as determined pursuant to Section 11(d) hereof) per one
Common Share. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so made, the
Purchase Price shall again be adjusted to be the Purchase Price which would then
be in effect if such record date had not been fixed.
-13-
<PAGE>
d. For the Purposes of any computation hereunder, the
"current market price" per Common Share on any date shall be deemed to be the
average of the daily closing prices per Common Share for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; provided, however, that in the event that the current market price per
Common Share is determined during a period following the announcement by the
issuer of such Common Shares of (i) a dividend or distribution on such Common
Shares payable in such Common Shares or securities convertible into such Common
Shares (other than the Rights) or (ii) any subdivision, split, consolidation,
combination or reclassification of such Common Shares and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, split, consolidation,
combination or reclassification, then, and in each such case, the "current
market price" shall be appropriately adjusted at the discretion of the Board of
Directors of the Company to take into account ex-dividend trading. The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Shares are listed or admitted
to trading or, if the Common Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in use, or, if on any such
date the Common Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Shares selected by the Board of Directors of the
Company. If on any such date no market maker is making a market in the Common
Shares, the fair value of such shares on such date as determined in good faith
by the Board of Directors of the Company shall be used and shall be binding and
conclusive for all purposes. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the Common Shares are listed
or admitted to trading is open for the transaction of business or, if the Common
Shares are not listed or admitted to trading on any national securities
exchange, a Business Day. If the Common Shares are not publicly held or not so
listed or traded, "current market price" per share shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding and conclusive for all purposes.
e. Anything herein to the contrary notwithstanding,
no adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in such price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a Common Share or other
share, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the transaction which requires
such adjustment or (ii) the Final Expiration Date.
f. If as a result of an adjustment made pursuant to
Section 11(a) or Section 13(a) hereof, the holder of any Right to be thereafter
exercised shall become entitled to receive any shares of capital stock of the
Company other than Common Shares, thereafter the number of such other shares so
receivable upon exercise of any Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the
-14-
<PAGE>
Common Shares contained in this Section 11 and the provisions of Sections 6, 7,
9, 10, 13 and 15 with respect to the Common Shares shall apply on like terms to
any such other shares.
g. All Rights issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
h. Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
Common Shares (calculated to the nearest ten-thousandth) obtained by (i)
multiplying (x) the number of Common Shares covered by a Right immediately prior
to this adjustment, by (y) the Purchase Price in effect immediately prior to
such adjustment of the Purchase Price, and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
i. The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of Common Shares purchasable upon the exercise
of a Right. Each of the Rights outstanding after such adjustment in the number
of Rights shall be exercisable for the number of Common Shares for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been issued, shall be at least 10 days later than
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 15 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holder shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Purchase Price) and shall be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
j. Irrespective of any adjustment or change in the
Purchase Price or the number of Common Shares issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number of Common Shares which were expressed
in the initial Right Certificates issued hereunder.
-15-
<PAGE>
k. Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par value, if any, of the
Common Shares issuable upon exercise of the Rights, the Company shall take any
corporate action which may, upon the advice of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Common Shares at such adjusted Purchase Price.
l. In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such record
date of the Common Shares and other capital stock or securities of the Company,
if any, issuable upon such exercise over and above the Common Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
m. Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Common Shares, (ii) issuance wholly for cash
of any of the Common Shares at less than the current market price, (iii)
issuance wholly for cash of Common Shares or securities which by their terms are
convertible into or exchangeable for Common Shares, (iv) stock dividends, or (v)
issuance of rights, options or warrants referred to hereinabove in this Section
11, hereafter made by the Company to holders of its Common Shares shall not be
taxable to such stockholders.
n. In the event that the Rights become exercisable
following a Section 11(a)(ii) Event, the Company, by action of the Board of
Directors, may permit the Rights, subject to Section 7(e), to be exercised for
50% of the Common Shares (or cash, other securities or property) that would
otherwise be purchasable under Section 11(a), in consideration of the surrender
to the Company of the Rights so exercised and without other payment of the
Purchase Price. Rights exercised under this Section 11(n) shall be deemed to
have been exercised in full and shall be canceled.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall (a) promptly prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent and with each transfer agent for the Common Shares a
copy of such certificate and (c) mail a brief summary thereof to each holder of
a Right Certificate (or, if prior to the Distribution Date, to each holder of a
certificate representing Common Shares) in accordance with Section 27 hereof.
The Rights Agent shall be fully authorized to rely and be protected in relying
on any such certificate and on any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
a. In the event that, following the earlier of the
Distribution Date or the Share Acquisition Date, (x) the Company, directly or
indirectly, shall consolidate with, or merge with
-16-
<PAGE>
and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 14(b) hereof) and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any Person (other than a Subsidiary of the Company in a transaction which
complies with Section 14(b) hereof), directly or indirectly, shall consolidate
with, or merge with and into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
Common Shares shall be changed into or exchanged for stock or other securities
of any other Person (or of the Company) or cash or any other property, or (z)
the Company, directly or indirectly, shall sell or otherwise transfer (or one or
more of its Subsidiaries, directly or indirectly, shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any Person or Persons (other than the Company or any
Subsidiary of the Company in one or more transactions each of which complies
with Section 14(b)), then, and in each such case, proper provision shall be made
so that (i) each holder of a Right (except as provided in Section 7(e) hereof)
shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price in accordance with the terms of this
Agreement, such number of validly authorized and issued, fully paid,
nonassessable and freely tradable Common Shares of the Principal Party (as
hereinafter defined), free and clear of any liens, encumbrances and other
adverse claims and not subject to any rights of call or first refusal, as shall
be equal to the result obtained by (1) multiplying the then current Purchase
Price by the number of Common Shares for which a Right is then exercisable
(without taking into account any adjustment previously made pursuant to Section
11(a)(ii) or 11(a)(iii) hereof) and (2) dividing that product by 50% of the
current market price (determined pursuant to Section 11(d)(i) hereof) per Common
Share of the Principal Party on the date of consummation of such consolidation,
merger, sale or transfer; (ii) such Principal Party shall thereafter be liable
for, and shall assume, pay and perform in all respects, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement, regardless of any provision to the contrary
in any agreement between the Company and such Principal Party; (iii) except for
purposes of Section 1(g) hereof, the term "Company" shall thereafter be deemed
to refer to such Principal Party; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such transaction
as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights; provided, however, that,
upon the subsequent occurrence of any merger, consolidation, sale of all or
substantially all of the assets, recapitalization, reclassification of shares,
reorganization or other extraordinary transaction in respect of such Principal
Party, each holder of two Rights (except as otherwise provided herein) shall
thereupon be entitled to receive, upon exercise of such Rights and payment of
the Purchase Price, such cash, shares, rights, warrants and other property which
such holder would have been entitled to receive had he, at the time of such
transaction, owned the Common Shares of the Principal Party purchasable upon the
exercise of such Rights (after giving effect to the foregoing provisions of this
Section 13(a), and such Principal Party shall take such steps (including, but
not limited to, reservation of shares of stock) as may be necessary to permit
the subsequent exercise of the Rights in accordance with the terms hereof for
such cash, shares, rights, warrants and other property, and (v) the provisions
of Sections 11(a)(ii) and 11(a)(iii) hereof shall be of no effect following the
occurrence of any Section 13 Event.
-17-
<PAGE>
b. "Principal Party" shall mean
(i) in the case of any merger described in clause
(x) or (y) of Section 13(a), any Person that is the issuer of any
securities into which Common Shares of the Company are converted in
such merger, and if no securities are so issued, any Person that is a
party to such merger that survives the merger;
(ii) in the case of any consolidation described in
clause (x) or (y) of Section 13(a), any Person that directly controls,
alone or with other Persons, a corporation that is consolidating with
the Company; and
(iii) in the case of any transaction or
transactions described in clause (z) of Section 13(a), any Person that
receives any assets or earning power transferred pursuant to such
transaction or transactions;
provided, however, that with respect to such Person (or, if there is more than
one such Person, with respect to each such Person), (1) if the Common Shares of
such Person are not at such time and have not been continuously over the
preceding twelve (12) month period registered under Section 12 of the Exchange
Act ("Registered Common Shares"), or such Person is not a corporation, and such
Person is a direct or indirect Subsidiary of another Person which has Registered
Common Shares outstanding, "Principal Party" shall refer to such other Person;
(2) if the Common Shares of such Person are not Registered Common Shares or such
Person is not a corporation, and such Person is a direct or indirect Subsidiary
of another Person but is not a direct or indirect Subsidiary of another Person
which has Registered Common Shares outstanding, "Principal Party" shall refer to
the ultimate parent entity of such first mentioned Person; (3) if the Common
Shares of such Person are not Registered Common Shares or such Person is not a
corporation, and such Person is directly or indirectly controlled by more than
one Person, and one or more of such latter Persons have Registered Common Shares
outstanding, "Principal Party" shall refer to whichever of such latter Persons
is the issuer of outstanding Registered Common shares having the greatest
aggregate current market value (determined pursuant to Section 11(d)(i) hereof);
or (4) if the Common Shares of such Person are not Registered Common Shares or
such Person is not a corporation, and such Person is directly or indirectly
controlled by more than one Person, and none of such latter Persons have
Registered Common Shares outstanding, "Principal Party" shall refer to whichever
ultimate parent entity is the entity having the greatest net assets; provided,
further, however, that if under the foregoing provisions of this Section 13(b)
there shall for any reason be more than one Principal Party, "Principal Party"
shall refer to whichever of such Persons is the issuer of outstanding Registered
Common Shares having the greatest aggregate current market value (determined
pursuant to Section 11(d) hereof) or, if none of such Persons has Registered
Common Shares outstanding, whichever of such Persons is the entity having the
greatest net assets.
c. Notwithstanding anything herein to the contrary,
if the Principal Party as determined pursuant to paragraph (b) above is not a
corporation, proper provision shall be made so that such Principal Party shall
create or otherwise make available for purposes of the exercise of the Rights in
accordance with the terms of this Agreement, a type or types of securities
having a fair market value (as determined by a nationally recognized investment
banking firm selected by the Board of Directors of the Company) equal to at
least the value of the Common Shares which each holder of a Right would have
been entitled to receive if such Principal Party had been a corporation.
-18-
<PAGE>
d. The Company shall not consummate any Section 13
Event, unless (1) at the time of and after such consummation the Principal Party
shall have a sufficient number of authorized Common Shares which have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and (2) prior to such consummation the Company
and such Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in this Section 13 and
further providing that, as soon as practicable after the date of any such
Section 13 Event, the Principal Party will
(i) prepare and file a registration statement
under the Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, and
will use its best efforts to cause such registration statement to (A)
become effective as soon as practicable after such filing and (B)
remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Final Expiration Date,
and similarly comply with applicable state securities or "blue sky"
laws; and
(ii) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
which comply in all respects with the requirements for registration on
Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
share exchanges, mergers or consolidations or sales or other transfers. In the
event that a Section 13 Event shall occur at any time after the first occurrence
of a Section 11(a)(ii) Event, the Rights which have not theretofore been
exercised shall thereafter become exercisable in the manner described in Section
13(a).
e. Notwithstanding anything herein to the contrary,
Section 13 shall not be applicable to a transaction described in Section
13(a)(x) or (y) if such transaction has received the prior approval of the Board
of Directors of the Company.
Section 14. Additional Covenants.
a. Except as expressly provided herein, no adjustment
to the Purchase Price, the number of Common Shares or other securities for which
a Right is exercisable or the number of Rights outstanding (except as permitted
by Section 24 or Section 25 hereof) or any similar adjustment shall be made or
be effective if such adjustment would have the effect of substantially reducing
or limiting the benefits the holders of the Rights would have had absent such
adjustment, including, without limitation, the benefits under Section 11(a)(ii)
and Section 13 hereof, unless the terms of this Agreement are amended so as to
preserve such benefits.
b. The Company covenants and agrees that, following
the earlier of the Share Acquisition Date and the Distribution Date, except as
permitted by Sections 24, 25 and 28 hereof, it shall not, directly or
indirectly, take any action the purpose or effect of which is to eliminate or
otherwise diminish in any material respect the benefits intended to be afforded
by the Rights.
c. The Company covenants and agrees that it shall not
consummate any of the transactions described in clauses (x), (y) and (z) of
Section 13(a) hereof if (i) at the time of or after such consummation there are
or would be any charter or by-law provisions or any rights, warrants or other
instruments or securities outstanding or agreements in effect (whether of the
Company or any other Person) or any other action taken (whether by the Company
or any other
-19-
<PAGE>
Person) the purpose or effect of which is to eliminate or otherwise diminish in
any material respect the benefits intended to be afforded by the Rights or (ii)
the stockholders of the Principal Party shall have received, either prior to,
simultaneously with, or after the consummation of such transaction, a
distribution of Rights previously owned by the Principal Party or any of its
Affiliates and Associates.
d. The Company further covenants and agrees that it
shall not consummate any of the transactions described in clauses (x), (y) and
(z) of Section 13(a) hereof unless prior thereto the Company and the Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement evidencing compliance with paragraph (c) above and further providing
that the Principal Party covenants and agrees that it shall not, directly or
indirectly, take any action the purpose or effect of which is to eliminate or
otherwise diminish in any material respect the benefits intended to be afforded
by the Rights. The provisions of this paragraph (d) and paragraph (c) above
shall similarly apply to successive mergers, consolidations, sales or other
transfers.
Section 15. Fractional Rights and Fractional Shares.
a. The Company shall not be required to issue
fractions of Rights or to distribute Right Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Right Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole Right. For the purposes of
this Section 15(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable. The closing
price of the Rights for any day shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used and shall be conclusive for all purposes.
b. The Company shall not be required to issue
fractions of Common Shares upon exercise of the Rights or to distribute
certificates which evidence fractional Common Shares. In lieu of fractional
Common Shares equal to one-half of a share or less, the Company may pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Common Share. Any exercise of Rights that would entitle the
holder thereof to receive any fraction of a Common Share greater than one-half
of a share shall be governed by Section 7(a) hereof. In the event that an
additional fraction of a Common Share is not purchased by such holder (or sold
by the Company) pursuant to such Section 7(a), the Company shall pay such holder
an amount in cash equal to the same fraction of the current market value of one
Common Share. For purposes of this Section 15(b), the current market value of
one Common Share shall be the closing price of a Common Share
-20-
<PAGE>
(as determined pursuant to Section 11(d) hereof) for the Trading Day immediately
prior to the date of such exercise.
c. The holder of a Right by the acceptance of the
Right expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
15 and Section 7(a) hereof.
Section 16. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 17. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
a. prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
b. after the Distribution Date, the Right
Certificates will be transferable only on the registry books of the Rights Agent
if surrendered at the office of the Rights Agent designated for such purposes,
duly endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully completed and duly executed;
c. subject to Sections 6(a) and 7(f) hereof, the
Company and the Rights Agent may deem and treat the Person in whose name the
Right Certificate (or, prior to the Distribution Date, the associated Common
Shares certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Right Certificate or the associated Common Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be affected by any notice to the contrary; and
d. notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting
-21-
<PAGE>
or otherwise restraining performance of such obligation; provided, however, the
Company must use its best efforts to have any such order, decree or ruling
lifted or otherwise overturned as soon as possible.
Section 18. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Common Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 26 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 19. Concerning the Rights Agent.
a. The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability. Anything in this Agreement to the contrary notwithstanding, in no
event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the likelihood of such
loss or damage and regardless of the form of the action.
b. The Rights Agent shall be protected and shall
incur no liability for or in respect of any action taken, suffered or omitted by
it in connection with its administration of this Agreement in reliance upon any
Right Certificate or certificate for the Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, instruction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20.
Section 20. Merger or Consolidation or Change of Name of Rights Agent.
a. Any corporation into which the Rights Agent or any
successor Rights Agent may be merged with or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which the
Rights Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of
-22-
<PAGE>
Section 22 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at such time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
b. In case at any time the name of the Rights Agent
shall be changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at such time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 21. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
a. The Rights Agent may consult with legal counsel
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
opinion.
b. Whenever in the performance of its duties under
this Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chief Executive Officer, the President, a Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
c. The Rights Agent shall be liable hereunder only
for its own negligence, bad faith or willful misconduct.
d. The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in this Agreement
or in the Right Certificates or be required to verify the same (except as to its
countersignature thereof), but all such statements and recitals are and shall be
deemed to have been made by the Company only.
e. The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any
-23-
<PAGE>
adjustment required under the provisions of Sections 11 or 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any Common Shares to be issued pursuant to this Agreement or any
Right Certificate or as to whether any Common Shares will, when so issued, be
validly authorized and issued, fully paid and nonassessable.
f. The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
g. The Rights Agent is hereby authorized and directed
to accept instructions with respect to the performance of its duties hereunder
from any one of the Chief Executive Officer, the President, a Vice President,
the Secretary or the Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer.
h. The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
i. The Rights Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall not
be answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
j. If, with respect to any Right Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative response to
any item therein, the Rights Agent shall not take any further action with
respect to such requested exercise or transfer until it has received
instructions with respect thereto from the Company.
Section 22. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and, if instructed by the
Company, to each transfer agent of the Common Shares by registered or certified
mail, and, at the expense of the Company, to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon 30 days, notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed
-24-
<PAGE>
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States which is authorized under such laws to exercise corporate trust powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus adequate in the judgment of at least a majority of the Board of
Directors to assure the performance of its duties hereunder and the protection
of the interests of the Company and the holders of the Rights. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares, and mail
a notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 22, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 23. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the earliest of the Redemption Date, the Exchange Date and the Final
Expiration Date, the Company (a) shall, with respect to Common Shares so issued
or sold pursuant to the exercise of employee or director stock options or under
any employee or director plan or arrangement outstanding, granted or awarded as
of the Distribution Date, or upon the exercise, conversion or exchange of
securities issued by the Company prior to such date, and (b) may, in any other
case, if deemed necessary or appropriate by the Board of Directors, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Right Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Right Certificates
would be issued and (ii) no such Right Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.
Section 24. Redemption.
a. The Board of Directors of the Company may, at its
option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.005 per Right, appropriately adjusted to reflect any stock
split, stock dividend, reclassification or similar transaction occurring after
the date hereof (such
-25-
<PAGE>
redemption price being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Without limiting the generality of the foregoing, the Company may, at
its option, pay the Redemption Price in cash, Common Shares (based on the
"current market price" as defined in Section 11(d) hereof, of the Common Shares
at the time of redemption) or any other form of consideration deemed appropriate
by the Board of Directors.
b. Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights (or at such later
time as the Board of Directors may establish for the effectiveness of such
redemption), and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give or any defect in such notice shall not affect the validity of such
redemption. Within 10 days after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to the Rights Agent and to all such holders at their last address as
it appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.
c. Neither the Company nor any of its Subsidiaries
may redeem, acquire, or purchase for value any Rights at any time in any manner
except (i) pursuant to a redemption in accordance with this Section 24 or an
exchange pursuant to Section 25 hereof or (ii) in connection with the purchase
or other acquisition of Common Shares prior to the Distribution Date.
Section 25. Exchange.
a. Subject to paragraph (c) of this Section 25, the
Board of Directors of the Company may, at its option, at any time after the
occurrence of a Section 11(a)(ii) Event, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 7(e) hereof) for Common Shares
at an exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend, reclassification or similar transaction
occurring after the date hereof (such exchange being hereinafter referred to as
the "Exchange" and such exchange ratio being hereinafter referred to as the
"Exchange Ratio").
b. Immediately upon the action of the Board of
Directors of the Company authorizing the Exchange and without any further action
and without any notice, the right to exercise the Rights shall terminate and the
only right thereafter of a holder of Rights included in the Exchange shall be to
receive that number of Common Shares equal to the number of Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly give public
notice of the Exchange; provided, however, that the failure to give or any
defect in such notice shall not affect the validity of the Exchange. Within 10
days after such action of the Board of Directors ordering the Exchange, the
Company shall mail a notice of Exchange to the Rights Agent and the holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given whether or not the holder receives the notice.
-26-
<PAGE>
Each such notice of Exchange will state the method by which the Exchange will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
c. In the event that the number of Common Shares
which are authorized by the Company's articles of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the Exchange in full, the Exchange Ratio
shall equal one Common Stock Equivalent (in lieu of one Common Share) per Right.
Alternatively, the Board of Directors of the Company may, at its option,
determine that the Company shall (i) issue Common Shares in the Exchange to the
extent Common Shares are available and (ii) utilize Common Stock Equivalents in
the Exchange as provided above to the extent Common Shares are not available, in
which case such Common Shares shall be allocated on such basis as the Board of
Directors determines pursuant to Section 30 hereof.
d. After aggregating all the Common Shares to which a
holder of Rights is entitled upon the Exchange, the Company shall not be
required to issue a fraction of a Common Share to such holder. In lieu of
issuing fractional shares, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional shares would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of one Common Share. For the purposes of this paragraph (d), the current
market value of one Common Share shall be the closing price of a Common Share
(as determined pursuant to Section 11(d) hereof) for the Trading Day immediately
prior to the Exchange Date.
Section 26. Notice of Certain Events.
a. In case the Company shall propose, at any time
after the Distribution Date, (i) to pay any dividend payable in stock of any
class to the holders of Common Shares or to make any other distribution to the
holders of Common Shares (other than a regular quarterly cash dividend), (ii) to
offer to all of the holders of Common Shares rights, options or warrants to
subscribe for or to purchase any additional Common Shares at less than the
current market price of the Common Shares, or shares of stock of any class or
any other securities, rights or options, (iii) to effect any reclassification of
its Common Shares (other than a reclassification involving only the subdivision
of outstanding Common Shares), (iv) to effect any consolidation or merger into
or with, or to effect any sale or other transfer, (or to permit one or more of
its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person or Persons, or (v) to
effect the liquidation, dissolution or winding up of the Company, then, in each
such case, the Company shall give to each holder of a Right Certificate, in
accordance with Section 27 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, or distribution
of rights, options or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up
is to take place and the date of participation therein by the holders of the
Common Shares, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least 10
Business Days prior to the record date for determining holders of the Common
Shares for purposes of such action, and in the case of any such other action, at
least 10 Business Days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the Common Shares,
whichever shall be the earlier.
-27-
<PAGE>
b. In case a Section 11(a)(ii) Event shall occur,
then (i) the Company shall as soon as practicable thereafter give to the Rights
Agent and to each holder of a Right Certificate, in accordance with Section 27
hereof, a notice of the occurrence of such event, which shall specify the event
and the consequences of the event to holders of Rights under Section 11(a)(ii)
hereof and (ii) all references in the preceding paragraph to Common Shares shall
thereafter be deemed to refer to, if appropriate, Common Share Equivalents.
c. The failure to give notice required by this
Section 26 or any defect therein shall not affect the legality or validity of
the action taken by the Company or the vote on any such action.
Section 27. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Checkpoint Systems, Inc.
101 Wolf Drive
Thorofare, NJ 08086
Attention: Secretary
Subject to the provisions of Section 22 hereof, any notice or
demand authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Attention: President
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any Right Certificate
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 28. Supplements and Amendments. Prior to the Distribution Date
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement, whether or not adverse to the holders of
Rights, without any approval of the holders of Rights. From and after the
Distribution Date the Company and the Rights Agent may from time to time
supplement or amend this Agreement without any approval of the holders of Rights
in order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to extend the period during which the Rights may be
redeemed; provided however, that such period may not be extended if at the time
of such supplement or amendment the Rights are not then redeemable, or (iv) to
change or supplement the provisions herein to effectuate the purposes of this
Agreement, including but not limited to changes in the Purchase Price or
Redemption Price, or to make any other provisions with respect to the Rights,
which, in either such case, shall not materially adversely affect the interests
of the holders of Rights
-28-
<PAGE>
(other than Acquiring Persons and Affiliates or Associates thereof). Upon the
delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 28, the Rights Agent shall execute such supplement or amendment;
provided, however, that the Rights Agent may, but shall not be obligated to,
enter into any such supplement or amendment which affects the Rights Agent's own
rights, duties or immunities under this Agreement.
Section 29. Successors. All the covenants and Provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 30. Determinations and Actions by the Board of Directors.
a. The Board of Directors of the Company shall have
the exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board of Directors or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all calculations and
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not to redeem the Rights
pursuant to Section 24 hereof, to exchange or not to exchange the Rights
pursuant to Section 25 hereof or to supplement or amend the Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) shall
be presumed to have been done or made by the Board of Directors of the Company
in good faith and shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board of Directors to any liability to the holders of the Rights.
b. Approval by the Board of Directors of the Company
shall mean approval both by a majority of the members of the Board present and
voting at a duly constituted meeting of the Board of Directors at which meeting
such matter is properly before the Board for vote and by a majority of the
Continuing Directors then in office. "Continuing Directors" shall mean (i) any
member of the Board, while such Person is a member of the Board, who is not an
Acquiring Person, or an Affiliate or Associate of such Person, or a
representative or designee of an Acquiring Person or of any such Affiliate or
Associate, and was a member of the Board prior to the date of this Agreement, or
(ii) any Person who subsequently becomes a member of the Board, while such
Person is a member of the Board, who is not an Acquiring Person or an Affiliate
or Associate of such Person, or a representative or designee of an Acquiring
Person or of any such Affiliate or Associate, if such Person's nomination for
election or election to the Board is recommended or approved by a majority of
the Continuing Directors then in office.
Section 31. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
-29-
<PAGE>
Section 32. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 24 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Section 33. Specific Exemption. This Agreement shall not apply to that
certain proposed transaction whereby the Company may acquire all of the issued
and outstanding capital stock of Ultrak, Inc. for Common Shares in a transaction
intended to qualify as a tax-free reorganization.
Section 34. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed in accordance with the laws of such Commonwealth applicable to
contracts to be made and performed entirely within such Commonwealth.
Section 35. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 36. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the date and year first above written.
Attest: CHECKPOINT SYSTEMS, INC.
_____________________________ By:_________________________________
Name: Name:
Title: Secretary Title: Vice President
Attest: AMERICAN STOCK TRANSFER & TRUST
COMPANY
_____________________________ By:_________________________________
Name: Name:
Title: Assistant Secretary Title: Vice President
-30-
<PAGE>
EXHIBIT A
[Form of Right Certificate]
Certificate No. R- ___________ Rights
NOT EXERCISABLE AFTER MARCH 10, 2007 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT THE OPTION OF THE COMPANY AT
$.005 PER RIGHT, AND TO EXCHANGE AT THE OPTION OF THE COMPANY, ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. AS DESCRIBED IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY (1) AN ACQUIRING PERSON OR ANY ASSOCIATE OR AFFILIATE
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), (2) A TRANSFEREE OF
AN ACQUIRING PERSON (OR OF ANY SUCH ASSOCIATE OR AFFILIATE) WHO BECOMES A
TRANSFEREE AFTER THE ACQUIRING PERSON BECOMES SUCH OR (3) UNDER CERTAIN
CIRCUMSTANCES, A TRANSFEREE OF AN ACQUIRING PERSON (OR OF ANY SUCH ASSOCIATE OR
AFFILIATE) WHO BECOMES A TRANSFEREE, BEFORE OR CONCURRENTLY WITH THE ACQUIRING
PERSON BECOMING SUCH, SHALL BE NULL AND VOID.
RIGHT CERTIFICATE
CHECKPOINT SYSTEMS, INC.
This certifies that ___________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of March 10, 1997 (the "Rights Agreement"), between
Checkpoint Systems, Inc., a Pennsylvania corporation (the "Company"), and
American Stock Transfer & Trust Company (the "Rights Agent"). Each Right
entitles the registered holder to purchase from the Company at any time after
the Distribution Date (as such term is defined in the Rights Agreement) and
prior to 5:00 P.M. (New York, New York time) on March 10, 2007 at the office of
the Rights Agent designated for such purpose, or its successors as Rights Agent,
one fully paid, non-assessable share of Common Stock (the "Common Shares") of
the Company. The Rights may be exercised at any time at a purchase price of
$100.00 per Common Share (the "Purchase Price"), subject to adjustment, upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of March 10, 1997, based on the Common Shares
as constituted at such date.
<PAGE>
From and after the occurrence of the event described in section
11(a)(ii) of the Rights Agreement, if the Rights evidenced by this Right
Certificate are beneficially owned by (i) an Acquiring Person or any Associate
or Affiliate thereof (as such terms are defined in the Rights Agreement), (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such or (iii) under
certain circumstances, a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee before or concurrently with the
Acquiring Person becoming such, such Rights shall be null and void and no holder
hereof shall have any rights with respect to such Rights.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of Common Shares or other securities which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive office of the
Company and are also available upon written request to the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Common Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at its option at a
redemption price of $.005 per Right or (ii) may be exchanged by the Company at
its option for shares of the Company's Common Stock, $0.10 par value (or, in
certain circumstances, Common Stock Equivalents (as such term is defined in the
Rights Agreement)).
No fractional Common Shares will be issued upon the exercise of any
Right or Rights evidenced hereby. In lieu of fractions of a share equal to
one-half of a share or less, a cash payment will be made, as provided in the
Rights Agreement. No Rights may be exercised that would entitle the holder to
any fraction of a Common Share greater than one-half of a share unless
concurrently therewith such holder purchases an additional fraction of a Common
Share which, when added to the number of Common Shares to be received upon such
exercise, equals a whole number of Common Shares, as provided in the Rights
Agreement. If such holder does not purchase such additional fraction of a Common
Share, a cash payment will be made, as provided in the Rights Agreement.
-2-
<PAGE>
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Common Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of _______ ___, ___
ATTEST: CHECKPOINT SYSTEMS, INC.
_____________________________ By:_________________________________
Secretary Name:_______________________________
Title:______________________________
Countersigned:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:_________________________________
Authorized Signature
-3-
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _______________________________________________ hereby sells,
assigns and transfers unto _____________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint_____________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: __________ ___, ____
____________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible financial
institution or broker who is a member participant in a Medallion Program
approved by the Securities Transfer Association, Inc.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(i) the Rights evidenced by this Right Certificate [ ]
are [ ] are not being sold, assigned and transferred by or on behalf of a Person
who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring
Person (as such terms are defined in the Rights Agreement);
(ii) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ___________ ___, ___
____________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible financial
institution or broker who is a member participant in a Medallion Program
approved by the Securities Transfer Association, Inc.
NOTICE
The signatures to the foregoing Assignment and Certificate
must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Right Certificate.)
To: CHECKPOINT SYSTEMS, INC.
The undersigned hereby irrevocably elects to exercise_____ Rights
represented by this Right Certificate to purchase the Common Shares issuable
upon the exercise of the Rights (or such other securities of the Company or of
any other person which may be issuable upon the exercise of the Rights) and
requests that certificates for such shares be issued in the name of:
Please insert social security or other identifying number ______________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Right Certificate, a new Right Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security or other identifying number ______________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________ ___, ___
_____________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible financial
institution or broker who is a member participant in a Medallion Program
approved by the Securities Transfer Association, Inc.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right Certificate [ ]
are [ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of an Acquiring person (as such
terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ___________ ___, ___
____________________________________________
Signature
NOTICE
The signatures to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT B
SUMMARY OF RIGHTS TO PURCHASE
COMMON STOCK
On March 10, 1997, the Board of Directors of Checkpoint
Systems, Inc. (the "Company") declared a dividend distribution of one Right for
each outstanding share of Common Stock, $0.10 par value, of the Company (the
"Common Shares") payable to stockholders of record on March 24, 1997 (the
"Record Date"). Each Right entitles the registered holder to purchase from the
Company one Common Share. The Rights may be exercised at any time at a price of
$100 per Common Share (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and American Stock Transfer & Trust
Company, as Rights Agent.
The Rights will initially be attached to all Common Share
certificates representing Common Shares then outstanding, and no separate Right
certificates will be distributed. Until the earlier to occur of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding Common Shares
or (ii) 10 business days (or such later day as may be determined by action of
the Board of Directors prior to such time as any person or group becomes an
Acquiring Person) following the commencement of a tender offer or exchange offer
if, upon consummation thereof, any person or group would be an Acquiring Person
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such certificate together with a copy of
this Summary of Rights. The date of announcement of the existence of an
Acquiring Person referred to in clause (i) above is referred to in this summary
as the "Share Acquisition Date."
The Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with the Common Share
certificates. Until the Distribution Date (or earlier redemption, exchange or
expiration of the Rights), new Common Share certificates issued after the Record
Date upon transfer or new issuance of the Common Shares will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption, exchange or expiration of the Rights), the surrender for
transfer of any certificates for Common Shares outstanding as of the Record Date
will also constitute the transfer of the Rights associated with the Common
Shares represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares on the
Distribution Date and, thereafter, such separate Right Certificates alone will
evidence the Rights.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on March 10, 2007, unless earlier redeemed
or exchanged by the Company as described below.
<PAGE>
In the event that any person or group of affiliated or
associated persons becomes an Acquiring Person, each holder of Rights, except as
provided below, shall thereafter have the right to receive, upon exercise,
Common Shares (or, in certain circumstances, Common Stock Equivalents (as such
term is defined in the Rights Agreement)) having a then market value equal to
two (2) times the Purchase Price of the Rights. Upon the occurrence of the event
described in the preceding sentence, any Rights beneficially owned by (i) an
Acquiring Person or an Associate or Affiliate (as such terms are defined in the
Rights Agreement) of an Acquiring Person, (ii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person (or of any such Associate or Affiliate) to holders of equity
interests in such Acquiring Person or to any person with whom the Acquiring
Person (or of any such Associate or Affiliate) has any agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company in its discretion has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of the Rights Agreement shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of the Rights Agreement or
otherwise.
At any time after any person or group of affiliated or
associated persons becomes an Acquiring Person, the Board of Directors of the
Company may exchange the Rights (except Rights which previously have been voided
as described above), in whole or in part, at an exchange ratio of one Common
Share (or, in certain circumstances, one Common Stock Equivalent) per Right.
In the event that, following the earlier of the Distribution
Date and the Share Acquisition Date, (i) the Company engages in a merger or
other business combination transaction in which the Company is not the surviving
corporation, (ii) the Company engages in a merger or other business combination
transaction with another person in which the Company is the surviving
corporation, but in which its Common Shares are changed or exchanged, or (iii)
more than 50% of the Company's assets or earning power is sold or transferred,
the Rights Agreement provides that proper provision shall be made so that each
holder of two Rights (except Rights which previously have been voided as
described above) shall thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a then market value equal to two
(2) times the Purchase Price of the Rights.
The Purchase Price payable, and the number of Common Shares or
other securities issuable, upon exercise of the Rights are subject to adjustment
from time to time to prevent dilution (i) in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the Common Shares, (ii)
upon the grant to all holders of the Common Shares of certain rights, options or
warrants to subscribe for Common Shares or convertible securities at less than
the current market price of the Common Shares, or (iii) upon the distribution to
all holders of the Common Shares of evidences of indebtedness, stock (other than
a dividend payable in Common Shares), assets or cash (excluding regular
quarterly cash dividends) or of subscription rights, options or warrants (other
than those referred to above).
-2-
<PAGE>
The number of outstanding Rights and the number of Common
Shares issuable upon exercise of each Right are also subject to adjustment in
the event of a stock split of the Common Shares or a stock dividend on the
Common Shares payable in Common Shares or subdivisions, consolidations or
combinations of the Common Shares occurring, in any such case, prior to the
Distribution Date.
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Common Shares will be issued upon the
exercise of any Right or Rights. In lieu of fractions of a share equal to
one-half of a share or less, a cash payment will be made, as provided in the
Rights Agreement. No Rights may be exercised that would entitle the holders to
any fraction of a Common Share greater than one-half of a share unless
concurrently therewith such holder purchases an additional fraction of a Common
Share which, when added to the number of Common Shares to be received upon such
exercise, equals a whole number of Common Shares, as provided in the Rights
Agreement. If such holder does not purchase such additional fraction of a Common
Share, a cash payment will be made, as provided in the Rights Agreement.
At any time prior to such time as any Person becomes an
Acquiring Person, the Board of Directors of the Company may redeem the Rights in
whole, but not in part at a price of $.005 per Right, subject to adjustment (the
"Redemption Price"). Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights (or at such later time as the
Board of Directors may establish for the effectiveness of such redemption), the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
The terms of the Rights may be amended by the Company and the
Rights Agent, provided that following the Distribution Date the amendment does
not materially adversely affect the interests of holders of Rights (other than
an Acquiring Person).
A copy of the Rights Agreement is being filed with the
Securities and Exchange Commission as an Exhibit either to the Company's 1996
Annual Report on Form 10-K or on a Current Report on Form 8-K. A copy of the
Rights Agreement will be available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is incorporated herein
by reference.
EXHIBIT 10(a)
CHECKPOINT SYSTEMS, INC.
AMENDED AND RESTATED PROFIT INCENTIVE PLAN
RESOLVED, that the Management Incentive Plan ("MIP") is amended and restated in
its entirety to provide that the revised plan shall be named the Profit
Incentive Plan ("PIP"). The Chief Executive Officer, President and Chief
Operating Officer and all Vice Presidents will participate in the PIP. Under the
PIP, no bonus pool will be created unless pre-tax, pre-bonus earnings exceed 18%
of the adjusted beginning balance of Shareholders Equity for the relevant year.
If such earnings are attained, a bonus pool will be created and will be equal to
(i) 3% of all pre-tax, pre-bonus earnings in excess of 18% of the adjusted
beginning balance of Shareholders Equity, plus (ii) 6% of pre-tax, pre-bonus
earnings in excess of 27% of the beginning balance of Shareholders Equity for
the relevant year. Distribution of the pool, if any, will be as follows: 20% Mr.
Dowd, the Company's President, Chief Executive Officer and Chief Operating
Officer; 10% to Mr. Aguilera, the Company's Senior Vice President -
Manufacturing; 10% to Mr. Selfridge, the Company's Executive Vice President; 10%
to Mr. Smith, the Company's Senior Vice President; 10% to Mr. Reilly, the
Company's Senior Vice President, 5% to Mr. Austin, the Company's Vice President
- - General Counsel and Secretary; and 4% to Mr. Reinhold, the Company's Vice
President - Finance, Chief Financial Officer and Treasurer. The remaining 31%
shall be divided among the foregoing at the discretion of the Committee.
EXHIBIT 10.1
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of March 11, 1997 (the
"Agreement"), by and between ULTRAK, INC., a Delaware corporation ("Ultrak"),
and CHECKPOINT SYSTEMS, INC., a Pennsylvania corporation ("Checkpoint").
WHEREAS, the Board of Directors of each of Ultrak and Checkpoint
(a) have approved the merger of Ultrak with and into a subsidiary of Checkpoint
pursuant to the Merger (as hereinafter defined) hereinafter provided for,
(b) deem the Merger to be advisable and in the best interests of their
respective shareholders, and (c) desire to make certain representations,
warranties and agreements in connection with the Merger; and
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a pooling of interests under United States generally
accepted accounting principles ("GAAP"); and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger contemplated by this Agreement constitute a reorganization as described
in section 368 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "Code"); and
WHEREAS, as a condition and inducement to each party's willingness to
enter into this Agreement, concurrently with the execution herewith Ultrak has
executed and delivered to Checkpoint the Ultrak Stock Option Agreement (the
"Ultrak Stock Option Agreement") and Checkpoint has executed and delivered to
Ultrak the Checkpoint Stock Option Agreement (the "Checkpoint Stock Option
Agreement"), both dated the date of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements set forth herein and such other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"Affiliate" shall mean, as to any person, any other person that
directly or indirectly controls, or is under common control with or is
controlled by such person, except that references to "affiliate" in Section 6.5
shall have the meaning set forth in Rule 145 of the Securities Act.
"Aggregate Number" shall have the meaning set forth in Section 6.7.
"Checkpoint" shall have the meaning set forth in the introductory
clauses hereto.
"Checkpoint Common Stock" shall have the meaning set forth in
Section 2.1.
<PAGE>
"Checkpoint ESPP" shall have the meaning set forth in Section 3.2(a).
"Checkpoint Financial Statements" shall have the meaning set forth in
Section 3.5.
"Checkpoint Option Plan" shall have the meaning set forth in
Section 3.2(a).
"Checkpoint Plans" shall have the meaning set forth in Section 3.9.
"Checkpoint Properties" shall have the meaning set forth in
Section 3.11.
"Checkpoint SEC Reports" shall have the meaning set forth in
Section 3.5.
"Checkpoint Stock Option" shall have the meaning set forth in
Section 3.2(a).
"Code" shall have the meaning set forth in the introductory
clauses hereto.
"Common Stock Exchange Ratio" shall have the meaning set forth
in Section 2.1.
"Contamination" shall mean the uncontained presence of Hazardous
Materials which is required to be removed or remedied or can reasonably be
expected to require removal or remediation under any Environmental Law,
"Coopers & Lybrand" shall mean Coopers & Lybrand L.L.P., Checkpoint's
independent auditors.
"DGCL" shall have the meaning set forth in Section 2.1.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Environmental Law" shall mean any applicable foreign, federal, state
and local law, statute, ordinance, order, rule, or regulation pertaining to
health, industrial hygiene or the environment, and the regulations implemented
or adopted under such laws, and all amendments thereto, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C. (section) 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. (section) 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. (section) 6901 et seq. ("RCRA")), the Toxic
Substances Control Act (15 U.S.C. (section) 2601 et seq.), the Clean Air Act (42
U.S.C. (section) 7001 et seq.) and the Federal Water Pollution Control Act (33
U.S.C. (section) 1251 et seq.).
"ERISA Affiliate," with respect to any party, shall mean any trade or
business, whether or not incorporated, that together with such party would be
deemed a "single employer" within the meaning of section 4001(a)(15) of ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and the rules and regulations promulgated thereunder.
-2-
<PAGE>
"Form S-4" shall mean the Registration Statement on Form S-4 to be
filed with the SEC under the Securities Act in connection with the Merger for
the purpose of registering the shares of Checkpoint Common Stock to be issued in
the Merger.
"Governmental Entity" shall mean any court, administrative agency or
commission or other governmental or regulatory authority, agency or
instrumentality, domestic or foreign.
"Grant Thornton" shall mean Grant Thornton, LLP, Ultrak's independent
auditors.
"Hazardous Material" shall include without limitation those substances
included within the definitions of "Hazardous Substances," "Hazardous
Materials," "Toxic Substances," "Hazardous Waste," or "Solid Waste" in any
Environmental Law, those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.01 and any amendments thereto) or by the
Environmental Protection Agency as hazardous substances (40 C.F.R. Part 302 and
amendments thereto), and including, without limitation, petroleum products,
including crude oil or any fraction thereof.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"J.C. Bradford" shall mean J.C. Bradford & Co., an investment banking
firm retained by Ultrak.
"Knowledge" shall mean the actual knowledge, after investigation and
inquiry reasonable under the circumstances, of the officers of the representing
party; provided, however, for purposes of Sections 3.11 and 4.11 only,
"investigation and inquiry reasonable under the circumstances" shall mean a
review of current files relating to Environmental Laws and a review of Sections
3.11 or 4.11, whichever is applicable and the related Disclosure Schedule.
"Material Adverse Effect," with respect to any party, shall mean a
material adverse change or effect (or any development which, insofar as
reasonably can be foreseen, in the future is reasonably likely to have a
material adverse effect) on the business, properties, assets, liabilities,
financial or other condition, results of operations, regulatory status or
prospects of such party and its current Subsidiaries, taken as a whole.
"Merger Agreement" shall have the meaning set forth in Section 2.1.
"Merger Documents" shall have the meaning set forth in Section 2.2.
"Merger" shall have the meaning set forth in Section 2.1.
"Morgan Stanley" shall mean Morgan Stanley & Co. Incorporated, an
investment banking firm retained by Checkpoint.
"PBCL" shall have the meaning set forth in Section 2.1.
"Party" shall mean either of Ultrak or Checkpoint, as may be
applicable.
-3-
<PAGE>
"Person" shall mean any individual, corporation, partnership,
association, trust, unincorporated organization, entity or group (as defined in
the Exchange Act).
"Preferred Stock Exchange Ratio" shall have the meaning set forth in
Section 2.1.
"Proxy Statement" shall mean the joint proxy statement/prospectus to be
distributed to holders of shares of Checkpoint Common Stock and holders of
shares of Ultrak Common Stock and Ultrak Preferred Stock in connection with the
meetings of such holders to be held in connection with the transactions
contemplated by this Agreement and the Merger Agreement.
"Return Periods" shall have the meaning set forth in Section 3.15.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended and
the rules and regulations promulgated thereunder.
"Significant Subsidiary" shall have the meaning set forth in Rule 1-02
of Regulation S-X of the SEC.
"Stock Options" shall mean the Checkpoint Stock Options and the Ultrak
Stock Options.
"Subsidiary" shall mean present and former "subsidiaries" (as defined
in Rule 1-02 of Regulation S-X of the SEC) of the representing party and former
subsidiaries of their respective former parents, if any, which engaged in a
business conducted by, continued by or succeeded to by the representing party,
directly or indirectly, through a majority controlled subsidiary, provided that
former subsidiaries shall be included only during the periods such entities were
subsidiaries of the representing party or their respective former parents.
"Tax" or "Taxes" shall have the meaning set forth in Section 3.15.
"Termination Date" shall have the meaning set forth in Section 8.1.
"Ultrak" shall have the meaning set forth in the introductory clauses
hereto.
"Ultrak Common Stock" shall have the meaning set forth in Section 2.1.
"Ultrak Designees" shall have the meaning set forth in Section 2.4.
"Ultrak Financial Statements" shall have the meaning as set forth in
Section 4.5.
"Ultrak Plans" shall have the meaning set forth in Section 4.9.
"Ultrak Preferred Stock" shall have the meaning set forth in
Section 4.2.
"Ultrak Properties" shall have the meaning set forth in Section 4.11.
-4-
<PAGE>
"Ultrak SEC Reports" shall have the meaning set forth in Section 4.5.
"Ultrak Stock Option" shall have the meaning set forth in
Section 4.2(a).
"Ultrak Stock Plan" shall have the meaning set forth in Section 4.2(a).
ARTICLE II
THE MERGER
Section 2.1 The Merger.
(a) Checkpoint will form under the Delaware General
Corporation Law ("DGCL"), a wholly owned subsidiary (the "Merger Subsidiary"),
into which Ultrak will be merged (the "Merger"), as set forth in this Section
2.1. The Merger Subsidiary will be formed solely to facilitate the Merger and
will conduct no business or activity other than in connection with the Merger.
Checkpoint will (i) cause the Merger Subsidiary to execute and deliver a joinder
to this Agreement pursuant to Section 251 of the DGCL, and (ii) execute a formal
written consent under Section 228 of the DGCL, as the sole stockholder of the
Merger Subsidiary, approving the execution, delivery and performance of this
Agreement by the Merger Subsidiary.
(b) Ultrak and Checkpoint will execute and deliver, and agree,
subject to the terms and conditions of this Agreement and the Merger Agreement
(hereinafter defined), to submit to their respective shareholders for adoption
and approval as required under the DGCL or the Pennsylvania Business Corporation
Law (the "PBCL"), as applicable, together with this Agreement, in accordance
with Article II hereof, the Plan of Merger, in the form which is set forth as
Exhibit 2.1 hereto, with such further changes as may be mutually agreed upon by
the parties hereto (the "Merger Agreement"), providing for the Merger and the
conversion of (i) each outstanding share of Ultrak common stock, par value $0.01
per share (the "Ultrak Common Stock"), into 1.15 (the "Common Stock Exchange
Ratio") shares of Checkpoint common stock, par value $0.10 per share (the
"Checkpoint Common Stock"), and (ii) each outstanding share of Ultrak preferred
stock, par value $5.00 per share (the "Ultrak Preferred Stock") into 3.6756
(subject to the provisions of Section 6.22 hereof, the "Preferred Stock Exchange
Ratio") shares of Checkpoint Common Stock as set forth in the Merger Agreement.
As provided in the Merger Agreement, the Merger Subsidiary, to be renamed
Ultrak, Inc. as provided in Section 2.3(a), shall be the surviving corporation
in the Merger. From and after the Effective Time, the identity and separate
existence of Ultrak shall cease, and the Merger Subsidiary shall succeed,
without other transfer, to all the rights, properties, debts and liabilities of
Ultrak.
(c) In connection with the Merger, Checkpoint shall take such
actions as may be necessary to reserve sufficient shares of Checkpoint Common
Stock, prior to the Merger, to permit the issuance of shares of Checkpoint
Common Stock (i) to the holders of Ultrak Common Stock and Ultrak Preferred
Stock as of the Effective Time in accordance with the terms of the Merger
Agreement and (ii) upon the exercise of Ultrak Stock Options to be converted or
assumed by Checkpoint in accordance with Section 6.7 hereof. Subject to the
provisions of Section 6.1 hereof,
-5-
<PAGE>
each of Checkpoint and Ultrak shall use its best efforts to cause the Merger to
be consummated in accordance with the terms of this Agreement and the Merger
Agreement.
Section 2.2 Filing of Merger Documents. Immediately after all
conditions to this Agreement have been satisfied or waived, a certificate of
merger pertaining to the Merger (the "Merger Documents"), or such other
documents necessary to effect the Merger, shall be executed and filed in
accordance with the DGCL and the Merger shall become effective substantially
simultaneously in accordance with the terms of the Merger Agreement (such time
and date are referred to herein as the "Effective Time").
Section 2.3 Effect of Merger. The parties agree to the following
provisions with respect to the Merger:
(a) Name of Surviving Corporation. The name of the Merger
Subsidiary, as the surviving corporation in the Merger, from and after the
Effective Time shall be changed to "Ultrak, Inc.", until subsequently changed or
amended in accordance with applicable law.
(b) Charter Documents. At the Effective Time the Certificate
of Incorporation and Bylaws of the Merger Subsidiary, shall be the Certificate
of Incorporation and Bylaws of the Corporation surviving the Merger.
(c) Other Effects. The Merger shall have such other effects as
are set forth in the Merger Agreement and the DGCL.
Section 2.4 Directors of Checkpoint. Checkpoint shall take all actions
necessary to cause the directors comprising the full board of directors of
Checkpoint (the "Checkpoint Board") at the Effective Time to be comprised of 12
directors. Initially, three of such directors shall be designated by Ultrak and
nine shall be designated by Checkpoint. Checkpoint agrees that each Ultrak
Designee shall be either elected at the Effective Time (i) for a term of not
less than three (3) years or (ii) for a term of less than three (3) years but
subsequently nominated by the Checkpoint board of directors, when such person
next stands for election, for a new three (3) year term. Within twenty (20) days
of the date hereof, Ultrak shall designate in writing to Checkpoint the persons
who shall serve as its initial designees to the Checkpoint Board (the "Ultrak
Designees"). If, prior to the Effective Time, any of the Ultrak Designees shall
decline or be unable to serve as a Checkpoint director, Ultrak shall designate
another person to serve in such person's stead, which person shall be reasonably
acceptable to Checkpoint. The foregoing directors of Checkpoint shall hold their
positions until their resignation or removal or the election or appointment of
their successors in the manner provided in Checkpoint's Articles of
Incorporation and Bylaws, as each exists on the date of this Agreement, and
applicable law. In the event any Ultrak Designee is unable or unwilling to serve
as a director of Checkpoint at any time during the period ending on the third
anniversary of the Closing, Checkpoint shall replace such director with a
nominee who shall be satisfactory to the remaining Ultrak Designees.
Section 2.5 Closing and Closing Date. The execution and delivery of the
documents required to effectuate the transactions contemplated by this Agreement
(the "Closing") shall take place at such place and time as the parties shall
reasonably agree, on the second business day after
-6-
<PAGE>
satisfaction or waiver of the last to be fulfilled of the conditions set forth
in Article VII that by their terms are not to occur at the Closing (the "Closing
Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS OF CHECKPOINT
Except as disclosed in a disclosure schedule which specifically refers
to the section to which such disclosure relates (the "Checkpoint Disclosure
Schedule"), Checkpoint represents and warrants to and covenants with Ultrak as
follows:
Section 3.1 Organization and Qualification. Each of Checkpoint, its
Significant Subsidiaries and Merger Subsidiary, is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to so qualify or be in good standing, or to have such
authority, would not have a Material Adverse Effect on Checkpoint. True and
complete copies of the Articles of Incorporation and Bylaws of Checkpoint as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Ultrak.
Section 3.2 Capitalization.
(a) The authorized capital stock of Checkpoint consists of
(i) the Checkpoint Common Stock which consists of 100,000,000 shares par value
$0.10 per share and (ii) 500,000 of shares of Class A preferred stock, no par
value (the "Checkpoint Preferred Stock"). As of March 7, 1997, there were
(i) 34,571,528 shares of Checkpoint Common Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable and are not subject to
and were not issued in violation of any preemptive rights, (ii) 4,000,000 shares
of the Checkpoint Common Stock reserved for issuance in connection with the
Checkpoint Stock Option Plan (1992) (the "Checkpoint Option Plan"), and
(iii) options to acquire 3,622,222 shares of Checkpoint Common Stock granted to
consultants, directors, officers and other employees of Checkpoint (the
"Checkpoint Stock Options"). No shares of Checkpoint Common Stock are reserved
for issuance under the Checkpoint Employee Stock Purchase Plan (the "Checkpoint
ESPP"). There are no shares of Checkpoint Preferred Stock issued or outstanding.
No Subsidiary of Checkpoint holds any shares of Checkpoint Common Stock. There
has been no material change in the information set forth in the second sentence
of this Section 3.2(a) between the close of business on March 7, 1997 and the
date hereof. The Checkpoint Disclosure Schedule sets forth a true, accurate and
complete list of each Checkpoint Stock Option which presently is outstanding,
with the name of optionholder, number of shares, grant date, expiration date,
exercise price and vesting schedule.
(b) Except for this Agreement, the Merger Agreement, the
Checkpoint ESPP and the Checkpoint Stock Options, there are not now, and at the
Effective Time there will not be, any options, warrants, calls, rights,
subscriptions, convertible securities or other rights or agreements,
arrangements or commitments of any kind obligating Checkpoint or any of its
current Subsidiaries to issue, transfer or sell any securities of Checkpoint.
All shares of Checkpoint Common Stock subject
-7-
<PAGE>
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual or other obligations of Checkpoint or any of its current
Subsidiaries to purchase, redeem or otherwise acquire any shares of Checkpoint
Common Stock. There is not now, and at the Effective Time there will not be, any
stockholder agreement, voting trust or other agreement or understanding to which
Checkpoint or any of its Subsidiaries is a party or bound relating to the voting
of any shares of the capital stock of Checkpoint or any of its current
Subsidiaries.
Section 3.3 Authority. Checkpoint has, and Merger Subsidiary will have,
all requisite corporate power and authority to execute and deliver this
Agreement and, as to Merger Subsidiary only, the Merger Agreement and, subject
to approval of this Agreement and the Merger Agreement by the shareholders of
Checkpoint, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Merger Agreement and the
consummation by Checkpoint and Merger Subsidiary of the transactions
contemplated hereby and thereby, have been duly authorized by Checkpoint's board
of directors and no other corporate proceedings on the part of Checkpoint are
necessary to authorize the execution and delivery of this Agreement and the
consummation by Checkpoint of the transactions contemplated hereby and thereby,
except for the approval of this Agreement and the Merger Agreement by the
shareholders of Checkpoint and by the Board of Directors and sole stockholder of
Merger Subsidiary when formed. This Agreement has been duly and validly executed
and delivered by Checkpoint, and as of the Effective Time, this Agreement and
the Merger Agreement will be duly and validly executed and delivered by Merger
Subsidiary and, assuming the due authorization, execution and delivery hereof
and thereof by Ultrak, constitute or will constitute, as the case may be, valid
and binding agreements of Checkpoint and Merger Subsidiary, enforceable against
each in accordance with their terms, except that such enforceability may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally and (ii) by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
Section 3.4 Consents and Approvals; No Violation. None of the execution
and delivery by Checkpoint of this Agreement or the Merger Agreement by Merger
Subsidiary, the consummation by Checkpoint and Merger Subsidiary of the
transactions contemplated hereby and thereby or compliance by Checkpoint and
Merger Subsidiary with any of the provisions hereof will (i) conflict with or
result in a breach of any provision of the respective charters or bylaws (or
similar governing documents) of Checkpoint, the Merger Subsidiary or any of its
current Subsidiaries, (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(A) pursuant to the Exchange Act, the Securities Act, certain state takeover,
securities and antitrust statutes and the HSR Act and (B) for filing the Merger
Documents with respect to the Merger pursuant to the DGCL, (iii) result in a
default (or an event which with notice or lapse of time or both would become a
default) or give to any third party any right of termination, cancellation,
amendment or acceleration under, or result in the creation of a lien or
encumbrance on any of the assets of Checkpoint or any of its current
Subsidiaries pursuant to any note, license, agreement or other instrument or
obligation to which Checkpoint or any of its current Subsidiaries is a party or
by which Checkpoint or any of its current Subsidiaries or any of their
respective assets may be bound or affected, or (iv) violate or conflict with any
order, writ, injunction, decree, statute, rule or regulation applicable to
Checkpoint or any of its current Subsidiaries or any of their respective
properties or assets; other than such defaults, rights of termination,
cancellation, amendment or acceleration, liens
-8-
<PAGE>
and encumbrances, violations, conflicts, consents, approvals, authorizations,
permits or filings which, in the aggregate, would not have a Material Adverse
Effect on Checkpoint and would not materially impair Checkpoint's ability to
consummate the transactions contemplated by this Agreement and the Merger
Agreement.
Section 3.5 SEC Reports and Financial Statements. Each form, report,
schedule, registration statement and definitive proxy statement filed by
Checkpoint with the SEC since December 31, 1994 (as such documents have since
the time of their filing been amended, the "Checkpoint SEC Reports"), which
include all the documents (other than preliminary material) that Checkpoint was
required to file with the SEC since such date, as of their respective dates,
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Checkpoint SEC Reports. None of the Checkpoint SEC
Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof. The financial statements of
Checkpoint included in such reports comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present (subject in
the case of the unaudited statements, to normal, recurring audit and year-end
adjustments) the consolidated financial position of Checkpoint and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. Since December 31, 1996,
neither Checkpoint nor any of its current Subsidiaries has incurred any
liabilities or obligations, whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due, except
(i) as and to the extent set forth in the consolidated financial statements of
Checkpoint and its Subsidiaries as at December 31, 1996 (including the notes
thereto) (the "Checkpoint Financial Statements"), (ii) as incurred in connection
with the transactions contemplated, or as provided, by this Agreement, (iii) as
incurred after December 31, 1996 in the ordinary course of business and
consistent with past practices, (iv) as described in the Checkpoint SEC Reports
or (v) as would not, individually or in the aggregate, have a Material Adverse
Effect on Checkpoint.
Section 3.6 Absence of Certain Changes or Events. Except as disclosed
in the Checkpoint SEC Reports filed prior to the date of this Agreement, since
December 31, 1996, Checkpoint and its current Subsidiaries have conducted their
respective businesses only in the ordinary course, consistent with past
practice, and there has not occurred or arisen any event, individually or in the
aggregate, having or which, insofar as reasonably can be foreseen, in the future
is likely to have, a Material Adverse Effect on Checkpoint.
Section 3.7 Litigation. As of the date of this Agreement, except as
disclosed in the Checkpoint SEC Reports filed prior to the date of this
Agreement, there is no claim, suit, action or proceeding pending, or, to the
Knowledge of Checkpoint, threatened against or affecting Checkpoint or any of
its current Subsidiaries, which is reasonably likely to have a Material Adverse
Effect on Checkpoint, nor is there any judgment, decree, order, injunction, writ
or rule of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator outstanding against Checkpoint or
any of its current Subsidiaries having, or which, insofar as reasonably can be
foreseen, in the future is likely to have, any such effect. There are no suits,
-9-
<PAGE>
actions, claims, proceedings, or investigations pending or, to Checkpoint's
Knowledge, threatened which challenge the validity or propriety of the
transactions contemplated by this Agreement. The Checkpoint Disclosure Schedule
sets forth a summary description (including the result of any completed
investigation or inquiry) of any investigation or inquiry of Checkpoint by the
Federal Trade Commission.
Section 3.8 Information Supplied. The information supplied or to be
supplied by Checkpoint or its Subsidiaries for inclusion in (i) the Form S-4
will not, either at the time the Form S-4 is filed with the SEC or at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) the Proxy
Statement, including any amendments and supplements thereto, will not, either at
the date mailed to shareholders or at the time of the meeting of shareholders of
Checkpoint to be held in connection with the transactions contemplated by this
Agreement and the Merger Agreement, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement and the Form S-4
will each comply as to form in all material respects with all applicable laws,
including the provisions of the Securities Act and the Exchange Act, except that
no representation is made by Checkpoint with respect to information supplied by
Ultrak for inclusion therein.
Section 3.9 Employee Matters.
(a) Checkpoint has made available to Ultrak full and complete
copies or descriptions of each material employment, bonus, profit sharing,
compensation, termination, stock option, stock appreciation right, restricted
stock, phantom stock, performance unit, pension, retirement, deferred
compensation, welfare or other employee benefit agreement, policy or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), trust fund or other arrangement and any union, guild or
collective bargaining agreement maintained or contributed to or required to be
contributed to by Checkpoint or any of its ERISA Affiliates, for the benefit or
welfare of any director, officer, employee or former employee of Checkpoint or
any of its ERISA Affiliates (such plans and arrangements, being referred to
herein as the "Checkpoint Plans"). All liabilities under each Checkpoint Plan
and Checkpoint Benefit Arrangement (as defined below) required to be accrued or
disclosed in accordance with GAAP (including, where appropriate, proportional
accruals for partial periods) are properly accrued or disclosed in the
Checkpoint Financial Statements. Each Checkpoint Plan and Checkpoint Benefit
Arrangement has been maintained in material compliance with its terms, and all
contributions, premiums or other payments due from Checkpoint or any of its
Subsidiaries to or under any of them have been fully paid or adequately provided
for in the Checkpoint Financial Statements. There has been no amendment, written
interpretation or announcement (whether or not written) by Checkpoint with
respect to, or change in employed participation or coverage under, any
Checkpoint Plan or Checkpoint Benefit Arrangement that would increase materially
the expense of maintaining any such plan or arrangement, individually or in the
aggregate, above the level of expense incurred with respect thereto for 1996. To
Checkpoint's Knowledge, no condition exists that is reasonably likely to subject
Checkpoint or any of its current Subsidiaries to any direct or indirect
liability under Title IV of ERISA or to a civil penalty under section 502 of
ERISA or liability under section 4069 of ERISA or 4975, 4976, 4980B or 6652 of
the Code or the loss of a Federal tax deduction under section 280G of the Code
or other liability with respect to the Checkpoint Plans or any similar plan
maintained with
-10-
<PAGE>
respect to any of Checkpoint's Subsidiaries that would have a Material Adverse
Effect on Checkpoint and that is not reflected in the Checkpoint Financial
Statements. No Checkpoint Plan (other than any Checkpoint Plan that is a
"multiemployer plan" as such term is defined in section 4001(a)(3) of ERISA) is
subject to Title IV of ERISA. There are no pending, or to Checkpoint's
Knowledge, threatened, or anticipated claims (other than routine claims for
benefits or immaterial claims) by, on behalf of or against any of the Checkpoint
Plans or any trusts related thereto.
(b) Checkpoint has made available to Ultrak full and complete
copies or descriptions of each material employment, bonus, profit sharing,
compensation, termination, stock option, stock appreciation right, restricted
stock, phantom stock, performance unit, pension, retirement, deferred
compensation, welfare or other employee benefit arrangement, policy or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), trust fund or other arrangement and any union, guild
or collective bargaining agreement which (i) is not Checkpoint Plan, (ii) is
maintained, established or contributed to by Checkpoint or any Subsidiary, and
(iii) covers any employee or former employee of Checkpoint or any of its
Subsidiaries with respect to services rendered outside of the United States,
(collectively, the "Checkpoint Benefit Arrangements").
(c)(i) None of the Checkpoint Plans or Checkpoint Benefit
Arrangements promises or provides retiree medical or other retiree welfare
benefits to any person except as required by applicable law, including but not
limited to COBRA; (ii) Checkpoint has maintained all Checkpoint Plans and
Checkpoint Benefit Arrangements in material compliance with the requirements
prescribed by applicable laws (including ERISA and the Code), orders, or
governmental rules or regulations currently in effect with respect thereto
(including all applicable requirements for notification to participants or
beneficiaries or the Department of Labor, Internal Revenue Service ("IRS") or
the Secretary of the Treasury, and Checkpoint has performed all material
obligations required to be performed by it under, is not in default under or in
violation of, and has no Knowledge of any default or violation by any other
party to, any of the Checkpoint Plans or Checkpoint Benefit Arrangements;
(iii) each Checkpoint Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code is either
currently subject to a favorable determination letter from the IRS, or
Checkpoint has a remaining period of time under applicable Treasury Regulations
or IRS pronouncements in which to apply for such a determination letter and to
make any amendments necessary to obtain a favorable determination; and (iv) no
current or former Checkpoint Plan or Checkpoint Benefit Arrangement is, or
within the prior six (6) years has been subject to, and Checkpoint has not
incurred and does not expect to incur any liability under, Title IV of ERISA or
Section 412 of the Code.
(d) The Checkpoint Disclosure Schedule sets forth a true and
correct list of all material plans and policies maintained or administered by
Checkpoint or any of its Subsidiaries relating to benefits provided to employees
in foreign countries pursuant to the laws of such countries or other
jurisdictions. Checkpoint has maintained or administered each such plan or
policy in material compliance with its terms and applicable legal requirements,
and all contributions, premiums or other payments due from Checkpoint or any of
its Subsidiaries to or under any such plan or arrangement have been fully paid
or adequately provided for in accordance with GAAP in Checkpoint's Financial
Statements.
-11-
<PAGE>
Section 3.10 Affiliate Agreements. Except as disclosed in the
Checkpoint SEC Reports filed prior to the date of this Agreement and except for
this Agreement neither Checkpoint nor any of its Subsidiaries is a party to any
oral or written agreement with any of its Affiliates.
Section 3.11 Environmental. Except as otherwise disclosed in writing to
Ultrak and to Checkpoint's Knowledge: (i) the businesses as presently or
formerly engaged in by Checkpoint and its Subsidiaries are and have been
conducted in material compliance with all applicable Environmental Laws,
including, without limitation, having all material permits, licenses and other
approvals and authorizations, during the time Checkpoint or any Subsidiary of
Checkpoint engaged in such businesses; (ii) the properties presently or formerly
owned or operated by Checkpoint or any Subsidiary of Checkpoint (including,
without limitation, soil, groundwater or surface water on, under or adjacent to
the properties, and buildings thereon) ("Checkpoint Properties") do not contain
any Contamination other than as permitted under applicable Environmental Law
(provided, however, that with respect to Checkpoint Properties formerly owned or
operated by Checkpoint or any Subsidiary of Checkpoint, the representations in
this subsection (ii) are limited to the period Checkpoint or any Subsidiary of
Checkpoint owned or operated such Checkpoint Properties and to any Contamination
that Checkpoint was notified of in writing since the date of ownership or
operation of such Checkpoint Properties); (iii) neither Checkpoint nor any
Subsidiary of Checkpoint has received any written notices, demand letters or
requests for information from any Governmental Entity or any Person claiming
that Checkpoint or any Subsidiary of Checkpoint violated, may be in violation
of, or liable under, any Environmental Law in connection with the ownership or
operation of Checkpoint or its Subsidiaries' businesses; (iv) there are no
civil, criminal or administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or threatened against Checkpoint or any
Subsidiary of Checkpoint with respect to Checkpoint or any Subsidiary of
Checkpoint or the Checkpoint Properties relating to any violation, or alleged
violation, of any Environmental Law; (v) no reports have been filed, or are
required to be filed, and no notifications have been made or are required to be
made, by Checkpoint or any Subsidiary of Checkpoint with any Governmental Entity
concerning the release of any Hazardous Material or the threatened or actual
violation of any Environmental Law on or at Checkpoint Properties; (vi) other
than in compliance with Environmental Law, no Hazardous Material has been
generated at, transferred or transported to or from, disposed at or removed for
disposal from, or otherwise released at or from any of the Checkpoint Properties
in a manner which caused Contamination, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other analyses conducted
since January 1, 1994 by or which are in the possession of Checkpoint or any
Subsidiary of Checkpoint relating to Checkpoint or any Subsidiary of Checkpoint
or the Checkpoint Properties which have not been delivered to Ultrak prior to
the date hereof, (viii) there are no underground storage tanks on, in or under
any of the Checkpoint Properties and no underground storage tanks have been
closed or removed by Checkpoint or any of its Subsidiaries from any Checkpoint
Properties which are or have been in the ownership of Checkpoint or any
Subsidiary of Checkpoint; (ix) there is no friable asbestos-containing material
on the Checkpoint Property presently owned or operated by Checkpoint or any
subsidiary of Checkpoint which would require, under ordinary occupancy
(nonconstruction) conditions, a remedial action pursuant to the Occupational
Safety & Health Act ("OSHA"), or applicable state and local counterparts to OSHA
and no such material has been removed from any Checkpoint Property while such
Checkpoint Property was owned or operated by Checkpoint or any Subsidiary of
Checkpoint; (x) none of the Checkpoint Properties has been used at any time by
Checkpoint or any Subsidiary of Checkpoint as a treatment, storage or disposal
facility under RCRA; and (xi) neither Checkpoint nor any Subsidiary of
Checkpoint has incurred, and none of the Checkpoint Properties are presently
-12-
<PAGE>
subject to, any material liabilities (fixed or contingent) relating to any suit,
settlement, court order, administrative order, judgment or claim asserted or
arising under any Environmental Law.
Section 3.12 No Violations. To Checkpoint's Knowledge, the business of
Checkpoint and its Subsidiaries are not being conducted in violation of, or in a
manner which would cause liability under any applicable law, rule or regulation,
judgment, decree or order of any Governmental Entity, except for any violations
or practices, which, individually or in the aggregate, have not had and will not
have a Material Adverse Effect on Checkpoint.
Section 3.13 Opinion of Financial Advisor. Checkpoint has received the
opinion of Morgan Stanley to the effect that, as of March 10, 1997, the
consideration to be paid by Checkpoint in the Merger is fair to Checkpoint.
Section 3.14 Brokers and Finders. Neither Checkpoint nor any of its
Subsidiaries nor any of their respective directors, officers or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or similar payments in connection
with the transactions contemplated by this Agreement or the Merger Agreement
other than to Morgan Stanley and to the Blackstone Group Ltd.
Section 3.15 Taxes. Checkpoint and each of its Subsidiaries has timely
filed (or caused to be filed) all Tax Returns required to be filed by each of
them, and all such Tax Returns are true, correct and complete in all material
respects. All Taxes required to be paid as shown on such Tax Returns have been
timely paid. All Taxes required to be paid in respect of the periods covered by
such Tax Returns ("Return Periods") have either been paid or fully accrued on
the books of Checkpoint. Checkpoint and each of its Subsidiaries has fully
accrued all unpaid Taxes in respect of all periods (or the portion of any such
periods) subsequent to the Return Periods and ending on or prior to the
Effective Time. No deficiencies or adjustments for any Tax have been claimed,
proposed or assessed, or to Checkpoint's Knowledge, threatened against
Checkpoint or its Subsidiaries. The Checkpoint Disclosure Schedule accurately
sets forth the last year for which Checkpoint's or its Subsidiaries' foreign,
federal and state income Tax Returns, respectively, have been audited and any
years which are the subject of a pending audit by the Internal Revenue Service
and the applicable state agencies. Except as so disclosed, neither Checkpoint
nor any of its Subsidiaries (i) is subject to any pending or, to Checkpoint's
Knowledge, threatened, Tax audit or examination, or (ii) is delinquent in the
payment of any Tax nor is subject to any outstanding Tax deficiency, proposed or
assessed. The Checkpoint SEC Reports contain adequate accruals for all unpaid
Taxes. All foreign, state, and local jurisdictions where Checkpoint has filed
Tax Returns are set forth on the Checkpoint Disclosure Schedule. There are no
claims currently being pursued by any Taxing Authority (as hereinafter defined)
against Checkpoint or any of its Subsidiaries which are material in amount
except as set forth on the Checkpoint Disclosure Schedule. There are no requests
for rulings in respect of any Tax that are pending between Checkpoint and any
Taxing Authority. Checkpoint has not filed an election or caused any deemed
election under Section 338 of the Code to be made for which the Tax liability
has not been paid. Checkpoint has not requested or granted to any Taxing
Authority any extension of the limitations period during which any Tax liability
may be assessed or collected, which request is still pending, or which extension
remains in effect. All monies required to be withheld or collected by
Checkpoint, and the portion of any such Taxes to be paid by Checkpoint to Taxing
Authorities, have been collected or withheld and either paid to the respective
Taxing Authority or set aside in accounts for such purposes, or such monies have
been approved, reserved against, and entered upon the books of Checkpoint.
Checkpoint will not be required, as a result of a change in a method of
accounting
-13-
<PAGE>
for Tax purposes for any Tax period ending on or before the Effective Time, to
include any adjustment under Section 481(c) of the Code in taxable income for
any Tax period beginning after the Effective Time. For the purposes of this
Agreement, the terms "Tax" and "Taxes" shall include (A) all federal, state,
local and foreign taxes, assessments, duties, and other governmental charges or
impositions and tariffs, including without limitation all income, franchise,
property, production, sales, business privilege, use, payroll, license, windfall
profits, severance, withholding, excise, value added, employment, recapture
gross receipts and other taxes, as well as any interest, additions or penalties
relating thereto and any interest in respect of such additions or penalties,
imposed by any governmental authority (a "Taxing Authority") responsible for the
imposition of any such tax (federal, state, and local, foreign or domestic),
(B) liability for the payment of any amounts of the type described in clause
(A) as a result of being a member of an affiliated, consolidated, combined or
unitary group for any period ending on or before the Effective Time, or as a
result of being a party to any agreement or arrangement whereby liability for
payment of such amounts was determined or taken into account with reference to
the liability of another party for any period prior to the Effective Time, and
(C) liability for the payment of any amounts of the type described in (A) as a
result of any express or implied obligation to indemnify any other person. "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
Section 3.16 Intellectual Property. Checkpoint, directly or indirectly,
owns, or is licensed or otherwise possesses legally enforceable rights to use,
all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, trade dress, know-how, computer software
programs or applications, tangible or intangible proprietary information or any
intellectual property that are material to the business of Checkpoint and its
Subsidiaries as currently conducted (the "Checkpoint Intellectual Property").
The Checkpoint Disclosure Schedule sets forth a complete list of (i) all
patents, trademarks, registered copyrights, trade names, and service marks, and
any applications therefor, included in the Checkpoint Intellectual Property, and
specifies, where applicable, the jurisdiction in which each has been issued or
registered, or in which an application for such issuance or registration has
been filed, including the respective registration or application numbers and the
names of all registered owners, and (ii) all material licenses, sublicenses and
other agreements as to which Checkpoint or any of its Subsidiaries is a party
and pursuant to which Checkpoint or any of its subsidiaries or any other person
is authorized to use any Checkpoint Intellectual Property or other trade secret
or computer software material to Checkpoint, and includes the identity of all
parties thereto and the description of the nature and subject matter thereof.
Neither Checkpoint nor any of its Subsidiaries is in violation of any license,
sublicense or agreement described in the Checkpoint Disclosure Schedule, except
such violations as do not materially impair their rights under such license,
sublicense or agreement. Checkpoint is the sole and exclusive owner or licensee
of, with all right, title and interest in and to (free and clear of any liens or
encumbrances), the Checkpoint Intellectual Property, and has sole and exclusive
rights (and is not contractually obligated to pay any compensation to any third
party in respect thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect of which the Checkpoint
Intellectual Property is being used. All material registered trademarks, service
marks and copyrights held by Checkpoint or its Subsidiaries are valid and
subsisting. To the Knowledge of Checkpoint, there is no material unauthorized
use, infringement or misappropriation of any Checkpoint Intellectual Property by
any Person, including any employee or former employee of Checkpoint or any of
its Subsidiaries. No Checkpoint Intellectual Property or product of Checkpoint
or any of its Subsidiaries is subject to any outstanding decree, order, judgment
or stipulation restricting in any manner, the licensing or use thereof by
Checkpoint or any of its Subsidiaries.
-14-
<PAGE>
Neither Checkpoint nor any of its Subsidiaries has entered into any agreement
(other than exclusive distribution agreements disclosed in the Checkpoint
Disclosure Schedule) under which Checkpoint or its Subsidiaries is restricted
from selling, licensing or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time or in any
segment of the market. Checkpoint has a policy requiring that each employee of
Checkpoint and any of its Subsidiaries shall execute a proprietary information
and confidentiality agreement in favor of Checkpoint, in addition to an
agreement to assign intellectual property to Checkpoint. To Checkpoint's
Knowledge, neither Checkpoint nor any of its Subsidiaries utilizes or has
utilized any patent, trademark, tradename, service mark, copyright, software,
trade secret or know-how, except for those which are owned, possessed or
lawfully used by Checkpoint or its Subsidiaries in their operations, and, to the
Knowledge of Checkpoint, neither Checkpoint nor any of its Subsidiaries
infringes upon or unlawfully or wrongfully uses any patent, trademark,
tradename, service mark, copyright or trade secret owned or validly claimed by
another. Checkpoint has no continuing obligation to pay royalties or other
payments to third parties as a result of any infringement or prior infringement.
All licenses relating to Checkpoint Intellectual Property are evidenced by valid
and effective written agreements and no other party to any such agreement with
Checkpoint has breached, terminated, given notice of future termination of,
given notice of a material change in terms upon any renewal or extension, or
advised Checkpoint that it will not renew or extend any such agreement with
Checkpoint.
Section 3.17 Insurance. Except as disclosed to Ultrak, each of
Checkpoint and its Subsidiaries is, and has been continuously since January 1,
1990, insured with financially responsible insurers in such amounts and against
such risks and losses as are customary for companies conducting the businesses
as conducted by Checkpoint and its Subsidiaries during such time period. Except
as disclosed to Ultrak, since December 31, 1994, neither Checkpoint nor any of
its Subsidiaries has received notice of cancellation or termination with respect
to any material insurance policy of Checkpoint or its Subsidiaries. The
insurance policies of Checkpoint and its Subsidiaries are valid and enforceable
policies.
Section 3.18 Disclosure. No representation or warranty of Checkpoint
contained in this Agreement, or of Merger Subsidiary in the Merger Agreement,
and no statement contained in any certificate or the Checkpoint Disclosure
Schedule furnished or to be furnished by or on behalf of Checkpoint to Ultrak or
any of its representatives pursuant thereto contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading or necessary in
order to fully and fairly provide the information required to be provided in any
such document, certificate or schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES AND COVENANTS OF ULTRAK
Except as disclosed in a disclosure schedule which specifically refers
to the section to which such disclosure relates (the "Ultrak Disclosure
Schedule"), Ultrak represents and warrants to and covenants with Checkpoint as
follows:
-15-
<PAGE>
Section 4.1 Organization and Qualification. Each of Ultrak and its
Significant Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so qualify or be
in good standing, or have such authority, would not have a Material Adverse
Effect on Ultrak. True and complete copies of the Certificate of Incorporation
and Bylaws of Ultrak as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to Checkpoint.
Section 4.2 Capitalization.
(a) The authorized capital stock of Ultrak consists of (i) the
Ultrak Common Stock which consists of 20,000,000 shares, par value $0.01 per
share and (ii) the Ultrak Preferred Stock which consists of 2,000,000 shares,
par value $5.00 per share. As of March 7, 1997, (i) 14,083,656 shares of Ultrak
Common Stock were issued and outstanding, all of which are validly issued, fully
paid and nonassessable and are not subject to and were not issued in violation
of any preemptive rights, (ii) 900,000 shares of Ultrak Common Stock were
reserved for issuance in connection with the Ultrak Inc. 1988 Non-qualified
Stock Option Plan (the "Ultrak Stock Plan"), (iii) options to acquire 778,776
shares of Ultrak Common Stock held by officers and other employees of Ultrak and
by certain other Persons had been granted and were outstanding (the "Ultrak
Stock Options"), and (iv) 195,351 shares of Ultrak Preferred Stock were issued
and outstanding, all of which are validly issued, fully paid and nonassessable.
There has been no material change in the information set forth in this Section
4.2(a) between the close of business on March 7, 1997, and the date hereof. The
Ultrak Disclosure Schedule sets forth true, accurate and complete list of each
Ultrak Stock Option which presently is outstanding, with the name of
optionholder, number of shares, grant date, expiration date, exercise price and
vesting schedule.
(b) Except for this Agreement, the Merger Agreement and the
Ultrak Stock Options, there are not now, and at the Effective Time there will
not be, any options, warrants, calls, rights, subscriptions, convertible
securities or other rights or agreements, arrangements or commitments of any
kind obligating Ultrak to issue, transfer or sell any securities of Ultrak. All
shares of Ultrak Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual or other obligations of Ultrak to purchase,
redeem or otherwise acquire any shares of Ultrak Common Stock. There is not now,
and at the Effective Time there will not be, any stockholder agreement, voting
trust or other agreement or understanding to which Ultrak is a party or bound
relating to the voting of any shares of the capital stock of Ultrak.
Section 4.3 Authority. Ultrak has all requisite corporate power and
authority to execute and deliver this Agreement and the Merger Agreement and,
subject to approval of this Agreement and the Merger Agreement by the
shareholders of Ultrak, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Merger Agreement
and the consummation by Ultrak of the transactions contemplated hereby and
thereby, have been duly authorized by Ultrak's board of directors and no other
corporate proceedings on the part of Ultrak are necessary to authorize the
execution and delivery of this Agreement and the consummation by Ultrak
-16-
<PAGE>
of the transactions contemplated hereby and thereby, except for the approval of
this Agreement and the Merger Agreement by the shareholders of Ultrak. This
Agreement has been, and as of the Effective Time, the Merger Agreement will be,
duly and validly executed and delivered by Ultrak and, assuming the due
authorization, execution and delivery hereof and thereof by Checkpoint and
Merger Subsidiary, constitute or will constitute, as the case may be, valid and
binding agreements of Ultrak, enforceable against Ultrak in accordance with
their terms, except that such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' fights generally and (ii) by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
Section 4.4 Consents and Approvals; No Violation. None of the execution
and delivery by Ultrak of this Agreement or the Merger Agreement, the
consummation by Ultrak of the transactions contemplated hereby and thereby or
compliance by Ultrak with any of the provisions hereof will (i) conflict with or
result in a breach of any provision of the charter or bylaw (or similar
governing documents) of Ultrak or any of its current Subsidiaries, (ii) require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, except (A) pursuant to the Exchange
Act, the Securities Act, certain state takeover, securities and antitrust
statutes and the HSR Act and (B) for filing the Merger Documents with respect to
the Merger pursuant to the DGCL, (iii) result in a default (or an event which
with notice or lapse of time or both would become a default) or give to any
third party any right of termination, cancellation, amendment or acceleration
under, or result in the creation of a lien or encumbrance on any of the assets
of Ultrak or any of its current Subsidiaries pursuant to any note, license,
agreement or other instrument or obligation to which Ultrak or any of its
current Subsidiaries is a party or by which Ultrak or any of its current
Subsidiaries or any of their respective properties or assets may be bound or
affected, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to Ultrak or any of its current
Subsidiaries or any of their respective properties or assets; other than such
defaults, rights of termination, cancellation, amendment or acceleration, liens
and encumbrances, violations, conflicts consents, approvals, authorizations,
permits or filings which, in the aggregate, would not have a Material Adverse
Effect on Ultrak and would not materially impair Ultrak's ability to consummate
the transactions contemplated by this Agreement and the Merger Agreement.
Section 4.5 SEC Reports and Financial Statements. Each form, report,
schedule, registration statement and definitive proxy statement filed by Ultrak
with the SEC since December 31, 1994 (as such documents have since the time of
their filing been amended, the "Ultrak SEC Reports"), which include all the
documents (other than preliminary material) that Ultrak was required to file
with the SEC since such date, as of their respective dates, complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Ultrak SEC Reports. None of the Ultrak SEC Reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
for such statements, if any, as have been modified by subsequent filings prior
to the date hereof. The financial statements of Ultrak included in such reports
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present (subject in the case of the unaudited
statements, to normal, recurring audit and year-end adjustments) the
consolidated financial position of Ultrak and its Subsidiaries as at
-17-
<PAGE>
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended. Since December 31, 1996, neither Ultrak nor
any of its current Subsidiaries has incurred any liabilities or obligations,
whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise and whether due or to become due, except (i) as and to the extent set
forth on the audited consolidated financial statements of Ultrak and its
Subsidiaries as at December 31, 1996 (including the notes thereto) (the "Ultrak
Financial Statements"), (ii) as incurred in connection with the transactions
contemplated, or as provided, by this Agreement, (iii) as incurred after
December 31, 1996 in the ordinary course of business and consistent with past
practices, (iv) as described in the Ultrak SEC Reports or (v) as would not,
individually or in the aggregate, have a Material Adverse Effect on Ultrak.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed
in the Ultrak SEC Reports filed prior to the date of this Agreement, since
December 31, 1996, Ultrak and its current Subsidiaries have conducted their
respective businesses only in the ordinary course, consistent with past
practice, and there has not occurred or arisen any event, individually or in the
aggregate, having or which, insofar as reasonably can be foreseen, in the future
is likely to have, a Material Adverse Effect on Ultrak.
Section 4.7 Litigation. As of the date of this Agreement, except as
disclosed in the Ultrak SEC Reports filed prior to the date of this Agreement,
there is no claim, suit, action or proceeding pending, or, to the Knowledge of
Ultrak, threatened against or affecting Ultrak or any of its current
Subsidiaries, which is reasonably likely to have a Material Adverse Effect on
Ultrak, nor is there any judgment, decree, order, injunction, writ or rule of
any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator outstanding against Ultrak or any of its current
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future is likely to have, any such effect. There are no suits, actions, claims,
proceedings or investigations pending or, to Ultrak's Knowledge, threatened
which challenge the validity or propriety of the transactions contemplated by
this Agreement. The Ultrak Disclosure Schedule sets forth a summary description
(including the result of any completed investigation or inquiry) of any
investigation or inquiry of Ultrak by the Federal Trade Commission.
Section 4.8 Information Supplied. The information supplied or to be
supplied by Ultrak or its Subsidiaries for inclusion in (i) the Form S-4 will
not, either at the time the Form S-4 is filed with the SEC or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) the Proxy
Statement, including any amendments and supplements thereto, will not, either at
the date mailed to shareholders or at the time of the meeting of shareholders of
Ultrak to be held in connection with the transactions contemplated by this
Agreement and the Merger Agreement, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement and the Form S-4
will each comply as to form in all material respects with all applicable laws,
including the provisions of the Securities Act and the Exchange Act, except that
no representation is made by Ultrak with respect to information supplied by
Checkpoint for inclusion therein.
-18-
<PAGE>
Section 4.9 Employee Matters.
(a) Ultrak has made available to Checkpoint full and complete
copies or descriptions of each material employment, bonus, profit sharing,
compensation, termination, stock option, stock appreciation right, restricted
stock, phantom stock, performance unit, pension, retirement, deferred
compensation, welfare or other employee benefit agreement, policy or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), trust fund or other arrangement and any union, guild or
collective bargaining agreement maintained or contributed to or required to be
contributed to by Ultrak or any of its ERISA Affiliates, for the benefit or
welfare of any director, officer, employee or former employee of Ultrak or any
of its ERISA Affiliates (such plans and arrangements being referred to herein as
the "Ultrak Plans"). All liabilities under each Ultrak Plan and Ultrak Benefit
Arrangement as defined below required to be accrued or disclosed in accordance
with GAAP (including, where appropriate, proportioned accruals for partial
periods) are properly accrued or disclosed in the Ultrak Financial Statements.
Each Ultrak Plan and Ultrak Benefit Arrangement has been maintained in material
compliance with its terms, and all contributions, premiums or other payments due
from Ultrak or any of its Subsidiaries to or under any of them have been fully
paid or adequately provided for in the Ultrak Financial Statements. There has
been no amendment, written interpretation or announcement (whether or not
written) by Ultrak with respect to, or change in employed participation or
coverage under, any Ultrak Plan or Ultrak Benefit Arrangement that would
increase materially the expense of maintaining any such plan or arrangement,
individually or in the aggregate, above the level of expense incurred with
respect thereto for 1996. To Ultrak's Knowledge, no condition exists that is
reasonably likely to subject Ultrak to any direct or indirect material liability
under Title IV of ERISA or to a civil penalty under section 502 of ERISA or
liability under section 4069 of ERISA or 4975, 4976, 4980B or 6652 of the Code
or the loss of a Federal tax deduction under section 280G of the Code or other
liability with respect to the Ultrak Plans or any similar plans maintained with
respect to any of Ultrak's Subsidiaries, that would have a Material Adverse
Effect on Ultrak and that is not reflected in the Ultrak Financial Statements.
No Ultrak Plan is subject to Title IV of ERISA. There are no pending, or to
Ultrak's Knowledge, threatened, or anticipated claims (other than routine claims
for benefits) by, on behalf of or against any of the Ultrak Plans or any trusts
related thereto.
(b) Ultrak has made available to Checkpoint and complete
copies or descriptions of each material employment, bonus, profit sharing,
compensation, termination, stock option, stock appreciation right, restricted
stock, phantom stock, performance unit, pension, retirement, deferred
compensation, welfare or other employee benefit arrangement, policy or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), trust fund or other arrangement and any union, guild
or collective bargaining agreement which (i) is not an Ultrak Plan, (ii) is
maintained, established or contributed to by Ultrak or any Subsidiary, and
(iii) covers any employee or former employee of Ultrak or any of its
Subsidiaries with respect to services rendered outside of the United States,
(collectively, the "Ultrak Benefit Arrangements").
(c)(i) None of the Ultrak Plans or Ultrak Benefit Arrangements
promises or provides retiree medical or other retiree welfare benefits to any
person except as required by applicable law, including but not limited to COBRA;
(ii) Ultrak has maintained all Ultrak Plans and Ultrak Benefit Arrangements in
material compliance with the requirements prescribed by applicable laws
(including ERISA and the Code), orders, or governmental rules or regulations
currently in effect with respect thereto (including all applicable requirements
for notification to participants or beneficiaries or the Department of Labor,
IRS or the Secretary of the Treasury, and Ultrak has
-19-
<PAGE>
performed all material obligations required to be performed by it under, is not
in default under or in violation of, and has no Knowledge of any default or
violation by any other party to, any of the Ultrak Plans or Ultrak Benefit
Arrangements; (iii) each Ultrak Plan intended to qualify under Section 401(a) of
the Code and each trust intended to qualify under Section 501(a) of the Code is
either currently subject to a favorable determination letter from the IRS, or
Ultrak has a remaining period of time under applicable Treasury regulations or
IRS pronouncements in which to apply for such a determination letter and to make
any amendments necessary to obtain a favorable determination; (iv) no current or
former Ultrak Plan or Ultrak Benefit Arrangement is, or within the prior six (6)
years has been subject to, and Ultrak has not incurred and does not expect to
incur any liability under, Title IV of ERISA or Section 412 of the Code; and
(v) nothing in any Ultrak Plan or Ultrak Benefit Arrangement precludes or
interferes with Checkpoint's ability to cause Ultrak to terminate (or
consolidate) any Ultrak Plan or Ultrak Benefit Arrangement after closing except
for legally required notices of not more than sixty (60) days in length.
(d) The Ultrak Disclosure Schedule sets forth a true and
correct list of all material plans and policies maintained or administered by
Ultrak or any of its Subsidiaries relating to benefits provided to employees in
foreign countries pursuant to the laws of such countries or other jurisdiction.
Ultrak has maintained or administered each such plan or policy in material
compliance with its terms and applicable legal requirements, and all
contributions, premiums or other payments due from Ultrak or any of its
subsidiaries to or under any such plan or arrangement have been fully paid or
adequately provided for in accordance with GAAP in Ultrak's Financial
Statements.
Section 4.10 Affiliate Agreements. Except as disclosed in the Ultrak
SEC Reports filed prior to the date of this Agreement and except for this
Agreement, Ultrak is not a party to any oral or written agreement with any of
its Affiliates.
Section 4.11 Environmental. Except as otherwise disclosed in writing to
Checkpoint and to Ultrak's Knowledge: (i) the businesses as presently or
formerly engaged in by Ultrak and its Subsidiaries are and have been conducted
in material compliance with all applicable Environmental Laws, including,
without limitation, having all material permits, licenses and other approvals
and authorizations, during the time Ultrak or any Subsidiary of Ultrak engaged
in such businesses; (ii) the properties presently or formerly owned or operated
by Ultrak or any Subsidiary of Ultrak (including, without limitation, soil,
groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) ("Ultrak Properties") do not contain any Contamination other
than as permitted under applicable Environmental Law (provided, however, that
with respect to Ultrak Properties formerly owned or operated by Ultrak or any
Subsidiary of Ultrak, the representations in this Subsection (ii) are limited to
the period Ultrak or any Subsidiary of Ultrak owned or operated such Ultrak
Properties and to any Contamination that Ultrak was notified of in writing since
the date of ownership or operation of such Ultrak Properties); (iii) neither
Ultrak nor any Subsidiary of Ultrak has received any written notices, demand
letters or requests for information from any Governmental Entity or any Person
claiming that Ultrak or any Subsidiary of Ultrak violated, may be in violation
of, or liable under, any Environmental Law in connection with the ownership or
operation of Ultrak's or its Subsidiaries' businesses; (iv) there are no civil,
criminal or administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or threatened against Ultrak or any
Subsidiary of Ultrak with respect to Ultrak or any Subsidiary of Ultrak or the
Ultrak Properties relating to any violation, or alleged violation, of any
Environmental Law; (v) no reports have been filed, or are required to be filed,
and no notifications have been made or are required to be made, by Ultrak or any
Subsidiary of Ultrak with any Governmental Entity concerning the release of any
-20-
<PAGE>
Hazardous Material or the threatened or actual violation of any Environmental
Law on or at Ultrak Properties; (vi) other than in compliance with Environmental
Law no Hazardous Material has been generated at, transferred or transported to
or from, disposed at or removed for disposal from, or otherwise released at or
from any of the Ultrak Properties in a manner which caused Contamination;
(vii) there have been no environmental investigations, studies, audits, tests,
reviews or other analyses conducted since January 1, 1994 by or which are in the
possession of Ultrak or any Subsidiary of Ultrak relating to Ultrak or any
Subsidiary of Ultrak or the Ultrak Properties which have not been delivered to
Checkpoint prior to the date hereof, (viii) there are no underground storage
tanks on, in or under any of the Ultrak Properties and no underground storage
tanks have been closed or removed by Ultrak or any of its Subsidiaries from any
Ultrak Properties which are or have been in the ownership of Ultrak or any
Subsidiary of Ultrak; (ix) there is no friable asbestos-containing material on
the Ultrak Property presently owned or operated by Ultrak or any subsidiary of
Ultrak which would require, under ordinary occupancy (nonconstruction)
conditions, a remedial action pursuant to OSHA, or applicable state and local
counterparts to OSHA, and no such material has been removed from any Ultrak
Property while such Ultrak Property was owned or operated by Ultrak or any
Subsidiary of Ultrak; (x) none of the Ultrak Properties has been used at any
time by Ultrak or any Subsidiary of Ultrak as a treatment, storage or disposal
facility under RCRA; and (xi) neither Ultrak nor any Subsidiary of Ultrak has
incurred, and none of the Ultrak Properties are presently subject to, any
material liabilities (fixed or contingent) relating to any suit, settlement,
court order, administrative order, judgment or claim asserted or arising under
any Environmental Law.
Section 4.12 No Violations. To Ultrak's Knowledge, the business of
Ultrak and its Subsidiaries are not being conducted in violation of, or in a
manner which could cause liability under any applicable law, rule or regulation,
judgment, decree or order of any Governmental Entity, except for any violations
or practices, which, individually or in the aggregate, have not had and will not
have a Material Adverse Effect on Ultrak.
Section 4.13 Opinion of Financial Advisor. Ultrak has received the
opinion of J.C. Bradford to the effect that, as of March 10, 1997, the
consideration to be received in the Merger by the holders of shares of Ultrak
Common Stock is fair to such holders from a financial point of view.
Section 4.14 Brokers and Finders. Neither Ultrak nor any of its
Subsidiaries nor any of its directors, officers or employees has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or similar payments in connection with the
transactions contemplated by this Agreement or the Merger Agreement other than
to J.C. Bradford in the nature of a fee for rendering a fairness opinion and a
fee to the valuation firm referred to in Section 6.22.
Section 4.15 Taxes. Ultrak and each of its Subsidiaries has timely
filed (or caused to be filed) all Tax Returns required to be filed by them, and
all such Tax Returns are true, correct and complete in all material respects.
All Taxes required to be paid as shown on such Tax Returns, reports and other
statements have been timely paid. All Taxes required to be paid in respect of
the periods covered by such Tax Returns, have either been paid or fully accrued
on the books of Ultrak. Ultrak and each of its Subsidiaries have fully accrued
all unpaid Taxes in respect of all periods (or the portion of any such periods)
subsequent to the Return Periods and ending on or prior to the Effective Time.
No deficiencies or adjustments for any Tax have been claimed, proposed or
assessed, or to Ultrak's Knowledge, threatened against Ultrak or its
Subsidiaries. The Ultrak Disclosure Schedule accurately sets forth the last year
for which Ultrak's or its Subsidiaries' foreign, federal and state
-21-
<PAGE>
income Tax Returns, respectively, have been audited and any years which are the
subject of a pending audit by the Internal Revenue Service and the applicable
state agencies. Except as so disclosed, neither Ultrak nor any of its
Subsidiaries (i) is subject to any pending or, to Ultrak's Knowledge, threatened
Tax audit or examination, or (ii) is delinquent in the payment of any Tax nor is
subject to any outstanding Tax deficiency, proposed or assessed. The Ultrak SEC
Reports contain adequate accruals for all unpaid Taxes. All foreign, state, and
local jurisdictions where Ultrak has filed Tax Returns are set forth on the
Ultrak Disclosure Schedule. There are no claims currently being pursued by any
Taxing Authority against Ultrak or any of its Subsidiaries which are material in
amount except as set forth on the Ultrak Disclosure Schedule. There are no
requests for rulings in respect of any Tax that are pending between Ultrak and
any Taxing Authority. Ultrak has not filed an election or caused any deemed
election under Section 338 of the Code to be made for which the Tax liability
has not been paid. Ultrak has not requested or granted to any Taxing Authority
any extension of the limitations period during which any Tax liability may be
assessed or collected, which request is still pending, or which extension
remains in effect. All monies required to be withheld or collected by Ultrak,
and the portion of any such Taxes to be paid by Ultrak to Taxing Authorities,
have been collected or withheld and either paid to the respective Taxing
Authority or set aside in accounts for such purposes, or such monies have been
approved, reserved against, and entered upon the books of Ultrak. Ultrak will
not be required, as a result of a change in a method of accounting for Tax
purposes for any Tax period ending on or before the Effective Time, to include
any adjustment under Section 481(c) of the Code in taxable income for any Tax
period beginning after the Effective Time.
Section 4.16 Intellectual Property. Ultrak, directly or indirectly,
owns, or is licensed or otherwise possesses legally enforceable rights to use,
all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, trade dress, know-how, computer software
programs or applications, tangible or intangible proprietary information or any
intellectual property that are material to the business of Ultrak and its
Subsidiaries as currently conducted (the "Ultrak Intellectual Property"). The
Ultrak Disclosure Schedule sets forth a complete list of (i) all patents,
trademarks, registered copyrights, trade names, and service marks, and any
applications therefor, included in the Ultrak Intellectual Property, and
specifies, where applicable, the jurisdiction in which each has been issued or
registered, or in which an application for such issuance or registration has
been filed, including the respective registration or application numbers and the
names of all registered owners, and (ii) all material licenses, sublicenses and
other agreements as to which Ultrak or any of its Subsidiaries is a party and
pursuant to which Ultrak or any of its subsidiaries or any other person is
authorized to use any Ultrak Intellectual Property or other trade secret or
computer software material to Ultrak, and includes the identity of all parties
thereto and the description of the nature and subject matter thereof. Neither
Ultrak nor any of its Subsidiaries is in violation of any license, sublicense or
agreement described in the Ultrak Disclosure Schedule, except such violations as
do not materially impair their rights under such license, sublicense or
agreement. Ultrak is the sole and exclusive owner or licensee of, with all
right, title and interest in and to (free and clear of any liens or
encumbrances), the Ultrak Intellectual Property, and has sole and exclusive
rights (and is not contractually obligated to pay any compensation to any third
party in respect thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect of which the Ultrak
Intellectual Property is being used. All material registered trademarks, service
marks and copyrights held by Ultrak or its Subsidiaries are valid and
subsisting. To the Knowledge of Ultrak, there is no material unauthorized use,
infringement or misappropriation of any Ultrak Intellectual Property by any
Person, including any employee or former employee of Ultrak any or of its
Subsidiaries. No Ultrak Intellectual Property or product of Ultrak or any of its
Subsidiaries is subject to any outstanding decree, order, judgment or
stipulation restricting in any manner, the
-22-
<PAGE>
licensing or use thereof by Ultrak or any of its Subsidiaries. Neither Ultrak
nor any of its Subsidiaries has entered into any agreement (other than exclusive
distribution agreements disclosed in the Ultrak Disclosure Schedule) under which
Ultrak or its Subsidiaries is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market. Ultrak has a
policy requiring that each employee of Ultrak and any of its Subsidiaries shall
execute a proprietary information and confidentiality agreement in favor of
Ultrak, in addition to an agreement to assign intellectual property to Ultrak.
To Ultrak's Knowledge, neither Ultrak nor any of its Subsidiaries utilizes or
has utilized any patent, trademark, tradename, service mark, copyright,
software, trade secret or know-how, except for those which are owned, possessed
or lawfully used by Ultrak or its Subsidiaries in their operations, and, to the
Knowledge of Ultrak, neither Ultrak nor any of its Subsidiaries infringes upon
or unlawfully or wrongfully use any patent, trademark, tradename, service mark,
copyright or trade secret owned or validly claimed by another. Ultrak has no
continuing obligation to pay royalties or other payments to third parties as a
result of any infringement or prior infringement. All licenses relating to
Ultrak Intellectual Property are evidenced by valid and effective written
agreements and no other party to any such agreement with Ultrak has breached,
terminated, given notice of future termination of, given notice of a material
change in terms upon any renewal or extension, or advised Ultrak that it will
not renew or extend any such agreement with Ultrak.
Section 4.17 Insurance. Except as disclosed to Checkpoint, each of
Ultrak and its Subsidiaries is, and has been continuously since January 1, 1990,
insured with financially responsible insurers in such amounts and against such
risks and losses as are customary for companies conducting the business as
conducted by Ultrak during such time period. Except as disclosed to Checkpoint,
since December 31, 1994, Ultrak has not received notice of cancellation or
termination with respect to any material insurance policy of Ultrak or its
Subsidiaries. The insurance policies of Ultrak and its Subsidiaries are valid
and enforceable policies.
Section 4.18 Disclosure. No representation or warranty of Ultrak
contained in this Agreement or the Merger Agreement and no statement contained
in any certificate or the Ultrak Disclosure Schedule furnished or to be
furnished by or on behalf of Ultrak to Checkpoint or any of its representatives
pursuant thereto contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact necessary, in light of
the circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or schedule.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business of Checkpoint Pending the Effective
Time. Except as expressly permitted or contemplated by this Agreement (including
exceptions set forth in the Checkpoint Disclosure Schedule) or the Merger
Agreement or as shall be consented to in writing by Ultrak (which consent shall
not be unreasonably withheld), until the Effective Time, Checkpoint shall, and
shall cause each of its Subsidiaries to, conduct its operations in the ordinary
and usual course of business consistent with past practice and use all
reasonable efforts (in the ordinary course of business consistent with past
practice) to preserve intact their respective business organizations' goodwill,
keep
-23-
<PAGE>
available the services of their respective present officers and key employees,
and preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with them.
Without limiting the generality of the foregoing, and except as otherwise
permitted by this Agreement, prior to the Effective Time, without the written
consent of Ultrak, which consent shall not be unreasonably withheld, Checkpoint
will not, and will cause each of its Subsidiaries not to:
(a) amend or propose to amend their respective charters or
bylaws (other than to increase its authorized common stock to 200,000,000
shares); or split, combine or reclassify their outstanding capital stock or
declare, set aside or pay any dividend or distribution in respect of any capital
stock (other than to redeem the rights outstanding under Checkpoint's 1988
shareholder's rights plan and to establish a new shareholders rights plan (which
will include as participants the holders of Checkpoint Common Stock issued as a
result of the Merger provided no triggering event occurs under such plan prior
to the Effective Time), or the payment to Checkpoint or any of its Subsidiaries
of any dividend or distribution) or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution for shares
of its capital stock;
(b)(i) issue or authorize or propose the issuance of, sell,
pledge or dispose of, or agree to issue or authorize or propose the issuance of,
sell, pledge or dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of, their capital stock of any class
or any debt or equity securities convertible into or exchangeable for such
capital stock, other than any such issuance pursuant to options or rights
outstanding as of the date hereof in accordance with their terms, the adoption
of a new shareholder's rights plan, and the grant of stock options which are
consistent with past practice as to amount, timing and participants;
(ii) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets if such acquisitions involve aggregate
consideration (which may be in cash or Checkpoint Common Stock) in excess of 10%
of Checkpoint's consolidated assets as of December 31, 1996; (iii) sell
(including by sale-leaseback), lease, pledge, dispose of or encumber any assets
or interests therein, which are material, individually or in the aggregate, to
Checkpoint and its Subsidiaries taken as a whole, other than in the ordinary
course of business and consistent with past practice and other than the sale of
its Alarmex subsidiary; (iv) incur or become contingently liable with respect to
any material indebtedness for borrowed money or guarantee any such indebtedness
or issue any debt securities or otherwise incur any material obligation or
liability (absolute or contingent) other than short-term indebtedness in the
ordinary course of business and consistent with past practice; (v) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or its long-term debt, other than as required by the governing instruments
relating thereto (except for redemption of Checkpoint's 1988 shareholders
rights); or (vi) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing;
(c) enter into or amend any employment agreement or any
severance or special pay arrangement with respect to termination of employment
or other arrangements, or modify levels of compensation or benefits, respecting
any directors, officers or key employees, other than in the ordinary course of
business;
(d) adopt, enter into or amend any, or become obligated under
any new, bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care,
-24-
<PAGE>
employment or other employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee or retiree, except as required to
comply with changes in applicable law occurring after the date hereof and except
in the ordinary course of business and consistent with past practice; or
(e) take any action that would, or is reasonably likely to,
result in any of its representations and warranties set forth in this Agreement
becoming untrue, or in any of the conditions to the Merger set forth in Article
VII not being satisfied.
Section 5.2 Conduct of Business of Ultrak Pending the Effective Time.
Except as expressly permitted or contemplated by this Agreement (including
exceptions set forth in the Ultrak Disclosure Schedule) or the Merger Agreement
or as shall be consented to in writing by Checkpoint (which consent shall not be
unreasonably withheld), until the Effective Time, Ultrak shall, and shall cause
each of its Subsidiaries to, conduct its operations in the ordinary and usual
course of business consistent with past practice and use all reasonable efforts
(in the ordinary course of business consistent with past practice) to preserve
intact its business organizations' goodwill, keep available the services of its
present officers and key employees, and preserve the goodwill and business
relationships with suppliers, distributors, customers and others having business
relationships with them. Without limiting the generality of the foregoing, and
except as otherwise permitted by this Agreement, prior to the Effective Time,
without the written consent of Checkpoint, which consent shall not be
unreasonably withheld, Ultrak will not, and will cause each of its Subsidiaries
not to:
(a) amend or propose to amend their respective charters or
bylaws; or split, combine or reclassify their outstanding capital stock or
declare, set aside or pay any dividend or distribution in respect of any of its
capital stock (other than a regular quarterly cash dividend on the Ultrak
Preferred Stock consistent with past practice, or the payment to Ultrak or any
of its Subsidiaries of any dividend or distribution) or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(b)(i) issue or authorize or propose the issuance of, sell,
pledge or dispose of or agree to issue or authorize or propose the issuance of,
sell, pledge or dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of, their capital stock of any class
or any debt or equity securities convertible into or exchangeable for such
capital stock, other than (A) any such issuance pursuant to options or rights
outstanding as of the date hereof in accordance with their terms and pursuant to
the options granted in accordance with clauses (B) and (C) immediately
following, (B) the grant of stock options or stock bonus awards, which in the
aggregate may not exceed 50,000 shares of Ultrak Common Stock, consistent with
past practice as to amount, timing and participants, and (C) the grant of
options to acquire 140,000 shares of Ultrak Common Stock which were authorized
in January, 1997 but not yet issued; (ii) acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any such assets in
each case which acquisitions involve aggregate consideration (which may be in
cash or Ultrak Common Stock) in excess of 10% of Ultrak's consolidated assets as
of December 31, 1996; (iii) sell (including by sale-leaseback), lease, pledge,
dispose of or encumber any assets or interests therein, which are material,
individually or in the aggregate, to Ultrak and its Subsidiaries as a whole,
other than in the ordinary course of business and consistent with past practice;
(iv) incur or become contingently liable with respect to any material
indebtedness for
-25-
<PAGE>
borrowed money or guarantee any such indebtedness or issue any debt securities
or otherwise incur any material obligation or liability (absolute or contingent)
other than short-term indebtedness in the ordinary course of business and
consistent with past practice; (v) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or its long-term debt, other
than as required by the governing instruments relating thereto; or (vi) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing,
(c) enter into or amend any employment agreement or any
severance or special pay arrangement with respect to termination of employment
or other arrangements, agreements with, or modify levels of compensation or
benefits, respecting any directors, officers or key employees;
(d) adopt, enter into or amend any, or become obligated under
any new, bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any employee
or retiree, except (i) for an amendment to the Ultrak Stock Plan to increase the
number of shares for which options may be granted thereunder to 1,000,000 and
the issuance of stock options permitted by Section 5.2(b)(i), (ii) as required
to comply with changes in applicable law occurring after the date hereof and
(iii) with respect to all plans other than bonus plans, in the ordinary course
of business and consistent with past practice; or
(e) take any action that would, or is reasonably likely to,
result in any of its representations and warranties set forth in this Agreement
becoming untrue, or in any of the conditions to the Merger set forth in Article
VII not being satisfied.
Section 5.3 Cooperation. Subject to compliance with applicable law,
from the date hereof until the Effective Time, each of Checkpoint and Ultrak
shall confer on a regular and frequent basis with one or more representatives of
the other party to report operational matters of materiality and the general
status of ongoing operations and shall promptly provide the other party or its
counsel with copies of all filings made by such party with any Governmental
Entity in connection with this Agreement, the Merger Agreement and the
transactions contemplated hereby and thereby.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
Section 6.1 No Solicitation. From and after the date hereof, Ultrak and
Checkpoint, without the prior written consent of the other, will not, and will
not authorize or permit any of their respective representatives to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) or take any other action to facilitate knowingly any inquiries or
the making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined below) from any Person, or engage in
any discussion or negotiations relating thereto or accept any Acquisition
Proposal; provided, however, that notwithstanding any other provision hereof,
the respective Party may (a) at any time prior to the time the respective
Party's shareholders shall have voted to approve this Agreement, engage in
discussions or negotiations with a Person who (without any solicitation,
initiation, encouragement, discussion or negotiation, directly or indirectly, by
or with the Party or its representatives after the date hereof) seeks to
initiate such discussions or negotiations and may furnish such Person
information concerning the Party and its business, properties and assets
-26-
<PAGE>
if, and only to the extent that, (i) [A] such Person has first made an
Acquisition Proposal that is financially superior to the transactions
contemplated by this Agreement and has demonstrated that the funds necessary (if
the Acquisition Proposal is a cash transaction) for the Acquisition Proposal are
reasonably likely to be available (as determined in good faith in each case by
the Party's Board of Directors after consultation with its financial advisors)
and [B] the Party's Board of Directors shall conclude in good faith, after
considering applicable provisions of state law, on the basis of oral or written
advice of outside counsel, that such action is necessary (if the Acquisition
Proposal is a cash transaction) for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law and (ii) prior to
furnishing such information to or entering into discussions or negotiations with
such Person, such Party [A] provides prompt notice to the other Party to the
effect that it is furnishing information to or entering into discussions or
negotiations with such Person and [B] receives from such Person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such Person than the terms contained in
the Confidentiality Agreement (as referred to in Section 9.4 hereof), (b) comply
with Rule 14c-2 promulgated under the Exchange Act with regard to a tender or
exchange offer, and/or (c) provided such Party terminates this Agreement
pursuant to Section 8.1(e) hereof, accept an Acquisition Proposal from a Person.
Concurrently with the execution and delivery of this Agreement, each Party shall
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any Persons conducted
heretofore by the Party or its representatives with respect to the foregoing.
Each of Ultrak and Checkpoint agrees not to release any Person from, or waive
any provision of, any standstill agreement to which it is a Party or any
confidentiality agreement between it and another Person who has made, or who may
reasonably be considered likely to make, an Acquisition Proposal, unless its
Board of Directors shall conclude in good faith, after considering applicable
provisions of state law, on the basis of oral or written advice of outside
counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties. Each of Ultrak and Checkpoint shall
notify the other Party orally and in writing of any such inquiries, offers or
proposals (including, without limitation, the terms and conditions of any such
proposal and the identity of the Person making it), within 24 hours of the
receipt thereof, shall keep the other Party informed of the status and details
of any such inquiry, offer or proposal, and shall give the other Party five
days' advance notice of any agreement to be entered into with, or any
information to be supplied to, any Person making such inquiry, offer or
proposal. As used herein, "Acquisition Proposal" shall mean a proposal or offer
(other than by another Party) for a tender or exchange offer, merger,
consolidation or other business combination involving Ultrak, Checkpoint or any
Significant Subsidiary of such Party or any proposal to acquire in any manner a
substantial equity interest in, or all or substantially all of the assets of,
such Party or any Significant Subsidiary of such Party; provided, however, that
any proposal or offer involving the acquisition by Ultrak or Checkpoint of an
equity interest in or assets of any Person, whether by tender or exchange offer,
merger, consolidation or otherwise, which involves, directly or indirectly, the
issuance of outstanding common stock as of the date hereof of Ultrak or
Checkpoint, as the case may be, with an aggregate value equal to less than 10%
of their respective consolidated assets as of December 31, 1996, shall not
constitute an Acquisition Proposal.
Section 6.2 Access to Information.
(a) Subject to compliance with applicable law, upon reasonable
notice Ultrak and Checkpoint shall each (and shall cause its Subsidiaries to)
afford to the other and the officers, employees, accountants, counsel, financial
advisors and other representatives of the other, access during normal business
hours throughout the period prior to the Effective Time to all of its key
-27-
<PAGE>
employees, properties, books, contracts, commitments and records and, during
such period, each of Ultrak and Checkpoint shall (and shall cause its
Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws, and
(b) all other information concerning its businesses, properties and Personnel as
such other Party may reasonably request.
(b) Unless otherwise required by law, the parties will hold
any such information which is nonpublic in confidence until such time as such
information otherwise becomes publicly available through no wrongful act of
either Party and in the event of termination of this Agreement for any reason,
each Party shall promptly return all nonpublic documents obtained from any other
Party, and any copies made of such documents, to such other Party. In addition,
in the event of such termination, all documents, memoranda, notes and other
writings whatsoever prepared by each Party based on the information in such
material shall be destroyed (and each Party shall use its best efforts to cause
its advisors and their representatives to similarly destroy their respective
documents, memoranda and notes), and such destruction (and best efforts) shall
be certified in writing to the other Party by an authorized officer supervising
such destruction.
Section 6.3 Registration Statement and Proxy Statement. As soon as is
reasonably practicable after the date hereof, Ultrak and Checkpoint shall
prepare and file the Proxy Statement with the SEC and Checkpoint shall promptly
prepare and file with the SEC the Form S-4 in which the Proxy Statement will be
included. Each of Ultrak and Checkpoint shall use its best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. Ultrak and Checkpoint shall take any action
required to be taken under applicable state securities and blue sky laws in
connection with the issuance of shares of Checkpoint Common Stock in the Merger
and as contemplated by this Agreement. Ultrak and Checkpoint shall promptly
furnish to each other all information, and take such other actions, as may
reasonably be requested in connection with any action by any of them in
connection with this Section 6.3.
Section 6.4 Shareholder Approval. Each of Ultrak and Checkpoint shall
call a meeting of its shareholders to be held as promptly as practicable for the
purpose of voting upon this Agreement and the Merger Agreement. Subject to
Section 6.1, the respective boards of directors of Checkpoint and Ultrak shall
recommend to their respective shareholders approval of such matters. Checkpoint
and Ultrak shall coordinate and cooperate with respect to the timing of such
meetings and shall use their best efforts to hold such meetings on the same day
and to take all additional actions as necessary to adopt and approve this
Agreement, the Merger Agreement and the transactions contemplated hereby and
thereby; provided, however, that it shall be a condition to the obligations of
the Parties under this Section 6.4 that each of them has obtained the opinion of
its respective financial advisor which shall be downdated from the dates of
opinions referred to in Sections 3.13 and 4.13 to a date no more than three (3)
business days prior to the date each Party forwards its Proxy Statement to its
respective shareholders.
Section 6.5 Affiliates. Ultrak shall use its best efforts to cause each
Person who may be deemed to be an "affiliate," for purposes of Rule 145 under
the Securities Act, of Ultrak to deliver to Ultrak on or prior to the Effective
Time a written agreement to the effect that such Person will not offer to sell,
sell or otherwise dispose of any shares of Checkpoint Common Stock, issued in
the Merger, except, in each case, pursuant to an effective registration
statement or in compliance with Rule 145 and Accounting Series Releases 130 and
135, each, as amended from time to time, or in a transaction which, in the
opinion of legal counsel satisfactory to Checkpoint, is exempt from the
-28-
<PAGE>
registration requirements of the Securities Act. The Parties agree that the
affiliates of Ultrak are the Persons identified in Exhibit B.
Section 6.6 Agreement to Cooperate; Further Assurances. Subject to the
terms and conditions of this Agreement, each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Merger Agreement, subject to the appropriate vote of
shareholders of Checkpoint and Ultrak described in Section 7.1(a) hereof and
subject to Section 6.1 hereof, including providing information and using
reasonable efforts to obtain all necessary or appropriate waivers, consents and
approvals, and effecting all necessary registrations and filings (including
filings under the HSR Act); provided, that nothing herein shall require Ultrak
or Checkpoint to hold, manage or operate any assets separately in order to
obtain any such consent or approval or to enter into any sale or divestiture of
assets. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or the Merger
Agreement, the proper officers and directors of each Party to this Agreement
shall take all necessary actions to the extent not inconsistent with their other
duties and obligations or applicable law.
Section 6.7 Stock Options.
(a) To the extent that acceleration of the exercisability of
any Ultrak Stock Option is permitted but not required by the applicable
governing instrument, then Ultrak shall take all necessary action or refrain
from taking action, so as to cause such acceleration not to occur. The Parties
acknowledge that the Ultrak Stock Options outstanding under the Ultrak Stock
Plan are subject to automatic accelerated vesting without discretionary action
by the Ultrak Board of Directors. In connection therewith, at the Effective
Time, to the extent permitted by the terms of the relevant governing
instruments, each Ultrak Stock Option, whether vested or unvested, shall be
assumed by Checkpoint. Unless Ultrak and Checkpoint shall otherwise agree prior
to the Effective Time, each such Ultrak Stock Option shall pursuant to the
Merger Agreement be converted to an option to acquire, on the same terms and
conditions as were applicable under such Ultrak Stock Option, shares of
Checkpoint Common Stock subject to the following adjustments which shall be made
regardless of whether such option was intended to qualify as an incentive stock
option under Section 422 of the Code and its applicable regulations:
(i) Each Ultrak Stock Option will be exercisable for
a number of whole shares (with any fraction rounded up to the next whole number)
of Checkpoint Common Stock (the "Aggregate Number") equal to the product of:
(x) the number of shares of Ultrak Common Stock remaining subject to the Ultrak
Stock Option immediately prior to the Effective Time, multiplied by (y) the
Common Stock Exchange Ratio;
(ii) The exercise price per share for the number of
Checkpoint Common Shares determined in clause (i) shall be a price per share
equal to (x) the aggregate exercise price for Ultrak Common Stock remaining
subject to such Ultrak Stock Option immediately prior to the Effective Time
divided by (y) the Aggregate Number.
(b) After the Effective Time and in any event within 30 days,
Checkpoint shall promptly issue to each holder of an outstanding Ultrak Stock
Option a document evidencing the foregoing assumptions of said option by
Checkpoint or conversions to Checkpoint options.
-29-
<PAGE>
(c) As soon as practicable after the Effective Time (and in
any event within 90 days), Checkpoint shall file a registration statement on
Form S-8, (or any successor or other appropriate forms) with respect to the
shares of Checkpoint Common Stock subject to such options granted under the
Ultrak Stock Plan and shall use its best efforts to maintain the effectiveness
of such registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.
(d) Checkpoint shall administer the Ultrak Stock Plan in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act to the
extent the Ultrak Stock Plan complied with such rule prior to the Merger.
Section 6.8 Public Statements. The parties shall consult with each
other at least 24 hours prior to issuing any public announcement or statement
with respect to this Agreement, the Merger Agreement, or the transactions
contemplated hereby or thereby and shall not issue any such public announcement
or statement prior to such consultation, except as may be required by law or by
the rules of the National Association of Securities Dealers, Inc. or the New
York Stock Exchange ("NYSE").
Section 6.9 Letter of Checkpoint's Accountants. Checkpoint shall use
its best efforts to cause to be delivered to Ultrak a letter of Coopers &
Lybrand, dated a date within two business days before the date on which the Form
S-4 shall become effective and addressed to Ultrak, in form and substance
reasonably satisfactory to Ultrak and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
Section 6.10 Letter of Ultrak's Accountants. Ultrak shall use its best
efforts to cause to be delivered to Checkpoint a letter of Grant Thornton, dated
a date within two business days before the date on which the Form S-4 shall
become effective and addressed to Checkpoint, in form and substance reasonably
satisfactory to Checkpoint and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
Section 6.11 Expenses. All costs and expenses incurred in connection
with this Agreement, the Merger Agreement and the transactions contemplated
hereby and thereby shall be paid by the Party incurring such expenses, except
that those expenses incurred in connection with printing and mailing the Proxy
Statement and the Form S-4, as well as the filing fee relating thereto, shall be
shared equally by Ultrak, on the one hand, and Checkpoint, on the other hand.
Section 6.12 Opinions of Financial Advisors. Each of Checkpoint and
Ultrak shall use its best efforts to cause Morgan Stanley and J.C. Bradford,
respectively, to provide its opinion, as of a date no earlier than three
business days prior to the date that the Proxy Statement is mailed to
shareholders of Checkpoint and Ultrak, as to the fairness of the consideration
to be received by Checkpoint on the one hand, and by the shareholders of Ultrak
on the other hand, from a financial point of view, as contemplated by this
Agreement, and shall include such updated opinions in the Proxy Statement.
-30-
<PAGE>
Section 6.13 Employee Benefits.
(a) Checkpoint and Ultrak expressly intend to continue
immediately after the Effective Time at least through December 31, 1997 to make
available to employees of Ultrak as of the Effective Time (regardless of the
division or other corporate unit in which they may be employed after the
Effective Time) employee benefits which are substantially similar to the
benefits presently available to Ultrak employees. For all purposes with respect
to Checkpoint's employee benefits for which Ultrak employees are otherwise
eligible, including without limitation determining eligibility, vesting, the
amount of benefits and benefit accrual, to the extent prior service credit is
taken into account for Checkpoint employees, Ultrak employees shall receive
credit for their periods of service with Ultrak and its Affiliates (including
time prior to acquisition by Ultrak) on the same basis as employees of
Checkpoint and its Affiliates. If Checkpoint establishes a plan or benefit
program in which Ultrak employees are entitled to participate after December 31,
1997, and if Ultrak does not have a comparable plan or benefit, to the extent
that prior service is taken into account, service credit will be provided to
Ultrak and Checkpoint employees on a comparable basis. In the ordinary course of
business after the Effective Time, Checkpoint will evaluate its employee
benefits programs for all employees and shall have the right to make such
modifications in all such programs, including the elimination of any particular
benefits (subject to contractual rights under any agreement), as Checkpoint
believes reasonable. Nothing contained in this Agreement is intended, nor shall
anything herein be construed, to confer any legal rights upon, or Person
beneficiary interest in, any employee of Ultrak, Checkpoint or any Subsidiary,
or any other Person.
(b) In the event that any of the United States employees of
Ultrak, has his or her employment terminated within eighteen (18) months of the
Closing Date as a result of a reduction in force, and not as a result of
unsatisfactory performance or for cause, such employee shall be entitled to the
following severance benefits: (i) for all non-supervisory personnel, a lump sum
payment equal to the greater of (A) three month's base salary, or (B) one
month's base salary for each year employed by Ultrak, Checkpoint or any
Affiliate (including services whether before or after the acquisition of such
affiliates, (ii) for all supervisory personnel, a lump sum payment equal to the
greater of (A) six month's base salary, or (B) one month's base salary for each
year of employment by Checkpoint, Ultrak or any Affiliate (including services
whether before or after the acquisition of such affiliates), and
(iii) outplacement services shall be provided at Ultrak's or Checkpoint's cost
for supervisory personnel for a period of up to three (3) months each.
(c) Unpaid bonuses for the executive officers of Ultrak
designated on Exhibit A hereto shall not exceed $750,000 in the aggregate, to
the extent conditionally approved by Ultrak's Board of Directors in January,
1997, and unpaid bonuses for the remaining Key Employees (as hereinafter
defined) of Ultrak shall not exceed $175,000, and all such bonuses shall be paid
or accrued by Ultrak by the Closing Date. No other bonuses shall be paid to the
Key Employees or any other employees of Ultrak in connection with the Merger.
Commencing on the Closing Date, the Key Employees shall be eligible to
participate in the Checkpoint Option Plan.
Section 6.14 Notification of Certain Matters. Each of Checkpoint and
Ultrak shall give prompt notice to the other of the following:
(a) The occurrence or non-occurrence of any event whose
occurrence or non-occurrence will be likely to (i) cause either any
representation or warranty contained in this
-31-
<PAGE>
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time, or (ii) directly or indirectly have a
Material Adverse Effect on such Party;
(b) Any material failure of such Party, or any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied hereunder; and
(c) Any facts relating to such Party which would make it
necessary or advisable to amend the Registration Statement and/or Proxy
Statement in order to make the statements therein not misleading or to comply
with applicable law; provided, however, that the delivery of any notice pursuant
to this Section 6.14 shall not limit or otherwise affect the remedies available
hereunder to the Party receiving such notice.
Section 6.15 Indemnification, Directors' and Officers' Insurance.
(a) In the event of any threatened or actual claim, action,
suit, proceeding, or investigation, whether civil, criminal, or administrative,
including, without limitation, any such claim, action, suit, proceeding, or
investigation in which any of the present or former officers or directors (the
"Managers") of Ultrak is, or is threatened to be, made a party by reason of the
fact that he is or was a director, officer, employee, or agent of Ultrak or any
of its Significant Subsidiaries (but only for the period during which such
Subsidiary was owned directly or indirectly by Ultrak) or is or was serving at
the request of Ultrak or any of its Significant Subsidiaries (but only for the
period during which such Subsidiary was owned directly or indirectly by Ultrak)
as a director, officer, employee, or agent of another Person, whether before or
after the Effective Time, Ultrak shall indemnify and hold harmless, and from and
after the Effective Time, the Merger Subsidiary shall indemnify and hold
harmless to the fullest extent permitted by applicable law (including by
advancing expenses promptly as statements therefor are received), each such
Manager against any losses, claims, damages, liabilities, costs, expenses
(including reasonable attorneys' fees), judgments, fines, and amounts paid in
settlement in connection with any such claim, action, suit, proceeding, or
investigation, and in the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) (i) if Ultrak
(prior to the Effective Time) or the Merger Subsidiary (after the Effective
Time) have not promptly assumed the defense of such matter, the Managers may
retain counsel satisfactory to them, and Ultrak prior to the Effective Time, or
the Merger Subsidiary after the Effective Time, shall pay all reasonable fees
and expenses of such counsel for the Managers promptly, as statements therefor
are received, and (ii) Ultrak prior to the Effective Time, or the Merger
Subsidiary after the Effective Time, will use their respective best efforts to
assist in the vigorous defense of any such matter; provided that neither Ultrak
nor the Merger Subsidiary or Checkpoint shall be liable for any settlement
effected without its prior written consent (which consent shall not be
unreasonably withheld). Merger Subsidiary shall have no obligation under the
foregoing provisions of this Section 6.15 to any Manager when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and non-appealable, that indemnification of such Manager in
the manner contemplated hereby is prohibited by applicable law. The Merger
Subsidiary's obligation to pay expenses in advance of final disposition of any
such claim, action, suit, investigation or proceeding shall be conditioned on
the receipt from the indemnified party of an undertaking to repay such advances
as contemplated by Section 145 of the DGCL. Checkpoint hereby guarantees and
stands as surety for the obligations of the Merger Subsidiary under this
Subsection 6.15(a).
-32-
<PAGE>
(b) Any Manager wishing to claim indemnification under this
Section 6.15, upon learning of any such claim, action, suit, proceeding, or
investigation, shall notify Ultrak prior to the Effective Time, and the Merger
Subsidiary and Checkpoint after the Effective Time, thereof (provided that the
failure to give such notice shall not affect any obligations hereunder except to
the extent that the indemnifying party is actually prejudiced thereby).
Checkpoint and Ultrak agree that all rights to indemnification existing in favor
of the Managers as provided in Ultrak's Certificate of Incorporation and Bylaws
as in effect as of the date hereof, and in any agreement between Ultrak and any
Manager with respect to matters occurring prior to the Effective Time, shall
survive the Merger. Checkpoint further covenants not to amend or repeal any
provisions of the Certificate of Incorporation or Bylaws of Ultrak or the Merger
Subsidiary in any manner which would adversely affect the indemnification or
exculpatory provisions contained therein. The provisions of this Section 6.15
are intended to be for the benefit of, and shall be enforceable by, each
indemnified party and his heirs and representatives.
(c) Each of the parties hereto will use its best efforts to
continue to provide officers' and directors' liability insurance with respect to
matters occurring prior to the Effective Time for the benefit of the Managers
for the six (6) year period commencing at the Effective Time on terms consistent
in scope and amount of coverage with such insurance currently maintained by
Ultrak; provided, however, in no event shall Checkpoint or the Merger Subsidiary
be required to maintain such insurance if the cost thereof exceeds on an annual
basis 200% of the premium cost for such policy as of the date of this Agreement.
Section 6.16 Employment Arrangements. Ultrak shall be permitted to
enter into written employment agreements with the employees listed on Exhibit A
hereto (the "Key Employees") in a form reasonably satisfactory to Checkpoint and
incorporating the terms set forth on Exhibit A and such other terms as are
reasonably satisfactory to Checkpoint. The employment agreements for the
executive officers of Ultrak designated on Exhibit A shall provide that,
commencing January 1, 1998, such executive officers shall be entitled to receive
medical and life insurance benefits and other fringe benefits, excluding salary,
bonus and discretionary stock option awards or stock grants, that senior
managers of Checkpoint of comparable positions are entitled to receive as of the
date hereof. Checkpoint agrees to guarantee the obligations of Ultrak to its
executive officers under the employment agreements to be entered into pursuant
to this Section 6.16.
Section 6.17 Stock Exchange Listing. Each of the Parties shall use its
best efforts to obtain, prior to the Effective Time, the approval for listing on
the NYSE, effective upon official notice of issuance, of the additional shares
of Checkpoint Common Stock into which the Ultrak Common Stock and Ultrak
Preferred Stock will be converted pursuant to Section 2.1(b) hereof and which
will be issuable upon exercise of the Ultrak Stock Options pursuant to Section
6.7 hereof.
Section 6.18 Pooling of Interests. Each of the Parties will use its
best efforts to cause the transactions contemplated by this Agreement to be
accounted for as a pooling of interests in accordance with GAAP, and such
accounting treatment to be accepted by Checkpoint's independent certified public
accountant, by the NYSE and by the SEC, respectively, and each of the Parties
agrees that it will take no action that would cause such accounting treatment
not to be obtained.
Section 6.19 Tax-Free Reorganization. Each of the Parties will use its
best efforts to cause the Merger to qualify as a tax-free reorganization under
Section 368 of the Code. Each Party shall provide customary representation
letters and appropriate investment intent letters from executive
-33-
<PAGE>
officers, directors and one percent (1%) shareholders of Ultrak to counsel for
each of the parties in connection with the tax opinions to be provided under
Article VII hereof.
Section 6.20 No Shelf Registration. Checkpoint shall not be required to
amend or maintain the effectiveness of the Registration Statement for the
purpose of permitting resale of the shares of Checkpoint Common Stock received
pursuant hereto by the Persons who may be deemed to be "Affiliates" of Ultrak or
Checkpoint within the meaning of Rule 145.
Section 6.21 Delivery of Disclosure Schedules and Other Documents. Each
Party agrees to deliver to the other (i) its respective Disclosure Schedule and
1996 Form 10-K (with all Exhibits) by no later than March 31, 1997, and (ii) all
other documents, lists, reports and/or schedules called for or required under
this Agreement promptly after the execution hereof, and in each case, at least
one week prior to the dates set forth in Sections 7.2(f) and 7.3(f) hereof.
Notwithstanding anything contained in this Agreement to the contrary, no party
shall be deemed in breach hereof for having failed to deliver any document,
list, report and/or schedule recited herein to have been delivered, provided
such document, list, report or schedule is promptly delivered to the other Party
after execution of this Agreement.
Section 6.22 Preferred Stock Exchange Ratio. On or before March 25,
1997 Ultrak shall obtain a detailed written opinion from either Mercer Capital,
Merrill Lynch Business Advisory Services, Stephens, Inc. or Hoak, Breedlove,
Wesneski & Co. that the Preferred Stock Exchange Ratio accurately reflects both
the conversion rights of the Ultrak Preferred Stock pursuant to Ultrak's
Certificate of Incorporation and the fair value of the dividend and voting
rights of the Ultrak Preferred Stock which will be given up as a result of the
Merger. The valuation opinion may be relied upon by, and shall be sufficient to,
Coopers & Lybrand and Grant Thornton for purposes of the letters to be provided
pursuant to Section 7.1(h) hereof. Ultrak shall promptly provide such written
opinion to Checkpoint, Coopers & Lybrand and Grant Thornton, and shall use its
reasonable best efforts to cause its valuation expert to provide all supporting
information and work papers to, and meet with, Coopers & Lybrand and Grant
Thornton promptly thereafter. Coopers & Lybrand and Grant Thornton shall use
reasonable diligence to meet with the valuation expert during the five (5)
business days after delivery of such expert's opinion and attempt to resolve any
disagreements or concerns which they may have with respect to such opinion. As
promptly as reasonably practical after March 25, 1997 and after the meetings
referred to in the preceding sentence, Coopers & Lybrand and Grant Thornton
shall advise Checkpoint and Ultrak in writing whether the valuation opinion is
sufficient for each to render the letters required by Section 7.1(h) hereof. In
the event that such valuation opinion is not sufficient to either Coopers &
Lybrand or Grant Thornton, Ultrak shall promptly (but in any event within five
(5) business days) either (i) reduce the Preferred Stock Exchange Ratio to a
level at which Coopers & Lybrand and Grant Thornton shall then be able to issue
the letters required under Section 7.1(h) hereof or (ii) obtain a new written
opinion from one of the firms mentioned in the first sentence of this Section,
which opinion shall have been determined by Coopers & Lybrand and Grant
Thornton, within such five (5) business day period, to be sufficient to enable
them to issue the letters required under Section 7.1(h) hereof. The failure of
Ultrak to have obtained by April 11, 1997 both (y) a written valuation opinion
from any of the firms referred to in the first sentence of this Section (or to
have reduced the Preferred Stock Exchange Ratio as provided in clause (i) of the
preceding sentence) and (z) written confirmation from both Coopers & Lybrand and
Grant Thornton of the sufficiency of the opinion (or reduction in the Preferred
Stock Exchange Ratio) for purposes of their rendering the letters required under
Section 7.1(h) hereof, shall be deemed a material breach of this Agreement by
Ultrak. Coopers & Lybrand and Grant Thornton
-34-
<PAGE>
shall use reasonable diligence to meet with the valuation expert within two (2)
business days after delivery of such second opinion and attempt to resolve any
disagreements or concerns which they may have with respect to such opinion.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each Party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby shall have been approved and adopted by the
requisite vote of the holders entitled to vote of Ultrak Common Stock and Ultrak
Preferred Stock, on the one side, and Checkpoint Common Stock, on the other
side.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(c) The Form S-4 shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect;
(d) No temporary restraining order, preliminary or permanent
injunction or other order or decree by any court of competent jurisdiction which
prevents the consummation of the Merger or imposes material conditions with
respect thereto shall have been issued and remain in effect (each Party agreeing
to use its best efforts to have any such injunction, order or decree lifted);
(e) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any Governmental Entity which would
prevent the consummation of the Merger or imposes material conditions with
respect thereto;
(f) All consents and approvals of all Governmental Entities
legally required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the Effective
Time, except those for which failure to obtain such consents and approvals would
not, individually or in the aggregate, have a Material Adverse Effect on
Checkpoint, or upon the consummation of the transactions contemplated hereby and
all state securities or blue sky permits and other authorizations necessary to
issue the shares of Checkpoint Common Stock pursuant to this Agreement and the
Merger Agreement and as contemplated by Section 6.7 hereof;
(g) The shares of Checkpoint Common Stock into which the
Ultrak Common Stock and Ultrak Preferred Stock will be converted pursuant to
Section 2.1(b) hereof and the shares of Checkpoint Common Stock issuable upon
exercise of the Ultrak Stock Options pursuant to Section 6.7 hereof shall have
been duly approved for listing on the NYSE, subject to official notice of
issuance;
-35-
<PAGE>
(h) Each of Checkpoint and Ultrak shall receive a letter from
Coopers & Lybrand, and Grant Thornton, both dated as of the Closing Date, to the
effect that the transactions contemplated hereby will qualify for pooling of
interests accounting treatment; and
(i) Checkpoint shall have received from each Person specified
in Section 6.5 hereof the written agreement referred to in such Section 6.5.
Section 7.2 Conditions to Obligation of Checkpoint to Effect the
Merger. The obligation of Checkpoint to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Ultrak shall have performed in all material respects its
agreements contained in this Agreement and the Merger Agreement and required to
be performed on or prior to the Effective Time and the representations and
warranties of Ultrak contained in this Agreement and the Merger Agreement shall
be true and correct in all material respects on and as of the date of this
Agreement and on and as of the Effective Time as if made on and as of such date,
except as contemplated or permitted by this Agreement and the Merger Agreement,
and Checkpoint shall have received a certificate of the President of Ultrak to
that effect;
(b) Ultrak shall have obtained the consent or approval of each
Person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Ultrak, or
upon the consummation of the transactions contemplated hereby,
(c) Checkpoint shall have received an opinion of Gardere &
Wynne, L.L.P. in form and substance reasonably satisfactory to Checkpoint
covering such matters customary for transactions of the nature contemplated by
this Agreement;
(d) Checkpoint shall have received the letter of Grant
Thornton referred to in Section 6.10 hereof,
(e) Checkpoint shall have received an opinion from Stradley,
Ronon, Stevens & Young, LLP substantially to the effect that the Merger shall be
a tax-free transaction for Checkpoint; and
(f) Checkpoint shall have completed its due diligence to its
reasonable satisfaction not later than April 11, 1997.
Section 7.3 Conditions to Obligations of Ultrak to Effect the Merger.
The obligations of Ultrak to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions:
(a) Checkpoint shall have performed in all material respects
its agreements contained in this Agreement, the Merger Agreement and required to
be performed on or prior to the Effective Time and the representations and
warranties of Checkpoint contained in this Agreement, the Merger Agreement and
shall be true and correct in all material respects on and as of the date of this
-36-
<PAGE>
Agreement and on and as of the Effective Time as if made on and as of such date,
except as contemplated by this Agreement and the Merger Agreement and Ultrak
shall have received a certificate of the President of Checkpoint to that effect;
(b) Checkpoint shall have obtained the consent or approval of
each Person whose consent or approval shall be required in connection with the
transaction contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Checkpoint,
or upon the consummation of the transactions contemplated hereby;
(c) Ultrak shall have received an opinion of Stradley, Ronon,
Stevens & Young, LLP, in form and substance reasonably satisfactory to Ultrak
covering such matters customary for transactions of the nature contemplated by
this Agreement;
(d) Ultrak shall have received the letter of Coopers & Lybrand
referred to in Section 6.9 hereof;
(e) Ultrak shall have received an opinion from Gardere &
Wynne, L.L.P. substantially to the effect that the Merger shall be a tax-free
transaction for Ultrak and the shareholders of Ultrak who receive Checkpoint
Common Stock in the Merger; and
(f) Ultrak shall have completed its due diligence to its
reasonable satisfaction not later than April 11, 1997.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of Ultrak or Checkpoint:
(a) by the mutual written consent of Ultrak and Checkpoint;
(b) by either Ultrak or Checkpoint if (i) the Merger shall not
have been consummated on or before September 30, 1997 (the "Termination Date");
(ii) any Governmental Entity, the consent of which is a condition to the
obligations of Ultrak and Checkpoint to consummate the transactions contemplated
hereby or by the Merger Agreement, shall have determined not to grant its
consent and all appeals of such determination shall have been taken and have
been unsuccessful, (iii) any court of competent jurisdiction in the United
States or any State shall have issued an order, judgment or decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting the
Merger and such order, judgment or decree shall have become final and
nonappealable, or (iv) either Party gives written notice to the other on or
before April 11, 1997, that the notifying Party has elected in good faith to
terminate this Agreement because its due diligence has not been completed to its
reasonable satisfaction;
-37-
<PAGE>
(c) by Checkpoint if (i) there has been a material breach by
Ultrak of any representation, warranty, covenant or agreement set forth in this
Agreement or the Merger Agreement, which breach has not been cured within ten
business days following notice of such breach; (ii) the Board of Directors of
Ultrak should fail to recommend to its shareholders approval of the transactions
contemplated by this Agreement and the Merger Agreement or such recommendation
shall have been made and subsequently withdrawn other than as provided for in
Section 6.1, or Ultrak shall have failed for any reason to obtain an updated
fairness opinion from its financial advisor as required by Section 6.4,
(iii) following the execution of this Agreement, Ultrak shall have engaged in
negotiations concerning, or provided any confidential information or data to, or
had any discussions with, any Person other than Checkpoint or any of its
Affiliates relating to, any Acquisition Proposal relating to Ultrak or any of
its Subsidiaries other than as provided for in Section 6.1, or (iv) the average
of the daily last sale prices of Ultrak Common Stock as reported on the Nasdaq
National Market automated quotation reporting system (as reported in The Wall
Street Journal) for the ten (10) consecutive full trading days in which such
shares are traded on Nasdaq immediately preceding the date of the Checkpoint
shareholders' meeting as set forth in the Proxy Statement is less than $13.00
per share;
(d) by Ultrak if (i) there has been a material breach by
Checkpoint of any representation, warranty, covenant or agreement set forth in
this Agreement or the Merger Agreement which breach has not been cured within
ten business days following receipt by the breaching Party of notice of such
breach; (ii) the Board of Directors of Checkpoint should fail to recommend to
its shareholders approval of the transactions contemplated by this Agreement and
the Merger Agreement or such recommendation shall have been made and
subsequently withdrawn other than as provided in Section 6.1, or Checkpoint
shall have failed for any reason to obtain an updated fairness opinion from its
financial advisor as required by Section 6.4, (iii) following the execution of
this Agreement, Checkpoint shall have engaged in negotiations concerning,
provided any confidential information or data to, or had any discussions with,
any Person other than Ultrak or any of its Affiliates relating to, any
Acquisition Proposal relating to Checkpoint or any of its Subsidiaries other
than as provided in Section 6.1 or (iv) the average of the daily last sales
prices of Checkpoint Common Stock as reported on the NYSE composite transactions
reporting system (as reported in The Wall Street Journal) for the ten (10)
consecutive full trading days in which such shares are traded on the NYSE
immediately preceding the date of the Ultrak shareholders' meeting as set forth
in the Proxy Statement is less than $15.00 per share;
(e) by either Ultrak or Checkpoint, prior to the approval of
this Agreement by the shareholders of such Party, upon five (5) days prior
notice to the other, if, as a result of an Acquisition Proposal (as defined in
Section 6.1 hereof) received by such Party from a Person other than a Party to
this Agreement or any of its Affiliates, the Board of Directors of such Party
determines in good faith that their fiduciary obligations under applicable law
require that such Acquisition Proposal be accepted; provided, however, that
(i) the Board of Directors of such Party shall have concluded in good faith,
after considering applicable provisions of state law and after giving effect to
all concessions which may be offered by the other Party pursuant to paragraph
(ii) below, on the basis of oral or written advice of outside counsel, that such
action is necessary for the Board of Directors to act in a manner consistent
with its fiduciary duties under applicable law and (ii) prior to any such
termination, such Party shall, and shall cause its respective financial and
legal advisers to, negotiate in good faith for a period of ten (10) business
days with the other Party to this Agreement to make such adjustments in the
terms and conditions of this Agreement as would enable such Party to proceed
with the transaction contemplated hereby; provided, that no termination shall be
-38-
<PAGE>
effective pursuant to this Section 8.1(e) unless concurrently with such
termination, the termination fee described in Section 8.5 is paid in full by the
terminating Party in accordance with the provisions of Sections 8.5(a) or (b),
as the case may be; provided, that the right to terminate this Agreement
(i) under Section 8.1(b)(i) hereof shall not be available to any Party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date
and (ii) under Section 8.1(c) (other than clause (iv) thereof) and 8.1 (d)
(other than clause (iv) thereof) hereof shall not be available to any Party who
at such time is in material breach of any representation, warranty, covenant or
agreement set forth in this Agreement or the Merger Agreement.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement by either Ultrak or Checkpoint as provided in Section 8.1 hereof, this
Agreement shall forthwith become void (except as set forth in Sections 6.2(b),
6.11, 8.5 and 9.8, hereof which shall survive the termination) and there shall
be no liability on the part of Ultrak or Checkpoint except for any breach of any
of its obligations under Sections 6.2(b), 6.11, 8.5 and 9.8 hereof.
Notwithstanding the foregoing, no Party hereto shall be relieved from liability
for any willful, material breach of this Agreement. The rights of the Parties
under the Ultrak Stock Option Agreement and Checkpoint Stock Option Agreement
shall be as provided therein notwithstanding any termination of this Agreement.
Section 8.3 Amendment. This Agreement and the Merger Agreement may be
amended by the parties hereto at any time before or after approval hereof by the
shareholders of Ultrak or Checkpoint, provided that after any such approval, no
amendment shall be made which (a) changes the ratios at which shares are to be
converted into shares of Checkpoint Common Stock pursuant to the Merger
Agreement, (b) in any way materially adversely affects the rights of holders of
shares of Ultrak Common Stock, Ultrak Preferred Stock or Checkpoint Common Stock
or (c) changes any of the principal terms of this Agreement or the Merger
Agreement, in each case without the further approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 8.4 Waiver. At any time prior to the Effective Time, each Party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other Parties hereto, (b) waive in writing any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive in writing compliance with any of the agreements
or conditions contained herein.
Section 8.5 Termination Fee.
(a) If this Agreement is terminated (i) by Checkpoint pursuant
to any clause of Section 8.1(c) hereof (other than by reason of clause (iv)
thereof) and if Ultrak is not entitled to terminate this Agreement by reason of
Section 8.1(d) hereof (other than by reason of clause (iv) thereof), (ii) by
Ultrak pursuant to Section 8.1(b)(iv) and, if within six (6) months thereafter,
Ultrak receives, or there is a public announcement of, a friendly or unsolicited
tender offer, or Ultrak executes a formal letter of intent evidencing an
Acquisition Proposal or enters into a definitive agreement respecting a
transaction incident to an Acquisition Proposal which (with respect to each of
the foregoing) subsequently closes, or (iii) pursuant to Section 8.1(e) by
Ultrak, and at the time of such termination under this clause (iii) or prior to
the meeting of Ultrak's shareholders as set forth in the Proxy Statement there
shall have been an Acquisition Proposal involving Ultrak (whether or not such
proposal shall have been rejected or withdrawn prior to the time of such
termination or the
-39-
<PAGE>
meeting), then in either case, Ultrak shall pay to Checkpoint a termination fee
of $5,000,000 payable in good funds in Philadelphia, PA on the next business day
following notice of termination with respect to clauses (i) and (iii) and, at
the time of closing of the Acquisition Proposal, in the case of clause (ii).
(b) If this Agreement is terminated (i) by Ultrak pursuant to
any clause of Section 8.1(d) hereof (other than by reason of clause (iv)
thereof) and if Checkpoint is not entitled to terminate this Agreement by reason
of Section 8.1(c) hereof (other than by reason of clause (iv) thereof), (ii) by
Checkpoint pursuant to Section 8.1(b)(iv) and, if within six (6) months
thereafter, Checkpoint receives, or there is a public announcement of, a
friendly or unsolicited tender offer, or Checkpoint executes a formal letter of
intent evidencing an Acquisition Proposal or enters into a definitive agreement
respecting a transaction incident to an Acquisition Proposal which (with respect
to each of the foregoing) subsequently closes, or (iii) pursuant to Section
8.1(e) by Checkpoint, and at the time of such termination under this clause
(iii) or prior to the meeting of Checkpoint's shareholders as set forth in the
Proxy Statement there shall have been an Acquisition Proposal involving
Checkpoint (whether or not such proposal shall have been rejected or withdrawn
prior to the time of such termination or the meeting), then in either case,
Checkpoint shall pay to Ultrak a termination fee of $5,000,000 payable in good
funds in Dallas, TX on the next business day following notice of termination
with respect to clauses (i) and (iii) and, at the time of closing of the
Acquisition Proposal, in the case of clause (ii).
(c) In the event the Checkpoint shareholders fail to approve
the Merger by September 30, 1997 and the Ultrak shareholders approve the Merger,
then Checkpoint shall pay to Ultrak its direct out-of-pocket expenses (not to
exceed $2,000,000) incurred in connection with the negotiation and execution and
delivery of this Agreement and the performance of its obligations hereunder. In
the event the Ultrak shareholders fail to approve the Merger by September 30,
1997 and the Checkpoint shareholders approve the Merger, then Ultrak shall pay
to Checkpoint its direct out-of-pocket expenses (not to exceed $2,000,000)
incurred in connection with the negotiation and execution and delivery of this
Agreement and the performance of its obligations hereunder. Such payments shall
be made within two (2) business days of receipt of a statement describing the
expenses by payee, service and amount.
(d) Checkpoint and Ultrak agree that the covenants contained
in Sections 8.5(a), (b) and (c) are an integral part of the transactions
contemplated by this Agreement and constitute liquidated damages and not a
penalty. If one Party fails to promptly pay to the other any fee due under
Sections 8.5(a), (b) or (c), the defaulting Party shall pay the costs of
expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Citibank, N.A. from the date such fee was required to be
paid.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
-40-
<PAGE>
Section 9.2 Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon
(a) transmitter's confirmation of a receipt of a facsimile transmission,
(b) confirmed delivery by a standard overnight carrier or when delivered by hand
or (c) the expiration of three (3) business days after the day when mailed by
certified or registered mail, postage prepaid, addressed at the following
addresses (or at such other address as the parties hereto shall specify by like
notice):
If to Ultrak, to: Ultrak, Inc.
1220 Champion Circle, Suite 100
Carrollton, Texas 75006
Telecopy No.: 972-280-9659
Attention: President
with a copy to: Gardere & Wynne, L.L.P.
Thanksgiving Tower, Suite 3000
1601 Elm Street
Dallas, Texas 75201
Telecopy No.: (214) 999-4667
Attention: Richard L. Waggoner, Esq.
If to Checkpoint, to: Checkpoint Systems, Inc.
101 Wolf Drive
Thorofare, NJ 08086
Telecopy No.: (609) 848-2042
Attention: President
with a copy to: Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Telecopy No.: (215) 564-8120
Attention: William R. Sasso, Esq.
Section 9.3 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Whenever the words "herein," "hereof," "hereby"
or similar terms are used in this Agreement, they relate to this Agreement as a
whole (and not to any particular Section) unless the context clearly requires
otherwise.
Section 9.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) together with the Confidentiality Agreement
dated January 16, 1997, the Ultrak Stock Option Agreement, the Checkpoint Stock
Option Agreement, and the Merger Agreement, constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof,
(b) is not intended to confer upon any other Person any rights or remedies
hereunder; (c) shall not be assigned by operation of law or otherwise without
the prior written consent of the other parties hereto; and (d) shall be governed
in all respects, including validity, interpretation and effect, by the
-41-
<PAGE>
laws of the State of Delaware (without giving effect to the provisions thereof
relating to conflicts of law).
Section 9.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 9.6 Parties in Interest. Subject to the provisions of Section
9.4(c) hereof, this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns and, except as set forth in Section 9.4 hereof, nothing in this
Agreement, express or implied, is intended to confer upon any other Person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 9.7 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 9.8 Confidentiality. Except as otherwise provided in Section
6.2, each Party and its respective agents, attorneys and accountants will comply
with the provisions of the Confidentiality Agreement dated January 16, 1997, and
will maintain the confidentiality of all information provided to it by the other
Party in connection herewith which has not been publicly disclosed unless it is
advised by counsel that any such information or document is required by law or
applicable Nasdaq or NYSE rule to be disclosed.
IN WITNESS WHEREOF, Ultrak and Checkpoint have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
ULTRAK, INC.
By: /s/ George K. Broady
-----------------------------------------
George K. Broady
President and Chief Executive Officer
CHECKPOINT SYSTEMS, INC.
By: /s/ Kevin P. Dowd
-----------------------------------------
Kevin P. Dowd
President and Chief Executive Officer
-42-
EXHIBIT 10.2
CHECKPOINT STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 11, 1997 (the "Agreement"),
by and between ULTRAK, INC., a Delaware corporation ("Grantee"), and CHECKPOINT
SYSTEMS, INC., a Pennsylvania corporation ("Issuer").
RECITALS
A. The Plan. Grantee and Issuer are concurrently herewith entering an
Agreement and Plan of Reorganization, dated as of the date hereof (the "Plan"),
providing for, among other things, the merger of Grantee with and into C U
MERGER CORP., a Delaware corporation ("Merger Sub"), with Merger Sub being the
surviving corporation.
B. Condition to Plan. As a condition and inducement to Grantee's
execution of the Plan, Grantee has required that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. Defined Terms. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Plan.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase a number of shares of common stock, par value $0.10 per share ("Issuer
Common Stock"), of Issuer as shall, after exercise and as adjusted as set forth
herein, be equal to 19.9% of the issued and outstanding shares of Issuer Common
Stock) (the "Option Shares") at a purchase price per Option Share (as adjusted
as set forth herein, the "Purchase Price") equal to $20.94.
3. Exercise of Option.
(a) Provided that (i) Grantee or Holder (as hereinafter
defined), as applicable, shall not be in material breach of the
agreements or covenants contained in this Agreement, and (ii) no
preliminary or permanent injunction or other order against the delivery
of shares covered by the Option issued by any court of competent
jurisdiction in the United States shall be in effect, the Holder may
exercise the Option, in whole but not in part, at any time and from
time to time following the occurrence of a Purchase Event (as
hereinafter defined); provided, however, that the Option shall
terminate and be of no further force or effect upon the earliest to
occur of (A) the Effective Time, (B) termination of the Plan in
accordance with Section 8.1(a), Section 8.1(b) (so long as the failure
of the Effective Time to occur under clause (i) was not caused by
Checkpoint, excluding clause (iv) to the extent a termination fee is
payable under Section 8.5), or Section 8.1(c)(i) thereof, prior to the
occurrence of a Purchase Event or a Preliminary Purchase Event (as
hereinafter defined) or (C) September 11, 1998; provided, further,
however, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable law. Notwithstanding the
termination of the Option, Grantee or Holder, as the case may be, shall
be entitled to purchase the Option Shares if it has exercised the
Option in accordance herewith prior to the termination of the Option.
The termination of the Option shall not affect any rights hereunder
which by their terms extend beyond the date of such termination.
(b) As used herein, a "Purchase Event" means any of the
following events:
<PAGE>
(i) Without Grantee's prior written consent, Issuer
shall have recommended, publicly proposed, or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Grantee or any subsidiary of
Grantee) to effect (A) a merger, consolidation or similar transaction
involving Issuer or any of its subsidiaries the gross revenues of which
equaled or exceeded $37 million during its fiscal year most recently
ended (a "Significant Subsidiary") (other than transactions solely
between Issuer's subsidiaries that are not violative of the Plan and
other than the sale of Alarmex), (B) the disposition, by sale, lease,
exchange or otherwise, of assets of Issuer or any of its Significant
Subsidiaries representing in either case 25% or more of the
consolidated assets of Issuer and its subsidiaries (other than the sale
of Alarmex), or (C) the issuance, sale or other disposition by Issuer
of (including by way of merger, consolidation, share exchange or any
similar transaction) securities representing 25% or more of the voting
power of Issuer or any of its Significant Subsidiaries (other than the
sale of Alarmex), other than, in each case of (A), (B), or (C), any
merger, consolidation, share exchange or similar transaction involving
Issuer or any of its Significant Subsidiaries in which the voting
securities of Issuer outstanding immediately prior thereto continue to
represent (by either remaining outstanding or being converted into the
voting securities of the surviving entity of any such transaction) at
least 65% of the combined voting power of the voting securities of the
Issuer or the surviving entity outstanding immediately after the
consummation of such merger, consolidation, or similar transaction
(provided any such transaction is not violative of the Plan) (each of
(A), (B), or (C), an "Acquisition Transaction"); or
(ii) any person (other than Grantee or any subsidiary
of Grantee) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined in Section 13(d)(3) of the Exchange Act), other than a group
of which Grantee or any subsidiary of Grantee is a member, shall have
been formed which beneficially owns or has the right to acquire
beneficial ownership of 25% or more of the voting power of Issuer or
any of its Significant Subsidiaries; or
(iii) any person (other than Grantee or any
subsidiary of Grantee) shall have commenced (as such term is defined in
Rule 14d-2 under the Exchange Act) or shall have filed a registration
statement under the Securities Act, with respect to, a tender offer or
exchange offer to purchase any shares of Issuer Common Stock such that,
upon consummation of such offer, such person would own or control 25%
or more of the then outstanding shares of Issuer Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively); or
(iv) the Checkpoint special shareholders meeting
required under the Plan shall not have been held or shall have been
canceled prior to termination of the Plan, or Issuer's Board of
Directors shall have withdrawn or modified in a manner adverse to
Grantee the recommendation of Issuer's Board of Directors with respect
to the matters relating to the Plan requiring approval, in each case
after it shall have been publicly announced that any person (other than
Grantee or any subsidiary of Grantee) shall have disclosed an intention
to engage in any transaction described in clauses (i), (ii) or (iii)
above, or make a bona fide proposal to engage in a transaction pursuant
to an Acquisition Proposal, or (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer.
(c) As used herein, a "Preliminary Purchase Event" means any
of the following events:
(i) Issuer has received, or there is a public
announcement of, a friendly or unsolicited tender offer or Checkpoint
executes a formal letter of intent evidencing an Acquisition Proposal;
or
(ii) any other event entitling Grantee to terminate
the Plan pursuant to Section 8.1 thereof and to receive a Termination
Fee as provided for in Section 8.5 of the Plan.
-2-
<PAGE>
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Preliminary Purchase Event or Purchase Event, it
being understood that the giving of such notice by Issuer shall not be
a condition to the right of Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying a place and date not
earlier than three business days nor later than 15 business days from
the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"); provided, however, that if the Closing cannot be
consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which such restriction
on consummation has expired or been terminated; and provided, further,
however, without limiting the foregoing, that if prior notification to
or approval of any Governmental Entity is required in connection with
such purchase, Issuer shall cooperate with Holder in the filing of the
required notice of application for approval and the obtaining of such
approval and the Closing shall occur immediately following such
regulatory approvals (and any mandatory waiting periods). Any exercise
of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) Notwithstanding Section 3(e), in no event shall any
Closing Date be more than 18 months after the related Notice Date, and
if the Closing Date shall not have occurred within 18 months after the
related Notice Date due solely to the failure to obtain any such
required approval, the exercise of the Option effected on the Notice
Date shall be deemed to have expired.
4. Payment and Delivery of Certificates.
(a) On the Closing Date, Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account
designated by Issuer, an amount equal to the Purchase Price multiplied
by the number of Option Shares to be purchased on such Closing Date,
and (ii) present and surrender this Agreement to the Issuer at the
address of the Issuer specified in Section 12(f).
(b) At the Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided
in Section 4(a), (i) Issuer shall deliver to Holder a certificate or
certificates representing the Option Shares to be purchased at such
Closing, which Option Shares shall be free and clear of all Liens
(other than applicable federal and state securities laws restrictions
and restrictions contained in this Agreement) and subject to no
preemptive rights, and (ii) Holder shall deliver to Issuer a letter
agreeing that Holder shall not offer to sell or otherwise dispose of
such Option Shares in violation of applicable federal and state laws or
of the provisions of this Agreement. "Lien(s)" shall mean any lien,
encumbrance, encroachment, defect, mortgage, pledge, liability, option,
security interest, conditional sale or other title retention agreement,
assessment, license, covenant, charge, restriction, reservation, claim,
burden, right or interest whatsoever of any third party.
(c) In addition to any other legend that is required by
applicable law, certificates for the Option Shares delivered at each
Closing shall be endorsed with a restrictive legend which shall read
substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS
OF MARCH 11, 1997. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
-3-
<PAGE>
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN
REQUEST THEREFOR.
It is understood and agreed that (i) the portion of the above
legend relating to the Securities Act shall be removed by delivery of a
substitute certificate(s) without such legend if Holder shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to
Issuer and its counsel, to the effect that such legend is not required
for purposes of the Securities Act and (ii) the reference to
restrictions pursuant to this Agreement in the above legend shall be
removed by delivery of a substitute certificate(s) without such
reference if the Option Shares evidenced by a certificate(s) containing
such reference have been sold or transferred in compliance with
provisions of this Agreement under circumstances that do not require
the retention of such reference.
(d) Upon the giving by Holder to Issuer of the written notice
of exercise of the Option provided for under Section 3(e), the tender
of the applicable Purchase Price in immediately available funds and the
tender of this Agreement to Issuer, Holder shall be deemed to be the
holder of record of the shares of Issuer Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that a certificate(s) representing such shares
of Issuer Common Stock shall not then be actually delivered to Holder.
Issuer shall pay all expenses, and any and all United States federal,
state, and local taxes other than income taxes and other charges that
may be payable in connection with the preparation, issuance and
delivery of stock certificates under this Section 4(d) in the name of
Holder or its permitted assignee, transferee, or designee pursuant to
the terms hereof.
(e) Issuer agrees (i) that it shall at all times maintain,
free from preemptive rights, sufficient authorized but unissued or
treasury shares of Issuer Common Stock so that the Option may be
exercised without additional authorization of Issuer Common Stock after
giving effect to all other options, warrants, convertible securities
and other rights to purchase Issuer Common Stock, (ii) that it will
not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act,
avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed
hereunder by Issuer, (iii) promptly to take all action as may from time
to time be required (including (A) complying with all premerger
notification, reporting and waiting period requirements and (B) in the
event prior approval of or notice to any Governmental Entity is
necessary before the Option may be exercised, cooperating fully with
Holder in preparing such application or notice and providing such
information to such Governmental Entity as it may require) in order to
permit Holder to exercise the Option and Issuer duly and effectively to
issue shares of the Issuer Common Stock pursuant hereto, and
(iv) promptly to take all action provided herein to protect the rights
of Holder against dilution.
5. Representations and Warranties and Covenants and Agreements of
Issuer. Issuer hereby represents and warrants to Grantee (and Holder, if
different than Grantee) as follows:
(a) Corporate Authority. Issuer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; the execution and delivery of this
Agreement and, subject to receiving any necessary approval from a
Governmental Entity, the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors
of Issuer, and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions
so contemplated; this Agreement has been duly and validly executed and
delivered by Issuer.
(b) Beneficial Ownership. As of the date of this Agreement, no
person or group has beneficial ownership of more than 10% of the issued
and outstanding shares of Issuer Common Stock.
-4-
<PAGE>
(c) Shares Reserved for Issuance; Capital Stock. Issuer has
taken all necessary corporate action to authorize and reserve and
permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms, will have
reserved for issuance upon the exercise of the Option, that number of
shares of Issuer Common Stock equal to the maximum number of shares of
Issuer Common Stock at any time and from time to time purchasable upon
exercise of the Option, and all such shares, upon issuance pursuant to
the Option, will be duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all Liens (other
than those created by this Agreement and applicable securities laws
restrictions) and not subject to any preemptive rights.
(d) No Violations. The execution, delivery and performance of
this Agreement does not and will not, and the consummation by Issuer of
any of the transactions contemplated hereby will not, constitute or
result in (A) a breach or violation of, or a default under, its
articles of incorporation or by-laws, or the comparable governing
instruments of any of its subsidiaries, or (B) a breach or violation
of, or a default under, any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment
decree, order, award or governmental or nongovernmental permit or
license to which it or any of its subsidiaries is subject, that would,
in any case give any other person the ability to prevent or enjoin
Issuer's performance under this Agreement in any material respect.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer as follows:
(a) Corporate Authority. Grantee has full corporate power and
authority to enter into this Agreement and, subject to obtaining the
approvals referred to in this Agreement to consummate the transactions
contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of Grantee; and this Agreement has been duly executed and delivered by
Grantee.
(b) Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee or Holder upon exercise of the Option
will not be taken with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities
Act.
7. Adjustment upon Changes in Issuer Capitalization, etc.
(a) In the event of any change in Issuer Common Stock by
reason of a stock dividend, stock split, split-up, recapitalization,
combination, exchange of shares, exercise of stock purchase warrants or
rights or similar transaction, the type and number of shares or
securities subject to the Option, and the Purchase Price therefor,
shall be adjusted appropriately, and proper provision shall be made in
the agreements governing such transaction so that Holder shall receive,
upon exercise of the Option, the number and class of shares or other
securities or property that Holder would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior
to such event, or the record date therefor, as applicable. If any
additional shares of Issuer Common Stock are issued after the date of
this Agreement (other than pursuant to an event described in the first
sentence of this Section 7(a)), upon exercise of any option to purchase
Issuer Common Stock outstanding on the date hereof, the number of
shares of Issuer Common Stock subject to the Option shall be adjusted
so that, after such issuance, it, together with any shares of Issuer
Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Issuer Common Stock then issued and outstanding,
without giving effect to any shares subject to or issued pursuant to
the Option. No provision of this Section 7 shall be deemed to affect or
change, or constitute authorization for any violation of, any of the
covenants or representations in the Plan.
-5-
<PAGE>
(b) In the event that Issuer shall enter into an agreement
(i) to consolidate with or merge into any person, other than in
connection with the Merger provided for in the Plan, and shall not be
the continuing or surviving corporation of such consolidation or
merger, (ii) to permit any person, other than in connection with the
Merger provided for in the Plan, to merge into Issuer and Issuer shall
be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Issuer Common Stock shall
be changed into or exchanged for stock or other securities of Issuer
or any other person or cash or any other property or the outstanding
shares of Issuer Common Stock immediately prior to such merger shall,
after such merger, represent less than 50% of the outstanding shares
and share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any
person, other than in connection with the Merger provided for in the
Plan, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall,
upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an
option (the "Substitute Option"), at the election of Holder, of either
(x) the Acquiring Corporation (as hereinafter defined), (y) any person
that controls the Acquiring Corporation, or (z) in the case of a
merger described in clause (ii), Issuer (such person being referred to
as "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the
Option, provided, that, if the terms of the Substitute Option cannot,
for legal reasons, be the same as the Option, such terms shall be as
similar as possible and in no event less advantageous to Holder.
Substitute Option Issuer shall also enter into an agreement with Holder
in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock (as hereinafter defined) as is
equal to the Assigned Value (as hereinafter defined) multiplied by the
number of shares of Issuer Common Stock for which the Option was
theretofore exercisable, divided by the Average Price (as hereinafter
defined). The exercise price of Substitute Option per share of
Substitute Common Stock (the "Substitute Option Price") shall then be
equal to the Purchase Price multiplied by a fraction in which the
numerator is the number of shares of Issuer Common Stock for which the
Option was theretofore exercisable and the denominator is the number of
shares of the Substitute Common Stock for which the Substitute Option
is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the
continuing or surviving corporation of a consolidation or
merger with Issuer (if other than Issuer), (y) Issuer in a
merger in which Issuer is the continuing or surviving person,
or (z) the transferee of all or substantially all of Issuer's
assets (or a substantial part of the assets of its
subsidiaries taken as a whole).
(ii) "Substitute Common Stock" shall mean the shares
of capital stock (or similar equity interest) with the
greatest voting power in respect of the election of directors
(or persons similarly responsible for the direction of the
business and affairs) of Substitute Option Issuer.
(iii) "Assigned Value" shall mean the highest of (w)
the price per share of Issuer Common Stock at which a Tender
Offer or an Exchange Offer therefor has been made, (x) the
price per share of Issuer Common Stock to be paid by any third
party pursuant to an agreement with Issuer, (y) the Average
Price and (z) in the event of a sale of all or substantially
all of Issuer's assets, an amount equal to (I) the sum of the
price paid in such sale for such assets and the current market
value of the remaining assets of Issuer, as determined by a
nationally recognized investment banking firm selected by
Holder divided by (II) the number of shares of Issuer Common
Stock outstanding at such time. In the event that a Tender
Offer or an Exchange Offer is made for Issuer Common Stock or
an agreement is entered into for a merger or
-6-
<PAGE>
consolidation involving consideration other than cash, the
value of the securities or other property issuable or
deliverable in exchange for Issuer Common Stock shall be
determined by a nationally recognized investment banking firm
selected by Holder.
(iv) "Average Price" shall mean the average closing
price of a share of Substitute Common Stock for the one year
immediately preceding the consolidation, merger, or sale in
question, but in no event higher than the closing price of the
shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided, however, that if
Issuer is the issuer of the Substitute Option, the Average
Price shall be computed with respect to a share of common
stock issued by Issuer, the person merging into Issuer or by
any company which controls such person, as Holder may elect.
(f) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the
aggregate of the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute
Option would be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock but for the limitation in the first
sentence of this Section 7(f), Substitute Option Issuer shall make a
cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in the first
sentence of this Section 7(f) over (ii) the value of the Substitute
Option after giving effect to the limitation in the first sentence of
this Section 7(f). This difference in value shall be determined by a
nationally-recognized investment banking firm selected by Holder.
(g) Issuer shall not enter into any transaction described in
Section 7(b) unless the Acquiring Corporation and any person that
controls the Acquiring Corporation shall assume in writing all the
obligations of Issuer hereunder and take all other actions that may be
necessary so that the provisions of this Section 7 are given full force
and effect (including, without limitation, any action that may be
necessary so that the holders of the other shares of common stock
issued by Substitute Option Issuer are not entitled to exercise any
rights by reason of the issuance or exercise of the Substitute Option
and the shares of Substitute Common Stock are otherwise in no way
distinguishable from or have lesser economic value (other than any
diminution in value resulting from the fact that the Substitute Common
Stock are restricted securities, as defined in Rule 144 under the
Securities Act or any successor provision) than other shares of common
stock issued by Substitute Option Issuer).
8. [Intentionally Omitted].
9. Registration Rights.
(a) Demand Registration Rights. On not more than two (2)
occasions, Issuer shall, subject to the conditions of Section 9(c)
below, if requested by any Holder, including Grantee and any permitted
transferee ("Selling Shareholder"), as expeditiously as possible
prepare and file a registration statement under the Securities Act if
such registration is necessary in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other
securities that have been acquired by or are issuable to the Selling
Shareholder upon exercise of the Option in accordance with the intended
method of sale or other disposition stated by the Selling Shareholder
in such request, including without limitation a "shelf" registration
statement under Rule 415 under the Securities Act or any successor
provision, and Issuer shall use its best efforts to qualify such shares
or other securities for sale under any applicable state securities
laws.
(b) Additional Registration Rights. If Issuer at any time
after the exercise of the Option proposes to register any shares of
Issuer Common Stock under the Securities Act in connection with an
underwritten public offering of such Issuer Common Stock, Issuer will
promptly give written notice to the
-7-
<PAGE>
Selling Shareholder of its intention to do so and, upon the written
request of the Selling Shareholder given within 30 days after receipt
of any such notice (which request shall specify the number of shares of
Issuer Common Stock intended to be included in such underwritten public
offering by the Selling Shareholder), Issuer will cause all such shares
for which the Selling Shareholder requests participation in such
registration, to be so registered and included in such underwritten
public offering; provided, however, that Issuer may elect to not cause
any such shares to be so registered (i) if the underwriters in good
faith object for valid business reasons, or (ii) in the case of a
registration solely to implement an employee benefit plan or a
registration filed on Form S-4 of the Securities Act or any successor
Form; provided, further, however, that such election pursuant to
(i) may only be made two times.
(c) Conditions to Required Registration. Issuer shall use all
reasonable efforts to cause each registration statement referred to in
Section 9(a) above to become effective and to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective; provided, however, that Issuer may
delay any registration of Option Shares required pursuant to Section
9(a) above for a period not exceeding 90 days provided Issuer shall in
good faith determine that any such registration would adversely affect
an offering or contemplated offering of other securities by Issuer, and
Issuer shall not be required to register Option Shares under the
Securities Act pursuant to Section 9(a) above:
(i) prior to the earliest of (a) termination of the
Plan pursuant to Article VIII thereof, (b) failure to obtain
the requisite shareholder approval pursuant to Section 6.4 of
the Plan, and (c) a Purchase Event or a Preliminary Purchase
Event;
(ii) on more than one occasion during any calendar
year; and
(iii) within 90 days after the effective date of a
registration referred to in Section 9(b) above pursuant to
which the Selling Shareholder concerned was afforded the
opportunity to register such shares under the Securities Act
and such shares were registered as requested.
In addition to the foregoing, Issuer shall not be required to
maintain the effectiveness of any registration statement after the
expiration of nine months from the effective date of such registration
statement. Issuer shall use all reasonable efforts to make any filings,
and take all steps, under all applicable state securities laws to the
extent necessary to permit the sale or other disposition of the Option
Shares so registered in accordance with the intended method of
distribution for such shares; provided, however, that Issuer shall not
be required to consent to general jurisdiction or qualify to do
business in any state where it is not otherwise required to so consent
to such jurisdiction or to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such
payments, Issuer will pay all expenses (including without limitation
registration fees, qualification fees, blue sky fees and expenses
(including the fees and expenses of counsel), legal expenses, including
the reasonable fees and expenses of one counsel to the holder whose
Option Shares are being registered, printing expenses and the costs of
special audits or "cold comfort" letters, expenses of underwriters,
excluding discounts and commissions but including liability insurance
if Issuer so desires or the underwriters so require, and the reasonable
fees and expenses of any necessary special experts) in connection with
each registration pursuant to Section 9(a) or 9(b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to Section 9(a) or
9(b) above.
(e) Indemnification. In connection with any registration under
Section 9(a) or 9(b) above Issuer hereby indemnifies the Selling
Shareholder, and each underwriter thereof, including each person, if
any, who controls such holder or underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, losses, claims,
damages and liabilities caused by any untrue, or alleged untrue,
-8-
<PAGE>
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or
caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such expenses,
losses, claims, damages or liabilities of such indemnified party are
caused by any untrue statement or alleged untrue statement that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or
supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party
expressly for use therein, and Issuer and each officer, director and
controlling person of Issuer shall be indemnified by the Selling
Shareholder, or by such underwriter, as the case may be, for all such
expenses, losses, claims, damages and liabilities caused by any untrue,
or alleged untrue, statement, that was included by Issuer in any such
registration statement or prospectus or notification or offering
circular (including any amendments or supplements thereto) in reliance
upon, and in conformity with, information furnished in writing to
Issuer by the Selling Shareholder or such underwriter, as the case may
be, expressly for such use.
Promptly upon receipt by a party indemnified under this
Section 9(e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be
sought against any indemnifying party under this Section 9(e), such
indemnified party shall notify the indemnifying party in writing of the
commencement of such action, but the failure so to notify the
indemnifying party shall not relieve it of any liability, which it may
otherwise have to any indemnified party under this Section 9(e) unless
the failure so to notify the indemnified party results in substantial
prejudice thereto. In case notice of commencement of any such action
shall be given to the indemnifying party as above provided, the
indemnifying party shall be entitled to participate in and, to the
extent it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense of such action at its own expense, with
counsel chosen by it and satisfactory to such indemnified party. The
indemnified party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party either agrees to pay the same, (ii) the indemnifying
party fails to assume the defense of such action with counsel
reasonably satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal
defenses may be available to the indemnifying party that may be
contrary to the interest of the indemnified party, in which case the
indemnifying party shall be entitled to assume the defense of such
action notwithstanding its obligation to bear fees and expenses of such
counsel. No indemnifying party shall be liable for any settlement
entered into without its consent, which consent may not be unreasonably
withheld, conditioned or delayed.
If the indemnification provided for in this Section 9(e) is
unavailable to a party otherwise entitled to be indemnified in respect
of any expenses, losses, claims, damages or liabilities referred to
herein, then the indemnifying party, in lieu of indemnifying such party
otherwise entitled to be indemnified, shall contribute to the amount
paid or payable by such party to be indemnified as a result of such
expenses, losses, claims, damages or liabilities in such proportion as
is appropriate to reflect the relative benefits received by Issuer, the
Selling Shareholder and the underwriters from the offering of the
securities and also the relative fault of Issuer, the Selling
Shareholder and the underwriters in connection with the statements or
omissions which resulted in such expenses, losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The amount paid or payable by a party as a result of the expenses,
losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending
any action or claim; provided, however, that in no case shall the
Selling Shareholder be responsible, in the aggregate, for any amount in
excess of the net offering proceeds attributable to its Option Shares
included in the offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent
-9-
<PAGE>
misrepresentation. Any obligation by any holder to indemnify shall be
several and not joint with other holders.
In connection with any registration pursuant to Section 9(a)
or 9(b) above, Issuer and each Selling Shareholder (other than Grantee)
shall enter into an agreement containing the indemnification provisions
of this Section 9(e).
(f) Miscellaneous Reporting. Issuer shall comply with all
reporting requirements and will do all such other things as may be
necessary to permit the expeditious sale at any time of any Option
Shares by the Selling Shareholder thereof in accordance with and to the
extent permitted by any rule or regulation promulgated by the SEC from
time to time, including, without limitation, Rule 144. Issuer shall at
its expense provide the Selling Shareholder with any information
necessary in connection with the completion and filing of any reports
or forms required to be filed by them under the Securities Act or the
Exchange Act, or required pursuant to any state securities laws or the
rules of any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in connection
with the issuance and the sale of the Option Shares and in connection
with the exercise of the Option, and will save the Selling Shareholder
harmless, without limitation as to time, against any and all
liabilities, with respect to all such taxes.
10. Quotation; Listing. If Issuer Common Stock or any other securities
to be acquired in connection with the exercise of the Option are then authorized
for quotation or trading or listing on the NYSE or any securities exchange,
Issuer, upon the request of Holder, will promptly file an application, if
required, to authorize for quotation or trading or listing, the shares of Issuer
Common Stock or other securities to be acquired upon exercise of the Option on
the NYSE or such other securities exchange and will use its best efforts to
obtain approval, if required, of such quotation or listing as soon as
practicable on the securities exchange on which Issuer Common Stock trades.
11. New Agreement. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided for herein, each of
the parties hereto shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of
such provision. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiaries;
Severability. This Agreement, together with the Plan and the other
documents and instruments referred to herein and therein, between
Grantee and Issuer (i) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any person other than the parties hereto
(except for the indemnified parties under Section 9(e) and any
transferees of the Option Shares or any permitted transferee of this
Agreement pursuant to Section
-10-
<PAGE>
12(h)) any rights or remedies hereunder. If any term, provision,
covenant or restriction of this Agreement is held by a court of
competent jurisdiction or Governmental Entity to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
(d) Governing Law. This Agreement shall be governed and
construed in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to any applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained
herein are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to the parties at the addresses set
forth in the Plan (or at such other address for a party as shall be
specified by like notice).
(g) Counterparts. This Agreement and any amendments hereto may
be executed in two counterparts, each of which shall be considered one
and the same agreement and shall become effective when both
counterparts have been signed, it being understood that both parties
need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except
that Holder may assign this Agreement to a wholly-owned subsidiary of
Grantee. The term "Holder" as used herein shall mean either Grantee or
the wholly-owned subsidiary of Grantee that possesses the Option at the
applicable time. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the
Option by Holder, Issuer and Holder shall execute and deliver all other
documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided
for by such exercise.
(j) Specific Performance. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further
agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such equitable relief and that
this provision is without prejudice to any other rights that the
parties hereto may have for any failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by
-11-
<PAGE>
their respective officers thereunto duly authorized, all as of the day and year
first written above.
ULTRAK, INC.
By /s/ George K. Broady
---------------------------------------
George K. Broady, President and CEO
CHECKPOINT SYSTEMS, INC.
By /s/ Kevin P. Dowd
---------------------------------------
Kevin P. Dowd, President and CEO
-12-
EXHIBIT 10.3
ULTRAK STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 11, 1997 (the "Agreement"),
by and between ULTRAK, INC., a Delaware corporation ("Issuer"), and CHECKPOINT
SYSTEMS, INC., a Pennsylvania corporation ("Grantee").
RECITALS
A. The Plan. Grantee and Issuer are concurrently herewith entering an
Agreement and Plan of Reorganization, dated as of the date hereof (the "Plan"),
providing for, among other things, the merger of Issuer with and into C U MERGER
CORP., a Delaware corporation ("Merger Sub"), with Merger Sub being the
surviving corporation.
B. Condition to Plan. As a condition and inducement to Grantee's
execution of the Plan, Grantee has required that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. Defined Terms. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Plan.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase a number of shares of common stock, par value $0.01 per share ("Issuer
Common Stock"), of Issuer as shall, after exercise and as adjusted as set forth
herein, be equal to 19.9% of the issued and outstanding shares of Issuer Common
Stock (the "Option Shares") at a purchase price per Option Share (as adjusted as
set forth herein, the "Purchase Price") equal to $24.08.
3. Exercise of Option.
(a) Provided that (i) Grantee or Holder (as hereinafter
defined), as applicable, shall not be in material breach of the
agreements or covenants contained in this Agreement, and (ii) no
preliminary or permanent injunction or other order against the delivery
of shares covered by the Option issued by any court of competent
jurisdiction in the United States shall be in effect, the Holder may
exercise the Option in whole but not in part at any time and from time
to time following the occurrence of a Purchase Event (as hereinafter
defined); provided, however, that the Option shall terminate and be of
no further force or effect upon the earliest to occur of (A) the
Effective Time, (B) termination of the Plan in accordance with Section
8.1(a), Section 8.1(b) (so long as the failure of the Effective Time to
occur under clause (i) was not caused by Ultrak, and excluding clause
(iv) to the extent a termination fee is payable under Section 8.5), or
Sections 8.1(d)(i) thereof, prior to the occurrence of a Purchase
Event or a Preliminary Purchase Event (as hereinafter defined) or
(C) September 11, 1998; provided, further, however, that any purchase
of shares upon exercise of the Option shall be subject to compliance
with applicable law. Notwithstanding the termination of the Option,
Grantee or Holder, as the case may be, shall be entitled to purchase
the Option Shares if it has exercised the Option in accordance herewith
prior to the termination of the Option. The termination of the Option
shall not affect any rights hereunder which by their terms extend
beyond the date of such termination.
<PAGE>
(b) As used herein, a "Purchase Event" means any of the
following events:
(i) Without Grantee's prior written consent, Issuer
shall have recommended, publicly proposed, or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Grantee or any subsidiary of
Grantee) to effect (A) a merger, consolidation or similar transaction
involving Issuer or any of its subsidiaries the gross revenues of which
equaled or exceeded $25 million during its fiscal year most recently
ended (a "Significant Subsidiary") (other than transactions solely
between Issuer's subsidiaries that are not violative of the Plan),
(B) the disposition, by sale, lease, exchange or otherwise, of assets
of Issuer or any of its Significant Subsidiaries representing in either
case 25% or more of the consolidated assets of Issuer and its
subsidiaries or (C) the issuance, sale or other disposition by Issuer
of (including by way of merger, consolidation, share exchange or any
similar transaction) securities representing 25% or more of the voting
power of Issuer or any of its Significant Subsidiaries, other than, in
each case of (A), (B), or (C), any merger, consolidation, share
exchange or similar transaction involving Issuer or any of its
Significant Subsidiaries in which the voting securities of Issuer
outstanding immediately prior thereto continue to represent (by either
remaining outstanding or being converted into the voting securities of
the surviving entity of any such transaction) at least 65% of the
combined voting power of the voting securities of the Issuer or the
surviving entity outstanding immediately after the consummation of such
merger, consolidation, or similar transaction (provided any such
transaction is not violative of the Plan) (each of (A), (B), or (C), an
"Acquisition Transaction"); or
(ii) any person (other than Grantee or any subsidiary
of Grantee and George K. Broady ("Broady"), to the extent of his
current ownership as of the date of this Agreement [and any increase in
such ownership up to an aggregate 40% of Issuer Common Stock]) shall
have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in
Section 13(d)(3) of the Exchange Act), other than a group of which
Grantee or any subsidiary of Grantee or Broady is a member, shall have
been formed which beneficially owns or has the right to acquire
beneficial ownership of 25% or more of the voting power of Issuer or
any of its Significant Subsidiaries; or
(iii) any person (other than Grantee or any
subsidiary of Grantee) shall have commenced (as such term is defined in
Rule 14d-2 under the Exchange Act) or shall have filed a registration
statement under the Securities Act, with respect to, a tender offer or
exchange offer to purchase any shares of Issuer Common Stock such that,
upon consummation of such offer, such person would own or control 25%
or more of the then outstanding shares of Issuer Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively); or
(iv) the Ultrak special shareholders meeting required
under the Plan shall not have been held or shall have been canceled
prior to termination of the Plan, or Issuer's Board of Directors shall
have withdrawn or modified in a manner adverse to Grantee the
recommendation of Issuer's Board of Directors with respect to the
matters relating to the Plan requiring approval, in each case after it
shall have been publicly announced that any person (other than Grantee
or any subsidiary of Grantee) shall have disclosed an intention to
engage in any transaction described in clauses (i), (ii) or (iii)
above, or make a bona fide proposal to engage in a transaction pursuant
to an Acquisition Proposal, or (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer.
(c) As used herein, a "Preliminary Purchase Event" means any
of the following events:
(i) Issuer has received, or there is a public
announcement of, a friendly or unsolicited tender offer or Ultrak
executes a formal letter of intent evidencing an Acquisition Proposal;
or
-2-
<PAGE>
(ii) any other event entitling Grantee to terminate
the Plan pursuant to Section 8.1 thereof and to receive a Termination
Fee as provided for in Section 8.5 of the Plan.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Preliminary Purchase Event or Purchase Event, it
being understood that the giving of such notice by Issuer shall not be
a condition to the right of Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying a place and date not
earlier than three business days nor later than 15 business days from
the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"); provided, however, that if the Closing cannot be
consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which such restriction
on consummation has expired or been terminated; and provided, further,
however, without limiting the foregoing, that if prior notification to
or approval of any Governmental Entity is required in connection with
such purchase, Issuer shall cooperate with Holder in the filing of the
required notice of application for approval and the obtaining of such
approval and the Closing shall occur immediately following such
regulatory approvals (and any mandatory waiting periods). Any exercise
of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) Notwithstanding Section 3(e), in no event shall any
Closing Date be more than 18 months after the related Notice Date, and
if the Closing Date shall not have occurred within 18 months after the
related Notice Date due solely to the failure to obtain any such
required approval, the exercise of the Option effected on the Notice
Date shall be deemed to have expired.
4. Payment and Delivery of Certificates.
(a) On the Closing Date, Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account
designated by Issuer, an amount equal to the Purchase Price multiplied
by the number of Option Shares to be purchased on such Closing Date,
and (ii) present and surrender this Agreement to the Issuer at the
address of the Issuer specified in Section 12(f).
(b) At the Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided
in Section 4(a), (i) Issuer shall deliver to Holder a certificate or
certificates representing the Option Shares to be purchased at such
Closing, which Option Shares shall be free and clear of all Liens
(other than applicable federal and state securities laws restrictions
and restrictions contained in this Agreement) and subject to no
preemptive rights, and (ii) Holder shall deliver to Issuer a letter
agreeing that Holder shall not offer to sell or otherwise dispose of
such Option Shares in violation of applicable federal and state laws or
of the provisions of this Agreement. "Lien(s)" shall mean any lien,
encumbrance, encroachment, defect, mortgage, pledge, liability, option,
security interest, conditional sale or other title retention agreement,
assessment, license, covenant, charge, restriction, reservation, claim,
burden, right or interest whatsoever of any third party.
(c) In addition to any other legend that is required by
applicable law, certificates for the Option Shares delivered at each
Closing shall be endorsed with a restrictive legend which shall read
substantially as follows:
-3-
<PAGE>
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS
OF MARCH 11, 1997. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN
REQUEST THEREFOR.
It is understood and agreed that (i) the portion of the above
legend relating to the Securities Act shall be removed by delivery of a
substitute certificate(s) without such legend if Holder shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to
Issuer and its counsel, to the effect that such legend is not required
for purposes of the Securities Act and (ii) the reference to
restrictions pursuant to this Agreement in the above legend shall be
removed by delivery of a substitute certificate(s) without such
reference if the Option Shares evidenced by a certificate(s) containing
such reference have been sold or transferred in compliance with
provisions of this Agreement under circumstances that do not require
the retention of such reference.
(d) Upon the giving by Holder to Issuer of the written notice
of exercise of the Option provided for under Section 3(e), the tender
of the applicable Purchase Price in immediately available funds and the
tender of this Agreement to Issuer, Holder shall be deemed to be the
holder of record of the shares of Issuer Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that a certificate(s) representing such shares
of Issuer Common Stock shall not then be actually delivered to Holder.
Issuer shall pay all expenses, and any and all United States federal,
state, and local taxes (other than income taxes) and other charges that
may be payable in connection with the preparation, issuance and
delivery of stock certificates under this Section 4(d) in the name of
Holder or its permitted assignee, transferee, or designee pursuant to
the terms hereof.
(e) Issuer agrees (i) that it shall at all times maintain,
free from preemptive rights, sufficient authorized but unissued or
treasury shares of Issuer Common Stock so that the Option may be
exercised without additional authorization of Issuer Common Stock after
giving effect to all other options, warrants, convertible securities
and other rights to purchase Issuer Common Stock, (ii) that it will
not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act,
avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed
hereunder by Issuer, (iii) promptly to take all action as may from time
to time be required (including (A) complying with all premerger
notification, reporting and waiting period requirements and (B) in the
event prior approval of or notice to any Governmental Entity is
necessary before the Option may be exercised, cooperating fully with
Holder in preparing such application or notice and providing such
information to such Governmental Entity as it may require) in order to
permit Holder to exercise the Option and Issuer duly and effectively to
issue shares of the Issuer Common Stock pursuant hereto, and
(iv) promptly to take all action provided herein to protect the rights
of Holder against dilution.
5. Representations and Warranties and Covenants and Agreements of
Issuer. Issuer hereby represents and warrants to Grantee (and Holder, if
different than Grantee) as follows:
(a) Corporate Authority. Issuer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; the execution and delivery of this
Agreement and, subject to receiving any necessary approval from a
Governmental Entity, the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors
of Issuer, and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions
so contemplated; this Agreement has been duly and validly executed and
delivered by Issuer.
-4-
<PAGE>
(b) Beneficial Ownership. Other than with respect to the
shares of Issuer Common Stock owned directly and beneficially by George
K. Broady, to the best knowledge of Issuer, as of the date of this
Agreement, no person or group has beneficial ownership of more than 10%
of the issued and outstanding shares of Issuer Common Stock.
(c) Shares Reserved for Issuance; Capital Stock. Issuer has
taken all necessary corporate action to authorize and reserve and
permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms, will have
reserved for issuance upon the exercise of the Option, that number of
shares of Issuer Common Stock equal to the maximum number of shares of
Issuer Common Stock at any time and from time to time purchasable upon
exercise of the Option, and all such shares, upon issuance pursuant to
the Option, will be duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all Liens (other
than those created by this Agreement and applicable securities laws
restrictions) and not subject to any preemptive rights.
(d) No Violations. The execution, delivery and performance of
this Agreement does not and will not, and the consummation by Issuer of
any of the transactions contemplated hereby will not, constitute or
result in (A) a breach or violation of, or a default under, its
certificate of incorporation or by-laws, or the comparable governing
instruments of any of its subsidiaries, or (B) a breach or violation
of, or a default under, any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment
decree, order, award or governmental or nongovernmental permit or
license to which it or any of its subsidiaries is subject, that would,
in any case give any other person the ability to prevent or enjoin
Issuer's performance under this Agreement in any material respect.
(e) Board Action. The Board of Directors of Issuer having
approved this Agreement and the consummation of the transactions
contemplated hereby by the vote of greater than 67% of the members of
the Issuer's Board of Directors, the provisions of Section 203 of the
DGCL do not and will not apply to this Agreement or the purchase of
shares of Issuer Common Stock pursuant to this Agreement.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer as follows:
(a) Corporate Authority. Grantee has full corporate power and
authority to enter into this Agreement and, subject to obtaining the
approvals referred to in this Agreement to consummate the transactions
contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of Grantee; and this Agreement has been duly executed and delivered by
Grantee.
(b) Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee or Holder upon exercise of the Option
will not be taken with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities
Act.
7. Adjustment upon Changes in Issuer Capitalization, etc.
(a) In the event of any change in Issuer Common Stock by
reason of a stock dividend, stock split, split-up, recapitalization,
combination, exchange of shares, exercise of stock purchase warrants or
rights or similar transaction, the type and number of shares or
securities subject to the Option, and the Purchase Price therefor,
shall be adjusted appropriately, and proper provision shall be made in
the agreements governing such transaction so that Holder shall receive,
upon exercise of the Option, the number and class of shares or other
securities or property that Holder would have received in respect of
-5-
<PAGE>
Issuer Common Stock if the Option had been exercised immediately prior
to such event, or the record date therefor, as applicable. If any
additional shares of Issuer Common Stock are issued after the date of
this Agreement (other than pursuant to an event described in the first
sentence of this Section 7(a)), upon exercise of any option to purchase
Issuer Common Stock outstanding on the date hereof, the number of
shares of Issuer Common Stock subject to the Option shall be adjusted
so that, after such issuance, it, together with any shares of Issuer
Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Issuer Common Stock then issued and outstanding,
without giving effect to any shares subject to or issued pursuant to
the Option. No provision of this Section 7 shall be deemed to affect or
change, or constitute authorization for any violation of, any of the
covenants or representations in the Plan.
(b) In the event that Issuer shall enter into an agreement
(i) to consolidate with or merge into any person, other than Grantee or
one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person,
other than Grantee or one of its subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer
Common Stock shall be changed into or exchanged for stock or other
securities of Issuer or any other person or cash or any other property
or the outstanding shares of Issuer Common Stock immediately prior to
such merger shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company, or
(iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its subsidiaries,
then, and in each such case, the agreement governing such transaction
shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Holder, of either (x) the
Acquiring Corporation (as hereinafter defined), (y) any person that
controls the Acquiring Corporation, or (z) in the case of a merger
described in clause (ii), Issuer (such person being referred to as
"Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the
Option, provided, that, if the terms of the Substitute Option cannot,
for legal reasons, be the same as the Option, such terms shall be as
similar as possible and in no event less advantageous to Holder.
Substitute Option Issuer shall also enter into an agreement with Holder
in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock (as hereinafter defined) as is
equal to the Assigned Value (as hereinafter defined) multiplied by the
number of shares of Issuer Common Stock for which the Option was
theretofore exercisable, divided by the Average Price (as hereinafter
defined). The exercise price of Substitute Option per share of
Substitute Common Stock (the "Substitute Option Price") shall then be
equal to the Purchase Price multiplied by a fraction in which the
numerator is the number of shares of Issuer Common Stock for which the
Option was theretofore exercisable and the denominator is the number of
shares of the Substitute Common Stock for which the Substitute Option
is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the
continuing or surviving corporation of a consolidation or
merger with Issuer (if other than Issuer), (y) Issuer in a
merger in which Issuer is the continuing or surviving person,
or (z) the transferee of all or substantially all of Issuer's
assets (or a substantial part of the assets of its
subsidiaries taken as a whole).
(ii) "Substitute Common Stock" shall mean the shares
of capital stock (or similar equity interest) with the
greatest voting power in respect of the election of directors
(or persons similarly responsible for the direction of the
business and affairs) of Substitute Option Issuer.
-6-
<PAGE>
(iii) "Assigned Value" shall mean the highest of (w)
the price per share of Issuer Common Stock at which a Tender
Offer or an Exchange Offer therefor has been made, (x) the
price per share of Issuer Common Stock to be paid by any third
party pursuant to an agreement with Issuer, (y) the Average
Price and (z) in the event of a sale of all or substantially
all of Issuer's assets, an amount equal to (I) the sum of the
price paid in such sale for such assets and the current market
value of the remaining assets of Issuer, as determined by a
nationally recognized investment banking firm selected by
Holder divided by (II) the number of shares of Issuer Common
Stock outstanding at such time. In the event that a Tender
Offer or an Exchange Offer is made for Issuer Common Stock or
an agreement is entered into for a merger or consolidation
involving consideration other than cash, the value of the
securities or other property issuable or deliverable in
exchange for Issuer Common Stock shall be determined by a
nationally recognized investment banking firm selected by
Holder.
(iv) "Average Price" shall mean the average closing
price of a share of Substitute Common Stock for the one year
immediately preceding the consolidation, merger, or sale in
question, but in no event higher than the closing price of the
shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided, however, that if
Issuer is the issuer of the Substitute Option, the Average
Price shall be computed with respect to a share of common
stock issued by Issuer, the person merging into Issuer or by
any company which controls such person, as Holder may elect.
(f) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the
aggregate of the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute
Option would be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock but for the limitation in the first
sentence of this Section 7(f), Substitute Option Issuer shall make a
cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in the first
sentence of this Section 7(f) over (ii) the value of the Substitute
Option after giving effect to the limitation in the first sentence of
this Section 7(f). This difference in value shall be determined by a
nationally-recognized investment banking firm selected by Holder.
(g) Issuer shall not enter into any transaction described in
Section 7(b) unless the Acquiring Corporation and any person that
controls the Acquiring Corporation shall assume in writing all the
obligations of Issuer hereunder and take all other actions that may be
necessary so that the provisions of this Section 7 are given full force
and effect (including, without limitation, any action that may be
necessary so that the holders of the other shares of common stock
issued by Substitute Option Issuer are not entitled to exercise any
rights by reason of the issuance or exercise of the Substitute Option
and the shares of Substitute Common Stock are otherwise in no way
distinguishable from or have lesser economic value (other than any
diminution in value resulting from the fact that the Substitute Common
Stock are restricted securities, as defined in Rule 144 under the
Securities Act or any successor provision) than other shares of common
stock issued by Substitute Option Issuer).
8. [Intentionally Omitted].
9. Registration Rights.
(a) Demand Registration Rights. On not more than two (2)
occasions, Issuer shall, subject to the conditions of Section 9(c)
below, if requested by any Holder, including Grantee and any permitted
transferee ("Selling Shareholder"), as expeditiously as possible
prepare and file a registration statement under the Securities Act if
such registration is necessary in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other
securities that have been acquired by or are issuable
-7-
<PAGE>
to the Selling Shareholder upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by the
Selling Shareholder in such request, including without limitation a
"shelf" registration statement under Rule 415 under the Securities Act
or any successor provision, and Issuer shall use its best efforts to
qualify such shares or other securities for sale under any applicable
state securities laws.
(b) Additional Registration Rights. If Issuer at any time
after the exercise of the Option proposes to register any shares of
Issuer Common Stock under the Securities Act in connection with an
underwritten public offering of such Issuer Common Stock, Issuer will
promptly give written notice to the Selling Shareholder of its
intention to do so and, upon the written request of the Selling
Shareholder given within 30 days after receipt of any such notice
(which request shall specify the number of shares of Issuer Common
Stock intended to be included in such underwritten public offering by
the Selling Shareholder), Issuer will cause all such shares for which
the Selling Shareholder requests participation in such registration, to
be so registered and included in such underwritten public offering;
provided, however, that Issuer may elect to not cause any such shares
to be so registered (i) if the underwriters in good faith object for
valid business reasons, or (ii) in the case of a registration solely to
implement an employee benefit plan or a registration filed on Form S-4
of the Securities Act or any successor Form; provided, further,
however, that such election pursuant to (i) may only be made two times.
(c) Conditions to Required Registration. Issuer shall use all
reasonable efforts to cause each registration statement referred to in
Section 9(a) above to become effective and to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective; provided, however, that Issuer may
delay any registration of Option Shares required pursuant to Section
9(a) above for a period not exceeding 90 days provided Issuer shall in
good faith determine that any such registration would adversely affect
an offering or contemplated offering of other securities by Issuer, and
Issuer shall not be required to register Option Shares under the
Securities Act pursuant to Section 9(a) above:
(i) prior to the earliest of (a) termination of the
Plan pursuant to Article VIII thereof, (b) failure to obtain
the requisite shareholder approval pursuant to Section 6.4 of
the Plan, and (c) a Purchase Event or a Preliminary Purchase
Event;
(ii) on more than one occasion during any calendar
year; and
(iii) within 90 days after the effective date of a
registration referred to in Section 9(b) above pursuant to
which the Selling Shareholder concerned were afforded the
opportunity to register such shares under the Securities Act
and such shares were registered as requested.
In addition to the foregoing, Issuer shall not be required to
maintain the effectiveness of any registration statement after the
expiration of nine months from the effective date of such registration
statement. Issuer shall use all reasonable efforts to make any filings,
and take all steps, under all applicable state securities laws to the
extent necessary to permit the sale or other disposition of the Option
Shares so registered in accordance with the intended method of
distribution for such shares; provided, however, that Issuer shall not
be required to consent to general jurisdiction or qualify to do
business in any state where it is not otherwise required to so consent
to such jurisdiction or to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such
payments, Issuer will pay all expenses (including without limitation
registration fees, qualification fees, blue sky fees and expenses
(including the fees and expenses of counsel), legal expenses, including
the reasonable fees and expenses of one counsel to the holder whose
Option Shares are being registered, printing expenses and the costs of
special audits or "cold comfort" letters, expenses of underwriters,
excluding discounts and commissions
-8-
<PAGE>
but including liability insurance if Issuer so desires or the
underwriters so require, and the reasonable fees and expenses of any
necessary special experts) in connection with each registration
pursuant to Section 9(a) or 9(b) above (including the related offerings
and sales by holders of Option Shares) and all other qualifications,
notifications or exemptions pursuant to Section 9(a) or 9(b) above.
(e) Indemnification. In connection with any registration under
Section 9(a) or 9(b) above Issuer hereby indemnifies the Selling
Shareholder, and each underwriter thereof, including each person, if
any, who controls such holder or underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, losses, claims,
damages and liabilities caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or
caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such expenses,
losses, claims, damages or liabilities of such indemnified party are
caused by any untrue statement or alleged untrue statement that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or
supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party
expressly for use therein, and Issuer and each officer, director and
controlling person of Issuer shall be indemnified by the Selling
Shareholder, or by such underwriter, as the case may be, for all such
expenses, losses, claims, damages and liabilities caused by any untrue,
or alleged untrue, statement, that was included by Issuer in any such
registration statement or prospectus or notification or offering
circular (including any amendments or supplements thereto) in reliance
upon, and in conformity with, information furnished in writing to
Issuer by the Selling Shareholder or such underwriter, as the case may
be, expressly for such use.
Promptly upon receipt by a party indemnified under this
Section 9(e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be
sought against any indemnifying party under this Section 9(e), such
indemnified party shall notify the indemnifying party in writing of the
commencement of such action, but the failure so to notify the
indemnifying party shall not relieve it of any liability, which it may
otherwise have to any indemnified party under this Section 9(e) unless
the failure so to notify the indemnified party results in substantial
prejudice thereto. In case notice of commencement of any such action
shall be given to the indemnifying party as above provided, the
indemnifying party shall be entitled to participate in and, to the
extent it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense of such action at its own expense, with
counsel chosen by it and satisfactory to such indemnified party. The
indemnified party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party either agrees to pay the same, (ii) the indemnifying
party fails to assume the defense of such action with counsel
reasonably satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal
defenses may be available to the indemnifying party that may be
contrary to the interest of the indemnified party, in which case the
indemnifying party shall be entitled to assume the defense of such
action notwithstanding its obligation to bear fees and expenses of such
counsel. No indemnifying party shall be liable for any settlement
entered into without its consent, which consent may not be unreasonably
withheld, conditioned or delayed.
If the indemnification provided for in this Section 9(e) is
unavailable to a party otherwise entitled to be indemnified in respect
of any expenses, losses, claims, damages or liabilities referred to
herein, then the indemnifying party, in lieu of indemnifying such party
otherwise entitled to be indemnified, shall contribute to the amount
paid or payable by such party to be indemnified as a result of such
expenses, losses, claims, damages or liabilities in such proportion as
is appropriate to reflect the relative benefits received by Issuer, the
Selling Shareholder and the underwriters from the offering of the
securities and also
-9-
<PAGE>
the relative fault of Issuer, the Selling Shareholder and the
underwriters in connection with the statements or omissions which
resulted in such expenses, losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The amount paid or
payable by a party as a result of the expenses, losses, claims, damages
and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim;
provided, however, that in no case shall the Selling Shareholder be
responsible, in the aggregate, for any amount in excess of the net
offering proceeds attributable to its Option Shares included in the
offering. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any obligation by any holder to indemnify shall be
several and not joint with other holders.
In connection with any registration pursuant to Section 9(a)
or 9(b) above, Issuer and the Selling Shareholder (other than Grantee)
shall enter into an agreement containing the indemnification provisions
of this Section 9(e).
(f) Miscellaneous Reporting. Issuer shall comply with all
reporting requirements and will do all such other things as may be
necessary to permit the expeditious sale at any time of any Option
Shares by the Selling Shareholder thereof in accordance with and to the
extent permitted by any rule or regulation promulgated by the SEC from
time to time, including, without limitation, Rule 144. Issuer shall at
its expense provide the Selling Shareholder with any information
necessary in connection with the completion and filing of any reports
or forms required to be filed by it under the Securities Act or the
Exchange Act, or required pursuant to any state securities laws or the
rules of any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in connection
with the issuance and the sale of the Option Shares and in connection
with the exercise of the Option, and will save the Selling Shareholder
harmless, without limitation as to time, against any and all
liabilities, with respect to all such taxes.
10. Quotation; Listing. If Issuer Common Stock or any other securities
to be acquired in connection with the exercise of the Option are then authorized
for quotation or trading or listing on the NASDAQ National Market or any
securities exchange, Issuer, upon the request of Holder, will promptly file an
application, if required, to authorize for quotation or trading or listing, the
shares of Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the NASDAQ National Market or such other securities exchange
and will use its best efforts to obtain approval, if required, of such quotation
or listing as soon as practicable on the securities exchange on which Issuer
Common Stock trades.
11. New Agreement. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided for herein, each of
the parties hereto shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of
such provision. This Agreement may not be modified,
-10-
<PAGE>
amended, altered or supplemented except upon the execution and delivery
of a written agreement executed by the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiaries;
Severability. This Agreement, together with the Plan and the other
documents and instruments referred to herein and therein, between
Grantee and Issuer (i) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any person other than the parties hereto
(except for the indemnified parties under Section 9(e) and any
transferees of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 12(h)) any rights or remedies hereunder.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or Governmental Entity to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
(d) Governing Law. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Delaware
without regard to any applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained
herein are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to the parties at the addresses set
forth in the Plan (or at such other address for a party as shall be
specified by like notice).
(g) Counterparts. This Agreement and any amendments hereto may
be executed in two counterparts, each of which shall be considered one
and the same agreement and shall become effective when both
counterparts have been signed, it being understood that both parties
need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except
that Holder may assign this Agreement to a wholly-owned subsidiary of
Grantee. The term "Holder" as used herein shall mean either Grantee or
the wholly-owned subsidiary of Grantee that possesses the Option at the
applicable time. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the
Option by Holder, Issuer and Holder shall execute and deliver all other
documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided
for by such exercise.
(j) Specific Performance. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further
agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such equitable relief and that
this provision is without prejudice to any other rights that the
parties hereto may have for any failure to perform this Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
ULTRAK, INC.
By /s/ George K. Broady
----------------------------------------
George K. Broady, President and CEO
CHECKPOINT SYSTEMS, INC.
By /s/ Kevin P. Dowd
----------------------------------------
Kevin P. Dowd, President and CEO
EXHIBIT 10.4
SHAREHOLDER'S AGREEMENT
SHAREHOLDER'S AGREEMENT dated as of March 11, 1997 (the "Agreement"),
by and between CHECKPOINT SYSTEMS, INC., a Pennsylvania corporation ("Parent"),
and GEORGE K. BROADY ("Shareholder").
RECITALS
A. Parent, CU Merger Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and Ultrak, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Reorganization dated
as of the date hereof (the "Plan"). The Merger (as defined in the Plan) is
subject to certain conditions, including the approval of the Merger and the
approval and adoption of the Plan by the holders of a majority of the
outstanding shares of common stock, par value $0.10 per share of the Company
(the "Common Stock") and by the holders of a majority of the outstanding shares
of preferred stock, par value $5.00 per share, of the Company (the "Preferred
Stock").
B. Shareholder is the record and beneficial owner of 1,634,603 shares
of Common Stock (the "Shareholder Common Shares") and 195,351 shares of
Preferred Stock (the "Shareholder Preferred Shares") (the Shareholder Common
Shares and the Shareholder Preferred Shares, together with any shares of Common
Stock or Preferred Stock acquired by Shareholder after the date of this
Agreement and during the term of the Plan, are collectively referred to as the
"Shareholder Shares").
C. As a significant condition to the willingness of Parent to enter
into the Plan, and as a material inducement to it to do so, Shareholder has
agreed for the benefit of Parent as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Plan.
ARTICLE 11
COVENANTS OF THE SHAREHOLDER
SECTION 2.01. Agreement to Vote. At any meeting of the shareholders of
the Company held prior to the Termination Date (as defined in Section 8.01 of
this Agreement), however called, and at every adjournment thereof prior to the
Termination Date, or in connection with any written consent of the shareholders
of the Company given prior to the Termination Date, Shareholder shall vote the
Shareholder Common Shares and the Shareholder Preferred Shares (a) in favor of
the approval of the Merger and each of the other transactions contemplated by
the Plan and in favor of the approval and adoption of the Plan, and any actions
required in
<PAGE>
furtherance hereof and thereof; (b) against any action or agreement that would,
directly or indirectly, result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Plan; and (c) against any takeover proposal, business
combination or any other action or agreement that, directly or indirectly, is
inconsistent with or that is reasonably likely, directly or indirectly, to
impede, interfere with, delay, postpone or attempt to discourage the Merger or
any other transaction contemplated by the Plan. Shareholder shall not enter into
any agreement or understanding with any person prior to the Termination Date,
directly or indirectly, to vote, grant any proxy or give instructions with
respect to the voting of the Shareholder Shares in any manner inconsistent with
the preceding sentence.
SECTION 2.02. Proxies and Voting Agreements. (a) Shareholder hereby
revokes any and all previous proxies granted with respect to matters set forth
in Section 2.01 for the Shareholder Shares.
(b) Prior to the Termination Date, Shareholder shall not, directly or
indirectly, except as contemplated hereby, grant any proxies or powers of
attorney with respect to matters set forth in Section 2.01, deposit any of the
Shareholder Shares into a voting trust or enter into a voting agreement with
respect to any of the Shareholder Shares, in each case with respect to the
matters set forth in Section 2.01.
SECTION 2.03. Transfer of Shareholder Shares by Shareholder. Prior to
the Termination Date, Shareholder shall not, (a) place any Lien on any of the
Shareholder Common Shares or the Shareholder Preferred Shares, other than
pursuant to this Agreement or the Plan, or (b) sell, convey, transfer or
otherwise dispose of any Shareholder Shares other than a disposition (i) by
operation of law in connection with the Merger, (ii) in the event of the
Shareholder's death, by operation of law pursuant to a will or intestate
succession, or (iii) to a trust, partnership or limited liability company for
benefit of Shareholder or Shareholder's immediate family; provided, however,
that any such transferee shall be subject to the terms of this Agreement. "Lien"
shall mean any lien, encumbrance, encroachment, defect, mortgage, pledge,
liability, option, security interest, conditional sale or other title retention
agreement, assessment, license, covenant, charge, restriction, reservation,
claim, burden, rights or interest whatsoever of any third party.
SECTION 2.04. Dissenters' Rights. Shareholder shall not give notice
pursuant to Section 262 of the DGCL of Shareholder's intent to demand payment
for any of the Shareholder Shares, or take any other action to exercise
dissenters' rights under the DGCL, if the Merger is effectuated.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF SHAREHOLDER
Shareholder represents, warrants and covenants to Parent that:
SECTION 3.01. Ownership. Shareholder is as of the date hereof the sole
beneficial and record owner of the Shareholder Shares (other than the 148,851
owned in trust); Shareholder has the sole right to vote the Shareholder Shares,
including the sole right to vote 148,851 of the Shareholder Common Shares as are
held in trust for the benefit of Shareholder's family; and there are (a) no
restrictions on rights of disposition of the Shareholder Shares, (b) other than
respecting the Shareholder Common Shares identified in Exhibit "A" appended
hereto (the "Encumbered Shareholder Common Shares"), no Liens attaching to the
Shareholder Common Shares, or (c) no Liens encumbering the Shareholder Preferred
Shares. None of the Shareholder Shares is subject to any voting trust or other
agreement, arrangement or restriction with respect to the voting of the
Shareholder Shares.
SECTION 3.02. Authority and Non-Contravention. Shareholder has the
right, power and authority and has been duly authorized by all necessary action
(including consultation, approval or other action by or with any
2
<PAGE>
other person), to execute, deliver and perform this Agreement and consummate the
transactions contemplated hereby.
SECTION 3.03. Binding Effect. This Agreement has been duly executed and
delivered by Shareholder and is the valid and binding agreement of Shareholder,
enforceable against Shareholder in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights generally and by equitable principles
to which the remedies of specific performance and injunctive and similar forms
of relief are subject.
SECTION 3.04. Total Shares. Other than shares of Common Stock which
Shareholder may acquire through the exercise of options or through the
conversion of Preferred Stock into shares of Common Stock, the Shareholder
Shares are the only shares of Common Stock and Preferred Stock of the Company
owned beneficially or of record as of the date hereof by Shareholder, and
Shareholder does not have any option to purchase or right to subscribe for or
otherwise acquire any securities of the Company and has no other interest in or
voting rights with respect to any other securities of the Company.
SECTION 3.05. Finder's Fees. No investment banker, broker or finder is
entitled to a commission or fee from the Company, Parent or Merger Sub in
respect of this Agreement based upon any arrangement or agreement made by or on
behalf of Shareholder, except as otherwise provided in the Plan.
SECTION 3.06. Consent to Agreement. Shareholder shall, not later than
April 11, 1997, using its reasonable best efforts, obtain the consent to this
Agreement of the holder of each of the Lien(s) affecting the Encumbered
Shareholder Common Shares.
SECTION 3.07. Investors Agreement. On or prior to the Closing Date,
Shareholder shall execute and deliver to Parent the Investors Agreement in the
form attached hereto as Exhibit B.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT
Parent represents, warrants and covenants to Shareholder that:
SECTION 4.01. Corporate Power and Authority. Parent has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution, delivery and performance by Parent of this
Agreement and the consummation by Parent of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent.
SECTION 4.02. Binding Effect. This Agreement has been duly executed and
delivered by Parent and is a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights generally and by equitable principles to which the remedies of
specific performance and injunctive and similar forms of relief are subject.
3
<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Expenses. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense;
provided however, that the Company may pay the reasonable costs and expenses of
the Shareholder.
SECTION 5.02. Further Assurances. From time to time, at the request of
Parent, in the case of Shareholder, or at the request of Shareholder, in the
case of Parent, and without further consideration payable by Parent and without
additional payment by Shareholder, each party shall execute and deliver or cause
to be executed and delivered such additional documents and instruments and take
all such further action as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
SECTION 5.03. Specific Performance. Shareholder agrees that Parent
would be irreparably damaged if for any reason Shareholder fails to perform any
of Shareholder's obligations under this Agreement, and that Parent would not
have an adequate remedy at law for money damages in such event. Accordingly,
Parent shall be entitled to seek specific performance and injunctive and other
equitable relief to enforce the performance of this Agreement by Shareholder.
This provision is without prejudice to any other rights that Parent may have
against Shareholder for any failure to perform its obligations under this
Agreement.
SECTION 5.04. Amendments; Termination. This Agreement may not be
modified, amended, altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties hereto. The
representations, warranties, covenants and agreements set forth in Article II
and Sections 3.01 and 3.06 and Article IV shall terminate, except with respect
to liability for prior breaches thereof, upon the termination of the Plan in
accordance with its terms or, if earlier, the Effective Time of the Merger (the
"Termination Date").
SECTION 5.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective estates, heirs, successors and permitted assigns; provided, however,
that a party may not assign, delegate or otherwise transfer any of such party's
rights or obligations under this Agreement without the consent of the other
parties hereto and any purported assignment, delegation or transfer without such
consent shall be null and void and of no force and effect.
SECTION 5.06. Certain Events. Shareholder agrees that this Agreement
and the obligations hereunder shall attach to the Shareholder Shares
beneficially owned by Shareholder and shall be binding upon any person to which
legal or beneficial ownership of such shares shall pass, whether by operation of
law or otherwise.
SECTION 5.07. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
SECTION 5.08. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), or mailed by registered or certified mail
(return receipt requested) to the parties at the addresses set forth in the Plan
or at such address for a party as shall be specified by like notice.
SECTION 5.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware.
4
<PAGE>
SECTION 5.10. Counterparts. This Agreement and any amendments hereto
may be executed in two counterparts, each of which shall be considered one and
the same Agreement and shall become effective when both counterparts have been
signed, it being understood that both parties need not sign the same
counterpart.
SECTION 5.11. Descriptive Headings. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
SECTION 5.12. Severability. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner as
to be effective and valid but if any provision or portion of any provision of
this Agreement is held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability will not affect any other
provision or portion of any provision, and this Agreement will be reformed,
construed and enforced as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein. The parties shall
endeavor in good faith negotiations to replace any invalid, illegal or
unenforceable provision with a valid provision the effects of which come as
close as possible to those of such invalid, illegal or unenforceable provision.
SECTION 5.13. Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements, in addition to any other relief to which such party may be
entitled.
SECTION 5.14. Due Diligence. In the event that Ultrak or Checkpoint
shall terminate the Plan pursuant to Section 8.1 (b)(iv) thereof, then this
Agreement shall immediately and automatically terminate and become null, void
and of no further force or effect.
IN WITNESS WHEREOF, Parent and Shareholder have caused this Agreement
to be duly executed as of the day and year first above written.
CHECKPOINT SYSTEMS, INC.
By: /s/ Kevin P. Dowd
------------------------------------------
Kevin P. Dowd, Chief Executive Officer
/s/ George K. Broady
------------------------------------------
George K. Broady
The undersigned spouse of GEORGE K. BROADY hereby joins in this
Agreement and consents and agrees to the undertakings, covenants and agreements
of the said GEORGE K. BROADY made herein.
/s/ Eleanor Jane Broady
------------------------------------------
Dated: March 11, 1997 Eleanor Jane Broady
<PAGE>
EXHIBIT "A"
-----------
ENCUMBERED SHAREHOLDER COMMON SHARES
No. of Shares Holders of Encumbrances
------------- -----------------------
500,000 - NationsBank of Texas, N.A.
(in the aggregate) - Texas Commerce Bank
- State Street Bank & Trust
- Paine Webber
5
EXHIBIT 11
CHECKPOINT SYSTEMS, INC.
COMPUTATION OF PER SHARE DATA
Years Ended
----------------------------------------
December 29, December 31, December 25,
1996 1995 1994
------------ ------------ ------------
(Thousands, except per share data)
Net Earnings $20,477 $11,409 $ 6,283
======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding:(1)
Common shares
Shares outstanding at
beginning of year 30,020 22,556 21,956
Shares held in treasury (1,598) (1,598) (1,598)
Shares issued from exercise of
common stock options 1,512 888 266
Share issued from Alarmex
acquisition -- 336 --
Shares issued from equity
offering 3,096 4,616 --
Common equivalent shares, based on
assumed exercise of common stock
options 1,057 576 988
------- ------- -------
34,087 27,374 21,612
======= ======= =======
Net Earnings Per Share $ .60 $ .42 $ .29
======= ======= =======
(1) After giving retroactive effect to the February 1996 Stock Split.
EXHIBIT 21
CHECKPOINT SYSTEMS, INC.
SUBSIDIARIES
Checkpoint Systems, Inc. of Puerto Rico, Inc. - Delaware
Checkpoint Caribbean, Inc. - Delaware
Checkpoint FSC, Inc. - Barbados
Electronic Signatures, Inc. - Delaware
Checkpoint International, Inc. - Delaware
Checkpoint Security Systems Group, Inc. - Minnesota
Checkpoint Canada, Inc. - Canada
Checkpoint Systems, S.A. - Argentina
Checkpoint Argentina, S.A. - Argentina
Checkpoint de Mexico, S.A. de C.V. - Mexico
Checkpoint Systems Belgium N.V. - Belgium
Checkpoint Systems France SARL - France
Checkpoint Systems Deutschland - Germany
Checkpoint Systems Nederland B.V. - The Netherlands
Checkpoint Holland Holding B.V. - The Netherlands
Checkpoint Holland Trading B.V. - The Netherlands
Checkpoint Systems Europe B.V. - The Netherlands
Checkpoint Systems International B.V. - The Netherlands
Checkpoint Systems Productie B.V. - The Netherlands
Checkpoint Systems Scandinavia A.B. - Sweden
Checkpoint Systems U.K. Limited - United Kingdom
Checkpoint Systems Australia PTY LTD - Australia
Checkpoint Systems Espana, S.A.- Spain
Checkpoint Actron AG Switzerland - Switzerland
Actron Group Limited and related subsidiaries- United Kingdom
Checkpoint Systems Norge - Norway
Checkpoint Systems Italia s.r.l. - Italy
Checkpoint Portugal Sistemas Anti-Furto, S.A. - Portugal
Checkpoint Portugal II - Sistemas De Seguranca Integrados, S.A. - Portugal
Checkpoint Systems Brazil - Brazil
Checkpoint Systems Japan Co., Ltd. - Japan
2M Security Systems ApS - Denmark
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Checkpoint Systems, Inc. on Forms S-3, Number 333-01085, of our report dated
February 7, 1997 except as to the information presented in note 19, for which
the date is March 12, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Checkpoint Systems, Inc. as of
December 29, 1996 and December 31, 1995, and for each of the three years in the
period ended December 29, 1996, which report is included in this Annual Report
on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000215419
<NAME> CHECKPOINT SYSTEMS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<EXCHANGE-RATE> 1
<CASH> 185,836
<SECURITIES> 0
<RECEIVABLES> 101,173
<ALLOWANCES> 4,282
<INVENTORY> 53,073
<CURRENT-ASSETS> 348,144
<PP&E> 99,813
<DEPRECIATION> 40,602
<TOTAL-ASSETS> 521,653
<CURRENT-LIABILITIES> 62,391
<BONDS> 0
0
0
<COMMON> 3,613
<OTHER-SE> 297,181
<TOTAL-LIABILITY-AND-EQUITY> 521,653
<SALES> 291,769
<TOTAL-REVENUES> 291,769
<CGS> 168,024
<TOTAL-COSTS> 93,676
<OTHER-EXPENSES> (9,365)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,557
<INCOME-PRETAX> 29,877
<INCOME-TAX> 9,430
<INCOME-CONTINUING> 20,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,447
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Steven Gaynes
MALLORY FACTOR. INC.
212/350-0000
March 11, 1997 COMPANY Steven G. Selfridge
CONTACT: CHECKPOINT SYSTEMS, INC.
609/384-2473
COMPANY George K. Broady
CONTACT: ULTRAK, INC.
609/384-2453 (3/12/97)
COMPANY Tim Torno
CONTACT: ULTRAK, INC.
972/280-9625
CHECKPOINT SYSTEMS AND ULTRAK AGREE TO MERGE,
CREATING A PREEMINENT WORLDWIDE ELECTRONIC
SECURITY AND SURVEILLANCE SOLUTIONS FIRM
THOROFARE, NJ - Checkpoint Systems, Inc. (NYSE: CKP) and Ultrak, Inc.
(NASDAQ:ULTK) today announced a definitive agreement to merge, creating a
preeminent worldwide electronic security and surveillance solutions provider
with a market capitalization of approximately $1.3 billion and leading market
positions in three primary businesses - electronic article surveillance (EAS),
integrated closed-circuit television (CCTV) systems and electronic access
control (EAC). Ultrak, headquartered in Carrollton, TX will become a
wholly-owned subsidiary of Checkpoint and continue to operate under the Ultrak
name.
Under the terms of the definitive agreement, unanimously approved by the boards
of both companies, each Ultrak common share will be exchanged for 1.15
Checkpoint common shares. The transaction, which is expected to be completed by
mid-1997, is intended to be treated as a pooling of interests and is expected to
be tax free.
"The combination of Checkpoint and Ultrak is a powerful merger," said Kevin P.
Dowd, Checkpoint's president and CEO. "It is based on two, high growth, highly
profitable companies, providing innovative solutions to customers - asset
protection, safety and integrated security systems applications. The new company
will have a number one or two market position in eight-of-nine discrete business
lines, including Checkpoint's EAS, Ultrak's CCTV, EAC products and systems for
use in security and surveillance, industrial, mobile video, traffic management,
dental and medical, and professional audio applications.
"Checkpoint and Ultrak will be a preeminent force in a $5.3 billion, fast
growing and consolidating market," Mr. Dowd continued. "We will have enhanced
resources and opportunities, including
<PAGE>
Checkpoint and Ultrak Merger
Page 2
access to each other's customers, leading technology and product development
with strong patent positions. In addition, we will have the ability to be the
lowest cost producer of electronic security and surveillance solutions in the
world and we can offer an efficient and effective worldwide product distribution
system second to none in the industry."
Said George K. Broady, Ultrak's chairman, president and CEO, "Ultrak, Inc. will
continue to market and sell its CCTV, access control and audio products through
its traditional distributor/dealer network. However, with the help of
Checkpoint's 350 direct sales people worldwide for EAS creating leads for this
network, we expect to be able to substantially leverage sales of our products
and systems through our marketing channels. I am confident that the combined
companies will continue to significantly outpace industry growth rates."
Steven G. Selfridge, Checkpoint's executive vice president, added, "The cost
reduction opportunities for the new company will be a bonus to the enhanced
resources and opportunities made possible by the merger in the areas of sales
channels and product diversity. We see, over time, large opportunities in the
areas of logistics, manufacturing, purchasing and management information
systems. In addition, the companies' combined balance sheets will result in cash
balances of over $200 million with minimal debt, and a new, unused $200 million
credit facility. This strength will provide the new company with the ability to
acquire businesses in the consolidating markets where Ultrak operates."
The merger is expected to be neutral to 1997 earnings per share and accretive in
1998, calculated exclusive of Checkpoint's CCTV division, which sells direct to
retailers and will be divested because of channel conflict with Ultrak's much
larger distributor/dealer network.
Albert E. Wolf, chairman of Checkpoint, will be chairman of the new company.
Kevin P. Dowd, president and chief executive officer of Checkpoint, will remain
in that capacity for the new company. George K. Broady, chairman, president and
chief executive officer of Ultrak, will be chairman of Checkpoint's Executive
Committee and president of Ultrak. Steven G. Selfridge, executive vice president
of Checkpoint, will assume the responsibilities of chief operating officer of
the new company. William J. Reilly, Jr., senior vice president of Checkpoint,
will assume the responsibilities of president, Checkpoint Retail Systems.
Michael E. Smith, senior vice president of Checkpoint, will become executive
vice president of Global Marketing. All Ultrak management will remain in their
present positions.
The new company's board will be comprised of 12 members (nine from Checkpoint
and three from Ultrak) with one insider from each company.
In connection with the transaction, each company granted the other an option,
exercisable under certain conditions, to acquire shares representing 19.9
percent of its outstanding shares. Checkpoint shareholders will have
approximately 72 percent and Ultrak will have approximately 28 percent of the
new company's shares. The merger is subject to customary closing conditions,
including certain regulatory approvals and the approval of shareholders of both
companies.
<PAGE>
Checkpoint and Ultrak Merger
Page 3
Ultrak, Inc., one of the three largest suppliers of CCTV and related products in
the United States, is also expanding its presence in international markets. The
company designs, manufactures, markets and services CCTV and related products
for use in security and surveillance, industrial, mobile video, traffic
management, dental and medical, and professional audio applications.
Checkpoint Systems, Inc. is a leading provider of integrated security solutions
for retailers worldwide and is the leading provider of radio frequency (RF)
source tagging, which allows its paper-thin RF tags to be embedded into product
packaging.
This press release contains forward-looking statements. Any such statements are
subject to risks and uncertainties that could cause actual results to vary
materially from those anticipated; among these are the two companies' dependence
upon conditions in the security systems industry, the size and resources of many
of the companies' competitors and the need for Checkpoint to effectively
integrate the Ultrak businesses and successfully manufacture and deliver
technologically advanced products. Additional information with respect to these
and other factors which could materially affect the companies is included in the
companies' filings with the Securities and Exchange Commission, included in
Checkpoint's most recent proxy statement, 10-K, 10-Q and Ultrak's most recent
proxy statement, 10-K, 10-Q and registration statement on Form S-3 (No.
333-14545) filed on November 18, 1996. Investors should review the proposed
merger, subsequent 8-K filings and make their own assessment of the combined
companies' prospects.
# # #
EXHIBIT 99.2
===============================================================================
Checkpoint Systems, Inc. adopts new shareholders rights plan
===============================================================================
Mar 13, 1997 8:22 AM [Business Wire]
THOROFARE, N.J. (March 13) BUSINESS WIRE - March 13,1997 -- The Checkpoint
Systems, Inc. board of directors has, effective March 10, 1997, adopted a new
shareholders rights plan covering the next 10 years and has simultaneously
terminated the prior shareholders rights plan, which was adopted in December
1988.
Pursuant to the termination of the 1988 shareholders rights plan, the company
will redeem the rights issued under the 1988 plan to holders as of the close of
business on March 24, 1997 and pay a redemption price of $.005 per right on
April 8, 1997.
Under the new plan, the exercise price of each right has been set at $100 per
right.
"The Board's action is not in response to any known effort to acquire a
controlling interest in Checkpoint," Chairman A.E. Wolf said. Wolf explained
that the Board acted "because of the continuing need to protect the company's
shareholders from unfair takeover techniques which exist in today's environment.
In addition, the prior plan was due to expire next year and the prior plan's
exercise price, compared with the company's common stock market price, was out
of balance."
The shareholder rights plan is included with a Form 10-K that will be filed at
the Securities and Exchange Commission. A copy of the plan can be obtained from
the Commission or by calling the Checkpoint investor relations department at
609/384-2478.
Checkpoint Systems, Inc. is a leading provider of integrated security solutions
for retailers worldwide and is the leading provider of radio frequency (RF)
source tagging, which allows its paper-thin RF tags to be embedded into product
packaging.
Visit Checkpoint's Web Site at:
www.checkpointsystems.com
- --30--MEM/ny*
CONTACT: Neil D. Austin
CHECKPOINT SYSTEMS, INC.
609/384-2412
